<PAGE>
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 quarterly period ended December 31, 1998
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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
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Commission file number 333-66221
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R.A.B. HOLDINGS, INC. R.A.B. ENTERPRISES, INC.
- ------------------------------------- ----------------------------------
(Exact name of registrant (Exact name of registrant
as specified in its charter) as specified in its charter)
DELAWARE DELAWARE
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(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
13-3893246 13-3988873
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(I.R.S. Employer identification No.) (I.R.S. Employer identification No.)
444 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 688-4500
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N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes No X
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R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1998 (Unaudited) and March 31,
1998 1
Condensed Consolidated Statements of Operations - Three months ended December 31,
1998 and December 31, 1997 (Unaudited) 2
Condensed Consolidated Statements of Operations - Nine months ended December 31,
1998 (Unaudited) and December 31, 1997 3
Condensed Consolidated Statements of Cash Flows - Nine months ended December 31,
1998 (Unaudited) and December 31, 1997 4
Notes to Condensed Consolidated Financial Statements (Unaudited) 5-6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7-10
PART II. OTHER INFORMATION
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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<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
------------------------------- ------------------------------
R.A.B. R.A.B. R.A.B. R.A.B.
Holdings Enterprises Holdings Enterprises
------------- ------------------ --------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 2,236 $ 2,219 $ 2,623 $ 2,623
Accounts receivable 39,621 39,621 27,942 27,942
Inventories 56,657 56,657 41,814 41,814
Restricted investments 5,590 -- -- --
Other current assets 8,614 8,613 5,707 5,810
--------- --------- --------- ---------
Total current assets 112,718 107,110 78,086 78,189
Noncurrent assets:
Restricted investments 8,892 -- -- --
Other assets 13,961 12,419 7,291 7,291
--------- --------- --------- ---------
Total noncurrent assets 22,853 12,419 7,291 7,291
Property, plant and equipment, net 39,064 39,064 23,395 23,395
Excess of cost over fair value of net assets acquired, net 95,670 95,670 -- --
--------- --------- --------- ---------
Total assets $ 270,305 $ 254,263 $ 108,772 $ 108,875
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,169 $ 1,169 $ 815 $ 815
Accounts payable 39,808 39,808 31,035 31,035
Other current liabilities 22,787 21,713 16,233 16,231
--------- --------- --------- ---------
Total current liabilities 63,764 62,690 48,083 48,081
--------- --------- --------- ---------
Noncurrent liabilities:
Long-term debt 190,419 142,419 37,295 37,295
Deferred compensation 7,854 7,854 7,801 7,801
Other liabilities 8,812 8,812 4,416 4,416
--------- --------- --------- ---------
Total noncurrent liabilities 207,085 159,085 49,512 49,512
Stockholders' equity:
Preferred stock, $500 par value, 100,000 shares authorized,
20,000 shares of Series A issued and outstanding 9,906 -- 9,906 --
Common stock, $.01 and $1.00 par value, 1,000,000 shares
and 200 shares authorized, 102,900 shares and 200 shares
at December 31, 1998 and 100,000 shares and 200 shares
at March 31, 1998, issued and outstanding 1 -- 1 --
Additional paid-in capital 249 39,482 98 10,100
Retained earnings (deficit) (10,700) (6,994) 1,174 1,182
--------- --------- --------- ---------
(544) 32,488 11,179 11,282
Less common stock in treasury - 1,600 shares -- -- 2 --
--------- --------- --------- ---------
Total stockholders' equity (544) 32,488 11,177 11,282
--------- --------- --------- ---------
Total liabilities and stockholders' equity $ 270,305 $ 254,263 $ 108,772 $ 108,875
========= ========= ========= =========
</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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
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<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
December 31, 1998 December 31, 1997
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R.A.B. R.A.B. R.A.B. R.A.B.
Holdings Enterprises Holdings Enterprises
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(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 125,992 $ 125,992 $ 136,186 $ 136,186
Costs and expenses:
Cost of sales 95,804 95,804 105,839 105,839
Selling 12,729 12,729 11,065 11,065
Distribution and warehousing 9,699 9,699 9,986 9,986
General and administrative 6,353 6,353 5,832 5,832
Amortization of excess of cost over fair value
of net assets acquired 607 607 - -
--------------- ----------------- --------------- -----------------
Total costs and expenses 125,192 125,192 132,722 132,722
--------------- ----------------- --------------- -----------------
Operating income 800 800 3,464 3,464
Interest expense, net 5,434 4,028 1,285 1,285
--------------- ----------------- --------------- -----------------
(Loss) income before (benefit) provision for income taxes (4,634) (3,228) 2,179 2,179
(Benefit) provision for income taxes (36) (79) 899 899
--------------- ----------------- --------------- -----------------
Net (loss) income $ (4,598) $ (3,149) $ 1,280 $ 1,280
=============== ================= =============== =================
</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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
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<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, 1998 December 31, 1997
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R.A.B. R.A.B. R.A.B. R.A.B.
Holdings Enterprises Holdings Enterprises
--------------- ----------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 360,447 $ 360,447 $ 358,958 $ 358,958
Costs and expenses:
Cost of sales 275,052 275,052 276,327 276,327
Selling 37,525 37,525 32,380 32,380
Distribution and warehousing 28,203 28,203 28,078 28,078
General and administrative 18,154 18,154 16,413 16,409
Amortization of excess of cost over fair value
of net assets acquired 1,621 1,621 - -
--------------- ------------- --------------- -----------------
Total costs and expenses 360,555 360,555 353,198 353,194
--------------- ------------- --------------- -----------------
Operating (loss) income (108) (108) 5,760 5,764
Interest expense, net 14,631 10,933 3,871 3,871
--------------- ------------- --------------- -----------------
(Loss) income before (benefit) provision for income taxes (14,739) (11,041) 1,889 1,893
(Benefit) provision for income taxes (2,865) (2,865) 900 900
--------------- ------------- --------------- -----------------
Net (loss) income $ (11,874) $ (8,176) $ 989 $ 993
=============== ============= =============== =================
</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>
Nine Months Ended Nine Months Ended
December 31, 1998 December 31, 1997
-------------------------------- --------------------------
R.A.B. R.A.B. R.A.B. R.A.B.
Holdings Enterprises Holdings Enterprises
------------- ---------------- ------------ -----------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (11,874) $ (8,176) $ 989 $ 993
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,122 4,940 3,096 3,096
Amortization of excess of cost over fair value
of net assets acquired 1,621 1,621 -- --
Deferred income taxes (1,777) (1,777) 742 742
Changes in assets and liabilities:
Accounts receivable 4,907 4,907 841 841
Inventories (8,346) (8,346) (3,312) (3,312)
Accounts payable 6,273 6,273 10,795 10,795
Other assets and liabilities (1,392) (1,652) 12,388 13,115
--------- --------- --------- ---------
Net cash (used in) provided by operating activities (5,466) (2,210) 25,539 26,270
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of The B. Manischewitz Company, LLC,
net of cash acquired (126,155) (126,155) -- --
Acquisitions of plant and equipment (2,551) (2,551) (1,888) (1,888)
--------- --------- --------- ---------
Net cash used in investing activities (128,706) (128,706) (1,888) (1,888)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 168,000 120,000 -- --
Payment of debt issuance costs (5,975) (4,348) -- --
Funding of Interest Escrow Account (16,991) -- -- --
Payment from Interest Escrow Account 3,120 -- -- --
Repayments under Credit Agreement (14,522) (14,522) (23,607) (23,607)
Proceeds from issuance of common stock 151 -- -- --
Issuance (purchase) of treasury (common) stock 2 -- (2) --
Additional equity investment from Parent -- 29,382 -- --
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 133,785 130,512 (23,609) (23,607)
--------- --------- --------- ---------
Net (decrease) increase in cash (387) (404) 42 775
Cash, beginning of period 2,623 2,623 2,637 1,903
--------- --------- --------- ---------
Cash, end of period $ 2,236 $ 2,219 $ 2,679 $ 2,678
========= ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,751 $ 7,631 $ 3,725 $ 3,725
Income taxes $ 755 $ 755 $ 716 $ 716
</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)
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 summary of significant accounting policies included in its
consolidated financial statements as of March 31, 1998 and 1997 contained in the
Company's Registration Statement on Form S-4, as amended (the "Registration
Statement") filed with the Securities and Exchange Commission.
Effective March 3, 1998, Enterprises entered into a purchase agreement with MANO
Holdings I, LLC, KBMC Acquisition Company, L.P., MANO Holdings Corporation
("MANO") and the stockholders of MANO to acquire all of the outstanding
membership interests of Manischewitz. 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 1/2% ("10 1/2% Senior Notes") and the issuance by Holdings of $48 million
Senior Notes due 2008 bearing interest at 13% ("13% Senior Notes"). The 10 1/2%
Senior 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 1/2% Senior 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% Senior Notes will pay interest for the first three years, semi-annually
from a $17 million 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% Senior Notes are outstanding, may only be used to pay the
semi-annual interest due.
The acquisition of Manischewitz was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities of
Manischewitz based upon their estimated fair values at the date of acquisition,
based on preliminary allocations of purchase price which are subject to further
refinement and adjustment, including appraisals and other valuation analyses. In
the opinion of management, the preliminary allocations are not expected to
materially differ from the final allocations. The final allocations will include
costs relating to identified intangible assets, principally, trade names and
trademarks which will be amortized over a forty-year period. The excess of cost
over the fair value of net assets acquired represents goodwill which is being
amortized on a straight-line basis over its estimated useful life of forty
years. The condensed consolidated statements of operations include the operating
results of Manischewitz since its date of acquisition.
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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 (Concluded)
(Unaudited)
NOTE A - Basis of Presentation (continued)
The pro forma consolidated historical results, as if the Manischewitz business
had been acquired at the beginning of each of the periods presented are as
follows (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
December 31, 1998 December 31, 1997
------------------------------ ------------------------------
R.A.B. R.A.B. R.A.B. R.A.B.
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Revenues $362,614 $362,614 $ 385,356 $ 385,356
Net loss $(15,704) $ (9,492) $ (7,674) $ (3,131)
</TABLE>
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 December 31, 1998, and the results of operations and
cash flows for the periods ended December 31, 1998 and 1997.
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,
1998 1998
------------ ---------
Raw materials $ 1,603 $ -
Finished goods 55,054 27,942
-------- --------
$ 56,657 $ 27,942
======== ========
NOTE C - Related Party Transactions
For the nine month periods ended December 31, 1998 and 1997, the Company paid
$900,000 in each period to an affiliated entity for management fees, reasonable
services provided and expenses incurred on its behalf.
NOTE D - Comprehensive Income
Effective April 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which establishes
requirements for the reporting of comprehensive income (loss) and its
components. The Company does not have any other comprehensive income (loss), as
defined by SFAS No. 130; accordingly, there is no difference between the
Company's net income (loss) and comprehensive income (loss).
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Revenues. Revenues for the three month period ended December 31, 1998 decreased
$10.2 million or 7.5% to $126.0 million as compared to $136.2 million for the
three month period ended December 31, 1997. Revenues for the nine month period
ended December 31, 1998 increased $1.5 million or 0.4% to $360.4 million as
compared to $358.9 million for the nine month period ended December 31, 1997.
Revenues include Manischewitz sales of $9.9 million and $20.8 million and
Millbrook's sales of $116.1 million and $339.6 million for the three and nine
month periods ended December 31, 1998 as compared to Millbrook's sales of $136.2
million and $358.9 million for the three and nine month periods ended December
31, 1997.
Millbrook's decreased revenues for the three and nine month periods are
primarily due to sales ($20.3 million) to a customer serviced in the prior
periods as a result of a threatened strike of the customer's distribution
operations, which sales were not replaced in the current three and nine month
periods.
Manischewitz revenues decreased $2.2 million or 9.4% to $20.8 million since its
acquisition on May 1, 1998 as compared to $23.0 million for the comparable
pre-acquisition period. This decrease is principally comprised of sales related
to Manischewitz's Chicago division which was sold in June 1997 ($0.7 million)
and a slower sales rate during the first ninety days of Enterprises' ownership
caused by distributor uncertainty resulting from the acquisition ($1.1 million).
Due to Enterprises' ownership of Millbrook, distributors were initially very
cautious about continuing to place product orders if we were intending to
terminate their right to distribute Manischewitz products. Following management
meetings with a number of distributors, revenues for the five months ended
December 31, 1998 have generally been in line with the comparable
pre-acquisition period.
Gross Profit. Gross profit for the three month period ended December 31, 1998
was $30.2 million as compared to $30.3 million for the three month period ended
December 31, 1997, a decrease of 0.1%. Gross profit for the nine month period
ended December 31, 1998 was $85.4 million as compared to $82.6 million for the
nine month period ended December 31, 1997, an increase of 3.3%. As a percentage
of revenues, the gross profit margin increased to 24.0% for the three month
period ended December 31, 1998 as compared to 22.3% for the three month period
ended December 31, 1997. As a percentage of revenues, the gross profit margin
was 23.7% for the nine month period ended December 31, 1998 as compared to 23.0%
for the nine month period ended December 31, 1997.
The comparable level of gross profit dollars for three month period and the
increase in gross profit dollars for nine month period is primarily due to the
following:
(i) the contribution of the gross profit on Manischewitz's sales since its
acquisition ($3.6 million or 1.0% and $7.6 million or 0.8% for the
three and nine month periods);
(ii) the lost margin on sales to a customer in response to a threatened
strike of its distribution operations, which sales were not replaced
($4.2 million or 0.3% and 0.2% for the three and nine month periods);
(iii) the contribution of the gross profit on the growth in Millbrook's
third-party service merchandising business ($0.8 million or 0.5% and
$2.0 million or 0.4% for the three and nine month periods); and
(iv) the lost margin resulting from the heightened competitive pressures
within the health and beauty care and general merchandise segments of
our distribution business and the shift in sales mix from higher margin
general merchandise to lower margin health and beauty care products
($1.8 million or (0.5%) for the nine month period).
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Operating Expenses. Distribution and warehousing expenses for the three and nine
month periods ended December 31, 1998 were $9.7 million and $28.2 million, as
compared to $10.0 million and $28.1 million for the three and nine month periods
ended December 31, 1997.
Selling, general and administrative expenses for the three and nine month
periods ended December 31, 1998 were $19.1 million and $55.7 million, as
compared to $16.9 million and $48.8 million for the three and nine month periods
ended December 31, 1997. The $2.2 million increase for the three month period
and the $6.9 million increase for the nine month period consists of the
following:
(i) $2.4 million and $5.4 million from Manischewitz's operations for the
three and nine month periods ended December 31, 1998; and
(ii) a $0.2 million (0.2%) decrease and $1.5 million (3.0%) increase from
Millbrook's operations for the three and nine month periods ended
December 31, 1998. The increase for the nine month period at Millbrook
primarily relates to increased payroll and related costs associated
with the growth in our third-party service merchandising business and
increased selling expenses associated with the acquisition of new
customers, including the proposal and product conversion process, which
are expensed as incurred.
Amortization of excess of cost over fair value of net assets acquired was $0.6
million and $1.6 million for the three month and nine month periods ended
December 31, 1998 as a result of the Manischewitz acquisition. There was no such
amortization for the comparable pre-acquisition periods.
Interest Expense. Interest expense for the three and nine month periods ended
December 31, 1998 was $5.4 million and $14.6 million (consisting of $1.4 million
and $3.7 million for Holdings and $4.0 million and $10.9 million for
Enterprises, respectively), as compared to $1.3 million and $3.9 million for
Holdings and Enterprises for the three and nine month periods ended December 31,
1997. 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, resulting in higher average debt outstanding at higher average
interest rates.
Taxes. The benefit for income taxes for the three and nine month periods ended
December 31, 1998 was $0.1 million and $2.9 million for Holdings and
Enterprises, as compared to a provision of $0.9 million for Holdings and
Enterprises for the three and nine month periods ended December 31, 1997. The
increase of $1.0 million and $3.8 million for Holdings principally relates to
the results of operations. However, the income tax benefit for each of Holdings
and Enterprises for the nine month period ended December 31, 1998 was limited
due to the establishment of valuation allowances ($2.5 million and $1.0 million,
respectively), since as a result of the cumulative additional net interest
expense, management was unable to conclude that deferred tax benefits would be
realized.
Net Loss. As a result of the foregoing, the net loss for the three and nine
month periods ended December 31, 1998 was $4.6 million and $11.9 million for
Holdings and $3.1 million and $8.2 million for Enterprises, respectively as
compared to net income of $1.2 million and $1.0 million for the three and nine
month periods ended December 31, 1997 for Holdings and Enterprises.
Impact of New Accounting Pronouncements. Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued in June 1997 and is effective for financial
statements for periods beginning after December 15, 1997. This statement
establishes standards for the manner in which operating segments of public
reporting entities are presented in interim and annual financial statements.
Holdings and Enterprises believe its current reporting systems will enable it to
comply with the requirements of SFAS No. 131.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Impact of New Accounting Pronouncements (continued). SFAS No. 132 "Employers'
Disclosures about Pensions and Other Postretirement Benefits" was issued in
February, 1998 and is effective for periods beginning after December 15, 1997.
The Company will adopt SFAS No. 132, effective for its 1999 fiscal year-end.
The aforementioned recently issued accounting pronouncements establish standards
for disclosures only and therefore will have no impact our financial position or
results of operations.
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" was
issued in June, 1998 and is effective for fiscal years beginning after June 15,
1999. SFAS No. 133 requires the recognition of all derivatives in the
consolidated balance sheet as either assets or liabilities measured at fair
value. We will adopt SFAS No. 133, effective for our 2001 fiscal year-end. We
have not yet determined the impact SFAS No. 133 will have on our financial
position or results of operations when such statement is adopted.
Exchange Offer. On October 28, 1998, the Company filed the Registration
Statement relating to among other things, an offer to exchange (the "Exchange
Offer") up to $120 million in aggregate principal amount of 10-1/2% Senior Notes
due 2005 and up to $48 million in aggregate principal amount of 13% Senior Notes
due 2008. The Registration Statement was declared effective by the Securities
and Exchange Commission on February 12, 1999 and the Exchange Offer was
completed on March 22, 1999.
Financial Condition, Liquidity and Capital Resources
Operations for the nine months ended December 31, 1998, excluding non-cash
charges for depreciation, amortization and deferred income taxes, utilized cash
of $6.9 million for Holdings and $3.4 million for Enterprises as compared to
providing cash of $4.8 million for each of Holdings and Enterprises, for the
nine months ended December 31, 1997. During the nine months ended December 31,
1998 and 1997, other changes in assets and liabilities resulting from operating
activities provided cash of $4.6 million for Holdings and $1.2 million for
Enterprises and $20.7 million for Holdings and $21.5 million for Enterprises,
respectively, resulting in net cash used in operating activities of $2.3 million
for Holdings and $2.2 million for Enterprises and net cash provided by operating
activities of $25.5 million for Holdings and $26.3 million for Enterprises,
respectively. Investing activities, which principally consisted of the
acquisition of Manischewitz in the 1998 period and the acquisitions of property
and equipment, resulted in a use of cash of $128.7 million and $1.9 million for
each of Holdings and Enterprises, respectively, for the nine month periods ended
December 31, 1998 and 1997. During the nine month period ended December 31,
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 $14.5 million in 1998, provided cash of
$130.7 million for Holdings and $130.5 million for Enterprises. During the nine
month period ended December 31, 1997, financing activities used cash of $23.6
million for repayment of borrowings under the Credit Agreement.
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,
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Concluded)
Year 2000 (Continued)
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. We currently intend to
substantially complete the remediation, validation and implementation phases of
the year 2000 project by June 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.
We estimate that the aggregate costs of the year 2000 project will be
approximately $1.25 million, including costs already incurred of approximately
$600,000 through December 31, 1998. 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.
----------
The foregoing discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains forward-looking statements, which
reflect management's current views with respect to future events and financial
performance. These forward-looking statements are based on many assumptions and
other factors. Any changes in such assumptions or factors could produce
significantly different results.
-10-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a. Exhibits
27.1 Financial Data Schedule for R.A.B. Holdings, Inc. for the
nine months ended December 31, 1998.
27.2 Financial Data Schedule for R.A.B. Enterprises, Inc. for the
nine months ended December 31, 1998.
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.
March 24, 1999 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
March 24, 1999 /s/ Steven M. Grossman
------------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
March 24, 1999 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
March 24, 1999 /s/ Steven M. Grossman
------------------------
Steven M. Grossman
Chief Financial Officer
-12-
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