- -------------------------------------------------------------------------------- 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 30, 2002 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 8, 2002 the Registrant had 8,481,987 common shares, $.01 par value, outstanding. - -------------------------------------------------------------------------------- Page 1 of 12
R & B, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q MARCH 30, 2002 Page Part I -- FINANCIAL INFORMATION Item 1.Consolidated Financial Statements (unaudited) Statements of Operations: Thirteen Weeks Ended March 30, 2002 and March 31, 2001 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
PART I. FINANCIAL INFORMATION R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) <TABLE> <CAPTION> For the Thirteen Weeks Ended ------------------------------ March 30, March 31, (in thousands, except per share data) 2002 2001 - -------------------------------------------------------------------------------------------- <S> <C> <C> Net Sales $51,080 $46,144 Cost of goods sold 32,674 31,043 - -------------------------------------------------------------------------------------------- Gross profit 18,406 15,101 Selling, general and administrative expenses 14,085 13,685 - -------------------------------------------------------------------------------------------- Income from operations 4,321 1 416 Interest expense, net of interest income of $104 and $111 1,025 1,128 - -------------------------------------------------------------------------------------------- Income before taxes 3,296 288 Provision for taxes 1,149 103 - -------------------------------------------------------------------------------------------- Net Income $ 2,147 $ 185 ============================================================================================ Earnings Per Share: Basic $0.25 $0.02 Diluted 0.24 0.02 ============================================================================================ Average Shares Outstanding: Basic 8,474 8,482 Diluted 8,900 8,547 </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 30, December 29, (in thousands, except share data) 2002 2001 - --------------------------------------------------- ----------------- ----------------- <S> <C> <C> Assets (unaudited) Current Assets: Cash and cash equivalents $ 22,241 $ 21,689 Accounts receivable, less allowance for doubtful accounts and customer credits of $14,902 and $15,110 36,676 36,700 Inventories 45,728 45,036 Deferred income taxes 7,633 7,469 Prepaids and other current assets 1,268 1,352 - --------------------------------------------------- ----------------- ----------------- Total current assets 113,546 112,246 - --------------------------------------------------- ----------------- ----------------- Property, Plant and Equipment, net 17,645 18,744 Goodwill 30,462 30,422 Other Assets 1,410 1,751 - --------------------------------------------------- ----------------- ----------------- Total $ 163,063 $ 163,163 =================================================== ================= ================= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 10,588 $ 11,481 Accounts payable 8,971 8,327 Accrued compensation 3,646 6,145 Other accrued liabilities 5,392 5,225 - --------------------------------------------------- ----------------- ----------------- Total current liabilities 28,597 31,178 Long-Term Debt 53,224 53,511 Deferred Income Taxes 3,703 3,312 Commitments and Contingencies Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued 8,481,927and 8,466,482 85 85 Additional paid-in capital 32,604 32,501 Cumulative translation adjustments (1,435) (1,562) Retained earnings 46,285 44,138 Total shareholders' equity 77,539 75,162 - --------------------------------------------------- ----------------- ----------------- Total $ 163,063 $ 163,163 =================================================== ================= ================= </TABLE> The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 4 of 12
R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) <TABLE> <CAPTION> For the Thirteen Weeks Ended -------------------------------------- March 30, March 31, (in thousands) 2002 2001 - -------------------------------------------------------------- ------------------ ------------------- <S> <C> <C> Cash Flows from Operating Activities: Net income $ 2,147 $ 185 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,586 2,012 Provision for doubtful accounts 189 80 Provision for deferred income tax 227 78 Provision for non-cash stock compensation 76 78 Changes in assets and liabilities: Accounts receivable (115) (118) Inventories (606) 994 Prepaids and other 413 513 Accounts payable 611 1,692 Other accrued liabilities (2,337) (889) - -------------------------------------------------------------- ------------------ ------------------- Cash provided by operating activities 2,191 4,625 - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (486) ( 711) - -------------------------------------------------------------- ------------------ ------------------- Cash used in investing activities ( 486) ( 711) - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Financing Activities: Repayment of term loans and capitalized lease obligations (1,180) ( 932) Proceeds from common stock issuances 27 - - -------------------------------------------------------------- ------------------ ------------------- Cash used in financing activities (1,153) (932) - -------------------------------------------------------------- ------------------ ------------------- Net Increase in Cash and Cash Equivalents 552 2,982 Cash and Cash Equivalents, Beginning of Period 21,689 7,553 - -------------------------------------------------------------- ------------------ ------------------- Cash and Cash Equivalents, End of Period $ 22,241 $ 10,535 ============================================================== ================== =================== Supplemental Cash Flow Information Cash paid for interest expense $ 1,124 $ 1,258 Cash paid for income taxes $ 656 $ 35 The accompanying Notes are an integral part of these Consolidated Financial Statements. </TABLE> Page 5 of 12
R&B, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTEEN WEEKS ENDED MARCH 30, 2002 AND MARCH 31, 2001 (UNAUDITED) 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. However, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the thirteen week period ended March 30, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2002. For further information, refer to the financial statements and footnotes thereto included in R&B, Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December 29, 2001. 2. 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 30, December 29, (in thousands) 2002 2001 - ------------------- -------------- -------------- Bulk product $16,769 $12,327 Finished product 25,814 29,458 Packaging materials 3,145 3,251 - ------------------- -------------- -------------- Total $45,728 $45,036 =================== ============== ============== 3. Goodwill - Adoption of SFAS No. 142 Effective December 30, 2001 the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 specifies that goodwill will no longer be amortized but instead will be subject to periodic impairment testing. As a result, effective December 30, 2001, the Company no longer amortizes goodwill. Within six months of adopting SFAS No. 142, the Company will complete a transitional impairment review to identify whether there is an impairment to goodwill using a fair value methodology. Any impairment loss resulting from the transitional impairment test will be reflected as the cumulative effect of a change in accounting principle, retroactive to the first quarter of fiscal 2002. The Company does not expect a material impact on its consolidated financial statements from adoption of SFAS No. 142. Page 6 of 12
In conformity with SFAS No. 142, the results of prior periods have not been restated. The following is a reconciliation of the Company's net income and earnings per share for the three months ended March 30, 2002 and March 31, 2001: <TABLE> <CAPTION> March 30, March 31, 2002 2001 - --------------------------------------------- ------------------- -------------------- <S> <C> <C> Net Income: As reported $2,147 $ 185 Amortization expense - goodwill - 269 - --------------------------------------------- ------------------- -------------------- Adjusted net income $2,147 $ 454 ============================================= =================== ==================== Basic earnings per share: As reported $ 0.25 $ 0.02 Amortization expense - goodwill - 0.03 - --------------------------------------------- ------------------- -------------------- Adjusted earnings per share - Basic $ 0.25 $ 0.05 ============================================= =================== ==================== Diluted earnings per share: As reported $ 0.24 $ 0.02 Amortization expense - goodwill - 0.03 - --------------------------------------------- ------------------- -------------------- Adjusted earnings per share - Diluted $ 0.24 $ 0.05 ============================================= =================== ==================== </TABLE> 4. New Accounting Pronouncements In June, 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted this pronouncement on December 30, 2001, as required. The adoption of SFAS No. 143 did not have a material impact on the consolidated statements of operations for the three months ended March 30, 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company adopted this pronouncement on December 30, 2001, as required. The adoption of SFAS No. 144 did not have a material impact on the consolidated statements of operations for the three months ended March 30, 2002. 5. Subsequent Event On May 1, 2002, the Company entered into agreements with The Hillman Group, Inc., a wholly owned subsidiary of The Hillman Companies, Inc. (formerly SunSource, Inc.) to sell the Company's Lowes' specialty fastener business and to settle litigation initiated by the Company in 1996 related to its purchase of the Dorman business from SunSource. Total proceeds from the sale and settlement will be approximately $7.5 million. The transactions will result in a gain on the sale of the fastener business and a reduction in goodwill attributable to the original Dorman acquisition. The gain on sale is subject to closing purchase price adjustments and a final goodwill allocation under SFAS No. 142, and will be reported in the second quarter of fiscal 2002. 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. 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. The Company operates on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year. 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 30, March 31, 2002 2001 - --------------------------------------- ------------------------- ------------------------ <S> <C> <C> Net sales 100.0% 100.0% Cost of goods sold 64.0 67.3 - --------------------------------------- ------------------------- ------------------------ Gross profit 36.0 32.7 Selling, general and administrative expenses 27.5 29.6 - --------------------------------------- ------------------------- ------------------------ Income from operations 8.5 3.1 Interest expense, net 2.0 2.5 - --------------------------------------- ------------------------- ------------------------ Income before taxes 6.5 0.6 Provision for taxes 2.3 0.2 - --------------------------------------- ------------------------- ------------------------ Net Income 4.2% 0.4% ======================================= ========================= ======================== </TABLE> Thirteen Weeks Ended March 30, 2002 Compared to Thirteen Weeks Ended March 31, 2001 Net sales increased 10.8% to $51.1 million for the thirteen weeks ended March 30, 2002 from $46.1 million for the same period in 2001. The sales increase was the result of the shipment of several new customer programs, encouraging reorder patterns on recently introduced new products and continued strong growth by the Company's Swedish subsidiary. Sales comparisons to the prior year also benefitted from a soft sales quarter in 2001. Page 8 of 12
The Company's gross profit percentage increased to 36.0% of net sales for the thirteen weeks ended March 30, 2002 from 32.7% in the same period last year. The improvement is the result of the implementation of several cost saving initiatives as well as benefits achieved from spreading fixed overhead costs over a higher sales base in the thirteen weeks ended March 30, 2002. Selling, general and administrative expenses for the thirteen weeks ended March 30, 2002 increased 2.9% to $14.1 million from $13.7 million for the same period in 2001. This increase was the net result of increased promotional and new product spending in 2002 and inflationary increases in labor and other operating expenses, offset by the elimination of goodwill amortization of $0.4 million in fiscal 2002 as a result of the Company's adoption of SFAS No. 142 "Goodwill and Other Intangible Assets" which specifies that goodwill will no longer be amortized. Interest expense, net, decreased to $1.0 million in the thirteen weeks ended March 30, 2002 from $1.1 million in the prior year due to lower borrowing levels. The Company's effective tax rate decreased to 34.9% for the thirteen weeks ended March 30, 2002 from 35.8% for the thirteen weeks ended March 31, 2001 due to lower state income taxes. Liquidity and Capital Resources Historically, the Company has financed its growth through a combination of cash flow from operations and through the issuance of senior indebtedness through its bank credit facility and senior note agreements. During fiscal 2001, the Company improved its inventory management and more aggressively managed other components of working capital. These initiatives resulted in increased cash flow from operations. At March 30, 2002 working capital was $85.0 million, total long-term debt (including the current portion) was $63.8 million and shareholders' equity was $77.6 million. Cash and cash equivalents as of March 30, 2002 totaled $22.2 million. In August 1998, the Company completed a private placement of $60.0 million in Senior Notes ("Notes") due August 21, 2008 on an unsecured basis. The ten-year Notes bear a 6.81% 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. In March 2001, the Company amended its Revolving Credit Facility. The amended agreement provides for a $10.0 million facility for a three-year term that expires in March 2004. Borrowings under the amended facility are on an unsecured basis with interest at rates ranging from Libor plus 150 to Libor plus 275 basis points. The loan agreement also contains covenants, the most restrictive of which pertain to net worth and the ratio of debt to EBITDA. There were no borrowings under the amended credit facility in 2002. The Company's lease for its Pennsylvania facility is recorded as a capitalized lease in the Company's financial statements. In addition, the Company has entered into three sale/leaseback transactions relating to computer hardware and software. The aggregate amount outstanding under all capital leases amounted to $2.0 million at March 30, 2002. The Company amended certain agreements related to its 1998 acquisition of Scan-Tech USA/Sweden A.B. and related entities ("Scan-Tech") during 2001. As a result of this transaction, the Company purchased and canceled 250,000 shares of its common stock issued in connection with the acquisition and canceled the earn out provisions of the acquisition agreement in exchange for consideration of $3.2 million to be paid by the Company in installments through December 2005. The aggregate amount outstanding under this obligation amounted to $1.8 million at March 30, 2002. Operating cash flow was $2.2 million in the three months ended March 30, 2002. The primary sources of cash flow were net income and depreciation charges. Lower levels of accrued liabilities reduced operating cash flow. This reduction was primarily related to the Company's funding of employee profit sharing and incentive payments earned in the prior year but paid in the first quarter of 2002. Additions to property, plant and equipment required $0.5 million in cash in the first fiscal quarter of 2002. Capital expenditures included upgrades to information systems, purchases of equipment designed to improve operational efficiencies and scheduled equipment replacements. Page 9 of 12
Financing activities required $1.2 million in cash in the three months ended March 30, 2002. These uses were primary related to scheduled repayments under capital lease and other debt obligations. The Company believes that cash on hand, cash generated from operations together with available sources of capital are sufficient to meet ongoing cash needs for the foreseeable future. Subsequent Event. On May 1, 2002, the Company entered into agreements with The Hillman Group, Inc., a wholly owned subsidiary of The Hillman Companies, Inc. (formerly SunSource, Inc.) to sell the Company's Lowes' specialty fastener business and to settle litigation initiated by the Company in 1996 related to its purchase of the Dorman business from SunSource. Total proceeds from the sale and settlement will be approximately $7.5 million. The transactions will result in a gain on the sale of the fastener business and a reduction in goodwill attributable to the original Dorman acquisition. The gain on sale is subject to closing purchase price adjustments and a final goodwill allocation under SFAS No. 142, and will be reported in the second quarter of fiscal 2002. Proceeds from the sale and settlement will be invested in new product development and growth in other businesses. Foreign Currency Fluctuations. Approximately 39% of the Company's products were purchased from a variety of foreign countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. 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." Quantitative and Qualitative Disclosure about Market Risk The Company's market risk is the potential loss arising from adverse changes in interest rates. With the exception of the Company's revolving credit facility, long-term debt obligations are at fixed interest rates and denominated in U.S. dollars. The Company manages its interest rate risk by monitoring trends in interest rates as a basis for determining whether to enter into fixed rate or variable rate agreements. Under the terms of the Company's revolving credit facility, a change in 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 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 March 30, 2002. Page 10 of 12
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, 2002 \s\ Richard Berman -------------- ------------------------- Richard Berman President Date May 9, 2002 \s\ Mathias Barton --------------- -------------------------- Mathias Barton Chief Financial Officer and Principal Accounting Officer Page 12 of 12