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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, 2002
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
------------
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
- ------------------------------------------------------------- ------------------------------------------------------------
(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
- -------------------------------------------------------------------------------
(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
--- ---
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, 2002 (Unaudited)
and March 31, 2002 1
Condensed Consolidated Statements of Operations - Three months ended
December 31, 2002 and 2001 (Unaudited) 2
Condensed Consolidated Statements of Operations - Nine months ended
December 31, 2002 and 2001 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows - Nine months ended
December 31, 2002 and 2001 (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 19-22
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, 2002 March 31, 2002
-------------------------- --------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- ---------- -----------
(Unaudited)
ASSETS
Current assets:
Cash $ 306 $ 277 $ 4,526 $ 4,456
Accounts receivable, net 29,299 29,299 38,058 38,058
Inventories 68,388 68,388 58,353 58,353
Other current assets 9,508 14,484 11,649 15,889
--------- --------- --------- ---------
Total current assets 107,501 112,448 112,586 116,756
--------- --------- --------- ---------
Noncurrent assets:
Other assets 4,171 2,998 5,134 3,433
Property, plant and equipment, net 26,258 26,258 29,486 29,486
Intangibles, net 89,972 89,972 114,245 114,245
--------- --------- --------- ---------
Total assets $ 227,902 $ 231,676 $ 261,451 $ 263,920
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Current maturities of long-term debt $ 385 $ 385 $ 2,767 $ 2,767
Accounts payable 34,949 34,949 40,768 40,768
Other current liabilities 20,332 20,980 22,945 22,809
--------- --------- --------- ---------
Total current liabilities 55,666 56,314 66,480 66,344
--------- --------- --------- ---------
Noncurrent liabilities:
Long-term debt 178,911 154,037 165,825 140,825
Deferred income taxes 9,434 9,434 7,640 7,640
Other liabilities 16,872 16,872 16,253 16,253
--------- --------- --------- ---------
Total noncurrent liabilities 205,217 180,343 189,718 164,718
--------- --------- --------- ---------
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 (85) - (195) -
Additional paid-in capital 2,614 39,482 373 39,482
Retained earnings (deficit) (46,775) (42,889) (6,197) (5,052)
Accumulated other comprehensive loss (1,574) (1,574) (1,572) (1,572)
--------- --------- --------- ---------
(32,975) (4,981) 5,254 32,858
Less common stock in treasury - 5,900 shares and
600 shares 6 - 1 -
--------- --------- --------- ---------
Total stockholders' (deficit) equity (32,981) (4,981) 5,253 32,858
--------- --------- --------- ---------
Total liabilities and stockholders' (deficit) equity $ 227,902 $ 231,676 $ 261,451 $ 263,920
========= ========= ========= =========
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, 2002 December 31, 2001
---------------------------- -----------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- -------- ------------
(Unaudited) (Unaudited)
Revenues $ 120,862 $ 120,862 $ 161,626 $ 161,626
Costs and expenses:
Cost of sales 91,728 91,728 125,284 125,284
Selling 9,748 9,748 12,409 12,409
Distribution and warehousing 11,218 11,218 13,968 13,968
General and administrative 6,392 6,361 6,777 6,754
Amortization of intangibles - - 1,051 1,051
--------- --------- --------- ---------
Total costs and expenses 119,086 119,055 159,489 159,466
--------- --------- --------- ---------
Operating income 1,776 1,807 2,137 2,160
Interest expense, net 4,373 3,826 4,634 3,818
--------- --------- --------- ---------
Loss before benefit for income taxes (2,597) (2,019) (2,497) (1,658)
Benefit for income taxes - - (864) (532)
--------- --------- --------- ---------
Net loss $ (2,597) $ (2,019) $ (1,633) $ (1,126)
========= ========= ========= =========
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, 2002 December 31, 2001
-------------------------- ---------------------------
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
(Unaudited) (Unaudited)
Revenues $ 371,388 $ 371,388 $ 434,381 $ 434,381
Costs and expenses:
Cost of sales 287,135 287,135 328,874 328,874
Selling 29,883 29,883 39,670 39,670
Distribution and warehousing 34,303 34,303 41,573 41,573
General and administrative 18,965 18,914 20,572 20,535
Amortization of intangibles 43 43 3,161 3,161
--------- --------- --------- ---------
Total costs and expenses 370,329 370,278 433,850 433,813
--------- --------- --------- ---------
Operating income 1,059 1,110 531 568
Interest expense, net 12,809 11,086 14,462 11,973
--------- --------- --------- ---------
Loss before provision (benefit) for income taxes (11,750) (9,976) (13,931) (11,405)
Provision (benefit) for income taxes 4,098 3,631 (5,129) (4,130)
--------- --------- --------- ---------
Loss before extraordinary item and cumulative
effect of change in accounting principle (15,848) (13,607) (8,802) (7,275)
Extraordinary loss on modification of debt (500) - - -
--------- --------- --------- ---------
Loss before cumulative effect of change in
accounting principle (16,348) (13,607) (8,802) (7,275)
Cumulative effect of change in accounting principle (24,230) (24,230) - -
--------- --------- --------- ---------
Net loss $ (40,578) $ (37,837) $ (8,802) $ (7,275)
========= ========= ========= =========
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, 2002 December 31, 2001
------------------------- --------------------------
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $(40,578) $(37,837) $ (8,802) $ (7,275)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Extraordinary loss on modification of debt 500 - - -
Cumulative effect of change in accounting principle 24,230 24,230 - -
Depreciation and amortization 4,547 4,252 7,940 7,865
Deferred income taxes 4,098 3,631 - -
Changes in assets and liabilities:
Accounts receivable 8,759 8,759 16,870 16,870
Inventories (10,035) (10,035) (6,834) (6,834)
Accounts payable (5,819) (5,819) 6,049 6,049
Other assets and liabilities 285 (1,717) (2,322) (2,224)
-------- -------- -------- --------
Net cash (used in) provided by operating activities (14,013) (14,536) 12,901 14,451
-------- -------- -------- --------
Cash flows from investing activities:
Acquisitions of plant and equipment (473) (473) (1,911) (1,911)
-------- -------- -------- --------
Cash used in investing activities (473) (473) (1,911) (1,911)
-------- -------- -------- --------
Cash flows from financing activities:
Payment of debt modification costs (557) - - -
Payments from Interest Escrow Account - - 1,625 -
Borrowings (repayments) under Credit Agreement 10,830 10,830 (19,159) (19,159)
Proceeds from issuance and
(repurchase of) common stock (7) - (68) -
-------- -------- -------- --------
Net cash provided by (used in) financing activities 10,266 10,830 (17,602) (19,159)
-------- -------- -------- --------
Net decrease in cash (4,220) (4,179) (6,612) (6,619)
Cash, beginning of period 4,526 4,456 9,522 9,520
-------- -------- -------- --------
Cash, end of period $ 306 $ 277 $ 2,910 $ 2,901
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 12,209 $ 11,915 $ 15,904 $ 12,654
Income taxes $ 36 $ 35 $ 149 $ 149
Non-cash financing activities:
Additional indebtedness due to deferred interest
payment in connection with debt modification $ 2,185 $ - $ - $ -
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").
These condensed consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements as of March 31, 2002 and
2001 contained in the Company's Form 10-K filed with the Securities and Exchange
Commission. The information related to March 31, 2002 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 necessary to present fairly the
financial position of the Company as of December 31, 2002, and the results of
operations and cash flows for the periods ended December 31, 2002 and 2001.
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,
2002 2002
----------- ---------
Raw materials $ 2,268 $ 1,821
Finished goods 66,120 56,532
----------- ---------
$ 68,388 $ 58,353
=========== =========
NOTE C - Intangibles
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. 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 still required to be
amortized under SFAS No. 142.
- 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 (Continued)
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 requires an annual assessment of goodwill and intangibles, which the
Company will perform to determine any possible future impairment.
The effect of adopting SFAS No. 142 on the net loss for the nine month periods
ended December 31, 2002 and 2001 are as follows (in thousands):
2002 2001
---------------------------- ---------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- -------- -----------
Net Loss $(40,578) $(37,837) $ (8,802) $ (7,275)
Add: cumulative effect of change in
accounting principle 24,230 24,230 - -
-------- -------- -------- --------
Net Loss, excluding cumulative effect of
change in accounting principle (16,348) (13,607) (8,802) (7,275)
Add: amortization of indefinite-lived
intangible assets, net of tax - - 1,795 1,795
Add: valuation allowances recorded as a
result of the impact of SFAS No. 142 8,923 7,678 - -
-------- -------- -------- --------
Net Loss, excluding cumulative effect of
change in accounting principle and
valuation allowances in 2002 and
amortization of indefinite-lived
intangible assets in 2001 $ (7,425) $ (5,929) $ (7,007) $ (5,480)
======== ======== ======== ========
- 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 changes in the carrying amount of goodwill and intangible assets during the
nine month period ended December 31, 2002, including the effect of adopting SFAS
No. 142 are as follows (in thousands):
Millbrook Manischewitz
--------- -----------------------
Intangible
Goodwill Goodwill Assets Total
-------- -------- ----------- --------
Balance at March 31, 2002, net of
accumulated amortization $ 15,103 $ 59,137 $ 40,005 $114,245
Less: goodwill writedown recognized as a
cumulative effect of change in
accounting principle - 24,230 - 24,230
Less: intangible amortization - - 43 43
-------- -------- -------- --------
Balance at December 31, 2002, net of
accumulated amortization $ 15,103 $ 34,907 $ 39,962 $ 89,972
======== ======== ======== ========
At December 31, 2002, Manischewitz' intangible assets were comprised of
trademarks and tradenames.
NOTE D - Related Party Transactions
For each of the three month periods ended December 31, 2002 and 2001 the Company
paid $510,000 and $502,500 and for each of the nine month periods ended December
31, 2002 and 2001, the Company paid $1,530,000 and $1,507,000, 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 its behalf.
NOTE E - Income Taxes
The provision (benefit) for income taxes consisted of the following (in
thousands):
2002 2001
------------------------ ------------------------
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
Income Tax Benefit for the nine months
ended December 31, 2002 $(4,825) $(4,047) $(5,129) $(4,130)
Valuation Allowances established pursuant
to SFAS No. 142:
Valuation Allowance related to continuing
operations for the nine months ended
December 31, 2002 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 (benefit) for income taxes $ 4,098 $ 3,631 $(5,129) $(4,130)
======= ======= ======= =======
- 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, 2002,
Holdings and Enterprises had net deferred tax liabilities of approximately $5.3
million and $5.8 million, respectively; each including a deferred tax liability
for taxable temporary differences caused by different amortization periods for
identified intangibles of approximately $9.4 million.
With the adoption of SFAS No. 142 in the first quarter of fiscal 2003 (See Note
C), 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 caused
by 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 had net
deferred tax assets of approximately $4.1 million and $3.6 million, respectively
as of March 31, 2002. As the Company is currently in a net operating loss
position, Holdings and Enterprises recorded valuation allowances to offset each
of their respective quarterly income tax benefits from operations as well as the
amount by which their deferred tax assets exceeded their deferred tax
liabilities, excluding the deferred tax liability related to identified
intangibles as of March 31, 2002. Further, since SFAS No. 142 does not provide
for the valuation allowances that resulted from its adoption to be recorded as a
component of the cumulative effect of a change in accounting principle, they are
reflected as a non-cash provision for income taxes in Holdings' and Enterprises'
loss from continuing operations.
NOTE F - Comprehensive Loss
For the three and nine month periods ended December 31, 2002 the comprehensive
loss was ($2,597,000) and ($40,580,000) for Holdings and ($2,019,000) and
($37,839,000) for Enterprises as compared to ($1,635,000) and ($8,749,000) for
Holdings and ($1,128,000) and ($7,222,000) for Enterprises for the three and
nine month periods ended December 31, 2001.
- 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 2002 2001
period ended December 31, ------------------------ -------------------------
- ------------------------- Holdings Enterprises Holdings Enterprises
(in thousands) ---------- ----------- ---------- -----------
Revenues
Millbrook ................................................. $ 112,041 $ 112,041 $ 150,434 $ 150,434
Manischewitz .............................................. 10,468 10,468 13,252 13,252
--------- --------- --------- ---------
Total segment revenues .................................... 122,509 122,509 163,686 163,686
Corporate items, principally
the elimination of
intercompany sales ........................................ (1,647) (1,647) (2,060) (2,060)
--------- --------- --------- ---------
$ 120,862 $ 120,862 $ 161,626 $ 161,626
========= ========= ========= =========
Operating income
Millbrook ................................................. $ 3,075 $ 3,075 $ 3,762 $ 3,762
Manischewitz .............................................. 482 482 1,454 1,454
--------- --------- --------- ---------
Total segment operating
income .................................................... 3,557 3,557 5,216 5,216
Corporate items and
eliminations .............................................. (1,781) (1,750) (3,079) (3,056)
--------- --------- --------- ---------
$ 1,776 $ 1,807 $ 2,137 $ 2,160
========= ========= ========= =========
For the nine month 2002 2001
period ended December 31, ------------------------ -------------------------
- ------------------------- Holdings Enterprises Holdings Enterprises
(in thousands) ---------- ----------- ---------- -----------
Revenues
Millbrook ................................................. $ 347,689 $ 347,689 $ 408,749 $ 408,749
Manischewitz .............................................. 28,225 28,225 30,744 30,744
--------- --------- --------- ---------
Total segment revenues .................................... 375,914 375,914 439,493 439,493
Corporate items, principally
the elimination of
intercompany sales ........................................ (4,526) (4,526) (5,112) (5,112)
--------- --------- --------- ---------
$ 371,388 $ 371,388 $ 434,381 $ 434,381
========= ========= ========= =========
Operating income
Millbrook ................................................. $ 5,700 $ 5,700 $ 6,575 $ 6,575
Manischewitz .............................................. 539 539 3,306 3,306
--------- --------- --------- ---------
Total segment operating
income .................................................... 6,239 6,239 9,881 9,881
Corporate items and
eliminations .............................................. (5,180) (5,129) (9,350) (9,313)
--------- --------- --------- ---------
$ 1,059 $ 1,110 $ 531 $ 568
========= ========= ========= =========
- 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 - Modification of Debt
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
$2.2 million, representing the deferred May and November 2002 interest payments.
Holders of the amended 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 an extraordinary
item 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
extraordinary item 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, the
Company elected to defer the cash payment of interest on its 6% Notes.
NOTE I - New Accounting Pronouncements
SFAS No. 143 "Accounting for Asset Retirement Obligations" was issued in August
2001 and is effective for fiscal years beginning after June 15, 2001. SFAS No.
143 establishes accounting standards for recognition and measurement of a
liability for an asset retirement obligation and the associated asset retirement
cost. SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" was issued in October 2001 and is effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 addresses financial accounting and
reporting for the impairment of long-lived assets. The Company adopted SFAS No.
143 and 144 effective April 1, 2002. The adoption of SFAS No. 143 and 144 did
not have a material impact on the Company's financial position or overall trends
in results of operations.
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. The Company will adopt SFAS No. 145 when it becomes
effective.
SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities"
was issued in June 2002 and is effective prospectively for exit or disposal
activities initiated after December 31, 2002, with earlier adoption encouraged.
SFAS No. 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operations, plant
closing, or other exit or disposal activities. As the provisions of SFAS No. 146
are required to be applied prospectively after the adoption date, management
cannot determine the potential effects that adoption of SFAS No. 146 will have
on the Company's financial statements.
- 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, 2002 decreased
$40.7 million or 25.2% to $120.9 million as compared to $161.6 million for the
three month period ended December 31, 2001. Revenues for the nine month period
ended December 31, 2002 decreased $63.0 million or 14.5% to $371.4 million as
compared to $434.4 million for the nine month period ended December 31, 2001.
Revenues include:
(i) Millbrook's revenues of $112.0 million and $347.7 million for
the three and nine month periods ended December 31, 2002 as
compared to $150.4 million and $408.8 million for the three
and nine month periods ended December 31, 2001;
(ii) Manischewitz' revenues of $10.5 million and $28.2 million for
the three and nine month periods ended December 31, 2002 as
compared to $13.3 million and $30.7 million for the three and
nine month periods ended December 31, 2001; and
(iii) intersegment sales, which are eliminated in consolidation, of
($1.6) million and ($4.5) million for the three and nine month
periods ended December 31, 2002 as compared to ($2.1) million
and ($5.1) million for the three and nine month periods ended
December 31, 2001.
Millbrook's revenues decreased $38.4 million and $61.1 million or 25.5% and
14.9% for the three and nine month periods ended December 31, 2002 as compared
to the comparable periods of the prior year. The decrease in revenues for the
three and nine month periods is principally due to decreased sales to certain
customers as a result of several factors, including a decision made by a prior
customer to move to self-distribution; customer financial difficulties and
bankruptcies during fiscal 2002; customer losses; and an overall decline in
specialty food revenues resulting from lower than expected retail sales at a
number of Millbrook's customers, the aggregate of which exceeded the growth of
sales to certain other customers. The customer financial difficulties include
Ames Department Stores, one of Millbrook's significant customers, announcing its
decision to liquidate under Chapter 7 of the Bankruptcy Code in August, 2002.
Manischewitz' revenues decreased $2.8 million and $2.5 million or 21.0% and 8.2%
for the three and nine month periods ended December 31, 2002 as compared to the
comparable periods of the prior year. The decrease in revenues for the three and
nine month periods is principally due to the timing of the Jewish holiday of
Passover. As the holiday begins approximately three weeks later this year, a
greater percentage of the total Passover orders will be shipped during the
fourth quarter as compared to the comparable period of the prior year. If the
shipment of Passover orders had been consistent with the comparable periods of
the prior year, Manischewitz' revenues for the three and nine month periods
ended December 31, 2002 would have increased 10.8% and 5.5%, respectively. The
decrease in revenues for the three and nine month periods was partially offset
by increased sales of Guiltless Gourmet brand products.
Gross Profit. Gross profit for the three and nine month periods ended December
31, 2002 were $29.1 million and $84.3 million as compared to $36.3 million and
$105.5 million for the three and nine month periods ended December 31, 2001, a
decrease of $7.2 million and $21.2 million or 19.8% and 20.1%. As a percentage
of revenues, the gross profit margin was 24.1% and 22.7% for the three and nine
month periods ended December 31, 2002 as compared to 22.5% and 24.3% for the
three and nine month periods ended December 31, 2001.
- 11 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
The decrease in gross profit dollars and its impact on gross profit margin for
the three month period is principally due to the following:
(i) decreased gross profit dollars associated with Millbrook's
lower revenues ($6.3 million) and increased gross profit
margin (1.9%) resulting from the favorable shift in product
mix as the three months ended December 31, 2002 represented
the first full quarter of no sales to Ames Department Stores
($21.0 million for the three months ended December 31, 2001,
which substantially consisted of lower margin health and
beauty care products); and
(ii) decreased gross profit margin (0.3%) at Manischewitz resulting
from increased promotional allowances, including those
associated with the launch of several new Guiltless Gourmet
products.
The decrease in gross profit dollars and its impact on gross profit margin for
the nine month period is principally due to the following:
(i) decreased gross profit dollars associated with Millbrook's
lower revenues ($19.4 million) and decreased gross profit
margin in the nine month period (1.2%) resulting from the
shift in Millbrook's customer base from serviced to
non-serviced customers and a shift in product mix from higher
margin specialty food products to lower margin health and
beauty care products; and
(ii) decreased gross profit margin (0.4%) at Manischewitz resulting
from increased promotional allowances, including those
associated with the launch of several new Guiltless Gourmet
products.
Operating Expenses. Distribution and warehousing expenses for the three and nine
month periods ended December 31, 2002 were $11.2 million and $34.3 million as
compared to $14.0 million and $41.6 million for the three and nine month periods
ended December 31, 2001. As a percentage of revenues, distribution and
warehousing expenses for the three months ended December 31, 2002 increased 0.7%
to 9.3% as compared to 8.6% in the comparable period of the prior year. For the
nine months ended December 31, 2002, distribution and warehousing expenses as a
percentage of revenues decreased 0.4% to 9.2% as compared to 9.6% in the
comparable period of the prior year. Distribution and warehousing costs for the
three and nine month periods were impacted by the following:
(i) lower warehousing headcount due to reductions made during the
second half of fiscal 2002 and during the three and nine month
periods ended December 31, 2002 directly related to customer
losses and additional headcount reductions realized from a
cost reduction program implemented by Millbrook's management
to more efficiently deploy warehouse personnel; and
(ii) lower transportation costs realized from cost reduction
programs implemented by Millbrook's management to achieve more
efficient routing and enhanced utilization of its 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 nine month
periods ended December 31, 2002 were $16.1 million and $48.8 million, as
compared to $19.2 million and $60.2 million for the three and nine month periods
ended December 31, 2001. As a percentage of revenues, selling, general and
administrative expenses for the three months ended December 31, 2002 increased
1.5% to 13.4% as compared to 11.9% in the comparable period of the prior year.
For the nine months ended December 31, 2002, selling, general and administrative
expenses as a percentage of revenues decreased 0.7% to 13.2% as compared to
13.9% in the comparable period of the prior year. The decrease in selling,
general and administrative costs for the three and nine month periods are
principally due to the following:
(i) lower headcount in Millbrook's salesforce due to reductions
made during the second half of fiscal 2002 and during the
three and nine months ended December 31, 2002 directly related
to customer losses and the shift in Millbrook's customer base
from serviced to non-serviced customers;
(ii) lower headcount in Millbrook's selling, general and
administrative functions realized from a cost reduction
program implemented by Millbrook's management to streamline
its workforce; partially offset by
(iii) increased trade materials and promotion costs associated with
the launch of several new Guiltless Gourmet products and new
radio advertising campaigns for Manischewitz and Season brand
products.
Amortization of intangibles was approximately $43,000 for the nine month period
ended December 31, 2002, as compared to $1.1 million and $3.2 million for the
three and nine month periods ended December 31, 2001. There was no amortization
of intangibles during the three months ended December 31, 2002, as the Company
did not have any remaining intangible assets with definite lives. This decline
resulted from the adoption of SFAS No. 142, which provides that only intangible
assets with definite lives continue to be amortized.
Interest Expense. Interest expense for the three and nine month periods ended
December 31, 2002 was $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) as
compared to $4.6 million (consisting of $0.8 million for Holdings and $3.8
million for Enterprises, respectively) and $14.5 million (consisting of $2.5
million for Holdings and $12.0 million for Enterprises, respectively) for the
three and nine month periods ended December 31, 2001. The decrease in interest
expense is primarily attributable to lower interest rates on lower levels of
debt outstanding under the Company's Credit Agreement and the amendment by
Holdings of the Indenture underlying 92% ($23.0 million) of its 13% Notes
outstanding. The amendment, among other things, reduced the interest rate to 6%
per annum and increased the aggregate outstanding principal by approximately
$2.2 million, representing the deferred May and November 2002 interest payments.
Taxes. The provision for income taxes for the nine month period ended December
31, 2002 was $4.1 million for Holdings and $3.6 million for Enterprises as
compared to an income tax benefit of $0.9 million and $5.1 million for Holdings
and $0.5 million and $4.1 million for Enterprises for the three and nine month
periods ended December 31, 2001. As a result of the adoption of SFAS No. 142,
Holdings and Enterprises recorded valuation allowances to offset their
respective first and second quarter income tax benefits from operations as well
as the amount by which their deferred tax assets exceeded their deferred tax
liabilities, excluding the deferred tax liability related to identified
intangibles as of March 31, 2002. Further, since SFAS No. 142 does not provide
for the valuation allowances that resulted from its adoption to be recorded as a
component of the cumulative effect of a change in accounting principle, they are
reflected as a non-cash provision for income taxes in Holdings' and Enterprises'
loss from continuing operations. For the three and nine month periods ended
December 31, 2001, the income tax benefits principally related to the results of
operations.
- 13 -
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.
Extraordinary Item - Modification of Debt. 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 $2.2 million, representing
the deferred May and November 2002 interest payments. Holders of the amended
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 an extraordinary item 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 extraordinary
item was offset by a valuation allowance required by the adoption of SFAS No.
142.
Net Loss. As a result of the foregoing, the net loss for the three and nine
month periods ended December 31, 2002 was $2.6 million and $40.6 million for
Holdings and $2.0 million and $37.8 million for Enterprises as compared to $1.6
million and $8.8 million for Holdings and $1.1 million and $7.3 million for
Enterprises for the three and nine month periods ended December 31, 2001.
Impact of New Accounting Pronouncements. SFAS No. 143 "Accounting for Asset
Retirement Obligations" was issued in August 2001 and is effective for fiscal
years beginning after June 15, 2001. SFAS No. 143 established accounting
standards for recognition and measurement of a liability for an asset retirement
obligation and the associated asset retirement cost. SFAS No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" was issued in October 2001
and is effective for fiscal years beginning after December 15, 2001. SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets. The Company adopted SFAS No. 143 and 144 effective April 1,
2002. The adoption of SFAS No. 143 and 144 did not have a material impact on the
Company's financial position or overall trends in results of operations.
- 14 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
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. The Company will adopt SFAS No. 145 when it becomes
effective.
SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities"
was issued in June 2002 and is effective prospectively for exit or disposal
activities initiated after December 31, 2002, with earlier adoption encouraged.
SFAS No. 146 requires companies to recognize costs associated with exit or
disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operations, plant
closing, or other exit or disposal activities. As the provisions of SFAS No. 146
are required to be applied prospectively after the adoption date, management
cannot determine the potential effects that adoption of SFAS No. 146 will have
on the Company's financial statements.
Financial Condition, Liquidity and Capital Resources
Operations for the nine months ended December 31, 2002, excluding non-cash
charges for the loss on modification of debt at Holdings, the cumulative effect
of a change in accounting principle, depreciation and amortization and deferred
income taxes, utilized cash of $7.2 million for Holdings and $5.7 million for
Enterprises. Operations for the nine months ended December 31, 2001, excluding
non-cash charges for depreciation and amortization, utilized cash of $0.9
million for Holdings and provided cash of $0.6 million for Enterprises. During
the nine month period ended December 31, 2002, other changes in assets and
liabilities resulting from operating activities utilized cash of $6.8 million
for Holdings and $8.8 million for Enterprises as compared to providing $13.8
million for Holdings and $13.9 million for Enterprises for the nine month period
ended December 31, 2001, resulting in net cash utilized by operating activities
of $14.0 million for Holdings and $14.5 million for Enterprises during the nine
period ended December 31, 2002 and net cash provided by operating activities of
$12.9 million for Holdings and $14.5 million for Enterprises during the nine
months ended December 31, 2001.
Investing activities, which consisted of purchases of plant and equipment
resulted in a use of cash of $0.5 million and $1.9 million for the nine month
periods ended December 31, 2002 and 2001 for each of Holdings and Enterprises,
respectively.
During the nine month period ended December 31, 2002, financing activities,
which principally consisted of borrowings under the Credit Agreement and the
payment of deferred debt modification costs by Holdings, provided cash of $10.3
million for Holdings and $10.8 million for Enterprises. During the nine month
period ended December 31, 2001, financing activities, which principally
consisted of the repayment of $19.2 million under the Credit Agreement offset by
$1.6 million of payments from the Interest Escrow Account by Holdings, utilized
cash of $17.6 million for Holdings and $19.2 million for Enterprises.
At December 31, 2002, the Company's balance sheets include a $9.4 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 be payable unless the underlying assets are sold or an impairment is
recognized for tax purposes.
- 15 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Concluded)
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, 2002, Millbrook and Manischewitz had
approximately $300,000 of cash and approximately $3.5 million of available
borrowing capacity under the Credit Agreement. Given the seasonal nature of the
Company's business, availability increases during the fourth quarter ending
March 31, 2003. The Company is currently in compliance with the covenants
contained in the Credit Agreement and the indentures relating to its senior
notes. On November 1, 2002, the Company elected to defer the cash payment of
interest on its 6% Notes.
From a distribution perspective, Millbrook's business continues to be impacted
by industry consolidation of retail customers, a decision made by a prior
customer to move to self-distribution, customer financial difficulties and
bankruptcies. Customer financial difficulties include Ames Department Stores,
one of Millbrook's significant customers, announcing its decision to liquidate
under Chapter 7 of the Bankruptcy Code in August 2002. The Company expects some
further revenue decline during fiscal 2003, absent new customer growth or
expanded distribution to existing customers, as a result of the aforementioned
factors. 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. Millbrook's operating results
for the nine months ended December 31, 2002 are, on the one hand, out of step
from a strategy execution perspective as specialty food revenues declined.
However, on the other hand, the growth in health and beauty care revenues
reflects Millbrook's success in taking advantage of market opportunities as they
arise. Management continues to believe in its overall strategy. Further,
Millbrook's management has instituted a number of cost reduction programs
designed to streamline its organization to reduce its operating costs and better
meet the demands of its changing markets. From a branded food products
perspective, Manischewitz' operations 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, 2002 filed with the Securities and Exchange Commission.
----------------------------
The foregoing discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains "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 actions of current and potential new competitors,
changes in technology and economic conditions.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure (1) 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 (2) 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 2002, 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 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 2002
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. Exhibits
None
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.
February 14, 2003 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chief Executive Officer
February 14, 2003 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
February 14, 2003 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chief Executive Officer
February 14, 2003 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
- 19 -
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the Quarterly Report on Form 10-Q for the
quarter ended December 31, 2002 (the "Report") by R.A.B. Holdings, Inc., a
Delaware corporation ("Holdings"), and R.A.B. Enterprises, Inc., a Delaware
corporation ("Enterprises" and, together with Holdings, the "Registrant"), each
of the undersigned hereby certifies, to his knowledge, that:
1. The Report fully complies with the requirements of Sections
13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition, results of
operations and cash flows of the Registrant for the quarter
ended December 31, 2002.
R.A.B. HOLDINGS, INC.
February 14, 2003 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chief Executive Officer
February 14, 2003 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
February 14, 2003 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chief Executive Officer
February 14, 2003 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
- 20 -
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard A. Bernstein, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended
December 31, 2002 by R.A.B. Holdings, Inc., a Delaware corporation
("Holdings"), and R.A.B. Enterprises, Inc., a Delaware corporation
("Enterprises" and, together with Holdings, the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's Board of Directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
February 14, 2003 /s/ Richard A. Bernstein
---------------------------------
Richard A. Bernstein
Chief Executive Officer
- 21 -
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Steven M. Grossman, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended
December 31, 2002 by R.A.B. Holdings, Inc., a Delaware corporation
("Holdings"), and R.A.B. Enterprises, Inc., a Delaware corporation
("Enterprises" and, together with Holdings, the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's Board of Directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and
6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
February 14, 2003 /s/ Steven M. Grossman
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Steven M. Grossman
Chief Financial Officer
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