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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended March 31, 2001
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.
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(Exact name of registrant as specified in its charter) (Exact name of registrant as specified in its charter)
DELAWARE DELAWARE
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(State or other jurisdiction of (State or other jurisdiction of
incorporation or organization) incorporation or organization)
13-3893246 13-3988873
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(I.R.S. Employer identification no.) (I.R.S. Employer identification no.)
444 Madison Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (212) 688-4500
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X]
INDEX
Page
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PART I
Item 1. Business.................................................................................. 1
(a) General Development of Business................................................ 1
(b) Financial Information about Industry Segments.................................. 1
(c) Narrative Description of Business.............................................. 2
(d) Other Matters.................................................................. 8
(e) Financial Information about Foreign and Domestic Operations.................... 9
Item 2. Properties................................................................................ 9
Item 3. Legal Proceedings......................................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders....................................... 10
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters..................... 10
Item 6. Selected Financial Data................................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................................. 11
Item 7a. Quantitative and Qualitative Disclosures about Market Risk................................ 19
Item 8. Financial Statements and Supplementary Data............................................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................... 19
PART III
Item 10. Directors and Executive Officers of the Registrants....................................... 20
Item 11. Executive Compensation.................................................................... 22
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 24
Item 13. Certain Relationships and Related Transactions............................................ 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 27
PART I
Item 1. Business
(a) General Development of Business
On May 6, 1996, R.A.B. Holdings, Inc., a Delaware corporation
("Holdings"), was formed to build a fully integrated specialty food business by
acquiring food manufacturers with strong brand names and integrating their
products with a strong distribution network. On March 31, 1997, Holdings
acquired Millbrook Distribution Services Inc., a Delaware corporation
("Millbrook"), which is one of the nation's largest value-added full service
independent distributors of specialty foods, health and beauty care products and
general merchandise. On January 26, 1998, Holdings formed a wholly-owned
subsidiary, R.A.B. Enterprises, Inc., a Delaware corporation ("Enterprises"). On
May 1, 1998, Enterprises acquired The B. Manischewitz Company, LLC, a Delaware
limited liability company ("Manischewitz"). Manischewitz is among the nation's
leading manufacturers of processed kosher food products including matzos,
noodles, crackers, cake mixes, cookies, soups and processed fish products.
Concurrent with the Manischewitz acquisition, Holdings contributed its
wholly-owned subsidiary Millbrook to Enterprises. The contribution was accounted
for as an "as if" pooling of interests. Prior to the acquisitions of Millbrook
and Manischewitz, Holdings and Enterprises had no operations. Holdings and
Enterprises are referred to collectively as the "Companies".
On January 31, 2000, Millbrook acquired certain of the assets and
operations of I. Epstein & Sons, Inc. ("Epstein"). Epstein was a full service
distributor of kosher and specialty food products, including its Season(R) 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
Manischewitz.
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. Miller Buckeye was a distributor of specialty foods, cookies, crackers
and snacks to grocery and other retail establishments in Ohio, Pennsylvania,
West Virginia and Western New York.
On November 1, 2000, Manischewitz acquired substantially all of the
assets and operations of Guiltless Gourmet, Inc. ("Guiltless") for a purchase
price of approximately $4.9 million, including transaction costs. Guiltless
owned the number two selling national brand and was a leader in the development
of original baked, not fried, tortilla chips. Guiltless organic baked tortilla
chips, bean dips and salsas are found in natural food supermarkets, supermarket
chains and other grocery and food outlets.
(b) Financial information about Industry Segments
Industry segment information with respect to the operations of Holdings
and Enterprises is included in the notes to the Consolidated Financial
Statements of Holdings and Enterprises for the years ended March 31, 2001, 2000
and 1999 included in Item 8 herein.
1
(c) Narrative Description of Business
Millbrook Distribution Services Inc.
The Industry. Distributors provide valuable services to both
manufacturers and retailers. Manufacturers benefit from distributors broad
geographic coverage, efficient order processing and inventory management.
Distributors provide retailers access to broad product lines, the ability to
place small quantity orders and shelf and inventory management. Large
distributors with broad geographic coverage and an extensive offering of items
generally have a competitive advantage.
Due to consolidations over the past several years, the number of
manufacturers and retailers has decreased. Additionally, retailers have
increasingly focused on reducing their supply chain costs with corresponding
improvements in their margins. As a result, we believe that manufacturers and
retailers are increasingly dependent on distributors to provide a range of
in-store retailing and merchandising functions previously performed by retail
and/or manufacturer personnel. Distributors increasingly are participating in
all stages of marketing for the products distributed, including category
management, promotions, schematic design and display of products. To efficiently
provide such services, technological innovation has become an essential element
in the distribution industry. For smaller distributors, the costs of the
required investments in technology can be prohibitive.
Millbrook is one of only a few distributors that focuses specifically
on the distribution of specialty food, health and beauty care and general
merchandise products. The fast growing specialty food business encompasses a
wide range of items in categories such as imported and domestic gourmet foods,
as well as natural, and ethnic foods. Specialty foods typically generate higher
margins for retailers than those realized on other mainstream grocery categories
sold in supermarkets. In addition, the demographic trends in the United States
have sparked consumer demand for more specialty food products. As a result,
supermarkets are adding more specialty food items to their product offerings,
and aggressively promoting them in an attempt to capture a higher market share.
Retailers are employing a number of marketing techniques to increase
the sales of high margin specialty food items. Stores are using kiosks and free
standing displays to attractively present the products to the consumer. In
addition, retailers are beginning to segregate specialty foods into specific
categories, such as ethnic foods, cookies and sauces. By utilizing a
"store-within-a-store" approach for specialty food, the products receive prime
shelf space within the store. Retailers also integrate specialty foods into
general product categories to familiarize consumers with unique and higher
margin products with the objective of increasing awareness and generating trial
among the broader consumer market. Merchandising expertise is a key selection
criteria for determining the retailer's choice of a specialty food distributor.
The health and beauty care segment includes baby care, cosmetics,
deodorants, first-aid, hair care, over-the-counter medications, toiletries, oral
hygiene and skin care products. The general merchandise segment covers a wide
variety of non-food categories including housewares, pet supplies, stationery,
baby needs, photo and cleaning supplies. Competition in both the health and
beauty care and general merchandise categories has been intense due to the
growth of mass merchandisers that have captured market share by offering larger
assortments at "everyday low pricing." Despite losing market share, supermarkets
have maintained a stable base of customers and are expected to continue to be a
key outlet for health and beauty care products and general merchandise by
expanding product variety and offering customers one-stop shopping.
2
Products Distributed. Through its comprehensive product offerings,
Millbrook distributes a wide variety of products to its customers.
Specialty Foods. For the years ended March 31, 2001, 2000 and 1999,
specialty food sales were approximately $298.9 million, $192.9 million and
$141.1 million and represented 49.2%, 35.9% and 30.3% of Millbrook's total
revenues, respectively. Millbrook's specialty food category consists of
approximately 19,900 items including ethnic, gourmet, organic and natural foods
and supplements. Millbrook offers ethnic foods such as kosher, Asian, Italian,
Irish, Mexican, Greek and German products, and gourmet foods such as teas,
coffees, spices, baking ingredients, condiments, candies, crackers, cookies,
jams and jellies. Millbrook's organic and natural food products and supplements
include items such as grains, cereals, snacks, beverages, energy bars, baking
ingredients, pasta and sauces.
We continue to view the specialty food category as an opportunity for
future growth. Due to the higher margins associated with specialty foods,
supermarkets continue to add new specialty food items to their product
offerings. To accommodate its retail customers' desire for a broader offering of
specialty foods, Millbrook carries a wide variety of specialty food products. We
believe that Millbrook's product breadth, together with its merchandising
expertise and advanced technology in supply chain management, will continue to
enable its retail customers to capture the advantages of this product category.
Health and Beauty Care. For the years ended March 31, 2001, 2000 and
1999, health and beauty care sales were approximately $222.8 million, $244.0
million and $234.2 million and represented 36.7%, 45.4% and 50.4% of Millbrook's
total revenues, respectively. Millbrook currently carries approximately 15,400
health and beauty care items, including a full line of national and private
label brands. Millbrook's private label health and beauty care products are
offered under its ValuStar(R) brand, which represents less than 1% of
Millbrook's total revenues.
Health and beauty care product offerings have grown due to new product
introductions and the growth in over-the-counter medications. This creates the
need for retailers to maximize variety in minimal shelf space. In recent years,
supermarkets, Millbrook's primary customer base, have lost market share in
health and beauty care products to mass merchandisers and drug store chains.
However, supermarkets have begun to recapture lost market share by increasing
the shelf space allocated to health and beauty care items and expanding the
variety of those items carried. We believe that Millbrook's capabilities and
extensive product selection make it qualified to serve both the growing mass
merchandiser demand and meet the needs of the supermarket retailers for health
and beauty care items.
General Merchandise. Millbrook currently carries approximately 11,000
general merchandise items. For the years ended March 31, 2001, 2000 and 1999,
general merchandise sales were approximately $85.4 million, $101.0 million and
$89.5 million and represented 14.1%, 18.7% and 19.3% of Millbrook's total
revenues, respectively. Although the traditional supermarket cannot afford to
devote as much space to the general merchandise category as compared to the mass
merchandisers, supermarkets have the advantage of more frequent customer
traffic. This consumer traffic ensures that supermarkets will remain a key
outlet for general merchandise. In addition, targeting certain departments such
as pet, bath, candle and stationery as destination categories adds to the
importance of general merchandise in supermarkets.
3
Retail Services. Millbrook traditionally has supplemented its product
distribution with full supporting services such as schematic development
(including planogramming), space management, new store installations, remodeling
of existing stores, order writing, stocking, new item placement and development
and management of promotions.
Over time, gross profit margins for these services have eroded
principally as a result of the retail phenomenon of "everyday low pricing." As a
result, Millbrook has developed a system to "unbundle" each of the elements of
the full-service program and use activity-based costing to charge the customer
for each supporting service on a stand-alone basis. In addition, Millbrook
offers these services without product distribution to retail channels other than
supermarkets. This fundamental change in the packaging of the services Millbrook
offers to its customers resulted in the formation of Millbrook Retail
SolutionsSM as a separate group to focus solely on providing merchandising
services.
By using a predominantly part-time hourly workforce, management
believes Millbrook Retail Solutions has cost advantages over manufacturers and
retailers. Consequently, outsourcing these functions to Millbrook Retail
Solutions' experienced personnel, combined with Millbrook's established customer
base and technology infrastructure, position Millbrook to compete effectively in
the third-party retail service industry. In particular, we believe that
Millbrook's advanced technology in planogramming and its category management
capabilities enable it to provide service offerings that are not readily
available from the competition.
Customers. Millbrook's top ten customers, which collectively
represented approximately 61%, 72% and 60% of its revenues during the years
ended March 31, 2001, 2000 and 1999, respectively, have been customers for an
average of 15 years. For the year ended March 31, 2001, supermarkets represented
approximately 81% of revenues and mass merchandisers represented approximately
19% of revenues. While Millbrook enjoys long-term relationships with most of its
customers, consistent with industry practice, substantially all of Millbrook's
customer supply agreements are on a month-to-month basis. Millbrook does have
supply agreements with certain of its significant customers. None of these
supply agreements is for a period of greater than three years.
For the years ended March 31, 2001 and 2000, combined revenues from
Millbrook's two largest customers, Ames Department Stores and Shaw's
Supermarkets represented approximately 27.9% and 31.2% of total revenues.
Suppliers. Millbrook purchases products from leading suppliers in each
of its categories. For the year ended March 31, 2001, the five largest suppliers
in each of Millbrook's three principal product categories were:
(i) for specialty foods, World Finer Foods, The B. Manischewitz Company,
LLC, Unilever (Best Foods and Lipton), R.C. Bigelow and The Hain
Celestial Group;
(ii) for health and beauty care products, Procter & Gamble, Johnson &
Johnson, Unilever HPC, Pfizer/Warner Lambert and Gillette; and
(iii) for general merchandise, Legg's Hosiery, Hartz Mountain Corp.,
Bradshaw International, Newell Rubbermaid, Inc. and Mead Products.
For the year ended March 31, 2001, the five largest suppliers
represented (i) for specialty foods, 15% of total purchases; (ii) for health and
beauty care products, 20% of total purchases; and (iii) for general merchandise,
4% of total purchases.
4
The B. Manischewitz Company, LLC
The Industry. According to Progressive Grocer, the U.S. grocery
industry has been characterized by relatively stable growth based on modest
price and population increases, with total sales of approximately $494 billion
in 2000 reflecting a compound annual growth rate of 3.8% for the five years
ended 2000. According to Integrated Marketing Communications, Inc., kosher foods
are one of the fastest growing categories of the specialty food segment and are
characterized by a stable base of loyal consumers represented primarily by the
Jewish population. According to Integrated Marketing Communications, Inc. and
Packaged Facts, since 1992, sales of kosher foods have increased significantly
among non-Jewish consumers due to heightened awareness of the quality of
ingredients, rabbinical supervision and processing techniques used in
manufacturing kosher foods, together with growing interest in healthier foods
and the trend toward healthier lifestyles.
Kosher foods are manufactured in accordance with Jewish dietary laws,
which require strict adherence to quality and cleanliness standards. Achieving
such standards requires specialized knowledge and the supervision of a
designated kosher certification agency. Due to the production methods used,
kosher products generally are considered to contain higher quality and healthier
ingredients. According to Integrated Marketing Communications, Inc.,
approximately 40% of the overall kosher category is kosher for Passover
products, which are prepared under even more stringent guidelines than other
kosher products.
Products. Manischewitz' core businesses consist of traditional products
sold primarily to Jewish consumers under the Manischewitz brand; canned fish and
condiments under the Season brand; and natural organic snack foods sold under
the Guiltless Gourmet brand. Manischewitz is a manufacturer of products
historically consumed during certain Jewish holidays, primarily Passover which
occurs during the spring, and Rosh Hashanah which occurs during the fall.
Manischewitz believes that, among the Jewish population, approximately 100%
recognize the Manischewitz brand name and 90% have tried one or more
Manischewitz products. Manischewitz believes that, among the non-Jewish
population, approximately 80% are familiar with the Manischewitz brand name and
over 50% have tried one or more Manischewitz products. Guiltless and Season
products are consumed all-year round.
Manischewitz has built its brand awareness and consumer base by
offering a broad assortment of products that can be consumed throughout the
year, as well as expanding its product offerings to accommodate changing tastes
and the popularity of various food items. Manischewitz' new product offerings
include Mediterranean products, full strength canned soups, preserves and snack
items. Many of the new product offerings are intended to appeal to the
mainstream population to expand the customer base for Manischewitz' product
line.
Manischewitz also licenses its name to other entities for use in the
manufacture, distribution and sale of certain kosher products including wine and
other food products. For each of the years ended March 31, 2001, licensing
revenues represented less than 2% of Manischewitz' total revenues.
Baked Products. Baked products include daily matzo, Passover matzo
(which is produced to more exacting standards dictated by religious tenets for
Passover) and crackers. The majority of these products are baked at
Manischewitz' Jersey City, New Jersey facilities. Matzo products in this
category are sold under the Manischewitz, Horowitz Margareten and Goodman's
brand names. Matzo product sales generated approximately 20.9%, 26.2% and 25.0%
of Manischewitz' total revenues in fiscal 2001, 2000 and 1999, respectively.
Manischewitz has a license agreement with Goodman's to use its name on matzo
products and matzo-related products through 2003. In fiscal 2001, matzo products
and matzo-related products sold under the Goodman's name represented less than
1% of Manischewitz' total revenues.
5
Manufactured Products. Manufactured products consist of a variety of
soups, sauces, fish, borscht and other processed foods. Soup products constitute
the second largest manufactured product line for Manischewitz and accounted for
approximately 12.8%, 17.0% and 18.2% of its total revenues in fiscal 2001, 2000
and 1999, respectively.
Co-Packed Products. Manischewitz markets a number of co-packed
products, including cookies, confectionery products, noodles, pasta, tortilla
chips, salsa, condiments, dry soup mixes and canned fish principally under the
Manischewitz, Horowitz Margareten, Goodman's, Season and Guiltless Gourmet brand
names. Manischewitz expects to continue to employ co-packers as a capital
efficient means of bringing its new products to market. Canned fish products
generated approximately 10.4% and 4.6% of Manischewitz' total revenues in fiscal
2001 and 2000, respectively.
Marketing and Product Development. In fiscal 2001, 2000 and 1999,
spending on marketing and trade promotion represented approximately 3.1%, 1.9%
and 2.9% of total revenues, respectively. Management believes, as a percentage
of revenues, that marketing and trade promotion expenses have historically
remained substantially below other food manufacturers. Consistent with its
overall business strategy, in fiscal 2001, management significantly increased
spending on advertising, marketing and promotion of Manischewitz' existing
products and new product offerings, including package design costs.
During the last few years, the Manischewitz product line has been
expanded to strengthen and broaden its popular appeal. Packaging has been
updated to better communicate good taste and high quality, enhance visibility on
store shelves and attract more contemporary Jewish and non-Jewish consumers.
Manischewitz has introduced no-fat and low-fat items to reinforce the positive
health aspects of its products. Where appropriate, recipes have been improved
and new flavors introduced. In addition, Manischewitz has introduced new
products targeted at both Jewish and non-Jewish consumers and has begun to
capitalize on the positive Manischewitz brand image among consumers. Further,
the Guiltless Gourmet brand allows Manischewitz to capitalize on the growth of
natural and organic foods by developing new products to broaden the brand's
presence and take advantage of Manischewitz' distribution base.
Distribution. Manischewitz principally sells its products to
independent distributors operating throughout the U.S. and Canada. Two of its
independent distributors represented approximately 37.9%, 40.0% and 34.1% of
total revenues in fiscal 2001, 2000 and 1999, respectively. Among its customer
base, supermarkets represented approximately 90% of Manischewitz' fiscal 2001
total revenues and other customers represented approximately 10%. We believe
that Manischewitz' five largest supermarket customers are Kroger, Albertson's,
Publix, Shop Rite and Royal Ahold.
We estimate that Manischewitz' products are sold in a majority of the
supermarkets throughout the U.S. Due to their importance to Jewish consumers,
Manischewitz' products are "must carry" items for many supermarkets in the U.S.
We continue to seek to obtain shelf space from supermarkets in sections other
than in the kosher aisle. The ability to display Manischewitz' products in the
non-kosher supermarket aisles, for products such as crackers, noodles, soups and
side dishes, will enhance awareness of Manischewitz' products, particularly
among non-Jewish consumers. We believe the Guiltless Gourmet brand will benefit
from expanded distribution in both the natural and snack food aisles in
supermarkets. To support these efforts, we will continue to increase retail and
trade promotional expenditures to enhance product presence and increase sales.
6
Raw Materials
The Companies, through its Manischewitz subsidiary, utilize a number of
raw materials in the manufacture of its matzo and matzo-related products,
principally flour. Manischewitz utilizes significant quantities of various fish
in the manufacture of its gefilte fish and the co-packing of its other canned
fish products. Manischewitz also purchases organic corn and spices for the
co-packing of its Guiltless tortilla chips. Supplies of these ingredients are
readily available from a number of sources and are purchased based on price.
Competition
Millbrook Distribution Services Inc.
Specialty Foods. The competition in the specialty foods segment is
fragmented among approximately 100 distributors, most of which are small and
geographically limited. Millbrook is able to compete effectively in the
specialty foods segment based on its breadth of products and its logistics
capabilities. Its "piece pick" capability gives Millbrook's retailers product
variety without the inventory investment in slower-moving, high margin specialty
food products. Unlike most other specialty food distributors, Millbrook offers a
single source of supply for specialty foods, health and beauty care products and
general merchandise. This generates transportation and distribution efficiencies
for Millbrook. Millbrook's principal competitors in this segment are Gourmet
Awards and Haddon House.
Health and Beauty Care. Supermarkets historically have placed health
and beauty care products wherever shelf space was available. As supermarkets do
not have the available shelf space to compete with the breadth of health and
beauty care items carried by mass merchandisers, they have become reliant on
delivery and inventory techniques that maximize product variety. Management is
of the opinion that Millbrook's "piece pick" capability and breadth of health
and beauty care product assortment allows its supermarket customers to
effectively compete with mass merchandisers in this product category.
Millbrook's principal competitors in this segment are SuperValu, Fleming and
Associated Wholesale Grocers.
General Merchandise. Supermarkets are refocusing their efforts to carry
general merchandise specifically matched to their customer profiles and
rethinking the manner in which they allocate shelf space to general merchandise.
We believe product competition in selection and promotion at the retail level
favors distributors such as Millbrook. Millbrook's buying power results in a
large assortment of general merchandise that is continually tailored to meet its
customers' and the consumers' needs. Through Millbrook's "piece pick"
capability, this assortment is available to the retailers with a lower inventory
investment and space allocation. Millbrook's principal competitors in this
segment are SuperValu, Fleming and Associated Wholesale Grocers.
Retail Services. The retail services industry is competitive and is
predominantly comprised of a large number of small organizations that are either
retailer, channel or region specific. In the opinion of management, there are
numerous retail service companies competing with Millbrook Retail SolutionsSM .
The principal competitive factors within the industry include (i) breadth and
quality of client services; (ii) price; (iii) the ability to execute specific
client priorities rapidly and consistently over a wide geographical region; and
(iv) technological capability.
We believe the combination of the quality of Millbrook Retail
Solutions' client services and Millbrook's breadth of expertise, including its
retail-oriented technology, experience at store level and logistics capabilities
is unique in the industry.
7
The B. Manischewitz Company, LLC
Manischewitz competes within a small group of branded kosher
manufacturers. In the matzo category, all of the domestic producers have been in
the industry for over 80 years. Manischewitz' brand names and the complexities
of complying with kosher manufacturing requirements have all contributed to the
stability of the competitive environment faced by Manischewitz. Management's
business strategy includes promoting and marketing Manischewitz products in the
non-kosher aisles of supermarkets. However, outside the kosher aisle,
Manischewitz products will compete with the products of a significant number of
companies of varying sizes, including divisions or subsidiaries of larger
companies. Many of these competitors have multiple product lines as well as
substantially greater financial and other resources available to them.
Manischewitz' primary competitor in the production and distribution of
matzo is Streit's, a New York based family-owned regional marketer. Within the
gefilte fish market, Manischewitz competes primarily with Rokeach and its
related brands, including Mothers, Old Vienna and Mrs. Adlers.
Management believes that Manischewitz' loyal customer base and name
recognition make the brand less vulnerable to competition with respect to its
core products.
Trademarks
Manischewitz owns a number of registered trademarks in the U.S.,
Canada, Europe, Israel, South Africa and South America. The registered
trademarks in the U.S. include Manischewitz(R), Horowitz Margareten(R), Onion
Tams(R), Passover Pantry(R), Tam Tam(R), Vege-Matzo(R), Wheat Tams(R), Design
Star of David(R), Star of David & Lion Design(R), Fishlets(R), Design of Star,
Lion & Scroll(R), Deborah Ross & Design(R), Bakit(R), Garlic Tam(R), Horowitz
Margareten & Design(R), Season(R), Season Kosher Select(R), Gold Boat(R),
Atlantic Gourmet(R), Moadim(R), Guiltless Gourmet(R) and Gourmet without
Guilt(R). Manischewitz has granted exclusive licenses under certain of its
trademarks to others for the manufacture and sale of wine and other food
products. Such licenses are limited in scope to certain territories and entitle
Manischewitz to royalties based on the net sales or revenues of the licensed
products sold. Management is not aware of any facts that would have a material
adverse impact on the continued use of any of its trademarks and trade names.
(d) Other Matters
Employees
As of March 31, 2001, we had a total of 2,200 full-time employees, 140
part-time employees and the ability to draw upon 300 service merchandisers
on-call nationwide.
Millbrook has approximately 200 unionized workers. Most of the
unionized workers are located at the East Brunswick, NJ and Youngstown, OH
distribution centers which were acquired as part of the Epstein and Miller
Buckeye acquisitions. These unionized workers are represented under contracts
with Teamsters Local 802, which was ratified in December 2000 and will expire in
June 2006 and Teamsters Local 377, which was ratified in April 2000 and will
expire in July 2004.
Manischewitz has approximately 180 unionized workers at the Jersey
City, NJ and Vineland, NJ facilities. Most of the unionized workers at the
Jersey City, NJ facility are represented under a contract with Bakery,
Confectionery and Tobacco Workers International Union (AFL-CIO, Local 3), which
was ratified in October 2000 and will expire in September 2005. The unionized
workers at the Vineland, NJ facility are represented under a contract with
United Food and Commercial Workers Union (Local 56), which was ratified in May
2000 and will expire in April 2005.
8
Management believes that Manischewitz' and Millbrook's relations with
their employees and the unions representing certain groups of employees are
generally good.
(e) Financial Information about Foreign and Domestic Operations
Millbrook provides distribution services to retail locations in 42
states throughout the United States, primarily east of the Rocky Mountains.
Manischewitz' products are primarily sold through distributors throughout the
United States. Revenues generated by sales to distributors primarily in Canada,
Europe and the Middle East accounted for less than 2% of Manischewitz' revenues
in fiscal 2001.
Item 2. Properties
Facilities. Millbrook's corporate headquarters are located in
Leicester, Massachusetts, where management and administrative functions are
performed. Millbrook currently uses five distribution centers:
Approximate Lease
Square Expiration
Property Location Own or Lease Footage Date
- -------- -------- ------------ ------- ----
National Support Center/Distribution Center......... Harrison, AR Own 1,200,000 --
Corporate Headquarters/Distribution Center.......... Leicester, MA Lease 340,000 11/30/06
Distribution Center................................. Youngstown, OH Lease 262,000 03/31/07
Distribution Center................................. Worcester, MA Lease 241,300 08/31/02
Distribution Center................................. E. Brunswick, NJ Lease 177,600 07/31/08
During the year ended March 31, 2001, Millbrook closed its Ozark, AL
distribution center and it is presently being marketed for sale. In May 2001,
Millbrook closed its leased distribution center in Greenville, NC and
consolidated the customers served into its East Brunswick, NJ distribution
center. In addition, Millbrook uses 108 transfer depots located in 30 states.
Millbrook owns or leases its fleet of approximately 110 tractors, 300
trailers and 280 vans.
Manischewitz' corporate headquarters are located in Jersey City, New
Jersey, where management and administrative functions are performed.
Manischewitz occupies the following properties, all of which are used in
connection with its food business:
Approximate
Square
Property Location Own or Lease Footage
- -------- -------- ------------ -------
Bakery/Warehouse/Office............................. Jersey City, NJ Own 139,100
Manufacturing facility.............................. Vineland, NJ Own 67,700
The Jersey City, New Jersey bakery operates on a two-shift basis during
four months of the year and a three-shift basis during seven months of the year.
Each shift consists of eight hours. The plant, which has computerized production
equipment, is shut down for the month of July for maintenance and to prepare the
plant to meet the kosher requirements for Passover production.
The Vineland, New Jersey manufacturing and warehousing facility is
located on a five-acre site. It has the capacity to produce 11,000 pounds of
processed fish per shift. The facility operates on a single shift basis
throughout the year, with its primary maintenance period in April.
9
Item 3. Legal Proceedings
Holdings and Enterprises are subject to litigation in the ordinary
course of business. Neither Holdings nor Enterprises is a party to any lawsuit
or proceeding which, in the opinion of management, is likely to have a material
adverse effect on their consolidated financial condition or consolidated results
of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrants' Common Equity and Related Stockholder Matters
None.
Item 6. Selected Financial Data
The selected consolidated financial data of Holdings and Enterprises
presented below as of March 31, 2001 and 2000 and for each of the years in the
four year period ended March 31, 2001 were derived from the audited consolidated
financial statements of Holdings and Enterprises (the "Consolidated Financial
Statements") set forth herein. The audited balance sheet as of March 31, 1999
was derived from the Consolidated Financial Statements of Holdings and
Enterprises which are not presented herein. The audited balance sheet data as of
March 31, 1998 and the audited statement of operations data for the year ended
March 31, 1997 was derived from the financial statements of Millbrook which are
not presented herein. In addition, the balance sheet data as of March 31, 1997
was derived from the financial statements of the predecessor, a wholly-owned
subsidiary of McKesson Corporation ("McKesson") which are not presented herein.
The data should be read in conjunction with the Consolidated Financial
Statements, related notes and other financial information included herein.
Holdings Enterprises
------------------------------------- -------------------------------------
Predecessor
For the years ended March 31, 1997 1998 1999 2000 2001 1998 1999 2000 2001
- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
Statement of Operations Data:
Revenues........................... $476,175 $470,201 $508,293 $580,616 $ 652,439 $470,201 $508,293 $580,570 $652,439
Gross profit....................... 111,413 110,039 123,457 138,174 162,831 110,039 123,457 138,128 162,831
Operating expenses................. 104,038 102,664 113,533 122,209 154,073 102,656 113,533 122,188 153,996
Operating income................... 7,375 7,375 9,924 15,965 8,758 7,383 9,924 15,940 8,835
Interest expense, net.............. 3,843 5,079 20,020 18,960 20,357 5,079 14,949 15,888 17,193
Non-operating income, other........ 69
Provision (benefit) for income
taxes........................... 1,660 1,122 (3,174) (1,146) (3,411) 1,122 (1,399) 288 (2,139)
Income (loss) before
extraordinary item.............. 1,941 1,174 (6,922) (1,849) (8,188) 1,182 (3,626) (236) (6,219)
Extraordinary gain, net
of income taxes................. 12,914 3,194 4,742 3,194
Net income (loss).................. 1,941 1,174 (6,922) 11,065 (4,994) 1,182 (3,626) 4,506 (3,025)
Balance Sheet Data:
Working capital.................... $ 36,535 $ 30,798 $ 51,288 $ 54,549 $ 76,310 $ 30,796 $ 46,382 $ 55,066 $ 77,137
Property, plant and equipment,
net............................. 15,017 23,395 38,467 37,199 32,629 23,395 38,467 37,199 32,629
Total assets....................... 102,731 108,772 297,992 290,393 312,635 108,875 279,838 285,715 312,028
Total debt......................... 38,110 184,049 170,089 204,973 38,110 136,049 145,089 179,973
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of Holdings' and Enterprises'
financial condition and results of operations should be read in conjunction with
the financial information included in their Consolidated Financial Statements.
Overview
Holdings was formed in 1996 to build a fully integrated specialty food
business by acquiring food manufacturers with strong brand names and integrating
their products with a strong distribution network. On March 31, 1997, Holdings
acquired Millbrook from McKesson. On May 1, 1998, Enterprises, a wholly-owned
subsidiary of Holdings, acquired Manischewitz. The results of operations of
Manischewitz are included in the consolidated results of operations since its
date of acquisition. Concurrent with the Manischewitz acquisition, Holdings
contributed Millbrook to Enterprises. This contribution was accounted for as an
"as if" pooling of interests. Prior to its acquisition of Millbrook, Holdings
had no operations. Enterprises, which was formed in 1998 to acquire
Manischewitz, had no operations prior to that acquisition.
On January 31, 2000, Millbrook acquired certain of the assets and
operations of Epstein. On April 17, 2000, Millbrook acquired substantially all
of the assets and operations of Miller Buckeye. On November 1, 2000,
Manischewitz acquired substantially all of the assets and operations of
Guiltless. The operating results of Epstein's distribution business and Miller
Buckeye are reflected in the operating results of Millbrook since their
respective dates of acquisition. The operating results of the Season brand
business and Guiltless are reflected in the operating results of Manischewitz
since their respective dates of acquisition.
General
Holdings' and Enterprises' operating subsidiaries are Millbrook and
Manischewitz. Operating costs and expenses consist of cost of sales,
distribution and warehousing and selling, general and administrative expenses.
Cost of sales includes the cost of products manufactured and purchased by
Manischewitz, including raw materials, products purchased under co-packing
arrangements and manufacturing payroll and related employee benefit costs, and
the cost of products distributed by Millbrook. Distribution and warehousing
expenses include payroll and related employee benefit costs of Millbrook's
distribution operation and transportation costs. Selling, general and
administrative expenses include payroll and related employee benefit costs of
Millbrook's and Manischewitz' various sales organizations and other general and
administrative functions.
Year Ended March 31, 2001 Compared to the year ended March 31, 2000
Revenues. Revenues for the year ended March 31, 2001 increased $71.8
million or 12.4% to $652.4 million as compared to $580.6 million for the year
ended March 31, 2000. Revenues include:
(i) Millbrook's revenues of $607.1 million for the year ended March
31, 2001 as compared to $537.9 million for the year ended March
31, 2000;
(ii) Manischewitz' revenues of $57.7 million for the year ended March
31, 2001 as compared to $50.3 million for the year ended March
31, 2000; and
(iii) Intersegment sales, which are eliminated in consolidation, of
$12.4 million for the year ended March 31, 2001 as compared to
$7.6 million for the year ended March 31, 2000.
11
Millbrook's revenues increased $69.2 million or 12.9% as compared to
the prior year. This increase is principally due to the following:
(i) distribution sales ($95.1 million) to new customer accounts
gained as a result of the Epstein and Miller Buckeye
acquisitions; partially offset by
(ii) decreased sales ($25.2 million) to certain customers as a result
of several factors, including customer losses during the year,
industry consolidation, significantly reduced customer
promotional activities and customer financial difficulties, the
aggregate of which exceeded the growth of sales to certain other
customers.
Manischewitz' revenues increased $7.4 million or 14.7% as compared to
the prior year. This increase is principally due to sales of Season brand
products acquired as part of the Epstein acquisition ($4.7 million) and sales
to new customer accounts gained as a result of the Guiltless acquisition in
November 2000 ($2.7 million).
Gross Profit. Gross profit for the year ended March 31, 2001 was $162.8
million as compared to $138.2 million for the year ended March 31, 2000, an
increase of $24.6 million or 17.8%. As a percentage of revenues, the gross
profit margin was 25.0% for the year ended March 31, 2001 as compared to 23.8%
for the year ended March 31, 2000.
The increase in gross profit dollars and its impact on gross profit
margin is primarily due to the following:
(i) distribution sales acquired as part of the Epstein acquisition
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 ($6.3
million or 0.9%); and
(ii) distribution sales acquired as part of the Miller Buckeye
acquisition ($17.6 million or 0.2%).
Operating Expenses. Distribution and warehousing expenses for the year
ended March 31, 2001 were $59.8 million, as compared to $46.2 million for the
year ended March 31, 2000. As a percentage of revenues, distribution and
warehousing expenses increased to 9.2% for the year ended March 31, 2001 as
compared to 8.0% for the year ended March 31, 2000. The increase in distribution
and warehousing costs is principally due to:
(i) the addition of 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 to
a tightening labor market and resulting labor shortages at
Millbrook's two largest distribution center locations; and
(iii) rising energy prices increased operating costs associated with
the Companies' facilities and Millbrook's fleet.
12
Selling, general and administrative expenses for the year ended March
31, 2001 were $90.2 million, as compared to $73.0 million for the year ended
March 31, 2000. As a percentage of revenues, selling, general and administrative
expenses increased to 13.8% for the year ended March 31, 2001 as compared to
12.6% for the year ended March 31, 2000. This increase primarily consists of the
following:
(i) incremental selling, general and administrative costs associated
with the Epstein ($3.0 million) and Miller Buckeye ($8.5 million)
acquisitions;
(ii) costs associated with Millbrook's operations resulting from
general increases in a number of areas, including management
information systems and compensation and related employee
benefits ($1.5 million) and the loss on impairment of assets held
for sale ($0.4 million); and
(iii) an increase of $1.6 million associated with Manischewitz'
operations principally relating to television advertising,
promotional materials and market research associated with certain
mainstream products.
Amortization of intangibles was $4.1 million for the year ended March
31, 2001 as compared to $3.1 million for the year ended March 31, 2000. This
increase is due to amortization resulting from the Epstein, Miller Buckeye and
Guiltless acquisitions.
Interest Expense. Interest expense for the year ended March 31, 2001
was $20.4 million (consisting of $3.2 million for Holdings and $17.2 million for
Enterprises, respectively) as compared to $19.0 million (consisting of $3.1
million for Holdings and $15.9 million for Enterprises, respectively) for the
year ended March 31, 2000. The increase in interest expense is primarily
attributable to higher levels of debt outstanding under the credit agreement as
a result of its recent acquisitions, partially offset by Enterprises' repurchase
of 10.5% senior notes. The average interest rate on Holdings' and Enterprises'
debt outstanding during the year ended March 31, 2001 was 10.7% and 10.3%,
respectively.
Taxes. For the year ended March 31, 2001, the benefit for income taxes
was $3.4 million and $2.1 million for Holdings and Enterprises, respectively, as
compared to a benefit of $1.1 million for Holdings and a provision of $0.3
million for Enterprises for the year ended March 31, 2000. The change of $2.3
million and $2.4 million for Holdings and Enterprises, respectively, principally
relates to the results of operations.
Extraordinary Item - Early Extinguishment of Debt. The extraordinary
gain on early extinguishment of debt for the year ended March 31, 2001 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%
senior notes. The extraordinary gain on early extinguishment of debt for the
year ended March 31, 2000 was $12.9 million (consisting of $8.2 million, net of
income taxes of $5.4 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% senior notes and Enterprises' repurchase
of approximately $20.9 million of its outstanding 10.5% senior notes.
Net Income (Loss). As a result of the foregoing, the net loss for the
year ended March 31, 2001 was $5.0 million and $3.0 million for Holdings and
Enterprises, respectively, as compared to net income of $11.1 million for
Holdings and $4.5 million for Enterprises for the year ended March 31, 2000.
13
Year Ended March 31, 2000 Compared to the Year Ended March 31, 1999
Revenues. Revenues for the year ended March 31, 2000 increased $72.3
million or 14.2% to $580.6 million as compared to $508.3 million for the year
ended March 31, 1999. Revenues include:
(i) Millbrook's sales of $537.9 million for the year ended March 31,
2000 as compared to $464.8 million for the year ended March 31,
1999;
(ii) Manischewitz' sales of $50.3 million for the year ended March 31,
2000 as compared to $46.5 million for the year ended March 31,
1999; and
(iii) intersegment sales, which are eliminated in consolidation, of
$7.6 million for the year ended March 31, 2000 as compared to
$3.0 million for the year ended March 31, 1999.
Millbrook's revenues increased $73.1 million or 15.7% as compared to
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 $3.8 million or 8.2% to $50.3 million
as compared to the eleven month period ended March 31, 1999. Had the comparable
pre-acquisition period been included in the period ended March 31, 1999,
Manischewitz' revenues would have increased $1.6 million or 3.4% for the year
ended March 31, 2000. This increase is principally due to:
(i) sales of Season brand products acquired as part of the Epstein
acquisition since January 31, 2000 ($2.9 million); partially
offset by
(ii) the negative impact on sales of customer account changes in
Manischewitz' northeast distributor network, including the
termination of its largest northeast distributor during the third
quarter of fiscal 2000 ($1.3 million).
Gross Profit. Gross profit for the year ended March 31, 2000 was $138.2
million as compared to $123.5 million for the year ended March 31, 1999, an
increase of $14.7 million or 11.9%. As a percentage of revenues, the gross
profit margin was 23.8% for the year ended March 31, 2000 as compared to 24.3%
for the year ended March 31, 1999.
The increase in gross profit dollars and its impact on gross profit
margin is primarily due to the following:
(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 ($12.4 million or (0.3%));
(ii) distribution sales acquired as part of the Epstein acquisition
since January 31, 2000 ($4.1 million or 0.1%);
(iii) the lost gross profit margin on Manischewitz' sales (($0.5
million) or (0.1%)). Had the comparable pre-acquisition period
been included in the period ended March 31, 1999, Manischewitz'
gross profit would have decreased $1.5 million and its gross
profit margin would have decreased approximately 3.2%. This
decline is principally due to the lower level of sales (excluding
Season products) resulting in underabsorption of manufacturing
overhead and a shift in product mix to lower margin products; and
14
(iv) 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 (($1.4
million) or (0.2%)).
Operating Expenses. Distribution and warehousing expenses for the year
ended March 31, 2000 were $46.2 million, as compared to $38.8 million for the
year ended March 31, 1999. As a percentage of revenues, distribution and
warehousing expenses increased to 8.0% for the year ended March 31, 2000 as
compared to 7.6% for the year ended March 31, 1999. 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 year ended March
31, 2000 were $73.0 million, as compared to $72.0 million for the year ended
March 31, 1999. As a percentage of revenues, selling, general and administrative
expenses decreased to 12.6% for the year ended March 31, 2000 as compared to
14.2% for the year ended March 31, 1999. This dollar increase primarily consists
of:
(i) selling, general and administrative costs associated with the
Epstein distribution operations acquired January 31, 2000 ($2.1
million), partially offset by reduced costs of $1.7 million or
(2.6%) associated with Millbrook's operations for the year ended
March 31, 2000. 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) an increase of $0.6 million or 10.1% in costs associated with
Manischewitz' operations for the year ended March 31, 2000. Had
the comparable pre-acquisition period been included in the period
ended March 31, 1999, Manischewitz' selling, general and
administrative expenses would have been consistent with the prior
year.
Amortization of intangibles was $3.1 million for the year ended March
31, 2000 as compared to $2.8 million for the year ended March 31, 1999. This
increase resulted from the comparable prior period including only eleven months
of amortization as Manischewitz was acquired on May 1, 1998 and amortization
resulting from the Epstein acquisition since January 31, 2000.
Interest Expense. Interest expense for the year ended March 31, 2000
was $19.0 million (consisting of $3.1 million for Holdings and $15.9 million for
Enterprises, respectively) as compared to $20.0 million (consisting of $5.1
million for Holdings and $14.9 million for Enterprises, respectively) for the
year ended March 31, 1999. The decrease in interest expense is primarily
attributable to a lower weighted average interest rate on debt outstanding as a
result of Holdings' and Enterprises' repurchases of senior notes replacing such
debt with borrowings under the credit agreement. The average interest rate on
Holdings' and Enterprises' debt outstanding during the year ended March 31, 2000
was 11.1% and 10.7%, respectively.
15
Taxes. For the year ended March 31, 2000, the benefit for income taxes
was $1.1 million for Holdings and the provision was $0.3 million for
Enterprises, as compared to a benefit of $3.2 million for Holdings and $1.4
million for Enterprises for the year ended March 31, 1999. The change of $2.1
million and $1.7 million for Holdings and Enterprises, respectively, principally
relates to the results of operations and the utilization of state net operating
loss carryforwards, which were subject to a valuation allowance in fiscal 1999.
Extraordinary Item - Early Extinguishment of Debt. The extraordinary
gain on early extinguishment of debt for the year ended March 31, 2000 was $12.9
million (consisting of $8.2 million, net of income taxes of $5.4 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% senior notes and Enterprises' repurchase of approximately $20.9 million of
its outstanding 10.5% senior notes.
Net Income. As a result of the foregoing, the net income for the year
ended March 31, 2000 was $11.1 million and $4.5 million for Holdings and
Enterprises, respectively, as compared to net loss of $6.9 million for Holdings
and $3.6 million for Enterprises for the year ended March 31, 1999.
Financial Condition, Liquidity and Capital Resources
Operations for the year ended March 31, 2001, excluding the net gain on
early extinguishment of debt, non-cash charges for depreciation, amortization
and deferred income taxes and other non-cash charges, provided cash of $2.3
million for Holdings and $4.3 million for Enterprises as compared to providing
cash of $11.7 million for Holdings and $11.4 million for Enterprises for the
year ended March 31, 2000. During the years ended March 31, 2001 and 2000, other
changes in assets and liabilities resulting from operating activities utilized
cash of $16.4 million for Holdings and $15.1 million for Enterprises and
utilized cash of $13.0 million for Holdings and $8.2 million for Enterprises,
respectively. This activity resulted in net cash utilized by operating
activities of $14.1 million for Holdings and $10.8 million for Enterprises in
fiscal 2001 as compared to net cash utilized by operations of $1.3 million for
Holdings and net cash provided by operating activities of $3.2 million for
Enterprises, respectively, in fiscal 2000. Investing activities, which
principally consisted of the acquisitions of Miller Buckeye and Guiltless in
fiscal 2001, the acquisition of Epstein in fiscal 2000 and the acquisitions of
plant and equipment, resulted in a use of cash of $25.0 million and $18.3
million for Holdings and Enterprises for each of the years ended March 31, 2001
and 2000. During the year ended March 31, 2001, financing activities, which
principally consisted of the repurchase of approximately $18.8 million of senior
notes for $13.0 million by Enterprises, offset by $3.3 million of payments from
the interest escrow account by Holdings; and additional borrowings of $53.7
million under the credit agreement by Holdings and Enterprises, provided cash of
$44.0 million for Holdings and $40.7 million for Enterprises. During the year
ended March 31, 2000, financing activities, which principally consisted of the
repurchase of $23.0 million of senior notes for $8.8 million by Holdings and
$20.9 million of senior notes for $12.2 million by Enterprises, offset by $10.2
million of payments from the interest escrow account by Holdings; additional
borrowings of $29.9 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 $22.2 million for Holdings and $17.6 million for
Enterprises.
16
At March 31, 2001, outstanding borrowings under the credit agreement
were $99.6 million, consisting of $95.0 million of revolving credit loans and an
amortizing term loan of $4.6 million. Under the terms of the credit agreement,
substantially all of Millbrook's assets and the accounts receivable and
inventory of Manischewitz are pledged to provide collateral for borrowings and
Enterprises is restricted from making distributions to Holdings to pay
dividends. At March 31, 2001, Millbrook and Manischewitz had approximately $9.5
million of cash and approximately $2.2 million of available borrowing capacity
under the credit agreement. In addition, there were $4.6 million of cumulative
unpaid dividends on Holdings' series A and series B preferred stock.
Holdings and Enterprises expect capital expenditure spending for the
year ending March 31, 2002 to be approximately $3.0 million. Such expenditures
include, among other things, leasehold improvements and the acquisition of
computer equipment and software, manufacturing machinery and equipment. It is
anticipated that these capital commitments for 2002 will be financed through
working capital, operating leases and cash flow from operations.
Given the continuing industry consolidation of retailers and its impact
on certain of our customers, Holdings and Enterprises anticipates some loss of
revenues in its health and beauty care category, which tends to be more of a
commodity nature, as acquirors seek to achieve consolidation synergies by
utilizing existing infrastructure. These anticipated losses will occur at the
same time that the Companies continue to implement their strategy of expanding
the specialty food category of their business. Holdings' and Enterprises'
results of operations will be dependent upon the obtaining and timing of
increased revenues from existing and new specialty food customers in light of
anticipated losses from health and beauty care. While Holdings and Enterprises
believe the transition to a greater percentage of its composite business to the
specialty food category can be accomplished by increasing revenues from existing
customers and obtaining new customers, there can be no assurance that Holdings
and Enterprises can accomplish the goals of their strategy.
Interest payments on the senior notes and borrowings under the credit
agreement represent significant obligations of Holdings, Enterprises and their
subsidiaries. The primary source of liquidity of Holdings and Enterprises will
be cash flows from the operations of Millbrook and Manischewitz and borrowings
under the credit agreement. Subject to the preceding paragraph, Holdings and
Enterprises believe that, based upon current and anticipated financial
performance, asset sales, cash flows from operations and borrowings under the
credit agreement will be adequate to meet anticipated requirements for capital
expenditures, working capital and scheduled interest payments on the senior
notes. However, the capital requirements of Holdings and Enterprises may change.
The Companies are in compliance with the covenants contained in the credit
agreement and the indentures relating to the senior notes and expect to be able
to continue to comply. Each of Holdings and Enterprises believes that they have
sufficient borrowing capacity and access to private equity and debt markets to
pursue acquisition opportunities and fund extraordinary working capital
requirements, if necessary. However, there can be no assurance that capital will
be available to them on acceptable terms. At March 31, 2001, Holdings and
Enterprises had total outstanding indebtedness of $205.0 million and $180.0
million, respectively. The ability of Holdings and Enterprises to satisfy
capital requirements, to borrow under the credit agreement and to repay or
refinance the senior notes will depend on future financial performance of
Holdings and Enterprises, which in turn will be subject to general economic
conditions and to financial, business and other factors, including factors
beyond Holdings' and Enterprises' control.
17
Effects of Inflation and Other Matters
For the year ended March 31, 2001, Holdings' and Enterprises' cost of
product remained relatively stable. To the extent possible, Holdings' and
Enterprises' objective is to offset the impact of inflation through productivity
enhancements, cost reductions and price increases.
Holdings and Enterprises are not involved in any significant
environmental matters.
Impact of New Accounting Pronouncements - SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities" was issued in June, 1998 and is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133 requires
the recognition of all derivatives in the consolidated balance sheet as either
assets or liabilities measured at fair value. We adopted SFAS No. 133, as
amended by SFAS No. 137 and SFAS No. 138, during the year ended March 31, 2001.
The adoption of SFAS No. 133 has not had a material impact on our financial
position or overall trends in results of operations and has not resulted in
significant changes to the financial risk management practices.
Emerging Issues Task Force ("EITF") Issue No. 00-25 was finalized and
is effective for fiscal years beginning after December 15, 2001. EITF No. 00-25
requires the reclassification of certain consideration paid to a reseller by a
vendor as a reduction of income on the vendor's income statement. The Company
will adopt EITF No. 00-25 when it becomes effective. The adoption of EITF No.
00-25 will not have a material impact on the Companies' overall trends in their
results of operations.
18
Forward-Looking Statements
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Result of Operations" contains "forward-looking"
statements. 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.
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 financial condition of customers, the action of
current and potential new competitors, changes in technology and economic
conditions.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Market risk represents the risk of loss that may impact the
consolidated financial position, results of operations or cash flows of Holdings
and Enterprises due principally to adverse conditions in commodity market prices
and interest rate risk related to debt obligations outstanding. Holdings and
Enterprises do not use financial instruments or derivatives for any trading or
other speculative purposes.
Holdings and Enterprises secure future commitments for certain
commodities based upon historical and projected consumption such that reasonable
possible near term changes in commodity prices would not result in a material
effect on future earnings, fair values or cash flows of Holdings and
Enterprises. Holdings and Enterprises manage interest rate risk through the
strategic use of fixed and variable rate debt.
Item 8. Financial Statements and Supplementary Data
Refer to the Index to Financial Statements on page F-1 for the required
information.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
19
PART III
Item 10. Directors and Executive Officers of the Registrants
The directors and executive officers of Holdings and Enterprises, and
where indicated, the senior executive officer of each of Millbrook and
Manischewitz is as set forth in the table below:
Name Age Position
- ---------------------- ---- -----------------------------------------------------------------------
Richard A. Bernstein* 55 Chairman, President, Chief Executive Officer and Director
Lewis J. Korman* 56 Vice Chairman and Director
Steven M. Grossman* 40 Executive Vice President, Chief Financial Officer, Treasurer and
Director
James A. Cohen, Esq.* 55 Senior Vice President - Legal Affairs and Secretary and Director
of Enterprises
Ira A. Gomberg* 57 Senior Vice President
Hal B. Weiss* 44 Assistant Treasurer
Richard H. Hochman 55 Director of Holdings
Jenny Morgenthau 56 Director of Holdings
Michael A. Pietrangelo 59 Director of Holdings
Senior executive officer of Millbrook:
Robert A. Sigel 47 President and Chief Executive Officer of Millbrook and Director of
Holdings
Senior executive officer of Manischewitz:
Michael P. Schall 46 President and Chief Executive Officer of Manischewitz and Director of
Holdings
* Titles of these individuals are the same for Holdings and Enterprises unless
otherwise specified.
Richard A. Bernstein has served as Chairman, President and Chief
Executive Officer of Holdings and Enterprises and as a director of Enterprises
since its inception in March, 1998 and of Holdings since its inception in May,
1996. In addition to his positions with Holdings and Enterprises, Mr. Bernstein
is a member of the Board of Directors and Chairman of Millbrook and is the
Chairman and Manager of Manischewitz. Mr. Bernstein is Chairman and Manager of
RABCO Luxury Holdings LLC, a New York limited liability company ("RABCO"), a
diversified holding entity for luxury products, which has the exclusive right,
through its subsidiaries, to distribute Breguet(R) watches and timepieces and
several other watch brands in the United States, Canada, Mexico, Central and
South America, and throughout the Caribbean. Mr. Bernstein is also President of
P&E Properties, Inc., a private commercial real estate ownership/management
company of which Mr. Bernstein is the sole shareholder. Mr. Bernstein was the
Chairman and Chief Executive Officer and a director of Western Publishing Group,
Inc. from 1984 to May 1996. Mr. Bernstein also served as Chairman of the Board
and Chief Executive Officer of RABCO Health Services, Inc. and General Medical
Corporation, a medical and surgical supply distribution company, from April 1987
through August 1993, and Chairman and Chief Executive Officer of Harris
Wholesale Company, a pharmaceutical and health and beauty care distribution
company, from 1989 through May 1992. Mr. Bernstein devotes substantial time to
other business and charitable activities.
20
Lewis J. Korman has been Vice Chairman of Holdings and Enterprises
since their inception and is a director of Holdings and Enterprises. Mr. Korman
is also an advisor to and an equity owner of a non-affiliated company engaged in
the marketing and distribution of products designed to enhance wellness and
beauty. Mr. Korman is also a member of the Board of Managers of Manischewitz and
an equity owner of a non-affiliated company which provides, through on-line and
traditional publishing channels, preparation and testing for (i) occupations
which require certification, and (ii) students and schools where standardized
examinations are administered for assessment or advancement. He also serves as a
consultant to companies involved in the motion picture industry. Mr. Korman also
is involved in the structuring of entrepreneurial transactions in the
entertainment industry. Prior to joining Holdings in January 1997, Mr. Korman
was President and Chief Operating Officer of Savoy Pictures Entertainment, Inc.
from its founding in 1992 until its merger with Silver King Communications, Inc.
in December 1996. Prior thereto, Mr. Korman was Senior Vice President and Chief
Operating Officer of Columbia Pictures Entertainment, Inc. and Chairman of its
Motion Picture Group until its sale to Sony Corporation at the end of 1989.
Steven M. Grossman has been Executive Vice President, Chief Financial
Officer and Treasurer and a director of Holdings and Enterprises since their
inception. In addition to his positions with Enterprises and Holdings, Mr.
Grossman is a member of the Board of Directors and Executive Vice President -
Finance and Administration of Millbrook and is a member of the Board of Managers
and the Executive Vice President, Chief Financial Officer and Treasurer of
Manischewitz. Mr. Grossman is also Executive Vice President and Chief Financial
Officer of RABCO and each of its subsidiaries and Chief Financial Officer of P&E
Properties, Inc. Mr. Grossman was Executive Vice President and Chief Financial
Officer of Western Publishing Group, Inc. from June 1994 to May 1996 and Vice
President - Financial Planning of Western Publishing Group, Inc. from July 1992
to June 1994 and of RABCO Health Services, Inc. from July 1992 to August 1993.
Mr. Grossman also serves on the Board of Directors of 4Kids Entertainment, Inc.,
a New York Stock Exchange company. Mr. Grossman is a certified public accountant
licensed in New York.
James A. Cohen, Esq. has been Senior Vice President - Legal Affairs and
Secretary of Holdings and Enterprises since their inception and is a director of
Enterprises. In addition to his positions with Enterprises and Holdings, Mr.
Cohen is a member of the Board of Directors and the Senior Vice President -
Legal Affairs of Millbrook and Manischewitz and is a member of Manischewitz'
Board of Managers. Mr. Cohen is also Senior Vice President - Legal Affairs of
RABCO and each of its subsidiaries and a senior executive of P&E Properties,
Inc. Mr. Cohen was Senior Vice President - Legal Affairs and Secretary of
Western Publishing Group, Inc. from 1984 to May 1996 and Senior Vice President -
Legal Affairs and Secretary of RABCO Health Services, Inc. from April 1987
through August 1993.
Ira A. Gomberg has been Senior Vice President of Holdings and
Enterprises since their inception. In addition to his position with Holdings and
Enterprises, Mr. Gomberg is a Senior Vice President of Millbrook and
Manischewitz. Mr. Gomberg is also Senior Vice President of RABCO and each of its
subsidiaries and a senior executive of P&E Properties, Inc. Mr. Gomberg was
Senior Vice President of Western Publishing Group, Inc. from 1986 to May 1996
and Senior Vice President of RABCO Health Services, Inc. from April 1987 through
August 1993.
Hal B. Weiss has been Assistant Treasurer of Holdings and Enterprises
since their inception. In addition to his position with Holdings and
Enterprises, Mr. Weiss is a Vice President and Assistant Treasurer of Millbrook
and Manischewitz. Mr. Weiss is also the Assistant Treasurer of RABCO and each of
its subsidiaries and Controller of P&E Properties, Inc. Mr. Weiss served as
Assistant Treasurer of Western Publishing Group, Inc. from 1990 through May 1996
and Assistant Treasurer of RABCO Health Services, Inc. from April 1987 through
August 1993. Mr. Weiss is a certified public accountant licensed in New York.
21
Richard H. Hochman is Chairman of Regent Capital Management Corp. a
private investment company, making equity and mezzanine investments in
companies, and has served in that capacity since April 1995. From 1990 through
April 1995, he was a Managing Director of the Corporate Finance Department of
Paine Webber Incorporated and served as a member of its Debt and Equity
Commitment Committees. Prior to joining PaineWebber, Mr. Hochman served as a
Managing Director of Drexel Burnham Lambert, Inc. from 1984 through 1990. Mr.
Hochman also serves on the Board of Directors of Cablevision Systems Corp. and
Evercom, Inc.
Jenny Morgenthau has been Chief Executive Officer of The Fresh Air
Fund, one of New York's preeminent charitable corporations, since 1983. Prior to
joining The Fresh Air Fund, Ms. Morgenthau worked for New York City's Special
Services for Children, the Department of City Planning and the New York State
Urban Development Corporation. Ms. Morgenthau serves on the Board of Directors
of a number of charitable and cultural organizations.
Michael A. Pietrangelo is of Counsel in the Memphis, Tennessee law firm
of Pietrangelo Cook PLC, which he joined in February 1998. Previously, Mr.
Pietrangelo was President of Johnson Products Co., a subsidiary of IVAX
Corporation that manufactured and sold cosmetic and health and beauty care
products, principally intended for the African-American consumer. Mr.
Pietrangelo also has held a number of executive positions in the consumer
products industry at Schering-Plough Corporation, including President of the
Personal Care Products Group, and has served as President and Chief Operating
Officer of Western Publishing Group, Inc. and President and Chief Executive
Officer of Cleo, Inc., a subsidiary of Gibson Greetings, Inc.
Robert A. Sigel has been President, Chief Executive Officer and
director of Millbrook since it was acquired by Holdings from McKesson in March
1997. Mr. Sigel became a director of Holdings in March 1999. Mr. Sigel has been
associated with Millbrook's business since 1977, having served as Vice
President, Sales and Merchandising, Executive Vice President, President and
Chief Executive Officer of Millbrook Distributors, Inc. and President and Chief
Executive Officer of the service merchandising division of McKesson, which
became the current Millbrook. From 1995 through March 1997, Mr. Sigel also
served as a Corporate Vice President of McKesson and on McKesson's Management
Board.
Michael P. Schall has been President and Chief Executive Officer of
Manischewitz since December 2000. Mr. Schall became a director of Holdings in
January 2001. Previously, Mr. Schall was President and Chief Executive Officer
of Guiltless Gourmet, Inc. from July 1994 through November 2000. From 1987
through June 1994, Mr. Schall served as President of Strategic Marketing
Methods, a marketing and sales consulting firm. From 1985 to 1987, Mr. Schall
served as Vice President of Sales and Marketing for the Grocery Products
Division of Prepared Products Company.
Item 11. Executive Compensation
The following table sets forth the compensation earned or paid,
including deferred compensation of the Chief Executive Officer and the most
highly compensated executive officers of Holdings, Enterprises, Millbrook and
Manischewitz for services rendered for each of the fiscal years indicated.
None of Holdings, Enterprises, Millbrook or Manischewitz pays a salary
to Mr. Bernstein. Enterprises reimburses P&E Properties, Inc. ("P&E Properties")
for personal services, including executive services rendered by certain of its
executive officers. Although Mr. Bernstein does not receive any salary from P&E
Properties, a portion of these amounts may be deemed indirect compensation to
Mr. Bernstein. See "Certain Relationships and Related Transactions - Related
Party Transactions" on page 26.
22
None of Holdings, Enterprises, Millbrook or Manischewitz pays a salary
to Messrs. Grossman or Cohen. Messrs. Grossman and Cohen receive a salary from
P&E Properties for executive services rendered to Holdings and Enterprises.
Long-Term
Compensation
Annual Compensation ------------
------------------- Options/SARs
Name and Principal Position Year Salary ($)(1)(2) Bonus ($) (#)
- --------------------------- ---- ---------- ---------- ------------
Holdings and Enterprises
Richard A. Bernstein 2001 $ -- $ -- --
Chairman, President and Chief 2000 $ -- $ -- --
Executive Officer 1999 $ -- $ -- --
Steven M. Grossman 2001 $ 260,000 $ -- --
Executive Vice President, 2000 $ 243,750 $ -- --
Chief Financial Officer and 1999 $ 225,000 $ -- --
Treasurer
James A. Cohen 2001 $ 214,500 $ -- --
Senior Vice President - Legal 2000 $ 192,000 $ -- --
Affairs 1999 $ 160,000 $ -- --
Millbrook
Robert A. Sigel 2001 $ 400,465 $ -- --
Chief Executive Officer 2000 $ 391,619 $ -- --
and President of Millbrook 1999 $ 368,319 $ -- --
Manischewitz
Michael P. Schall 2001 $ 94,231(3) $ -- --
Chief Executive Officer
and President of Manischewitz
(1) These amounts do not include amounts paid on behalf of executive
officers under the Companies' benefit plans. Such benefit plans, which
are offered to all full-time employees of the Companies include a
retirement and profit-sharing plan, medical and dental insurance,
disability insurance and life insurance.
(2) Other compensation in the form of perquisites and other personal
benefits has been omitted as such benefits constituted less than the
lesser of $50,000 or 10% of the total annual salary and bonus for each
of the named officers for each fiscal year.
(3) Mr. Schall became Chief Executive Officer and President of Manischewitz
in November 2000.
23
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table contains, as of March 31, 2001, information
regarding the beneficial ownership of the common stock and preferred stock of
Holdings:
(1) by each person who is known by Holdings to own beneficially
more than 5% of the outstanding shares of common stock or
preferred stock of Holdings;
(2) by each of the directors and executive officers of Holdings;
and
(3) by all directors and executive officers of Holdings as a
group.
Based on information furnished by those owners, we believe that the
beneficial owners of the securities listed below have investment and voting
power for all the shares of common stock and preferred stock of Holdings shown
as being beneficially owned by them. The securities are subject to the voting
agreement described under the heading "Certain Relationships and Related
Transactions--Voting Agreement" on page 25. Holdings owns 200 shares of the
common stock of Enterprises, which represents all of the issued and outstanding
capital stock of Enterprises.
Number of Number of
Number of Shares of Percentage Shares of Percentage
Shares of Percentage Series A of Total Series B of Total
Common of Total Preferred Shares of Preferred Shares of
Stock of Shares of Stock of Series A Stock of Series B
Holdings Common Holdings Preferred Holdings Preferred
Name of Beneficially Stock of Beneficially Stock of Beneficially Stock of
Beneficial Owner Owned Holdings Owned Holdings Owned Holdings
- ---------------- ----- -------- ----- -------- ----- --------
Richard A. Bernstein............... 42,500 40.4% 12,500 50.0% 1,000 100.0%
Robert A. Sigel.................... 6,600 6.3 250 1.0
James A. Cohen, Esq................ 3,610 3.4 150 .6
Steven M. Grossman................. 3,490 3.3 100 .4
Lewis J. Korman.................... 3,450 3.3 500 2.0
Ira A. Gomberg..................... 2,850 2.7 250 1.0
Michael P. Schall.................. 2,500 2.4 -- --
Hal B. Weiss....................... 1,460 1.4 150 .6
Richard H. Hochman................. 1,200 1.1 500 2.0
Michael A. Pietrangelo............. 360 .3 150 .6
Jenny Morgenthau................... 300 .3 125 .5
All directors and executive
officers as a group (11 persons)... 68,320 65.0% 14,675 58.7% 1,000 100.0%
24
Name of Address of
Beneficial Owner Beneficial Owner
- ---------------- ----------------
Richard A. Bernstein
James A. Cohen, Esq.
Steven M. Grossman
Lewis J. Korman
Ira A. Gomberg
Hal B. Weiss......................................... R.A.B. Holdings, Inc.
444 Madison Avenue, Suite 601
New York, New York 10022
Robert A. Sigel...................................... Millbrook Distribution Services Inc.
Route 56
88 Huntoon Memorial Highway
Leicester, Massachusetts 01524
Michael P. Schall.................................... The B. Manischewitz Company, LLC
One Manischewitz Plaza
Jersey City, New Jersey 07302
Richard H. Hochman................................... Regent Capital Management Corp.
505 Park Avenue, 17th Floor
New York, New York 10022
Michael A. Pietrangelo............................... Pietrangelo Cook PLC
International Plaza
6410 Poplar, Suite 190
Memphis, Tennessee 38119
Jenny Morgenthau..................................... The Fresh Air Fund
633 Third Avenue, 14th Floor
New York, New York 10017
Item 13. Certain Relationships and Related Transactions
Voting Agreement
Mr. Bernstein is a party to a voting agreement with each of the holders
of the series A preferred stock and common stock of Holdings. Under the voting
agreement these stockholders agreed to vote all of their shares of series A
preferred stock and common stock as Mr. Bernstein directs or, if Mr. Bernstein
does not give direction, in a manner consistent with the manner in which he
votes his shares of series A preferred stock and common stock. The voting
agreement also provides that the stockholders shall execute any written consent
of holders of series A preferred stock or common stock as Mr. Bernstein directs
or, if Mr. Bernstein does not give direction, in a manner which is consistent
with his vote or written consent on the matter. Pursuant to the voting
agreement, the stockholders have agreed not to execute any other consent of
holders of series A preferred stock or common stock.
25
In the event that a stockholder fails to comply with the voting
provisions above, Mr. Bernstein holds a proxy to vote the stockholder's shares
or execute a written consent in any manner as he may determine in his
discretion. Under the voting agreement, Mr. Bernstein shall not be liable to any
stockholder or anyone making a claim under that stockholder as a result of any
vote or the exercise of any proxy by Mr. Bernstein. This is true even if that
vote or exercise of proxy adversely affects, or results in the decrease in the
value of, such stockholder's shares.
The voting agreement shall terminate on the earliest of (i) the date a
stockholder, and that stockholder's heirs, personal representatives, donees and
trustees of any trusts in which that stockholder has an interest, during the
stockholder's life or when he or she dies, ceases to own any of the shares of
Holdings; (ii) the date on which the common stock of Holdings is listed or
admitted to trade on any national securities exchange or is quoted on the NASDAQ
system or similar means; and (iii) March 31, 2007.
Related Party Transactions
At the time of the acquisition of Millbrook by Holdings and the
acquisition of Manischewitz by Enterprises, Millbrook and Manischewitz entered
into separate arrangements with P&E Properties, an entity of which Mr. Bernstein
is the sole shareholder. In these arrangements, Millbrook agreed to pay a
quarterly management fee of $100,000 and Millbrook and Manischewitz agreed to
reimburse P&E Properties for reasonable services and out-of-pocket and other
expenses incurred on Millbrook's and Manischewitz' behalf. These services
include among other things, treasury, cash management, certain financial
reporting, legal, labor and lease negotiation and employee benefits
administration. For the year ended March 31, 2001, P&E Properties was (i) paid
$400,000 in management fees by Millbrook; (ii) reimbursed $1,100,000 for
reasonable services provided to Millbrook; and (iii) reimbursed approximately
$510,000 for reasonable services provided to Manischewitz.
Enterprises reimburses P&E Properties for personal services, including
executive services, rendered by certain of its executive officers. Mr. Bernstein
does not receive a salary from P&E Properties. Messrs. Grossman and Cohen
receive a salary from P&E Properties for executive services rendered to
Holdings, Enterprises, Millbrook and Manischewitz. The reasonable services
provided are based upon (i) the number of hours incurred at the applicable pay
rate; and (ii) out-of-pocket expenses, related to the services provided. In
addition, in fiscal 2001, Millbrook and Manischewitz reimbursed P&E Properties
approximately $111,000 and $12,000, respectively for use of an airplane owned by
P&E Properties. When commercial flights were reasonably available to the
destination, the reimbursement was determined at the rate of the normal first
class fare. When commercial flights were not available, the reimbursement amount
was equal to the hourly variable costs of the airplane multiplied by the number
of hours of use.
In the opinion of management, these methodologies provided a reasonable
basis for such allocations. In addition, each of Holdings, Enterprises,
Millbrook and Manischewitz believe that the terms of the arrangement with P&E
Properties were no less favorable than could have been obtained from
unaffiliated third parties on an arm's length basis.
At March 31, 2001, Michael P. Schall, the Chief Executive Officer and
President of Manischewitz, had an outstanding loan with Holdings in the amount
of $62,500 related to the acquisition of his equity interest in Holdings.
26
Shareholders Agreements
Each employee of Millbrook or Manischewitz who owns shares of the
common stock of Holdings is a party to a shareholders agreement with Holdings.
These agreements prohibit transfer of such shares other than to a member of the
employee shareholder's immediate family or a trustee of a trust for the benefit
of the employee shareholder or his immediate family. In the event of the
termination of such employee, Holdings has the option or obligation, under
certain circumstances, to purchase all the employee shareholder's shares at
prices not greater than their fair market value.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. The financial statements listed in the accompanying
Index to Financial Statements and Schedules are filed
as part of this report.
2. The exhibits listed in the accompanying Index to
Exhibits are filed as part of this report.
(b) Reports on Form 8-K filed in Fourth Quarter of fiscal 2001.
None.
(c) Index to Exhibits.
Exhibit No. Description of Document
----------- -----------------------
2.1 Purchase Agreement dated as of March 3, 1998
among R.A.B. Food Holdings, Inc., MANO
Holdings I, LLC, KBMC Acquisition Company,
L.P., MANO Holdings Corporation and the
stockholders of MANO Holdings Corporation
(incorporated by reference to Exhibit 2.1 to
the Registrants' Registration Statement No.
333-66221 on Form S-4, filed on October 28,
1998 (the "Registration Statement")).
3.1 Certificate of Incorporation of R.A.B.
Holdings, Inc. (incorporated by reference to
Exhibit 3.1 to the Registration Statement).
3.2 Certificate of Amendment of Certificate of
Incorporation of R.A.B. Holdings, Inc.
(incorporated by reference to Exhibit 3.2 to
the Registration Statement).
3.2.1 Certificate of Designation of R.A.B.
Holdings, Inc. for the Series A Preferred
Stock. (incorporated by reference to Exhibit
3.2.1 to the Registrants' Annual Report on
Form 10-K for the fiscal year 2000
(the "2000 Form 10-K")).
3.2.2 Certificate of Designation of R.A.B.
Holdings, Inc. for the Series B Preferred
Stock. (incorporated by reference to Exhibit
3.2.2 to the 2000 Form 10-K).
3.3 Bylaws of R.A.B. Holdings, Inc.
(incorporated by reference to Exhibit 3.3 to
the Registration Statement).
3.4 Certificate of Incorporation of R.A.B.
Enterprises, Inc. (incorporated by reference
to Exhibit 3.4 to the Registration
Statement).
27
Exhibit No. Description of Document
----------- -----------------------
3.5 Amendment of Certificate of Incorporation of
R.A.B. Enterprises, Inc. (incorporated by
reference to Exhibit 3.5 to the Registration
Statement).
3.6 Bylaws of R.A.B. Enterprises, Inc.
(incorporated by reference to Exhibit 3.6 to
the Registration Statement).
3.7 Certificate of Incorporation of Millbrook
Distribution Services Inc. (incorporated by
reference to Exhibit 3.7 to the Registration
Statement).
3.8 Bylaws of Millbrook Distribution Services
Inc. (incorporated by reference to Exhibit
3.8 to the Registration Statement).
3.9 Certificate of Formation of The B.
Manischewitz Company, LLC (incorporated by
reference to Exhibit 3.9 to the Registration
Statement).
3.10 Operating Agreement of The B. Manischewitz
Company, LLC (incorporated by reference to
Exhibit 3.10 to the Registration Statement).
4.1 Indenture, dated as of May 1, 1998, among
R.A.B. Holdings, Inc. and PNC Bank, National
Association, as Trustee, relating to the
Holdings Notes (incorporated by reference to
Exhibit 4.1 to the Registration Statement).
4.2 Form of Old Holdings Note (included as
Exhibit A to Exhibit 4.1 to the Registration
Statement) (incorporated by reference to
Exhibit 4.2 to the Registration Statement).
4.3 Form of New Holdings Note (included as
Exhibit B to Exhibit 4.1 to the Registration
Statement) (incorporated by reference to
Exhibit 4.3 to the Registration Statement).
4.4 Indenture, dated as of May 1, 1998, among
R.A.B. Enterprises, Inc. and PNC Bank,
National Association, as Trustee, relating
to the Old Enterprises Notes (incorporated
by reference to Exhibit 4.4 to the
Registration Statement).
4.5 Form of Old Enterprises Note (included as
Exhibit A to Exhibit 4.4 hereto)
(incorporated by reference to Exhibit 4.5 to
the Registration Statement).
4.6 Form of New Enterprises Note (included as
Exhibit B to Exhibit 4.4 hereto)
(incorporated by reference to Exhibit 4.6 to
the Registration Statement).
4.7 Exchange and Registration Rights Agreement,
dated as of May 1, 1998 between Holdings and
Chase Securities Inc. relating to the Old
Holdings Notes (incorporated by reference to
Exhibit 4.7 to the Registration Statement).
28
Exhibit No. Description of Document
----------- -----------------------
4.8 Exchange and Registration Rights Agreement,
dated as of May 1, 1998 among Enterprises,
the Guarantors named therein and Chase
Securities Inc. relating to the Old
Enterprises Notes (incorporated by reference
to Exhibit 4.8 to the Registration
Statement).
4.9 Purchase Agreement, dated April 28, 1998
among Holdings, Enterprises, Millbrook and
Chase Securities, Inc. (incorporated by
reference to Exhibit 4.9 to the Registration
Statement).
9.1 Form of Voting Agreement (incorporated by
reference to Exhibit 9.1 to Amendment No. 1
to the Registration Statement, filed on
December 29, 1998).
10.1 Credit Agreement, dated as of May 1, 1998
among Millbrook, Manischewitz, the Lenders
party thereto, The Chase Manhattan Bank, as
administrative and collateral agent for the
Lenders, and NationsBank, N.A., as Co-Agent
and Documentation Agent (the "Amended and
Restated Credit Agreement") (incorporated by
reference to Exhibit 10.1 to the
Registration Statement).
10.1.1 Amendment dated as of February 8, 1999 to
the Amended and Restated Credit Agreement,
dated as of May 1, 1998. (incorporated by
reference to Exhibit 10.1.1 to the
Registrants' Annual Report on Form 10-K for
the fiscal year 1999 (the "1999 Form
10-K")).
10.1.2 Amendment dated as of February 19, 1999 to
the Amended and Restated Credit Agreement,
dated as of May 1, 1998. (incorporated by
reference to Exhibit 10.1.2 to the 1999 Form
10-K).
10.1.3 Amendment dated as of March 24, 1999 to the
Amended and Restated Credit Agreement, dated
as of May 1, 1998. (incorporated by
reference to Exhibit 10.1.3 to the 1999 Form
10-K).
10.1.4 Amendment dated as of April 5, 1999 to the
Amended and Restated Credit Agreement, dated
as of May 1, 1998. (incorporated by
reference to Exhibit 10.1.4 to the 2000 Form
10-K).
10.1.5 Amendment dated as of January 31, 2000 to
the Amended and Restated Credit Agreement,
dated as of May 1, 1998. (incorporated by
reference to Exhibit 10.1.5 to the 2000 Form
10-K).
*10.1.6 Consent and Amendment dated as of April 17,
2000 to the Amended and Restated Credit
Agreement, dated as of May 1, 1998.
*10.1.7 Amendment dated as of April 24, 2000 to the
Amended and Restated Credit Agreement, dated
as of May 1, 1998.
*10.1.8 Amendment dated as of June 9, 2000 to the
Amended and Restated Credit Agreement, dated
as of May 1, 1998.
*10.1.9 Consent and Amendment dated as of November
1, 2000 to the Amended and Restated Credit
Agreement, dated as of May 1, 1998.
29
Exhibit No. Description of Document
----------- -----------------------
*10.1.10 Consent and Amendment dated as of
June 29, 2001 to the Amended and Restated
Credit Agreement, dated as of May 1, 1998.
10.2 Stock Purchase Agreement dated as of
February 21, 1997 between R.A.B. Holdings,
Inc. and McKesson Corporation (incorporated
by reference to Exhibit 10.2 to Amendment
No. 1 to the Registration Statement, filed
on December 29, 1998).
21.1 List of subsidiaries of the Co-Registrants
(incorporated by reference to Exhibit 21.1
to the Registration Statement).
*Filed herewith.
(d) Financial Statement Schedules.
The financial statements schedules are listed in the
accompanying Index to Financial Statements and Schedules.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of New
York, state of New York on the 12th day of July, 2001.
R.A.B HOLDINGS, INC.
/s/ Richard A. Bernstein
------------------------------------
Richard A. Bernstein, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ Richard A. Bernstein Chairman, President, Chief Executive Officer July 12, 2001
- ---------------------------------- and Director
Richard A. Bernstein (principal executive officer)
/s/ Steven M. Grossman Executive Vice President, Chief Financial July 12, 2001
- ---------------------------------- Officer, Treasurer and Director
Steven M. Grossman (principal financial and accounting officer)
/s/ Lewis J. Korman Vice Chairman and Director July 12, 2001
- ----------------------------------
Lewis J. Korman
/s/ Robert A. Sigel Director July 12, 2001
- ----------------------------------
Robert A. Sigel
/s/ Michael P. Schall Director July 12, 2001
- ----------------------------------
Michael P. Schall
/s/ Richard H. Hochman Director July 12, 2001
- ----------------------------------
Richard H. Hochman
/s/ Jenny Morgenthau Director July 12, 2001
- ----------------------------------
Jenny Morgenthau
/s/ Michael A. Pietrangelo Director July 12, 2001
- ----------------------------------
Michael A. Pietrangelo
Supplemental information to be furnished with reports filed pursuant to Section
15(d) of the Act by registrants which have not registered securities pursuant to
Section 12 of the Act.
No annual report or proxy material has been sent to security holders of each
registrant.
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of New
York, state of New York on the 12th day of July, 2001.
R.A.B ENTERPRISES, INC.
/s/ Richard A. Bernstein
---------------------------------
Richard A. Bernstein, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/s/ Richard A. Bernstein Chairman, President, Chief Executive Officer July 12, 2001
- ---------------------------------- and Director
Richard A. Bernstein (principal executive officer)
/s/ Steven M. Grossman Executive Vice President, Chief Financial July 12, 2001
- ---------------------------------- Officer, Treasurer and Director
Steven M. Grossman (principal financial and accounting officer)
/s/ Lewis J. Korman Vice Chairman and Director July 12, 2001
- ----------------------------------
Lewis J. Korman
/s/ James A. Cohen Senior Vice President - Legal Affairs, July 12, 2001
- ---------------------------------- Secretary and Director
James A. Cohen
Supplemental information to be furnished with reports filed pursuant to Section
15(d) of the Act by registrants which have not registered securities pursuant to
Section 12 of the Act.
No annual report or proxy material has been sent to security holders of each
registrant.
32
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements Page
- -------------------- ----
Consolidated Financial Statements of R.A.B. Holdings, Inc. And Subsidiaries and
R.A.B. Enterprises, Inc. And Subsidiaries
Independent Auditors' Report................................................................................. F-2
Consolidated Balance Sheets as of March 31, 2001 and 2000.................................................... F-3
Consolidated Statements of Operations for the Years Ended
March 31, 2001, 2000 and 1999............................................................................. F-4
Consolidated Statements of Stockholders' Equity (Holdings) for the Years Ended
March 31, 2001, 2000 and 1999............................................................................. F-5
Consolidated Statements of Stockholder's Equity (Enterprises) for the Years Ended
March 31, 2001, 2000 and 1999............................................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2001, 2000 and 1999............................................................................. F-7
Notes to Consolidated Financial Statements................................................................... F-8
Schedules
I - Condensed Financial Information of Registrants......................................................... S-1
II - Valuation and Qualifying Accounts...................................................................... S-5
Schedules which are not included have been omitted because either they
are not required or are not applicable or because the required information has
been included elsewhere in the consolidated financial statements or notes
thereto.
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
R.A.B. Holdings, Inc.
New York, New York
To the Board of Directors and Stockholder of
R.A.B. Enterprises, Inc.
New York, New York
We have audited the accompanying consolidated financial statements and financial
statement schedules of R.A.B. Holdings, Inc. and subsidiaries and R.A.B.
Enterprises, Inc. (a wholly-owned subsidiary of R.A.B. Holdings, Inc.) and
subsidiaries listed in the foregoing index. These financial statements and
financial statement schedules are the responsibility of the companies'
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial positions of R.A.B. Holdings, Inc. and
subsidiaries and R.A.B. Enterprises, Inc. and subsidiaries as of March 31, 2001
and 2000, and the results of their operations and cash flows for each of the
three years in the period ended March 31, 2001 in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
DELOITTE & TOUCHE LLP
June 29, 2001
New York, New York
F-2
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except for share and per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
March 31, 2001 2000
- ------------------------------------------------------------------ -------------------------------- -------------------------------
Holdings Enterprises Holdings Enterprises
--------------- --------------- --------------- --------------
ASSETS
Current assets:
Cash $ 9,522 $ 9,520 $ 4,637 $ 4,618
Accounts receivable 53,048 53,048 54,985 54,985
Inventories 72,555 72,555 65,286 65,286
Restricted investments 1,629 - 3,145 -
Other current assets 12,429 14,363 6,142 7,190
-------- -------- --------- --------
Total current assets 149,183 149,486 134,195 132,079
Noncurrent assets:
Restricted investments - - 1,582 -
Other assets 12,365 11,455 13,158 12,178
-------- -------- --------- --------
Total noncurrent assets 12,365 11,455 14,740 12,178
Property, plant and equipment, net 32,629 32,629 37,199 37,199
Intangibles, net 118,458 118,458 104,259 104,259
-------- -------- --------- --------
Total assets $312,635 $312,028 $ 290,393 $285,715
======== ======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,866 $ 1,866 $ 1,946 $ 1,946
Accounts payable 47,090 47,090 50,966 50,966
Other current liabilities 23,917 23,393 26,734 24,101
-------- -------- --------- --------
Total current liabilities 72,873 72,349 79,646 77,013
Noncurrent liabilities:
Long-term debt 203,107 178,107 168,143 143,143
Deferred compensation 9,508 9,508 9,319 9,319
Deferred income taxes 7,954 7,954 9,539 9,539
Other liabilities 6,537 6,537 4,998 4,998
-------- -------- --------- --------
Total noncurrent liabilities 227,106 202,106 191,999 166,999
Commitments and contingencies
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 1 - 1 -
Additional paid-in capital 436 39,482 428 39,482
Retained earnings (deficit) 323 (963) 5,317 2,062
Accumulated other comprehensive (loss) income (946) (946) 159 159
-------- -------- --------- --------
12,658 37,573 18,749 41,703
Less common stock in treasury 2,000 shares and 700 shares 2 - 1 -
-------- -------- --------- --------
Total stockholders' equity 12,656 37,573 18,748 41,703
-------- -------- --------- --------
Total liabilities and stockholders' equity $312,635 $312,028 $ 290,393 $285,715
======== ======== ========= ========
See notes to Consolidated Financial Statements
F-3
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended March 31, 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Holdings Enterprises Holdings Enterprises Holdings Enterprises
--------- ----------- -------- ----------- -------- ------------
Revenues $652,439 $ 652,439 $ 580,616 $ 580,570 $508,293 $ 508,293
Costs and expenses:
Cost of sales 489,608 489,608 442,442 442,442 384,836 384,836
Selling 59,825 59,825 48,305 48,305 48,115 48,115
Distribution and warehousing 59,797 59,797 46,172 46,172 38,767 38,767
General and administrative 30,384 30,307 24,646 24,625 23,861 23,861
Amortization of intangibles 4,067 4,067 3,086 3,086 2,790 2,790
-------- ---------- --------- ---------- -------- ---------
Total costs and expenses 643,681 643,604 564,651 564,630 498,369 498,369
-------- ---------- --------- ---------- -------- ---------
Operating income 8,758 8,835 15,965 15,940 9,924 9,924
Interest expense, net 20,357 17,193 18,960 15,888 20,020 14,949
-------- ---------- --------- ---------- -------- ---------
(Loss) income before (benefit) provision
for income taxes (11,599) (8,358) (2,995) 52 (10,096) (5,025)
(Benefit) provision for income taxes (3,411) (2,139) (1,146) 288 (3,174) (1,399)
--------- ---------- --------- ---------- -------- ---------
Loss before extraordinary item (8,188) (6,219) (1,849) (236) (6,922) (3,626)
Extraordinary gain on early extinguishment of debt,
net of income taxes of $2.1
million at March 31, 2001 and $8.5 million and
$3.1 million at March 31, 2000, respectively 3,194 3,194 12,914 4,742 - -
-------- ---------- --------- ---------- -------- ---------
Net (loss) income $ (4,994) $ (3,025) $ 11,065 $ 4,506 $ (6,922) $ (3,626)
======== ========== ========= ========== ======== =========
See notes to Consolidated Financial Statements
F-4
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands except for share data)
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended March 31, 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amounts Shares Amounts Shares Amounts
------ ------- ------ ------- ------ ------
Preferred stock, $500 par value, 100,000
shares authorized:
Series A:
Balance at beginning of period 24,875 $ 12,344 20,000 $ 9,906 20,000 $ 9,906
Issuance of stock - - 4,875 2,438 - -
-------- --------- --------- ------- ------- -------
Balance at end of period 24,875 12,344 24,875 12,344 20,000 9,906
-------- --------- --------- ------- ------- -------
Series B:
Balance at beginning of period 1,000 500 - - - -
Issuance of stock - - 1,000 500 - -
-------- --------- --------- ------- ------- -------
Balance at end of period 1,000 500 1,000 500 - -
-------- --------- --------- ------- ------- -------
Common stock, $.01 par value, 1,000,000
shares authorized:
Balance at beginning of period 105,100 1 104,100 1 100,000 1
Issuance of stock - - 1,000 - 4,100 -
-------- --------- --------- ------- ------- -------
Total 105,100 1 105,100 1 104,100 1
-------- --------- --------- ------- ------- -------
Treasury shares at beginning of period (700) (1) (1,600) (2)
Purchase of treasury shares (5,900) (6) (900) (1) (2,800) (4)
Issuance of stock 4,600 5 200 - 4,400 6
-------- --------- --------- ------- ------- -------
Treasury shares at end of period (2,000) (2) (700) (1) 0 -
-------- --------- --------- ------- ------- -------
Balance at end of period 103,100 (1) 104,400 - 104,100 1
-------- --------- --------- ------- ------- -------
Additional paid-in capital:
Balance at beginning of period 428 332 98
Issuance of treasury shares and common stock 8 96 234
--------- ------- -------
Balance at end of period 436 428 332
--------- ------- -------
Retained earnings (deficit):
Balance at beginning of period 5,317 (5,748) 1,174
Net (loss) income (4,994) 11,065 (6,922)
--------- ------- -------
Balance at end of period 323 5,317 (5,748)
--------- ------- -------
Other comprehensive (loss) income:
Unrealized gain on securities
available-for-sale 196 159 214
Minimum pension liability adjustment (1,142) - (74)
--------- ------- -------
Other comprehensive income (946) 159 140
--------- ------- -------
Total stockholders' equity $ 12,656 $18,748 $ 4,631
========= ======= =======
See notes to Consolidated Financial Statements
F-5
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(In thousands except for share data)
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended March 31, 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Amounts Shares Amounts Shares Amounts
------ ------- ------ ------- ------ -------
Common stock, $1.00 par value, 200
shares authorized:
Balance at beginning of period 200 $ - 200 $ - 200 $ -
Issuance of stock - - - - - -
--- ------- --- ------- --- --------
Balance at end of period 200 - 200 - 200 -
--- ------- ---- ------- --- --------
Additional paid-in capital:
Balance at beginning of period 39,482 39,482 10,100
Equity investment from Holdings - - 29,382
------- ------- --------
Balance at end of period 39,482 39,482 39,482
------- ------- --------
Retained earnings (deficit):
Balance at beginning of period 2,062 (2,444) 1,182
Net (loss) income (3,025) 4,506 (3,626)
------- ------- --------
Balance at end of period (963) 2,062 (2,444)
------- ------- --------
Other comprehensive (loss) income:
Unrealized gain on securities
available-for-sale 196 159 214
Minimum pension liability adjustment (1,142) - (74)
------- ------- --------
Other comprehensive income (946) 159 140
------- ------- --------
Total stockholder's equity $37,573 $41,703 $ 37,178
======= ======= ========
See notes to Consolidated Financial Statements
F-6
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
For the years ended March 31, 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Holdings Enterprises Holdings Enterprises Holdings Enterprises
-------- ----------- -------- ----------- -------- -----------
Cash flows from operating activities:
Net (loss) income $ (4,994) $ (3,025) $ 11,065 $ 4,506 $ (6,922) $ (3,626)
Adjustments to reconcile net (loss)
income to net cash provided by (used in)
operating activities:
Depreciation and amortization 6,955 6,849 6,651 6,522 7,027 6,758
Amortization of intangibles 4,067 4,067 3,086 3,086 2,790 2,790
Loss on impairment of assets
held for sale 370 370 - - - -
Extraordinary gain on early
extinguishment of debt,
net of income taxes (3,194) (3,194) (12,914) (4,742) - -
Loss (gain) on disposition of equipment 74 74 57 57 (82) (82)
Deferred income taxes (1,000) (800) 3,810 2,035 (2,388) (613)
Changes in assets and liabilities:
Accounts receivable 8,544 8,544 (1,996) (1,996) (8,461) (8,461)
Inventories (1,467) (1,467) 3,779 3,779 (13,750) (13,750)
Other current assets (789) (3,190) 2,822 1,757 (2,989) (2,869)
Accounts payable (11,754) (11,754) (5,947) (5,947) 23,378 23,378
Other current liabilities (6,021) (4,668) (1,098) (1,030) 6,786 4,087
Other assets and liabilities (4,865) (2,606) (10,599) (4,790) (2,398) (1,378)
-------- -------- -------- -------- -------- -------
Net cash (used in) provided
by operating activities (14,074) (10,800) (1,284) 3,237 2,991 6,234
-------- -------- -------- -------- -------- -------
Cash flows from investing activities:
Purchase of Miller Buckeye
Biscuit Company, Inc.,
net of cash acquired (17,591) (17,591) - - - -
Purchase of Guiltless Gourmet, Inc. (4,894) (4,894) - - - -
Purchase of I. Epstein & Sons, Inc. - - (14,986) (14,986) - -
Purchase of The B. Manischewitz
Company, LLC, net of cash acquired - - - - (126,155) (126,155)
Acquisitions of plant and equipment (2,682) (2,682) (3,373) (3,373) (3,419) (3,419)
Proceeds from disposition of equipment 154 154 38 38 233 233
-------- -------- -------- -------- -------- -------
Net cash used in investing activities (25,013) (25,013) (18,321) (18,321) (129,341) (129,341)
-------- -------- -------- -------- -------- -------
Cash flows from financing activities:
Proceeds from issuance and (repurchase of)
long-term debt (12,979) (12,979) (21,016) (12,266) 168,000 120,000
Payment of debt issuance costs - - - - (6,489) (4,759)
Funding of interest escrow account - - - - (16,991) -
Payment from interest escrow account 3,250 - 10,247 - 3,120 -
Borrowings (repayments) under Credit Agreement 53,694 53,694 29,890 29,890 (22,061) (22,061)
Proceeds from the issuance of preferred stock - - 3,000 - - -
Proceeds from issuance and
repurchase of common stock 7 - 33 - 236 -
Equity investment from Holdings - - - - - 29,382
-------- -------- -------- -------- -------- -------
Net cash provided by financing activities 43,972 40,715 22,154 17,624 125,815 122,562
-------- -------- -------- -------- -------- -------
Net increase (decrease) in cash 4,885 4,902 2,549 2,540 (535) (545)
Cash, beginning of year 4,637 4,618 2,088 2,078 2,623 2,623
-------- -------- -------- -------- -------- -------
Cash, end of year $ 9,522 $ 9,520 $ 4,637 $ 4,618 $ 2,088 $ 2,078
======== ======== ======== ======== ======== =======
Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ 18,907 $ 15,657 $ 19,504 $ 14,950 $ 11,229 $ 8,109
Income taxes $ 4,382 $ 512 $ 1,073 $ 196 $ 828 $ 828
See notes to Consolidated Financial Statements
F-7
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary Of Significant Accounting Policies
The Summary of Significant Accounting Policies below and the other
notes to the consolidated financial statements on the following pages are
integral parts of the accompanying consolidated financial statements of
R.A.B. Holdings, Inc. ("Holdings") and R.A.B. Enterprises, Inc.
("Enterprises"), its direct wholly-owned subsidiary (the "Consolidated
Financial Statements"). 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").
Millbrook is one of the nation's largest independent value-added
distributors of health and beauty care, general merchandise and specialty
food products. Manischewitz manufactures processed kosher and other ethnic
foods including, among others, matzos, cake mixes, cookies, soups, noodles
and processed fish products and also licenses its name to third parties for
which it receives royalties. Holdings and Enterprises are referred to
collectively as the "Companies".
Principles of Consolidation - The Consolidated Financial Statements
include the accounts of the Companies and their subsidiaries. All
significant intercompany transactions and balances are eliminated in
consolidation. Certain reclassifications have been made in the prior year
financial statements to conform with the current year presentation.
Use of Estimates - The preparation of financial statements, in
conformity with generally accepted accounting principles, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Concentration of Credit Risk - Trade accounts receivable potentially
subject the Companies to credit risk. The Companies extend credit to their
customers, principally in the U.S. supermarket industry, based upon an
evaluation of the customer's financial condition and credit history and
generally do not require collateral. The Companies' allowances for doubtful
accounts are based upon the expected collectability of trade accounts
receivable.
Fiscal Year - The Companies' fiscal years end on March 31.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out ("LIFO") method. At March 31,
2001 and 2000, the replacement cost of inventories valued using the LIFO
method exceeded the net carrying amount of such inventories by
approximately $1,668,000 and $999,000, respectively. For the year ended
March 31, 2000, the liquidation of certain LIFO layers decreased costs of
products sold by approximately $250,000.
Marketable Securities - Marketable securities held by the Companies are
classified as available-for-sale. The aggregate excess of fair value over
cost, net of related income taxes is included as a separate component of
stockholders' equity.
F-8
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary Of Significant Accounting Policies (Continued)
Property, Plant and Equipment - Property, plant and equipment are
recorded at cost. For financial reporting purposes, depreciation is
provided on the straight-line method over the following estimated useful
lives:
Buildings and improvements..................... 5- 35 years
Machinery and equipment........................ 2- 15 years
Rolling stock.................................. 3- 8 years
Expenditures which significantly increase value or extend useful lives
are capitalized, while ordinary maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation of assets replaced,
retired or disposed of are removed from the accounts and any related gains
or losses are reflected in operations.
Intangibles - Intangibles, which include trademarks, trade names,
distributorship and trademark license agreements and the excess of cost
over net assets acquired, are amortized on a straight-line basis over their
estimated useful lives ranging from 4 to 40 years.
Long-Lived Assets - The Companies review their long-lived assets and
related intangibles for impairment whenever changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
Such changes in circumstances may include, among other factors, a
significant change in technology that may render an asset obsolete or
noncompetitive or a significant change in the extent or manner in which an
asset is used. The assessment for potential impairment is based upon the
Companies' abilities to recover the unamortized balance of their long-lived
assets from expected future cash flows on an undiscounted basis (without
interest charges). If such expected future cash flows are less than the
carrying amount of the asset, an impairment loss would be recorded.
Revenue Recognition - Revenue is recognized when products are shipped
or services are provided to customers. Provisions for returns and
allowances and bad debts are based upon historical experience and known
events.
Royalty Income - The Companies have licensing agreements under which
they receive royalty payments. Royalty payments due under licensing
agreements are recognized as income either based upon shipment reports from
manufacturers, where available, or estimated shipments by such
manufacturers.
Income Taxes - Deferred income taxes result primarily from temporary
differences between financial and tax reporting and acquisition basis
differences.
Comprehensive (Loss) Income - For the years ended March 31, 2001, 2000
and 1999, Holdings' and Enterprises' comprehensive (loss) income was
($6,099,000) and ($4,130,000), respectively, $11,084,000 and $4,525,000
respectively, and ($6,782,000) and ($3,486,000), respectively.
F-9
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. Summary Of Significant Accounting Policies (Continued)
Accounting Pronouncements - Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998 and is effective for fiscal years
beginning after June 15, 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 Companies adopted SFAS No. 133, as
amended by SFAS No. 137 and SFAS No. 138, during the year ended March 31,
2001. The adoption of SFAS No. 133 has not had a material impact on the
Companies' financial position or overall trends in results of operations
and has not resulted in significant changes to its financial risk
management practices.
Emerging Issues Task Force ("EITF") Issue No. 00-25 was finalized and
is effective for fiscal years beginning after December 15, 2001. EITF No.
00-25 requires the reclassification of certain consideration paid to a
reseller by a vendor as a reduction of income on the vendor's income
statement. The Company will adopt EITF No. 00-25 when it becomes effective.
The adoption of EITF No. 00-25 will not have a material impact on the
Companies' overall trends in results of operations.
2. Formation And Acquisition
On May 6, 1996, Holdings, a Delaware corporation, was formed. On March
31, 1997, Holdings acquired Millbrook for a purchase price of approximately
$67 million, including transaction costs. Holdings had no operations prior
to April 1, 1997. The acquisition was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities
of Millbrook based upon their fair values at the date of acquisition. The
fair values of assets acquired (approximately $129 million) and liabilities
assumed (approximately $53 million) were based upon third party appraisals
and other valuation analyses. The fair value of the net assets acquired
exceeded the purchase price by approximately $9 million. The resulting
negative goodwill reduced the fair value assigned to Millbrook's property,
plant and equipment.
On January 26, 1998, Holdings formed Enterprises, a wholly-owned
subsidiary and Delaware corporation. Effective March 3, 1998, Enterprises
entered into a purchase agreement with MANO Holdings I, LLC, KBMC
Acquisition Company, L.P., MANO Holdings Corporation ("MANO") and the
stockholders of MANO to acquire all of the outstanding membership interests
of Manischewitz. On May 1, 1998, Enterprises acquired all of the
outstanding interests of Manischewitz for approximately $126.2 million
through the issuance of $120 million Senior Notes due 2005 bearing interest
at 10.5% ("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 (the Companies'
only consequential subsidiaries) 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.
F-10
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Formation And Acquisition (Continued)
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 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 acquisition of Manischewitz was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities
of Manischewitz based upon their fair values at the date of acquisition.
The fair values of assets acquired, including identified intangibles
(approximately $126 million), and liabilities assumed (approximately $70
million) were based upon third party appraisals and other valuation
analyses. The purchase price exceeded the fair value of the net assets
acquired by approximately $56 million. The consolidated statements of
operations include the operating results of Manischewitz since its date of
acquisition. Concurrent with the Manischewitz acquisition, Holdings
contributed its wholly-owned subsidiary Millbrook to Enterprises. This
contribution was accounted for as an "as if" pooling of interests.
The pro forma consolidated historical results, as if the Manischewitz
business had been acquired at the beginning of each of the periods
presented, are as follows (in thousands):
For the year ended March 31, 1999
---------------------------- -----------------------
Holdings Enterprises
-------- -----------
Revenues $512,730 $512,730
Net Loss $ (7,772) $ (4,176)
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 Companies' Manischewitz subsidiary.
The acquisition of Epstein was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities
of Epstein based upon their fair values at the date of acquisition. The
fair value of the assets acquired (approximately $17 million) and
liabilities assumed (approximately $2 million) were based upon third party
appraisals and other valuation analyses. The purchase price exceeded the
fair value of the net assets acquired by approximately $7 million which is
being amortized over 25 years. The consolidated statements of operations
include the operating results of Epstein since its date of acquisition. Pro
forma historical operating results have not been included as the impact of
the acquisition was not considered significant on a consolidated basis.
F-11
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Formation And Acquisition (Continued)
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. Miller Buckeye was a distributor of specialty foods,
cookies, crackers and snacks to retail grocery and other retail
establishments in Ohio, Pennsylvania, West Virginia and Western New York.
The acquisition of Miller Buckeye was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities
of Miller Buckeye based upon their fair values at the date of acquisition.
The fair value of the assets acquired (approximately $29 million) and
liabilities assumed (approximately $11 million) were based upon third party
appraisals and other valuation analyses. The purchase price exceeded the
fair value of the net assets acquired by approximately $14 million which is
being amortized over 20 years. The consolidated statements of operations
include the operating results of Miller Buckeye since its date of
acquisition. Pro forma historical operating results have not been included
as the impact of the acquisition was not considered significant on a
consolidated basis.
The liabilities assumed in the Epstein and Miller Buckeye acquisitions
include a $1.7 million provision for minor restructurings of their
respective operations as a result of these acquisitions. These liabilities
are principally comprised of a portion of future lease payments. As of
March 31, 2001 and 2000, the balance of this provision of approximately
$1.3 million and $900,000 respectively, has been included as a component of
Other Current Liabilities and Other Liabilities on the Companies' balance
sheets.
On November 1, 2000, Manischewitz acquired substantially all of the
assets and operations of Guiltless Gourmet, Inc. ("Guiltless") for a
purchase price of approximate $4.9 million, including transaction costs.
Guiltless owned the second largest selling national brand and was a leader
in the development of baked tortilla chips.
The acquisition of Guiltless was accounted for as a purchase and,
accordingly, the purchase price was allocated to the assets and liabilities
of Guiltless based upon their fair values at the date of acquisition. The
fair value of the assets acquired and liabilities assumed (approximately $5
million) were based upon third party appraisals and other valuation
analyses. The purchase price exceeded the fair value of the net assets
acquired by approximately $4 million which is being amortized over 25
years. The consolidated statements of operations include the operating
results of Guiltless since its date of acquisition. Pro forma historical
operating results have not been included as the impact of the acquisition
was not considered significant on a consolidated basis.
F-12
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Accounts Receivable
Accounts receivable for Holdings and Enterprises consisted of the
following (in thousands):
March 31, 2001 2000
--------- --------- ---------
Accounts receivable............................. $ 57,423 $ 59,236
Allowance for doubtful accounts................. (4,375) (4,251)
-------- --------
$ 53,048 $ 54,985
======== ========
4. Inventories
Inventories for Holdings and Enterprises consisted of the following (in
thousands):
March 31, 2001 2000
--------- --------- ---------
Raw materials................................... $ 1,730 $ 1,815
Finished goods.................................. 70,825 63,471
-------- --------
$ 72,555 $ 65,286
======== ========
5. Other Current Assets
During the year ended March 31, 2001, Millbrook realigned certain of
its distribution operations which resulted in the closure of its Ozark,
Alabama facility. The carrying amount of this asset was reduced by $370,000
to its estimated net realizable value and is classified as a component of
Other Current Assets on the Companies' balance sheets.
6. Property, Plant & Equipment
Property, plant and equipment for Holdings and Enterprises consisted of
the following (in thousands):
March 31, 2001 2000
--------- --------- ---------
Land............................................ $ 2,673 $ 2,929
Buildings and improvements...................... 15,067 17,364
Machinery and equipment......................... 30,116 28,803
Rolling stock................................... 2,886 3,296
Work in progress................................ 445 -
-------- --------
51,187 52,392
Less accumulated depreciation and amortization.. 18,558 15,193
-------- --------
$ 32,629 $ 37,199
======== ========
F-13
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Intangibles
Intangibles for Holdings and Enterprises consisted of the following (in
thousands):
March 31, 2001 2000
--------- --------- ---------
Trademarks and trade names...................... $ 42,000 $ 42,000
Distributorship and trademark license
agreements..................................... 4,400 4,400
Excess of cost over net assets acquired......... 82,001 63,735
--------- ---------
128,401 110,135
Less accumulated amortization................... 9,943 5,876
--------- ---------
$ 118,458 $ 104,259
========= =========
8. Other Current Liabilities
Other current liabilities for Holdings and Enterprises consisted of the
following (in thousands):
March 31, 2001 2000
--------- ------------------------ -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- --------- -----------
Accrued compensation and
fringe benefits.................. $ 11,534 $ 11,534 $ 11,358 $ 11,358
Accrued interest...................... 5,478 4,133 6,116 4,747
Accrued liabilities................... 6,905 7,726 9,260 7,996
--------- --------- --------- ---------
$ 23,917 $ 23,393 $ 26,734 $ 24,101
========= ========= ========= =========
9. Long-term Debt
Long-term debt for Holdings and Enterprises consisted of the following
(in thousands):
March 31, 2001 2000
--------- ------------------------ -------------------------
Holdings Enterprises Holdings Enterprises
--------- ----------- -------- -----------
10.5% Notes due 2005.................. $ 80,340 $ 80,340 $ 99,150 $ 99,150
13% Notes due 2008.................... 25,000 - 25,000 -
Revolving credit facility............. 95,000 95,000 39,000 39,000
Term loan............................. 4,633 4,633 6,939 6,939
--------- --------- --------- ---------
204,973 179,973 170,089 145,089
Less current maturities............... 1,866 1,866 1,946 1,946
--------- --------- --------- ---------
$ 203,107 $ 178,107 $ 168,143 $ 143,143
========= ========= ========= =========
F-14
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term Debt (Continued)
Millbrook and Manischewitz have a credit agreement with a group of
commercial lending institutions providing for a credit facility in the
aggregate amount of $109.6 million consisting of revolving credit loans up
to $105 million and an amortizing term loan of $4.6 million (the "Credit
Agreement"). Borrowings under this long-term facility, which expires March
31, 2003, are supported by specified assets in accordance with a borrowing
base formula, as defined in the Credit Agreement. Additionally, the Credit
Agreement requires the maintenance of a minimum level of cash flow, as
defined and imposes restrictions on investments, capital expenditures, cash
dividends, management fees and advances to the parent and other
indebtedness. At March 31, 2001, substantially all of the assets of
Enterprises' subsidiaries are unavailable for dividends. At March 31, 2001,
Millbrook and Manischewitz had available, under the Credit Agreement,
unused borrowing capacity of approximately $2.2 million, net of outstanding
letters of credit of approximately $2.6 million. The Credit Agreement is
secured by Millbrook's and Manischewitz' accounts receivable and
inventories and Enterprises' pledge of Millbrook's stock.
Borrowings under the Credit Agreement bear interest at either the
London interbank offered ("LIBO") rate plus a margin or the bank's
alternate base rate plus a margin (up to 3.25%). The margin, which ranged
from 1.50% to 2.25% during the year ended March 31, 2001, is based upon
availability pursuant to the borrowing base calculation. At March 31, 2001
and 2000, borrowings under the LIBO option were $99,633,000 and
$45,939,000, respectively. At March 31, 2001, the interest rate on the
outstanding LIBO loans ranged from 6.96% to 7.35%. In addition, Millbrook
had a three-year interest rate protection agreement that effectively capped
rates on a notional principal amount up to $50 million of borrowings at a
LIBO rate of 7.625% through April 30, 2000 as required by the Credit
Agreement to manage interest rate exposure to market fluctuations. The
Companies (i) do not engage in derivative activity for trading or
speculative purposes; (ii) periodically evaluate the financial position of
the counterparty; and (iii) do not expect non-performance by the
counterparty. At March 31, 2001, Millbrook's and Manischewitz' outstanding
debt under the Credit Agreement approximates fair value. At March 31, 2001
and 2000, the fair value of Holdings' 13% Notes was $15.0 million and $12.5
million, respectively. At March 31, 2000 and 2001, the fair value of
Enterprises' 10.5% Notes was $56.2 million and $67.4 million, respectively.
F-15
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Long-term Debt (Continued)
During the years ended March 31, 2001 and 2000, 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, 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
$5.4 million. These transactions were recorded as extraordinary items.
Future maturities of long-term debt at March 31, 2001 were as follows
(in thousands):
Holdings Enterprises
--------- -----------
2002...................................... $ 1,866 $ 1,866
2003...................................... 97,767 97,767
2004...................................... - -
2005...................................... - -
2006...................................... 80,340 80,340
Thereafter................................ 25,000 -
--------- ---------
$ 204,973 $ 179,973
========= =========
10. Stockholders' Equity
In conjunction with its acquisition of Millbrook in 1997, Holdings sold
20,000 shares of Series A Preferred Stock at $500 per share and 100,000
shares of Common Stock at $1.00 per share. During the year ended March 31,
2000, Holdings sold an additional 5,000 shares of Series A Preferred Stock
at $500 per share and 1,000 shares of Series B Preferred Stock at $500 per
share.
The holders of the Series A and B Preferred Stock are entitled to
cumulative preferential cash dividends of $50 per year (10%), per share. At
March 31, 2001, the amount of accumulated unpaid dividends per share on the
Series A Preferred Stock was $200 for shares issued in 1997 and $100 for
each of the Series A and B Preferred Stock issued in 1999. Unless all
accumulated and unpaid dividends on the Series A and B Preferred Stock are
paid, no dividends shall be declared or paid on Holdings' Common Stock. The
Series A and B Preferred Stock are each subject to an optional redemption
by Holdings at any time, in whole or in part, at the redemption price per
share of $500 plus an amount equal to all accumulated and unpaid dividends.
F-16
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Commitments And Contingencies
Leases
The Companies lease certain facilities, machinery and vehicles under
various non-cancelable capital and operating lease agreements. The
Companies are required to pay property taxes, insurance and normal
maintenance costs for certain of their facilities. Future minimum lease
payments required under such leases in effect at March 31, 2001 were as
follows (in thousands):
Capital Lease Operating
Obligations Leases
------------- ---------
2002...................................... $ 88 $ 5,488
2003...................................... 84 4,710
2004...................................... 73 3,614
2005...................................... 16 3,179
2006...................................... - 2,961
Thereafter................................ - 3,372
----- --------
Future minimum lease payments............. $ 261 $ 23,324
========
Less: Interest and executory costs........ 41
-----
Total capital lease obligations........... $ 220
=====
Capital lease obligations have been included as a component of Other
Current Liabilities and Other Liabilities on the Companies' balance sheets.
Interest rates on capital lease obligations vary from 9.0% to 13.3%. The
net carrying amount of assets under capital leases at March 31, 2001 were
approximately $288,000.
Total rent expense for all operating leases was $8.9 million, $5.7
million and $4.9 million for the years ended March 31, 2001, 2000, and
1999, respectively.
Commitments
At March 31, 2001 and 2000, Manischewitz had approximately $0.9 million
and $1.2 million, respectively, of purchase commitments with certain
vendors.
Contingencies
The Companies are subject to pending claims and legal proceedings in
the normal course of their business. While it is not feasible to predict or
determine the outcome of these claims and proceedings, it is the opinion of
management that their outcome, to the extent not provided for through
insurance or otherwise, will not have a materially adverse effect on the
Companies' financial position or future results of operations.
F-17
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Income Taxes
The provision (benefit) for income taxes consisted of the following (in
thousands):
March 31, 2001 2000 1999
--------- --------------------- --------------------- ---------------------
Holdings Enterprises Holdings Enterprises Holdings Enterprises
-------- ----------- -------- ----------- -------- -----------
Currently (receivable) payable:
Federal...................... $ (2,041) $ (995) $ (4,329) $ (1,564) $ (671) $ (671)
State........................ (370) (344) (627) (183) (115) (115)
-------- -------- -------- -------- -------- --------
(2,411) (1,339) (4,956) (1,747) (786) (786)
-------- -------- -------- -------- -------- --------
Deferred (benefit) liability:
Federal...................... $ (658) $ (658) $ 3,759 $ 1,984 $ (2,582) (807)
State........................ (342) (142) 51 51 194 194
-------- -------- -------- -------- -------- --------
(1,000) (800) 3,810 2,035 (2,388) (613)
-------- -------- -------- -------- -------- --------
$ (3,411) $ (2,139) $ (1,146) $ 288 $ (3,174) $ (1,399)
======== ======== ======== ======== ======== ========
A reconciliation of the statutory United States Federal income tax rate
to the Companies effective income tax (benefit) rates follows:
For the years ended March 31, 2001 2000 1999
----------------------------- --------------------- --------------------- ---------------------
Holdings Enterprises Holdings Enterprises Holdings Enterprises
-------- ----------- -------- ----------- -------- -----------
Statutory rate.................. (35.0%) (35.0%) (35.0%) 35.0% (35.0%) (35.0%)
State income taxes, net of
Federal benefit............ (4.0) (3.8) (2.6) 116.6 .5 1.0
Nondeductible amortization of
intangibles................ 4.6 6.3 16.4 945.0 4.5 9.0
Change in valuation allowances.. - - (23.3) (657.7) - -
Other........................... 5.0 6.9 6.2 115.3 (1.4) (2.8)
----- ----- ----- ----- ----- -----
(29.4%) (25.6%) (38.3%) 554.2% (31.4%) (27.8%)
===== ===== ===== ===== ===== =====
F-18
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Income Taxes (Continued)
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities were as
follows (in thousands):
2000
2001 ------------
---------------------- Holdings and
March 31, Holdings Enterprises Enterprises
--------- --------- ----------- ------------
Deferred Tax Assets:
Accounts receivable, principally due to
allowances for doubtful accounts........... $ 1,785 $ 1,785 $ 1,701
Deferred compensation........................ 4,066 4,066 3,982
Net operating loss carryforwards............. 200 - -
Liability accruals........................... 4,535 4,535 4,049
Other, net................................... 1,193 1,193 682
Deferred Tax Liabilities:
Inventories, principally due to
acquisition basis differences and
financial statement allowances............. (4,228) (4,228) (4,886)
Property, plant & equipment, principally
due to basis differences................... (5,351) (5,351) (5,979)
Identified intangibles, due to
basis differences.......................... (9,269) (9,269) (9,135)
-------- -------- --------
Net deferred tax liabilities................. $ (7,069) $ (7,269) $ (9,586)
======== ======== ========
At March 31, 2001, Holdings and Enterprises had no consolidated net
operating loss carryforwards for Federal income tax purposes as the
operating loss for the year was offset by the Federal carryback available.
For state income tax purposes, Holdings had a $200,000 consolidated net
operating loss carryforward and Enterprises had no consolidated net
operating loss carryforward as of March 31, 2001.
At March 31, 2000, Holdings and Enterprises had no consolidated net
operating loss carryforwards for Federal or state income tax purposes as
these carryforwards were utilized to partially offset the gain on early
extinguishment of debt. In addition, the valuation allowances established
during the year ended March 31, 1999 were reversed due to the gain on early
extinguishment of debt at Holdings and Enterprises.
F-19
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Employee Benefit Plans
Retirement and Savings Plan
The Companies have a retirement and savings plan ("401(k) Plan")
covering substantially all of their employees. The 401(k) Plan provides for
matching contributions by the Companies. In addition, the Companies may
make annual discretionary contributions to employee accounts based, in
part, on the Companies' financial performance. For each of the years ended
March 31, 2001, 2000 and 1999, the Companies' provided approximately $2.0
million, $1.8 million and $1.8 million, respectively, for matching and
discretionary contributions.
Deferred Compensation
Deferred compensation principally relates to a compensation arrangement
implemented in 1984 by a predecessor of Millbrook in the form of a
non-qualified defined benefit plan and a supplemental retirement plan which
permitted former officers and certain management employees, at the time, to
defer portions of their compensation and to earn specified maximum benefits
upon retirement. The future benefit obligations, which are fixed in
accordance with the plan, have been recorded at a discount rate of 8%.
These plans do not allow new participants.
In an effort to provide for the benefits associated with these plans,
Millbrook's predecessor purchased whole-life insurance contracts on the
plan participants. The value of these policies is included in Other Assets.
At March 31, 2001, future payment obligations, assuming commencement of
payments at an individual's retirement age, as defined under the deferred
compensation arrangement were approximately $472,000, $683,000, $709,000,
$769,000 and $913,000 for the years ending March 31, 2002, 2003, 2004, 2005
and 2006, respectively.
F-20
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Employee Benefit Plans (Continued)
Pension Plan and Other Postretirement Benefits
An analysis of Manischewitz' pension plan and accumulated benefit
obligation for its postretirement health plan follows (in thousands):
For the period ended March 31, 2001 2000
------------------------------ ---- ----
Other Post- Other Post-
Pension Retirement Pension Retirement
Benefits Benefits Benefits Benefits
-------- ----------- -------- -----------
Change in benefit obligation
Benefit obligation at beginning of period...... $ 12,152 $ 1,608 $ 13,481 $ 1,697
Service cost................................... 126 24 157 21
Interest cost.................................. 909 140 876 112
Actuarial (gain) loss.......................... 601 325 (1,224) (134)
Benefits paid.................................. (960) (108) (1,138) (88)
-------- -------- -------- --------
Benefit obligation at end of period............ 12,828 1,989 12,152 1,608
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets at beginning
of period.................................... 13,145 - 11,391 -
Actual return on plan assets................... (2,387) - 1,893 -
Employer contributions......................... 1,005 108 1,000 88
Benefits paid.................................. (960) (108) (1,138) (88)
-------- -------- -------- --------
Fair value of plan assets at end of period..... 10,803 - 13,145 -
-------- -------- -------- --------
Funded status.................................. (2,025) (1,989) 993 (1,608)
Unrecognized actuarial (gain) loss............. 1,926 226 (2,097) (99)
-------- -------- -------- --------
Net amount recognized.......................... $ (99) $ (1,763) $ (1,104) $ (1,707)
======== ======== ======== ========
Amount recognized in the statement
of financial position consists of:
Accrued benefit liability...................... $ (1,989) $ (1,763) $ (1,104) $ (1,707)
Accumulated other comprehensive income......... 1,890 - - -
-------- -------- -------- --------
Net amount recognized.......................... $ (99) $ (1,763) $ (1,104) $ (1,707)
======== ======== ======== ========
Weighted-average assumptions:
Discount rate.................................. 7.25% 7.25% 7.75% 7.75%
Expected return on assets...................... 7.50% - 7.50% -
Rate of compensation increase.................. 4.00% - 4.00% -
For measurement purposes, a 7.75% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2001. The rate
was assumed to decrease by one quarter of 1% per year to 5% in 2010 and
remain at that level thereafter.
F-21
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Employee Benefit Plans (Continued)
For the period ended March 31, 2001 2000
------------------------------ ---- ----
Other Post- Other Post-
Pension Retirement Pension Retirement
Benefits Benefits Benefits Benefits
-------- ----------- -------- -----------
Components of net periodic benefit cost
Service cost.................................. $ 126 $ 24 $ 157 $ 21
Interest cost................................. 909 140 876 112
Expected return on assets..................... (975) - (845) -
Recognized net actuarial gain................. (59) - - -
------ ----- ------ -----
Net periodic pension cost..................... $ 1 $ 164 $ 188 $ 133
====== ===== ====== =====
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets were $12,828,000, $12,792,000 and
$10,803,000, respectively, as of the end of the period, and $12,152,000,
$12,139,000 and $13,145,000, respectively, as of the beginning of the
period.
Manischewitz provides health benefits to eligible retired employees
under its postretirement health care plan. Assumed health care cost trend
rates have a significant effect on the amounts reported for the health care
plan. A one-percentage-point change in assumed health care cost trend rates
would have the following effect:
1-Percentage-Point
-------------------
Increase Decrease
-------- --------
(In thousands)
Effect on total of service and interest cost components....... $ 17 $ (14)
Effect on postretirement benefit obligation................... $ 174 $ (150)
F-22
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Related Party Transactions
Concurrent with Millbrook's acquisition by Holdings, Millbrook entered
into an arrangement with an entity owned by the controlling shareholder of
Holdings whereby Millbrook agreed (i) to pay a quarterly management fee of
$100,000; and (ii) to reimburse the entity for reasonable services provided
and out-of-pocket and other expenses incurred on its behalf. Concurrent
with Manischewitz' acquisition by Enterprises, Manischewitz entered into an
arrangement with the entity owned by the controlling shareholder of
Holdings whereby Manischewitz agreed to reimburse the entity for reasonable
services provided and out-of-pocket and other expenses incurred on its
behalf. The services provided under both arrangements include, among other
things, treasury, cash management, certain financial reporting, legal,
labor and lease negotiation and employee benefits administration. For each
of the years ended March 31, 2001, 2000 and 1999, Millbrook paid $400,000
for management fees and $1,100,000, $875,000 and $800,000 respectively, for
reasonable services provided by this entity pursuant to its aforementioned
arrangement. For the years ended March 31, 2001 and 2000 and the period
ended March 31, 1999, Manischewitz paid approximately $510,000, $428,000
and $150,000, respectively, for reasonable services provided by this entity
pursuant to its aforementioned arrangement. The reasonable services
provided under each of these arrangements are based upon (i) the number of
hours incurred at the applicable pay rate; and (ii) out-of-pocket expenses,
related to the services provided.
In addition, during the years ended March 31, 2001 and 2000, Millbrook
reimbursed the aforementioned entity approximately $111,000 and $97,000,
respectively, and Manischewitz reimbursed the aforementioned entity
approximately $12,000 and $16,000, respectively, for use of its airplane.
When commercial flights were available to the destination, the
reimbursement was determined at the rate of the normal first class fare.
When commercial flights were not available, the reimbursement amount was
equal to the hourly variable costs of the airplane multiplied by the number
of hours of use.
In the opinion of management, these methodologies provided a reasonable
basis for such allocations. In addition, the Companies believe that the
terms of the arrangement with this entity were no less favorable than could
have been obtained from unaffiliated third parties on an arm's length
basis.
15. Segment Reporting
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", established standards for reporting information about
operating segments in financial statements. Operating segments are defined
as components of an enterprise about which separate financial information
is available that is evaluated regularly by the chief operating decision
maker, or decision-making group, in deciding how to allocate resources and
in assessing performance. The Companies' chief decision-maker is its
Chairman and Chief Executive Officer.
F-23
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Segment Reporting (Continued)
The Companies' reportable operating segments are Millbrook and
Manischewitz. The operating segments are managed separately as each
operating segment represents a strategic business entity. The accounting
policies of these operating segments are the same as those described in the
Summary Of Significant Accounting Policies except that the disaggregated
financial results have been prepared using a management approach, which is
consistent with the basis and manner in which each company's management
internally disaggregates financial information for the purposes of
assisting in making internal operating decisions. The Companies evaluate
performance based on each business entity's stand-alone operating income
before depreciation of property, plant and equipment and amortization of
intangibles, non-recurring items, corporate charges, including certain bad
debt and profit sharing costs, management fees and services provided to the
operating segments by an entity owned by Holdings' majority stockholder.
Intersegment sales are generally accounted for as sales to third parties.
For the years ended March 31, 2001 2000 1999
----------------------------- --------------------------- --------------------------- ---------------------------
(in thousands) Holdings Enterprises Holdings Enterprises Holdings Enterprises
------------ ------------ ------------ ------------ ------------ ------------
Revenues
Millbrook........................ $ 607,096 $ 607,096 $ 537,872 $ 537,872 $ 464,785 $ 464,785
Manischewitz..................... 57,695 57,695 50,321 50,321 46,549 46,549
--------- --------- --------- --------- --------- ---------
Total segment revenues......... 664,791 664,791 588,193 588,193 511,334 511,334
Corporate items, principally
the elimination of
intercompany sales............. (12,352) (12,352) (7,577) (7,623) (3,041) (3,041)
--------- --------- --------- --------- --------- ---------
$ 652,439 $ 652,439 $ 580,616 $ 580,570 $ 508,293 $ 508,293
========= ========= ========= ========= ========= =========
Operating income
Millbrook........................ $ 12,478 $ 12,478 $ 15,009 $ 15,009 $ 7,985 $ 7,985
Manischewitz..................... 9,623 9,623 11,666 11,666 12,520 12,520
--------- --------- --------- --------- --------- ---------
Total segment operating
income....................... 22,101 22,101 26,675 26,675 20,505 20,505
Corporate items and
eliminations................... (13,343) (13,266) (10,710) (10,735) (10,581) (10,581)
--------- --------- --------- --------- --------- ---------
$ 8,758 $ 8,835 $ 15,965 $ 15,940 $ 9,924 $ 9,924
========= ========= ========= ========= ========= =========
Identifiable assets
Millbrook........................ $ 141,271 $ 141,271 $ 133,072 $ 133,072 $ 126,719 $ 126,719
Manischewitz..................... 49,532 49,532 49,199 49,199 47,324 47,324
--------- --------- --------- --------- --------- ---------
Total segment assets........... 190,803 190,803 182,271 182,271 174,043 174,043
Corporate items, principally
intangibles not allocated
to segments.................... 121,832 121,225 108,122 103,444 123,949 105,795
--------- --------- --------- --------- --------- ---------
$ 312,635 $ 312,028 $ 290,393 $ 285,715 $ 297,992 $ 279,838
========= ========= ========= ========= ========= =========
F-24
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
16. Significant Customers
For the years ended March 31, 2001 and 2000, combined revenues from the
Companies' two largest customers, Ames Department Stores and Shaw's
Supermarkets, represented approximately 26.1% and 28.9% of total revenues.
17. Quarterly Financial Data (Unaudited)
For the three months ended Fiscal 2001
---------------------------------- ------------------------------------------------------------------------
(in thousands) June 30, September 30, December 31, March 31,
------------ ------------ ------------ ------------
Holdings
Revenues ......................... $ 157,334 $ 154,646 $ 172,579 $ 167,880
Gross profit ..................... 38,314 37,343 40,700 46,474
Operating income (loss) .......... 423 (413) 1,771 6,977
Net income (loss)(1) ............. 387 (3,318) (2,218) 155
Enterprises
Revenues ......................... 157,334 154,646 172,579 167,880
Gross Profit ..................... 38,314 37,343 40,700 46,474
Operating income (loss) .......... 426 (409) 1,797 7,021
Net income (loss)(1) ............. 861 (2,861) (1,707) 682
For the three months ended Fiscal 2000
---------------------------------- ------------------------------------------------------------------------
(in thousands) June 30, September 30, December 31, March 31,
------------ ------------ ------------ ------------
Holdings
Revenues ......................... $ 125,571 $ 144,536 $ 145,852 $ 164,657
Gross profit ..................... 27,993 31,541 32,797 45,843
Operating income (loss) .......... 136 1,498 2,242 12,089
Net income (loss)(2) ............. 8,329 (310) (1,670) 4,716
Enterprises
Revenues ......................... 125,525 144,536 145,852 164,657
Gross Profit ..................... 27,947 31,541 32,797 45,843
Operating income (loss) .......... 93 1,501 2,255 12,091
Net income (loss)(2) ............. 613 149 (1,200) 4,944
(1) Net income for the three months ended June 30, 2000 includes an
after-tax extraordinary gain of $2.1 million on the early
extinguishment of debt.
(2) Net income for the three months ended June 30, 1999 includes an
after-tax extraordinary gain of $7.4 million at Holdings and $2.1
million at Enterprises on the early extinguishment of debt. Net income
(loss) for the three months ended September 30, 1999 includes an
after-tax extraordinary gain of $1.1 million on the early
extinguishment of debt.
F-25
R.A.B. HOLDINGS, INC. - PARENT ONLY
R.A.B. ENTERPRISES, INC. - PARENT ONLY
BALANCE SHEETS
(In thousands except for share and per share data)
- ---------------------------------------------------------------------------------------------------------------------------------
March 31, 2001 2000
- ------------------------------------------------------------------- ----------------------------- -----------------------------
Holdings Enterprises Holdings Enterprises
------------ --------------- ------------ ---------------
ASSETS
Current assets:
Cash $ 3 $ - $ 19 $ -
Restricted investments 1,629 - 3,145 -
Other current assets 3,847 6 8 41
-------- -------- -------- --------
Total current assets 5,479 6 3,172 41
Noncurrent assets:
Restricted investments - - 1,582 -
Intercompany notes receivable - 70,470 - 64,502
Other assets 910 1,857 980 2,853
-------- -------- -------- --------
Total noncurrent assets 910 72,327 2,562 67,355
Investments in subsidiaries 37,573 50,644 41,703 77,822
-------- -------- -------- --------
Total assets $ 43,962 $122,977 $ 47,437 $145,218
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued interest $ 1,345 $ 3,498 $ 1,369 $ 4,348
Other current liabilities 4,961 1,566 2,320 17
-------- -------- -------- --------
Total current liabilities 6,306 5,064 3,689 4,365
Noncurrent liabilities:
Long-term debt 25,000 80,340 25,000 99,150
-------- -------- -------- --------
Total noncurrent liabilities 25,000 80,340 25,000 99,150
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 1 - 1 -
Additional paid-in capital 436 39,482 428 39,482
Retained earnings (deficit) 323 (963) 5,317 2,062
Accumulated other comprehensive (loss) income (946) (946) 159 159
-------- -------- -------- --------
12,658 37,573 18,749 41,703
Less common stock in treasury - 2,000 shares and 700 shares 2 - 1 -
-------- -------- -------- --------
Total stockholders' equity 12,656 37,573 18,748 41,703
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 43,962 $122,977 $ 47,437 $145,218
======== ======== ======== ========
See notes to parent only financial statement schedules
S-1
R.A.B. HOLDINGS, INC. - PARENT ONLY
R.A.B. ENTERPRISES, INC. - PARENT ONLY
STATEMENTS OF OPERATIONS
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
For the years ended March 31, 2001 2000
- ------------------------------------------------------------------- ----------------------------- -----------------------------
Holdings Enterprises Holdings Enterprises
------------ --------------- ------------ ---------------
Equity in net (loss) income of subsidiaries $ (3,025) $ (5,443) $ 4,506 $ 1,386
Revenues - - 46 -
-------- -------- -------- --------
(3,025) (5,443) 4,552 1,386
General and administrative expenses 77 54 20 17
-------- -------- -------- --------
Operating (loss) income (3,102) (5,497) 4,532 1,369
Interest expense, net of Holdings' interest
income of $158 and $368 and Enterprises'
intercompany interest income of $8,020 and $8,502 3,163 1,233 3,073 3,032
-------- -------- -------- --------
(Loss) income before benefit for income taxes (6,265) (6,730) 1,459 (1,663)
Benefit for income taxes (1,271) (511) (1,434) (1,427)
-------- -------- -------- --------
(Loss) income before extraordinary item (4,994) (6,219) 2,893 (236)
Extraordinary gain on early extinguishment of debt,
net of income taxes of $2.1 million at March 31, 2001
and $5.4 million and $3.1 million at March 31, 2000, respectively - 3,194 8,172 4,742
-------- -------- -------- --------
Net (loss) income $ (4,994) $ (3,025) $ 11,065 $ 4,506
======== ======== ======== ========
See notes to parent only financial statement schedules
S-2
R.A.B. HOLDINGS, INC.-PARENT ONLY
R.A.B. ENTERPRISES, INC.-PARENT ONLY
STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------
For the years ended March 31, 2001 2000
- -------------------------------------------------------------------- ---------------------------------------------------
Holdings Enterprises Holdings Enterprises
-------- ----------- -------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (4,994) $ (3,025) $ 11,065 $ 4,506
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Equity in net (income) loss of subsidiaries 3,025 5,443 (4,506) (1,386)
Amortization 106 474 129 628
Extraordinary gain on early extinguishment of debt,
net of income taxes -- (3,194) (8,172) (4,742)
Deferred income taxes -- -- 1,775 1,710
Changes in assets and liabilities:
Intercompany notes receivable -- -- -- --
Accrued interest (24) (850) (1,244) (929)
-------- -------- -------- --------
Net cash used in operating activities (1,887) (1,152) (953) (213)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of long-term debt -- (12,979) (8,750) (12,266)
Payment from interest escrow account 3,250 -- 10,247 --
Proceeds from issuance of purchased stock -- -- 3,000 --
Proceeds from issuance and repurchase
of common stock 7 -- 33 --
Distributions from subsidiaries -- 20,629 -- 16,495
Other (1,386) (6,498) (3,568) (4,016)
-------- -------- -------- --------
Net cash provided by financing activities 1,871 1,152 962 213
-------- -------- -------- --------
Net (decrease) increase in cash (16) -- 9 --
Cash, beginning of year 19 -- 10 --
-------- -------- -------- --------
Cash, end of year $ 3 $ -- $ 19 $ --
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,250 $ 8,779 $ 4,554 $ 11,946
Income taxes $ 3,870 $ -- $ 876 $ --
See notes to parent only financial statement schedules
S-3
R.A.B. HOLDINGS, INC. - PARENT ONLY
R.A.B. ENTERPRISES, INC. - PARENT ONLY
NOTES TO PARENT ONLY FINANCIAL STATEMENT SCHEDULES
Basis of Presentation
The accompanying financial statements are presented on the basis of
recording investments in subsidiaries on the equity method of accounting.
Certain reclassifications have been made in the prior year financial statements
to conform with the current year presentation.
R.A.B. Enterprises, Inc. ("Enterprises") is a wholly owned-subsidiary of
R.A.B. Holdings, Inc. ("Holdings"). On January 26, 1998, Holdings formed
Enterprises and on May 1, 1998 contributed its wholly-owned subsidiary Millbrook
Distribution Services Inc. to Enterprises. This contribution was accounted for
as an "as if" pooling of interests.
S-4
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED MARCH 31, 2001, 2000 AND 1999
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Additions
----------------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end
Description of period expenses accounts (1) Deductions (2) of period
- -------------------------------------- ---------------- ---------------- ---------------- ---------------- ---------------
Year ended March 31, 2001
Allowance for doubtful accounts $ 4,251 643 267 (437) $ 4,724
Year ended March 31, 2000
Allowance for doubtful accounts $ 3,303 1,032 - (84) $ 4,251
Year ended March 31, 1999
Allowance for doubtful accounts $ 2,441 152 879 (169) $ 3,303
- ------------------
(1) For the year ended March 31, 2001, the amount principally relates to the
acquisition of the Miller Buckeye Biscuit Company, Inc. For the year
ended March 31, 1999, the amount principally relates to the acquisition
of The B. Manischewitz Company, LLC.
(2) Amounts written off.
S-5