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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission file number 0-18914
R&B, INC.
Incorporated pursuant to the Laws
of the Commonwealth of Pennsylvania
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IRS - Employer Identification No. 23-2078856
3400 East Walnut Street, Colmar, Pennsylvania 18915
(215) 997-1800
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No|_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No|X|
As of August 4, 2003 the Registrant had 8,653,517 common shares, $.01 par value,
outstanding.
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Page 1 of 17
R & B, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 28, 2003
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Operations:
Thirteen Weeks Ended June 28, 2003 and
June 29, 2002 .................................. 3
Twenty-six Weeks Ended June 28, 2003 and
June 29, 2002................................... 4
Balance Sheets............................... 5
Statements of Cash Flows............................. 6
Notes to Consolidated Financial Statements........... 7
Item 2.Management's Discussion and
Analysis of Results of Operations and
Financial Condition............................... 10
Item 3.Quantitative and Qualitative Disclosure
about Market Risk................................... 12
Item 4.Controls and Procedures............................... 13
Part II -- OTHER INFORMATION
Item 1.Legal Proceedings.................................... 14
Item 6.Exhibits and Reports on Form 8-K..................... 14
Signatures . . . . . . . ................................... 15
Certifications.............................................. 16
Page 2 of 17
PART I . FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Thirteen Weeks Ended
------------------------------
June 28, June 29,
(in thousands, except per share data) 2003 2002
- --------------------------------------------------------------------------------------------
Net Sales $ 58,068 $ 55,455
Cost of goods sold 36,885 35,106
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Gross profit 21,183 20,349
Selling, general and administrative expenses 14,811 14,949
Gain on sale of specialty fastener business (Note 7) - (2,143)
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Income from operations 6,372 7,543
Interest expense, net of interest income of $58 and $103 884 1,111
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Income before taxes 5,488 6,432
Provision for taxes 1,963 2,317
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Net Income $ 3,525 $ 4,115
============================================================================================
Earnings Per Share:
Basic $0.41 $0.48
Diluted 0.39 0.46
============================================================================================
Average Shares Outstanding:
Basic 8,627 8,485
Diluted 9,033 8,939
See accompanying notes to consolidated financial statements.
Page 3 of 17
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Twenty-six Weeks Ended
------------------------------
June 28, June 29,
(in thousands, except per share data) 2003 2002
- --------------------------------------------------------------------------------------------
Net Sales $ 108,340 $ 106,535
Cost of goods sold 68,559 67,780
- --------------------------------------------------------------------------------------------
Gross profit 39,781 38,755
Selling, general and administrative expenses 29,071 29,034
Gain on sale of specialty fastener business (Note 7) - (2,143)
- --------------------------------------------------------------------------------------------
Income from operations 10,710 11,864
Interest expense, net of interest income of $115 and $207 1,775 2,136
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Income before taxes 8,935 9,728
Provision for taxes 3,185 3,466
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Net Income $ 5,750 $ 6,262
============================================================================================
Earnings Per Share:
Basic $0.67 $0.74
Diluted 0.64 0.70
============================================================================================
Average Shares Outstanding:
Basic 8,564 8,479
Diluted 8,996 8,917
See accompanying notes to consolidated financial statements.
Page 4 of 17
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 28, December 28,
(in thousands, except share data) 2003 2002
- --------------------------------------------------------- -------------- --------------
Assets (unaudited)
Current Assets:
Cash and cash equivalents $ 8,984 $ 5,169
Short-term investments 7,522 14,002
Accounts receivable, less allowance for doubtful
accounts and customer credits of $18,183 and $17,854 53,682 48,769
Inventories 52,237 47,217
Deferred income taxes 7,398 7,621
Prepaids and other current assets 2,210 1,425
- --------------------------------------------------------- -------------- --------------
Total current assets 132,033 124,203
233.3
- --------------------------------------------------------- -------------- --------------
Property, Plant and Equipment, net 16,486 16,591
Goodwill 28,850 28,607
Other Assets 873 727
- --------------------------------------------------------- -------------- --------------
Total $178,242 $170,128
========================================================= ============== ==============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 9,144 $ 9,291
Accounts payable 12,607 11,813
Accrued compensation 5,923 7,304
Other accrued liabilities 5,959 4,455
- --------------------------------------------------------- -------------- --------------
Total current liabilities 33,633 32,863
Long-Term Debt 43,785 44,218
Deferred Income Taxes 4,127 3,475
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized 25,000,000 shares;
issued and outstanding 8,649,014 and 8,501,070 shares 86 85
Additional paid-in capital 33,466 32,937
Cumulative translation adjustments 900 55
Retained earnings 62,245 56,495
Total shareholders' equity 96,697 89,572
- --------------------------------------------------------- -------------- --------------
Total $178,242 $170,128
========================================================= ============== ==============
See accompanying notes to consolidated financial statements.
Page 5 of 17
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Twenty-six Weeks Ended
-----------------------------------
June 28, June 29,
(in thousands) 2003 2002
- ---------------------------------------------------------------- --------------- -------------------
Cash Flows from Operating Activities:
Net income $ 5,750 $ 6,262
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization 2,419 3,155
Provision for doubtful accounts 288 319
Provision for deferred income tax 875 741
Provision for non-cash stock compensation 21 122
Gain on sale of specialty fastener business - (1,329)
Changes in assets and liabilities:
Accounts receivable (4,832) (10,025)
Inventories (4,411) 920
Prepaids and other (1,044) (794)
Accounts payable 616 569
Other accrued liabilities 379 (1,524)
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Cash provided by (used in) operating activities 61 (1,584)
- ---------------------------------------------------------------- --------------- -------------------
Cash Flows from Investing Activities:
Property, plant and equipment additions (2,303) (1,122)
Purchases of short-term investments (5,862) (17,143)
Proceeds from maturities of short-term investments 12,342 -
Proceeds from litigation settlement and sale of specialty fastener
business, net - 7,374
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Cash provided by (used in) investing activities 4,177 (10,891)
- ---------------------------------------------------------------- --------------- -------------------
Cash Flows from Financing Activities:
Repayment of term loans and capitalized lease obligations (580) ( 1,588)
Proceeds from common stock issuances 157 52
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Cash used in financing activities (423) (1,536)
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Net Increase (Decrease) in Cash and Cash Equivalents 3,815 (14,011)
Cash and Cash Equivalents, Beginning of Period 5,169 21,689
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Cash and Cash Equivalents, End of Period $ 8,984 $ 7,678
================================================================ =============== ===================
Supplemental Cash Flow Information
Cash paid for interest expense $ 1,921 $ 2,272
Cash paid for income taxes $ 1,366 $ 2,656
See accompanying notes to consolidated financial statements.
Page 6 of 17
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 2003 AND JUNE 29, 2002 (UNAUDITED)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. However, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the twenty-six week period ended June
28, 2003 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 27, 2003. For further information, refer to the
financial statements and footnotes thereto included in R&B, Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended December 28, 2002.
2. Inventories
Inventories include the cost of material, freight, direct labor and
overhead utilized in the processing of the Company's products. Inventories were
as follows:
June 28, December 28,
(in thousands) 2003 2002
- ------------------- --------------- ---------------
Bulk product $24,022 $19,923
Finished product 25,157 24,462
Packaging materials 3,058 2,832
- ------------------- --------------- ---------------
Total $52,237 $47,217
=================== =============== ===============
3. Earnings Per Share
The following table sets forth the computation of basic earnings per share
and diluted earnings per share for the thirteen week and twenty-six week periods
ended June 28, 2003 and June 29, 2002.
Thirteen Weeks Ended Twenty-six Weeks Ended
--------------------------------------------------
June 28, June 29, June 28, June 29,
(in thousands, except per share data) 2003 2002 2003 2002
- ------------------------------------------ ----------- ----------- ----------- ----------
Numerator:
Net income .......................... $ 3,525 $4,115 $5,750 $ 6,262
Denominator:
Weighted average shares outstanding 8,627 8,485 8,564 8,479
Effect of dilutive stock options..... 406 454 432 438
----------- ----------- ----------- ----------
Adjusted weighted average shares
outstanding for diluted
earnings per share 9,033 8,939 8,996 8,917
=========== =========== =========== ==========
Basic earnings per share.................. $ 0.41 $ 0.48 $ 0.67 $ 0.74
=========== =========== =========== ==========
Diluted earnings per share................ $ 0.39 $ 0.46 $ 0.64 $ 0.70
=========== =========== =========== ==========
Options to purchase 5,000 shares were outstanding at June 29, 2002, but
were not included in the computation of diluted earnings per share, as their
effect would have been antidilutive.
Page 7 of 17
4. Stock-Based Compensation
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
June 28, 2003, options to acquire 256,361 shares were available for grant under
the Plan.
The Company accounts for the 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
Statement of Financial Accounting Standards, ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", to stock-based employee compensation.
Thirteen Weeks Ended Twenty-six Weeks Ended
- ------------------------------------------------ ------------------------ -------------------------
June 28, June 29, June 28, June 29,
(in thousands, except per share data) 2003 2002 2003 2002
- ------------------------------------------------ ----------- ------------ ------------ ------------
Net income:
Net income, as reported $ 3,525 $ 4,115 $ 5,750 $ 6,262
Add: Stock-based employee compensation expense,
net of related net of related tax effects,
included in the determination of net income,
as reported 4 30 13 79
Less: Stock-based employee compensation expense,
net of related tax effects, determined under
fair value based method for all awards (16) (157) (27) (315)
- ------------------------------------------------ ----------- ------------- ---------- ------------
Net income, pro forma $ 3,513 $ 3,988 $ 5,736 $ 6,026
================================================ =========== ============= ========== ============
Earnings per share:
Basic - as reported $ 0.41 $ 0.48 $ 0.67 $ 0.74
Basic - pro forma $ 0.41 $ 0.47 $ 0.67 $ 0.71
Diluted - as reported $ 0.39 $ 0.46 $ 0.64 $ 0.70
Diluted - pro forma $ 0.39 $ 0.45 $ 0.64 $ 0.68
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:
2003 2002
---- ----
Expected dividend yield 0% 0%
Expected stock price volatility 53% 46%
Risk-free interest rate 3.0% 5.3%
Expected life of option 7.5 years 7.5 years
5. Related-Party Transaction
The Company has entered into leases for two operating facilities with
partnerships of which the Company's Chief Executive Officer and Executive Vice
President are partners. On March 14, 2003, the Company entered into an agreement
with one of the partnerships related to the Company to terminate the lease for
one of these facilities. On April 15, 2003, in connection with the closing of
the sale of the building by the partnership to an unrelated entity, the Company
paid $200,000, which was previously accrued, to terminate this lease.
Page 8 of 17
6. New Accounting Pronouncements
In June 2002, the Financial Accounting Standards Board ("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 has
adopted the interim disclosure provisions for its financial reports beginning
with 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.
In January 2003, the FASB issued Interpretation Number 46,
"Consolidation of Variable Interest Entities" (FIN 46). This interpretation
addresses consolidation by business enterprises of variable interest entities.
This interpretation is not expected to have a material effect on the Company's
consolidated financial statements.
7. 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 its Dorman business. Total proceeds from the
sale and settlement, net of transaction costs and estimated purchase price
adjustments were approximately $7.4 million. The transactions resulted in an
after-tax gain on the sale of the fastener business of $1.3 million, and a
reduction in goodwill totaling $2.2 million.
Page 9 of 17
R&B, INC. AND SUBSIDIARIES
ITEM 2. 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 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.
The Company may experience significant fluctuations from quarter to
quarter in its results of operations due to the timing of orders placed by the
Company's customers. Generally, the second and third quarters have the highest
level of shipments, but the introduction of new products and product lines to
customers may cause significant fluctuations from quarter to quarter.
The Company operates on a fifty-two, fifty-three week period ending on
the last Saturday of the calendar year.
Sale of Specialty Fastener Business and Litigation Settlement
On May 1, 2002, the Company entered into agreements 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.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items in the Company's Consolidated
Statements of Operations:
Percentage of Net Sales
---------------------------------------------------------
For the Thirteen Weeks Ended For theTwenty-six WeeksEnded
---------------------------------------------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
- -------------------- -------------- ------------- ------------- -------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 63.5% 63.3% 63.3% 63.6%
- -------------------- -------------- ------------- ------------- -------------
Gross profit 36.5% 36.7% 36.7% 36.4%
Selling, general and
administrative expenses 25.5% 27.0% 26.8% 27.3%
Gain on sale of Specialty
Fastener business - (3.9)% - (2.0)%
- -------------------- -------------- ------------- ------------- -------------
Income from operations 11.0% 13.6% 9.9% 11.1%
Interest expense, net 1.5% 2.0% 1.7% 2.0%
- -------------------- -------------- ------------- ------------- -------------
Income before taxes 9.5% 11.6% 8.2% 9.1%
Provision for taxes 3.4% 4.2% 2.9% 3.2%
- -------------------- -------------- ------------- ------------- -------------
Net Income 6.1% 7.4% 5.3% 5.9%
==================== ============== ============= ============= =============
Page 10 of 17
Thirteen Weeks Ended June 28, 2003 Compared to
Thirteen Weeks Ended June 29, 2002
Net sales increased 4.7% to $58.1 million for the thirteen weeks ended
June 28, 2003 from $55.5 million for the same period in 2002. The favorable
effects of foreign currency exchange resulted in a 2.0% year over year increase
in sales, however this benefit was partially offset by the elimination of $0.6
million in revenues from the specialty fastener business sold in May 2002. After
adjusting for these factors, sales volume in 2003 increased primarily as a
result of shipments to a new customer for the Company's brake business.
Cost of goods sold, as a percentage of sales, increased to 63.5% for the
thirteen weeks ended June 28, 2003 from 63.3% in the same period last year. The
change in cost of goods sold as a percentage of sales in 2003 is primarily the
result of a change in mix of products sold.
Selling, general and administrative expenses for the thirteen weeks
ended June 28, 2003 decreased $0.1 million, or 1.0%, to $14.8 million from $14.9
million for the same period in 2002. The decrease is the result of savings from
several cost reduction initiatives, offset by inflationary increases in wages
and other expenses and higher spending on new product development. Also, results
for 2002 include $0.4 million in facility relocation and shutdown costs.
Interest expense, net, decreased to $0.9 million for the thirteen weeks
ended June 28, 2003 from $1.1 million in the prior year due to lower borrowing
levels. In August 2002 the Company made the first of seven annual installment
payments of $8.6 million due under the terms of its Senior Note Agreements.
The Company's effective tax rate decreased slightly to 35.8% for the
thirteen weeks ended June 28, 2003 from 36.0% for the thirteen weeks ended June
29, 2002.
Twenty-six Weeks Ended June 28, 2003 Compared to
Twenty-six Weeks Ended June 29, 2002
Net sales increased 1.7% to $108.3 million for the twenty-six weeks
ended June 28, 2003 from $106.5 million for the same period in 2002. The
favorable effects of foreign currency exchange resulted in a 2.0% year over year
increase in sales, however this benefit was offset by the elimination of $2.1
million in revenues from the specialty fastener business sold in May 2002. After
adjusting for these factors, sales volume in 2003 increased primarily as a
result of shipments to a new customer for the Company's brake business. This
gain was partially offset by lower levels of new product introductions and line
updates in the first quarter of 2003.
Cost of goods sold, as a percentage of sales, decreased to 63.3% for the
twenty-six weeks ended June 28, 2003 from 63.6% in the same period last year.
Lower allowances for customer credits as a result of a reduction in new program
introductions in the first quarter of 2003 more than offset the unfavorable
effect of a change in mix of products sold.
Selling, general and administrative expenses for the twenty-six weeks
ended June 28, 2003 increased $0.1 million to $29.1 million from $29.0 million
for the same period in 2002. The increase is the result of inflationary
increases in wages and other expenses and higher spending on new product
development, offset by savings from several cost reduction initiatives. Also,
results for 2002 include $0.8 million in facility relocation and shutdown costs.
Interest expense, net, decreased to $1.8 million for the twenty-six
weeks ended June 28, 2003 from $2.1 million in the prior year due to lower
borrowing levels. In August 2002 the Company made the first of seven annual
installment payments of $8.6 million due under the terms of its Senior Note
Agreements.
The Company's effective tax rate was 35.6% in both twenty-six week
periods.
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. At June 28, 2003,
working capital was $98.4 million, total long-term debt (including the current
portion) was $52.9 million and shareholders' equity was $96.7 million. Cash and
short-term investments as of June 28, 2003 totaled $16.5 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.
Page 11 of 17
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 June 28,
2003.
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 June
28, 2003.
The Company reported a net source of cash from its operating activities
of $0.1 million in the twenty-six weeks ended June 28, 2003. The primary uses of
cash flow during the period were accounts receivable and inventory. Accounts
receivable increases resulted in a $4.8 million use of cash during the period.
This increase was primarily the result of higher sales levels in the second
quarter of 2003. Inventory increases resulted in a $4.4 million use of cash
during the period. Inventory grew due to a seasonal build in inventory levels
and management's decision to increase inventory safety stocks given recent world
events. These uses of cash were offset by cash flow generated from net income
and non-cash charges primarily related to depreciation, amortization and
deferred income taxes.
Investing activities generated $4.2 million of cash in the twenty-six
weeks ended June 28, 2003. Net proceeds from short term-investments generated
$6.5 million in cash flow while additions to property, plant and equipment used
$2.3 million of cash during the period. Short-term investments consist of highly
liquid corporate and government bonds with maturities from three months to one
year.
Financing activities required $0.4 million in the twenty-six weeks ended
June 28, 2003. These activities consisted of scheduled repayments under capital
lease and other debt obligations net of proceeds from common stock issuances.
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. The Company purchases approximately half
of its products 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.
Cautionary Statement Regarding Forward Looking Statements
Certain statements periodically made by or on behalf of the Company and
certain statements contained herein including statements in Management's
Discussion and Analysis of Financial Condition and Results of Operations, such
as statements regarding litigation, and certain other statements contained
herein regarding matters that are not historical fact are forward looking
statements (as such term is defined in the Securities Act of 1933), and because
such statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward looking statements.
Factors that cause actual results to differ materially include but are not
limited to those factors discussed in the Company's Annual Report on Form 10-K
under "Business - Risk Factors."
Item 3. Quantitative and Qualitative Disclosure about Market Risk
The Company's market risk is the potential loss arising from adverse
changes in interest rates. With the exception of the Company's revolving credit
facility, long-term debt obligations are at fixed interest rates and denominated
in U.S.
Page 12 of 17
dollars. Under the terms of the Company's revolving credit facility, a change in
LIBOR market interest rates would affect the rate at which the Company could
borrow funds thereafter. The Company believes that the effect of any such change
would be minimal. The Company manages this interest rate risk by monitoring
trends in interest rates as a basis for determining whether to enter into fixed
rate or variable rate agreements. Short-term fixed income investments are
subject to interest rate and credit risk. The Company believes that the negative
effect of interest rate risk would be minimal as all investments have maturities
of one year or less. The Company's investment portfolio consists solely of
investment grade corporate and government securities to minimize credit risk.
Occasionally, the Company uses derivative financial instruments,
consisting of foreign currency forward purchase and sales contracts with terms
of less than one year, to hedge its exposure to changes in foreign currency
exchange. Its primary exposure to changes in foreign currency rates results from
changes in exchange rates on certain third-party trade receivables and payables
of the Company's Swedish subsidiary. There were no forward purchase or sales
contracts outstanding as of June 28, 2003.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. The Company's Chief
Executive Officer and Chief Financial Officer have reviewed and evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within ninety days
before the filing date of this quarterly report (the "Evaluation Date"). Based
on that evaluation, the Chief Executive Officers and the Chief Financial Officer
have concluded that the Company's current disclosure controls and procedures are
effective, providing them with material information relating to the Company as
required to be disclosed in the reports the Company files or submits under the
Exchange Act on a timely basis.
(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
those controls subsequent to the Evaluation Date.
Page 13 of 17
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In addition to commitments and obligation which arise in the ordinary
course of business, the Company is subject to various claims and legal actions
from time to time involving contracts, competitive practices, trademark rights,
product liability claims and other matters arising out of the conduct of the
Company's business.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Certifications Pursuant to 18 U.S.C. Section 1350
(as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002).
(b) Reports on Form 8-K
The Company furnished a report on Form 8-K on May 2, 2003 that included
the Company's press release dated May 2, 2003 reporting first quarter results of
fiscal year 2003.
Page 14 of 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R & B, INC.
Date August 5, 2003 \s\ Richard Berman
------------------ -------------------------
Richard Berman
President and Chief Executive Officer
Date August 5, 2003 \s\ Mathias Barton
---------------- --------------------------
Mathias Barton
Chief Financial Officer and
Principal Accounting Officer
Page 15 of 17
CERTIFICATIONS
I, Richard Berman, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of R&B, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: August 5, 2003
\s\ Richard Berman
Richard Berman
President and Chief Executive Officer
Page 16 of 17
CERTIFICATIONS
I, Mathias Barton, Chief Financial Officer and Principal Accounting Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of R&B, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: August 5, 2003
\s\ Mathias Barton
Mathias Barton
Chief Financial Officer
Page 17 of 17