SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000
Commission File Number: 333-76057
RUSSELL-STANLEY HOLDINGS, INC.
(Exact name of registrant as specified in charter)
Delaware 3412 22-3525626
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
685 Route 202/206 Bridgewater, New Jersey 08807
(Address of principal executive offices) (Zip code)
(908) 203-9500
(Registrant's telephone number, including area code)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report:
There is no established market for our common stock. There
were 2,200,764 shares of common stock outstanding as of March 31, 2000.
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS 3
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 17
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 17
ITEM 2: CHANGES IN SECURITIES 17
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 18
ITEM 4: SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 18
ITEM 5: OTHER INFORMATION 18
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURES 21
2
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)
Three Months Ended
March 31,
----------------------
(Unaudited)
2000 1999
-------- --------
NET SALES $ 72,378 $ 70,938
COST OF SALES 57,934 52,953
-------- --------
Gross Profit 14,444 17,985
OPERATING EXPENSES
Selling 5,652 5,747
General and administrative 6,493 5,945
Amortization of intangibles 741 876
-------- --------
Total expenses 12,886 12,568
INCOME FROM OPERATIONS 1,558 5,417
INTEREST EXPENSE 5,605 4,596
OTHER EXPENSE - net 59 62
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM (4,106) 759
INCOME TAX (BENEFIT) PROVISION (1,233) 389
-------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (2,873) 370
EXTRAORDINARY ITEM, net of tax -- 763
-------- --------
NET LOSS (2,873) (393)
OTHER COMPREHENSIVE INCOME 51 327
-------- --------
COMPREHENSIVE LOSS $ (2,822) $ (66)
======== ========
See notes to consolidated financial statements.
3
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, December 31,
2000 1999
-------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 1,044 $ 704
Accounts receivable - net 31,034 30,135
Inventories 25,134 24,595
Prepaid taxes and income taxes receivable - net 1,760 2,395
Prepaid expenses and other current assets 2,588 1,009
Deferred tax benefit - net 1,246 1,247
-------- --------
Total current assets 62,806 60,085
-------- --------
PROPERTY, PLANT AND EQUIPMENT - net 92,407 94,573
-------- --------
OTHER ASSETS:
Goodwill and other intangibles - net 105,678 106,297
Deferred financing costs - net 6,620 6,892
Other noncurrent assets 169 156
-------- --------
Total other assets 112,467 113,345
-------- --------
TOTAL ASSETS $267,680 $268,003
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 35,666 $ 45,607
-------- --------
Total current liabilities 35,666 45,607
LONG-TERM DEBT 204,841 192,769
DEFERRED TAXES - net 591 481
OTHER NON CURRENT LIABILITIES 2,753 2,508
-------- --------
Total liabilities 243,851 241,365
-------- --------
STOCKHOLDERS' EQUITY 23,829 26,638
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $267,680 $268,003
======== ========
See notes to consolidated financial statements.
4
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Three Months Ended
March 31,
2000 1999
-------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,873) $ (393)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 8,097 6,964
Extraordinary item -- 1,271
Changes in operating assets and liabilities:
Increase in accounts receivable (899) (6,235)
Increase in inventories (539) (787)
Increase in prepaid taxes and other
current assets (944) (237)
Decrease in accounts payable and
accrued expenses (9,941) (8,985)
Increase in deferred income taxes 111 562
Increase (decrease) in other - net 429 (120)
-------- ---------
Net cash used in operating activities (6,559) (7,960)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,933) (7,367)
-------- ---------
Net cash used in investing activities (4,933) (7,367)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) from long-term borrowings - net -- 44,099
Proceeds (repayments) from revolving credit loans - net 12,044 (22,413)
Cash paid for financing costs (240) (6,263)
Other 28 33
-------- ---------
Net cash provided by financing activities 11,832 15,456
-------- ---------
NET CHANGE IN CASH 340 129
CASH, BEGINNING OF PERIOD 704 1,631
-------- ---------
CASH, END OF PERIOD $ 1,044 $ 1,760
======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 9,490 $ 5,308
======== =========
Income taxes $ (1,976) $ 1,004
======== =========
Non-Cash Financing Activity:
Term Loans Exchanged for Senior Subordinated Notes $ -- $ 150,000
======== =========
See notes to consolidated financial statements.
5
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements and related notes thereto as
of March 31, 2000 and for the three month periods ended March 31, 2000 and
1999 are unaudited.
The information furnished herein reflects all adjustments which are, in
the opinion of management, necessary for a fair presentation of the consolidated
balance sheets as of March 31, 2000 and December 31, 1999, the consolidated
statements of operations and comprehensive income and the statements of cash
flows for the three month periods ended March 31, 2000 and 1999. The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make certain estimates and assumptions that
affect the amounts reported on the financial statements and the accompanying
notes. Actual amounts could differ from those estimates.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in Russell-Stanley Holdings,
Inc.'s (the "Company's") Annual Report on Form 10-K, File No. 333-76057.
NOTE 2 - INVENTORIES
Inventories consist of the following:
March 31, December 31,
2000 1999
--------- ------------
(Unaudited)
(In Thousands)
Raw materials $14,338 $14,381
Work-in-process 2,407 2,406
Finished goods 8,389 7,808
------- -------
Total $25,134 $24,595
======= =======
NOTE 3 - LONG-TERM DEBT
Long-term debt consists of the following:
March 31, December 31,
2000 1999
--------- ------------
(Unaudited)
(In Thousands)
Senior subordinated notes $148,997 $148,966
Revolving credit loans and term loan 55,844 43,803
-------- --------
Long-term debt $204,841 $192,769
======== ========
6
NOTE 3 - LONG-TERM DEBT (CONTINUED)
The Notes, revolving credit loans, and term loan have the following provisions
(dollars in thousands):
Interest Interest
Rate at Balance at Rate at Balance at
Domestic Eurodollar March 31, March 31, December 31, December 31,
Interest Rate Interest Rate 2000 2000 1999 1999
------------------- ------------------- ----------- ----------- ------------ ------------
(Unaudited) (Unaudited)
Revolving Prime plus margin LIBOR plus margin
credit loan not less than 1.25% not less than 2.75% 8.75-10.25% $ 21,772 8.31-9.75% $ 10,141
Revolving Canadian prime
credit loan- plus margin not
Foreign less than 1.25% -- 8.75 9,072 8.25 8,662
Term Loan C Fixed rate Fixed rate 9.48 25,000 9.48 25,000
Senior
Subordinated
Notes Fixed rate -- 10.88 148,997 10.88 148,966
-------- --------
Total $204,841 $192,769
======== ========
MATURITIES OF LONG-TERM DEBT--As of March 31, 2000, maturities of
long-term debt are as follows:
(In Thousands)
2004 $ 30,844
2005 and thereafter 173,997
--------
Total $204,841
========
NOTE 4 - STOCKHOLDERS' EQUITY
March 31, December 31,
2000 1999
--------- ------------
(Unaudited)
(In Thousands)
Common Stock, $.01 par value,
at March 31, 2000 and December 31, 1999
3,000,000 shares were authorized; 2,201,000
shares were issued and outstanding at
March 31, 2000 and December 31, 1999 $ 23 $ 23
Accumulated paid in capital 70,179 70,179
Accumulated deficit (40,351) (37,478)
Accumulated other comprehensive loss (989) (1,040)
Less: Notes receivable for shares issued to management -- (13)
Treasury stock (5,033) (5,033)
-------- --------
TOTAL STOCKHOLDERS' EQUITY $ 23,829 $ 26,638
======== ========
7
NOTE 5 - CONTINGENCY
In January 1999, the U.S. Environmental Protection Agency (the "EPA")
confirmed the presence of contaminants, including dioxin, in and along the
Woonasquatucket River in Rhode Island. Prior to 1970, New England Container Co.,
Inc. ("NEC") operated a facility in North Providence, Rhode Island, along the
Woonasquatucket River at a site where contaminants have been found. NEC and the
current owners of the property have been formally identified by the EPA as
potentially responsible parties, with the site added to the National Priority
Superfund Site list in February 2000. Although NEC no longer operates the
facility and did not operate the facility at the time the Company acquired the
outstanding capital stock of NEC in July 1998, NEC could incur liability under
federal and state environmental laws and/or as a result of civil litigation. The
Company believes that any resulting liability is subject to a contractual
indemnity from Vincent J. Buonanno, one of its directors and the former owner of
NEC. This indemnity is subject to a $2.0 million limit. The Company is currently
unable to estimate the likelihood or extent of any liability; however, this
matter may result in liability to NEC that could have a material adverse effect
on the Company's financial condition and results of operations.
NOTE 6 - GUARANTOR SUBSIDIARIES
The Company's payment obligations under the Notes are fully,
unconditionally, jointly and severally guaranteed by its current domestic
subsidiaries, principally: Russell-Stanley Corp. ("RSC"), Container Management
Services ("CMS") and NEC (collectively, the "Guarantor Subsidiaries"). Each of
the Guarantor Subsidiaries is a direct or indirect wholly-owned subsidiary of
the Company. The Company's payment obligations under the Notes are not
guaranteed by the remaining subsidiary, Hunter (the "Non-Guarantor Subsidiary").
The obligations of each Guarantor Subsidiary under their guarantee of the Notes
are subordinated to each subsidiary's obligations under their guarantee of the
Senior Credit Facility.
Presented on the next page is condensed combining financial information
for the Parent Company, the Guarantor Subsidiaries and the Non-Guarantor
Subsidiary. In the Company's opinion, separate financial statements and other
disclosures concerning each of the Guarantor Subsidiaries would not provide
additional information that is material to investors. Therefore, the Guarantor
Subsidiaries are combined in the presentation on the next page.
Investments in subsidiaries are accounted for by the Company using the
equity method. Earnings of subsidiaries are, therefore, reflected in the
Company's investments in and advances to/from subsidiaries accounts and earnings
(losses). The elimination entries eliminate investments in subsidiaries, related
stockholders' equity and other intercompany balances and transactions.
8
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
NET SALES $ -- $ 63,561 $9,133 $ (316) $ 72,378
COST OF SALES -- 51,159 7,091 (316) 57,934
-------- -------- ------ ------- --------
GROSS PROFIT -- 12,402 2,042 -- 14,444
TOTAL EXPENSES -- 11,464 1,422 -- 12,886
-------- -------- ------ ------- --------
INCOME FROM OPERATIONS -- 938 620 -- 1,558
EQUITY LOSS (2,506) -- -- 2,506 --
INTEREST EXPENSE 536 4,731 338 -- 5,605
OTHER EXPENSE- net -- 59 -- -- 59
-------- -------- ------ ------- --------
INCOME (LOSS) BEFORE
INCOME TAXES (3,042) (3,852) 282 2,506 (4,106)
PROVISION (BENEFIT) FOR
INCOME TAXES (169) (1,212) 148 -- (1,233)
-------- -------- ------ ------- --------
NET INCOME (LOSS) $(2,873) $ (2,640) $ 134 $ 2,506 $ (2,873)
======= ======== ====== ======= ========
9
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
-------- ------------ ---------- ------------ ------------
NET SALES $-- $62,099 $ 8,839 $-- $ 70,938
COST OF SALES -- 46,410 6,543 -- 52,953
----- ------- ------- ----- --------
GROSS PROFIT -- 15,689 2,296 -- 17,985
TOTAL EXPENSES -- 11,267 1,301 -- 12,568
----- ------- ------- ----- --------
INCOME FROM OPERATIONS -- 4,422 995 -- 5,417
EQUITY INCOME 755 -- -- (755) --
INTEREST EXPENSE 490 3,790 316 -- 4,596
OTHER (INCOME) EXPENSE - net -- 105 (43) -- 62
----- ------- ------- ----- --------
INCOME (LOSS) BEFORE INCOME
TAXES 265 527 722 (755) 759
PROVISION (BENEFIT) FOR INCOME
TAXES (105) 165 329 -- 389
----- ------- ------- ----- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM 370 362 393 (755) 370
EXTRAORDINARY ITEM 763 -- -- -- 763
----- ------- ------- ----- --------
NET INCOME (LOSS) $(393) $ 362 $ 393 $(755) $ (393)
===== ======= ======= ===== ========
10
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor Eliminations/
Company Subsidiaries Subsidiary Adjustments Consolidated
------- ------------ ------------- ------------- ------------
ASSETS
CURRENT ASSETS:
Cash $ -- $ 1,044 $ -- $ -- $ 1,044
Accounts receivable - net -- 27,145 3,889 -- 31,034
Inventories -- 22,281 2,853 -- 25,134
Prepaid and other current
assets - net -- 255 327 5,012 5,594
-------- --------- ------- -------- --------
Total current assets -- 50,725 7,069 5,012 62,806
-------- --------- ------- -------- --------
PROPERTY, PLANT AND
EQUIPMENT - net -- 85,985 6,422 -- 92,407
-------- --------- ------- -------- --------
OTHER ASSETS:
Goodwill and other
intangibles - net -- 87,766 17,912 -- 105,678
Deferred financing costs -
net -- 6,620 -- -- 6,620
Other noncurrent assets -- 169 -- -- 169
Intercompany advances 18,785 30,348 114 (49,247) --
Investment in subsidiaries 29,985 -- -- (29,985) --
-------- --------- ------- -------- --------
TOTAL ASSETS $ 48,770 $ 261,613 $31,517 $(74,220) $267,680
======== ========= ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 3,494 $ 23,307 $ 3,966 $ 4,899 $ 35,666
-------- --------- ------- -------- --------
Total current liabilities 3,494 23,307 3,966 4,899 35,666
-------- --------- ------- -------- --------
LONG-TERM DEBT 19,997 175,772 9,072 -- 204,841
DEFERRED TAXES - net (7,065) 6,528 1,128 -- 591
OTHER NONCURRENT
LIABILITIES -- 1,850 903 -- 2,753
-------- --------- ------- -------- --------
Total liabilities 16,426 207,457 15,069 4,899 243,851
INTERCOMPANY ADVANCES -- 41,283 7,336 (48,619) --
TOTAL STOCKHOLDERS' EQUITY 32,344 12,873 9,112 (30,500) 23,829
-------- --------- ------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 48,770 $ 261,613 $31,517 $(74,220) $267,680
======== ========= ======= ======== ========
11
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
Parent Guarantor Non-Guarantor Eliminations/
Company Subsidiaries Subsidiary Adjustments Consolidated
------- ------------ ------------- ------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 704 $ -- $ -- $ 704
Accounts receivable - net -- 25,594 4,541 -- 30,135
Inventories -- 20,497 4,098 -- 24,595
Prepaid and other current assets - net -- 884 292 3,475 4,651
-------- -------- ------- -------- --------
Total current assets -- 47,679 8,931 3,475 60,085
-------- -------- ------- -------- --------
PROPERTY, PLANT AND
EQUPIMENT - net -- 88,301 6,272 -- 94,573
-------- -------- ------- -------- --------
OTHER ASSETS:
Goodwill and other intangibles - net -- 88,328 17,969 -- 106,297
Deferred financing costs - net -- 6,892 -- -- 6,892
Other noncurrent assets -- 156 -- -- 156
Intercompany advances 18,655 27,150 131 (45,936) --
Investment in subsidiaries 31,544 -- -- (31,544) --
-------- -------- ------- -------- --------
TOTAL ASSETS $ 50,199 $258,506 $33,303 $(74,005) $268,003
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses $ (3,395) $ 34,429 $ 6,277 $ 8,296 $ 45,607
-------- -------- ------- -------- --------
Total current liabilities (3,395) 34,429 6,277 8,296 45,607
-------- -------- ------- -------- --------
LONG-TERM DEBT 19,997 164,110 8,662 -- 192,769
DEFERRED TAXES - net (749) 4,678 1,123 (4,571) 481
OTHER NON CURRENT
LIABILITIES -- 2,030 1,020 (542) 2,508
-------- -------- ------- -------- --------
Total liabilities 15,853 205,247 17,082 3,183 241,365
INTERCOMPANY ADVANCES -- 38,655 7,281 (45,936) --
TOTAL STOCKHOLDERS' EQUITY 34,346 14,604 8,940 (31,252) 26,638
-------- -------- ------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 50,199 $258,506 $33,303 $(74,005) $268,003
======== ======== ======= ======== ========
12
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor Eliminations/
Company Subsidiaries Subsidiary Adjustments Consolidated
------- ------------ ------------- ------------- ------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net (loss) income $(2,873) $ (2,640) $ 134 $ 2,506 $ (2,873)
Adjustments to reconcile net
(loss) income to net cash
used in operating activities:
Equity loss 2,506 -- -- (2,506) --
Depreciation and amortization 237 7,419 441 -- 8,097
Changes in operating assets
and liabilities 130 (11,277) (636) -- (11,783)
------- -------- ----- ------- --------
Net cash used in
operating activities -- (6,498) (61) -- (6,559)
------- -------- ----- ------- --------
CASH FLOWS USED IN
INVESTING ACTIVITIES -- (4,482) (451) -- (4,933)
------- -------- ----- ------- --------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES -- 11,462 370 -- 11,832
------- -------- ----- ------- --------
NET CHANGE IN CASH -- 482 (142) -- 340
CASH, BEGINNING OF PERIOD -- 1,022 (318) -- 704
------- -------- ----- ------- --------
CASH, END OF PERIOD $ -- $ 1,504 $(460) $ -- $ 1,044
======= ======== ===== ======= ========
13
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ------------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income $ (393) $ 363 $ 393 $ (756) $ (393)
Adjustments to reconcile net
(loss) income to net cash
used in operating activities:
Equity income (756) -- -- 756 --
Depreciation and amortization 23 6,608 333 -- 6,964
Other noncash items -- (10) 10 -- --
Extraordinary item 1,271 -- 1,271
Changes in operating assets
and liabilities (612) (14,047) (1,143) -- (15,802)
------- -------- ------- ----- --------
Net cash used in
operating activities (467) (7,086) (407) -- (7,960)
------- -------- ------- ----- --------
CASH FLOWS USED IN
INVESTING ACTIVITIES -- (7,082) (285) -- (7,367)
------- -------- ------- ----- --------
CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES 467 14,683 306 -- 15,456
------- -------- ------- ----- --------
NET CHANGE IN CASH -- 515 (386) -- 129
CASH, BEGINNING OF PERIOD -- 1,245 386 -- 1,631
------- -------- ------- ----- --------
CASH, END OF PERIOD $ -- $ 1,760 $ -- $ -- $ 1,760
======= ======== ======= ===== ========
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 2000 COMPARED TO THREE MONTH PERIOD ENDED
MARCH 31, 1999
NET SALES
Net sales increased 2.1 % to $72.4 million in 2000 from $70.9 million
in 1999. Our container manufacturing division's net sales increased 2.0% to
$57.1 million in 2000, from $56.0 million in 1999, due primarily to unit volume
sales growth in steel containers and higher average selling prices. Net sales in
our services division increased 2.7% to $15.3 million in 2000 from $14.9 million
in 1999 due to higher steel reconditioning volumes, which were partially offset
by lower average selling prices in plastic services.
GROSS PROFIT
Gross profit decreased $3.5 million to $14.5 million in 2000 from $18.0
million in 1999, primarily due to higher raw material prices and increased
depreciation expense in services. Gross profit as a percentage of net sales
decreased to 20.0% in 2000 from 25.4% in 1999 as a result of these factors.
OPERATING EXPENSES
Operating expenses as a percentage of net sales remained constant at
17.8% in both periods.
INCOME FROM OPERATIONS
Income from operations decreased by $3.8 million to $1.6 million in
2000 from $5.4 million in 1999 as a result of the factors described above.
OTHER EXPENSE, NET
Other expense, net, remained flat at $0.1 million in both periods.
INTEREST EXPENSE
Interest expense was $5.6 million in 2000 compared with $4.6 million in
1999. The increase in interest expense is the result of increased debt levels
and a higher weighted average interest rate.
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
In 2000, the loss before income taxes was $4.1 million versus income
before income taxes and extraordinary item of $0.7 million in 1999, as a result
of the factors described above.
INCOME TAX PROVISION (BENEFIT)
The effective tax rate for the 2000 loss was 30% compared to 51.3% on
1999 income. The tax benefit in 2000 is lower and the tax provision in 1999 is
higher than those calculated at the statutory federal income tax rate due to
the non-deductible portion of goodwill associated with our acquisitions and
higher foreign income taxes.
15
EXTRAORDINARY ITEM
As a result of the February 1999 refinancing of our revolving credit
loans, term loan and the senior subordinated notes, we incurred an extraordinary
charge of $0.8 million, which is net of tax benefits of $0.5 million, relating
to the write-off of unamortized deferred financing costs. No such item occurred
in 2000.
NET LOSS
In 2000, the net loss was $2.9 million versus $0.4 million in 1999, as
a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Our principal uses of cash are for capital expenditures, interest
expense, working capital, and acquisitions. We utilize funds generated from
operations and borrowings to meet these requirements. For the three months ended
March 31, 2000, net cash used in operating activities was $6.6 million compared
to $8.0 million for the three months ended March 31, 1999. This change is due to
improved trade working capital management offset partially by a higher net loss
during the first three months of 2000.
For the three months ended March 31, 2000 and 1999, we made capital
expenditures of $4.9 million and $7.4 million, respectively. We currently
have no capital commitments outside the ordinary course of business. Our
principal working capital requirements are to finance accounts receivable and
inventories. As of March 31, 2000, we had net working capital of $27.1
million, including $1.0 million of cash, $31.0 million of accounts
receivable, $25.1 million of inventories, $5.7 million of other current
assets and $35.7 million of accounts payable and accrued expenses.
For the three months ended March 31, 2000, we had net borrowings on the
revolving line of credit of $12.0 million due to working capital and capital
expenditure requirements. For the three months ended March 31, 1999, we
repaid $22.0 million in connection with the February 10, 1999 refinancing of our
revolving credit loans by amending our senior credit facility to provide for
a $75.0 million revolving credit line. The available revolving credit line is
approximately $44.0 million as of March 31, 2000.
Based upon the current level of operations and revenue growth, our
management believes that cash flow from operations and available cash, together
with available borrowings under our senior credit facility, will be adequate to
meet future liquidity needs for the foreseeable future.
EFFECT OF INFLATION
Inflation generally affects our business by increasing the interest
expense of floating rate indebtedness and by increasing the cost of raw
materials, labor, and equipment. We do not believe that inflation has had any
material effect on our business during the periods discussed herein.
16
FORWARD LOOKING STATEMENTS
This report includes forward-looking statements. All statements
other than statements of historical facts included in this report may
constitute forward-looking statements. We have based these forward-looking
statements on our current expectations and projections about future events.
Although we believe that our assumptions made in connection with the
forward-looking statements are reasonable, we cannot assure you that our
assumptions and expectations will prove to have been correct. We undertake no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. A
description of some factors that could cause actual results to differ
materially from expectations expressed in the company's forward-looking
statements set forth in the Company's Annual Report on Form 10-K (File No.
333-76057) filed with the Securities and Exchange Commission under the
caption "Forward Looking Statements" is incorporated herein by reference.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTEREST RATE RISK AND FOREIGN CURRENCY EXCHANGE RATE RISK
GENERAL
Our results of operations and financial condition are affected by
changes in interest rates and foreign currency exchange rates as measured
against the U.S. dollar. We manage this exposure through internal policies and
procedures and the use of derivative financial instruments. In accordance with
our internal policies, we only use derivative financial instruments for risk
management and not for speculative or trading purposes.
INTEREST RATE RISK
The revolving indebtedness under our senior credit facility bears
interest at a floating rate. Our primary exposure to interest rate risk is as a
result of changes in interest expense related to this indebtedness due to
changes in market interest rates. We maintain an interest rate collar in an
aggregate notional principal amount of $22.5 million to limit our exposure to
interest rate risk. Under this collar, if the actual LIBOR rate at the specified
measurement date is greater than a ceiling rate stated in the collar agreement,
the other party to the collar pays us the differential interest expense. If the
actual LIBOR rate is lower than the floor stated in the collar agreement, we pay
the other party to the collar the differential interest expense. The collar
terminates on November 30, 2000. A 10% increase or decrease in interest rates at
March 31, 2000 would have increased or decreased interest expense by
approximately $0.5 million.
FOREIGN CURRENCY EXCHANGE RATE RISK
We have operations in Canada and sales denominated in Canadian dollars.
Our primary exposure to foreign currency exchange rate risk is a result of
changes in the exchange rate between the U.S. dollar and the Canadian dollar. We
currently do not maintain any derivative financial instruments to limit our
exposure to this risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
17
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
- ----------- ----------------------
*3.1 Certificate of Incorporation of Russell-Stanley Holdings, Inc.
*3.2 By-Laws of Russell-Stanley Holdings, Inc.
*3.3 Amended and Restated Certificate of Incorporation of
Russell-Stanley Corp.
*3.4 By-Laws of Russell-Stanley Corp.
*3.5 Articles of Incorporation of Container Management Services, Inc.
*3.6 By-Laws of Container Management Services, Inc.
*3.7 Restated Articles of Incorporation of New England Container Co., Inc.
*3.8 Amended and Restated By-Laws of New England Container Co., Inc.
*3.9 Articles of Incorporation of Russell-Stanley, Inc.
*3.10 By-Laws of Russell-Stanley, Inc.
*3.11 Certificate of Incorporation of RSLPCO, Inc.
*3.12 By-Laws of RSLPCO, Inc.
*3.13 Certificate of Limited Partnership of Russell-Stanley, L.P.
*3.14 Agreement of Limited Partnership of Russell-Stanley, L.P.
*4.1 Indenture, dated as of February 10, 1999, by and among
Russell-Stanley Holdings, Inc., the guarantors named therein
and The Bank of New York, as the Trustee.
*4.2 Form of 10 7/8% Senior Subordinated Notes due 2009 (included
as part of the Indenture filed as Exhibit 4.1 hereto)
18
Exhibit No. Description of Exhibit
- ----------- ----------------------
*10.1 Fifth Amended and Restated Revolving Credit Agreement and Term
Loan Agreement, dated as of February 10, 1999, among
Russell-Stanley Holdings, Inc. and its subsidiaries, as
borrowers, the lenders listed therein and BankBoston, N.A., as
administrative agent, and Goldman Sachs Credit Partners, L.P.,
as syndication agent.
*10.2 Stock Purchase Agreement dated as of July 21, 1998, among
Vincent J. Buonanno, New England Container Co., Inc. and
Russell-Stanley Holdings, Inc.
*10.3 Stock Purchase Agreement dated as of July 1, 1997, among Mark
E. Daniels, Robert E. Daniels, Mark E. Daniels Irrevocable
Family Trust, R.E. Daniels Irrevocable Family Trust, Container
Management Services, Inc. and Russell-Stanley, Corp.
*10.4 Share Purchase Agreement dated as of October 24, 1997, among
Michael W. Hunter, John D. Hunter, Michael W. Hunter Holdings,
Inc., John D. Hunter Holdings, Inc., Hunter Holdings, Inc.,
373062 Ontario Limited, Hunter Drums Limited, Russell-Stanley
Holdings, Inc. and HDL Acquisition, Inc.
*10.5 Purchase and Sale Agreement dated as of October 23, 1997,
among Smurfit Packaging Corporation, Russell-Stanley Holdings,
Inc. and Russell-Stanley Corp.
*10.6 Vestar Management Agreement dated as of July 23, 1997, among
Russell-Stanley Holdings, Inc., Russell-Stanley Corp.,
Container Management Services, Inc. and Vestar Capital
Partners
+*10.7 Know How and Patent Licensing Agreement between Mauser-Werke
GmbH and Russell-Stanley Corp., dated June 26, 1995
+*10.8 Licensing Agreement between Mauser-Werke GmbH and
Russell-Stanley Corp., dated June 26, 1995
+*10.9 Know How and Patent Licensing Agreement between Mauser-Werke
GmbH and Russell-Stanley Corp., dated June 26, 1995
+*10.10 Know How and Patent Licensing Agreement between Mauser-Werke
GmbH and Hunter Drums Limited, dated July 31, 1996
+*10.11 Know How and Patent Licensing Agreement between Mauser-Werke
GmbH and Hunter Drums Limited, dated July 31, 1996
+*10.12 Consent and Agreement between Hunter Drums Limited and
Mauser-Werke GmbH, dated September 29, 1997
*10.13 1998 Stock Option Plan
*10.14 Russell-Stanley Holdings, Inc. Management Annual Incentive
Compensation Plan 1998
*10.15 Employment Agreement, dated October 30, 1997, among
Russell-Stanley, Holdings, Inc., Hunter Drums Limited and
Michael W. Hunter
*10.16 Stay Pay Agreement, dated October 30, 1997, among
Russell-Stanley Holdings, Inc., Hunter Drums Limited and
Michael W. Hunter
19
Exhibit No. Description of Exhibit
- ----------- ----------------------
*10.17 Employment Agreement, dated as of July 23, 1997 between
Russell-Stanley Holdings, Inc. and Mark E. Daniels
*10.18 Stay Pay Agreement, dated as of July 23, 1997, between
Russell-Stanley Holdings, Inc. and Mark E. Daniels
*10.21 Services Agreement, dated as of February 10, 1999, between
Russell-Stanley Holdings, Inc. and Vincent J. Buonanno
*10.22 License Agreement between Gallay SA and Hunter Drums Limited,
dated February 7, 1997
*10.23 License Agreement between Gallay SA and Hunter Drums Limited,
dated April 16, 1987
*21 Subsidiaries of the Company
27 Financial Data Schedule
* This Exhibit is incorporated by reference to the Exhibit of the same number
filed as part of the Company's Annual Report on Form 10-K (File No. 333-76057).
+ The Registrant was afforded confidential treatment of portions of this exhibit
by the Securities and Exchange Commission. Accordingly, portions thereof have
been omitted and filed separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K
None
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
RUSSELL-STANLEY HOLDINGS, INC.
Date: May 15, 2000 By: /s/ Ronald M. Litchkowski
-------------------------------------
Ronald M. Litchkowski,
Chief Financial Officer
21