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 DECEMBER 31, 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 specified in its charter) (Exact name of registrant as specified in its charter)
DELAWARE DELAWARE
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 688-4500
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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
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 2003 (Unaudited)
and March 31, 2003 1
Condensed Consolidated Statements of Operations - Three months ended
December 31, 2003 and 2002 (Unaudited) 2
Condensed Consolidated Statements of Operations - Nine months ended
December 31, 2003 and 2002 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows - Nine months ended
December 31, 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 11-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
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)
- -------------------------------------------------------------------------------
December 31, 2003 March 31, 2003
------------------------- --------------------------
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
(Unaudited)
ASSETS
Current assets:
Cash $ 2,845 $ 2,822 $ 6,452 $ 6,444
Accounts receivable, net 29,167 29,167 38,352 38,352
Inventories 76,311 76,311 50,960 50,960
Other current assets 9,555 15,555 6,653 12,205
--------- --------- --------- ---------
Total current assets 117,878 123,855 102,417 107,961
--------- --------- --------- ---------
Other assets 4,662 3,688 4,453 3,318
Property, plant and equipment, net 22,885 22,885 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 $ 235,397 $ 240,400 $ 222,127 $ 226,536
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 35,420 $ 35,420 $ 34,347 $ 34,347
Other current liabilities 21,877 22,513 22,288 22,944
--------- --------- --------- ---------
Total current liabilities 57,297 57,933 56,635 57,291
--------- --------- --------- ---------
Noncurrent liabilities:
Long-term debt 188,970 162,230 165,327 140,340
Deferred income taxes 11,412 11,412 10,662 10,662
Other liabilities 17,091 17,091 17,874 17,874
--------- --------- --------- ---------
Total noncurrent liabilities 217,473 190,733 193,863 168,876
--------- --------- --------- ---------
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 (91) - (92) -
Additional paid-in capital 2,622 39,482 2,622 39,482
Retained earnings (deficit) (50,576) (43,580) (39,564) (34,936)
Accumulated other comprehensive loss (4,168) (4,168) (4,177) (4,177)
--------- --------- --------- ---------
(39,368) (8,266) (28,366) 369
Less common stock in treasury - 4,600 shares 5 - 5 -
--------- --------- --------- ---------
Total stockholders' (deficit) equity (39,373) (8,266) (28,371) 369
--------- --------- --------- ---------
Total liabilities and stockholders' (deficit) equity $ 235,397 $ 240,400 $ 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
December 31, 2003 December 31, 2002
------------------------------- ----------------------------
Holdings Enterprises Holdings Enterprises
--------- ------------- ---------- -------------
(Unaudited) (Unaudited)
Revenues $ 130,222 $ 130,222 $ 120,515 $ 120,515
Costs and expenses:
Cost of sales 99,860 99,860 91,381 91,381
Selling 10,623 10,623 9,748 9,748
Distribution and warehousing 10,982 10,982 11,218 11,218
General and administrative 6,690 6,238 6,392 6,361
--------- --------- --------- ---------
Total costs and expenses 128,155 127,703 118,739 118,708
--------- --------- --------- ---------
Operating income 2,067 2,519 1,776 1,807
Interest expense, net 4,487 3,911 4,373 3,826
--------- --------- --------- ---------
Loss before provision for income taxes (2,420) (1,392) (2,597) (2,019)
Provision for income taxes 318 280 - -
--------- --------- --------- ---------
Net loss $ (2,738) $ (1,672) $ (2,597) $ (2,019)
========= ========= ========= =========
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)
- -------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
December 31, 2003 December 31, 2002
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
---------- ----------- ---------- -----------
(Unaudited) (Unaudited)
Revenues $ 361,440 $ 361,440 $ 371,041 $ 371,041
Costs and expenses:
Cost of sales 277,267 277,267 286,788 286,788
Selling 29,945 29,945 29,883 29,883
Distribution and warehousing 32,215 32,215 34,303 34,303
General and administrative 19,798 19,249 18,965 18,914
Amortization of intangibles - - 43 43
Debt modification costs - - 500 -
--------- --------- --------- ---------
Total costs and expenses 359,225 358,676 370,482 369,931
--------- --------- --------- ---------
Operating income 2,215 2,764 559 1,110
Interest expense, net 12,333 10,628 12,809 11,086
--------- --------- --------- ---------
Loss before provision for income taxes (10,118) (7,864) (12,250) (9,976)
Provision for income taxes 894 780 4,098 3,631
--------- --------- --------- ---------
Loss before cumulative effect of change in
accounting principle (11,012) (8,644) (16,348) (13,607)
Cumulative effect of change in accounting principle - - (24,230) (24,230)
--------- --------- --------- ---------
Net loss $ (11,012) $ (8,644) $ (40,578) $ (37,837)
========= ========= ========= =========
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)
- -------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
December 31, 2003 December 31, 2002
------------------------- --------------------------
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(11,012) $ (8,644) $(40,578) $(37,837)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 4,454 4,114 4,547 4,252
Modification of debt - - 500 -
Cumulative effect of change in accounting principle - - 24,230 24,230
Deferred income taxes 750 750 4,098 3,631
Changes in assets and liabilities:
Accounts receivable 9,185 9,185 8,759 8,759
Inventories (25,351) (25,351) (10,035) (10,035)
Accounts payable 1,073 1,073 (5,819) (5,819)
Other assets and liabilities 1,743 (300) 285 (1,717)
-------- -------- -------- --------
Net cash used in operating activities (19,158) (19,173) (14,013) (14,536)
-------- -------- -------- --------
Cash flows from investing activities:
Purchases of equipment (515) (515) (473) (473)
-------- -------- -------- --------
Cash flows from financing activities:
Payment of debt modification costs - - (557) -
Borrowings under Credit Agreement 16,066 16,066 10,830 10,830
Repurchase of common stock - - (7) -
-------- -------- -------- --------
Net cash provided by financing activities 16,066 16,066 10,266 10,830
-------- -------- -------- --------
Net decrease in cash (3,607) (3,622) (4,220) (4,179)
Cash, beginning of period 6,452 6,444 4,526 4,456
-------- -------- -------- --------
Cash, end of period $ 2,845 $ 2,822 $ 306 $ 277
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,636 $ 8,376 $ 12,209 $ 11,915
Income taxes $ 131 $ 130 $ 36 $ 35
Non-cash financing activities:
Additional indebtedness due to deferred interest
payment on 6% Senior Notes $ 1,537 $ - $ 2,230 $ -
Issuance of additional 10.5% Senior Notes
in lieu of interest payment $ 5,824 $ 5,824 $ - $ -
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 December 31, 2003, and the results of operations and cash flows for the
periods ended December 31, 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):
December 31, March 31,
2003 2003
------------ -----------
Raw materials $ 1,741 $ 1,849
Finished goods 74,570 49,111
-------- --------
$ 76,311 $ 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 nine month period ended December 31, 2002 was
approximately $43,000 representing the amortization of the remaining net book
value of identified intangibles (accumulated amortization was $2,038,000 at
December 31, 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
nine month period ended December 31, 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 SFAS No. 142 on the net loss for the nine month periods
ended December 31, 2003 and 2002 is as follows (in thousands):
2003 2002
-------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- ---------- -----------
Net Loss $(11,012) $ (8,644) $(40,578) $(37,837)
Less: cumulative effect of change in
accounting principle - - 24,230 24,230
-------- -------- -------- --------
Net Loss, excluding cumulative effect of
change in accounting principle (11,012) (8,644) (16,348) (13,607)
Add: valuation allowances recorded as a
result of SFAS No. 142 3,888 3,194 8,923 7,678
-------- -------- -------- --------
Net Loss, excluding cumulative effect of
change in accounting principle and
valuation allowances $ (7,124) $ (5,450) $ (7,425) $ (5,929)
======== ======== ======== ========
NOTE D - Related Party Transactions
For each of the three month periods ended December 31, 2003 and 2002, the
Company paid $532,500 and $510,000, respectively, and for each of the nine month
periods ended December 31, 2003 and 2002, the Company paid $1,575,000 and
$1,530,000, 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 nine month periods ended December 31,
2003 and 2002 consisted of the following (in thousands):
2003 2002
-------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- ---------- -----------
Income Tax Benefit $(2,994) $(2,414) $(4,825) $(4,047)
Valuation Allowances recorded as a
result of SFAS No. 142:
- ------------------------------------
Valuation Allowance related to continuing
operations for the nine months ended
December 31, 2003 and 2002 3,888 3,194 4,825 4,047
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 $ 894 $ 780 $ 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 nine month periods ended December 31, 2003 and 2002, Holdings and
Enterprises recorded non-cash deferred income tax expense of approximately $3.9
million and $3.2 million and approximately $8.9 million and $7.7 million,
respectively, which would not have been required prior to SFAS No. 142.
NOTE F - Comprehensive Loss
For the three and nine month periods ended December 31, 2003, the comprehensive
loss was ($2,738,000) and ($11,003,000) for Holdings and ($1,672,000) and
($8,635,000) for Enterprises as compared to ($2,597,000) and ($40,580,000) for
Holdings and ($2,019,000) and ($37,839,000) for Enterprises for the three and
nine month periods ended December 31, 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 December 31, 2003 2002
- ---------------------------------------------- ------------------------------ -----------------------------
(in thousands) Holdings Enterprises Holdings Enterprises
------------- ------------- ------------ -------------
Revenues
Millbrook ............................................... $ 121,245 $ 121,245 $ 111,694 $ 111,694
Manischewitz ............................................ 10,581 10,581 10,468 10,468
--------- --------- --------- ---------
Total segment revenues ............................... 131,826 131,826 122,162 122,162
Corporate items, principally the elimination
of intercompany sales ................................ (1,604) (1,604) (1,647) (1,647)
--------- --------- --------- ---------
$ 130,222 $ 130,222 $ 120,515 $ 120,515
========= ========= ========= =========
Operating income
Millbrook ............................................... $ 3,933 $ 3,933 $ 3,075 $ 3,075
Manischewitz ............................................ 505 505 482 482
--------- --------- --------- ---------
Total segment operating income ....................... 4,438 4,438 3,557 3,557
Corporate items and eliminations ........................ (2,371) (1,919) (1,781) (1,750)
--------- --------- --------- ---------
$ 2,067 $ 2,519 $ 1,776 $ 1,807
========= ========= ========= =========
For the nine month periods ended December 31, 2003 2002
- --------------------------------------------- ------------------------------ -----------------------------
(in thousnds) Holdings Enterprises Holdings Enterprises
------------- ------------- ------------ -------------
Revenues
Millbrook ............................................... $ 338,859 $ 338,859 $ 347,342 $ 347,342
Manischewitz ............................................ 27,166 27,166 28,225 28,225
--------- --------- --------- ---------
Total segment revenues ............................... 366,025 366,025 375,567 375,567
Corporate items, principally the elimination
of intercompany sales ................................ (4,585) (4,585) (4,526) (4,526)
--------- --------- --------- ---------
$ 361,440 $ 361,440 $ 371,041 $ 371,041
========= ========= ========= =========
Operating income
Millbrook ............................................... $ 7,712 $ 7,712 $ 5,700 $ 5,700
Manischewitz ............................................ 755 755 539 539
--------- --------- --------- ---------
Total segment operating income ....................... 8,467 8,467 6,239 6,239
Corporate items and eliminations ........................ (6,252) (5,703) (5,680) (5,129)
--------- --------- --------- ---------
$ 2,215 $ 2,764 $ 559 $ 1,110
========= ========= ========= =========
As of December 31,
Identifiable assets
Millbrook ............................................... $ 102,075 $ 102,075 $ 92,490 $ 92,490
Manischewitz ............................................ 39,031 39,031 44,441 44,441
--------- --------- --------- ---------
Total segment assets ................................. 141,106 141,106 136,931 136,931
Corporate items, principally intangibles
not allocated to segments ............................ 94,291 99,294 90,971 94,745
--------- --------- --------- ---------
$ 235,397 $ 240,400 $ 227,902 $ 231,676
========= ========= ========= =========
- 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 - Long-term Debt
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 through
the issuance 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, Enterprises 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.
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, May 1,
2003 and November 1, 2003, the Company elected to defer the cash payment of
interest on its 6% Notes.
During the fourth quarter of fiscal 2004, the maturity of the Company's Credit
Agreement was extended to January 15, 2005.
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 nine months ended December 31, 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.
- 10 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Revenues. Revenues for the three month period ended December 31, 2003 increased
$9.7 million or 8.1% to $130.2 million as compared to $120.5 million for the
three month period ended December 31, 2002. Revenues for the nine month period
ended December 31, 2003 decreased $9.6 million or 2.6% to $361.4 million as
compared to $371.0 million for the nine month period ended December 31, 2002.
Revenues include:
(i) Millbrook's revenues of $121.2 million and $338.8 million for
the three and nine month periods ended December 31, 2003 as
compared to $111.6 million and $347.3 million for the three
and nine month periods ended December 31, 2002;
(ii) Manischewitz' revenues of $10.6 million and $27.2 million for
the three and nine month periods ended December 31, 2003 as
compared to $10.5 million and $28.2 million for the three and
nine month periods ended December 31, 2002; and
(iii) intersegment sales, which are eliminated in consolidation, of
($1.6) million and ($4.6) million for the three and nine month
periods ended December 31, 2003 as compared to ($1.6) million
and ($4.5) million for the three and nine month periods ended
December 31, 2002.
Millbrook's revenues increased $9.6 million or 8.6% for the three month period
ended December 31, 2003 and decreased $8.5 million or 2.4% for the nine month
period ended December 31, 2003 as compared to the comparable periods of the
prior year. The increase for the three month period is principally due to sales
to new accounts and expanded distribution to existing customers, partially
offset by lower sales to certain customers experiencing financial difficulties
and customers negatively impacted by the Midwest grocery workers strike which
was settled at the end of October, 2003. The decrease in revenues for the nine
month period is principally due to decreased sales resulting from customer
bankruptcies and 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. This decline in revenues for the nine month period was partially offset by
sales to new accounts and expanded distribution to existing customers.
Excluding sales made to Ames and the former customer that moved to
self-distribution during the nine month period ended December 31, 2002,
Millbrook's revenues increased 3.8% for the nine month period ended December 31,
2003.
Manischewitz' revenues increased $0.1 million or 1.1% for the three month period
ended December 31, 2003 and decreased $1.0 million or 3.8% for the nine month
period ended December 31, 2003 as compared to the comparable periods of the
prior year. The change in revenues is principally due to the following:
(i) decreased sales of Guiltless Gourmet products for the three
month period ($0.9 million) and for the nine month period
($1.9 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 has expired,
management believes that Guiltless Gourmet will begin to
re-establish its shelf position;
- 11 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
(ii) increased sales of Manischewitz brand products for the three
month period ($0.8 million) and for the nine month period
($1.1 million). This increase consists of increased Passover
sales of $1.1 million and $2.1 million for the three and nine
month periods, respectively, partially offset by decreased
sales other than Passover ("Daily") sales of Manischewitz
products of $0.3 million and $1.0 million for the three and
nine month periods, respectively. The decline in Daily volume
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. Passover sales
for the three and nine month periods continue to exceed the
prior year due to the conclusion of the Passover holiday
during April 2003 and incremental shipments in December 2003
in anticipation of an earlier Passover 2004; and
(iii) increased sales of Season brand products for the three month
period ($0.2 million) which partially offset the decreased
sales of Season brand products during the first six months of
fiscal 2004 of $0.4 million resulting from competitive
pressures in its product categories.
Gross Profit. Gross profit for the three and nine month periods ended December
31, 2003 was $30.4 million and $84.2 million as compared to $29.1 million and
$84.3 million for the three and nine month periods ended December 31, 2002, an
increase of $1.3 million or 4.2% in the three month period and a decrease of
$0.1 million or 0.1% in the nine month period. As a percentage of revenues, the
gross profit margin was 23.3% for each of the three and nine month periods ended
December 31, 2003 as compared to 24.2% and 22.7% for the three and nine month
periods ended December 31, 2002.
The increase in gross profit dollars and decrease in gross profit margin for the
three month period is primarily due to the following:
(i) Millbrook's lower gross profit margin (1.1%) resulting from
the competitive environment in obtaining new customers,
partially offset by increased gross profit dollars associated
with higher revenues, and
(ii) Manischewitz' higher gross profit margin (0.3%) resulting from
improved utilization of its manufacturing facilities and
increased gross profit dollars associated with incremental
December 2003 shipments for Passover 2004. 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 nine month period is primarily due to the following:
(i) decreased gross profit dollars associated with Millbrook's
lower revenues ($0.7 million) and increased gross profit
margin (0.3%) 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 ($0.6 million) and increased gross profit
margin (0.3%) due to improved utilization of Manischewitz'
manufacturing facilities resulting in higher absorption of
manufacturing overhead.
- 12 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Operating Expenses. Distribution and warehousing expenses for the three and nine
month periods ended December 31, 2003 were $11.0 million and $32.2 million, as
compared to $11.2 million and $34.3 million for the three and nine month periods
ended December 31, 2002. As a percentage of revenues, distribution and
warehousing expenses were 8.4% and 8.9% for the three and nine month periods
ended December 31, 2003 as compared to 9.3% and 9.2% in the comparable periods
of the prior year. Distribution and warehousing costs for the three and nine
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.
Selling, general and administrative expenses for the three and nine month
periods ended December 31, 2003 were $17.3 million and $49.7 million, as
compared to $16.1 million and $48.8 million for the three and nine month periods
ended December 31, 2002. As a percentage of revenues, selling, general and
administrative expenses decreased to 13.3% for the three month period and
increased to 13.8% for the nine month period ended December 31, 2003 as compared
to 13.4% and 13.2% for the comparable periods of the prior year.
The increase in selling, general and administrative expenses for the three and
nine month periods is principally due to the following:
(i) Millbrook's increased provision for doubtful accounts
resulting from customer bankruptcies; and
(ii) professional fees and related expenses with respect to the
Company's discussions with its bondholders and advisors
regarding possible debt modifications and restructurings of
the Company's capital structure; partially offset by
(iii) lower headcount in Millbrook's salesforce due to reductions
made during the year ended March 31, 2003 directly related to
customer losses.
Amortization of intangibles for the nine month period ended December 31, 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
December 31, 2002, the Company did not have any remaining unamortized intangible
assets with definite lives.
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 through
the issuance of additional Notes in lieu of cash. Holders of approximately 69%
of the outstanding 10.5% Notes participated in the arrangement. As a result,
Enterprises 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)
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 nine month period ended
December 31, 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 May 1, 2003 and November 1, 2003, Holdings elected to defer the
cash payment of interest on its 6% Notes.
Interest Expense. Interest expense for the three and nine month periods ended
December 31, 2003 was $4.5 million (consisting of $0.6 million for Holdings and
$3.9 million for Enterprises, respectively) and $12.3 million (consisting of
$1.7 million for Holdings and $10.6 million for Enterprises, respectively) as
compared to $4.4 million (consisting of $0.6 million for Holdings and $3.8
million for Enterprises, respectively) and $12.8 million (consisting of $1.7
million for Holdings and $11.1 million for Enterprises, respectively) for the
three and nine month periods ended December 31, 2002. The increase in interest
expense for the three and nine months ended December 31, 2003 is primarily
attributable to incremental non-cash interest expense ($0.3 million) for both
Holdings and Enterprises resulting from the amortization related to the
additional 10.5% Notes issued in lieu of the $2.9 million interest payment due
on November 1, 2003. Excluding this non-cash interest expense, the decline 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 nine month periods ended
December 31, 2003 was $0.3 million and $0.9 million for Holdings and $0.3
million and $0.8 million for Enterprises as compared to no provision for the
three month period ended December 31, 2002 and $4.1 million for Holdings and
$3.6 million for Enterprises for the nine month period ended December 31, 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 nine month periods ended December 31, 2003 and 2002, Holdings and
Enterprises recorded non-cash deferred income tax expense of approximately $3.9
million and $3.2 million and approximately $8.9 million and $7.7 million,
respectively, which would not have been required prior to SFAS No. 142.
- 14 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
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
nine month period ended December 31, 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 Loss. As a result of the foregoing, the net loss for the three and nine
month periods ended December 31, 2003 was $2.7 million and $11.0 million for
Holdings and $1.7 million and $8.6 million for Enterprises as compared to $2.6
million and $40.6 million for Holdings and $2.0 million and $37.8 million for
Enterprises for the three and nine month periods ended December 31, 2002.
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
nine months ended December 31, 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.
- 15 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Financial Condition, Liquidity and Capital Resources
Operations for the nine months ended December 31, 2003, excluding non-cash
charges for depreciation and amortization and deferred income taxes, utilized
cash of $5.8 million for Holdings and $3.8 million for Enterprises. Operations
for the nine months ended December 31, 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 $7.2 million for Holdings and $5.7 million for Enterprises. During the
nine month period ended December 31, 2003, other changes in assets and
liabilities resulting from operating activities utilized cash of $13.4 million
for Holdings and $15.4 million for Enterprises as compared to cash utilized of
$6.8 million for Holdings and $8.8 million for Enterprises for the nine month
period ended December 31, 2002, resulting in net cash utilized by operating
activities of $19.2 million for both Holdings and Enterprises and $14.0 million
for Holdings and $14.5 million for Enterprises, respectively.
Investing activities, which principally consisted of the acquisitions of plant
and equipment resulted in a use of cash of $0.5 million for each of the nine
month periods ended December 31, 2003 and 2002 for both Holdings and
Enterprises, respectively.
During the nine month period ended December 31, 2003, financing activities,
which principally consisted of borrowings under the Credit Agreement, provided
cash of $16.1 million for both Holdings and Enterprises. During the nine month
period ended December 31, 2002, financing activities, which principally
consisted of borrowings under the Credit Agreement and the payment of debt
modification costs by Holdings, provided cash of $10.3 million for Holdings and
$10.8 million for Enterprises.
At December 31, 2003, the Company's balance sheet includes a $11.4 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.
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 December 31, 2003, Millbrook and Manischewitz had
approximately $2.8 million of cash and approximately $1.0 million of available
borrowing capacity under the Credit Agreement. Historically, the Company's usage
under its revolving credit facility peaks during the three month period ended
December of each year due to the seasonality of its business. 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 January 15, 2005. 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 March 31, 2004.
In addition, the Company is engaged in discussions with its bondholders
regarding its current capital structure. It is management's belief that these
discussions may result in debt modifications and restructurings which will
improve the Company's capitalization; reduce its current cash interest
requirements and extend the maturity of its outstanding debt. However, there can
be no assurance that debt modifications and restructurings on terms acceptable
to the Company will be accomplished.
- 16 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Concluded)
Financial Condition, Liquidity and Capital Resources (Continued)
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. During the
third quarter of fiscal 2004, Millbrook's revenues stabilized and the Company
expects the current trend to continue during the fourth quarter, 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. In addition, the seasonality of Manischewitz'
business and the timing of Jewish holidays results in a substantial portion of
Manischewitz' revenues and operating profits occurring during the fourth quarter
of each fiscal year and financial information which is not comparable on a
quarterly basis. Further, Manischewitz' business for the remainder of fiscal
2004 will be impacted by the unresolved Southern California grocery workers
strike. Certain of Manischewitz' key retail outlets, specifically Kroger,
Safeway and Albertson's have been negatively impacted by unresolved contract
differences with approximately 70,000 of their employees. While Manischewitz
continues to develop alternative plans and contingencies with its distributor
base that services these retailers, the potential impact on operations cannot
presently be determined.
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 the covenants
in its Credit Agreement and its indentures. 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.
- 17 -
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.
- 18 -
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 Joint certification pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 by Chief
Executive Officer and Chief Financial Officer.
b. Form 8-K dated as of November 5, 2003.
- 19 -
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.
February 12, 2004 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
February 12, 2004 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
February 12, 2004 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
February 12, 2004 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
- 20 -