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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 March 25, 2000
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 |_|
As of May 5, 2000 the Registrant had 8,233,379 common shares, $.01 par value,
outstanding.
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R & B, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
MARCH 25, 2000
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Income:
Thirteen Weeks Ended March 25, 2000 and March 27, 1999 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.................................... 12
Item 6.Exhibits and Reports on Form 8-K..................... 12
Signature .............................................. 13
Page 2 of 13
PART I. FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For the Thirteen Weeks Ended
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March 25, March 27,
(in thousands, except per share data) 2000 1999
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Net Sales $53,246 $55,946
Cost of goods sold 34,637 34,261
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Gross profit 18,609 21,685
Selling, general and administrative expenses 14,924 17,901
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Income from operations 3,685 3,784
Interest expense, net 1,911 1,706
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Income before taxes 1,774 2,078
Provision for taxes 603 727
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Net Income $ 1,171 $ 1,351
============================================================================================
Earnings Per Share:
Basic $0.14 $0.16
Diluted 0.14 0.16
Average Shares Outstanding:
Basic 8,413 8,348
Diluted 8,509 8,381
============================================================================================
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3 of 13
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 25, December 25,
(in thousands, except share data) 2000 1999
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Assets (unaudited)
Current Assets:
Cash and cash equivalents $ 799 $ 1,467
Accounts receivable, less allowance for doubtful
accounts and customer credits of $8,310 and $8,764 42,700 49,979
Inventories 60,112 70,272
Deferred income taxes 4,574 4,574
Prepaids and other current assets 5,911 2,543
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Total current assets 114,096 128,835
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Property, Plant and Equipment, net 21,895 22,919
Intangible Assets 32,797 33,212
Other Assets 3,433 3,038
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Total $ 172,221 $ 188,004
=================================================== ================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 3,134 $ 11,910
Accounts payable 11,378 12,867
Accrued compensation 2,558 2,820
Other accrued liabilities 5,015 4,626
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Total current liabilities 22,085 32,223
Long-Term Debt 78,464 85,283
Deferred Income Taxes 2,264 2,264
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,428,528 and 8,393,796 84 84
Additional paid-in capital 33,597 33,517
Cumulative translation adjustments (258) (181)
Retained earnings 35,985 34,814
Total shareholders' equity 69,408 68,234
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Total $ 172,221 $ 188,004
=================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 4 of 13
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Thirteen Weeks Ended
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March 25, March 27,
(in thousands) 2000 1999
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Cash Flows from Operating Activities:
Net income $ 1,171 $ 1,351
Adjustments to reconcile net income to cash provided by(used in)
operating activities:
Depreciation and amortization 1,809 1,553
Provision for doubtful accounts 128 189
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable 7,151 (4,679)
Inventories 10,160 (10,851)
Prepaid expenses and other (3,845) (598)
Accounts payable (1,489) 3,352
Other accrued liabilities 127 (1,167)
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Cash provided by (used in) operating activities 15,212 (10,850)
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Cash Flows from Investing Activities:
Property, plant and equipment additions (365) (1,397)
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Cash (used) in investing activities ( 365) (1,397)
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Cash Flows from Financing Activities:
Net (repayment) proceeds of revolving credit (14,750) 12,750
Repayment of term loans and capitalized lease obligations (845) ( 426)
Proceeds from common stock issuances 80 42
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Cash (used in) provided by financing activities (15,515) 12,366
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Net (Decrease) Increase in Cash and Cash Equivalents (668) 119
Cash and Cash Equivalents, Beginning of Period 1,467 915
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Cash and Cash Equivalents, End of Period $ 799 $ 1,034
============================================================== ================== ===================
Supplemental Cash Flow Information
Cash paid for interest expense $ 1,784 $ 1,493
Cash paid for income taxes $ 55 $ 1,521
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 5 of 13
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MARCH 25, 2000 AND MARCH 27, 1999 (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
25, 2000 are not necessarily indicative of the results that may be expected for
the fiscal year ending December 30, 2000. 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 25, 1999.
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 of 158 people. 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 were
no significant changes to the plan in fiscal 2000. During the first quarter of
2000, the Company charged off approximately $2.2 million in inventory related to
the restructuring and completed the planned workforce reduction. The closing of
the Company's warehouse and production facility in Carrollton, Georgia is
scheduled for the second quarter of 2000.
The following summarizes the restructuring charge and activity through March 25,
2000:
Employee Facility
Inventory Termination Shutdown
Disposals Benefits Costs
(in thousands) Total
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Initial Charge $9,800 $ 475 $1,125 $11,400
Costs Incurred - 1999 - (124) (300) (424)
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Balance at December 25, 1999 $9,800 351 825 10,976
Costs Incurred - 2000 (2,176) (156) (105) (2,437)
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Balance at March 25, 2000 $7,624 $195 $720 $8,539
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Page 6 of 13
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 25, December 25,
(in thousands) 2000 1999
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Bulk product $16,132 $20,665
Finished product 39,206 45,136
Packaging materials 4,774 4,471
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Total $60,112 $70,272
=================== ============== ==============
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 25, 2000
was $6.5 million. Amortization expense of these assets was $0.4 million in the
first quarter of 2000 and 1999.
5. 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 Income 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 13
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.
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 Income.
Percentage of Net Sales
For the Thirteen Weeks Ended
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March 25, March 27,
2000 1999
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Net sales 100.0% 100.0%
Cost of goods sold 65.1 61.3
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Gross profit 34.9 38.7
Selling, general and administrative expenses 28.0 32.0
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Income from operations 6.9 6.7
Interest expense, net 3.6 3.0
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Income before taxes 3.3 3.7
Provision for taxes 1.1 1.3
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Net Income 2.2% 2.4%
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Page 8 of 13
Thirteen Weeks Ended March 25, 2000 Compared to
Thirteen Weeks Ended March 27, 1999
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 of 158 people. 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
were no significant changes to the plan in fiscal 2000. During the first quarter
of 2000, the Company disposed of approximately $2.6 million in inventory related
to the restructuring and completed the planned workforce reduction. The closing
of the Company's warehouse and production facility in Carrollton, Georgia is
scheduled for the second quarter of 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).
Net sales decreased to $53.2 million for the thirteen weeks ended March
25, 2000 from $55.9 million for the same period in 1999, a decrease of 4.8%. The
sales decline was approximately 13% without the effect of net sales from the
lift support inventory sale. This decline is primarily attributable to lower
sales levels in the Company's core business of hard-to-find parts and fasteners
as a result of the flat automotive aftermarket and the Company's efforts to
eliminate unprofitable products in its core business and launch fewer, but more
profitable programs.
Cost of goods sold for the thirteen weeks ended March 25, 2000 increased
to $34.6 million from $34.3 million for the same period in 1999, an increase of
1.1%. As a percent of net sales, gross profit for the thirteen weeks ended March
25, 2000 decreased to 34.9% from 38.7% for the thirteen weeks ended March 27,
1999. The reduction in gross profit percentage is the result of the
non-recurring lift support line sale and a change in sales mix to an increased
portion of total revenues attributable to sales of products other than
hard-to-find parts and fasteners which carry a lower gross margin. In addition,
continued selling price pressures negatively impacted gross profit in the
Company's core business of hard-to-find parts and fasteners.
Selling, general and administrative expenses for the thirteen weeks
ended March 25, 2000 decreased to $14.9 million from $17.9 million for the
thirteen weeks ended March 27, 1999, a decrease of 16.6%. As a percent of net
sales, selling, general and administrative expenses decreased to 28.0% in 2000
from 32.0% in 1999. The percentage decrease is largely attributable to the
revenues from the lift support line sale which had no selling, general and
administrative expenses attributable to them. Selling, general and
administrative expenses as a percentage of net sales before lift support sale
revenue were 31.3% in the three months ended March 25, 2000. The decrease to
31.3% from 1999's level of 32.0% is primarily attributable to cost reductions in
the Company's core business as a result of the restructuring plan recorded in
the fourth quarter of 1999.
Interest expense, net, increased to $1.9 million for the thirteen weeks
ended March 25, 2000 from $1.7 million for the thirteen weeks ended March 27,
1999. This increase resulted from higher interest rates on the Company's
Revolving Credit Facility in 2000.
Provisions for income taxes of $0.6 million and $0.7 million were
recorded for the thirteen weeks ended March 25, 2000 and March 27, 1999,
respectively. The decrease in the Company's effective tax rate from 35.0% in
1999 to 34.0% in 2000 resulted primarily from a lower tax rate on the gain on
the lift support line sale in 2000.
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 $92.0 million as of March 25, 2000 and $111.9
million as of March 27, 1999. 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.
Page 9 of 13
Net cash provided from operating activities was $15.2 million in 2000
compared to net cash used in operating activities of $10.9 million in 1999.
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. During 1999, net income, depreciation and
amortization and an increase in accounts payable provided the majority of the
$6.4 million in positive cash flow, however these increases were more than
offset by $17.3 million in cash used related primarily to increases in accounts
receivable and inventories.
Net cash used in investing activities amounted to $0.4 million in 2000
and $1.4 million in 1999. In both periods, additions to property, plant and
equipment were the primary uses of cash.
Net cash used in financing activities was $15.5 million in 2000 compared
to net cash provided by financing activities of $12.4 million in 1999. During
2000, cash generated from operating activities net of investing activities was
used to reduce borrowing levels. During 1999, revolving credit facility
borrowings provided $12.8 million in cash which was used to fund cash used in
operating and investing activities.
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.
Revolving Credit Facility. In August 1998, the Company amended its $35
million revolving credit facility with First Union National Bank and National
City Bank. As amended, the commitment for the line was extended for a five-year
term on an unsecured basis with interest at Libor plus 125 basis points.
Proceeds from the Notes were used, among other things, to paydown the term debt
portions of the bank credit facilities previously advanced to the Company by the
bank syndicate. Borrowings under the revolving credit facility amounted to $13.8
million at March 25, 2000.
In May 2000, the Company amended the revolving credit facility. The
terms of the amended agreement include revisions to certain debt coverage
covenants, required the Company to obtain $1.0 million in new financing and
provides for mandatory reductions in the facility to $20.0 million and $15.0
million by December 31, 2000 and June 30, 2001, respectively. In addition, the
amendment provides for an increase in the facility's interest rate to a maximum
of Libor plus 300 basis points. Upon an occurrence of an Event of Default, as
defined in the loan agreement, the banks, at their option, may require a lien on
substantially all of the Company's assets. The Company satisfied its requirement
to obtain $1.0 million in new financing by securing a $1.0 million subordinated
loan from Richard and Steven Berman, the President and Executive Vice President
of the Company, respectively. The subordinated loan bears interest at prime plus
100 basis points with interest only payments during the term of the loan. The
loan is due on April 30, 2002 unless repaid earlier in accordance with the terms
of the amended revolving credit facility. 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.
Industrial Revenue Bonds. Construction of the Company's Warsaw, Kentucky
facility in 1990 was funded by the Bonds. The Bonds bear interest at an annual
rate of 4% 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 amounts to $3.1 million at March 25, 2000.
Capitalized Leases. The Company's leases for its Pennsylvania and
Georgia facilities are recorded as capitalized leases in the Company's financial
statements. In addition, in 1999 and 1998, 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 25, 2000.
Foreign Currency Fluctuations. Approximately 35% 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.
Page 10 of 13
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 Operation; 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 either the lender's base rate or LIBOR 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.
Page 11 of 13
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
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K
None
Page 12 of 13
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 8, 2000 \s\ Richard Berman
Richard Berman
President
Date May 8, 2000 \s\ Mathias Barton
Mathias Barton
Chief Financial Officer and
Principal Accounting Officer
Page 13 of 13