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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2002
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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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 November 8, 2002 the Registrant had 8,495,754 common shares, $.01 par
value, outstanding.
Page 1 of 16
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R & B, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
SEPTEMBER 28, 2002
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Operations:
Thirteen Weeks Ended September 28, 2002 and
September 29, 2001................................. 3
Thirty-nine Weeks Ended September 28, 2002 and
September 29, 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
Item 3.Quantitative and Qualitative Disclosure
about Market Risk....................................... 12
Item 4.Controls and Procedures................................. 12
Part II -- OTHER INFORMATION
Item 1.Legal Proceedings....................................... 13
Item 6.Exhibits and Reports on Form 8-K........................ 13
Signature...................................................... 14
Certifications................................................. 15
Page 2 of 16
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Thirteen Weeks Ended
------------------------------
September 28, September 29,
(in thousands, except per share data) 2002 2001
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Net Sales $ 53,889 $ 54,238
Cost of goods sold 34,718 35,767
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Gross profit 19,171 18,471
Selling, general and administrative expenses 14,209 14,626
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Income from operations 4,962 3,845
Interest expense, net of interest income of $120 and $93 942 1,063
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Income before taxes 4,020 2,782
Provision for taxes 1,412 960
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Net Income $ 2,608 $ 1,822
============================================================================================
Earnings Per Share:
Basic $0.31 $0.21
Diluted 0.29 0.21
============================================================================================
Average Shares Outstanding:
Basic 8,493 8,560
Diluted 8,965 8,757
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3 of 16
PART I. FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Thirty-nine Weeks Ended
-------------------------------
September 28, September 29,
(in thousands, except per share data) 2002 2001
- --------------------------------------------------------------------------------------------
Net Sales $ 160,424 $ 152,397
Cost of goods sold 102,498 101,086
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Gross profit 57,926 51,311
Selling, general and administrative expenses 43,243 43,009
Gain on sale of Specialty Fastener business (2,143) -
- --------------------------------------------------------------------------------------------
Income from operations 16,826 8,302
Interest expense, net of interest income of $337 and $321 3,078 3,280
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Income before taxes 13,748 5,022
Provision for taxes 4,878 1,718
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Net Income $ 8,870 $ 3,304
============================================================================================
Earnings Per Share:
Basic $1.05 $0.39
Diluted 0.99 0.38
============================================================================================
Average Shares Outstanding:
Basic 8,484 8,506
Diluted 8,944 8,592
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 4 of 16
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 28, December 29,
(in thousands, except share data) 2002 2001
- --------------------------------------------------- ----------------- -----------------
(unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 4,187 $ 21,689
Short-term investments 11,430 -
Accounts receivable, less allowance for doubtful
accounts and customer credits of $17,580 and $15,110 49,041 36,700
Inventories 45,083 45,036
Deferred income taxes 7,482 7,469
Prepaids and other current assets 1,647 1,352
- --------------------------------------------------- ----------------- -----------------
Total current assets 118,870 112,246
- --------------------------------------------------- ----------------- -----------------
Property, Plant and Equipment, net 16,753 18,744
Goodwill 28,476 30,422
Other Assets 1,008 1,751
- --------------------------------------------------- ----------------- -----------------
Total $ 165,107 $ 163,163
=================================================== ================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 10,204 $ 11,481
Accounts payable 11,107 8,327
Accrued compensation 5,733 6,145
Other accrued liabilities 4,973 5,225
- --------------------------------------------------- ----------------- -----------------
Total current liabilities 32,017 31,178
Long-Term Debt 44,218 53,511
Deferred Income Taxes 3,563 3,312
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,493,899 and 8,466,482 shares 85 85
Additional paid-in capital 32,697 32,501
Cumulative translation adjustments (481) (1,562)
Retained earnings 53,008 44,138
Total shareholders' equity 85,309 75,162
- --------------------------------------------------- ----------------- -----------------
Total $ 165,107 $ 163,163
=================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 5 of 16
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Thirty-nine Weeks Ended
-----------------------------------
September 28, September 29,
(in thousands) 2002 2001
- ---------------------------------------------------------------- --------------- -------------------
Cash Flows from Operating Activities:
Net income $ 8,870 $ 3,304
Adjustments to reconcile net income to cash (used in) provided by
operating activities:
Depreciation and amortization 4,362 6,185
Provision for doubtful accounts 459 1,060
Provision for deferred income tax 238 (847)
Provision for non-cash stock compensation 136 234
Gain on sale of Specialty Fastener business (1,329) -
Changes in assets and liabilities, net of dispositions:
Accounts receivable (13,460) (8,249)
Inventories (525) 7,082
Prepaids and other 8 1,846
Accounts payable 2,464 (287)
Other accrued liabilities (1,648) 1,403
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Cash (used in) provided by operating activities (425) 11,731
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Cash Flows from Investing Activities:
Property, plant and equipment additions (2,511) (1,583)
Purchases of short-term investments (17,217) -
Proceeds from maturities of short-term investments 5,787 -
Proceeds from litigation settlement and sale of Specialty Fastener
business, net 7,374 -
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Cash (used in) investing activities ( 6,567) ( 1,583)
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Cash Flows from Financing Activities:
ACTIVITIES: a
Repayment of term loans and capitalized lease obligations (10,570) ( 1,981)
Proceeds from common stock issuances 60 393
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Cash (used in) financing activities (10,510) (1,588)
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Net (Decrease) Increase in Cash and Cash Equivalents (17,502) 8,560
Cash and Cash Equivalents, Beginning of Period 21,689 7,553
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Cash and Cash Equivalents, End of Period $ 4,187 $ 16,113
================================================================ =============== ===================
Supplemental Cash Flow Information
Cash paid for interest expense $ 3,380 $ 3,636
Cash paid for income taxes $ 4,756 $ 1,335
The accompanying Notes are an integral part of these Consolidated Financial Statements.
Page 6 of 16
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2002
AND SEPTEMBER 29, 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 thirty-nine week period ended
September 28, 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:
September 28, December 29,
(in thousands) 2002 2001
- ------------------- --------------- ---------------
Bulk product $17,825 $17,284
Finished product 24,279 24,290
Packaging materials 2,979 3,462
- ------------------- --------------- ---------------
Total $45,083 $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 the impairment tests required by SFAS No. 142, which
did not result in an impairment charge.
Page 7 of 16
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 thirty-nine weeks ended September
28, 2002 and September 29, 2001 (in thousands, except per share data):
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------- --------------------------------
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
- ------------------------------------ -------------- ---------------- --------------- ----------------
Net Income:
As reported $2,608 $1,822 $8,870 $ 3,304
Amortization expense - goodwill - 265 - 798
- ------------------------------------ -------------- ---------------- --------------- ----------------
Adjusted net income $2,608 $2,087 $8,870 $ 4,102
==================================== ============== ================ =============== ================
Basic earnings per share:
As reported $ 0.31 $ 0.21 $ 1.05 $ 0.39
Amortization expense - goodwill - 0.03 - 0.09
- ------------------------------------ -------------- ---------------- --------------- ----------------
Adjusted earnings per share - Basic $ 0.31 $ 0.24 $ 1.05 $ 0.48
==================================== ============== ================ =============== ================
Diluted earnings per share:
As reported $ 0.29 $ 0.21 $ 0.99 $ 0.38
Amortization expense - goodwill - 0.03 - 0.10
- ------------------------------------ -------------- ---------------- --------------- ----------------
Adjusted earnings per share - Diluted $ 0.29 $ 0.24 $ 0.99 $ 0.48
==================================== ============== ================ =============== ================
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 (see note 6). Annual net sales of the business were
approximately $6.0 million.
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 thirty-nine weeks ended September 28, 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 thirty-nine weeks ended September
28, 2002.
6. Gain on Sale of Specialty Fastener Business and Littigation 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 16
R&B, INC. AND SUBSIDIARIES
ITEM 2. 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 Thirty-nine Weeks Ended
--------------------------------------------------------------
September September September September
28, 2002 29, 2001 28, 2002 29, 2001
- --------------------------------------- -------------- -------------- -------------- -------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 64.4% 65.9% 63.9% 66.3%
- --------------------------------------- -------------- -------------- -------------- -------------
Gross profit 35.6% 34.1% 36.1% 33.7%
Selling, general and administrative expenses 26.4% 27.0% 26.9% 28.3%
Gain on sale of Specialty Fastener business - - (1.3%) -
- --------------------------------------- -------------- -------------- -------------- -------------
Income from operations 9.2% 7.1% 10.5% 5.4%
Interest expense, net 1.7% 2.0% 1.9% 2.1%
- --------------------------------------- -------------- -------------- -------------- -------------
Income before taxes 7.5% 5.1% 8.6% 3.3%
Provision for taxes 2.7% 1.7% 3.1% 1.1%
- --------------------------------------- -------------- -------------- -------------- -------------
Net Income 4.8% 3.4% 5.5% 2.2%
======================================= ============== ============== ============== =============
Page 9 of 16
Thirteen Weeks Ended September 28, 2002 Compared to
Thirteen Weeks Ended September 29, 2001
Net sales decreased 0.6% to $53.9 million for the thirteen weeks ended
September 28, 2002 from $54.2 million for the same period in 2001. During the
second quarter of 2002 the Company sold its Lowes' specialty fastener business
which had annual sales of approximately $6.0 million. Net sales during the
quarter increased 2.5% after excluding sales associated with the Lowes'
business. The third quarter revenue comparison was also negatively impacted by
strong sales in the third fiscal quarter of 2001 resulting from several line
updates and a high level of new product shipments.
Cost of goods sold, as a percentage of sales, declined to 64.4% for the
thirteen weeks ended September 28, 2002 from 65.9% in the same period last year.
The Company recorded an additional provision for discontinued and excess
inventories of $1.5 million in the third quarter of 2001, which increased cost
of goods sold. The favorable year over year impact of the additional provision
last year was partially offset by a shift in the Company's product mix and
higher provisions for customer returns during the third quarter of 2002.
Selling, general and administrative expenses for the thirteen weeks
ended September 28, 2002 decreased 2.7% to $14.2 million from $14.6 million for
the same period in 2001. This decrease resulted from the lower current year
sales levels and 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 September 28, 2002 also include
$0.2 million of facility relocation and shutdown costs.
Interest expense, net, decreased to $0.9 million for the thirteen weeks
ended September 28, 2002 from $1.1 million in the prior year due to lowering
borrowing levels. In August 2002 the Company made the first of seven annual
installment payments of $8.6 million due under the terms of its Senior Note
Agreements.
The Company's effective tax rate increased slightly to 35.1% for the
thirteen weeks ended September 28, 2002 from 34.5% for the thirteen weeks ended
September 29, 2001.
Thirty-nine Weeks Ended September 28, 2002 Compared to
Thirty-nine Weeks Ended September 29, 2001
Net sales increased 5.2% to $160.4 million for the thirty-nine weeks
ended September 28, 2002 from $152.4 million for the same period in 2001. During
the second quarter of 2002 the Company sold its Lowes' specialty fastener
business which had annual sales of approximately $6.0 million. Net sales for the
nine months ended September 28, 2002 increased 6.8% after excluding sales
associated with the Lowes' business. Sales growth was driven by higher levels of
product line updates to existing customers, the introduction of new product
lines and continued strong reorder patterns on recently introduced new products.
Cost of goods sold, as a percentage of sales, declined to 63.9% for the
thirty-nine weeks ended September 28, 2002 from 66.3% in the same period last
year. In the third quarter of last year, the Company recorded an additional
provision for discontinued and excess inventories of $1.5 million, which
increased cost of goods sold. Cost of goods sold in 2002 benefitted from the
implementation of several cost saving initiatives.
Selling, general and administrative expenses for the thirty-nine weeks
ended September 28, 2002 increased 0.4% to $43.2 million from $43.0 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 $1.2 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 thirty-nine weeks ended September 28, 2002 also
include $1.0 million of facility relocation and shutdown costs.
Interest expense, net, decreased to $3.1 million for the thirty-nine
weeks ended September 28, 2002 from $3.3 million in the prior year due to
lowering borrowing levels. In August 2002 the Company made the first of seven
annual installment payments of $8.6 million due under the terms of its Senior
Note Agreements.
The Company's effective tax rate increased to 35.5% for the thirty-nine
weeks ended September 28, 2002 from 34.2% for the thirty-nine weeks ended
September 29, 2001 as the gain on the sale of the Lowes' Specialty Fastener
business is subject to a higher overall effective tax rate than the Company's
operating profits.
Page 10 of 16
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 September 28, 2002 working capital was
$86.9 million, total long-term debt (including the current portion) was $54.4
million and shareholders' equity was $85.3 million. Cash and short-term
investments as of September 28, 2002 totaled $15.6 million.
In August 1998, the Company completed a private placement of $60.0
million in Senior Notes ("Notes") on an unsecured basis. The ten-year Notes bear
a 6.81% fixed interest rate, payable quarterly. Annual repayments at the rate of
$8.6 million are due each August through 2008. The first scheduled repayment of
$8.6 million was made 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 two capital leases relating to computer hardware and software. The
aggregate amount outstanding under all capital leases was $1.2 million at
September 28, 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 September 28, 2002.
The Company reported a net use of cash flow from its operating activities
of $0.4 million in the nine months ended September 28, 2002. The primary uses of
cash flow were accounts receivable which increased $13.5 million in the period,
and accrued liabilities which decreased $1.6 million. The accounts receivable
increase was the result of higher sales levels and increases to payment terms
for certain customers. The Company expects that its days sales outstanding will
continue to be greater than its historic levels due to the changes in payment
terms. The Company's five largest customers accounted for 70% and 63% of total
accounts receivable as of September 28, 2002 and December 29, 2001,
respectively. Management monitors the credit terms and credit limits to these
and other customers and believes that the increase in accounts receivable will
not result in increased bad debt losses to the Company. 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, non-cash depreciation
charges and higher accounts payable levels during the nine months ended
September 28, 2002.
Investing activities used $6.6 million of cash during the nine months
ended September 28, 2002. Earlier in the year, 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 net $11.4 million use of cash during the period. Additions to
property, plant and equipment required $2.5 million of cash in the nine months
ended September 28, 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 $10.5 million in cash in the nine months
ended September 28, 2002. These uses were primary related to scheduled
repayments under capital lease and other debt obligations, including the first
scheduled repayment of $8.6 million on the Company's Senior Notes made in August
2002.
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.
Page 11 of 16
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.
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."
Item 3. 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. 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 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.
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 September 28, 2002.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's Chief
Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within ninety days
before the filing date of this quarterly report (the "Evaluation Date"). Based
on that evaluation, the Chief Executive Officers and the Chief Financial Officer
have concluded that the Company's current disclosure controls and procedures are
effective, providing them with material information relating to the Company as
required to be disclosed in the reports the Company files or submits under the
Exchange Act on a timely basis.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
those controls subsequent to the Evaluation Date.
Page 12 of 16
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
99.1 Certifications Pursuant to 18 U.S.C. Section 1350 (as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002).
(b) Reports on Form 8-K
None
Page 13 of 16
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 November 11 , 2002 \s\ Richard Berman
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Richard Berman
President and Chief Executive Officer
Date November 11, 2002 \s\ Mathias Barton
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Mathias Barton
Chief Financial Officer and
Principal Accounting Officer
Page 14 of 16
CERTIFICATIONS
I, Richard Berman, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of R&B, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002
\s\ Richard Berman
- ----------------------
Richard Berman
President and Chief Executive Officer
Page 15 of 16
CERTIFICATIONS
I, Mathias Barton, Chief Financial Officer and Principal Accounting Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of R&B, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002
\s\ Mathias Barton
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Mathias Barton
Chief Financial Officer
Page 16 of 16