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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 31, 2001
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 7, 2001 the Registrant had 8,419,017 common shares, $.01 par value,
outstanding.
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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
PART I. FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Thirteen Weeks Ended
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March 31, March 25,
(in thousands, except per share data) 2001 2000
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Net Sales $46,144 $53,246
Cost of goods sold 31,043 35,856
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Gross profit 15,101 17,390
Selling, general and administrative expenses 13,685 13,705
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Income from operations 1,416 3,685
Interest expense, net 1,128 1,911
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Income before taxes 288 1,774
Provision for taxes 103 603
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Net Income $ 185 $ 1,171
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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
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The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 3 of 12
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 30,
(in thousands, except share data) 2001 2000
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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
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Total current assets 103,365 102,201
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Property, Plant and Equipment, net 22,426 23,332
Intangible Assets 30,804 31,358
Other Assets 2,672 2,988
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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
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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
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Total $ 159,267 $ 159,879
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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)
For the Thirteen Weeks Ended
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March 31, March 25,
(in thousands) 2001 2000
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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
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Cash provided by operating activities 4,625 15,212
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Cash Flows from Investing Activities:
Property, plant and equipment additions (711) ( 365)
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Cash (used in) investing activities ( 711) ( 365)
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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
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Cash (used in) financing activities (932) (15,515)
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Net Increase (Decrease) in Cash and Cash Equivalents 2,982 (668)
Cash and Cash Equivalents, Beginning of Period 7,553 1,467
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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
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:
Employee Facility
Inventory Termination Shutdown
Disposals Benefits Costs
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(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 (7,100) (351) (145) (7,596)
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Balance at December 30, 2000 $ 2,700 $ - $ 680 $3,380
Costs Incurred - 2001 (1,076) - (97) (1,173)
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Balance at March 31, 2001 $ 1,624 $ - $ 583 $ 2,207
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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
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Bulk product $13,419 $15,170
Finished product 32,172 31,984
Packaging materials 3,762 3,611
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Total $49,353 $50,765
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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.
Percentage of Net Sales
For the Thirteen Weeks Ended
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March 31, March 25,
2001 2000
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Net sales 100.0% 100.0%
Cost of goods sold 67.3 67.3
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Gross profit 32.7 32.7
Selling, general and administrative expenses 29.6 25.8
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Income from operations 3.1 6.9
Interest expense, net 2.5 3.6
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Income before taxes 0.6 3.3
Provision for taxes 0.2 1.1
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Net Income 0.4% 2.2%
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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
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Richard Berman
President
Date May 9, 2001 \s\ Mathias Barton
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Mathias Barton
Chief Financial Officer and
Principal Accounting Officer
Page 12 of 12