- -------------------------------------------------------------------------------

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                                    -------------------

                                    FORM 10-K
                                                   -------------------

(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934

    For the fiscal year ended December 25, 200431, 2005

                                       OR

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

-------------------For the transition period from _____________________ to ______________________


Commission file number 0-18914

                                    R&B, INC.
             Incorporated pursuant to the Laws(Exact name of the Commonwealth ofregistrant as specified in its charter)
                                                   ---------------------

             Pennsylvania                        -------------------

                           IRS -23-2078856
             ------------                        ----------
      (State or other jurisdiction     ( I.R.S.- Employer Identification No. 23-2078856)
            of Incorporation)

               3400 East Walnut Street, Colmar, Pennsylvania 18915
               ---------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (215) 997-1800
                                 --------------
              (Registrant's telephone number, including area code)
                               -------------------
            Securities Registeredregistered pursuant to Section 12(b) of the Act: NONE
Securities Registeredregistered pursuant to Section 12(g) of the Act: Common Stock, $0.01
Par Value
                               -------------------

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes |_| No |X|

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Securities Act Yes |_| No |X|

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant'sregistrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |_|

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, (asor a non-accelerated filer. See definition of "accelerated
filer"and"large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer |_| Accelerated filer |X| Non-accelerated filer
|_|

Indicate by check mark whether the registrant is a shell company(as defined in
the Rule 12b-2 of the Exchange Act Rule 12b-2).Act.) Yes |X||_| No |_||X|


As of March 4, 20057, 2006 the Registrantregistrant had 8,959,29717,747,234 shares of common shares,stock, $.01
par value, outstanding, and the. The aggregate market value of the voting stockand non-voting
common equity held by non-affiliates of the Registrantregistrant was $128,794,048.$102,686,920.70.

                    DOCUMENTS INCORPORATED BY REFERENCE

 PART III - Certain information fromportions of the Registrant'sregistrant's definitive Proxy Statement
forproxy statement, in connection
with its Annual Meeting of Shareholders, presently scheduled to be heldfiled with
the Securities and Exchange Commission within 120 days after December 31, 2005,
are incorporated by reference into Part III of this Annual Report on May 19,
2005.Form 10-K
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------




                             Page 2 of 43






                                   R & B, INC.
                       INDEX TO ANNUAL REPORT ON FORM 10-K
                                DECEMBER 25, 200431, 2005

                                     Part I
                                                                     Page
Item 1.  Business......................................................... 3
               General.................................................... 3Business. . . . . . .  . . . . . . . . . . . . . . . . . . . .4
                  General. . . . . . . . . . . . . . . . . . . . . . . 4
                  The Automotive Aftermarket................................. 3
               Products................................................... 4Aftermarket. . . . . . . . . . . . . .4
                  Products. . . .  . . . . . . . . . . . . . . . . . . 5
                  Product Development........................................ 5Development. . . . . . . . . . . . . . . . . 6
                  Sales and Marketing........................................ 5
               Manufacturing..............................................Marketing. . . . . . . . . . . . . . . . . 6
                  Manufacturing. . . . . . . . . . . . . . . . . . . . 7
                  Packaging, Inventory and Shipping..........................Shipping. . . . . . . . . . 7
                  Competition................................................ 7Competition. . . . . . . . . . . . . . . . . . . . . 8
                  Proprietary Rights......................................... 7
               Employees.................................................. 7
               Risk Factors...............................................Rights. . . . . . . . . . . . . . . . .  8
                  Employees. . . . . . . . . . . . . . . . . . . . . . 8
                  Available Information......................................Information . . . . . . . . . . . . . . .  8
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . .  9
Item 1B. Unresolved Comments . . . . . . . . . . . . . . . . . . . .  10
Item 2.   Properties...................................................... 9Properties. . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3.   Legal Proceedings............................................... 10Proceedings. . . . . . . . . . . . . . . . . . . . . .11
Item 4.   Submission of Matters to a Vote of Security Holders............. 10Holders. . . . .11
Item 4.1 Certain Executive Officers of the Registrant..................... 10Registrant. . . . . . . . .11

                                     Part II

Item 5.  Market for Registrant's Common Equity, and Related Shareholder Matters.............................................. 11Matters
and Issuer Purchases of Equity Securities. . . . . . . . . . . . . . . 12
Item 6.  Selected Financial Data.......................................... 11Data. . . . . . . . . . . . . . . . . . .  12
Item 7.  Management's Discussion and Analysis of Results of Operations and
Financial Condition.................... 12Condition. . . . . . . . . . . . . . . . . . . . . . . . .   13
Item 7A Quantitative7A.Quantitative and Qualitative Disclosure about Market Risk......... 19Risk . . .19
Item 8.  Consolidated Financial Statements and Supplementary Data.........Data. . . 19
Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.............................. 35Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . 36
Item 9A9A. Controls and Procedures........................................... 35Procedures. . . . . . . . . . . . . . . . . . .  36

                                     Part III

Item 10.  Directors and Executive Officers of the Registrant.............. 37Registrant. . . . . .38
Item 11.  Executive Compensation.......................................... 37Compensation. . . . . . . . . . . . . . . . . . . .38
Item 12.  Security Ownership of Certain Beneficial Owners and Management...37Management and
Related Stockholder Matters. . . . . . . . . . . . . . . . . . . .. . .38
Item 13.  Certain Relationships and Related Transactions.................. 38Transactions. . . . . . . .39
Item 14.  Principal Accountant Fees and Services.......................... 38Services . . . . . . . . . . . 39

                                     Part IV
Item 15.  Exhibits and Financial Statement Schedules...................... 38
               Signatures................................................. 41Schedules. . . . . . . . . .39
                  Signatures. . . . . . . . . . . . . . . . . . . . .  42
                  Financial Statement Schedule............................... 42Schedule. . . . . . . . . . . .  43

                                Page 2 of 423 0f 43


                                PART I
Item 1. Business.

General

         R&B, Inc. was incorporated in Pennsylvania in October 1978.  As used
herein, unless the context otherwise requires, "R&B" or the "Company" refers
to R&B, Inc. and its subsidiaries.

         The Company is a leading supplier of original equipment dealer
"exclusive" automotive replacement parts, and fasteners and service line
products primarily for the automotive aftermarket, a market segment which it
helped to establish. The Company designs, packages and markets over 70,00073,000
different automotive replacement parts (including brake parts), fasteners and
service line products manufactured to its specifications, with approximately 35%33%
consisting of original equipment dealer "exclusive" parts and fasteners.
Original equipment dealer "exclusive" parts are those which were traditionally
available to consumers only from original equipment manufacturers or salvage
yards and include, among other parts, intake manifolds, exhaust manifolds, oil
cooler lines, window regulators, radiator fan assemblies, power steeringsteer ing
pulleys and harmonic balancers. Fasteners include such items as oil drain plugs
and wheel lug nuts. Approximately 90% of the Company's products are sold under
its brand names and the remainder are sold for resale under customers' private
labels, other brands or in bulk. The Company's products are sold primarily in
the United States through automotive aftermarket retailers (such as AutoZone,
Advance and O'Reilly), national, regional and local warehouse distributors (such
as Carquest and NAPA) and specialty markets including parts manufacturers for
resale under their own private labels (such as Dana and Federal Mogul) and
salvage yards. Through its Scan-Tech subsidiary,and Hermoff subsidiaries, the Company is
increasing its international distribution of automotive replacement parts, with
sales into Canada, Europe, the Middle East and the Far East.

The Automotive Aftermarket

         The automotive replacement parts market is made up of two components:
parts for passenger cars and light trucks, which accounted for sales of
approximately $190$199 billion in 2004,2005, and parts for heavy duty trucks, which
ac
countedaccounted for sales of approximately $63$70.5 billion in 2004.2005. The Company
currently markets products primarily for passenger cars and light trucks.

         Two distinct groups of end-users buy replacement automotive parts: (i)
individual consumers, who purchase parts to perform "do-it-yourself" repairs on
their own vehicles; and (ii) professional installers, which include automotive
repair shops and the service departments of automobile dealers. The individual
consumer market is typically supplied through retailers and through the retail
arms of warehouse distributors. Automotive repair shops generally purchase parts
through local independent parts wholesalers and through national warehouse
distributors. Automobile dealer service departments generally obtain parts
through the distribution systems of automobile manufacturers and specialized
national and regional warehouse distributors.

         The increasing complexity of automobiles and the number of different
makes and models of automobiles have resulted in a significant increase in the
number of products required to service the domestic and foreign automotive
fleet. Accordingly, the number of parts required to be carried by retailers and
wholesale distributors has increased substantially. These pressures to include
more products in inventory and the significant consolidation among distributors
of automotive replacement parts have in turn resulted in larger distributors.

         Retailers and others who purchase aftermarket automotive repair and
replacement parts for resale are constrainedcon strained to a finite amount of space in
which to display and stock products. Thus, the reputation for quality, customer
service, and line profitability which a supplier enjoys is a significant factor
in a purchaser's decision as to which product


                                Page 4 of 43





lines to carry in the limited space available. Further, because of the
efficiencies achieved through the ability to order all or part of a complete
line of products from one supplier (with possible volume discounts), as opposed
to satisfying the same requirements through a variety of different sources,
retailers and other purchasers of automotive parts seek to purchase products
from fewer but stronger suppliers.

Page 3 of 42

Products

         The Company sells over 70,00073,000 different automotive replacement parts,
fasteners and service line products to meet a variety of needs including
original equipment dealer "exclusive" parts soldparts. In November 2005, the Company
launched its DORMAN(R) NEW SINCE 1918(TM) marketing campaign and repositioned
its brands under the Motormite(R) family
of brands such as the HELP!(R) brand name, a comprehensive array of automotive
and hardware fasteners sold under the Dorman(R) and Pik-A-Nut(R) family of brand
names, service line products sold under the Champ(R) family of brand names and
traditional automotive replacement parts sold under the Company's other brand
names as well as under customers' private label brands. Approximately 90%single corporate umbrella - DORMAN(R) . All of the Company's
revenuesproducts are derived from productsnow sold under its more than seventy
brand names.

Motormite(R) - brand names within the Motormite(R) master brand represent manyone of the Company's original equipment dealer "exclusive" parts, including, among
others, the following:

* HELP!(R)                   - An extensive array of replacement parts,
                             including window handles, knobs and switches, door
                             handles, interior trim parts, headlamp aiming
                             screws and retainer rings, radiator parts, battery
                             hold-down bolts, valve train parts and power
                             steering filler caps

* Conduct-Tite!(R)           - Electrical connectors

* Mighty Flow!(R)            - Air intake, carburetor preheater and defroster
                             duct hoses

* Look!(R)                   - Sideview mirror glass

* Speedi-Boot!TM             - Constant velocity joint boots and clamps

Dorman(R) - brand names within the Dorman(R) master brand represent the
Company's automotive fasteners, original equipment dealer "exclusive" parts and
traditional replacement parts, including, among others, the following:


* Oil-Tite!(R)               - Oil drain plugs and gaskets

*seven DORMAN(R) sub-brands as follows:

DORMAN(R) OE Solutions TMSolutions(TM) - Original equipment dealer
          "exclusive" parts, such as intake manifolds,
          exhaust manifolds, oil cooler lines, window
          regulators, harmonic balances and radiator
           fan assemblies

* Quick-Disconnect TMassemblies.

DORMAN(R) HELP!(R) - Transmission, cooling systemAn extensive array of replacement
          parts, including window handles, and
          fuel system
                             connectors

* Uni-Fit TM                 switches, door hardware, interior trim
          parts, headlamp aiming screws and retainer
          rings, radiator parts, battery hold-down
          bolts and repair kits, valve train parts and
          power steering filler caps

DORMAN(R)- Constant velocity joint boots and clamps

Champ(R) - brand names within the Champ(R) master brand represent the Company's
automotive shop supplies and accessories, including, among others, the
following:

* Metal Work!TMAuto Grade - A comprehensive line of
           application specific and general automotive
           hardware that is a necessary element to a
           complete repair. Product categories include
           body hardware, general automotive fasteners,
           oil drain plugs, and wheel hardware.

DORMAN(R) Conduct-Tite!(R)- Extensive selection of electrical connectors, wire,
                            tools, testers, and accessories.

DORMAN(R) First Stop(TM) - Value priced technician quality brake and clutch
                           program of metal-working related
                             categories, including welding supplies and
                             accessories, cutting equipment and supplies,
                             abrasives and related tools and brushes for hand
                             and power applications

containing more than 8,500 SKU's.

DORMAN(R)Pik-A-Nut(R) - the Pik-A-Nut (R) brand represents the Company's fastenersA specialized and highly
                        efficient line of home hardware and home
                        organization products specifically designed
                        for automotive retail specialty automotivemerchandisers.

DORMAN(R) Scan-Tech(R) - Based in Stockholm, Sweden,
                         DORMAN(R) Scan-Tech(R) sells a complete line
                         of Volvo(R) and mass merchant markets

Platinum Parts TM - the Platinum Parts TM brand represents the Company's
automotiveSaab(R) replacement parts
                         and supplies for salvage yards


                                             Page 4 of 42






Brakeware(R) and Tru-Torque(R) - these brands representthroughout the Company's hydraulic
brake parts, including wheel cylinders and related hardware

Scan-Tech TM -world, reducing the
                         Scan-Tech TM brand representsdependency on the Company's automotive
replacements parts sold internationally, and relate primarily to replacement
parts for Volvo and Saab cars and Scania trucksOE Dealer.

         The remainder of the Company's revenues are generated by the sale of
parts packaged by the Company, or others, for sale in bulk or under the private
labels of parts manufacturers (such as Dana and Federal Mogul) and national warehouse distributors (such as
Carquest and NAPA). During the years ended December 2005, 2004, 2003 and 2002,2003, no
single product or related group of products accounted for more than 10% of gross
sales.

         Substantially all of the parts sold by the Company are covered by a
limited warranty, which provides that the part is free of a manufacturing
defect, under normal use and service. The duration of the limited warranty
varies by the product type, from ninety days to the life of the vehicle on which
the part is originally installed. The sole remedy is the repair or replacement
of the part that fails due to a manufacturing defect.




                               Page 5 of 43


Product Development


         Product development is central to the Company's business. The
development of a broad range of products, many of which are not conveniently or
economically available elsewhere, has in part, enabled the Company to grow to
its present size and is important to its future growth. In developing its
products, the Company's strategy has been to design and package its parts so as
to make them better and easier to install and/or use than the original parts
they replace and to sell automotive parts for the broadest possible range of
uses. Through careful evaluation, exacting design and precise tooling, the
Company is frequently able to offer products which fit a broader range of makes
and models than the original equipment parts they replace, such as an innovative
neoprene replacement oil drain plug which fits not only a variety of Chevrolet
models, but also Fords, Chryslers and a range of foreign makes. This assists
retailers and other purchasers in maximizing the productivity of the limited
space available for each class of part sold. Further, where possible, the
Company improves its parts so they are better than the parts they replace. Thus,
many of the Company's products are simpler to install or use, such as a
replacement "split boot" for a constant velocity joint that can be installed
without disassembling the joint itself and a replacement spare tire hold-down
bolt that is longer and easier to thread than the original equipment bolt it
replaced. In addition, the Company often packages different items in complete
kits to ease installation.

         Ideas for expansion of the Company's product lines arise through a
variety of sources. The Company maintains an in-house product management staff
that routinely generates ideas for new parts and expansion of existing lines.
Fur ther, the Company maintains an "800" telephone number and an Internet site
for "New Product Suggestions" and receives, either directly or through its sales
force, many ideas from the Company's customers as to which types of presently
unavailable parts the ultimate consumers are seeking.

         Each new product idea is reviewed by the Company's product management
staff, as well as by members of the production, sales, finance, marketing and
administrative staffs. In determining whether to produce an individual part or a
line of related parts, the Company considers the number of vehicles of a
particular model to which the part may be applied, the potential for
modifications which will allow the product to be used over a broad range of
makes and models, the average age of the vehicles in which the part would be
used and the failure rate of the part in question. This review process winnows
the many new product suggestions to those most likely to enhance the Company's
existing product lines or to support new product lines.

Sales and Marketing

         The Company markets its parts to three groups of purchasers who in turn
supply individual consumers and professional installers:

                  (i) Approximately 46%45% of the Company's revenues are generated
         from sales to automotive aftermarket retailers (such as AutoZone,
         Advance and O'Reilly), local independent parts wholesalers


                                             Page 5 of 42

 and national
         general merchandise chain retailers. The Company sells some of its
         products to virtually all major chains of automotive aftermarket
         retailers;

                  (ii) Approximately 27%30% of the Company's revenues are generated
         from sales to warehouse distributors (such as Carquest and NAPA), which
         may be local, regional or national in scope, and which may also engage
         in retail sales; and

                  (iii) The balance of the Company's revenues (approximately
         25%) are generated from international sales and sales to special
         markets, which include, among others, mass merchants (such as
         Wal-Mart), salvage yards and the parts distribution systems of parts
         manufacturers.

         The Company utilizes a number of different methods to sell its
products. The Company's more than 2530 person direct sales force solicits
purchases of the Company's products directly from customers, as well as managing
the activities


                                Page 6 of 1543





of 17 independent manufacturer's representative agencies. The Company uses
independent manufacturer's representative agencies to help service existing
retail and warehouse distribution customers, providing frequent on-site contact.
The sales focus is designed to increase sales by adding new product lines and
expanding product selection within existing customers and secure new customers.
For certain of its major customers, and its private label purchasers, the
Company relies primarily upon the direct efforts of its sales force, who,
together with the marketing department and the Company's executive officers,
coordinate the more complex pricing and ordering requirements of these accounts.

         The Company's sales efforts are not directed merely at selling
individual products, but rather more broadly towards selling groups of related
products that can be displayed on attractive Company-designed display systems,
thereby maximizing each customer's ability to present the Company's product line
within the confines of the available area.

         The Company prepares a number of catalogs, application guides and
training materials designed to describe the Company's products and other
applications as well as to train the customers' salesmen in the promotion and
sale of the Company's products. Every two to three years the Company prepares a
new master catalog which lists all of its products. The catalog is updated
periodically through supplements.

         The Company currently services more than 2,500 active accounts. During
2005, 2004, 2003 and 2002,2003 two customers (AutoZone and Advance) each accounted for
more than 10% of net sales and in the aggregate accounted for 31%, 34%, 31% and 36%31%
of net sales, respectively.

Manufacturing

         Substantially all of the products sold by the Company are manufactured
to its specifications by third parties. Because numerous contract manufacturers
are available to manufacture its products, the Company is not dependent upon the
services of any one contract manufacturer or any small group of them. No one
vendor supplies more than 10% or more of the Company's products. In 2004,2005, as a
percentage of the total dollar volume of purchases made by the Company,
approximately 40%35% of the Company's products were purchased from various
suppliers throughout the United States and the balance of the Company's products
were purchased directly from a variety of foreign countries.

         Once a new product has been developed, the Company's engineering
department produces detailed engineering drawings and prototypes which are used
to solicit bids for manufacture from a variety of vendors in the United States
and abroad. After a vendor is selected, tooling for a production run is produced
by the vendor at the Company's expense. A pilot run of the product is produced
and subjected to rigorous testing by the Company's engineering department and,
on occasion, by outside testing laboratories and facilities in order to evaluate
the precision of manufacture and the resiliency and structural integrity of the
materials used. If acceptable, the product then moves into full production.

Page 6 of 42

Packaging, Inventory and Shipping

         Finished products are received at one or more of the Company's
facilities, depending on the type of part. SamplesIt is the Company's practice to
inspect samples of each shipment are testedshipments based upon receipt.vendor performance. If cleared, these
shipments of finished parts are logged into the Company's computerized
production tracking systems and staged for packaging.

         The Company employs a variety of custom-designed packaging machines
for
"blister packaging," in which individual parts are dropped into plastic
"blister" cups to which a preprinted card backing with appropriate graphics is
sealed,include blister sealing, skin film sealing, clamshell sealing, bagging and
for "skinning," in which parts are pre-positioned on a printed card
backing, over which a malleable plastic "skin" is laid and fixed by vacuum- and
heat-treatment processes. In either event, the printed cardboxing lines. Packaged product contains the Company's label (or a private
label), a part number, a universal packaging bar code suitable for electronic
scanning, a description of the part and appropriate installation instructions.
Products are also sold in bulk to automotive parts manufacturers and packagers.
Computerized tracking systems, mechanical counting devices and experienced
workers combine to assure that the proper variety and number of parts meet the
correct packaging and backing materials at the appropriate places and times to produce the
required quantities of finished products.

         Completed inventory is stocked in the warehouse portions of the
Company's facilities and is stored and organized according to historical popularity in
orderfacilitate the most
efficient methods of retrieving product to aid in retrieval for shipping.fill customer orders. The Company
strives to maintain a


                                 Page 7 of 43





level of inventory to adequately meet current customer order demand with
additional inventory to satisfy new customer orders and special programs. In the aggregate,
this has resultedThe
Company maintains a "safety stock" of inventory to compensate for fluctuations
in approximately a one month supply of its products, packageddemand and readily available for shipment, and a two month supply of product in
finished bulk form ready for packaging.delivery.

         The Company ships its products from all of its locations, either by
contract carrier, common carrier or parcel service. Products are generally
shipped to the customer's centralmain warehouse for redistribution within their
network. In certain circumstances, at the request of the customer, the Company
ships directly to the customer's stores.stores either via smaller direct ship orders or
consolidated store orders that are cross docked.


Competition

         The replacement automotive parts industry is highly competitive.
Various competitive factors affecting the automotive aftermarket are price,
product quality, breadth of product line, range of applications and customer
service. Substantially all of the Company's products are subject to competition
with similar products manufactured by other manufacturers of aftermarket
automotive repair and replacement parts. Some of these competitors are divisions
and subsidiaries of companies much larger than the Company, and possess a longer
history of operations and greater financial and other resources than the
Company. Further, some of the Company's private label customers also compete
with the Company.

Proprietary Rights

         While the Company takes steps to register its trademarks when possible,
it does not believe that trademark registration is generally important to its
business. Similarly, while the Company actively seeks patent protection for the
products and improvements which it develops, it does not believe that patent
protection is generally important to its business.

Employees

         At December 25, 2004,31, 2005, the Company had 880879 employees, of whom 849858 were
employed full-time and 3121 were employed part-time. Of these employees, 584559 were
engaged in production, inventory, or quality control, 6289 were involved in
volved inengineering, product development and brand management, 7160 were employed in sales
and order entry, and the remaining 163,164, including the Company's 7 executive
officers, were devoted to administration, finance, legal, and strategic
planning.



                                             Page 7 of 42



         No domestic employees are covered by any collective bargaining
agreement. Approximately 30 employees at the Company's Swedish subsidiary are
governed by a national union. The Company considers its relations with its
employees to be generally good.

Risk Factors

        Increasing Service Life. Advancing technology and competitive pressures
have compelled original equipment automobile and parts manufacturers to use
parts with longer service lives, which are covered by longer and more
comprehensive warranties. This may have the effect of reducing demand for the
Company's products by delaying the onset of repair conditions requiring their
use.

        Competition for Shelf Space. Since the amount of space available to a
retailer and other purchasers of the Company's products is limited, the
Company's products compete with other automotive aftermarket products, some of
which are entirely dissimilar and otherwise non-competitive (such as car waxes
and engine oil), for shelf and floor space. No assurance can be given that
additional space will be available in a customers' stores to support expansion
of the number of products offered by the Company.

        Concentration of Sales to Certain Customers. A significant percentage of
the Company's sales have been, and will continue to be, concentrated among a
relatively small number of customers. During 2004, 2003 and 2002, two customers
(AutoZone and Advance) each accounted for more than 10% of net sales and in the
aggregate accounted for 34%, 31% and 36% of net sales, respectively. The Company
anticipates that this concentration of sales among customers will continue in
the future. The loss of a significant customer or a substantial decrease in
sales to such a customer could have a material adverse effect on the Company's
sales and operating results. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and "Business-Sales and
Marketing."

        Concentrations of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable. All cash equivalents and
short-term investments are managed within established guidelines which limit the
amount which may be invested with one issuer. A significant percentage of the
Company's accounts receivable have been, and will continue to be concentrated
among a relatively small number of automotive retailers and warehouse
distributors in the United States. The Company's five largest customers
accounted for 77% and 70% of total accounts receivable as of December 25, 2004
and December 27, 2003, respectively. Management continually monitors the credit
terms and credit limits to these and other customers.

        Customer Terms. The automotive aftermarket has been consolidating over
the past several years. As a result, many of the Company's customers have grown
larger and therefore have more leverage in negotiations with the Company.
Recently, customers have pressed for extended payment terms and returns of slow
moving product when negotiating with the Company. While the Company does its
best to avoid such concessions, in some cases payment terms to customers have
been extended and returns of product have exceeded historical levels. The
product returns primarily affect the Company's profit levels while terms
extensions generally reduce operating cash flow and require additional capital
to finance the business. Management expects both of these trends to continue for
the foreseeable future.

        Foreign Currency Fluctuations. In 2004, approximately 60% of the
Company's products were purchased from a variety of foreign countries. The
products generally are purchased through purchase orders with the purchase price
specified in U.S. dollars. Accordingly, the Company does not have exposure to
fluctuations in the relationship between the dollar and various foreign
currencies between the time of execution of the purchase order and payment for
the product. However, the recent weakness in the dollar has resulted in pressure
from several foreign suppliers to increase prices. To the extent that the dollar
decreases in value to foreign currencies in the future or the present weakness
in the dollar continues for a sustained period of time, the price of the product
in dollars for new purchase orders may increase.

        The Company makes significant purchases of product from Chinese vendors.
The Chinese Yuan exchange rate has been fixed against the U.S. Dollar since
1998. Recently, the Chinese government has been under increasing pressure


                                             Page 8 of 42





to revalue its currency, or to make its exchange rate more flexible. Most
experts believe that the value of the Yuan would increase relative to the U.S.
Dollar if it was revalued or allowed to float. Such a move would most likely
result in an increase in the cost of products that are purchased from China.

        Dependence on Senior Management. The success of the Company's business
will continue to be dependent upon Richard N. Berman, Chairman of the Board,
President and Chief Executive Officer and Steven L. Berman, Executive Vice
President, Secretary-Treasurer and Director. The loss of the services of one or
both of these individuals could have a material adverse effect on the Company's
business.

        Dividend Policy.  The Company does not intend to pay cash dividends for
the foreseeable future. Rather, the Company intends to retain its earnings, if
any, for the operation and expansion of the Company's business.

        Control by Officers, Directors and Family Members. Richard N. Berman and
Steven L. Berman, who are officers and directors of the Company, their father,
Jordan S. Berman, and their brothers, Marc H. Berman and Fred B. Berman,
beneficially own approximately 42% of the outstanding Common Stock and are able
to elect the Board of Directors, determine the outcome of most corporate actions
requiring shareholder approval (including certain fundamental transactions) and
control the policies of the Company.

 Available Information

         Our internet address is www.rbinc.com. The information on this website
is not and should not be considered part of this Form 10-K and is not
incorporated by reference in this Form 10-K. This website is, and is only
intended to be, for reference purposes only. We make available free of charge on
our web site our annual report on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC. In addition, we will provide, at no cost, paper or electronic copies of
our reports and other filings made with the SEC. Requests should be directed to:
R&B, Inc. - Office of General Counsel, 3400 East Walnut Street, Colmar,
Pennsylvania 18915.




                                  Page 8 of 43


Item 1A. Risk Factors


         Increasing Service Life. Advancing technology and competitive pressures
have compelled original equipment automobile and parts manufacturers to use
parts with longer service lives, which are covered by longer and more
comprehensive warranties. This may have the effect of reducing demand for the
Company's products by delaying the onset of repair conditions requiring their
use.
         Competition for Shelf Space. Since the amount of space available to a
retailer and other purchasers of our products is limited, our products compete
with other automotive aftermarket products, some of which are entirely
dissimilar and otherwise non-competitive (such as car waxes and engine oil), for
shelf and floor space. No assurance can be given that additional space will be
available in a customers' stores to support expansion of the number of products
that we offer.

         Concentration of Sales to Certain Customers. A significant percentage
of our sales has been, and will continue to be, concentrated among a relatively
small number of customers. During 2005, 2004, and 2003, two customers (AutoZone
and Advance) each accounted for more than 10% of net sales and in the aggregate
accounted for 31%, 34%, and 31% of net sales, respectively. We anticipate that
this concentration of sales among customers will continue in the future. The
informationloss of a significant customer or a substantial decrease in sales to such a
customer could have a material adverse effect on the website listed above, is notour sales and should not be
considered partoperating
results. See "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and "Business-Sales and Marketing." sections of this annual report on Form
10-K Annual Report.

         Concentrations of Credit Risk. Financial instruments that potentially
subject us to concentrations of credit risk consist primarily of cash and is not incorporated by
reference in this document. This website is,cash
equivalents and is only intendedaccounts receivable. All cash equivalents are managed within
established guidelines which limit the amount which may be invested with one
issuer. A significant percentage of our accounts receivable have been, and will
continue to be concentrated among a relatively small number of automotive
retailers and warehouse distributors in the United States. Our five largest
customers accounted for 77% of total accounts receivable as of December 31, 2005
and December 25, 2004. Management continually monitors the credit terms and
credit limits to these and other customers.

         Customer Terms. The automotive aftermarket has been consolidating over
the past several years. As a result, many of our customers have grown larger and
therefore have more leverage in negotiations. Customers press for extended
payment terms and returns of slow moving product when negotiating with us. While
we do our best to avoid such concessions, in some cases payment terms to
customers have been extended and returns of product have exceeded historical
levels. The product returns primarily affect our profit levels while terms
extensions generally reduce operating cash flow and require additional capital
to finance the business. We expect both of these trends to continue for the
foreseeable future.

         Foreign Currency Fluctuations. In 2005, approximately 65% of our
products were sold in a variety of foreign countries. The products generally are
purchased through purchase orders with the purchase price specified in U.S.
dollars. Accordingly, we do not have exposure to fluctuations in the
relationship between the dollar and various foreign currencies between the time
of execution of the purchase order and payment for the product. However,
weakness in the dollar has resulted in some materials price increases and
pressure from several foreign suppliers to increase prices. To the extent that
the dollar decreases in value to foreign currencies in the future or the present
weakness in the dollar continues for a sustained period of time, the price of
the product in dollars for new purchase orders may increase further.

         We make significant purchases of product from Chinese vendors. Prior to
2005, the Chinese Yuan exchange rate has been fixed against the U.S. Dollar
since 1998. In July 2005, the Chinese government announced an inactive textual reference.immediate 2%
revaluation of the Yuan against the U.S. Dollar and that going forward it will
allow the Yuan to fluctuate against a basket of currencies. Since that time the
Yuan has strengthened another 1% against the U.S. Dollar. Most experts believe
that the value of the Yuan will increase further relative to the U.S. Dollar
over the next few years. Such a move would most likely result in an increase in
the cost of products that are purchased from China.

         Dependence on Senior Management.  The success of our business will
continue to be dependent upon Richard N. Berman, Chairman of the Board,
President and Chief Executive Officer and Steven L. Berman, Executive Vice


                                 Page 9 of 43





President, Secretary-Treasurer and Director. The loss of the services of one or
both of these individuals could have a material adverse effect on our business.
         Dividend Policy. We do not intend to pay cash dividends for the
foreseeable future. Rather, we intend to retain our earnings, if any, for the
operation and expansion of our business.
         Control by Officers, Directors and Family Members. As of March 7, 2006,
Richard N. Berman and Steven L. Berman, who are officers and directors of R&B,
Inc., their father, Jordan S. Berman, and their brothers, Marc H. Berman and
Fred B. Berman beneficially own approximately 41% of the outstanding Common
Stock and are able to elect the Board of Directors, determine the outcome of
most corporate actions requiring shareholder approval (including certain
fundamental transactions) and control the policies of the Company.

Item 1B.  Unresolved Staff Comments.
         There are no unresolved comments from the Commission staff regarding
the Company's periodic or current reports under the Securities Act.

Item 2.  Properties.

Facilities

The Company currently has 1013 warehouse and office facilities located throughout
the United States, Canada, Sweden, China and Korea. ThreeTwo of these facilities are
owned and the remainder are leased. The Company's headquarters and principal
warehouse facilities are as follows:

Location                   Description
- -------------------        ---------------------------------------------------------------
Colmar, PA                 Warehouse and office - 334,000 sq. ft. (leased) (1)
Warsaw, KY                 Warehouse and office - 362,000 sq. ft. (owned)
Louisiana, MO              Warehouse and office - 90,000 sq. ft. (owned)
Baltimore, MD              Warehouse and office - 83,000 sq. ft. (leased)
Hagersville, ON            Manufacturing, warehouse, and office 37,000 sq. ft.
                           (leased) (2)
Portland, TN               Warehouse and office - 269,000 sq. ft. (leased)

In the opinion of management, the Company's existing facilities are in good
condition.
- -----------------
(1) Leased by the Company from a partnership of which Richard N. Berman,
President and Chief Executive Officer of the Company, and Steven L. Berman,
Executive Vice President of the Company, their father, Jordan S. Berman, and
their brothers, Marc H. Berman and Fred B. Berman, are partners. Under the lease
the Company paid rent of $3.63$3.75 per square foot ($1.21.3 million per year) in 2004.2005.
The rents payable will be adjusted on January 1 of each year to reflect annual
changes in the Consumer Price Index for All Urban Consumers - U.S. City Average,
All Items. In 2002,


                                             Page 9 of 42

 the lease term was extended and will expire on December 31,
2007. In the opinion of management, the terms of this lease are no less
favorable than those which could have been obtained from an unaffiliated party.

(2) In June 2005, the Company acquired The Automotive Edge/Hermoff (Hermoff) for
approximately $1.7 million. As part of the acquisition of Hermoff, the Company
leased the existing facility from an Ontario corporation of which Arthur Bluhm,
President of Hermoff, and Robert Bluhm, Vice President of Hermoff, are
shareholders. Under the lease the Company paid rent of $58,275 Canadian in 2005.
The term of the lease is for a period of 2 years beginning June 1, 2005 and
ending May 31, 2007. In the opinion of management, the terms of this lease are
no less favorable than those which could have been obtained from an unaffiliated
party.

                        Page 10 of 43

Item 3.  Legal Proceedings.

         In additionThe Company is a party to commitments and obligations whichor otherwise involved in legal proceedings
that arise in the ordinary course of business, the Company is subject tosuch as various claims and legal
actions
from time to time involving contracts, competitive practices, trademark rights, product
liability claims and other matters arising out of the conduct of the Company's
business. In the opinion of management, none of the actions, individually or in
the aggregate, would likely have a material financial impact on the Company.

Item 4.  Submission of Matters to a Vote of Security Holders.

         There were no matters submitted to a vote of the security holders of
the Company during the fourth quarter of fiscal year 2004.2005.

Item 4.1 Certain Executive Officers of the Registrant.

         The following table sets forth certain information with respect to the
executive officers of the Company:

Name                   Age      Position with the Company

- ------------------    -----    ---------------------------------------------
Mathias J. Barton      4546        Senior Vice President, Chief Financial Officer

Joseph M. Beretta      5051        Senior Vice President, Product

Richard N. Berman      4849        President, Chief Executive Officer, Chairman
                                 of the Board of Directors, and Director

Steven L. Berman       4546        Executive Vice President, Secretary-Treasurer,
                                 and Director

Fred V. Frigo          4849        Senior Vice President, Operations

Donald J. Barry        D. Myers         4543        Senior Vice President of Sales and Trade
                                 Marketing

Thomas J. Knoblauch    50        Vice President, General Counsel and Assistant
                                 Secretary


         Mathias J. Barton joined the Company in November 1999 as Senior Vice
President, Chief Financial Officer. Prior to joining the Company, Mr. Barton was
Senior Vice President and Chief Financial Officer of Central Sprinkler
Corporation, a manufacturer and distributor of automatic fire sprinklers, valves
and component parts. From May 1989 to September 1998, Mr. Barton was employed by
Rapidforms, Inc., most recently as Executive Vice President and Chief Financial
Officer. He is a graduate of Temple University.

         Joseph M. Beretta joined the Company in January 2004 as Senior Vice
President, Product.  Prior to joining the Company, Mr. Beretta was employed by
Cardone Industries, Inc., most recently as its Chief Operating Officer.  Cardone
is a remanufacturer and supplier of automotive replacement parts.  He is a
graduate of Oral Roberts University.

         Richard N. Berman has been President, Chief Executive Officer and a
Director of the Company since its incep tion in October 1978. He is a graduate
of the University of Pennsylvania.

         Page 10 of 42

Steven L. Berman has been Executive Vice-President, Secretary-Treasurer
and a Director of the Company since its inception. He attended Temple
University.

         Fred V. Frigo joined the Company in March 1997 as Director, Operations
and was named Senior Vice President, Operations in September 2003. Prior to
joining the Company, Mr. Frigo was the Plant Manager for Cooper Industries
(Federal Mogul), where he was responsible for their Wagner Brake Plant in Boston
and following that the Wagner Lighting Operations in Boyertown Pennsylvania. He
is a graduate of Elmhurst College.

                             Page 11 of 43

         Donald J. Barry D. Myers has been an employee ofjoined the Company since March 1988, and
was Vice President, General Counsel and Assistant Secretary for more than five
years. In December 1999, Mr. Myers was namedin July 2005 as Senior Vice
President General
Counselof Sales and Assistant Secretary.Trade Marketing. Prior to joining the Company he was
European Business Director for 3M Company where he was responsible for Consumer
and Office business operations. He is a graduate of Moravian CollegeUniversity of
Wisconsin-Whitewater.

         Thomas J Knoblauch joined the Company in April 2005 as Vice President
and SyracuseGeneral Counsel. In May 2005, Mr. Knoblauch was appointed Assistant
Secretary. Prior to joining the Company he was Corporate Counsel at SunGard Data
Systems, Inc. and General Counsel at Rosenbluth International, Inc. He is a
graduate of Widener University, CollegeChester, PA, St. Joseph's University in
Philadelphia, PA, and the Widener University School of Law, andLaw. Mr. Knoblauch is a
member of both the Pennsylvania and New York Bar.

                                   PART II

Item 5.  Market for Registrant's Common Equity, and Related Shareholder Matters.Matters and
Issuer Purchases of Equity Securities.

         The Company's shares of common stock are traded publicly in the
over-the-counter market underon the NASDAQ system. At March 4, 20057, 2006 there were 151154
holders of record of common stock, representing more than 1,5001,700 beneficial
owners. The last price for the Company's common stock on March 4, 2005,7, 2006, as
reported by NASDAQ, was $26.98$9.86 per share. Since the Company's initial public
offering, it has paid no cash dividends. The Company does not presently
contemplate paying any such dividends in the foreseeable future. The range of
high and low sales prices for the Company's common stock for each quarterly
period of 20042005 and 20032004 are as follows:

                                 2005 (1)                    2004 2003
                   -----------------------  -----------------------(1)
                       ---------------------------- --------------------------
                           High           Low           High          Low
- ------------------ -------------------------------  ------------ ------------------------- -------------  ------------
First Quarter          $18.90       $14.73        $10.42       $8.84$13.75         $12.03           $9.450         $7.37
Second Quarter          19.99        18.00         11.24        9.6514.46          10.00            10.00          9.00
Third Quarter           20.64        19.00         14.00       10.5514.50           9.04            10.32          9.50
Fourth Quarter          27.50        20.55         15.09       12.5512.62           9.35            13.75          10.28

(1)   Amounts have been restated to reflect a two-for-one split of the
Company's common stock on March 28, 2005.

         For the information regarding the Company's compensation plans, see
Item 12, Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.

Item 6.  Selected Financial Data.

                                             Selected Consolidated Financial Data
Year Ended December ------------- -------------------------------------------------------------------------------- ---------------------------------------------------------------------------- (in thousands, except per share datadata) 2005 2004 2003 2002(a) 2001 2000 (b) - ----------------------------- ------------- -------------------------------------------------- ----------------- ---------------- -------------- ----------------------------------- ----------------- ------------------ Statement of Operations Data: Net sales $278,117 $249,526 $222,083 $215,524 $201,668 $201,390 Income from operations (c)(b) 29,776 29,638 24,052 23,133 12,266 12,308 Net income (c)(b) 17,077 17,081 13,304 12,357 5,229 4,095 Earnings per share (b) Basic (c) Basic $1.93 $1.54 1.4 0.61 0.49$0.95 $0.97 0.77 0.73 0.31 Diluted $1.86 $1.47 1.3 0.60 0.48 Page 11 of 42 (c) $0.93 $0.93 0.73 0.69 0.30 Balance Sheet Data: Total assets 212,156 195,404 176,606 170,128 163,163 159,879 Working capital 115,812 101,585 98,452 91,340 81,068 83,262 Long-term debt 27,243 25,714 35,213 44,218 53,511 65,066 Shareholders' equity 138,542 125,227 105,985 89,572 75,162 72,384 (a) Results for 2002 include a gain on sale of specialty fastener business of $2,143 ($1,329 after tax or $0.15$0.07 per share). (b) Results for 2000 include non-recurring revenues and gain on sale of product line of $5,500 and $1,600 ($1,100 after tax or $0.13 per share), respectively. (c) The Company adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," at the beginning of fiscal 2002. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization. The following table presents certain financial data for fiscal 20022005 and all periods prior to fiscal 2002periods. Fiscal 2001 has been adjusted to exclude amortization of goodwill and the related tax effects: Year Ended December -------------- ----------------------------------------------------------------------------- -------------------------------------------------------------------------- 2005 2004 2003 2002 2001 2000 Income from operations $29,638$29,776 $ 29,638 $ 24,052 $ 23,133 $ 13,891 $ 13,970 Net income $17,081$17,077 $ 17,081 $ 13,304 $ 12,357 $ 6,293 $ 5,185 Diluted earnings per share $ 1.860.93 $ 1.47 $ 1.380.93 $ 0.73 $ 0.6130.69 $ 0.37 (c) All prior period per share amounts have been retroactively adjusted to reflect a two-for-one stock split of the Company's common stock effective March 28, 2005.
Page 12 of 43 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Financial Condition. Executive SummaryOperations. Overview The Company is a leading supplier of original equipment dealerOriginal Equipment (OE) Dealer "Exclusive" automotive replacement parts, automotive hardware, brake products, and household hardware to the automotive aftermarket and mass merchandise markets. Dorman automotive parts and hardware are marketed under the OE Solutions(TM), HELP!(R), AutoGrade(TM), First Stop(TM), Conduct-Tite(R), and Pik-A-Nut(R) brand names. The Company designs, packages and markets over 73,000 different automotive replacement parts (including brake parts), fasteners and service line products manufactured to its specifications. Approximately 90% of the automotive aftermarketCompany's products are sold under its brand names and household hardware to the general merchandise markets.remainder are sold for resale under customers' private labels, other brands or in bulk. The Company's products are marketed under more than seventy proprietary brand names, through its Motormite, Dorman, Allparts, Scan-Tech, MPI and Pik-A-Nut businesses. For the year ended December 25, 2004, net sales increased 12% to $249.5 million from $222.1 millionsold primarily in the same period last year.United States through automotive aftermarket retailers (such as AutoZone, Advance and O'Reilly), national, regional and local warehouse distributors (such as Carquest and NAPA) and specialty markets including parts manufacturers for resale under their own private labels and salvage yards. Through its Scan-Tech and Hermoff subsidiaries, the Company is increasing its international distribution of automotive replacement parts, with sales into Canada, Europe, the Middle East and the Far East. The sales growth was drivenautomotive aftermarket in which the Company competes has been growing in size; however, the market continues to consolidate. As a result, the Company's customers regularly seek more favorable pricing, product returns and extended payment terms when negotiating with the Company. While the Company does its best to avoid such concessions, in some cases payment terms to customers have been extended and returns of product have exceeded historical levels. The product returns and more favorable pricing primarily byaffect the Company's profit levels while terms extensions generally reduce operating cash flow and require additional capital to finance the business. Management expects both of these trends to continue for the foreseeable future. The Company has focused on new product development which is a key to the Company's growth strategy. Gross margin remained essentially unchanged at 37.1% in 2004 from 37.0% in 2003. Operating expenses increased at a slower rate than sales growth and therefore declined as a percentageway to offset some of net sales to 25.2%. Many of the Company's operating expenses are fixed in naturethese customer demands and therefore did not increase in proportion to net salesas its primary vehicle for growth. As a result, net income increased 28% to $17.1 million in 2004. Newsuch, new product development is a critical success factor for the Company. The Company has invested heavily in resources necessary for it to increase its new product development efforts and to strengthen its relationships with its customers. These investments are primarily in the form of increased product development resources and awareness programs, customer service improvements and increased customer credits and allowances. This has enabled the Company to provide an expanding array of new product offerings and grow its revenues. The automotive aftermarket has been consolidating over the past several years. As a result, manyPage 13 of the Company's customers have grown larger and therefore have more leverage in negotiations with the Company. Recently, customers have pressed for extended payment terms and returns of slow moving product when negotiating with the Company. While the Company does its best to avoid such concessions, in some cases payment terms to customers have been extended and returns of product have exceeded historical levels. The product returns primarily affect the Company's profit levels while terms extensions generally reduce operating cash flow and require additional capital to finance the business. Management expects both of these trends to continue for the foreseeable future. Page 12 of 4243 The Company may experience significant fluctuations from quarter to quarter in its results of operations due to the timing of orders placed by the Company's customers. Generally, the second and third quarters have the highest level of customer orders, but the introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter. The Company operates on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year. The fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003 are fifty-three, fifty-two, and fifty-two weeks, respectively. Stock Split All prior period common stock and applicable share and per share amounts have been retroactively adjusted to reflect a two-for-one split of the Company's Common Stock effective March 28, 2005. Acquisition In June 2005, the Company acquired The Automotive Edge/Hermoff ("Hermoff") for approximately $1.7 million. The consolidated results include Hermoff since June 1, 2005. The Company has not presented pro forma results of operations for the years ended December 31, 2005, December 25, 2004 and December 28, 2002 were each fifty- two week27, 2003, assuming the acquisition had occurred at the beginning of the respective periods, as these results would not have been materially different than actual results for the periods. Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. The Company regularly evaluates its estimates and judgments, including those related to revenue recognition, bad debts, customer credits, inventories, goodwill and income taxes. Estimates and judgments are based upon historical experience and on various other assumptions believed to be accurate and reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. The Company believes the following critical accounting policies affect its more significant estimates and judgments used in the preparation of its consolidated financial statements: Allowance for Doubtful Accounts. The preparation of the Company's financial statements requires management to make estimates of the collectability of its accounts receivable. Management specifically analyzes accounts receivable and historical bad debts, customer creditworthiness, current economic trends and changes in customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts. A significant percentage of the Company's accounts receivable havehas been, and will continue to be, concentrated among a relatively small number of automotive retailers and warehouse distributors in the United States. The Company's five largest customers accounted for 77% and 70% of net accounts receivable as of December 25, 200431, 2005 and December 27, 2003, respectively.25, 2004. A bankruptcy or financial loss associated with a major customer could have a material adverse effect on the Company's sales and operating results. The Company's allowance for doubtful accounts amounted to $1.1 million and $1.2 million as of December 25, 200431, 2005 and December 27, 2003, respectively.25, 2004. Revenue Recognition and Allowance for Customer Credits. Revenue is recognized from product sales when goods are shipped, title and risk of loss have been transferred to the customer and collection is reasonably assured. Net sales are calculated by subtracting allowancesThe Company records estimates for customer credits from gross revenues. Allowances for customer credits include costs forcash discounts, product returns and warranties, discounts and promotional rebates givenin the period of the sale ("Customer Credits"). The provision for Customer Credits is recorded as a reduction from gross sales and reserves for Customer Credits are shown as a reduction of accounts receivable. Amounts billed to customers who purchase new products for inclusionshipping and handling are included in their stores,net sales. Costs associated with shipping and thehandling are included in cost of competitors' products that are purchasedgoods Page 14 of 43 sold. Actual Customer Credits have not differed materially from the customer in order to induce a customer to purchase new product lines from the Company. The Company providesestimated amounts for customer credits and potential returns at the time of sale. Management must make estimates of the ultimate value of customer credits that will be issued for future product returns and sales allowances granted to induce customers to purchase products from the Company. Management analyzes historical returns, current economic conditions and changes in demand and acceptance of the Company's products when evaluating the adequacy of its reserves for customer credits. Management judgements and estimates must be made and used in connection with establishing reserves for customer credits in any accounting period. Material differences in the amount and timing of customer credits for anyeach period may result if management made different judgments or utilized different estimates for the reserves.presented. Reserves for customer credits were $19.5$21.6 million and $16.5$19.5 million as of December 25, 200431, 2005 and December 27, 2003,25, 2004, respectively. Excess and Obsolete Inventory Reserves. Management must make estimates of potential future excess and obsolete inventory costs. The Company provides reserves for discontinued and excess inventory based upon historical demand, forecasted usage, estimated customer requirements and product line updates. The Company Page 13 of 42 maintains contact with its customer base in order to understand buying patterns, customer preferences and the life cycle of its products. Changes in customer requirements are factored into the reserve needs as needed. Reserves for excess and obsolete inventory were $8.2$9.6 million and $8.5$8.2 million as of December 25, 200431, 2005 and December 27, 2003,25, 2004, respectively. Goodwill. The Company has adoptedfollows the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 specifies that goodwillThe Company employs a discounted cash flow analysis and a market comparable approach in conducting its impairment tests. Cash flows are discounted at 12% and an earnings multiple of 5.75 to 6.0 times EBITDA is no longer amortized but instead is subject to periodic impairment testing. As a result, the Company no longer amortizes goodwill.used when conducting these tests. The Company has completed the impairment tests required by SFAS No. 142, which did not result in an impairment charge. Goodwill was $29.4$29.6 million and $29.1$29.4 million at December 25, 200431, 2005 and December 27, 2003,25, 2004, respectively. Income Taxes. The Company follows the liability method of accounting for deferred income taxes. Under this method, income tax expense is recognized for the amount of taxes payable or refundable for the current year and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity's financial statements or tax returns. The Company must make assumptions, judgments and estimates to determine its current provision for income taxes and also its deferred tax assets and liabilities and any valuation allowance to be recorded against a deferred tax asset. Management's judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, its interpretation of current tax laws and possible outcomes of current and future audits conducted by tax authorities. Changes in tax laws or management's interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts provided for income taxes in the Company's consolidated financial statements. Management's assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could render management's current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate. Any of the assumptions, judgments and estimates mentioned above could cause the Company's actual income tax obligations to differ from its estimates. Results of Operations The following table sets forth, for the periods indicated, the percentage of net sales represented by cer taincertain items in the Company's Consolidated Statements of Operations.
Percentage of Net Sales ---------------------------------------------------------------------------------------------------------------------------- Year Ended ---------------------------------------------------------------------------------------------------------------------------- December 31, December 25, December 27, December 28,2005 2004 2003 2002 - ----------------------------- ------------------ ---------------- ------------------------------------------------------- ---------------------- -------------------- ----------------------- Net sales 100.0% 100.0% 100.0% Cost of goods sold 64.5 62.9 63.0 63.3 - ----------------------------- ------------------ ---------------- ------------------------------------------------------- ---------------------- -------------------- ----------------------- Gross profit 35.5 37.1 37.0 36.7 Selling, general and administrative expenses 24.8 25.2 26.2 27.0 Gain on sale of specialty fastener business - - (1.0) - ----------------------------- ------------------ ---------------- ------------------------------------------------------- ---------------------- -------------------- ----------------------- Income from operations 10.7 11.9 10.8 10.7 Interest expense, net 0.9 1.2 1.5 1.8 - ----------------------------- ------------------ ---------------- ------------------------------------------------------- ---------------------- -------------------- ----------------------- Income before taxes 9.8 10.7 9.3 8.9 Provision for taxes 3.7 3.9 3.3 3.2 - ----------------------------- ------------------ ---------------- ------------------------------------------------------- ---------------------- -------------------- ----------------------- Net income 6.1% 6.8% 6.0% 5.7% ============================= ================== ================ ======================================================= ====================== ==================== =======================
Page 1415 of 4243 Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 25, 2004 Net sales increased 11% to $278.1 million in 2005 from $249.5 million in 2004. Revenues in 2005 were up primarily as a result of continued growth in new product sales. An additional week's sales in 2005 and the June 2005 acquisition of Hermoff accounted for approximately 1% of the sales growth. Cost of goods sold, as a percentage of net sales, increased from 62.9% in 2004 to 64.5% in 2005. The primary reasons for the increase in cost of goods sold as a percentage of sales were a continued mix shift toward lower margin automotive hard parts and a $1.8 million increase in the provision for excess and slow moving inventory reserves in 2005. Selling, general and administrative expenses in 2005 increased 10% to $69.1 million from $62.9 million. The expense increase was the result of inflationary cost increases, an increase in variable operating expenses due to sales volume growth and the Company's decision to invest more resources in new product development which resulted in higher spending for product management, purchasing, engineering and quality control in 2005. During 2005, the Company also increased the use of its accounts receivable sale facilities. Financing costs associated with the sale of accounts receivable are recorded as operating expenses and amounted to $1.2 million and $0.3 million in 2005 and 2004, respectively. Interest expense, net decreased to $2.6 million in 2005 from $2.9 million in 2004 due to lower overall borrowing rates in 2005. The primary reason for the lower borrowing rates was a reduction in the outstanding principal of the Company's 6.81% Senior Notes, which was replaced with revolving credit borrowings at a lower interest rate. The Company's effective tax rate increased to 37.1% in 2005 from 36.2% in 2004 due to the loss of certain state tax benefits in 2005 as a result of changes in state tax legislation and lower earnings from the Company's Swedish subsidiary where tax rates are lower than the statutory rate in the United States. Fiscal Year Ended December 25, 2004 Compared to Fiscal Year Ended December 27, 2003 Net sales increased 12% to $249.5 million in 2004 from $222.1 million in 2003. This sales increase is primarily the result of 2004 new product introductions and year over year volume growth from products introduced in the prior year. The favorable effects of foreign currency exchange resulted in a 1% year over year increase in sales. Cost of goods sold, as a percentage of net sales, remained essentially flat at 62.9% in 2004 compared to 63.0% in 2003. The favorable effect of a change in sales mix was offset by approximately $1.3 million in incremental expediting costs incurred to maintain satisfactory customer fill rates in the second half of 2004 as a result of material shortages for certain items and higher than planned demand. Overall material costs were down slightly in 2004, although the Company experienced price increases in several product lines in the second half of the year as a result of raw materials price increases. Selling, general and administrative expenses in 2004 increased 8% to $62.9 million from $58.2 million. The expense increase was at a slower rate than sales as many of the Company's operating expenses are fixed in nature and therefore did not increase in proportion to sales growth. The increase in expenses was the result of inflationary cost increases, an increase in variable operating expenses due to the sales volume growth and further investments by the Company in its new product development capabilities. Interest expense, net decreased to $2.9 million in 2004 from $3.4 million in 2003 due to lower borrowing levels in 2004. The primary reason for the lower borrowing levels in 2004 was a reduction in the outstanding principal of the Company's 6.81% Senior Notes. In August 2004, the Company made the third of seven annual installment payments of $8.6 million due under the terms of its Senior Note Agreements. This installment payment was funded with cash on hand rather than new debt. The Company's effective tax rate increased to 36.2% in 2004 from 35.7% in 2003 as a result of higher incremental tax rates on 2004's higher earnings level. 2003 Compared to 2002 Net sales increased 3% to $222.1 million in 2003 from $215.5 million in 2002. This sales increase is all volume related as the Company had no net selling price increases in 2003. Sales volume in 2003 increased as a resultPage 16 of several successful new product introductions and shipments to new customers for the Company's Allparts brake and Pik-A-Nut home hardware businesses. The favorable effects of foreign currency exchange resulted in a 2% year over year increase in sales. These sales increases were partially offset by a decline in sales volume in the Company's Swedish subsidiary due to the weak U.S. dollar. In addition, fourth quarter 2002 sales benefitted from over $4 million in one-time sales related to customer inventory builds and 2002 sales included $2.1 million in revenues from the specialty fastener business prior to its sale in May 2002. Sales growth for fiscal 2003 after adjusting for foreign exchange, the specialty fastener sale and the one-time sales described above was 4%. Cost of goods sold, as a percentage of net sales, declined to 63.0% in 2003 from 63.3% in 2002. The overall decline in cost of goods sold as a percentage of sales was the net result of three primary factors. First, production and materials cost reduction initiatives resulted in cost savings that lowered cost of sales. This benefit was offset by provisions for customer credits that increased as a percentage of sales in 2003 as a result of higher customer return levels in 2003 and a sales mix shift towards more lower-gross margin product sales. Selling, general and administrative expenses in 2003 were held to $58.2 million, which is the same level of spending as in 2002 despite additional investments in product development resources, inflationary cost increases and 3% sales volume growth in 2003. This was achieved through the implementation of a number of cost saving measures which reduced overhead spending. Costs in 2002 also included $0.7 million in non- recurring net costs associated with the closure of one of the Company's smaller distribution facilities. Page 15 of 4243 Interest expense, net decreased to $3.4 million in 2003 from $3.9 million in 2002 due to lower borrowing levels in 2002. The primary reason for the lower borrowing levels in 2003 was a reduction in the outstanding principal of the Company's 6.81% Senior Notes. In August 2003, the Company made the second of seven annual installment payments of $8.6 million due under the terms of its Senior Note Agreements. This installment payment was funded with cash on hand rather than new debt. The Company's effective tax rate increased slightly to 35.7% in 2003 from 35.6% in 2002. Liquidity and Capital Resources Historically, the Company has financed its growth through a combination of cash flow from operations, accounts receivable sales programs provided by certain customers and through the issuance of senior indebtedness through its bank credit facility and senior note agreements. At December 25, 2004,31, 2005, working capital was $101.6$115.8 million, total long-term debt (including the current portion)portion and revolving credit borrowings) was $34.8$35.8 million and shareholders' equity was $125.2$138.5 million. Cash and short-term investmentscash equivalents as of December 25, 200431, 2005 totaled $7.2$2.9 million. Over the past threeseveral years the Company has extended payment terms to certain customers as a result of customer requests and market demands. These extended terms have resulted in increased accounts receivable levels and significant uses of cash flow. The Company participates in accounts receivable factoringsales programs with several customers which allow it to sell its accounts receivable on a non-recourse basis to financial institutions to offset the negative cash flow impact of these payment terms extensions. As of December 31, 2005 and December 25, 2004, respectively, the Company had sold $23.2 million and $18.0 million in accounts receivable under these programs and had removed them from its balance sheet.sheets. The Company expects continued pressure to extend its payment terms for the foreseeable future. Further extensions of customer payment terms will result in additional uses of cash flow or increased costs associated with the sale of accounts receivable. During 2004, the Company announced its decision to invest approximately $5.5 million to automate its recently-expanded central distribution facility in Warsaw, Kentucky. Most of this spending was incurred in 2004. This initiative is expected to be completed in the second quarter of 2005. Once completed, this project is expected to generate significant efficiency improvements and improved customer service capabilities for the Company's Dorman business. Total capital spending in 20042005 was $12.8 million as a result of the automation of the Warsaw facility, a 77,200 square foot expansion of the Warsaw facility early in the year, increased tooling costs for new products and other capital projects.$7.2 million. Capital spending in 20052006 is expected to be between $8.0$7.0 and $10.0 million, which is down from 2004's level, but up over historic levels due primarily to increased spending on tooling for new products, which have become more complex over the past few years.$9.0 million. Long-term debt consists primarily of $34.3$25.7 million in Senior Notes that were originally issued in August 1998, in a private placement on an unsecured basis ("Notes"). The Notes bear a 6.81% fixed interest rate, payable quarterly. Annual principal payments of $8.6 million are due each August through 2008. The Notes require, among other things, that the Company maintain certain financial covenants relating to debt to capital ratios and minimum net worth. The Company maintains a $10.0$20.0 million Revolving Credit Facility which expires in June 2005.2007. Borrowings under the amended facility are on an unsecured basis with interest at rates ranging from LIBOR plus 65 basis points to LIBOR plus 150 basis points.points based upon the achievement of certain benchmarks related to the ratio of funded debt to EBITDA. The interest rate at December 31, 2005 was LIBOR plus 85 basis points (5.24%). Borrowings under the facility were $10.1 million as of December 31, 2005. The loan agreement also contains covenants, the most restrictive of which pertain to net worth and the ratio of debt to EBITDA. The average amount outstanding under the facility in 2004 was $0.4 million. The maximum amount outstanding in 2004 was $7.0 million. In addition, the Company's Swedish subsidiary maintains a short-term $0.7 million credit facility. There were no borrowings outstanding under these facilities as of December 25, 2004. In November 2001, the Company amended certain agreements related to its 1998 acquisition of Scan-Tech USA/Sweden A.B. and related entities ("Scan-Tech") in exchange for consideration of approximately $3.2 million to be paid in installments through December 31, 2005. The Company paid $0.5 million of this amount in both 2004 and 2003. The remaining amount payable of $0.5 million is due to an entity controlled by Page 16 of 42 the President of Scan-Tech. The Company's business activities do not include the use of unconsolidated special purpose entities, and there are no significant business transactions that have not been reflected in the accompanying financial statements. The Company has future obligations for debt repayments, future minimum rental and similar commitments under noncancellable operating leases as well as contingent obligations related to outstanding letters of credit. These obligations as of December 25, 200431, 2005 are summarized in the tables below:
Payments Due by Period ------------------------------------------------------------------------------------------------------------------------ Less than Contractual Obligations Total 1 year 1-3 years 4-5 years After 5 years - ---------------------------------- ------------- ----------- ----------- ----------- --------------------------------------------------------- --------------- --------------- -------------- -------------- ------------------ Long-term borrowings $ 34,75935,814 $ 9,0458,571 $ 25,71427,243 $ - $ - Operating leases 7,643 2,267 4,707 532 137 ------------- ----------- ----------- ----------- ----------------6,460 2,662 3,620 175 3 --------------- --------------- -------------- -------------- ------------------ $ 42,402 $11,31242,274 $11,233 $ 30,42130,863 $ 532175 $ 137 ============= =========== =========== =========== ================3 =============== =============== ============== ============== ================== On January 31, 2006, the Company entered into an industrial building lease with an unrelated party to rent 268,253 feet of additional warehouse and production space in Portland, TN. The initial lease term is for ten years. The Company may, at its option, terminate the lease without any further liability after seven years by giving the landlord six months notice and paying a termination fee. Total annual rent expense in the first year of the lease will be $0.6 million. Amount of Commitment Expiration Per Period ------------------------------------------------------------------------------------------------------------------------ Total Amount Amounts Less than Other Commercial Commitments Committed 1 year 1-3 years 4-5 years Over 5 years - ---------------------------------- ------------- ----------- ----------- ----------------------------------------------------- --------------- --------------- -------------- --------------- ----------------- Letters of credit $ 1,7671,618 $ 1,7671,618 $ - $ - $ - ------------- ----------- ----------- ------------ --------------- --------------- -------------- --------------- ----------------- $ 1,7671,618 $ 1,7671,618 $ - $ - $ - ============= =========== =========== ============ =============== =============== ============== =============== =================
The Company reported a net source of cash flow from its operating activities of $3.9$3.6 million in fiscal 2004. The primary uses of cash flow were accounts receivable and inventory, which increased $16.4 million and $9.7 million, respectively. Accounts receivable grew as a result of higher sales and the impact of the continuing trend towards longer payment terms to certain customers. Inventory increased as a result of the sales increase in 2004, and as a result of management's decision to increase levels of inventory safety stock in the third quarter of 2004.2005. Net income depreciation and a $5.4 million increase in accounts payabledepreciation were the primary sources of operating cash flow in fiscal 2004.2005. The payables increase was primarily theprimary uses of cash flow were inventory and accounts receivable. Inventory utilized $12.3 million in cash in 2005 as a result of higher levelsinventory purchased to support new product initiatives and $2.0 million of inventory purchasesplaced on consignment to one customer in 2005. Accounts receivable resulted in a net use of cash of $4.2 million. Higher sales of accounts receivable under accounts receivable sales programs offset a portion of the accounts receivable impact of sales growth and capital spending.the continued trend towards longer payment terms to certain customers. Investing activities used $2.9$8.9 million of cash in fiscal 2004. Additions2005 as a result of $7.2 million in additions to property, plant and equipment required $12.8and $1.7 million ofin cash as a result ofutilized to purchase Hermoff. The Company's largest 2005 capital project is the Company's automation and expansion of its central distribution center in Warsaw, Kentucky,Kentucky. This project began in 2004 and was originally expected to be completed in early 2005 at a cost of $5.0 million. Scope changes and other factors are now expected to delay completion of the project until the second quarter of 2006, and total costs are now expected to be approximately $6.8 million. Capital spending in 2005 also included tooling costs associated with new products, upgrades to information systems, purchases of equipment designed to improve operational efficiencies and scheduled equipment replacements. The Company previously purchased highly liquid corporate and government bonds with maturities from nine months to one year to take advantage of higher earnings rates on these investments. These investments had been classified as short-term investments as required by generally accepted accounting principles. The Company reported a net source of cash of $9.9 million during the year related to the net proceeds from investments. Financing activities required $9.0generated $1.1 million in cash in fiscal 2004. These uses were primarily2005 as proceeds of $10.1 million from the result ofCompany's amended revolving credit facility offset cash used to make the scheduled August 2005 repayment of $8.6 million on the Company's Senior Notes in August 2004.Notes. The Company believes that cash and short-term investments on hand and cash generated from operations together with its available sources of capital are sufficient to meet its ongoing cash needs for the foreseeable future. Page 17 of 42 Foreign Currency Fluctuations In 2004,2005, approximately 60%65% of the Company's products were purchased fromin a variety of foreign countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, the Company does not have exposure to fluctuations in the relationship between the dollar and various foreign currencies between the time of execution of the purchase order and payment for the product. However, recent weakness in the dollar has resulted in some materials price increaseincreases and pressure from several foreign suppliers to increase prices further. To the extent that the dollar decreases in value to foreign currencies in the future or the present weakness in the dollar continues for a sustained period of time, the price of the product in dollars for new purchase orders may increase further. The Company makes significant purchases of product from Chinese vendors. ThePrior to 2005, the Chinese Yuan exchange rate has been fixed against the U.S. Dollar since 1998. Recently,In July 2005, the Chinese government announced an immediate 2% revaluation of the Yuan against the U.S. Dollar and that going forward it will allow the Yuan to fluctuate against a basket of currencies. Since that time the Yuan has been under increasing pressure to revalue its currency, or to make its exchange rate more flexible.strengthened another 1% against the U.S. Dollar. Most experts believe that the value of the Yuan wouldwill increase further relative to the U.S. Dollar if it was revalued or allowed to float.over the next few years. Such Page 17 of 43 a move would most likely result in an increase in the cost of products that are purchased from China. Impact of Inflation The Company has not generally been adversely affected by inflation, althoughexperienced increases in the Company did experience some material cost increasesof materials and transportation costs as a result of raw materials shortages.shortages and commodity price increases in 2004 and increases in the cost of crude oil in 2005. These increases did not have a material impact on the Company. The Company believes that further cost increases could potentially be mitigated by passing along price increases to customers or through the use of alternative suppliers or resourcing purchases to other countries, however there can be no assurance that the Company will be successful in such efforts. Recent Accounting Pronouncements In December 2004,May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, "Accounting Changes and Error Corrections". SFAS No. 154 is a replacement of APB No. 20 and FASB Statement No. 3. SFAS No. 154 provides guidance on the accounting for the reporting of Financial Accounting Standards (SFAS)accounting changes and error corrections. It establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The reporting of a correction of an error by restating previously issued financial statements is also addressed by SFAS No. 154. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt this pronouncement beginning in fiscal year 2006. In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment" (SFAS No. 123R). This Statement is a revision of SFAS No. 123 and supersedes Accounting Principles Board (APB)APB No. 25 and its related implementation guidance. SFAS No. 123R requires a company to measure the grant-date fair value of equity awards given to employees in exchange for services and recognize that cost over the period that such services are performed. SFAS No. 123R iswill effective for the first interim or annual reporting period that begins after June 15, 2005, the Company's third fiscal quarter.in 2006. The Company is currently evaluating the two methods of adoption allowed by SFAS No. 123R: the modified-prospective transition method and the modified-retrospective transition method. While the Company has not yet determined the precise impact that this statement will have on its financial condition and results of operations for fiscal 2005,2006, assuming future annual stock option awards are comparable to prior years annual awards and the Black-Scholes method is used to compute the value of the awards, the annualized impact on diluted earnings per share is expected to be consistent with our pro forma SFAS No. 123 disclosures. In December 2004, the FASB issued two FASB Staff Positions (FSP) regarding the accounting implications of the American Jobs Creation Act of 2004. The Company is assessing the impact, if any, thatadoption of FAS No. 109-1, "Application of FASB Statement No. 109 'Accounting for Income Taxes' to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" and FSP No. 109-2 "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" willdid not have any effect on the Company's effective tax rate in 2005. In December 2004, the FASB issued SFAS No. 151 "Inventory Costs, an Amendment of ARB No. 43, Chapter 4". SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material and requires that these items be recognized as current period charges. SFAS No. 151 applies only to inventory costs incurred during periods beginning after the effective date and also requires that the allocation of fixed production overhead to conversion costs be based on the normal capacity Page 18 of 42 of the production facilities. SFAS No. 151 is effective for the Company's fiscal year beginning January 1, 2006. The Company is currently assessing the impact, if any, ofdoes not anticipate that the adoption of the provisions of SFAS No. 151.No.151 will have a material effect on the results of operations in 2006. In December 2004, the FASB issued SFAS No. 153 "Exchanges of Non-monetary Assets, An Amendment of APB Opinion No. 29". SFAS No. 153 eliminates the exception for exchange of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 isbecame effective for non-monetary assets and exchanges occurring in fiscal periods beginning after June 15, 2005, the Company's third fiscal quarter. As the Company does not engage in exchanges of non-monetary assets, the Company does not anticipate that implementation of this statement willdid not have an impact on its financial condition or results of operations. In December 2003, the FASB issued Revised Interpretation No. 46, "ConsolidationPage 18 of Variable Interest Entities - an interpretation of Account Research Bulletin No. 51." FIN No. 46R addresses the consolidation by business enterprises of variable interest entities, as defined in the Interpretation. FIN No. 46R expands existing accounting guidance regarding when a company should include in its financial statements the assets, liabilities and activities of another entity. Since the Company does not have any interests in variable interest entities, the adoption of FIN No. 46R did not have any effect on the Company's consolidated financial condition or results of operations.43 Cautionary Statement Regarding Forward Looking StatementsStatement. Certain statements periodically made by or on behalf of the Company and certain statements contained herein including statements in Management's Discussion and Analysis of Financial Condition and Results of Operation; certain statements contained in Business, such as statements regarding litigation; and certain other statements contained herein regarding matters that are not historical fact are forward looking statements (as such term is defined in the Securities Act of 1933)1933 and the Securities Exchange Act of 1934), and because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. Factors that cause actual results to differ materially include but are not limited to those factors discussed in "Business -"Item 1A Risk Factors." Item 7A. Quantitative and Qualitative Disclosure about Market Risk The Company's market risk is the potential loss arising from adverse changes in interest rates. With the exception of the Company's revolving credit facility, long-term debt obligations are at fixed interest rates and denominated in U.S. dollars. The Company manages its interest rate risk by monitoring trends in interest rates as a basis for determining whether to enter into fixed rate or variable rate agreements. Under the terms of the Company's revolving credit facility and customer-sponsored programs to sell accounts receivable, a change in either the lender's base rate or LIBOR would affect the rate at which the Company could borrow funds thereunder. The Company believes that the effect of any such change would be minimal. Short-term fixed income investments are subject to interest rate and credit risk. The Company believes that the negative effect of interest rate risk would be minimal as all investments have maturities of one year or less... Item 8. Financial Statements and Supplementary Data. The financial statement schedules of the Company that are filed with this Report on Form 10-K are listed in Item 15(a)(2), Part IV, of this Report. Page 19 of 42 Report of Independent Registered Public Accounting Firm The Board of Directors R&B, Inc.: We have audited the accompanying consolidated balance sheets of R&B, Inc. and subsidiaries as of December 25, 200431, 2005 and December 27, 200325, 2004 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 25, 2004.31, 2005. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) . Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of R&B, Inc. and subsidiaries as of December 25, 200431, 2005 and December 27, 2003,25, 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 25, 2004,31, 2005, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of R&B, Inc. and subsidiaries''s internal control over financial reporting as of December 25, 2004,31, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 7, 200513, 2006 expressed an unqualified opinion on management's assessment of, and the effective operation of, internal control over financial reporting. KPMG LLP Philadelphia, Pennsylvania March 7, 200513, 2006 Page 2019 of 4243 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended ------------------------------------------------------------------------------------------------------------------- December 31, December 25, December 27, December 28, (in thousands, except per share data) 2005 2004 2003 2002 - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Sales $278,117 $249,526 $222,083 $215,524 Cost of goods sold 179,253 157,004 139,875 136,321 - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Gross profit 98,864 92,522 82,208 79,203 Selling, general and administrative expenses 69,088 62,884 58,156 58,213 Gain on sale of specialty fastener business - - (2,143) - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Income from operations 29,776 29,638 24,052 23,133 Interest expense, net of interest income of $22, $103, and $198 and $4112,615 2,853 3,376 3,931 - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 27,161 26,785 20,676 19,202 Income taxes 10,084 9,704 7,372 6,845 - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Net Income $ 17,077 $ 17,081 $ 13,304 $ 12,357 ================================================================================================================================================================================================================================================== Earnings Per Share: Basic $ 1.930.95 $ 1.540.97 $ 1.460.77 Diluted $ 1.860 93 $ 1.470.93 $ 1.38 ===============================================================================================================0.73 Weighted Average Shares Outstanding: Basic 8,845 8,647 8,48717,914 17,690 17,294 Diluted 9,184 9,050 8,948 ===============================================================================================================
18,437 18,368 18,101 =================================================================================================================================== See accompanying notes to consolidated financial statements. Page 2120 of 4243 R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 25,31, December 27,25, (in thousands, except share data) 2005 2004 2003 - ------------------------------------------------------------------------ --------------- ------------------------------------------------------------------------------------------------------ ------------------ ----------------- Assets Current Assets: Cash and cash equivalents $ 7,1522,944 $ 15,177 Short-term investments - 9,9057,152 Accounts receivable, less allowance for doubtful accounts and customer credits of $22,728 and $20,575 and $17,72164,778 60,962 44,127 Inventories 75,535 61,436 51,170 Deferred income taxes 9,560 8,417 7,493 Prepaids and other current assets 1,545 1,609 1,356 - ------------------------------------------------------------------------ --------------- ------------------------------------------------------------------------------------------------------ ------------------ ----------------- Total current assets 154,362 139,576 129,228 - ------------------------------------------------------------------------ --------------- ------------------------------------------------------------------------------------------------------ ------------------ ----------------- Property, Plant and Equipment, net 27,473 25,698 17,590 Goodwill 29,617 29,410 29,125 Other Assets 704 720 663 - ------------------------------------------------------------------------ --------------- ------------------------------------------------------------------------------------------------------ ------------------ ----------------- Total $ 212,156 $ 195,404 $ 176,606 ======================================================================== =============== ====================================================================================================== ================== ================= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 9,0458,571 $ 8,5719,045 Accounts payable 14,739 15,599 10,029 Accrued compensation 6,727 8,028 7,379 Other accrued liabilities 8,513 5,319 4,797 - ------------------------------------------------------------------------ --------------- ------------------------------------------------------------------------------------------------------ ------------------ ----------------- Total current liabilities 38,550 37,991 30,776Other Long-Term Liabilities 626 - ------------------------------------------------------------------------ --------------- --------------- Long-Term Debt 27,243 25,714 35,213 Deferred Income Taxes 7,195 6,472 4,632 Commitments and Contingencies (Note 10) Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued and outstanding 8,935,96417,749,583 and 8,762,99417,871,928 shares 89 88177 179 Additional paid-in capital 34,749 33,95033,138 34,659 Cumulative translation adjustments 1,270 3,509 2,148 Retained earnings 103,957 86,880 69,799 - ----------------------------------------------------------------------- --------------- --------------- Total shareholders' equity 138,542 125,227 105,985 - ------------------------------------------------------------------------ --------------- ------------------------------------------------------------------------------------------------------ ------------------ ----------------- Total $ 212,156 $ 195,404 $ 176,606 ======================================================================== =============== ===============
======================================================================================= ================== ================= See accompanying notes to consolidated financial statements. Page 22 of 4243 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock ----------------------------------------- Additional Cumulative Shares Par Paid-In Translation Retained (in thousands, except share data) Issued Value Capital Adjustments Earnings Total - ------------------------------------------------ ----------- ------------------------------------------------------- ------------------------------- -------------- --------------- ------------ ------------- ---------- ---------------- Balance at December 29, 2001 8,466,482 $ 85 $ 32,501 $ (1,562) $44,138 $ 75,162 Common stock issued to Employee Stock Purchase Plan 1,652 - 12 - - 12 Compensation expense on stock option issuance - - 363 - - 363 Shares issued under Incentive Stock Plan 32,936 - 61 - - 61 Comprehensive Income: Net income - - - - 12,357 12,357 Currency translation adjustments - - - 1,617 - 1,617 ---------- Total comprehensive income 13,974 - ------------------------------------------------ ----------- ---------- ------------ ------------- ---------- ---------- Balance at December 28, 2002 8,501,070 85 32,93717,002,140 $170 $ 32,852 $ 55 56,495$56,495 $ 89,572 Common stock issued to Employee Stock Purchase Plan 5681,136 - 5 - - 5 Compensation expense on stock option issuance - - 21 - - 21 Shares issued under Incentive Stock Plan 261,356 3 483522,712 5 481 - - 486 Tax benefit of stock option exercises - - 504 - - 504 Comprehensive Income: Net income - - - - 13,304 13,304 Currency translation adjustments - - - 2,093 - 2,093 ------------------ Total comprehensive income 15,397 - ------------------------------------------------ ----------- ---------- ------------ ------------- ---------- --------------------------------------------------------------------------------------------------------------------------------------------- Balance at December 27, 2003 8,762,994 88 33,95017,525,988 175 33,863 2,148 69,799 105,985 Common stock issued to Employee Stock Purchase Plan 5541,108 - 10 - - 10 Appreciation on shares redistributed to 401(k) plan - - 96 - - 96 Shares issued under Incentive Stock Plan 172,416 1 65344,832 4 62 - - 66 Tax benefit of stock option exercises - - 628 - - 628 Comprehensive Income: Net income - - - - 17,081 17,081 Currency translation adjustments - - - 1,361 - 1,361 ----------------- Total comprehensive income 18,442 - ------------------------------------------------ ----------- ---------- ------------ ------------- --------- ---------------------------------------------------------------------------------------------------------------------------------------------- Balance at December 25, 2004 8,935,964 $89 $34,749 $3,509 $86,880 $125,227 ================================================ =========== ==========17,871,928 179 34,659 3,509 86,880 125,227 Common stock issued to Employee Stock Purchase Plan 709 - 7 - - 7 Appreciation on shares redistributed to 401(k) plan - - 191 - - 191 Shares issued under Incentive Stock Plan 66,955 - 105 - - 105 Tax benefit of stock option exercises - - 247 - - 247 Purchase and cancellation of common stock (190,009) (2) (2,071) - - (2,073) Comprehensive Income: Net income - - - - 17,077 17,077 Currency translation adjustments - - - (2,239) - (2,239) --------- Total comprehensive income 14,838 Balance at December 31, 2005 17,749,583 $177 $33,138 $1,270 $103,957 $138,542 ========================================================== ============== ============ ============= ======================= =============== =========== See accompanying notes to consolidated financial statements.
Page 23 of 4243 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended ------------------ ------------------- ---------------------------------------- ----------------------- -------------------- December 31, December 25, December 27, December 28, (in thousands) 2005 2004 2003 2002 - --------------------------------------------------- ------------------ ------------------- -------------------------------------------------------------------------------- ---------------------- ----------------------- -------------------- Cash Flows from Operating Activities: Net income $ 17,077 $ 17,081 $ 13,304 $ 12,357 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,774 4,545 4,640 5,560 Provision for doubtful accounts 233 110 504 737 Provision for deferred income tax (473) 916 1,285 11 Provision for non-cash stock compensation - 21 363 Gain on sale of specialty fastener business - - (1,329)21 Changes in assets and liabilities: Accounts receivable (4,192) (16,391) 4,806 (13,339) Inventories (12,261) (9,669) (2,766) (2,351) Prepaids and other current assets 9 (148) 173 28 Other assets 8 66 (119) 516 Accounts payable (888) 5,380 (1,862) 3,101 2762,1012 Accrued compensation and other liabilities (1,717) 1,976 757 (593) - --------------------------------------------------- ------------------ ------------------- -------------------------------------------------------------------------------- ---------------------- ----------------------- -------------------- Cash provided by operating activities 3,570 3,866 20,743 5,061 - --------------------------------------------------- ------------------ ------------------- -------------------------------------------------------------------------------- ---------------------- ----------------------- -------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (7,220) (12,801) (5,598) (3,543) Purchase of short-term investments - (4,821) (11,492) (22,795) Proceeds from maturities of short-term investments - 14,726 15,589 8,793 Proceeds from litigation settlement and saleBusiness acquisition, net of specialty fastener business, netcash acquired (1,680) - - 7,374 - --------------------------------------------------- ------------------ ------------------- ------------------ Cash used in investing activities (8,900) (2,896) (1,501) (10,171) - --------------------------------------------------- ------------------ ------------------- -------------------------------------------------------------------------------- ---------------------- ----------------------- -------------------- Cash Flows from Financing Activities: Repayment of long-term debt obligations (9,071) (9,071) (9,725) (11,483)Net proceeds from revolving credit facility 10,100 - - Proceeds from common stock issuances 93 76 491 73 - --------------------------------------------------- ------------------ ------------------- -------------------------------------------------------------------------------- ---------------------- ----------------------- -------------------- Cash used inprovided by (used in) financing activities 1,122 (8,995) (9,234) ( 11,410) - --------------------------------------------------- ------------------ ------------------- -------------------------------------------------------------------------------- ---------------------- ----------------------- -------------------- Net (Decrease)Increase in Cash and Cash Equivalents (4,208) (8,025) 10,008 (16,520) Cash and Cash Equivalents, Beginning of Year 7,152 15,177 5,169 21,689 - --------------------------------------------------- ------------------ ------------------- -------------------------------------------------------------------------------- ---------------------- ----------------------- -------------------- Cash and Cash Equivalents, End of Year $ 2,944 $ 7,152 $ 15,177 $ 5,169 =================================================== ================== =================== ================================================================================ ====================== ======================= ==================== Supplemental Cash Flow Information Cash paid for interest expense $ 2,569 $ 2,994 $ 3,638 $ 4,356 Cash paid for income taxes $ 9,246 $ 8,418 $ 5,572 $ 7,218 See accompanying notes to consolidated financial statements.
Page 24 of 4243 R&B, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 25, 200431, 2005 1. Summary of Significant Accounting Policies R&B, Inc. (the "Company") is a leading supplier of OE Dealer "Exclusive" automotive replacement parts, automotive hardware, and brake products to the automotive aftermarket and household hardware products to the general merchandiseAutomotive Aftermarket and Mass Merchandise markets. R&B's productsDorman automotive parts and hardware are marketed under more than seventy proprietarythe OE Solutions(TM), HELP!(R), AutoGrade(TM), First Stop(TM), Conduct-Tite(R), and Pik-A- Nut(R) brand names, through its Motormite, Dorman, Allparts, Scan-Tech, MPI and Pik-A-Nut businesses.names. The Company operates on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year. The fiscal years ended December 31, 2005, December 25, 2004 and December 27, 2003 are fifty-three, fifty-two, and December 28, 2002 are each fifty-two week periods.weeks, respectively. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents. The Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Short-term Investments. Short-term investments consist primarily of corporate and government bonds with maturities of three months to one year from the date of purchase. Short-term investments are classified as held-to-maturity and are recorded at amortized cost. As of December 25, 2004, the Company did not hold any short-term investments. Sales of Accounts Receivable. The Company has entered into several customer sponsored programs administered by unrelated financial institutions that permit the Company to sell, without recourse, certain accounts receivable at discounted rates to the financial institutions. The Company does not retain any servicing requirements for these accounts receivable. Transactions under this factoring agreementthese agreements are accounted for as sales of accounts receivable following the provisions of Statement of Financial Accounting Standards (SFAS) No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement 125." At December 31, 2005 and December 25, 2004, and December 27, 2003, $18.0$23.2 million and $2.0$18.0 million of accounts receivable were sold and removed from the consolidated balance sheets, respectively. Selling, general and administrative expenses include $1.2 million in 2005 and $0.3 million in 2004 in financing costs associated with these accounts receivable sales programs. Inventories. Inventories are stated at the lower of average cost or market. The Company provides reserves for discontinued and excess inventory based upon historical demand, forecasted usage, estimated customer requirements and product line updates. Property and Depreciation. Property, plant and equipment are recorded at cost and depreciated over their estimated useful lives, which range from three to thirty-nine years, using the straight-line method for financial statement reporting purposes and accelerated methods for income tax purposes. Properties under capitalized leases were amortized over the related lease terms (3-15 years).Estimated useful lives by major asset category areas follows: Buildings 3 to 39 years Machinery, equipment and tooling 3 to 10 years Furniture, fixtures and leasehold improvements 3 to 15 years The costs of maintenance and repairs are expensed as incurred. Renewals and betterments are capitalized. Gains and losses on disposals are included in operating results. Long-lived assets, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which Page 25 of 4243 the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. The Company did not record any asset impairment charges in fiscal 2005, 2004, or 2003. Goodwill. The Company adoptedfollows the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 specifies that goodwillAssets". The Company employs a discounted cash flow analysis and a market comparable approach in conducting its impairment tests. Cash flows are discounted at 12% and an earnings multiple of 5.75 to 6.0 times EBITDA is no longer be amortized but instead is subject to periodic impairment testing. As a result, the Company no longer amortizes goodwill.used when conducting these tests. The Company has completed the impairment tests required by SFAS No. 142, which did not result in an impairment charge. Changes to goodwill in 2004 and 2003 are due to currency translation. Other Assets. Other assets consist of deposits; costs incurred for the preparation and printing of product catalogs, which are capitalized and amortized upon distribution; and deferred financing costs, which are capitalized and amortized over the term of the related financing agreement. Research and Development. Research and development costs are expensed as incurred. Research and development costs totaling $1.9 million in 2005, $1.5 million in 2004 and $1.1 million in 2003 have been recorded in selling, general and administrative expenses. Foreign Currency Translation. Assets and liabilities of athe Company's foreign subsidiarysubsidiaries are translated into U.S. dollars at the rate of exchange prevailing at the end of the year. Income statement accounts are translated at the average exchange rate prevailing during the year. Translation adjustments resulting from this process are recorded directly in shareholders' equity. Concentrations of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents short-term investments, and accounts receivable. All cash equivalents and short-term investments are managed within established guidelines which limit the amount which may be invested with one issuer. A significant percentage of the Company's accounts receivable have been, and will continue to be, concentrated among a relatively small number of automotive retailers and warehouse distributors in the United States. The Company's five largest customers accounted for 77 % and 70%77% of net accounts receivable as of December 25, 200431, 2005 and December 27, 2003, respectively.25, 2004. Management continually monitors the credit terms and credit limits to these and other customers. Fair Value Disclosures. The carrying value of financial instruments such as cash, short-term investments, accounts receivable, accounts payable, and other current assets and liabilities approximate their fair value based on the short-term nature of these instruments. Based on borrowing rates currently available to the Company for loans with similar terms and average maturities, the fair value of total long-term debt was $36.9$36.6 million and $47.6$36.9 million at December 25, 200431, 2005 and December 27, 2003,25, 2004, respectively. Income Taxes. The Company follows the liability method of accounting for deferred income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax assets or liabilities at the end of each period are determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Stock Dividend. All prior period common stock and applicable share and per share amounts have been retroactively adjusted to reflect a two-for-one split of the Company's Common Stock effective March 28, 2005. Revenue Recognition. Revenue is recognized from product sales when goods are shipped, title and risk of loss have been transferred to the customer and collection is reasonably assured. The Company calculates its net sales by subtracting allowancesrecords estimates for customer credits from gross sales. Allowances for customer credits include costs forcash discounts, product returns and warranties, discounts and promotional rebates given to customers who purchase new productsin the period of the sale ("Customer Credits"). The provision for inclusion in their stores,Customer Credits is recorded as a reduction from gross sales and the cost of competitors' products that are purchased from the customer in order to induce a customer to purchase new product lines from the Company. These allowancesreserves for customer creditsCustomer Credits are shown as a reduction of accounts receivable. Amounts billed to customers for shipping and handling are included in net sales. Costs associated with shipping and handling are Page 26 of 43 included in cost of goods sold. Actual Customer Credits have not differed materially from estimated amounts for each period presented. Earnings Per Share. The following table sets forth the computation of basic earnings per share and diluted earnings per share for the three years ended December 25, 2004: Page 26 of 42 31, 2005:
2005 2004 2003 2002 ---------- ---- ----------- ----- -------------------------- - --------------- -- -------------------- Numerator: (in thousands, except per share data) Net income ........................................................................ $17,077 $17,081 $13,304 $12,357 Denominator: Weighted average shares outstanding used in basic earnings per share calculation 8,845 8,647 8,48717,914 17,690 17,294 Effect of dilutive stock options........ 339 403 461 ---------- ---- ----------- ----- -----------options... ................. 523 678 807 --------------- - --------------- -- -------------------- Adjusted weighted average shares outstanding diluted earnings per share......... 9,184 9,050 8,948 ========== ==== =========== ===== ===========share........................ 18,437 18,368 18,101 =============== = =============== == ==================== Basic earnings per share...................... $1.93share.............................. $0.95 $ 1.540.97 $ 1.46 ========== ==== =========== ===== ===========0.77 =============== = =============== == ==================== Diluted earnings per share.................... $1.86 $1.47share........................... $0.93 $ 1.38 ========== ==== =========== ===== ===========
Options to purchase 50,750 and 5,0000.93 $ 0.73 =============== = =============== == ==================== Options to purchase 103,500 and 101,500 shares were outstanding at December 31, 2005 and December 27, 2003, and December 28, 2002, respectively, but were not included in the computation of diluted earnings per share, as their effect would have been antidilutive. No outstanding options at December 25, 2004 were excluded from the computation of diluted earnings per share. Stock-Based Compensation. At December 25, 2004 were excluded from the computation of diluted earnings per share. Stock-Based Compensation. At December 31, 2005, the Company has one stock-based employee compensation plan, which is described more fully in Note 11. The Company accounts for this plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees", and related interpretations. Under APB No. 25, compensation expense is based on the difference, if any, on the date of the grant between the fair value of our stock and the exercise price of the option. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation", to stock-based employee compensation.
Year Ended December - ------------------------------------------------------ --------------------------------------------------------------------------------------------------------------- ------------------------------------------------------- (in thousands, except per share data) 2005 2004 2003 2002 - ------------------------------------------------------------------------------------------------------------------------ -------------------- ---------------- -------------- ------------- ---------------- Net income: Net income, as reported $ 17,077 $ 17,081 $ 13,304 $ 12,357 Add: Stock-based employee compensation expense net of related tax effects, included in the determination of net income, as reported - - 13 97 Less: Stock-based employee compensation expense, net of related tax effects, determined under fair value based method for all awards (281) (148) ( 81) (629)(81) - ------------------------------------------------------------------------------------------------------------------------ -------------------- ---------------- -------------- ----------------------------- Net income, pro forma $ 16,796 $ 16,933 $ 13,236 $ 11,825 - ------------------------------------------------------------------------------------------------------------------------ -------------------- ---------------- -------------- ----------------------------- Earnings per share: Basic - as reported $ 1.930.95 $ 1.54$ 1.460.97 $ 0.77 Basic - pro forma $ 1.910.94 $ 1.53$ 1.390.96 $ 0.77 Diluted - as reported $ 1.860.93 $ 1.47$ 1.380.93 $ 0.73 Diluted - pro forma $ 1.840.91 $ 1.46$ 1.320.92 $ 0.73
Page 27 of 43 The weighted average fair value of options granted in 2005, 2004 and 2003 was $6.54, $4.67 and 2002 was $9.33, $6.56 and Page 27 of 42 $4.64,$3.28, respectively. The fair value of each option grant is estimated on the date of grant using the Black- ScholesBlack-Scholes option pricing model with the following weighted average assumptions: 2005 2004 2003 2002 ---- ---- ---- Expected dividend yield 0% 0% 0% Expected stock price volatility 46% 51% 52% 53% Risk-free interest rate 3.9 % 3.6% 3.3% 3.3% Expected life of option 7.5 years 7.5 years 7.5 years 2. Gain on Sale of Specialty Fastener Business and Litigation Settlement On May 1, 2002, the Company entered into agreements to sell the Company's specialty fastener business and to settle litigation initiated by the Company in 1996 related to its purchase of its Dorman business. Total proceeds from the sale and settlement, net of transaction costs and purchase price adjustments were approximately $7.4 million. The transactions resulted in an after-tax gain on the sale of the fastener business of $1.3 million, and a reduction in goodwill totaling $2.2 million. 3. Inventories Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of the Company's products. Inventories were as follows: December 25,31, December 27,25, (in thousands) 2005 2004 2003 - --------------------------- ---------------------- ------------------ -------------------------------------------- Bulk product $30,548 $26,407 $22,365 Finished product 42,317 32,029 25,906 Packaging materials 2,670 3,000 2,899 - --------------------------- ---------------------- ------------------ -------------------------------------------- Total $75,535 $61,436 $51,170=========================== ====================== ================== ==================== 4.======================== Included in Finished product as of December 31, 2005 is approximately $2.0 million in inventory held on consignment. 3. Property, Plant and Equipment Property, plant and equipment consists of the following: December 25,31, December 27,25, (in thousands) 2005 2004 2003 - ------------------------------------ ------------------ ---------------------------------------------- ------------------------ -------------------------- Property under capitalized leases $ 2,4522,302 $ 2,452 Buildings 11,165 10,447 8,419 Machinery, equipment and tooling 28,279 24,693 20,296 Furniture, fixtures and leasehold improvements 3,626 3,633 3,677 Computer and other equipment 27,195 25,168 20,468 - ------------------------------------ ----------------------------------------------- ------------------- -------------------- Total 72,567 66,393 55,312 Less-accumulated depreciation (45,094) (40,695) (37,722) - ------------------------------------ -------------------------------------------- ------------------- -------------------- Property, plant and equipment, net $27,473 $25,698 $17,590 ============================================================= ================== ========================================= Page 28 of 4243 4. Goodwill In June 2005, the Company acquired The Automotive Edge/Hermoff (Hermoff) for approximately $1.7 million. The consolidated results include Hermoff since June 1, 2005. The Company has not presented pro forma results of operations for the years ended December 31, 2005, December 25, 2004 and December 27, 2003, assuming the acquisition had occurred at the beginning of the respective periods, as these results would not have been materially different than actual results for the periods. The goodwill recorded as a result of the acquisition may be revised upon final determination of the purchase price allocation. Goodwill activity during the year ended December 31, 2005 is as follows: (in thousands) Balance, December 25, 2004 $29,410 Acquisition 734 Translation (527) Balance, December 31, 2005 $29,617 - ----------------------------------------------- ----------------- 5. Long-Term Debt Long-term debt consists of the following: December 25,31, December 27,25, (in thousands) 2005 2004 2003 - --------------------------------- ------------------- ----------------------------------------------------------- ----------------- ------------- Senior notes $25,714 $34,285 $42,857Bank credit facility 10,100 - Obligation for stock repurchase (Note 7) - 474 927 - --------------------------------- ------------------- ----------------------------------------------------------- ----------------- ------------- Total 35,814 34,759 43,784 Less: Current portion ( 9,045) (8,571) (9,045) - --------------------------------- ------------------- ----------------------------------------------------------- ---------------- ------------- Total long-term debt $27,243 $25,714 $35,213 ================================= =================== =========================================================== ============= ================= Senior Notes. The Senior Notes bear a 6.81% fixed interest rate, payable quarterly. Annual principal repayments at the rate of $8.6 million are due each August through 2008. Terms of the Note Purchase Agreement require, among other things, that the Company maintain certain financial covenants relating to debt to capital ratios and minimum net worth. Bank Credit Facility. TheIn May 2005, the Company has aamended its existing Revolving Credit Facility which provides for a $10 millionFacility. The amended facility that expires in June 2005.2007. The May 2005 amendment increased the total credit facility from $10 million to $20 million. Borrowings under the amended facility are on an unsecured basis with interest at rates ranging from LIBOR plus 65 basis points to LIBOR plus 150 basis points.points based upon the achievement of certain benchmarks related to the ratio of funded debt to EBITDA. The interest rate at December 31, 2005 was LIBOR Page 29 of 43 plus 85 basis points (5.24%). The loan agreement also contains covenants, the most restrictive of which pertain to net worth and the ratio of debt to EBITDA. The average amount outstanding under the Revolving Credit Facility was $422,000$5.6 million and $0.4 million during 2004.2005 and 2004, respectively. The maximum amount outstanding in 2005 and 2004 was $13.7 million and $7.0 million. There were no borrowings outstanding as of December 25, 2004. There were no borrowings under the Revolving Credit Facility in 2003. The Company's Swedish subsidiary maintains a $750,000 credit facility. As of December 25, 2004, no amounts were outstanding under this facility, which is provided on an unsecured, short-term basis.million, respectively. The Company is in compliance with all financial covenants contained in the Senior Notes and Revolving Credit Facility. Aggregate annual principal payments applicable to long-term debt obligations as of December 25, 200431, 2005 are as follows: (in thousands) 20052006 $ 9,045 2006 8,571 2007 8,57118,671 2008 8,572 2009 - Thereafter - - --------------------------------------------------------------------------------------------- Total $34,759$35,814 - --------------------------------------------------------------------------------------------- 6. Operating Lease Commitments and Rent Expense The Company leases certain equipment, automobiles and operating facilities, including the Company's primary operating facility which is leased from a partnership related to the Company by common ownership, under noncancelable operating leases. Approximate future minimum rental payments under these leases are summarized as follows: Page 29 of 42 (in thousands) 20052006 $ 2,267 2006 2,1252,662 2007 2,0602,345 2008 522637 2009 532638 2010 175 Thereafter 1373 - -------------- ----------------------------------- ---------------------- Total $ 7,643 ============== ==================6,460 ================= ====================== Rent expense was $3.1 million in 2005, $2.9 million in 2004 and $2.8 million in 2003 and $2.9 million in 2002.2003. 7. Related Party Transactions The Company has entered into a noncancelable operating lease for its primary operating facility from a partnership in which the Company's Chief Executive Officer and Executive Vice President arewere partners. Total rental payments each year to the partnership under the lease arrangement were $1.3 million in 2005, $1.2 million in 2004 2003 and 2002.$1.2 million in 2003. Prior to April 2003, the Company had leased its Carrollton, Georgia facility from another partnership in which the Company's Chief Executive Officer and Executive Vice President arewere partners. During 2003, the Company entered into an agreement to terminate the lease for this facility. In connection with this agreement, the Company paid $200,000, which was accrued in 2002, to terminate this lease subject to the closing of the sale of the building by the partnership to an unrelated entity. Total payments to the partnership under the lease arrangements, including the lease termination payment, were $269,000 and $272,000 in 2003 and 2002, respectively. In November 2001, the Company amended certain agreements related to its 1998 acquisition of Scan- Tech USA/Sweden A.B. and related entities ("ScanTech"Scan-Tech"). As a result of this transaction, the Company Page 30 of 43 purchased and cancelled 250,000 shares of its common stock issued in connection with the acquisition and cancelled the earn out provisions of the agreement in exchange for consideration of approximately $3.2 million to be paid in installments through December 31, 2005. The Company paidsatisfied the obligation in 2005 by making the last installment payment of $0.5 million. Payments of $0.5 million of this amount bothwere also made in 2004 and 2003. TheAll amounts due under the obligation includes interest imputed at a 5.0% rate. The remaining amount payable of $0.5 million is duewere paid to an entity controlled by the President of Scan-Tech. 8. Income Taxes The components of the income tax provision (benefit) are as follows: (in thousands) 2005 2004 2003 2002 - ---------------------------------------------- --------------- ------------------ ----------------- --------------------------- Current: Federal $9,327 $7,621 $5,371 $ 6,048 State 893 517 292 365 Foreign 337 650 424 394 - ------------------------ ------------------ ----------------- ----------------10,557 8,788 6,087 6,807 - ------------------------ ------------------ ----------------- ------------------------------ --------------------- --------------------- ------------------- Deferred: Federal (354) 857 1,224 36 State (34) 59 61 2 Foreign (85) - - - - ------------------------ ------------------ ----------------- ---------------------------------------------------- --------------------- -------------------- (473) 916 1,285 38 - ------------------------ ------------------ ----------------- ---------------------------------------------------- --------------------- -------------------- Total $10,084 $9,704 $7,372 $6,845 ======================== ================== ================= ================ Page 30 of 42 ==================================== ===================== ==================== The following is a reconciliation of income taxes at the statutory tax rate to the Company's effective tax rate: 2005 2004 2003 2002 - ------------------------------------------------------------------------------- Federal taxes at statutory rate 35.0% 34.0%35.0% 34.0% State taxes, net of Federal tax benefit 2.1% 1.4% 1.1% 1.2% Other - (0.2%) 0.6% 0.4% - ------------------------------------------------------------------------------- Effective tax rate 37.1% 36.2% 35.7% 35.6% =============================================================================== Deferred income taxes result from timing differences in the recognition of revenue and expense for tax and financial statement purposes. Thepurposes.The sources of temporary differences are as follows: December 25,31, December 27,25, (in thousands) 2005 2004 2003 - -------------------------------------- ----------------------------------------- -------------------- ---------------------- Assets: Inventories $3,195$3,985 $ 3,2513,195 Accounts receivable 3,476 3,449 2,833 Accrued expenses and other 2,082 1,765 1,547 - -------------------------------------- ------------------------------------------ -------------------- ---------------------- Gross deferred tax assets 9,543 8,409 7,631 - -------------------------------------- ----------------------------------------- -------------------- ---------------------- Liabilities: Depreciation 1,381 1,284 106 Goodwill 5,797 5,180 4,664 - -------------------------------------- ----------------- ---------------------------------------------- -------------------- --------------------- Gross deferred tax liabilities 7,178 6,464 4,770 - -------------------------------------- ----------------- ---------------------------------------------- -------------------- --------------------- Net deferred tax assets $2,365 $1,945 $2,861 ====================================== ================= ============================================= ========================== ========================== Page 31 of 43 Based on the Company's history of taxable income and its projection of future earnings, the Company believes that it is more likely than not that sufficient taxable income will be generated in the foreseeable future to realize the net deferred tax assets. As of December 25, 2004,31, 2005, the Company has not provided taxes on unremitted foreign earnings from its foreign affiliate of approximately $8.7$8.1 million that are intended to be indefinitely reinvested in operations and expansion outside the United States. The Company is exploring a one time repatriation of earnings from certain foreign affiliates as a result of the American Jobs Creation Act of 2004, but has not made a decision regarding such repatriation. The deduction is subject to a number of limitations and uncertainty remains as to how to interpret numerous provisions in the American Jobs Creation Act of 2004. As such, the Company is not yet in a position to decide on whether, and to what extent, it might repatriate foreign earnings. 9. Business Segments In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," the Company has determined that its business comprises a single reportable operating segment, namely, the sale of replacement parts for the automotive aftermarket. During 2005, 2004 2003 and 2002,2003, two customers each accounted for more than 10% of net sales and in the aggregate accounted for 34%31%, 31%34% and 36%31% of net sales, respectively. Net sales to countries outside the US, primarily to Western Europe and Canada in 2005, 2004 and 2003 and 2002 were $22.8 million, $23.1 million $20.7 million and $22.9$20.7 million, respectively. 10. Commitments and Contingencies Shareholder Agreement. A shareholder agreement was entered into in September 1990 and Page 31 of 42 amended and restated on August 1, 2004. Under the agreement, each of Richard Berman, Steven Berman, Jordan Berman, Marc Berman and Fred Berman has granted the others of them rights of first refusal, exercisable on a pro rata basis or in such other proportions as the exercising shareholders may agree, to purchase shares of the common stock of the Company which any of them, or upon their deaths their respective estates, proposes to sell to third parties. The Company has agreed with these shareholders that, upon their deaths, to the extent that any of their shares are not purchased by any of these surviving shareholders and may not be sold without registration under the Securities Exchange Act of 1933, as amended (the "1933 Act"), the Company will use its best efforts to cause those shares to be registered under the 1933 Act. The expenses of any such registration will be borne by the estate of the deceased shareholder. Legal Proceedings. The Company is party to certain legal proceedings and claims arising in the normal course of business. Management believes that the disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations. 11. Capital Stock Stock Dividend. On February 24, 2005, the Company's Board of Directors approved a two-for-one split of the Company's common stock, payable in the form of a stock dividend of one share for each share held. The Board set March 15, 2005 as the record date for the determination of the shareholders entitled to receive the additional shares. The shares were distributed to the shareholders of record on March 28, 2005. All earnings per share and common stock information is presented as if the stock split occurred prior to the earliest year included in these consolidated financial statements. Purchase and cancellation of common stock. The Company periodically repurchases common stock issued to the Company's deferred contribution profit sharing and 401(k) plan. During 2005, the Company's board of directors approved the cancellation of the 190,009 shares of common stock that have been repurchased to date. Undesignated Stock. The Company has 75,000,000 shares authorized of undesignated capital stock for future issuance. The designation, rights and preferences of such shares will be determined by the Board of Directors. Page 32 of 43 Control by Officers, Directors and Family Members. As of March 7, 2006, Richard N. Berman and Steven L. Berman, who are officers and directors of the Company, their father and their brothers beneficially own 41% of the outstanding Common Stock of the Company and are able to elect the Board of Directors, determine the outcome of most corporate actions requiring shareholder approval and control the policies of the Company. Incentive Stock Option Plan. Effective May 18, 2000 the Company amended and restated its Incentive Stock Option Plan (the "Plan"). Under the terms of the Plan, the Board of Directors of the Company may grant incentive stock options and non-qualified stock options or combinations thereof to purchase up to 1,172,5002,345,000 shares of common stock to officers, directors and employees. Grants under the Plan must be made within 10 years of the plan amendment date and are exercisable at the discretion of the Board of Directors but in no event more than 10 years from the date of grant. At December 25, 2004,31, 2005, options to acquire 218,041296,511 shares were available for grant under the Plan. Transactions under the Plan for the three years ended December 25, 200431, 2005 were as follows:
Option Price Weighted Shares per Share Average Price - --------------------------------------- ---------------------------------------------------------------- ------------------- ------------------------------------------ ----------------------- Balance at December 29, 2001 804,429 $1.00 - 9.625 $2.59 Granted 45,000 8.00 8.00 Exercised (51,750) 1.00 - 3.00 2.71 Canceled (7,500) 3.00 3.00 - --------------------------------------- ---------------- ------------------- ------------------- Balance at December 28, 2002 790,179 1.001,580,358 $ 0.50 - 9.625 2.894.81 $1.45 Granted 148,250 10.15296,500 5.08 - 14.28 11.517.14 5.76 Exercised (284,033) 1.00(568,066) 0.50 - 9.625 2.624.81 1.31 Canceled ( 5,750) 3.00(11,500) 1.50 - 8.00 6.074.00 3.04 - --------------------------------------- ---------------------------------------------------------------- ------------------- ------------------------------------------ ----------------------- Balance at December 27, 2003 648,646 1.001,297,292 0.50 - 14.28 4.967.14 2.48 Granted 60,000 16.01120,000 8.01 - 19.45 16.469.73 8.23 Exercised (193,346) 1.00(386,692) 0.50 - 10.15 2.775.08 1.39 Canceled ( 54,000) 10.15(108,000) 5.08 5.08 - 10.16 10.16 - --------------------------------------- ---------------------------------------------------------------- ------------------- ------------------------------------------ ----------------------- Balance at December 25, 2004 461,300 $1.00922,600 0.50 - 19.45 $6.779.73 3.39 Granted 153,500 11.10 - --------------------------------------- ----------------12.48 12.03 Exercised (71,884) 0.50 - 7.14 2.14 Canceled (9,000) 0.50 - 6.36 4.41 - ------------------------------------------------ ------------------- ----------------------- ----------------------- Balance at December 31, 2005 995,216 $0.50 - 12.48 $4.80 - ------------------------------------------------ ------------------- ----------------------- ----------------------- Options exercisable at December 25, 2004 295,367 $1.0031, 2005 579,883 $0.50 - 14.28 $3.369.73 $2.04 - --------------------------------------- ---------------------------------------------------------------- ------------------- ------------------------------------------ -----------------------
Page 3233 of 4243 The following table summarizes information concerning currently outstanding and exercisable options at December 25, 2004:31, 2005:
Options Outstanding Options Exercisable ----------------------------------------------- ------------------------------------------------------------------------------------------- ---------------------------------------- Weighted- Average Weighted- Remaining Average Weighted- Range of Numbers Contractual Exercise Number Average Exercise Price Outstanding Life (years) Price Exercisable Exercise Price - ---------------------------------------- ------------------- ------------------- ---------------- ---------------- ------------- ---------------- ----------------------------------- ------------------ $1.00$0.50 - $3.00 267,550 6.1 $2.50 264,017$1.50 474,566 5.1 $1.24 471,033 $ 2.51 $5.701.24 $2.85 - $8.00 40,500 7.4 $7.82 12,700$4.00 74,200 6.4 $3.93 37,800 $ 7.73 $10.153.91 $5.08 - $14.28 93,250 8.7 $12.32 18,650 $12.32 $16.01$7.14 172,950 7.7 $6.13 67,050 $ 6.12 $8.01 - $19.45 60,000$9.73 120,000 8.2 $8.23 4,000 $ 9.36 $11.10 - $12.48 153,500 9.2 $16.46$11.55 - - - ---------------------- ------------------- ------------------- ---------------- --- - -------------------- ------------------ 995,216 $ 4.80 579,883 $ 2.04 - ---------------------- ------------------- ------------------- ---------------- --- - -------------------- ------------------
Employee Stock Purchase Plan. In March 1992, the Board of Directors adopted the Employee Stock Purchase Plan which was subsequently approved by the shareholders. The Plan permits the granting of options to purchase up to 300,000600,000 shares of common stock by the employees of the Company. In any given year, employees may purchase up to 4% of their annual compensation, with the option price set at 85% of the fair market value of the stock on the date of exercise. All options granted during any year expire on the last day of the fiscal year. During 2004,2005, optionees had exercised rights to purchase 554709 shares at prices from $14.03$9.42 to $22.47$11.48 per share for total net proceeds of $10,000.$7,000. 401(k) Retirement Plan. The Company maintains a defined contribution profit sharing and 401(k) plan covering substantially all of its employees as of December 25, 2004.31, 2005. Annual contributions under the plan are determined by the Board of Directors of the Company. Consolidated expense related to the plan was $665,000, $865,000, $1,121,000, and $856,000$1,121,000 in fiscal 2005, 2004 2003 and 2002,2003, respectively. 12. Accounting Pronouncements In December 2004,May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154, "Accounting Changes and Error Corrections:. SFAS No. 154 is a replacement of APB No. 20 and FASB Statement No. 3. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The reporting of a correction of an error by restating previously issued financial statements is also addressed by SFAS No. 154. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt this pronouncement beginning in fiscal year 2006. In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment". This Statement is a revision of SFAS No. 123 and supersedes APB No. 25 and its related implementation guidance. SFAS No. 123R requires a company to measure the grant-date fair value of equity awards given to employees in exchange for services and recognize that cost over the period that such services are performed. SFAS No. 123R iswill be effective for the first interim or annual reporting period that begins after June 15, 2005, the Company's third fiscal quarter.in 2006. The Company is currently evaluating the two methods of adoption allowed by SFAS No. 123R: the modified-prospective transition method and the modified- retrospectivemodified-retrospective transition method. While the Company has not yet determined the precise impact that this statement will have on its financial condition and results of operations for fiscal 2005,2006, assuming future annual stock option awards are comparable to prior years annual awards and the Black-Scholes method is used to compute the value of the awards, the annualized impact on diluted earnings per share is expected to be consistent with our pro forma SFAS No. 123 disclosures. Page 34 of 43 In December 2004, the FASB issued two FASB Staff Positions (FSP) regarding the accounting implications of the American Jobs Creation Act of 2004. The Company is assessing the impact, if any, thatadoption of FAS No. 109-1, "Application of FASB Statement No. 109 'Accounting for Income Taxes' to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" and FSP No. 109-2 "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" willdid not have any effect on the Company's effective tax rate in 2005. In December 2004, the FASB issued SFAS No. 151 "Inventory Costs, an Amendment of ARB No. 43, Chapter 4". SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material and requires that these items be recognized as current period charges. SFAS Page 33 of 42 No. 151 applies only to inventory costs incurred during periods beginning after the effective date and also requires that the allocation of fixed production overhead to conversion costs be based on the normal capacity of the production facilities. SFAS No. 151 is effective for the Company's fiscal year beginning January 1, 2006. The Company is currently assessing the impact, if any, ofdoes not anticipate that the adoption of the provisions of SFAS No. 151.No.151 will have a material effect on the results of operations in 2006. In December 2004, the FASB issued SFAS No. 153 "Exchanges of Non-monetary Assets, An Amendment of APB Opinion No. 29". SFAS No. 153 eliminates the exception for exchange of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. SFAS No. 153 isbecame effective for non-monetary assets and exchanges occurring in fiscal periods beginning after June 15, 2005, the Company's third fiscal quarter. As the Company does not engage in exchanges of non-monetary assets, the Company does not anticipate that implementation of this statement willdid not have an impact on its financial condition or results of operations. In December 2003, the FASB issued Revised Interpretation No. 46, "Consolidation of Variable Interest Entities - an interpretation of Account Research Bulletin No. 51." FIN No. 46R addresses the consolidation by business enterprises of variable interest entities, as defined in the Interpretation. FIN No. 46R expands existing accounting guidance regarding when a company should include in its financial statements the assets, liabilities and activities of another entity. Since the Company does not have any interests in variable interest entities, the adoption of FIN No. 46R did not have any effect on the Company's consolidated financial condition or results of operations. 13. Subsequent Event On February 24, 2005,January 31, 2006, the Company's Board of Directors approved a two-for-one splitCompany entered into an industrial building lease with an unrelated third party to rent 268,253 square feet for production and warehousing. The initial lease term is ten years. The Company may, at its option, terminate the lease without any further liability at the end of the Company's common stock, payable84th month of the initial lease term by giving the landlord six months prior written notice and by paying a termination fee. Total rent expense in the form of a stock dividend of one share for each share held. The Board of Directors set March 15, 2005 as the record date for the determinationfirst twelve-months of the shareholders entitled to receive the additional shares. The Company expects the shareslease is expected to be distributed on March 28, 2005.$0.6 million. Page 3435 of 4243 Supplementary Financial Information Quarterly Results of Operations (Unaudited): The following is a summary of the unaudited quarterly results of operations for the fiscal years ended December 25, 200431, 2005 and December 27, 2003:25, 2004:
(in thousands, except per First Second Third Fourth share amounts) Quarter Quarter Quarter Quarter - ----------------------------- ---------------- ----------------- --- --------------- ----------------- 2004 ------------------------------------------------------------------------------------------------------------ ------------------- --------------------- ---- ------------------ --------------------- 2005 --------------------------------------------------------------------------------------- Net sales $61,231 $68,611 $73,783 $74,492 Income from operations 6,070 8,018 8,009 7,679 Net income 3,454 4,628 4,613 4,382 Diluted earnings per share 0.19 0.25 0.25 0.24 --------------------------------------------------------------------------------------- 2004 --------------------------------------------------------------------------------------- Net sales $56,005 $64,277 $64,135 $65,109 Income from operations 5,957 9,114 7,624 6,943 Net income 3,318 5,317 4,402 4,044 Diluted earnings per share 0.36 0.58 0.48 0.44 2003 ------------------------------------------------------------------------ Net sales $50,272 $58,068 $58,183 $55,560 Income from operations 4,338 6,372 6,610 6,732 Net income 2,225 3,525 3,717 3,837 Diluted earnings per share 0.25 0.39 0.41 0.420.18 0.29 0.24 0.22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None Item 9A. Controls and Procedures. Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Our Management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation, as of December 25, 2004,31, 2005, of the effectiveness of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e). Based on this evaluation, our chief executive officer and our chief financial officer concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective in reaching a reasonable level of assurance that management is timely alerted to material information related to us during the period when our periodic reports are being prepared. The Company's principal executive officer and principal financial officer note that during the Company's second fiscal quarter the Company did not file a Form 8-K timely in connection with the Company's change in administrators under the 401(k) plan due to human performance error, not a process deficiency . Management's Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation, as of December 25, 2004,31, 2005, of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Page 36 of 43 Based on this evaluation under the framework in Internal Control - Integrated Framework, our management concluded that, as of December 25, 2004,31, 2005, our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Page 35 of 42 Our management's assessment of the effectiveness of our internal control over financial reporting as of December 25, 200431, 2005 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein. Changes in Internal Control Over Financial Reporting Our management, with the participation of our chief executive officer and chief financial officer, also conducted an evaluation of our internal control over financial reporting, to determine whether any changes occurred during the quarter ended December 25, 200431, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, there was no such change during the quarter ended December 25, 2004.31, 2005. Report of Independent Registered Public Accounting Firm The Board of Directors R&B, Inc.: We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting that R&B, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 25, 2004,31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). R&B, Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention of timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Page 37 of 43 In our opinion, management's assessment that R&B, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 25, 2004,31, 2005, is fairly stated, in all material respects, based on Page 36 of 42 criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, R&B, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 25, 2004,31, 2005 based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of R&B, Inc. and subsidiaries as of December 25, 200431, 2005 and December 27, 2003,25, 2004, and the related consolidated statements of operations, stockholders'shareholders' equity, and cash flows for each of the years in the three-year period ended December 25, 2004,31, 2005, and the related financial statement schedule, and our report dated March 7, 200513, 2006 expressed an unqualified opinion on those consolidated financial statements and the related financial statement schedule. KPMG LLP Philadelphia, PA March 7, 200513, 2006 PART III Item 10. Directors and Executive Officers of the Registrant. Information concerning the directors of the CompanyThe required information is incorporated by reference to the section entitled "Election of Directors" infrom the Company's Proxy Statementdefinitive proxy statement for its 2006 Annual Meeting of Shareholders to be held on May 19,filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2005. Information concerning executive officers of the Company who are not also directors is presented in Item 4.1, Part I of this Report on Form 10-K. The information required by Item 10 regarding audit committee financial expert disclosure is incorporated by reference from the information under the caption "Committees of the Board of Directors - Audit Committee" in the Company's Proxy Statement for its Annual Meeting of Shareholders to be held on May 19, 2005. The Company has adopted a written code of ethics, "Our Values and Standards of Business Conduct," which is applicable to all Company directors, officers and employees, including the Company's chief executive officer, chief financial officer, and principal accounting officer and controller and other executive officers identified pursuant to this Item 10 (collectively, the "Selected Officers"). In accordance with the Commission'sSEC's rules and regulations a copy of the code is posted on our website.website www.rbinc.com. The Company intends to disclose any changes in or waivers from its code of ethics applicable to any Selected Officer or director on its website at www.rbinc.com. Item 11. Executive Compensation. IncorporatedThe required information is incorporated by reference to the section entitled "Executive Compensation and Transactions" infrom the Company's Proxy Statementdefinitive proxy statement for its 2006 Annual Meeting of Shareholders to be held on May 19,filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2005. Item 12. Security Ownership of Certain Beneficial Owners and Management. IncorporatedManagement and Related Stockholder Matters. The required information is incorporated by reference to the section entitled "Beneficial Ownership of Common Stock" infrom the Company's Proxy Statementdefinitive proxy statement for its 2006 Annual Meeting of Shareholders to be held on May 19,filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2005. Page 3738 of 4243 Equity Compensation Plan Information The following table details information regarding the Company's existing equity compensation plans as of December 25, 2004:31, 2005:
(c) Number of securities (a) remaining available for Number of securities (b) future issuancefutureissuance under to be issued upon Weighted-average equity compensation exercise of outstanding exercise price of plans (excluding Plan Category outstanding options, warrants and outstanding options, securities reflected in warrants and rights warrants and rights column (a)) - ---------------------------- ----------------------- -------------------- ------------------------------------------------------------ Equity compensation plans approved by security holders 461,300 $6.77 218,041995,216 $4.80 296,511 Equity compensation plans not approved by security holders - - - ----------------------- -------------------- --------------------------------------------------- ------------------------- ----------------------------- Total 461,300 $6.77 218,041 ======================= ==================== ========================995,216 $4.80 296,511 =========================== ========================= =============================
Item 13. Certain Relationships and Related Transactions. IncorporatedThe required information is incorporated by reference to the section entitled "Executive Compensation and Transactions" infrom the Company's Proxy Statementdefinitive proxy statement for its 2006 Annual Meeting of Shareholders to be held on May 19,filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2005. Item 14. Principal Accountant Fees and Services. IncorporatedThe required information is incorporated by reference to the section entitled "Independent Auditors Fees" infrom the Company's Proxy Statementdefinitive proxy statement for its 2006 Annual Meeting of Shareholders to be held on May 19,filed with the SEC within 120 days of the Company's fiscal year ended December 31, 2005. PART IV Item 15. Exhibits, and Consolidated Financial Statement and Schedules. (a)(1) Consolidated Financial Statements. The consolidated financial statements of the Company and related documents are listedprovided in Item 8, Part II, of this Report on Form 10-K. Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations for the years ended December 31, 2005, December 25, 2004, and December 27, 2003 and December 28, 2002.2003. Consolidated Balance Sheets as of December 31, 2005 and December 25, 2004. Consolidated Statements of Shareholders' Equity for the years ended December 31, 2005, December 25, 2004, and December 27, 2003. Consolidated Statements of Shareholders' Equity for the years ended December 25, 2004, December 27, 2003 and December 28, 2002. Page 38 of 42 Consolidated Statements of Cash Flows for the years ended December 31, 2005, December 25, 2004, and December 27, 2003 and December 28, 2002.2003. Notes to Consolidated Financial Statements (a)(2) Consolidated Financial Statement Schedules. The following consolidated financial statement schedule of the Company and related documents are filed with this Report on Form 10-K: Page 39 of 43 Page Schedule II - Valuation and Qualifying Accounts..................42Accounts................... 43.......... (a)(3) Exhibits that are filed as a part of this Form 10-K and required by Item 601 of Regulation S-K and Item 15(c) of this Form 10-K are listed below: Item 601 Exhibit Number Title 3.1 (1) Amended and Restated Articles of Incorporation of the Company. 3.2 (1) Bylaws of the Company. 4.1 (1) Specimen Common Stock Certificate of the Company. 4.2 Amended and Restated Shareholders' Agreement dated August 1, 2004 (filed with this report).2004. 10.1 (1) Lease, dated December 1, 1990, between the Company and the Berman Real Estate Partnership, for premises located at 3400 East Walnut Street, Colmar, Pennsylvania. 10.1.1 (3) Amendment to Lease, dated September 10, 1993, between the Company and the Berman Real Estate Partnership, for premises located at 3400 East Walnut Street, Colmar, Pennsylvania, amending 10.1. 10.1.2 (5) Assignment of Lease, dated February 24, 1997, between the Company, the Berman Real Estate Partnership and BREP 1,I, for the premises located at 3400 East Walnut Street, Colmar, Pennsylvania, assigning 10.1. 10.1.3 (8) Amendment to Lease, dated April 1, 2002, between the Company and the BREP I, for premises located at 3400 East Walnut Street, Colmar, Pennsylvania, amending 10.1. 10.1.4 (9) Amendment to Revolving Credit Facility, dated May 23, 2005, between the Company and Wachovia Bank, N.A. Page 40 of 43 10.3 (6)+ R&B, Inc. Amended and Restated Incentive Stock Plan. 10.4 (2)+ R&B, Inc. 401(k) Retirement Plan and Trust. 10.4.1 (7)+ Amendment No. 1 to the R&B, Inc. 401(k) Retirement Plan and Trust. 10.5 (2)+ R&B, Inc. Employee Stock Purchase Plan. 21 Subsidiaries of the Company (filed with this report) 23 Consent of Independent Registered Public Accounting Firm (filed with this report) Page 39 of 42 31.1 Certification of Chief Executive Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002 (filed with this report). 31.2 Certification of Chief Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002 (filed with this report). 32 Certification of Chief Executive and Chief Financial Officer as required by Section 906 of the Sarbanes-Oxley Act of 2002 (filed with this report). - ------------------------ + Management Contracts and Compensatory Plans, Contracts or Arrangements. (1) Incorporated by reference to the Exhibits filed with the Company's Registration Statement on Form S-1 and Amendments No. 1, No. 2, and No. 3 thereto (Registration No. 33-37264). (2) Incorporated by reference to the Exhibits files with the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 1992. (3) Incorporated by reference to the Exhibits filed with the Company's Registration Statement on Form S-1 and Amendment No. 1 thereto (Registration No. 33-68740). (4) Incorporated by reference to the Exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 25, 1993. (5) Incorporated by reference to the Exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996. (6)Incorporated by reference to the Exhibits filed with the Company's Proxy Statement for the fiscal year ended December 27, 1997. (7) Incorporated by reference to the Exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarter ended June 25, 1994. (8) Incorporate by reference to the Exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 2002. (9) Incorporated by reference to the Exhibit filed with the Company's Current Report on Form 8-K dated May 24, 2005. Page 4041 of 4243 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. R&B, Inc. Date: March 8, 200515, 2006 By: \s\ Richard N. Berman ------------------------------------------------------------------------------- Richard N. Berman, Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date ---------- ------------------------- ---------- \s\ Richard N. Berman President, Chief Executive March 8, 2005 - ---------------------- Officer, and Chairman of the Richard N. Berman Board of Directors (principal executive officer) \s\ Mathias J. Barton Chief Financial Officer March 8, 2005 - ---------------------- Mathias J. Barton (principal financial and accounting officer) \s\ Steven L. Berman Executive Vice President, March 8, 2005 -------------------- Secretary-Treasurer, and Steven L. Berman Director \s\ George L. Bernstein Director March 8, 2005 - ------------------------ George L. Bernstein \s\ John F. Creamer, Jr. Director March 8, 2005 - ------------------------- John F. Creamer, Jr. \s\ Paul R. Lederer Director March 8, 2005 ------------------- Paul R. Lederer \s\ Edgar W. Levin Director March 8, 2005
Signature Capacity Date \s\ Richard N. Berman President, Chief Executive March 15, 2006 - ---------------------- Richard N. Berman Officer, and Chairman of the Board of Directors (principal executive officer) \s\ Mathias J. Barton Chief Financial Officer March 15, 2006 - ---------------------- Mathias J. Barton (principal financial and accounting officer) \s\ Steven L. Berman Executive Vice President, March 15, 2006 -------------------- Steven L. Berman Secretary-Treasurer, and Director \s\ George L. Bernstein Director March 15, 2006 - ------------------------ George L. Bernstein \s\ John F. Creamer, Jr. Director March 15, 2006 - ------------------------- John F. Creamer, Jr. s\ Paul R. Lederer Director March 15, 2006 ------------------- Paul R. Lederer \s\ Edgar W. Levin Director March 15, 2006 - -------------------- Edgar W. Levin
Page 4142 of 4243
SCHEDULE II: Valuation and Qualifying Accounts (in thousands) For the Year Ended - -------------------------------------- --------------------------------------------------------------------------------------------------- --------------------------------------------------------------- December 31, December 25, December 27, December 28,2005 2004 2003 2002 ----------------- ----------------- ------------------------------------ -------------------- -------------------- Allowance for doubtful accounts: Allowance for doubtful accounts: Balance, beginning of period $ 1,191 $ 1,337 $ 901 Provision 110 504 737 Charge-offs (195) ( 650) (301) - -------------------------------------- ----------------- ----------------- ---------------- Balance, end of period $ 1,106 $ 1,191 $ 1,337 ====================================== ================= ================= ================Provision 233 110 504 Charge-offs (225) ( 195) (650) - ----------------------------------------------- -------------------- -------------------- -------------------- Balance, end of period $ 1,114 $ 1,106 $ 1,191 =============================================== ==================== ==================== ==================== Allowance for customer credits: Balance, beginning of period $ 19,469 $ 16,530 $ 16,517 $ 14,209 Provision 42,633 40,375 37,136 35,769 Charge-offs (40,488) (37,436) (37,123) (33,461) - -------------------------------------- ----------------- ----------------- --------------------------------------------------------------- -------------------- -------------------- -------------------- Balance, end of period $ 19,469 $16,53021,614 $19,469 $ 16,517 ====================================== ================= ================= ================16,530 =============================================== ==================== ==================== ==================== Allowance for excess and obsolete inventory: Balance, beginning of period $8,210 $8,473 $ 9,215 Provision 3,828 1,993 1,821 Charge-offs (2,410) (2,256) (2,563) - ----------------------------------------------- -------------------- -------------------- -------------------- Balance, end of period $ 9,628 $8,210 $8,473 - --------------------------- =============================================== ==================== ==================== ====================
Page 4243 of 42 43 Exhibit 21 Subsidiaries of R&B, Inc. Significant Subsidiaries Jurisdiction - ------------------------ ------------ RB Distribution, Inc. Pennsylvania RB Management, Inc. Pennsylvania Dorman Products of America, Ltd.(1) Kentucky Motor Power Industries, Inc. Delaware Scan-Tech USA/Sweden, A.B. Sweden Allparts, Inc. Delaware 1664403 Ontario Inc.(Hermoff) Ontario, Canada (1) Dorman Products of America, Ltd was merged with and into RB Distribution, Inc. effective as of December 31, 2005. Exhibit Page 1 Exhibit 23 Consent of Independent Registered Public Accounting Firm The Board of Directors R&B, Inc.: We consent to the incorporation by reference in the registration statements (No. 33-52946 and 33-56492) on Form S-8 of R&B, Inc. of our reports dated March 13, 2006, with respect to the consolidated balance sheets of R&B, Inc. as of December 31, 2005 and December 25, 2004, and the related consolidated statements of operations, sharekholders' equity and cash flows for each of the years in the three-year period ended December 31, 2005, and the related financial statement schedule, management's assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 and the effectiveness of internal control over financial reporting as of December 31, 2005, which reports appear in the December 31, 2005 annual report on Form 10-K of R&B, Inc. KPMG LLP Philadelphia, Pennsylvania Date: March 13, 2006 Exhibit Page 2 Exhibit 31.1 CERTIFICATION I, Richard Berman certify that: 1. I have reviewed this Form 10-K of R&B, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f)) and 15(d)-15(f) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting,; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2006 \s\ Richard Berman Richard Berman President and Chief Executive Officer Exhibit Page 3 Exhibit 31.2 CERTIFICATION I, Mathias Barton certify that: 1. I have reviewed this Form 10-K of R&B, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have, a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 15, 2006 \s\ Mathias Barton Mathias Barton Chief Financial Officer Exhibit Page 4 Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 This Certification is intended to accompany the Annual Report of R&B, Inc. (the "Company") on Form 10-K for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and is given solely for the purpose of satisfying the requirements of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. To the best of their knowledge, the undersigned, in their respective capacities as set forth below, hereby certify that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Richard N. Berman Chief Executive Officer Date: March 15, 2006 - ------------------------ /s/ Mathias J. Barton Chief Financial Officer Date: March 15, 2006 - ------------------------ Exhibit Page 5