<PAGE>
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UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20509
----------------
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 September 30, 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)
Delaware
(State or other jurisdiction of 11-2935430
incorporation or organization) (IRS Employer Identification No.)
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. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OF STOCK NO. OF SHARES OUTSTANDING DATE
---------------- --------------------------- -----------------
Common 14,192,776 October 27, 2000
--------------------------------------------------------------------------------
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash .................................................................... $ 421 $ 254
Restricted funds ........................................................ 2,002 --
Accounts receivable, net of customer allowances and doubtful accounts
of $939 and $997 at September 30, 2000, and December 31, 1999,
respectively .......................................................... 23,041 23,662
Inventories ............................................................. 17,556 14,504
Refundable income taxes ................................................. 3,726 3,127
Prepaid expenses and other current assets ............................... 4,087 4,599
-------- ---------
Total current assets .................................................. 50,833 46,146
Property and equipment--net ............................................. 41,316 43,417
Restricted funds ........................................................ -- 2,002
Deferred financing costs ................................................ 1,214 1,604
Other non-current assets ................................................ 942 1,517
-------- ---------
Total assets .......................................................... $ 94,305 $ 94,686
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................................... $ 5,534 $ 3,534
Cash overdraft .......................................................... 2,544 1,229
Accounts payable ........................................................ 19,343 17,785
Accrued expenses ........................................................ 13,572 15,255
Other current liabilities ............................................... 303 340
-------- ---------
Total current liabilities ............................................. 41,296 38,143
Long-term debt--net of current portion ................................... 28,478 34,953
Long-term note payable ................................................... -- 2,000
Other non-current liabilities ............................................ -- 19
Deferred rent payable .................................................... 508 671
-------- ---------
Total liabilities ..................................................... 70,282 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 14,192,776 and 13,825,602 shares at September 30, 2000
and December 31, 1999, respectively ................................... 142 138
Additional paid-in capital .............................................. 31,907 29,200
Deficit ................................................................. (7,956) (10,263)
Note receivable from shareholder ........................................ (70) (175)
-------- ---------
Total stockholders' equity ............................................... 24,023 18,900
-------- ---------
Total liabilities and stockholders' equity ............................ $ 94,305 $ 94,686
======== =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales ............................................... $63,656 $60,683 $189,465 $178,849
Cost of goods sold ...................................... 43,464 42,103 129,634 119,946
------- ------- -------- --------
Gross profit ............................................ 20,192 18,580 59,831 58,903
Selling, general and administrative ..................... 18,295 18,226 54,754 54,093
------- ------- -------- --------
Income from operations .................................. 1,897 354 5,077 4,810
Interest and amortization of deferred financing
costs--net ............................................. 382 1,123 2,570 3,273
------- ------- -------- --------
Income/(loss) before provision for income taxes ......... 1,515 (769) 2,507 1,537
Provision for income taxes .............................. 75 75 200 110
------- ------- -------- --------
Income/(loss) before extraordinary charge ............... 1,440 (844) 2,307 1,427
Extraordinary charge .................................... -- -- -- 64
------- ------- -------- --------
Net income/(loss) ....................................... $ 1,440 $ (844) $ 2,307 $ 1,363
======= ======= ======== ========
Basic income/(loss) per share before extraordinary
charge ................................................. $ .10 $ (.06) $ .17 $ .10
Extraordinary charge ................................... -- -- -- --
------- ------- -------- --------
Basic net income/(loss) per share ...................... $ .10 $ (.06) $ .17 $ .10
======= ======= ======== ========
Weighted average shares outstanding ..................... 14,193 13,826 13,972 13,826
======= ======= ======== ========
Diluted income/(loss) per share before extraordinary
charge ................................................. $ .10 $ (.06) $ .16 $ .10
Extraordinary charge ................................... -- -- -- --
------- ------- -------- --------
Diluted net income/(loss) per share .................... $ .10 $ (.06) $ .16 $ .10
======= ======= ======== ========
Weighted average shares outstanding and common
share equivalents ...................................... 14,432 13,826 14,062 13,862
======= ======= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000, AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
2000 1999
----------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 2,307 $ 1,363
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ........................................ 5,098 4,570
Loss on disposal of fixed assets ..................................... -- 235
Amortization of deferred financing costs ............................. 424 519
Amortization of slotting ............................................. 1,943 2,629
Other amortization ................................................... 620 586
Change in the provision for customer allowances and doubtful
accounts ........................................................... 152 (96)
Change in deferred rent .............................................. (163) (148)
Issuance of warrant in connection with joint venture ................. 195 --
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable ........................... 469 (2,536)
Increase in inventories .............................................. (3,052) (3,317)
Increase in prepaid expenses and other current assets ................ (1,431) (2,654)
Increase in other non-current assets ................................. (79) (130)
Increase/(decrease) in cash overdraft ................................ 1,315 (476)
(Decrease)/increase in accounts payable and accrued expenses ......... (125) 2,640
(Increase)/decrease in refundable income taxes ....................... (599) 29
-------- -------
Net cash provided by operating activities ............................. 7,074 3,214
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................................... (2,997) (3,603)
-------- -------
Net cash used in investing activities ................................. (2,997) (3,603)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments to)/proceeds from credit facilities ................... (6,475) 7,905
Increase in restricted funds .......................................... -- (2,002)
Decrease in note payable .............................................. -- (2,000)
Decrease in other current liabilities ................................. (37) (457)
Increase in deferred financing costs .................................. -- (688)
Decrease in other non-current liabilities ............................. (19) (9)
Issuance of options in connection with consulting agreement ........... 50 --
Proceeds from sale of common shares ................................... 2,571 --
-------- ---------
Net cash (used in)/provided by financing activities ................... (3,910) 2,749
-------- ---------
Net increase in cash .................................................. 167 2,360
Cash at beginning of period ........................................... 254 --
-------- ---------
Cash at September 30, ................................................. $ 421 $ 2,360
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR OPERATING ACTIVITIES:
Interest paid ......................................................... $ 233 $ 2,662
======== =========
Income taxes paid ..................................................... $ 77 $ 208
======== =========
Income tax refunds received ........................................... $ 110 $ 107
======== =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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.
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 for options and warrants that are
dilutive.
NOTE 3--NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). This standard was amended by
Statement of Financial Accounting Standards No. 137 "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" and changed the effective date for SFAS 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000. In June 2000, the FASB
issued SFAS 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS 133 and 138 requires that all derivative instruments
be recorded on the balance sheet at their respective fair values. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on the designation of the hedge
transaction. For fair value hedge transactions in which the Company is hedging
changes in the fair value of assets or liabilities, changes in the fair value
of the derivative instrument will generally be offset by changes in the hedged
item's fair value. For cash flow hedge transactions in which the Company is
hedging the variability of cash flows related to a variable rate asset,
liability or forecasted transaction, changes in the fair value of the
derivative instrument will be reported in other comprehensive income. The gains
and losses on the derivative instrument that are reported in other
comprehensive income will be recognized in earnings in the periods in which
earnings are impacted by the variability of the cash flows of the hedged item.
The Company will adopt SFAS 133 and 138 in the first quarter of 2001 and does
not expect it to have a material effect on the Company's results of operations,
cash flows or financial position.
During May 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue
No. 00-14, "Accounting for Certain Sales Incentives." EITF No. 00-14 addresses
the classification of various sales incentives and will be effective for the
fourth quarter of 2000. The Company has determined that the adoption of EITF
Issue No. 00-14 will have no effect on its financial position or results of
operations.
In December 1999, the 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 adopted the
provisions of SAB 101 during the fourth quarter ending December 31, 2000 and it
is not expected to have a material impact on the Company's consolidated results
of operations, financial position or cash flows.
5
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000--CONTINUED
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;
the inability to successfully manage the implementation of the ARMUS joint
venture; 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.
CURRENT DEVELOPMENTS
On June 14, 2000, the Company and Church & Dwight Co., Inc. announced that
they have entered into an agreement to form a joint venture arrangement with
respect to their laundry care business. Under the terms of the joint venture
agreement, the Company will contribute its XTRA (Registered Trademark) and
Nice'n FLUFFY (Registered Trademark) brands and Church & Dwight will
contribute its Arm & Hammer (Registered Trademark) brand under a sales and
marketing organization dedicated to these brands. Based on current sales
levels, the joint venture, which will operate under the name ARMUS, LLC, would
have sales of approximately $400 million per year and rank as the third largest
laundry care products business in the $6 billion U.S. market.
The joint venture will utilize the respective strengths of each venture
member in the manufacture, marketing, sales and distribution of the various
laundry care products. In addition, at a member's request, ARMUS may sell and
or distribute any of that member's other product offerings.
In early 2001, Church & Dwight will transfer liquid laundry detergent
production from its Syracuse plant, which is being closed, to the Company's New
Jersey and Missouri facilities. During the second half of 2001, both companies
expect to fully integrate warehouse and distribution systems. Additional
efficiencies in product formulation and packaging are expected to be realized
late in 2001.
The Company's annual share of the profits resulting from the joint venture
will range from 35% to 45%, depending on the profit level of the joint venture,
subject to specific adjustments. In addition, the Company anticipates that the
increased utilization of its manufacturing and logistics capacity directly by
the venture, as well as any distribution opportunities related to other Church
& Dwight products, will increase the Company's overall profitability. The
parties have agreed that ARMUS will begin operations on January 1, 2001.
In connection with the anticipated commencement of the ARMUS joint
venture, on September 28, 2000 the Company leased a 525,000 square foot
distribution facility adjacent to its manufacturing facility in North
Brunswick, New Jersey. The initial lease term is for ten years with the option
to extend the lease for two five-year periods. In connection with this lease,
Church & Dwight has provided a standby letter of credit as a security deposit
of approximately $2 million.
6
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000--CONTINUED
In October 2000, the Company commenced construction of a 150,000 square
foot distribution center at its Harrisonville manufacturing facility. The
building is expected to be completed by March 2001 at a cost of approximately
$4 million. The facility will be used to distribute ARMUS and Church & Dwight
product.
The Company anticipates that it will incur start-up and integration
expenses of approximately $2 million over the next nine to twelve months, and
approximately $500,000 of severance charges related to the sales force
reorganization. A substantial portion is expected to be incurred during the
fourth quarter of fiscal 2000. Such costs will be expensed as incurred.
The joint venture will have a minimum five-year duration. The agreement
grants to Church & Dwight, after five years, the right to purchase the
Company's interest in the joint venture, based upon a specific formula related
to the earnings of the joint venture for the two years prior to the purchase.
In addition, after ten years the Company may require Church & Dwight to buy the
Company's interest based on this same formula.
In connection with the joint venture, Church & Dwight acquired from the
Company approximately 360,000 shares of the Company's common stock at $7 per
share. Proceeds from the sale of shares by the Company will be substantially
invested in capital projects.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
Net sales for the three months ended September 30, 2000 increased 4.9% to
$63.7 million from $60.7 million for the three months ended September 30, 1999.
The increase was primarily the result of an increase in unit sales of liquid
laundry products. Gross profit for the three months ended September 30, 2000
increased 8.7% to $20.2 million from $18.6 million for the three months ended
September 30, 1999. Gross profit as a percentage of net sales increased to
31.7% for the three months ended September 30, 2000 from 30.6% for the same
period in 1999. The increase in gross profit as a percentage of net sales for
the quarter ended September 30, 2000 is primarily due to decreases in direct
labor and manufacturing and distribution overheads offset by increased
commodity prices when compared to the same quarter in 1999.
Selling, general and administrative expenses increased 0.4% to $18.3
million in the three months ended September 30, 2000 from $18.2 million for the
three months ended September 30, 1999. As a percentage of net sales, these
expenses decreased to 28.7% for the three months ended September 30, 2000 from
30.0% for the third quarter of 1999, primarily due to a decrease in selling
expenses and marketing funds (co-op advertising, promotional allowances and
slotting amortization) and other general and administrative expenses, offset by
an increase in shipping expenses primarily due to higher fuel costs.
Interest expense and amortization of financing costs was $1.1 million for
both periods. The expense for the three months ended September 30, 2000 was
offset by approximately $700,000 of interest income related to a federal income
tax refund of approximately $3.0 million for fiscal 1996, which was received in
October 2000.
Provision for income taxes for the three-month periods ended September 30,
2000 and September 30, 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.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999
Net sales for the nine months ended September 30, 2000 increased 5.9% to
$189.5 million from $178.8 million for the nine months ended September 30,
1999. The increase was primarily the result of an increase in unit sales of
liquid laundry products. Gross profit for the nine months ended September 30,
7
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000--CONTINUED
2000 increased 1.6% to $59.8 million from $58.9 million for the nine months
ended September 30, 1999. Gross profit as a percentage of net sales decreased
to 31.6% for the nine months ended September 30, 2000 from 32.9% for the same
period in 1999. The decrease in gross profit as a percentage of net sales for
the nine months ended September 30, 2000 is primarily due to increases in
commodity prices when compared to the same period last year, partially offset
by decreases in direct labor and manufacturing and distribution overheads.
Selling, general and administrative expenses increased 1.2% to $54.8
million for the nine months ended September 30, 2000 from $54.1 million for the
nine months ended September 30, 1999. As a percentage of net sales, these
expenses decreased to 28.9% for the nine months ended September 30, 2000 from
30.2% for the comparable 1999 period, primarily due to a decrease in marketing
funds (co-op advertising, promotional allowances and slotting amortization) and
other selling and general administrative expenses, offset by an increase in
shipping expenses primarily due to higher fuel costs.
Net income for the nine months ended September 30, 2000 included a charge
of $195,000 related to the issuance of a warrant for 140,000 shares of common
stock and other considerations in connection with the Company's joint venture
with Church & Dwight. The warrant replaced a previously issued warrant for
350,000 shares of the Company's common stock. Net income for the nine months
ended September 30, 1999 also includes a restructuring credit of approximately
$113,000 related to a sublease of a previously closed facility that occurred
earlier than expected and a charge of approximately $64,000 related to a
write-off of expenses associated with the closing of the Company's additional
financial arrangement with Finova Capital Corporation.
Interest expense and amortization of financing costs was $3.3 million for
both periods. The expense for the nine months ended September 30, 2000 was
offset by approximately $700,000 of interest income related to a federal income
tax refund of approximately $3.0 million for fiscal 1996, which was received in
October 2000.
Provision for income taxes for the nine-month periods ended September 30,
2000 and September 30, 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.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company's working capital was $9.5 million
compared to working capital of $8.0 million at December 31, 1999.
Net cash provided by operating activities for the nine months ended
September 30, 2000 was $7.1 million, compared to $3.2 million for the nine
months ended September 30, 1999. The cash provided by operating activities in
the nine months ended September 30, 2000 resulted primarily from depreciation
and amortization of $5.1 million, decrease in accounts receivable of $.5
million, increase in cash overdraft of $1.3 million and net income of $2.3
million. Offsetting this was an increase in inventory of $3.1 million, an
increase in prepaid expenses and other current assets of $1.4 million and an
increase in refundable income taxes of $0.6 million.
Net cash used in investing activities for the nine months ended September
30, 2000 was $3.0 million relating to the acquisition and upgrades of
production equipment and information systems. The Company anticipates that
capital expenditures for the remaining three months of fiscal 2000 will be
approximately $3.0 million, which includes expenditures for the new
distribution center at Harrisonville, Missouri, and continued enhancements to
the Company's manufacturing, distribution and information systems.
Net cash used in financing activities for the nine months ended September
30, 2000 was $3.9 million resulting primarily from scheduled installment
repayments of the Company's existing credit facilities of
8
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000--CONTINUED
$6.5 million partially offset by the proceeds of $2.6 million from the sale of
common shares in connection with the establishment of the joint venture with
Church & Dwight.
The Company anticipates that it will incur start-up and integration
expenses of approximately $2 million over the next nine to twelve months, and
approximately $500,000 of severance charges related to the sales force
reorganization. A substantial portion is expected to be incurred during the
fourth quarter of fiscal 2000. Such costs will be expensed as incurred.
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
million. 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 September 30, 2000, the prime interest rate was 9.5%. All
indebtedness to FINOVA is due in September 2003. The Company used $10.1 million
of the additional facility to pay off its then remaining indebtedness to PNC
Bank, National Association. 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
extent the Company does not meet the working capital and profitability levels
required for the repayment of the 101 Realty indebtedness.
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 a distribution facility, management believes
it will realize an amount in excess of its current carrying value.
INFLATION
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.
Other than commodity related items described 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.
SEASONALITY
The Company has experienced, and may experience in the future, quarter to
quarter fluctuations in its operating results as a result of the timing and
introduction of new products and the tendency of certain retailers to provide
reduced or less desirable display space for the Company's laundry detergent
products during the holiday shopping season.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" (SFAS
9
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000--CONTINUED
133). This standard was amended by Statement of Financial Accounting Standards
No. 137 "Accounting for Derivative Instruments and Hedging Activities--Deferral
of the Effective Date of FASB Statement No. 133" and changed the effective date
for SFAS 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. In June 2000, the FASB issued SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." SFAS 133 and 138
requires that all derivative instruments be recorded on the balance sheet at
their respective fair values. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on the designation of the hedge transaction. For fair value hedge
transactions in which the Company is hedging changes in the fair value of
assets or liabilities, changes in the fair value of the derivative instrument
will generally be offset by changes in the hedged item's fair value. For cash
flow hedge transactions in which the Company is hedging the variability of cash
flows related to a variable rate asset, liability or forecasted transaction,
changes in the fair value of the derivative instrument will be reported in
other comprehensive income. The gains and losses on the derivative instrument
that are reported in other comprehensive income will be recognized in earnings
in the periods in which earnings are impacted by the variability of the cash
flows of the hedged item. The Company will adopt SFAS 133 and 138 in the first
quarter of 2001 and does not expect it to have a material effect on the
Company's results of operations, cash flows or financial position.
During May 2000, the Emerging Issues Task Force ("EITF") issued EITF Issue
No. 00-14, "Accounting for Certain Sales Incentives." EITF No. 00-14 addresses
the classification of various sales incentives and will be effective for the
fourth quarter of 2000.The Company has determined that the adoption of EITF
Issue No. 00-14 will have no effect on its financial position or results of
operations.
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 adopted the provisions of SAB 101 during the
fourth quarter ending December 31, 2000 and it is not expected to have a
material impact on the Company's consolidated results of operations, financial
position or cash flows.
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, 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.
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.
10
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USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000--CONTINUED
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. DEFAULT UPON SENIOR SECURITIES:
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
ITEM 5. OTHER INFORMATION:
None
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K:
(a) EXHIBITS
10.1 Sublease, dated as of September 28, 2000, between CH/EQUITY NJ,
LLC, a Delaware limited liability company as sublandlord and USA
Detergents, Inc. as subtenant.
10.2 Employment Agreement, dated as of August 21, 2000 between Charles
La Rosa and USA Detergents, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
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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.
November 9, 2000 By: /s/ Uri Evan
-----------------------------------
Name: Uri Evan
Title: Chairman of the Board of
Directors and Chief Executive
Officer
November 9, 2000 By: /s/ Charles E. LaRosa
-----------------------------------
Name: Charles E. LaRosa
Title: President & Chief
Operating Officer
November 9, 2000 By: /s/ Richard D. Coslow
-----------------------------------
Name: Richard D. Coslow
Title: Executive Vice President and
Chief Financial Officer
12
