<PAGE>
FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20509
(Mark One)
[X] AMENDMENT NO. 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997.
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___ 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 13,795,029 May 12, 1997
<PAGE>
This report on Form 10-Q/A is being filed to amend and restate Items 1 and 2
of Part I and Items 3 and 6(a) of Part II of the Company's Report on Form 10-Q
filed May 15, 1997 (the "Filed Report"). Certain items contained in this
Report on Form 10-Q/A are being presented as of a more recent date to reflect
changes which occurred in the Company's business operations since the filing
of the Filed Report.
The Company's quarterly and annual operating results are affected by a wide
variety of other factors that could materially and adversely affect actual
results, 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 arrangements. 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 statements. These forward-looking statements speak only
as of the date hereof. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements which
may be made 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.
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
USA DETERGENTS, INC. AND SUBSIDIARIES
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS
March 31,
December 31, 1997
1996 (Unaudited)
(As restated- (As restated-
See Note 3) See Note 3)
<S> <C> <C>
Current assets:
Cash $ 2,373 $ 1,253
Accounts receivable, net of customer allowances and doubtful
accounts of $1,349 and $1,702, respectively 27,323 29,710
Inventories 28,830 24,081
Prepaid expenses and other current assets 3,053 3,859
Refundable income taxes 4,255 6,770
Deferred taxes 534 1,124
----------------------------
Total current assets 66,368 66,797
Property and equipment - net 26,783 36,388
Restricted funds 275 275
Other assets 2,800 2,666
Note receivable 2,250 2,250
----------------------------
Total assets $98,476 $108,376
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 5,819 $ 11,729
Accounts payable 13,725 13,807
Accrued expenses 11,503 19,736
----------------------------
Total current liabilities 31,047 45,272
Long-term debt - net of current portion 29,311 29,998
Deferred rent payable 1,284 1,268
Deferred taxes 735 1,006
----------------------------
Total liabilities 62,377 77,544
----------------------------
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 13,752,570 and 13,790,717 shares, respectively 138 138
Additional paid-in capital 27,595 27,785
Retained earnings 8,366 2,909
----------------------------
Total stockholders' equity 36,099 30,832
----------------------------
Total liabilities and stockholders' equity $98,476 $108,376
============================
</TABLE>
See Notes to Consolidated Financial Statements.
3
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USA DETERGENTS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(in thousands, except net income/(loss) per share information)
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------------------
1996 1997
(Unaudited) (Unaudited)
(As restated (As restated
See Note 3) See Note 3)
<S> <C> <C>
Net sales $33,445 $ 60,670
Cost of goods sold 23,086 49,345
----------- ----------
Gross profit 10,359 11,325
Selling, general and administrative 7,514 19,153
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Income/(loss) from operations 2,845 (7,828)
Interest expense - net 167 446
----------- ----------
Earnings/(loss) before income taxes 2,678 (8,274)
Provision/(benefit) for income taxes 1,211 (2,817)
----------- ----------
Net income/(loss) $ 1,467 $ (5,457)
=========== ==========
Net income/(loss) per share $ .11 $ (.40)
=========== ==========
Weighted average shares outstanding 13,392 13,765
=========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
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USA DETERGENTS, INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months
ended March 31,
------------------------------
1996 1997
(Unaudited) (Unaudited)
(As restated (As restated
See Note 3) See Note 3)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $1,467 (5,457)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 338 1,030
Change in the provision for customer allowances and doubtful accounts 110 353
Increase/(decrease) in deferred rent 81 (16)
Changes in operating assets and liabilities:
Increase in accounts receivable (2,384) (2,740)
(Increase)/decrease in inventories (5,830) 4,749
Increase in prepaid expenses and other current assets (1,560) (806)
(Increase)/decrease in other assets (65) 134
Increase in accounts payable and accrued expenses 6,047 8,296
Increase in refundable income taxes - (2,515)
Increase in taxes payable 900 -
Increase/decrease in deferred tax asset 429 (590)
Increase/(decrease) in deferred tax liability (307) 271
------------------------------
Net cash provided by/(used in) operating activities (774) 2,709
------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,891) (10,635)
------------------------------
Net cash used in investing activities (1,891) (10,635)
------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (77) (77)
Net proceeds from credit facility 3,018 6,693
Decrease in non-current liabilities (24) -
Net proceeds from exercise of options - 190
------------------------------
Net cash provided by financing activities 2,917 6,806
------------------------------
Net increase/(decrease) in cash 252 (1,120)
Cash at beginning of period 61 2,373
------------------------------
Cash at March 31, $ 313 $ 1,253
==============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $158 $348
==============================
Income taxes $189 $17
==============================
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
USA DETERGENTS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
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, 1996 Form 10 K/A filed on March 17, 1998, which includes restated
financial information for the year ended December 31, 1996, and with the
Company's December 31, 1997 Form 10-K filed on March 31, 1998.
6
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NOTE # 2 - DEBT
The Company's debt structure as of March 31, 1998 and its current
relationships with its bank lender and the New Jersey Economic Development
Authority ("EDA") has changed substantially since the end of the period to
which this Quarterly Report on Form 10Q/A relates and, consequently,
information relating to the Company's debt structure and relationships with
the Company's bank lender and the EDA as of March 31, 1997 is not deemed to be
relevant to an evaluation of the Company. The following information summarizes
the Company's current debt structure and relationships with its bank lender
and the EDA as of March 31, 1998.
PNC Bank Debt
In December 1996, the Company entered into a credit facility with PNC
Bank, N.A. ("PNC") consisting of a $20,000,000 capital expenditure facility
for the purchase of capital assets and/or leasehold improvements and a
$10,000,000 traditional revolving facility (the "December 1996 PNC Facility").
Borrowings under the December 1996 PNC Facility bore interest, at the
Company's option, at LIBOR plus .50% to 1.5% (7.22% as of December 31, 1997)
or one percent below the prime rate of PNC. All amounts outstanding under the
December 1996 PNC Facility, as of December 31, 1997 were subject to the 7.22%
LIBOR-based interest rate. Unused portions of the revolving facility were
subject to a commitment fee of .25% on such unused amounts. On December 31,
1996, the Company also obtained a 60-day $4,000,000 bridge loan (the "Bridge
Loan I"), bearing interest at one percent below the lender's prime rate
(7.25%). On March 3, 1997, the Company repaid the Bridge Loan I facility with
funds generated from working capital.
On March 24, 1997, the Company obtained a commitment from PNC and a
second lender (the "March PNC Commitment") to replace the December 1996 PNC
Facility with a $55 million credit facility. In conjunction with this
commitment, PNC extended to the Company a $10 million bridge loan (the "Bridge
Loan II") to acquire a distribution center in North Brunswick bearing interest
at LIBOR + 1.5% (7.22% as of December 31, 1997) to be repaid from the
anticipated proceeds of the replacement facility.
The December 1996 PNC Facility required, among other things, the
Company to maintain specified debt to equity ratios, current ratios, minimum
consolidated tangible net worth and debt service ratio levels. Based on the
Company's December 31, 1996 financial condition, the Company was not in
compliance with various covenants and other material provisions contained in
7
<PAGE>
the December 1996 PNC Facility including all of the required financial
covenants. In addition, based in part on the Company's performance in the
first quarter of fiscal 1997, the $55 million March PNC Commitment was
withdrawn.
On February 25, 1998, the Company and PNC entered into an amended and
restated Loan and Security Agreement (the "February 1998 PNC Facility"), which
waived all defaults under the December 1996 PNC Facility and Bridge Loan II.
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. 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 December 31,
1997, $1,000,000 of the PNC debt was classified as current reflecting the
difference between the amount repaid to PNC and the amount loaned to the
Company by certain of its principal stockholders.
In connection with the transaction, PNC received a warrant to
purchase between approximately 140,000 and 700,000 shares of the Company's
common stock, depending on the repayment date of the remaining indebtedness
(140,000 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 will be deferred and
amortized over the period ending January 4, 1999. The Company engaged the
services of an independent specialty investment banking firm to calculate and
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 are
also expected to receive 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 guarantee 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. This
8
<PAGE>
charge will be 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.
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, commencing January 31, 1998, and prohibits the payment of
dividends and the incurrence of new debt.
For the year ended December 31, 1997, the Company has experienced
significant operating losses relating to, among other things, its geographic
expansion of its manufacturing and distribution facilities. In addition, the
Company has also experienced difficulty in meeting its liquidity needs. 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. The Company's operating plan for 1998
includes continuing its cost reduction programs. Such programs include
reduction in temporary labor, production rationalization, increased use of
high speed fillers and cartoners and improved production planning and control.
Management believes that the corrective actions taken in the latter part of
1997 and the ongoing cost reduction programs currently in place, will have a
positive impact on operating results for 1998. Additionally, management is
optimistic about its ability to replace the PNC Facility with a permanent
financing facility which will more adequately support ongoing operations, debt
service and capital expenditure requirements. There can be no assurance that
the Company will be successful in these efforts.
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 December 31,
1997, the Company had 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 (4.15% at December 31, 1997). 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 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 principle and interest
payments. The entire obligation has been classified as current in the December
31, 1997 balance sheet.
10
<PAGE>
NOTE # 3 - RESTATEMENT OF FINANCIAL INFORMATION
The Company has restated its financial statements for the year ended
December 31, 1996, each of the four quarters of 1996 and the quarter ended
March 31, 1997, as a result of errors and irregularities discovered for those
periods subsequent to the issuance of such financial statements. The financial
statements for the year ended December 31, 1996 require restatement
principally with respect to: (1) unrecorded vendor invoices and vendor rebates
resulting in an understatement of cost of goods sold; (2) shipping cut-offs
resulting in an overstatement of sales; (3) inappropriately capitalized labor
resulting in an understatement of selling, general and administrative
expenses; and (4) unamortized slotting costs resulting in an understatement of
selling expenses. The quarter ended March 31, 1996 has been restated
principally for these items and the write-off of certain costs previously
written-off in the fourth quarter of 1996. The quarter ended March 31, 1997
has been restated principally to reflect the reversing effects of the 1996
restated items offset in part by an adjustment of accruals for customer
marketing funds.
The impact of the restatements on the Company's balance sheets and
statements of operations for the quarters ended March 31, 1997 and March 31,
1996 are summarized as follows:
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Three Months Ended Three Months Ended
March 31, 1996 March 31, 1996 March 31, 1997 March 31, 1997
-------------- -------------- -------------- --------------
(As originally (As Restated) (As originally (As Restated)
Reported) Reported)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
- -----------------------------
Net sales $ 34,067 $ 33,445 $ 60,533 $ 60,670
Gross profit 11,542 10,359 10,632 11,325
Selling, general and
Administrative 7,952 7,514 17,063 19,153
Operating income (loss) 3,590 2,845 (6,431) (7,828)
Net income (loss) 2,088 1,467 (4,195) (5,457)
Net income (loss) per share $ .16 $ .11 $ (.30) $ (.40)
<CAPTION>
March 31, 1996 March 31, 1997
-------------- --------------
(As originally (As Restated) (As originally (As Restated)
Reported) Reported)
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet
- ------------------------------
Current assets $ 37,658 $ 36,893 $ 64,758 $ 66,797
Total assets 52,600 51,695 108,816 108,376
Current liabilities 26,150 27,968 68,087 45,272
Total liabilities 30,220 29,936 71,562 77,544
Stockholders' equity 22,380 21,759 37,254 30,832
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company has restated its financial statements for the year ended
December 31, 1996, each of the four quarters of 1996 and the quarter ended
March 31, 1997, as a result of errors and irregularities discovered for those
periods subsequent to the issuance of such financial statements. The financial
statements for the year ended December 31, 1996 require restatement
principally with respect to: (1) unrecorded vendor invoices and vendor rebates
resulting in an understatement of cost of goods sold; (2) shipping cut-offs
resulting in an overstatement of sales; (3) inappropriately capitalized labor
resulting in an understatement of selling, general and administrative
expenses; and (4) unamortized slotting costs resulting in an understatement of
selling expenses. The quarter ended March 31, 1996 has been restated
principally for these items and the write-off of certain costs previously
written-off in the fourth quarter of 1996. The quarter ended March 31, 1997
has been restated principally to reflect the reversing effects of the 1996
restated items offset in part by an adjustment of accruals for customer
marketing funds.
The impact of the restatements on the Company's balance sheets and
statements of operations for the quarters ended March 31, 1997 and March 31,
1996 are summarized as follows:
13
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<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Three Months Ended Three Months Ended
March 31, 1996 March 31, 1996 March 31, 1997 March 31, 1997
-------------- -------------- -------------- --------------
(As originally (As Restated) (As originally (As Restated)
Reported) Reported)
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations
- -----------------------------
Net sales $ 34,067 $ 33,445 $ 60,533 $ 60,670
Gross profit 11,542 10,359 10,632 11,325
Selling, general and
Administrative 7,952 7,514 17,063 19,153
Operating income (loss) 3,590 2,845 (6,431) (7,828)
Net income (loss) 2,088 1,467 (4,195) (5,457)
Net income (loss) per share $ .16 $ .11 $ (.30) $ (.40)
<CAPTION>
March 31, 1996 March 31, 1997
-------------- --------------
(As originally (As Restated) (As originally (As Restated)
Reported) Reported)
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet
- ------------------------------
Current assets $ 37,658 $ 36,893 $ 64,758 $ 66,797
Total assets 52,600 51,695 108,816 108,376
Current liabilities 26,150 27,968 68,087 45,272
Total liabilities 30,220 29,936 71,562 77,544
Stockholders' equity 22,380 21,759 37,254 30,832
</TABLE>
All comparisons to the three months ended March 31, 1996 and 1997 are based on
amounts as restated.
14
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THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net sales for the three months ended March 31, 1997 increased
81.4% to $60.7 million from $33.4 million for the three months ended March 31,
1996. The increase is primarily the result of an increase in unit sales of
laundry products and candles.
Gross profit increased 9.3% to $11.3 million in the three months
ended March 31, 1997 from $10.4 million for the comparable period in 1996.
Gross profit decreased as a percentage of net sales to 18.7% in the three
months ended March 31, 1997 from 31.0% for the comparable period in 1996. The
decrease as a percentage of net sales was primarily attributable to an
increase in materials costs of 6.0% of net sales, due to manufacturing
inefficiencies caused by a high level of production line changeovers to meet
customer demands and inefficient production runs during the start up and
validation of new production lines. The decrease in gross profit as a
percentage of net sales was also affected by additional costs of 5.0% as a
percentage of net sales relating to increased levels of warehouse,
distribution and freight-in costs associated with the expansion of the
business from a local single-plant operation to a national multi-plant
manufacturer. These unanticipated increased costs, which began in the latter
part of 1996, continued to have a significant impact on the first three
quarters of 1997.
Selling, general and administrative expenses increased 154.9% to
$19.2 million in the three months ended March 31, 1997 from $7.5 million for
the comparable period in 1996. As a percentage of net sales, these expenses
increased to 31.6% in the three months ended March 31, 1997 from 22.5% for the
comparable period in 1996. The increase as a percentage of net sales was
primarily due to increases of 7.7% in marketing funds, (co-op advertising,
promotional allowances and slotting amortization) 1.2% in freight to customers
and .2% in commissions.
Interest expense-net increased to $446,000 in the three months ended
March 31, 1997 from $167,000 for the comparable period in 1996, primarily as a
result of higher average outstanding borrowings.
The income tax benefit for the three months ended March 31, 1997 and
the income tax provision for the three month ended March 31, 1996 are based on
actual tax computations for each of the periods. The difference in the
effective rates between the periods relates principally to the adjustment of
certain net deferred tax liabilities required in the Company's restated 1996
financial statements.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The description of the Company's liquidity and capital resources has
changed substantially since the end of the period to which this Quarterly
Report on Form 10Q/A relates and, consequently, a discussion of such items as
of March 31, 1997 is not deemed to be relevant to an evaluation of the
Company. For a current description of these items, see the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 and Form 10K/A for
the year ended December 31, 1996. The Company's current relationship with PNC
Bank, N.A. ("PNC") and the New Jersey Economic Development Authority (the
"EDA") is as follows:
PNC BANK DEBT
In December 1996, the Company entered into a credit facility with PNC
Bank, N.A. ("PNC") consisting of a $20,000,000 capital expenditure facility
for the purchase of capital assets and/or leasehold improvements and a
$10,000,000 traditional revolving facility (the "December 1996 PNC Facility").
On March 3, 1997, the Company repaid the Bridge Loan I facility with funds
generated from working capital.
On March 24, 1997, the Company obtained a commitment from PNC and a
second lender (the "March PNC Commitment") to replace the December 1996 PNC
Facility with a $55 million credit facility. In conjunction with this
commitment, PNC extended to the Company a $10 million bridge loan (the "Bridge
Loan II") to acquire a distribution center in North Brunswick bearing interest
at LIBOR + 1.5% (7.22% as of December 31, 1997) to be repaid from the
anticipated proceeds of the replacement facility. As of December 31, 1997,
approximately $40 million was outstanding under both PNC credit facilities.
The December 1996 PNC Facility required, among other things, the
Company to maintain specified debt to equity ratios, current ratios, minimum
consolidated tangible net worth and debt service ratio levels. Based on the
Company's December 31, 1996 financial condition, the Company was not in
compliance with various covenants and other material provisions contained in
16
<PAGE>
the December 1996 PNC Facility including all of the required financial
covenants. In addition, based in part on the Company's performance in the
first quarter of fiscal 1997, the $55 million March PNC Commitment was
withdrawn.
On February 25, 1998, the Company and PNC entered into an amended and
restated Loan and Security Agreement (the "February 1998 PNC Facility"), which
waives all defaults under the December 1996 PNC Facility and Bridge Loan II.
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. 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 December 31,
1997, $1,000,000 of the PNC debt was classified as current reflecting the
difference between the amount repaid to PNC and the amount loaned to the
Company by certain of its principal stockholders.
In connection with the transaction, PNC received a warrant to
purchase between approximately 140,000 and 700,000 shares of the Company's
common stock, depending on the repayment date of the remaining indebtedness
(140,000 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 will be deferred and
amortized over the period ending January 4, 1999. The Company engaged the
services of an independent specialty investment banking firm to calculate and
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 are
also expected to receive 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 guarantee 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. This
17
<PAGE>
charge will be 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.
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, commencing January 31, 1998, and prohibits the payment of
dividends and the incurrence of new debt.
For the year ended December 31, 1997, the Company has experienced
significant operating losses relating to, among other things, its geographic
expansion of its manufacturing and distribution facilities. In addition, the
Company has also experienced difficulty in meeting its liquidity needs. 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. The Company's operating plan for 1998
includes continuing its cost reduction programs. Such programs include
reduction in temporary labor, production rationalization, increased use of
high speed fillers and cartoners and improved production planning and control.
Management believes that the corrective actions taken in the latter part of
1997 and the ongoing cost reduction programs currently in place, will have a
positive impact on operating results for 1998. Additionally, management is
optimistic about its ability to replace the PNC Facility with a permanent
financing facility which will more adequately support ongoing operations, debt
service and capital expenditure requirements. There can be no assurance that
the Company will be successful in these efforts.
18
<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 December 31,
1997, the Company had 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 (4.15% at December 31, 1997). 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 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 principle and interest
payments. The entire obligation has been classified as current in the December
31, 1997 balance sheet.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Reference is made to the discussion contained in Item 2 of this Report on Form
10-Q/A for a description of the Company's defaults upon senior securities.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27 Financial Data Schedule
<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 1, 1998 By: /s/ Uri Evan
--------------------------
Uri Evan
Chairman of the Board and
Chief Executive Officer
/s/ Richard D. Coslow
May 1, 1998 -----------------------------
Richard D. Coslow
Senior Vice President
Chief Financial Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q/A for the quarter ended March 31, 1997, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,253
<SECURITIES> 0
<RECEIVABLES> 31,412
<ALLOWANCES> 1,702
<INVENTORY> 24,081
<CURRENT-ASSETS> 66,797
<PP&E> 42,011
<DEPRECIATION> 5,623
<TOTAL-ASSETS> 108,376
<CURRENT-LIABILITIES> 45,272
<BONDS> 0
0
0
<COMMON> 138
<OTHER-SE> 30,694
<TOTAL-LIABILITY-AND-EQUITY> 108,376
<SALES> 60,670
<TOTAL-REVENUES> 60,670
<CGS> 49,345
<TOTAL-COSTS> 19,153
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446
<INCOME-PRETAX> (8,274)
<INCOME-TAX> (2,817)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,457)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> 0
</TABLE>
