<PAGE>
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 JUNE 30, 1999
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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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<S> <C>
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
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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)
</TABLE>
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
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R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
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R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
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TABLE OF CONTENTS
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - June 30, 1999 (Unaudited)
and March 31, 1999 1
Condensed Consolidated Statements of Operations - Three months ended
June 30, 1999 and 1998 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows - Three months ended
June 30, 1999 and 1998 (Unaudited) 3
Notes to Condensed Consolidated Financial Statements (Unaudited) 4-6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE>
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)
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<CAPTION>
June 30, 1999 March 31, 1999
--------------------------------- ---------------------------------
Holdings Enterprises Holdings Enterprises
-------------- ----------------- ------------- -----------------
ASSETS (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 1,428 $ 1,334 $ 2,088 $ 2,078
Accounts receivable 39,642 39,642 52,989 52,989
Inventories 65,817 65,817 62,061 62,061
Restricted investments 3,001 - 5,805 -
Other current assets 7,550 9,017 11,640 9,848
-------------- ----------------- ------------- -----------------
Total current assets 117,438 115,810 134,583 126,976
-------------- ----------------- ------------- -----------------
Noncurrent assets:
Restricted investments 3,124 - 8,880 -
Other assets 13,807 12,902 14,935 13,268
-------------- ----------------- ------------- -----------------
Total noncurrent assets 16,931 12,902 23,815 13,268
Property, plant and equipment, net 37,377 37,377 38,467 38,467
Intangibles, net 98,716 98,716 100,078 100,078
-------------- ----------------- ------------- -----------------
Total assets $ 270,462 $ 264,805 $ 296,943 $ 278,789
============== ================= ============= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,455 $ 1,455 $ 1,291 $ 1,291
Accounts payable 44,343 44,343 55,866 55,866
Other current liabilities 20,705 18,217 26,138 23,437
-------------- ----------------- ------------- -----------------
Total current liabilities 66,503 64,015 83,295 80,594
-------------- ----------------- ------------- -----------------
Noncurrent liabilities:
Long-term debt 163,713 138,713 182,758 134,758
Other liabilities 24,218 24,218 26,259 26,259
-------------- ----------------- ------------- -----------------
Total noncurrent liabilities 187,931 162,931 209,017 161,017
Stockholders' equity:
Preferred stock, $500 par value, 100,000 shares authorized,
25,000 and 20,000 shares of Series A issued and
outstanding at June 30, 1999 and March 31, 1999 12,344 - 9,906 -
1,000 shares of Series B issued and outstanding
at June 30, 1999 500 - - -
Common stock, $.01 and $1.00 par value, 1,000,000 shares
and 200 shares authorized, issued 104,100 shares and
200 shares at June 30, 1999 and March 31, 1999 1 - 1 -
Additional paid-in capital 394 39,482 332 39,482
Retained earnings (deficit) 2,581 (1,831) (5,748) (2,444)
Accumulated other comprehensive income 208 208 140 140
-------------- ----------------- ------------- -----------------
Total stockholders' equity 16,028 37,859 4,631 37,178
-------------- ----------------- ------------- -----------------
Total liabilities and stockholders' equity $ 270,462 $ 264,805 $ 296,943 $ 278,789
============== ================= ============= =================
</TABLE>
See notes to Condensed Consolidated Financial Statements
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R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
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<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
-------------------------------- ---------------------------------
Holdings Enterprises Holdings Enterprises
-------------- ---------------- ------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 125,820 $ 125,774 $ 116,571 $ 116,571
Costs and expenses:
Cost of sales 97,878 97,878 88,915 88,915
Selling 11,370 11,370 11,994 11,994
Distribution and warehousing 9,762 9,762 9,102 9,102
General and administrative 5,912 5,909 5,935 5,935
Amortization of intangibles 762 762 400 400
-------------- ---------------- ------------- -----------------
Total costs and expenses 125,684 125,681 116,346 116,346
-------------- ---------------- ------------- -----------------
Operating income 136 93 225 225
Interest expense, net 4,714 3,918 3,863 2,973
-------------- ---------------- ------------- -----------------
Loss before benefit for income taxes and
extraordinary item (4,578) (3,825) (3,638) (2,748)
Benefit for income taxes (1,713) (1,416) (1,454) (1,102)
-------------- ---------------- ------------- -----------------
Loss before extraordinary item (2,865) (2,409) (2,184) (1,646)
Extraordinary gain on early extinguishment of debt,
net of income taxes of $7.3 million and
$2.0 million, respectively 11,194 3,022 - -
-------------- ---------------- ------------- -----------------
Net income (loss) $ 8,329 $ 613 $ (2,184) $ (1,646)
============== ================ ============= =================
</TABLE>
See notes to Condensed Consolidated Financial Statements
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<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. INTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
-------------------------------- --------------------------------
Holdings Enterprises Holdings Enterprises
------------- ----------------- ------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,329 $ 613 $ (2,184) $ (1,646)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Net gain on early extinguishment of debt (11,194) (3,022) - -
Depreciation and amortization 2,327 2,289 1,861 1,834
Changes in assets and liabilities:
Accounts receivable 13,347 13,347 5,381 5,381
Inventories (3,756) (3,756) (2,662) (2,662)
Accounts payable (11,523) (11,523) 5,792 5,792
Other assets and liabilities (9,378) (7,008) (127) (640)
------------- ----------------- ------------- -----------------
Net cash (used in) provided by operating activities (11,848) (9,060) 8,061 8,059
------------- ----------------- ------------- -----------------
Cash flows from investing activities:
Purchase of The B. Manischewitz Company, LLC,
net of cash acquired - - (124,255) (124,255)
Acquisitions of plant and equipment (1,237) (1,237) (941) (941)
------------- ----------------- ------------- -----------------
Net cash used in investing activities (1,237) (1,237) (125,196) (125,196)
------------- ----------------- ------------- -----------------
Cash flows from financing activities:
Proceeds from issuance and (repurchase of) long-term debt (15,166) (6,416) 168,000 120,000
Payment of debt issuance costs - - (5,975) (4,348)
Funding of Interest Escrow Account - - (16,991) -
Payments from Interest Escrow Account 8,622 - - -
Borrowings (repayments) under Credit Agreement 15,969 15,969 (27,789) (27,789)
Proceeds from issuance of preferred stock 3,000 - - -
Proceeds from issuance and
(repurchase of) common stock - - (2) -
Equity investment from Holdings - - - 29,382
------------- ----------------- ------------- -----------------
Net cash provided by financing activities 12,425 9,553 117,243 117,245
------------- ----------------- ------------- -----------------
Net (decrease) increase in cash (660) (744) 108 108
Cash, beginning of period 2,088 2,078 2,623 2,623
------------- ----------------- ------------- -----------------
Cash, end of period $ 1,428 $ 1,334 $ 2,731 $ 2,731
============= ================= ============= =================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 9,772 $ 6,843 $ 499 $ 499
Income taxes $ 46 $ 46 $ 745 $ 745
</TABLE>
See notes to Condensed Consolidated Financial Statements
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<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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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, 1999 and
1998 contained in the Company's Form 10-K filed with the Securities and Exchange
Commission.
On May 1, 1998, Enterprises acquired all of the outstanding interests of
Manischewitz for approximately $126.2 million through the issuance of $120
million Senior Notes due 2005 bearing interest at 10.5% ("10.5% Notes") and the
issuance by Holdings of $48 million Senior Notes due 2008 bearing interest at
13% ("13% Notes"). The 10.5% Notes are fully and unconditionally guaranteed on a
joint and several basis by Millbrook and Manischewitz. Accordingly, as the
combined financial statements of the subsidiaries guaranteeing the 10.5% Notes
are substantially equivalent to the consolidated financial statements of
Enterprises, no separate financial statements of Millbrook and Manischewitz are
presented since management has determined that such information is not material
to investors.
The 13% Notes pay interest for the first three years, semi-annually from an
interest escrow account which was established upon their issuance. The interest
escrow account consists of treasury securities which have been accounted for as
held to maturity and are classified on the condensed consolidated balance sheets
as Restricted investments. These Restricted investments, which mature November 1
and May 1 during each of the first three years the 13% Notes are outstanding,
may only be used to pay the semi-annual interest due.
The pro forma consolidated historical results, as if the Manischewitz business
had been acquired at the beginning of the period presented is as follows (in
thousands):
Three Months Ended
June 30, 1998
---------------------------------
Holdings Enterprises
------------- ---------------
Revenues $ 118,738 $ 118,738
Net loss $ (4,063) $ (2,220)
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R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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NOTE A - Basis of Presentation (continued)
---------------------
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 as of June 30, 1999, and the results of operations and cash
flows for the periods ended June 30, 1999 and 1998.
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):
June 30, March 31,
1999 1999
-------------- --------------
Raw materials $ 1,076 $ 1,219
Finished goods 64,741 60,842
-------------- --------------
$ 65,817 $ 62,061
============== ==============
NOTE C - Related Party Transactions
--------------------------
For the three month periods ended June 30, 1999 and 1998, the Company paid
$390,000 and $300,000, respectively, to an affiliated entity for management
fees, reasonable services provided and expenses incurred on its behalf.
NOTE D - Comprehensive Income
--------------------
For the period ended June 30, 1999, Holdings' and Enterprises' comprehensive
income was $8,397,000 and $681,000, respectively.
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R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(Unaudited)
- --------------------------------------------------------------------------------
NOTE E - 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.
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For the three month
period ended June 30, 1999 1998
--------------------- ------------------------------- ------------------------------
Holdings Enterprises Holdings Enterprises
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<S> <C> <C> <C> <C>
Revenues
Millbrook ....................... $ 120,761 $ 120,761 $ 112,636 $ 112,636
Manischewitz..................... 5,113 5,113 4,060 4,060
------------ ------------- ------------- -------------
Total segment revenues......... 125,874 125,874 116,696 116,696
Corporate items, principally
the elimination of
intercompany sales............ (54) (100) (125) (125)
------------ ------------- ------------- -------------
$ 125,820 $ 125,774 $ 116,571 $ 116,571
============ ============= ============= =============
Operating income
Millbrook ....................... $ 1,674 $ 1,674 $ 1,882 $ 1,882
Manischewitz..................... 298 298 361 361
------------ ------------- ------------- -------------
Total segment operating
income....................... 1,972 1,972 2,243 2,243
Corporate items and
eliminations................. (1,836) (1,879) (2,018) (2,018)
------------ ------------- ------------- -------------
$ 136 $ 93 $ 225 $ 225
============ ============= ============= =============
</TABLE>
NOTE F - Extraordinary Item - Early Extinguishment of Debt
-------------------------------------------------
During the three month period ended June 30, 1999, Enterprises repurchased
approximately $11.9 million of its outstanding 10.5% Notes resulting in a gain
of approximately $3 million, net of income taxes of approximately $2 million. In
addition, the stockholders of Holdings purchased $3 million of additional
preferred stock to partially fund Holdings' repurchase of $23 million of its
outstanding 13% Notes resulting in a gain of approximately $8.2 million, net of
income taxes of approximately $5.3 million. These transactions were recorded as
extraordinary items.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Revenues. Revenues for the three month period ended June 30, 1999 increased $9.2
million or 7.9% to $125.8 million, as compared to $116.6 million for the three
month period ended June 30, 1998. Revenues include Millbrook sales of $120.8
million and Manischewitz' sales of $5.1 million for the three month period ended
June 30, 1999, as compared to Millbrook's sales of $112.6 million and
Manischewitz' sales of $4.1 million for the three month period ended June 30,
1998. Intersegment sales, which are eliminated in consolidation, were ($0.1)
million for the three month periods ended June 30, 1999 and 1998, respectively.
Millbrook's revenues increased $8.2 million or 7.2%, as compared to the
comparable period of the prior year. This increase is principally due to the
addition of new customers and the growth of sales to existing customers.
Manischewitz' revenues increased $1.0 million or 25.9%, as compared to the
comparable period of the prior year. However, since Manischewitz was acquired on
May 1, 1998, the prior period revenues only represent two months of the
quarterly period. Had the comparable pre-acquisition period been included in the
three month period ended June 30, 1998, Manischewitz' revenues would have
decreased $1.1 million or (17.9%) to $5.1 million. This decline is principally
due to customer account changes in Manischewitz' northeast distributor network
resulting in a slower order rate during the transition period. Management
expects that this transition period will continue into the second quarter of
this fiscal year.
Gross Profit. Gross profit for the three month period ended June 30, 1999 was
$27.9 million, as compared to $27.6 million for the three month period ended
June 30, 1998, an increase of 0.9%. As a percentage of revenues, the gross
profit margin decreased to 22.2% for the three month period ended June 30, 1999,
as compared to 23.7% for the three month period ended June 30, 1998.
The increase in gross profit dollars and its impact on gross profit margin for
three month period is primarily due to:
(i) the contribution of the incremental gross profit on Manischewitz' sales
($0.2 million or 0.0%). Had the comparable pre-acquisition period been
included in the three month period ended June 30, 1998, Manischewitz'
gross profit would have decreased $0.8 million or (30.4%) to $1.8
million and its gross profit margin would have decreased from 39.6% to
33.6%. This decline is principally due to the lower level of sales
resulting in underabsorption of manufacturing overhead; and
(ii) additional margin dollars associated with Millbrook's increased sales,
substantially offset by reduced margins within the health and beauty
care and general merchandise segments of our distribution business due
to sustained competitive pressures and lower gross margin sales due to
the growth of Millbrook's non-serviced customer base as a percentage of
its total customer base ($0.2 million or (1.5%)).
Operating Expenses. Distribution and warehousing expenses for the three month
period ended June 30, 1999 were $9.8 million, as compared to $9.1 million for
the three month period ended June 30, 1998. This increase is principally due to
the reconfiguration of certain of Millbrook's distribution facilities to
accommodate the addition of new customers and the growth of existing customers,
as well as the additional transportation costs to service this business.
Selling, general and administrative expenses for the three month period ended
June 30, 1999 were $17.3 million, as compared to $17.9 million for the three
month period ended June 30, 1998. The $0.6 million decrease for the three month
period consists of:
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Operating Expenses (Continued).
(i) a $1.0 million or (6.0%) decrease from Millbrook's operations for the
three month period ended June 30, 1999. This decrease primarily relates
to reduced payroll and related costs associated with the growth of
Millbrook's non-serviced customer base requiring lower overall
headcount;
(ii) a $0.4 million or 28.9% increase from Manischewitz' operations for the
three month period ended June 30, 1999. Had the comparable
pre-acquisition period been included in the three month period ended
June 30, 1998, Manischewitz' selling, general and administrative
expenses would have decreased $0.3 million or (14.3%). This decrease is
primarily due to lower promotional sales program costs associated with
Manischewitz' reduced revenues.
Amortization of intangibles was $0.8 million for the three month period ended
June 30, 1999, as compared to $0.4 million for the three month period ended June
30, 1998. This increase resulted from the comparable prior period including only
two months of amortization as Manischewitz was acquired on May 1, 1998 and the
finalization of the Company's allocation of intangibles in its March 31, 1999
fiscal year end financial statements.
Interest Expense. Interest expense for the three month period ended June 30,
1999 was $4.7 million (consisting of $0.8 million for Holdings and $3.9 million
for Enterprises), as compared to $3.9 million (consisting of $0.9 million for
Holdings and $3.0 million for Enterprises) for the three month period ended June
30, 1998. The increased interest expense is primarily attributable to the $168
million of Senior Notes which were sold in May 1998 to fund the acquisition of
Manischewitz and additional borrowings under the Company's Credit Agreement,
resulting in higher average debt outstanding.
Taxes. The benefit for income taxes for the three month period ended June 30,
1999 was $1.7 million (consisting of $0.3 million for Holdings and $1.4 million
for Enterprises), as compared to $1.5 million (consisting of $0.4 million for
Holdings and $1.1 million for Enterprises) for the three month period ended June
30, 1998. The change in benefit of ($0.1) million and $0.3 million for Holdings
and Enterprises, respectively, principally relates to the results of operations.
Extraordinary Item - Early Extinguishment of Debt. The extraordinary gain on
early extinguishment of debt for the three month period ended June 30, 1999 was
$11.2 million (consisting of $8.2 million, net of income taxes of $5.3 million
for Holdings and $3.0 million, net of income taxes of $2.0 million for
Enterprises). This gain resulted from Holdings' repurchase of $23.0 million of
its outstanding 13% Notes and Enterprises' repurchase of approximately $11.9
million of its outstanding 10.5% Notes.
Net Income (Loss). As a result of the foregoing, the net income for the three
month period ended June 30, 1999 was $8.3 million (consisting of $7.7 million
for Holdings and $0.6 million for Enterprises), as compared to a net loss of
$2.2 million (consisting of $0.6 million for Holdings and $1.6 million for
Enterprises) for the three month period ended June 30, 1998.
Impact of New Accounting Pronouncements. Statement of Financial Accounting
Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and, as amended, is effective for fiscal
years beginning after June 15, 2000. SFAS No. 133 requires the recognition of
all derivatives in the consolidated balance sheet as either assets or
liabilities measured at fair value. The Company will adopt SFAS No. 133 when it
becomes effective. The Company has not yet determined the impact SFAS No. 133
will have on its financial position or results of operations when such statement
is adopted.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Financial Condition, Liquidity and Capital Resources
Operations for the three months ended June 30, 1999, excluding the net gain on
the early extinguishment of debt and non-cash charges for depreciation and
amortization, utilized cash of $0.5 million for Holdings and $0.1 million for
Enterprises, as compared to utilizing cash of $0.3 million for Holdings and
providing cash of $0.2 million for Enterprises, for the three months ended June
30, 1998. During the three month period ended June 30, 1999 and 1998, other
changes in assets and liabilities resulting from operating activities utilized
cash of $11.3 million for Holdings and $9.0 million for Enterprises and provided
cash of $8.4 million for Holdings and $7.9 million for Enterprises,
respectively, resulting in net cash used in operating activities of $11.8
million for Holdings and $9.1 million for Enterprises and net cash provided by
operating activities of $8.1 million for each of Holdings and Enterprises,
respectively.
Investing activities, which principally consisted of acquisitions of property
and equipment in both periods and the purchase of Manischewitz in the 1998
period, resulted in a use of cash of $1.2 million and $125.2 million for the
three month periods ended June 30, 1999 and 1998 for each of Holdings and
Enterprises, respectively.
During the three month period ended June 30, 1999, financing activities
principally consisted of the repurchase of $23 million of long-term debt for
$8.8 million by Holdings and $11.9 million of long-term debt for $6.4 million by
Enterprises, offset by $8.6 million of payments from the Interest Escrow Account
by Holdings; additional borrowings of $16.0 million under the Credit Agreement;
and $3 million of proceeds from the issuance of preferred stock by Holdings,
resulted in cash provided of $12.4 million for Holdings and $9.6 million for
Enterprises. During the three month period ended June 30, 1998, financing
activities, which principally consisted of the sale of $168.0 million of senior
notes, offset by debt issuance costs of $6.0 million, the funding of a $17.0
million interest escrow account and the repayment of borrowings under the Credit
Agreement of $27.8 million provided cash of $117.2 million for each of Holdings
and Enterprises.
As a result of the early extinguishment of debt during the three month period
ended June 30, 1999, Holdings' and Enterprises' annual interest expense was
reduced by $3.1 million and $0.7 million, respectively.
Year 2000
We utilize computer technologies throughout our business to effectively carry
out day-to-day operations. Computer technologies include both information
technology in the form of hardware and software, as well as embedded technology
in our facilities and equipment. Similar to most companies, as the year 2000
approaches we must determine if our systems are capable of properly recognizing
and processing date sensitive information. We are using a multiphased concurrent
approach to address the year 2000 project, which include the awareness,
assessment, remediation, validation and implementation phases. We have completed
the awareness and assessment phases of the project and are significantly
involved in the remediation phase. We are actively correcting and replacing
those systems which are not year 2000 ready to ensure our ability to continue to
meet the internal needs of our organization and the needs of our suppliers and
customers. As of June 30, 1999, we believe that all of Millbrook's critical
systems are year 2000 compliant. With respect to Manischewitz, the installation
of an upgraded software package is in process. We presently believe that the
completion of the Manischewitz upgrade and the ancillary systems at Millbrook,
representing the substantive remaining portions of our year 2000 project, will
be completed by September 30, 1999. This process includes the testing of
critical systems to ensure that the year 2000 readiness has been accomplished.
We currently believe we will be able to modify, replace or mitigate the affected
systems in time to avoid any material detrimental impact on operations.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
Year 2000 (Continued)
We estimate that the aggregate costs of the year 2000 project will be
approximately $1.25 million, including costs already incurred of approximately
$0.8 million through June 30, 1999. The anticipated impact and costs of the
project, as well as the date on which we expect to complete the project, are
based on management's best estimates using information currently available and
numerous assumptions about future events. However, there can be no guarantee
that these estimates will be achieved and actual results may differ materially
from those plans. Based upon our current estimates and information currently
available, we do not anticipate that the costs associated with this project will
have a material adverse effect on our consolidated financial position, results
of operations or cash flows in future periods.
We have contacted our significant suppliers, customers, and critical business
partners to determine the extent to which we may be vulnerable if these third
parties fail to remediate properly their own year 2000 issues. As the year 2000
approaches we have taken steps to monitor the progress made by these third
parties and intend to test critical system interfaces. We will develop
appropriate contingency plans if a significant exposure is identified relative
to dependencies on third parties systems. While we are not aware presently of
any such significant exposure, there can be no guarantee that the systems of
third parties will be converted in a timely manner. Since we rely on certain
other companies, a failure of these other companies to properly convert its
systems could have a material adverse effect on us.
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, 1999 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 theses 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 action of current and potential new competitors,
changes in technology and economic conditions.
-10-
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Sales of unregistered securities during the quarter. During the quarter
ended June 30, 1999, Holdings issued and sold 5,000 shares of its Series A
Preferred Stock for an aggregate consideration of $2,500,000 and 1,000 shares of
its Series B Preferred Stock for an aggregate consideration of $500,000. All of
these shares were sold to existing stockholders of Holdings. Each share is
convertible into shares of Common Stock of Holdings following an initial public
offering of its shares of Common Stock. These shares have not been registered
with the Securities and Exchange Commission in reliance on the exemption
provided in Section 4(2) of the Securities Act of 1933, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibits
27.1 Financial Data Schedule for R.A.B. Holdings, Inc.
for the three months ended June 30, 1999.
27.2 Financial Data Schedule for R.A.B. Enterprises,
Inc. for the three months ended June 30, 1999.
b. No reports were filed on Form 8-K during the quarter for
which this report is filed.
-11-
<PAGE>
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.
August 20, 1999 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
August 20, 1999 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
August 20, 1999 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
August 20, 1999 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
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