Scott first approached its creditors with the bad news in early 1962.
succeeded, or apparently succeeded, in negotiating a relatively moderate adjustment of
its loan conditions.
Then the top management of one of the leading creditors balked
and seemed inclined to take much tougher action, perhaps to force Scott into a merger
with a financially stronger company.
Eventually, however, after some reshuffling of
creditors, a new set of workable restrictions on Scott’s loan was worked out.
Changes were made in the company’s board of directors to add strength in the areas of
finance and control.
A company official reported that three other main remedial actions
were taken in early 1962:
Action to curb shipments to trust receipt dealers with excessive inventories.
Action to set up cost and expense controls.
(Over time Scott developed and
refined a sampling system that reliably measured consumer purchases of Scott’s
products on a nationwide basis.)
Action to step up the tempo of consumer purchases.
(No dramatic changes,
however, took place in this area.)
The company did not cut its prices or sell through discount houses at cut rates.
maintained its aggressive research and product development.
In this sense it held to its
Market surveys in 1962 showed that Scott was still way ahead of
other national brands on sales to consumers.
These surveys were instrumental in
alleviating the worst of the creditors’ fears.
The actual financial results reported by Scott in the ensuing years are shown in Table
Net Income (Loss)
of Common Stock
The instructor may find it interesting to read the following excerpts from Scott’s annual
reports to the class to add a bit of color to the case.