-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BKeK8fmXad50pHxZI1F32HmBxG0kbfl1jeWwC4Ci7uuGnNnblODDBbfd2KmytY2y +mIGaVFas/y0UPfdWhpRhA== 0000868780-98-000005.txt : 19981113 0000868780-98-000005.hdr.sgml : 19981113 ACCESSION NUMBER: 0000868780-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980926 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: R & B INC CENTRAL INDEX KEY: 0000868780 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 232078856 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-18914 FILM NUMBER: 98743806 BUSINESS ADDRESS: STREET 1: 3400 E WALNUT ST CITY: COLMAR STATE: PA ZIP: 18915 BUSINESS PHONE: 2159971800 MAIL ADDRESS: STREET 1: 3400 E WALNUT ST CITY: COLMAR STATE: PA ZIP: 18915 10-Q 1 QUARTERLY REPORT - R&B, INC. - -------------------------------------------------------------------------------- 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 September 26, 1998 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 November 10, 1998 the Registrant had 8,076,199 common shares, $.01 par value, outstanding. - -------------------------------------------------------------------------------- R & B, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q September 26, 1998 Page Part I -- FINANCIAL INFORMATION Item 1.Consolidated Financial Statements (unaudited) Statements of Income: Thirteen Weeks Ended September 26, 1998 and September 27, 1997 3 Thirty-nine Weeks Ended September 26, 1998 and September 27, 1997 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............................. 9 Part II -- OTHER INFORMATION Item 1.Legal Proceedings.................................... 14 Item 6.Exhibits and Reports on Form 8-K..................... 14 Signature .............................................. 15 Page 2 of 15 PART I. FINANCIAL INFORMATION R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the Thirteen Weeks Ended ----------------------------- September 26, September 27, (in thousands, except per share data) 1998 1997 - ------------------------------------------------------------------------------------------- Net Sales $44,509 $40,817 Cost of goods sold 26,479 24,669 - ------------------------------------------------------------------------------------------- Gross profit 18,030 16,148 Selling, general and administrative expenses 13,057 11,525 - ------------------------------------------------------------------------------------------- Income from operations 4,973 4,623 Interest expense, net 1,040 974 - ------------------------------------------------------------------------------------------- Income before taxes 3,933 3,649 Provision for taxes 1,430 1,319 - ------------------------------------------------------------------------------------------- Net Income $ 2,503 $ 2,330 =========================================================================================== Earnings Per Share Basic $0.30 $0.29 Diluted 0.30 0.29 =========================================================================================== Average Shares Outstanding Basic 8,337 8,031 Diluted 8,438 8,031
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 3 of 15 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the Thirty-nine Weeks Ended ----------------------------- September 26, September 27, (in thousands, except per share data) 1998 1997 - ------------------------------------------------------------------------------------------- Net Sales $125,568 $115,075 Cost of goods sold 75,912 69,708 - ------------------------------------------------------------------------------------------- Gross profit 49,656 45,367 Selling, general and administrative expenses 37,047 33,527 - ------------------------------------------------------------------------------------------- Income from operations 12,609 11,840 Interest expense, net 3,063 3,129 - ------------------------------------------------------------------------------------------- Income before taxes 9,546 8,711 Provision for taxes 3,479 3,167 - ------------------------------------------------------------------------------------------- Net Income $ 6,067 $ 5,544 =========================================================================================== Earnings Per Share Basic $0.73 $0.69 Diluted 0.72 0.69 =========================================================================================== Average Shares Outstanding Basic 8,323 8,028 Diluted 8,424 8,028 ===========================================================================================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 4 of 15 R&B, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 26, December 27, (in thousands, except share data) 1998 1997 - --------------------------------------------------- ----------------- ----------------- (unaudited) Assets Current Assets: Cash and cash equivalent $15,666 $1,601 Accounts receivable, less allowance for doubtful accounts and customer credits of $9,758 and $7,214 40,466 37,536 Inventories 50,430 38,264 Deferred income taxes 1,186 1,186 Prepaids and other current assets 2,178 1,461 - --------------------------------------------------- ----------------- ----------------- Total current assets 109,926 80,048 - --------------------------------------------------- ----------------- ----------------- Property, Plant and Equipment, net 19,508 16,382 Intangible Assets 31,401 29,747 Other Assets 3,485 2,530 - --------------------------------------------------- ----------------- ----------------- Total $164,320 $128,707 =================================================== ================= ================= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 2,441 $6,611 Accounts payable 12,812 8,982 Accrued compensation 3,911 2,923 Other accrued liabilities 5,671 2,923 - --------------------------------------------------- ----------------- ----------------- Total current liabilities 24,835 21,439 Long-Term Debt 67,556 44,336 Deferred Income Taxes 1,770 1,770 Commitments and Contingencies Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued 8,336,710 and 8,066,543 83 81 Additional paid-in capital 33,084 30,221 Cumulative translation adjustments 65 - Retained earnings 36,927 30,860 Total shareholders' equity 70,159 61,162 - --------------------------------------------------- ----------------- ----------------- Total $164,320 $128,707 =================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 5 of 15 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Thirty-nine Weeks Ended -------------------------------------- September 26, September 27, (in thousands) 1998 1997 - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Operating Activities: Net income $6,067 $5,544 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 3,762 3,316 Provision for doubtful accounts 485 298 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (2,438) (6,712) Inventories (8,512) 2,451 Prepaids and other current assets (500) 145 Other assets (1,121) (268) Accounts payable 2,564 3,850 Other accrued liabilities 2,883 1,666 - -------------------------------------------------------------- ------------------ ------------------- Cash provided by operating activities 3,190 10,290 - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (4,008) (3,321) Proceeds from sale/leaseback transaction 2,118 - Business acquisitions, net of cash acquired (2,097) - - -------------------------------------------------------------- ------------------ ------------------- Cash used in investing activities (3,987) (3,321) - -------------------------------------------------------------- ------------------ ------------------- Cash Flows from Financing Activities: ACTIVITIES: a Net repayments of revolving credit (18,500) (3,450) Repayments of term loans and capital lease obligations (26,833) (4,513) Proceeds from senior notes 60,000 - Proceeds from common stock issuances 195 279 - -------------------------------------------------------------- ------------------ ------------------- Cash provided by (used in) financing activities 14,862 (7,684) - -------------------------------------------------------------- ------------------ ------------------- Net Increase (Decrease) in Cash and Cash Equivalents 14,065 (715) Cash and Cash Equivalents, Beginning of Period 1,601 923 - -------------------------------------------------------------- ------------------ ------------------- Cash and Cash Equivalents, End of Period $ 15,666 $ 208 ============================================================== ================== =================== Supplemental Cash Flow Information Cash paid for interest expense $2,363 $2,866 Cash paid for income taxes $ 467 $2,265
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 6 of 15 R&B, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 1998 AND SEPTEMBER 27, 1997 (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 thirty-nine week period ended September 26, 1998 are not necessarily indicative of the results that may be expected for the fiscal year ending December 26, 1998. 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 27, 1997. 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: September 26, December 27, (in thousands) 1998 1997 - ------------------- --------------- --------------- Bulk product $27,407 $21,800 Finished product 19,346 12,737 Packaging materials 3,677 3,727 - ------------------- --------------- --------------- Total $50,430 $38,264 =================== =============== =============== 3. Intangible Assets Intangible assets consist of goodwill, patents and a non-compete covenant. Goodwill is amortized over a period of 40 years with patents and the non-compete covenant amortized over the specific life of each asset. At September 26, 1998, goodwill was $30.1 million, patents were $1.1 million and the non-compete covenant was $0.2 million. Amortization of these assets was $1.0 million and $0.8 million in the thirty-nine weeks of 1998 and 1997, respectively. 4. Earnings Per Share The company adopted Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share" in 1997. In conformity with SFAS 128, the Company has included basic and diluted earnings per share on the face of the Statement of Income for each period presented. The difference between basic and diluted average shares outstanding is the dilutive effect of stock options. Page 7 of 15 5. Long-Term Debt In August 1998, the Company completed a private placement with a group of three insurance companies of $60 million in 6.81% Senior Notes due August 21, 2008 (Notes) on an unsecured basis. The ten-year Notes bear a 6.81% fixed rate, payable quarterly, with an initial four-year interest only period. Proceeds from the Notes were used to pay down bank debt, fund the Champ and Allparts (see Note 6) acquisitions and provide working capital. The Notes are subject to certain financial covenants including minimum net worth and maximum debt to capital ratios. Concurrent with closing on the Notes, the Company replaced its existing bank facilities with a new $35 million, unsecured revolving credit agreement from a syndicate of commercial banks including First Union and National City Bank. The revolver has a term of five years and an interest rate equal to Libor plus 75 basis points. 6. Subsequent Event On October 28, 1998, the Company acquired the assets of Allparts, Inc., from JPE, Inc., for approximately $10.1 million in cash. Headquartered in Louisiana, Missouri, Allparts is a leading supplier of automotive hydraulic brake parts to the automotive aftermarket. Allparts has annual sales of approximately $19 million. The Company will account for this acquisition using the purchase method of accounting, which will result in the recording of approximately $1 million in goodwill. Page 8 of 15 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 introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter in the Company's results of operations. Over the periods presented, the Company has increased the percentage of products sold to its major customers, in part due to consolidation within the automotive aftermarket. As a general rule, sales to the Company's major customers are at lower margins than sales to other customers. Page 9 of 15 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.
As a Percentage of Sales --------------------------------------------------------------------- For the Thirteen Weeks Ended For the Thirty-nine Weeks Ended --------------------------------- ----------------------------------- September 26, September 27, September 26, September 27, 1998 1997 1998 1997 - ----------------------- --------------- ---------------- ---------------- ------------------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 59.5 60.4 60.5 60.6 - ----------------------- --------------- ---------------- ---------------- ------------------ Gross profit 40.5 39.6 39.5 39.4 Selling, general and administrative expenses 29.3 28.3 29.5 29.1 - ----------------------- --------------- ---------------- ---------------- ------------------ Income from operations 11.2 11.3 10.0 10.3 Interest expense, net 2.4 2.4 2.4 2.7 - ----------------------- --------------- ---------------- ---------------- ------------------ Income before taxes 8.8 8.9 7.6 7.6 Provision for taxes 3.2 3.2 2.8 2.8 - ----------------------- --------------- ---------------- ---------------- ------------------ Net income 5.6% 5.7% 4.8% 4.8% 5.5 ======================= =============== ================ ================ ==================
Thirteen Weeks Ended September 26, 1998 Compared to Thirteen Weeks Ended September 27, 1997 Net sales increased to $44.5 million for the thirteen weeks ended September 26, 1998 from $40.8 million for the same period in 1997, an increase of 9.0%. The acquisition of Scan-Tech accounted for $3.6 million of this increase and our MPI subsidiary provided a $2.2 million increase partially due to demand created by the GM strike. These increases were offset by a $2.1 million decrease in all other sales primarily resulting from three events: integrating the Champ acquisition, moving inventory between facilities, and the installation of a new computer system. Cost of goods sold for the thirteen weeks ended September 26, 1998 increased to $26.5 million from $24.7 million for the same period in 1997, an increase of 7.3%. As a percent of net sales, cost of goods sold for the thirteen weeks ended September 26, 1998 decreased to 59.5% from 60.4% for the same period in 1997. This decrease was the result of sales mix and reduced product acquisition costs. Selling, general and administrative expenses for the thirteen weeks ended September 26, 1998 increased to $13.1 million from $11.5 million for the thirteen weeks ended September 27, 1997, an increase of 13.3%. As a percent of net sales, selling, general and administrative expenses for the thirteen weeks ended September 26, 1998 increased to 29.3% from 28.3% for the same period in 1997. This increase resulted from the same three factors that negatively impacted net sales, namely, integrating the Champ acquisition, moving inventory between facilities, and the installation of a new computer system. Interest expense, net, remained relatively constant at $1.0 million for the thirteen weeks ended September 26, 1998 and for the same period in 1997. As a percent of net sales, interest expense, net, also remained constant at 2.4% for the thirteen weeks ended September 26, 1998 and for the same period in 1997. A provision for income taxes of $1.4 million was recorded for the thirteen weeks ended September 26, 1998 and $1.3 million was recorded for the thirteen weeks ended September 27, 1997. The Company's effective tax rate increased slightly to 36.4% for the thirteen weeks ended September 26, 1998 from 36.1% for the same period in 1997 reflecting slightly higher effective state tax rates. Page 10 of 15 Net income increased to $2.5 million for the thirteen weeks ended September 26, 1998 from $2.3 million for the thirteen weeks ended September 27, 1997, an increase of 7.4%. As a percentage of net sales, net income decreased to 5.6% for the thirteen week period in 1998 from 5.7% for the same period in 1997. Thirty-nine Weeks Ended September 26, 1998 Compared to Thirty-nine Weeks Ended September 27, 1997 Net sales increased to $125.6 million for the thirty-nine weeks ended September 26, 1998 from $115.1 million for the same period in 1997, an increase of 9.1%. The acquisition of Scan-Tech accounted for $10.0 million of this increase and our MPI subsidiary provided a $3.0 million increase partially due to demand created by the GM strike. These increases were offset by a $2.5 million decrease in all other sales primarily resulting from three events: integrating the Champ acquisition, moving inventory between facilities, and the installation of a new computer system. Cost of goods sold for the thirty-nine weeks ended September 26, 1998 increased to $75.9 million from $69.7 million for the same period in 1997, an increase of 8.9%. As a percent of net sales, cost of goods sold for the thirty-nine weeks ended September 26, 1998 decreased slightly to 60.5% from 60.6% for the same period in 1997. This decrease was the result of sales mix and reduced product acquisition costs. Selling, general and administrative expenses for the thirty-nine weeks ended September 26, 1998 increased to $37.0 million from $33.5 million for the thirty-nine weeks ended September 27, 1997, an increase of 10.5%. As a percent of net sales, selling, general and administrative expenses for the thirty-nine weeks ended September 26, 1998 increased to 29.5% from 29.1% for the same period in 1997. This increase resulted from the same three factors that negatively impacted net sales, namely, integrating the Champ acquisition, moving inventory between facilities, and the installation of a new computer system. Interest expense, net, remained relatively constant at $3.1 million for the thirty-nine weeks ended September 26, 1998 and for the same period in 1997. As a percentage of net sales, interest expense, net, decreased to 2.4% for the thirty-nine week period in 1998 from 2.7% for the same period in 1997. This decrease reflects the relatively constant average debt levels during the periods compared to increased net sales. A provision for income taxes of $3.5 million was recorded for the thirty-nine weeks ended September 26, 1998 and $3.2 million was recorded for the thirty-nine weeks ended September 27, 1997. The Company's effective tax rate remained constant at 36.4% for both periods. Net income increased to $6.1 million for the thirty-nine weeks ended September 26, 1998 from $5.5 million for the thirty-nine weeks ended September 27, 1997, an increase of 9.4%. As a percentage of net sales, net income remained constant at 4.8% for both periods. Liquidity and Capital Resources The Company has financed its growth primarily through cash flow from its operations and borrowings under its credit facility. Working capital was $85.1 million as of September 26, 1998 and $60.5 million as of September 27, 1997. 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 to fund expansion for the foreseeable future. Net cash provided by operating activities was $3.2 million for the thirty-nine weeks ended September 26, 1998 and $10.3 million for the thirty-nine weeks ended September 27, 1997. These amounts represent net income plus depreciation and amortization and changes in working capital. During 1998, the most significant working capital changes were increases in inventories and accounts receivable offset by increases in accounts payable and other accrued liabilities. During 1997, the most significant changes were increases in accounts receivable, accounts payable and other accrued liabilities offset somewhat by a decrease in inventories. Net cash used in investing activities amounted to $4.0 million for the thirty-nine weeks ended September 26, 1998 and $3.3 million for the thirty-nine weeks ended September 27, 1997. In 1998, the additions to property, plant and equipment offset by $2.1 million in proceeds from a sale/leaseback transaction, and the acquisitions of Scan-Tech Page 11 of 15 and Champ accounted for all of the cash used in investing activities. During 1997, the additions to property, plant and equipment accounted for all of the cash used in investing activities. Net cash provided by financing activities amounted to $14.9 million for the thirty-nine weeks ended September 26, 1998 and net cash used in financing activities amounted to $7.7 million for the thirty-nine weeks ended September 27, 1997. During 1998, the proceeds from the senior notes less the repayments of the revolving credit facility, term loans and normal payments under capital lease obligations accounted for substantially all of the funds provided. During 1997, cash was used to paydown a portion of the revolving credit facility and the continued paydown of term loans and capital lease obligations. The Acquisition of Scan-Tech. In January 1998, the Company acquired the assets of Scan-Tech with the payment of cash consideration of $1.0 million and the issuance of the Company's common stock valued at $2.7 million. The Acquisition of Champ. In August 1998, the Company completed the first of four stages of the acquisition of the Service Line Division from Standard Motor Products by acquiring the inventory and selected assets of the Champ Service Line for cash consideration of $1.1 million. The second stage was completed in September 1998, when the inventory of the APS Service Line was taken on consignment requiring no up front cash consideration. 6.81% Senior Notes due 2008. In August 1998, the Company completed a private placement with a group of three insurance companies of $60 million in 6.81% Senior Notes due August 21, 2008 (Notes) 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. Proceeds from the Notes were used to pay down bank debt, fund the Champ and Allparts acquisitions and provide working capital. The Notes are subject to certain financial covenants including minimum net worth and maximum debt to capital ratios. Concurrent with closing on the Notes, the Company replaced its existing bank facilities with a new $35 million, unsecured revolving credit agreement from a syndicate of commercial banks including First Union National Bank and National City Bank. The revolver has a term of five years and an interest rate equal to Libor plus 75 basis points. 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. Capitalized Leases. The Company's leases for its Pennsylvania and Georgia facilities are recorded as capitalized leases in the Company's financial statements. In 1998, the Company financed the purchase of its new computer hardware and software with equipment lease financing arrangements from a financial institution in the amount of $3.6 million. The lease is payable over three years at $110,800 per month including interest imputed at 6.23%. Subsequent Events On October 5, 1998, the Company completed the third stage of the acquisition of the Service Line Division from Standard Motor Products by acquiring the inventory and selected assets of Pik-A-Nut for cash consideration of $1.2 million. The final and smallest stage of this acquisition - the Everco brass fittings - is expected to be completed around January 1, 1999. On October 28, 1998, the Company acquired the assets of Allparts, Inc. from JPE, Inc. for approximately $10.1 million in cash. Headquartered in Louisiana, Missouri, Allparts is a leading supplier of automotive hydraulic brake parts to the automotive aftermarket. Allparts has annual sales of approximately $19 million. The transaction is expected to be non-dilutive. 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. Page 12 of 15 Year 2000 Compliance The efficient operation of the Company's business is dependent in part on its computer software programs and operating systems ("Programs"). The Company has been evaluating its Programs to identify potential Year 2000 compliance problems. This evaluation has led to the selection and implementation of a comprehensive enterprise resource planning package and related programs ("New System") which became operational during the second quarter of 1998. This New System is used in several key areas of the Company's business including inventory purchasing and management, production planning, forecasting, pricing, sales, shipping and financial reporting and replaces the majority of the Company's previous Programs. Those Programs not replaced by the New System are also being evaluated for Year 2000 compliance and appropriate adjustments have been or will be made to bring them into compliance either through modification or replacement. The most significant of these are the Company's Human Resource, Payroll and time keeping systems which are being replaced with a combination of purchased software and third party services and are expected to become operational by the beginning of 1999. Based on present information, the Company believes that it will be able to achieve Year 2000 compliance through a combination of installation of the New System and modification to other Programs, however, no assurance can be given that these efforts will be successful. The investment in capital expenditures to implement the New System was approximately $3.7 million. The Company expects that the expenses associated with the replacement and upgrade to the Human Resource, Payroll and the time keeping systems will be approximately $0.5 million, and that the expenses associated with modification of other Programs will not be material. Further, in the event that any of the Company's significant suppliers or customers do not successfully and timely achieve Year 2000 compliance, the Company's business operations could be adversely affected. 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 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 and those factors discussed in "Business - Investment Considerations" included in the Company's Annual Report on Form 10-K for the year ended December 27, 1997. Page 13 of 15 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 14 of 15 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 November 11, 1998 Richard Berman Richard Berman President Date November 11, 1998 Malcolm Walter Malcolm Walter Chief Financial Officer and Principal Accounting Officer Page 15 of 15 EX-27 2 9/26/98 FINANCIALS
5 1,000 OTHER DEC-26-1998 DEC-28-1997 SEP-26-1998 15,666 0 50,224 (9,758) 50,430 109,926 35,837 (16,329) 164,320 24,835 67,556 0 0 83 70,076 164,320 125,568 125,568 75,912 37,047 0 0 3,063 9,546 3,479 6,067 0 0 0 6,067 0.73 0.72
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