-----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, DK2Gvx1enQV34L9s389UQE0bKRPUE6ki6eCVCaGM0YNvzfdDI4gU59QEV2rCTl0R oymFEQAluMN36JfkgA5zGg== 0000868780-02-000005.txt : 20020808 0000868780-02-000005.hdr.sgml : 20020808 20020808134709 ACCESSION NUMBER: 0000868780-02-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020629 FILED AS OF DATE: 20020808 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: 1226 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-18914 FILM NUMBER: 02722725 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 sec10q202.txt FORM 10-Q PERIOD ENDING JUNE 29, 2002 - -------------------------------------------------------------------------------- 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 June 29, 2002 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------- Commission file number 0-18914 R&B, INC. Incorporated pursuant to the Laws of the Commonwealth of Pennsylvania ------------------- IRS - Employer Identification No. 23-2078856 3400 East Walnut Street, Colmar, Pennsylvania 18915 (215) 997-1800 ------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of August 5, 2002 the Registrant had 8,492,921 common shares, $.01 par value, outstanding. - -------------------------------------------------------------------------------- Page 1 of 14 R & B, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q JUNE 29, 2002 Page Part I -- FINANCIAL INFORMATION Item 1.Consolidated Financial Statements (unaudited) Statements of Operations: Thirteen Weeks Ended June 29, 2002 and June 30, 2001............................ 3 Twenty-six Weeks Ended June 29, 2002 and June 30, 2001............................. 4 Balance Sheets....................................... 5 Statements of Cash Flows............................. 6 Notes to Financial Statements........................ 7 Item 2.Management's Discussion and Analysis of Results of Operations and Financial Condition.............................. 9 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 29, June 30, (in thousands, except per share data) 2002 2001 - -------------------------------------------------------------------------------------------- Net Sales $55,455 $ 52,015 Cost of goods sold 35,106 34,276 - -------------------------------------------------------------------------------------------- Gross profit 20,349 17,739 Selling, general and administrative expenses 14,949 14,698 Gain on sale of Specialty Fastener business (2,143) - - -------------------------------------------------------------------------------------------- Income from operations 7,543 3,041 Interest expense, net of interest income of $103 and $117 1,111 1,089 - -------------------------------------------------------------------------------------------- Income before taxes 6,432 1,952 Provision for taxes 2,317 655 - -------------------------------------------------------------------------------------------- Net Income $ 4,115 $ 1,297 ============================================================================================ Earnings Per Share: Basic $0.48 $0.15 Diluted 0.46 0.15 ============================================================================================ Average Shares Outstanding: Basic 8,485 8,482 Diluted 8,939 8,557
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 ------------------------------ June 29, June 30, (in thousands, except per share data) 2002 2001 - -------------------------------------------------------------------------------------------- Net Sales $106,535 $ 98,159 Cost of goods sold 67,780 65,319 - -------------------------------------------------------------------------------------------- Gross profit 38,755 32,840 Selling, general and administrative expenses 29,034 28,383 Gain on sale of Specialty Fastener business (2,143) - - -------------------------------------------------------------------------------------------- Income from operations 11,864 4,457 Interest expense, net of interest income of $207 and $228 2,136 2,217 - -------------------------------------------------------------------------------------------- Income before taxes 9,728 2,240 Provision for taxes 3,466 758 - -------------------------------------------------------------------------------------------- Net Income $ 6,262 $ 1,482 ============================================================================================ Earnings Per Share: Basic $0.74 $0.17 Diluted 0.70 0.17 ============================================================================================ Average Shares Outstanding: Basic 8,479 8,482 Diluted 8,917 8,563
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 29, December 29, (in thousands, except share data) 2002 2001 - --------------------------------------------------- ----------------- ----------------- Assets (unaudited) Current Assets: Cash and cash equivalents $ 7,678 $ 21,689 Short-term investments 17,143 - Accounts receivable, less allowance for doubtful accounts and customer credits of $14,825 and $15,110 45,801 36,700 Inventories 43,680 45,036 Deferred income taxes 7,797 7,469 Prepaids and other current assets 1,738 1,352 - --------------------------------------------------- ----------------- ----------------- Total current assets 123,837 112,246 - --------------------------------------------------- ----------------- ----------------- Property, Plant and Equipment, net 16,571 18,744 Goodwill 28,500 30,422 Other Assets 1,045 1,751 - --------------------------------------------------- ----------------- ----------------- Total $ 169,953 $ 163,163 =================================================== ================= ================= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 10,475 $ 11,481 Accounts payable 9,230 8,327 Accrued compensation 5,059 6,145 Other accrued liabilities 5,785 5,225 - --------------------------------------------------- ----------------- ----------------- Total current liabilities 30,549 31,178 - --------------------------------------------------- ----------------- ----------------- Long-Term Debt 52,929 53,511 Deferred Income Taxes 3,754 3,312 Commitments and Contingencies Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued 8,492,221and 8,466,482 shares 85 85 Additional paid-in capital 32,675 32,501 Cumulative translation adjustments (439) (1,562) Retained earnings 50,400 44,138 Total shareholders' equity 82,721 75,162 - --------------------------------------------------- ----------------- ----------------- Total $ 169,953 $ 163,163 =================================================== ================= =================
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 29, June 30, (in thousands) 2002 2001 - ---------------------------------------------------------------- --------------- ------------------- Cash Flows from Operating Activities: Net income $ 6,262 $ 1,482 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation and amortization 3,155 4,266 Provision for doubtful accounts 319 309 Provision for deferred income tax 741 (12) Provision for non-cash stock compensation 122 166 Gain on sale of Specialty Fastener business (1,329) - Changes in assets and liabilities, net of dispositions: Accounts receivable (10,025) (4,527) Inventories 920 2,187 Prepaids and other (794) 1,136 Accounts payable 569 1,212 Other accrued liabilities (1,524) 1,592 - ---------------------------------------------------------------- --------------- ------------------- Cash (used in) provided by operating activities (1,584) 7,811 - ---------------------------------------------------------------- --------------- ------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (1,122) (1,239) Purchases of short-term investments (17,143) - Proceeds from litigation settlement and sale of Specialty Fastener business, net 7,374 - - ---------------------------------------------------------------- --------------- ------------------- Cash used in investing activities ( 10,891) ( 1,239) - ---------------------------------------------------------------- --------------- ------------------- Cash Flows from Financing Activities: Repayment of term loans and capitalized lease obligations (1,588) ( 1,453) Proceeds from common stock issuances 52 - - ---------------------------------------------------------------- --------------- ------------------- Cash used in financing activities (1,536) (1,453) - ---------------------------------------------------------------- --------------- ------------------- Net (Decrease) Increase in Cash and Cash Equivalents (14,011) 5,119 Cash and Cash Equivalents, Beginning of Period 21,689 7,553 - ---------------------------------------------------------------- --------------- ------------------- Cash and Cash Equivalents, End of Period $ 7,678 $ 12,672 ================================================================ =============== =================== Supplemental Cash Flow Information Cash paid for interest expense $ 2,272 $ 2,452 Cash paid for income taxes $ 2,656 $ 35 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 29, 2002 AND JUNE 30, 2001 (UNAUDITED) 1. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. However, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the twenty-six week period ended June 29, 2002 are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2002. For further information, refer to the financial statements and footnotes thereto included in R&B, Inc.'s (the "Company") Annual Report on Form 10-K for the year ended December 29, 2001. 2. Short-term Investments Short-term investments consist primarily of corporate and government bonds with maturities of three months to one year from the date of purchase. Short-term investments are classified as held-to-maturity and are recorded at amortized cost. 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 29, December 29, (in thousands) 2002 2001 - ------------------- -------------- -------------- Bulk product $16,937 $17,284 Finished product 23,858 24,290 Packaging materials 2,885 3,462 - ------------------- -------------- -------------- Total $43,680 $45,036 =================== ============== ============== 4. Goodwill - Adoption of SFAS No. 142 Effective December 30, 2001 the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 specifies that goodwill will no longer be amortized but instead will be subject to periodic impairment testing. As a result, effective December 30, 2001, the Company no longer amortizes goodwill. The Company has completed transitional impairment tests required by SFAS No.142, which did not result in an impairment charge. Page 7 of 14 In conformity with SFAS No. 142, the results of prior periods have not been restated. The following is a reconciliation of the Company's net income and earnings per share for the thirteen weeks and twenty-six weeks ended June 29, 2002 and June 30, 2001 (in thousands, except per share data):
Thirteen Weeks Ended Twenty-six Weeks Ended ------------------------------- -------------------------------- June 29, June 30, June 29, June 30, 2002 2001 2002 2001 - ------------------------------------ -------------- ---------------- --------------- ---------------- Net Income: As reported $4,115 $1,297 $6,262 $ 1,482 Amortization expense - goodwill - 264 - 533 - ------------------------------------ -------------- ---------------- --------------- ---------------- Adjusted net income $4,115 $1,561 $6,262 $ 2,015 ==================================== ============== ================ =============== ================ Basic earnings per share: As reported $ 0.48 $ 0.15 $ 0.74 $ 0.17 Amortization expense - goodwill - 0.03 - 0.07 - ------------------------------------ -------------- ---------------- --------------- ---------------- Adjusted earnings per share - Basic $ 0.48 $ 0.18 $ 0.74 $ 0.24 ==================================== ============== ================ =============== ================ Diluted earnings per share: As reported $ 0.46 $ 0.15 $ 0.70 $ 0.17 Amortization expense - goodwill - 0.03 - 0.07 - ------------------------------------ -------------- ---------------- --------------- ---------------- Adjusted earnings per share - Diluted $ 0.46 $ 0.18 $ 0.70 $ 0.24 ==================================== ============== ================ =============== ================
During the second quarter, goodwill was reduced by approximately $2.2 million in connection with the sale of the Company's Specialty Fastener business and the settlement of litigation with The Hillman Companies (see note 6). 5. New Accounting Pronouncements In June, 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company adopted this pronouncement on December 30, 2001, as required. The adoption of SFAS No. 143 did not have a material impact on the consolidated statements of operations for the thirteen or twenty-six weeks ended June 29, 2002. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company adopted this pronouncement on December 30, 2001, as required. The adoption of SFAS No. 144 did not have a material impact on the consolidated statements of operations for the thirteen or twenty-six weeks ended June 29, 2002. 6. Gain on Sale of Specialty Fastener Business and Litigation Settlement On May 1, 2002, the Company entered into agreements with The Hillman Group, Inc., a wholly owned subsidiary of The Hillman Companies, Inc. (formerly SunSource, Inc.) to sell the Company's Lowe's specialty fastener business and to settle litigation initiated by the Company in 1996 related to its purchase of the Dorman business from SunSource. Total proceeds from the sale and settlement, net of transaction costs and estimated purchase price adjustments were approximately $7.4 million. The transactions resulted in an after-tax gain on the sale of the fastener business of $1.3 million, and a reduction in goodwill totaling $2.2 million. Page 8 of 14 R&B, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Over the periods presented, the Company has focused its efforts on providing an expanding array of new product offerings and strengthening its relationships with its customers. To that end, the Company has made significant investments to increase market penetration, primarily in the form of product development, customer service, customer credits and allowances. The Company calculates its net sales by subtracting credits and allowances from gross sales. Credits and allowances include costs for co-operative advertising, product returns, discounts given to customers who purchase new products for inclusion in their stores, and the cost of competitors' products that are purchased from the customer in order to induce a customer to purchase new product lines from the Company. The credits and allowances are designed to increase market penetration and increase the number of product lines carried by customers by displacing competitors' products within customers' stores and promoting consolidation of customers' suppliers. The Company may experience significant fluctuations from quarter to quarter in its results of operations due to the timing of orders placed by the Company's customers. Generally, the second and third quarters have the highest level of shipments, but the introduction of new products and product lines to customers may cause significant fluctuations from quarter to quarter. The Company operates on a fifty-two, fifty-three week period ending on the last Saturday of the calendar year. Sale of Specialty Fastener Business and Litigation Settlement On May 1, 2002, the Company entered into agreements with The Hillman Group, Inc., a wholly owned subsidiary of The Hillman Companies, Inc. (formerly SunSource, Inc.) to sell the Company's Lowe's specialty fastener business and to settle litigation initiated by the Company in 1996 related to its purchase of the Dorman business from SunSource. Total proceeds from the sale and settlement, net of transaction costs and estimated purchase price adjustments, were approximately $7.4 million. The transactions resulted in an after-tax gain on the sale of the fastener business of $1.3 million, and a reduction in goodwill totaling $2.2 million. Annual net sales of the business were approximately $6.0 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 For the Twenty-six Weeks Ended ---------------------------------------------------------- June 29, June 30, June 29, June 30, 2002 2001 2002 2001 - --------------------------------------- -------------- -------------- -------------- ------------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 63.3% 65.9% 63.6% 66.5% - --------------------------------------- -------------- -------------- -------------- ------------- Gross profit 36.7% 34.1% 36.4% 33.5% Selling, general and administrative expenses 27.0% 28.3% 27.3% 29.0% Gain on sale of Specialty Fastener business (3.9%) - (2.0%) - - --------------------------------------- -------------- -------------- -------------- ------------- Income from operations 13.6% 5.8% 11.1% 4.5% Interest expense, net 2.0% 2.0% 2.0% 2.2% - --------------------------------------- -------------- -------------- -------------- ------------- Income before taxes 11.6% . 3.8% 9.1% 2.3% Provision for taxes 4.2% 1.3% 3.2% 0.8% - --------------------------------------- -------------- -------------- -------------- ------------- Net Income 7.4% 2.5% 5.9% 1.5% ======================================= ============== ============== ============== =============
Page 9 of 14 Thirteen Weeks Ended June 29, 2002 Compared to Thirteen Weeks Ended June 30, 2001 Net sales increased 6.6% to $55.5 million for the thirteen weeks ended June 29, 2002 from $52.0 million for the same period in 2001. The sales increase was the result of an increased level of product line updates for existing customers, the introduction of new product lines to current customers, continued strong reorder patterns on recently introduced new products and growth by the Company's Swedish subsidiary. The Company's gross profit percentage increased to 36.7% of net sales for the thirteen weeks ended June 29, 2002 from 34.1% in the same period last year. The improvement is the result of the implementation of numerous cost saving initiatives as well as benefits achieved from spreading fixed overhead costs over a higher sales base in the thirteen weeks ended June 29, 2002. Selling, general and administrative expenses for the thirteen weeks ended June 29, 2002 increased 1.7% to $14.9 million from $14.7 million for the same period in 2001. This increase was the net result of increased promotional and new product spending in 2002 and increased spending associated with higher sales levels, offset by the elimination of goodwill amortization of $0.4 million in fiscal 2002 as a result of the Company's adoption of SFAS No. 142 "Goodwill and Other Intangible Assets" which specifies that goodwill will no longer be amortized. Results for the thirteen weeks ended June 29, 2002 also include $0.4 million of facility relocation and shutdown costs. Interest expense, net, remained unchanged from the prior year at $1.1 million in the thirteen weeks ended June 29, 2002. Cash and short-term investments increased in the current year, but were offset by lower earnings levels on invested amounts due to a decline in interest rates in the current year. The Company's effective tax rate increased to 36.0% for the thirteen weeks ended June 29, 2002 from 33.6% for the thirteen weeks ended June 30, 2001 as the gain on the sale of the Lowe's Specialty Fastener business is subject to a higher overall effective tax rate than the Company's operating profits. Twenty-six Weeks Ended June 29, 2002 Compared to Twenty-six Weeks Ended June 30, 2001 Net sales increased 8.5% to $106.5 million for the twenty-six weeks ended June 29, 2002 from $98.2 million for the same period in 2001. The sales increase was the result of an increased level of product line updates for existing customers, the introduction of new product lines to current customers, continued strong reorder patterns on recently introduced new products and growth by the Company's Swedish subsidiary. The Company's gross profit percentage increased to 36.4% of net sales for the twenty-six weeks ended June 29, 2002 from 33.5% in the same period last year. The improvement is the result of the implementation of several cost saving initiatives as well as benefits achieved from spreading fixed overhead costs over a higher sales base in the twenty-six weeks ended June 29, 2002. Selling, general and administrative expenses for the twenty-six weeks ended June 29, 2002 increased 2.3% to $29.0 million from $28.4 million for the same period in 2001. This increase was the net result of increased promotional and new product spending in 2002, inflationary increases in labor and other operating expenses and increased spending associated with higher sales levels, offset by the elimination of goodwill amortization of $0.8 million in fiscal 2002 as a result of the Company's adoption of SFAS No. 142 "Goodwill and Other Intangible Assets" which specifies that goodwill will no longer be amortized. Results for the twenty-six weeks ended June 29, 2002 also include $0.8 million of facility relocation and shutdown costs. Interest expense, net, decreased to $2.1 million for the twenty-six weeks ended June 29, 2002 from $2.2 million in the prior year due to lowering borrowing levels. The Company's effective tax rate increased to 35.6% for the twenty-six weeks ended June 29, 2002 from 33.8% for the twenty-six weeks ended June 30, 2001 as the gain on the sale of the Lowe's Specialty Fastener business is subject to a higher overall effective tax rate than the Company's operating profits. Page 10 of 14 Liquidity and Capital Resources Historically, the Company has financed its growth through a combination of cash flow from operations and through the issuance of senior indebtedness through its bank credit facility and senior note agreements. During fiscal 2000 and 2001, the Company improved its inventory management and more aggressively managed other components of working capital. These initiatives resulted in increased cash flow from operations. At June 29, 2002 working capital was $93.3 million, total long-term debt (including the current portion) was $63.4 million and shareholders' equity was $82.7 million. Cash and short-term investments as of June 29, 2002 totaled $24.8 million. In August 1998, the Company completed a private placement of $60.0 million in Senior Notes ("Notes") due August 21, 2008 on an unsecured basis. The ten-year Notes bear a 6.81% fixed interest rate, payable quarterly, with an initial four-year interest only period. Annual repayments at the rate of $8.6 million are due beginning in August 2002. In March 2001, the Company amended its Revolving Credit Facility. The amended agreement provides for a $10.0 million facility for a three-year term that expires in March 2004. Borrowings under the amended facility are on an unsecured basis with interest at rates ranging from Libor plus 150 to Libor plus 275 basis points. The loan agreement also contains covenants, the most restrictive of which pertain to net worth and the ratio of debt to EBITDA. There were no borrowings under the amended credit facility in 2002. The Company's lease for its Pennsylvania facility is recorded as a capitalized lease in the Company's financial statements. In addition, the Company has entered into three sale/leaseback transactions relating to computer hardware and software. The aggregate amount outstanding under all capital leases amounted to $1.6 million at June 29, 2002. The Company amended certain agreements related to its 1998 acquisition of Scan-Tech USA/Sweden A.B. and related entities ("Scan-Tech") during 2001. As a result of this transaction, the Company purchased and canceled 250,000 shares of its common stock issued in connection with the acquisition and canceled the earn out provisions of the acquisition agreement in exchange for consideration of $3.2 million to be paid by the Company in installments through December 2005. The aggregate amount outstanding under this obligation amounted to $1.8 million at June 29, 2002. The Company reported a net use of cash flow from its operating activities of $1.6 million in the six months ended June 29, 2002. The primary uses of cash flow were accounts receivable which increased $10.0 million in the period, and accrued liabilities which decreased $1.5 million. The accounts receivable increase was the result of higher sales levels and increases to payment terms for certain customers. The reduction in accrued liabilities was primarily related to the Company's funding of employee profit sharing and incentive payments earned in the prior year but paid in early 2002. Operating cash flow was generated primarily by net income and non-cash depreciation charges during the six months ended June 29, 2002. Investing activities used $10.9 million of cash during the six months ended June 29, 2002. During the second quarter, the Company began to purchase highly liquid corporate and government bonds with maturities from three months to one year to take advantage of higher earnings rates on these investments. These investments have been classified as short-term investments as required by generally accepted accounting principles. As a result of this decision, the Company reported a $17.1 million use of cash during the period. Additions to property, plant and equipment required $1.1 million of cash in the six months ended June 29, 2002. Capital expenditures included upgrades to information systems, purchases of equipment designed to improve operational efficiencies and scheduled equipment replacements. Investing activities also include $7.4 million in net proceeds from the sale of a product line and litigation settlement during the second quarter. Financing activities required $1.5 million in cash in the six months ended June 29, 2002. These uses were primary related to scheduled repayments under capital lease and other debt obligations. The Company believes that cash on hand, cash generated from operations together with available sources of capital are sufficient to meet ongoing cash needs for the foreseeable future. Foreign Currency Fluctuations. Approximately 39% of the Company's products were purchased from a variety of foreign countries. The products generally are purchased through purchase orders with the purchase price specified in U.S. dollars. Accordingly, the Company does not have exposure to fluctuation in the relationship between the dollar and various foreign currencies between the time of execution of the purchase order and payment for the product. However, to the extent that the dollar decreases in value to foreign currencies in the future, the price of the product in dollars for new purchase orders may increase. 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 of the Company and certain statements contained herein including statements in Management's Discussion and Analysis of Financial Condition and Results of Operations, such as statements regarding litigation, and certain other statements contained herein regarding matters that are not historical fact are forward looking statements (as such term is defined in the Securities Act of 1933), and because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking statements. Factors that cause actual results to differ materially include but are not limited to those factors discussed in the Company's Annual Report on Form 10-K under "Business - Investment Considerations." Quantitative and Qualitative Disclosure about Market Risk The Company's market risk is the potential loss arising from adverse changes in interest rates. With the exception of the Company's revolving credit facility, long-term debt obligations are at fixed interest rates and denominated in U.S. dollars. The Company manages its interest rate risk by monitoring trends in interest rates as a basis for determining whether to enter into fixed rate or variable rate agreements. Short-term fixed income investments are subject to interest rate risk. The portfolio consists solely of investment grade corporate and government securities to minimize credit risk. Under the terms of the Company's revolving credit facility, a change in LIBOR market interest rates would affect the rate at which the Company could borrow funds thereafter. The Company believes that the effect of any such change would be minimal. The Company uses derivative financial instruments, consisting of foreign currency forward purchase and sales contracts with terms of less than one year, to hedge its exposure to changes in foreign currency exchange. Its primary exposure to changes in foreign currency rates results from changes in exchange rates on certain third-party trade receivables and payables of the Company's Swedish subsidiary. There were no forward purchase or sales contracts outstanding as of June 29, 2002. 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 No. Description 10.1.3 Amendment No. 2 to the Agreement of Lease (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K dated June 20, 2002, under Item 4 Changes in Registrant's Certifying Accountant. 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 8 , 2002 \s\ Richard Berman ------------------- ------------------------- Richard Berman President Date August 8, 2002 \s\ Mathias Barton ------------------ -------------------------- Mathias Barton Chief Financial Officer and Principal Accounting Officer Page 14 of 14 EX-10 3 secex1013.txt AMEND 2 AGREEMENT OF LEASE AMENDMENT NO. 2 TO THE AGREEMENT OF LEASE This Amendment No. 2 to the Agreement of Lease ("Amendment No. 2") is dated as of April 1, 2002, by and between R&B, Inc., a Pennsylvania corporation ("Tenant") and BREP I, a Pennsylvania limited partnership ("Landlord"), successor in interest to the Berman Real Estate Partnership by Assignment of Lease dated February 27, 1997. WHEREAS, the Landlord and Tenant are parties to an Agreement of Lease dated December 1, 1990 for the premises located at 3400 East Walnut Street, Colmar, Pennsylvania 18915, more particularly described therein (the "Premises") which was subsequently amended on September 10, 1993; and WHEREAS, the Landlord and Tenant have agreed to make certain modifications to the Agreement of Lease for good and valuable consideration. NOW, THEREFORE, in consideration of the mutual agreements herein contained, the parties hereto, intending to be legally bound, hereby agree that the Agreement of Lease shall be amended as follows, effective on the date first above written: 1. Term: Section 2 of the Agreement of Lease is amended to extend the term of the lease to December 28, 2007. 2. Security Deposit: Upon the execution of this Amendment No. 2 to the Agreement of Lease, Tenant shall deposit with Landlord a security deposit in the amount of Ninety-Seven Thousand, Six Hundred and Six Dollars ($97,606) (the "Security Deposit"). The Security Deposit is made by Tenant to secure the faithful performance of all the terms, covenants and conditions of this Lease to be performed by Tenant. If Tenant shall default with respect to any covenant or provision hereof, Landlord may use, apply or retain all or any portion of the Security Deposit to cure such default or to compensate Landlord for any loss or damage which Landlord may suffer thereby. If Landlord so uses or applies all or any portion of the Security Deposit, Tenant shall immediately upon written demand deposit cash with Landlord in an amount sufficient to restore the Security Deposit to the full amount hereinabove stated. Landlord shall not be required to keep the Security Deposit separate from its general accounts and Tenant shall not be entitled to interest on the Security Deposit. Within thirty (30) days after the expiration of the Lease Term and the vacation of the Premises by Tenant, the Security Deposit, or such part as has not been applied to cure the default, shall be returned to Tenant. 3. Capitalized Terms. All capitalized terms used in this Amendment No. 2, unless otherwise defined herein, shall have the meanings ascribed thereto in the Agreement of Lease. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first written above. BREP I (Landlord): R&B, Inc. (Tenant): By: \s\ Jordan Berman By: \s\ Barry Myers ------------------------- ------------------------ Jordan Berman, President Barry Myers, Asst. Secretary BREP, Inc., General Partner of R&B, Inc. BREP I -----END PRIVACY-ENHANCED MESSAGE-----