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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 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 November 5, 2003 the Registrant had 8,758,919 common shares, $.01 par
value, outstanding.
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Page 1 of 15
R & B, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 27, 2003
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Operations:
Thirteen Weeks Ended September 27, 2003 and
September 28, 2002 ........................ 3
Thirty-nine Weeks Ended September 27, 2003 and
September 28, 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 ................................ 13
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
Page 2 of 15
PART I . FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Thirteen Weeks Ended
------------------------------
September 27September 28,
(in thousands, except per share data) 2003 2002
- --------------------------------------------------------------------------------------------
Net Sales $ 58,183 $ 53,889
Cost of goods sold 37,357 34,718
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Gross profit 20,826 19,171
Selling, general and administrative expenses 14,216 14,209
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Income from operations 6,610 4,962
Interest expense, net of interest income of $35 and $120 846 942
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Income before taxes 5,764 4,020
Provision for taxes 2,047 1,412
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Net Income $ 3,717 $ 2,608
============================================================================================
Earnings Per Share:
Basic $0.43 $0.31
Diluted 0.41 0.29
============================================================================================
Average Shares Outstanding:
Basic 8,717 8,493
Diluted 9,098 8,965
See accompanying notes to consolidated financial statements.
Page 3 of 15
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Thirty-nine Weeks Ended
------------------------------
September 27September 28,
(in thousands, except per share data) 2003 2002
- --------------------------------------------------------------------------------------------
Net Sales $ 166,523 $ 160,424
Cost of goods sold 105,916 102,498
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Gross profit 60,607 57,926
Selling, general and administrative expenses 43,287 43,243
Gain on sale of specialty fastener business (Note 7) - (2,143)
- --------------------------------------------------------------------------------------------
Income from operations 17,320 16,826
Interest expense, net of interest income of $150 and $337 2,621 3,078
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Income before taxes 14,699 13,748
Provision for taxes 5,232 4,878
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Net Income $ 9,467 $ 8,870
============================================================================================
Earnings Per Share:
Basic $1.10 $1.05
Diluted 1.05 0.99
============================================================================================
Average Shares Outstanding:
Basic 8,610 8,484
Diluted 9,026 8,944
See accompanying notes to consolidated financial statements.
Page 4 of 15
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 27, December 28,
(in thousands, except share data) 2003 2002
- -------------------------------------------------------- --------------- --------------
Assets (unaudited)
Current Assets:
Cash and cash equivalents $ 8,791 $ 5,169
Short-term investments 7,518 14,002
Accounts receivable, less allowance for doubtful
accounts and customer credits of $19,389 and $17,854 51,358 48,769
Inventories 50,199 47,217
Deferred income taxes 7,856 7,621
Prepaids and other current assets 2,242 1,425
- -------------------------------------------------------- --------------- --------------
Total current assets 127,964 124,203
233.3
- -------------------------------------------------------- --------------- --------------
Property, Plant and Equipment, net 16,598 16,591
Goodwill 28,931 28,607
Other Assets 746 727
- -------------------------------------------------------- --------------- --------------
Total $174,239 $170,128
======================================================== =============== ==============
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 9,055 $ 9,291
Accounts payable 11,884 11,813
Accrued compensation 6,088 7,304
Other accrued liabilities 6,462 4,455
- -------------------------------------------------------- --------------- --------------
Total current liabilities 33,489 32,863
Long-Term Debt 35,213 44,218
Deferred Income Taxes 4,151 3,475
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized 25,000,000 shares;
issued and outstanding 8,747,097 and 8,501,070 shares 87 85
Additional paid-in capital 34,058 32,937
Cumulative translation adjustments 1,279 55
Retained earnings 65,962 56,495
Total shareholders' equity 101,386 89,572
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Total $174,239 $170,128
======================================================== =============== ==============
See accompanying notes to consolidated financial statements.
Page 5 of 15
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Thirty-nine Weeks Ended
-----------------------------------
September 27, September 28,
(in thousands) 2003 2002
- ---------------------------------------------------------------- ----------------- -----------------
Cash Flows from Operating Activities:
Net income $ 9,467 $ 8,870
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation and amortization 3,352 4,362
Provision for doubtful accounts 440 459
Provision for deferred income tax 441 238
Provision for non-cash stock compensation 21 136
Gain on sale of specialty fastener business - (1,329)
Changes in assets and liabilities:
Accounts receivable (2,581) (13,460)
Inventories (2,190) (525)
Prepaids and other (912) 8
Accounts payable (123) 2,464
Other accrued liabilities 1,405 (1,648)
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Cash provided by (used in) operating activities 9,320 (425)
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Cash Flows from Investing Activities:
Property, plant and equipment additions (3,343) (2,511)
Purchases of short-term investments (8,114) (17,217)
Proceeds from maturities of short-term investments 14,598 5,787
Proceeds from litigation settlement and sale of specialty fastener
business, net - 7,374
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Cash provided by (used in) investing activities 3,141 (6,567)
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Cash Flows from Financing Activities:
Repayment of term loans and capitalized lease obligations (9,241) ( 10,570)
Proceeds from common stock issuances 402 60
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Cash used in financing activities (8,839) (10,510)
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Net Increase (Decrease) in Cash and Cash Equivalents 3,622 (17,502)
Cash and Cash Equivalents, Beginning of Period 5,169 21,689
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Cash and Cash Equivalents, End of Period $ 8,791 $ 4,187
================================================================ ================= =================
Supplemental Cash Flow Information
Cash paid for interest expense $ 2,822 $ 3,380
Cash paid for income taxes $ 2,538 $ 4,756
See accompanying notes to consolidated financial statements.
Page 6 of 15
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2003 AND
SEPTEMBER 28, 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 thirty-nine week period ended
September 27, 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:
September 27, December 28,
(in thousands) 2003 2002
- ------------------- --------------- ---------------
Bulk product $21,806 $19,923
Finished product 25,699 24,462
Packaging materials 2,694 2,832
- ------------------- --------------- ---------------
Total $50,199 $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 thirty-nine week
periods ended September 27, 2003 and September 28, 2002.
Thirteen Weeks Ended Thirty-nine Weeks Ended
---------------------------------------------------------------
September 27, September 28, September 27, September 28,
(in thousands, except per share data) 2003 2002 2003 2002
- ------------------------------------- -------------- --------------- -------------- ---------------
Numerator:
Net income .................... $ 3,717 $2,608 $9,467 $ 8,870
Denominator:
Weighted average shares outstanding 8,717 8,493 8,610 8,484
Effect of dilutive stock options 381 472 416 460
-------------- --------------- -------------- ---------------
Adjusted weighted average shares
outstanding for diluted earnings
per share................... 9,098 8,965 9,026 8,944
============== =============== ============== ===============
Basic earnings per share............ $ 0.43 $ 0.31 $ 1.10 $ 1.05
============== =============== ============== ===============
Diluted earnings per share.......... $ 0.41 $ 0.29 $ 1.05 $ 0.99
============== =============== ============== ===============
Options to purchase 5,000 shares were outstanding at September 28, 2002,
but were not included in the computation of diluted earnings per share, as their
effect would have been antidilutive.
Page 7 of 15
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
September 27, 2003, options to acquire 258,831 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 the 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 Thirty-nine Weeks Ended
- ------------------------------------------------ ------------------------------ ------------------------------
September 27, September 28, September 27, September 28,
(in thousands, except per share data) 2003 2002 2003 2002
- ------------------------------------------------ --------------- -------------- -------------- ---------------
Net income:
Net income, as reported $ 3,717 $ 2,608 $ 9,467 $ 8,870
Add: Stock-based employee compensation expense
expense, net of related tax effects, included
in the determination of net income, as reported - 9 13 88
Less: Stock-based employee compensation expense,
net of related tax effects, determined under fair value
based method for all awards (25) (157) (52) (472)
Net income, pro forma $ 3,692 $ 2,460 $ 9,428 $ 8,486
- ------------------------------------------------ --------------- -------------- -------------- ---------------
Earnings per share:
Basic - as reported $ 0.43 $ 0.31 $ 1.10 $ 1.05
Basic - pro forma $ 0.42 $ 0.29 $ 1.10 $ 1.00
Diluted - as reported $ 0.41 $ 0.29 $ 1.05 $ 0.99
Diluted - pro forma $ 0.41 $ 0.27 $ 1.04 $ 0.95
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 3.4% 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 15
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 15
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 theThirty-nine Weeks Ended
--------------------------------------------------------------
September 27, September 28, September 27, September 28,
2003 2002 2003 2002
- ---------------------------------------- --------------- -------------- --------------- ---------------
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 64.2% 64.4% 63.6% 63.9%
- ---------------------------------------- --------------- -------------- --------------- ---------------
Gross profit 35.8% 35.6% 36.4% 36.1%
Selling, general and administrative expenses 24.4% 26.4% 26.0% 26.9%
Gain on sale of Specialty Fastener business - - - (1.3)%
- ---------------------------------------- --------------- -------------- --------------- ---------------
Income from operations 11.4% 9.2% 10.4% 10.5%
Interest expense, net 1.5% 1.7% 1.6% 1.9%
- ---------------------------------------- --------------- -------------- --------------- ---------------
Income before taxes 9.9% 7.5% 8.8% 8.6%
Provision for taxes 3.5% 2.7% 3.1% 3.1%
- ---------------------------------------- --------------- -------------- --------------- ---------------
Net Income 6.4% 4.8% 5.7% 5.5%
======================================== =============== ============== =============== ===============
Page 10 of 15
Thirteen Weeks Ended September 27, 2003 Compared to
Thirteen Weeks Ended September 28, 2002
Net sales increased 8.0% to $58.2 million for the thirteen weeks ended
September 27, 2003 from $53.9 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. The remaining sales increase of 6% was primarily a result of several
successful new product introductions and shipments to new customers for the
Company's Allparts brake and Pik-A-Nut home hardware businesses.
Cost of goods sold, as a percentage of sales, decreased to 64.2% for the
thirteen weeks ended September 27, 2003 from 64.4% in the same period last year.
Savings from cost reduction initiatives were essentially offset by higher sales
credits granted to customers in connection with line updates and other returns
in the normal course of business.
Selling, general and administrative expenses for the thirteen weeks
ended September 27, 2003 were essentially flat with the prior year, but declined
as a percentage of sales from 26.4% to 24.4%. The decrease as a percentage of
sales is the result of savings from cost reduction initiatives as well as the
fact that certain of these expenses are fixed in nature and thus do not increase
proportionally as sales increase. Also, results for 2002 include $0.2 million in
facility relocation and shutdown costs.
Interest expense, net, decreased $0.1 million in the thirteen weeks
ended September 27, 2003 when compared to the prior year due to lower borrowing
levels. In August 2003 the Company made the second of seven annual installment
payments of $8.6 million due under the terms of its Senior Note Agreements.
The Company's effective tax rate increased slightly to 35.5% for the
thirteen weeks ended September 27, 2003 from 35.1% for the thirteen weeks ended
September 28, 2002 due primarily to a lower mix of earnings generated from the
Company's Swedish subsidiary where tax rates are lower than those in the United
States.
Thirty-nine Weeks Ended September 27, 2003 Compared to
Thirty-nine Weeks Ended September 28, 2002
Net sales increased 3.8% to $166.5 million for the thirty-nine weeks
ended September 27, 2003 from $160.4 million for the same period in 2002. Sales
volume in 2003 increased as a result of several successful new product
introductions and shipments to new customers for the Company's Allparts brake
and Pik-A-Nut home hardware businesses. These sales increases were partially
offset by a decline in sales volume in the Company's Swedish subsidiary due to
the weak U.S. dollar. On a year to date basis, the favorable effects of foreign
currency exchange resulted in a 2% year over year increase in sales. However,
this benefit was largely offset by the elimination of $2.1 million in net sales
from the specialty fastener business sold in May 2002 and sales volume declines
in the Swedish business.
Cost of goods sold, as a percentage of sales, decreased to 63.6% for the
thirty-nine weeks ended September 27, 2003 from 63.9% in the same period last
year. Savings from cost reduction initiatives were largely offset by higher
sales credits granted to customers in connection with line updates and other
returns in the normal course of business.
Selling, general and administrative expenses for the thirteen weeks
ended September 27, 2003 were essentially flat with the prior year, but declined
as a percentage of sales from 26.9% to 26.0%. The decrease as a percentage of
sales is the result of savings from cost reduction initiatives as well as the
fact that certain of these expenses are fixed in nature and thus do not increase
proportionally as sales increase. Also, results for 2002 include $1.0 million in
facility relocation and shutdown costs.
Interest expense, net, decreased to $2.6 million for the thirty-nine
weeks ended September 27, 2003 from $3.1 million in the prior year due to lower
borrowing levels. In August 2003 the Company made the second of seven annual
installment payments of $8.6 million due under the terms of its Senior Note
Agreements.
The Company's effective tax rate increased slightly to 35.6% for the
thirteen weeks ended September 27, 2003 from 35.5% for the thirteen weeks ended
September 28, 2002.
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 September 27,
2003, working capital was $94.5 million, total long-term debt (including the
current portion) was $44.3 million and shareholders' equity was $101.4 million.
Cash and short-term investments as of September 27, 2003 totaled $16.3 million.
Page 11 of 15
Long-term debt consists primarily of $42.9 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 September
27, 2003.
In connection with a previous acquisition, the Company agreed to pay $3.2
million to the former owner in installments through 2005. The aggregate amount
outstanding under this obligation was $1.4 million at September 27, 2003.
The Company reported a net source of cash from its operating activities
of $9.3 million in the thirty-nine weeks ended September 27, 2003. The primary
uses of cash flow during the period were accounts receivable and inventory.
Accounts receivable increases resulted in a $2.6 million use of cash during the
period. This increase was primarily the result of higher sales levels in the
current year. Inventory increases resulted in a $2.2 million use of cash during
the period. Inventory grew as a result of the Company's higher sales levels in
2003, which required more inventory to support adequate fill rates on customer
orders. These uses of cash were offset by cash flow generated primarily from net
income and non- cash charges related to depreciation and amortization.
Investing activities generated $3.1 million of cash in the thirty-nine
weeks ended September 27, 2003. Net proceeds from short term-investments
generated $6.5 million in cash flow while additions to property, plant and
equipment used $3.3 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 $8.8 million in cash in the thirty-nine
weeks ended September 27, 2003. These uses were related primarily to scheduled
repayments under capital lease and other debt obligations, including the second
scheduled repayment of $8.6 million on the Company's Senior Notes made in August
2003.
Over the past two years the Company has extended payment terms to certain
customers as a result of customer requests and market demands. These extended
terms have resulted in increased accounts receivable levels and significant uses
of cash flow. The Company expects continued pressure to extend its payment terms
for the foreseeable future. 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 its 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 current weakness in the dollar continues, or if there are
further declines in the value of the dollar relative 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
Page 12 of 15
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. 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 September 27, 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.
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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
4.2 Amended and Restated Shareholders' Agreement
31.1 Certification of Chief Executive Officer as required
by Section 302 of the Sarbanes-Oxley Act of 2002).
31.2 Certification of Chief Financial Officer as required
by Section 302 of the Sarbanes-Oxley Act of 2002).
32 Certification of Chief Executive and Chief Financial
Officer as required by 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 November 6, 2003 that
included the Company's press release dated October 27, 2003 reporting third
quarter results of fiscal year 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R & B, INC.
Date November 7, 2003 \s\ Richard Berman
-------------------- -------------------------
Richard Berman
President and Chief Executive Officer
Date November 7, 2003 \s\ Mathias Barton
------------------ --------------------------
Mathias Barton
Chief Financial Officer and
Principal Accounting Officer
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