-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oz0IcMbGK8Z9MwM3Cu/BYVjFR8DyKqWhwT/UyWkIhsGtgV6jxvinkKl7JmuouHYy ppeadVcOvNgTlhghzkmx5g== 0000088000-97-000006.txt : 19970428 0000088000-97-000006.hdr.sgml : 19970428 ACCESSION NUMBER: 0000088000-97-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970425 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTTS LIQUID GOLD INC CENTRAL INDEX KEY: 0000088000 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 840920811 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13458 FILM NUMBER: 97587562 BUSINESS ADDRESS: STREET 1: 4880 HAVANA ST CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033734860 MAIL ADDRESS: STREET 1: PO BOX 39S CITY: DENVER STATE: CO ZIP: 80219-0019 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 Commission File No. 0-5128 SCOTT'S LIQUID GOLD-INC. 4880 Havana Street Denver, CO 80239 Phone: 303-373-4860 Colorado 84-0920811 State of Incorporation I.R.S. Employer Identification No. Indicate by check mark whether the registrant (i) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. YES X NO ____ The Registrant had 10,080,900 common shares, $0.10 par value, its only class of common stock, issued and outstanding on April 25, 1997. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Scott's Liquid Gold-Inc. & Subsidiaries Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 1997 1996 Revenues: Net sales $14,324,800 $12,756,700 Other income 109,600 65,700 ______________________________________ 14,434,400 12,822,400 Costs and Expenses: Cost of sales 3,838,200 4,262,800 Advertising 5,091,500 5,349,300 Selling 2,089,800 2,060,000 General and administrative 1,801,100 1,419,400 Interest 332,100 272,500 ______________________________________ 13,152,700 13,364,000 ______________________________________ Income (loss) from operations 1,281,700 (541,600) Other: Lawsuit settlement (35,000) 100,500 ______________________________________ Income (loss) from continuing operations before income taxes 1,316,700 (642,100) Income tax expense 500,300 - ______________________________________ Income (loss) from continuing operations 816,400 (642,100) Discontinued operations: Income from operations, net of income taxes - 2,900 ______________________________________ Net income (loss) $ 816,400 $ (639,200) ______________________________________ Net income (loss) per common share (Note 2) $ .08 $ (.06) Weighted average number of common shares outstanding 10,084,500 10,030,900 (See Notes to Consolidated Financial Statements)
Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, Increase (Decrease) in Cash and Cash Equivalents 1997 1996 Cash flows from operating activities: Net income (loss) $ 816,400 $ (639,200) ______________________________________ Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 279,500 271,600 Provision for doubtful accounts receivable 49,500 60,800 Change in assets and liabilities: Accounts receivable (61,300) (1,986,200) Inventories (85,900) 713,700 Prepaid expenses (52,500) (133,500) Other assets - 371,000 Accounts payable and accrued expenses 156,300 700,600 Total adjustments to net income (loss) 285,600 (2,000) ______________________________________ Net Cash Provided (Used) by Operating Activities 1,102,000 (641,200) ______________________________________ Cash flows from investing activities: Purchase of property, plant and equipment (68,100) (599,100) Proceeds from sale of discontinued operations 100,000 - Net change in assets of discontinued operations (54,600) 5,000 ______________________________________ Net Cash Used by Investing Activities (22,700) (594,100) ______________________________________ Cash flows from financing activities: Proceeds from short-term borrowings 135,300 150,700 Principal payments on short-term borrowings (54,100) (45,000) Proceeds from long-term borrowings - 7,400 Principal payments on long-term borrowings (13,200) (6,300) Increase in bond sinking fund (318,600) (266,600) ______________________________________ Net Cash Used by Financing Activities (250,600) (159,800) ______________________________________ Net Increase (Decrease) in Cash and Cash Equivalents 828,700 (1,395,100) Cash and Cash Equivalents, beginning of period 4,749,200 4,720,200 ______________________________________ Cash and Cash Equivalents, end of period $ 5,577,900 $ 3,325,100 ______________________________________ Supplemental disclosures: Cash paid during the period for: Interest (net of $30,300 capitalized in 1996) $ 306,900 $ 104,600 Interest paid by discontinued operations $ 10,300 $ 11,300 Income taxes $ 134,600 $ 713,100 Noncash investing activities: Note receivable on discontinued operations $ 100,000 - (See Notes to Consolidated Financial Statements)
ASSETS 1997 1996 Current assets: Cash and cash equivalents $ 5,577,900 $ 4,749,200 Trade receivables (Note 3) 3,972,800 3,362,100 Other receivables 82,900 681,800 Inventories: Finished goods 1,927,200 2,244,900 Raw materials 2,287,900 1,884,300 Prepaid expenses 318,200 265,700 Deferred tax assets 761,400 761,400 _______________________________ Total current assets 14,928,300 13,949,400 Property, plant and equipment at cost 26,919,000 26,850,900 Less accumulated depreciation 7,247,000 6,989,100 _______________________________ 19,672,000 19,861,800 Other assets 256,300 277,900 Net assets of discontinued operations 329,400 374,800 _______________________________ $ 35,186,000 $ 34,463,900
LIABILITIES & SHAREHOLDERS' EQUITY 1997 1996 Current liabilities: Notes payable $ 81,200 $ - Accounts payable 3,959,600 3,723,600 Accrued expenses 2,659,100 2,738,800 Current maturities of long-term debt 1,289,600 1,289,600 _______________________________ Total current liabilities 7,989,500 7,752,000 Long-term debt 10,444,900 10,776,700 Deferred income taxes 237,100 237,100 _______________________________ 18,671,500 18,765,800 Shareholders' equity (Note 2): Common stock 1,003,100 1,003,100 Capital in excess of par 4,719,000 4,719,000 Retained earnings 10,792,400 9,976,000 _______________________________ Shareholders' equity 16,514,500 15,698,100 _______________________________ $ 35,186,000 $ 34,463,900
(See Notes to Consolidated Financial Statements) Notes to Consolidated Financial Statements (Unaudited) NOTE 1 In the opinion of management, the financial information in this report reflects all adjustments necessary for a fair presentation of the results for the interim periods. NOTE 2 Per share data for 1997 was determined by using the weighted average number of common and common equivalent shares outstanding, using the treasury stock method. Per share data for 1996 was determined by using the weighted average number of common shares outstanding during the period. Common equivalent shares were not considered because their inclusion would have been anti-dilutive. Average shares outstanding used in the above computations were 10,084,500 for 1997 and 10,030,900 for 1996. At March 31, 1997 there were authorized 50,000,000 shares of the Company's $.10 par value common stock and 20,000,000 shares of preferred stock issuable in one or more series. NOTE 3 Allowances for doubtful accounts at March 31, 1997 and December 31, 1996 were $632,600 and $580,400 respectively. Market Information The high and low prices of Scott's Liquid Gold-Inc. common stock as traded on the New York Stock Exchange were as follows: High Low Three Months Ended Bid Bid June 30, 1995 5-5/8 3-3/4 September 30, 1995 4-3/4 3-1/4 December 31, 1995 3-5/8 2-1/2 March 31, 1996 3 2-1/2 June 30, 1996 3 1-3/4 September 30, 1996 2-1/8 1-1/2 December 31, 1996 1-7/8 1-1/4 March 31, 1997 2-7/8 1-3/8
NYSE Symbol: SGD Current stock quotes, SEC filings, quarterly earnings and press releases can be found at: http://www.businesswire.com/cnn/sgd.htm Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The Company manufactures and markets household chemical products and skin care products; and, until September of 1996, also produced and marketed cigarette filters through a wholly-owned subsidiary. In early 1992, the Company entered into the cosmetics business, introducing a line of skin care products, Alpha Hydrox, which is sold throughout the United States and in Canada. During the second quarter of 1997, the Company plans to begin to market its skin care products in at least one country in South America. Sales of the cosmetics line were $15.8 million in 1993, $30.6 million in 1994 and $31.6 million in 1995; but, for a variety of reasons which are set forth in the Company's most recent Annual Report, sales of the Company's skin care products decreased to $26.6 million in 1996. Largely as a result of the Company's entry into the skin care business, net income (excluding income from discontinued operations) increased from approximately $288,000 in 1992 to $2,841,000 in 1993, and to $5,818,000 in 1994. However, in 1995, net income declined to about $2,784,000 due to heavy advertising of cosmetics products and a decline of 12.3% in sales of the Company's household chemical products; and, in 1996, the Company posted a net loss (after a charge of $3,588,000 attributable to the settlement of an environmental lawsuit) of $934,000. During the first quarter of 1997, the Company's net sales were $14,324,800 compared to $12,756,700 for the first quarter of 1996, an increase of 12.3%; and its net income was $816,400 compared to a loss (excluding income from discontinued operations) for the same quarter of 1996 of $642,100. Results of Operations Summary of Results as a Percentage of Net Sales (Audited) Year Ended Three Months Ended Dec 31 March 31, 1996 1997 1996
Net sales Scott's Liquid Gold household products 39.9% 30.8% 37.8% Neoteric Cosmetics 60.1% 69.2% 62.2% __________________________________________ Total net sales 100.0% 100.0% 100.0% Cost of sales 32.1% 26.8% 33.4% __________________________________________ Gross profit 67.9% 73.2% 66.6% Other revenue 0.7% 0.8% 0.5% __________________________________________ 68.6% 74.0% 67.1% __________________________________________ Operating expenses 61.1% 62.7% 69.2% Interest 2.7% 2.3% 2.1% __________________________________________ 63.8% 65.0% 71.3% __________________________________________ Income (loss from operations 4.8% 9.0% (4.2%)
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996 Consolidated net sales for the first quarter of 1997 were $14,324,800 vs. $12,756,700 for the first three months of 1996, an increase of $1,568,100 or about 12.3%. Average selling prices for the first quarter of 1997 were higher than those of the first quarter of 1996 by $1,148,900, prices of household chemical products being up by $893,000 (all of which related to Touch of Scent), while average selling prices of cosmetics products were up by $255,900. During the first quarter of 1997, net sales of cosmetics products accounted for 69.2% of consolidated net sales compared to 62.2% for the first quarter of 1996. Net sales of these products for those periods were $9,917,500 in 1997 compared to $7,931,700 in 1996, an increase of $1,985,800 or 25.0%. Most of that increase pertained to increases in sales of the Company's basic products, alpha hydroxy acid cremes and lotions and face wash. The Company attributes the increase in sales of Alpha Hydrox products to more effective advertising during the first quarter of 1997 compared to 1996, including the airing of several new television commercials. Further, sales of Alpha Hydrox products were not affected in 1997 (as they were in 1996) by the need last year to discontinue an unsuccessful men's product. Competition continues to be keen in the skin care category in which the Company participates and is expected to remain so for the foreseeable future. While the Company is pleased with its Alpha Hydrox sales results for the first quarter of 1997, no assurance can be given that such results can be sustained even for the short run. Sales of household chemical products for the first quarter of 1997 accounted for 30.8% of consolidated net sales compared to 37.8% for the same quarter of 1996. These products are comprised of "Scott's Liquid Gold" for wood, a wood cleaner which preserves as it cleans, and "Touch of Scent", a room air freshener. During the three months ended March 31, 1996, sales of household chemical products were $4,825,000 compared to $4,407,300 for the first three months of 1997, a decrease of $417,700 or 8.7%. Sales of "Scott's Liquid Gold" for wood were down by $444,800, a decrease of 17.3%, while sales of "Touch of Scent" were up by $27,100 or 1.2%. The Company believes that the sales decrease for Scott's Liquid Gold was, in large measure, attributable to a substantial decrease in advertising dollars spent on that product in 1997 vs. 1996. As was reported in the Company's most recent Annual Report, Touch of Scent sales had decreased substantially over the last two years and, therefore, in an effort to increase sales of its air fresheners, the Company, in December of 1996, introduced a new line of highly decorative fixtures to dispense new, concentrated formulae now contained in its refill units. The Company has not had sufficient experience with its new line of fixtures to judge whether or not they will be the catalyst to revitalize the Company's line of air fresheners. While dollar sales of Touch of Scent increased by about 1.0% during the first quarter of 1997 compared to 1996, case sales decreased by about 39.6%. (See pricing in first paragraph above.) On a consolidated basis, cost of goods sold was $3,838,200 during the first quarter of 1997 compared to $4,262,800 for the same quarter of 1996, a decrease of $424,600 or about 10.0% (on an increase in sales of 12.3%). As a percentage of consolidated net sales, cost of goods sold was 26.8% in 1997 vs. 33.4% in 1996, a decrease of 19.8%. Overall, costs per unit remained substantially the same in 1997 as they were in 1996 (up only 1.3). However the mix of products sold changed substantially between the first quarter of 1996 and the first quarter of 1997. Case sales of Scott's Liquid Gold for wood during the first quarter of 1997 (compared to 1996) decreased by 17.8% (about equal to the sales decrease), but case sales of Touch of Scent decreased by 39.6% whereas sales of Touch of Scent increased by 1.2%; and case sales of Alpha Hydrox increased by 22.4% on a dollar sales increase of 25%. Advertising expenses for the first three months of 1997 were $5,091,500 compared to $5,349,300 for the comparable three months of 1996, a decrease of $257,800 or 4.8 %. Advertising expenses applicable to household chemicals increased during the first quarter of 1997 compared to the first quarter of 1996 by $1,542,100, an increase of 206.6%. Advertising expenses for Liquid Gold decreased by $454,400, whereas expenses to advertise Touch of Scent increased by $1,996,500. Advertising expenses for Alpha Hydrox were $1,799,900 lower during the quarter ended March 31, 1997 than in the comparable quarter of 1996. During the remaining three quarters of 1997, the Company intends to spend significant amounts for advertising of its products. The Company has, in the past, made clear that, as a matter of sound business judgment, it recognizes that, whenever it is fiscally responsible to do so, it must continue to advertise aggressively because (i) the market for skin care products is highly competitive and, accordingly, the Alpha Hydrox name needs to be kept in front of current consumers; and (ii) advertising is essential to maintain or increase sales levels of both the Company's cosmetics and household chemical products. The Company recognizes further that sustaining its advertising program is highly dependent upon sales of its skin care products. Selling expenses for the first quarter of 1997 were $2,089,800 compared to $2,060,000 for the comparable quarter of 1996, an increase of $29,800 or 1.5%. Administrative expenses were higher in the first quarter of 1997 than those of the first quarter of 1996 by $381,700, an increase of 26.9%. Of that increase, $176,900 relates to accruals for bonus and profit sharing plans (there were no such accruals during the first quarter of 1996), $160,800 pertains to an increase in legal and professional expenses, and $54,500 is attributable to an increase in fringe benefits, all offset by minor increases and decreases in other administrative expenses. Interest expense for the first quarter of 1997 was greater than that of the comparable quarter of 1996 by $59,600, an increase of 21.9%, which was due to increased debt and the capitalization of approximately $30,300 of interest expense during the first quarter of 1996, the final quarter of the Company's construction period. (See Liquidity and Capital Resources below.) Other income increased by $43,900 during the quarter ended March 31, 1997 compared to the same quarter of 1996 due to an increase in interest rates applicable to cash reserves and an increase in the cash reserves themselves. During the first quarter of 1997 and 1996, expenditures for research and development were not material (under 1% of revenues). Liquidity and Capital Resources On July 29, 1994, the Company consummated a $12 million bond issuance to finance the expansion of the Company's Denver facilities. This expansion, prompted by the growth in sales of the Company's Alpha Hydrox skin care products had an aggregate cost of approximately $13.65 million. Construction of the project began in August of 1994 and was completed in January 1996. Interest on the $12 million bond issue is payable semi-annually at the rate of 10% per annum. (The January 1, 1997 interest payment was made in a timely manner. There is no reason to believe that the interest payment due on July 1, 1997 will not be made as is required by the Bond Indenture.) A sinking fund payment of $1 million is required annually. Sinking fund payments for 1995 and 1996 were made as required. Currently, the Company is voluntarily paying $183,300 each month to the Trustee to cover future interest and sinking fund payments. The Trustee, at the Company's request, holds such moneys in accounts to which the Company has no access. Among other things, the Bond Indenture requires that the Company maintain a current ratio of at least 1.0:1 while the bonds are outstanding, and further requires that the Company maintain a ratio of consolidated funded debt (reduced by any amount held in the bond sinking fund) to consolidated net worth of not more than 1.5:1. Both of the foregoing requirements were met at March 31, 1997. The Bond Indenture also states that the Company may not declare or pay any dividend or distribution on its equity securities, purchase or otherwise acquire securities of the Company, or incur any additional consolidated funded debt if, after giving effect to the action, the ratio of consolidated funded debt (reduced by amounts held in the bond sinking fund) to consolidated net worth would exceed 1.25 to 1 on January 1, 1996 and thereafter. That provision continued to be satisfied at March 31, 1997. The bonds are secured by a first deed of trust on the Company's Denver land and buildings, including new structures financed by the bond issue. During the first quarter of 1997, the Company's working capital increased by $741,400, and concomitantly, its current ratio (current assets divided by current liabilities) increased from 1.80:1 at December 31, 1996 to 1.87:1 at March 31, 1997. This increase in working capital is attributable to a net profit in the first quarter of $816,400, depreciation in excess of capital additions of $189,800, and a decrease in other assets and net assets of discontinued operations of $67,000; all offset by a reduction in long-term debt of $331,800. At March 31, 1997, the ratio of consolidated funded debt to consolidated net worth was .66:1. During the first quarter of 1997, trade accounts receivable increased by $610,700 primarily because March 1997 sales exceeded those of December 31, 1996. The Company's average collection period remained at less than 30 days. Other receivables decreased during the quarter ended March 31, 1997 by $598,900, essentially due to the receipt of $600,000 from an insurance Company which had been set up as a receivable at the end of 1996. Other As previously reported, the Company had been a defendant in an environmental lawsuit brought by the United States Justice Department at the request of the United States Army, alleging contribution by the Company to contamination in a groundwater aquifer underlying a portion of the Rocky Mountain Arsenal. In October of 1996, the Company and the United States, on behalf of the Department of the Army, negotiated a settlement of this dispute and submitted a Settlement Agreement and Order to the United States District Court for the District of Colorado. The Agreement, which admits no wrong doing by the Company and which was approved by the Court on November 6, 1996, requires the payment to the United States of $6 million, $3 million of which was paid by the Company's insurers and $1 million was paid by the Company. The additional $2 million is to be paid in equal annual installments of $250,000 over eight years, beginning on October 1, 1997, together with interest approximating the Treasury Bill rate. The Company has filed a lawsuit against those insurers which did not participate in the settlement to recover at least the $3 million paid and payable by the Company, plus punitive damages and attorneys' fees. The Company's 1996 Annual Report describes a patent infringement suit which was filed against Neoteric Cosmetics, Inc., the Company's wholly-owned subsidiary which manufactures and sells skin care products under the name Alpha Hydrox. There has been no change in the status of that suit. PART II. OTHER INFORMATION Item 1. Not Applicable Item 2. Not Applicable Item 3. Not Applicable Item 4. Not Applicable Item 5. Not Applicable Item 6. Not Applicable 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. SCOTT'S LIQUID GOLD-INC. April 25, 1997 BY: /s/ Mark E. Goldstein, President Date April 25, 1997 BY: /s/Barry Shepard, Treasurer Date Principal Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from Scott's Liquid Gold-Inc. 1997 First Quarter 10-Q and is qualified in its entirety by reference to such 10-Q filing. 3-MOS DEC-31-1997 MAR-31-1997 5,577,900 0 4,688,300 632,600 4,215,100 14,928,300 26,919,000 7,247,000 35,186,000 7,989,500 12,000,000 0 0 1,003,100 15,511,400 35,186,000 14,324,800 14,434,400 3,838,200 12,820,600 ( 35,000) 0 332,100 1,316,700 500,300 816,400 0 0 0 816,400 .08 .08
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