- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
-------------------
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2002
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-------------------
Commission file number 0-18914
R&B, INC.
Incorporated pursuant to the Laws
of the Commonwealth of Pennsylvania
-------------------
IRS - Employer Identification No. 23-2078856
3400 East Walnut Street, Colmar, Pennsylvania 18915
(215) 997-1800
-------------------
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 |_|
As of August 5, 2002 the Registrant had 8,492,921 common shares, $.01 par value,
outstanding.
- --------------------------------------------------------------------------------
Page 1 of 14
R & B, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 29, 2002
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Operations:
Thirteen Weeks Ended June 29, 2002
and June 30, 2001............................ 3
Twenty-six Weeks Ended June 29, 2002
and June 30, 2001............................. 4
Balance Sheets....................................... 5
Statements of Cash Flows............................. 6
Notes to Financial Statements........................ 7
Item 2.Management's Discussion and
Analysis of Results of Operations and
Financial Condition.............................. 9
Part II -- OTHER INFORMATION
Item 1.Legal Proceedings.................................... 13
Item 6.Exhibits and Reports on Form 8-K..................... 13
Signature . . . . . . . .................................... 14
Page 2 of 14
PART I. FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Thirteen Weeks Ended
------------------------------
June 29, June 30,
(in thousands, except per share data) 2002 2001
- --------------------------------------------------------------------------------------------
Net Sales $55,455 $ 52,015
Cost of goods sold 35,106 34,276
- --------------------------------------------------------------------------------------------
Gross profit 20,349 17,739
Selling, general and administrative expenses 14,949 14,698
Gain on sale of Specialty Fastener business (2,143) -
- --------------------------------------------------------------------------------------------
Income from operations 7,543 3,041
Interest expense, net of interest income of $103 and $117 1,111 1,089
- --------------------------------------------------------------------------------------------
Income before taxes 6,432 1,952
Provision for taxes 2,317 655
- --------------------------------------------------------------------------------------------
Net Income $ 4,115 $ 1,297
============================================================================================
Earnings Per Share:
Basic $0.48 $0.15
Diluted 0.46 0.15
============================================================================================
Average Shares Outstanding:
Basic 8,485 8,482
Diluted 8,939 8,557
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3 of 14
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Twenty-six Weeks Ended
------------------------------
June 29, June 30,
(in thousands, except per share data) 2002 2001
- --------------------------------------------------------------------------------------------
Net Sales $106,535 $ 98,159
Cost of goods sold 67,780 65,319
- --------------------------------------------------------------------------------------------
Gross profit 38,755 32,840
Selling, general and administrative expenses 29,034 28,383
Gain on sale of Specialty Fastener business (2,143) -
- --------------------------------------------------------------------------------------------
Income from operations 11,864 4,457
Interest expense, net of interest income of $207 and $228 2,136 2,217
- --------------------------------------------------------------------------------------------
Income before taxes 9,728 2,240
Provision for taxes 3,466 758
- --------------------------------------------------------------------------------------------
Net Income $ 6,262 $ 1,482
============================================================================================
Earnings Per Share:
Basic $0.74 $0.17
Diluted 0.70 0.17
============================================================================================
Average Shares Outstanding:
Basic 8,479 8,482
Diluted 8,917 8,563
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 4 of 14
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, December 29,
(in thousands, except share data) 2002 2001
- --------------------------------------------------- ----------------- -----------------
Assets (unaudited)
Current Assets:
Cash and cash equivalents $ 7,678 $ 21,689
Short-term investments 17,143 -
Accounts receivable, less allowance for doubtful
accounts and customer credits of $14,825 and $15,110 45,801 36,700
Inventories 43,680 45,036
Deferred income taxes 7,797 7,469
Prepaids and other current assets 1,738 1,352
- --------------------------------------------------- ----------------- -----------------
Total current assets 123,837 112,246
- --------------------------------------------------- ----------------- -----------------
Property, Plant and Equipment, net 16,571 18,744
Goodwill 28,500 30,422
Other Assets 1,045 1,751
- --------------------------------------------------- ----------------- -----------------
Total $ 169,953 $ 163,163
=================================================== ================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 10,475 $ 11,481
Accounts payable 9,230 8,327
Accrued compensation 5,059 6,145
Other accrued liabilities 5,785 5,225
- --------------------------------------------------- ----------------- -----------------
Total current liabilities 30,549 31,178
- --------------------------------------------------- ----------------- -----------------
Long-Term Debt 52,929 53,511
Deferred Income Taxes 3,754 3,312
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,492,221and 8,466,482 shares 85 85
Additional paid-in capital 32,675 32,501
Cumulative translation adjustments (439) (1,562)
Retained earnings 50,400 44,138
Total shareholders' equity 82,721 75,162
- --------------------------------------------------- ----------------- -----------------
Total $ 169,953 $ 163,163
=================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 5 of 14
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Twenty-six Weeks Ended
-----------------------------------
June 29, June 30,
(in thousands) 2002 2001
- ---------------------------------------------------------------- --------------- -------------------
Cash Flows from Operating Activities:
Net income $ 6,262 $ 1,482
Adjustments to reconcile net income to cash (used in) provided by
operating activities:
Depreciation and amortization 3,155 4,266
Provision for doubtful accounts 319 309
Provision for deferred income tax 741 (12)
Provision for non-cash stock compensation 122 166
Gain on sale of Specialty Fastener business (1,329) -
Changes in assets and liabilities, net of dispositions:
Accounts receivable (10,025) (4,527)
Inventories 920 2,187
Prepaids and other (794) 1,136
Accounts payable 569 1,212
Other accrued liabilities (1,524) 1,592
- ---------------------------------------------------------------- --------------- -------------------
Cash (used in) provided by operating activities (1,584) 7,811
- ---------------------------------------------------------------- --------------- -------------------
Cash Flows from Investing Activities:
Property, plant and equipment additions (1,122) (1,239)
Purchases of short-term investments (17,143) -
Proceeds from litigation settlement and sale of Specialty Fastener
business, net 7,374 -
- ---------------------------------------------------------------- --------------- -------------------
Cash used in investing activities ( 10,891) ( 1,239)
- ---------------------------------------------------------------- --------------- -------------------
Cash Flows from Financing Activities:
Repayment of term loans and capitalized lease obligations (1,588) ( 1,453)
Proceeds from common stock issuances 52 -
- ---------------------------------------------------------------- --------------- -------------------
Cash used in financing activities (1,536) (1,453)
- ---------------------------------------------------------------- --------------- -------------------
Net (Decrease) Increase in Cash and Cash Equivalents (14,011) 5,119
Cash and Cash Equivalents, Beginning of Period 21,689 7,553
- ---------------------------------------------------------------- --------------- -------------------
Cash and Cash Equivalents, End of Period $ 7,678 $ 12,672
================================================================ =============== ===================
Supplemental Cash Flow Information
Cash paid for interest expense $ 2,272 $ 2,452
Cash paid for income taxes $ 2,656 $ 35
The accompanying Notes are an integral part of these
Consolidated Financial Statements.
Page 6 of 14
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 29, 2002 AND JUNE 30, 2001 (UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. However, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the twenty-six week period ended June
29, 2002 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 28, 2002. For further information, refer to the
financial statements and footnotes thereto included in R&B, Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended December 29, 2001.
2. Short-term Investments
Short-term investments consist primarily of corporate and government
bonds with maturities of three months to one year from the date of purchase.
Short-term investments are classified as held-to-maturity and are recorded at
amortized cost.
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:
June 29, December 29,
(in thousands) 2002 2001
- ------------------- -------------- --------------
Bulk product $16,937 $17,284
Finished product 23,858 24,290
Packaging materials 2,885 3,462
- ------------------- -------------- --------------
Total $43,680 $45,036
=================== ============== ==============
4. Goodwill - Adoption of SFAS No. 142
Effective December 30, 2001 the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 specifies that goodwill will no longer
be amortized but instead will be subject to periodic impairment testing. As a
result, effective December 30, 2001, the Company no longer amortizes goodwill.
The Company has completed transitional impairment tests required by SFAS No.142,
which did not result in an impairment charge.
Page 7 of 14
In conformity with SFAS No. 142, the results of prior periods have not been
restated. The following is a reconciliation of the Company's net income and
earnings per share for the thirteen weeks and twenty-six weeks ended June 29,
2002 and June 30, 2001 (in thousands, except per share data):
Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------------- --------------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
- ------------------------------------ -------------- ---------------- --------------- ----------------
Net Income:
As reported $4,115 $1,297 $6,262 $ 1,482
Amortization expense - goodwill - 264 - 533
- ------------------------------------ -------------- ---------------- --------------- ----------------
Adjusted net income $4,115 $1,561 $6,262 $ 2,015
==================================== ============== ================ =============== ================
Basic earnings per share:
As reported $ 0.48 $ 0.15 $ 0.74 $ 0.17
Amortization expense - goodwill - 0.03 - 0.07
- ------------------------------------ -------------- ---------------- --------------- ----------------
Adjusted earnings per share - Basic $ 0.48 $ 0.18 $ 0.74 $ 0.24
==================================== ============== ================ =============== ================
Diluted earnings per share:
As reported $ 0.46 $ 0.15 $ 0.70 $ 0.17
Amortization expense - goodwill - 0.03 - 0.07
- ------------------------------------ -------------- ---------------- --------------- ----------------
Adjusted earnings per share - Diluted $ 0.46 $ 0.18 $ 0.70 $ 0.24
==================================== ============== ================ =============== ================
During the second quarter, goodwill was reduced by approximately $2.2 million in
connection with the sale of the Company's Specialty Fastener business and the
settlement of litigation with The Hillman Companies (see note 6).
5. New Accounting Pronouncements
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 adopted this
pronouncement on December 30, 2001, as required. The adoption of SFAS No. 143
did not have a material impact on the consolidated statements of operations for
the thirteen or twenty-six weeks ended June 29, 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.
The Company adopted this pronouncement on December 30, 2001, as required. The
adoption of SFAS No. 144 did not have a material impact on the consolidated
statements of operations for the thirteen or twenty-six weeks ended June 29,
2002.
6. Gain on Sale of Specialty Fastener Business and Litigation Settlement
On May 1, 2002, the Company entered into agreements with The Hillman Group,
Inc., a wholly owned subsidiary of The Hillman Companies, Inc. (formerly
SunSource, Inc.) to sell the Company's Lowe's specialty fastener business and to
settle litigation initiated by the Company in 1996 related to its purchase of
the Dorman business from SunSource. Total proceeds from the sale and settlement,
net of transaction costs and estimated purchase price adjustments were
approximately $7.4 million. The transactions resulted in an after-tax gain on
the sale of the fastener business of $1.3 million, and a reduction in goodwill
totaling $2.2 million.
Page 8 of 14
R&B, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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 shipments, 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.
Sale of Specialty Fastener Business and Litigation Settlement
On May 1, 2002, the Company entered into agreements with The Hillman
Group, Inc., a wholly owned subsidiary of The Hillman Companies, Inc. (formerly
SunSource, Inc.) to sell the Company's Lowe's specialty fastener business and to
settle litigation initiated by the Company in 1996 related to its purchase of
the Dorman business from SunSource. Total proceeds from the sale and settlement,
net of transaction costs and estimated purchase price adjustments, were
approximately $7.4 million. The transactions resulted in an after-tax gain on
the sale of the fastener business of $1.3 million, and a reduction in goodwill
totaling $2.2 million. Annual net sales of the business were approximately $6.0
million.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items in the Company's Consolidated
Statements of Operations:
Percentage of Net Sales
----------------------------------------------------------
For the Thirteen Weeks Ended For the Twenty-six Weeks Ended
----------------------------------------------------------
June 29, June 30, June 29, June 30,
2002 2001 2002 2001
- --------------------------------------- -------------- -------------- -------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 63.3% 65.9% 63.6% 66.5%
- --------------------------------------- -------------- -------------- -------------- -------------
Gross profit 36.7% 34.1% 36.4% 33.5%
Selling, general and administrative expenses 27.0% 28.3% 27.3% 29.0%
Gain on sale of Specialty Fastener business (3.9%) - (2.0%) -
- --------------------------------------- -------------- -------------- -------------- -------------
Income from operations 13.6% 5.8% 11.1% 4.5%
Interest expense, net 2.0% 2.0% 2.0% 2.2%
- --------------------------------------- -------------- -------------- -------------- -------------
Income before taxes 11.6% . 3.8% 9.1% 2.3%
Provision for taxes 4.2% 1.3% 3.2% 0.8%
- --------------------------------------- -------------- -------------- -------------- -------------
Net Income 7.4% 2.5% 5.9% 1.5%
======================================= ============== ============== ============== =============
Page 9 of 14
Thirteen Weeks Ended June 29, 2002 Compared to
Thirteen Weeks Ended June 30, 2001
Net sales increased 6.6% to $55.5 million for the thirteen weeks ended
June 29, 2002 from $52.0 million for the same period in 2001. The sales increase
was the result of an increased level of product line updates for existing
customers, the introduction of new product lines to current customers, continued
strong reorder patterns on recently introduced new products and growth by the
Company's Swedish subsidiary.
The Company's gross profit percentage increased to 36.7% of net sales
for the thirteen weeks ended June 29, 2002 from 34.1% in the same period last
year. The improvement is the result of the implementation of numerous cost
saving initiatives as well as benefits achieved from spreading fixed overhead
costs over a higher sales base in the thirteen weeks ended June 29, 2002.
Selling, general and administrative expenses for the thirteen weeks
ended June 29, 2002 increased 1.7% to $14.9 million from $14.7 million for the
same period in 2001. This increase was the net result of increased promotional
and new product spending in 2002 and increased spending associated with higher
sales levels, offset by the elimination of goodwill amortization of $0.4 million
in fiscal 2002 as a result of the Company's adoption of SFAS No. 142 "Goodwill
and Other Intangible Assets" which specifies that goodwill will no longer be
amortized. Results for the thirteen weeks ended June 29, 2002 also include $0.4
million of facility relocation and shutdown costs.
Interest expense, net, remained unchanged from the prior year at $1.1
million in the thirteen weeks ended June 29, 2002. Cash and short-term
investments increased in the current year, but were offset by lower earnings
levels on invested amounts due to a decline in interest rates in the current
year.
The Company's effective tax rate increased to 36.0% for the thirteen
weeks ended June 29, 2002 from 33.6% for the thirteen weeks ended June 30, 2001
as the gain on the sale of the Lowe's Specialty Fastener business is subject to
a higher overall effective tax rate than the Company's operating profits.
Twenty-six Weeks Ended June 29, 2002 Compared to
Twenty-six Weeks Ended June 30, 2001
Net sales increased 8.5% to $106.5 million for the twenty-six weeks
ended June 29, 2002 from $98.2 million for the same period in 2001. The sales
increase was the result of an increased level of product line updates for
existing customers, the introduction of new product lines to current customers,
continued strong reorder patterns on recently introduced new products and growth
by the Company's Swedish subsidiary.
The Company's gross profit percentage increased to 36.4% of net sales
for the twenty-six weeks ended June 29, 2002 from 33.5% in the same period last
year. The improvement is the result of the implementation of several cost saving
initiatives as well as benefits achieved from spreading fixed overhead costs
over a higher sales base in the twenty-six weeks ended June 29, 2002.
Selling, general and administrative expenses for the twenty-six weeks
ended June 29, 2002 increased 2.3% to $29.0 million from $28.4 million for the
same period in 2001. This increase was the net result of increased promotional
and new product spending in 2002, inflationary increases in labor and other
operating expenses and increased spending associated with higher sales levels,
offset by the elimination of goodwill amortization of $0.8 million in fiscal
2002 as a result of the Company's adoption of SFAS No. 142 "Goodwill and Other
Intangible Assets" which specifies that goodwill will no longer be amortized.
Results for the twenty-six weeks ended June 29, 2002 also include $0.8 million
of facility relocation and shutdown costs.
Interest expense, net, decreased to $2.1 million for the twenty-six
weeks ended June 29, 2002 from $2.2 million in the prior year due to lowering
borrowing levels.
The Company's effective tax rate increased to 35.6% for the twenty-six
weeks ended June 29, 2002 from 33.8% for the twenty-six weeks ended June 30,
2001 as the gain on the sale of the Lowe's Specialty Fastener business is
subject to a higher overall effective tax rate than the Company's operating
profits.
Page 10 of 14
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. These initiatives resulted in
increased cash flow from operations. At June 29, 2002 working capital was $93.3
million, total long-term debt (including the current portion) was $63.4 million
and shareholders' equity was $82.7 million. Cash and short-term investments as
of June 29, 2002 totaled $24.8 million.
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.
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 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 $1.6 million at June 29, 2002.
The Company amended certain agreements related to its 1998 acquisition of
Scan-Tech USA/Sweden A.B. and related entities ("Scan-Tech") during 2001. 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.
The aggregate amount outstanding under this obligation amounted to $1.8 million
at June 29, 2002.
The Company reported a net use of cash flow from its operating activities
of $1.6 million in the six months ended June 29, 2002. The primary uses of cash
flow were accounts receivable which increased $10.0 million in the period, and
accrued liabilities which decreased $1.5 million. The accounts receivable
increase was the result of higher sales levels and increases to payment terms
for certain customers. The reduction in accrued liabilities was primarily
related to the Company's funding of employee profit sharing and incentive
payments earned in the prior year but paid in early 2002. Operating cash flow
was generated primarily by net income and non-cash depreciation charges during
the six months ended June 29, 2002.
Investing activities used $10.9 million of cash during the six months
ended June 29, 2002. During the second quarter, the Company began to purchase
highly liquid corporate and government bonds with maturities from three months
to one year to take advantage of higher earnings rates on these investments.
These investments have been classified as short-term investments as required by
generally accepted accounting principles. As a result of this decision, the
Company reported a $17.1 million use of cash during the period. Additions to
property, plant and equipment required $1.1 million of cash in the six months
ended June 29, 2002. Capital expenditures included upgrades to information
systems, purchases of equipment designed to improve operational efficiencies and
scheduled equipment replacements. Investing activities also include $7.4 million
in net proceeds from the sale of a product line and litigation settlement during
the second quarter.
Financing activities required $1.5 million in cash in the six months
ended June 29, 2002. These uses were primary related to scheduled repayments
under capital lease and other debt obligations.
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. Approximately 39% of the Company's products were
purchased from a variety of foreign countries. The products generally are
purchased through purchase orders with the purchase price specified in U.S.
dollars. Accordingly, the Company does not have exposure to 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.
Page 11 of 14
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 Operations, 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 the Company's Annual Report on Form 10-K
under "Business - Investment Considerations."
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. Short-term fixed income investments are subject to
interest rate risk. The portfolio consists solely of investment grade corporate
and government securities to minimize credit risk. Under the terms of the
Company's revolving credit facility, a change in LIBOR market interest rates
would affect the rate at which the Company could borrow funds thereafter. 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 June 29, 2002.
Page 12 of 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In addition to commitments and obligation 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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No. Description
10.1.3 Amendment No. 2 to the Agreement of Lease
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 20, 2002, under
Item 4 Changes in Registrant's Certifying Accountant.
Page 13 of 14
SIGNATURES
Pursuant to the requirements of the Securities 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 August 8 , 2002 \s\ Richard Berman
------------------- -------------------------
Richard Berman
President
Date August 8, 2002 \s\ Mathias Barton
------------------ --------------------------
Mathias Barton
Chief Financial Officer and
Principal Accounting Officer
Page 14 of 14