10-Q 1 file001.txt QUARTERLY REPORT 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 March 31, 2001. 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 incorporation (IRS Employer or organization) 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 May 17, 2001 USA DETERGENTS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS

See Notes to Consolidated Financial Statements. 2 USA DETERGENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)

See Notes to Consolidated Financial Statements. 3 USA DETERGENTS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 2001, AND 2000 (IN THOUSANDS)

See Notes to Consolidated Financial Statements. 4 USA DETERGENTS, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 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 accounting principles generally accepted in the United States of America 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, 2000. In April 2001, Church & Dwight ("Church & Dwight") effected a tender offer to purchase for $7.00 per share 100% of the outstanding shares of the Company's common stock which would be followed by a merger of the companies (the "Merger"). The offer to purchase is conditioned upon, among other things, a minimum of 51% of the Company's outstanding common stock being tendered to Church & Dwight and the satisfaction of certain regulatory approvals. There can be no assurance that the conditions for the offer will be satisfied and that the offer to purchase will be effected and the Merger consummated. Until the Merger is consummated, if at all, the Company is operating, in part, under a joint venture agreement ("Armus") with Church & Dwight, entered into in June 2000. The joint venture agreement provided for the establishment of a limited liability entity into which the Company contributed its laundry business which included its XTRA and Nice 'n' Fluffy brands and Church & Dwight contributed its Arm & Hammer brand laundry care products. The Company's laundry business approximated 88% of revenues for the year ended December 31, 2000. In addition, the parties contributed certain operational functions and provided the joint venture with licenses to use their related intellectual property. Armus combined the separate sales staff of both companies into a single national sales force supported by a single national broker organization. Under the Armus operating agreement, in early 2001, Church & Dwight transferred its liquid laundry detergent production from its manufacturing facility in Syracuse, New York to the Company's facilities in New Jersey and Missouri. The Armus joint venture is structured to utilize the respective strengths of each company in the manufacture, marketing, sales and distribution of the various laundry care products. In addition, Armus may sell or distribute any of the Company's or Church & Dwight's other product offerings. The Company's annual share of Armus' profits will range from 35% to 45%, depending on the Armus profit level, subject to specific adjustments. The joint venture has a minimum five year duration and the Armus operating 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 in Armus based on the same formula. The joint venture agreement required each of the Company and Church & Dwight to make an initial capital contribution to Armus on January 1, 2001. The Company's initial contribution was to include certain finished goods inventories and cash in an amount to be determined unanimously by the Armus board of directors. Subsequently, the Company and Church & Dwight agreed, among other things, to waive the obligation of each of them to make their respective initial cash contribution and that the finished gods inventories to be contributed by the Company will instead be purchased by Armus. The Company was required, no later than April 30, 2001, to make an initial cash contribution in an amount equal to 66 2/3% of the total initial capital to be contributed by Church & Dwight, up to a maximum of $3 million (or greater amount, if unanimously approved by the Armus board of directors). However, this deadline has been extended pending the outcome of the Church & Dwight tender offer. During the three months ended March 31, 2001, sales to Armus at cost (included in Revenues) approximated $47.5 million. Accounts receivable from Armus at March 31, 2001 were $19.5 million. The Company is accounting for its investment in the joint venture under the equity method of accounting. Revenues for the three months ended March 31, 2001 includes $2.0 million of the Company's share of Armus net income. 5 NOTE 2 -- DEBT At March 31, 2001, the Company had a $20 million working capital line of credit with a syndicate of lenders led by FINOVA Capital Corporation ("FINOVA"), subject to availability based on inventory and receivables, of which $872,000 was outstanding, as well as $5.3 million in the aggregate owed under term loans. The FINOVA Agreement contains various covenants that include, among other things, specified levels of debt to equity, current ratios, a minimum net worth and a minimum senior debt service coverage ratio. The FINOVA Agreement also prohibits the payment of dividends and the incurrence of new debt. Amounts outstanding under the FINOVA Agreement are secured by a first priority security interest in substantially all of the assets of the Company and its subsidiaries, except for certain real estate. At March 31, 2001, the Company did not meet the financial covenants contained in the FINOVA Agreement. Additionally, FINOVA has not given its consent to the Company's entering into the Armus joint venture. On February 16, 2001, FINOVA proposed an amendment to the FINOVA Agreement including the necessary waivers and their consent to the joint venture; however, this proposed amendment contained certain terms and conditions that the Company deems to be not in accordance with reasonable lending practices. FINOVA has since notified the Company of the existence of certain events of default under the financing agreement. This, coupled with FINOVA Group Inc.'s filing to reorganize its own debt under Chapter 11 of the U.S. Bankruptcy Code on March 7, 2001, necessitates that the Company replace the FINOVA credit facility. As a result of the above, the Company classified the entire debt due to FINOVA and 101 Realty as a current liability. Upon termination of its relationship with FINOVA, unamortized deferred financing costs will be expensed. As of March 31, 2001, the unamortized deferred financing costs were approximately $954,000. On February 21, 2001, the Company entered into an agreement to sell a distribution facility in North Brunswick, New Jersey for $11,250,000. The closing occurred in May 2001. The funds generated by the sale were used to pay off the FINOVA real estate debt of approximately $8.0 million. The Company realized proceeds in excess of its carrying value. NOTE 3 -- GOING CONCERN The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. On March 31, 2001, the Company did not meet financial covenants contained in the FINOVA Agreement. The financial statements do not include any adjustments relating to the recoverability and classification or recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent on its ability to generate sufficient cash flow from operations to meet its obligations on a timely basis, to obtain additional financing and/or successfully refinance the FINOVA debt as may be required and continue to receive support from Armus. Management has commenced efforts to refinance its debt. The Company has received interim financial support from Armus; pursuant to a commitment received from Armus, Armus has been paying the invoiced amounts for products sold to the joint venture prior to the invoiced due date. The payment of these invoices by Armus has effectively substantially reduced the Company's borrowing under FINOVA's revolving line of credit. There can be no assurance that the Company will be able to generate sufficient cash flow from operations to meet its obligations on a timely basis, continue to obtain financial support from Armus or that FINOVA will not demand the immediately repayment of its debt. 6 NOTE 4 -- NET (LOSS) INCOME PER SHARE Basic net (loss) income per share is based on the weighted average number of shares outstanding during the periods presented. Diluted net (loss) income per share also includes potential Common Stock for options and warrants that are dilutive. With respect to March 31, 2001, all options and warrants have been excluded from the computation of dilutive loss per share because the impact would be antidilutive. NOTE 5 -- NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company had adopted SFAS 133 effective January 1, 2001. The adoption of SFAS 133 has not had a significant impact on the financial position, results of operations, or cash flows of the Company. 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. The adoption of SAB 101 has not had material impact on the Company's consolidated results of operations, financial position or cash flows. In March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44 (FIN No. 44), Accounting for Certain Transactions Involving Stock Compensation-an interpretation of APB 25. FIN No. 44 clarifies (i) the definition of employees for purposes of applying APB Opinion No. 25, (ii) the criteria for determining whether a plan qualifies as a noncompensatory plan, (iii) the accounting consequences of various modification to the terms of a previously fixed stock option or award, and (iv) the accounting for an exchange of stock compensation awards in a business combination. FIN No. 44 was effective July 1, 2000. This standard has not had a significant impact on the Company's consolidated results of operations, financial position or cash flows. 7 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 that 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 that are detailed from time to time in the Company's SEC filings. CURRENT DEVELOPMENTS In April 2001, Church & Dwight effected a tender offer to purchase for $7.00 per share 100% of the outstanding shares of the Company's common stock which would be followed by a merger of the companies (the "merger"). The offer to purchase is conditioned upon, among other things, a minimum of 51% of the Company's outstanding common stock being tendered to Church & Dwight and the satisfaction of certain regulatory approvals. There can be no assurance that the conditions for the offer will be satisfied and that the offer to purchase will be effected and the merger consummated. Until the merger is consummated, if at all, the Company is operating, in part, under a joint venture agreement ("Armus") with Church & Dwight Co., Inc. ("Church & Dwight"), enetered into in June 2000. The joint venture agreement provided for the establishment of a limited liability entity into which the Company contributed its laundry business which included its XTRA and Nice `n' Fluffy brands and Church & Dwight contributed its Arm & Hammer brand laundry care products. The Company's laundry business approximated 88% of revenues for the year ended December 31, 2000. In addition, the parties contributed certain operational functions and provided the joint venture with licenses to use their related intellectual property. Armus combined the separate sales staff of both companies into a single national sales force supported by a single national broker organization. Under the Armus operating agreement, in early 2001, Church & Dwight transferred its liquid laundry detergent production from its manufacturing facility in Syracuse, New York to the Company's facilities in New Jersey and Missouri. 8 The Armus joint venture is structured to utilize the respective strengths of each company in the manufacture, marketing, sales and distribution of the various laundry care products. In addition, Armus may sell or distribute any of the Company's or Church & Dwight's other product offerings. The Company's annual share of Armus' profits will range from 35% to 45%, depending on the Armus profit level, subject to specific adjustments. The joint venture has a minimum five year duration and the Armus operating 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 in Armus based on the same formula. The joint venture agreement required each of the Company and Church & Dwight to make an initial capital contribution to Armus on January 1, 2001. The Company's initial contribution was to include certain finished goods inventories and cash in an amount to be determined unanimously by the Armus board of directors. Subsequently, the Company and Church & Dwight agreed, among other things, to waive the obligation of each of them to make their respective initial cash contribution and that the finished goods inventories to be contributed by the Company will instead be purchased by Armus. The Company was required, no later than April 30, 2001, to make an initial cash contribution in an amount equal to 66 2/3% of the total initial capital to be contributed by Church & Dwight, up to a maximum of $3 million (or greater amount, if unanimously approved by the Armus board of directors). However, this deadline has been extended pending the outcome of the Church & Dwight tender offer. During the three months ended March 31, 2001, sales to Armus at cost (included in Revenues) approximated $47.5 million. Accounts receivable from Armus at March 31, 2001 were $19.5 million. The Company is accounting for its investment in the joint venture under the equity method of accounting. Revenues for the three months ended March 31, 2001 includes $2.0 million of the Company's share of Armus net income. THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000 Net revenues for the three months ended March 31, 2001 increased 7.4% to $68.9 million from $64.1 million for the three months ended March 31, 2000. The increase was primarily the result of an increase in unit sales of liquid laundry products. Gross profit for the three months ended March 31, 2001 decreased 62.4% to $7.6 million from $20.2 million for the three months ended March 31, 2000. Gross profit as a percentage of net revenues decreased to 11.0% for the three months ended March 31, 2001 from 31.5% for the same period in 2000. The decrease in gross profit as a percentage of net revenues for the quarter ended March 31, 2001 is primarily due to Armus being used as the sales channel for the majority of the Company's sales, with the sale of manufactured laundry products being sold to Armus at cost. During the three months ended March 31, 2001, sales to Armus at cost (included in Revenues) approximated $47.5 million. Accounts receivable from Armus at March 31, 2001 were $19.5 million. Revenues for the three months ended March 31, 2001 includes $2.0 million of the Company's share of Armus net income. Selling, general and administrative expenses decreased 44.0% to $10.5 million in the three months ended March 31, 2001 from $18.8 million for the three months ended March 31, 2000. As a percentage of net revenues, these expenses decreased to 15.3% for the three months ended March 31, 2001 from 29.4% for the first quarter of 2000, primarily due to a decrease in selling related expenses of approximately $8.5 million as Armus is being used as the sales channel for the majority of the Company's sales. This decrease is offset by an increase in general and administrative expenses due primarily to increased professional fees in connection with the proposed merger with Church & Dwight. 9 Interest expense and amortization of deferred financing costs decreased to $0.8 million in the three months ended March 31, 2001 from $1.1 million for the three months ended March 31, 2000, primarily due to a reduction of debt caused by a reduced borrowing base in connection with the start up of the Armus joint venture. Provision for income taxes for the three-month periods ended March 31, 2001 and March 31, 2000 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 March 31, 2001, the Company's working capital deficit was $28.8 million compared to a working capital deficit of $24.5 million at December 31, 2000. Net cash provided by operating activities for the three months ended March 31, 2001 was $20.5 million, compared to $2.5 million for the three months ended March 31, 2000. The cash provided by operating activities in the three months ended March 31, 2001 resulted primarily from an increase in accounts payable and accrued expenses of $14.5 million, a decrease in inventory of $6.3 million, and an increase in cash overdraft of $4.1 million. Offsetting this, in part, was a net loss of $3.8 million, and an increase in prepaid expenses and other current assets of $2.8 million. Net cash used in investing activities for the three months ended March 31, 2001 was $2.4 million relating to the acquisition and upgrades of production equipment and information systems, and the expanded distribution center at Harrisonville, Missouri, necessary for increased volume as a result of the Armus joint venture. Net cash used in financing activities for the three months ended March 31, 2001 was $18.6 million resulting primarily from repayment of the revolving credit line of $17.8 million due to the decreased lending base resulting from the transfer of assets to Armus, and scheduled installment repayments of the Company's existing credit facilities of $0.8 million. At March 31, 2001, the Company had a $20 million working capital line of credit with a syndicate of lenders led by FINOVA Capital Corporation ("FINOVA"), subject to availability based on inventory and receivables, of which $872,000 was outstanding, as well as $5.3 million in the aggregate owed under term loans. The FINOVA Agreement contains various covenants that include, among other things, specified levels of debt to equity, current ratios, a minimum net worth and a minimum senior debt service coverage ratio. The FINOVA Agreement also prohibits the payment of dividends and the incurrence of new debt. Amounts outstanding under the FINOVA Agreement are secured by a first priority security interest in substantially all of the assets of the Company and its subsidiaries, except for certain real estate. At March 31, 2001, the Company did not meet the financial covenants contained in the FINOVA Agreement. Additionally, FINOVA has not given its consent to the Company's entering into the Armus joint venture. On February 16, 2001, FINOVA proposed an amendment to the FINOVA Agreement including the necessary waivers and their consent to the joint venture; however, this proposed amendment contained certain terms and conditions that the Company deems to be not in accordance with reasonable lending practices. FINOVA has since notified the Company of the existence of certain events of default under the financing agreement. This, coupled with FINOVA Group Inc.'s filing to reorganize its own debt under Chapter 11 of the U.S. Bankruptcy Code on March 7, 2001, necessitates that the Company replace the FINOVA credit facility. As a result of the above, the 10 Company classified the entire debt due to FINOVA and 101 Realty as a current liability. Upon termination of its relationship with FINOVA, unamortized deferred financing costs will be expensed. As of March 31, 2001, the unamortized deferred financing costs were approximately $954,000. On February 21, 2001, the Company entered into an agreement to sell a distribution facility in North Brunswick, New Jersey for $11,250,000. The closing occurred in May 2001. The funds generated by the sale were used to pay off the FINOVA real estate debt of approximately $8.0 million. The Company realized proceeds in excess of its carrying value. GOING CONCERN The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. On March 31, 2001, the Company did not meet financial covenants contained in the FINOVA Agreement. The financial statements do not include any adjustments relating to the recoverability and classification or recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company's continuation as a going concern is dependent on its ability to generate sufficient cash flow from operations to meet its obligations on a timely basis, to obtain additional financing and/or successfully refinance the FINOVA debt as may be required and continue to receive support from Armus. Management has commenced efforts to refinance its debt. The Company has received interim financial support from Armus; pursuant to a commitment received from Armus, Armus has been paying the invoiced amounts for products sold to the joint venture prior to the invoiced due date. The payment of these invoices by Armus has effectively substantially reduced the Company's borrowing under FINOVA's revolving line of credit. There can be no assurance that the Company will be able to generate sufficient cash flow from operations to meet its obligations on a timely basis, continue to obtain financial support from Armus or that FINOVA will not demand the immediately repayment of its debt. 11 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 the 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 Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company had adopted SFAS 133 effective January 1, 2001. The adoption of SFAS 133 has not had a significant impact on the financial position, results of operations, or cash flows of the Company. 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. The adoption of SAB 101 has not had a significant impact on the Company's consolidated results of operations, financial position or cash flows. In March 2000, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 44 (FIN No. 44), Accounting for Certain Transactions Involving Stock Compensation-an interpretation of APB 25. FIN No. 44 clarifies (i) the definition of employees for purposes of applying APB Opinion No. 25, (ii) the criteria for determining whether a plan qualifies as a noncompensatory plan, (iii) the accounting consequences of various modification to the terms of a previously fixed stock option or award, and (iv) the accounting for an exchange of stock compensation awards in a business combination. FIN No. 44 was effective July 1, 2000. This standard has not had a significant impact on the Company's consolidated results of operations, financial position or cash flows. 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's carrying value of restricted funds, trade accounts receivable, accounts payable, accrued expenses, 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 a significant portion of the Company's 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. On February 22, 2001, the staff of the SEC notified the Company that it would recommend that the SEC bring a civil injunctive action against the Company and certain former and present officers and directors under Sections 10(b) and 13 of the Securities Exchange Act of 1934 seeking to bar further violations of the securities laws and, as to certain individuals, the imposition of unspecified civil money penalties. No civil money penalties are being sought from the Company. It is possible that the individuals may seek indemnification from the Company for their continued legal fees and costs, and the payment of any civil money penalties. The amount of such indemnification cannot be determined at this time. The Company intends to defend itself vigorously should the SEC bring a civil action against the Company. The Company is also involved in various routine legal proceedings of a nature it deems to be customary to a company its size. The Company believes the ultimate disposition of these actions will not have a material adverse effect on its business, financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES: None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES: None. 13 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 None 14 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 21, 2001 By: /s/ Uri Evan ----------------------------- Name: Uri Evan Title: Chairman of the Board of Directors and Chief Executive Officer May 21, 2001 By:/s/ Charles E. LaRosa ----------------------------- Name: Charles E. LaRosa Title: President & Chief Operating Officer May 21, 2001 By: /s/ Richard D. Coslow ----------------------------- Name: Richard D. Coslow Executive Vice President and Chief Financial Officer 15

USA DETERGENTS INC 10-Q