<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 SEPTEMBER 30, 1999
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 (Exact name of registrant as
specified in its charter) specified in its charter)
DELAWARE DELAWARE
- -------------------------------------- --------------------------------------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
13-3893246 13-3988873
- -------------------------------------- --------------------------------------
(I.R.S. Employer identification No.) (I.R.S. Employer identification No.)
444 Madison Avenue, New York, New York 10022
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(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 [_]
<PAGE>
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 - September 30,
1999 (Unaudited) and March 31, 1999 1
Condensed Consolidated Statements of Operations - Three
months ended September 30, 1999 and 1998 (Unaudited) 2
Condensed Consolidated Statements of Operations - Six
months ended September 30, 1999 and 1998 (Unaudited) 3
Condensed Consolidated Statements of Cash Flows - Six
months ended September 30, 1999 and 1998 (Unaudited) 4
Notes to Condensed Consolidated Financial Statements
(Unaudited) 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<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)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------------ -------------------------
Holdings Enterprises Holdings Enterprises
--------- --------- --------- ---------
ASSETS (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 3,142 $ 3,102 $ 2,088 $ 2,078
Accounts receivable 41,887 41,887 52,989 52,989
Inventories 69,302 69,302 62,061 62,061
Restricted investments 3,091 -- 5,805 --
Other current assets 6,812 7,928 11,640 9,848
--------- --------- --------- ---------
Total current assets 124,234 122,219 134,583 126,976
--------- --------- --------- ---------
Noncurrent assets:
Restricted investments 3,119 -- 8,880 --
Other assets 12,041 11,816 14,935 13,268
--------- --------- --------- ---------
Total noncurrent assets 15,160 11,816 23,815 13,268
Property, plant and equipment, net 36,646 36,646 38,467 38,467
Intangibles, net 98,259 98,259 100,078 100,078
--------- --------- --------- ---------
Total assets $ 274,299 $ 268,940 $ 296,943 $ 278,789
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,619 $ 1,619 $ 1,291 $ 1,291
Accounts payable 52,606 52,606 55,866 55,866
Other current liabilities 23,143 20,522 26,138 23,437
--------- --------- --------- ---------
Total current liabilities 77,368 74,747 83,295 80,594
--------- --------- --------- ---------
Noncurrent liabilities:
Long-term debt 158,262 133,262 182,758 134,758
Other liabilities 23,037 23,037 26,259 26,259
--------- --------- --------- ---------
Total noncurrent liabilities 181,299 156,299 209,017 161,017
Stockholders' equity:
Preferred stock, $500 par value, 100,000 shares authorized,
24,875 and 20,000 shares of Series A issued and
outstanding at September 30, 1999 and March 31, 1999 12,344 -- 9,906 --
1,000 shares of Series B issued and outstanding
at September 30, 1999 500 -- -- --
Common stock, $.01 and $1.00 par value, 1,000,000 shares
and 200 shares authorized, issued 105,100 shares and
200 shares at September 30, 1999 and 104,100 shares and
200 shares at March 31, 1999 1 -- 1 --
Additional paid-in capital 422 39,482 332 39,482
Retained earnings (deficit) 2,271 (1,682) (5,748) (2,444)
Accumulated other comprehensive income 94 94 140 140
--------- --------- --------- ---------
Total stockholders' equity 15,632 37,894 4,631 37,178
--------- --------- --------- ---------
Total liabilities and stockholders' equity $ 274,299 $ 268,940 $ 296,943 $ 278,789
========= ========= ========= =========
</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)
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
--------------------------- ---------------------------
Holdings Enterprises Holdings Enterprises
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 145,271 $ 145,271 $ 117,884 $ 117,884
Costs and expenses:
Cost of sales 113,179 113,179 90,333 90,333
Selling 12,410 12,410 12,802 12,802
Distribution and warehousing 11,228 11,228 9,402 9,402
General and administrative 6,199 6,196 5,866 5,866
Amortization of intangibles 757 757 614 614
--------- --------- --------- ---------
Total costs and expenses 143,773 143,770 119,017 119,017
--------- --------- --------- ---------
Operating income (loss) 1,498 1,501 (1,133) (1,133)
Interest expense, net 4,693 3,938 5,334 3,932
--------- --------- --------- ---------
Loss before benefit for income taxes and
extraordinary item (3,195) (2,437) (6,467) (5,065)
Benefit for income taxes (1,165) (866) (1,375) (1,684)
--------- --------- --------- ---------
Loss before extraordinary item (2,030) (1,571) (5,092) (3,381)
Extraordinary gain on early extinguishment of debt,
net of income taxes of $1.1 million and
$1.1 million, respectively 1,720 1,720 -- --
--------- --------- --------- ---------
Net income (loss) $ (310) $ 149 $ (5,092) $ (3,381)
========= ========= ========= =========
</TABLE>
See notes to Condensed Consolidated Financial Statements
-2-
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, 1999 September 30, 1998
--------------------------- ---------------------------
Holdings Enterprises Holdings Enterprises
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 271,091 $ 271,045 $ 234,455 $ 234,455
Costs and expenses:
Cost of sales 211,057 211,057 179,248 179,248
Selling 23,780 23,780 24,796 24,796
Distribution and warehousing 20,990 20,990 18,504 18,504
General and administrative 12,111 12,105 11,801 11,801
Amortization of intangibles 1,519 1,519 1,014 1,014
--------- --------- --------- ---------
Total costs and expenses 269,457 269,451 235,363 235,363
--------- --------- --------- ---------
Operating income (loss) 1,634 1,594 (908) (908)
Interest expense, net 9,407 7,856 9,197 6,905
--------- --------- --------- ---------
Loss before benefit for income taxes and
extraordinary item (7,773) (6,262) (10,105) (7,813)
Benefit for income taxes (2,878) (2,282) (2,829) (2,786)
--------- --------- --------- ---------
Loss before extraordinary item (4,895) (3,980) (7,276) (5,027)
Extraordinary gain on early extinguishment of debt,
net of income taxes of $8.4 million and
$3.1 million, respectively 12,914 4,742 -- --
--------- --------- --------- ---------
Net income (loss) $ 8,019 $ 762 $ (7,276) $ (5,027)
========= ========= ========= =========
</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 CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, 1999 September 30, 1998
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- --------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 8,019 $ 762 $ (7,276) $ (5,027)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Net gain on early extinguishment of debt (12,914) (4,742) -- --
Depreciation and amortization 4,729 4,653 4,304 4,179
Changes in assets and liabilities:
Accounts receivable 11,102 11,102 9,961 9,961
Inventories (7,241) (7,241) (6,749) (6,749)
Accounts payable (3,260) (3,260) 5,353 5,353
Other assets and liabilities (7,628) (5,597) (873) (2,998)
--------- --------- --------- ---------
Net cash (used in) provided by operating activities (7,193) (4,323) 4,720 4,719
--------- --------- --------- ---------
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 (2,069) (2,069) (1,790) (1,790)
--------- --------- --------- ---------
Net cash used in investing activities (2,069) (2,069) (126,045) (126,045)
--------- --------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance and (repurchase of) long-term debt (21,016) (12,266) 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 19,682 19,682 (22,232) (22,232)
Proceeds from issuance of preferred stock 3,000 -- -- --
Proceeds from issuance and
(repurchase of) common stock 28 -- (1) --
Equity investment from Holdings -- -- -- 29,382
--------- --------- --------- ---------
Net cash provided by financing activities 10,316 7,416 122,801 122,802
--------- --------- --------- ---------
Net increase in cash 1,054 1,024 1,476 1,476
Cash, beginning of period 2,088 2,078 2,623 2,623
--------- --------- --------- ---------
Cash, end of period $ 3,142 $ 3,102 $ 4,099 $ 4,099
========= ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 10,647 $ 7,718 $ 844 $ 844
Income taxes $ 318 $ 93 $ 749 $ 747
</TABLE>
See notes to Condensed Consolidated Financial Statements
-4-
<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 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):
Six Months Ended
September 30, 1998
-------------------------------
Holdings Enterprises
--------- ---------
Revenues $ 236,622 $ 238,986
Net loss $ (6,264) $ (4,036)
-5-
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
- --------------------------------------------------------------------------------
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, consisting of normal recurring
adjustments, necessary to present fairly the financial position as of September
30, 1999, and the results of operations for the three and six month periods
ended September 30, 1999 and 1998 and cash flows for the six month periods ended
September 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):
September 30, March 31,
1999 1999
-------------- --------------
Raw materials $ 2,120 $ 1,219
Finished goods 67,182 60,842
-------------- --------------
$ 69,302 $ 62,061
============== ==============
NOTE C - Related Party Transactions
The Company paid $390,000 and $300,000 for the three month periods ended
September 30, 1999 and 1998, respectively, and $780,000 and $600,000 for the six
month periods ended September 30, 1999 and 1998, respectively, to an affiliated
entity for management fees, reasonable services provided and expenses incurred
on its behalf.
NOTE D - Comprehensive Income
Holdings' and Enterprises' comprehensive income (loss) was ($424,000) and
$35,000 for the three month periods ended September 30, 1999 and 1998,
respectively, and $7,973,000 and $716,000 for the six month periods ended
September 30, 1999 and 1998, respectively.
-6-
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(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.
<TABLE>
<CAPTION>
For the three month
period ended September 30, 1999 1998
------------------------------ ------------------------------
Holdings Enterprises Holdings Enterprises
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Millbrook .................................... $ 138,042 $ 138,042 $ 110,895 $ 110,895
Manischewitz ................................. 7,671 7,671 7,106 7,106
--------- --------- --------- ---------
Total segment revenues ..................... 145,713 145,713 118,001 118,001
Corporate items, principally
the elimination of
intercompany sales .......................... (442) (442) (117) (117)
--------- --------- --------- ---------
$ 145,271 $ 145,271 $ 117,884 $ 117,884
========= ========= ========= =========
Operating income
Millbrook .................................... $ 3,699 $ 3,699 $ 83 $ 83
Manischewitz ................................. 511 511 780 780
--------- --------- --------- ---------
Total segment operating
income .................................... 4,210 4,210 863 863
Corporate items and
eliminations ................................ (2,712) (2,709) (1,996) (1,996)
--------- --------- --------- ---------
$ 1,498 $ 1,501 $ (1,133) $ (1,133)
========= ========= ========= =========
<CAPTION>
For the six month
period ended September 30, 1999 1998
------------------------------ ------------------------------
Holdings Enterprises Holdings Enterprises
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Millbrook .................................... $ 258,803 $ 258,803 $ 223,531 $ 223,531
Manischewitz ................................. 12,784 12,784 11,166 11,166
--------- --------- --------- ---------
Total segment revenues ..................... 271,587 271,587 234,697 234,697
Corporate items, principally
the elimination of
intercompany sales .......................... (496) (542) (242) (242)
--------- --------- --------- ---------
$ 271,091 $ 271,045 $ 234,455 $ 234,455
========= ========= ========= =========
Operating income
Millbrook .................................... $ 5,373 $ 5,373 $ 1,965 $ 1,965
Manischewitz ................................. 809 809 1,141 1,141
--------- --------- --------- ---------
Total segment operating
income .................................... 6,182 6,182 3,106 3,106
Corporate items and
eliminations ................................ (4,548) (4,588) (4,014) (4,014)
--------- --------- --------- ---------
$ 1,634 $ 1,594 $ (908) $ (908)
========= ========= ========= =========
</TABLE>
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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 F - Extraordinary Item - Early Extinguishment of Debt
During the three month period ended September 30, 1999, Enterprises repurchased
$9.0 million of its outstanding 10.5% Notes resulting in a gain of approximately
$1.7 million, net of income taxes of approximately $1.1 million. During the six
month period ended September 30, 1999, Enterprises repurchased approximately
$20.9 million of its outstanding 10.5% Notes resulting in a gain of
approximately $4.7 million, net of income taxes of approximately $3.1 million.
In addition, the stockholders of Holdings purchased $3.0 million of additional
preferred stock to partially fund Holdings' repurchase of $23.0 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.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Revenues. Revenues for the three month period ended September 30, 1999 increased
$27.4 million or 23.2% to $145.3 million, as compared to $117.9 million for the
three month period ended September 30, 1998. Revenues for the six month period
ended September 30, 1999 increased $36.6 million or 15.6% to $271.1 million as
compared to $234.4 million for the six month period ended September 30, 1998.
Revenues include:
(i) Millbrook sales of $138.0 million and $258.8 million for the three and six
month periods ended September 30, 1999, as compared to $110.9 million and
$223.5 million for the three and six month periods ended September 30,
1998;
(ii) Manischewitz' sales of $7.7 million and $12.8 million for the three and
six month periods ended September 30, 1999, as compared to $7.1 million
and $11.2 million for the three and six month periods ended September 30,
1998; and
(iii) intersegment sales, which are eliminated in consolidation, of ($0.4)
million and ($0.5) million for the three and six month periods ended
September 30, 1999, as compared to ($0.1) million and ($0.2) million for
the three and six month periods ended September 30, 1998.
Millbrook's revenues increased $27.1 million and $35.3 million or 24.4% and
15.8% for the three and six month periods ended September 30, 1999, as compared
to the comparable periods of the prior year. This increase is principally due to
the growth of sales to existing customers and the addition of new customers.
Manischewitz' revenues increased $0.6 million and $1.6 million or 7.8% and 14.3%
for the three and six month periods ended September 30, 1999, 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 five months of the six
month period. Had the comparable pre-acquisition period been included in the
period ended September 30, 1998, Manischewitz' revenues would have decreased
$0.5 million or (4.1%) to $12.8 million. The decline for the six month period
was principally due to customer account changes in Manischewitz' northeast
distributor network which had resulted in a slower order rate during the
transition period. While there was some evidence of stabilization during the
three month period ended September 30, 1999, Manischewitz terminated its largest
northeast distributor subsequent to the end of the second quarter. Customers
previously serviced by the former distributor will be assumed by Manischewitz'
affiliate, Millbrook, as well as two other third-party distributors. Based upon
the transition plan in process and information currently available, management
does not believe that the change in distributors will have a negative impact on
revenues during the second half of the fiscal year.
Gross Profit. Gross profit for the three and six month periods ended September
30, 1999 was $32.1 million and $60.0 million, as compared to $27.6 million and
$55.2 million for the three and six month periods ended September 30, 1998, an
increase of 16.5% and 8.7%, respectively. As a percentage of revenues, the gross
profit margin decreased to 22.1% for the three and six month periods ended
September 30, 1999, as compared to 23.4% and 23.5% for the three and six month
periods ended September 30, 1998.
The increase in gross profit dollars and its impact on gross profit margin for
the three and six month periods is principally due to:
(i) additional margin dollars associated with Millbrook's increased sales,
partially offset by reduced margins within the health and beauty care and
general merchandise categories 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 ($5.0 million or (1.0%) and $5.2 million or (1.2%) for
the three and six month periods); and
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Gross Profit (continued).
(ii) the contribution of the incremental gross profit on Manischewitz' sales
($35,000 or (0.1%) and $0.2 million or (0.1%) for the three and six month
periods). Had the comparable pre-acquisition period been included in the
period ended September 30, 1998, Manischewitz' gross profit would have
decreased $0.8 million or (15.6%) to $4.3 million and its gross profit
margin would have decreased from 37.8% to 33.3%. This decline is
principally due to the lower level of sales resulting in underabsorption
of manufacturing overhead and a shift in product mix to lower margin
products.
Operating Expenses. Distribution and warehousing expenses for the three and six
month periods ended September 30, 1999 were $11.2 million and $21.0 million, as
compared to $9.4 million and $18.5 million for the three and six month periods
ended September 30, 1998. As a percentage of revenues, distribution and
warehousing expenses decreased to 7.7% for the three and six month periods ended
September 30, 1999, as compared to 8.0% and 7.9% for the comparable periods of
the prior year. The increase in distribution and warehousing dollars is
principally due to:
(i) the labor and transportation costs associated with the revenue increases
generated by Millbrook's existing customers and the addition of new
customers; and
(ii) the reconfiguration of certain of Millbrook's distribution facilities to
accommodate the addition of new customers.
Selling, general and administrative expenses for the three and six month periods
ended September 30, 1999 were $18.6 and $35.9 million, as compared to $18.7 and
$36.6 million for the three and six month periods ended September 30, 1998. As a
percentage of revenues, selling general and administrative expenses decreased to
12.8% and 13.2% for the three and six month periods ended September 30, 1999, as
compared to 15.8% and 15.6% for the comparable periods of the prior year. The
$0.1 million and $0.7 million decreases for the three and six month periods
consist of:
(i) a $0.7 million and $1.7 million or 4.3% and 5.1% decreases from
Millbrook's operations for the three and six month periods ended September
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; and
(ii) a $0.6 million and $1.0 million or 37.3% and 33.8% increases from
Manischewitz' operations for the three and six month periods ended
September 30, 1999. Had the comparable pre-acquisition period been
included in the period ended September 30, 1998, Manischewitz' selling,
general and administrative expenses would have increased $0.4 million or
11.2%. This increase is primarily due to incremental payroll and related
employee benefits costs in conjunction with Manischewitz' overall strategy
to market its products beyond its traditional customer base, partially
offset by lower promotional sales program costs associated with
Manischewitz' reduced revenues.
Amortization of intangibles was $0.7 million and $1.5 million for the three and
six month periods ended September 30, 1999, as compared to $0.6 million and $1.0
million for the three and six month periods ended September 30, 1998. This
increase resulted from the comparable prior six month period including only five
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.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Interest Expense. Interest expense for the three and six month periods ended
September 30, 1999 was $4.7 million and $9.4 million (consisting of $0.8 million
and $1.6 million for Holdings and $3.9 million and $7.8 million for
Enterprises), as compared to $5.3 million and $9.2 million (consisting of $1.4
million and $2.3 million for Holdings and $3.9 million and $6.9 million for
Enterprises) for the three and six month periods ended September 30, 1998. The
decrease in interest expense for the three month period ended September 30, 1999
is primarily attributable to a lower weighted average interest rate on debt
outstanding as a result of Holdings' and Enterprises' repurchase of Senior Notes
during the six month period ended September 30, 1999. The increase in interest
expense for the six month period 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 and six month periods ended
September 30, 1999 was $1.2 million and $2.9 million (consisting of $0.3 million
and $0.6 million for Holdings and $0.9 million and $2.3 million for
Enterprises), as compared to $1.4 million and $2.8 million (consisting of ($0.3)
million for Holdings and $1.7 million and $2.8 million for Enterprises) for the
three and six month periods ended September 30, 1998. The change in the benefit
for income taxes principally relates to the results of operations.
Extraordinary Item - Early Extinguishment of Debt. The extraordinary gain on
early extinguishment of debt for the three and six month periods ended September
30, 1999 was $1.7 million and $12.9 million (consisting of $8.2 million, net of
income taxes of $5.3 million during the six month period for Holdings and $1.7
million and $4.7 million, net of income taxes of $1.1 million and $3.1 million
during the three and six month periods for Enterprises). This gain resulted from
Holdings' repurchase of $23.0 million of its outstanding 13% Notes during the
six month period and Enterprises' repurchase of $9.0 million and approximately
$20.9 million of its outstanding 10.5% Notes during the three and six month
periods, respectively.
Net Income (Loss). As a result of the foregoing, the net (loss) income for the
three and six month periods ended September 30, 1999 was ($0.3) million and $8.0
million (consisting of ($0.4) million and $7.2 million for Holdings and $0.1
million and $0.8 million for Enterprises), as compared to a net loss of $5.0
million and $7.3 million (consisting of $1.7 million and 2.3 million for
Holdings and $3.3 million and $5.0 million for Enterprises) for the three and
six month periods ended September 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.
Financial Condition, Liquidity and Capital Resources
Operations for the six month period ended September 30, 1999, excluding the net
gain on early extinguishment of debt and non-cash charges for depreciation and
amortization, utilized cash of $0.2 million for Holdings and provided cash of
$0.7 million for Enterprises, as compared to utilizing cash of $3.0 million for
Holdings and $0.9 million for Enterprises for the six month period ended
September 30, 1998. During the six month period ended September 30, 1999 and
1998, other changes in assets and liabilities resulting from operating
activities utilized cash of $7.0 million for Holdings and $5.0 million for
Enterprises and provided cash of $7.7 million for Holdings and $5.6 million for
Enterprises, respectively, resulting in net cash used in
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Financial Condition, Liquidity and Capital Resources (continued)
operating activities of $7.2 million for Holdings and $4.3 million for
Enterprises and net cash provided by operating activities of $4.7 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 $2.1 million and $126.0 million for the six
month periods ended September 30, 1999 and 1998 for each of Holdings and
Enterprises, respectively.
During the six month period ended September 30, 1999, financing activities,
which principally consisted of the repurchase of $23.0 million of long-term debt
for $8.8 million by Holdings and $20.9 million of long-term debt for $12.2
million by Enterprises, offset by $8.6 million of payments from the interest
Escrow Account by Holdings; additional borrowings of $19.7 million under the
Credit Agreement; and $3.0 million of proceeds from the issuance of preferred
stock by Holdings, provided cash of $10.3 million for Holdings and $7.4 million
for Enterprises. During the six month period ended September 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 $22.2 million provided cash of $122.8 million for each of Holdings
and Enterprises.
As a result of the early extinguishment of debt during the six month period
ended September 30, 1999, Holdings' and Enterprises' annual interest expense was
reduced by $3.1 million and $1.2 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, assessment and remediation phases of the project. As of September
30, 1999, we believe that all of Millbrook's critical and ancillary systems are
year 2000 compliant. With respect to Manischewitz, the installation of an
upgraded software package has been completed and is operational. We continue to
test and validate our critical and ancillary systems to ensure that the year
2000 readiness has been accomplished. We currently believe we will be able to
modify, replace or mitigate any improperly functioning 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
$0.9 million through September 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.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Concluded)
Year 2000 (continued)
We have contacted our significant suppliers, customers, and critical business
partners to determine the extent to which we may be vulnerable if those 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 those third
parties and have tested critical system interfaces. 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 those other companies to properly convert
their 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 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 action of current and potential new competitors,
changes in technology and economic conditions.
-13-
<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 September 30, 1999, Holdings sold 1,000 shares of its common stock for an
aggregate consideration of $28,100 to a member of operating management. 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 six
months ended September 30, 1999.
27.2 Financial Data Schedule for R.A.B. Enterprises, Inc. for the
six months ended September 30, 1999.
b. No reports were filed on Form 8-K during the quarter for which this
report is filed.
-14-
<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.
November 11, 1999 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
November 11, 1999 /s/ Steven M. Grossman
------------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
November 11, 1999 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
November 11, 1999 /s/ Steven M. Grossman
------------------------
Steven M. Grossman
Chief Financial Officer
-15-
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