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)
<TABLE>
Three Months Ended March 31,
1997 1996
<S> <C> <C>
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)
</TABLE>
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
Three Months Ended March 31,
<S> <C> <C>
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)
</TABLE>
ASSETS
<TABLE>
1997 1996
<S> <C> <C>
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
</TABLE>
LIABILITIES & SHAREHOLDERS' EQUITY
<TABLE>
1997 1996
<S> <C> <C>
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
</TABLE>
(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:
<TABLE>
High Low
Three Months Ended Bid Bid
<C> <C> <C>
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
</TABLE>
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
<TABLE>
(Audited)
Year Ended Three Months Ended
Dec 31 March 31,
1996 1997 1996
<CAPTION>
<S> <C> <C> <C>
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%)
</TABLE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,577,900
<SECURITIES> 0
<RECEIVABLES> 4,688,300
<ALLOWANCES> 632,600
<INVENTORY> 4,215,100
<CURRENT-ASSETS> 14,928,300
<PP&E> 26,919,000
<DEPRECIATION> 7,247,000
<TOTAL-ASSETS> 35,186,000
<CURRENT-LIABILITIES> 7,989,500
<BONDS> 12,000,000
0
0
<COMMON> 1,003,100
<OTHER-SE> 15,511,400
<TOTAL-LIABILITY-AND-EQUITY> 35,186,000
<SALES> 14,324,800
<TOTAL-REVENUES> 14,434,400
<CGS> 3,838,200
<TOTAL-COSTS> 12,820,600
<OTHER-EXPENSES> ( 35,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 332,100
<INCOME-PRETAX> 1,316,700
<INCOME-TAX> 500,300
<INCOME-CONTINUING> 816,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 816,400
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
