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 September 30, 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
September 30, 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 18
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 21
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 22
ITEM 2: CHANGES IN SECURITIES 22
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 22
ITEM 4: SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 22
ITEM 5: OTHER INFORMATION 22
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 22
SIGNATURES 25
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 Nine Months Ended
September 30, September 30,
--------------------- ---------------------
(Unaudited) (Unaudited)
2000 1999 2000 1999
---- ---- ---- ----
NET SALES $ 68,453 $ 71,549 $211,086 $215,672
COST OF SALES 56,510 56,046 172,763 165,036
-------- -------- -------- --------
Gross Profit 11,943 15,503 38,323 50,636
OPERATING EXPENSES 11,063 12,203 36,124 38,137
-------- -------- -------- --------
INCOME FROM OPERATIONS 880 3,300 2,199 12,499
INTEREST EXPENSE 5,908 5,576 17,188 15,554
OTHER EXPENSE - net 73 56 196 204
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (5,101) (2,332) (15,185) (3,259)
INCOME TAX (BENEFIT) (1,532) (505) (4,557) (615)
-------- -------- -------- --------
LOSS BEFORE EXTRAORDINARY ITEM (3,569) (1,827) (10,628) (2,644)
EXTRAORDINARY ITEM, net of tax - - - 763
-------- -------- -------- --------
NET LOSS (3,569) (1,827) (10,628) (3,407)
OTHER COMPREHENSIVE INCOME (LOSS) (191) 129 (434) 838
-------- -------- -------- --------
COMPREHENSIVE LOSS $ (3,760) $ (1,698) $(11,062) $ (2,569)
======== ======== ======== ========
See notes to consolidated financial statements.
3
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 1,450 $ 704
Accounts receivable - net 30,848 30,135
Inventories 21,879 24,595
Prepaid taxes and income taxes receivable - net 5,747 2,395
Prepaid expenses and other current assets 2,328 1,009
Deferred tax benefit - net 1,239 1,247
-------- --------
Total current assets 63,491 60,085
-------- --------
PROPERTY, PLANT AND EQUIPMENT - net 89,224 94,573
-------- --------
OTHER ASSETS:
Goodwill and other intangibles - net 103,538 106,297
Deferred financing costs - net 6,296 6,892
Other noncurrent assets 178 156
-------- --------
Total other assets 110,012 113,345
-------- --------
TOTAL ASSETS $262,727 $268,003
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 28,821 $ 45,607
-------- --------
Total current liabilities 28,821 45,607
LONG-TERM DEBT 215,989 192,769
DEFERRED TAXES - net 745 481
OTHER NONCURRENT LIABILITIES 1,583 2,508
-------- --------
Total liabilities 247,138 241,365
-------- --------
STOCKHOLDERS' EQUITY 15,589 26,638
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $262,727 $268,003
======== ========
See notes to consolidated financial statements.
4
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months Ended
September 30,
---------------------
2000 1999
---- ----
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,628) $ (3,407)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Depreciation and amortization 23,903 22,657
Extraordinary item - 1,271
Changes in operating assets and liabilities:
Increase in accounts receivable (713) (3,695)
Decrease (increase) in inventories 2,716 (4,039)
Increase in prepaid taxes and other
current assets (4,671) (1,524)
Decrease in accounts payable and
accrued expenses (16,786) (6,093)
Increase in deferred income taxes 272 423
Increase (decrease) in other - net 132 (995)
-------- --------
Net cash provided by (used in) operating activities (5,775) 4,598
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (15,867) (21,903)
-------- --------
Net cash used in investing activities (15,867) (21,903)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) from long-term borrowings - net - 44,058
Proceeds (repayments) from revolving credit loans - net 23,136 (20,697)
Cash paid for financing costs (398) (7,214)
Accretion on senior subordinated notes 84 45
-------- --------
Net cash provided by financing activities 22,822 16,192
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (434) 838
-------- --------
NET CHANGE IN CASH 746 (275)
CASH, BEGINNING OF PERIOD 704 1,630
-------- --------
CASH, END OF PERIOD $ 1,450 $1,355
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 20,198 $ 17,181
======== ========
Income taxes $ (1,529) $ 1,796
======== ========
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
September 30, 2000 and for the three and nine month periods ended September 30,
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 September 30, 2000 and December 31, 1999, the consolidated
statements of operations and comprehensive income (loss) for the three month and
nine month periods ended September 30, 2000 and 1999 and the statements of cash
flows for the nine month periods ended September 30, 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 in the financial statements and the
accompanying notes. Actual amounts could differ from those estimates. Certain
amounts in 1999 have been reclassified to conform to the 2000 presentation.
The 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 - ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for the Company for
the fiscal year beginning January 1, 2001. The Company does not anticipate that
the adoption of this statement will have a material effect on the Company's
financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is required to adopt SAB 101 in the fourth quarter of fiscal 2000.
The Company does not anticipate that the adoption of SAB 101 will have a
significant impact on the Company's financial statements.
NOTE 3 - INVENTORIES
Inventories consist of the following:
September 30, December 31,
2000 1999
---- ----
(Unaudited)
(In Thousands)
Raw materials $11,657 $14,381
Work-in-process 2,642 2,406
Finished goods 7,580 7,808
------ -------
Total $21,879 $24,595
======== =======
6
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
September 30, December 31,
2000 1999
------------ ------------
(Unaudited)
(In Thousands)
Senior subordinated notes $ 149,053 $ 148,966
Revolving credit loans and term loan 66,936 43,803
--------- ---------
Long-term debt $ 215,989 $ 192,769
========= =========
The Notes, revolving credit loans, and term loan have the following provisions
(dollars in thousands):
Domestic Eurodollar September 30, September 30, 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% 9.41-10.75% $ 33,848 8.31-9.75% $ 10,141
Revolving Canadian prime
credit loan- plus margin not
Foreign less than 1.25% - 9.25 8,088 8.25 8,662
Term Loan C Fixed rate Fixed rate 9.48 25,000 9.48 25,000
Senior
Subordinated
Notes Fixed rate - 10.88 149,053 10.88 148,966
--------- ---------
Total $ 215,989 $ 192,769
========= =========
The Company was in compliance with all of the financial covenants of the
Agreement as amended, as of September 30, 2000.
MATURITIES OF LONG-TERM DEBT--As of September 30, 2000, maturities of
long-term debt are as follows:
(In Thousands)
2004 $ 41,936
2005 and thereafter 174,053
--------
Total $215,989
========
7
NOTE 5 - STOCKHOLDERS' EQUITY
September 30, December 31,
2000 1999
------------ -----------
(Unaudited)
(In Thousands)
Common Stock, $.01 par value,
at September 30, 2000 and December 31, 1999
3,000,000 shares were authorized; 2,201,000
shares were issued and outstanding $ 23 $ 23
Accumulated paid in capital 70,179 70,179
Accumulated deficit (48,106) (37,478)
Accumulated other comprehensive loss (1,474) (1,040)
Less: Notes receivable for shares issued to management - (13)
Treasury stock (5,033) (5,033)
-------- -------
TOTAL STOCKHOLDERS' EQUITY $ 15,589 $ 26,638
======== ========
NOTE 6 - 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.
8
NOTE 7 - 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, Inc. ("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.
9
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ------------- ------------ ------------
NET SALES $ - $ 59,570 $ 9,237 $ (354) $ 68,453
COST OF SALES - 49,990 6,874 (354) 56,510
-------- ------------ ------------- ------------ -------------
GROSS PROFIT - 9,580 2,363 - 11,943
TOTAL EXPENSES - 9,746 1,317 - 11,063
-------- ------------ ------------- ------------ -------------
INCOME (LOSS) FROM OPERATIONS - (166) 1,046 - 880
EQUITY LOSS (3,202) - - 3,202 -
INTEREST EXPENSE 528 5,011 369 - 5,908
OTHER EXPENSE - net - 73 - - 73
-------- ------------ ------------- ------------ -------------
INCOME (LOSS) BEFORE
INCOME TAXES (3,730) (5,250) 677 3,202 (5,101)
PROVISION (BENEFIT) FOR
INCOME TAXES (161) (1,723) 352 - (1,532)
-------- ------------ ------------- ------------ -------------
NET INCOME (LOSS) $ (3,569) $ (3,527) $ 325 $ 3,202 $ (3,569)
======== ============ ============= ============ =============
10
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
NET SALES $ - $ 62,570 $ 8,979 $ - $ 71,549
COST OF SALES - 49,355 6,691 - 56,046
-------- ---------- ----------- ------------ ------------
GROSS PROFIT - 13,215 2,288 - 15,503
TOTAL EXPENSES - 10,795 1,408 - 12,203
-------- ---------- ----------- ------------ ------------
INCOME FROM OPERATIONS - 2,420 880 - 3,300
EQUITY LOSS (1,496) - - 1,496 -
INTEREST EXPENSE 553 4,705 318 - 5,576
OTHER EXPENSE - net - 49 7 - 56
-------- ---------- ----------- ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES (2,049) (2,334) 555 1,496 (2,332)
PROVISION (BENEFIT) FOR INCOME
TAXES (222) (535) 252 - (505)
-------- ---------- ----------- ------------ ------------
NET INCOME (LOSS) $ (1,827) $ (1,799) $ 303 $ 1,496 $ (1,827)
======== ========== =========== ============ ============
11
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
NET SALES $ - $ 184,245 $ 27,780 $ (939) $ 211,086
COST OF SALES - 152,642 21,060 (939) 172,763
-------- ----------- ----------- -------- ------------
GROSS PROFIT - 31,603 6,720 - 38,323
TOTAL EXPENSES - 31,879 4,245 - 36,124
-------- ----------- ----------- -------- ------------
INCOME (LOSS) FROM OPERATIONS - (276) 2,475 - 2,199
EQUITY LOSS (9,515) - - 9,515 -
INTEREST EXPENSE 1,592 14,503 1,093 - 17,188
OTHER EXPENSE - net - 196 - - 196
-------- ----------- ----------- -------- ------------
INCOME (LOSS) BEFORE INCOME
TAXES (11,107) (14,975) 1,382 9,515 (15,185)
PROVISION (BENEFIT) FOR INCOME
TAXES (479) (4,798) 720 - (4,557)
-------- ----------- ----------- -------- ------------
NET INCOME (LOSS) $(10,628) $ (10,177) $ 662 $ 9,515 $ (10,628)
======== =========== =========== ======== ============
12
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ------------- ------------ ------------
NET SALES $ - $ 188,289 $ 27,383 $ - $ 215,672
COST OF SALES - 145,069 19,967 - 165,036
--------- ------------ ------------- ------------ ------------
GROSS PROFIT - 43,220 7,416 - 50,636
TOTAL EXPENSES - 33,718 4,419 - 38,137
--------- ------------ ------------- ------------ ------------
INCOME FROM OPERATIONS - 9,502 2,997 - 12,499
EQUITY LOSS (1,663) - - 1,663 -
INTEREST EXPENSE 1,587 12,989 978 - 15,554
OTHER (INCOME) EXPENSE - net - 309 (105) - 204
--------- ------------ ------------- ------------ ------------
INCOME (LOSS) BEFORE INCOME
TAXES (3,250) (3,796) 2,124 1,663 (3,259)
PROVISION (BENEFIT) FOR INCOME
TAXES (606) (964) 955 - (615)
--------- ------------ ------------- ------------ ------------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (2,644) (2,832) 1,169 1,663 (2,644)
EXTRAORDINARY ITEM, net of tax 763 - - - 763
--------- ------------ ------------- ------------ ------------
NET INCOME (LOSS) $ (3,407) $ (2,832) $ 1,169 $ 1,663 $ (3,407)
========= ============ ============= ============ ============
13
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTMBER 30, 2000
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor Eliminations/
Company Subsidiaries Subsidiary Adjustments Consolidated
------- ------------ ---------- ----------- ------------
ASSETS
CURRENT ASSETS:
Cash $ - $ 984 $ 466 $ - $ 1,450
Accounts receivable - net - 26,696 4,152 - 30,848
Inventories - 19,388 2,491 - 21,879
Prepaid and other current
assets - net - (102) 417 8,999 9,314
--------- ---------- --------- --------- ----------
Total current assets - 46,966 7,526 8,999 63,491
--------- ---------- --------- --------- ----------
PROPERTY, PLANT AND
EQUIPMENT - net - 83,338 5,886 - 89,224
--------- ---------- --------- --------- ----------
OTHER ASSETS:
Goodwill and other
intangibles - net - 86,497 17,041 - 103,538
Deferred financing costs -
net - 6,296 - - 6,296
Other noncurrent assets - 178 - - 178
Intercompany advances 17,738 33,664 112 (51,514) -
Investment in subsidiaries 22,658 - - (22,658) -
--------- ---------- --------- --------- ----------
TOTAL ASSETS $ 40,396 $ 256,939 $ 30,565 $ (65,173) $ 262,727
========= ========== ========= ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ 3,194 $ 12,536 $ 4,232 $ 8,859 $ 28,821
--------- ---------- --------- ---------- ---------
Total current liabilities 3,194 12,536 4,232 8,859 28,821
--------- ---------- --------- ---------- ---------
LONG-TERM DEBT 19,997 187,904 8,088 - 215,989
DEFERRED TAXES - net (7,065) 6,722 1,088 - 745
OTHER NONCURRENT
LIABILITIES - 945 638 - 1,583
--------- ---------- --------- ---------- ---------
Total liabilities 16,126 208,107 14,046 8,859 247,138
INTERCOMPANY ADVANCES - 43,483 7,210 (50,693) -
TOTAL STOCKHOLDERS'
EQUITY 24,270 5,349 9,309 (23,339) 15,589
--------- ---------- --------- ---------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 40,396 $ 256,939 $ 30,565 $ (65,173) $ 262,727
========= ========== ========= ========== ==========
14
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 EQUIPMENT - 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 NONCURRENT 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
========= ========== ======== ========== ========
15
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (10,628) $ (10,177) $ 662 $ 9,515 $ (10,628)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Equity loss 9,515 - - (9,515) -
Depreciation and amortization 719 21,930 1,254 - 23,903
Changes in operating assets
and liabilities 76 (19,353) 227 - (19,050)
--------- -------- ------- ------- ---------
Net cash provided by (used in)
operating activities (318) (7,600) 2,143 - (5,775)
--------- -------- ------- ------- ---------
CASH FLOWS USED IN
INVESTING ACTIVITIES - (15,158) (709) - (15,867)
--------- -------- ------- ------- ---------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES - 23,038 (216) - 22,822
--------- -------- ------- ------- ---------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - (434) - (434)
--------- -------- ------- ------- ---------
NET CHANGE IN CASH (318) 280 784 - 746
CASH, BEGINNING OF PERIOD - 1,022 (318) - 704
--------- -------- ------- ------- ---------
CASH, END OF PERIOD $ (318) $ 1,302 $ 466 $ - $ 1,450
========= ======== ======= ======= =========
16
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS)
(UNAUDITED)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------- ------------ ---------- ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,407) $ (2,832) $ 1,169 $ 1,663 $ (3,407)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Equity loss 1,663 - - (1,663) -
Depreciation and amortization 23 21,571 1,063 - 22,657
Extraordinary item 1,271 - - - 1,271
Changes in operating assets
and liabilities (1,114) (13,614) (1,195) - (15,923)
------- -------- ------ ------- -------
Net cash provided by (used in)
operating activities (1,564) 5,125 1,037 - 4,598
------- -------- ------ ------- -------
CASH FLOWS USED IN
INVESTING ACTIVITIES - (21,221) (682) - (21,903)
------- -------- ------ ------- -------
CASH FLOWS PROVIDED BY
(USED IN) FINANCING ACTIVITIES 1,564 16,205 (1,577) - 16,192
------- -------- ------ ------- -------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - 838 - 838
------- -------- ------ ------- -------
NET CHANGE IN CASH - 109 (384) - (275)
CASH, BEGINNING OF PERIOD - 1,246 384 - 1,630
------- -------- ------ ------- -------
CASH, END OF PERIOD $ - $ 1,355 $ - $ - $ 1,355
======= ======== ======= ======= ========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 1999
NET SALES
Net sales decreased 4.3% to $68.5 million in 2000 from $71.5 million
in 1999. Our container manufacturing division's net sales decreased 2.3% to
$54.8 million in 2000 from $56.1 million in 1999 due primarily to lower unit
volumes which were partially offset by higher average selling prices. Net sales
in our services division decreased 11.6% to $13.7 million in 2000 from $15.5
million in 1999 due to planned lower trip lease volumes in plastic services and
lower steel reconditioning revenues.
GROSS PROFIT
Gross profit decreased $3.6 million to $11.9 million in 2000 from $15.5
million in 1999 due to significantly higher raw material prices and lower unit
volumes in our container manufacturing division. Due to increased competition,
we have not been able to pass through all of the higher raw material prices in
the form of increased selling prices. As a result, gross profit as a percentage
of net sales decreased to 17.4% in 2000 from 21.7% in 1999.
OPERATING EXPENSES
Operating expenses decreased 9.3% in 2000 to $11.1 million from $12.2
million in 1999. The decrease is primarily due to cost savings initiatives,
including personnel reductions, implemented to offset higher raw material
prices. As a percentage of sales, operating expenses were 16.2% in 2000 compared
to 17.1% in 1999.
INCOME FROM OPERATIONS
Income from operations decreased to $0.9 million in 2000 from
$3.3 million in 1999 as a result of the factors described above.
OTHER EXPENSE, NET
Other expense, net, was $0.1 million in 2000 and 1999.
INTEREST EXPENSE
Interest expense was $5.9 million in 2000 compared with $5.6 million in
1999. The increase in interest expense is the result of increased debt levels.
LOSS BEFORE INCOME TAXES
In 2000, the loss before income taxes was $5.1 million versus $2.3
million in 1999 as a result of the factors described above.
INCOME TAX (BENEFIT)
The effective tax rate on the loss was 30.0% in 2000 and 21.7% in 1999,
both lower than the statutory federal income tax rate due to the non-deductible
portion of goodwill associated with our acquisitions and a higher foreign income
tax rate.
18
NET LOSS
In 2000, the net loss was $3.6 million versus $1.8 million in 1999 as a
result of the factors described above.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1999
NET SALES
Net sales decreased 2.1% to $211.1 million in 2000 from $215.7 million
in 1999. Our container manufacturing division's net sales decreased slightly to
$167.0 million in 2000 from $168.3 in 1999 due primarily to lower unit volumes
which were partially offset by higher average selling prices. Net sales in our
services division decreased 6.9% to $44.1 million in 2000 from $47.4 million in
1999 due to planned lower trip leasing volumes and lower average selling prices
in plastic services.
GROSS PROFIT
Gross profit decreased $12.3 million to $38.3 million in 2000 from
$50.6 million in 1999 due to significantly higher raw material prices and lower
unit volumes in our container manufacturing division. Due to increased
competition, we have not been able to pass through all of the higher raw
material prices in the form of increased selling prices. As a result, gross
profit as a percentage of net sales decreased to 18.2% in 2000 from 23.5%
in 1999.
OPERATING EXPENSES
Operating expenses decreased 5.3% in 2000 to $36.1 million from $38.1
million in 1999. The decrease was primarily due to the implementation of cost
savings initiatives, including personnel reductions, to offset higher raw
material prices. As a percentage of sales, operating expenses were 17.1% in 2000
compared to 17.7% in 1999.
INCOME FROM OPERATIONS
Income from operations decreased by $10.3 million to $2.2 million in
2000 from $12.5 million in 1999 as a result of the factors described above.
OTHER EXPENSE, NET
Other expense, net, remained flat at $0.2 million in both periods.
INTEREST EXPENSE
Interest expense was $17.2 million in 2000 compared with $15.6 million
in 1999. The increase in interest expense is the result of increased debt levels
and a higher weighted average interest rate.
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM
In 2000, the loss before income taxes and extraordinary item was $15.2
million versus $3.3 million in 1999 as a result of the factors described above.
19
INCOME TAX (BENEFIT)
The effective tax rate on the loss was 30.0% in 2000 and 18.9% in 1999,
both lower than the statutory federal income tax rate due to the non-deductible
portion of goodwill associated with our acquisitions and a higher foreign income
tax rate.
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 $10.6 million versus $3.4 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 and working capital. We utilize funds generated from operations and
borrowings to meet these requirements. For the nine months ended September 30,
2000, net cash used in operating activities was $5.8 million compared to net
cash provided by operating activities $4.6 million for the nine months ended
September 30, 1999. This change is due to lower earnings during the first nine
months of 2000 and lower accounts payable due to the timing of payments.
For the nine months ended September 30, 2000 and 1999, we made capital
expenditures of $15.9 million and $21.9 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 September 30, 2000, we had net working capital of $34.7 million, including
$1.5 million of cash, $30.8 million of accounts receivable, $21.9 million of
inventories, $9.3 million of other current assets and $28.8 million of accounts
payable and accrued expenses.
For the nine months ended September 30, 2000, we had net borrowings on
the revolving line of credit of $23.1 million due to working capital and capital
expenditure requirements. The available revolving credit line was approximately
$33.0 million as of September 30, 2000.
Although cash flow after investing activities is negative, the Company
believes that available borrowings under the senior credit facility will be
adequate to meet short-term liquidity needs.
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.
20
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 when considered
appropriate. 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 27, 2000. A 10% increase or decrease in interest rates at
September 30, 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.
21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
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.
22
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ---------- ----------------------
*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 thereto)
*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
23
EXHIBIT NO. DESCRIPTION OF EXHIBIT
- ---------- ----------------------
*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
*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
10.24 Amendment No. 1 to the Fifth Amended and Restated Revolving
Credit Agreement and Term Loan Agreement, dated as of
August 11, 2000, among Russell-Stanley Holdings, Inc.
and its subsidiaries, as borrowers, the lenders listed
therein and Fleet National Bank (f/k/a BankBoston, N.A.),
as administrative agent, and Goldman Sachs Credit Partners,
L.P., as syndication agent.
*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
24
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: November 14, 2000 By: /s/ RONALD M. LITCHKOWSKI
-------------------------
Ronald M. Litchkowski,
Chief Financial Officer
25