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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 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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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. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No |X|
As of March 17, 2003 the Registrant had 8,558,548 common shares, $.01 par value,
outstanding, and the aggregate market value of voting stock held by
non-affiliates of the Registrant was $41,334,830.
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 22,
2003.
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R & B, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 28, 2002
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
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . .8
Available Information . . . . . . . . . . . . . . . . . . . .9
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. . .. . . . . . . . . . . . . . . . . . . . . .11
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . 12
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.. . . . . . . . . . . . . . . . . . . . . . . .12
Item 8. Consolidated Financial Statements and Supplementary Data. . . . . .18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure... . . . . . . . . . . . . . . . . . . . . . .36
Part III
Item 10. Directors and Executive Officers of the Registrant. . . . . . . . 37
Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . 37
Item 12. Security Ownership of Certain Beneficial Owners and Management. ..37
Item 13. Certain Relationships and Related Transactions. . . . . . . . . . 38
Item 14. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . .38
Part IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K...38
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . .41
Report of Independent Public Accountants on
Financial Statement Schedule. .. . . . . . . . . . . . . . .44
Financial Statement Schedule. . . . . . . . . . . . . . . . 45
Page 2 of 45
PART I
Item 1. Business.
General
R&B, Inc. was incorporated in Pennsylvania in October 1978. As used
herein, unless the context otherwise requires, "R&B" or the "Company" refers to
R&B, Inc. and its subsidiaries.
The Company is a leading supplier of original equipment dealer
"exclusive" automotive replacement parts, 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 65,000 different
automotive replacement parts, fasteners and service line products manufactured
to its specifications, with approximately 40% consisting of original equipment
dealer "exclusive" parts and fasteners. Original equipment dealer "exclusive"
parts are those which were traditionally available to consumers only from
original equipment manufacturers or junk yards and include, among other parts,
exhaust manifolds, window regulators, radiator fan assemblies, power steering
pulleys and harmonic balancers. Fasteners include such items as oil drain plugs
and wheel lug nuts. Approximately 90% of the Company's products are sold under
its brand names and the remainder are sold for resale under customers' private
labels, other brands or in bulk. The Company's products are sold primarily in
the United States through automotive aftermarket retailers (such as AutoZone,
Advance and O'Reilly), national, regional and local warehouse distributors (such
as Carquest and NAPA) and specialty markets including parts manufacturers for
resale under their own private labels (such as Federal Mogul) 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 $186 billion in 2002, and parts for heavy duty trucks, which
accounted for sales of approximately $62 billion in 2002. 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 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
Page 3 of 45
same requirements through a variety of different sources, retailers and other
purchasers of automotive parts seek to purchase products from fewer but stronger
suppliers.
Products
The Company sells over 65,000 different automotive replacement parts,
fasteners and service line products to meet a variety of needs, including
original equipment dealer "exclusive" parts sold under the Motormite(R) family
of brands such as the HELP!(R) brand name, a comprehensive array of automotive
and hardware fasteners sold under the Dorman(R) and Pik-A-Nut(R) family of brand
names, service line products sold under the Champ(R) family of brand names and
traditional automotive replacement parts sold under the Company's other brand
names as well as under customers' private label brands. Approximately 90% of the
Company's revenues are derived from products sold under its more than fifty
brand names.
Motormite(R) - brand names within the Motormite(R) master brand represent many
of the Company's original equipment dealer "exclusive" parts, including, among
others, the following:
* HELP!(R) - An extensive array of replacement parts,
including window handles, knobs and switches, door
handles, interior trim parts, headlamp aiming
screws and retainer rings, radiator parts, battery
hold-down bolts, valve train parts and power
steering filler caps
* Conduct-Tite!(R) - Electrical connectors
* Mighty Flow!(R) - Air intake, carburetor preheater and defroster
duct hoses
* Look!(R) - Sideview mirror glass
* Speedi-Boot!TM - Constant velocity joint boots and clamps
Dorman(R) - brand names within the Dorman(R) master brand represent the
Company's automotive fasteners, original equipment dealer "exclusive" parts and
traditional replacement parts, including, among others, the following:
* Oil-Tite!(R) - Oil drain plugs and gaskets
* OE Solutions TM - Original equipment dealer "exclusive" parts,
such as exhaust manifolds, window regulators,
harmonic balances and radiator fan assemblies
* Gear-Up!(R) - Flywheels, ring gears and flex plates
* Quick-Disconnect TM - Transmission, cooling system and fuel system
connectors
* 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
Page 4 of 45
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
Scan-Tech TM - the Scan-Tech TM brand represents the Company's automotive
replacements parts sold internationally, and relate primarily to replacement
parts for Volvo and Saab cars and Scania trucks
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 national warehouse
distributors (such as Carquest and NAPA). During the years ended December 2002,
2001 and 2000, 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 45
Sales and Marketing
The Company markets its parts to three groups of purchasers who in turn
supply individual consumers and professional installers:
(i) Approximately 45% of the Company's revenues are generated
from sales to automotive aftermarket retailers (such as AutoZone,
Advance and O'Reilly), local independent parts wholesalers and national
general merchandise chain retailers. The Company sells some of its
products to virtually all major chains of automotive aftermarket
retailers;
(ii) Approximately 27% of the Company's revenues are generated
from sales to warehouse distributors (such as Carquest and NAPA), which
may be local, regional or national in scope, and which may also engage
in retail sales; and
(iii) The balance of the Company's revenues are generated from
international sales and sales to special markets, which include, among
others, mass merchants (such as Wal-Mart), salvage yards and the parts
distribution systems of parts manufacturers.
The Company utilizes a number of different methods to sell its products.
The Company's more than 25 person direct sales force solicits purchases of the
Company's products directly from customers, as well as managing the activities
of 15 independent manufacturer's representative agencies. The Company uses
independent manufacturer's representative to help service existing retail and
warehouse distribution customers, providing frequent on-site contact. The sales
focus is designed to increase sales by adding new product lines and expanding
product selection within existing customers and secure new customers. For
certain of its major customers, and its private label purchasers, the Company
relies primarily upon the direct efforts of its sales force, who, together with
the marketing department and the Company's executive officers, coordinate the
more complex pricing and ordering requirements of these accounts.
The Company's sales efforts are not directed merely at selling
individual products, but rather more broadly towards selling groups of related
products that can be displayed on attractive Company-designed display systems,
thereby maximizing each customer's ability to present the Company's product line
within the confines of the available area.
The Company prepares a number of catalogs, application guides and
training materials designed to describe the Company's products and other
applications as well as to train the customers' salesmen in the promotion and
sale of the Company's products. Every two to three years the Company prepares a
new master catalog which lists all of its products. The catalog is updated
periodically through supplements.
The Company currently services more than 2,000 active accounts. During
2002, two customers (AutoZone and Advance) each accounted for more than 10% of
net sales and in the aggregate accounted for 36% of net sales. In 2001 and 2000,
one customer (AutoZone) accounted for approximately 24% and 20% of net sales,
respectively.
Manufacturing
Substantially all of the products sold by the Company are manufactured
to its specifications by third parties. Because numerous contract manufacturers
are available to manufacture its products, the Company is not dependent upon the
services of any one contract manufacturer or any small group of them, so no one
vendor supplies 10% or more of the Company's products. In 2002, as a percentage
of the total dollar volume of purchases made by the Company, approximately half
of the Company's products were purchased from various suppliers throughout the
United States and the balance of the Company's products were purchased directly
from a variety of foreign countries.
Page 6 of 45
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 one month supply of its products, packaged
and readily available for shipment, and a two 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 45
Employees
At December 28, 2002, the Company had 975 employees, of whom 935 were
employed full-time and 40 were employed part-time. Of these employees, 679 were
engaged in production, inventory, or quality control, 49 were involved in
product development and brand management, 81were employed in sales and order
entry, and the remaining 166, 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.
Risk Factors
Increasing Service Life. Advancing technology and competitive pressures
have compelled original equipment automobile and parts manufacturers to use
parts with longer service lives, which are covered by longer and more
comprehensive warranties. This may have the effect of reducing demand for the
Company's products by delaying the onset of repair conditions requiring their
use.
Competition for Shelf Space. Since the amount of space available to a
retailer and other purchasers of the Company's products is limited, the
Company's products compete with other automotive aftermarket products, some of
which are entirely dissimilar and otherwise non-competitive (such as car waxes
and engine oil), for shelf and floor space. No assurance can be given that
additional space will be available in a customers' stores to support expansion
of the number of products offered by the Company.
Concentration of Sales to Certain Customers. A significant percentage of
the Company's sales have been, and will continue to be, concentrated among a
relatively small number of customers. During 2002, two customers (AutoZone and
Advance) each accounted for more than 10% of net sales and in the aggregate
accounted for 36% of net sales. In 2001 and 2000, one customer (AutoZone)
accounted for approximately 24% and 20% of net sales, respectively. The Company
anticipates that this concentration of sales among customers will continue in
the future. The loss of a significant customer or a substantial decrease in
sales to such a customer could have a material adverse effect on the Company's
sales and operating results. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and "Business-Sales and
Marketing."
Concentrations of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consists primarily of cash
equivalents, short-term investments, and accounts receivable. All cash
equivalents and short-term investments are managed within established guidelines
which limit the amount which may be invested with one issuer. A significant
percentage of the Company's accounts receivable have been, and will continue to
be concentrated among a relatively small number of automotive retailers and
warehouse distributors in the United States. The Company's five largest
customers accounted for 73% and 63% of total accounts receivable as of December
28, 2002 and December 29, 2001, respectively. Management continually monitors
the credit terms and credit limits to these and other customers.
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.
Page 8 of 45
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.
Available Information
Our internet address is www.rbinc.com. We make available free of charge
on our web site our annual report on Form 10-K, quarterly reports on Form 10-Q
and current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as
reasonably practicable after we electronically file such material with, or
furnish it to, the SEC. In addition, we will provide, at no cost, paper or
electronic copies of our reports and other filings made with the SEC. Requests
should be directed to: R&B, Inc. - Office of General Counsel, 3400 East Walnut
Street, Colmar, Pennsylvania 18915.
The information on the website listed above, is not and should not be
considered part of this annual report on Form 10-K and is not incorporated by
reference in this document. This website is, and is only intended to be, an
inactive textual reference.
Item 2. Properties.
Facilities
The Company currently has 12 warehouse and office facilities located throughout
the United States, Sweden, China 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
------------------- ---------------------------------------------------
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)
Louisiana, MO Warehouse and office - 90,000 sq. ft. (owned)
Baltimore, MD Warehouse and office - 83,000 sq. ft. (leased)
In the opinion of management, the Company's existing facilities are in good
condition.
- -----------------
(1) Leased by the Company from a partnership (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 $3.51 per square foot ($1.2 million per
year) in 2002. 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). In 2002, the lease term was extended and will expire on
December 31, 2007. In the opinion of management, the terms of this lease are no
less favorable than those which could have been obtained from an unaffiliated
party.
The property is being purchased by the partnerships from the Montgomery
County Industrial Development Corporation ("MCIDC") under an installment sale
agreement. The Company has guaranteed the obligations of the partnerships which
will end in May of 2003 and have a current balance of approximately $25,000.
Page 9 of 45
(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 $2.72 per square foot ($0.27 million
per year) in 2002. The Company is currently not using this facility. The
partnership has entered into an agreement of sale for the facility with an
unrelated party which is expected to close in April 2003. In connection with
this agreement of sale, the Company entered into an agreement with the
partnership to terminate the lease early, contingent on the sale of the
facility. In consideration of the early termination of the lease, which was to
expire on January 2, 2005, the Company will pay the partnership a $200,000 lease
termination fee. In the opinion of management, the terms of this lease and lease
termination agreement are no less favorable than those which could have been
obtained from an unaffiliated party.
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. In the opinion of management, none of the actions,
individually or in the aggregate, would likely have a material financial impact
on the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the security holders of the
Company during the fourth quarter of fiscal year 2002.
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 43 Senior Vice President, Chief Financial
Officer
Richard N. Berman 46 President, Chief Executive Officer,
Chairman of the Board of Directors,
and Director
Steven L. Berman 43 Executive Vice President,
Secretary-Treasurer, and Director
Edward L. Dean 46 Senior Vice President, Marketing
David A. Eustice 42 Senior Vice President, Chief Operating
Officer
Ronald R. Montgomery 61 Senior Vice President, Sales
Barry D. Myers 43 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 45
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, Cooper 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.
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 17, 2003 there were
138 holders of record of common stock, representing more than 1,500 beneficial
owners. The last price for the Company's common stock on March 17, 2003, as
reported by NASDAQ, was $10.00 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 2002 and 2001 are as follows:
2002 2001
----------------------- -----------------------
High Low High Low
- ------------------ ---------- ------------ ---------- ------------
First Quarter $8.90 $6.65 $2.63 $1.66
Second Quarter 10.36 6.50 3.80 2.00
Third Quarter 10.00 8.10 4.50 2.69
Fourth Quarter 10.10 8.15 7.35 3.00
Page 11 of 45
Item 6. Selected Financial Data.
Selected Consolidated Financial Data
Year Ended December
-------------------------------------------------------------------------
(in thousands, except per share
data) 2002 (a) 2001 2000 (b) 1999 (c) 1998
- ----------------------------- -------------- ------------ -------------- --------------- -------------
Statement of Operations Data:
Net sales $215,524 $201,668 $201,390 $236,689 $178,301
Income from operations (d) 23,133 12,266 12,308 1,633 16,419
Net income (loss) (d) 12,357 5,229 4,095 (3,602) 7,556
Earnings (loss) per share (d):
Basic $1.46 0.61 0.49 (0.43) 0.91
Diluted $1.38 0.60 0.48 (0.43) 0.90
Balance Sheet Data:
Total assets 170,128 163,163 159,879 188,004 183,948
Working capital 91,340 81,068 83,262 96,612 97,620
Long-term debt 44,218 53,511 65,066 85,283 80,004
Shareholders' equity 89,572 75,162 72,384 68,234 71,614
(a) Results for 2002 include a gain on sale of specialty fastener business of
$2,143 ($1,329 after tax or $0.15 per share).
(b) Results for 2000 include non-recurring revenues and gain on sale of product
line of $5,500 and $1,600 ($1,100 after tax or $0.13 per share), respectively.
(c) Results for 1999 include a restructuring charge of $11,400 ($7,500 after tax
or $0.90 per share).
(d) The Company adopted the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," at the beginning of fiscal 2002. With the adoption of SFAS
No. 142, goodwill is no longer subject to amortization. The following table
presents certain financial data for fiscal 2002 and all periods prior to fiscal
2002 adjusted to exclude amortization of goodwill and the related tax effects:
Year Ended December
------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
Income from operations $ 23,133 $ 13,891 $ 13,970 $ 3,320 $ 17,807
Net income (loss) $ 12,357 $ 6,293 $ 5,185 $(2,487) $ 8,488
Diluted earnings per share $ 1.38 $ 0.73 $ 0.61 $(0.30) $ 1.01
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 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
Page 12 of 45
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 28, 2002, December 29, 2001 and December 30, 2000 were for fifty-two
week, fifty-two week and fifty-three week periods, respectively.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon the consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities, the disclosure of contingent liabilities and
the reported amounts of revenues and expenses. The Company regularly evaluates
its estimates and judgments, including those related to revenue recognition, bad
debts, customer credits, inventories and income taxes. Estimates and judgments
are based upon historical experience and on various other assumptions believed
to be accurate and reasonable under the circumstances. Actual results may differ
materially from these estimates under different assumptions or conditions. The
Company believes the following critical accounting policies affect its more
significant estimates and judgments used in the preparation of its consolidated
financial statements:
Allowance for Doubtful Accounts. The preparation of the Company's
financial statements requires management to make estimates of the collectability
of its accounts receivable. Management specifically analyzes accounts receivable
and historical bad debts, customer creditworthiness, current economic trends and
changes in customer payment patterns when evaluating the adequacy of the
allowance for doubtful accounts. A significant percentage of the Company's
accounts receivable have been, and will continue to be, concentrated among a
relatively small number of automotive retailers and warehouse distributors in
the United States. The Company's five largest customers accounted for 73% and
63% of total accounts receivable as of December 28, 2002 and December 29, 2001,
respectively. A bankruptcy or financial loss associated with a major customer
could have a material adverse effect on the Company's sales and operating
results. The Company's allowance for doubtful accounts amounted to $1.3 million
and $0.9 million as of December 28, 2002 and December 29, 2001, respectively.
Revenue Recognition and Allowance for Customer Credits. The Company
recognizes revenue for sales to its customers at the time of shipment from the
Company's warehouses. Net sales are calculated by subtracting allowances for
customer credits from gross revenues. Allowances for customer credits include
costs for product returns, discounts and promotional rebates 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 Company provides
for customer credits and potential returns at the time of sale. Management must
make estimates of the ultimate value of customer credits that will be issued for
future product returns and sales allowances granted to induce customers to
purchase products from the Company. Management analyzes historical returns,
current economic conditions and changes in demand and acceptance of the
Company's products when evaluating the adequacy of its reserves for customer
credits. Management judgements and estimates must be made and used in connection
with establishing reserves for customer credits in any accounting period.
Material differences in the amount and timing of customer credits for any period
may result if management made different judgments or utilized different
estimates for the reserves. Reserves for customer credits were $16.5 million and
$14.2 million as of December 28, 2002 and December 29, 2001, respectively.
Excess and Obsolete Inventory Reserves. Management must make estimates
of potential future excess and obsolete inventory costs. The Company provides
reserves for discontinued and excess inventory based upon historical demand,
forecasted usage, estimated customer requirements and product line updates. The
Page 13 of 45
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 $9.2 million and $9.6 million as of December 28, 2002
and December 29, 2001, respectively.
Gain on Sale of Specialty Fastener Business and Litigation Settlement
On May 1, 2002, the Company entered into agreements to sell its
specialty fastener business and to settle litigation initiated by the Company in
1996 related to its purchase of the Dorman business. Total proceeds from the
sale and settlement, net of transaction costs and purchase price adjustments
were approximately $7.4 million. The transactions resulted in an after-tax gain
on the sale of the fastener business of $1.3 million, and a reduction in
goodwill totaling $2.2 million.
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).
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 28, December 29, December 30,
2002 2001 2000
- -------------------------- ------------------ ---------------- ----------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 63.3 65.6 65.9
- -------------------------- ------------------ ---------------- ----------------
Gross profit 36.7 34.4 34.1
Selling, general and
administrative expenses 27.0 28.3 28.0
Gain on sale of specialty
fastener business (1.0) - -
- -------------------------- ------------------ ---------------- ----------------
Income from operations 10.7 6.1 6.1
Interest expense, net 1.8 2.1 3.0
- -------------------------- ------------------ ---------------- ----------------
Income before taxes 8.9 4.0 3.1
Provision for taxes 3.2 1.4 1.1
- -------------------------- ------------------ ---------------- ----------------
Net income 5.7% 2.6% 2.0%
========================== ================== ================ ================
Page 14 of 45
2002 Compared to 2001
Net sales increased to $215.5 million in 2002 from $201.7 million in
2001. Revenues from the specialty fastener business sold in May 2002 were $2.1
million and $5.4 million in 2002 and 2001, respectively. Net sales in 2002
increased $17.1 million, or 8.7%, after adjusting for the specialty fastener
business sale. One-time sales related to customer inventory builds accounted for
approximately 25% of the sales growth in 2002. The remainder of the sales
increase was the result of 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 63.3% in 2002
from 65.6% in 2001. The primary reason for this decline was an additional
provision for discontinued and excess inventories of $3.6 million in 2001, which
increased cost of goods sold by 1.8% of sales. The remaining decline in cost of
goods sold as a percentage of sales in 2002 is the result of lower materials and
operating costs achieved through several cost reduction initiatives.
Selling, general and administrative expenses in 2002 increased to $58.2
million from $57.0 million in 2001, an increase of $1.2 million, or 2.1%. The
increase in selling, general and administrative costs was primarily the result
of higher sales volumes and $0.7 million in net costs associated with the
closure of one of the Company's smaller distribution facilities.
Interest expense, net decreased to $3.9 million in 2002 from $4.3
million in 2001 due to lower borrowing levels in 2002. 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 35.6% in 2002 from 34.4%
as the gain on the sale of the specialty fastener business is subject to a
higher overall effective tax rate than the Company's operating profits.
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, as a percentage of sales, decreased 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.
Interest expense, net decreased to $4.3 million in 2001 from $6.0
million in 2000 due to lower borrowing
Page 15 of 45
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.
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 the last
three years the Company has focused on inventory management and aggressively
managed other components of working capital. In addition, capital spending
levels were reduced. These initiatives resulted in improved cash flow and
reduced borrowing levels. At December 28, 2002, working capital was $91.3
million, total long-term debt (including the current portion) was $53.5 million
and shareholders' equity was $89.6 million. Cash and short-term investments as
of December 28, 2002 totaled $19.2 million.
Long-term debt consists primarily of $51.4 million in Senior Notes that
were originally issued in August 1998, in a private placement on an unsecured
basis ("Notes"). The Notes bear a 6.81% fixed interest rate, payable quarterly.
Annual principal payments of $8.6 million are due each August through 2008. The
Notes require, among other things, that the Company maintain certain financial
covenants relating to debt to capital ratios and minimum net worth.
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. In
addition, the Company's Swedish subsidiary maintains a short-term $1.5 million
credit facility. There were no borrowings under either facility as of December
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 was $1.4 million at
December 28, 2002.
Operating cash flow amounted to $5.1 million in fiscal 2002,
approximately $16.4 million lower than the $21.5 million in operating cash flow
in 2001. The decrease in cash provided by operations was due to higher sales
levels in 2002, which resulted in increases in accounts receivable and inventory
to support the higher sales base, and increases to payment terms for certain
customers, which resulted in increased accounts receivable days outstanding. The
Company expects that its accounts receivable levels will continue to be greater
than historic levels due to the changes in payment terms in 2002
Investing activities used $10.2 million of cash in 2002. During 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 $14.0 million use of
cash during the period. Additions to property, plant and equipment required $3.5
million of cash in 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 the specialty fastener business and litigation
settlement in May 2002.
Page 16 of 45
Financing activities required $11.4 million in cash in 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 and short-term investments on hand and
cash generated from operations together with its available sources of capital
are sufficient to meet ongoing cash needs for the foreseeable future.
Foreign Currency Fluctuations. In 2002, approximately half 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
fluctuations in the relationship between the dollar and various foreign
currencies between the time of execution of the purchase order and payment for
the product. However, 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.
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 mitigated through the use of alternative suppliers and by resourcing its
purchases to other countries.
Recent 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 the
provisions of 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 year ended December 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 the provisions of this pronouncement on December 30, 2001.
The adoption of SFAS No. 144 did not have a material impact on the consolidated
statement of operations for the year ended December 28, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal of Activities." The statement will be applied
prospectively to exit or disposal activities initiated after December 28, 2002.
The initial adoption of this pronouncement will not have a material effect on
the consolidated statement of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS
123." This statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in APB Opinion No. 25 and related
interpretations. Accordingly, compensation expense for stock options is measured
as the excess, if any, of the estimate of the market value of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. The Company will adopt the annual disclosure provisions of SFAS No.
148 in its financial reports for the fiscal
Page 17 of 45
year ended December 27, 2003 and will adopt the interim disclosure provisions
for its financial reports for the quarter ended March 29, 2003. As the adoption
of this standard involves disclosures only, the Company does not expect a
material impact on its results of operations, financial position or liquidity.
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 may occasionally use 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 28, 2002.
Item 8. Financial Statements and Supplementary Data.
The financial statement schedules of the Company that are filed with this
Report on Form 10-K are listed in Item 15(a)(2), Part IV, of this Report.
Page 18 of 45
Independent Auditors' Report
The Board of Directors
R&B, Inc.:
We have audited the accompanying consolidated balance sheet of R&B, Inc.
and subsidiaries as of December 28, 2002 and the related consolidated statements
of operations, shareholders' equity and cash flows for the fiscal year then
ended. In connection with our audit of the fiscal 2002 consolidated financial
statements, we also have audited the fiscal 2002 financial statement schedule.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audit. The fiscal 2001 and fiscal 2000 consolidated
financial statements and financial statement schedule of R&B, Inc. were audited
by other auditors who have ceased operations. Those auditors expressed an
unqualified opinion on those consolidated financial statements and financial
statement schedule in their report dated February 13, 2002.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the fiscal 2002 consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of R&B, Inc. and subsidiaries as of December 28, 2002, and
the results of their operations and their cash flows for the fiscal year then
ended in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related fiscal 2002 financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed above, the fiscal 2001 and fiscal 2000 consolidated
financial statements of R&B, Inc. and subsidiaries were audited by other
auditors who have ceased operations. As described in Note 3, these consolidated
financial statements have been revised to include the transitional disclosures
required by Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, which was adopted by the Company as of December 30,
2001. In our opinion, the disclosures for fiscal 2001 and fiscal 2000 are
appropriate. However, we were not engaged to audit, review, or apply any
procedures to the fiscal 2001 and fiscal 2000 consolidated financial statements
of R&B, Inc. and subsidiaries other than with respect to such disclosures, and
accordingly, we do not express an opinion or any other form of assurance on the
fiscal 2001 and fiscal 2000 consolidated financial statements taken as a whole.
KPMG LLP
Philadelphia, Pennsylvania
February 13, 2003
Page 19 of 45
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.
/s/ Arthur Andersen LLP
Philadelphia, Pennsylvania
February 13, 2002
Note: The report above is a copy of a previously issued report and it has not
been reissued by Arthur Andersen LLP (Andersen).
Page 20 of 45
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
52 Weeks Ended 52 Weeks Ended 53 Weeks Ended
---------------------------------------------
December 28, December 29, December 30,
(in thousands, except per share data) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------
Net Sales $215,524 $201,668 $201,390
Cost of goods sold 136,321 132,353 132,621
- -------------------------------------------------------------------------------------------------------
Gross profit 79,203 69,315 68,769
Selling, general and administrative expenses 58,213 57,049 56,461
Gain on sale of specialty fastener business (2,143) - -
- -------------------------------------------------------------------------------------------------------
Income from operations 23,133 12,266 12,308
Interest expense, net of interest income of $411, $439 and $93 3,931 4,289 6,032
- -------------------------------------------------------------------------------------------------------
Income before income taxes 19,202 7,977 6,276
Income taxes 6,845 2,748 2,181
- -------------------------------------------------------------------------------------------------------
Net income $ 12,357 $ 5,229 $ 4,095
=======================================================================================================
Earnings Per Share:
Basic $ 1.46 $ 0.61 $ 0.49
Diluted $ 1.38 $ 0.60 $ 0.48
Weighted Average Shares Outstanding:
Basic 8,487 8,529 8,439
Diluted 8,948 8,647 8,523
=======================================================================================================
See accompanying notes to consolidated financial statements.
Page 21 of 45
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 28, December 29,
(in thousands, except share data) 2002 2001
- ------------------------------------------------------------------------ --------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $ 5,169 $ 21,689
Short-term investments 14,002 -
Accounts receivable, less allowance for doubtful accounts
and customer credits of $17,854 and $15,110 48,769 36,700
Inventories 47,217 45,036
Deferred income taxes 7,621 7,469
Prepaids and other current assets 1,425 1,352
- ------------------------------------------------------------------------ --------------- ---------------
Total current assets 124,203 112,246
- ------------------------------------------------------------------------ --------------- ---------------
Property, Plant and Equipment, net 16,591 18,744
Goodwill 28,607 30,422
Other Assets 727 1,751
- ------------------------------------------------------------------------ --------------- ---------------
Total $ 170,128 $ 163,163
======================================================================== =============== ===============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 9,291 $ 11,481
Accounts payable 11,813 8,327
Accrued compensation 7,304 6,145
Other accrued liabilities 4,455 5,225
- ------------------------------------------------------------------------ --------------- ---------------
Total current liabilities 32,863 31,178
- ------------------------------------------------------------------------ --------------- ---------------
Long-Term Debt 44,218 53,511
Deferred Income Taxes 3,475 3,312
Commitments and Contingencies (Note 13)
Shareholders' Equity:
Common stock, par value $.01; authorized 25,000,000 shares;
issued and outstanding 8,501,070 and 8,466,482 shares 85 85
Additional paid-in capital 32,937 32,501
Cumulative translation adjustments 55 (1,562)
Retained earnings 56,495 44,138
- ------------------------------------------------------------------------ --------------- ---------------
Total shareholders' equity 89,572 75,162
- ------------------------------------------------------------------------ --------------- ---------------
Total $ 170,128 $ 163,163
======================================================================== =============== ===============
See accompanying notes to consolidated financial statements.
Page 22 of 45
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 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 (250,000) (3) (2,416) - - (2,419)
(Note 8)
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
Common stock issued to
Employee Stock Purchase Plan 1,652 - 12 - - 12
Compensation expense on stock option issuance - - 363 - - 363
Shares issued under Incentive Stock Plan 32,936 - 61 - - 61
Comprehensive Income:
Net income - - - - 12,357 12,357
Currency translation adjustments - - - 1,617 - 1,617
----------
Total comprehensive income 13,974
- ----------------------------------------- ------------- ----------- ----------- ------------- ---------- -----------
Balance at December 28, 2002 8,501,070 $85 $32,937 $ 55 $56,495 $89,572
========================================== ============= =========== =========== ============= ========= ==========
See accompanying notes to consolidated financial statements.
Page 23 of 45
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
52 Weeks Ended 52 Weeks Ended 53 Weeks Ended
-------------------------------------------------------
December 28, December 29, December 30,
(in thousands) 2002 2001 2000
- ----------------------------------------------------- ------------------- ----------------- -----------------
Cash Flows from Operating Activities:
Net income $ 12,357 $ 5,229 $ 4,095
Adjustments to reconcile net income to cash
provided by operating activites:
Depreciation and amortization 5,560 8,105 7,931
Provision for doubtful accounts 737 1,118 566
Provision (benefit) for deferred income tax 11 (2,751) 965
Provision for non-cash stock compensation 363 297 381
Gain on sale of specialty fastener business (1,329) - -
Changes in assets and liabilities:
Accounts receivable (13,339) (1,676) 12,900
Inventories (2,351) 5,220 18,987
Prepaids and other current assets 28 1,279 (156)
Other assets 516 1,231 97
Accounts payable 3,101 276 (4,576)
Accrued compensation and other liabilities (593) 3,221 746
- ----------------------------------------------------- ------------------- ----------------- -----------------
Cash provided by operating activities 5,061 21,549 41,936
- ----------------------------------------------------- ------------------- ----------------- -----------------
Cash Flows from Investing Activities:
Property, plant and equipment additions (3,543) (1,924) (6,759)
Purchase of short-term investments (22,795) - -
Proceeds from maturities of short-term investments 8,793 - -
Proceeds from litigation settlement and sale of
specialty fastener business, net 7,374 - -
- ----------------------------------------------------- ------------------- ----------------- -----------------
Cash used in investing activities (10,171) (1,924) (6,759)
- ----------------------------------------------------- ------------------- ----------------- -----------------
Cash Flows from Financing Activities:
Net repayment of revolving credit - - (28,500)
Repayment of long-term debt obligations (11,483) (5,883) (923)
Proceeds from common stock issuances 73 394 332
- ----------------------------------------------------- ------------------- ----------------- -----------------
Cash used in financing activities (11,410) (5,489) (29,091)
- ----------------------------------------------------- ------------------- ----------------- -----------------
Net (Decrease) Increase in Cash and Cash
Equivalents (16,520) 14,136 6,086
Cash and Cash Equivalents, Beginning of Year 21,689 7,553 1,467
- ----------------------------------------------------- ------------------- ----------------- -----------------
Cash and Cash Equivalents, End of Year $ 5,169 $ 21,689 $ 7,553
===================================================== =================== ================= =================
Supplemental Cash Flow Information
Cash paid for interest expense $ 4,356 $ 4,788 $ 5,933
Cash paid for income taxes $ 7,218 $ 4,206 $ 1,170
See accompanying notes to consolidated financial statements.
Page 24 of 45
R&B, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 28, 2002
1. Summary of Significant Accounting Policies
R&B, Inc. (the "Company") is a leading supplier of OE Dealer
"Exclusive" automotive replacement parts, automotive hardware and brake products
to the automotive aftermarket, and household hardware products to the general
merchandise markets. R&B's products are marketed under more than thirty
proprietary brand names, through its Motormite, Dorman, Allparts, Scan-Tech, MPI
and Pik-A-Nut 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 28, 2002, December 29, 2001 and December 30, 2000 were for fifty-two
week, fifty-two week, and fifty-three week periods, respectively.
Principles of Consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
Short-term Investments. Short-term investments consist primarily of
corporate and government bonds with maturities of three months to one year from
the date of purchase. Short-term investments are classified as held-to-maturity
and are recorded at amortized cost. As of December 28, 2002, the market value of
these short-term investments approximated the amortized cost.
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.
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.
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.
Page 25 of 45
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 28, 2002 and December 29, 2001,
no open forward exchange contracts were outstanding.
Concentrations of Credit Risk. Financial instruments that potentially
subject the Company to concentrations of credit risk consists primarily of cash
equivalents, short-term investments, and accounts receivable. All cash
equivalents and short-term investments are managed within established guidelines
which limit the amount which may be invested with one issuer. A significant
percentage of the Company's accounts receivable have been, and will continue to
be, concentrated among a relatively small number of automotive retailers and
warehouse distributors in the United States. The Company's five largest
customers accounted for 73% and 63% of total accounts receivable as of December
28, 2002 and December 29, 2001, respectively. Management continually monitors
the credit terms and credit limits to these and other customers.
Fair Value Disclosures. The carrying value of financial instruments
such as cash, short-term investments, accounts receivable, accounts payable, and
other current assets and liabilities approximate their fair value based on the
short-term nature of these instruments. Based on borrowing rates currently
available to the Company for loans with similar terms and average maturities,
the fair value of total long-term debt was $48.4 million and $62.4 million at
December 28, 2002 and December 29, 2001, 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 allowances for
customer credits from gross sales. Allowances for customer credits include costs
for product returns, discounts and promotional rebates 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 allowances for
customer credits are shown as a reduction of accounts receivable. Amounts billed
to customers for shipping and handling are included in net sales. Costs
associated with shipping and handling are 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 28, 2002:
2002 2001 2000
---------- ----- ---------- ----- -----------
(in thousands, except per share data)
Numerator:
Net income ................................ $12,357 $5,229 $4,095
Denominator:
Weighted average shares outstanding 8,487 8,529 8,439
Effect of dilutive stock options............. 461 118 84
---------- ----- ---------- ----- -----------
Adjusted weighted average shares outstanding
diluted earnings per share............. 8,948 8,647 8,523
========== ===== ========== ===== ===========
Basic earnings per share......................... $1.46 $ 0.61 $ 0.49
========== ===== ========== ===== ===========
Diluted earnings per share....................... $1.38 $ 0.60 $ 0.48
========== ===== ========== ===== ===========
Page 26 of 45
Options to purchase 5,000, 5,000 and 654,425 shares were outstanding at
December 28, 2002, December 29, 2001, and December 30, 2000, but were not
included in the computation of diluted earnings per share, as their effect would
have been antidilutive.
Stock-Based Compensation. At December 28, 2002, the Company has one
stock-based employee compensation plan, which is described more fully in Note
14. The Company accounts for this plan under the recognition and measurement
principles of Accounting Principles Board Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees", and related interpretations. Under
APB No. 25, compensation expense is based on the difference, if any, on the date
of the grant between the fair value of our stock and the exercise price of the
option. The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
FASB Statement No. 123, "Accounting for Stock-Based Compensation", to
stock-based employee compensation. The 2001 and 2002 pro forma net income has
been revised to add back stock-based employee compensation, which was included
in reported net income.
Year Ended December
- ------------------------------------------ -----------------------------------------------
(in thousands, except per share data) 2002 2001 2000
- ------------------------------------------ --------------- --------------- --------------
Net income:
As reported $ 12,357 $ 5,229 $ 4,095
Pro forma $ 11,825 $ 4,830 $ 4,010
Earnings per share:
As reported:
Basic $ 1.46 $ 0.61 $ 0.49
Diluted $ 1.38 $ 0.60 $ 0.48
Pro forma:
Basic $ 1.39 $ 0.57 $ 0.48
Diluted $ 1.32 $ 0.56 $ 0.47
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:
2002 2001 2000
---- ---- ----
Expected dividend yield 0% 0% 0%
Expected stock price volatility 53% 46% 42%
Risk-free interest rate 3.3 % 5.3% 5.5%
Expected life of option 7.5 years 7.5 years 7.5 years
Reclassification. Certain prior-period amounts have been reclassified
to conform to the current year presentation.
Page 27 of 45
2. Gain on Sale of Specialty Fastener Business and Litigation Settlement
On May 1, 2002, the Company entered into agreements to sell the
Company's specialty fastener business and to settle litigation initiated by the
Company in 1996 related to its purchase of its Dorman business. Total proceeds
from the sale and settlement, net of transaction costs and purchase price
adjustments were approximately $7.4 million. The transactions resulted in an
after-tax gain on the sale of the fastener business of $1.3 million, and a
reduction in goodwill totaling $2.2 million.
3. Goodwill
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. The elimination of
goodwill amortization would have increased net income by $1.1 million for the
fiscal years ended December 29, 2001 and December 30, 2000, or $0.13 per diluted
share in each year.
Year Ended December
--------------------------------------------------
(in thousands, except per share data) 2002 2001 2000
- --------------------------------------- ----------------- --------------- ---------------
Net income:
As reported $ 12,357 $ 5,229 $ 4,095
Amortization expense - goodwill - 1,064 1,090
----------------- --------------- ---------------
Adjusted net income $ 12,357 $ 6,293 $ 5,185
----------------- --------------- ---------------
Basic earnings per share:
As reported $ 1.46 $ 0.61 $ 0.49
Amortization expense - goodwill - 0.13 0.13
----------------- --------------- ---------------
Adjusted earnings per share - basic $ 1.46 $ 0.74 $ 0.62
----------------- --------------- ---------------
Diluted earnings per share:
As reported $ 1.38 $ 0.60 $ 0.48
Amortization expense - goodwill - 0.13 0.13
----------------- --------------- ---------------
Adjusted earnings per share -diluted$ 1.38 $ 0.73 $ 0.61
----------------- --------------- ---------------
4. 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. The following summarizes the
restructuring charge and activity recorded under the program ,which was
completed in 2001:
Page 28 of 45
Employee Facility
Inventory Termination Shutdown
(in thousands) Disposals Costs Costs Total
- --------------------------------------- -------------- ------------- ------------- ------------
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.
5. 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 28, December 29,
(in thousands) 2002 2001
- ---------------------- ----------------- ------------------
Bulk product $19,923 $17,284
Finished product 24,462 24,290
Packaging materials 2,833 3,462
- ---------------------- ----------------- ------------------
Total $47,217 $45,036
====================== ================= ==================
6. Property, Plant and Equipment
Property, plant and equipment consists of the following:
December 28, December 29,
(in thousands) 2002 2001
- ----------------------------------- ------------------- - -------------------
Property under capitalized leases $2,452 $ 6,048
Buildings 7,452 7,311
Machinery, equipment and tooling 17,987 16,154
Furniture, fixtures and
leasehold improvements 3,512 3,334
Computer and other equipment 18,265 19,692
- ----------------------------------- ------------------- - -------------------
Total 49,668 52,539
Less-accumulated depreciation (33,077) (33,795)
- ----------------------------------- ------------------- - -------------------
Property, plant and equipment, net $16,591 $18,744
=================================== =================== = ===================
Page 29 of 45
7. Long-Term Debt
Long-term debt consists of the following:
December 28, December 29,
(in thousands) 2002 2001
- --------------------------------- ------------------- -------------------
Senior notes $51,428 $60,000
Capitalized lease obligations 720 2,466
Obligation for stock repurchase
and other (Note 8) 1,361 2,526
- --------------------------------- ------------------- -------------------
Total 53,509 64,992
Less: Current portion ( 9,291) (11,481)
- --------------------------------- ------------------- -------------------
Total long-term debt $44,218 $53,511
================================= =================== ===================
Senior Notes. The Senior Notes bear a 6.81% fixed interest rate, payable
quarterly. Annual principal repayments at the rate of $8.6 million are due each
August through 2008. Terms of the Note Purchase Agreement require, among other
things, that the Company maintain certain financial covenants relating to debt
to capital ratios and minimum net worth.
Bank Credit Facility. 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. There were no borrowings under the credit facility in 2002 or
2001. The Company's Swedish subsidiary maintains a $1.5 million credit facility.
As of December 28, 2002, no amounts were outstanding under this facility, which
is provided on an unsecured, short-term basis.
Capitalized Lease Obligations. The Company's capitalized lease
obligation for its primary operating facility was with a partnership related to
the Company by common ownership (see Note10) and was payable monthly in
installments of $47,500 including interest imputed at 13.96% through December
2002. In 2002, the lease was extended through December 2007 and is now accounted
for as an operating lease. The net book value of the asset under this
capitalized lease was $0 and $0.2 million at December 28, 2002 and December 29,
2001, respectively.
The Company has entered into three sale/leaseback transactions with an
equipment lease company to finance computer equipment. Two leases expired in
2002 and the third lease expires in 2003. The remaining lease is payable in
monthly installments of $106,000 including interest computed at a rate of 10.5%.
The annual future minimum lease payments for the Company's capital lease
obligation as of December 28, 2002 total $745,000, of which $25,000 represents
interest and $720,000 represents principal.
Page 30 of 45
Aggregate annual principal payments applicable to long-term debt and
capital lease obligations as of December 28, 2002 are as follows:
(in thousands)
2003 $ 9,291
2004 9,045
2005 9,459
2006 8,571
2007 8,571
Thereafter 8,572
- ------------------------------------------
Total $53,509
- ------------------------------------------
8. 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. The Company paid $1.25 million and $0.8
million of this amount under the amended agreements in 2002 and 2001,
respectively. 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
during 2001.
9. Operating Lease Commitments and Rent Expense
The Company leases certain equipment, automobiles and operating
facilities, including the Company's primary operating facility which is leased
from a partnership related to the Company by common ownership, under
noncancelable operating leases. Approximate future minimum rental payments under
these leases are summarized as follows:
(in thousands)
2003 $ 2,228
2004 2,009
2005 1,782
2006 1,680
2007 1,678
Thereafter 1,180
- -------------- ------------------
Total $10,557
============== ==================
Rent expense, which includes rental adjustment payments and contingent
rentals paid to related parties (see Notes 7 and 10) of $0.6 million in 2002,
2001 and 2000, respectively, was $2.9 million in 2002, $2.7 million in 2001, and
$2.6 million in 2000.
10. Related Party Transactions
The Company has entered into leases for two operating facilities with
partnerships of which the Company's Chief Executive Office and Executive Vice
President are partners (see Notes 7 and 9). Total interest expense on these
capitalized leases was $0.1 million in 2002 and 2001, and $0.2 million in 2000.
Subsequent to the end of the fiscal year, the Company entered into an
agreement with one of the partnerships related to the Company to terminate the
lease for its Carrollton, Georgia facility. In connection with this agreement,
the Company will pay $200,000 to terminate this lease subject to the closing of
the sale of the
Page 31 of 45
building by the partnership to an unrelated entity.
11. Income Taxes
The components of the income tax provision (benefit) are as follows:
(in thousands) 2002 2001 2000
- ------------------------ ------------------ ----------------- ----------------
Current:
Federal $6,048 $ 4,765 $ 964
State 365 329 38
Foreign 394 405 214
- ------------------------ ------------------ ----------------- ----------------
6,807 5,499 1,216
- ------------------------ ------------------ ----------------- ----------------
Deferred:
Federal 36 (2,487) 931
State 2 (264) 34
Foreign - - -
- ------------------------ ------------------ ----------------- ----------------
38 (2,751) 965
- ------------------------ ------------------ ----------------- ----------------
Total $6,845 $2,748 $2,181
======================== ================== ================= ================
The following is a reconciliation of income taxes at the statutory tax rate to
the Company's effective tax rate:
2002 2001 2000
- --------------------------------------------------------------------------------
Federal taxes at statutory rate 34.0% 34.0% 34.0%
State taxes, net of Federal tax benefit 1.2% 0.5% 0.8%
Contributed property and other 0.4% (0.1%) -
- --------------------------------------------------------------------------------
Effective tax rate 35.6% 34.4% 34 8%
================================================================================
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 28, December 29,
(in thousands) 2002 2001
- -------------------------------------- ------------------ ----------------------
Assets:
Inventories $3,557 $ 3,582
Accounts receivable 2,523 2,394
Accrued expenses 1,780 1,466
- -------------------------------------- ------------------ ----------------------
Gross deferred tax assets 7,860 7,442
- -------------------------------------- ------------------ ----------------------
Liabilities:
Depreciation 274 321
Goodwill 3,440 2,868
Other - 96
- -------------------------------------- ------------------ ----------------------
Gross deferred tax liabilities 3,714 3,285
- -------------------------------------- ------------------ ----------------------
Net deferred tax assets $4,146 $4,157
====================================== ================== ======================
Page 32 of 45
12. Business Segments
In accordance with Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information," the
Company has determined that its business comprises a single reportable operation
segment, namely, the sale of replacement parts for the automotive aftermarket.
During 2002, two customers each accounted for more than 10% of net
sales and in the aggregate accounted for 36% of net sales. During 2001 and 2000,
one customer accounted for approximately 24% and 20% of net sales, respectively.
Net sales to countries outside the US, primarily to Western Europe and Canada in
2002, 2001 and 2000 were $22.9 million, $19.9 million and $15.1 million,
respectively.
13. 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 effect on the
Company's consolidated financial position or results of operations.
14. 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 28, 2002,
options to acquire 327,904 shares were available for grant under the Plan.
Page 33 of 45
Transactions under the Plan for the three years ended December 28,
2002 were as follows:
Option Price Weighted
Shares per Share Average Price
- --------------------------------------- ---------------- ------------------- -------------------
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 611,000 1.875 - 5.70 3.00
Exercised - - -
Canceled (656,425) 1.00 - 12.63 7.61
- --------------------------------------- ---------------- ------------------- -------------------
Balance at December 29, 2001 804,429 1.00 - 9.625 2.59
Granted 45,000 8.00 8.00
Exercised (51,750) 1.00 - 3.00 2.71
Canceled (7,500) 3.00 3.00
- --------------------------------------- ---------------- ------------------- -------------------
Balance at December 28, 2002 790,179 $1.00 - $9.625 $2.89
- --------------------------------------- ---------------- ------------------- -------------------
Options exercisable at
December 28, 2002 435,993 $1.00 - $9.625 $2.28
- --------------------------------------- ---------------- ------------------- -------------------
The following table summarizes information concerning currently outstanding and
exercisable options:
Options Outstanding Options Exercisable
----------------------------------------------- ---------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Numbers Contractual Exercise Number Exercise
Exercise Price Outstanding Life (years) Price Exercisable Price
- ----------------- ---------------- ---------------- ------------- ----------------- ---------------
$1.00 - $3.00 732,679 8.1 $2.50 429,493 $ 2.19
$5.70 - $6.875 7,500 8.1 $6.09 2,500 $ 6.41
$8.00 - $9.625 50,000 9.1 $8.16 4,000 $9.625
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 2002, optionees had exercised rights to purchase 1,652 shares at prices
from $6.16 to $8.34 per share for total net proceeds of $12,000.
Page 34 of 45
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 28, 2002, Annual contributions under the plan are determined by the
Board of Directors of the Company. Consolidated expense related to the plan was
$856,000, $957,000, and $876,000 in fiscal 2002, 2001 and 2000, respectively.
15. 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 the
provisions of 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 year ended December 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 the provisions of this pronouncement on December 30, 2001.
The adoption of SFAS No. 144 did not have a material impact on the consolidated
statement of operations for the year ended December 28, 2002.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal of Activities." The statement will be applied
prospectively to exit or disposal activities initiated after December 28, 2002.
The initial adoption of this pronouncement will not have a material effect on
the consolidated statement of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS
123." This statement amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in APB Opinion No. 25 and related
interpretations. Accordingly, compensation expense for stock options is measured
as the excess, if any, of the estimate of the market value of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. The Company will adopt the annual disclosure provisions of SFAS No.
148 in its financial reports for the fiscal year ended December 27, 2003 and
will adopt the interim disclosure provisions for its financial reports for the
quarter ended March 29, 2003. As the adoption of this standard involves
disclosures only, the Company does not expect a material impact on its results
of operations, financial position or liquidity.
Page 35 of 45
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 28, 2002 and December 29, 2001:
(in thousands, except per First Second Third Fourth
share amounts) Quarter Quarter (a) Quarter Quarter
- ----------------------------- ---------------- ----------------- --- --------------- -----------------
2002
------------------------------------------------------------------------
Net sales $51,080 $55,455 $53,889 $55,100
Income from operations 4,321 7,543 4,962 6,307
Net income 2,147 4,115 2,608 3,487
Diluted earnings per share 0.24 0.46 0.29 0.39
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
(a) Results for the second quarter of 2002 include gain on sale of specialty
fastener business of $2,143 ($1,329 after tax or $0.15 per share).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Audit Committee of the Board of Directors of the Company
annually considers and recommends to the Board the selection of R&B's
independent public accountants. As recommended by the Company's Audit Committee,
the Board of Directors on June 19, 2002 decided to no longer engage Arthur
Andersen LLP ("Andersen") as the Company's independent public accountants and
engaged KPMG LLP to serve as the Company's independent public accountants for
the fiscal year ending December 28, 2002.
Andersen's report on the company's audited financial statements for
each of the years ended December 30, 2000 and December 29, 2001 did not contain
an adverse opinion or a disclaimer of opinion and was not qualified or modified
as to uncertainty, audit scope, or accounting principles.
During the years ended December 30, 2000 and December 29, 2001, and
the interim period between December 29, 2001 and June 19, 2002, there were no
disagreements between the Company and Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which, if not resolved to Andersen's satisfaction, would have caused
it to make reference to the subject matter in connection with its report on the
Company's financial statements for those years. Also, during those two years and
interim period, there were no reportable events as listed in Item 304(a) (1) (v)
of Regulation S-K.
The Company provided Andersen with a copy of the foregoing
disclosure. Andersen's letter dated June 20, 2002, stating its agreement with
such statements, was filed as Exhibit 16 to the Company's Form 8-K filed June
20, 2002, which is incorporated herein by reference.
Page 36 of 45
During the years ended December 30, 2000 and December 29, 2001, and
the interim period between December 29, 2001 and June 19, 2002, the Company did
not consult with KPMG regarding application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's consolidated financial
statements, or any other matter or reportable event listed in Items 304 (a) (2)
(i) and (ii) of Regulation S-K.
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 22,
2003.
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 22, 2003.
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 22, 2003.
Equity Compensation Plan Information
The following table details information regarding the company's existing
equity compensation plans as of December 28, 2002:
(c)
Number of securities
(a) remaining available for
Number of securities (b) future issuance under
to be issued upon Weighted-average equity compensation
exercise of outstanding exercise price of plans (excluding
Plan Category options, warrants and outstanding options, securities reflected in
rights warrants and rights column (a))
- ------------------------------ ---------------------- -------------------- ------------------------
Equity compensation plans
approved by security holders 790,179 $2.89 327,904
Equity compensation plans not
approved by security holders - - -
----------------------- -------------------- ------------------------
Total 790,179 $2.89 327,904
======================= ==================== ========================
Page 37 of 45
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 22, 2003.
Item 14. Controls and Procedures.
Quarterly evaluation of the Company's Disclosure Controls and Internal
Controls. Within the 90 days prior to the date of this Annual Report on Form
10-K, the Company evaluated the effectiveness of the design and operation of its
"disclosure controls and procedures" ("Disclosure Controls"). This evaluation
("Controls Evaluation") was done under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO").
Limitations on the Effectiveness of Controls. The Company's management,
including the CEO and CFO, does not expect that its Disclosure Controls or its
"internal controls and procedures for financial reporting" ("Internal Controls"
) will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions;
over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
Conclusions. Based upon the Controls Evaluation, the CEO and CFO have concluded
that, subject to the limitations noted above, the Disclosure Controls are
effective to timely alert management to material information relating to the
Company during the period when its periodic reports are being prepared.
In accordance with SEC requirements, the CEO and CFO note that, since
the date of the Controls Evaluation to the date of this Annual Report, there
have been no significant changes in Internal Controls or in other factors that
could significantly affect Internal Controls, including any corrective actions
with regard to significant deficiencies and material weaknesses.
PART IV
Item 15. 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.
Independent Auditor's Report
Report of Independent Public Accountants
Consolidated Statements of Operations for the years ended December 28,
2002, December 29, 2001 and December 30, 2000.
Page 38 of 45
Consolidated Balance Sheets as of December 28, 2002 and December 29,
2001.
Consolidated Statements of Shareholders' Equity for the years ended
December 28, 2002, December 29, 2001 and December 30, 2000.
Consolidated Statements of Cash Flows for the years ended December 28,
2002, December 29, 2001 and December 30, 2000.
Notes to Consolidated Financial Statements
(a)(2) Consolidated Financial Statement Schedules. The following
consolidated financial statement schedule of the Company and related
documents are filed with this Report on Form 10-K:
Page
Report of Independent Public Accountants on Financial
Statement Schedule...............................................44
Schedule II - Valuation and Qualifying Accounts..................45
(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.
10.1.3 (8) Amendment to Lease, dated April 1, 2002, between the Company
and the BREP I, for premises located at 3400 East Walnut Street,
Colmar, Pennsylvania, amending 10.1.
10.2 (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.
Page 39 of 45
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
10.2.
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
10.2.
10.2.3 Lease Termination Agreement, dated March 14, 2003, between the
Company and the Berman Real Estate Partnership, for premises
located at 390 Old Bremen Road, Carrollton, Georgia. (filed with
this report)
10.3 (6)+ R&B, Inc. Amended and Restated Incentive Stock Plan.
10.4 (2)+ R&B, Inc. 401(k) Retirement Plan and Trust.
10.4.1 (7)+ Amendment No. 1 to the R&B, Inc. 401(k) Retirement Plan and Trust.
10.5 (2)+ R&B, Inc. Employee Stock Purchase Plan.
21 Subsidiaries of the Company (filed with this report)
23 Consent of KPMG LLP (filed with this report)
99.1 Certifications Pursuant to 18 U.S.C. Section 1350 (as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
(filed with this report)
-------------------------
+ Management Contracts and Compensatory Plans, Contracts or Arrangements.
(1) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1 and Amendments No. 1, No. 2, and No. 3
thereto (Registration No. 33-37264).
(2) Incorporated by reference to the Exhibits files with the Company's Annual
Report on Form 10-K for the fiscal year ended December 26, 1992.
(3) Incorporated by reference to the Exhibits filed with the Company's
Registration Statement on Form S-1 and Amendment No. 1 thereto (Registration No.
33-68740).
(4) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 25, 1993.
(5) Incorporated by reference to the Exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1996.
(6) Incorporated by reference to the Exhibits filed with the Company's Proxy
Statement for the fiscal year ended December 27, 1997.
(7) Incorporated by reference to the Exhibits filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 25, 1994.
(8) Incorporate by reference to the Exhibits filed with the Company's Quarterly
Report on Form 10-Q for the quarter ended June 29, 2002.
(b) Reports on Form 8-K.
None
Page 40 of 45
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 18 , 2003 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 18, 2003
---------------------- Officer, and Chairman of the
Richard N. Berman Board of Directors
(principal executive officer)
\s\ Mathias J. Barton Chief Financial Officer March 18, 2003
---------------------- (principal financial and
Mathias J. Barton accounting officer)
\s\ Steven L. Berman Executive Vice President, March 18, 2003
-------------------- Secretary-Treasurer, and
Steven L. Berman Director
\s\ George L. Bernstein Director March 18, 2003
------------------------
George L. Bernstein
\s\ John F. Creamer, Jr. Director March 18, 2003
-------------------------
John F. Creamer, Jr.
\s\ Paul R. Lederer Director March 18, 2003
-------------------
Paul R. Lederer
\s\ Edgar W. Levin Director March 18, 2003
--------------------
Edgar W. Levin
Page 41 of 45
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Richard N. Berman, certify that:
1. I have reviewed this annual report on Form 10-K of R&B, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer 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 annual 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
annual report (the "Evaluation Date"); and
c) presented in this annual 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 officer 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 officer and I have indicated in this
annual 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: March 18, 2003
\s\ Richard N. Berman
Richard N. Berman
Chief Executive Officer
Page 42 of 45
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Mathias J. Barton, certify that:
1. I have reviewed this annual report on Form 10-K of R&B, Inc.;
2. Based on my knowledge, this annual 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 annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officer 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 annual 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
annual report (the "Evaluation Date"); and
c) presented in this annual 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 officer 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 officer and I have indicated in this
annual 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: March 18, 2003
\s\ Mathias J. Barton
Mathias J. Barton
Chief Financial Officer
Page 43 of 45
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.
/s/Arthur Andersen LLP
Philadelphia, Pennsylvania
February 13, 2002
Note: The report above is a copy of a previously issued report and it has not
been reissued by Arthur Andersen LLP (Andersen).
Page 44 of 45
SCHEDULE II: Valuation and Qualifying Accounts
(in thousands) For the Year Ended
- -------------------------------------- ----------------------------------------------------
December 28, December 29, December 30,
2002 2001 2000
----------------- ----------------- ----------------
Allowance for doubtful accounts:
Balance, beginning of period $ 901 $ 836 $778
Provision 737 1,118 566
Charge-offs (301) (1,053) (508)
- -------------------------------------- ----------------- ----------------- ----------------
Balance, end of period $ 1,337 $ 901 $ 836
====================================== ================= ================= ================
Allowance for customer credits:
Balance, beginning of period $ 14,209 $ 9,498 $ 7,986
Provision 35,769 29,742 28,952
Charge-offs (33,461) (25,031) (27,440)
- -------------------------------------- ----------------- ----------------- ----------------
Balance, end of period $ 16,517 $14,209 $ 9,498
====================================== ================= ================= ================
Restructuring reserves:
Balance, beginning of period $ - $ 3,380 $ 10,976
Provision - - 11,400
Charge-offs - (3,155) (7,596)
Reversal of excess charge - (225) -
- -------------------------------------- ----------------- ----------------- ----------------
Balance, end of period $ - $ - $3,380
====================================== ================= ================= ================
Page 45 of 45