<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, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ____________
Commission File number 333-66221
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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
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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 X No
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<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, 2000
and March 31, 2000 1
Condensed Consolidated Statements of Operations -
Three months ended September 30, 2000 and 1999 2
Condensed Consolidated Statements of Operations -
Six months ended September 30, 2000 and 1999 3
Condensed Consolidated Statements of Cash Flows -
Six months ended September 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
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>
September 30, 2000 March 31, 2000
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash $ 1,667 $ 1,662 $ 4,637 $ 4,618
Accounts receivable 42,829 42,829 54,985 54,985
Inventories 74,682 74,682 65,286 65,286
Restricted investments 3,200 -- 3,145 --
Other current assets 9,870 8,017 5,757 6,805
--------- --------- --------- ---------
Total current assets 132,248 127,190 133,810 131,694
--------- --------- --------- ---------
Noncurrent assets:
Restricted investments -- -- 1,582 --
Other assets 12,310 14,951 13,158 12,178
--------- --------- --------- ---------
Total noncurrent assets 12,310 14,951 14,740 12,178
Property, plant and equipment, net 37,036 37,036 37,199 37,199
Intangibles, net 115,824 115,824 104,259 104,259
--------- --------- --------- ---------
Total assets $ 297,418 $ 295,001 $ 290,008 $ 285,330
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Current maturities of
long-term debt $ 1,866 $ 1,866 $ 1,946 $ 1,946
Accounts payable 54,956 54,956 50,581 50,581
Other current liabilities 25,499 24,154 26,734 24,101
--------- --------- --------- ---------
Total current liabilities 82,321 80,976 79,261 76,628
--------- --------- --------- ---------
Noncurrent liabilities:
Long-term debt 175,813 150,813 168,143 143,143
Other liabilities 23,521 23,521 23,856 23,856
--------- --------- --------- ---------
Total noncurrent liabilities 199,334 174,334 191,999 166,999
Stockholders' equity:
Preferred stock, $500 par value,
100,000 shares authorized,
24,875 shares of Series A
issued and outstanding 12,344 -- 12,344 --
1,000 shares of Series B
issued and outstanding 500 -- 500 --
Common stock, $.01 and $1.00 par
value, 1,000,000 shares and 200
shares authorized, issued 105,100
shares and 200 shares, respectively 1 -- 1 --
Additional paid-in capital 387 39,482 428 39,482
Retained earnings 2,386 62 5,317 2,062
Accumulated other comprehensive
income 147 147 159 159
--------- --------- --------- ---------
15,765 39,691 18,749 41,703
Less common stock in treasury -2,300
shares and 700 shares, respectively 2 -- 1 --
--------- --------- --------- ---------
Total stockholders' equity 15,763 39,691 18,748 41,703
--------- --------- --------- ---------
Total liabilities and
stockholders' equity $ 297,418 $ 295,001 $ 290,008 $ 285,330
========= ========= ========= =========
</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, 2000 September 30, 1999
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues $ 154,646 $ 154,646 $ 144,536 $ 144,536
Costs and expenses:
Cost of sales 117,515 117,515 113,179 113,179
Selling 14,280 14,280 11,675 11,675
Distribution and warehousing 14,684 14,684 11,228 11,228
General and administrative 7,565 7,561 6,199 6,196
Amortization of intangibles 1,015 1,015 757 757
--------- --------- --------- ---------
Total costs and expenses 155,059 155,055 143,038 143,035
--------- --------- --------- ---------
Operating (loss) income (413) (409) 1,498 1,501
Interest expense, net 4,790 4,024 4,693 3,938
--------- --------- --------- ---------
Loss before benefit for income taxes
and extraordinary item (5,203) (4,433) (3,195) (2,437)
Benefit for income taxes (1,885) (1,572) (1,165) (866)
--------- --------- --------- ---------
Loss before extraordinary item (3,318) (2,861) (2,030) (1,571)
Extraordinary gain on early
extinguishment of debt,
net of income taxes of $1.1 million -- -- 1,720 1,720
--------- --------- --------- ---------
Net (loss) income $ (3,318) $ (2,861) $ (310) $ 149
========= ========= ========= =========
</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 30,2000 September 30,1999
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues $ 311,980 $ 311,980 $ 270,107 $ 270,061
Costs and expenses:
Cost of sales 236,835 236,835 211,057 211,057
Selling 29,578 29,578 22,796 22,796
Distribution and warehousing 28,928 28,928 20,990 20,990
General and administrative 14,650 14,643 12,111 12,105
Amortization of intangibles 1,979 1,979 1,519 1,519
--------- --------- --------- ---------
Total costs and expenses 311,970 311,963 268,473 268,467
--------- --------- --------- ---------
Operating income 10 17 1,634 1,594
Interest expense, net 9,682 8,133 9,407 7,856
--------- --------- --------- ---------
Loss before benefit for income
taxes and extraordinary item (9,672) (8,116) (7,773) (6,262)
Benefit for income taxes (3,547) (2,922) (2,878) (2,282)
--------- --------- --------- ---------
Loss before extraordinary item (6,125) (5,194) (4,895) (3,980)
Extraordinary gain on early
extinguishment of debt, net of
income taxes of $2.1 million at
September 30, 2000 and $8.4 million
and $3.1 million at September 30,
1999, respectively 3,194 3,194 12,914 4,742
--------- --------- --------- ---------
Net (loss) income $ (2,931) $ (2,000) $ 8,019 $ 762
========= ========= ========= =========
</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>
Six Months Ended Six Months Ended
September 30, 2000 September 30, 1999
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (2,931) $ (2,000) $ 8,019 $ 762
Adjustments to reconcile net
(loss) income to net cash provided
by (used in) operating activities:
Extraordinary gain on early
extinguishment of debt, net
of income taxes (3,194) (3,194) (12,914) (4,742)
Depreciation and amortization 5,422 5,369 4,729 4,653
Changes in assets and liabilities:
Accounts receivable 20,163 20,163 11,102 11,102
Inventories (4,754) (4,754) (7,241) (7,241)
Accounts payable (3,602) (3,602) (3,260) (3,260)
Other assets and liabilities (10,531) (9,812) (7,628) (5,597)
--------- --------- --------- ---------
Net cash provided by (used in) operating
activities 573 2,170 (7,193) (4,323)
--------- --------- --------- ---------
Cash flows from investing activities:
Purchase of Miller Buckeye Biscuit
Company, Inc., net of cash acquired (17,567) (17,567) -- --
Acquisitions of plant and equipment (980) (980) (2,069) (2,069)
--------- --------- --------- ---------
Net cash used in investing activities (18,547) (18,547) (2,069) (2,069)
--------- --------- --------- ---------
Cash flows from financing activities:
Purchase of senior notes (12,979) (12,979) (21,016) (12,266)
Payments from Interest Escrow Account 1,625 -- 8,622 --
Proceeds from issuance of preferred stock -- -- 3,000 --
Borrowings under Credit Agreement 26,400 26,400 19,682 19,682
Proceeds from (repurchase) and
issuance of common stock (42) -- 28 --
--------- --------- --------- ---------
Net cash provided by financing activities 15,004 13,421 10,316 7,416
--------- --------- --------- ---------
Net (decrease) increase in cash (2,970) (2,956) 1,054 1,024
Cash, beginning of period 4,637 4,618 2,088 2,078
--------- --------- --------- ---------
Cash, end of period $ 1,667 $ 1,662 $ 3,142 $ 3,102
========= ========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 9,944 $ 8,319 $ 10,647 $ 7,718
Income taxes $ 4,267 $ 422 $ 318 $ 93
</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, 2000 and
1999 contained in the Company's Form 10-K filed with the Securities and Exchange
Commission. The information related to March 31, 2000 contained herein has been
derived from the Company's audited consolidated financial statements.
On April 17, 2000, Millbrook acquired substantially all of the assets and
operations of the Miller Buckeye Biscuit Company, Inc. ("Miller Buckeye") for a
purchase price of approximately $17.6 million, including transaction costs. The
acquisition, which was funded through borrowings under the Company's Credit
Agreement, was accounted for as a purchase. Accordingly, the purchase price was
allocated to the assets purchased and liabilities assumed based upon their
estimated fair values at the date of acquisition, utilizing preliminary
allocations of purchase price which are subject to further refinement and
adjustment, including appraisals and other valuation analyses. The excess of
cost over the fair value of net assets acquired represents goodwill, which is
being amortized on a straight-line basis over twenty years.
On January 31, 2000, Millbrook acquired certain of the assets and operations of
I. Epstein & Sons, Inc. ("Epstein") for a purchase price of approximately $15.4
million, including transaction costs. Epstein was a full service distributor of
kosher and specialty food products, including its Season brand of canned fish,
vegetables and other specialty food products. Concurrent with the acquisition,
the management and ownership of the Season brand was assumed by the Company's
Manischewitz subsidiary. Pro forma historical operating results reflecting the
Miller Buckeye and Epstein acquisitions have not been included as the impact of
each of these acquisitions was not considered significant on a consolidated
basis.
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.
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.
-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 necessary to present fairly the
financial position of the Company as of September 30, 2000, and the results of
operations and cash flows for the periods ended September 30, 2000 and 1999.
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,
2000 2000
------------ ---------
Raw materials $ 1,515 $ 1,815
Finished goods 73,167 63,471
------------ ---------
$74,682 $65,286
============ =========
NOTE C - Related Party Transactions
--------------------------
For the three month periods ended September 30, 2000 and 1999, the Company paid
$502,500 and $390,000, respectively, and for the six month periods ended
September 30, 2000 and 1999, the Company paid $1,005,000 and $780,000,
respectively to an affiliated entity for management fees, reasonable services
provided and expenses incurred on its behalf.
NOTE D - Revenues
--------
Revenues for the six months ended September 30, 2000 include other income from
the sale of land in Israel of approximately $700,000.
NOTE E - Comprehensive Income (Loss)
---------------------------
For the three month periods ended September 30, 2000 and 1999, Holdings' and
Enterprises' comprehensive income (loss) was ($3,261,000) and ($2,804,000) and
($424,000) and $35,000, respectively, and for the six month periods ended
September 30, 2000 and 1999, Holdings' and Enterprises' comprehensive income
(loss) was ($2,943,000) and ($2,012,000) and $7,973,000 and $716,000,
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, 2000 1999
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Revenues
Millbrook.............................. $ 148,690 $ 148,690 $ 138,042 $ 138,042
Manischewitz........................... 8,707 8,707 6,936 6,936
--------- --------- --------- ---------
Total segment revenues................ 157,397 157,397 144,978 144,978
Corporate items, principally
the elimination of
intercompany sales................... (2,751) (2,751) (442) (442)
--------- --------- --------- ---------
$ 154,646 $ 154,646 $ 144,536 $ 144,536
========= ========= ========= =========
Operating income
Millbrook.............................. $ 2,756 $ 2,756 $ 3,699 $ 3,699
Manischewitz........................... 322 322 511 511
--------- --------- --------- ---------
Total segment operating income....... 3,078 3,078 4,210 4,210
Corporate items and eliminations....... (3,491) (3,487) (2,712) (2,709)
--------- --------- --------- ---------
$ (413) $ (409) $ 1,498 $ 1,501
========= ========= ========= =========
For the six month
period ended September 30, 2000 1999
------------------------- -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Revenues
Millbrook.............................. $ 303,099 $ 303,099 $ 258,803 $ 258,803
Manischewitz........................... 15,541 15,541 11,800 11,800
--------- --------- --------- ---------
Total segment revenues............... 318,640 318,640 270,603 270,603
Corporate items, principally
the elimination of
intercompany sales................... (6,660) (6,660) (496) (542)
--------- --------- --------- ---------
$ 311,980 $ 311,980 $ 270,107 $ 270,061
========= ========= ========= =========
Operating income
Millbrook.............................. $ 5,431 $ 5,431 $ 5,373 $ 5,373
Manischewitz........................... 1,231 1,231 809 809
--------- --------- --------- ---------
Total segment operating income....... 6,662 6,662 6,182 6,182
Corporate items and eliminations....... (6,652) (6,645) (4,548) (4,588)
--------- --------- --------- ---------
$ 10 $ 17 $ 1,634 $ 1,594
========= ========= ========= =========
</TABLE>
-7-
<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
approximately $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 periods ended September 30, 2000 and 1999, Enterprises
repurchased approximately $18.8 million and $20.9 million of its outstanding
10.5% Notes resulting in a gain of approximately $3.2 million and $4.7 million,
net of income taxes of approximately $2.1 million and $3.1 million,
respectively. In addition, during the six month period ended September 30, 1999,
the stockholders of Holdings purchased $3 million of additional preferred stock
to partially fund Holdings' repurchase of $23 million of its outstanding 13%
Notes resulting in a gain of approximately $8.2 million, net of income taxes of
approximately $5.3 million.
NOTE G - New Accounting Pronouncement
----------------------------
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.
NOTE H - Subsequent Event
----------------
On November 1, 2000, Manischewitz acquired substantially all of the assets and
operations of Guiltless Gourmet, Inc. for a purchase price of approximately $5.0
million, including transaction costs. The acquisition, which was funded through
borrowings under the Company's Credit Agreement, was accounted for as a
purchase. Accordingly, the purchase price was allocated to the assets purchased
and liabilities assumed based upon their estimated fair values at the date of
acquisition, utilizing preliminary allocations of purchase price which are
subject to further refinement and adjustment, including appraisals and other
valuation analyses. The excess of cost over the fair value of net assets
acquired represents goodwill which, when finalized, will be amortized on a
straight-line basis over its estimated useful life.
-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, 2000 increased
$10.1 million or 7.0% to $154.6 million as compared to $144.5 million for the
three month period ended September 30, 1999. Revenues for the six month period
ended September 30, 2000 increased $41.9 million or 15.5% to $312.0 million as
compared to $270.1 million for the six month period ended September 30, 1999.
Revenues include:
(i) Millbrook's revenues of $148.7 million and $303.1 million for
the three and six month periods ended September 30, 2000 as
compared to $138.0 million and $258.8 million for the three and six
month periods ended September 30, 1999;
(ii) Manischewitz' revenues of $8.7 million and $15.5 million for
the three and six month periods ended September 30, 2000 as
compared to $6.9 million and $11.8 million for the three and six
month periods ended September 30, 1999; and
(iii) intersegment sales, which are eliminated in consolidation, of
$2.8 million and $6.6 million for the three and six month periods
ended September 30, 2000 as compared to $0.4 million and $0.5
million for the three and six month periods ended September 30,
1999.
Millbrook's revenues increased $10.7 million and $44.3 million or 7.7% and 17.1%
for the three and six month periods ended September 30, 2000 as compared to the
comparable periods of the prior year. The increases in revenues for the three
and six month periods are principally due to the following:
(i) distribution sales ($24.1 million and $48.5 million for the
three and six month periods) to new customer accounts gained as a
result of the Epstein and Miller Buckeye acquisitions; partially
offset by
(ii) decreased sales ($13.4 million and $4.2 million for the three
and six month periods) to certain customers as a result of customer
losses during the period, industry consolidation, significantly
reduced customer promotional activities and customer financial
difficulties, the aggregate of which exceeded the growth of sales
to certain other customers. In addition, the quarter over quarter
comparison for the three months ended September 30, 2000 was
negatively impacted as sales in the comparable period of the prior
year included product shipments to support the integration of a
significant acquisition of Millbrook's largest customer.
Manischewitz' revenues increased $1.8 million and $3.7 million or 25.5% and
31.7% for the three and six month periods ended September 30, 2000 as compared
to the comparable periods of the prior year. The increases in revenues for the
three and six month periods are principally due to the following:
(i) sales of Season brand products acquired as part of the Epstein
acquisition ($1.8 million and $3.4 million for the three and six
month periods ended September 30, 2000); and
(ii) a gain on the sale of land in Israel ($0.7 million for the six
month period ended September 30, 2000); partially offset by
(iii) lower sales of Manischewitz brand products ($0.4 million for
the six month period ended September 30, 2000).
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Gross Profit. Gross profit for the three and six month periods ended September
30, 2000 was $37.1 million and $75.1 million as compared to $31.4 million and
$59.0 million for the three and six month periods ended September 30, 1999, an
increase of $5.7 million and $16.1 million or 18.4% and 27.4%. As a percentage
of revenues, the gross profit margin was 24.0% and 24.1% for the three and six
month periods ended September 30, 2000 as compared to 21.7% and 21.8% for the
three and six month periods ended September 30, 1999.
The increases in gross profit dollars and its impact on gross profit margin for
the three and six month periods are primarily due to the following:
(i) distribution sales acquired as part of the Epstein and Miller
Buckeye acquisitions and additional margin dollars associated with
the favorable shift in Millbrook's product mix from lower margin
health and beauty care products to higher margin specialty food
products ($5.8 million or 2.3% and $15.1 million or 1.8% for the
three and six month periods). During the three month period ended
September 30, 2000, the operations associated with the Epstein
acquisition were merged into Millbrook's operations. As a result,
only consolidated operating results will be presented on a
prospective basis; and
(ii) additional margin dollars associated with Manischewitz' sales
($0.4 million or 0.4% for the six month period). This increase is
principally due to a favorable shift in product mix to higher
margin products.
Operating Expenses. Distribution and warehousing expenses for the three and six
month periods ended September 30, 2000 were $14.7 million and $28.9 million as
compared to $11.2 million and $21.0 million for the three and six month periods
ended September 30, 1999. As a percentage of revenues, distribution and
warehousing expenses increased to 9.5% and 9.3% for the three and six month
periods ended September 30, 2000 as compared to 7.8% in each of the comparable
periods of the prior year. The increases in distribution and warehousing costs
for the three and six month periods are principally due to the following:
(i) the addition of the Company's new distribution facilities in East
Brunswick, New Jersey and Youngstown, Ohio as a result of the
Epstein and Miller Buckeye acquisitions;
(ii) increased compensation and related employee benefit costs due
a tightening labor market and resulting labor shortages at
Millbrook's two largest distribution center locations; and
(iii) increased operating costs associated with Millbrook's fleet due to
rising fuel costs.
Selling, general and administrative expenses for the three and six month periods
ended September 30, 2000 were $21.8 million and $44.2 million, as compared to
$17.9 and $34.9 million for the three and six month periods ended September 30,
1999. As a percentage of revenues, selling, general and administrative expenses
increased to 14.1% and 14.2% for the three and six month periods ended September
30, 2000 as compared to 12.4% and 12.9% for the comparable periods of the prior
year. These increases for the three and six month periods primarily consists of
the following:
(i) incremental selling, general and administrative costs
associated with the Epstein and Miller Buckeye acquisitions ($3.2
million and $7.0 million for the three and six month periods); and
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
(ii) increases of $0.2 million and $1.1 million for the three and
six month periods in costs associated with Manischewitz' operations
principally relating to television advertising, promotional
materials and market research associated with certain of the
Company's mainstream products.
Amortization of intangibles was $1.0 million and $2.0 million for the three and
six month periods ended September 30, 2000 as compared to $0.8 million and $1.5
million for the three and six month periods ended September 30, 1999. This
increase is due to the amortization resulting from the Epstein and Miller
Buckeye acquisitions.
Interest Expense. Interest expense for the three and six month periods ended
September 30, 2000 was $4.8 million and $9.7 million (consisting of $0.8 million
and $1.5 million for Holdings and $4.0 million and $8.2 million for Enterprises,
respectively) as compared to $4.7 million and $9.4 million (consisting of $0.8
million and $1.5 million for Holdings and $3.9 million and $7.9 million for
Enterprises, respectively) for the three and six month periods ended September
30, 1999. The increase in interest expense for the three and six months ended
September 30, 2000 is primarily attributable to higher levels of debt
outstanding under the Company's Credit Agreement as a result of its recent
acquisitions, partially offset by Enterprises' repurchases of 10.5% Notes.
Taxes. The benefit for income taxes for the three and six month periods ended
September 30, 2000 was $1.9 million and $3.5 million for Holdings and $1.6
million and $2.9 million for Enterprises as compared to a benefit of $1.2
million and $2.9 million for Holdings and $0.9 million and $2.3 million for
Enterprises for the three and six month periods ended September 30, 1999. These
benefits principally relate to the results of operations.
Extraordinary Item - Early Extinguishment of Debt. The extraordinary gain on
early extinguishment of debt for the six month period ended September 30, 2000
was $3.2 million (net of income taxes of $2.1 million). This gain resulted from
Enterprises' repurchase of approximately $18.8 million of its outstanding 10.5%
Notes. 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.
Net Income (Loss). As a result of the foregoing, the net loss for the three and
six month periods ended September 30, 2000 was $3.3 million and $2.9 million for
Holdings and $2.9 million and $2.0 million for Enterprises as compared to a net
loss of $0.3 million and net income of $8.0 million for Holdings and net income
of $0.1 million and $0.8 million for Enterprises for the three and six month
periods ended September 30, 1999.
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 of SFAS No. 13
will have on its financial position or results of operations when such statement
is adopted.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Concluded)
Financial Condition, Liquidity and Capital Resources
Operations for the six months ended September 30, 2000, excluding the net gain
on the early extinguishment of debt and non-cash charges for depreciation and
amortization, utilized cash of $0.7 million for Holdings and provided cash of
$0.2 million for Enterprises, as compared to utilizing cash of $0.2 million for
Holdings and providing cash of $0.7 million for Enterprises, for the six months
ended September 30, 1999. During the six month period ended September 30, 2000
and 1999, other changes in assets and liabilities resulting from operating
activities provided cash of $1.3 million for Holdings and $2.0 million for
Enterprises and utilized cash of $7.0 million for Holdings and $5.0 million for
Enterprises, respectively, resulting in net cash provided by operating
activities of $0.6 million for Holdings and $2.2 million for Enterprises and net
cash used in operating activities of $7.2 million for Holdings and $4.3 million
for Enterprises, respectively.
Investing activities, which principally consisted of the acquisition of Miller
Buckeye in the fiscal 2001 period and the acquisitions of property and equipment
resulted in a use of cash of $18.5 million and $2.1 million for the six month
periods ended September 30, 2000 and 1999 for each of Holdings and Enterprises,
respectively.
During the six month period ended September 30, 2000, financing activities,
which principally consisted of the repurchase of approximately $18.8 million of
long-term debt for $13.0 million by Enterprises, offset by $1.6 million of
payments from the Interest Escrow Account by Holdings; and additional borrowings
of $26.4 million under the Credit Agreement, resulting in cash provided of $15.0
million for Holdings and $13.4 million for Enterprises. During the six month
period ended September 30, 1999, financing activities principally consisted of
the repurchase of $23 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 million of
proceeds from the issuance of preferred stock by Holdings, resulting in cash
provided of $10.3 million for Holdings and $7.4 million for Enterprises.
As a result of the early extinguishment of debt during the six month period
ended September 30, 2000, Enterprises' annual interest expense was reduced by
$0.9 million.
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<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, 2000 filed with the Securities and Exchange Commission.
-----------------------
The foregoing discussion in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contains "forward-looking" statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Additionally,
written materials issued and oral statements made from time to time by Holdings
and Enterprises may contain forward-looking statements. Forward-looking
statements can be identified by the fact that they do not relate strictly to
historical or current facts and by their use of words such as "goals",
"expects", "plans", "believes", "estimates", "forecasts", "projects", "intends"
and other words of similar meaning. Execution of business and acquisition
strategies, expansion of product lines and increase of distribution networks or
product sales are areas, among others, whose future success may be difficult to
predict. They are based on management's then-current information, assumptions,
plans, expectations, estimates and projections regarding the food and wholesale
distribution industries. However, such statements are not guarantees of future
performance, and actual results and outcomes may differ materially from what is
expressed depending on a variety of factors, many of which are outside of
Holdings' and Enterprises' control. Given theses uncertainties, current and
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. We undertake no obligation to update or revise any
forward-looking statements or to publicly announce the result of any revisions
to any of the forward-looking statements herein to reflect future events or
developments.
Among the factors that could cause actual outcomes or results to differ
materially from what is expressed in these forward-looking statements are
changes in the demand for, supply of, and market prices of Holdings' and
Enterprises' products, the action of current and potential new competitors,
changes in technology and economic conditions.
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<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
six months ended September 30, 2000.
27.2 Financial Data Schedule for R.A.B. Enterprises, Inc. for the
six months ended September 30, 2000.
b. No reports were filed on Form 8-K during the quarter for which this
report is filed.
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<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 14, 2000 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
November 14, 2000 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
R.A.B. ENTERPRISES, INC.
November 14, 2000 /s/ Richard A. Bernstein
------------------------
Richard A. Bernstein
Chairman
November 14, 2000 /s/ Steven M. Grossman
----------------------
Steven M. Grossman
Chief Financial Officer
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