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 June 30, 1999
Commission File Number: 333-76057
RUSSELL-STANLEY HOLDINGS, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Delaware 3412 22-3525626
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
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 [ ] No [X]
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:
Common Stock, $.01 par value per share: 2,200,764 shares
(See Note 16 to Financial Statements included
as part of Form S-4, File No. 333-76057)
<PAGE>
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 19
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 25
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS 26
ITEM 2: CHANGES IN SECURITIES 26
ITEM 3: DEFAULTS UPON SENIOR SECURITIES 26
ITEM 4: SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 26
ITEM 5: OTHER INFORMATION 26
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 26
SIGNATURES 29
<PAGE>
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)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30
---------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES .................... $ 73,185 $ 70,886 $ 144,123 $ 144,156
COST OF SALES ................ 56,037 54,984 108,990 111,626
--------- --------- --------- ---------
Gross Profit ............... 17,148 15,902 35,133 32,530
OPERATING EXPENSES
Selling .................... 6,088 4,796 11,835 9,780
General and administrative . 6,548 5,050 12,493 10,445
Amortization of intangibles 730 865 1,606 1,666
Non-recurring charges ...... - 1,817 - 3,467
--------- --------- --------- ---------
Total expenses ............. 13,366 12,528 25,934 25,358
INCOME FROM OPERATIONS ....... 3,782 3,374 9,199 7,172
INTEREST EXPENSE ............. 5,382 3,806 9,978 7,451
OTHER (INCOME) EXPENSE - Net . 86 91 148 87
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEM ... (1,686) (523) (927) (366)
INCOME TAX BENEFIT ........... (499) (149) (110) (85)
--------- --------- --------- ---------
LOSS BEFORE
EXTRAORDINARY ITEM ....... (1,187) (374) (817) (281)
EXTRAORDINARY ITEM, net of tax - - 763 -
--------- --------- --------- ---------
NET LOSS .................... (1,187) (374) (1,580) (281)
OTHER COMPREHENSIVE INCOME
(LOSS) .................. 382 (410) 709 (530)
--------- --------- --------- ---------
COMPREHENSIVE LOSS .......... $ (805) $ (784) $ (871) $ (811)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1999 1998
-------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash ........................................ $ 2,742 $ 1,630
Accounts receivable - net ................... 33,677 29,408
Inventories ................................. 22,250 18,761
Prepaid taxes and income taxes receivable-net 5,419 3,460
Prepaid expenses and other current assets ... 2,106 2,132
Deferred tax benefit-net .................... 95 602
-------- --------
Total current assets .................... 66,289 55,993
-------- --------
PROPERTY, PLANT AND EQUIPMENT - Net .............. 94,804 92,643
-------- --------
OTHER ASSETS:
Goodwill and other intangibles - net ........ 107,599 108,195
Deferred financing costs - net .............. 6,787 1,294
Other noncurrent assets ..................... 302 129
-------- --------
Total other assets ...................... 114,688 109,618
-------- --------
TOTAL ASSETS ..................................... $275,781 $258,254
======== ========
See notes to consolidated financial statements.
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 44,841 $ 43,079
Current maturities of long-term debt -- 10
------- --------
Total current liabilities ....... 44,841 43,089
LONG TERM DEBT ........................... 188,562 171,592
DEFERRED TAXES - Net ..................... 4,758 4,662
OTHER NON CURRENT LIABILITIES ............ 5,082 5,374
------- --------
Total liabilities ............... 243,243 224,717
------- --------
STOCKHOLDERS' EQUITY ..................... 32,538 33,537
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $275,781 $258,254
======== ========
See notes to consolidated financial statements.
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ......................................................... $ (1,580) $ (281)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization ............................... 14,794 13,380
Extraordinary item .......................................... 1,271 -
Non-recurring charges ....................................... - 3,467
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ........................ (4,269) (564)
Decrease (increase) in inventories ................................ (3,489) 1,776
Decrease (increase) in prepaid taxes and other
current assets .............................................. (1,932) 285
Increase (decrease) in accounts payable and ....................... 624 (3,244)
accrued expenses
Increase (decrease) in deferred income taxes ...................... 603 (1,263)
Increase (decrease) in other - net ................................ (497) (679)
-------- --------
Net cash provided by operating activities ...................... 5,525 12,877
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................ (14,860) (11,999)
-------- --------
Net cash used in investing activities ...................... (14,860) (11,999)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (repayments) from long-term borrowings, net ............. 44,058 (143)
Proceeds (repayments) from revolving credit loan, net ............ (27,087) 2,243
Cash paid for financing costs .................................... (7,116) -
Other ............................................................ (117) (232)
-------- --------
Net cash provided by financing
activities ............................................... 9,738 1,868
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ................................ 709 530
-------- --------
NET CHANGE IN CASH ..................................................... 1,112 3,276
CASH, BEGINNING OF PERIOD .............................................. 1,630 1,051
--------- --------
CASH, END OF PERIOD .................................................... $ 2,742 $ 4,327
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
These consolidated financial statements and related notes thereto as of
June 30, 1999 and for each of the three month and six month periods ended June
30, 1999 and 1998 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 June 30, 1999 and December 31, 1998, the consolidated
statements of operations and comprehensive income for the three month and six
month periods ended June 30, 1999 and 1998 and the statements of cash flows for
the six month periods ended June 30, 1999 and 1998. 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 accompanying the notes. Actual amounts
could differ from those estimates. Certain items in 1998 have been reclassified
to conform to the 1999 presentation.
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") Registration Statement on Form S-4, File No.
333-76057.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133") was
issued. SFAS 133 establishes new disclosure requirements which provide a
comprehensive standard for recognition and measurement of derivatives and
hedging activities. SFAS 133 will take effect in 2001 and will require new
disclosures, all derivatives to be recorded on the balance sheet at fair value,
and establish special accounting for certain types of hedging activities. Based
on the Company's current derivatives, an interest rate collar and foreign
currency forward contracts, management does not believe that SFAS 133 will have
a material effect on the Company's financial condition or results of operations.
NOTE 3 - INVENTORIES
Inventories consist of the following:
June 30, December 31,
1999 1998
(Unaudited)
----------- ---------
(In thousands)
Raw material $ 13,198 $ 11,380
Work-in-process 1,767 1,617
Finished goods 7,285 5,764
------- --------
$ 22,250 $ 18,761
======= =======
<PAGE>
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
June 30, December 31,
1999 1998
(Unaudited)
----------- ------------
(In thousands)
Senior subordinated notes $148,912 $ -
Revolving credit loan and term loans 39,650 171,591
Capital lease obligations - 11
-------- ----------
188,562 171,602
Less current maturities - 10
-------- ----------
Long-term debt $188,562 $171,592
========= =========
On February 10, 1999, the Company refinanced its revolving credit loan and
term loans by amending its senior credit facility to provide for a $75.0 million
revolving credit line (including a $15.0 million Canadian credit line), which
bears interest, at the Company's election, at a combination of domestic source
and Eurodollar borrowing rates which fluctuate based on the Company's EBITDA and
debt levels, and a $25.0 million term loan, bearing interest at 9.48%
(collectively, the "Senior Credit Facility"). The revolving credit facility
matures in February 2004 and the term loan matures in two equal installments in
June 2006 and 2007. In addition, the Company issued $150 million of 10 7/8%
Senior Subordinated Notes (the "Notes") due February 15, 2009, issued at
99.248%, resulting in an effective yield of 11.0%. The Senior Credit Facility
contains certain covenants and restrictions and is secured by substantially all
assets of the Company. The Notes require semiannual interest payments commencing
August 15, 1999 and mature February 2009. The Notes are subordinate to all
existing and future senior indebtedness of the Company and are unconditionally
guaranteed by the domestic subsidiaries and contain a number of customary
covenants and restrictions. Deferred financing charges of approximately $7.1
million were incurred in connection with the refinancing.
The Notes, revolving credit loan, and term loans have the following
provisions (dollars in thousands):
<TABLE>
<CAPTION>
Interest Interest
Rate at Balance at Rate at Balance at
Domestic Eurodollar June 30, June 30, December 31, December 31,
Interest Rate Interest Rate 1999 1999 1998 1998
-------------- ------------- --------- --------- ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revolving Prime plus margin LIBOR plus margin
credit not less not less 9.00% $ 5,424 9.00% $ 22,837
loan than 1.25% than
2.75%
Revolving Canadian prime
credit plus
loan - margin not - 8.00 9,226 - -
foreign less
than 1.25%
Term Loan A - Prime plus margin LIBOR plus margin
Domestic not less not less - - 9.00 35,000
than than
1.00% 2.50%
Term Loan A - Prime plus margin LIBOR plus margin
Foreign not less not less - - 9.00 9.182
than than
1.00% 2.50%
Term Loan B - Prime plus margin LIBOR plus margin
not less not less - - 9.50 79,572
than than
1.50% 3.00%
Term Loan C - Fixed rate Fixed rate 9.48 25,000 9.48 25,000
Senior
Subordinated
Notes Fixed rate - 10.88 148,912 - -
------- --------
Total $188,562 $171,591
======== =========
</TABLE>
<PAGE>
Maturities of long-term debt
(In thousands)
2004 $ 14,650
2005 and thereafter 173,912
-------
Total $ 188,562
=========
NOTE 5 - STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- -----------
(Unaudited)
(In thousands)
<S> <C> <C>
Common Stock, $.01 par value,
At June 30, 1999 and December 31, 1998,
3,000,000 shares were authorized; 2,201,000
and 2,205,000 shares were issued and out-
standing at June 30, 1999 and December 31,
1998, respectively $ 23 $ 23
Accumulated paid in capital 70,179 70,179
Accumulated deficit (30,849) (29,270)
Accumulated other comprehensive income (1,769) (2,478)
Less: Notes receivable for shares issued to
management (13) (64)
Treasury stock (5,033) (4,853)
-------- --------
TOTAL STOCKHOLDERS' EQUITY $ 32,538 $ 33,537
======== ========
</TABLE>
NOTE 6 - EXTRAORDINARY ITEM
The Company used a portion of the proceeds from the debt refinancing to
repay its existing debt. As a result of this early extinguishment of debt, the
Company incurred an extraordinary charge in February 1999 totaling approximately
$763,000, net of tax benefits, consisting of the write-off of unamortized
deferred financing costs.
NOTE 7 - COMPREHENSIVE INCOME (LOSS)
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Other comprehensive income
(loss) consists of foreign currency translation adjustments for each of the
three month and six month periods ended June 30, 1999 and 1998.
<PAGE>
NOTE 8 - 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. Recent press
reports identify NEC as a business that may have contributed to the
contamination. On September 15, 1999, NEC received a letter from the EPA
asserting that NEC is a potentially responsible party. Notwithstanding that 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. However, such 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 9 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Six Months Ended
June 30,
--------------------
Cash paid during the period for: 1999 1998
----- ----
Interest $6,506 $7,465
===== =====
Income Taxes $1,614 $ 402
===== ======
NOTE 10 - 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 will not be
guaranteed by the remaining subsidiary, Hunter Drums Limited ("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 below 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 below.
Investments in subsidiaries are accounted for by the Company on the
equity method of accounting. Earnings of subsidiaries are, therefore, reflected
in the Company's investments in and advances to/from subsidiaries account and
earnings (losses). The elimination entries eliminate investments in
subsidiaries, related stockholders' equity and other intercompany balances and
transactions.
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1999
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
----------- -------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $63,620 $9,565 $ - $ 73,185
COST OF SALES - 49,304 6,733 - 56,037
-------- --------- -------- -------- ---------
GROSS PROFIT - 14,316 2,832 - 17,148
TOTAL EXPENSES - 11,657 1,709 - 13,366
-------- --------- -------- -------- ---------
INCOME FROM OPERATIONS - 2,659 1,123 - 3,782
EQUITY LOSS (922) - - 922 -
INTEREST EXPENSE 544 4,494 344 - 5,382
OTHER (INCOME) EXPENSE - Net - 155 (69) - 86
-------- --------- -------- -------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (1,466) (1,990) 848 922 (1,686)
PROVISION (BENEFIT) FOR
INCOME TAXES (279) (594) 74 - (499)
-------- --------- -------- -------- ---------
NET INCOME (LOSS) $ (1,187) $ (1,396) $ 474 $ 922 $ (1,187)
========= ========= ======== ======== =========
<PAGE>
</TABLE>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
----------- -------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 61,253 $ 9,633 $ - $ 70,886
COST OF SALES - 48,139 6,845 $ - 54,984
----------- ------------ ----------- ----------- --------
GROSS PROFIT - 13,114 2,788 - 15,902
TOTAL EXPENSES - 10,999 1,529 - 12,528
----------- ------------ ----------- ----------- --------
INCOME FROM OPERATIONS - 2,115 1,259 - 3,374
EQUITY LOSS (11) - - 11 -
INTEREST EXPENSE 537 2,944 325 - 3,806
OTHER (INCOME)
EXPENSE - Net - (27) 118 - 91
----------- ------------ ----------- ----------- --------
INCOME (LOSS) BEFORE
INCOME TAXES (548) (802) 816 11 (523)
PROVISION (BENEFIT) FOR
INCOME TAXES (174) (208) 233 - (149)
----------- ------------ ----------- ----------- --------
NET INCOME (LOSS) $ (374) $ (594) $ 583 $ 11 $ (374)
=========== ============= =========== =========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In Thousands)
(Unaudited)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
----------- -------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $125,719 $ 18,404 $ - $144,123
COST OF SALES - 95,714 13,276 - 108,990
----------- --------------- ---------------- ------------ --------------
GROSS PROFIT - 30,005 5,128 - 35,133
TOTAL EXPENSES - 22,923 3,011 - 25,934
----------- --------------- ---------------- ------------ --------------
INCOME FROM OPERATIONS - 7,082 2,117 - 9,199
EQUITY LOSS (167) - - 167 -
INTEREST EXPENSE 1,034 8,284 660 - 9,978
OTHER (INCOME)
EXPENSE - Net - 260 (112) - 148
----------- --------------- ---------------- ------------ --------------
INCOME (LOSS) BEFORE
INCOME TAXES (1,201) (1,462) 1,569 167 (927)
PROVISION (BENEFIT) FOR
INCOME TAXES (384) (429) 703 - (110)
----------- --------------- ---------------- ------------ --------------
INCOME (LOSS) BEFORE (817) (1,033) 866 167 (817)
EXTRAORDINARY ITEM
EXTRAORDINARY ITEM, 763 - - - 763
Net of tax ----------- --------------- ---------------- ------------ --------------
NET INCOME (LOSS) $ (1,580) $ (1,033) $ 866 $ 167 $ (1,580)
=========== ============== =============== ============ ================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(In Thousands)
(Unaudited)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
----------- -------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
NET SALES $ - $ 124,961 $ 19,195 $ - $ 144,156
COST OF SALES - 97,519 14,107 - 111,626
----------- --------------- ---------------- ------------ --------------
GROSS PROFIT - 27,442 5,088 - 32,530
TOTAL EXPENSES - 22,451 2,907 - 25,358
----------- --------------- ---------------- ------------ --------------
INCOME FROM OPERATIONS - 4,991 2,181 - 7,172
EQUITY INCOME 429 - - (429) -
INTEREST EXPENSE 1,063 5,719 669 - 7,451
OTHER (INCOME)
EXPENSE - Net - (31) 118 - 87
----------- --------------- ---------------- ------------ --------------
INCOME (LOSS) BEFORE
INCOME TAXES (634) (697) 1,394 (429) (366)
PROVISION (BENEFIT) FOR
INCOME TAXES (353) (247) 515 - (85)
----------- --------------- ---------------- ------------ --------------
NET INCOME (LOSS) $(281) $ (450) $ 879 $(429) $ (281)
=========== =============== ================ ============ ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1999
(In Thousands)
(Unaudited)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
----------- -------------- ----------------- -------------- ---------------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash $ - $ 2,480 $ - $ 262 $ 2,742
Accounts receivable - net - 29,347 4,330 - 33,677
Inventories - 18,676 3,386 188 22,250
Prepaid and other current
assets - net - 7,351 269 - 7,620
--------- ---------- --------- -------- ---------
Total current assets - 57,854 7,985 450 66,289
--------- ---------- --------- -------- ---------
PROPERTY, PLANT AND
EQUIPMENT - Net - 88,785 6,019 - 94,804
--------- ---------- --------- -------- ---------
OTHER ASSETS:
Goodwill and other
intangibles - net - 89,633 17,966 - 107,599
Deferred financing costs - net - 6,787 - - 6,787
Other noncurrent assets - 302 - - 302
Intercompany advances 20,423 17,641 412 (38,476) -
Investment in subsidiaries 37,629 - - (37,629) -
--------- ---------- --------- -------- ---------
TOTAL ASSETS $ 58,052 $ 261,002 $ 32,382 $ (75,655) $275,781
========= ========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ (2,121) $ 43,251 $ 3,805 $ (94) $ 44,841
Current maturities of
long-term debt - - - - -
--------- ---------- --------- -------- ---------
Total current liabilities (2,121) 43,251 3,805 (94) 44,841
--------- ---------- --------- -------- ---------
LONG-TERM DEBT 19,997 159,339 9,226 - 188,562
DEFERRED TAXES - Net (916) 3,342 2,332 - 4,758
OTHER NONCURRENT
LIABILITIES - 3,838 1,244 - 5,082
--------- ---------- --------- -------- ---------
Total liabilities 16,960 209,770 16,607 (94) 243,243
--------- ---------- --------- -------- ---------
INTERCOMPANY ADVANCES - 30,205 7,173 (37,378) -
TOTAL STOCKHOLDERS'
EQUITY 41,092 21,027 8,602 (38,183) 32,538
--------- ---------- --------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $58,052 $261,002 $ 32,382 $(75,655) $275,781
========= ========== ========= ======== ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(In Thousands)
(Unaudited)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
----------- -------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ - $ 1,246 $ 384 $ - $ 1,630
Accounts receivable - net - 26,263 3,226 (81) 29,408
Inventories - 16,354 2,407 - 18,761
Prepaid and other current
assets - net - 2,412 398 3,384 6,194
--------- ---------- --------- -------- ---------
Total current assets - 46,275 6,415 3,303 55,993
--------- ---------- --------- -------- ---------
PROPERTY, PLANT AND
EQUIPMENT - Net - 86,720 5,923 - 92,643
--------- ---------- --------- -------- ---------
OTHER ASSETS:
Goodwill and other
intangibles - net - 91,869 17,570 (1,244) 108,195
Deferred financing costs 1,294 - - - 1,294
- nets
Other noncurrent assets - 129 - - 129
Intercompany advances 21,434 76,033 390 (97,857) -
Investment in subsidiaries 37,788 - - (37,788) -
--------- ---------- --------- -------- ---------
TOTAL ASSETS $ 60,516 $ 301,026 $ 30,298 $ (133,586) $ 258,254
========= ========== ========= ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and
accrued expenses $ (2,149) $ 37,767 $ 4,336 $ 3,125 $ 43,079
Current maturities of
long-term debt - 10 - - 10
--------- ---------- --------- -------- ---------
Total current liabilities (2,149) 37,777 4,336 3,125 43,089
--------- ---------- --------- -------- ---------
LONG-TERM DEBT 19,997 142,413 9,182 - 171,592
DEFERRED TAXES - Net - 2,331 2,331 - 4,662
OTHER NONCURRENT
LIABILITIES - 4,714 1,410 (750) 5,374
--------- ---------- --------- -------- ---------
Total liabilities 17,848 187,235 17,259 2,375 224,717
--------- ---------- --------- -------- ---------
INTERCOMPANY ADVANCES - 90,252 6,790 (97,042) -
TOTAL STOCKHOLDERS'
EQUITY 42,668 23,539 6,249 (38,919) 33,537
--------- ---------- --------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 60,516 $ 301,026 $ 30,298 $ (133,586) $ 258,254
========= ========== ========= ======== ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In Thousands)
(Unaudited)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
------------- ---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES:
Net (loss) income $ (1,580) $ (1,033) $ 866 $ 167 $ (1,580)
Adjustments to reconcile
net (loss) income to
net cash provided by
(used in) operating
activities:
Equity loss 167 - - (167) -
Depreciation and
amortization 23 14,090 681 - 14,794
Extraordinary item 1,271 - - - 1,271
Changes in
operating assets
and liabilities (892) (5,819) (2,249) - (8,960)
--------- ---------- --------- -------- ---------
Net cash provided
by (used in)
operating activities (1,011) 7,238 (702) - 5,525
--------- ---------- --------- -------- ---------
CASH FLOWS USED IN
INVESTING ACTIVITIES - (14,384) (476) - (14,860)
--------- ---------- --------- -------- ---------
CASH FLOWS PROVIDED
BY FINANCING ACTIVITIES 1,011 8,642 85 - 9,738
--------- ---------- --------- -------- ---------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - 709 - 709
--------- ---------- --------- -------- ---------
NET CHANGE IN CASH - 1,496 (384) - 1,112
CASH, BEGINNING OF PERIOD - 1,246 384 - 1,630
--------- ---------- --------- -------- ---------
CASH, END OF PERIOD $ - $ 2,742 $ - $ - $ 2,742
========= ========== ========= ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RUSSELL-STANLEY HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(In Thousands)
(Unaudited)
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiary Eliminations Consolidated
----------- -------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS PROVIDED BY
OPERATING ACTIVITIES:
Net (loss) income $ (281) $ (450) $ 879 $ (429) $ (281)
Adjustments to reconcile
net (loss) income to
net cash provided by
(used in) operating
activities:
Equity income (429) - - 429 -
Depreciation and
amortization 138 12,503 739 - 13,380
Non-recurring charges - 3,467 - - 3,467
Changes in
operating assets
and liabilities (356) (1,416) (1,917) - (3,689)
--------- ----------- ----------- ---------- ---------
Net cash provided by
(used in)
operating activities (928) 14,104 (299) - 12,877
--------- ----------- ----------- ---------- ---------
CASH FLOWS USED IN
INVESTING ACTIVITIES - (11,552) (447) - (11,999)
--------- ----------- ----------- ---------- ---------
CASH FLOWS PROVIDED BY (USED IN)
FINANCING ACTIVITIES 928 946 (6) - 1,868
--------- ----------- ----------- ---------- ---------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH - - 530 - 530
--------- ----------- ----------- ---------- ---------
NET CHANGE IN CASH - 3,498 (222) - 3,276
CASH, BEGINNING OF PERIOD - 829 222 - 1,051
--------- ----------- ----------- ---------- ---------
CASH, END OF PERIOD $ - $ 4,327 $ - $ - $ 4,327
========= =========== =========== ========== =========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Three Month Period Ended June 30, 1999 Compared to Three Month Period Ended June
30, 1998
Net Sales
Net sales increased 3.2% to $73.2 million in 1999 from $70.9 million in
1998. Our container manufacturing division's net sales declined approximately 8%
to $56.2 million in 1999, from $60.9 million in 1998, due primarily to selling
price declines in response to lower raw material prices and reduced demand from
cyclical export markets. Net sales in our services division increased 70% to
$17.0 million in 1999 from $10.0 million in 1998 due to the net sales of New
England Container which was acquired in July 1998 and growth in intermediate
bulk container ("IBC") leasing. Excluding the impact of the New England
Container acquisition, our services division's net sales increased approximately
15%, despite lower selling prices in response to competitive pressures.
Gross Profit
Gross profit increased $1.2 million to $17.1 million in 1999 from $15.9
million in 1998, primarily from the benefit of lower raw material prices and the
net sales increase in services. Gross profit as a percentage of net sales
improved to 23.4% in 1999 from 22.4% in 1998. Favorable raw material price
trends, productivity improvements in containers, and the mix shift within our
services division more than offset the effect of lower prices and lower
container sales volume.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales
increased to 18.3% in 1999 from 15.1% in 1998 primarily due to investments in
our services infrastructure, the acquisition of New England Container, and the
recording of a legal settlement provision and associated professional fees.
Non-Recurring Charges
In conjunction with the integration of acquired entities and expansion of
our operations, a plan was developed to rationalize our operations and sales
force and consolidate and relocate our corporate headquarters in order to
improve operating efficiencies and reduce costs. This plan began in March 1998
and was substantially completed during the first quarter of 1999. As part of
this plan we recorded restructuring, integration, and other charges of
approximately $1.8 million for the three months ended June 30, 1998. These
charges primarily include costs related to the closure of a container
manufacturing facility, severance costs and other personnel related costs, the
relocation of corporate headquarters, and other miscellaneous costs. We did not
record any non-recurring charges for the quarter ended June 30, 1999.
Income from Operations
Income from operations increased by $0.4 million to $3.8 million in 1999
from $3.4 million in 1998 as a result of the factors described above.
Other (Income) Expense, Net
Other (income) expense, net, which includes changes in the fair value of
foreign exchange contracts, decreased slightly in 1999 compared to 1998.
Interest Expense
Interest expense was $5.4 million in 1999 compared with $3.8 million in
1998. The increase in interest expense is the result of increased debt levels
associated with the acquisition of New England Container and the refinancing of
our revolving credit loan and term loans and the senior subordinated notes
offering in February 1999.
Loss Before Income Taxes
In 1999, the loss before income taxes was $1.7 million versus $0.5 million
in 1998, as a result of the factors described above.
Income Tax Benefit
The effective tax rate (benefit) on income was (29.6)% in 1999 and (28.5)%
in 1998, both lower than the statutory federal income tax rate due to the
non-deductible portion of goodwill associated with our acquisitions and higher
foreign income taxes.
Net Loss
In 1999, the net loss was $1.2 million versus $0.4 million in 1998, as a
result of the factors described above.
Six Month Period Ended June 30, 1999 compared to Six Month Period Ended June 30,
1998.
Net Sales
Net sales decreased slightly to $144.1 million in 1999 from $144.2 million
in 1998. Our container manufacturing division's net sales declined approximately
10% to $112.2 million in 1999, from $124.5 million in 1998, due primarily to
selling price declines in response to lower raw material prices coupled with
competitive pressures and unit volume decreases due to some share shifts in
steel containers and lack of demand from export segments. Net sales in our
services division increased approximately 62% to $31.9 million in 1999 from
$19.7 million in 1998 due to the net sales of New England Container, which was
acquired in July 1998, and growth in IBC leasing. Excluding the impact of the
New England Container acquisition, services division's net sales increased
approximately 11% despite lower selling prices in response to competitive
pressures.
Gross Profit
Gross profit increased $2.6 million to $35.1 million in 1999 from $32.5
million in 1998, primarily from the benefit of lower raw material prices and a
mix shift within our services business. Gross profit as a percentage of net
sales improved to 24.4% in 1999 from 22.6% in 1998. Favorable raw material price
trends, improvements in efficiency, and the mix shift within our services
division more than offset the effect of lower selling prices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses as a percentage of net sales
increased to 18.0% in 1999 from 15.2% in 1998 primarily due to investments in
our services infrastructure, the impact of the New England Container
acquisition, and the recording of a legal settlement provision.
Non-Recurring Charges
In conjunction with the integration of acquired entities and expansion of
our operations, a plan was developed to rationalize our operations and sales
force and consolidate and relocate our corporate headquarters in order to
improve operating efficiencies and reduce costs. This plan began in March 1998
and was substantially completed during the first quarter of 1999. As part of
this plan, we recorded restructuring, integration, and other charges of
approximately $3.5 million for the six months ended June 30, 1998. These charges
primarily include costs related to the closure of a container manufacturing
facility, severance costs and other personnel related costs, the relocation of
corporate headquarters and other miscellaneous costs. We did not record any
non-recurring charges for the six months ended June 30, 1999.
Income from Operations
Income from operations increased by $2.0 million to $9.2 million in 1999
from $7.2 million in 1998 as a result of factors described above.
Other (Income) Expense, Net
Other (income) expense, net increased by $0.1 million in 1999 from 1998 due
to changes in the fair value of foreign exchange contracts.
Interest Expense
Interest expense was $10.0 million in 1999 compared with $7.5 million in
1998. The increase in interest expense is the result of increased debt levels
associated with the acquisition of New England Container and the refinancing of
our revolving credit loan and term loans and the senior subordinated notes
offering in February 1999.
Loss Before Income Taxes and Extraordinary Item
In 1999, the loss before income taxes and extraordinary item was $0.9
million versus $0.4 million in 1998, as the result of the factors described
above.
Income Tax Benefit
The effective tax rate (benefit) on income was (11.9)% in 1999 and (23.2)%
in 1998, both lower than the statutory federal income tax rate due to the
non-deductible portion of goodwill associated with our acquisitions and higher
foreign income taxes.
<PAGE>
Loss Before Extraordinary Item
In 1999, the loss before extraordinary item was $0.8 million versus $0.3
million in 1998 due to the factors described above.
Extraordinary Item
As a result of the February 1999 refinancing of our revolving credit loan
and term loans and the senior subordinated notes offering, we incurred an
extraordinary charge of $0.8 million, which is net of tax benefits of $0.4
million, relating to the write-off of unamortized deferred financing costs.
Net Loss
In 1999, the net loss was $1.6 million versus $0.3 million in 1998, 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 six months ended June 30,
1999, cash generated from operations was $5.5 million compared to cash generated
from operations of $12.9 million for the six months ended June 30, 1998. The
decrease was driven primarily by increased working capital investments in
accounts receivable and inventory levels in the first half of 1999 as compared
to the first half of 1998 to support our services division's sales growth as
well as to purchase raw materials in advance of announced price increases.
For the six months ended June 30, 1999 and 1998 we made capital
expenditures of $14.9 million and $12.0 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 June 30, 1999 we had net working capital of $21.5 million, including $2.7
million of cash, $33.7 million of accounts receivable, $22.3 million of
inventories, $7.6 million of other current assets, and approximately $44.8
million of accounts payable and accrued expenses.
On February 10, 1999, we refinanced our revolving credit loan and term
loans by amending our senior credit facility to provide for a $75.0 million
revolving credit line (including a $15.0 million Canadian credit line), which
bears interest, at our election, at a combination of domestic source and
Eurodollar borrowing rates which fluctuate based on our EBITDA and debt levels,
and a $25.0 million term loan, bearing interest at 9.48% (collectively, the
"Senior Credit Facility"). The revolving credit facility matures in February
2004 and the term loan matures in two equal installments in June 2006 and 2007.
In addition, we issued $150 million of 10 7/8% Senior Subordinated Notes (the
"Notes") due February 15, 2009, issued at 99.248% resulting in an effective
yield of 11.0%. The Senior Credit Facility contains certain covenants and
restrictions and is secured by substantially all our assets. The Notes require
semiannual interest payments commencing August 15, 1999 and mature February
2009. The Notes are subordinate to all existing and future senior indebtedness
and are unconditionally guaranteed by the domestic subsidiaries and contain a
number of customary covenants and restrictions. Deferred financing charges of
approximately $7.1 million were incurred in connection with the refinancing.
<PAGE>
Effect of Inflation
Inflation generally affects our business by increasing the interest expense
of floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. We do not believe that inflation has had any material effect on
our business during the periods discussed herein.
Recently Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes new disclosure requirements which provide a comprehensive standard
for recognition and measurement of derivatives and hedging activities. This will
require new disclosures, all derivatives to be recorded on the balance sheet at
fair value, and special accounting for particular types of hedges. SFAS 133 is
currently scheduled to take effect for us on January 1, 2000, but the Financial
Accounting Standards Board recently issued an exposure draft of a statement,
which if approved as drafted, would defer the effective date for one year. Based
on our current derivatives, an interest rate collar and foreign currency forward
contracts, we do not believe that SFAS 133 will have a material effect on our
financial condition or results of operations.
Year 2000 Compliance
General
As has been widely reported, many computer systems process dates based on
two digits for the year of transaction and may be unable to process dates in the
year 2000 and beyond. We believe that we have identified all significant
internal systems and hardware with embedded applications that require
modification to ensure year 2000 compliance. In addition, we have sent
questionnaires to our critical vendors in an attempt to confirm that they are
year 2000 compliant. We are conducting our year 2000 compliance efforts with the
assistance of independent consultants.
Internal Systems
Our significant internal systems consist of our accounting systems and our
system that manages the inventory for our plastic container leasing and fleet
management businesses. Two of our four accounting systems have been certified by
the licensor and successfully tested by us for year 2000 compliance. We are in
the process of replacing one of the other two accounting systems with a system
that is certified by the licensor as being year 2000 compliant, and we expect
the replacement and testing to be completed by the end of September 1999. We are
in the process of updating the fourth accounting system for year 2000
compliance, and we expect the updating and testing to be completed by the end of
September 1999. We are also in the process of updating our system that manages
the inventory for our plastic container leasing and fleet management businesses
for year 2000 compliance, and we expect the updating and testing to be completed
by the end of September 1999.
Hardware
Our hardware with embedded applications principally consists of
manufacturing machinery for the manufacture of plastic and steel drums.
Substantially, all of this machinery has been certified by the manufacturer and
tested by us for year 2000 compliance. Our tests have shown that our hardware is
year 2000 compliant.
Vendors
We have sent questionnaires to 31 of our vendors that we consider to be
critical. Twenty four vendors have responded, nineteen by supplying readiness
disclosures letters and five by completing our questionnaire. None of the
responding vendors reported any significant year 2000 compliance issues. We have
sent a follow-up letter to the seven vendors that have not responded to our
questionnaire. All of the vendors which have not responded are large,
sophisticated corporations, and we expect that they are aware of their year 2000
compliance issues.
Year 2000 Risks
Despite our year 2000 compliance efforts, there are many risks associated
with the year 2000 compliance issue, including but not limited to the possible
failure of our systems and hardware with embedded applications. These failures
could result in:
<PAGE>
. our inability to order raw materials,
. the malfunctioning of our manufacturing or services processes,
. our inability to properly bill and collect payments from our customers
and/or
. errors or omissions in accounting and financial data, any of which could
have a material adverse effect on our results of operations and financial
condition.
In addition, there can be no guarantee that the systems of other companies,
including our vendors, utilities and customers, will be converted in a timely
manner, or that a failure to convert by another company, or a conversion that is
incompatible with our systems, would not have a material adverse effect on us.
Costs
Through June 30, 1999 we have incurred and capitalized costs of
approximately $4.8 million primarily related to the upgrade and replacement of
our internal systems. We currently expect that we will incur and capitalize
future incremental costs of approximately $0.6 million. We are funding these
costs with a combination of cash from operations and borrowings under our senior
credit facility. We have developed our cost estimates with the assistance of
independent consultants.
Contingency Plans
We have not yet developed any contingency plans and, based on the state of
our year 2000 readiness, do not expect that we will have to do so. If, however,
the testing of our internal systems that we expect to complete by the end of
September 1999 or any further correspondence with our vendors indicates that it
is necessary, we will develop contingency plans to be in place by December 31,
1999.
<PAGE>
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. Important factors that could cause
our actual results to differ from our expectations include the following: our
ability to satisfy our obligations under our substantial indebtedness and the
restrictions which our indebtedness impose on our operations; our ability to
compete with competitors, including competitors that are larger than us and have
greater financial resources than we do; our ability to finance the significant
level of capital expenditures that our operations will require; the availability
of raw materials and our ability to pass along to our customers any increases in
our prices for raw materials; our ability to identify suitable businesses for
acquisition and our ability to consummate such acquisitions and integrate the
operations of such businesses; unfavorable shifts in demand from higher margin
products and services to lower margin products and services; declines in the
level of economic activity in the industries served by our customers; the
termination of a license under which we obtain important intellectual property;
adverse developments arising out of the ongoing grand jury investigation into
possible price-fixing in the plastic drum industry between 1991 and 1995; loss
of key personnel; employee slowdowns, strikes or similar actions; our compliance
with laws and regulations governing our business, including federal, state and
local environmental, transportation and shipping laws and regulations; our
exposure to litigation, including to claims for product liability and
contamination of the environment; and our ability and the ability of our
suppliers and customers to achieve year 2000 compliance.
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 $45.0 million to limit our exposure to interest
rate risk. Under this collar, if the actual Eurodollar 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 Eurodollar 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 in interest rates at June
30, 1999 would not have had a material adverse affect on our results of
operations, financial condition or cash flows.
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. Our Canadian subsidiary, Hunter Drums Limited, maintains
U.S. dollar denominated foreign currency exchange contracts which were in place
prior to our acquisition of Hunter Drums. At June 30, 1999, Hunter Drums held
$1.8 million of forward currency exchange contracts with settlement rates
ranging from $1.38 to $1.41 Canadian dollars to U.S. dollars and settlement
dates through December 1999. While these contracts increase our exposure to
foreign currency exchange rate risk, due primarily to the relatively short
maturities of these contracts, a 10% change in the exchange rate on June 30,
1999 between the U.S. dollar and the Canadian dollar would not have had a
material adverse affect on our results of operations, financial condition or
cash flows.
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
*3.1 Certificate of Incorporation of Russell-Stanley Holdings, Inc.
*3.2 By-Laws of Russell-Stanley Holdings, Inc.
*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.)
*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. 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.
*10.19 Employment Agreement, dated as of July 23, 1998, between
Russell-Stanley Holdings, Inc. and Gerard C. DiSchino.
*10.20 Employment Agreement, dated September 20, 1996, between
Russell-Stanley Corp. and Robert Singleton.
* 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.
27 Financial Data Schedule
* This Exhibit is incorporated by reference to the Exhibit of the same
number filed as part of the Company's Registration Statement on Form S-4 (File
No. 333-76057).
(b) Reports on Form 8-K
None
<PAGE>
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: September , 1999 By:___________________________________
Daniel W. Miller,
Executive Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,742,000
<SECURITIES> 0
<RECEIVABLES> 33,677,000
<ALLOWANCES> 0
<INVENTORY> 22,250,000
<CURRENT-ASSETS> 66,289,000
<PP&E> 94,804,000
<DEPRECIATION> 79,479,000
<TOTAL-ASSETS> 275,781,000
<CURRENT-LIABILITIES> 44,841,000
<BONDS> 0
0
0
<COMMON> 32,538,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 275,781,000
<SALES> 73,185,000
<TOTAL-REVENUES> 73,185,000
<CGS> 56,037,000
<TOTAL-COSTS> 13,366,000
<OTHER-EXPENSES> 86,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,382,000
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