UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
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 0-5128
SCOTT'S LIQUID GOLD-INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-0920811
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
4880 Havana Street, Denver, CO 80239
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (303) 373-4860
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
$0.10 Par Value Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) 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 (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (? 229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
The aggregate market value of the Registrant's voting stock held as of March 5,
1997 by non-affiliates of the Registrant was $10,275,013. This calculation
assumes that certain parties may be affiliates of the Registrant and that,
therefore, 5,480,007 shares of voting stock are held by non-affiliates.
As of March 5, 1997, the Registrant had 10,030,900 shares of its $0.10 par value
common stock outstanding.
Documents Incorporated by Reference
The Registrant's 1996 Annual Report to shareholders is incorporated by reference
in Parts I, II and IV. The Registrant's definitive Proxy Statement for the
Annual Meeting of shareholders to be held on May 7, 1997, is incorporated by
reference in Part III.
SCOTT'S LIQUID GOLD-INC.
ANNUAL REPORT ON
FORM 10-K
FOR YEAR ENDED DECEMBER 31, 1996
PART I
Item 1. Business.
Portions of the 1996 Annual Report to shareholders of Scott's Liquid
Gold-Inc. (the "Company" or "Registrant") are attached to this Report as Exhibit
13 and are called in this Report the "Annual Report". The information set forth
under the headings "Description of Business," "Products and Services," and
"Management Discussion and Analysis of Financial Condition and Results of
Operations" of the Annual Report hereby is incorporated by reference into this
Report.
Item 2. Properties.
The information set forth under "Description of Business - Properties" and
"Management Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" of the Annual Report hereby is
incorporated by reference into this Report.
Item 3. Legal Proceedings.
The information set forth under "Description of Business - Legal
Proceedings" and "Management Discussion and Analysis of Financial Condition and
Results of Operations - Other" of the Annual Report hereby is incorporated by
reference into this Report.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The information set forth under "Corporate Data" and "Market Information"
of the Annual Report hereby is incorporated by reference into this Report.
As of March 5, 1997, the Company had approximately 1,400 shareholders of
record.
Item 6. Selected Financial Data.
The information set forth under "Selected Financial Data" of the Annual
Report hereby is incorporated by reference into this Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information set forth under "Management Discussion and Analysis of
Financial Condition and Results of Operations" of the Annual Report hereby is
incorporated by reference into this Report.
Item 8. Financial Statements and Supplementary Data.
The information set forth under "Consolidated Financial Statements," "Notes
to Consolidated Financial Statements," "Report of Independent Public
Accountants" and "Selected Financial Data - Selected Quarterly Financial Data"
of the Annual Report hereby is incorporated by reference into this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
For Part III, the information set forth in the Company's definitive Proxy
Statement for the Company's Annual Meeting of Shareholders to be held on May 7,
1997, hereby is incorporated by reference into this Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) Financial Statements:
Consolidated Statements of Operations -
Years ended December 31, 1996, 1995 and 1994
Consolidated Balance Sheets -
December 31, 1996 and 1995
Consolidated Statements of Cash Flows -
Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity -
Years ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts -
Years ended December 31, 1996, 1995 and 1994
Inasmuch as Registrant is primarily a holding company and all subsidiaries
are wholly-owned, only consolidated statements are being filed. Schedules
other than those listed above are omitted because of the absence of the
conditions under which they are required or because the information is included
in the financial statements or notes to the financial statements.
(b) Reports on Form 8-K:
Not applicable.
(c) Exhibits:
Exhibit
No. Document
3.1 Restated Articles of Incorporation, as amended and
restated through May 1, 1996, incorporated by
reference to Exhibit 3.1 of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
June 30, 1996.
3.2 Bylaws, as amended through February 27, 1996,
incorporated by reference to Exhibit 3.2 of Annual
Report on Form 10-K for the year ended December 31,
1995.
4.1 Indenture of Trust (including form of First Mortgage
Bond Due 2001) dated July 1, 1994 between Registrant
and Norwest Bank Colorado, N.A. as Trustee,
incorporated by reference to Exhibit 4.1 of the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994.
4.2 Combination Deed of Trust, Security Agreement and
Fixture Financing Statement, dated July 29, 1994,
between the Company, as Grantor, the Public Trustee
for the City and County of Denver, Colorado, and
Norwest Bank Colorado, N.A. as Beneficiary,
incorporated by reference to Exhibit 4.2 of the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994.
10.1* Scott's Liquid Gold-Inc. Fourth Amended Health and
Accident Plan effective January 1, 1995, incorporated
by reference to Exhibit 10.1 of Annual Report on Form
10-K for the year ended December 31, 1994.
10.2* Amended Key Executive Disability Plan--Scott's Liquid
Gold-Inc., incorporated by reference to Exhibit 10.2
of Annual Report on Form 10-K for the year ended
December 31, 1992.
10.3* Scott's Liquid Gold-Inc. Restricted Stock Plan
effective July 22, 1987, incorporated by reference to
Exhibit 10.3 of Annual Report on Amended Form 10-K
for the year ended December 31, 1993.
10.4* 1997 Key Executive Bonus Plan.
10.5* Indemnification Agreements dated May 6, 1987 between
the Registrant and Jerome J. Goldstein, Mark E.
Goldstein, Carolyn J. Anderson, and Barry Shepard,
incorporated by reference to Exhibit 10.5 of Annual
Report on Amended Form 10-K for the year ended
December 31, 1993. An Indemnification Agreement
dated October 4, 1990 between the Registrant and
Michael J. Sheets. An Indemnification Agreement
dated December 23, 1991 between the Registrant and
Dennis H. Field, and two separate Indemnification
Agreements dated January 17, 1992 between the
Registrant and Michael J. Sheets and Dennis H. Field,
incorporated by reference to Exhibit 10.5 of Annual
Report on Form 10-K for the year ended December 31,
1992. Indemnification Agreement dated February 23,
1993 between the Registrant and James F. Keane,
incorporated by reference to Exhibit 10.5 of
Quarterly Report on Form 10-Q for the three months
ended March 31, 1993.
10.6* Scott's Liquid Gold-Inc. Employee Stock Ownership
Plan and Trust Agreement, effective January 1, 1989,
and First and Second Amendments thereto, incorporated
by reference to Exhibit 10.6 of Annual Report on Form
10-K for the year ended December 31, 1994.
10.7* 1986 Incentive Stock Option Plan and First Amendment
thereto, incorporated by reference to Exhibit 4.4 of
the Company's Registration Statement No. 33-63254 on
Form S-8, filed with the Commission on May 25, 1993.
10.8* Scott's Liquid Gold-Inc. 1993 Stock Option Plan for
Outside Directors, incorporated by reference to
Exhibit 4.7 of the Company's Registration Statement
No. 33-63254 on Form S-8, filed with the Commission
on May 25, 1993.
13 Portions of 1996 Annual Report to Security Holders.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
____________________________________
*Management contract or compensatory plan or arrangement
Supporting Schedules
Valuation and Qualifying Accounts
Schedule II
Scott's Liquid Gold-Inc. and Subsidiaries
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions Deductions
Balance 1 2
at Charge to Charges to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts of Period
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1996
Allowance for
doubtful accounts $494,200 $270,900 $184,700 (1) $580,400
Year Ended
December 31, 1995
Allowance for
doubtful accounts $339,000 $229,000 $73,800 (1) $494,200
Year Ended
December 31, 1994
Allowance for
doubtful accounts $177,900 $174,400 $13,300 (1) $339,000
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Scott's Liquid Gold-Inc.
We have audited the accompanying consolidated balance sheets of Scott's Liquid
Gold-Inc. (a Colorado corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scott's Liquid Gold-Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Denver, Colorado,
January 21, 1997
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: March 27, 1997.
SCOTT'S LIQUID GOLD-INC.
a Colorado corporation
By: /s/ Mark E. Goldstein
Mark E. Goldstein, President
Principal Executive Officer
By: /s/ Barry Shepard
Barry Shepard, Treasurer
Principal Financial Officer
By: /s/ Jeffry B. Johnson
Jeffry B. Johnson, Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons of the Registrant and in
the capacities and on the dates indicated:
Date Name and Title Signature
March 27, 1997 Carolyn J. Anderson, )
Director )
)
March 27, 1997 Mark E. Goldstein, )
Director )
)
March 27, 1997 Jerome J. Goldstein, ) /s/ Barry Shepard
Director ) Barry Shepard, for himself
and as Attorney-in-Fact for
the named directors who
March 27, 1997 Dennis H. Field, ) together constitute all of
Director ) the members of
) Registrant's Board of
Directors
)
March 27, 1997 James F. Keane, )
Director )
)
March 27, 1997 Michael J. Sheets, )
Director )
)
March 27, 1997 Barry Shepard, )
Director )
EXHIBIT INDEX
Exhibit Document
No.
3.1 Restated Articles of Incorporation, as amended and
restated through May 1, 1996, incorporated by
reference to Exhibit 3.1 of the Company's Quarterly
Report on Form 10-Q for the quarterly period ended
June 30, 1996.
3.2 Bylaws, as amended through February 27, 1996,
incorporated by reference to Exhibit 3.2 of Annual
Report on Form 10-K for the year ended December 31,
1995.
4.1 Indenture of Trust (including form of First
Mortgage Bond Due 2001) dated July 1, 1994 between
Registrant and Norwest Bank Colorado, N.A. as
Trustee, incorporated by reference to Exhibit 4.1
of the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1994.
4.2 Combination Deed of Trust, Security Agreement and
Fixture Financing Statement, dated July 29, 1994,
between the Company, as Grantor, the Public Trustee
for the City and County of Denver, Colorado, and
Norwest Bank Colorado, N.A. as Beneficiary,
incorporated by reference to Exhibit 4.2 of the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1994.
10.1* Scott's Liquid Gold-Inc. Fourth Amended Health and
Accident Plan effective January 1, 1995,
incorporated by reference to Exhibit 10.1 of Annual
Report on Form 10-K for the year ended December 31,
1994.
10.2* Amended Key Executive Disability Plan--Scott's
Liquid Gold-Inc., incorporated by reference to
Exhibit 10.2 of Annual Report on Form 10-K for the
year ended December 31, 1992.
10.3* Scott's Liquid Gold-Inc. Restricted Stock Plan
effective July 22, 1987, incorporated by reference
to Exhibit 10.3 of Annual Report on Amended Form
10-K for the year ended December 31, 1993.
10.4* 1997 Key Executive Bonus Plan.
10.5* Indemnification Agreements dated May 6, 1987
between the Registrant and Jerome J. Goldstein,
Mark E. Goldstein, Carolyn J. Anderson, and Barry
Shepard, incorporated by reference to Exhibit 10.5
of Annual Report on Amended Form 10-K for the year
ended December 31, 1993. An Indemnification
Agreement dated October 4, 1990 between the
Registrant and Michael J. Sheets. An
Indemnification Agreement dated December 23, 1991
between the Registrant and Dennis H. Field, and two
separate Indemnification Agreements dated January
17, 1992 between the Registrant and Michael J.
Sheets and Dennis H. Field, incorporated by
reference to Exhibit 10.5 of Annual Report on Form
10-K for the year ended December 31, 1992.
Indemnification Agreement dated February 23, 1993
between the Registrant and James F. Keane,
incorporated by reference to Exhibit 10.5 of
Quarterly Report on Form 10-Q for the three months
ended March 31, 1993.
10.6* Scott's Liquid Gold-Inc. Employee Stock Ownership
Plan and Trust Agreement, effective January 1,
1989, and First and Second Amendments thereto,
incorporated by reference to Exhibit 10.6 of Annual
Report on Form 10-K for the year ended December 31,
1994.
10.7* 1986 Incentive Stock Option Plan and First
Amendment thereto, incorporated by reference to
Exhibit 4.4 of the Company's Registration Statement
No. 33-63254 on Form S-8, filed with the Commission
on May 25, 1993.
10.8* Scott's Liquid Gold-Inc. 1993 Stock Option Plan for
Outside Directors, incorporated by reference to
Exhibit 4.7 of the Company's Registration Statement
No. 33-63254 on Form S-8, filed with the Commission
on May 25, 1993.
13 Portions of 1996 Annual Report to Security Holders.
21 List of Subsidiaries.
23 Consent of Arthur Andersen LLP.
24 Powers of Attorney.
27 Financial Data Schedule
*Management contract or compensatory plan or arrangement
EXHIBIT 10.4
1997
KEY EXECUTIVE INCENTIVE BONUS PLAN
SCOTT'S LIQUID GOLD-INC.
Purpose of the Plan
The purpose of the Key executive Incentive Bonus Plan (the "Plan") is to
provide incentive to the Company's key executives to maximize corporate earnings
for 1997 and to reward such executives based upon performance.
Structure of the Plan
This Plan is constructed to reserve exclusively to the shareholders the
first $1 million in pre-tax earnings. Thereafter, for each $1 million in
additional pre-tax earnings, a bonus of $100,000 will be paid as incentive
bonus.
This Plan is also constructed so as to encourage Management to expend every
effort possible to increase pre-tax earnings in excess of $1 million. The more
pre-tax profit the Company makes, the greater the bonus and the greater the
return to the Company's shareholders. Further, by not capping bonuses to be
paid under this Plan, the Board of Directors believes that the incentives to the
Company's executives to make larger and larger profits will not be limited.
Plan Provisions
1. For 1997, a bonus pool equal to 10% of pre-tax earnings in excess of $1
million will be set aside for distribution to the Company's key executives.
2. Partial distributions of the bonus pool may be made in December of
1997, but the final distribution is only to be made after the close of the year,
based upon audited pre-tax profits, during the quarter following the close of
the fiscal year.
3. Bonuses, if any, for 1997, will be divided equally among the Company's
four (4) executive officers.
4. For purposes of this Plan, net pre-tax earnings and pre-tax profits
shall be determined without the deduction or addition of gains or losses from
infrequent or unusual events or transactions or from extraordinary items. The
exclusion of any such event, transaction or item shall be determined by action
of the Compensation Committee of the Board of Directors of the Company after
reviewing the proposed or final statements of income of the Company for the
relevant period and reviewing the accounting treatment of any such event,
transaction or item by the Company's independent accountants.
EXHIBIT 10.5
INDEMNIFICATION AGREEMENT
SCOTT'S LIQUID GOLD-INC.
This Agreement is made and entered into as of October 2, 1990, between
Scott's Liquid Gold-Inc., a Colorado corporation (the "Corporation"), and
Michael J. Sheets of 1035 Fifth Avenue, New York, NY 10028 ("Director").
RECITALS:
A. At the request of the Corporation, Director currently serves as a director
of the Corporation (as defined below). As such, Director may be subjected to
claims, suits or proceedings.
B. Director has indicated that it was and is a condition of Director's
acceptance and continuing in such service that, among other things, the
Corporation agrees to indemnify Director against liabilities, expenses and costs
incurred in connection with any such claims, suits or proceedings, in accordance
with, and to the fullest extent permitted by, the Colorado Corporation Code; and
C. The Corporation's Articles of Incorporation and the Colorado Corporation
Code contemplate that contracts may be made between the Corporation and members
of its Board of Directors and officers with respect to indemnification.
AGREEMENT:
Now, therefore, in consideration of Director's acceptance and continuation
of service as a director after the date of this Agreement, and in consideration
of the mutual covenants stated herein, the parties agree as follows:
1. Definitions. As used in this Agreement, the following terms have the
following meanings:
(a) Code. The term "Code" means the Colorado Corporation Code as it
exists on the date of this Agreement and as it may be hereafter amended from
time to time. In the case of any amendment of the Colorado Corporation Code
after the date of this Agreement, when used in reference to an act or omission
occurring prior to effectiveness of such amendment, the term "Code" shall
include such amendment only to the extent that the amendment permits the
Corporation to provide broader indemnification rights than the Colorado
Corporation Code permitted the Corporation to provide at the date of this
Agreement and prior to the amendment.
(b) Director. As used in reference to a position of Director, the term
"director" means a director of the Corporation and, while a director or officer
of the Corporation, Director's serving at the Corporation's request as a
director, officer, partner, trustee, employee or agent of any corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan.
The term "director" also includes, unless the context otherwise requires, the
estate or personal representative of a director. The term "director" shall also
include any such broader definition as may be provided in the Code with
amendments after the date of this Agreement.
(c) Proceeding. The term "proceeding" means any threatened, pending or
completed action, suit or proceeding whether civil, criminal, administrative or
investigative, and whether formal or informal.
2. Agreement to Indemnify. The Corporation shall indemnify, and keep
indemnified, Director in accordance with, and to the fullest extent permitted
and/or required by, the Code from and against any judgments, penalties, fines
(including but not limited to ERISA excise taxes), amounts paid in settlement
and reasonable expenses (including but not limited to expenses of investigation
and preparation and fees and disbursements of Director's counsel, accountants or
other experts) actually incurred by Director in connection with any proceeding
in which Director was or is made a party or was or is involved (for example, as
a witness) because Director is or was a director or is or was an officer of the
Corporation.
3. Insurance. So long as Director may be subject to any possible proceeding
by reason of the fact that Director is or was a director or officer of the
Corporation, to the extent the Corporation maintains an insurance policy or
policies providing directors' and officers' liability insurance, Director shall
be covered by such policy or policies, in accordance with its or their terms, to
the maximum extent of the coverage applicable to any then current director or
officer of the Corporation.
4. Advances. In the event of any proceeding in which Director is a party or
is involved and which may give rise to a right of indemnification from the
Corporation pursuant to this Agreement, following written request to the
Corporation by Director, the Corporation shall pay to Director, in accordance
with and to the fullest extent permitted and/or required by the Code, amounts to
cover reasonable expenses incurred by Director in such proceeding in advance of
its final disposition upon receipt of (a) a written affirmation by Director of
Director's good faith belief that Director has met any applicable standard of
conduct; (b) a written undertaking executed by or on behalf of Director to repay
the advance if it shall ultimately be determined that Director did not meet such
standard of conduct; and (c) satisfactory evidence as to the amount of such
expenses.
5. Burden of Proof. If under applicable law, the entitlement of Director to
be indemnified or advanced expenses hereunder depends upon whether a standard of
conduct has been met, the burden of proof of establishing that Director did not
act in accordance with such standard shall rest with the Corporation. Director
shall be presumed to have acted in accordance with such standard and to be
entitled to indemnification or the advancement of expenses (as the case may be)
unless, based upon a preponderance of the evidence, it shall be determined that
Director has not met such standard. Such determination and any evaluation as to
the reasonableness of amounts claimed by Director shall be made by the Board of
Directors of the Corporation or such other body or persons as may be permitted
by the Code. For purposes of this Agreement, unless otherwise expressly stated,
the termination of any proceeding by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that Director did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law.
6. Notice to the Corporation. Director shall notify the Secretary of the
Corporation in writing of any matter for which Director intends to seek
indemnification hereunder as soon as reasonably practicable following the
receipt by Director of written notice thereof; provided, however, that delay in
so notifying the Corporation shall not constitute a waiver or release by
Director of rights hereunder.
7. Counsel for Proceeding. In the event of any proceeding in which Director
is a party or is involved and which may give rise to a right of indemnification
hereunder, the Corporation shall have the right to retain counsel reasonably
satisfactory to Director to represent Director and any others the Corporation
may designate in such proceeding. In any such proceeding, Director shall have
the right to retain Director's own counsel, but the fees and expenses of such
counsel shall be at the expense of Director unless (a) the retention of such
counsel has been specifically authorized by the Corporation; (b) representation
of Director and another party by the same counsel would be inappropriate, in the
reasonable judgment of Director, due to actual or potential differing interests
between them (as might be the case for representation of both the Corporation
and Director in a proceeding by or in the right of the Corporation); (c) the
counsel retained by the Corporation and satisfactory to Director has advised
Director, in writing, that such counsel's representation of Director would be
likely to involve such counsel in representing differing interests which could
adversely affect either the judgment or loyalty of such counsel to Director,
whether it be a conflicting, inconsistent, diverse or other interest; or (d) the
Corporation shall fail to retain counsel for Director in such proceeding.
Notwithstanding the foregoing, if an insurance carrier has supplied directors'
and officers' liability insurance covering a proceeding and is entitled to
retain counsel for the defense of such proceeding, then the insurance carrier
shall retain counsel to conduct the defense of such proceeding unless Director
and the Corporation concur in writing that the insurance carrier's doing so is
undesirable. The Corporation shall not be liable under this Agreement for any
settlement of any proceeding effected without its written consent. The
Corporation shall not settle any proceeding in any manner which would impose any
penalty or limitation on Director without Director's written consent. Consent
to a proposed settlement of any proceeding shall not be unreasonably withheld by
either the Corporation or Director.
8. Enforcement. The Corporation acknowledges that Director is relying upon
this Agreement in serving as a director, as well as any serving in the future as
an officer of the Corporation. If a claim for indemnification or advancement of
expenses is not paid in full by the Corporation within ninety (90) days after a
written claim has been received from Director by the Corporation, Director may
at any time bring suit against the Corporation to recover the unpaid amount of
the claim. If successful in whole or in part in such suit, Director shall also
be entitled to be paid all reasonable fees and expenses (including without
limitation fees of counsel) in bringing and prosecuting such claim. Whether or
not Director has met any applicable standard of conduct, the Court in such suit
may order indemnification or the advancement of expenses as the Court deems
proper (subject to any express limitation of the Code). Further, the
Corporation shall indemnify Director from and against any and all expenses
(including attorneys' fees) and, if requested by Director, shall (within ten
business days of such request) advance such expenses to Director, which are
incurred by Director in connection with any claim asserted against or suit
brought by Director for recovery under any directors' and officers' liability
insurance policies maintained by the Corporation, regardless of whether Director
is unsuccessful in whole or in part in such claim or suit.
9. Proceedings by Director. The Corporation shall indemnify Director and
advance expenses to Director in connection with any proceeding (or part thereof)
initiated by Director only if such proceeding (or part thereof) was authorized
by the Board of Directors of the Corporation.
10. Nonexclusivity. The rights of Director for indemnification and advancement
of expenses under this Agreement shall not be deemed exclusive of, or in
limitation of, any rights to which Director may be entitled under Colorado law,
the Corporation's Articles of Incorporation or Bylaws, vote of stockholders or
otherwise.
11. Miscellaneous.
(a) Effectiveness. This Agreement is effective for, and shall apply to,
(i) any claim which is asserted or threatened before, on or after the date of
this Agreement but for which no action, suit or proceeding has actually been
brought prior to the date of this Agreement and (ii) any action, suit or
proceeding which is threatened before, on or after the date of this Agreement
but which is not pending prior to the date of this Agreement. Thus, this
Agreement shall not apply to any action, suit or proceeding which has actually
been brought before the date of this Agreement. So long as the foregoing
standard of effectiveness has been satisfied, this Agreement shall be effective
for and shall be applied to acts or omissions prior to, on or after the date of
this Agreement.
(b) Survival; Continuation. The rights of Director hereunder shall inure
to the benefit of the Director (even after Director ceases to be a director or
officer), Director's personal representative, heirs, executors, administrators
and beneficiaries; and this Agreement shall be binding upon the Corporation, its
successors and assigns. The rights of Director under this Agreement shall
continue so long as Director may be subject to any possible proceeding because
of the fact that Director was a director or was an officer of the Corporation.
If the Corporation sells, leases, exchanges or otherwise disposes of, in a
single transaction or series of related transactions, all or substantially all
of its property and assets, the Corporation shall, as a condition precedent to
such transaction, cause effective provision to be made so that the person or
entity acquiring such property and assets shall become bound by and replace the
Corporation under this Agreement.
(c) Governing Law. This Agreement shall be governed by the laws of the
State of Colorado.
(d) Severability. If any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be deemed
amended to accomplish the objectives of the provision as originally written to
the fullest extent permitted by law and all other provisions shall remain in
full force and effect.
(e) Amendment. No amendment, termination or cancellation of this
Agreement shall be effective unless in writing signed by the Corporation and
Director.
(f) Other Payments. The Corporation shall not be liable under this
Agreement to make any payment in connection with any proceeding against or
involving Director to the extent Director has otherwise actually received
payment (under any insurance policy, Bylaw or otherwise) of the amounts
otherwise indemnifiable hereunder. Director shall repay to the Corporation the
amount of any payment the Corporation makes to Director under this Agreement in
connection with any proceeding against or involving Director, to the extent
Director has otherwise actually received payment (under any insurance policy,
Bylaw or otherwise) of such amount.
(g) Subrogation. In the event of payment under this Agreement the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Director, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
(h) Headings. The headings in this Agreement are for convenience only
and are not to be considered in construing this Agreement.
(i) Counterparts. This Agreement may be executed in counterparts, both of
which shall be deemed an original, and together shall constitute one document.
The parties have executed this Agreement as of the day and year first above
stated.
SCOTT'S LIQUID GOLD-INC. DIRECTOR
By: /s/ Mark E. Goldstein /s/ Michael J. Sheets
Mark E. Goldstein, President Michael J. Sheets
DESCRIPTION OF BUSINESS
General
Scott's Liquid Gold-Inc., a Colorado corporation headquartered in Denver, was
incorporated on February 15, 1954. Through its wholly-owned subsidiaries, the
Company manufactures and markets high quality household chemical products and
skin care products; and, until late 1996, it manufactured a line of disposable
cigarette filters. In this report, the term 'Company' refers to Scott's Liquid
Gold-Inc. and its subsidiaries.
The Company's household chemical products consist primarily of Scott's Liquid
Gold for wood, a wood preservative and cleaner sold nationally for 25 years, and
Touch of Scent, an aerosol room air freshener distributed nationally since 1982.
In early 1992, the Company entered into the cosmetics business through a
subsidiary, Neoteric Cosmetics, Inc., which, at that time, introduced two skin
care products under the name Alpha Hydrox. At the end of 1996, nineteen skin
care products were being marketed by the Company, with additional products being
considered for market introduction during 1997.
Strategy
The Company's policy is to manufacture and market high quality consumer products
that are distinct within each category in which the Company competes. Scott's
Liquid Gold for wood distinguishes itself from competing products as a wood
cleaner and preservative, not simply a polish. Touch of Scent is different from
competing aerosol air fresheners in that it need not be shaken before each use
and, because it is activated by an attractive fixture which may be mounted on
any smooth surface, it is more convenient to use than competing brands. With
respect to Alpha Hydrox, the Company's line of cosmetics products, it was the
first alpha hydroxy acid skin care product sold to the mass market at prices
which consumers can afford.
The Company's goal is to operate profitably each year, which it has done every
year during this decade, and, with an eye on the bottom line, to grow sales,
particularly with regard to skin care products. (It is noted that, although the
Company experienced a net loss for 1996, it operated profitably but for the
settlement of an environmental lawsuit with the U.S. Army.) Part of the
Company's strategy to reach its goal was an expansion of the Company's physical
plant in Denver, a project which was completed in early 1996. Other efforts to
achieve this goal include (1) continuing to maintain an aggressive advertising
posture; (2) developing additional skin care products where a perceived consumer
need exists; and (3) focusing on domestic sales while not ignoring opportunities
for expansion into other countries (the Canadian market was opened in 1995 and,
during 1997, the Company plans to sell its products in certain South American
countries). Regarding the first point, the Company believes that sales of its
consumer products require the support of effective advertising.
Products
Scott's Liquid Gold for wood, a wood cleaner and preservative, has been the
Company's core product since the Company's inception. It has been well-known in
the U.S. market for twenty-five years. In 1982, the Company added Touch of
Scent, a room air freshener, to its line of household chemical products. The
Company believes that Touch of Scent is the most convenient to use air freshener
available. Household chemical products accounted for 39.9% of the Company's
consolidated net sales in 1996 and 37.6% in 1995.
Scott's Liquid Gold for wood, when applied to wood surfaces such as furniture,
paneling, and kitchen cabinets, and to outside stained doors and decking,
penetrates microscopic pores in the surface and lubricates beneath, restoring
moisture and, at the same time, minimizes the appearance of scratches, darkening
the wood slightly. Scott's Liquid Gold preserves wood's natural complexion and
beauty without wax.
Touch of Scent is intended to be used in conjunction with a decorative fixture
which can be mounted on any hard surface and into which the consumer inserts an
aerosol refill unit. At a touch, the fixture propels any of several fragrances
from the refill unit into the air, masking unpleasant odors and refreshing the
air with a pleasant scent. The Company manufactures both the fixture and the
refill unit. Unlike some competitive aerosol air fresheners, Touch of Scent is
extremely dry and, therefore, leaves practically no residue after use. In 1995,
the Company reformulated its Touch of Scent product so as to reduce the emission
of volatile organic compounds as was required, beginning on January 1, 1996, by
the environmental laws of the State of California. Additionally, in 1996, the
Company developed and tested a new variety of highly decorative Touch of Scent
fixtures which it began to ship to customers in December of 1996.
In early 1992, the Company began to market two skin care products under the
trade name of Alpha Hydrox. At the end of 1996, the Company's skin care line
consisted of nineteen products. Most of the Company's Alpha Hydrox products,
which are sold through a wholly-owned subsidiary, Neoteric Cosmetics, Inc.,
contain alpha hydroxyethanoic acids in low but effective concentrations. Alpha
hydroxyethanoic acids act as an exfoliant which gently sloughs off dead skin
cells to promote a healthier, more youthful appearance. Some of the Company's
skin care products, such as its moisturizers, do not contain an alpha hydroxy
acid, but are marketed to be used in conjunction with those which do. Alpha
Hydrox products accounted for 60.1% of the Company's consolidated net sales in
1996, and 62.4% in 1995.
For many years, and through most of the third quarter of 1996, the Company also
produced, through a wholly-owned subsidiary, a line of disposable cigarette
filters known as Aquafilters. Because sales of this product line had decreased
steadily over the last several years, when an opportunity arose to sell certain
assets of Aquafilter Corporation, including its machinery, equipment, patents,
and inventories, the Company decided that the time had come to remove itself
from the cigarette filter business and, at the same time, make a profit from the
sale of Aquafilter's assets. Aquafilter's land and building in Fort Lauderdale,
Florida is currently listed for sale by the Company. The financial statements
for 1996 set forth, for the most recent three years, the after tax income or
loss from the Aquafilter business under 'Discontinued operations'.
The Company also manufactures injection molded components for household chemical
products, and, in the past, manufactured parts for Aquafilters. These components
consist principally of plastic caps for Touch of Scent and Scott's Liquid Gold
and fixtures for Touch of Scent.
Marketing and Distribution
All of the Company's products are sold nationally, directly and through
independent brokers, to mass marketers, drugstores, supermarkets, and other
retail outlets; and to wholesale distributors. In 1996, one customer, Wal-Mart
Stores, Inc. of Bentonville, Arkansas, accounted for approximately 24.4% of the
Company's sales of household chemical products and 27.7% of Alpha Hydrox sales.
This customer is not related to the Company. A loss of this large customer would
have a material effect on the Company if the Company's consumer base served by
that customer did not purchase the Company's products at other retail outlets.
No long-term contracts exist between the Company and Wal-Mart Stores, Inc. or
any other customer. The Company permits returns of its products by its
customers, a common industry practice.
The Company's household chemical products and Alpha Hydrox are advertised
nationally on network television and, at times, on cable television and in print
media. In the past, the Company has also used radio advertising in selected
areas and may do so in the future. The Company maintains an aggressive posture
in promoting and advertising its skin care products. During 1997, but subject to
change, the Company does not intend to spend more for advertising its products
than it did in 1996. The Company believes that holding expenditures for
advertising in 1997 to no more than 1996 levels will not affect the
Company's ability to maintain or increase its sales. The Company notes that,
at budgeted 1997 advertising levels, consolidated net sales for 1997 can
decrease from 1996 levels by more than 15% without affecting the Company's
ability to service its bond debt. Further, it is noted that the Company
periodically considers revisions of planned advertising expenditures based
upon actual sales results and competitive conditions.
To enable consumers to make informed decisions, the company lists the
concentration of alpha hydroxy acid on its skin care product containers and in
its other promotional materials. The Company does not exaggerate benefits to be
expected from the use of its products and recommends to consumers the use of a
sunscreen in its written directions contained in every box. The Company also has
a 24-hour toll free telephone number for consumers to call with questions.
Manufacturing
The Company owns and operates its manufacturing facilities and equipment. It
manufactures all of its products, maintaining a high quality standard and
sufficient inventories to ship most orders as they are received. Quality control
is enforced at all stages of production, as well as upon the receipt of raw
materials from suppliers. Raw materials are purchased from a number of suppliers
and, at the present time, are readily available. There is only one U.S.
manufacturer of the type of alpha hydroxy acid used by the Company. Relations
with that supplier are satisfactory. Most of the Company's manufacturing
operations, including most packaging, are highly automated, and, as a result,
the Company's manufacturing operations are not labor intensive, nor, for the
most part, do they involve extensive training. The addition to the Company's
plant facilities, completed in early 1996, has more than doubled the Company
capacity to produce skin care products. Prior thereto, production facilities for
Alpha Hydrox were stretched to near capacity from time to time. The Company
believes that its physical plant facilities are adequate for the foreseeable
future.
Competition
The Company's business is highly competitive in both household chemical and skin
care products. The Company competes with several companies engaged in marketing
air fresheners and products designed for the beautification of wood, but it does
not have sufficient information to make an accurate representation as to the
market share of its products. Both the air freshener and wood care categories
are dominated by three to five manufacturers significantly larger than the
Company, each of which produce several products. Irrespective of the foregoing,
over the years, the Company has developed a strong 'consumer franchise' for its
household chemical products which enjoy a national consumer base.
The skin care category is also highly competitive. Several competitors are
significantly larger than Scott's Liquid Gold-Inc., and each of these
competitors produces several products. Some of these companies also produce
alpha hydroxy acid products with which Alpha Hydrox must compete. Because of the
number of varied products produced by competitors, the Company cannot make an
accurate representation as to the market share of its skin care products.
Irrespective of the foregoing, it can be stated that the Company has established
a strong national base of distribution for Alpha Hydrox, and, based upon data
supplied by an independent rating service, the Company believes that its
products rank high among leading brand-name alpha hydroxy acid skin care
products.
As a matter of corporate philosophy, the Company subscribes to the belief that
quality and product performance are an attraction to the consuming public. The
Company, therefore, competes on the basis of quality and distinguishing
characteristics of its products.
Regulation
The Company is subject to various federal, state and local laws and regulations
which pertain to the type of products it manufactures and sells. The
Company's
skin care products containing alpha hydroxy acids are cosmetics within the
meaning of the Federal Food Drug and Cosmetic Act ('FFDCA'). The FFDCA defines
'cosmetics' as products intended for cleansing, beautifying, promoting
attractiveness or altering the appearance. The Company's cosmetics products are
subject to regulation under the FFDCA and the Fair Packaging and Labeling Act
('FPLA'), and the regulations promulgated under these acts. The relevant laws
and regulations are enforced by the U.S. Food & Drug Administration ('FDA').
Such laws and regulations govern the ingredients and labeling of cosmetic
products and set forth general manufacturing practices for companies to follow.
Although FDA regulations require that the safety of a cosmetic ingredient be
substantiated prior to marketing, there is no requirement that a company
contemplating inclusion of a cosmetic ingredient in its products submit to the
FDA the results of its testing or any other data or information with respect to
the ingredient. Prior to marketing its products, the Company conducts studies to
demonstrate that its Alpha Hydrox products do not irritate the skin or eyes.
Consistent with FDA regulations, the Company has not submitted the results of
its studies to the FDA.
As stated in prior reports, in April of 1994, an FDA official raised some
questions about the safety of alpha hydroxy acids in skin care products, and
later indicated that the effects of long-term usage of such products are
unknown. Additionally, the Company reported that the Cosmetic Ingredient Review
Expert Panel ('CIR') sponsored by the cosmetics industry, had been requested to
conduct a review of a compilation of alpha hydroxy acid safety data assembled by
cosmetic manufacturers. The CIR is a cooperative proceeding in which an FDA
representative can and does participate as a non-voting, liaison member.
On January 31, 1997, the CIR issued a tentative report of its findings on the
safety of cosmetics containing alpha hydroxy acids (the 'Tentative Report').
After reviewing the published and unpublished data on glycolic acid (the type of
alpha hydroxy acid used by the Company), the CIR concluded that glycolic acid is
safe for use in retail cosmetic products at concentrations of up to ten percent
when the directions for use include the daily use of sun protection. The
Company's cosmetic products contain glycolic acid concentrations ranging from
zero to 8.4%, and the directions for use for the products recommend the daily
use of sunscreens. Therefore, the Company's cosmetic products meet the CIR's
current criteria for the safe use of alpha hydroxy acids in retail cosmetic
products.
There is a 90-day comment period from the date the Tentative Report was
published, after which the CIR will issue a final report. The Company is unable
to predict whether the final report will differ from the Tentative Report with
respect to the CIR's finding on the safety of the ingredients in its cosmetic
products.
The Company's advertising is subject to regulation under the Federal Trade
Commission Act and its implementing regulations, which prohibit false and
misleading claims in advertising. The Company's labeling and promotional
materials are believed to be in full compliance with applicable statutes and
regulations.
Some chemicals used in consumer products, including some used by the Company,
have come under scrutiny by various state governments and the Congress of the
United States in connection with clean air laws and regulations. These chemicals
are volatile organic compounds ('VOCs') that are contained in various categories
of consumer products. As a result of VOC regulation, it was necessary for the
Company to reformulate some of its products. In late 1995, for example, the
Company changed its formula for Touch of Scent to conform to regulations of the
California Air Resources Board ('CARB') which became effective with regard to
air fresheners on January 1, 1996. The Company believes it has done all that is
now necessary to satisfy the current requirements of the Clean Air Act and laws
of various state governments. These laws and regulations have not affected the
Company's skin care products. However, under CARB regulations, the Company has
not been permitted to sell its pourable form of Scott's Liquid Gold wood cleaner
and preservative in California since January 1, 1994, but is permitted to sell
the aerosol form of this product.
Limitations regarding the VOC content of consumer products by both state and
federal agencies will continue to be a part of regulatory efforts to achieve
compliance for ozone at or near ground level. Under the Clean Air Act Amendments
of 1990, the Environmental Protection Agency ('EPA') is required to study the
contribution of consumer products to ozone problems and to promulgate
regulations reducing the VOC content of consumer products. During 1995, the EPA
published a prioritized list of categories of consumer products for regulation,
including categories which affect Scott's Liquid Gold for wood and Touch of
Scent. Regulations pertaining to those products, were proposed by the EPA in
April 1996. If these regulations are adopted as proposed, they will be less
stringent than those issued previously by CARB. Various states, in addition to
California, have enacted or are considering promulgating VOC regulations. The
EPA anticipates that its adoption of regulations should help to induce states to
conform to consistent, nationwide standards. However, the Company is unable to
predict how many or which other states might enact legislation regulating the
VOC content of consumer products or what effect such legislation might have upon
its household chemical products.
Employees
The Company employs 172 persons, 96 in plant and production related functions
and 76 in administrative, sales and advertising functions. No contracts exist
between the Company and any union. The Company monitors wage and salary rates in
the Rocky Mountain area and pursues a policy of providing competitive
compensation to its employees. The compensation of the Company's executive
officers is under the purview of the Compensation Committee of the Company's
Board of Directors. Fringe benefits for Company employees include an excellent
medical and dental plan, life insurance, a 401K Plan with matching contributions
for lower paid employees (those earning $30,000 or less per annum), an ESOP, and
a Profit Sharing Plan. The Company considers its employee relations to be
satisfactory.
Patents and Trademarks
The Company actively uses its registered trademarks of Alpha (stylized), certain
designs of a red box, Scott's Liquid Gold, Liquid Gold, Touch of Scent, and
Neoteric in the United States and has registered trademarks in several
additional countries.
The U.S. patent for the dispenser and cap designs for Touch of Scent expired in
1995. The Company owned this patent since 1981 when it was purchased from an
unrelated company, and had considered it to be significant because of its
conceptual advantage over other competing products. Because the Company has
produced Touch of Scent for approximately 16 years and has established a
consumer base for the product, the Company believes, but cannot assure, that the
expiration of its patent will have no material effect on sales of Touch of
Scent.
The Company has applied for federal registration of the trademark 'Alpha
Hydrox'. The issuance of this trademark is being challenged on the basis that
the name of the Company's product falls in the realm of a general description of
the type of acid used as an ingredient. The Company believes that the issuance
or non-issuance of this trademark is not material to the Company or to its sales
of Alpha Hydrox products. Whether or not the federal registration of 'Alpha
Hydrox' is granted to the Company, the Company claims under common law the
exclusive right to use 'Alpha Hydrox' as a trademark and to the right to prevent
the use by others of confusingly similar marks. The outcome of any such claim,
if contested in court, will depend on the facts and circumstances then existing
with respect to the use of the mark in a particular geographical area. To date,
there have been no court contests, but, other than as noted below, the Company
has been successful in convincing several manufacturers to refrain from the use
of names similar to Alpha Hydrox.
Legal Proceedings
The Company filed two lawsuits in 1995 and early 1996 against two companies
which the Company asserts have infringed the Company's trademark and trade dress
rights, and have unfairly competed with the Company's Alpha Hydrox products.
Both of these companies are private label producers of alpha hydroxy skin care
products which are sold to customers of the Company and result in confusion in
the mind of the consumer. One of the foregoing cases was settled in 1996.
With regard to all other litigation, see 'Management Discussion and Analysis of
Financial Condition and Results of Operations -Other".
Properties
The Company's Denver facilities are currently comprised of three connecting,
modern buildings and a parking garage (approximately 261,100 square feet in
total) and about 16.2 acres of land, of which approximately 6 acres are
available for future expansion. These buildings range in age from 1 to 26 years
(126,600 square feet having been added in 1995 and 1996). The Denver facility
houses the Company's corporate headquarters and all of its operations, and
serves as one of several distribution points. The Company believes that its
current space will provide capacity for growth for at least the next four to
five years. All of the Company's land and buildings in Denver serve as
collateral under a deed of trust for a $12.0 million bond issue consummated by
the Company on July 29, 1994. In addition to the Company's properties in Denver,
Aquafilter Corporation, a subsidiary of the Company, owns a modern 50,000 square
foot manufacturing and office facility in Fort Lauderdale, Florida, which is
subject to a mortgage ($427,300 at December 31, 1996). The Fort Lauderdale
facility was used for the production of Aquafilters and, additionally, served as
a warehouse and distribution point for the Company's household chemical and skin
care products. The Fort Lauderdale land and building were listed for sale in
late 1996.
SELECTED FINANCIAL DATA
Scott's Liquid Gold-Inc. and Subsidiaries
<TABLE>
(In Thousands of Dollars) 1996 1995 1994 1993 1992
Revenues:
<S> <C> <C> <C> <C> <C>
Scott's Liquid Gold
household products $17,743 $19,238 $21,960 $20,765 $22,452
Neoteric Cosmetics 26,700 31,924 30,583 15,790 5,932
_________________________________________________________
$44,443 $51,162 $52,543 $36,555 $28,384
Income from operations $ 2,101 $ 4,757 $ 9,642 $ 4,751 $ 50
Other: Lawsuit settlement 3,588 262 40 - -
_________________________________________________________
Income (loss) from continuing
operations before income taxes (1,487) 4,495 9,602 4,751 50
Income tax expense (benefit) (553) 1,711 3,784 1,910 19
_________________________________________________________
Income (loss) before accounting
change and discontinued
operations (934) 2,784 5,818 2,841 31
Cumulative effect at January 1,
1992 of income tax accounting
change - - - - 257
Discontinued operations,
net of taxes 23 39 34 88 86
_________________________________________________________
Net income (loss) $ (911) $ 2,823 $ 5,852 $2,929 $ 374
_________________________________________________________
Primary Per Share Data
Income (loss) from continuing
operations $ (.09 ) $ .28 $ .57 $ .29 $ -
Cumulative effect at January
1, 1992 of income tax accounting
change - - - - .03
Discontinued
operations - - - .01 .01
_________________________________________________________
Primary earnings per share $ (.09 ) $ .28 $ .57 $ .30 $ .04
_________________________________________________________
Dividends declared per
common share $ - $ .10 $ .10 $ - $ -
_________________________________________________________
Assets $34,464 $35,126 $31,519 $16,280 $12,232
_________________________________________________________
Working capital* $ 6,197 $ 6,331 $ 8,374 $ 4,500 $ 2,035
_________________________________________________________
Capital additions $ 1,057 $10,537 $ 4,079 $ 468 $ 709
_________________________________________________________
Depreciation $ 1,015 $ 820 $ 592 $ 588 $ 550
_________________________________________________________
Long-term debt* $10,777 $10,047 $11,000 $ 2,129 $ 3,086
_________________________________________________________
* See Management Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
Selected Quarterly Financial Data
<TABLE>
1996
<CAPTION>
First Second Third Fourth Year
<S> <C> <C> <C> <C> <C>
Net sales $12,757 $ 9,809 $10,569 $11,009 $44,144
Gross profit $ 8,494 $ 6,484 $ 7,229 $ 7,746 $29,953
Income (loss) from
continuing operations $ (642) $ (582) $(1,667) $ 1,957 $ (934)
Net income (loss) $ (639) $ (569) $(1,632) $ 1,929 $ (911)
Primary earnings (loss)
per share $ (.06 ) $ (.06 ) $ (.17 ) $ .20 $ (.09 )
1995
First Second Third Fourth Year
Net sales $14,167 $14,358 $12,303 $ 9,845 $50,673
Gross profit $10,265 $10,299 $ 8,497 $ 7,626 $36,687
Income from
continuing operations $ 12 $ 360 $ 836 $ 1,576 $ 2,784
Net income $ 30 $ 362 $ 844 $ 1,587 $ 2,823
Primary earnings per share $ - $ .04 $ .08 $ .16 $ .28
</TABLE>
MANAGEMENT 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 new line of skin care products, Alpha
Hydrox, which is sold throughout the United States and in Canada. The Company
plans to begin to market its skin care products in certain South American
countries in the near future. Sales of the cosmetics line were $15.8 million in
1993, $30.6 million in 1994 and $31.6 million in 1995. As a result, net income
increased from $373,800 in 1992 to $2,928,700 in 1993, and to $5,851,500 in
1994. In 1995, net income declined to $2,823,400 due to heavy advertising of
cosmetics products and a decline of 12.3% in sales of the Company's household
chemical products. For a variety of reasons which are explained below, the
Company experienced a decrease in sales and operating profits in 1996. Further,
during 1996, as is more fully discussed below, the Company recognized a
substantial loss attributable to the settlement, in October of 1996, of a
lawsuit brought against the Company by the U.S. Army. That lawsuit sought a
contribution from the Company to remediation expenses incurred by the Army in
connection with its clean-up of contamination at the Rocky Mountain Arsenal, a
Superfund site. That loss is net of $3.0 million in insurance proceeds from
certain of the Company's insurers. The Company is in process of suing certain
other insurers who did not participate in the settlement with the Army.
Results of Operations
Summary of Results as a Percentage of Net Sales
<TABLE>
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C>
1996 1995 1994
Net sales
Scott's Liquid Gold
household products 39.9% 37.6% 41.5%
Neoteric Cosmetics 60.1% 62.4% 58.5%
_________________________________________
Total net sales 100.0% 100.0% 100.0%
Cost of sales 32.1% 27.6% 25.1%
_________________________________________
Gross profit 67.9% 72.4% 74.9%
Other revenue 0.7% 1.0% 0.4%
_________________________________________
68.6% 73.4% 75.3%
_________________________________________
Operating expenses 61.1% 62.5% 55.8%
Interest 2.7% 1.5% 1.1%
_________________________________________
63.8% 64.0% 56.9%
_________________________________________
Income from operations 4.8% 9.4% 18.4%
_________________________________________
</TABLE>
Note: During the third quarter of 1996, the Company sold certain assets of
Aquafilter Corporation, a wholly-owned subsidiary. The assets sold included the
subsidiary's manufacturing equipment, patents, inventories, trade name and
goodwill. Accordingly, the figures set forth above no longer reflect operations
of Aquafilter Corporation which are now set forth in the Company's financial
statements under the caption 'Discontinued operations'. Please see Note 5 to
Financial Statements.
Year Ended December 31, 1996
Compared to Year Ended December 31, 1995
Consolidated net sales for 1996 were $44.1 million vs. $50.7 million for 1995, a
decrease of $6,529,300, or about 13%. Average selling prices for 1996 were
higher than those of 1995 by $613,000, prices of household chemical products
being up by $997,000 (most of which related to Touch of Scent), offset by a
decrease in average selling prices of cosmetics products of $384,000.
During 1996, net sales of cosmetics products accounted for 60.1% of consolidated
net sales compared to 62.4% in 1995. Net sales of these products for those
periods were $26,550,300 in 1996 compared to $31,623,200 in 1995, a decrease of
$5,072,900 or 16%. Of that decrease, nearly $1.65 million pertained to sales of
Men's After Shave Lotion, a product discontinued by the Company in late 1995 due
to a lack of consumer interest, and about $2.4 million pertained to a decrease
in sales of the Company's body wash products which are subject to intense price
competition. In addition to decreases in sales of Men's After Shave Lotion and
Body Wash products, the Company attributes declines in sales of its basic alpha
hydroxy acid products to increased competition, particularly to competition from
private label products containing alpha hydroxy acids and to a reduction in its
advertising expenditures during 1996. Based upon data available to the Company,
it appears that industry-wide sales of skin care products containing alpha
hydroxy acids began to flatten in 1995, a trend which continued into 1996.
Nonetheless, management intends, over a reasonable time period, to seek to
improve sales of Alpha Hydrox products by advertising effectively, opening new
markets, particularly in Latin American countries, and by developing and
introducing new products, some during 1997. Notwithstanding the foregoing, the
Company can not predict that sales of its skin care products in 1997 will be
greater than or the same as those of 1996.
Sales of household chemical products in 1996 accounted for 39.9% of consolidated
net sales compared to 37.6% in 1995. 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 1996, sales of household chemical
products were $17,593,700 compared to $19,050,100 in 1995, a decrease of
$1,456,400, or 7.7%. During those years, sales of 'Scott's Liquid Gold' for wood
increased from $9,731,400 in 1995 to $9,850,900 in 1996 (up by $119,500 or
1.2%), and sales of 'Touch of Scent' decreased from $9,318,700 in 1995 to
$7,742,800 in 1996 (down by $1,575,900 or 16.9%). Touch of Scent sales have now
declined for two consecutive years. In an effort to increase sales of its air
fresheners, the Company has introduced a new line of decorative fixtures to
dispense new, concentrated formulae now contained in its refill units.
On a consolidated basis, cost of goods sold was $14,191,200 for 1996 compared to
$13,986,000 for 1995, an increase of 1.5% (on a decrease in sales of 12.9%). As
a percentage of consolidated net sales, cost of goods sold was 32.1% in 1996 vs.
27.6% in 1995, an increase of 16.7%. For simplicity, the explanation which
follows assumes that identical products and quantities thereof were sold in 1995
as were sold in 1996.
Costs of raw materials in 1996 were greater than those of 1995 by $1,647,800.
Raw material costs increased by $1,214,500 for Touch of Scent, $176,400 for
Scott's Liquid Gold, and $256,900 for Alpha Hydrox. The increase in the cost of
raw materials for Touch of Scent was primarily attributable to the reformulation
of refill units to meet regulatory requirements with respect to volatile organic
compounds, particularly requirements of the State of California.
Due to the addition of a new plant facility, including machinery and equipment,
depreciation, property taxes,and utilities increased during 1996, as did other
items classified by the Company as factory overhead. Such increases in 1996 over
1995, including under-absorbed overhead caused by lower production, amounted to
$719,000. Direct labor for 1996 was higher than that of 1995 by $32,400.
In total, the cost of producing the products sold in 1996 was higher than that
of 1995 by $2,399,200. Were it not for this increase in production costs, the
gross profit percentage for 1996, calculated with sales reduced by the 1996
average price increase, would have been slightly higher than it was for 1995.
Advertising expenses for 1996 were $13,405,600 compared to $17,970,200 for 1995,
a decrease of $4,564,600 or 25.4%. Of this planned decrease, $4,812,900
pertained to a decrease in advertising of cosmetics products and $248,300
pertained to an increase in advertising of household chemical products. During
1997, the Company currently intends to spend no more than it did in 1996 to
advertise its products. As 1997 progresses, the Company will consider revisions
to its budgeted advertising expenses based upon year-to-date sales and
competitive conditions. The Company wishes to make 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 1996 were $7,470,900 compared to $7,715,300 for 1995, a
decrease of $244,400, or 3.2%. Administrative expenses in 1996 were $6,073,500
compared to $5,951,500 in 1995, an increase of $122,000 or 2.1%.
Interest expense for 1996 was $1,200,200 compared to $782,100 in 1995, an
increase of $418,100, or 53.5%. Such increase was largely due to the
capitalization of certain interest expenses during the construction of the
Company's physical facilities during 1995. (See Liquidity and Capital Resources
below.) Other income decreased by $190,000 during 1996 compared to 1995 when a
portion of the net proceeds of the Company's bond issue was available for short-
term investment (see Liquidity and Capital Resources below).
During both 1996 and 1995, expenditures for research and development were not
material (under 1% of revenues).
Year Ended December 31, 1995
Compared to Year Ended December 31, 1994
Consolidated net sales for 1995 were $50.7 million vs. $52.3 million for 1994, a
decrease of $1,641,800 or about 3.1%. Average selling prices for the 1995 were
lower than those of 1994 by $512,600, average prices of household chemical
products being down by $36,300 and average selling prices of cosmetics products
being down by $476,300. (Average selling prices of Scott's Liquid Gold for wood
were up by $293,000, but average selling prices of Touch of Scent were down by
$329,300.)
Industry-wide sales of branded alpha hydroxy acid skin care products were
relatively flat in 1995 compared to 1994. During 1995, net sales of cosmetics
products accounted for 62.4% of consolidated net sales compared to 58.5% for
1994. For those years, net sales of these products were $31,623,200 and
$30,583,000 respectively, an increase of $1,040,200 or 3.4%. The Company
attributes that increase to extensive advertising of the Company's cosmetics
line, competitive pricing, the addition of new products, and the efficacy of the
Company's products. Irrespective of the 1995 increase in sales of Alpha Hydrox,
it is noted that the number of competitive skin care products containing alpha
hydroxy acids increased during the year, particularly in the area of private
label products.
Sales of household chemical products, which represented 37.6% of consolidated
net sales in 1995 vs. 41.5% in 1994, amounted to $19,050,100 in 1995 compared to
$21,732,100 in 1994, a decrease of $2,682,000 or 12.3%. 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. Sales of 'Scott's Liquid
Gold' for wood were down by $784,800 a decrease of 7.5%, and sales of 'Touch of
Scent' were down by $1,897,200 or 16.9%.
On a consolidated basis, cost of goods sold was $13,986,000 in 1995 compared to
$13,114,500 in 1994, an increase of $871,500 or 6.6% (on a decrease in sales of
3.1%). As a percentage of consolidated net sales, cost of goods sold increased
from 25.1% in 1994 to 27.6% in 1995, principally due to the following: (a) an
increase in 1995 over 1994 of manufacturing overhead of about $443,200,
primarily due to an increase in indirect labor and laboratory expenses other
than salaries; (b) a decrease in plant utilization in 1995 vs. 1994; and (c) the
introduction in 1995 of certain skin care products, particularly the Company's
Body Wash, which, based upon competitive pricing, were list-priced to produce a
gross margin substantially lower than that of other Alpha Hydrox products.
Further, many more pre-pack display cases of Alpha Hydrox were sold in 1995 than
in 1994. Such display cases are more expensive to produce per dozen units than
products sold in 12-count cases.
Advertising expenses for 1995 were $17,970,200 compared to $15,097,200 for 1994,
an increase of $2,873,000 or 19.0%. Of this increase, $5,902,000 pertained to
cosmetics products, offset by a decrease in advertising expenses of $3,029,000
for household chemical products. Selling expenses for 1995 were $7,715,300
compared to $7,877,500 for 1994, a decrease of $162,200 or 2.1%. This decrease
related primarily to decreases in brokerage commissions and shipping expenses
which vary with sales volume. Administrative expenses in 1995 were $5,951,500
compared to $6,211,700 in 1994, a decrease of $260,200 (4.2%).
Interest expense for 1995 was greater than that of 1994 by $181,400, an increase
of 30.2%, which was due to higher borrowings and interest rates. Offsetting the
increase in interest expense for 1995 was $489,000 of interest earned, an
increase over 1994 of $261,800, which was the result of investing the proceeds
of the Company bond issue and excess cash in short-term Treasury Bills and
similar paper. It should be noted that, during the construction phase of the
Company's physical expansion which was completed in January of 1996, a portion
of the interest paid on the Company's bonds ($428,800 in 1995) was capitalized
(See Liquidity and Capital Resources below.)
During both 1995 and 1994, 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 of the Company's wholly-owned subsidiary, Neoteric Cosmetics, Inc.,
manufacturer of Alpha Hydrox skin care products, included construction of a
74,600 square foot office building, replacing a smaller, existing office
structure; and an additional 52,000 square feet of manufacturing and warehouse
space at an aggregate cost of approximately $13.65 million, including the cost
of furniture, fixtures and equipment. Construction of the project began in
August of 1994 and was completed in January, 1996.
After expenses and repayments of certain indebtedness, the net proceeds of the
bond issue available for the construction of the expanded facilities was
$8,861,300. Such amount was disbursed over the construction period. Because the
cost of the construction project, including machinery and office furnishings,
was approximately $13.65 million, the Company needed to generate approximately
$4.8 million from operations to complete the project. All bond proceeds had been
paid out prior to December 31, 1995 and, by early 1996, all moneys required to
be paid out of Company funds had been paid.
Interest on the $12 million bond issue is payable semi-annually beginning on
January 1, 1995 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, with a
first payment in 1995. Sinking fund payments for 1995 and 1996 were made as
required. Currently, the Company is voluntarily paying $183,333 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 December 31,
1996. 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 had
also been satisfied at year end. The bonds are secured by a first deed of trust
on the Company's Denver land and buildings, including structures financed by the
bond issuance.
During 1996, the Company's working capital decreased by $133,200, and its
current ratio (current assets divided by current liabilities) decreased from
1.82:1 at December 31, 1995 to 1.80:1 at December 31, 1996. This decrease in
working capital is attributable to (1) a net loss of $910,900, (2) a decrease in
deferred income taxes of $492,800, and (3) additions to property and equipment
in excess of depreciation of $42,400, equal in total to $1,446,100; offset by
(4) an increase in long-term debt of $729,700, (5) a decrease in other assets of
$463,200 and (6) a decrease in the net assets of discontinued operations of
$120,000. At December 31, 1996, the ratio of consolidated funded debt to
consolidated net worth was .71:1. The increase in long-term debt consists
primarily of the unpaid portion (less the amount due in 1997) of the Company's
settlement of its environmental lawsuit with the U.S. Army, offset by payments
into the Company's bond sinking fund.
Other receivables increased by $681,800 during 1996. This increase includes
$600,000 which the Company received subsequent to December 31, 1996 from one of
its insurers and then paid to the United States Army (see 'Other' below) and
$81,800 in other non-trade receivables. The offset of the $600,000 is included
in accrued expenses which, excluding that item, decreased by $1,241,900 during
1996 primarily due to a reduction of $607,500 in income taxes accrued at the end
of 1995 and a reduction of $650,000 remaining at the end of 1995 for accrued
costs of the Company's expansion project which was completed in January of 1996.
Inventories were down at December 31, 1996 from the end of last year by about
$1.3 million of which almost $1.0 million pertained to Alpha Hydrox. Such
reduction was intentional to aid cash flow for the year. Other assets decreased
by $463,200 during 1996, primarily due to the payment of $371,000 to complete
the Company's construction project ($371,000 was set up at December 31, 1995 as
both an asset and a liability); and the amortization of $92,200 of deferred
expenses related to the Company's bond issue.
Other
As previously reported, the Company has 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 of which $2.4 million was paid at once by the
Company's insurers (with an additional $600,000 paid in January of 1997) and $1
million was paid by the Company. The additional $2 million is to be paid by the
Company in equal 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 payable by the Company, plus
punitive damages and attorneys' fees.
In May, 1996, a lawsuit was commenced against Neoteric Cosmetics, Inc. (and
others not related to the Company) alleging infringement of certain patents.
Neoteric Cosmetics is the Company's wholly-owned subsidiary which manufactures
and sells skin care products under the name Alpha Hydrox. The lawsuit was
brought by TriStrata Technology, Inc. in the United States District Court for
the District of Delaware. The plaintiff claims to be the assignee of four
patents relating to the use of alpha hydroxy acids to treat or reduce cosmetic
conditions, particularly wrinkles or fine lines. Three of the patents were
issued in 1995; and one, which was issued in 1992, was the subject of a re-
examination completed in 1995. TriStrata now seeks to add one more related
patent to the suit and may seek to add others. The U.S. Patent and Trademark
Office has recently granted another party's request to re-examine the patents in
suit. The individuals to whom the patents were issued and who are involved in
the plaintiff were also claimants in a lawsuit filed against the Company in May,
1992 which concerned other patents and which was settled on confidential terms
having no material effect on the Company.
The plaintiff in the lawsuit alleges that Neoteric Cosmetics contributes to
and/or induces infringement of three of the four patents by selling and
promoting Neoteric Cosmetics products for the purpose of visibly reducing a
human skin wrinkle and/or fine lines and for the purpose of treating and/or
preventing cosmetic conditions and dermatologic disorders of the human skin such
as wrinkles and fine lines. The plaintiff requests damages to compensate the
plaintiff for any infringement, an injunction against further infringement and
treble damages because of an alleged willful and deliberate nature of
infringement. In 1995, after the issuance of one of the patents involved in the
lawsuit, the Company changed its advertising and packaging to remove references
to wrinkles and fine lines. The Company denies the allegations of the plaintiff
and is mounting a vigorous defense.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
Revenues:
<S> <C> <C> <C>
Net sales $44,144,000 $50,673,300 $52,315,100
Other income 299,000 489,000 228,000
________________________________________
44,443,000 51,162,300 52,543,100
Costs and expenses:
Cost of sales 14,191,200 13,986,000 13,114,500
Advertising 13,405,600 17,970,200 15,097,200
Selling 7,470,900 7,715,300 7,877,500
General and administrative 6,073,500 5,951,500 6,211,700
Interest 1,200,200 782,100 600,700
________________________________________
42,341,400 46,405,100 42,901,600
Income from operations 2,101,600 4,757,200 9,641,500
Other: lawsuit
settlement (Note 6) 3,588,300 262,000 39,900
Income (loss) from
continuing operations before
income taxes (1,486,700) 4,495,200 9,601,600
Income tax expense
(benefit) (Note 7) (553,000) 1,710,500 3,783,700
________________________________________
Income (loss) from
continuing operations (933,700) 2,784,700 5,817,900
Discontinued operations
(Note 5):
Income (loss) from
operations, net of income
taxes (8,300) 38,700 33,600
Gain on disposal,
net of income taxes 31,100 - -
________________________________________
Net income (loss) $ (910,900) $ 2,823,400 $ 5,851,500
________________________________________
Primary earnings (loss)
per common share (Note 8):
Income (loss) from
continuing operations $ (.09 ) $ .28 $ .57
Income (loss) from
discontinued operations - - -
________________________________________
Net income (loss) $ (.09 ) $ .28 $ .57
________________________________________
Primary weighted average number of
common shares outstanding 10,030,900 10,252,700 10,228,500
</TABLE>
See Notes to Consolidated Financial Statements
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 4,749,200 $ 4,720,200
Trade receivables, less
allowances of $580,400 and
$494,200 for doubtful accounts 3,362,100 2,993,100
Other receivables (Note 6) 681,800 -
Inventories (Note 2) 4,129,200 5,430,500
Prepaid expenses 265,700 423,200
Deferred tax assets (Note 7) 761,400 503,500
_______________________________
Total current assets 13,949,400 14,070,500
Property, plant and
equipment, net (Note 3) 19,861,800 19,819,400
Other assets 277,900 741,100
Net assets of discontinued
operations (Note 5) 374,800 494,800
_______________________________
$34,463,900 $35,125,800
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,723,600 $ 3,323,900
Accrued expenses 2,738,800 3,380,700
Current maturities of
long-term debt (Note 6) 1,289,600 1,035,300
_______________________________
Total current liabilities 7,752,000 7,739,900
Long-term debt (Note 6) 10,776,700 10,047,000
Deferred income taxes (Note 7) 237,100 729,900
_______________________________
18,765,800 18,516,800
Commitments and Contingencies (Notes 9 & 12)
Shareholders' equity (Note 8):
Common stock $.10 par
value, authorized 50,000,000
shares: issued and
outstanding 10,030,900 1,003,100 1,003,100
Capital in excess of par 4,719,000 4,719,000
Retained earnings 9,976,000 10,886,900
_______________________________
Shareholders' equity 15,698,100 16,609,000
_______________________________
$34,463,900 $35,125,800
</TABLE>
See Notes to Consolidated Financial Statements
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss) $ (910,900) $2,823,400 $5,851,500
_________________________________________
Adjustments to reconcile
net income (loss) to net cash
provided (used) by
operating activities:
Depreciation and amortization 1,106,900 864,900 639,300
Provision for doubtful
accounts receivable 270,900 229,000 174,000
Compensation expense of
employee stock plans - 255,700 208,800
Gain on sale of
discontinued operations (47,100) - -
Change in assets
and liabilities:
Accounts and
other receivables (1,321,700) 1,463,700 (2,278,000)
Inventories 1,301,300 (798,000) (1,178,200)
Prepaid expenses 157,500 223,000 (35,100)
Other assets 371,000 (36,700) (822,600)
Deferred income taxes (750,700) 82,200 (25,800)
Accounts payable and
accrued expenses (242,200) 1,993,200 629,200
_______________________________________
Total adjustments to
net income (loss) 845,900 4,277,000 (2,688,400)
_______________________________________
Net Cash (Used) Provided
by Operating Activities (65,000) 7,100,400 3,163,100
_______________________________________
Cash flows from
investing activities:
Purchases of property,
plant and equipment (1,057,100) (10,536,700) (4,078,900)
Proceeds from sale of
discontinued operations 600,000 - -
Net change in assets
of discontinued operations (432,900) 5,200 (15,900)
_______________________________________
Net Cash Used by
Investing Activities (890,000) (10,531,500) (4,094,800)
_______________________________________
Cash flows from
financing activities:
Proceeds from exercise
of stock options - 182,700 259,000
Proceeds from
short-term borrowings 150,700 154,700 103,300
Principal payments on
short-term borrowings (150,700) (154,700) (203,300)
Proceeds from
long-term borrowings 2,007,400 111,400 12,009,900
Principal payments on
long-term borrowings (39,000) - (3,187,200)
Increase in bond
sinking fund (984,400) (1,029,100) -
Decrease (increase)
in restricted cash - 6,162,700 (6,162,700)
Dividends paid - (989,000) (954,600)
_______________________________________
Net Cash Provided by
Financing Activities 984,000 4,438,700 1,864,400
_______________________________________
Net Increase in Cash
and Cash Equivalents 29,000 1,007,600 932,700
_______________________________________
Cash and Cash Equivalents,
beginning of year 4,720,200 3,712,600 2,779,900
_______________________________________
Cash and Cash Equivalents,
end of year $4,749,200 $4,720,200 $3,712,600
_______________________________________
Supplemental disclosures:
Cash paid during the year for:
Interest (net of $30,300,
$428,800 and $68,200
capitalized in 1996, 1995
and 1994 respectively) $1,219,900 $ 782,100 $ 618,900
Interest paid by
discontinued operations $ 43,800 $ 47,400 $ 50,700
Income taxes $ 716,100 $1,231,400 $3,772,800
Noncash investing and
financing activities:
Construction commitments $ - $ 371,000 $ -
Note receivable on sale
of discontinued operations $ 200,000 $ - $ -
Note receivable on sale
of equipment $ 50,000 $ - $ -
</TABLE>
See Notes to Consolidated Financial Statements
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Capital
in Excess Retained
Shares Amount of Par Earnings
<S> <C> <C> <C> <C>
Years ended
December 31, 1996,
1995 and 1994
Balance January 1, 1994 9,317,300 $ 931,700 $3,884,200 $4,155,600
Net income - - - 5,851,500
Dividend - - - (954,600)
Stock issued to employee
stock ownership trust 50,200 5,000 203,800 -
Other stock issuances 396,300 39,700 219,300 -
____________________________________________________
Balance
December 31, 1994 9,763,800 976,400 4,307,300 9,052,500
Net income - - - 2,823,400
Dividend - - - (989,000)
Stock issued to
employee stock
ownership trust 45,400 4,500 251,200 -
Other stock issuances 221,700 22,200 160,500 -
____________________________________________________
Balance
December 31, 1995 10,030,900 1,003,100 4,719,000 10,886,900
Net loss - - - (910,900)
____________________________________________________
Balance
December 31, 1996 10,030,900 $1,003,100 $4,719,000 $9,976,000
_____________________________________________________
</TABLE>
See Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated. Certain reclassifications have been made in the 1995 and 1994
Consolidated Financial Statements to conform to the classifications used in the
current year.
The Company manufactures and markets household chemical products (39.9% of net
sales), skin care products (60.1%) and, until September 20, 1996, cigarette
filters (See Note 5 D Discontinued Operations). The Company's products are sold
nationally, directly and through independent brokers, to mass marketers,
drugstores, supermarkets, wholesale distributors and other retail outlets.
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property, plant and equipment are recorded at historical costs. Depreciation is
provided using the straight-line method over estimated useful lives of the
assets ranging from 3 to 45 years.
The Company considers all highly liquid investments with a maturity primarily of
three months or less at the date of acquisition to be cash equivalents. Cash
equivalents are comprised primarily of U.S. treasury securities and money market
funds which are accounted for as available for sale investments. However, as of
December 31, 1996, cost approximates the market value of these investments. As
of December 31,1996, balances of cash and cash equivalents at a financial
banking institution exceeded the federally insured limit of $100,000 by
approximately $220,000. These balances fluctuate greatly during the year and can
exceed this $100,000 limit. Management monitors regularly the financial
condition of the banking institution, along with the Company's balances in cash
and cash equivalents and tries to hold this potential risk to a minimum.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2: Inventories
Inventories consisting of materials, labor and overhead at December 31 were
comprised of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Finished goods $ 2,244,900 $ 3,329,100
Raw materials 1,884,300 2,101,400
__________________________________
$ 4,129,200 $ 5,430,500
</TABLE>
NOTE 3: Property, Plant and Equipment
Property accounts at December 31 were comprised of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 1,091,600 $ 1,091,600
Buildings 16,104,200 13,045,000
Production equipment 7,339,900 6,067,900
Office furniture
and equipment 2,090,600 2,622,900
Other 224,600 222,100
Construction in progress - 3,616,100
__________________________________
26,850,900 26,665,600
Less accumulated
depreciation 6,989,100 6,846,200
__________________________________
$ 19,861,800 $ 19,819,400
</TABLE>
Construction of a new office building and additions to manufacturing and
warehouse facilities began in the late summer of 1994. The office building was
completed in June 1995 and construction of the manufacturing and warehouse
facilities was completed in January 1996. During 1996 and 1995 respectively,
$30,300 and $428,800 of interest was capitalized.
NOTE 4: Financial Instruments
The recorded amounts for cash and cash equivalents, receivables, other current
assets, and accounts payable and accrued expenses approximate fair value due to
the short-term nature of these financial instruments. The fair value of amounts
outstanding under the Company's installment notes approximates book value due to
the variable nature of the interest rate associated with that debt. The fair
values of the Company's First Mortgage Bonds have been estimated using
discounted cash flow analysis based on current borrowing rates for debt with
similar maturities and ratings.
Book Value Fair Value
Long-term debt $ 12,066,300 $ 12,427,300
NOTE 5: Discontinued Operations
Effective September 20, 1996, the Company's wholly owned subsidiary, Aquafilter
Corporation ('Aquafilter'), sold its manufacturing equipment, inventories,
patents and trade names to Lee Pharmaceuticals, Inc. for $800,000. The Company
received $500,000 cash and a note for $300,000 payable through April 1, 1997 at
an interest rate of 8.25%. The gain from the sale of this discontinued operation
($31,100, net of income taxes of $16,000) includes additional estimated costs of
approximately $107,000 related to the shutdown of Aquafilter. The Company plans
to liquidate the balance of the subsidiary's net assets (primarily accounts
receivable, note receivable and real property less certain liabilities,
principally the mortgage loan applicable to Aquafilter's land and building) by
June of 1997.
Total revenues for Aquafilter for 1996, 1995 and 1994 were $810,600, $1,094,400
and $1,102,400 respectively. Aquafilter's operating loss for 1996 was $8,300
(net of income tax benefits of $5,100). Aquafilter's operating income for 1995
and 1994 was $38,700 (net of income taxes of $19,900) and $33,600 ( net of
income taxes of $17,300) respectively. The 1995 and 1994 results have been
reflected as discontinued operations to conform to the 1996 presentation.
NOTE 6: Notes Payable and Long-Term Debt
Long-term debt at December 31 is presented below:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
First mortgage bonds secured by Denver
land and buildings, due 2001, interest
at 10% payable semi-annually with sinking
fund requirement of $1 million per year. $12,000,000 $12,000,000
Bond sinking fund (2,013,500) (1,029,100)
Installment note on certain data
processing equipment and software,
payable in monthly installments
through 1998, interest at 4.9%. 79,800 111,400
Installment note, payable in annual
installments of $250,000 through
October 31, 2004, interest at a
variable rate (currently 5.7%). 2,000,000 -
_________________________________
12,066,300 11,082,300
Less current maturities 1,289,600 1,035,300
_________________________________
$10,776,700 $10,047,000
</TABLE>
The Company also is obligated for a first mortgage on the Aquafilter land and
building, which is currently listed for sale. At December 31, 1996 and 1995, the
balance was $427,300 and $466,600 respectively and is included in 'Net assets of
discontinued operations'. The mortgage is payable in monthly installments
through 1999, with interest at 9.75%. See Note 5 D Discontinued Operations.
In October of 1996, the Company settled an environmental lawsuit brought against
it by the United States on behalf of the U.S. Army. The settlement requires the
Company to pay $6 million to the United States, of which $2.4 million was paid
by the Company's insurers in 1996 and $600,000 was paid by a Company insurer in
January of 1997. The Company itself paid $1 million to the United States and
agreed to pay an additional $2 million in equal installments of $250,000 over
eight years. Some of the Company's insurers did not participate in the aforesaid
settlement and are being sued by the Company.
Maturities of long-term debt for the years 1997 through 2001, including Bond
sinking fund payments, are respectively: $1,289,600, $1,290,200, $1,250,000,
$1,250,000, $6,236,500 and $750,000 maturing after 2001.
See 'Liquidity and Capital Resources' section of Management's Discussion and
Analysis for requirements under the Indenture pertaining to the Company's First
Mortgage Bonds.
NOTE 7: Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, 'Accounting for Income
Taxes'.
The provisions for income taxes include the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Currently payable:
Federal $ 176,400 $1,460,200 $3,239,500
State 18,800 168,100 570,000
__________________________________________
Total currently payable 195,200 1,628,300* 3,809,500*
__________________________________________
Deferred:
Federal (669,400) 74,000 24,200
State (78,800) 8,200 (50,000)
__________________________________________
Total deferred (748,200) 82,200 (25,800)
__________________________________________
Provision:
Federal (493,000) 1,534,200 3,263,700
State (60,000) 176,300 520,000
__________________________________________
Total provision $ (553,000) $1,710,500 $3,783,700
</TABLE>
*Estimated payments of approximately $1,044,000 and $3,275,000 were made
as of December 31, 1995 and 1994 respectively for this liability.
The Company's effective income tax rate was different than the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Federal income tax at
statutory rates $ (505,500) $1,548,300 $3,282,000
State income taxes, net of
federal tax effect (60,000) 176,300 385,000
Other 12,500 (14,100) 169,700
__________________________________________
Total (553,000) 1,710,500 3,836,700
__________________________________________
Tax credits - - 53,000
__________________________________________
Effective tax $ (553,000) $1,710,500 $3,783,700
__________________________________________
</TABLE>
Deferred taxes are determined based on estimated future tax effects of
differences between the amounts reflected in the financial statements and the
tax basis of assets and liabilities given the provisions of the enacted tax
laws. The net deferred tax assets and liabilities as of December 31, 1996 and
1995 are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current:
Allowance for uncollectible accounts $206,100 $173,800
Inventory reserves 150,400 72,200
Prepaid insurance 54,800 33,500
Accrued vacation 164,900 159,300
Other reserves 40,700 -
Lawsuit liability 95,000 -
Other 49,500 64,700
__________________________________________
Net current deferred tax assets $761,400 $503,500
__________________________________________
Noncurrent:
Accelerated depreciation for tax $(935,500) $(793,000)
Lawsuit installment note 665,000 -
Tax credits 25,100 13,100
Other 8,300 50,000
Total noncurrent deferred
tax liability $(237,100) $(729,900)
</TABLE>
At December 31, 1996 the Company has no federal tax credit carryforwards.
The Company has state tax credits of $25,100 expiring over a period ending in
2010.
A reconciliation of the Company's income before taxes for financial statement
purposes to taxable income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Income (loss) from continuing
operations before income taxes $(1,486,700) $4,495,200 $9,601,600
Differences between income before income
taxes and taxable income:
State income taxes (18,800) (176,300) (173,900)
Permanent differences 12,400 15,300 12,700
Lawsuit installment note 2,000,000 - -
Net changes in temporary
differences 9,700 (136,900) 238,000
_____________________________________________
2,003,300 (297,900) 76,800
_____________________________________________
Federal taxable income $ 516,600 $4,197,300 $9,678,400
</TABLE>
The 1994 Federal taxable income is currently under review by the Internal
Revenue Service.
NOTE 8: Common Stock
In 1981 and 1986, the directors adopted incentive stock option plans for Company
employees and, in 1993, adopted a non-qualified stock option plan for the
outside directors (all subsequently approved by shareholders) which permit the
Company to grant options up to an aggregate of 1,650,000 shares of common stock.
Options are granted at not less than fair market value of the stock at the date
of grant and those granted are exercisable from the grant date for five years.
The 1981 and 1986 plans expired in 1991 and 1996 respectively and, accordingly
no shares are available for option under those Plans.
<TABLE>
<CAPTION>
1981 Plan 1986 Plan 1993 Plan
Average Average Average
Number Option Price Number Option Price Number Option Price
of Shares Per Share of Shares Per Share of Shares Per Share
<S> <C> <C> <C> <C> <C> <C>
Maximum number of shares
at inception of plans 750,000 500,000 400,000
_______________________________________________________________________
Outstanding,December 31,1993 495,000 $.60 259,000 $1.77 255,000 $1.48
Granted in 1994 - - 180,300 5.34 135,000 4.88
Exercised (372,800) .60 (23,500) 1.48 - -
Cancelled - - - - - -
_______________________________________________________________________
Outstanding,December 31,1994 122,200 .60 415,800 3.29 390,000 2.65
Granted in 1995 - - - - - -
Exercised (121,700) .58 - - (100,000) 1.10
Cancelled (500) .58 (1,500) 3.80 - -
_______________________________________________________________________
Outstanding,December 31,1995 - - 414,300 3.29 290,000 3.19
Granted in 1996 - - - - - -
Exercised - - - - - -
Cancelled - - (8,300) 2.16 - -
_______________________________________________________________________
Outstanding,December 31,1996 - - 406,000 $3.31 290,000 $3.19
_______________________________________________________________________
Available for
option,December 31, 1996 - - 10,000
</TABLE>
The Company has an Employee Stock Ownership Plan to provide retirement benefits
for its employees. The Plan is designed to invest primarily in common stock of
the Company and is non-contributory on the part of the Company's employees.
Contributions to the plan are discretionary as determined by the Company's Board
of Directors. The Company expenses the cost of shares issued to the Plan. The
amount expensed for the Plan in 1996, 1995 and 1994 was $202,700, $255,700 and
$208,800 respectively. During 1996, 1995 and 1994, the Company contributed
100,000 shares, 45,400 shares and 50,200 shares respectively to the Employee
Stock Ownership Plan.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ('SFAS 123'), 'Accounting for Stock-Based
Compensation', which defines a fair value based method of accounting for
employee stock options or similar equity instruments. However, SFAS 123 allows
an entity to continue to measure compensation costs for those plans using the
method of accounting prescribed by the Accounting Principles Board Opinion No.
25 ('APB 25'), 'Accounting for Stock Issued to Employees'. Entities electing to
remain with the accounting prescribed in APB 25 must make pro forma disclosures
of net income (loss) and net income (loss) per share, as if the fair value based
method of accounting defined in SFAS 123 had been applied.
The Company has elected to continue to account for its stock-based compensation
plans under APB 25. The Company did not grant any options or other equity
instruments in 1995 or 1996 and therefore is not required to present the pro
forma disclosures prescribed in SFAS 123.
Per share data for 1996 was determined by using the weighted average number of
common shares outstanding. Common equivalent shares were not considered because
their inclusion would have been anti-dilutive. Per share data for 1995 and 1994
was determined by using the weighted average number of common and common
equivalent shares outstanding. Common equivalent shares, determined by using the
treasury stock method, result from stock options with exercise prices that are
below the average market price of the common stock.
The Company has 20,000,000 shares of preferred stock issuable in one or more
series, none of which are outstanding.
On April 7,1995, the Company paid a dividend of $.10 per share (aggregate
$989,000) to shareholders of record on March 24, 1995. On March 15, 1994, the
Company paid a dividend of $.10 per share (aggregate $954,600) to shareholders
of record on March 7, 1994.
NOTE 9: Lease Commitments
The Company has certain short-term rental arrangements for office equipment and
other items. Aggregate rental expense for these items was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<C> <C> <C>
$74,100 $87,500 $65,900
</TABLE>
NOTE 10: Significant Customer
In 1996, 1995 and 1994, one customer, Wal-Mart Stores, Inc. of Bentonville,
Arkansas, accounted for approximately 24.4%, 22.6% and 21.5% respectively of the
Company's sales of household chemical products and 27.7%, 22.0% and 20.9%
respectively of the Company's sales of skin care products. This customer is not
related to the Company. A loss of this large customer would have a material
effect on the Company if the Company's consumer base served by that customer did
not purchase the Company's products at other retail outlets. No long-term
contracts exist between the Company and Wal-Mart Stores, Inc. or any other
customer.
NOTE 11: Transactions With Related Parties
During 1996 and 1995, the Company paid a consulting fee of $60,000 to Dr. Norman
Brooks ($40,000 was paid in 1994) in connection with the development of its
cosmetics products. Dr. Brooks' wife is the daughter of Jerome J. Goldstein and
the sister of Mark E. Goldstein.
The Company has adopted a bonus plan for its executive officers for the year
1997. The Plan provides that an amount will be distributed to the Company's
executive officers equal to 10% of the annual before tax profit exceeding
$1,000,000, excluding items that are infrequent, unusual, or extraordinary. In
1996, $129,500 was accrued or paid under the Plan. In 1995 and 1994, $416,400
and $1,024,600 respectively was accrued or paid under the Plan.
NOTE 12: Contingent Liabilities
In May 1996, a lawsuit was commenced against Neoteric Cosmetics, Inc. (and
others not related to the Company) alleging infringement of certain patents.
Neoteric Cosmetics, Inc. is the Company's wholly-owned subsidiary which
manufactures and sells skin care products under the name Alpha Hydrox. The
lawsuit was brought by TriStrata Technology, Inc. in the United States District
Court for the District of Delaware. The plaintiff claims to be the assignee of
four patents relating to the use of alpha hydroxy acids to treat or reduce
cosmetic conditions, particularly wrinkles or fine lines. Three of the patents
were issued in 1995; and one, which was issued in 1996, was the subject of a re-
examination completed in 1995. TriStrata now seeks to add one more related
patent to the suit and may seek to add others. The U.S. Patent and Trademark
Office has recently granted another party's request to re-examine the patents in
suit. The individuals to whom the patents were issued and who are involved in
the plaintiff were also claimants in a lawsuit filed against the Company in May
1992 which concerned other patents and which was settled on confidential terms
having no material effect on the Company.
The plaintiff in the lawsuit alleges that Neoteric Cosmetics contributes to
and/or induces infringement of three of the four patents by selling and
promoting Neoteric Cosmetic products for the purpose of visibly reducing a human
skin wrinkle and/or fine lines and for the purpose of treating and/or preventing
cosmetic conditions and dermatologic disorders of the human skin such as
wrinkles and fine lines. The plaintiff requests damages to compensate the
plaintiff for any infringement, an injunction against further infringement and
treble damages because of an alleged willful and deliberate nature of
infringement. In 1995, after the issuance of one of the patents involved in the
lawsuit, the Company changed its advertising and packaging to remove references
to wrinkles and fine lines. The Company denies the allegations of the plaintiff
and is mounting a vigorous defense.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Scott's Liquid Gold-Inc.
We have audited the accompanying consolidated balance sheets of Scott's Liquid
Gold-Inc. (a Colorado corporation) and subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Scott's Liquid Gold-Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/s/Arthur Andersen LLP
Denver, Colorado, Arthur Andersen LLP
January 21, 1997
CORPORATE DATA
Plant and Executive Offices
Scott's Liquid Gold-Inc., 4880 Havana Street, Denver, Colorado 80239
Phone 303-373-4860
Stock Transfer Agent
Norwest Bank Minnesota N.A., 161 N. Concourse Exchange,
South St. Paul, Minnesota 55075-0738
Shareholders
As of January, 1997 the Company had approximately 1400 shareholders of record.
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>
<CAPTION>
1996 1995
Three Months Ended Three Months Ended
High Low High Low
<S> <C> <C> <C> <C> <C>
March 31 3 2-1/2 March 31 6 5-1/8
June 30 3 1-3/4 June 30 5-5/8 3-3/4
September 30 2-1/8 1-1/2 September 30 4-3/4 3-1/4
December 31 1-7/8 1-1/4 December 31 3-5/8 2-1/2
</TABLE>
NYSE Symbol: SGD
On March 7, 1995, based upon 1994's performance, the Company declared a dividend
of $.10 per share to shareholders of record on March 24, 1995. No decision has
been made as to future dividends. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations-Liquidity and Capital Resources'
for information concerning restrictions on dividends.
Current stock quotes, SEC filings, quarterly earnings and press releases can be
found at: http://www.businesswire.com/cnn/sgd.htm
DIRECTORS AND OFFICERS
Jerome J. Goldstein Chairman of the Board and Director
Mark E. Goldstein President, Chief Executive Officer and Director
Carolyn J. Anderson Executive Vice President, Chief Operating
Officer, Corporate Secretary and Director
Barry Shepard Treasurer, Assistant Secretary, Chief Financial
Officer and Director
Michael J. Sheets Principal, Gerald Schoenfeld, Inc., Consultant
and Director
Dennis H. Field Independent Consultant and Director
EXHIBIT 21
LIST OF SUBSIDIARIES:
SCOTT'S LIQUID GOLD-INC. (the "Company") wholly owns seven subsidiaries:
Advertising Promotions Incorporated
Aquafilter Corporation
Colorado Product Concepts, Inc.
Neoteric Cosmetics, Inc.
SLG Chemicals, Inc.
SLG Plastics, Inc.
SLG Touch-A-Lite, Inc. (inactive)
All of the foregoing subsidiaries are incorporated in the State of
Colorado.
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
A independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statement No. 33-63254.
/s/ Arthur Andersen LLP
Denver Colorado
January 21, 1997
POWER OF ATTORNEY
Each of the undersigned directors and/or officers of Scott's Liquid Gold-
Inc. (the "Company") hereby authorizes Mark E. Goldstein, Carolyn J. Anderson
and Barry Shepard, and each of them, as their true and lawful attorneys-in-fact
and agents (1) to sign in the name of the undersigned and file with the
Securities and Exchange Commission the Company's annual report on Form 10-K, for
the fiscal year ended December 31, 1996, and any amendments to such annual
report; and (2) to take any and all actions necessary or required in connection
with such annual report to comply with the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
Signature Title Date
/s/Jerome J. Goldstein Director and Chairman 3/21/97
Jerome J. Goldstein of the Board
/s/Mark E. Goldstein Director, President and 3/21/97
Mark E. Goldstein Chief Executive Officer
/s/Carolyn J. Anderson Director, Executive Vice President 3/21/97
Carolyn J. Anderson Chief Operating Officer and
Corporate Secretary
/s/Barry Shepard Director, Treasurer and Chief 3/21/97
Barry Shepard Financial Officer
/s/ Dennis H. Field Director 3/21/97
Dennis H. Field
/s/James F. Keane Director 3/21/97
James F. Keane
/s/Michael J. Sheets Director 3/21/97
Michael J. Sheets
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Scott's
Liquid Gold-Inc. 1996 10-K and is qualified in its entirety by reference to such
10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> $ 4,749,200
<SECURITIES> $ 0
<RECEIVABLES> $ 4,624,300
<ALLOWANCES> $ 580,400
<INVENTORY> $ 4,129,200
<CURRENT-ASSETS> $13,949,400
<PP&E> $26,850,900
<DEPRECIATION> $ 6,989,100
<TOTAL-ASSETS> $34,463,900
<CURRENT-LIABILITIES> $ 7,752,000
<BONDS> $12,000,000
$ 0
$ 0
<COMMON> $ 1,003,100
<OTHER-SE> $14,695,000
<TOTAL-LIABILITY-AND-EQUITY> $34,463,900
<SALES> $44,144,000
<TOTAL-REVENUES> $44,443,000
<CGS> $14,191,200
<TOTAL-COSTS> $41,141,200
<OTHER-EXPENSES> $ 3,588,300
<LOSS-PROVISION> $ 0
<INTEREST-EXPENSE> $ 1,200,200
<INCOME-PRETAX> $(1,486,700)
<INCOME-TAX> $( 553,000)
<INCOME-CONTINUING> $( 933,700)
<DISCONTINUED> $ 22,800
<EXTRAORDINARY> $ 0
<CHANGES> $ 0
<NET-INCOME> $( 910,900)
<EPS-PRIMARY> $ (.09)
<EPS-DILUTED> $ 0
</TABLE>
