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FORM 10-K
UNITED STATES
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, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 333-66221
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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
Yes No X
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The registrant's common stock is not publicly held or publicly traded.
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, Related Stockholder Matters and
Issuer Purchases of Equity Securities.................................................. 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................................ 24
Item 8. Financial Statements and Supplementary Data............................................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................... 24
Item 9a. Controls and Procedures................................................................... 24
PART III
Item 10. Directors and Executive Officers of the Registrants....................................... 25
Item 11. Executive Compensation.................................................................... 28
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters............................................................ 29
Item 13. Certain Relationships and Related Transactions............................................ 30
Item 14. Principal Accountant Fees and Services.................................................... 32
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 32
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. The acquisition included 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").
Miller Buckeye was a distributor of specialty foods, cookies, crackers and
snacks to supermarkets 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"). 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, 2004, 2003
and 2002 and in Item 8 herein.
1
(c) Narrative Description of Business
MILLBROOK DISTRIBUTION SERVICES INC.
The Industry. Distributors provide value-added 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 will utilize 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 foods, health and beauty care products and
general merchandise. 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, health, low-carb 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 have segregated specialty foods into specific categories,
such as ethnic foods, natural and organic foods, reduced and low-carb 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 usage among the broader consumer
market. Merchandising expertise is a key criteria for a retailer in determining
its 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, 2004, 2003 and 2002,
specialty food sales were approximately $251.5 million, $241.1 million and
$287.3 million and represented 54.7%, 52.5% and 52.4% of Millbrook's total
revenues, respectively. For 2004, the increase in specialty food sales is
primarily related to sales to new customers and the growth of existing
customers, partially offset by customer bankruptcies. For 2003, the decline in
specialty food sales is primarily related to a decision made by a prior customer
to move to self-distribution, customer financial difficulties and customer
bankruptcies. Millbrook's specialty food category consists of approximately
15,000 items including ethnic, gourmet, organic and natural foods and
supplements. Millbrook offers ethnic foods such as kosher, Asian, Italian,
Irish, Hispanic, 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, reduced carb products, 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, 2004, 2003 and
2002, health and beauty care sales were approximately $176.9 million, $183.1
million and $202.5 million and represented 38.5%, 39.9% and 37.0% of Millbrook's
total revenues, respectively. The decline in health and beauty care sales is
principally due to customer bankruptcies, partially offset by sales to new
customers in 2004. Millbrook currently carries approximately 16,500 health and
beauty care items, including a full line of national and private label brands.
Health and beauty care product offerings have increased 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. For the years ended March 31, 2004, 2003 and 2002,
general merchandise sales were approximately $31.5 million, $34.7 million and
$58.0 million and represented 6.8%, 7.6% and 10.6% of Millbrook's total
revenues, respectively. For 2004, the decrease in general merchandise sales was
attributable to customer bankruptcies and declines in sales to certain existing
customers, partially offset by sales to new customers. For 2003, the decline in
general merchandise sales reflects the change in Millbrook's customer base due
to a decision made by a prior customer to move to self-distribution, customer
financial difficulties and customer losses. Millbrook currently carries
approximately 8,700 general merchandise items. 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. Millbrook offers these services to its customers
through its Millbrook Retail SolutionsSM group, which is solely focused 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, appropriately position Millbrook in the
competitive 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 67%, 64% and 63% of its revenues during the years
ended March 31, 2004, 2003 and 2002, respectively, have been customers for an
average of 16 years. For the year ended March 31, 2004, supermarkets represented
approximately 94% of revenues and mass merchandisers and chain drug stores
represented approximately 6% 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 multi-year 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, 2004 and 2003, Millbrook's two largest
customers, Shaw's Supermarkets and Royal Ahold N.V., together represented
approximately 40% and 37% of its total revenues. For the year ended March 31,
2002, Millbrook's two largest customers, Shaw's Supermarkets and Ames Department
Stores ("Ames"), together represented approximately 32% of its total revenues,
respectively. During the year ended March 31, 2003, Ames announced its decision
to liquidate under Chapter 7 of the Bankruptcy Code.
Suppliers. Millbrook purchases products from leading suppliers in each
of its categories. For the year ended March 31, 2004, the five largest suppliers
in each of Millbrook's three principal product categories were:
(i) for specialty foods, World Finer Foods, The Hain Celestial
Group, The B. Manischewitz Company, LLC, Unilever (Best Foods
and Lipton) and Atkins Nutritionals;
(ii) for health and beauty care products, Procter & Gamble, Johnson
& Johnson, Unilever HPC, Gillette and Pfizer; and
(iii) for general merchandise, General Electric, Hartz Mountain
Corp., Signature Brands, Legg's and Bradshaw International.
For the year ended March 31, 2004, the five largest suppliers
represented (i) for specialty foods, 14% of total purchases; (ii) for health and
beauty care products, 20% of total purchases; and (iii) for general merchandise,
2% 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 $592.2 billion
in 2003 reflecting a compound annual growth rate of 6.1% for the five years
ended 2003. According to Integrated Marketing Communications, Inc., kosher foods
remain 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 kosher
products consumed throughout the year.
Products. Manischewitz' core businesses consist of traditional products
sold primarily to Jewish consumers under the Manischewitz(R) brand; canned fish
and condiments under the Season(R) brand; and natural and organic snack foods
sold under the Guiltless Gourmet(R) brand. Manischewitz is a manufacturer of
products historically consumed during certain Jewish holidays, principally
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 Gourmet and
Season products are consumed throughout the year.
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' recent product offerings
include premium grape juice, a line of reduced carb pasta products, reduced carb
matzo and the introduction of canister packaging for its meal, starch and farfel
products. 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 in the three year period ended March
31, 2004, 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(R), Horowitz Margareten(R) and
Goodman's brand names. Matzo product sales generated approximately 31.0%, 30.1%
and 29.7% of Manischewitz' total revenues in fiscal 2004, 2003 and 2002,
respectively. Manischewitz has a license agreement with Goodman's to use its
name on matzo products and matzo-related products through July 2005. In fiscal
2004, 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. The majority of these
products are produced at Manischewitz' Vineland, New Jersey facility.
Manufactured product sales accounted for approximately 16.0%, 16.5% and 16.6% of
Manischewitz' total revenues in fiscal 2004, 2003 and 2002, respectively.
Co-Packed Products. Manischewitz markets a number of co-packed
products, including cookies, confectionery products, noodles, pasta, grape
juice, 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.
Co-packed products generated approximately 51.9%, 52.4% and 52.3% of
Manischewitz' total revenues in fiscal 2004, 2003 and 2002, respectively.
Marketing and Product Development. In fiscal 2004, 2003 and 2002,
spending on marketing and trade promotion represented approximately 2.9%, 5.7%
and 5.9% of total revenues, respectively. The decline in marketing and trade
promotion spending is consistent with Manischewitz' overall business strategy to
shift its spending to consumer advertising, marketing and promotion of
Manischewitz, Guiltless Gourmet and Season products. During fiscal 2004,
Manischewitz successfully launched premium grape juice, an item closely aligned
with its heritage. Premium grape juice is available throughout the year and the
line will be expanded during fiscal 2005. In addition, since fiscal 2002,
Manischewitz has sponsored "Jewish Cooking in America" on Public Broadcasting
Service.
The Manischewitz product line continues to be expanded to strengthen
and broaden its popular appeal. Packaging is continually updated to better
communicate good taste and high quality, enhance visibility on store shelves and
attract a broader spectrum of Jewish and non-Jewish consumers. Manischewitz has
introduced no-fat and low-fat items to reinforce the positive health aspects of
its products. For fiscal 2005, Manischewitz has launched a reduced carbohydrate
noodle line reflecting the dramatic shift in consumer spending toward low-carb
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.
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. For
fiscal 2005, Guiltless Gourmet launched its new Guiltless Carbs(R) Snack Chips
to meet the needs of the rapidly expanding market for low-carb products. Unlike
other controlled-carb snacks, Guiltless Carbs is baked and not fried, allowing
consumers to balance their fat intake as well as their carbs.
Distribution. Manischewitz principally sells its products to
independent distributors operating throughout the U.S. and Canada. Manischewitz'
two largest distributors, together represented approximately 47.0%, 50.3% and
46.7% of total revenues in fiscal 2004, 2003 and 2002, respectively. For each of
the years in the three year period ended March 31, 2004, one of the two largest
distributors was Manischewitz' affiliate, Millbrook. Among its customer base,
supermarkets represented approximately 90% of Manischewitz' fiscal 2004 total
revenues and other customers represented approximately 10%. We believe that
Manischewitz' largest supermarket customers are Albertson's, Kroger, Wakefern,
Safeway, Royal Ahold, Publix and Pathmark.
6
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.
RAW MATERIALS
The Companies, through their 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
species of 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 quality and 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, Haddon House, Distribution Plus, Inc. and Kehe Food Distributors, Inc.
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, Nash Finch 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. 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,
Nash Finch 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.
7
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.
The B. Manischewitz Company, LLC
Manischewitz competes within a small group of branded kosher food
manufacturers. In the matzo category, all of the domestic producers have been in
the industry for over 80 years. The strength of 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 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. For Manischewitz'
Guiltless Gourmet brand, the primary competitors in the marketing and
distribution of its all-natural snack products are Frito Lay, a division of
PepsiCo, Inc. and Skinny, a division of nSpired Natural Foods. For Manischewitz'
Season brand, the primary competitors in the marketing and distribution of its
canned fish products are Beach Cliff, Brunswick, King Oscar, Starkist and Bumble
Bee.
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), Gourmet without Guilt(R),
Noshables(R) and Guiltless Carbs(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, 2004, we had approximately 1,400 full-time employees,
110 part-time employees and the ability to draw upon 300 service merchandisers
on-call nationwide.
Millbrook has approximately 150 unionized workers. Most of the
unionized workers are located at the East Brunswick, NJ and Youngstown, OH
distribution centers. These workers are represented under contracts with
Teamsters Local 802 in East Brunswick, which was ratified in December 2000 and
will expire in June 2006 and Teamsters Local 377 ("Local 377") in Youngstown,
which was ratified in April 2000 and will expire in July 2004. In June 2004,
negotiations, which are on-going, commenced with Local 377 with respect to the
expiring contract.
8
Manischewitz has approximately 125 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.
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 46
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 4% of Manischewitz' revenues
in each of the years in the three year period ended March 31, 2004.
ITEM 2. PROPERTIES
Facilities. Millbrook's corporate headquarters, where management and
administrative functions are performed, is located in Leicester, Massachusetts.
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 188,000 11/30/06
Distribution Center................................. Youngstown, OH Lease 262,000 03/31/07
Distribution Center................................. Worcester, MA Lease 241,300 08/31/07
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. See Note 5 to
the Notes to Consolidated Financial Statements for additional disclosure. In
addition, Millbrook uses 45 transfer depots located in 16 states.
Millbrook owns or leases its fleet of approximately 70 tractors, 190
trailers and 100 vans.
Manischewitz' corporate headquarters, where management and
administrative functions are performed, is located in Jersey City, New Jersey.
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 generally 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 various legal actions,
regulatory investigations and proceedings and claims threatened or pending in
the normal course of their business. Neither Holdings nor Enterprises is a party
to any action or proceeding which, in the opinion of management, to the extent
not provided for through insurance, indemnification or established reserves, is
likely to have a material adverse effect on their consolidated financial
condition or consolidated results of operations.
In August, 2001, Ames Department Stores, Inc. ("Ames") a customer of
Millbrook, filed a voluntary petition under Chapter 11 of the Bankruptcy Law in
the United States Bankruptcy Court for the Southern District of New York. In
June, 2003, the Trustee for the bankruptcy estate of Ames filed a complaint
against Millbrook alleging that Ames made payments to Millbrook totaling
approximately $12.4 million during the ninety (90) day period prior to the Ames
bankruptcy filing and asserting that such payments constituted voidable
preference payments. Millbrook believes it has meritorious defenses to this
claim and intends to vigorously defend its position, although no assurances can
be given as to the ultimate outcome of such litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
None.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data of Holdings and Enterprises
presented below as of March 31, 2004 and 2003 and for each of the years in the
three year period ended March 31, 2004 were derived from the audited
consolidated financial statements of Holdings and Enterprises (the "Consolidated
Financial Statements") set forth herein. The selected consolidated financial
data as of March 31, 2002, 2001 and 2000 and for the years ended March 31, 2001
and 2000 were derived from the Consolidated Financial Statements of Holdings and
Enterprises 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
----------------------------------------------- ----------------------------------------------
FOR THE YEARS ENDED MARCH 31, 2000 2001 2002 2003 2004 2000 2001 2002 2003 2004
- ----------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
STATEMENT OF OPERATIONS DATA:
Revenues..................... $580,531 $ 652,331 $596,302 $507,501 $508,558 $580,485 $652,331 $596,302 $507,501 $508,558
Gross profit................. 138,089 162,723 147,665 123,184 123,466 138,043 162,723 147,665 123,184 123,466
Operating expenses........... 122,124 153,965 137,740 110,142 110,338 122,103 153,888 137,674 110,035 110,153
Operating income............. 15,965 8,758 9,925 13,042 13,128 15,940 8,835 9,991 13,149 13,313
Other expenses............... 18,960 20,357 19,047 17,271 17,471 15,888 17,193 15,722 14,495 14,725
Provision (benefit) for income
taxes..................... (1,146) (3,411) (2,602) 4,908 421 288 (2,139) (1,642) 4,308 1,226
Loss before extraordinary item (1,849) (8,188) (6,520) (9,137) (4,764) (236) (6,219) (4,089) (5,654) (2,638)
Extraordinary gain, net
of income taxes........... 12,914 3,194 4,742 3,194
Cumulative effect of change in
accounting principle...... (24,230) (24,230)
Net income (loss)............ 11,065 (4,994) (6,520) (33,367) (4,764) 4,506 (3,025) (4,089) (29,884) (2,638)
BALANCE SHEET DATA:
Working capital.............. $ 54,549 $76,310 $ 46,106 $ 43,102 $ 34,995 $ 55,066 $ 73,529 $ 43,071 $ 43,229 $ 33,704
Property, plant and equipment,
net.................... 37,199 32,629 29,486 25,285 22,287 37,199 32,629 29,486 25,285 22,287
Total assets................. 290,178 311,008 262,104 222,127 208,212 285,715 310,668 264,573 226,536 212,688
Total debt................... 170,089 204,973 168,592 165,327 157,979 145,089 179,973 143,592 140,340 131,164
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 the 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 Corporation. 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 (including the Season brand). 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, Manischewitz' third-party storage costs 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, 2004 COMPARED TO THE YEAR ENDED MARCH 31, 2003
Revenues. Revenues for the year ended March 31, 2004 increased $1.1
million or 0.2% to $508.6 million as compared to $507.5 million for the year
ended March 31, 2003. Revenues consist of the following:
2004 2003 $ CHANGE % CHANGE
----------- ----------- ----------- -----------
Millbrook........................................ $ 459.9 $ 458.9 $ 1.0 0.2 %
Manischewitz..................................... 59.4 62.1 (2.7) (4.3)%
Intersegment Sales (1)........................... (10.7) (13.5) 2.8 (20.7)%
----------- ----------- -----------
$ 508.6 $ 507.5 $ 1.1 0.2 %
=========== =========== =========== ===========
(1) Eliminated in consolidation
11
Millbrook's revenues increased $1.0 million or 0.2% for the year ended March 31,
2004 as compared to the prior year. The increase in revenues is principally due
to sales to new accounts and expanded distribution to existing customers,
partially offset by lower sales to certain customers experiencing financial
difficulties, customers negatively impacted by the Midwest grocery workers
strike which was settled at the end of October 2003, customer bankruptcies and a
decision made by a former customer in the beginning of fiscal 2002 to phase out
its purchases from Millbrook as it moved to self-distribution. This phase out
was completed in the first quarter of fiscal 2004. Customer bankruptcies include
the closure of Ames Department Stores ("Ames") in August, 2002.
Excluding sales made to Ames and the former customer that moved to
self-distribution during the year ended March 31, 2003, Millbrook's revenues
increased 4.8% for the year ended March 31, 2004.
Manischewitz' revenues decreased $2.7 million or 4.3% for the year ended March
31, 2004 as compared to the prior year. The change in revenues is principally
due to:
(i) decreased sales of Guiltless Gourmet products ($2.0 million).
This decline is attributable to the aggressive launch of two
product lines by established competitors in late 2002 targeted
at core Guiltless Gourmet consumers and the dramatic shift in
consumer spending toward low-carb products. These
introductions have taken shelf space and reduced the number of
Guiltless Gourmet product facings at retail. Management
believes that the Guiltless Gourmet brand will begin to
re-establish its shelf position as the initial focus
associated with the competitor product launches subsides; new
Guiltless Gourmet products in the low-carb arena are
introduced into the marketplace; and existing Guiltless
Gourmet products are repositioned to highlight their low-carb
benefits;
(ii) decreased sales of Season brand products ($0.7 million)
resulting from competitive pressures in its product
categories; and
(iii) decreased sales of non-Passover Manischewitz brand products
("Daily") ($1.5 million) offset by increased sales of Passover
Manischewitz brand products ($1.5 million). The decline in
Daily volume is largely attributable to a strategic decision
to shift the promotional focus of the brand from the trade to
the consumer. Marketing expenditures that had been previously
spent to move product into the distribution channel have been
reduced in favor of advertising and consumer promotions.
Passover sales for fiscal 2004 were positively impacted by the
late Passover 2003 as prior year Passover sales extended into
the first quarter of fiscal 2004. If, for comparison purposes,
the late Passover 2003 sales were adjusted, Passover 2004
results (fiscal 2004) would have been lower than Passover 2003
(fiscal 2003) by approximately $300,000. This decline is
principally related to the five-month Southern California
grocery workers strike which, while settled prior to Passover
2004, negatively impacted the normal ordering patterns of
Manischewitz' distributor base. As a result, sales at certain
of Manischewitz' key Southern California retail outlets,
specifically Kroger, Safeway and Albertson's experienced year
over year declines.
12
Gross Profit. Gross profit for the year ended March 31, 2004 was $123.5
million as compared to $123.2 million for the year ended March 31, 2003, an
increase of $0.3 million or 0.2%. As a percentage of revenues, the gross profit
margin was 24.3% for the years ended March 31, 2004 and March 31, 2003. Gross
Profit consists of the following:
2004 2003 $ CHANGE % CHANGE
----------- ----------- ----------- -----------
Millbrook........................................ $ 103.7 $ 103.7 $ - -
Manischewitz..................................... 19.8 19.5 0.3 1.5 %
----------- ----------- -----------
$ 123.5 $ 123.2 $ 0.3 0.2 %
=========== =========== =========== ===========
The increase in gross profit dollars and its impact on gross profit margin is
primarily due to the following:
(i) Millbrook's gross profit dollars and gross profit margin are
unchanged as the positive effect of the shift in Millbrook's
customer base from non-serviced to serviced customers and a
shift in product mix from lower margin health and beauty care
products to higher margin specialty food products was offset
by reduced margin resulting from the competitive environment
in obtaining new customers; and
(ii) Manischewitz' gross profit dollars increased $0.3 million or
1.5% due to improved utilization of its manufacturing
facilities. For fiscal 2004, management implemented a
manufacturing cost reduction program as well as a re-alignment
of its production schedule which resulted in lower overall
costs and a higher absorption of manufacturing overhead costs.
Operating Expenses. Distribution and warehousing expenses for the year
ended March 31, 2004 were $43.8 million as compared to $45.5 million for the
year ended March 31, 2003. As a percentage of revenues, distribution and
warehousing expenses decreased to 8.6% for the year ended March 31, 2004 as
compared to 9.0% for the year ended March 31, 2003. Distribution and warehousing
costs were impacted by the following:
(i) lower warehousing and distribution headcount directly related
to the loss of Ames during fiscal 2003 and additional
headcount reductions realized from the implementation of a
cost reduction program which more efficiently deployed
warehouse personnel; and
(ii) lower transportation costs realized from the implementation of
a cost reduction program which achieved more efficient routing
and enhanced utilization of Millbrook's truck fleet.
Selling, general and administrative expenses for the year ended March
31, 2004 were $66.5 million as compared to $64.6 million for the year ended
March 31, 2003. As a percentage of revenues, selling, general and administrative
expenses increased to 13.1% for the year ended March 31, 2004 as compared to
12.7% for the year ended March 31, 2003. This increase is principally due to the
following:
(i) Millbrook's increased provision for doubtful accounts
resulting from customer bankruptcies, partially offset by
reduced professional fees incurred in fiscal 2003 in
connection with a non-recurring regulatory matter;
(ii) Manischewitz' increased consumer advertising and promotional
expenditures associated with the strategic decision to shift
the promotional focus of the brand from the trade to the
consumer and the launch of a premium grape juice line of
products; and
(iii) Manischewitz' incremental employment costs resulting from a
realignment of the sales department and increased employee
benefit costs due to medical and pension plan cost increases.
13
Amortization of intangibles was approximately $43,000 for the year
ended March 31, 2003. The Companies adopted SFAS No. 142, which provides that
only intangible assets with definite lives continue to be amortized. As of March
31, 2003, the Companies do not have any remaining intangible assets with
definite lives.
Modification of Debt. During the year ended March 31, 2004, Holdings
expensed $461,000 of professional fees and related expenses incurred in
connection with the pending restructuring of its indebtedness outstanding under
the Senior Notes issued by Holdings and Enterprises. See Note 9 to the Notes to
Consolidated Financial Statements for additional disclosure.
Interest Expense. Interest expense for the year ended March 31, 2004
was $17.0 million (consisting of $2.3 million for Holdings and $14.7 million for
Enterprises, respectively) as compared to $16.8 million (consisting of $2.3
million for Holdings and $14.5 million for Enterprises, respectively) for the
year ended March 31, 2003. The increase in interest expense is primarily
attributable to Enterprises arrangement with certain holders of its 10.5% Senior
Notes to make the November 1, 2003 interest payment through the issuance of
additional Senior Notes in lieu of cash. See Note 9 to the Notes to Consolidated
Financial Statements for additional disclosure. The average interest rate on
Holdings' and Enterprises' debt outstanding during the year ended March 31, 2004
was 9.4%.
Taxes. The provision for income taxes for the year ended March 31, 2004
was $0.4 million for Holdings and $1.2 million for Enterprises as compared to
$4.9 million for Holdings and $4.3 million for Enterprises for the year ended
March 31, 2003. Historically, the Companies did not need a valuation allowance
(with the exception of Holdings' state tax loss carryforwards) for the portion
of the tax effect of net operating losses equal to the amount of tax-deductible
amortization of identified intangibles expected to occur during the carryforward
period of the net operating losses based upon the timing of the reversal of
other temporary differences. As a result of SFAS No. 142, the reversal will
probably not occur during the carryforward period of the net operating losses.
In addition, Holdings and Enterprises recorded non-cash valuation allowances to
offset their respective income tax benefits from operations. Both the deferred
non-cash income tax benefit and the non-cash valuation allowances recorded in
the Companies' operating results would have not been required prior to the
adoption of SFAS No. 142. The provision for income taxes was reduced by
approximately $800,000 to be received by Holdings in connection with the
conclusion of a prior year state income tax audit.
Net Income (Loss). As a result of the foregoing, the net loss for the
year ended March 31, 2004 was $4.8 million for Holdings and $2.6 million for
Enterprises as compared to $33.4 million for Holdings and $29.9 million for
Enterprises for the year ended March 31, 2003. Given the non-cash impact of SFAS
No. 142 and the related income tax valuation allowances recorded, management
believes the presentation of net income (loss) on a basis prior to the adoption
of SFAS No. 142 provides useful information to the Companies' various
constituencies. Excluding the impact of SFAS No. 142, the net loss for the year
ended March 31, 2004 was $1.7 million for Holdings and $700,000 for Enterprises
and the net loss for the year ended March 31, 2003 was $2.9 million for Holdings
and $800,000 for Enterprises.
14
Year Ended March 31, 2003 Compared to the Year Ended March 31, 2002
Revenues. Revenues for the year ended March 31, 2003 decreased $88.8
million or 14.9% to $507.5 million as compared to $596.3 million for the year
ended March 31, 2002. Revenues include:
2003 2002 $ CHANGE % CHANGE
----------- ----------- ----------- -----------
Millbrook........................................ $ 458.9 $ 547.8 $ (88.9) (16.2)%
Manischewitz..................................... 62.1 60.5 1.6 2.6 %
Intersegment Sales (1)........................... (13.5) (12.0) (1.5) 12.5 %
----------- ----------- -----------
$ 507.5 $ 596.3 $ (88.8) (14.9)%
=========== =========== =========== ==========
(1) Eliminated in consolidation
Millbrook's revenues decreased $88.9 million or 16.2% for the year ended March
31, 2003 as compared to the prior year. The decrease in revenues is principally
due to decreased sales to certain customers as a result of several factors,
including a decision made by a prior customer to move to self-distribution;
customer financial difficulties and bankruptcies; customer losses; and an
overall decline in specialty food revenues resulting from lower than expected
retail sales at a number of Millbrook's customers, the aggregate of which
exceeded the growth of sales to certain other customers. The customer financial
difficulties include Ames Department Stores, one of Millbrook's significant
customers, announcing its decision to liquidate under Chapter 7 of the
Bankruptcy Code in August, 2002.
Manischewitz' revenues increased $1.6 million or 2.6% for the year ended March
31, 2003 as compared to the prior year. This increase is principally due to
increased sales of Manischewitz brand products resulting from new product
introductions, product packaging innovation and an overall reduction in the
number and amount of promotional selling programs.
Gross Profit. Gross profit for the year ended March 31, 2003 was $123.2
million as compared to $147.7 million for the year ended March 31, 2002, a
decrease of $24.5 million or 16.6%. As a percentage of revenues, the gross
profit margin was 24.3% and 24.8% for the years ended March 31, 2003 and March
31, 2002, respectively. Gross profit consists of the following:
2003 2002 $ CHANGE % CHANGE
----------- ----------- ----------- -----------
Millbrook........................................ $ 103.7 $ 127.3 $ (23.6) (18.5)%
Manischewitz..................................... 19.5 20.4 (0.9) (4.4)%
----------- ----------- -----------
$ 123.2 $ 147.7 $ (24.5) (16.6)%
=========== =========== =========== ==========
The decrease in gross profit dollars and its impact on gross profit margin is
primarily due to the following:
(i) decreased gross profit dollars associated with Millbrook's
lower revenues ($23.6 million) and decreased gross profit
margin (0.3%) resulting from the shift in Millbrook's customer
base from serviced to non-serviced customers and a shift in
product mix from higher margin specialty food products to
lower margin health and beauty care products; and
(ii) decreased gross profit margin (0.2%) for Guiltless Gourmet
brand products at Manischewitz resulting from the promotional
costs of launching several new Guiltless Gourmet products
during fiscal 2003.
15
Operating Expenses. Distribution and warehousing expenses for the year
ended March 31, 2003 were $45.5 million as compared to $54.1 million for the
year ended March 31, 2002. As a percentage of revenues, distribution and
warehousing expenses decreased to 9.0% for the year ended March 31, 2003 as
compared to 9.1% for the year ended March 31, 2002. Distribution and warehousing
costs were impacted by the following:
(i) lower warehousing headcount due to reductions made during the
second half of fiscal 2002 and during the year ended March 31,
2003 directly related to customer losses and additional
headcount reductions realized from a cost reduction program
implemented by Millbrook's management to more efficiently
deploy warehouse personnel; and
(ii) lower transportation costs realized from cost reduction
programs implemented by Millbrook's management to achieve more
efficient routing and enhanced utilization of its fleet.
Selling, general and administrative expenses for the year ended March
31, 2003 were $64.6 million as compared to $79.4 million for the year ended
March 31, 2002. As a percentage of revenues, selling, general and administrative
expenses decreased to 12.7% for the year ended March 31, 2003 as compared to
13.3% for the year ended March 31, 2002. This decrease is principally due to the
following:
(i) lower headcount in Millbrook's salesforce due to reductions
made during the second half of fiscal 2002 and during the year
ended March 31, 2003 directly related to customer losses and
the shift in Millbrook's customer base from serviced to
non-serviced customers; and
(ii) lower headcount in Millbrook's selling, general and
administrative functions realized from a cost reduction
program implemented by Millbrook's management to streamline
its workforce.
Amortization of intangibles was approximately $43,000 for the year
ended March 31, 2003, as compared to $4.2 million for the year ended March 31,
2002. This decline resulted from the adoption of SFAS No. 142, which provides
that only intangible assets with definite lives continue to be amortized.
Following the quarter ended June 30, 2002, the Companies do not have any
remaining intangible assets with definite lives.
Modification of Debt. Effective May 1, 2002, Holdings amended the
Indenture underlying 92% ($23.0 million) of its 13% Notes outstanding. The
amendment (i) reduced the interest rate to 6% per annum, (ii) extended their
maturity date from May 1, 2008 to May 1, 2010 and (iii) increased the aggregate
outstanding principal by approximately $1.5 million, representing the deferred
May 2002 interest payment. Holders of these Notes received warrants granting
them the right to purchase up to approximately 5% of Holdings' common stock.
Holdings, at its option, may defer the payment of cash interest on the 6% Notes
for ten semi-annual interest payment dates through May 1, 2007. The changes
contained in the amendment constituted a material modification of the Indenture
requiring the historical deferred debt issuance costs to be written off.
Accordingly, debt issuance costs of $0.5 million were written off.
16
Interest Expense. Interest expense for the year ended March 31, 2003
was $16.8 million (consisting of $2.3 million for Holdings and $14.5 million for
Enterprises, respectively) as compared to $19.0 million (consisting of $3.3
million for Holdings and $15.7 million for Enterprises, respectively) for the
year ended March 31, 2002. The decrease in interest expense is primarily
attributable to lower interest rates on lower levels of debt outstanding under
the Companies' Credit Agreement and the amendment by Holdings of the Indenture
underlying 92% ($23.0 million) of its 13% Notes outstanding. The amendment,
among other things, reduced the interest rate to 6% per annum and increased the
aggregate outstanding principal by approximately $1.5 million, representing the
deferred May 2002 interest payment. The average interest rate on Holdings' and
Enterprises' debt outstanding during the year ended March 31, 2003 was 8.9%.
Taxes. The provision for income taxes for the year ended March 31, 2003
was $4.9 million for Holdings and $4.3 million for Enterprises as compared to an
income tax benefit of $2.6 million for Holdings and $1.6 million for Enterprises
for the year ended March 31, 2002. Historically, the Companies did not need a
valuation allowance (with the exception of Holdings' state tax loss
carryforwards) for the portion of the tax effect of net operating losses equal
to the amount of tax-deductible amortization of identified intangibles expected
to occur during the carryforward period of the net operating losses based upon
the timing of the reversal of other temporary differences. As a result of the
adoption of SFAS No. 142, the reversal will probably not occur during the
carryforward period of the net operating losses. Therefore, Holdings and
Enterprises recorded a deferred non-cash income tax expense of approximately
$4.7 million and $4.2 million, respectively, during the year ended March 31,
2003. In addition, Holdings and Enterprises recorded non-cash valuation
allowances to offset their respective income tax benefits from operations and
the extraordinary loss on modification of debt of $2.7 million and $1.8 million,
respectively. Both the deferred non-cash income tax benefit and the non-cash
valuation allowances recorded in the Companies' operating results would have not
been required prior to the adoption of SFAS No. 142.
Cumulative Effect of Change in Accounting Principle. Effective April 1,
2002, the Companies adopted SFAS No. 142 "Goodwill and Other Intangible Assets".
Under this standard, goodwill and intangibles with indefinite useful lives,
including trademarks and tradenames are no longer systematically amortized.
Instead, they are reviewed for impairment and written down and charged to
results of operations when their carrying amount exceeds their estimated fair
values. With the assistance of an independent professional appraisal firm, the
Companies performed impairment tests on the excess of cost over net assets
acquired ("goodwill") and intangibles. The previous method for determining
impairment prescribed by SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," utilized an
undiscounted cash flow approach for the impairment assessment, while SFAS No.
142 utilizes a fair value approach. The Companies have two reporting units
(Millbrook and Manischewitz) with goodwill and intangibles, which also represent
the Companies' reporting segments. Goodwill and intangibles were reviewed for
impairment at the level of each reporting unit. This review indicated that the
goodwill recorded at Manischewitz was impaired as the carrying value of the
subsidiary was in excess of its estimated fair value. In determining the amount
of the goodwill writedown, SFAS No. 142 requires an allocation of the estimated
fair value to Manischewitz' net assets. This allocation resulted in a
significant increase in the value of the subsidiary's trademarks and tradenames,
which under the provisions of SFAS No. 142 may not be written up from their
historical carrying value. Since the allocation process utilizes the increased
value of the trademarks and tradenames in arriving at the remaining amount of
goodwill to be compared to the historical carrying value of goodwill, the amount
of goodwill writedown is increased. As a result, Manischewitz recorded a $24.2
million non-cash charge as a cumulative effect of a change in accounting
principle for the writedown of goodwill to its estimated fair value during the
year ended March 31, 2003. The goodwill writedown was not deductible for income
taxes and, as a result, no income tax benefit was recorded in relation to the
charge.
17
Net Income (Loss). As a result of the foregoing, the net loss for the
year ended March 31, 2003 was $33.4 million for Holdings and $29.9 million for
Enterprises as compared to $6.5 million for Holdings and $4.1 million for
Enterprises for the year ended March 31, 2002. Given the non-cash impact of the
adoption of SFAS No. 142 and the related income tax valuation allowances
recorded, management believes the presentation of net income (loss) on a basis
comparable with the prior year provides useful information to the Companies'
various constituencies. Excluding the impact of SFAS No. 142 and the
amortization of indefinite-lived intangible assets in fiscal 2002, the net loss
for the year ended March 31, 2003 was $2.9 million for Holdings and $800,000 for
Enterprises as compared to $4.1 million for Holdings and $1.7 million for
Enterprises for the year ended March 31, 2002.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Operations for the year ended March 31, 2004, excluding non-cash
charges for depreciation and amortization, deferred income taxes and other
non-cash charges, provided cash of $2.6 million for Holdings and $4.3 million
for Enterprises. Operations for the year ended March 31, 2003, excluding
non-cash charges for the cumulative effect of a change in accounting principle,
depreciation and amortization, deferred income taxes and other non-cash charges,
provided cash of $1.7 million for Holdings and $4.3 million for Enterprises.
During the year ended March 31, 2004, other changes in assets and liabilities
resulting from operating activities provided cash of $12.3 million for Holdings
and $9.9 million for Enterprises as compared to providing cash of $4.6 million
for Holdings and $1.5 million for Enterprises for the year ended March 31, 2003.
As a result, net cash provided by operating activities were $14.9 million for
Holdings and $14.2 million for Enterprises in fiscal 2004 as compared to $6.3
million for Holdings and $5.8 million for Enterprises in fiscal 2003. Investing
activities, which principally consisted of the acquisitions of plant and
equipment in both fiscal years resulted in a use of cash of approximately
$800,000 and $500,000 for Holdings and Enterprises for the years ended March 31,
2004 and 2003, respectively. During the years ended March 31, 2004 and 2003,
financing activities, which consisted of $15.0 million and $3.3 million,
respectively, for repayments under the credit agreement by both Holdings and
Enterprises and payment of debt modification costs of approximately $600,000 and
$500,000, respectively, by Holdings, utilized cash of $15.6 million and $3.8
million for Holdings and $15.0 million and $3.3 million for Enterprises. The
amount repaid under the credit agreement during the year ended March 31, 2003,
includes the utilization of approximately $500,000 of cash surrender value
available under Millbrook's deferred compensation arrangements.
At March 31, 2004, outstanding borrowings under the credit agreement
were $45.0 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, 2004,
Millbrook and Manischewitz had approximately $4.9 million of cash and
approximately $16.6 million of available borrowing capacity under the credit
agreement. In addition, there were approximately $8.5 million of cumulative
unpaid dividends on Holdings' series A and series B preferred stock.
At March 31, 2004, Holdings' and Enterprises' balance sheets include a
$11.9 million deferred income tax liability related to the taxable temporary
differences resulting from different amortization periods for identified
intangibles. With the adoption of SFAS No. 142, the Companies tax deductible
goodwill and indefinite-lived intangible assets are no longer amortized for
financial reporting purposes. Therefore, this deferred income tax liability will
not reverse and will not be payable unless the underlying assets are sold or an
impairment is recognized for tax purposes.
18
The following information provides a summary of Holdings' and
Enterprises' contractual obligations and other commercial commitments as of
March 31, 2004:
(Dollars in Thousands)
Less Than After 5
Contractual Obligations Total 1 Year 1-3 Years 4-5 Years Years
- -------------------------------------------- --------------- --------------- --------------- -------------- --------------
Long-Term Debt.............................. $ 157,979 $ - $ 131,164 $ 2,000 $ 24,815
Capital Lease Obligations................... 16 16 - - -
Operating Leases............................ 15,938 4,818 8,572 2,335 213
Unconditional Purchase Obligations.......... 825 825 - - -
Other Long-Term Obligations (at maturity)... 18,516 1,030 1,737 1,754 13,995
----------- --------------- --------------- -------------- --------------
Total Contractual Cash Obligations.......... $ 193,274 $ 6,689 $ 141,473 $ 6,089 $ 39,023
=========== =============== =============== ============== ==============
Total Amounts Less Than After 5
Other Commercial Commitments Committed 1 Year 1-3 Years 4-5 Years Years
- -------------------------------------------- ----------- --------------- --------------- -------------- --------------
Lines of Credit............................. $ - $ - $ - $ - $ -
Standby Letters of Credit................... 4,141 4,141 - - -
Guarantees.................................. - - - - -
Other Commercial Commitments................ 14 14 - - -
----------- --------------- --------------- -------------- --------------
Total Commercial Commitments................ $ 4,155 $ 4,155 $ - $ - $ -
=========== =============== =============== ============== ==============
Holdings and Enterprises expect capital expenditure spending for the
year ending March 31, 2005 to be approximately $2.5 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 2005 will be financed through
working capital, operating leases and cash flow from operations.
From a distribution perspective, Millbrook's business continues to be
impacted by the instability of the U.S. supermarket industry, the financial
condition of its customers and changes in the competitive landscape as a number
of grocery and wholesale distribution companies are no longer in existence.
During the first quarter of fiscal 2005, Millbrook's largest customer, Shaw's
Supermarkets was acquired by Albertson's, one of the largest retail food and
drug chains in the world. Albertson's retail operations are supported by 17
major distribution centers that provide product exclusively to its retail
stores. While Albertson's is a current customer of Millbrook, the impact of this
acquisition on Millbrook's existing sales base is not known. For the year ended
March 31, 2004, Shaw's Supermarkets and Albertson's, together represented
approximately 32% of Millbrook's revenues. The extent of a change in the manner
in which Shaw's Supermarkets currently obtains its products and the resulting
impact on Millbrook is not presently determinable. Any significant change in
Millbrook's existing sales base would require significant headcount reductions
and a realignment of its distribution operations. However, there can be no
assurance that any required changes could be accomplished on terms acceptable to
Millbrook.
Millbrook continues to focus its strategy on expanding the specialty
food category while taking advantage of market opportunities in its health and
beauty care and general merchandise categories. Management continues to believe
in its overall strategy. Further, Millbrook's management effectively implemented
a number of cost reduction programs during fiscal 2003 which have reduced its
operating costs in order to address and react to the demands of its changing
markets.
19
From a branded food products perspective, Manischewitz' operations
(principally consisting of its Manischewitz, Season and Guiltless Gourmet
brands) are impacted by the amount of retail space devoted to its products and
the consumer acceptance of those products. In addition, the seasonality of
Manischewitz' business and the timing of Jewish holidays results in a
substantial portion of Manischewitz' revenues and operating profits occurring
during the fourth quarter of each fiscal year and financial information which is
not comparable on a quarterly basis. While the Manischewitz brand continues to
be the market leader in its core categories, competition from lower-priced
domestic and imported products continually challenges its market share.
Additionally, the development of the low carbohydrate trend has had an impact on
all of Manischewitz' brands. For fiscal 2005, the continued growth of the
Manischewitz brand and the reversal of the sales declines in the Season and
Guiltless Gourmet brands are contingent upon:
(i) successful introduction of reduced carb and low-carb products;
(ii) other new product introductions;
(iii) expansion into alternative channels, such as drug,
convenience, club, vending and food service; and
(iv) continued consumer driven advertisements and promotional
vehicles that build sales and customer loyalty in
Manischewitz' core markets.
Effective May 1, 2002, Holdings amended the Indenture underlying 92%
($23.0 million) of its 13% Notes outstanding. The amendment (a) reduced the
interest rate to 6% per annum, (b) extended their maturity date from May 1, 2008
to May 1, 2010 and (c) increased the aggregate outstanding principal by
approximately $1.5 million, representing the deferred May 2002 interest payment.
Holders of these Notes received warrants granting them the right to purchase up
to approximately 5% of Holdings' common stock. Holdings, at its option, may
defer the payment of cash interest on the 6% Notes for ten semi-annual interest
payment dates through May 1, 2007. On November 1, 2002, May 1, 2003, November 1,
2003 and May 1, 2004, Holdings elected to defer the cash payment of interest on
its 6% Notes.
During the year ended March 31, 2004, Enterprises entered into an
arrangement with certain holders of its 10.5% Notes to make the November 1, 2003
interest payment through the issuance of additional Notes in lieu of cash. The
arrangement provided that each participating holder would receive $1,000 in
principal amount of 10.5% Notes for each $500 of interest due. Residual amounts
of interest less than $500 were paid in cash. Holders of approximately 69% of
the outstanding 10.5% Notes participated in the arrangement. As a result,
Enterprises issued to holders approximately $5.8 million in principal amount of
10.5% Notes in lieu of approximately $2.9 million in cash interest. The
remaining holders received their interest payment in cash.
In May, 2004, Manischewitz sold a parcel of vacant land adjacent to its
headquarters in Jersey City, NJ for proceeds of approximately $1.5 million. The
proceeds from the sale were used to reduce outstanding borrowings under the
Credit Agreement. In the first quarter of fiscal 2005, Manischewitz recorded a
gain of approximately $800,000, net of income taxes of approximately $600,000.
Subsequent to March 31, 2004, the Companies reached an agreement in
principle to restructure its indebtedness outstanding under the Senior Notes
issued by Holdings and Enterprises. As of June 29, 2004, holders of 98% of the
outstanding 10.5% Senior Notes of Enterprises, and holders of 95% of the
combined outstanding 13% Senior Notes and 6% Senior Notes of Holdings have
agreed in principle to the restructuring. Pursuant to the agreement in principle
with holders of Senior Notes, each of Holdings and Enterprises did not pay the
semi-annual interest payment due May 1, 2004 on its respective Senior Notes.
Concurrently, the requisite percentage of noteholders under each indenture for
the Senior Notes notified the trustee of the applicable indenture not to pursue
any action with respect to this non-payment of interest. In addition, the
Company entered into an agreement with its senior lenders pursuant to which such
lenders waived any default, arising under the credit agreement as a result of
this non-payment of interest, for a period through August 15, 2004.
20
Pursuant to the agreement in principle, holders of the 10.5% Senior
Notes issued by Enterprises, the 13% Senior Notes and 6% Senior Notes issued by
Holdings, will exchange their Senior Notes for a new issue of 9% Senior Notes of
Holdings due May 2011 (the "9% Senior Notes"), shares of a new series of Series
C Preferred Stock of Holdings due in 2013 (the "Series C Preferred") and shares
of common stock of Holdings. Holdings' current common stockholders will retain
their shares, which will represent 70% of the fully diluted shares outstanding
immediately after the restructuring.
The exchange ratios in the restructuring are as follows:
- For each $1,000 principal amount of 10.5% Senior Notes of Enterprises
exchanged, holders will receive approximately $610.00 in principal
amount of 9% Senior Notes, approximately $365.00 in liquidation value
of Series C Preferred and shares of common stock representing in the
aggregate 27.5% of the fully diluted common ownership of Holdings.
- For each $1,000 principal amount of 13% Senior Notes and 6% Senior
Notes of Holdings exchanged, holders will receive approximately $55.00
in liquidation value of Series C Preferred, and shares of common stock
representing in the aggregate 2.5% of the fully diluted common
ownership of Holdings.
The Companies expect to complete the pending restructuring during the
second quarter of fiscal 2005.
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 discussion, 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 aforementioned 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 in compliance in the future. The Companies' credit
agreement expires April 15, 2005. It is management's belief that it will either
negotiate an extension to its current facility or enter into a new facility on
terms acceptable to the Companies, although there can be no assurance that such
extension or new facility will be completed. Absent the completion of an
extension or new facility, the Companies' outstanding borrowings under its
current facility would be classified as a current liability in its condensed
balance sheet as of June 30, 2004. At March 31, 2004, Holdings and Enterprises
had total outstanding indebtedness of $158.0 million and $131.2 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 the 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.
EFFECTS OF INFLATION AND OTHER MATTERS
For the year ended March 31, 2004, Holdings' and Enterprises' cost of
product generally remained relatively stable. However, throughout the fiscal
year, the cost of flour utilized by the Company's Manischewitz subsidiary in the
manufacturing of matzo and matzo-related products has experienced price
increases. These price increases impact Manischewitz as prior purchase
commitments expire. 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.
21
Accounting Pronouncements - SFAS No. 143 "Accounting for Asset
Retirement Obligations" was issued in August 2001 and is effective for fiscal
years beginning after June 15, 2001. SFAS No. 143 establishes accounting
standards for recognition and measurement of a liability for an asset retirement
obligation and the associated asset retirement cost. SFAS No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" was issued in October 2001
and is effective for fiscal years beginning after December 15, 2001. SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets. We adopted SFAS No. 143 and 144 effective April 1, 2002. The
adoption of SFAS No. 143 and 144 did not have a material impact on our financial
position or overall trends in results of operations.
SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" was issued in
April 2002 and is effective for fiscal years beginning after May 15, 2002. SFAS
No. 145 eliminates the requirement to classify gains and losses from the
extinguishment of debt as extraordinary, requires certain lease modifications to
be treated the same as a sale-leaseback transaction and makes other
non-substantive technical corrections to existing pronouncements. We adopted
SFAS No. 145 effective April 1, 2003. The adoption of SFAS No. 145 resulted in a
reclassification to the Statement of Operations for the year ended March 31,
2003. The adoption of SFAS No. 145 did not have a material impact on our
financial position or overall trends in results of operations.
SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal
Activities" was issued in June 2002 and is effective prospectively for exit or
disposal activities initiated after December 31, 2002, with earlier adoption
encouraged. SFAS No. 146 requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
standard include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operations, plant
closing, or other exit or disposal activities. The Companies will adopt SFAS No.
146 for any future exit or disposal activities.
SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" was issued in April 2003 and is effective for contracts
entered into or modified after June 30, 2003 and for hedging relationships
designated after that date. SFAS No. 149 amends and clarifies accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities under SFAS No. 133. The adoption of SFAS
No. 149 did not have a material impact on our financial position or overall
trends in results of operations and did not result in any significant change to
our financial risk management practices.
SFAS No. 150 "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" was issued in May 2003 and is
effective for instruments entered into or modified after May 15, 2003. SFAS No.
150 requires that certain financial instruments including mandatorily redeemable
instruments and forward purchase contracts be reported as liabilities by their
issuers. The adoption of SFAS No. 150 did not have a material impact on our
financial position or overall trends in results of operations.
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others". This interpretation is effective for guarantees issued or modified
after December 31, 2002 and requires that a liability be recognized at fair
value upon issuance of the guarantees. The Companies will adopt FIN 45 for any
future guarantees issued or modified.
22
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires the use of estimates,
judgments, and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the periods presented. Actual results may differ
significantly from the estimates previously applied by the Companies which were
based on different assumptions and conditions. The significant accounting
principles which we believe are the most important to aid in fully understanding
our financial results are the following:
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.
The Companies' operating subsidiaries, Millbrook and Manischewitz,
generate 93% of their revenues from customers in the U.S. supermarket industry.
Inventories - Inventories are stated at the lower of cost or market.
Cost is determined by the last-in, first-out ("LIFO") method.
Revenue Recognition - Revenue is recognized when products are shipped
or services are provided to customers. Revenue is recorded net of returns,
rebates and allowances. Provisions for returns, rebates and allowances and bad
debts are based upon historical experience and known events.
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, the continuing instability of the U.S.
supermarket industry, changes in technology and economic conditions.
23
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.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
As required by new Rule 13a - 14 under the Securities Exchange Act of
1934, within 90 days prior to the date of this report, the Companies carried out
an evaluation under the supervision and with the participation of the Companies'
management, including the Companies' Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Companies'
disclosure controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Companies'
disclosure controls and procedures are effective in ensuring that information
required to be disclosed by the Companies in the reports it files or submits
under the Securities Exchange Act is included in such reports.
(b) Changes in internal controls
There were no significant changes in the Companies' internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their most recent evaluation.
24
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* 58 Chairman, President, Chief Executive Officer and Director
Lewis J. Korman* 59 Vice Chairman and Director
Steven M. Grossman* 43 Executive Vice President, Chief Financial Officer, Treasurer and
Director
James A. Cohen, Esq.* 58 Senior Vice President - Legal Affairs and Secretary and Director
of Enterprises
Ira A. Gomberg* 60 Senior Vice President
Hal B. Weiss* 47 Assistant Treasurer
Richard H. Hochman 58 Director of Holdings
Michael A. Pietrangelo 62 Director of Holdings
Senior executive officer of
Millbrook:
Robert A. Sigel 50 President and Chief Executive Officer of Millbrook and Executive Vice
President and Director of Holdings
Senior executive officer of
Manischewitz:
Bruce W. Glickstein 58 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 watches and timepieces for several watch
brands in the United States, Canada, Mexico 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
is a Director and Vice President of the Police Athletic League. He also devotes
substantial time to other business and charitable activities.
25
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 a member of the Board of Managers of Manischewitz. He also is a
principal in or serves as a consultant to companies involved in the
entertainment industry. Mr. Korman is a principal in and a member of the Board
of Managers 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. 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.
26
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.
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. Mr. Pietrangelo
also serves on the Board of Directors of Medicis Pharmaceutical Corporation, a
New York Stock Exchange company.
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 and an Executive
Vice President of Holdings in June 2002. 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.
Bruce W. Glickstein has been President and Chief Executive Officer of
Manischewitz since January 2002. Mr. Glickstein became a director of Holdings in
January 2002. From July 1985 to January 1995, Mr. Glickstein held senior sales
and marketing positions with General Medical Corporation and American Hospital
Supply Corporation, two of the leading medical products companies in the United
States.
CODE OF ETHICS
Holdings and Enterprises adopted a code of ethics that applies to their
Chief Executive Officer, President and Chief Financial Officer, respectively. A
copy of Holdings' and Enterprises' code of ethics is being filed as Exhibit 14.1
to this annual report on Form 10-K for the year ended March 31, 2004.
AUDIT COMMITTEE
Each of Holdings and Enterprises has an Audit Committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended. The members of the Audit Committee are Mr. Richard H. Hochman and
Michael A. Pietrangelo, Esq. None of the current members of the Audit Committee
have been designated by the Board of Directors of Holdings or Enterprises to be
a "financial expert", as such term is defined under the rules and regulations
promulgated by the Securities and Exchange Commission. While the Board of
Directors may evaluate candidates to potentially designate as the "financial
expert" to serve on the Audit Committee in the future, the Board of Directors
believes that the members currently comprising the Audit Committees, each of
whom have had distinguished careers with prominent and sophisticated business
and financial experience, have the requisite expertise and abilities to fulfill
their responsibilities on the Audit Committee.
27
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 Messrs. Bernstein, Grossman and Cohen. Enterprises reimburses P&E Properties,
Inc., an entity of which Mr. Bernstein is the sole shareholder ("P&E
Properties"), for providing various 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. Messrs. Grossman and Cohen receive a
salary from P&E Properties for executive services rendered to Holdings,
Enterprises, Millbrook and Manischewitz. See "Certain Relationships and Related
Transactions - Related Party Transactions" on page 31.
Long-Term
Compensation
Annual Compensation ------------
------------------- Options/SARs
Name and Principal Position Year Salary ($)(1)(2) Bonus ($) (#)
--------------------------- ---- ---------- --------- -----
Holdings and Enterprises
Richard A. Bernstein 2004 $ -- $ -- --
Chairman, President and Chief 2003 $ -- $ -- --
Executive Officer 2002 $ -- $ -- --
Steven M. Grossman 2004 $ 298,000 $ -- --
Executive Vice President, 2003 $ 295,750 $ -- --
Chief Financial Officer and 2002 $ 295,750 $ -- --
Treasurer
James A. Cohen 2004 $ 236,000 $ -- --
Senior Vice President - Legal 2003 $ 234,000 $ -- --
Affairs 2002 $ 234,000 $ -- --
Millbrook
Robert A. Sigel 2004 $ 475,000 $ -- --
Chief Executive Officer 2003 $ 475,000 $ -- --
and President of Millbrook 2002 $ 445,000 $ -- --
Manischewitz
Bruce W. Glickstein 2004 $ 279,897 $ -- --
Chief Executive Officer 2003 $ 250,844 $ -- --
and President of Manischewitz 2002 $ 48,077(3) $ -- --
(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. Glickstein became Chief Executive Officer and President of
Manischewitz in January 2002.
28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table contains, as of March 31, 2004, 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 30. 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 Stock of Total Preferred Shares of Preferred Shares of
of Shares of Stock of Series A Stock of Series B
Holdings Common Stock Holdings Preferred Holdings Preferred
Name of Beneficially 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
Steven M. Grossman................ 5,240 5.0 100 .4
James A. Cohen, Esq............... 4,360 4.1 150 .6
Lewis J. Korman................... 3,450 3.3 500 2.0
Ira A. Gomberg.................... 3,350 3.2 250 1.0
Bruce W. Glickstein............... 2,500 2.4 -- --
Hal B. Weiss...................... 1,610 1.5 150 .6
Richard H. Hochman................ 1,200 1.2 500 2.0
Michael A. Pietrangelo............ 360 .3 150 .6
All directors and executive
officers as a group (10 persons).. 71,170 67.7% 14,550 58.2% 1,000 100.0%
During the year ended March 31, 2003, Holdings issued warrants granting
holders of the 6% Notes the right to purchase 5,060 shares of common stock at a
nominal price. The warrants, which expire in April, 2010, were valued at
approximately $2.5 million.
29
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
Bruce W. Glickstein....................... The B. Manischewitz Company, LLC
One Manischewitz Plaza
Jersey City, New Jersey 07302
Richard H. Hochman........................ RHH Capital & Consulting, Inc.
1100 Park Avenue
New York, New York 10128
Michael A. Pietrangelo.................... Pietrangelo Cook PLC
International Plaza
6410 Poplar, Suite 190
Memphis, Tennessee 38119
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.
30
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; or (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. 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 providing various services,
including executive 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,
2004, P&E Properties was (i) paid $400,000 in management fees by Millbrook; (ii)
reimbursed $1,145,000 for services provided to Millbrook; and (iii) reimbursed
$562,000 for services provided to Manischewitz. The aforementioned fees include
the reimbursement for executive salaries disclosed in Item 11 on page 28.
The 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 2004, Millbrook and Manischewitz
reimbursed P&E Properties approximately $81,000 and $7,000, 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.
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.
31
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Holdings and Enterprises did not engage its independent public
accountants, Deloitte & Touche LLP, to provide advice regarding financial
information systems design or implementation, consulting services or other
non-audit services, except as discussed below, during each of the years ended
March 31, 2004 and 2003. Non-audit services performed by our principal
accountant have been approved by our Audit Committee on a case by case basis.
FEES
During the years ended March 31, 2004 and 2003, respectively, Deloitte
& Touche LLP's fees for audit and audit related services were as follows:
2004 2003
--------------- ----------------
Audit fees, including review of quarterly financial......
statements on Form 10-Q................................ $ 376,000 $ 339,000
Audit related fees (1)................................... 13,000 12,500
All other fees (2)....................................... 30,000 13,000
--------------- ----------------
$ 419,000 $ 364,500
=============== ================
(1) Audit related fees result from the audit of Manischewitz'
pension plan.
(2) All other fees include consultations (audit and tax) with
respect to the adoption of SFAS No. 142 and the restructuring
of the Companies' outstanding Senior Notes.
PART IV
ITEM 15. 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 2004.
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).
32
Exhibit No. Description of Document
---------- -----------------------
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).
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).
4.1.1 Amended and Restated Indenture, dated as of May 1,
1998, Amended and Restated as of May 1, 2002, between
R.A.B. Holdings, Inc., and JPMorgan Chase Bank, as
Trustee (incorporated by reference to Exhibit 4.1.1
to the Registrants' Annual Report on Form 10-K for
the fiscal year 2002 (the "2002 Form 10-K")).
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).
33
Exhibit No. Description of Document
---------- -----------------------
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).
4.3.1 Form of 6% Senior Note of R.A.B. Holdings, Inc., due
2010, dated May 1, 2002 (incorporated by reference to
Exhibit 4.3.1 to the 2002 Form 10-K).
4.3.2 Form of 13% Senior Note of R.A.B. Holdings, Inc., due
2008, dated May 1, 2002 (incorporated by reference to
Exhibit 4.3.2 to the 2002 Form 10-K).
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).
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).
4.10 Form of Warrant to Purchase Common Stock of R.A.B.
Holdings, Inc., dated as of May 1, 2002 (incorporated
by reference to Exhibit 4.10 to the 2002 Form 10-K).
4.11 Form of Securityholders Agreement, dated as of May 1,
2002, by and among R.A.B. Holdings, Inc., Mr. Richard
A. Bernstein and each securityholder which is a party
thereto (incorporated by reference to Exhibit 4.11 to
the 2002 Form 10-K).
34
Exhibit No. Description of Document
---------- -----------------------
4.12 Form of Registration Rights Agreement, dated as of
May 1, 2002 by and among R.A.B. Holdings and each
securityholder which is a party thereto (incorporated
by reference to Exhibit 4.12 to the 2002 Form 10-K).
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 (incorporated by reference to Exhibit
10.1.6 of the Registrants' Annual Report on Form 10-K
for the fiscal year 2001 (the "2001 Form 10-K")).
10.1.7 Amendment dated as of April 24, 2000 to the Amended
and Restated Credit Agreement, dated as of May 1,
1998 (incorporated by reference to Exhibit 10.1.7 to
the 2001 Form 10-K).
10.1.8 Amendment dated as of June 9, 2000 to the Amended and
Restated Credit Agreement, dated as of May 1, 1998
(incorporated by reference to Exhibit 10.1.8 to the
2001 Form 10-K).
35
Exhibit No. Description of Document
---------- -----------------------
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 (incorporated by reference to Exhibit
10.1.9 to the 2001 Form 10-K).
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 (incorporated by reference to Exhibit
10.1.10 to the 2001 Form 10-K).
10.1.11 Amendment and Consent dated as of April 30, 2002 to
the Amended and Restated Credit Agreement, dated as
of May 1, 1998 (incorporated by reference to Exhibit
10.1.11 to the 2002 Form 10-K).
10.1.12 Amendment Agreement dated as of October 31, 2001 to
the Amended and Restated Credit Agreement, dated as
of May 1, 1998 (incorporated by reference to Exhibit
10.1.12 to the 2002 Form 10-K).
10.1.13 Amendment Agreement dated as of February 14, 2003 to
the Amended and Restated Credit Agreement, dated as
of May 1, 1998 (incorporated by reference to Exhibit
10.1.13 to the Registrants' Annual Report on Form
10-K for the fiscal year 2003 (the "2003 Form
10-K")).
*10.1.14 Amendment Agreement dated as of September 30, 2003 to
the Amended and Restated Credit Agreement, dated as
of May 1, 1998.
*10.1.15 Amendment Agreement dated as of February 10, 2004 to
the Amended and Restated Credit Agreement, dated as
of May 1, 1998.
*10.1.16 Amendment and Waiver Agreement dated as of July 1,
2004 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).
10.3 Pledge Agreement dated as of September 14, 2001, by
and between Holdings and The Chase Manhattan Bank
(incorporated by reference to Exhibit 10.3 to the
2002 Form 10-K).
10.4 Non-Recourse Pledge Agreement and Irrevocable Proxy
dated as of October 31, 2001, by and between MANO
Holdings Corporation and The Chase Manhattan Bank
(incorporated by reference to Exhibit 10.4 to the
2002 Form 10-K).
36
Exhibit No. Description of Document
---------- -----------------------
10.5 Second Amended and Restated Non-Recourse Pledge
Agreement and Irrevocable Proxy dated as of October
31, 2001, by and between R.A.B. Enterprises, Inc.,
and The Chase Manhattan Bank (incorporated by
reference to Exhibit 10.5 to the 2002 Form 10-K).
10.6 Amended and Restated Security Agreement, dated as of
October 31, 2001, by and among Manischewitz and The
Chase Manhattan Bank (incorporated by reference to
Exhibit 10.6 to the 2002 Form 10-K).
*14.1 Code of Ethics
21.1 List of subsidiaries of the Co-Registrants
(incorporated by reference to Exhibit 21.1 to the
Registration Statement).
*31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Executive
Officer.
*31.2 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Chief Financial
Officer.
*32.1 Joint certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Chief Executive Officer
and Chief Financial Officer.
* Filed herewith.
(d) Financial Statement Schedules.
The financial statements schedules are listed in the
accompanying Index to Financial Statements and Schedules.
37
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 8th day of July, 2004.
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 8, 2004
- ---------------------------------------- and Director
Richard A. Bernstein (principal executive officer)
/s/ Steven M. Grossman Executive Vice President, Chief Financial July 8, 2004
- ---------------------------------------- Officer, Treasurer and Director
Steven M. Grossman (principal financial and accounting officer)
/s/ Lewis J. Korman Vice Chairman and Director July 8, 2004
- ----------------------------------------
Lewis J. Korman
/s/ Robert A. Sigel Executive Vice President and Director July 8, 2004
- ----------------------------------------
Robert A. Sigel
/s/ Bruce W. Glickstein Director July 8, 2004
- ----------------------------------------
Bruce W. Glickstein
/s/ Richard H. Hochman Director July 8, 2004
- ----------------------------------------
Richard H. Hochman
/s/ Michael A. Pietrangelo Director July 8, 2004
- ----------------------------------------
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.
38
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 8th day of July, 2004.
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 8, 2004
- ---------------------------------------- and Director
Richard A. Bernstein (principal executive officer)
/s/ Steven M. Grossman Executive Vice President, Chief Financial July 8, 2004
- ---------------------------------------- Officer, Treasurer and Director
Steven M. Grossman (principal financial and accounting officer)
/s/ Lewis J. Korman Vice Chairman and Director July 8, 2004
- ----------------------------------------
Lewis J. Korman
/s/ James A. Cohen Senior Vice President - Legal Affairs, July 8, 2004
- ---------------------------------------- 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.
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
Report of Independent Registered Public Accounting Firm...................................................... F-2
Consolidated Balance Sheets as of March 31, 2004 and 2003.................................................... F-3
Consolidated Statements of Operations for the Years Ended
March 31, 2004, 2003 and 2002............................................................................. F-4
Consolidated Statements of Stockholders' (Deficit) Equity (Holdings) for the Years Ended
March 31, 2004, 2003 and 2002............................................................................. F-5
Consolidated Statements of Stockholder's Equity (Enterprises) for the Years Ended
March 31, 2004, 2003 and 2002............................................................................. F-6
Consolidated Statements of Cash Flows for the Years Ended
March 31, 2004, 2003 and 2002............................................................................. 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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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.)
(collectively the "Companies") and its 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 standards of the Public Company
Accounting Oversight Board (United States). 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, 2004
and 2003, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 2004, 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.
As discussed in Note 7 to the consolidated financial statements, the Companies
changed their method of accounting for goodwill and other intangible assets
during the year ended March 31, 2003 to conform to Statement of Financial
Accounting Standards No. 142.
DELOITTE & TOUCHE LLP
July 7, 2004
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, 2004 2003
- ---------------------------------------------------------------------- ------------------------- -------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
--------- ----------- --------- -----------
ASSETS
Current assets:
Cash $ 4,942 $ 4,937 $ 6,452 $ 6,444
Accounts receivable, net 31,217 31,217 38,352 38,352
Inventories 45,777 45,777 50,960 50,960
Other current assets 7,751 6,890 3,973 4,764
--------- --------- --------- ---------
Total current assets 89,687 88,821 99,737 100,520
Other assets 6,266 11,608 7,133 10,759
Property, plant and equipment, net 22,287 22,287 25,285 25,285
Goodwill 50,010 50,010 50,010 50,010
Intangibles, net 39,962 39,962 39,962 39,962
--------- --------- --------- ---------
Total assets $ 208,212 $ 212,688 $ 222,127 $ 226,536
========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 30,258 $ 30,258 $ 34,347 $ 34,347
Other current liabilities 24,434 24,859 22,288 22,944
--------- --------- --------- ---------
Total current liabilities 54,692 55,117 56,635 57,291
Noncurrent liabilities:
Long-term debt 157,979 131,164 165,327 140,340
Deferred compensation 8,759 8,759 9,044 9,044
Deferred income taxes 11,890 11,890 10,662 10,662
Other liabilities 7,718 7,718 8,830 8,830
--------- --------- --------- ---------
Total noncurrent liabilities 186,346 159,531 193,863 168,876
Commitments and contingencies
Stockholders' (deficit) 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 -
Notes receivable from stock sales (96) - (92) -
Additional paid-in capital 2,622 39,482 2,622 39,482
Retained earnings (deficit) (44,328) (37,574) (39,564) (34,936)
Accumulated other comprehensive loss (3,868) (3,868) (4,177) (4,177)
--------- --------- --------- ---------
(32,825) (1,960) (28,366) 369
Less common stock in treasury 1,000 shares and 4,600 shares 1 - 5 -
--------- --------- --------- ---------
Total stockholders' (deficit) equity (32,826) (1,960) (28,371) 369
--------- --------- --------- ---------
Total liabilities and stockholders' (deficit) equity $ 208,212 $ 212,688 $ 222,127 $ 226,536
========= ========= ========= =========
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, 2004 2003 2002
- ----------------------------------------------------- ------------------------ ------------------------ ------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
-------- ----------- -------- ----------- -------- -----------
Revenues $ 508,558 $ 508,558 $ 507,501 $ 507,501 $ 596,302 $ 596,302
Costs and expenses:
Cost of sales 385,092 385,092 384,317 384,317 448,637 448,637
Selling 40,127 40,127 39,733 39,733 51,398 51,398
Distribution and warehousing 43,806 43,806 45,520 45,520 54,108 54,108
General and administrative 26,405 26,220 24,846 24,739 28,021 27,955
Amortization of intangibles - - 43 43 4,213 4,213
--------- --------- --------- --------- --------- ---------
Total costs and expenses 495,430 495,245 494,459 494,352 586,377 586,311
--------- --------- --------- --------- --------- ---------
Operating income 13,128 13,313 13,042 13,149 9,925 9,991
Other expenses:
Interest expense, net 17,010 14,725 16,771 14,495 19,047 15,722
Modification of debt 461 - 500 - - -
--------- --------- --------- --------- --------- ---------
17,471 14,725 17,271 14,495 19,047 15,722
--------- --------- --------- --------- --------- ---------
Loss before provision (benefit) for income taxes (4,343) (1,412) (4,229) (1,346) (9,122) (5,731)
Provision (benefit) for income taxes 421 1,226 4,908 4,308 (2,602) (1,642)
--------- --------- --------- --------- --------- ---------
Loss before cumulative effect of change
in accounting principle (4,764) (2,638) (9,137) (5,654) (6,520) (4,089)
Cumulative effect of change in accounting principle - - (24,230) (24,230) - -
--------- --------- --------- --------- --------- ---------
Net loss $ (4,764) $ (2,638) $ (33,367) $ (29,884) $ (6,520) $ (4,089)
========= ========= ========= ========= ========= =========
See notes to Consolidated Financial Statements
F-4
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
(IN THOUSANDS EXCEPT FOR SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 2004 2003 2002
- ------------------------------------------------ -------------------- -------------------- ----------------------
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 24,875 $ 12,344 24,875 $ 12,344
Issuance of stock - - - - - -
-------- -------- -------- -------- -------- --------
Balance at end of period 24,875 12,344 24,875 12,344 24,875 12,344
-------- -------- -------- -------- -------- --------
SERIES B:
Balance at beginning of period 1,000 500 1,000 500 1,000 500
Issuance of stock - - - - - -
-------- -------- -------- -------- -------- --------
Balance at end of period 1,000 500 1,000 500 1,000 500
-------- -------- -------- -------- -------- --------
COMMON STOCK, $.01 PAR VALUE, 1,000,000
SHARES AUTHORIZED:
Balance at beginning of period 105,100 1 105,100 1 105,100 1
Issuance of stock - - - - - -
-------- -------- -------- -------- -------- --------
Total 105,100 1 105,100 1 105,100 1
-------- -------- -------- -------- -------- --------
Treasury shares at beginning of period (4,600) (5) (600) (1) (2,000) (2)
Purchase of treasury shares - - (6,300) (6) (5,900) (6)
Issuance of stock 3,600 4 2,300 2 7,300 7
-------- -------- -------- -------- -------- --------
Treasury shares at end of period (1,000) (1) (4,600) (5) (600) (1)
-------- -------- -------- -------- -------- --------
Balance at end of period 104,100 - 100,500 (4) 104,500 -
-------- -------- -------- -------- -------- --------
NOTES RECEIVABLE FROM STOCK SALES:
Balance at beginning of period (92) (195) (267)
Repayment (issuance) of notes (4) 103 72
-------- -------- --------
Balance at end of period (96) (92) (195)
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 2,622 373 436
Issuance of warrants - 2,357 -
(Purchase) issuance of treasury shares
and common stock - (108) (63)
-------- -------- --------
Balance at end of period 2,622 2,622 373
-------- -------- --------
RETAINED EARNINGS (DEFICIT):
Balance at beginning of period (39,564) (6,197) 323
Net loss (4,764) (33,367) (6,520)
-------- -------- --------
Balance at end of period (44,328) (39,564) (6,197)
-------- -------- --------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
Unrealized gain on securities
available-for-sale 65 165 25
Minimum pension liability adjustment (3,933) (4,342) (1,597)
-------- -------- --------
Accumulated other comprehensive loss (3,868) (4,177) (1,572)
-------- -------- --------
Total stockholders' (deficit) equity $(32,826) $(28,371) $ 5,253
======== ======== ========
See notes to Consolidated Financial Statements
F-5
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S (DEFICIT) EQUITY
(IN THOUSANDS EXCEPT FOR SHARE DATA)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED MARCH 31, 2004 2003 2002
- ------------------------------------------------ -------------------------- -------------------------- ------------------------
SHARES AMOUNTS SHARES AMOUNTS SHARES AMOUNTS
------------ ------------ ------------ ------------ ------------ ----------
COMMON STOCK, $1.00 PAR VALUE, 200
SHARES AUTHORIZED:
Balance at beginning of period 200 $ - 200 $ - 200 $ -
------------ ------------ ------------ ------------ ------------ ----------
Balance at end of period 200 - 200 - 200 -
------------ ------------ ------------ ------------ ------------ ----------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 39,482 39,482 39,482
------------ ------------ ----------
Balance at end of period 39,482 39,482 39,482
------------ ------------ ----------
RETAINED EARNINGS (DEFICIT):
Balance at beginning of period (34,936) (5,052) (963)
Net loss (2,638) (29,884) (4,089)
------------ ------------ ----------
Balance at end of period (37,574) (34,936) (5,052)
------------ ------------ ----------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME:
Unrealized gain on securities
available-for-sale 65 165 25
Minimum pension liability adjustment (3,933) (4,342) (1,597)
------------ ------------ ----------
Accumulated other comprehensive loss (3,868) (4,177) (1,572)
------------ ------------ ----------
Total stockholder's (deficit) equity $ (1,960) $ 369 $ 32,858
============ ============ ==========
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, 2004 2003 2002
- ---------------------------------------------------- ----------------------- ----------------------- ---------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
-------- ----------- -------- ----------- -------- -----------
Cash flows from operating activities:
Net loss $ (4,764) $ (2,638) $(33,367) $(29,884) $ (6,520) $ (4,089)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 6,238 5,781 6,192 5,786 6,305 6,206
Amortization of intangibles - - 43 43 4,213 4,213
Cumulative effect of change in accounting principle - - 24,230 24,230 - -
Gain on disposition of equipment (58) (58) (65) (65) (63) (63)
Deferred income taxes 1,228 1,228 4,701 4,234 (1,321) (1,054)
Changes in assets and liabilities:
Accounts receivable 7,135 7,135 (294) (294) 14,990 14,990
Inventories 5,183 5,183 8,046 8,046 13,549 13,549
Other current assets (3,778) (2,126) 4,996 3,784 838 (782)
Accounts payable (4,089) (4,089) (7,074) (7,074) (4,309) (4,309)
Other current liabilities 1,199 968 1,298 2,090 (476) (88)
Other assets and liabilities 6,589 2,864 (2,448) (5,137) 5,250 4,682
-------- -------- -------- -------- -------- -------
Net cash provided by operating activities 14,883 14,248 6,258 5,759 32,456 33,255
-------- -------- -------- -------- -------- --------
Cash flows from investing activities:
Acquisitions of plant and equipment (832) (832) (630) (630) (2,019) (2,019)
Proceeds from disposition of equipment 77 77 111 111 81 81
-------- -------- -------- -------- -------- --------
Net cash used in investing activities (755) (755) (519) (519) (1,938) (1,938)
-------- -------- -------- -------- -------- --------
Cash flows from financing activities:
Payment of debt modification costs (638) - (556) - (768) -
Payments from interest escrow account - - - - 1,625 -
Repayments under Credit Agreement (15,000) (15,000) (3,252) (3,252) (36,381) (36,381)
(Repurchase) and proceeds from issuance
of common stock - - (5) - 10 -
-------- -------- -------- -------- -------- --------
Net cash used in financing activities (15,638) (15,000) (3,813) (3,252) (35,514) (36,381)
-------- -------- -------- -------- -------- --------
Net (decrease) increase in cash (1,510) (1,507) 1,926 1,988 (4,996) (5,064)
Cash, beginning of year 6,452 6,444 4,526 4,456 9,522 9,520
-------- -------- -------- -------- -------- --------
Cash, end of year $ 4,942 $ 4,937 $ 6,452 $ 6,444 $ 4,526 $ 4,456
======== ======== ======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 9,710 $ 9,450 $ 12,659 $ 12,404 $ 17,281 $ 14,055
Income taxes $ 141 $ 140 $ 54 $ 54 $ 174 $ 174
Non-cash financing activities:
Additional indebtedness due to deferred interest
payment on 6% Senior Notes $ 1,537 $ - $ 2,230 $ - $ - $ -
Issuance of additional 10.5% Senior Notes
in lieu of interest payment $ 5,824 $ 5,824 $ - $ - $ - $ -
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 specialty foods, health and beauty care
products and general merchandise. Manischewitz manufactures (i)
processed kosher and other ethnic foods including, among others,
matzos, cake mixes, cookies, soups, noodles and processed fish products
under its Manischewitz(R) brand; (ii) canned fish, vegetables and other
specialty food products under its Season(R) brand; and (iii) organic
baked tortilla chips, bean dips, salsas and other specialty food
products under its Guiltless Gourmet(R) brand. In addition,
Manischewitz 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, 2004 and 2003, the replacement cost of inventories valued
using the LIFO method exceeded the net carrying amount of such
inventories by approximately $1,146,000 and $987,000, respectively.
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 - Historically, intangibles were amortized on a
straight-line basis over their estimated useful lives ranging from 4 to
40 years. Effective April 1, 2002, the Companies adopted Statement of
Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other
Intangible Assets", which eliminated the periodic charge to earnings
for intangible amortization of goodwill and long-lived intangible
assets for fiscal 2003 and future years. In addition, as required by
SFAS No. 142, an initial assessment of recorded goodwill for possible
impairment was conducted as of April 1, 2002. Annual testing for
possible goodwill impairment will be performed as of March 31 of each
year. See Note 7 for additional disclosures related to SFAS No. 142.
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. Revenue is recorded net
of returns, rebates and allowances. Provisions for returns, rebates 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. The tax effects of these differences are
calculated using enacted rates in effect for the year in which they are
expected to reverse and are recorded as deferred tax assets and
liabilities.
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)
Comprehensive (Loss) Income - For the years ended March 31,
2004, 2003 and 2002, Holdings' and Enterprises' comprehensive (loss)
income was ($4,455,000) and ($2,329,000), respectively, ($35,972,000)
and ($32,489,000), respectively, and ($7,146,000) and ($4,715,000),
respectively.
Accounting Pronouncements - SFAS No. 143 "Accounting for Asset
Retirement Obligations" was issued in August 2001 and is effective for
fiscal years beginning after June 15, 2001. SFAS No. 143 establishes
accounting standards for recognition and measurement of a liability for
an asset retirement obligation and the associated asset retirement
cost. SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" was issued in October 2001 and is effective for
fiscal years beginning after December 15, 2001. SFAS No. 144 addresses
financial accounting and reporting for the impairment of long-lived
assets. The Companies adopted SFAS No. 143 and 144 effective April 1,
2002. The adoption of SFAS No. 143 and 144 did not have a material
impact on the Companies' financial position or overall trends in
results of operations.
SFAS No. 145 "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections" was
issued in April 2002 and is effective for fiscal years beginning after
May 15, 2002. SFAS No. 145 eliminates the requirement to classify gains
and losses from the extinguishment of debt as extraordinary, requires
certain lease modifications to be treated the same as a sale-leaseback
transaction and makes other non-substantive technical corrections to
existing pronouncements. The Companies adopted SFAS No. 145 effective
April 1, 2003. The adoption of SFAS No. 145 resulted in a
reclassification to the Statement of Operations for the year ended
March 31, 2003. The adoption of SFAS No. 145 did not have a material
impact on the Companies' financial position or overall trends in
results of operations.
SFAS No. 146 "Accounting for Costs Associated with Exit or
Disposal Activities" was issued in June 2002 and is effective for exit
or disposal activities initiated after December 31, 2002, with earlier
adoption encouraged. SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred
rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination
costs and certain employee severance costs that are associated with a
restructuring, discontinued operations, plant closing, or other exit or
disposal activities. The Companies will adopt SFAS No. 146 for any
future exit or disposal activities.
SFAS No. 149 "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" was issued in April 2003 and is
effective for contracts entered into or modified after June 30, 2003
and for hedging relationships designated after that date. SFAS No. 149
amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and hedging
activities under SFAS No. 133. The adoption of SFAS No. 149 did not
have a material impact on the Companies' financial position or overall
trends in results of operations and did not result in any significant
change to the Companies' financial risk management practices.
F-10
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)
SFAS No. 150 "Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity" was issued in May
2003 and is effective for instruments entered into or modified after
May 15, 2003. SFAS No. 150 requires that certain financial instruments
including mandatorily redeemable instruments and forward purchase
contracts be reported as liabilities by their issuers. The adoption of
SFAS No. 150 did not have a material impact on the Companies' financial
position or overall trends in results of operations.
In November 2002, the Financial Accounting Standards Board
issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees
of Indebtedness of Others". This interpretation is effective for
guarantees issued or modified after December 31, 2002 and requires that
a liability be recognized at fair value upon issuance of the
guarantees. The Companies will adopt FIN 45 for any future guarantees
issued or modified.
2. FORMATION
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. 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.
3. ACCOUNTS RECEIVABLE
Accounts receivable for Holdings and Enterprises consisted of
the following (in thousands):
MARCH 31, 2004 2003
------------------------------------ ------------- -------------
Accounts receivable................. $ 32,877 $ 40,088
Allowance for doubtful accounts..... (1,660) (1,736)
------------- -------------
$ 31,217 $ 38,352
============= =============
F-11
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVENTORIES
Inventories for Holdings and Enterprises consisted of the
following (in thousands):
MARCH 31, 2004 2003
-------------------------------- ------------- -------------
Raw materials................... $ 1,371 $ 1,849
Finished goods.................. 44,406 49,111
------------- -------------
$ 45,777 $ 50,960
============= =============
5. OTHER 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. During the year ended March 31, 2004,
Millbrook recorded depreciation of approximately $300,000, which
reflects the depreciation that would have been recognized had the asset
been continuously classified as held and used given the extended
selling time period. In addition, the carrying amount was reduced by
approximately $100,000 due to the disposal of certain facility-related
equipment and the property remains held for sale. The property is
classified as a component of Other Assets on the Companies' balance
sheets as of March 31, 2004 and 2003.
6. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment for Holdings and Enterprises
consisted of the following (in thousands):
MARCH 31, 2004 2003
-------------------------------------------------------------- ------------- -------------
Land.......................................................... $ 2,673 $ 2,673
Buildings and improvements.................................... 15,614 15,419
Machinery and equipment....................................... 32,190 31,916
Rolling stock................................................. 1,968 2,219
Construction in progress...................................... 5 33
------------- -------------
52,450 52,260
Less accumulated depreciation and amortization................ 30,163 26,975
------------- -------------
$ 22,287 $ 25,285
============= =============
7. INTANGIBLES
Effective April 1, 2002, the Companies adopted SFAS No. 142
"Goodwill and Other Intangible Assets". Under this standard, goodwill
and intangibles with indefinite useful lives, including trademarks and
tradenames are no longer systematically amortized. Instead, they are
reviewed for impairment and written down and charged to results of
operations when their carrying amount exceeds their estimated fair
values. Amortization expense for the year ended March 31, 2003 was
approximately $43,000 representing the amortization of the remaining
net book value of identified intangibles still required to be amortized
under SFAS No. 142.
F-12
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INTANGIBLES (CONTINUED)
With the assistance of an independent professional appraisal
firm, the Companies performed impairment tests on the excess of cost
over net assets acquired ("goodwill") and intangibles. The previous
method for determining impairment prescribed by SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," utilized an undiscounted cash flow approach
for the impairment assessment, while SFAS No. 142 utilizes a fair value
approach. The Companies have two reporting units (Millbrook and
Manischewitz) with goodwill and intangibles, which also represent the
Companies' reporting segments. Goodwill and intangibles were reviewed
for impairment at the level of each reporting unit. This review
indicated that the goodwill recorded at the Companies' Manischewitz
subsidiary was impaired as the carrying value of the subsidiary was in
excess of its estimated fair value. In determining the amount of the
goodwill writedown, SFAS No. 142 requires an allocation of the
estimated fair value to Manischewitz' net assets. This allocation
resulted in a significant increase in the value of the subsidiary's
trademarks and tradenames, which under the provisions of SFAS No. 142
may not be written up from their historical carrying value. Since the
allocation process utilizes the increased value of the trademarks and
tradenames in arriving at the remaining amount of goodwill to be
compared to the historical carrying value of goodwill, the amount of
the goodwill writedown is increased. As a result, the Companies
recorded a $24.2 million non-cash charge as a cumulative effect of a
change in accounting principle for the writedown of goodwill to its
estimated fair value during the year ended March 31, 2003. The goodwill
writedown was not deductible for income taxes and, as a result, no
income tax benefit was recorded in relation to the charge.
The cumulative impact of adopting this change in accounting
principle is reflected in the accompanying statement of operations, but
does not affect the Companies' operations and has no impact on cash
flows. The provisions of SFAS No. 142 require an annual assessment of
goodwill and intangibles to determine any possible future impairment.
The Companies elected to perform this annual assessment as of March 31
of each year. As of March 31, 2004, the Companies' annual assessment of
each reporting unit indicated that goodwill and intangibles were not
impaired.
The effect of adopting SFAS No. 142 on the net loss for the
years ended March 31, 2004, 2003 and 2002 are as follows (in
thousands):
2004 2003 2002
------------------------- ------------------------ ------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
-------- ----------- -------- ----------- -------- -----------
Net Loss $ (4,764) $ (2,638) $(33,367) $(29,884) $ (6,520) $ (4,089)
Add: cumulative effect of change in
accounting principle -- -- 24,230 24,230 -- --
-------- -------- -------- -------- -------- --------
Net Loss, excluding cumulative effect of
change in accounting principle (4,764) (2,638) (9,137) (5,654) (6,520) (4,089)
Add: amortization of indefinite-lived
intangible assets, net of tax -- -- -- -- 2,928 2,928
Add: valuation allowances recorded as a
result of the impact of SFAS No. 142 3,064 1,905 6,240 4,831 -- --
-------- -------- -------- -------- -------- --------
Net Loss, excluding cumulative effect of
change in accounting principle and
valuation allowances in 2004 and 2003
and amortization of indefinite-lived
intangible assets in 2002 $ (1,700) $ (733) $ (2,897) $ (823) $ (3,592) $ (1,161)
======== ======== ======== ======== ======== ========
F-13
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INTANGIBLES (CONTINUED)
The changes in the carrying amount of goodwill and intangible
assets during the year ended March 31, 2003, including the effect of
adopting SFAS No. 142 are as follows (in thousands):
MILLBROOK MANISCHEWITZ
---------------- ----------------------------------
INTANGIBLE
GOODWILL GOODWILL ASSETS TOTAL
---------------- ---------------- --------------- ---------------
Balance at March 31, 2002, net of
accumulated amortization $ 15,103 $ 59,137 $ 40,005 $ 114,245
Less: goodwill writedown recognized as a
cumulative effect of change in
accounting principle - 24,230 - 24,230
Less: intangible amortization - - 43 43
---------------- ---------------- --------------- ---------------
Balance at March 31, 2004 and 2003,
net of accumulated amortization $ 15,103 $ 34,907 $ 39,962 $ 89,972
================ ================ =============== ===============
At March 31, 2004 and March 31, 2003, Manischewitz' intangible
assets were comprised of trademarks and tradenames.
8. OTHER CURRENT LIABILITIES
Other current liabilities for Holdings and Enterprises
consisted of the following (in thousands):
MARCH 31, 2004 2003
-------------------------------------- -------------------------- ----------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
--------------------------- ------------ ---------------
Accrued compensation and
fringe benefits.................. $ 10,030 $ 10,030 $ 9,083 $ 9,083
Accrued rebates and
promotional allowances........... 6,258 6,258 5,437 5,437
Accrued interest...................... 5,134 4,365 5,201 4,470
Accrued liabilities................... 3,012 4,206 2,567 3,954
----------- ----------- ----------- ------------
$ 24,434 $ 24,859 $ 22,288 $ 22,944
=========== =========== =========== ============
On January 31, 2000, Millbrook acquired certain of the assets
and operations of I. Epstein & Sons, Inc. ("Epstein"). On April 17,
2000, Millbrook acquired substantially all of the assets and operations
of the Miller Buckeye Biscuit Company, Inc. ("Miller Buckeye"). The
liabilities assumed in the Epstein and Miller Buckeye acquisitions
included 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, 2004 and 2003, the balance of this provision
of approximately $600,000 and $800,000, respectively, has been included
as a component of Other Current Liabilities and Other Liabilities on
the Companies' balance sheets.
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
Long-term debt for Holdings and Enterprises consisted of the
following (in thousands):
MARCH 31, 2004 2003
-------------------------------------- -------------------------- ----------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
--------------------------- ------------ ---------------
10.5% Notes due 2005.................. $ 86,164 $ 86,164 $ 80,340 $ 80,340
13% Notes due 2008.................... 2,000 - 2,000 -
6% Notes due 2010..................... 24,815 - 22,987 -
Revolving credit facility............. 45,000 45,000 60,000 60,000
----------- ----------- ----------- ------------
$ 157,979 $ 131,164 $ 165,327 $ 140,340
=========== =========== =========== ============
Millbrook and Manischewitz have a credit agreement with a
group of commercial lending institutions providing for a credit
facility consisting of revolving credit loans up to $105 million (the
"Credit Agreement"). Borrowings under this long-term facility, which
expires April 15, 2005, 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, 2004,
substantially all of the assets of Enterprises' subsidiaries are
unavailable for dividends. At March 31, 2004, Millbrook and
Manischewitz had available, under the Credit Agreement, unused
borrowing capacity of approximately $16.6 million, net of outstanding
letters of credit of approximately $4.2 million. The Credit Agreement
is secured by Millbrook's and Manischewitz' accounts receivable and
inventories, mortgages on certain real property and Manischewitz'
pledge of certain unencumbered fixtures and equipment, Millbrook's
stock and the membership interests of Manischewitz.
Borrowings under the Credit Agreement bear interest at either
the London interbank offered ("LIBO") rate plus a margin (up to 3.50%)
or the bank's alternate base rate ("ABR") plus a margin (up to 1.50%).
The margin, which ranged from 2.50% to 3.25% for LIBO and 0.50% to
1.00% for ABR during the year ended March 31, 2004, is based upon
availability pursuant to the borrowing base calculation. At March 31,
2004 and 2003, borrowings under the LIBO option were $45,000,000 and
$60,000,000, respectively. At March 31, 2004 and 2003, the interest
rates on the outstanding LIBO loans was at 4.12% and ranged from 4.59%
to 4.63%, respectively. At March 31, 2004 and 2003, Millbrook's and
Manischewitz' outstanding debt under the Credit Agreement approximates
fair value. At both March 31, 2004 and 2003, the fair value of
Holdings' 13% Notes was $100,000. At March 31, 2004 and 2003, the fair
value of Holdings' 6% Notes was $2.5 million and $2.3 million,
respectively. At March 31, 2004 and 2003, the fair value of
Enterprises' 10.5% Notes was $45.7 million and $32.1 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)
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.
During the year ended March 31, 2004, Enterprises entered into
an arrangement with certain holders of its 10.5% Notes to make the
November 1, 2003 interest payment through the issuance of additional
Notes in lieu of cash. The arrangement provided that each participating
holder would receive $1,000 in principal amount of 10.5% Notes for each
$500 of interest due. Residual amounts of interest less than $500 were
paid in cash. Holders of approximately 69% of the outstanding 10.5%
Notes participated in the arrangement. As a result, Enterprises issued
to holders approximately $5.8 million in principal amount of 10.5%
Notes in lieu of approximately $2.9 million in cash interest. The
remaining holders received their interest payment in cash. See Note 18
to Notes to Consolidated Financial Statements for additional
disclosure.
During the year ended March 31, 2004, Holdings expensed
$461,000 of professional fees and related expenses incurred in
connection with the pending restructuring of its indebtedness
outstanding under the Senior Notes issued by Holdings and Enterprises.
During the year ended March 31, 2003, Holdings amended the
Indenture underlying 92% ($23.0 million) of its 13% Notes outstanding.
The amendment (i) reduced the interest rate to 6% per annum, (ii)
extended their maturity date from May 1, 2008 to May 1, 2010 and (iii)
increased the aggregate outstanding principal by approximately $1.5
million, representing the deferred May 2002 interest payment. Holders
of the 6% Notes received warrants granting them the right to purchase
up to approximately 5% of Holdings' common stock. See Note 10 for
additional disclosures related to the warrants. Holdings, at its
option, may defer the payment of cash interest on the 6% Notes for ten
semi-annual interest payment dates through May 1, 2007. The changes
contained in the amendment constituted a material modification of the
Indenture requiring the historical deferred debt issuance costs to be
written off. Accordingly, during the year ended March 31, 2003, debt
issuance costs of $500,000 were written off. On November 1, 2002, May
1, 2003, November 1, 2003 and May 1, 2004, Holdings elected to defer
the cash payment of interest on its 6% Notes.
Future maturities of long-term debt at March 31, 2004 were as
follows (in thousands):
HOLDINGS ENTERPRISES
------------- ---------------
2005................. $ - $ -
2006................. 131,164 131,164
2007................. - -
2008................. - -
2009................. 2,000 -
Thereafter........... 24,815 -
----------- -----------
$ 157,979 $ 131,164
=========== ===========
F-16
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 2004, the amount of accumulated unpaid dividends
per share on the Series A Preferred Stock was $350 for shares issued in
1997 and $250 for each of the Series A and B Preferred Stock issued in
1999, aggregating approximately $8.5 million. 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.
In connection with the amendment of the Indenture underlying
92% ($23.0 million) of its 13% Notes outstanding, Holdings issued
warrants granting holders of the 6% Notes the right to purchase 5,060
shares of common stock at a nominal price. The warrants, which expire
in April, 2010, were valued at approximately $2.5 million.
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, 2004 were as
follows (in thousands):
CAPITAL LEASE OPERATING
OBLIGATIONS LEASES
------------- ------------
2005................................ $ 16 $ 4,818
2006................................ - 4,627
2007................................ - 3,945
2008................................ - 1,842
2009................................ - 493
Thereafter.......................... - 213
---------- -----------
Future minimum lease payments....... $ 16 $ 15,938
===========
Less: Interest and executory costs.. -
----------
Total capital lease obligations..... $ 16
==========
F-17
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 2004 were approximately $3,000.
Total rent expense for all operating leases was $6.9 million,
$7.3 million and $8.3 million for the years ended March 31, 2004, 2003,
and 2002, respectively.
Commitments
At March 31, 2004 and 2003, Manischewitz had approximately
$800,000 and $2.1 million, respectively, of purchase commitments with
certain vendors.
Contingencies
The Companies are subject to various legal actions, regulatory
investigations and proceedings and claims threatened or pending in the
normal course of their business. While it is not feasible to predict or
determine the outcome of these actions, claims and proceedings, it is
the opinion of management that their outcome, to the extent not
provided for through insurance, indemnification or established
reserves, will not have a materially adverse effect on the Companies'
financial position or future results of operations.
In August, 2001, Ames Department Stores, Inc. ("Ames") a
customer of Millbrook, filed a voluntary petition under Chapter 11 of
the Bankruptcy Law in the United States Bankruptcy Court for the
Southern District of New York. In June, 2003, the Trustee for the
bankruptcy estate of Ames filed a complaint against Millbrook alleging
that Ames made payments to Millbrook totaling approximately $12.4
million during the ninety (90) day period prior to the Ames bankruptcy
filing and asserting that such payments constituted voidable preference
payments. Millbrook believes it has meritorious defenses to this claim
and intends to vigorously defend its position, although no assurances
can be given as to the ultimate outcome of such litigation.
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
The provision (benefit) for income taxes consisted of the
following (in thousands):
MARCH 31, 2004 2003 2002
---------
---------------------------- --------------------------- ---------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
------------ --------------- ---------- --------------- --------- ----------------
Currently (receivable) payable:
Federal...................... $ - $ - $ - $ - $ (1,281) $ (588)
State........................ (807) (2) 207 74 - -
--------- -- --- -- - -
(807) (2) 207 74 (1,281) (588)
--------- -- --- -- ------ --------
Deferred (benefit) liability:
Federal...................... (1,510) (555) (1,378) (603) (1,212) (748)
State........................ (324) (120) (276) (109) (544) (306)
--------- ---- ------- -------- ----- -----
(1,834) (675) (1,654) (712) (1,756) (1,054)
--------- ---- ------- -------- ----- -----
Change in Valuation
Allowances................... 3,062 1,903 6,355 4,946 435 -
--------- ----------- --------- ----------- -------- -----------
$ 421 $ 1,226 $ 4,908 $ 4,308 $ (2,602) $ (1,642)
========= =========== ========= =========== ======== ===========
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, 2004 2003 2002
---------
--------------------------- --------------------------- ----------------------------
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.............. (4.9) (5.5) (4.8) (5.3) (3.9) (3.5)
Nondeductible amortization of
intangibles.................. - - 0.2 0.5 5.8 9.3
Change in valuation
allowances................... 70.5 134.8 170.5 367.5 4.8 -
Other............................. (20.9) (7.5) 0.8 (7.6) (0.2) 0.5
---------- --------------- ----------- -------------- ------------ --------------
9.7% 86.8% 131.7% 320.1% (28.5%) (28.7%)
========== =============== =========== ============== ============ ==============
F-19
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):
2004 2003
-------------------------- ---------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
---------- ------------- ---------- ----------------
MARCH 31,
---------
DEFERRED TAX ASSETS:
Accounts receivable, principally due to
allowances for doubtful accounts........... $ 1,072 $ 1,072 $ 790 $ 790
Deferred compensation........................ 3,906 3,906 3,992 3,992
Net operating loss carryforwards............. 7,536 4,333 4,588 2,544
Liability accruals........................... 4,838 4,838 5,256 5,256
Other, net................................... 696 696 945 945
DEFERRED TAX LIABILITIES:
Inventories, principally due to
acquisition basis differences and
financial statement allowances............. (2,202) (2,202) (2,202) (2,202)
Property, plant & equipment, principally
due to basis differences................... (4,509) (4,509) (4,972) (4,972)
Identified intangibles, due to
basis differences.......................... (11,890) (11,890) (10,662) (10,662)
---------- ----------- ---------- -----------
Total deferred tax liabilities............... (553) (3,756) (2,265) (4,309)
Valuation allowances......................... (11,337) (8,134) (8,397) (6,353)
---------- ----------- ---------- -----------
Net deferred tax liabilities................. $ (11,890) $ (11,890) $ (10,662) $ (10,662)
========== =========== ========== ===========
At March 31, 2004, Holdings and Enterprises had consolidated
net operating loss carryforwards, the tax effect of which was
approximately $5.8 million and $3.5 million, respectively, available to
reduce future Federal income tax liabilities, which expire in fiscal
2022, 2023 and 2024. Holdings and Enterprises also had state operating
loss carryforwards, the tax effect of which was approximately $1.7
million and $900,000, respectively.
SFAS No. 109, "Accounting for Income Taxes", requires that
deferred tax assets be reduced by a valuation allowance, if based on
available evidence, it is more likely than not that the deferred tax
assets will not be realized. Under generally accepted accounting
principles, available evidence includes the reversal of existing
taxable temporary differences. As of March 31, 2003, Holdings and
Enterprises had net deferred tax liabilities before the impact of SFAS
No. 142 of approximately $2.9 million and $4.3 million, respectively;
each including a deferred tax liability for taxable temporary
differences resulting from different amortization periods for
identified intangibles of approximately $10.7 million.
F-20
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
With the adoption of SFAS No. 142 in the first quarter of
fiscal 2003, the Companies can no longer amortize tax deductible
goodwill and indefinite-lived intangible assets for financial reporting
purposes. Therefore, the deferred tax liability related to the taxable
temporary differences resulting from different amortization periods for
identified intangibles will not reverse unless the underlying assets
are sold or an impairment is recognized for tax purposes. Without this
deferred tax liability, Holdings and Enterprises would have had net
deferred tax assets of approximately $7.8 million and $6.4 million,
respectively, as of March 31, 2003.
Historically, the Companies did not need a valuation allowance
(with the exception of Holdings' state tax loss carryforwards) for the
portion of the tax effect of net operating losses equal to the amount
of tax-deductible amortization of identified intangibles expected to
occur during the carryforward period of the net operating losses based
upon the timing of the reversal of other temporary differences. As a
result of the adoption of SFAS No. 142, the reversal will probably not
occur during the carryforward period of the net operating losses.
Therefore, Holdings and Enterprises recorded a deferred non-cash income
tax expense of approximately $4.7 million and $4.2 million,
respectively, during the year ended March 31, 2003. In addition,
Holdings and Enterprises recorded non-cash valuation allowances to
offset their respective income tax benefits from operations and the
extraordinary loss on modification of debt of $2.7 million and $1.8
million, respectively. Both the deferred non-cash income tax benefit
and the non-cash valuation allowances recorded in the Companies'
operating results would have not been required prior to the adoption of
SFAS No. 142.
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, 2004, 2003 and 2002, the Companies'
provided approximately $1.2 million, $700,000 and $1.6 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.
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)
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. During the year ended March 31, 2003, $500,000 of cash
surrender value available under these policies was utilized to reduce
outstanding borrowings under the Credit Agreement. At March 31, 2004,
future payment obligations, assuming commencement of payments at an
individual's retirement age, as defined under the deferred compensation
arrangement were approximately $787,000, $909,000, $776,000, $842,000,
$860,000 and $13.9 million for the years ending March 31, 2005, 2006,
2007, 2008, 2009 and thereafter, respectively.
F-22
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, 2004 2003
------------------------------ ---- ----
OTHER POST- OTHER POST-
PENSION RETIREMENT PENSION RETIREMENT
BENEFITS BENEFITS BENEFITS BENEFITS
--------- --------- --------- ---------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of period........ $ 13,402 $ 1,033 $ 12,772 $ 2,287
Service cost..................................... 151 9 139 25
Interest cost.................................... 848 61 874 141
Actuarial (gain) loss............................ 776 (25) 630 65
Plan amendments.................................. - - - (1,357)
Benefits paid.................................... (1,028) (78) (1,013) (128)
--------- --------- --------- ---------
Benefit obligation at end of period.............. 14,149 1,000 13,402 1,033
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
of period...................................... 7,757 - 9,520 -
Actual return on plan assets..................... 1,594 - (825) -
Employer contributions........................... 805 78 75 128
Benefits paid.................................... (1,028) (78) (1,013) (128)
--------- --------- --------- ---------
Fair value of plan assets at end of period....... 9,128 - 7,757 -
--------- --------- --------- ---------
Funded status.................................... (5,020) (1,000) (5,645) (1,033)
Unrecognized net prior service cost.............. 117 (1,164) 131 (1,319)
Unrecognized actuarial (gain) loss............... 4,384 394 4,885 457
--------- --------- --------- ---------
Net amount recognized............................ $ (519) $ (1,770) $ (629) $ (1,895)
========= ========= ========= =========
AMOUNT RECOGNIZED IN THE STATEMENT
OF FINANCIAL POSITION CONSISTS OF:
Accrued benefit liability........................ $ (4,981) $ (1,770) $ (5,514) $ (1,895)
Intangible asset................................. 117 - 131 -
Accumulated other comprehensive income........... 4,345 - 4,754 -
--------- --------- --------- ---------
Net amount recognized............................ $ (519) $ (1,770) $ (629) $ (1,895)
========= ========= ========= =========
F-23
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, 2004 2003
------------------------------ ---- ----
OTHER POST- OTHER POST-
PENSION RETIREMENT PENSION RETIREMENT
BENEFITS BENEFITS BENEFITS BENEFITS
--------- --------- --------- ----------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost..................................... $ 151 $ 9 $ 139 $ 25
Interest cost.................................... 848 61 874 141
Expected return on assets........................ (658) - (767) -
Amortization of prior service cost............... 14 (155) 14 (39)
Recognized net actuarial gain.................... 340 37 123 34
--------- --------- --------- ----------
Net periodic pension cost........................ $ 695 $ (48) $ 383 $ 161
========= ========= ========= ==========
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
$14,149,000, $14,109,000 and $9,128,000, respectively, as of the end of
the period, and $13,402,000, $13,271,000 and $7,757,000, respectively,
as of the beginning of the period.
ADDITIONAL INFORMATION
----------------------
2004 2003
---- ----
OTHER POST- OTHER POST-
PENSION RETIREMENT PENSION RETIREMENT
BENEFITS BENEFITS BENEFITS BENEFITS
-------- ----------- -------- -----------
Decrease (increase) in minimum liability
included in other comprehensive income......... $ (409) $ - $ 2,112 $ -
Weighted-average assumptions used
to determine benefit obligations at
March 31:
Discount rate........................... 6.00% 6.00% 6.50% 6.50%
Weighted-average assumptions used
to determine net periodic benefit cost
for the years ended March 31:
Discount rate........................... 6.50% - 7.25% -
Expected return on assets............... 8.50% - 8.50% -
F-24
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)
The expected long-term rate of return on assets assumption is
based on a study conducted by our actuaries which includes information
provided by our investment managers. The study includes the development
of a range of likely investment return results for plan assets in the
aggregate. The range of likely returns is based on compound average
annual returns over a 20-year time horizon. The study utilizes
historical market return data during the period 1926-2003.
Assumed health care cost trend rates at
December 31:
2004 2003
------------- -------------
Health care cost trend rate assumed for next year............. 7% 7.25%
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)................................... 5% 5%
Year that the rate reaches the ultimate trend rate............ 2010 2010
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....... $ 1 $ (1)
Effect on postretirement benefit obligation................... $ 9 $ (8)
Pension Plan Assets
The pension plan weighted-average asset allocations at March
31, 2004 and 2003, by asset category are as follows:
ASSET CATEGORY 2004 2003
-------------- ------------- -------------
Equity securities............................................. 60% 60%
Debt securities............................................... 39% 39%
Other......................................................... 1% 1%
------------- -------------
Total......................................................... 100% 100%
============= =============
F-25
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)
Manischewitz maintains target allocation percentages among
various asset classes based on an investment policy established for the
pension plan which is designed to achieve long term objectives of
return, while mitigating against downside risk and considering expected
cash flows. The weighted-average target asset allocation is as follows:
CATEGORY %
-------- -------------
Equity securities............................................. 60%
Debt securities............................................... 40%
-------------
Total......................................................... 100%
=============
Future Contributions
Manischewitz expects to contribute approximately $1.1 million
to its pension plan during the year ending March 31, 2005.
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
providing various services, including executive services 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 providing various services, including executive services 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 the years ended
March 31, 2004, 2003 and 2002, Millbrook paid $400,000 for management
fees and $1,145,000 for services provided by this entity pursuant to
its aforementioned arrangement. For the years ended March 31, 2004,
2003 and 2002, Manischewitz paid approximately $562,000, $540,000, and
$510,000, respectively, for services provided by this entity pursuant
to its aforementioned arrangement. The 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, 2004, 2003 and
2002, Millbrook reimbursed the aforementioned entity approximately
$81,000, $103,000 and $74,000, respectively, and Manischewitz
reimbursed the aforementioned entity approximately $7,000, $23,000 and
$5,000, 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.
F-26
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-27
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, 2004 2003 2002
- ------------------------------------ --------------------------- --------------------------- ---------------------------
(in thousands) HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
------------- ------------ ------------- ------------ ------------- ------------
REVENUES
Millbrook......................... $ 459,903 $ 459,903 $ 458,892 $ 458,892 $ 547,812 $ 547,812
Manischewitz...................... 59,431 59,431 62,117 62,117 60,514 60,514
------------- ------------ ------------- ------------ ------------- ------------
Total segment revenues.......... 519,334 519,334 521,009 521,009 608,326 608,326
Corporate items, principally
the elimination of
intercompany sales.............. (10,776) (10,776) (13,508) (13,508) (12,024) (12,024)
------------- ------------ ------------- ------------ ------------- ------------
$ 508,558 $ 508,558 $ 507,501 $ 507,501 $ 596,302 $ 596,302
============= ============ ============= ============ ============= ============
OPERATING INCOME
Millbrook......................... $ 13,036 $ 13,036 $ 10,375 $ 10,375 $ 11,365 $ 11,365
Manischewitz...................... 8,068 8,068 9,593 9,593 10,713 10,713
------------- ------------ ------------- ------------ ------------- ------------
Total segment operating
income........................ 21,104 21,104 19,968 19,968 22,078 22,078
Corporate items and
eliminations.................... (7,976) (7,791) (6,926) (6,819) (12,153) (12,087)
------------- ------------ ------------- ------------ ------------- ------------
$ 13,128 $ 13,313 $ 13,042 $ 13,149 $ 9,925 $ 9,991
============= ============ ============= ============ ============= ============
IDENTIFIABLE ASSETS
Millbrook......................... $ 82,924 $ 82,924 $ 92,837 $ 92,837 $ 103,600 $ 103,600
Manischewitz...................... 31,211 31,211 38,391 38,391 41,738 41,738
------------- ------------ ------------- ------------ ------------- ------------
Total segment assets............ 114,135 114,135 131,228 131,228 145,338 145,338
Corporate items, principally
intangibles not allocated
to segments..................... 94,077 98,553 90,899 95,308 116,766 119,235
------------- ------------ ------------- ------------ ------------- ------------
$ 208,212 $ 212,688 $ 222,127 $ 226,536 $ 262,104 $ 264,573
============= ============ ============= ============ ============= ============
F-28
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SIGNIFICANT CUSTOMERS
For the years ended March 31, 2004 and 2003, combined revenues
from the Companies' two largest customers, Shaw's Supermarkets and
Royal Ahold N.V., together represented approximately 36% and 34%,
respectively, of total revenues.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Fiscal 2004
-------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED June 30, September 30, December 31, March 31,
- -------------------------- ---------- ------------- ------------ --------------
(in thousands)
HOLDINGS
- --------
Revenues $ 114,906 $ 116,312 $ 130,222 $ 147,118
Gross profit 26,775 27,036 30,362 39,293
Operating (loss) income 417 (269) 2,528 10,452
Net (loss) income (3,825) (4,449) (2,738) 6,248
ENTERPRISES
- -----------
Revenues $ 114,906 $ 116,312 $ 130,222 $ 147,118
Gross profit 26,775 27,036 30,362 39,293
Operating (loss) income 466 (221) 2,519 10,549
Net (loss) income (3,177) (3,795) (1,672) 6,006
Fiscal 2003
----------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED June 30, September 30, December 31, March 31,
- -------------------------- ---------- ------------ ------------- ----------
(in thousands)
HOLDINGS
- --------
Revenues $ 131,222 $ 119,304 $ 120,515 $ 136,460
Gross profit 28,898 26,221 29,134 38,931
Operating income (loss) 577 (1,294) 1,776 11,983
Net income (loss) (32,423) (5,558) (2,597) 7,211
ENTERPRISES
- -----------
Revenues $ 131,222 $ 119,304 $ 120,515 $ 136,460
Gross profit 28,898 26,221 29,134 38,931
Operating income (loss) 584 (1,281) 1,807 12,039
Net income (loss) (30,817) (5,001) (2,019) 7,953
F-29
R.A.B. HOLDINGS, INC. AND SUBSIDIARIES
R.A.B. ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
18. SUBSEQUENT EVENTS
Sale of Land
In May, 2004, Manischewitz sold a parcel of vacant land
adjacent to its headquarters in Jersey City, NJ for proceeds of
approximately $1.5 million. The proceeds from the sale were used to
reduce outstanding borrowings under the Credit Agreement. In the first
quarter of fiscal 2005, Manischewitz recorded a gain of approximately
$800,000, net of income taxes of approximately $600,000.
Restructuring of Debt
Subsequent to March 31, 2004, the Companies reached an
agreement in principle to restructure its indebtedness outstanding
under the Senior Notes issued by Holdings and Enterprises. As of June
29, 2004, holders of 98% of the outstanding 10.5% Senior Notes of
Enterprises, and holders of 95% of the combined outstanding 13% Senior
Notes and 6% Senior Notes of Holdings have agreed in principle to the
restructuring. Pursuant to the agreement in principle with holders of
Senior Notes, each of Holdings and Enterprises did not pay the
semi-annual interest payment due May 1, 2004 on its respective Senior
Notes. Concurrently, the requisite percentage of noteholders under each
indenture for the Senior Notes notified the trustee of the applicable
indenture not to pursue any action with respect to this non-payment of
interest. In addition, the Company entered into an agreement with its
senior lenders pursuant to which such lenders waived any default,
arising under the credit agreement as a result of this non-payment of
interest, for a period through August 15, 2004.
Pursuant to the agreement in principle, holders of the 10.5%
Senior Notes issued by Enterprises, the 13% Senior Notes and 6% Senior
Notes issued by Holdings, will exchange their Senior Notes for a new
issue of 9% Senior Notes of Holdings due May 2011 (the "9% Senior
Notes"), shares of a new series of Series C Preferred Stock of Holdings
due in 2013 (the "Series C Preferred") and shares of common stock of
Holdings. Holdings current common stockholders will retain their
shares, which will represent 70% of the fully diluted shares
outstanding immediately after the restructuring.
The exchange ratios in the restructuring are as follows:
- For each $1,000 principal amount of 10.5% Senior Notes of
Enterprises exchanged, holders will receive approximately
$610.00 in principal amount of 9% Senior Notes, approximately
$365.00 in liquidation value of Series C Preferred and shares
of common stock representing in the aggregate 27.5% of the
fully diluted common ownership of Holdings.
- For each $1,000 principal amount of 13% Senior Notes and 6%
Senior Notes of Holdings exchanged, holders will receive
approximately $55.00 in liquidation value of Series C
Preferred, and shares of common stock representing in the
aggregate 2.5% of the fully diluted common ownership of
Holdings.
The Companies expect to complete the pending restructuring
during the second quarter of fiscal 2005.
F-30
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, 2004 2003
- ------------------------------------------------------------- ------------------------- -------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
-------- ----------- -------- -----------
ASSETS
Current assets:
Cash $ 5 $ 2 $ 8 $ 1
Other current assets 6,141 1,991 3,330 32
-------- -------- -------- --------
Total current assets 6,146 1,993 3,338 33
Noncurrent assets:
Intercompany notes receivable -- 85,197 -- 79,686
Other assets 936 654 1,135 948
-------- -------- -------- --------
Total noncurrent assets 936 85,851 1,135 80,634
Investments in subsidiaries -- 359 369 3,940
-------- -------- -------- --------
Total assets $ 7,082 $ 88,203 $ 4,842 $ 84,607
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accrued interest $ 769 $ 3,753 $ 731 $ 3,498
Other current liabilities 10,364 246 7,495 400
-------- -------- -------- --------
Total current liabilities 11,133 3,999 8,226 3,898
Noncurrent liabilities:
Losses in excess of investments in subsidiaries 1,960 -- -- --
Long-term debt 26,815 86,164 24,987 80,340
-------- -------- -------- --------
Total noncurrent liabilities 28,775 86,164 24,987 80,340
Stockholders' (deficit) 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 --
Notes receivable from stock sales (96) -- (92) --
Additional paid-in capital 2,622 39,482 2,622 39,482
Retained earnings (deficit) (44,328) (37,574) (39,564) (34,936)
Accumulated other comprehensive loss (3,868) (3,868) (4,177) (4,177)
-------- -------- -------- --------
(32,825) (1,960) (28,366) 369
Less common stock in treasury - 1,000 shares and 4,600 shares 1 -- 5 --
-------- -------- -------- --------
Total stockholders' (deficit) equity (32,826) (1,960) (28,371) 369
-------- -------- -------- --------
Total liabilities and stockholders' (deficit) equity $ 7,082 $ 88,203 $ 4,842 $ 84,607
======== ======== ======== ========
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, 2004 2003
- ------------------------------------------------------------------- ------------------------- --------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
-------- ----------- -------- ------------
Equity in net loss of subsidiaries before cumulative
effect of change in accounting principle $ (2,638) $ (613) $ (5,654) $ (6,067)
General and administrative expenses 646 103 607 132
-------- -------- -------- --------
Operating loss (3,284) (716) (6,261) (6,199)
Interest expense, net of Holdings' interest
income of $5 and $7 and Enterprises'
intercompany interest income of $9,265 and $8,761 2,285 696 2,276 171
-------- -------- -------- --------
Loss before (benefit) provision for income taxes (5,569) (1,412) (8,537) (6,370)
(Benefit) provision for income taxes (805) 1,226 600 (716)
-------- -------- -------- --------
Loss before cumulative effect of change in accounting principle (4,764) (2,638) (9,137) (5,654)
Cumulative effect of change in accounting principle -- -- (24,230) (24,230)
-------- -------- -------- --------
Net loss $ (4,764) $ (2,638) $(33,367) $(29,884)
======== ======== ======== ========
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, 2004 2003
- ------------------------------------------------------------- ------------------------- ------------------------
HOLDINGS ENTERPRISES HOLDINGS ENTERPRISES
-------- ----------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,764) $ (2,638) $(33,367) $(29,884)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Equity in net loss of subsidiaries 2,638 613 5,654 6,067
Amortization 457 1,271 398 454
Cumulative effect of change in accounting principle -- -- 24,230 24,230
-------- -------- -------- --------
Net cash (used in) provided by operating activities (1,669) (754) (3,085) 867
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repurchase) and proceeds from issuance
of common stock -- -- (5) --
Distributions from subsidiaries -- 1,943 -- 3,880
Other 1,666 (1,188) 3,028 (4,747)
-------- -------- -------- --------
Net cash provided by (used in) financing activities 1,666 755 3,023 (867)
-------- -------- -------- --------
Net (decrease) increase in cash (3) 1 (62) --
Cash, beginning of year 8 1 70 1
-------- -------- -------- --------
Cash, end of year $ 5 $ 2 $ 8 $ 1
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 260 $ 5,654 $ 255 $ 8,470
Income taxes $ 1 $ -- $ -- $ --
See notes to parent only financial statement schedules
S-3
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, 2004, 2003 AND 2002
(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, 2004
Allowance for doubtful accounts $ 1,736 846 (782) (140) $ 1,660
Year ended March 31, 2003
Allowance for doubtful accounts $ 3,421 (536) (265) (884) $ 1,736
Year ended March 31, 2002
Allowance for doubtful accounts $ 4,375 789 -- (1,743) $ 3,421
(1) For the years ended March 31, 2004 and 2003, the amounts were
reclassified to other current liabilities.
(2) Amounts written off.
S-5