<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
(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, 1998.
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 11-2935430
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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] (1) 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 13,825,227 April 9, 1998
(1) The Company was delinquent in the filing of its Form 10Q for the quarter
ended June 30, 1997, which Form has since been filed.
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
------------ ---------
<S> <C> <C>
Current assets:
Cash $ 1,848 $ 2,921
Accounts receivable, net of customer allowances and doubtful
accounts of $867 and $991 , respectively 24,349 24,406
Inventories 17,258 15,264
Refundable income taxes 7,120 7,061
Deferred financing costs 211 807
Prepaid expenses and other current assets 3,249 3,027
------------ ------------
Total current assets 54,035 53,486
Property and equipment - net 45,672 45,035
Restricted funds 275 275
Deferred financing costs 280 618
Other non-current assets 2,546 2,367
------------ ------------
Total assets $ 102,808 $ 101,781
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,501 $ 36,422
Accounts payable 29,880 27,695
Accrued expenses 13,259 13,727
Other current liabilities 1,367 947
------------ ------------
Total current liabilities 47,007 78,791
Long-term debt - net of current portion 38,998 -
Long-term note payable - 4,000
Deferred rent payable 1,219 1,203
------------ ------------
Total liabilities 87,224 83,994
------------ ------------
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 13,806,279 and 13,825,227 shares, respectively 138 138
Subscribed common stock -
Additional paid-in capital 28,336 29,196
Retained earnings/(deficit) (12,715) (11,372)
Note receivable - warrant (175) (175)
------------ ------------
Total stockholders' equity 15,584 17,787
------------ ------------
Total liabilities and stockholders' equity $ 102,808 $ 101,781
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT NET INCOME/(LOSS) PER SHARE INFORMATION)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Net sales $ 60,670 $ 56,678
Cost of goods sold 49,345 39,977
--------- ---------
Gross profit 11,325 16,701
Selling, general and administrative 19,153 14,538
--------- ---------
Income/(loss) from operations (7,828) 2,163
Interest expense - net 446 799
--------- ---------
Earnings/(loss) before provision/(benefit) for income taxes (8,274) 1,364
Provision/(benefit) for income taxes (2,817) 21
--------- ---------
Net income/(loss) $ (5,457) $ 1,343
========= =========
Basic net income/(loss) per share $ (.40) $ .10
========= =========
Weighted average shares outstanding 13,765 13,814
========= =========
Diluted net income/(loss) per share $ (.40) $ .10
========= =========
Weighted average shares outstanding and common share
equivalents 13,765 14,060
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997, AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) (5,457) 1,343
Adjustments to reconcile net income/(loss) to net
cash used in operating activities:
Depreciation and amortization 1,030 1,385
Amortization of warrants 92
Change in the provision for customer allowances and doubtful accounts 353 124
Decrease in deferred rent (16) (16)
Changes in operating assets and liabilities:
Increase in accounts receivable (2,740) (181)
Decrease in inventories 4,749 1,994
Increase in prepaid expenses and other current assets (398) 222
(Increase)/decrease in other assets (18) 5
Increase/(decrease) in accounts payable and accrued expenses 8,315 (1,717)
(Increase)/decrease in refundable income taxes (2,515) 59
Increase in deferred tax asset (590) -
Increase in deferred tax liability 271 -
-------- --------
Net cash provided by operating activities 2,984 3,310
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,483) (591)
-------- --------
Net cash used in investing activities (10,483) (591)
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (77) (77)
Increase in deferred financing costs (408) (259)
Net proceeds from/(repayments to) credit facility 674 (5,000)
Decrease in non-current liabilities (37) -
Repayments of Oracle software obligation - (420)
Net proceeds from exercise of options 190 110
Increase in note bank payable 6,000 -
Increase in note payable related party - 4,000
-------- --------
Net cash provided by (used in) financing activities 6,342 (1,646)
======== ========
Net (decrease)/increase in cash (1,157) 1,073
Cash beginning of period 2,373 1,848
======== ========
Cash end of period $ 1,216 $ 2,921
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 348 $ 735
======== ========
Income taxes $ 17 $ 21
======== ========
Income tax refunds received $ - $ 60
======== ========
Value of warrants in connection with bank & related party financings $ - $ 750
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
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 ("SEC") and in the opinion of management, include all adjustments,
(consisting of normal recurring accruals) necessary for the fair presentation
of 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 SEC rules. The Company believes the
disclosures made are adequate to make such 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 December 31, 1997 10-K which
includes, financial information for the year ended December 31, 1997.
Reclassifications - certain reclassifications have been made to prior
year amounts to conform with the presentation for the current year.
Note # 2 - PNC Bank Debt
On February 25, 1998, the Company and PNC Bank, National
Association ("PNC") entered into an amended and restated Loan and Security
Agreement (the "February 1998 PNC Facility"), which waives all defaults under
the then existing financing agreements with PNC. Under the amended agreement,
the Company made a principal payment of $5 million and granted PNC a security
interest in substantially all of the assets of the Company. The balance of the
principal indebtedness, approximately $35 million, has been extended to January
4, 1999 and bears interest at rates which range from prime plus .25% to prime
plus 2%. The actual rate depends on the timing of the repayment of the
indebtedness. The February 1998 PNC Facility requires the Company to, among
other things, maintain a ratio of current assets to current liabilities (as
defined) in excess of 1.1, and prohibits the payment of dividends and the
incurrence of new debt. Of the $5 million paid to PNC, $4 million was loaned to
the Company by an entity owned by certain of the Company's principal
stockholders at a rate of 9.5% per annum, and is due in July 1999. These
stockholders also personally guaranteed the repayment of up to an additional $5
million of the indebtedness owed to PNC. At March 31, 1998, the total amount
due PNC of approximately $35,000,000 is classified as current.
5
<PAGE>
In connection with the transaction, PNC received a warrant to purchase
between approximately 138,000 and 690,000 shares of the Company's common stock,
depending on the repayment date of the remaining indebtedness (138,000 shares
if paid in full by September 30, 1998). In conjunction with the issuance of
this warrant, the Company recognized in the first quarter of 1998, a deferred
charge of $415,000. This charge is being deferred and amortized over the period
ending January 4, 1999. The Company engaged the services of an independent
specialty investment banking firm to establish the valuation of this warrant.
The stockholders who funded $4 million of the $5 million payment
described above and guaranteed the repayment of an additional $5 million have
been granted warrants to purchase between approximately 99,000 and 194,000
shares of the Company's common stock depending on whether the $5 million which
is the subject of the quarantee is required to be paid. In conjunction with the
issuance of these warrants, the Company recognized, in the first quarter of
1998, a deferred charge of $335,000 based on a warrant for approximately 99,000
shares. This charge is being deferred and amortized over an 18 month period.
The Company engaged the services of an independent specialty investment banking
firm to calculate and establish the valuation of these warrants.
Note # 3 - EDA Loan
The Company has a loan facility of $2.75 million from the New Jersey
Economic Development Authority (the "EDA Loan"). As of March 31, 1998, the
Company used approximately $2.5 million of the EDA Loan for purchases of
machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remaining funds are restricted for the duration of
the EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (3.65% at March 31, 1998). As a result of several factors,
including those relating to the Company's historical financial performance,
amounts owed under the EDA Loan, at the option of the issuing lender
thereunder, may be declared immediately due and payable. The Company has
requested a waiver from the New Jersey Economic Development Authority with
respect to existing violations under the terms of the EDA Loan. There can be no
assurances that the Company will be successful in obtaining such waiver. To
date, the Company is current with respect to scheduled principal and interest
payments. The entire obligation has been classified as current in the March 31,
1998 balance sheet.
6
<PAGE>
Note # 4 - Oracle Purchase Obligation
On April 16, 1998 the Company obtained a forbearance agreement from
Sanwa Business Credit Corporation, (SBCC) which provided that SBCC would
forbear exercising its rights and remedies available to it under the May 29,
1997 Oracle Software Obligation which was assigned to SBCC on August 20, 1997.
Under the terms of the agreement the Company has agreed to pay SBCC the entire
amount due in installments by September 30, 1998.
Note # 5 - Selling General and Administrative Expenses
During the there months ended March 31, 1998, the Company reversed a portion of
a previously recorded accrual of $238,000 related to the termination of certain
related party consulting agreement obligations and $250,000 related to the
elimination of excess prior period freight accrual estimates no longer
required.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Net sales for the three months ended March 31, 1998 decreased 6.6% to
$56.7 million from $60.7 million for the three months ended March 31, 1997. The
decrease is primarily attributable to a decrease in the average selling price
due to management's decision to closeout certain discontinued items at reduced
prices, partially offset by an increase in units sold, primarily consisting of
liquid detergents and fabric softners.
Gross profit increased 47.8% to $16.7 million in the three months
ended March 31, 1998 from $11.3 million for the comparable period in 1997.
Gross profit increased as a percentage of net sales to 29.5% in the three
months ended March 31, 1998 from 18.7% for the comparable period in 1997. The
increase in gross profit as a percentage of net sales was primarily
attributable to a decrease in material costs due to more favorable pricing and
manufacturing efficiencies. The increase in gross profit as a percentage of net
sales was also affected by a decrease of 1.5%; .5% and .7% as a percentage of
net sales in distribution; direct labor, and facilities overhead costs
resulting from improved cost control measures, respectively. These decreases
were offset slightly by an increase in manufacturing overhead of .4% as a
percentage of net sales.
Selling, general and administrative expenses decreased 24.5% to $14.5
million in the three months ended March 31, 1998 from $19.2 million for the
comparable period in 1997. As a percentage of net sales, these expenses
decreased to 25.7% in the three months ended March 31, 1998 from 31.6% for the
comparable period in 1997. The decrease as a percentage of net sales was
primarily due to decreases of 3.3% in marketing funds, (co-op advertising,
promotional allowances and slotting amortization) 1.2% in freight to customers
and 1.6% in commissions offset by a .1% increase in general and administrative
expenses. During the quarter ended March 31, 1998, the Company reversed a
portion of a previously recorded accrual of $238,000 related to the termination
of certain related party consulting agreement obligations and $250,000 related
to the elimination of excess prior period freight accrual estimates no longer
required.
Interest expense-net increased to $799,000 in the three months ended
March 31, 1998 from $446,281 for the comparable period in 1997, primarily as a
result of higher average outstanding borrowings.
The income tax provision for the three months ended March 31, 1998 and
the income tax benefit for the three months ended March 31, 1997 are based on
actual tax computations for each of the periods. The difference in the
effective rates between the periods relates primarily to the Company's net
operating loss carry forward.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
PNC BANK DEBT
On February 25, 1998, the Company and PNC Bank, National
Association ("PNC") entered into an amended and restated Loan and Security
Agreement (the "February 1998 PNC Facility"), which waives all defaults under
the then existing financing agreements with PNC. Under the amended agreement,
the Company made a principal payment of $5 million and granted PNC a security
interest in substantially all of the assets of the Company. The balance of the
principal indebtedness, approximately $35 million, has been extended to January
4, 1999 and bears interest at rates which range from prime plus .25% to prime
plus 2%. The actual rate depends on the timing of the repayment of the
indebtedness. The February 1998 PNC Facility requires the Company to, among
other things, maintain a ratio of current assets to current liabilities (as
defined) in excess of 1.1, and prohibits the payment of dividends and the
incurrence of new debt. Of the $5 million paid to PNC, $4 million was loaned to
the Company by an entity owned by certain of the Company's principal
stockholders at a rate of 9.5% per annum, and is due in July 1999. These
stockholders also personally guaranteed the repayment of up to an additional $5
million of the indebtedness owed to PNC. At March 31, 1998, the total amount
due PNC of approximately $35,000,000 is classified as current.
In connection with the transaction, PNC received a warrant to purchase
between approximately 138,000 and 690,000 shares of the Company's common stock,
depending on the repayment date of the remaining indebtedness (138,000 shares
if paid in full by September 30, 1998). In conjunction with the issuance of
this warrant, the Company recognized in the first quarter of 1998, a deferred
charge of $415,000. This charge is being deferred and amortized over the period
ending January 4, 1999. The Company engaged the services of an independent
specialty investment banking firm to establish the valuation of this warrant.
The stockholders who funded $4 million of the $5 million payment
described above and guaranteed the repayment of an additional $5 million have
been granted warrants to purchase between approximately 99,000 and 194,000
shares of the Company's common stock, depending on whether the $5 million which
is the subject of the quarantee is required to be paid. The warrants were
approved by the Board of Directors on April 30, 1998. In conjunction with the
issuance of these warrants, the Company recognized, in the first quarter of
1998, a deferred charge of $335,000 based on a warrant for approximately 99,000
shares. This charge is being deferred and amortized over an 18 month period.
The Company engaged the services of an independent specialty investment banking
firm to calculate and establish the valuation of these warrants.
9
<PAGE>
EDA Loan
The Company also has a loan facility of $2.75 million from the New
Jersey Economic Development Authority (the "EDA Loan"). As of March 31, 1998,
the Company used approximately $2.5 million of the EDA Loan for purchases of
machinery and equipment and improvements to the Company's North Brunswick
manufacturing facility. The remaining funds are restricted for the duration of
the EDA Loan. The EDA Loan is payable in monthly installments of approximately
$26,000 through November 1, 2002. Interest on the EDA Loan is payable at a
variable rate (3.65% at March 31, 1998). As a result of several factors,
including those relating to the Company's historical financial performance,
amounts owed under the EDA Loan, at the option of the issuing lender
thereunder, may be declared immediately due and payable. The Company has
requested a waiver from the New Jersey Economic Development Authority with
respect to existing violations under the terms of the EDA Loan. There can be no
assurances that the Company will be successful in obtaining such waiver. To
date, the Company is current with respect to scheduled principal and interest
payments. The entire obligation has been classified as current in the March 31,
1998 balance sheet.
Oracle Purchase Obligation
On April 16, 1998 the Company obtained a forbearance agreement from
Sanwa Business Credit Corporation, (SBCC) which provided that SBCC would
forbear exercising its rights and remedies available to it under the May 29,
1997 Oracle Software Obligation which was assigned to SBCC on August 20, 1997.
Under the terms of the agreement the Company has agreed to pay SBCC the entire
amount due in installments by September 30, 1998.
Impact of Inflation
General inflation in the economy has increased operating expenses of
most businesses. The Company has provided compensation increases generally in
line with the inflation rate and incurred higher prices for materials, goods
and services. The Company continually seeks methods of reducing costs and
streamlining operations while maximizing efficiency through improved internal
operating procedures and controls. While the Company is subject to inflation as
described above, management believes that inflation currently does not have a
material effect on the Company's operating results, but there can be no
assurance that this will continue to be so in the future.
10
<PAGE>
New Accounting Principles
During Fiscal 1997, the Financial Accounting Standards Board issued
the following account standards: Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS No. 130), Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS No. 131) and Statement of Financial
Accounting Standards No. 132 "Employers Disclosures about Pension and other
Post retirement Benefit Plans" (SFAS No. 132). The Company does not expect any
material effect from adoption of SFAS NO. 131 and 132. The Company will report
comprehensive income as a component of equity. During the quarter ended March
28, 1998, the Company does not have any items that would be reportable as a
component of comprehensive income other than its income from 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; 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; the inability to
reduce expenses to a level commensurate with revenues; and the inability to
negotiate acceptable credit terms with current or prospective lenders. 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, including prospective financing arrangement. These
forward-looking statements are subject to certain risks and uncertainties,
including those mentioned above, which may cause actual results to differ
significantly from these forward-looking statement. The Company undertakes no
obligation to publicly release the results of any revisions to these forward-
looking statements which may be to reflect events or circumstances after the
date hereof or 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 those mentioned above and those which are
detailed from time to time in the Company's SEC filings.
11
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
Reference is made to the Company's Report on Form 10-Q for the
quarter ended June 30, 1997.
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) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company
filed the following Current Reports on Form 8-K:
1. Report dated March 5, 1998, attaching a press release,
dated February 26, 1998, regarding the amendment and
restatement of its loan agreement with PNC Bank, N.A.
("PNC Bank"), the issuance of a warrant to PNC, a loan made
to the Company by certain of its stockholders and the
resignation of Giulio Perrillo as President of the Company.
<PAGE>
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 12, 1998 By: /s/ Uri Evan
-------------------------
Uri Evan
Chairman of the Board and
Chief Executive Officer
May 12, 1998 /s/ Richard D. Coslow
------------------------
Richard D. Coslow
Senior Vice President
Chief Financial Officer
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended March 31, 1998, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<NAME> USA DETERGENTS, INC. AND SUBSIDIARIES
<CIK> 0000946816
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,921
<SECURITIES> 0
<RECEIVABLES> 25,397
<ALLOWANCES> 991
<INVENTORY> 15,264
<CURRENT-ASSETS> 53,486
<PP&E> 55,115
<DEPRECIATION> 10,080
<TOTAL-ASSETS> 101,781
<CURRENT-LIABILITIES> 78,791
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 17,649
<TOTAL-LIABILITY-AND-EQUITY> 101,781
<SALES> 56,678
<TOTAL-REVENUES> 56,678
<CGS> 39,977
<TOTAL-COSTS> 14,538
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 799
<INCOME-PRETAX> 1,364
<INCOME-TAX> 21
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,343
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
