- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------- FORM 10-Q ------------------- |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------- Commission file number 0-18914 R&B, INC. Incorporated pursuant to the Laws of the Commonwealth of Pennsylvania ------------------- IRS - Employer Identification No. 23-2078856 3400 East Walnut Street, Colmar, Pennsylvania 18915 (215) 997-1800 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of May 7, 2001 the Registrant had 8,419,017 common shares, $.01 par value, outstanding. - --------------------------------------------------------------------------------
R & B, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q MARCH 31, 2001 Page Part I -- FINANCIAL INFORMATION Item 1.Consolidated Financial Statements (unaudited) Statements of Operations: Thirteen Weeks Ended March 31, 2001 and March 25, 2000 3 Balance Sheets....................................... 4 Statements of Cash Flows............................. 5 Notes to Financial Statements........................ 6 Item 2.Management's Discussion and Analysis of Results of Operations and Financial Condition.............................. 8 Part II -- OTHER INFORMATION Item 1.Legal Proceedings.................................... 11 Item 6.Exhibits and Reports on Form 8-K..................... 11 .............................................. Signature .............................................. 12 Page 2 of 12
<TABLE> PART I. FINANCIAL INFORMATION R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) <CAPTION> For the Thirteen Weeks Ended ------------------------------ March 31, March 25, (in thousands, except per share data) 2001 2000 - -------------------------------------------------------------------------------------------- <S> <C> <C> Net Sales $46,144 $53,246 Cost of goods sold 31,043 35,856 - -------------------------------------------------------------------------------------------- Gross profit 15,101 17,390 Selling, general and administrative expenses 13,685 13,705 - -------------------------------------------------------------------------------------------- Income from operations 1,416 3,685 Interest expense, net 1,128 1,911 - -------------------------------------------------------------------------------------------- Income before taxes 288 1,774 Provision for taxes 103 603 - -------------------------------------------------------------------------------------------- Net Income $ 185 $ 1,171 ============================================================================================ Earnings Per Share: Basic $0.02 $0.14 Diluted 0.02 0.14 Average Shares Outstanding: Basic 8,482 8,413 Diluted 8,547 8,509 ============================================================================================ </TABLE> The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 3 of 12
<TABLE> R&B, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <CAPTION> March 31, December 30, (in thousands, except share data) 2001 2000 - --------------------------------------------------- ----------------- ----------------- <S> <C> <C> Assets (unaudited) Current Assets: Cash and cash equivalents $ 10,535 $ 7,553 Accounts receivable, less allowance for doubtful accounts and customer credits of $10,151 and $10,334 36,180 36,322 Inventories 49,353 50,765 Deferred income taxes 4,964 4,896 Prepaids and other current assets 2,333 2,665 - --------------------------------------------------- ----------------- ----------------- Total current assets 103,365 102,201 - --------------------------------------------------- ----------------- ----------------- Property, Plant and Equipment, net 22,426 23,332 Intangible Assets 30,804 31,358 Other Assets 2,672 2,988 - --------------------------------------------------- ----------------- ----------------- Total $ 159,267 $ 159,879 =================================================== ================= ================= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 2,152 $ 2,583 Accounts payable 9,734 8,159 Accrued compensation 2,810 3,580 Other accrued liabilities 4,483 4,617 - --------------------------------------------------- ----------------- ----------------- Total current liabilities 19,179 18,939 Long-Term Debt 64,542 65,066 Deferred Income Taxes 3,617 3,490 Commitments and Contingencies Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued 8,481,517 and 8,481,517 85 85 Additional paid-in capital 34,307 34,229 Cumulative translation adjustments (1,557) (839) Retained earnings 39,094 38,909 Total shareholders' equity 71,929 72,384 - --------------------------------------------------- ----------------- ----------------- Total $ 159,267 $ 159,879 =================================================== ================= ================= </TABLE> The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 4 of 12
<TABLE> R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <CAPTION> For the Thirteen Weeks Ended -------------------------------------- March 31, March 25, (in thousands) 2001 2000 - -------------------------------------------------------------- ------------------ ------------------- <S> <C> <C> Cash Flows from Operating Activities: Net income $ 185 $ 1,171 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 2,012 1,809 Provision for doubtful accounts 80 128 Provision for deferred income tax 78 - Provision for non-cash stock compensation 78 - Changes in assets and liabilities: Accounts receivable (118) 7,151 Inventories 994 10,160 Prepaid expenses and other 513 (3,845) Accounts payable 1,692 (1,489) Other accrued liabilities (889) 127 - -------------------------------------------------------------- ------------------ ------------------- Cash provided by operating activities 4,625 15,212 - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (711) ( 365) - -------------------------------------------------------------- ------------------ ------------------- Cash (used in) investing activities ( 711) ( 365) - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Financing Activities: Net (repayment) of revolving credit - (14,750) Repayment of term loans and capitalized lease obligations (932) ( 845) Proceeds from common stock issuances - 80 - -------------------------------------------------------------- ------------------ ------------------- Cash (used in) financing activities (932) (15,515) - -------------------------------------------------------------- ------------------ ------------------- Net Increase (Decrease) in Cash and Cash Equivalents 2,982 (668) Cash and Cash Equivalents, Beginning of Period 7,553 1,467 - -------------------------------------------------------------- ------------------ ------------------- Cash and Cash Equivalents, End of Period $ 10,535 $ 799 ============================================================== ================== =================== Supplemental Cash Flow Information Cash paid for interest expense $ 1,258 $ 1,784 Cash paid for income taxes $ 35 $ 55 </TABLE> The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 5 of 12
R&B, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED MARCH 31, 2001 AND MARCH 25, 2000 (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 thirteen week period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2001. 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 30, 2000. 2. Restructuring Charges In the fourth quarter of fiscal 1999, the Company recorded a restructuring charge 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 work force reduction. A total of $9.8 million, representing inventory write downs, was charged to cost of sales and $1.6 million was charged to selling, general and administrative expenses. There have been no significant changes to the plan. The following summarizes the restructuring charge and activity through March 31, 2001: <TABLE> <CAPTION> Employee Facility Inventory Termination Shutdown Disposals Benefits Costs ---------------- --------------- -------------- (in thousands) Total - ------------------------------------ ---------------- --------------- -------------- ---------------- <S> <C> <C> <C> <C> Initial Charge $ 9,800 $ 475 $ 1,125 $11,400 Costs Incurred - 1999 - (124) (300) (424) - ------------------------------------ ---------------- --------------- -------------- ---------------- Balance at December 25, 1999 $ 9,800 $ 351 $ 825 $10,976 Costs Incurred - 2000 (7,100) (351) (145) (7,596) - ------------------------------------ ---------------- --------------- -------------- ---------------- Balance at December 30, 2000 $ 2,700 $ - $ 680 $3,380 Costs Incurred - 2001 (1,076) - (97) (1,173) - ------------------------------------ ---------------- --------------- -------------- ---------------- Balance at March 31, 2001 $ 1,624 $ - $ 583 $ 2,207 - ------------------------------------ ---------------- --------------- -------------- ---------------- </TABLE> Page 6 of 12
3. Inventories Inventories include the cost of material, freight, direct labor and overhead utilized in the processing of the Company's products. Inventories were as follows: March 31, December 30, (in thousands) 2001 2000 - ------------------- -------------- -------------- Bulk product $13,419 $15,170 Finished product 32,172 31,984 Packaging materials 3,762 3,611 - ------------------- -------------- -------------- Total $49,353 $50,765 =================== ============== ============== 4. Intangible Assets Intangible assets consist primarily of goodwill which is amortized over periods from 10 to 40 years. Total accumulated amortization as of March 31, 2001 was $8.2 million. Amortization expense of these assets was $0.4 million in the first quarter of 2001 and 2000. 5. Freight Expense Reclassification In the fourth quarter of fiscal 2000, the Company adopted the provisions of Emerging Issues Task Force (EITF) Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", by reclassifying freight expense from selling, general and administrative expense to cost of sales in all periods presented. The adoption of EITF 00-10 increased cost of sales and reduced selling, general and administrative expenses in the first quarter of fiscal 2000 by $1.2 million. 6. Earnings Per Share Earnings Per share is computed under Statement of Financial Accounting Standards No. 128, "Earnings Per Share;" The Company has included basic and diluted earnings per share on the face of the Statements of Operations for each period presented. Weighted average shares for "diluted" earnings per share includes the assumption of the exercise of all potentially dilutive securities ("in the money" stock options). Page 7 of 12
R&B, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Over the periods presented, the Company has focused its efforts on providing an expanding array of new product offerings and strengthening its relationships with its customers. To that end, the Company has made significant investments to increase market penetration, primarily in the form of product development, customer service, customer credits and allowances, and strategic acquisitions. The Company calculates its net sales by subtracting credits and allowances from gross sales. Credits and allowances include costs for co-operative advertising, product returns, discounts given to customers who purchase new products for inclusion in their stores, and the cost of competitors' products that are purchased from the customer in order to induce a customer to purchase new product lines from the Company. The credits and allowances are designed to increase market penetration and increase the number of product lines carried by customers by displacing competitors' products within customers' stores and promoting consolidation of customers' suppliers. The Company may experience significant fluctuations from quarter to quarter in its results of operations due to the timing of orders placed by the Company's customers. Generally, the second and third quarters have the highest level of customer orders, but the introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter. In the fourth quarter of fiscal 2000, the Company adopted the provisions of Emerging Issues Task Force (EITF) Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs", by reclassifying freight expense from selling, general and administrative expense to cost of sales in all periods presented. The adoption of EITF 00-10 increased cost of sales and reduced selling, general and administrative expenses in the first quarter of fiscal 2000 by $1.2 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. <TABLE> <CAPTION> Percentage of Net Sales For the Thirteen Weeks Ended -------------------------------------------------- March 31, March 25, 2001 2000 - --------------------------------------- ------------------------- ------------------------ <S> <C> <C> Net sales 100.0% 100.0% Cost of goods sold 67.3 67.3 - --------------------------------------- ------------------------- ------------------------ Gross profit 32.7 32.7 Selling, general and administrative expenses 29.6 25.8 - --------------------------------------- ------------------------- ------------------------ Income from operations 3.1 6.9 Interest expense, net 2.5 3.6 - --------------------------------------- ------------------------- ------------------------ Income before taxes 0.6 3.3 Provision for taxes 0.2 1.1 - --------------------------------------- ------------------------- ------------------------ Net Income 0.4% 2.2% ======================================= ========================= ======================== </TABLE> Page 8 of 12
Thirteen Weeks Ended March 31, 2001 Compared to Thirteen Weeks Ended March 25, 2000 Sale of Lift Support Inventory - 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. First quarter 2000 results 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). In addition, first quarter 2000 net sales include $2.0 million in revenues from sales of this product line to customers prior to the sale of the assets of the product line. Net sales decreased to $46.1 million for the thirteen weeks ended March 31, 2001 from $53.2 million for the same period in 2000, or $47.8 million without the revenues from the sale of the lift support inventory described above. First quarter net sales declined $1.7 million after adjusting prior year amounts for the lift support sale. This sales decline is primarily attributable to lower sales of certain subsidiary product lines. 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 were offset by the loss of fiscal first quarter 2000 net sales of approximately $2.0 million from the lift support business that was sold last year. Sales in the Company's other businesses were generally flat with prior year levels as a result of continued weak demand in the automotive aftermarket. Cost of goods sold for the thirteen weeks ended March 31, 2001 decreased to $31.0 million from $35.9 million for the same period last year, or $32.0 million without costs associated with the sale of the lift support inventory described above. Cost of sales declined $1.0 million after adjusting prior year amounts for the lift support sale. This decline was primarily attributable to the lower sales levels in the current year. As a percentage of sales, gross profit for the thirteen weeks ended March 31, 2001 decreased to 32.7% from 33.0% in the prior year without the effect of the lift support sale. The decrease in gross profit percentage is primarily the result of a change in sales mix. Selling, general and administrative expenses for the thirteen weeks ended March 31, 2001 approximated prior year amounts despite a drop in sales of $1.7 million in the current year after adjusting prior year amounts for the lift support sale. Overall spending levels remained flat as cost savings realized as a result of recent cost reduction initiatives and lower distribution costs as a result of lower sales levels were offset by inflationary increases in payroll, medical insurance and other operating expenses in the current year. Interest expense, net, decreased to $1.1 million in the thirteen weeks ended March 31, 2001 from $1.9 million in the prior year due to lower borrowing levels. Provisions for income taxes of $0.1 million and $0.6 million were recorded for the thirteen weeks ended March 31, 2001 and March 25, 2000, respectively. The Company's effective tax increased to 35.8% in the thirteen weeks ended March 31, 2001 from 34.0% in the prior year. The effective tax rate in the prior year was lower than the rate in the thirteen weeks ended March 31, 2001 primarily as a result of a lower tax rate on the lift support line sale in the prior year. Liquidity and Capital Resources The Company has financed its growth through the combination of cash flow from its operations, issuance of senior notes and borrowings under its credit facilities. Working capital was $84.2 million as of March 31, 2001 and $92.0 million as of March 25, 2000. The Company believes that the cash generated from operations and borrowings available under its revolving credit facility will be sufficient to meet the Company's working capital needs and to fund expansion for the foreseeable future. Net cash provided from operating activities was $4.6 million in 2001and $15.2 million in 2000. During 2001, net income, as well as non-cash provisions for depreciation and amortization, deferred income taxes, non-cash stock compensation and doubtful accounts , together with inventories, prepaid expenses and accounts payable provided $5.6 million in positive cash flow. This positive cash flow was partially offset by $1.0 million in cash used for accounts receivable and accrued expenses. During 2000, net income as well as non-cash provisions for depreciation and amortization and lower accounts receivable and inventory levels due to lower sales and better working capital management provided $20.4 million in positive cash flow, however, these increases were partially offset by $5.2 million in cash used as a result of increases in prepaid expenses, other assets and reductions in accounts payable. Page 9 of 12
Net cash used in investing activities amounted to $0.7 million in 2001 and $0.4 million in 2000. In both periods, additions to property, plant and equipment were the primary uses of cash. Net cash used in financing activities was $0.9 in 2001 and $15.5 million in 2000. During 2000, cash generated from operating activities net of investing activities was used to reduce borrowing levels. Senior Notes. In August 1998, the Company completed a private placement of $60 million in 6.81% Senior Notes due August 21, 2008 on an unsecured basis. The ten-year Notes bear a 6.81 percent fixed interest rate, payable quarterly, with an initial four-year interest only period. Annual repayments at the rate of $8.6 million are due beginning in August 2002. Revolving 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. The Company believes that the amended facility together with cash generated from operations will provide sufficient funding to meet the Company's working capital needs for the foreseeable future. Prior to the March 2001 amendment, the Company had a revolving credit facility that provided for borrowings of up to $35 million in 1999 with mandatory reductions throughout 2000 to $10 million at December 30, 2000. Borrowings under the facility were on an unsecured basis with interest at rates ranging from Libor plus 150 to 300 basis points. The loan agreement also contained covenants, the most restrictive of which pertained to net worth and the ratio of debt to EBITDA. There were no borrowings under the revolving credit facility at March 31, 2001. Borrowings under the revolving credit facility amounted to $13.8 million at March 25, 2000. Industrial Revenue Bonds. Construction of the Company's Warsaw, Kentucky facility in 1990 was funded by the Bonds. The Bonds bear interest at a variable rate (5.0% at March 31, 2001) payable monthly and require annual principal payments of $300,000 or $350,000 in alternating years with the final payment due in July, 2009. Bond borrowings amounted to $2.8 million at March 31, 2001. Capitalized Leases. The Company's lease for its Pennsylvania facility is recorded as a capitalized lease in the Company's financial statements. In addition, the Company entered into three sale/leaseback transactions relating to computer hardware and software. The aggregate amount outstanding under all capital leases amounted to $3.8 million at March 31, 2001. Foreign Currency Fluctuations. Approximately 37% of the Company's products were purchased from a variety of foreign countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, the Company does not have exposure to fluctuation in the relationship between the dollar and various foreign currencies between the time of execution of the purchase order and payment for the product. However, to the extent that the dollar decreases in value to foreign currencies in the future, the price of the product in dollars for new purchase orders may increase. 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 passed on to its customers, since prices charged by the Company are not set by long-term contracts. Cautionary Statement Regarding Forward Looking Statements Certain statements periodically made by or on behalf of the Company and certain statements contained herein including statements in Management's Discussion and Analysis of Financial Condition and Results of Operations, such as statements regarding litigation, and certain other statements contained herein regarding matters that are not historical fact are forward looking statements (as such term is defined in the Securities Act of 1933), and because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. Factors that cause actual results to differ materially include but are not limited to those factors discussed in the Company's Annual Report on Form 10-K under "Business - Investment Considerations." Page 10 of 12
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 and its Industrial Revenue Bonds, 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 and Industrial Development Bonds, a change in either LIBOR or tax exempt 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. Although the Company continues to evaluate derivative financial instruments to manage foreign currency exchange rate changes, the Company does not currently hold derivatives for managing these risks or for trading purposes. 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 None (b) Reports on Form 8-K None Page 11 of 12
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 May 9, 2001 \s\ Richard Berman -------------- ---------------------------- Richard Berman President Date May 9, 2001 \s\ Mathias Barton -------------- -------------------------- Mathias Barton Chief Financial Officer and Principal Accounting Officer Page 12 of 12