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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2001
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-18914
R&B, INC.
Incorporated pursuant to the Laws
of the Commonwealth of Pennsylvania
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IRS - Employer Identification No. 23-2078856
3400 East Walnut Street, Colmar, Pennsylvania 18915
(215) 997-1800
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Securities Registered pursuant to Section 12(b) of the Act: NONE
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
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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'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. |_|
As of March 18, 2002 the Registrant had 8,481,827 common shares, $.01 par value,
outstanding, and the aggregate market value of voting stock held by
non-affiliates of the Registrant was $33,727,000.
DOCUMENTS INCORPORATED BY REFERENCE
PART III - Certain information from the Registrant's definitive Proxy Statement
for its Annual Meeting of Shareholders presently scheduled to be held on May 23,
2002.
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R & B, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 29, 2001
Part I
Page
Item 1. Business. . . . . . . . .. . . . . . . . . . . . . . . . . .. . 3
General. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Automotive Aftermarket. . . . . . . . . . . . . . . . . . 3
Products. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Product Development. . . . . . . . . . . . . . . . . . . . . .5
Sales and Marketing. . . . . . . . . . . . . . . . . . . . . .6
Manufacturing. . . . . . . . . . . . . . . . . . . . . . . . .6
Packaging, Inventory and Shipping. . . . . . . . . . . . . . .7
Competition. . . . . . . . . . . . . . . . . . . . . . . . . .7
Proprietary Rights. . . . . . . . . . . . . . . . . . . . . . 7
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . .8
Investment Considerations. . . . . . . . . . . . . . . . . . .8
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . 10
Item 4.1 Certain Executive Officers of the Registrant. . . . . . . . . . . . 10
Part II
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters. .. . . . . . . . . . . . . . . . .12
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . .12
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition.. . . . . . . . . .. . . . . . . .. . .13
Item 8. Consolidated Financial Statements and Supplementary Data. . . . . . 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure... . . . . . . . . . . . . . . . . . .34
Part III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . .35
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . .35
Item 12. Security Ownership of Certain Beneficial Owners and Management. . .35
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . .35
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. ..35
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . 38
Report of Independent Public Accountants on
Financial Statement Schedule. . . .. . . . . . . . . . .39
Financial Statement Schedule. . . . . . . . . . . . . . . . . 40
Page 2 of 40
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 "hard-to-find" parts, 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
60,000 different automotive replacement parts, fasteners and service line
products manufactured to its specifications, with approximately half consisting
of "hard-to-find" parts and fasteners. "Hard-to-find" parts are those which were
traditionally available to consumers only from original equipment manufacturers
or junk yards and include, among other parts, window handles, headlamp aiming
screws, power steering filler caps, pedal pads and carburetor pre-heater hoses.
Fasteners include such items as oil drain plugs and wheel lug nuts.
Approximately 89% 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 The Pep Boys),
national, regional and local warehouse distributors (such as Auto Value,
Carquest and NAPA) and specialty markets including parts manufacturers for
resale under their own private labels (such as Federal Mogul and Dana) and
salvage yards. Through its Scan-Tech subsidiary, the Company is increasing its
international distribution of automotive replacement parts, with sales into
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 $175 billion in 2001, and parts for heavy duty trucks, which
accounted for sales of approximately $64 billion in 2001. 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 con strained in the short-term 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 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 40
Products
The Company sells over 60,000 different automotive replacement parts,
fasteners and service line products to meet a variety of needs, including
"hard-to-find" parts sold under one of 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 89% of the
Company's revenues are derived from products sold under its more than sixty
brand names.
Motormite(R) - brand names within the Motormite(R) master brand represent the
Company's "hard-to-find" 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
* Pedal- UP!TM - Automotive pedal pads
* 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 and traditional replacement parts, including,
among others, the following:
* Oil-Tite!(R) - Oil drain plugs and gaskets
* Cable-All!TM - Accelerator, detent and transhift cables
* Gear-Up!(R) - Flywheels, ring gears and flex plates
* Quick-Boot(R) - Constant velocity joint boots and clamps
* Uni-Fit TM - 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!TM - A 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
* SafetyXCounts!TM - Safety products relating to compliance items,
gear for personal protection and first aid
Page 4 of 40
Pik-A-Nut(R) - the Pik-A-Nut (R) brand represents the Company's fasteners for
automotive retail, specialty automotive and mass merchant markets
Platinum Parts TM - the Platinum Parts TM brand represents the Company's
automotive replacement parts and supplies for salvage yards
Brakeware(R) and Tru-Torque(R) - these brands represent the Company's hydraulic
brake parts, including wheel cylinders and related hardware
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 Federal Mogul and Dana), national
warehouse distributors (such as NAPA) and automobile manufacturers or their
dealers. During the years ended December 2001, 2000 and 1999, no single product
or related group of products accounted for more than 10% of gross sales.
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.
Page 5 of 40
Sales and Marketing
The Company markets its parts to three groups of purchasers who in turn
supply individual consumers and professional installers:
(i) Approximately 44% of the Company's revenues are generated
from sales to automotive aftermarket retailers (such as AutoZone,
Advance and The Pep Boys), local independent parts wholesalers and
national general merchandise chain retailers. The Company sells some of
its products to virtually all major chains of automotive aftermarket
retailers;
(ii) Approximately 28% of the Company's revenues are generated
from sales to warehouse distributors (such as Auto Value, 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 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 (such as Federal Mogul and
Dana).
The Company utilizes a number of different methods to sell its products. The
Company's more than 40 person direct sales force solicits purchases of the
Company's products directly from customers, as well as managing the activities
of more than 10 independent manufacturer's representative agencies. The Company
uses independent manufacturer's represen tative 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 12,000 active accounts. During
2001, 2000 and 1999, one customer (AutoZone), accounted for approximately 24%,
20% and 21% of 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, so no one
vendor supplies 10% or more of the Company's products. In 2001, as a percentage
of the total dollar volume of purchases made by the Company, approximately 61%
of the Company's products were purchased from various suppliers throughout the
United States and approximately 39% of the Company's products were purchased
directly from a variety of foreign countries.
Page 6 of 40
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.
Packaging, Inventory and Shipping
Finished products are received at one or more of the Company's
facilities, depending on the type of part. Samples of each shipment are tested
upon receipt. 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, 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 card 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 organized according to historical popularity in
order to aid in retrieval for shipping. The Company strives to maintain a 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 resulted in approximately a three month supply of its products,
packaged and readily available for shipment, and a two to six month supply of
product in finished bulk form ready for packaging.
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 central warehouse for redistribution within their
network. In certain circumstances, at the request of the customer, the Company
ships directly to the customer's stores.
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.
Page 7 of 40
Employees
At December 29, 2001, the Company had 955 employees, of whom 913 were
employed full-time and 42 were employed part-time. Of these employees, 677 were
engaged in production, inventory, or quality control, 44 were involved in
product development and brand management, 73 were employed in sales and order
entry, and the remaining 161, including the Company's 7 executive officers, were
devoted to administration, finance and strategic planning.
No employee is covered by any collective bargaining agreement. The
Company considers its relations with its employees to be generally good.
Investment Considerations
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. In 2001, 2000 and 1999 one customer
(AutoZone) accounted for approximately 24%, 20% and 21% of 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."
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 51% 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.
Page 8 of 40
Item 2. Properties.
Facilities
The Company currently has 12 warehouse and office facilities located throughout
the United States, Sweden and Korea. Three of these facilities are owned and the
remainder are leased. The Company's headquarters and principal warehouse
facilities, are as follows:
Location Description
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Colmar, PA Warehouse and office - 334,000 sq. ft. (leased) (1)
Warsaw, KY Warehouse and office - 326,000 sq. ft. (owned)
Carrollton, GA Warehouse and office - 100,000 sq. ft. (leased) (2)
Baltimore, MD Warehouse and office - 83,000 sq. ft. (leased)
Allentown, PA Warehouse and office - 65,000 sq. ft. (leased)
Louisiana, MO Warehouse and office - 62,000 sq. ft. (owned)
In the opinion of management, the Company's existing facilities are in good
condition.
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(1) Leased by the Company from a partnership (the "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 $3.45 per square foot ($1.2 million per
year) in 2001. 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. The lease also provides that, as between the
Company and the related partnership lessor, the lessor and its partners will
bear any environmental liability and all related expenses, including legal
expenses, incurred by the Company or the lessor as a result of matters which
arose other than from activities of the Company (although for any environmental
liability arising from the Company's activities, the Company will bear all such
liability and any related expenses, including legal expenses, incurred by the
Company or the lessor). The lease will expire on December 28, 2002. The Company
is currently negotiating a lease renewal with the Partnership. 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.
The property is being purchased by the partnerships from the Montgomery
County Industrial Development Corporation ("MCIDC") under an installment sale
agreement. MCIDC has, in turn, borrowed approximately $1,971,000 from First
Union National Bank and approximately $1,161,000 from the Pennsylvania
Industrial Development Authority ("PIDA") to fund in full its purchase and
development of the Pennsylvania property. The partnerships' payments to MCIDC
under the installment sale agreement are required to be at least equal to the
principal and interest payable by MCIDC under these two loans, and the Company's
rental payments on the Pennsylvania property are required to be at least equal
to the partnership's payments under the installment sale agreement with MCIDC.
The Company has guaranteed the obligations of the partnerships and MCIDC to
First Union and of MCIDC to PIDA.
(2) Leased by the Company from a partnership (the "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 $2.68 per square foot ($0.28 million
per year) in 2001. The Company is currently not using this facility and is
working with the partnership to either sell or sublease the facility. The lease
expires on January 2, 2005. 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 9 of 40
Item 3. Legal Proceedings.
In addition to commitments and obligations which arise in the ordinary
course of business, the Company is subject to 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.
On February 27, 1996, the Company's subsidiary, Dorman Products of
America, Ltd. ("Dorman"), filed a complaint in the United States District Court
for the Eastern District of Pennsylvania against SDI Operating Partners, L.P.
("SDI") for damages resulting from, inter alia, an alleged breach of various
representations and warranties contained in the Asset Purchase Agreement dated
as of October 5, 1994 between Dorman and SDI. On April 25, 1996, SDI filed a
complaint in the Court of Common Pleas, Montgomery County, Pennsylvania against
Dorman and the Company for damages of approximately $450,000 resulting from,
inter alia, Dorman's alleged failure to use its "best efforts" to assist SDI in
collecting certain past due accounts receivable which were not transferred to
Dorman as a result of the acquisition. In addition, SDI is seeking declaratory
judgment that SDI has not breached the representations and warranties of the
Asset Purchase Agreement as alleged by Dorman in the federal court action. In
May 1996, the issues were consolidated and will proceed in the Court of Common
Pleas.
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 2001.
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 42 Senior Vice President, Chief Financial Officer
Richard N. Berman 45 President, Chief Executive Officer, Chairman of
the Board of Directors, and Director
Steven L. Berman 42 Executive Vice President, Secretary-Treasurer, and
Director
Edward L. Dean 45 Senior Vice President, Marketing
David A. Eustice 41 Senior Vice President, Chief Operating Officer
Ronald R. Montgomery 60 Senior Vice President, Sales
Barry D. Myers 42 Senior 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.
Page 10 of 40
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.
Steven L. Berman has been Executive Vice-President, Secretary-Treasurer
and a Director of the Company since its inception. He attended Temple
University.
Edward L. Dean joined the Company in November 1997 as Vice President,
Marketing and was named Senior Vice President, Marketing in December 1999. Prior
to joining the Company Mr. Dean was the Vice President of Sales with Angelo
Brothers Company from May of 1989 to November of 1997. Angelo is a leading
supplier of light bulbs and lighting products to the electrical distributor and
home center markets. He is a graduate of Cincinnati Technical College.
David A. Eustice joined the Company in December 1996 as Vice President,
Operations and was named Chief Operating Officer in January 1998. Prior to
joining the Company Mr. Eustice was the Vice President of Operations with the
Baldwin Hardware Division of Masco Corporation. Baldwin is a high end
manufacturer and international distributor of architectural hardware. From
August 1990 to January 1994, Mr. Eustice was a Senior Project Manager for USC
Consulting, a operational improvement firm. While with USC Consulting, Mr.
Eustice consulted to clients including IBM, Copper Industries, PPG Industries
and Masco Corporation. Mr. Eustice received his Masters degree from the Wharton
School at the University of Pennsylvania.
Ronald R. Montgomery joined the Company in June 1997 as Vice President,
Sales and was named Senior Vice President, Sales in December 1999. Prior to
joining the Company Mr. Montgomery was Senior Vice President, Sales for the
Coleman Company, responsible for North American sales in the outdoor and camping
equipment division. From December 1979 to October 1995, Mr. Montgomery held
various senior sales positions with Black & Decker, Inc. He is a graduate of
Miami University (Ohio).
Barry D. Myers has been an employee of 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 named Senior Vice President, General
Counsel and Assistant Secretary. He is a graduate of Moravian College and
Syracuse University College of Law, and is a member of the Pennsylvania Bar.
Page 11 of 40
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Company's shares of common stock are traded publicly in the
over-the-counter market under the NASDAQ system. At March 18, 2002 there were 50
holders of record of common stock, representing more than 1,500 beneficial
owners. The last price for the Company's common stock on March 18, 2002, as
reported by NASDAQ, was $8.30 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 2001 and 2000 are as follows:
2001 2000
----------------------- -----------------------
High Low High Low
- ------------------ ---------- ------------ ---------- ------------
First Quarter $2.63 $1.66 $6.00 $2.38
Second Quarter 3.80 2.00 3.50 2.25
Third Quarter 4.50 2.69 3.13 2.50
Fourth Quarter 7.35 3.00 2.75 1.19
Item 6. Selected Financial Data.
Selected Consolidated Financial Data
Year Ended December
-------------------------------------------------------------------------
(in thousands, 2001 2000 (a) 1999(b) 1998 1997
except per share data)
- ----------------------------- -------------- ------------ -------------- --------------- -------------
Statement of Operations Data:
Net sales $201,668 $201,390 $236,689 $178,301 $153,046
Income from operations 12,266 12,308 1,633 16,419 14,784
Net income (loss) 5,229 4,095 (3,602) 7,556 6,714
Earnings (loss) per share:
Basic 0.61 0.49 (0.43) 0.91 0.83
Diluted 0.60 0.48 (0.43) 0.90 0.83
Balance Sheet Data:
Total assets 163,163 159,879 188,004 183,948 128,707
Working capital 81,068 83,262 96,612 97,620 58,609
Long-term debt 53,511 65,066 85,283 80,004 44,336
Shareholders' equity 75,162 72,384 68,234 71,614 61,162
(a) 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.
(b) Results for 1999 include a restructuring charge of $11,400 ($7,500 after tax
or $0.90 per share).
Page 12 of 40
Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition.
General
Over the periods presented, the Company has focused its efforts on
providing an expanding array of new product offerings and strengthening its
relationships with its customers. To that end, the Company has made significant
investments to increase market penetration, primarily in the form of product
development, customer service, customer credits and allowances.
The Company calculates its net sales by subtracting credits and
allowances from gross sales. Credits and allowances include costs for
co-operative advertising, product returns, discounts given to customers who
purchase new products for inclusion in their stores, 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. The credits and
allowances are designed to increase market penetration and increase the number
of product lines carried by customers by displacing competitors' products within
customers' stores and promoting consolidation of customers' suppliers.
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. Results for the fiscal years ended
December 29, 2001, December 30, 2000 and December 25, 1999 were fifty-two weeks,
fifty-three weeks, and fifty-two weeks, respectively.
Critical Accounting Policies
The Securities and Exchange Commission ("SEC") recently issued
disclosure guidance for "critical accounting policies." The SEC defines
"critical accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.
The Company's significant accounting policies are described in Note 1 of
the Notes to Consolidated Financial Statements. Not all of these significant
accounting policies require management to make difficult, subjective or complex
judgments or estimates. However, the following policies could be deemed to be
critical within the SEC definition:
Allowance for Doubtful Accounts. The preparation of the Company's
financial statements requires management to make estimates of the
uncollectability of its accounts receivable. Management specifically analyzes
accounts receivable and historical bad debts, customer credit-worthiness,
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 have been, and will continue to be,
concentrated among a relatively small number of customers. 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 $0.9 million as of December 29, 2001.
Allowance for Customer Credits. Management must make estimates of
potential 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
Page 13 of 40
Company's products when evaluating the adequacy of 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 any period
may result if management made different judgments or utilized different
estimates for the reserves. Reserves for customer credits were $14.2 million as
of December 29, 2001.
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 maintains contact with its customer base in order to understand buying
patters, customer preferences and the life cycle of its products. Changes in
customer requirements are factored into the reserve needs as needed. During
2001, the Company revised its estimates which resulted in an increased provision
for excess and obsolete inventory of $3.6 million. Reserves for excess and
obsolete inventory were $9.6 million as of December 29, 2001.
Restructuring Charges
In the fourth quarter of fiscal 1999, the Company recorded a
restructuring charge of $11.4 million ($7.5 million after tax or $0.90 per
share) to reflect costs primarily related to inventory write downs associated
with the elimination of a significant number of underperforming products, as
well as the closing of a warehouse and production facility in Carrollton,
Georgia, and a work force reduction of 158 people. A total of $9.8 million,
representing inventory write downs, was charged to cost of sales and $1.6
million was charged to selling, general and administrative expenses. In 2001,
the Company determined that it had $0.2 million in excess facility shutdown
reserves which were credited to selling, general and administrative expenses.
Sale of Lift Support Assets
During the first quarter of fiscal 2000, the Company sold all of its
inventory and certain other assets related to its lift support product line as a
result of a strategic decision to eliminate this product line. Fiscal 2000
revenues include non-recurring net sales of $5.5 million and gross profit of
$1.6 million attributable to the sale of the inventory and related assets. The
gain on the sale was $1.6 million ($1.1 million after tax or $0.13 per share).
Page 14 of 40
Results of Operations
The following table sets forth, for the periods indicated, the
percentage of net sales represented by cer tain items in the Company's
Consolidated Statements of Operations.
Percentage of Net Sales
--------------------------------------------------------
Year Ended
--------------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
- ----------------------------- ------------------ ---------------- -------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 65.6 65.9 71.3
- ----------------------------- ------------------ ---------------- -------------------
Gross profit 34.4 34.1 28.7
Selling, general and
administrative expenses 28.3 28.0 28.0
- ----------------------------- ------------------ ---------------- -------------------
Income from operations 6.1 6.1 0.7
Interest expense, net 2.1 3.0 3.0
- ----------------------------- ------------------ ---------------- -------------------
Income (loss) before taxes 4.0 3.1 (2.3)
Provision (benefit) for taxes 1.4 1.1 (0.8)
- ----------------------------- ------------------ ---------------- -------------------
Net income (loss) 2.6% 2.0% (1.5)%
============================= ================== ================ ===================
2001 Compared to 2000
Net sales increased to $201.7 million in 2001 from $201.4 million in
2000, or $195.9 million without revenues from the sale of the lift support
inventory described above. Net sales in 2001 increased $5.8 million, or 3.0%,
after adjusting prior year amounts for the lift support sale. The sales increase
is primarily the result of incremental 2001 revenues from the Company's third
quarter 2000 initiative to supply Wal-Mart with its "Pik-a- Nut" brand of
hardware and general use fasteners. The Company also experienced sales increases
from the successful introduction of several new products lines in 2001 to
existing customers. These sales increases were offset by lower 2001 sales from
discontinued product lines of certain subsidiaries and a fifty-three week period
in fiscal 2000.
Cost of goods sold decreased to $132.4 million in 2001 from $132.6
million in 2000. Fiscal 2000 cost of sales were $128.8 million without costs
associated with the sale of the lift support inventory described above. Cost of
goods sold as a percentage of sales decreased slightly to 65.6% from 65.7%
before the lift support sale in 2000. The decline in cost of goods sold as a
percentage of sales is the result of lower materials and operating costs
achieved through several cost reduction initiatives which were offset by
increased provisions for discontinued and excess inventories in the current
year. The Company provides reserves for discontinued and excess inventory based
upon historical demand, forecasted usage, estimated customer requirements and
product line updates. During 2001, the Company revised its estimates which
resulted in an increased provision of $3.6 million.
Selling, general and administrative expenses in 2001 increased to $57.0
million from $56.5 million in 2000, an increase of $0.5 million, or 0.9%. The
increase in selling, general and administrative costs in 2001 was primarily the
result of severance and related costs associated with the Company's
consolidation of subsidiary operations as well as higher bad debt provisions due
to customer financial difficulties.
Page 15 of 40
Interest expense, net decreased to $4.3 million in 2001 from $6.0
million in 2000 due to lower borrowing levels in 2001. Borrowing levels declined
as a result of increased operating cash flow and lower capital spending.
The Company's effective tax rate decreased to 34.4% in 2001 from 34.8%
in the prior year due to a higher mix of earnings from the Company's Swedish
subsidiary which has a lower effective tax rate than the Company's other
businesses.
2000 Compared to 1999
Net sales decreased to $201.4 million in 2000 from $236.7 million in
1999, a decrease of $35.3 million or 14.9%. The sales decline is the result of
lower sales in substantially all of the Company's product lines due to weak
automotive aftermarket conditions and the Company's strategic decision to
eliminate unprofitable products in connection with the restructuring of its
business in the fourth quarter of 1999. In addition, the sale of the lift
support inventory mentioned previously accounted for approximately $6.0 million
of the net sales reduction in 2000. This sales reduction was substantially
offset by revenues from a new fiscal 2000 initiative to sell the Company's
"Pik-a-Nut" brand of hardware and general use fasteners to Wal-Mart. Net income
in 2000 was negatively impacted by start up losses from this and other new
initiatives.
Cost of goods sold decreased to $132.6 million from $168.7 million in
1999, a decrease of $36.1 million. Restructuring charges recorded in 1999
accounted for $9.8 million of this decrease. In addition, cost of goods sold in
2000 includes $3.8 million attributable to the sale of the lift support
inventory mentioned above. Cost of goods sold as a percentage of sales before
1999 restructuring charges and without the impact of the lift support sale in
2000 decreased to 65.7% from 67.1% in 1999. This decline is attributable to
lower operating costs as a result of savings achieved from the restructuring
initiatives implemented early in 2000.
Selling, general and administrative expenses in 2000 decreased to $56.5
million from $66.3 million in 1999, a decrease of $9.8 million, or 14.8%.
Restructuring charges recorded in 1999 accounted for $1.6 million of this
decrease. As a percentage of sales, selling, general and administrative expenses
before restructuring charges and the lift support inventory sale were 28.9% in
2000 compared to 27.4% in 1999. This increase as a percentage of sales is
primarily attributable to start up costs associated with new initiatives and the
decline in sales in 2000, as the Company was not able to reduce fixed costs
adequately to offset the lower sales levels experienced in 2000.
Interest expense, net decreased to $6.0 million in 2000 from $7.0
million in 1999. The decline in interest costs is the result of lower borrowing
levels in 2000 due to reduced working capital requirements. Working capital
levels declined in 2000 primarily as a result of lower accounts receivable and
inventory levels.
The Company recorded an income tax provision at the rate of 34.8% in
2000 compared to an income tax benefit at an effective rate of 32.4% in 1999.
The higher effective income tax rate in 2000 is primarily due to the lack of a
state income tax benefit on the $11.4 million restructuring charge recorded in
1999.
Liquidity and Capital Resources
Historically, the Company has financed its growth through a combination
of cash flow from operations and through the issuance of senior indebtedness
through its bank credit facility and senior note agreements. During fiscal 2000
and 2001 the Company improved its inventory management and more aggressively
managed other components of working capital. In addition, capital spending
levels were reduced in 2001. These initiatives resulted in increased cash flow
from operations in 2000 and 2001 which were used to reduce borrowing levels in
both years. At December 29, 2001 working capital was $81.1 million, total
long-term debt (including the current portion) was $65.0 million and
shareholders' equity was $75.2 million. Cash and cash equivalents as of
December 29, 2001 totaled $21.7 million.
Page 16 of 40
In August 1998, the Company completed a private placement of $60.0
million in Senior Notes ("Notes") due August 21, 2008 on an unsecured basis. The
ten-year Notes bear a 6.81% fixed interest rate, payable quarterly, with an
initial four-year interest only period. Annual repayments at the rate of $8.6
million are due beginning in August 2002.
The Company's lease for its Pennsylvania facility is recorded as a
capitalized lease in the Company's financial statements. In addition, the
Company has entered into three sale/leaseback transactions relating to computer
hardware and software. The aggregate amount outstanding under all capital leases
amounted to $2.5 million at December 29, 2001.
In March 2001, the Company amended its Revolving Credit Facility. The
amended agreement provides for a $10.0 million facility for a three-year term
that expires in March 2004. Borrowings under the amended facility are on an
unsecured basis with interest at rates ranging from Libor plus 150 to Libor plus
275 basis points. The loan agreement also contains covenants, the most
restrictive of which pertain to net worth and the ratio of debt to EBITDA. There
were no borrowings under the amended credit facility in 2001.
Operating cash flow was $21.5 million in fiscal 2001. The primary
sources of cash flow were net income, depreciation and amortization charges and
reduced inventory levels. Inventory levels were reduced in 2001 through more
disciplined inventory management. This resulted in cash generated of $5.2
million in fiscal 2001.
Additions to property, plant and equipment required $1.9 million in cash
in 2001. Capital expenditures were primarily for upgrades to information systems
hardware, purchases of packaging equipment designed to improve operational
efficiencies and scheduled equipment replacements. Total capital spending in
2001 declined significantly from 2000 and 1999 spending levels of $6.8 and $7.9
million, respectively. Fiscal 2000 spending included one time expenditures for
equipment in connection with the Company's initiative to supply Wal-Mart with
its "Pik-a-Nut" brand of hardware and general use fasteners. Fiscal 1999
expenditures included spending related to a number of non-recurring information
systems and customer-related projects.
Financing activities required $5.5 million in cash during 2001. During
2001 the Company amended certain agreements related to its 1998 acquisition of
Scan-Tech USA/Sweden A.B. and related entities ("Scan-Tech"). As a result of
this transaction, the Company purchased and canceled 250,000 shares of its
common stock issued in connection with the acquisition and canceled the earn out
provisions of the acquisition agreement in exchange for consideration of $3.2
million to be paid by the Company in installments through December 2005. After
the initial $0.8 million payment in 2001, this transaction increased total debt
at December 29, 2001 by $2.5 million. Repayments of loans and capital leases
resulted in the use of $5.9 million in cash. These repayments included the
payoff of an Industrial Revenue Bond with a balance of $2.9 million at December
30, 2000.
The Company believes that cash on hand, cash generated from operations
together with available sources of capital are sufficient to meet ongoing cash
needs for the foreseeable future.
Foreign Currency Fluctuations. In 2001, approximately 39% of the
Company's products were pur chased 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
fluctuation 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, to the extent that the dollar decreases in value to
foreign currencies in the future, the price of the product in dollars for new
purchase orders may increase. The Company attempts to lessen the impact of these
currency fluctuations by resourcing its purchases to other countries.
Page 17 of 40
Impact of Inflation
The Company has not generally been adversely affected by inflation. The
Company believes that price increases resulting from inflation generally could
be passed on to its customers, since prices charged by the Company are not set
by long-term contracts.
Cautionary Statement Regarding Forward Looking Statements
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), 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 - Investment Considerations."
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, 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.
The Company uses derivative financial instruments, consisting of foreign
currency forward purchase and sales contracts with terms of less than one year,
to hedge its exposure to changes in foreign currency exchange. Its primary
exposure to changes in foreign currency rates results from changes in exchange
rates on certain third-party trade receivables and payables of the Company's
Swedish subsidiary. There were no forward purchase or sales contracts
outstanding as of December 29, 2001.
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 14(a)(2), Part IV, of this Report.
Page 18 of 40
Report of Independent Public Accountants
To R&B, Inc.:
We have audited the accompanying consolidated balance sheets of R&B, Inc. (a
Pennsylvania corporation) and subsidiaries as of December 29, 2001 and December
30, 2000, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
December 29, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of R&B, Inc. and
subsidiaries as of December 29, 2001 and December 30, 2000 and the consolidated
results of their operations and their cash flows for each of the three fiscal
years in the period ended December 29, 2001, in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
Philadelphia, Pennsylvania
February 13, 2002
Page 19 of 40
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended
---------------------------------------------
December 29, December 30, December 25,
(in thousands, except per share data) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------
Net Sales $201,668 $201,390 $236,689
Cost of goods sold 132,353 132,621 168,730
- -------------------------------------------------------------------------------------------------------
Gross profit 69,315 68,769 67,959
Selling, general and administrative expenses 57,049 56,461 66,326
- -------------------------------------------------------------------------------------------------------
Income from operations 12,266 12,308 1,633
Interest expense, net of interest income of $439, $93, and $- 4,289 6,032 6,961
- -------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 7,977 6,276 (5,328)
Income taxes 2,748 2,181 (1,726)
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ 5,229 $ 4,095 $ (3,602)
=======================================================================================================
Earnings (Loss) Per Share:
Basic $ 0.61 $ 0.49 $ (0.43)
Diluted $ 0.60 $ 0.48 $ (0.43)
=======================================================================================================
Weighted Average Shares Outstanding:
Basic 8,529 8,439 8,375
Diluted 8,647 8,523 8,375
=======================================================================================================
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 20 of 40
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 29, December 30,
(in thousands, except share data) 2001 2000
- ------------------------------------------------------------------------ --------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $ 21,689 $ 7,553
Accounts receivable, less allowance for doubtful
accounts and customer credits of $15,110 and $10,334 36,700 36,322
Inventories 45,036 50,765
Deferred income taxes 7,469 4,896
Prepaids and other current assets 1,352 2,665
- ------------------------------------------------------------------------ --------------- ---------------
Total current assets 112,246 102,201
- ------------------------------------------------------------------------ --------------- ---------------
Property, Plant and Equipment, net 18,744 23,332
Goodwill 30,422 31,358
Other Assets 1,751 2,988
- ------------------------------------------------------------------------ --------------- ---------------
Total $ 163,163 $ 159,879
======================================================================== =============== ===============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 11,481 $ 2,583
Accounts payable 8,327 8,159
Accrued compensation 6,145 3,580
Other accrued liabilities 5,225 4,617
- ------------------------------------------------------------------------ --------------- ---------------
Total current liabilities 31,178 18,939
- ------------------------------------------------------------------------ --------------- ---------------
Long-Term Debt 53,511 65,066
Deferred Income Taxes 3,312 3,490
Commitments and Contingencies (Note 11)
Shareholders' Equity:
Common stock, par value $.01; authorized 25,000,000 shares;
issued and outstanding 8,466,482 and 8,481,517 shares 85 85
Additional paid-in capital 32,501 34,229
Cumulative translation adjustments (1,562) (839)
Retained earnings 44,138 38,909
- ------------------------------------------------------------------------ --------------- ---------------
Total shareholders' equity 75,162 72,384
- ------------------------------------------------------------------------ --------------- ---------------
Total $ 163,163 $ 159,879
======================================================================== =============== ===============
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
Page 21 of 40
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 26, 1998 8,344,082 $83 $33,133 $ (18) $38,416 $71,614
Common stock issued for purchase of Scan-Tech
USA/Sweden AB 3,479 - 29 - - 29
Common stock issued to
Employee Stock Purchase Plan 11,505 - 73 - - 73
Common Stock issued to 401(k) Retirement Plan 34,268 1 277 - - 278
Shares issued under Incentive Stock Option Plan 462 - 5 - - 5
Comprehensive Income:
Net (loss) - - - - (3,602) (3,602)
Currency translation adjustments - - - (163) - (163)
----------
Total comprehensive (loss) (3,765)
- --------------------------------------------- ---------- -------- ------------ ------------- --------- ----------
Balance at December 25, 1999 8,393,796 84 33,517 (181) 34,814 68,234
Common stock issued for purchase of Scan-Tech
USA/Sweden AB 11,188 - 30 - - 30
Common stock issued to
Employee Stock Purchase Plan 32,791 - 97 - - 97
Common stock issued to 401(k) Retirement Plan 43,742 1 204 - - 205
Compensation expense on stock option issuance - - 381 - - 381
Comprehensive Income:
Net income - - - - 4,095 4,095
Currency translation adjustments - - - (658) - (658)
----------
Total comprehensive income 3,437
- --------------------------------------------- ---------- -------- ------------ ------------- --------- ----------
Balance at December 30, 2000 8,481,517 85 34,229 (839) 38,909 72,384
Common stock issued to
Employee Stock Purchase Plan 4,106 - 11 - - 11
Common stock issued to 401(k) Retirement Plan 230,859 3 380 - - 383
Compensation expense on stock option issuance - - 297 - - 297
Purchase and cancellation of common stock(Note 6)(250,000) (3) (2,416) - - (2,419)
Comprehensive Income:
Net income - - - - 5,229 5,229
Currency translation adjustments - - - (723) - (723)
----------
Total comprehensive income 4,506
- --------------------------------------------- ---------- -------- ------------ ------------- -------- ---------
Balance at December 29, 2001 8,466,482 $85 $32,501 $(1,562) $44,138 $75,162
============================================= ========== ======== ============ ============= ========= ==========
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 22 of 40
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 Weeks Ended 53 Weeks Ended 52 Weeks Ended
---------------------------------------------------------
December 29, December 30, December 25,
(in thousands) 2001 2000 1999
- ------------------------------------------------- ------------------ ------------------- -----------------
Cash Flows from Operating Activities:
Net income (loss) $ 5,229 $ 4,095 $ (3,602)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation and amortization 8,105 7,931 7,551
Provision for doubtful accounts 1,118 566 1,058
Provision (benefit) for deferred income tax (2,751) 965 (3,150)
Provision for restructuring - - 11,400
Provision for non-cash stock compensation 297 381 -
Changes in assets and liabilities:
Accounts receivable (1,676) 12,900 4,548
Inventories 5,220 18,897 (11,671)
Prepaids and other current assets 1,279 (156) (1,682)
Other assets 1,231 97 (2,318)
Accounts payable 276 (4,576) (5,605)
Accrued compensation and other liabilities 3,221 746 (2,572)
- ------------------------------------------------- ------------------ ------------------- -----------------
Cash provided by (used in) operating activities 21,549 41,936 (6,043)
- ------------------------------------------------- ------------------ ------------------- -----------------
Cash Flows from Investing Activities:
Property, plant and equipment additions (1,924) (6,759) (7,890)
- ------------------------------------------------- ------------------ ------------------- -----------------
Cash used in investing activities (1,924) (6,759) (7,890)
- ------------------------------------------------- ------------------ ------------------- -----------------
Cash Flows from Financing Activities:
Net (repayment) proceeds from revolving credit - (28,500) 15,000
Repayment of long-term debt obligations (5,883) (923) (900)
Proceeds from common stock issuances 394 332 385
- ------------------------------------------------- ------------------ ------------------- -----------------
Cash (used in) provided by financing activities (5,489) (29,091) 14,485
- ------------------------------------------------- ------------------ ------------------- -----------------
Net Increase in Cash and Cash Equivalents 14,136 6,086 552
Cash and Cash Equivalents, Beginning of Year 7,553 1,467 915
- ------------------------------------------------- ------------------ ------------------- -----------------
Cash and Cash Equivalents, End of Year $ 21,689 $ 7,553 $ 1,467
================================================= ================== =================== =================
Supplemental Cash Flow Information
Cash paid for interest expense $ 4,788 $ 5,933 $ 6,692
Cash paid for income taxes $ 4,206 $ 1,170 $ 3,327
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 23 of 40
R&B, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 29, 2001
1. Summary of Significant Accounting Policies
R&B, Inc. (the "Company") is principally engaged in the business of
selling a broad range of "hard-to-find" replacement parts, fasteners and
household hardware to the automotive aftermarket, home center and general
merchandise markets. R&B's automotive parts and hardware are marketed under more
than thirty proprietary brand names, through its Motormite/Dorman, Pik-a-Nut,
Scan-Tech, MPI and Allparts businesses.
The Company operates on a fifty-two, fifty-three week period ending on
the last Saturday of the calendar year. Results for the fiscal years ended
December 29, 2001, December 30, 2000 and December 25, 1999 were fifty-two weeks,
fifty-three weeks, and fifty-two 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.
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. During 2001, the Company revised its estimates which
resulted in an increased provision of $3.6 million.
Property and Depreciation. Property, plant and equipment are recorded
at cost and depreciated over their estimated useful lives, which range from
three to fifteen years, using the straight-line method for financial statement
reporting purposes and accelerated methods for income tax purposes. Properties
under capitalized leases are amortized over the related lease terms (3-15
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.
Goodwill. Goodwill is amortized over periods from 10 to 40 years. Total
accumulated amortization as of December 29, 2001 and December 30, 2000 was $9.4
million and $7.8 million, respectively. Amortization expense of these assets was
$1.6 million in the year ended December 29, 2001, and $1.7 million in each of
the years ended December 30, 2000, and December 25, 1999.
It is the Company's policy to review goodwill and other long-lived
assets for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If such
review indicates that the carrying amount is not recoverable, it is the
Company's policy to reduce the carrying amount of such assets to fair value.
Based upon management's current assessment, the remaining balance is fully
recoverable.
Other Assets. Other assets consist of deferred credits associated with
certain customer multi-year sales arrangements which are capitalized and
amortized against current and future sales; 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.
Page 24 of 40
Foreign Currency Translation. Assets and liabilities of a foreign
subsidiary 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.
Foreign Currency Contracts. In order to minimize exposure to foreign
currency fluctuations with respect to foreign currency exposures, the Company
may enter into forward exchange rate contracts for the amount of the exposure.
Gains and losses arising from foreign currency forward contracts are recognized
in income or expense as offsets of gains and losses resulting from the
underlying hedged transactions. As of December 29, 2001 and December 30, 2000,
no open forward exchange contracts were outstanding.
Fair Value Disclosures. The carrying value of financial instruments
such as cash, 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 long-term
debt was $62.4 million and $67.5 million at December 29, 2001 and December 30,
2000, 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.
Revenue Recognition. The Company records sales when its products are
shipped. The Company calculates its net sales by subtracting credits and
allowances from gross sales. Credits and allowances include costs for
co-operative advertising, product returns, discounts given to customers who
purchase new products for inclusion in their stores, 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 credits and
allowances 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 included in cost of goods sold.
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 29, 2001:
2001 2000 1999
---------- ---- ---------- ---- -----------
(in thousands, except per share data)
Numerator:
Net income (loss)........................ $5,229 $4,095 $(3,602)
Denominator:
Weighted average shares outstanding
for basic earnings per share..... 8,529 8,439 8,375
Effect of dilutive stock options... ...... 118 84 -
---------- ---- ---------- ---- -----------
Adjusted weighted average shares
outstanding for diluted earnings
per share............................ 8,647 8,523 8,375
========== ==== ========== ==== ===========
Basic earnings (loss) per share................ $0.61 $ 0.49 $ (0.43)
========== ==== ========== ==== ===========
Diluted earnings (loss) per share............. $0.60 $ 0.48 $ (0.43)
========== ==== ========== ==== ===========
Page 25 of 40
Reclassification. Certain prior-period amounts have been reclassified
to conform to the current year presentation.
2. Restructuring Charges
In the fourth quarter of fiscal 1999, the Company recorded
restructuring charges of $11.4 million ($7.5 million after tax or $0.90 per
share) to reflect costs primarily related to inventory write downs associated
with the elimination of a significant number of underperforming products, as
well as the closing of a warehouse and production facility in Carrollton,
Georgia, and a workforce reduction of 158 people. A total of $9.8 million,
representing inventory write downs, was charged to cost of sales and $1.6
million was charged to selling, general and administrative expenses. The
following summarizes the restructuring charge and activity recorded through
December 29, 2001:
Employee Facility
Inventory Termination Shutdown
(in thousands) Disposals Costs Costs Total
- --------------------------------------- -------------- -------------- ------------ ------------
Initial Charge $9,800 $475 $1,125 $11,400
Costs Incurred - (124) (300) (424)
-------------- -------------- ------------ ------------
Balance at December 25, 1999 9,800 351 825 10,976
Costs Incurred (7,100) (351) (145) (7,596)
-------------- -------------- ------------ ------------
Balance at December 30, 2000 (2,700) - (680) 3,380
Costs Incurred (2,700) - (455) (3,155)
Reversal of Excess Charge - - (225) (225)
-------------- -------------- ------------ ------------
Balance at December 29, 2001 $ - $ - $ - $ -
============== ============== ============ ============
In 2001, the Company determined that it had $0.2 million in excess facility
shutdown reserves which were credited to selling, general and administrative
expenses.
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 29, December 30,
(in thousands) 2001 2000
- ---------------------- ----------------- ------------------
Bulk product $12,327 $15,170
Finished product 29,458 31,984
Packaging materials 3,251 3,611
- ---------------------- ----------------- ------------------
Total $45,036 $50,765
====================== ================= ==================
Page 26 of 40
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 29, December 30,
(in thousands) 2001 2000
- ----------------------------------- ------------------- - -------------------
Property under capitalized leases $6,048 $ 6,026
Buildings 7,311 7,311
Machinery, equipment and tooling 16,154 15,200
Furniture, fixtures and
leasehold improvements 3,334 3,189
Computer and other equipment 19,692 19,047
- ----------------------------------- ------------------- - -------------------
Total 52,539 50,773
Less-accumulated depreciation (33,795) (27,441)
- ----------------------------------- ------------------- - -------------------
Property, plant and equipment, net $18,744 $23,332
=================================== =================== = ===================
5. Long-Term Debt
Long-term debt consists of the following:
December 29, December 30,
(in thousands) 2001 2000
- --------------------------------- ------------------- -------------------
Senior notes $ 60,000 $ 60,000
Industrial revenue bonds - 2,918
Capitalized lease obligations 2,466 4,294
Obligation for stock repurchase
and other (Note 6) 2,526 437
- --------------------------------- ------------------- -------------------
Total 64,992 67,649
Less: Current portion ( 11,481) (2,583)
- --------------------------------- ------------------- -------------------
Total long-term debt $53,511 $65,066
================================= =================== ===================
Senior Notes. In August 1998, the Company completed a private placement
of $60 million in Senior Notes due August 21, 2008 ("Notes") on an unsecured
basis. The ten-year Notes bear a 6.81% fixed interest rate, payable quarterly,
with an initial four-year interest only period. 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.
Annual principal repayments at the rate of $8.6 million are due beginning in
August 2002.
Bank Credit Facility. In March 2001, the Company amended its Revolving
Credit Facility. The amended agreement provides for a $10 million facility for
an additional three-year term that expires in March 2004. Borrowings under the
amended facility are on an unsecured basis with interest at rates ranging from
Libor plus 150 to Libor plus 275 basis points. The loan agreement also contains
covenants, the most restrictive of which pertain to net worth and the ratio of
debt to EBITDA. The Company believes that the amended facility together with
cash generated from operations will provide sufficient funding to meet the
Company's working
Page 27 of 40
capital needs for the foreseeable future.
There were no borrowings under the credit facility in 2001. The average
amount outstanding under bank credit facilities was $9.0 million during 2000.
The maximum amount outstanding in 2000 was $29.3 million.
Industrial Revenue Bonds. Prior to 2001, the Company had outstanding
Industrial Revenue Bonds that were secured by the Company's warehouse and office
facility in Warsaw, Kentucky. The Bonds had a variable rate of interest payable
monthly and required annual principal payments. The bonds were repaid in full
during 2001.
Capitalized Lease Obligations. The Company's capitalized lease
obligation for its primary operating facility is with a partnership related to
the Company by common ownership (see Note 8) and is payable monthly in
installments of $47,500 including interest imputed at 13.96% through December
2002. The lease provides for contingent rental payments in amounts that, when
added to the annual capitalized lease payments, do not exceed the fair market
rental rate of the facility. The contingent rental payments are determined on an
annual basis to approximate the change in the Consumer Price Index and are
payable only to the extent that the Company has available sufficient pre-tax
income in the preceding fiscal year to support the increase. The net book value
of the asset under this capitalized lease was $0.2 million at December 29, 2001
and $0.5 million at December 30, 2000 (see Note 11).
The Company has entered into three sale/leaseback transactions with an
equipment lease company to finance computer equipment. The leases are payable in
monthly installments of $133,000 including interest computed at a weighted
average rate of 9.6%. The leases expire in 2002 and 2003.
The following is a schedule of annual future minimum lease payments for
the Company's primary operating facility with a partnership related to the
Company by common ownership (exclusive of contingent rental payments) and other
capital lease obligations as of December 29, 2001:
(in thousands) Facility Equipment Total
- ------------------------------------ --------------- ---------------- ------------------
2002 $ 570 $ 1,359 $ 1,929
2003 - 745 745
- ------------------------------------ --------------- ---------------- ------------------
Total payments 570 2,104 2,674
Less amounts representing interest (41) (167) (208)
--------------- ---------------- ------------------
Total principal $ 529 $ 1,937 $ 2,466
--------------- ---------------- ------------------
Aggregate annual principal payments applicable to long-term debt and
capital lease obligations as of December 29, 2001 are as follows:
(in thousands)
2002 $11,481
2003 9,723
2004 9,025
2005 9,049
2006 8,571
Thereafter 17,143
- ------------------------------------------
Total $64,992
==========================================
Page 28 of 40
6. Equity Transactions
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"). As a result of this transaction, the Company purchased and
canceled 250,000 shares of its common stock issued in connection with the
acquisition and canceled the earn out provisions of the acquisition agreement in
exchange for consideration of approximately $3.2 million to be paid in
installments through December 31, 2005. In 2001, the Company paid $0.8 million
of this amount under the amended agreements. The obligation includes interest
imputed at a 5.0% rate. The remaining amount is payable to an entity controlled
by the President of Scan-Tech. The transaction resulted in additional goodwill
of $0.8 million.
7. Operating Lease Commitments and Rent Expense
The Company leases certain equipment and automobiles under noncancelable
operating leases. Approximate future minimum rental payments under these leases
are summarized as follows:
(in thousands)
2002 $ 1,078
2003 677
2004 144
2005 6
2006 -
- --------- -----------------
Total $1,905
========= =================
Rent expense, which includes rental adjustment payments and contingent
rentals paid to related parties (see Notes 5 and 8) of $0.6 million in 2001,
2000 and 1999, was $1.5 million in 2001, $1.4 million in 2000, and $1.7 million
in 1999.
8. Related Party Transactions
The Company has entered into leases for two operating facilities with
partnerships related to the Company by common ownership (see Notes 5 and 11).
The Company has guaranteed the mortgages of the partnerships on these
facilities. These guarantees at December 29, 2001 were approximately $0.8
million. Total interest expense on these capitalized leases was $0.1 million in
2001, $0.2 million in 2000, and $0.3 million in 1999.
Page 29 of 40
9. Income Taxes
The components of the income tax provision (benefit) are as follows:
(in thousands) 2001 2000 1999
- ----------------------------- ------------------ ----------------- ----------------
Current:
Federal $4,765 $ 964 $1,019
State 329 38 51
Foreign 405 214 354
- ----------------------------- ------------------ ----------------- ----------------
5,499 1,216 1,424
- ----------------------------- ------------------ ----------------- ----------------
Deferred:
Federal (2,487) 931 (3,150)
State (264) 34 -
Foreign - - -
- ----------------------------- ------------------ ----------------- ----------------
(2,751) 965 (3,150)
- ----------------------------- ------------------ ----------------- ----------------
Total $2,748 $2,181 $(1,726)
============================= ================== ================= ================
The following is a reconciliation of income taxes at the statutory tax rate to
the Company's effective tax rate:
2001 2000 1999
- --------------------------------------------------------------------------------
Federal taxes at statutory rate 34.0% 34.0% (34.0%)
State taxes, net of Federal tax benefit 0.5% 0.8% 0.6%
Contributed property and other (0.1%) - 1.0%
- --------------------------------------------------------------------------------
Effective tax rate 34.4% 34.8% (32.4%)
================================================================================
Deferred income taxes result from timing differences in the
recognition of revenue and expense for tax and financial statement purposes. The
sources of temporary differences are as follows:
December 29, December 30,
(in thousands) 2001 2000
- -------------------------------------- ---------------------- ------------------
Assets:
Inventories $3,582 $ 1,756
Accounts receivable 2,394 276
Restructuring charges - 1,252
Accrued expenses 1,466 920
- -------------------------------------- ---------------------- ------------------
Gross deferred tax assets 7,442 4,204
- -------------------------------------- ---------------------- ------------------
Liabilities:
Depreciation 321 225
Goodwill 2,868 2,502
Other 96 71
- -------------------------------------- ---------------------- ------------------
Gross deferred tax liabilities 3,285 2,798
- -------------------------------------- ---------------------- ------------------
Net deferred assets $4,157 $1,406
====================================== ====================== ==================
Page 30 of 40
10. Business Segments
The Company adopted Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information,"
(SFAS No. 131) in 1998. In accordance with the provisions of SFAS No. 131, the
Company has determined that its business comprises a single reportable operation
segment, namely, the sale of replacement parts for the automotive aftermarket.
During 2001, 2000 and 1999, one customer accounted for approximately
24%, 20% and 21% of net sales, respectively. Net sales to countries outside the
US, primarily to Western Europe and Canada in 2001, 2000 and 1999 were $19.9
million, $15.1 million and $20.0 million, respectively.
11. Commitments and Contingencies
Shareholder Agreement. A shareholder agreement was entered into in
September 1990 and subsequently amended in December 1992 and September 1993.
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 affect on the
Company's consolidated financial position or results of operations.
12. Capital Stock
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.
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 1,172,500 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 29, 2001,
options to acquire 370,132 shares were available for grant under the Plan.
Transactions under the Plan for the three years ended December 29,
2001 were as follows:
Option Price Weighted
Shares per Share Average Price
- --------------------------------------- ---------------- ------------------- -------------------
Balance at December 26, 1998 577,375 $5.75 - $12.63 $8.51
Granted 512,929 1.00 - 9.25 4.50
Exercised (462) 6.13 - 7.25 7.01
Canceled (172,388) 6.75 - 11.94 8.86
- --------------------------------------- ---------------- ------------------- -------------------
Page 31 of 40
Option Price Weighted
---------------- ------------------- -------------------
Balance at December 25, 1999 917,454 1.00 - 12.63 6.29
Granted 1,000 3.50 3.50
Exercised - - -
Canceled (68,600) 1.00 - 12.63 7.63
- --------------------------------------- ---------------- ------------------- -------------------
Balance at December 30, 2000 849,854 1.00 - 12.63 6.17
Granted 600,500 3.00 3.00
Exercised - - -
Canceled (656,425) 1.00 - 12.63 7.61
- --------------------------------------- ---------------- ------------------- -------------------
Balance at December 29, 2001 793,929 $1.00 - $9.625 $2.58
- --------------------------------------- ---------------- ------------------- -------------------
Options exercisable at
December 29, 2001 22,857 $1.00 - $9.625 $2.39
- --------------------------------------- ---------------- ------------------- -------------------
The weighted average remaining contractual life of options
outstanding as of December 29, 2001 was 9.2 years.
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations in
accounting for this plan. The following pro forma amounts were determined as if
the Company had accounted for its stock options under the methodology prescribed
by SFAS No. 123, "Accounting for Stock-Based Compensation":
(in thousands, except per share data) 2001 2000 1999
- -------------------------------------- ------------------- ----------------- -------------------
Net income (loss):
As reported $5,229 $ 4,095 $ (3,602)
Pro forma $4,624 $ 3,757 $ (3,951)
Earnings (loss) per share:
As reported:
Basic $0.61 $0.49 $(0.43)
Diluted $0.60 $0.48 $(0.43)
Pro forma:
Basic $0.54 $0.45 $(0.47)
Diluted $0.53 $0.44 $(0.47)
Page 32 of 40
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
2001 2000 1999
---- ---- ----
Expected dividend yield 0% 0% 0%
Expected stock price volatility 46% 42% 42%
Risk-free interest rate 5.3 % 5.5% 5.5%
Expected life of option 7.5 years 7.5 years 7.5 years
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 300,000
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 2001, optionees had exercised rights to purchase 4,106 shares at prices
from $2.45 to $4.28 per share for total net proceeds of $11,000.
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 29, 2001, Annual contributions under the plan are determined by the
Board of Directors of the Company. Consolidated expense related to the plan was
$957,000, $876,000, and $866,000 in fiscal 2001, 2000, and 1999, respectively.
13. Accounting Pronouncements
In June 1998 and June 2000, the Financial Accounting Standards Board
("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." These statements establish
accounting and reporting standards requiring that every derivative instrument be
recorded on the balance sheet as either an asset or liability measured at its
fair value. SFAS Nos. 133 and 138 also require that changes in the derivative's
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. The Company adopted SFAS No. 133, as amended by SFAS No. 138,
on December 31, 2000, as required. The adoption of SFAS No. 133, as amended by
SFAS No. 138, did not have a material impact on the consolidated statements
of operations for the year ended December 29, 2001.
On June 30, 2001, the FASB issued SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.
141 prohibits pooling-of-interests accounting for acquisitions initiated after
June 30, 2001. SFAS No. 142 specifies that goodwill will no longer be amortized
but instead will be subject to periodic impairment testing. The Company is
required to adopt SFAS No. 142 effective December 30, 2001, the start of its
2002 fiscal year. As a result, the Company will cease amortizing its goodwill in
fiscal 2002. During fiscal 2001, 2000 and 1999, goodwill amortization was $1.6
million, $1.7 million and $1.7 million respectively. The Company is currently
evaluating the financial statement impact of the impairment provisions of SFAS
No. 142.
In June, 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The Company is required to
adopt the provisions of this pronouncement in the beginning of fiscal 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
Page 33 of 40
The Company is required to adopt the provisions of this pronouncement in the
beginning of fiscal 2002.
The Company is currently evaluating the impact of both SFAS No. 143 and 144.
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 29, 2001 and December 30, 2000:
(in thousands, except per First Second Third Fourth
share amounts) Quarter (a) Quarter Quarter Quarter
- ----------------------------- ---------------- ----------------- --- --------------- -----------------
2001
------------------------------------------------------------------------
Net sales $46,144 $52,015 $54,238 $49,271
Income from operations 1,416 3,041 3,845 3,964
Net income 185 1,297 1,822 1,925
Diluted earnings per share 0.02 0.15 0.21 0.22
------------------------------------------------------------------------
2000
------------------------------------------------------------------------
Net sales $53,246 $49,239 $49,700 $49,205
Income from operations 3,685 3,817 3,177 1,629
Net income 1,171 1,538 1,211 175
Diluted earnings per share 0.14 0.18 0.14 0.02
(a) Results for the first quarter of 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Page 34 of 40
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information concerning the directors of the Company is incorporated
by reference to the section entitled "Election of Directors" in the Company's
Proxy Statement for its Annual Meeting of Shareholders to be held on May 23,
2002.
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.
Item 11. Executive Compensation.
Incorporated by reference to the section entitled "Executive
Compensation and Transactions" in the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 23, 2002.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the section entitled "Beneficial
Ownership of Common Stock" in the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 23, 2002.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the section entitled "Executive
Compensation and Transactions" in the Company's Proxy Statement for its Annual
Meeting of Shareholders to be held on May 23, 2002.
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules
and Reports on Form 8-K.
(a)(1) Consolidated Financial Statements. The consolidated financial
statements of the Company and related documents are listed in Item 8, Part II,
of this Report on Form 10-K.
Report of Independent Public Accountants
Consolidated Statements of Operations for the years ended December
29, 2001, December 30, 2000 and December 25, 1999
Consolidated Balance Sheets as of December 29, 2001 and
December 30, 2000
Consolidated Statements of Shareholders' Equity for the years ended
December 29, 2001, December 30, 2000 and December 25, 1999.
Consolidated Statements of Cash Flows for the years ended December
29, 2001, December 30, 2000 and December 25, 1999.
Notes to Consolidated Financial Statements
Page 35 of 40
(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
Report of Independent Public Accountants on
Financial Statement Schedule. . . . . . . . . . . . . . . 40
Schedule II - Valuation and Qualifying Accounts. . . . . . . 41
(a)(3) Exhibits.
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 (1) Shareholders' Agreement, dated September 17, 1990.
4.2.1 (2) Amendment to Shareholders' Agreement, dated December 29, 1992,
amending 4.2.
4.2.2 (3) Amendment to Shareholders' Agreement, dated September 14, 1993,
amending 4.2.
4.2.3 (4) Amendment to Shareholders' Agreement, dated March 14, 1994,
amending 4.2.
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, for the
premises located at 3400 East Walnut Street, Colmar, Pennsylvania,
assigning 10.1.
10.2 (1) Lease, dated January 3, 1990, between the Company and the
Berman Real Estate Partnership, for premises located at 390 Old
Bremen Road, Carrollton, Georgia.
10.2.1 (3) Amendment to Lease, dated September 10, 1993, between the
Company and the Berman Real Estate Partnership, for premises
located at 390 Old Bremen Road, Carrollton, Georgia, amending
10.4.
10.2.2 (4) Amendment to Lease, dated February 17, 1994, between the
Company and the Berman Real Estate Partnership, for premises
located at 390 Old Bremen Road, Carrollton, Georgia, amending
10.4.
10.3 (6)+ R&B, Inc. Amended and Restated Incentive Stock Plan.
Page 36 of 40
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 Arthur Andersen LLP (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.
(b) Reports on Form 8-K.
None
Page 37 of 40
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 19 , 2002 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 19, 2002
--------------------- Officer, and Chairman of the
Richard N. Berman Board of Directors
(principal executive officer)
\s\ Mathias J. Barton Chief Financial Officer March 19, 2002
---------------------- (principal financial and
Mathias J. Barton accounting officer)
\s\ Steven L. Berman Executive Vice President, March 19, 2002
-------------------- Secretary-Treasurer, and
Steven L. Berman Director
\s\ George L. Bernstein Director March 19, 2002
------------------------
George L. Bernstein
\s\ John F. Creamer, Jr. Director March 19, 2002
-------------------------
John F. Creamer, Jr.
\s\ Paul R. Lederer Director March 19, 2002
-------------------
Paul R. Lederer
\s\ Edgar W. Levin Director March 19, 2002
--------------------
Edgar W. Levin
Page 38 of 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To R&B, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of R&B, Inc. and
subsidiaries included in this Form 10-K and have issued our report thereon dated
February 13, 2002. Our audit was made for the purpose of forming an opinion on
the consolidated statements taken as a whole. The schedule listed in Item
14(a)(2) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the audit procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
Arthur Andersen LLP
Philadelphia, Pennsylvania
February 13, 2002
Page 39 of 40
SCHEDULE II: Valuation and Qualifying Accounts
(in thousands) For the Year Ended
- -------------------------------------- ----------------------------------------------------
December 29, December 30, December 25,
2001 2000 1999
----------------- ----------------- ----------------
Allowance for doubtful accounts:
Balance, beginning of period $ 836 $ 778 $1,439
Provision 1,118 566 1,058
Charge-offs (1,053) (508) (1,719)
- -------------------------------------- ----------------- ----------------- ----------------
Balance, end of period $ 901 $ 836 $ 778
====================================== ================= ================= ================
Allowance for customer credits:
Balance, beginning of period $ 9,498 $ 7,986 $ 8,276
Provision 29,742 28,952 32,928
Charge-offs (25,031) (27,440) (33,218)
- -------------------------------------- ----------------- ----------------- ----------------
Balance, end of period $ 14,209 $ 9,498 $ 7,986
====================================== ================= ================= ================
Restructuring reserves:
Balance, beginning of period $ 3,380 $ 10,976 $ -
Provision - - 11,400
Charge-offs (3,155) (7,596) (424)
Reversal of excess charge (225) - -
- -------------------------------------- ----------------- ----------------- ----------------
Balance, end of period $ - $ 3,380 $10,976
====================================== ================= ================= ================
Page 40 of 40