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- --------------------------------------------------------------------------------
UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-26568
USA DETERGENTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 11-2935430
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
</TABLE>
1735 JERSEY AVENUE, NORTH BRUNSWICK, NEW JERSEY 08902
(Address of principal executive offices -Zip code)
(732) 828-1800
(Registrant's telephone number, including area code)
----------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was
required to file reports), and (2) has been subject to such filing requirements
for the past 90 days. X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OF STOCK NO. OF SHARES OUTSTANDING DATE
- ---------------- --------------------------- ------------
<S> <C> <C>
Common 13,825,602 May 4, 2000
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USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash ................................................................ $ 186 $ 254
Accounts receivable, net of customer allowances and doubtful accounts
of $1,028 and $997 at March 31, 2000, and December 31, 1999,
respectively ...................................................... 23,946 23,662
Inventories ......................................................... 15,959 14,504
Refundable income taxes ............................................. 3,127 3,127
Prepaid expenses and other current assets ........................... 4,198 4,599
--------- ---------
Total current assets .............................................. 47,416 46,146
Property and equipment-net ........................................... 42,068 43,417
Restricted funds ..................................................... 2,002 2,002
Deferred financing costs ............................................. 1,477 1,604
Other non-current assets ............................................. 1,346 1,517
--------- ---------
Total assets ...................................................... $ 94,309 $ 94,686
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ................................... $ 3,534 $ 3,534
Cash overdraft ...................................................... 2,885 1,229
Accounts payable .................................................... 20,145 17,785
Accrued expenses .................................................... 12,887 15,255
Other current liabilities ........................................... 303 340
--------- ---------
Total current liabilities ......................................... 39,754 38,143
Long-term debt--net of current portion ............................... 32,798 34,953
Long-term note payable ............................................... 2,000 2,000
Other non-current liabilities ........................................ 19 19
Deferred rent payable ................................................ 617 671
--------- ---------
Total liabilities ................................................. 75,188 75,786
--------- ---------
Commitments and Contingencies ........................................
Stockholders' equity:
Preferred stock-no par value; authorized 1,000,000 shares, none issued -- --
Common stock-$.01 par value; authorized 30,000,000 shares, issued and
outstanding 13,825,602 shares at March 31, 2000 and December 31,
1999, respectively ................................................ 138 138
Additional paid-in capital .......................................... 29,200 29,200
Deficit ............................................................. (10,042) (10,263)
Note receivable from shareholder .................................... (175) (175)
--------- ---------
Total stockholders' equity ........................................... 19,121 18,900
--------- ---------
Total liabilities and stockholders' equity ........................ $ 94,309 $ 94,686
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
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USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NET INCOME PER SHARE INFORMATION)
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<CAPTION>
THREE MONTHS ENDED MARCH 31,
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2000 1999
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<S> <C> <C>
Net sales ......................................................... $ 64,114 $ 59,390
Cost of goods sold ................................................ 43,932 39,041
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Gross profit ...................................................... 20,182 20,349
Selling, general and administrative ............................... 18,823 18,039
-------- --------
Income from operations ............................................ 1,359 2,310
Interest and amortization of deferred financing costs-net ......... 1,088 1,086
-------- --------
Income before provision for income taxes .......................... 271 1,224
Provision for income taxes ........................................ 50 58
-------- --------
Income before extraordinary charge ................................ 221 1,166
Extraordinary charge .............................................. -- 64
-------- --------
Net income ........................................................ $ 221 $ 1,102
======== ========
Basic income per share before extraordinary charge ................ $ .02 $ .08
Extraordinary charge ............................................. -- --
-------- --------
Basic net income per share ....................................... $ .02 $ .08
======== --------
Weighted average shares outstanding ............................... 13,826 13,826
======== ========
Diluted income per share before extraordinary charge .............. $ .02 $ .08
Extraordinary charge ............................................. -- --
-------- --------
Diluted net income per share ..................................... $ .02 $ .08
======== ========
Weighted average shares outstanding and common share
equivalents ...................................................... 13,836 13,862
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
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USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(IN THOUSANDS)
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<CAPTION>
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 221 $ 1,102
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................. 1,711 1,436
Loss on disposal of fixed assets .............................. -- 235
Amortization of deferred financing costs ...................... 147 228
Amortization of slotting ...................................... 718 678
Other amortization ............................................ 202 149
Change in the provision for customer allowances and doubtful
accounts .................................................... 31 (47)
Change in deferred rent ....................................... (54) (39)
Changes in operating assets and liabilities:
Increase in accounts receivable ............................... (315) (308)
Increase in inventories ....................................... (1,455) (314)
Increase in prepaid expenses and other current assets ......... (317) (522)
Increase in other non-current assets .......................... (48) (22)
Increase/(decrease) in cash overdraft ......................... 1,656 (476)
Decrease in accounts payable and accrued expenses ............. (8) (1,385)
Decrease in refundable income taxes ........................... -- 5
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Net cash provided by operating activities ...................... 2,489 720
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................. (362) (1,314)
--------- --------
Net cash used in investing activities .......................... (362) (1,314)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments to)/proceeds from credit facilities ............ (2,155) 7,223
Increase in restricted funds ................................... -- (4,002)
Decrease in other current liabilities .......................... (37) (186)
Increase in deferred financing costs ........................... (3) (386)
---------- --------
Net cash (used in)/provided by financing activities ............ (2,195) 2,649
--------- --------
Net (decrease)/increase in cash ................................ (68) 2,055
Cash at beginning of period .................................... 254 --
--------- --------
Cash at March 31, .............................................. $ 186 $ 2,055
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR OPERATING ACTIVITIES:
Interest paid .................................................. $ 951 $ 823
========= ========
Income taxes paid .............................................. $ 43 $ 128
========= ========
Income tax refunds received .................................... $ -- $ 83
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
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USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by the Company pursuant to the rules of the Securities and Exchange
Commission (the "SEC") and in the opinion of management, include all
adjustments, (consisting of normal recurring accruals) necessary for the fair
presentation of the Company's financial position, results of operations and
cash flows. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules. The Company
believes the disclosures included herein are adequate to make these financial
statements not misleading. The results for the interim periods presented are
not necessarily indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K, for the year ended December 31, 1999.
Reclassification -- Certain reclassifications have been made to prior
period amounts to conform with the presentation for the current period.
NOTE 2--NET INCOME PER SHARE
Basic net income per share is based on the weighted average number of
shares outstanding during the periods presented. Diluted net income per share
also includes potential Common Stock that is dilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect revenues and
profitability, including competition from other suppliers of laundry and
household cleaning products; changes in consumer preferences and spending
habits; commodity price increases; the inability to successfully manage growth;
seasonality; the ability to introduce and the timing of the introduction of new
products; the inability to obtain adequate supplies or materials at acceptable
prices; and the inability to reduce expenses to a level commensurate with
revenues. As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results, and stock price. Furthermore, this document and
other documents filed by the Company with the Securities and Exchange
Commission (the "SEC") contain certain forward-looking statements with respect
to the business of the Company. These forward-looking statements are subject to
certain risks and uncertainties, including the factors mentioned above, which
may cause actual results to differ significantly from these forward-looking
statements. The Company undertakes no obligation to publicly release any
revisions to these forward-looking statements which may be necessary to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. An investment in the Company involves various risks,
including the factors mentioned above and those which are detailed from time to
time in the Company's SEC filings.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net sales for the three months ended March 31, 2000 increased 8.0% to
$64.1 million from $59.4 million for the three months ended March 31, 1999. The
increase was primarily the result of an increase in unit sales of liquid
laundry products as well as household cleaners. Gross profit for the three
months ended March 31, 2000 decreased 0.8% to $20.2 million from $20.3 million
for the three months ended March 31, 1999. Gross profit as a percentage of net
sales decreased to 31.5% for the three months ended March 31, 2000 from 34.3%
for the same period in 1999. The decrease in gross profit as a percentage of
net sales for the quarter ended March 31, 2000 is due primarily to a 1.4%
increase in raw material cost due to commodity price increases and a 1.4%
increase in other manufacturing and distribution expenses for the three months
ended March 31, 2000.
5
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USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000--CONTINUED
Selling, general and administrative expenses increased 4.3% to $18.8
million in the three months ended March 31, 2000 from $18.0 million for the
three months ended March 31, 1999. As a percentage of net sales, these expenses
decreased to 29.4% for the three months ended March 31, 2000 from 30.4% for the
same period in 1999. The decrease as a percentage of net sales was primarily
due to a 1.0% decrease in marketing funds (co-op advertising, promotional
allowances and slotting amortization) and a 0.6% decrease in general and
administrative expenses. These decreases were offset in part by an increase as
a percentage of net sales of 0.7% in shipping expense principally due to higher
fuel prices during the three months ended March 31, 2000 versus the same period
in 1999.
Interest and amortization of financing costs-net was $1.1 million for both
periods.
Provision for income taxes for the three month periods ended March 31,
2000 and March 31, 1999 are based on actual tax computations for each of the
periods. The difference between the effective rates and the statutory rate
relates primarily to the Company's net operating loss carry forward, for which
the Company has not provided a tax benefit, and the alternative minimum tax.
The extraordinary charge of approximately $64,000 for the three months
ended March 31, 1999 relates to the write-off of deferred financing costs
related to the early extinguishment of the Company's prior credit facility with
PNC Bank, N.A. ("PNC"), now replaced by the Company's existing credit facility
with a group of banks led by FINOVA Capital Corporation.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company's working capital was $7.7 million
compared to working capital of $8.0 million at December 31, 1999.
Net cash provided by operating activities for the three months ended March
31, 2000 was $2.5 million, compared to $720,000 for the three months ended
March 31, 1999. The cash provided by operating activities in the three months
ended March 31, 2000 resulted primarily from depreciation and amortization of
$2.8 million, increase in cash overdraft of $1.7 million and net income of
$221,000. Offsetting this in part was an increase in inventory of $1.5 million,
an increase in prepaid expenses and other current assets of $317,000 and an
increase in accounts receivable of $315,000.
Net cash used in investing activities for the three months ended March 31,
2000 was $362,000, relating to the acquisition and upgrades of production
equipment and information systems. The Company anticipates that capital
expenditures for the remaining nine months of fiscal 2000 will be approximately
$4.6 million, which includes expenditures for continued enhancements to the
Company's manufacturing, distribution and information systems.
Net cash used in financing activities for the three months ended March 31,
2000 was $2.2 million which resulted primarily from scheduled installment
repayments of the Company's existing credit facilities.
On February 26, 1999, the Company refinanced its existing indebtedness
with a group of banks lead by FINOVA Capital Corporation to provide for an
additional $14.5 million of financing resulting in a total facility of $60.0.
The $14.5 million of additional financing is to be repaid in monthly
installments based upon a ten-year amortization schedule with interest at prime
plus 1.0%. At March 31, 2000, the prime interest rate was 9%. All indebtedness
to FINOVA is due in September 2003. The Company used $10.1 million of the
additional facility to pay off its remaining indebtedness to PNC. An additional
$4.0 million of the proceeds were set aside for the repayment of the Company's
indebtedness to 101 Realty Associates, LLC ("101 Realty"), provided the Company
met certain working capital levels and achieved specified profitability levels.
In May, 1999 the Company released $2.0 million of the reserved proceeds to pay
down a portion of its indebtedness to 101 Realty. The FINOVA Agreement provides
for the reserved funds to be used to pay down a portion of the $14.5 million of
additional indebtedness to the
6
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USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2000--CONTINUED
extent the Company does not meet the working capital and profitability levels
required for the repayment of the 101 Realty indebtedness. The increase in
availability under the FINOVA Agreement required the granting of a first
mortgage security interest to FINOVA and the other participating lenders on the
Company's real property located in New Jersey and Missouri.
The Company requires the availability of sufficient cash flow and
borrowing capacity to finance its operations, meet its debt service obligations
and fund future capital expenditure requirements. Management believes the
Company's present credit facility will adequately support its ongoing, debt
service and capital expenditure requirements for at least the next twelve
months. The Company's operating plan for the remainder of 2000 includes
improving its cost control programs and selling a distribution facility. If the
Company is successful in selling its distribution facility, management believes
it will realize an amount in excess of its current carrying value.
CURRENT DEVELOPMENTS
The cost of commodity related items (resin, paperboard, chemicals and
fuels) continue to impact the cost to manufacture and deliver the Company's
products. There can be no assurance that future price increases from the
Company's vendors will not have a material adverse effect on the Company or
that the Company will be able to react with price or product changes or other
manufacturing efficiencies of its own to offset these price increases.
INFLATION
Other than commodity related items described under the heading "Current
Developments" above, the Company does not believe that the relatively moderate
rates of inflation which recently have been experienced in the United States
have had a significant effect on net sales or profitability.
YEAR 2000 COMPLIANCE
The Company did not experience any disruptions to its normal operations or
any interruptions from its suppliers or customers as a result of the transition
into calendar year 2000. The Company continued to monitor its business
processes and third parties for potential problems that could arise. Based on
the absence of any problems to date, no significant disruptions are
anticipated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's carrying value of cash, restricted funds, trade accounts
receivable, accounts payable, accrued expenses, taxes payable, and existing
revolving line of credit facility, and term loans are a reasonable
approximation of their fair value.
The Company has not entered into, and does not expect to enter into,
financial instruments for trading or hedging purposes.
The Company is currently exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term debt obligations since
the majority of the Company's long-term debt obligations are at variable rates.
The Company does not currently anticipate entering into interest rate swaps
and/or other similar instruments.
7
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
In connection with the quarterly and annual results of operations
originally reported by the Company for certain fiscal quarters in 1996 and 1997
and the fiscal year ended December 31, 1996, the Company has received a formal
request from the SEC for the production of various documents and the testimony
of certain current and former employees. The Company has been providing
documentation and other materials to the SEC in response to the request, and
the testimony of certain persons has been taken. The Company will continue to
cooperate with the SEC.
The Company is also involved in various routine legal proceedings of a
nature it deems to be customary to a company its size. The Company believes the
ultimate disposition of these actions will not have a material adverse effect
on its business, financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES:
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
ITEM 5. OTHER INFORMATION:
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) 27 Financial Data Schedule
(b) Reports on Form 8-K
None.
8
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
USA DETERGENTS, INC.
May 11, 2000 By: /s/ Uri Evan
----------------------------------
Name: Uri Evan
Title: Chairman of the Board
of Directors and
Chief Executive Officer
May 11, 2000 By: /s/ Richard D. Coslow
----------------------------------
Name: Richard D. Coslow
Executive Vice President and
Chief Financial Officer
9
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<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the three months ended March 31, 2000, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 186
<SECURITIES> 0
<RECEIVABLES> 24,974
<ALLOWANCES> 1,028
<INVENTORY> 15,959
<CURRENT-ASSETS> 47,416
<PP&E> 63,968
<DEPRECIATION> 21,900
<TOTAL-ASSETS> 94,309
<CURRENT-LIABILITIES> 39,754
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 18,983
<TOTAL-LIABILITY-AND-EQUITY> 94,309
<SALES> 64,114
<TOTAL-REVENUES> 64,114
<CGS> 43,932
<TOTAL-COSTS> 18,823
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,088
<INCOME-PRETAX> 271
<INCOME-TAX> 50
<INCOME-CONTINUING> 221
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 221
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
