10-Q 1 sec10q302.txt FORM 10-Q - PERIOD ENDING SEPTEMBER 28, 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 September 28, 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 November 8, 2002 the Registrant had 8,495,754 common shares, $.01 par value, outstanding. Page 1 of 16 -------------------------------------------------------------------------------- R & B, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q SEPTEMBER 28, 2002 Page Part I -- FINANCIAL INFORMATION Item 1.Consolidated Financial Statements (unaudited) Statements of Operations: Thirteen Weeks Ended September 28, 2002 and September 29, 2001................................. 3 Thirty-nine Weeks Ended September 28, 2002 and September 29, 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 Item 3.Quantitative and Qualitative Disclosure about Market Risk....................................... 12 Item 4.Controls and Procedures................................. 12 Part II -- OTHER INFORMATION Item 1.Legal Proceedings....................................... 13 Item 6.Exhibits and Reports on Form 8-K........................ 13 Signature...................................................... 14 Certifications................................................. 15 Page 2 of 16 PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Thirteen Weeks Ended ------------------------------ September 28, September 29, (in thousands, except per share data) 2002 2001 -------------------------------------------------------------------------------------------- Net Sales $ 53,889 $ 54,238 Cost of goods sold 34,718 35,767 -------------------------------------------------------------------------------------------- Gross profit 19,171 18,471 Selling, general and administrative expenses 14,209 14,626 -------------------------------------------------------------------------------------------- Income from operations 4,962 3,845 Interest expense, net of interest income of $120 and $93 942 1,063 -------------------------------------------------------------------------------------------- Income before taxes 4,020 2,782 Provision for taxes 1,412 960 -------------------------------------------------------------------------------------------- Net Income $ 2,608 $ 1,822 ============================================================================================ Earnings Per Share: Basic $0.31 $0.21 Diluted 0.29 0.21 ============================================================================================ Average Shares Outstanding: Basic 8,493 8,560 Diluted 8,965 8,757
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 3 of 16 PART I. FINANCIAL INFORMATION R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
For the Thirty-nine Weeks Ended ------------------------------- September 28, September 29, (in thousands, except per share data) 2002 2001 -------------------------------------------------------------------------------------------- Net Sales $ 160,424 $ 152,397 Cost of goods sold 102,498 101,086 -------------------------------------------------------------------------------------------- Gross profit 57,926 51,311 Selling, general and administrative expenses 43,243 43,009 Gain on sale of Specialty Fastener business (2,143) - -------------------------------------------------------------------------------------------- Income from operations 16,826 8,302 Interest expense, net of interest income of $337 and $321 3,078 3,280 -------------------------------------------------------------------------------------------- Income before taxes 13,748 5,022 Provision for taxes 4,878 1,718 -------------------------------------------------------------------------------------------- Net Income $ 8,870 $ 3,304 ============================================================================================ Earnings Per Share: Basic $1.05 $0.39 Diluted 0.99 0.38 ============================================================================================ Average Shares Outstanding: Basic 8,484 8,506 Diluted 8,944 8,592
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 4 of 16 R&B, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 28, December 29, (in thousands, except share data) 2002 2001 --------------------------------------------------- ----------------- ----------------- (unaudited) Assets Current Assets: Cash and cash equivalents $ 4,187 $ 21,689 Short-term investments 11,430 - Accounts receivable, less allowance for doubtful accounts and customer credits of $17,580 and $15,110 49,041 36,700 Inventories 45,083 45,036 Deferred income taxes 7,482 7,469 Prepaids and other current assets 1,647 1,352 --------------------------------------------------- ----------------- ----------------- Total current assets 118,870 112,246 --------------------------------------------------- ----------------- ----------------- Property, Plant and Equipment, net 16,753 18,744 Goodwill 28,476 30,422 Other Assets 1,008 1,751 --------------------------------------------------- ----------------- ----------------- Total $ 165,107 $ 163,163 =================================================== ================= ================= Liabilities and Shareholders' Equity Current Liabilities: Current portion of long-term debt $ 10,204 $ 11,481 Accounts payable 11,107 8,327 Accrued compensation 5,733 6,145 Other accrued liabilities 4,973 5,225 --------------------------------------------------- ----------------- ----------------- Total current liabilities 32,017 31,178 Long-Term Debt 44,218 53,511 Deferred Income Taxes 3,563 3,312 Commitments and Contingencies Shareholders' Equity: Common stock, par value $.01; authorized 25,000,000 shares; issued 8,493,899 and 8,466,482 shares 85 85 Additional paid-in capital 32,697 32,501 Cumulative translation adjustments (481) (1,562) Retained earnings 53,008 44,138 Total shareholders' equity 85,309 75,162 --------------------------------------------------- ----------------- ----------------- Total $ 165,107 $ 163,163 =================================================== ================= =================
The accompanying Notes are an integral part of these Consolidated Financial Statements. Page 5 of 16 R&B, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
For the Thirty-nine Weeks Ended ----------------------------------- September 28, September 29, (in thousands) 2002 2001 ---------------------------------------------------------------- --------------- ------------------- Cash Flows from Operating Activities: Net income $ 8,870 $ 3,304 Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation and amortization 4,362 6,185 Provision for doubtful accounts 459 1,060 Provision for deferred income tax 238 (847) Provision for non-cash stock compensation 136 234 Gain on sale of Specialty Fastener business (1,329) - Changes in assets and liabilities, net of dispositions: Accounts receivable (13,460) (8,249) Inventories (525) 7,082 Prepaids and other 8 1,846 Accounts payable 2,464 (287) Other accrued liabilities (1,648) 1,403 ---------------------------------------------------------------- --------------- ------------------- Cash (used in) provided by operating activities (425) 11,731 ---------------------------------------------------------------- --------------- ------------------- Cash Flows from Investing Activities: Property, plant and equipment additions (2,511) (1,583) Purchases of short-term investments (17,217) - Proceeds from maturities of short-term investments 5,787 - Proceeds from litigation settlement and sale of Specialty Fastener business, net 7,374 - ---------------------------------------------------------------- --------------- ------------------- Cash (used in) investing activities ( 6,567) ( 1,583) ---------------------------------------------------------------- --------------- ------------------- Cash Flows from Financing Activities: ACTIVITIES: a Repayment of term loans and capitalized lease obligations (10,570) ( 1,981) Proceeds from common stock issuances 60 393 ---------------------------------------------------------------- --------------- ------------------- Cash (used in) financing activities (10,510) (1,588) ---------------------------------------------------------------- --------------- ------------------- Net (Decrease) Increase in Cash and Cash Equivalents (17,502) 8,560 Cash and Cash Equivalents, Beginning of Period 21,689 7,553 ---------------------------------------------------------------- --------------- ------------------- Cash and Cash Equivalents, End of Period $ 4,187 $ 16,113 ================================================================ =============== =================== Supplemental Cash Flow Information Cash paid for interest expense $ 3,380 $ 3,636 Cash paid for income taxes $ 4,756 $ 1,335 The accompanying Notes are an integral part of these Consolidated Financial Statements.
Page 6 of 16 R&B, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 2002 AND SEPTEMBER 29, 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 thirty-nine week period ended September 28, 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: September 28, December 29, (in thousands) 2002 2001 ------------------- --------------- --------------- Bulk product $17,825 $17,284 Finished product 24,279 24,290 Packaging materials 2,979 3,462 ------------------- --------------- --------------- Total $45,083 $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 the impairment tests required by SFAS No. 142, which did not result in an impairment charge. Page 7 of 16 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 thirty-nine weeks ended September 28, 2002 and September 29, 2001 (in thousands, except per share data):
Thirteen Weeks Ended Thirty-nine Weeks Ended ------------------------------- -------------------------------- September 28, September 29, September 28, September 29, 2002 2001 2002 2001 ------------------------------------ -------------- ---------------- --------------- ---------------- Net Income: As reported $2,608 $1,822 $8,870 $ 3,304 Amortization expense - goodwill - 265 - 798 ------------------------------------ -------------- ---------------- --------------- ---------------- Adjusted net income $2,608 $2,087 $8,870 $ 4,102 ==================================== ============== ================ =============== ================ Basic earnings per share: As reported $ 0.31 $ 0.21 $ 1.05 $ 0.39 Amortization expense - goodwill - 0.03 - 0.09 ------------------------------------ -------------- ---------------- --------------- ---------------- Adjusted earnings per share - Basic $ 0.31 $ 0.24 $ 1.05 $ 0.48 ==================================== ============== ================ =============== ================ Diluted earnings per share: As reported $ 0.29 $ 0.21 $ 0.99 $ 0.38 Amortization expense - goodwill - 0.03 - 0.10 ------------------------------------ -------------- ---------------- --------------- ---------------- Adjusted earnings per share - Diluted $ 0.29 $ 0.24 $ 0.99 $ 0.48 ==================================== ============== ================ =============== ================
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 (see note 6). Annual net sales of the business were approximately $6.0 million. 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 thirty-nine weeks ended September 28, 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 thirty-nine weeks ended September 28, 2002. 6. Gain on Sale of Specialty Fastener Business and Littigation 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 16 R&B, INC. AND SUBSIDIARIES ITEM 2. 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 Thirty-nine Weeks Ended -------------------------------------------------------------- September September September September 28, 2002 29, 2001 28, 2002 29, 2001 --------------------------------------- -------------- -------------- -------------- ------------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of goods sold 64.4% 65.9% 63.9% 66.3% --------------------------------------- -------------- -------------- -------------- ------------- Gross profit 35.6% 34.1% 36.1% 33.7% Selling, general and administrative expenses 26.4% 27.0% 26.9% 28.3% Gain on sale of Specialty Fastener business - - (1.3%) - --------------------------------------- -------------- -------------- -------------- ------------- Income from operations 9.2% 7.1% 10.5% 5.4% Interest expense, net 1.7% 2.0% 1.9% 2.1% --------------------------------------- -------------- -------------- -------------- ------------- Income before taxes 7.5% 5.1% 8.6% 3.3% Provision for taxes 2.7% 1.7% 3.1% 1.1% --------------------------------------- -------------- -------------- -------------- ------------- Net Income 4.8% 3.4% 5.5% 2.2% ======================================= ============== ============== ============== =============
Page 9 of 16 Thirteen Weeks Ended September 28, 2002 Compared to Thirteen Weeks Ended September 29, 2001 Net sales decreased 0.6% to $53.9 million for the thirteen weeks ended September 28, 2002 from $54.2 million for the same period in 2001. During the second quarter of 2002 the Company sold its Lowes' specialty fastener business which had annual sales of approximately $6.0 million. Net sales during the quarter increased 2.5% after excluding sales associated with the Lowes' business. The third quarter revenue comparison was also negatively impacted by strong sales in the third fiscal quarter of 2001 resulting from several line updates and a high level of new product shipments. Cost of goods sold, as a percentage of sales, declined to 64.4% for the thirteen weeks ended September 28, 2002 from 65.9% in the same period last year. The Company recorded an additional provision for discontinued and excess inventories of $1.5 million in the third quarter of 2001, which increased cost of goods sold. The favorable year over year impact of the additional provision last year was partially offset by a shift in the Company's product mix and higher provisions for customer returns during the third quarter of 2002. Selling, general and administrative expenses for the thirteen weeks ended September 28, 2002 decreased 2.7% to $14.2 million from $14.6 million for the same period in 2001. This decrease resulted from the lower current year sales levels and 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 September 28, 2002 also include $0.2 million of facility relocation and shutdown costs. Interest expense, net, decreased to $0.9 million for the thirteen weeks ended September 28, 2002 from $1.1 million in the prior year due to lowering borrowing levels. In August 2002 the Company made the first of seven annual installment payments of $8.6 million due under the terms of its Senior Note Agreements. The Company's effective tax rate increased slightly to 35.1% for the thirteen weeks ended September 28, 2002 from 34.5% for the thirteen weeks ended September 29, 2001. Thirty-nine Weeks Ended September 28, 2002 Compared to Thirty-nine Weeks Ended September 29, 2001 Net sales increased 5.2% to $160.4 million for the thirty-nine weeks ended September 28, 2002 from $152.4 million for the same period in 2001. During the second quarter of 2002 the Company sold its Lowes' specialty fastener business which had annual sales of approximately $6.0 million. Net sales for the nine months ended September 28, 2002 increased 6.8% after excluding sales associated with the Lowes' business. Sales growth was driven by higher levels of product line updates to existing customers, the introduction of new product lines and continued strong reorder patterns on recently introduced new products. Cost of goods sold, as a percentage of sales, declined to 63.9% for the thirty-nine weeks ended September 28, 2002 from 66.3% in the same period last year. In the third quarter of last year, the Company recorded an additional provision for discontinued and excess inventories of $1.5 million, which increased cost of goods sold. Cost of goods sold in 2002 benefitted from the implementation of several cost saving initiatives. Selling, general and administrative expenses for the thirty-nine weeks ended September 28, 2002 increased 0.4% to $43.2 million from $43.0 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 $1.2 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 thirty-nine weeks ended September 28, 2002 also include $1.0 million of facility relocation and shutdown costs. Interest expense, net, decreased to $3.1 million for the thirty-nine weeks ended September 28, 2002 from $3.3 million in the prior year due to lowering borrowing levels. In August 2002 the Company made the first of seven annual installment payments of $8.6 million due under the terms of its Senior Note Agreements. The Company's effective tax rate increased to 35.5% for the thirty-nine weeks ended September 28, 2002 from 34.2% for the thirty-nine weeks ended September 29, 2001 as the gain on the sale of the Lowes' Specialty Fastener business is subject to a higher overall effective tax rate than the Company's operating profits. Page 10 of 16 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 September 28, 2002 working capital was $86.9 million, total long-term debt (including the current portion) was $54.4 million and shareholders' equity was $85.3 million. Cash and short-term investments as of September 28, 2002 totaled $15.6 million. In August 1998, the Company completed a private placement of $60.0 million in Senior Notes ("Notes") on an unsecured basis. The ten-year Notes bear a 6.81% fixed interest rate, payable quarterly. Annual repayments at the rate of $8.6 million are due each August through 2008. The first scheduled repayment of $8.6 million was made 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 two capital leases relating to computer hardware and software. The aggregate amount outstanding under all capital leases was $1.2 million at September 28, 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 September 28, 2002. The Company reported a net use of cash flow from its operating activities of $0.4 million in the nine months ended September 28, 2002. The primary uses of cash flow were accounts receivable which increased $13.5 million in the period, and accrued liabilities which decreased $1.6 million. The accounts receivable increase was the result of higher sales levels and increases to payment terms for certain customers. The Company expects that its days sales outstanding will continue to be greater than its historic levels due to the changes in payment terms. The Company's five largest customers accounted for 70% and 63% of total accounts receivable as of September 28, 2002 and December 29, 2001, respectively. Management monitors the credit terms and credit limits to these and other customers and believes that the increase in accounts receivable will not result in increased bad debt losses to the Company. 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, non-cash depreciation charges and higher accounts payable levels during the nine months ended September 28, 2002. Investing activities used $6.6 million of cash during the nine months ended September 28, 2002. Earlier in the year, 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 net $11.4 million use of cash during the period. Additions to property, plant and equipment required $2.5 million of cash in the nine months ended September 28, 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 $10.5 million in cash in the nine months ended September 28, 2002. These uses were primary related to scheduled repayments under capital lease and other debt obligations, including the first scheduled repayment of $8.6 million on the Company's Senior Notes made in August 2002. 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. Page 11 of 16 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. 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." Item 3. 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. 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 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. 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 September 28, 2002. Item 4. Controls and Procedures (a) Evaluation of disclosure controls and procedures. The Company's Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-14(c) and 15d-14(c)) as of a date within ninety days before the filing date of this quarterly report (the "Evaluation Date"). Based on that evaluation, the Chief Executive Officers and the Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective, providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis. (b) Changes in internal controls. There were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the Evaluation Date. Page 12 of 16 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 99.1 Certifications Pursuant to 18 U.S.C. Section 1350 (as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002). (b) Reports on Form 8-K None Page 13 of 16 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 , 2002 \s\ Richard Berman ---------------------- ------------------------- Richard Berman President and Chief Executive Officer Date November 11, 2002 \s\ Mathias Barton --------------------- -------------------------- Mathias Barton Chief Financial Officer and Principal Accounting Officer Page 14 of 16 CERTIFICATIONS I, Richard Berman, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of R&B, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 11, 2002 \s\ Richard Berman ---------------------- Richard Berman President and Chief Executive Officer Page 15 of 16 CERTIFICATIONS I, Mathias Barton, Chief Financial Officer and Principal Accounting Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of R&B, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 11, 2002 \s\ Mathias Barton ------------------- Mathias Barton Chief Financial Officer Page 16 of 16