R&B, Inc.

3400 East Walnut Street
Colmar, Pennsylvania 18915
U.S.A.
Telephone: (215) 997-1800
Fax: (215) 997-7968
Web site: http://www.rbinc.com

Public Company
Incorporated: 1978
Employees: 955
Sales: $201.66 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: RBIN
NAIC: 336399 All Other Motor Vehicle Parts Manufacturing

R&B, Inc. is one of the largest U.S.-based suppliers of replacement parts and fasteners to the automotive aftermarket. Nearly all of the company’s revenues (89 percent) are derived from the design, packaging, and marketing of more than 60 brand names, which are organized into three core brand names. R&B’s Motormite products include hard-to-find automotive parts, the company’s specialty. Automotive replacement parts within the Motormite master brand include pedal pads, sideview mirror glass, window handles, and interior trim parts. The company’s Dormán master brand includes automotive fasteners and traditional replacement parts, such as oil drain plugs, accelerator cables, and flywheels. R&B’s Champ master brand includes automotive shop supplies and accessories, including welding supplies, cutting equipment, and safety products. Although the company generally does not manufacture its products, it does spend considerable time and money designing and developing its products. R&B sells more than 60,000 different parts and fasteners, marketing its products in North America, Europe, the Middle East, and the Far East.

Orìgins

The career of the Berman brothers as entrepreneurs began in a garage. In October 1978, 22-year-old Richard N. Berman and his 19-year-old brother, Steven L. Berman, started a small automotive parts distribution business in their garage, making their start with four employees. The size of their company began to change dramatically after the brothers turned their venture into a supplier of replacement parts for the automotive aftermarket. Specifically, the Bermans occupied a distinct segment of the automotive aftermarket, a segment they helped create. They specialized in automotive parts and fasteners classified as “hard to find,” or traditionally available only to consumers from the manufacturers who originally manufactured the products—original equipment manufacturers (OEM’s)—or from salvage yards. The Bermans’ products, which were manufactured by third-party contractors according to their specifications, included window handles, headlamp aiming screws, power steering filler caps, pedal pads, and carburetor pre-heater hoses. Fasteners marketed by the company included items such as oil drain plugs and wheel lug nuts.

At R&B’s inception, Richard Berman served as president and chief executive officer. Steven Berman served as executive vice-president and secretary-treasurer. A significant juncture in the company’s maturation occurred on November 3, 1984, when R&B was organized as an S-corporation, which meant that the company’s net income and its losses would be devolved to and taxed to individual shareholders. The classification served as a way for the company to obtain capital, with R&B shareholders, in effect, loaning money to the company to promote its growth.

A year after organizing as an S-corporation, R&B posted an annual profit, something the company would accomplish for the remainder of the 1980s. By the end of the decade, the company had grown significantly from its modest start in a garage. Revenues in 1989 reached $32 million. The company’s payroll had swelled to nearly 350 employees, while the company’s physical presence occupied three locations: office and warehouse space in Colmar, Pennsylvania—R&B’s headquarters—a warehouse in Carrollton, Georgia, and a light manufacturing plant in Buffalo, New York.

Going Public: 1991

At this point in the development of their company, the Bermans were ready take the next step in corporate growth. In 1990, they announced their intention to convert to public ownership, filing with the Securities and Exchange Commission for R&B’s initial public offering (IPO) of stock. The Berman brothers were hoping to raise more than $11 million from the offering as a way to repay R&B’s shareholders a special dividend in recompense for loans made by them to R&B. With the proceeds from the IPO, the company expected to pay $6.58 million in dividends, a figure that represented R&B’s accumulated retained earnings since its 1984 organization as an S-corporation. Once the offering was completed, the Berman brothers, their father, Jordan Berman, and their brothers, Fred and Marc Berman, were expected to own roughly three-quarters of R&B’s outstanding common stock, more than enough to exercise authority over the selection of the company’s board of directors, corporate policies, and most corporate actions requiring shareholder approval. On March 12, 1991, R&B’s IPO was completed, raising $11.44 million. The company’s stock, traded on the over-the-counter market, debuted at $7.63 per share.

An integral facet of R&B’s success hinged on product development, the central reason for the company’s robust growth during the years immediately following its IPO. The company developed a broad range of products, focusing on those automotive parts that were not conveniently or economically available. In some cases, the company succeeded in designing parts that were superior to the parts they replaced—the OEM parts. In other cases, the company designed its products to fit a more diverse range of automotive makes and models than the OEM parts they replaced. R&B, for instance, designed a neoprene replacement oil drain plug for Chevrolet models that could also be used on a variety of vehicles, including vehicles made by Ford, Chrysler, and foreign manufacturers.

In the strategic science of product development, R&B demonstrated enviable execution, becoming the dominant supplier of hard-to-find parts. During the fours years after the company’s IPO, annual sales more than tripled, reaching $113 million in 1995. The company collected its sales from the larger of the two market segments composing the automotive replacement parts market, the passenger and light truck segment, which accounted for $66 billion in sales in 1995, as opposed to the $26 billion generated by the market segment for heavy duty trucks. To garner a greater share of the vast market, the Berman brothers began approaching expansion more aggressively during the mid-1990s, a strategy whose implementation was signaled by a significant acquisition. In January 1995, R&B acquired the Dor-man Products division of SDI Operating Partners L.P.

Dormán, a well-known manufacturer and marketer of nuts, bolts, and other fasteners, gave R&B a signature brand, one that the company would use to fuel its expansion. In the years ahead, R&B, through its subsidiary Dormán Products of America, Ltd., introduced new product lines that required sizable investments in engineering and manufacturing. As they rolled out, the new products would be brand new, rather than rebuilt parts, incorporating improvements over the OEM parts they replaced. The emphasis was on precise tooling, requiring an unprecedented attention to engineering, primarily because the Dormán product lines would focus on “application-specific” products, that is, parts whose exacting standards of manufacture were required to fit precisely within OEM systems.

By 1997, before embarking on an acquisition spree the following year, R&B’s sales had reached $153 million, thanks in large part to the incorporation and cultivation of the Dormán brand name. At this point in the company’s development, it designed, packaged, and marketed more than 30,000 different automotive replacement parts and fasteners, approximately half of which were classified as hard-to-find products. Roughly 70 percent of the company’s products were marketed under its own brand names, including the recent addition, Dormán, as well as Help!, HPX, Metal Work!, Safety Counts!, Mighty Lift!, Speedi-Boot!, Clutch-In!, and a dozen other trademarks. The remainder of the company’s products were sold for resale under customers’ private labels, other brands, or in bulk. Primarily all of the company’s products were sold through automotive after-market retailers, such as AutoZone, The Pep Boys, and Western Auto, or through national, regional, and local warehouse distributors, such as Auto Value, Carquest, and NAPA.

In 1998, the Bermans’ bid to make R&B larger and more diverse was on display. The brothers completed three acquisitions during the year, beginning with the January purchase of Scan-Tech USA/Sweden A.B. Based in Stockholm, Sweden, Scan-Tech operated as a distributor of replacement automotive parts for vehicles manufactured by Volvo and Saab. Scan-Tech, which generated roughly $10 million in sales in 1997, distributed its products throughout Europe, the United States, Russia, the Middle East, and the Far East. In September, the Bermans completed a $60 million private placement, earmarking the proceeds for new acquisitions and to repay existing debt. That same month, the Bermans began acquiring certain assets of the Service Line division belonging to Standard Motor Products, Inc. The acquisition, which included the Champ Service Line, Pik-A-Nut, and Everco, was completed in stages, ending with the purchase of Everco in January 1999. R&B’s third acquisition of the year occurred in October, when the company purchased Allparts, Inc. from JPE, Inc. Based in Louisiana, Missouri, Allparts supplied automotive hydraulic brake parts to the automotive aftermarket, generating approximately $17 million in sales in 1997.

Company Perspectives:

R&B, Inc. is a solutions driven company where services and products are a sustainable competitive advantage. In order for us to maintain and build on our success, R&B will focus on being a solutions driven supplier to all market segments. R&B distinguishes itself with a results oriented customer focus, new product development, and innovative merchandising. There are three keys to this plan. Profitable Growth: We will do this by growing in such a way that growth is mutually profitable. Main strategies include maintaining our U.S. Automotive Aftermarket leadership position, building on our successes with our existing hardware customers, and carefully considering international opportunities. Risk Protection: We will make sure that we are financially healthy. Culture of Contribution: And we will continue to get better at building a culture that encourages innovation and a sense of ownership among all contributors.

The Bermans’ efforts to deliver an expanding array of new product offerings, both through in-house product development and via acquisitions, produced robust financial growth. Revenues in 1998 increased $25 million, reaching $178 million during the company’s 20th anniversary year. Of the increase, nearly all—$21 million—was attributable to the addition of the three companies acquired during the year. In 1999, the company doubled its rate of sales growth, recording $236 million in revenues for the year. By the time the financial totals were announced for 1999, however, alarm bells had already rung at company headquarters in Colmar, Pennsylvania. In his letter to shareholders in the company’s 1999 annual report, Richard Berman referred to 1999 as “the most disappointing year in our 21-year history.”

Restructuring: 1999

As R&B entered its third decade of existence, its depth and breadth of product offerings was immense. The company marketed more than 60,000 different automotive replacement parts and fasteners, enough to require its customers to search through 38 catalogs and application guides to survey the entire R&B collection. The diversity of product offerings proved to be burdensome, serving as a drag on the company’s earnings. R&B’s predicament was exacerbated further by a weakened automotive aftermarket and escalating selling and administrative expenses. Consequently, the 33 percent rise in sales in 1999 was offset by a decline in the company’s net income from $7.6 million to $3.9 million.

The Bermans took action in late 1999 to amend the problems, deciding to incur a one-time restructuring charge to ensure that both net income and revenues would increase in the future. The restructuring charge of $9.5 million led to a more than $3 million loss for the year, as the Bermans eliminated thousands of automotive parts from its portfolio of products. The brothers’ efforts to create a leaner, more profitable company extended beyond their array of products. A warehouse and production facility was shuttered in Carrollton, Georgia, and the company eliminated 158 employees from its payroll, a reduction equivalent to 12 percent of its national workforce. The Bermans also strengthened the company’s marketing efforts to professional installers of automotive replacement parts, as opposed to the do-it-yourself customer that represented R&B’s other primary end-user.

Although the automotive aftermarket remained weak after the restructuring changes, the Bermans’ achieved improvement with their internal measures. By the end of 2000, the company’s debt had been reduced by nearly $30 million, a feat accomplished within the year. Selling and administrative costs were reduced by $8 million. Although the company had weeded out a large number of underperforming products, it continued to focus on new product offerings, aiming to introduce new parts and fasteners every fiscal quarter. The management of the company’s product selection, however, had become decidedly easier from the customers’ perspective. The 38 catalogs and application guides produced in 2000 had been winnowed down to six publications in 2001. By 2003, the company hoped to simplify the presentation of its products further, intending to publish only four catalogs.

Although the effects of the restructuring changes could not be fully measured as the company competed in 2002, there was some indication that the changes made had engendered a positive result. During the first fiscal quarter of 2002, the company’s profitability improved. R&B posted $2.1 million in net income for the quarter, more than quadrupling the $500,000 the company posted during the comparable period for the previous year. Revenues were up as well, increasing nearly 11 percent to $51.1 million for the same period. Richard Berman, though pleased with the results, was somewhat wary of committing to outright celebration. In his letter to shareholders in the company’s 2001 annual report, he wrote: “While I am happy with the success of our turnaround, I am disappointed and embarrassed by our 1999 results and my management during that period of growth. The good news is that we have learned as much if not more from failure than we have success. If we don’t learn, we can’t improve and we’ll never have a shot at meaningful growth.”

Principal Subsidiaries

RB Distribution, Inc.; RB Management, Inc.; Dormán Products of America, Ltd.; RB Service Supply, L.P.; RBPEACH, Inc.; Cosmos International, Inc.; Cosmos International, Inc.; Scan-Tech USA/Sweden, A.B. (Sweden); Allparts, Inc.

Principal Competitors

Federal-Mogul Corporation; Genuine Parts Company; General Parts, Inc.

Key Dates:

1978:

The Berman brothers start an automotive parts distribution business in their garage.

1984:

The company is organized as an S-corporation.

1991:

An initial public offering of stock is completed.

1995:

The Dormán Products division is acquired.

1998:

Three acquisitions are completed.

1999:

R&B restructures for the future.

Further Reading

“A New Name from Middle Market,” Private Placement Reporter, September 7, 1998, p. 3.

Armstrong, Michael W., “R&B Attempting to Raise $11 Million from Offering,” Philadelphia Business Journal October 22, 1990, p. 4.

“Auto Parts Firm to Cut Jobs,” Philadelphia Business Journal, January 21, 2000, p. 41.

“Earnings Increase at R&B,” New York Times, May 4, 2002, p. C4.

Kaufman, Edward, “Find a Need and Fill It,” Automotive Marketing, July 1999, p. 36.

—Jeffrey L. Covell