<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 DECEMBER 31, 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
------------------
<TABLE>
<S> <C>
R.A.B. HOLDINGS, INC. R.A.B. ENTERPRISES, INC.
- ------------------------------------------ -----------------------------------------
(Exact name of registrant as specified (Exact name of registrant as specified
in its charter) in its charter)
DELAWARE DELAWARE
- ------------------------------------------ ------------------------------------------
(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
13-3893246 13-3988873
- ------------------------------------------ ------------------------------------------
(I.R.S. Employer identification No.) (I.R.S. Employer identification No.)
444 Madison Avenue, New York, New York 10022
- ------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
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 - December 31, 1999
and March 31, 1999 1
Condensed Consolidated Statements of Operations - Three
months ended December 31, 1999 and 1998 2
Condensed Consolidated Statements of Operations - Nine
months ended December 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows - Nine
months ended December 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 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 14
PART II. OTHER INFORMATION
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>
December 31, 1999 March 31, 1999
----------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 4,778 $ 4,751 $ 2,088 $ 2,078
Accounts receivable 38,134 38,134 52,989 52,989
Inventories 72,846 72,846 62,061 62,061
Restricted investments 3,076 -- 5,805 --
Other current assets 5,936 7,584 11,640 9,848
--------- --------- --------- ---------
Total current assets 124,770 123,315 134,583 126,976
--------- --------- --------- ---------
Noncurrent assets:
Restricted investments 1,584 -- 8,880 --
Other assets 11,954 11,778 14,935 13,268
--------- --------- --------- ---------
Total noncurrent assets 13,538 11,778 23,815 13,268
Property, plant and equipment, net 36,055 36,055 38,467 38,467
Intangibles, net 97,500 97,500 100,078 100,078
--------- --------- --------- ---------
Total assets $ 271,863 $ 268,648 $ 296,943 $ 278,789
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,783 $ 1,783 $ 1,291 $ 1,291
Accounts payable 48,171 48,171 55,866 55,866
Other current liabilities 19,813 18,865 26,138 23,437
--------- --------- --------- ---------
Total current liabilities 69,767 68,819 83,295 80,594
--------- --------- --------- ---------
Noncurrent liabilities:
Long-term debt 165,630 140,630 182,758 134,758
Other liabilities 22,528 22,528 26,259 26,259
--------- --------- --------- ---------
Total noncurrent liabilities 188,158 163,158 209,017 161,017
Stockholders' equity:
Preferred stock, no par value, 100,000 shares authorized,
24,875 and 20,000 shares of Series A issued and
outstanding at December 31, 1999 and March 31, 1999 12,344 -- 9,906 --
1,000 shares of Series B issued and outstanding
at December 31, 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 December 31, 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) 601 (2,882) (5,748) (2,444)
Accumulated other comprehensive income 71 71 140 140
--------- --------- --------- ---------
13,939 36,671 4,631 37,178
Less common stock in treasury - 900 shares 1 -- -- --
--------- --------- --------- ---------
Total stockholders' equity 13,938 36,671 4,631 37,178
--------- --------- --------- ---------
Total liabilities and stockholders' equity $ 271,863 $ 268,648 $ 296,943 $ 278,789
========= ========= ========= =========
</TABLE>
See notes to Condensed Consolidated Financial Statements
- 1 -
<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
December 31, 1999 December 31, 1998
------------------------ ------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues $ 146,252 $ 146,252 $ 125,992 $ 125,992
Costs and expenses:
Cost of sales 113,320 113,320 95,804 95,804
Selling 12,432 12,432 12,729 12,729
Distribution and warehousing 11,423 11,423 9,699 9,699
General and administrative 6,076 6,063 6,353 6,353
Amortization of intangibles 759 759 607 607
--------- --------- --------- ---------
Total costs and expenses 144,010 143,997 125,192 125,192
--------- --------- --------- ---------
Operating income 2,242 2,255 800 800
Interest expense, net 4,751 3,985 5,434 4,028
--------- --------- --------- ---------
Loss before benefit for income taxes (2,509) (1,730) (4,634) (3,228)
Benefit for income taxes (839) (530) (36) (79)
--------- --------- --------- ---------
Net loss $ (1,670) $ (1,200) $ (4,598) $ (3,149)
========= ========= ========= =========
</TABLE>
See notes to 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>
Nine Months Ended Nine Months Ended
December 31, 1999 December 31, 1998
------------------------ -----------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Revenues $ 417,343 $ 417,297 $ 360,447 $ 360,447
Costs and expenses:
Cost of sales 324,377 324,377 275,052 275,052
Selling 36,212 36,212 37,525 37,525
Distribution and warehousing 32,413 32,413 28,203 28,203
General and administrative 18,187 18,168 18,154 18,154
Amortization of intangibles 2,278 2,278 1,621 1,621
--------- --------- --------- ---------
Total costs and expenses 413,467 413,448 360,555 360,555
--------- --------- --------- ---------
Operating income (loss) 3,876 3,849 (108) (108)
Interest expense, net 14,158 11,841 14,631 10,933
--------- --------- --------- ---------
Loss before benefit for income taxes and
extraordinary item (10,282) (7,992) (14,739) (11,041)
Benefit for income taxes (3,717) (2,812) (2,865) (2,865)
--------- --------- --------- ---------
Loss before extraordinary item (6,565) (5,180) (11,874) (8,176)
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) $ 6,349 $ (438) $ (11,874) $ (8,176)
========= ========= ========= =========
</TABLE>
See notes to Condensed Consolidated Financial Statements
- 3 -
<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>
Nine Months Ended Nine Months Ended
December 31, 1999 December 31, 1998
------------------------ -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 6,349 $ (438) $ (11,874) $ (8,176)
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 7,156 7,048 6,743 6,561
Changes in assets and liabilities:
Accounts receivable 14,855 14,855 4,907 4,907
Inventories (10,785) (10,785) (8,346) (8,346)
Accounts payable (7,695) (7,695) 6,273 6,273
Other assets and liabilities (11,020) (7,790) (5,069) (5,329)
--------- --------- --------- ---------
Net cash used in operating activities (14,054) (9,547) (7,366) (4,110)
--------- --------- --------- ---------
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 (2,728) (2,728) (2,551) (2,551)
--------- --------- --------- ---------
Net cash used in investing activities (2,728) (2,728) (126,806) (126,806)
--------- --------- --------- ---------
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 10,247 -- 3,120 --
Borrowings (repayments) under Credit Agreement 27,214 27,214 (14,522) (14,522)
Proceeds from issuance of preferred stock 3,000 -- -- --
Proceeds from issuance and
repurchase of common stock 27 -- 153 --
Equity investment from Holdings -- -- -- 29,382
--------- --------- --------- ---------
Net cash provided by financing activities 19,472 14,948 133,785 130,512
--------- --------- --------- ---------
Net increase (decrease) in cash 2,690 2,673 (387) (404)
Cash, beginning of period 2,088 2,078 2,623 2,623
--------- --------- --------- ---------
Cash, end of period $ 4,778 $ 4,751 $ 2,236 $ 2,219
========= ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 18,526 $ 13,972 $ 10,751 $ 7,631
Income taxes $ 571 $ 170 $ 755 $ 755
</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
- --------------------------------------------------------------------------------
NOTE A - Basis of Presentation
The unaudited 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 unaudited 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. The information related to March 31, 1999 contained herein
has been derived from the Company's audited consolidated financial statements.
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):
Nine Months Ended
December 31, 1998
---------------------------------
Holdings Enterprises
-------- -----------
Revenues $ 362,614 $ 362,614
Net loss $ (15,704) $ (9,492)
-5-
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
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 December
31, 1999, and the results of operations for the three and nine month periods
ended December 31, 1999 and 1998 and cash flows for the nine month periods ended
December 31, 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):
December 31, March 31,
1999 1999
------------ ---------
Raw materials $ 2,088 $ 1,219
Finished goods 70,758 60,842
------- -------
$72,846 $62,061
======= =======
NOTE C - Related Party Transactions
The Company paid $405,000 and $300,000 for the three month periods ended
December 31, 1999 and 1998, respectively, and $1,200,000 and $900,000 for the
nine month periods ended December 31, 1999 and 1998, respectively, to an
affiliated entity for management fees, services provided and expenses incurred
on its behalf.
NOTE D - Comprehensive Income (Loss)
Holdings' and Enterprises' comprehensive income (loss) was ($1,693) and ($1,223)
and $6,280 and ($507) for the three and nine month periods ended December 31,
1999, respectively.
-6-
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
- --------------------------------------------------------------------------------
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 December 31, 1999 1998
- ------------------------- ----------------------- -----------------------
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Revenues
Millbrook $ 138,946 $ 138,946 $ 116,774 $ 116,774
Manischewitz 7,944 7,944 10,406 10,406
--------- --------- --------- ---------
Total segment revenues 146,890 146,890 127,180 127,180
Corporate items, principally
the elimination of
intercompany sales (638) (638) (1,188) (1,188)
--------- --------- --------- ---------
$ 146,252 $ 146,252 $ 125,992 $ 125,992
========= ========= ========= =========
Operating income
Millbrook $ 3,646 $ 3,646 $ 1,699 $ 1,699
Manischewitz 1,349 1,349 2,136 2,136
--------- --------- --------- ---------
Total segment operating
income 4,995 4,995 3,835 3,835
Corporate items and
eliminations (2,753) (2,740) (3,035) (3,035)
--------- --------- --------- ---------
$ 2,242 $ 2,255 $ 800 $ 800
========= ========= ========= =========
<CAPTION>
For the three month
period ended December 31, 1999 1998
- ------------------------- ----------------------- -----------------------
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Revenues
Millbrook $ 397,749 $ 397,749 $ 340,305 $ 340,305
Manischewitz 20,728 20,728 21,572 21,572
--------- --------- --------- ---------
Total segment revenues 418,477 418,477 361,877 361,877
Corporate items, principally
the elimination of
intercompany sales (1,134) (1,180) (1,430) (1,430)
--------- --------- --------- ---------
$ 417,343 $ 417,297 $ 360,447 $ 360,447
========= ========= ========= =========
Operating income
Millbrook $ 9,019 $ 9,019 $ 3,664 $ 3,664
Manischewitz 2,158 2,158 3,277 3,277
--------- --------- --------- ---------
Total segment operating
income 11,177 11,177 6,941 6,941
Corporate items and
eliminations (7,301) (7,328) (7,049) (7,049)
--------- --------- --------- ---------
$ 3,876 $ 3,849 $ (108) $ (108)
========= ========= ========= =========
</TABLE>
-7-
<PAGE>
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
- --------------------------------------------------------------------------------
NOTE F - Extraordinary Item - Early Extinguishment of Debt
During the nine month period ended December 31, 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.
NOTE G - Subsequent Event
On January 31, 2000, Millbrook acquired certain of the assets and operations of
I. Epstein and Sons, Inc. for a purchase price of approximately $15.3 million,
including transaction costs. The acquisition, which was funded through
additional borrowings under the Company's Credit Agreement, is being accounted
for as a purchase and, accordingly, the purchase price will be allocated to the
assets purchased and liabilities assumed based upon their fair values at the
date of acquisition.
-8-
<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, 1999 increased
$20.3 million or 16.1% to $146.3 million, as compared to $126.0 million for the
three month period ended December 31, 1998. Revenues for the nine month period
ended December 31, 1999 increased $56.9 million or 15.8% to $417.3 million, as
compared to $360.4 million for the nine month period ended December 31, 1998.
Revenues include:
(i) Millbrook sales of $138.9 million and $397.7 million for the three and
nine month periods ended December 31, 1999, as compared to $116.8 million
and $340.3 million for the three and nine month periods ended December 31,
1998;
(ii) Manischewitz' sales of $7.9 million and $20.7 million for the three and
nine month periods ended December 31, 1999, as compared to $10.4 million
and $21.6 million for the three and nine month periods ended December 31,
1998; and
(iii) intersegment sales, which are eliminated in consolidation, of ($0.5)
million and ($1.1) million for the three and nine month periods ended
December 31, 1999, as compared to ($1.2) million and ($1.5) million for
the three and nine month periods ended December 31, 1998.
Millbrook's revenues increased $22.2 million and $57.4 million or 19.0% and
16.9% for the three and nine month periods ended December 31, 1999, as compared
to the comparable periods of the prior year. These increases are principally due
to the growth of sales to existing customers and the addition of new customers.
Manischewitz' revenues decreased $2.5 million and $0.8 million or (23.7%) and
(3.9%) for the three and nine month periods ended December 31, 1999, as compared
to the comparable periods of the prior year. However, since Manischewitz was
acquired on May 1, 1998, the prior period revenues only represent eight months
of the nine month period. Had the comparable pre-acquisition period been
included in the period ended December 31, 1998, Manischewitz' revenues would
have decreased $3.0 million or (12.7%) to $23.7 million. The decline for the
three and nine month periods is principally due to:
(i) lower sales through the period ended December 31, 1999 due to the timing
of the jewish holiday of Passover. As the holiday begins approximately
three weeks later this year, a larger percentage of total Passover orders
will be shipped in the fourth quarter of the fiscal year ending March 31,
2000 as compared to the comparable period of the prior year; and
(ii) customer account changes in Manischewitz' northeast distributor network,
including the termination of its largest northeast distributor during the
three months ended December 31, 1999. Customers previously serviced by the
former distributor were assumed by Manischewitz' affiliate, Millbrook and
two third-party distributors. While these changes have resulted in a
slower order rate during the transition periods, management, based upon
information currently available, does not believe the distributor changes
will have a negative impact on revenues during the fourth quarter of the
fiscal year.
Gross Profit. Gross profit for the three and nine month periods ended December
31, 1999 was $32.9 million and $93.0 million, as compared to $30.2 million and
$85.4 million for the three and nine month periods ended December 31, 1998, an
increase of 8.9% and 9.1%, respectively. As a percentage of revenues, the gross
profit margin decreased to 22.5% and 22.3% for the three and nine month periods
ended December 31, 1999, as compared to 24.0% and 23.7% for the three and nine
month periods ended December 31, 1998.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Gross Profit (continued).
The increase in gross profit dollars and its impact on gross profit margin for
the three and nine 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 ($4.1 million or (1.0%) and $9.3 million or (1.1%) for
the three and nine month periods);
(ii) the lost gross profit margin on lower third party service merchandising
sales of Millbrook as its focus shifted to the transition and integration
of new customer accounts (($0.8 million) or (0.4%) and ($1.3 million) or
(0.3%) for the three and nine month periods); and
(iii) the lost gross profit margin as a result of lower Manischewitz' sales
(($0.9 million) or (0.2%) and ($0.6 million) or (0.1%) for the three and
nine month periods). Had the comparable pre-acquisition period been
included in the period ended December 31, 1998, Manischewitz' gross profit
would have decreased $1.6 million or (18.4%) to $7.3 million and its gross
profit margin would have decreased from 37.4% to 35.0%. 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 nine
month periods ended December 31, 1999 were $11.4 million and $32.4 million, as
compared to $9.7 million and $28.2 million for the three and nine month periods
ended December 31, 1998. As a percentage of revenues, distribution and
warehousing expenses increased to 7.8% for the three month period ended December
31, 1999, as compared to 7.7% for the comparable period of the prior year and
remained unchanged at 7.8% for the nine month periods ended December 31, 1999
and 1998. The increase in distribution and warehousing costs 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 nine month
periods ended December 31, 1999 were $18.5 and $54.4 million, as compared to
$19.1 and $55.7 million for the three and nine month periods ended December 31,
1998. As a percentage of revenues, selling, general and administrative expenses
decreased to 12.7% and 13.0% for the three and nine month periods ended December
31, 1999, as compared to 15.1% and 15.4% for the comparable periods of the prior
year. The $0.6 million and $1.3 million decreases for the three and nine month
periods consist of:
(i) reduced costs of $0.3 million (1.7%) and $2.0 million (4.0%) associated
with Millbrook's operations for the three and nine month periods ended
December 31, 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
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Operating Expenses (continued).
(ii) a decrease of $0.3 million (12.8%) and an increase of $0.7 million (13.1%)
in costs associated with Manischewitz' operations for the three and nine
month periods ended December 31, 1999. Had the comparable pre-acquisition
period been included in the period ended December 31, 1998, Manischewitz'
selling, general and administrative expenses would have increased $0.1
million or 1.6%. 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 $0.8 million and $2.3 million for the three and
nine month periods ended December 31, 1999, as compared to $0.6 million and $1.6
million for the three and nine month periods ended December 31, 1998. This
increase resulted from the comparable prior nine month period including only
eight 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 and nine month periods ended
December 31, 1999 was $4.8 million and $14.2 million (consisting of $0.8 million
and $2.4 million for Holdings and $4.0 million and $11.8 million for
Enterprises), as compared to $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) for the three and nine month periods ended December 31, 1998. The
decrease in interest expense for the three and nine month periods ended December
31, 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 nine month period ended December 31, 1999.
Taxes. The benefit for income taxes for the three and nine month periods ended
December 31, 1999 was $0.8 million and $3.7 million (consisting of $0.3 million
and $0.9 million for Holdings and $0.5 million and $2.8 million for
Enterprises), as compared to $36,000 and $2.9 million (consisting of a provision
of $43,000 for Holdings and a benefit of $79,000 and $2.9 million for
Enterprises) for the three and nine month periods ended December 31, 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 nine month period ended December 31, 1999
was $12.9 million (consisting of $8.2 million, net of income taxes of $5.3
million for Holdings and $4.7 million, net of income taxes of $3.1 million for
Enterprises). This gain resulted from Holdings' repurchase of $23.0 million of
its outstanding 13% Notes and Enterprises' repurchase of approximately $20.9
million of its outstanding 10.5% Notes during the nine month period.
Net Income (Loss). As a result of the foregoing, the net income (loss) for the
three and nine month periods ended December 31, 1999 was ($1.7) million and $6.3
million (consisting of ($0.5) million and $6.7 million for Holdings and ($1.2)
million and ($0.4) million for Enterprises), as compared to net losses of $4.6
million and $11.9 million (consisting of $1.5 million and $3.7 million for
Holdings and $3.1 million and $8.2 million for Enterprises) for the three and
nine month periods ended December 31, 1998.
-11-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
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 on April
1, 2001. 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 nine month period ended December 31, 1999, excluding the net
gain on early extinguishment of debt and non-cash charges for depreciation and
amortization, provided cash of $0.6 million for Holdings and $1.9 million for
Enterprises, as compared to utilizing cash of $5.1 million for Holdings and $1.6
million for Enterprises for the nine month period ended December 31, 1998.
During the nine month periods ended December 31, 1999 and 1998, other changes in
assets and liabilities resulting from operating activities utilized cash of
$14.6 million for Holdings and $11.4 million for Enterprises and $2.3 million
for Holdings and $2.5 million for Enterprises, respectively, resulting in net
cash used in operating activities of $14.1 million for Holdings and $9.5 million
for Enterprises and $7.4 million for Holdings and $4.1 million for 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 $2.7 million and $126.8 million for the
nine month periods ended December 31, 1999 and 1998 for each of Holdings and
Enterprises, respectively.
During the nine month period ended December 31, 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 $10.2 million of payments from the interest
escrow account by Holdings; additional borrowings of $27.2 million under the
Credit Agreement by Holdings and Enterprises; and $3.0 million of proceeds from
the issuance of preferred stock by Holdings, provided cash of $19.5 million for
Holdings and $14.9 million for Enterprises. During the nine month period ended
December 31, 1998, financing activities, which principally consisted of the sale
of $168.0 million of senior notes ($120.0 million for Enterprises), offset by
debt issuance costs of $6.0 million and $4.3 million by Holdings and
Enterprises, respectively, the funding of a $17.0 million interest escrow
account by Holdings, $3.1 million of payments from the interest escrow account
by Holdings; the repayment of borrowings under the Credit Agreement of $14.5
million by Holdings and Enterprises; $0.2 million of proceeds from the issuance
of common stock by Holdings; and an equity investment of $29.4 million by
Holdings into Enterprises, provided cash of $133.8 million for Holdings and
$130.5 million for Enterprises.
As a result of the early extinguishment of debt during the nine month period
ended December 31, 1999, Holdings' and Enterprises' annual interest expense was
reduced by $3.1 million and $1.2 million, respectively.
In January 2000, Millbrook acquired certain of the assets and operations of I.
Epstein & Sons, Inc. for a purchase price of approximately $15.3 million,
including transaction costs. The purchase was funded through additional
borrowings under the Company's Credit Agreement.
-12-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Concluded)
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, we utilized a
multiphased concurrent approach to determine if our systems were capable of
properly recognizing and processing date sensitive information (the "year 2000
project"). The year 2000 project was comprised of the awareness, assessment,
remediation, validation and implementation phases. As of December 31, 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. Currently, we are not
aware of any year 2000 related problems associated with our internal systems or
software or with the systems or software of our suppliers, customers or critical
business partners. If any systems are discovered to be non-compliant, we believe
we will be able to modify or replace those systems in a timely manner to avoid
any material detrimental impact on operations.
Through December 31, 1999, the aggregate costs of the year 2000 project were
approximately $1.0 million. The anticipated impact of any year 2000 related
problems and the ultimate costs of the year 2000 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.
In addition, while we are not aware of any year 2000 related problems with
respect to our significant suppliers, customers and critical business partners,
there can be no guarantee that the systems of third parties will not experience
year 2000 compliance problems. Since we rely on certain other companies, a
failure of those other companies to properly address their system issues as they
arise could have a material adverse effect on us.
-13-
<PAGE>
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.
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, 1999.
27.2 Financial Data Schedule for R.A.B. Enterprises, Inc. for the
nine months ended December 31, 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.
February 15, 2000 /s/ Richard A. Bernstein
----------------------------------------
Richard A. Bernstein
Chairman
February 15, 2000 /s/ Steven M. Grossman
----------------------------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
February 15, 2000 /s/ Richard A. Bernstein
----------------------------------------
Richard A. Bernstein
Chairman
February 15, 2000 /s/ Steven M. Grossman
----------------------------------------
Steven M. Grossman
Chief Financial Officer
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001067702
<NAME> R.A.B. Holdings, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,778
<SECURITIES> 3,076
<RECEIVABLES> 42,192
<ALLOWANCES> (4,058)
<INVENTORY> 72,846
<CURRENT-ASSETS> 124,770
<PP&E> 50,133
<DEPRECIATION> (14,078)
<TOTAL-ASSETS> 271,863
<CURRENT-LIABILITIES> 69,767
<BONDS> 124,150
0
12,844
<COMMON> 1
<OTHER-SE> 1,094
<TOTAL-LIABILITY-AND-EQUITY> 271,863
<SALES> 0
<TOTAL-REVENUES> 417,343
<CGS> 324,377
<TOTAL-COSTS> 89,090
<OTHER-EXPENSES> 413,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,158
<INCOME-PRETAX> (10,282)
<INCOME-TAX> (3,717)
<INCOME-CONTINUING> (6,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 12,914
<CHANGES> 0
<NET-INCOME> 6,349
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001067700
<NAME> R.A.B. Enterprises, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,751
<SECURITIES> 0
<RECEIVABLES> 42,192
<ALLOWANCES> (4,058)
<INVENTORY> 72,846
<CURRENT-ASSETS> 123,315
<PP&E> 50,133
<DEPRECIATION> (14,078)
<TOTAL-ASSETS> 268,648
<CURRENT-LIABILITIES> 68,819
<BONDS> 99,150
0
0
<COMMON> 0
<OTHER-SE> 36,671
<TOTAL-LIABILITY-AND-EQUITY> 268,648
<SALES> 0
<TOTAL-REVENUES> 417,297
<CGS> 324,377
<TOTAL-COSTS> 89,071
<OTHER-EXPENSES> 413,448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,841
<INCOME-PRETAX> (7,992)
<INCOME-TAX> (2,812)
<INCOME-CONTINUING> (5,180)
<DISCONTINUED> 0
<EXTRAORDINARY> 4,742
<CHANGES> 0
<NET-INCOME> (438)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
