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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 June 30, 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 August 3, 2001 the Registrant had 8,422,809common shares, $.01 par value,
outstanding.
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R & B, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2001
Page
Part I -- FINANCIAL INFORMATION
Item 1.Consolidated Financial Statements (unaudited)
Statements of Operations:
Thirteen Weeks Ended June 30, 2001 and June 24, 2000 3
Twenty-six Weeks Ended June 30, 2001 and June 24, 2000 4
Balance Sheets....................................... 5
Statements of Cash Flows............................. 6
Notes to Financial Statements........................ 7
Item 2.Management's Discussion and
Analysis of Financial Condition and
Results of Operations............................ 8
Part II -- OTHER INFORMATION
Item 1.Legal Proceedings.................................... 13
Item 6.Exhibits and Reports on Form 8-K..................... 13
Signature................................................... 14
Page 2 of 14
PART I. FINANCIAL INFORMATION
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Thirteen Weeks Ended
------------------------------
June 30, June 24,
(in thousands, except per share data) 2001 2000
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Net Sales $ 52,015 $ 49,239
Cost of goods sold 34,276 31,889
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Gross profit 17,739 17,350
Selling, general and administrative expenses 14,698 13,533
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Income from operations 3,041 3,817
Interest expense, net 1,089 1,425
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Income before taxes 1,952 2,392
Provision for taxes 655 854
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Net Income $ 1,297 $ 1,538
============================================================================================
Earnings Per Share:
Basic $0.15 $0.18
Diluted $0.15 $0.18
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Average Shares Outstanding:
Basic 8,482 8,421
Diluted 8,557 8,506
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The accompanying Notes are an integral part of these Consolidated
Financial Statements.
.
Page 3 of 14
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the Twenty-six Weeks Ended
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June 30, June 24,
(in thousands, except per share data) 2001 2000
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Net Sales $ 98,159 $ 102,485
Cost of goods sold 65,319 67,745
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Gross profit 32,840 34,740
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Income from operations 4,457 7,502
Interest expense, net 2,217 3,336
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Income before taxes 2,240 4,166
Provision for taxes 758 1,457
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Net Income $ 1,482 $ 2,709
============================================================================================
Earnings Per Share:
Basic $0.17 $0.32
Diluted $0.17 $0.32
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Average Shares Outstanding:
Basic 8,482 8,417
Diluted 8,563 8,508
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The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 4 of 14
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, December 30,
(in thousands, except share data) 2001 2000
- --------------------------------------------------- ----------------- -----------------
Assets (unaudited)
Current Assets:
Cash and cash equivalents $ 12,672 $ 7,553
Accounts receivable, less allowance for doubtful
accounts and customer credits of $11,674 and $10,334 40,266 36,322
Inventories 47,982 50,765
Deferred income taxes 4,960 4,896
Prepaids and other current assets 1,954 2,665
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Total current assets 107,834 102,201
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Property, Plant and Equipment, net 21,096 23,332
Intangible Assets 30,344 31,358
Other Assets 2,509 2,988
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Total $ 161,783 $ 159,879
=================================================== ================= =================
Liabilities and Shareholders' Equity
Current Liabilities:
Current portion of long-term debt $ 2,111 $ 2,583
Accounts payable 9,183 8,159
Accrued compensation 3,684 3,580
Other accrued liabilities 6,110 4,617
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Total current liabilities 21,088 18,939
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Long-Term Debt 64,048 65,066
Deferred Income Taxes 3,515 3,490
Commitments and Contingencies
Shareholders' Equity:
Common stock, par value $.01; authorized
25,000,000 shares; issued 8,485,178 and 8,481,517 85 85
Additional paid-in capital 34,395 34,229
Cumulative translation adjustments (1,741) (839)
Retained earnings 40,393 38,909
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Total shareholders' equity 73,132 72,384
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Total $ 161,783 $ 159,879
=================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 5 of 14
R&B, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Twenty-six Weeks Ended
-------------------------------------
June 30, June 24,
(in thousands) 2001 2000
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Cash Flows from Operating Activities:
Net income $ 1,482 $ 2,709
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 4,266 3,817
Provision for doubtful accounts 309 248
Provision for deferred income taxes (12) 1,094
Provision for non-cash stock compensation 166 -
Changes in assets and liabilities:
Accounts receivable (4,527) 5,956
Inventories 2,187 11,902
Prepaid expenses and other 1,136 (4,635)
Accounts payable 1,212 3,101
Other accrued liabilities 1,592 2,233
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Cash provided by operating activities 7,811 26,425
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Cash Flows from Investing Activities:
Property, plant and equipment additions (1,239) (2,620)
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Cash (used in) investing activities (1,239) (2,620)
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Cash Flows from Financing Activities:
Net (repayment) from revolving credit - (22,500)
Repayment of term loans and capitalized lease obligations (1,453) (1,331)
Proceeds from subordinated loan - 1,000
Proceeds from common stock issuances - 86
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Cash (used in) financing activities (1,453) (22,745)
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Net Increase in Cash and Cash Equivalents 5,119 1,060
Cash and Cash Equivalents, Beginning of Period 7,553 1,467
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Cash and Cash Equivalents, End of Period $ 12,672 $ 2,527
=============================================================== ================= ===================
Supplemental Cash Flow Information
Cash paid for interest expense $ 2,452 $ 3,281
Cash paid for income taxes $ 35 $ 110
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
Page 6 of 14
R&B, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE TWENTY-SIX WEEKS ENDED JUNE 30, 2001 AND JUNE 24, 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 twenty-six week period ended June
30, 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 were no significant
changes to the plan. The following summarizes the restructuring charge and
activity through June 30, 2001:
Employee Facility
Inventory Termination Shutdown
Disposals Benefits Costs
---------------- --------------- ---------------
(in thousands) Total
- ------------------------------------ ---------------- --------------- --------------- ---------------
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 (800) - (180) (980)
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Balance at June 30, 2001 $ 1,900 $ - $ 500 $ 2,400
- ------------------------------------ ---------------- --------------- --------------- ---------------
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:
June 30, December 30,
(in thousands) 2001 2000
- ------------------- -------------- --------------
Bulk product $13,095 $15,170
Finished product 31,280 31,984
Packaging materials 3,607 3,611
- ------------------- -------------- --------------
Total $47,982 $50,765
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Page 7 of 14
4. Intangible Assets
Intangible assets consist primarily of goodwill which is amortized over periods
of 10 to 40 years. Total accumulated amortization as of June 30, 2001 was $8.6
million. Amortization expense of these assets was $0.4 million in the second
quarter of 2001 and 2000, and $0.8 million for the twenty-six week periods ended
June 30, 2001 and June 24, 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. 00-01, "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 00-01 increased
cost of sales and reduced selling, general and administrative expenses by $1.3
million and $2.5 million in the thirteen week and the twenty-six week periods
ended June 24, 2000, respectively.
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).
7. Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and
Other Intangible Assets" (effective for the Company on January 1, 2002). SFAS
No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142
specifies that goodwill will no longer be amortized but instead will be subject
to periodic impairment testing. The Company is in the process of evaluating the
financial statement impact of adoption of SFAS No. 142.
Page 8 of 14
R&B, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
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 and 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, third and fourth 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. 00-01, "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- 01 increased cost of sales and reduced
selling, general and administrative expenses by $1.3 million and $2.5 million in
the thirteen week and the twenty-six week periods ended June 24, 2000,
respectively.
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
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For the Thirteen Weeks Ended For the Twenty-six Weeks Ended
-------------------------------- ----------------------------------
- --------------------------- --------------- ---------------- ---------------- -----------------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 65.9% 64.8% 66.5% 66.1%
- --------------------------- --------------- ---------------- ---------------- -----------------
Gross profit 34.1% 35.2% 33.5% 33.9%
Selling, general and
administrative expenses 28.3% 27.4% 29.0% 26.6%
- --------------------------- --------------- --------------- --------------- -----------------
Income from operation 5.8% 7.8% 4.5% 7.3%
Interest expense, net 2.0% 2.9% 2.2% 3.3%
- --------------------------- --------------- ---------------- ---------------- -----------------
Income before taxes 3.8% 4.9% 2.3% 4.0%
Provision for taxes 1.3% 1.8% 0.8% 1.4%
- --------------------------- --------------- ---------------- ---------------- -----------------
Net income 2.5% 3.1% 1.5% 2.6%
=========================== =============== ================ ================ =================
Page 9 of 14
Thirteen Weeks Ended June 30, 2001
Compared to Thirteen Weeks Ended June 24, 2000
Net sales increased to $52.0 million for the thirteen weeks ended June 30, 2001
from $49.2 million for the
same period in 2000. The second quarter sales increase is primarily attributable
to sales from new initiatives in the Company's hard to find parts business as
well as 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.
Cost of goods sold for the thirteen weeks ended June 30, 2001 increased to $34.3
million from $31.9
million for the same period last year. This increase in cost of sales was
primarily attributable to higher sales levels in the current year. As a
percentage of sales, gross profit for the thirteen weeks ended June 30, 2001
decreased to 34.1% from 35.2% in the prior year. This decline was a result of a
change in sales mix towards lower margin product lines.
Selling, general and administrative expenses for the thirteen weeks ended June
30, 2001 increased to $14.7
million from $13.5 million for the same period last year. Approximately $0.5
million of this increase is a result of severance and other charges related to
the consolidation of one of the Company's subsidiary operations in the second
quarter of 2001. The remaining increase in selling, general and administrative
expenses is due to increases in variable costs as a result of the higher sales
levels experienced in the second quarter of fiscal 2001.
Interest expense, net, decreased to $1.1 million in the thirteen weeks ended
June 30, 2001 from $1.4
million in the prior year due to lower borrowing levels.
Provisions for income taxes of $0.7 million and $0.9 million were recorded for
the thirteen weeks ended
June 30, 2001 and June 24, 2000, respectively. The Company's effective tax
decreased to 33.6% in the thirteen weeks ended June 30, 2001 from 35.7% in the
prior year due to a higher mix of earnings from the Company's Swedish subsidiary
which has a lower effective tax rate than the Company's other businesses.
Twenty-six Weeks Ended June 30, 2001
Compared to Twenty-six Weeks Ended June 24, 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. Results for the twenty-six weeks ended June 24, 2000 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,
net sales for the twenty-six weeks ended June 24, 2000 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 $98.2 million for the twenty-six weeks ended June 30,
2001 from $102.5 million
for the same period in 2000, or $97.0 million without the revenues from the sale
of the lift support inventory described above. Net sales for the twenty-six
weeks ended June 30, 2001 increased $1.2 million after adjusting prior year
amounts for the lift support sale. This sales increase is the net effect of
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, and sales from new
initiatives in the Company's hard to find parts business.
Cost of goods sold for the twenty-six weeks ended June 30, 2001 decreased to
$65.3 million from $67.7
million for the same period last year, or $63.9 million without costs associated
with the sale of the lift support inventory described above. The increase in
cost of sales was $1.4 million after adjusting prior year amounts for the lift
support sale. This increase was primarily attributable to the higher sales
levels in the current year as well as a change in sales mix towards lower margin
product lines.
Selling, general and administratvie expenses for the twenty-six weeks ended
June 30, 2001 increased
$28.4 million from $27.2 million for the same period last year. Approximately
$0.5 million of this increase is a result of severance and other charges related
to the consolidation of one of the Company's subsidiary operations in the second
quarter of 2001. The remaining increase in selling, general and administrative
expenses is due to increases in variable costs as a result of the higher sales
levels experienced in the current year.
Interest expense, net, decreased to $2.2 million in the twenty-six weeks ended
June 30, 2001 from $3.3 million in the prior year due to lower borrowing levels
Page 10 of 14
Provisions for income taxes of $0.8 million and $1.5 million were recorded for
the twenty-six weeks ended
June 30, 2001 and June 24, 2000, respectively. The Company's effective tax
decreased to 33.8% in the twenty-six weeks ended June 30, 2001 from 35.0% in the
prior year due to a higher mix of earnings from the Company's Swedish subsidiary
which has a lower effective tax rate than the Company's other businesses.
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 revolving credit facilities. Working
capital was $86.7 million as of June 30, 2001 and $83.3 million as of December
30, 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.
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 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 June 30,
2001. Borrowings under the revolving credit facility amounted to $6.0 million at
June 24, 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 (3.69% at June 30, 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 $2.7 million at June 30, 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 $3.4 million at June 30, 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.
Page 11 of 14
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 off 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 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.
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. Our 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. The aggregate fair value of all such contracts as of June
30, 2001 was approximately $1.0 million.
Page 12 of 14
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
EX-99 R&B, Inc. Audit Committee Charter
(b) Reports on Form 8-K
None
Page 13 of 14
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 August 9, 2001 Richard Berman
---------------
Richard Berman
President
Date August 9, 2001 Mathias J. Barton
------------------
Mathias J. Barton
Chief Financial Officer and
Principal Accounting Officer
Page 14 of 14