UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________
Commission File number 333-66221
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R.A.B. HOLDINGS, INC. R.A.B. ENTERPRISES, INC.
- ---------------------------------- ------------------------------------
(Exact name of registrant as (Exact name of registrant as
specified in its charter) specified in its charter)
DELAWARE DELAWARE
- ---------------------------------- ------------------------------------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
13-3893246 13-3988873
- ------------------------------------- -------------------------------------
(I.R.S. Employer identification No.) (I.R.S. Employer identification No.)
444 Madison Avenue, New York, New York 10022
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 688-4500
N/A
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(Former name, former address and former fiscal year, if changed since last
report)
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
----- -----
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act) Yes No X
----- -----
The registrant's common stock is not publicly held or publicly traded.
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
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R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
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TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 2003 (Unaudited)
and March 31, 2003 1
Condensed Consolidated Statements of Operations - Three months ended
September 30, 2003 and 2002 (Unaudited) 2
Condensed Consolidated Statements of Operations - Six months ended
September 30, 2003 and 2002 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows - Six months ended
September 30, 2003 and 2002 (Unaudited) 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except for share and per share data)
- ------------------------------------------------------------------------------------------------------------------------
September 30, 2003 March 31, 2003
------------------------- ------------------------
Holdings Enterprises Holdings Enterprises
------------ ----------- ----------- -----------
ASSETS (Unaudited)
Current assets:
Cash $ 2,200 $ 2,180 $ 6,452 $ 6,444
Accounts receivable, net 26,845 26,845 38,352 38,352
Inventories 60,026 60,026 50,960 50,960
Other current assets 5,136 11,205 6,653 12,205
--------- --------- --------- ---------
Total current assets 94,207 100,256 102,417 107,961
--------- --------- --------- ---------
Other assets 4,582 3,195 4,453 3,318
Property, plant and equipment, net 23,674 23,674 25,285 25,285
Goodwill 50,010 50,010 50,010 50,010
Intangibles, net 39,962 39,962 39,962 39,962
--------- --------- --------- ---------
Total assets $ 212,435 $ 217,097 $ 222,127 $ 226,536
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 34,113 $ 34,113 $ 34,347 $ 34,347
Other current liabilities 22,747 23,252 22,288 22,944
--------- --------- --------- ---------
Total current liabilities 56,860 57,365 56,635 57,291
--------- --------- --------- ---------
Noncurrent liabilities:
Long-term debt 163,962 138,075 165,327 140,340
Deferred income taxes 11,162 11,162 10,662 10,662
Other liabilities 17,089 17,089 17,874 17,874
--------- --------- --------- ---------
Total noncurrent liabilities 192,213 166,326 193,863 168,876
--------- --------- --------- ---------
Stockholders' (deficit) equity:
Preferred stock, $500 par value, 100,000 shares authorized,
24,875 shares of Series A issued and outstanding 12,344 -- 12,344 --
1,000 shares of Series B issued and outstanding 500 -- 500 --
Common stock, $.01 and $1.00 par value, 1,000,000 shares
and 200 shares authorized, issued 105,100 shares and
200 shares 1 -- 1 --
Notes receivable from stock sales (94) -- (92) --
Additional paid-in capital 2,622 39,482 2,622 39,482
Retained earnings (deficit) (47,838) (41,908) (39,564) (34,936)
Accumulated other comprehensive loss (4,168) (4,168) (4,177) (4,177)
--------- --------- --------- ---------
(36,633) (6,594) (28,366) 369
Less common stock in treasury - 4,600 shares 5 -- 5 --
--------- --------- --------- ---------
Total stockholders' (deficit) equity (36,638) (6,594) (28,371) 369
--------- --------- --------- ---------
Total liabilities and stockholders' (deficit) equity $ 212,435 $ 217,097 $ 222,127 $ 226,536
========= ========= ========= =========
See notes to Condensed Consolidated Financial Statements
-1-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
- --------------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 2003 September 30, 2002
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
---------- ----------- ---------- -----------
(Unaudited) (Unaudited)
Revenues $ 116,312 $ 116,312 $ 119,304 $ 119,304
Costs and expenses:
Cost of sales 89,276 89,276 93,083 93,083
Selling 9,682 9,682 10,077 10,077
Distribution and warehousing 10,732 10,732 11,386 11,386
General and administrative 6,891 6,843 6,052 6,039
--------- --------- --------- ---------
Total costs and expenses 116,581 116,533 120,598 120,585
--------- --------- --------- ---------
Operating loss (269) (221) (1,294) (1,281)
Interest expense, net 3,892 3,324 4,264 3,720
--------- --------- --------- ---------
Loss before provision for income taxes (4,161) (3,545) (5,558) (5,001)
Provision for income taxes 288 250 -- --
--------- --------- --------- ---------
Net loss $ (4,449) $ (3,795) $ (5,558) $ (5,001)
========= ========= ========= =========
See notes to Condensed Consolidated Financial Statements
-2-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
- -------------------------------------------------------------------------------
Six Months Ended Six Months Ended
September 30, 2003 September 30, 2002
------------------------- ------------------------
Holdings Enterprises Holdings Enterprises
---------- ----------- ---------- -----------
(Unaudited) (Unaudited)
Revenues $ 231,218 $ 231,218 $ 250,526 $ 250,526
Costs and expenses:
Cost of sales 177,407 177,407 195,407 195,407
Selling 19,322 19,322 20,135 20,135
Distribution and warehousing 21,233 21,233 23,085 23,085
General and administrative 13,108 13,011 12,573 12,553
Amortization of intangibles -- -- 43 43
Debt modification costs -- -- 500 --
--------- --------- --------- ---------
Total costs and expenses 231,070 230,973 251,743 251,223
--------- --------- --------- ---------
Operating income (loss) 148 245 (1,217) (697)
Interest expense, net 7,846 6,717 8,436 7,260
--------- --------- --------- ---------
Loss before provision for income taxes (7,698) (6,472) (9,653) (7,957)
Provision for income taxes 576 500 4,098 3,631
--------- --------- --------- ---------
Loss before cumulative effect of change in
accounting principle (8,274) (6,972) (13,751) (11,588)
Cumulative effect of change in accounting principle -- -- (24,230) (24,230)
--------- --------- --------- ---------
Net loss $ (8,274) $ (6,972) $ (37,981) $ (35,818)
========= ========= ========= =========
See notes to Condensed Consolidated Financial Statements
-3-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
Six Months Ended Six Months Ended
September 30, 2003 September 30, 2002
----------------------------- ----------------------------
Holdings Enterprises Holdings Enterprises
----------- ------------ ---------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (8,274) $ (6,972) $(37,981) $(35,818)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 2,787 2,564 3,145 2,958
Modification of debt -- -- 500 --
Cumulative effect of change in accounting principle -- -- 24,230 24,230
Deferred income taxes 500 500 4,098 3,631
Changes in assets and liabilities:
Accounts receivable 11,507 11,507 10,767 10,767
Inventories (9,066) (9,066) (2,891) (2,891)
Accounts payable (234) (234) (2,888) (2,888)
Other assets and liabilities 1,164 73 (380) (1,906)
-------- -------- -------- --------
Net cash used in operating activities (1,616) (1,628) (1,400) (1,917)
-------- -------- -------- --------
Cash flows from investing activities:
Purchase of equipment (371) (371) (323) (323)
-------- -------- -------- --------
Cash flows from financing activities:
Payment of debt modification costs -- -- (557) --
Repayments (borrowings) under Credit Agreement (2,265) (2,265) 48 48
Proceeds from repurchase of common stock -- -- (12) --
-------- -------- -------- --------
Net cash (used in) provided by financing activities (2,265) (2,265) (521) 48
-------- -------- -------- --------
Net decrease in cash (4,252) (4,264) (2,244) (2,192)
Cash, beginning of period 6,452 6,444 4,526 4,456
-------- -------- -------- --------
Cash, end of period $ 2,200 $ 2,180 $ 2,282 $ 2,264
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,120 $ 5,990 $ 6,566 $ 6,435
Income taxes $ 126 $ 125 $ 28 $ 28
Non-cash financing activities:
Additional indebtedness due to deferred interest
payment on 6% Senior Notes $ 757 $ -- $ 1,495 $ --
See notes to Condensed Consolidated Financial Statements
-4-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
- --------------------------------------------------------------------------------
NOTE A - Basis of Presentation
The condensed consolidated financial statements include the accounts of R.A.B.
Holdings, Inc. ("Holdings") and its wholly-owned subsidiary, R.A.B. Enterprises,
Inc. ("Enterprises") and its wholly-owned subsidiaries (collectively, the
"Company"). Holdings is a holding company with no substantial assets or
operations other than its investment in Enterprises. Enterprises is a holding
company with no substantial assets or operations other than its investments in
Millbrook Distribution Services Inc. ("Millbrook") and The B. Manischewitz
Company, LLC ("Manischewitz").
Millbrook is one of the nation's largest, independent value-added distributors
of specialty foods, health and beauty care products and general merchandise.
Manischewitz manufactures (i) processed kosher and other ethnic foods including,
among others, matzos, cake mixes, cookies, soups, noodles and processed fish
products under its Manischewitz(R) brand; (ii) canned fish, vegetables and other
specialty food products under its Season(R) brand; and (iii) organic baked
tortilla chips, bean dips, salsas and other specialty food products under its
Guiltless Gourmet(R) brand.
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements contained in the Company's
Form 10-K for the year ended March 31, 2003 filed with the Securities and
Exchange Commission. The information related to March 31, 2003 contained herein
has been derived from the Company's audited consolidated financial statements.
Certain reclassifications have been made in the prior year financial statements
to conform with the current year presentation.
All significant intercompany transactions and balances are eliminated in
consolidation. The results of operations for any interim period are not
necessarily indicative of the results to be expected for the full fiscal year.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting only of recurring
adjustments) necessary to present fairly the financial position of the Company
as of September 30, 2003, and the results of operations and cash flows for the
periods ended September 30, 2003 and 2002.
NOTE B - Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the
last-in, first-out ("LIFO") method. Inventories consisted of the following (in
thousands):
September 30, March 31,
2003 2003
------------ ----------
Raw materials $ 1,768 $ 1,849
Finished goods 58,258 49,111
-------- --------
$ 60,026 $ 50,960
======== ========
-5-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE C - Intangibles
Effective April 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142 "Goodwill and Other Intangible Assets". Under this
standard, goodwill and intangibles with indefinite useful lives, including
trademarks and tradenames are no longer systematically amortized. Instead, they
are reviewed for impairment and written down and charged to results of
operations when their carrying amount exceeds their estimated fair values.
Amortization expense for the six month period ended September 30, 2002 was
approximately $43,000 representing the amortization of the remaining net book
value of identified intangibles (accumulated amortization was $2,038,000 at
September 30, 2002) still required to be amortized under SFAS No. 142.
With the assistance of an independent professional appraisal firm, the Company
performed impairment tests on the excess of cost over net assets acquired
("goodwill") and intangibles. The previous method for determining impairment
prescribed by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," utilized an undiscounted cash flow
approach for the impairment assessment, while SFAS No. 142 utilizes a fair value
approach. The Company has two reporting units (Millbrook and Manischewitz) with
goodwill and intangibles, which also represent the Company's reporting segments.
Goodwill and intangibles were reviewed for impairment at the level of each
reporting unit. This review indicated that the goodwill recorded at the
Company's Manischewitz subsidiary was impaired as the carrying value of the
subsidiary was in excess of its estimated fair value. In determining the amount
of the goodwill writedown, SFAS No. 142 requires an allocation of the estimated
fair value to Manischewitz' net assets. This allocation resulted in a
significant increase in the value of the subsidiary's trademarks and tradenames,
which under the provisions of SFAS No. 142 may not be written up from their
historical carrying value. Since the allocation process utilizes the increased
value of the trademarks and tradenames in arriving at the remaining amount of
goodwill to be compared to the historical carrying value of goodwill, the amount
of the goodwill writedown is increased. As a result, the Company recorded a
$24.2 million non-cash charge as a cumulative effect of a change in accounting
principle for the writedown of goodwill to its estimated fair value during the
six month period ended September 30, 2002. The goodwill writedown was not
deductible for income taxes and, as a result, no income tax benefit was recorded
in relation to the charge.
The cumulative impact of adopting this change in accounting principle is
reflected in the accompanying statement of operations, but does not affect the
Company's operations and has no impact on its cash flows. The provisions of SFAS
No. 142 require an annual assessment of goodwill and intangibles to determine
any possible future impairment. The Company elected to perform this annual
assessment as of March 31 of each year. As of March 31, 2003, the Company's
annual assessment of each reporting unit indicated that goodwill and intangibles
were not impaired.
-6-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE C - Intangibles (Continued)
The effect of adopting the new standard on the net loss for the six month
periods ended September 30, 2003 and 2002 is as follows (in thousands):
2003 2002
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
Net Loss $ (8,274) $ (6,972) $(37,981) $(35,818)
Less: cumulative effect of change in
accounting principle -- -- 24,230 24,230
-------- -------- -------- --------
Net Loss, excluding cumulative effect of
change in accounting principle (8,274) (6,972) (13,751) (11,588)
Add: valuation allowances recorded as a
result of SFAS No. 142 3,016 2,617 7,899 6,843
-------- -------- -------- --------
Net Loss, excluding cumulative effect of
change in accounting principle and
valuation allowances $ (5,258) $ (4,355) $ (5,852) $ (4,745)
======== ======== ======== ========
NOTE D - Related Party Transactions
For each of the six month periods ended September 30, 2003 and 2002, the Company
paid $1,042,000 and $1,020,000, respectively to P&E Properties, Inc., an
affiliated entity of which the Company's Chairman and Chief Executive Officer is
the sole shareholder, for management fees, services provided and expenses
incurred on the Company's behalf.
NOTE E - Income Taxes
The provision for income taxes for the six month periods ended September 30,
2003 and 2002 consisted of the following (in thousands):
2003 2002
-------------------------- ---------------------------
Holdings Enterprises Holdings Enterprises
----------- ----------- ----------- ------------
Income Tax Benefit $(2,440) $(2,117) $(3,801) $(3,212)
Valuation Allowances recorded as a
result of SFAS No. 142:
- -------------------------------
Valuation Allowance related to continuing
operations for the six months ended
September 30, 2003 and 2002 3,016 2,617 3,801 3,212
Additional Valuation Allowance resulting
from deferred tax assets in excess
of deferred tax liabilities, excluding
identified intangibles -- -- 4,098 3,631
------- ------- ------- -------
Provision for Income Taxes $ 576 $ 500 $ 4,098 $ 3,631
======= ======= ======= =======
-7-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE E - Income Taxes (Continued)
SFAS No. 109, "Accounting for Income Taxes", requires that deferred tax assets
be reduced by a valuation allowance, if based on available evidence it is more
likely than not that the deferred tax assets will not be realized. Under
generally accepted accounting principles, available evidence includes the
reversal of existing taxable temporary differences. As of March 31, 2003,
Holdings and Enterprises had net deferred tax liabilities before the impact of
SFAS No. 142 of approximately $2.9 million and $4.3 million, respectively; each
including a deferred tax liability for taxable temporary differences resulting
from different amortization periods for identified intangibles of approximately
$10.7 million.
With the adoption of SFAS No. 142 in the first quarter of fiscal 2003, the
Company can no longer amortize tax deductible goodwill and indefinite-lived
intangible assets for financial reporting purposes. Therefore, the deferred tax
liability related to the taxable temporary differences resulting from different
amortization periods for identified intangibles will not reverse unless the
underlying assets are sold or an impairment is recognized for tax purposes.
Without this deferred tax liability, Holdings and Enterprises would have had net
deferred tax assets of approximately $7.8 million and $6.4 million,
respectively, as of March 31, 2003.
Historically, the Company did not need a valuation allowance (with the exception
of Holdings' state tax loss carryforwards) for the portion of the tax effect of
net operating losses equal to the amount of tax-deductible amortization of
identified intangibles expected to occur during the carryforward period of the
net operating losses based upon the timing of the reversal of other temporary
differences. As a result of the adoption of SFAS No. 142, the reversal will
probably not occur during the carryforward period of the net operating losses.
For the six month periods ended September 30, 2003 and 2002, Holdings and
Enterprises recorded non-cash deferred income tax expense of approximately $3.0
million and $2.6 million and approximately $7.9 million and $6.8 million,
respectively, which would not have been required prior to SFAS No. 142.
NOTE F - Comprehensive Loss
For the three and six month periods ended September 30, 2003, the comprehensive
loss was ($4,449,000) and ($8,265,000) for Holdings and ($3,795,000) and
($6,963,000) for Enterprises as compared to ($5,563,000) and ($37,983,000) for
Holdings and ($5,006,000) and ($35,820,000) for Enterprises for the three and
six month periods ended September 30, 2002.
-8-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE G - Segment Reporting
The following information is presented in accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", which
established standards for reporting information about operating segments in the
Company's interim financial statements.
For the three month periods ended September 30, 2003 2002
- ----------------------------------------------- ------------------------- ------------------------
(in thousands) Holdings Enterprises Holdings Enterprises
----------- ----------- ---------- -----------
Revenues
Millbrook .............................................. $ 108,873 $ 108,873 $ 110,859 $ 110,859
Manischewitz ........................................... 8,746 8,746 10,184 10,184
--------- --------- --------- ---------
Total segment revenues .............................. 117,619 117,619 121,043 121,043
Corporate items, principally the elimination
of intercompany sales ............................... (1,307) (1,307) (1,739) (1,739)
--------- --------- --------- ---------
$ 116,312 $ 116,312 $ 119,304 $ 119,304
========= ========= ========= =========
Operating income (loss)
Millbrook .............................................. $ 1,872 $ 1,872 $ 473 $ 473
Manischewitz ........................................... (76) (76) (222) (222)
--------- --------- --------- ---------
Total segment operating income ...................... 1,796 1,796 251 251
Corporate items and eliminations ....................... (2,065) (2,017) (1,545) (1,532)
--------- --------- --------- ---------
$ (269) $ (221) $ (1,294) $ (1,281)
========= ========= ========= =========
For the six month periods ended September 30, 2003 2002
- --------------------------------------------- ----------------------- -----------------------
(in thousands) Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
Revenues
Millbrook .............................................. $ 217,614 $ 217,614 $ 235,648 $ 235,648
Manischewitz ........................................... 16,585 16,585 17,757 17,757
--------- --------- --------- ---------
Total segment revenues .............................. 234,199 234,199 253,405 253,405
Corporate items, principally the elimination
of intercompany sales ............................... (2,981) (2,981) (2,879) (2,879)
--------- --------- --------- ---------
$ 231,218 $ 231,218 $ 250,526 $ 250,526
========= ========= ========= =========
Operating income (loss)
Millbrook .............................................. $ 3,779 $ 3,779 $ 2,625 $ 2,625
Manischewitz ........................................... 251 251 57 57
--------- --------- --------- ---------
Total segment operating income ...................... 4,030 4,030 2,682 2,682
Corporate items and eliminations ....................... (3,882) (3,785) (3,899) (3,379)
--------- --------- --------- ---------
$ 148 $ 245 $ (1,217) $ (697)
========= ========= ========= =========
As of September 30,
- -------------------
Identifiable assets
Millbrook .............................................. $ 87,108 $ 87,108 $ 95,139 $ 95,139
Manischewitz ........................................... 33,785 33,785 34,771 34,771
--------- --------- --------- ---------
Total segment assets ................................ 120,893 120,893 129,910 129,910
Corporate items, principally intangibles
not allocated to segments ........................... 91,542 96,204 92,861 96,635
--------- --------- --------- ---------
$ 212,435 $ 217,097 $ 222,771 $ 226,545
========= ========= ========= =========
-9-
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE H - Debt Modification Costs
Effective May 1, 2002, Holdings amended the indenture underlying 92% ($23.0
million) of its 13% Notes outstanding. The amendment (i) reduced the interest
rate to 6% per annum, (ii) extended their maturity date from May 1, 2008 to May
1, 2010 and (iii) increased the aggregate outstanding principal by approximately
$1.5 million, representing the deferral of the May 2002 interest payment.
Holders of these Notes received warrants granting them the right to purchase up
to approximately 5% of Holdings' common stock. The Company, at its option, may
defer the payment of cash interest on the 6% Notes for ten semi-annual interest
payment dates through May 1, 2007. The changes contained in the amendment
constitute a material modification of the indenture requiring the historical
deferred debt issuance costs to be written off. Accordingly, debt issuance costs
of $0.5 million were written off and reported as a component of operating income
in the accompanying statement of operations during the six month period ended
September 30, 2002. The income tax benefit of $0.2 million related to the debt
issuance costs was offset by a valuation allowance required by the adoption of
SFAS No. 142, as described in Note E - Income Taxes. On November 1, 2002 and May
1, 2003, the Company elected to defer the cash payment of interest on its 6%
Notes.
NOTE I - New Accounting Pronouncements
SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" was issued in April 2002 and is
effective for fiscal years beginning after May 15, 2002. SFAS No. 145 eliminates
the requirement to classify gains and losses from the extinguishment of debt as
extraordinary, requires certain lease modifications to be treated the same as a
sale-leaseback transaction and makes other non-substantive technical corrections
to existing pronouncements. Effective April 1, 2003, the Company adopted SFAS
No. 145. As a result, the Company reclassified $500,000 of debt modification
costs to operating expense in its condensed consolidated statement of operations
for the six months ended September 30, 2002.
SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" was issued in April 2003 and is effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
that date. SFAS No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities under SFAS No. 133. The adoption of SFAS No.
149 will not have any impact on our financial position or overall trends in
results of operations.
SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" was issued in May 2003 and is effective for
instruments entered into or modified after May 15, 2003. SFAS No. 150 requires
that certain financial instruments including mandatorily redeemable instruments
and forward purchase contracts be reported as liabilities by their issuers. The
adoption of SFAS No. 150 did not have any impact on our financial position or
overall trends in results of operations.
NOTE J - Subsequent Events
On October 29, 2003, Enterprises entered into an arrangement with certain
holders of its 10.5% Notes to make the November 1, 2003 interest payment in the
form of additional Notes in lieu of cash. The arrangement provided that each
participating holder would receive $1,000 in principal amount of 10.5% Notes for
each $500 of interest due. Residual amounts of interest less than $500 would be
paid in cash. Holders of approximately 69% of the outstanding 10.5% Notes
participated in the arrangement. As a result, the Company issued to holders
approximately $5.8 million in principal amount of 10.5% Notes in lieu of
approximately $2.9 million in cash interest. The remaining holders received
their interest payment in cash. In addition, on November 1, 2003, Holdings
elected to defer the cash payment of interest on its 6% Notes.
-10-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Revenues. Revenues for the three month period ended September 30, 2003 decreased
$3.0 million or 2.5% to $116.3 million as compared to $119.3 million for the
three month period ended September 30, 2002. Revenues for the six month period
ended September 30, 2003 decreased $19.3 million or 7.7% to $231.2 million as
compared to $250.5 million for the six month period ended September 30, 2002.
Revenues include:
(i) Millbrook's revenues of $108.9 million and $217.6 million for
the three and six month periods ended September 30, 2003 as
compared to $110.9 million and $235.6 million for the three
and six month periods ended September 30, 2002;
(ii) Manischewitz' revenues of $8.8 million and $16.6 million for
the three and six month periods ended September 30, 2003 as
compared to $10.2 million and $17.8 million for the three and
six month periods ended September 30, 2002; and
(iii) intersegment sales, which are eliminated in consolidation, of
($1.4) million and ($3.0) million for the three and six month
periods ended September 30, 2003 as compared to ($1.8) million
and ($2.9) million for the three and six month periods ended
September 30, 2002.
Millbrook's revenues decreased $2.0 million and $18.0 million or 1.8% and 7.7%
for the three and six month periods ended September 30, 2003 as compared to the
comparable periods of the prior year. The decrease in revenues for the three and
six month periods is principally due to decreased sales resulting from customer
bankruptcies and in the six month period, a decision made by a former customer
in the beginning of fiscal 2002 to phase out its purchases from Millbrook as it
moved to self-distribution. This phase out was completed in the first quarter of
fiscal 2004. Customer bankruptcies include the closure of Ames Department Stores
("Ames") in August, 2002.
Excluding sales made to Ames and the former customer that moved to
self-distribution during the three and six month periods ended September 30,
2002, Millbrook's revenues increased 3.7% and 1.4% for the three and six month
periods ended September 30, 2003. Beginning with Millbrook's third fiscal
quarter ending December 31, 2003, there will be no prospective negative sales
comparison resulting from the Ames bankruptcy.
Manischewitz' revenues decreased $1.4 million and $1.2 million or 14.1% and 6.6%
for the three and six month periods ended September 30, 2003 as compared to the
comparable periods of the prior year. The decrease in revenues is principally
due to the following:
(i) decreased sales of Manischewitz brand products for the three
month period ($1.0 million) were offset by increased sales of
Manischewitz brand products during the first quarter ($1.3
million). The decline in volume during the three month period
is largely attributable to a strategic decision to shift the
promotional focus of the brand from the trade to the consumer.
Marketing expenditures that had been previously spent to move
product into the distribution channel have been reduced in
favor of advertising and consumer promotions. Sales for the
six month period remained $0.3 million ahead of last year
principally due to increased sales resulting from the
conclusion of the Passover holiday during April 2003;
(ii) decreased sales of Guiltless Gourmet products for the three
month period ($0.5 million) and for the six month period ($1.1
million). This decline is attributable to the aggressive
launch of two product lines by established competitors in late
2002 targeted at core Guiltless Gourmet consumers. These
introductions have taken shelf space and reduced the number of
Guiltless Gourmet product facings at retail. As the
promotional launch periods of these introductions expire,
management believes that Guiltless Gourmet will begin to
re-establish its shelf position; and
-11-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
(iii) increased sales of Season brand products for the three month period
($0.1 million) which partially offset the decreased sales of Season
brand products during the first quarter ($0.5 million) resulting from
competitive pressures in its product categories.
Gross Profit. Gross profit for the three and six month periods ended September
30, 2003 was $27.0 million and $53.8 million as compared to $26.2 million and
$55.1 million for the three and six month periods ended September 30, 2002, an
increase of $0.8 million or 3.1% in the three month period and a decrease of
$1.3 million or 2.4% in the six month period. As a percentage of revenues, the
gross profit margin was 23.2% and 23.3% for the three and six month periods
ended September 30, 2003 as compared to 22.0% for the three and six month
periods ended September 30, 2002.
The increase in gross profit dollars and gross profit margin for the three month
period is primarily due to the following:
(i) Millbrook's higher gross profit margin (0.9%) resulting from
the shift in its customer base from non-serviced to serviced
customers and a shift in product mix from lower margin health
and beauty care products to higher margin specialty food
products, partially offset by decreased gross profit dollars
associated with lower revenues, and
(ii) Manischewitz' higher gross profit margin (0.3%) resulting from
improved utilization of its manufacturing facilities,
partially offset by decreased gross profit dollars associated
with lower revenues. At the beginning of this fiscal year,
management implemented a manufacturing cost reduction program
as well as a re-alignment of its production schedule which has
resulted in lower overall costs and a higher absorption of
manufacturing overhead costs.
The decrease in gross profit dollars and the increase in gross profit margin for
the six month period is primarily due to the following:
(i) decreased gross profit dollars associated with Millbrook's
lower revenues ($1.6 million) and increased gross profit
margin (1.0%) resulting from the shift in Millbrook's customer
base from non-serviced to serviced customers and a shift in
product mix from lower margin health and beauty care products
to higher margin specialty food products; partially offset by
(ii) increased gross profit dollars associated with Manischewitz'
higher revenues ($0.3 million) and increased gross profit
margin (0.3%) due to improved utilization of Manischewitz'
manufacturing facilities resulting in higher absorption of
manufacturing overhead.
Operating Expenses. Distribution and warehousing expenses for the three and six
month periods ended September 30, 2003 were $10.7 million and $21.2 million, as
compared to $11.4 million and $23.1 million for the three and six month periods
ended September 30, 2002. As a percentage of revenues, distribution and
warehousing expenses were 9.2% for the three and six month periods ended
September 30, 2003 as compared to 9.5% and 9.2% in the comparable periods of the
prior year. Distribution and warehousing costs for the three and six month
periods were impacted by the following:
(i) lower warehousing and distribution headcount directly related
to the loss of Ames during fiscal 2003 and additional
headcount reductions realized from the implementation of a
cost reduction program which more efficiently deployed
warehouse personnel; and
(ii) lower transportation costs realized from the implementation of
a cost reduction program which achieved more efficient routing
and enhanced utilization of Millbrook's truck fleet.
-12-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Selling, general and administrative expenses for the three and six month periods
ended September 30, 2003 were $16.6 million and $32.4 million, as compared to
$16.1 million and $32.7 million for the three and six month periods ended
September 30, 2002. As a percentage of revenues, selling, general and
administrative expenses increased to 14.2% and 14.0% for the three and six month
periods ended September 30, 2003 as compared to 13.5% and 13.1% for the
comparable periods of the prior year.
The increase in selling, general and administrative expenses for the three month
period is principally due to the following:
(i) Millbrook's increased provision for doubtful accounts
resulting from customer bankruptcies; partially offset by
(ii) lower headcount in Millbrook's salesforce due to reductions
made during the year ended March 31, 2003 directly related to
customer losses.
The decrease in selling, general and administrative expenses for the six month
period is principally due to the following:
(i) lower headcount in Millbrook's salesforce due to reductions
made during the year ended March 31, 2003 directly related to
customer losses; and
(ii) lower headcount in Millbrook's selling, general and
administrative functions realized from the implementation of a
cost reduction program which streamlined Millbrook's
workforce; partially offset by
(iii) Millbrook's increased provision for doubtful accounts
resulting from customer bankruptcies.
Amortization of intangibles for the six month period ended September 30, 2002
was approximately $43,000. The Company adopted SFAS No. 142, which provides that
only intangible assets with definite lives continue to be amortized. As of
September 30, 2002, the Company did not have any remaining unamortized
intangible assets with definite lives.
Effective May 1, 2002, Holdings amended the indenture underlying 92% ($23.0
million) of its 13% Notes outstanding. The amendment (i) reduced the interest
rate to 6% per annum, (ii) extended their maturity date from May 1, 2008 to May
1, 2010 and (iii) increased the aggregate outstanding principal by approximately
$1.5 million, representing the deferral of the May 2002 interest payment.
Holders of these Notes received warrants granting them the right to purchase up
to approximately 5% of Holdings' common stock. The Company, at its option, may
defer the payment of cash interest on the 6% Notes for ten semi-annual interest
payment dates through May 1, 2007. The changes contained in the amendment
constitute a material modification of the indenture requiring the historical
deferred debt issuance costs to be written off. Accordingly, debt issuance costs
of $0.5 million were written off and reported as a component of operating income
in the accompanying statement of operations during the six month period ended
September 30, 2002. The income tax benefit of $0.2 million related to the debt
issuance costs was offset by a valuation allowance required by the adoption of
SFAS No. 142. On November 1, 2003, Holdings elected to defer the cash payment of
interest on its 6% Notes.
On October 29, 2003, Enterprises entered into an arrangement with certain
holders of its 10.5% Notes to make the November 1, 2003 interest payment in the
form of additional Notes in lieu of cash. Holders of approximately 69% of the
outstanding 10.5% Notes participated in the arrangement. As a result, the
Company issued to holders approximately $5.8 million in principal amount of
10.5% Notes in lieu of approximately $2.9 million in cash interest. The
remaining holders received their interest payment in cash.
-13-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Interest Expense. Interest expense for the three and six month periods ended
September 30, 2003 was $3.9 million (consisting of $0.6 million for Holdings and
$3.3 million for Enterprises, respectively) and $7.8 million (consisting of $1.1
million for Holdings and $6.7 million for Enterprises, respectively) as compared
to $4.3 million (consisting of $0.6 million for Holdings and $3.7 million for
Enterprises, respectively) and $8.4 million (consisting of $1.1 million for
Holdings and $7.3 million for Enterprises, respectively) for the three and six
month periods ended September 30, 2002. The decrease in interest expense is
primarily attributable to lower interest rates on lower levels of debt
outstanding under the Company's Credit Agreement.
Taxes. The provision for income taxes for the three and six month periods ended
September 30, 2003 was $0.3 million and $0.6 million for Holdings and $0.3
million and $0.5 million for Enterprises as compared to $4.1 million for
Holdings and $3.6 million for Enterprises for the six month period ended
September 30, 2002. Historically, the Company did not need a valuation allowance
(with the exception of Holdings' state tax loss carryforwards) for the portion
of the tax effect of net operating losses equal to the amount of tax-deductible
amortization of identified intangibles expected to occur during the carryforward
period of the net operating losses based upon the timing of the reversal of
other temporary differences. As a result of the adoption of SFAS No. 142, the
reversal will probably not occur during the carryforward period of the net
operating losses. For the six month periods ended September 30, 2003 and 2002,
Holdings and Enterprises recorded non-cash deferred income tax expense of
approximately $3.0 million and $2.6 million and approximately $7.9 million and
$6.8 million, respectively, which would not have been required prior to SFAS No.
142.
Cumulative Effect of Change in Accounting Principle. Effective April 1, 2002,
the Company adopted SFAS No. 142 "Goodwill and Other Intangible Assets". Under
this standard, goodwill and intangibles with indefinite useful lives, including
trademarks and tradenames are no longer systematically amortized. Instead, they
are reviewed for impairment and written down and charged to results of
operations when their carrying amount exceeds their estimated fair values. With
the assistance of an independent professional appraisal firm, the Company
performed impairment tests on the excess of cost over net assets acquired
("goodwill") and intangibles. The previous method for determining impairment
prescribed by SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," utilized an undiscounted cash flow
approach for the impairment assessment, while SFAS No. 142 utilizes a fair value
approach. The Company has two reporting units (Millbrook and Manischewitz) with
goodwill and intangibles, which also represent the Company's reporting segments.
Goodwill and intangibles were reviewed for impairment at the level of each
reporting unit. This review indicated that the goodwill recorded at the
Company's Manischewitz subsidiary was impaired as the carrying value of the
subsidiary was in excess of its estimated fair value. In determining the amount
of the goodwill writedown, SFAS No. 142 requires an allocation of the estimated
fair value to Manischewitz' net assets. This allocation resulted in a
significant increase in the value of the subsidiary's trademarks and tradenames,
which under the provisions of SFAS No. 142 may not be written up from their
historical carrying value. Since the allocation process utilizes the increased
value of the trademarks and tradenames in arriving at the remaining amount of
goodwill to be compared to the historical carrying value of goodwill, the amount
of goodwill writedown is increased. As a result, the Company recorded a $24.2
million non-cash charge as a cumulative effect of a change in accounting
principle for the writedown of goodwill to its estimated fair value during the
six month period ended September 30, 2002. The goodwill writedown was not
deductible for income taxes and, as a result, no income tax benefit was recorded
in relation to the charge.
Net Income (Loss). As a result of the foregoing, the net loss for the three and
six month periods ended September 30, 2003 was $4.4 million and $8.3 million for
Holdings and $3.8 million and $7.0 million for Enterprises as compared to $5.6
million and $38.0 million for Holdings and $5.0 million and $35.8 million for
Enterprises for the three and six month periods ended September 30, 2002.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Impact of New Accounting Pronouncements. SFAS No. 145 "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" was issued in April 2002 and is effective for fiscal years
beginning after May 15, 2002. SFAS No. 145 eliminates the requirement to
classify gains and losses from the extinguishment of debt as extraordinary,
requires certain lease modifications to be treated the same as a sale-leaseback
transaction and makes other non-substantive technical corrections to existing
pronouncements. Effective April 1, 2003, the Company adopted SFAS No. 145. As a
result, the Company reclassified $500,000 of debt modification costs to
operating expense in its condensed consolidated statement of operations for the
six months ended September 30, 2002.
SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities" was issued in April 2003 and is effective for contracts entered into
or modified after June 30, 2003 and for hedging relationships designated after
that date. SFAS No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities under SFAS No. 133. The adoption of SFAS No.
149 will not have any impact on our financial position or overall trends in
results of operations.
SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity" was issued in May 2003 and is effective for
instruments entered into or modified after May 15, 2003. SFAS No. 150 requires
that certain financial instruments including mandatorily redeemable instruments
and forward purchase contracts be reported as liabilities by their issuers. The
adoption of SFAS No. 150 did not have any impact on our financial position or
overall trends in results of operations.
Financial Condition, Liquidity and Capital Resources
Operations for the six months ended September 30, 2003, excluding non-cash
charges for depreciation and amortization and deferred income taxes, utilized
cash of $5.0 million for Holdings and $3.9 million for Enterprises. Operations
for the six months ended September 30, 2002, excluding non-cash charges for
depreciation and amortization, modification of debt at Holdings, cumulative
effect of a change in accounting principle and deferred income taxes, utilized
cash of $6.0 million for Holdings and $5.0 million for Enterprises. During the
six month period ended September 30, 2003, other changes in assets and
liabilities resulting from operating activities provided cash of $3.4 million
for Holdings and $2.3 million for Enterprises as compared to $4.6 million for
Holdings and $3.1 million for Enterprises for the six month period ended
September 30, 2002, resulting in net cash utilized by operating activities of
$1.6 million for each of Holdings and Enterprises and $1.4 million for Holdings
and $1.9 million for Enterprises, respectively.
Investing activities, which principally consisted of the acquisitions of plant
and equipment resulted in a use of cash of $0.4 million and $0.3 million for the
six month periods ended September 30, 2003 and 2002 for each of Holdings and
Enterprises, respectively.
During the six month period ended September 30, 2003, financing activities,
which principally consisted of repayments under the Credit Agreement utilized
cash of $2.3 million for each of Holdings and Enterprises. During the six month
period ended September 30, 2002, financing activities, which principally
consisted of borrowings under the Credit Agreement and the payment of debt
modification costs by Holdings, utilized cash of $0.5 million for Holdings and
provided cash of $0.1 million for Enterprises.
At September 30, 2003, the Company's balance sheet includes a $11.2 million
deferred income tax liability related to the taxable temporary differences
caused by different amortization periods for identified intangibles. With the
adoption of SFAS No. 142, the Company's tax deductible goodwill and
indefinite-lived intangible assets are no longer amortized for financial
reporting purposes. Therefore, this deferred income tax liability will not
reverse and become payable unless the underlying assets are sold or a tax
impairment is recorded.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Concluded)
Financial Condition, Liquidity and Capital Resources (Continued)
The primary sources of liquidity for Holdings and Enterprises are the cash flows
from the operations of Millbrook and Manischewitz and borrowings under the
Company's Credit Agreement. At September 30, 2003, Millbrook and Manischewitz
had approximately $2.1 million of cash and approximately $8.9 million of
available borrowing capacity under the Credit Agreement. The Company is
currently in compliance with the covenants contained in the Credit Agreement and
the indentures relating to its senior notes. The Company's Credit Agreement
expires October 28, 2004. It is management's belief that it will either
negotiate an extension to its current facility or enter into a new facility on
terms acceptable to the Company, although there can be no assurance that such
extension or new facility will be completed. Absent the completion of an
extension or new facility, the Company's outstanding borrowings under its
current facility would be classified as a current liability in its condensed
consolidated balance sheet as of December 31, 2003.
From a distribution perspective, Millbrook's business continues to be impacted
by the instability of the U.S. supermarket industry, the financial condition of
its customers and changes in the competitive landscape as a number of grocery
and wholesale distribution companies are no longer in existence. The Company
expects that Millbrook's revenues during the second half of fiscal 2004 will
stabilize, reflecting new customer growth and expanded distribution to existing
customers, partially offset by lower sales to certain customers experiencing
financial difficulties. Millbrook continues to focus its strategy on expanding
the specialty food category while taking advantage of market opportunities in
its health and beauty care and general merchandise categories. Management
continues to believe in its overall strategy. Further, Millbrook's management
effectively implemented a number of cost reduction programs during fiscal 2003
which have reduced its operating costs in order to address and react to the
demands of its changing markets. From a branded food products perspective,
Manischewitz' operations (principally consisting of its Manischewitz, Season and
Guiltless Gourmet brands) are impacted by the amount of retail space devoted to
its products and the consumer acceptance of those products. Although there can
be no assurance, Holdings and Enterprises believe that its operating cash flows
and borrowings under its Credit Agreement will be sufficient to meet its
obligations and remain in compliance with its covenants. The ability of Holdings
and Enterprises to meet those obligations and maintain compliance will depend on
a number of factors, including those discussed above, general economic
conditions and other factors beyond Holdings' and Enterprises' control.
Critical Accounting Policies
The condensed consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the use of estimates,
judgments, and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. Actual results may differ
significantly from the estimates previously applied by the Company which were
based on different assumptions and conditions. The significant accounting
principles which we believe are the most important to aid in fully understanding
the financial results are the following:
Concentration of Credit Risk - Trade accounts receivable potentially subject the
Company to credit risk. The Company extends credit to its customers, principally
in the U.S. supermarket industry, based upon an evaluation of the customer's
financial condition and credit history and generally does not require
collateral. The Company's allowances for doubtful accounts are based upon the
expected collectability of trade accounts receivable.
Inventories - Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method.
Revenue Recognition - Revenue is recognized when products are shipped or
services are provided to customers. Provisions for returns and allowances and
bad debts are based upon historical experience and known events.
-16-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7a of the Company's Form 10-K for the year ended March
31, 2003 filed with the Securities and Exchange Commission.
--------------
Certain statements contained in this report on Form 10-Q, including but not
limited to statements contained in the foregoing discussion in "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
contain "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Additionally, written materials issued and oral
statements made from time to time by Holdings and Enterprises may contain
forward-looking statements. Forward-looking statements can be identified by the
fact that they do not relate strictly to historical or current facts and by
their use of words such as "goals", "expects", "plans", "believes", "estimates",
"forecasts", "projects", "intends" and other words of similar meaning. Execution
of business and acquisition strategies, expansion of product lines and increase
of distribution networks or product sales are areas, among others, whose future
success may be difficult to predict. They are based on management's then-current
information, assumptions, plans, expectations, estimates and projections
regarding the food and wholesale distribution industries. However, such
statements are not guarantees of future performance, and actual results and
outcomes may differ materially from what is expressed depending on a variety of
factors, many of which are outside of Holdings' and Enterprises' control. Given
these uncertainties, current and prospective investors are cautioned not to
place undue reliance on such forward-looking statements. We undertake no
obligation to update or revise any forward-looking statements or to publicly
announce the result of any revisions to any of the forward-looking statements
herein to reflect future events or developments.
Among the factors that could cause actual outcomes or results to differ
materially from what is expressed in these forward-looking statements are
changes in the demand for, supply of, and market prices of Holdings' and
Enterprises' products, the financial condition of customers, the action of
current and potential new competitors, the continuing instability of the U.S.
supermarket industry, changes in technology and economic conditions.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure (i) that information required to be disclosed in the reports filed or
submitted under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized, and reported within the time periods specified in the
Securities and Exchange Commission's ("SEC") rules and regulations, and (ii)
that this information is accumulated and communicated to management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure. In November 2003, under
the supervision and review of the Chief Executive Officer and Chief Financial
Officer, an evaluation of the effectiveness of the Company's disclosure controls
and procedures was conducted. Based on that evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that disclosure controls and
procedures are effective in alerting them in a timely manner to material
information regarding the Company (including its consolidated subsidiaries) that
is required to be included in the Company's periodic reports to the SEC. In
addition, there have been no significant changes in the Company's internal
controls or in other factors that could significantly affect those controls
since the November 2003 evaluation. However, there can be no assurance that the
system of disclosure controls and procedures will always achieve its stated
goals under all future conditions, no matter how remote.
-17-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. Index to Exhibits
Exhibit No. Description of Document
----------- -----------------------
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Executive
Officer.
31.2 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Financial
Officer.
32.1 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Chief Executive
Officer.
32.2 Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Chief Financial
Officer.
b. No reports were filed on Form 8-K during the quarter for which
this report is filed.
-18-
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
R.A.B. HOLDINGS, INC.
November 13, 2003 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
November 13, 2003 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
November 13, 2003 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
November 13, 2003 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer