SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 30, 1994
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 0-7623
NEUTROGENA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-2221471
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5760 WEST 96th STREET, LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 642-1150
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
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
At May 31, 1994 there were outstanding 25,711,749 shares Common Stock, par value
$.001 per share.
<PAGE>
NEUTROGENA CORPORATION
AND SUBSIDIARIES
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
April 30, 1994 and October 31, 1993
(Unaudited)
Condensed Consolidated Statements of
Income and Retained Earnings
Three Months Ended April 30, 1994 4
and 1993 (Unaudited)
Six Months Ended April 30, 1994 5
and 1993 (Unaudited)
Condensed Consolidated Statements of Cash 6
Flows
Six Months Ended April 30, 1994 and
1993 (Unaudited)
Notes to Condensed Consolidated Financial 7
Statements (Unaudited)
Independent Accountants' Review Report 9
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 12
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<TABLE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(UNAUDITED)
<CAPTION>
April 30, October 31,
1994 1993*
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,232 $ 10,274
Temporary investments, at cost, which
approximates market 23,619 32,450
Accounts receivable, less allowance
for doubtful accounts of $775
(1994) and $743 (1993) 48,734 54,638
Inventories (Note C) 26,115 22,137
Prepaid income taxes (Note D) 2,602 1,837
Prepaid expenses and other
current assets 11,058 6,921
Total current assets 113,360 128,257
FIXED ASSETS, less accumulated depreciation
and amortization of $29,047 (1994)
and $26,704 (1993) 58,927 56,022
OTHER ASSETS, net 11,922 12,051
TOTAL ASSETS $184,209 $196,330
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 6,616 $ 9,601
Accounts payable 19,402 17,624
Accrued liabilities 21,694 32,864
Income taxes payable (Note D) 6 3,540
Total current liabilities 47,718 63,629
DEFERRED COMPENSATION 3,573 3,098
DEFERRED INCOME TAXES PAYABLE (NOTE D) 975 975
Total liabilities 52,266 67,702
STOCKHOLDERS' EQUITY:
Series A Preferred stock, $.001 par value,
authorized 310,713 shares, none issued - -
Preferred stock, $.001 par value,
authorized 6,689,287 shares,
none issued - -
Common stock, $.001 par value,
authorized 100,000,000 shares,
issued 26,724,844 shares 27 27
Common stock in excess of par value 15,935 15,876
Retained earnings 134,937 133,130
Cumulative translation adjustments (824) (1,258)
Treasury stock, at cost, 1,013,095 (1994)
and 1,069,794 (1993) shares (Note E) (18,132) (19,147)
Total stockholders' equity 131,943 128,628
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $184,209 $196,330
See notes to condensed consolidated financial statements.
* Condensed from Audited Consolidated Balance Sheet
</TABLE>
<PAGE>
<TABLE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands except share and per share amounts)
(UNAUDITED)
<CAPTION>
For the Three Months
Ended April 30,
1994 1993
<S> <C> <C>
NET SALES $ 73,013 $ 66,563
COST OF SALES 19,081 17,071
GROSS PROFIT 53,932 49,492
OPERATING EXPENSES:
Marketing and selling 43,880 41,294
General and administrative 3,177 2,921
INCOME FROM OPERATIONS 6,875 5,277
OTHER INCOME, NET 436 702
INCOME BEFORE INCOME TAXES 7,311 5,979
PROVISION FOR INCOME TAXES (NOTE D) 2,743 2,218
NET INCOME 4,568 3,761
RETAINED EARNINGS, beginning of period 130,402 112,764
TREASURY STOCK ISSUED FOR STOCK
OPTIONS EXERCISED (33) (40)
RETAINED EARNINGS, end of period $134,937 $116,485
NET INCOME PER SHARE $ .18 $ .14
WEIGHTED AVERAGE NUMBER OF SHARES
AND EQUIVALENT SHARES OUTSTANDING 25,895,243 26,548,498
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands except share and per share amounts)
(UNAUDITED)
<CAPTION>
For the Six Months
Ended April 30,
1994 1993
<S> <C> <C>
NET SALES $133,688 $136,808
COST OF SALES 34,453 35,030
GROSS PROFIT 99,235 101,778
OPERATING EXPENSES:
Marketing and selling 79,358 82,551
General and administrative 6,083 7,164
INCOME FROM OPERATIONS 13,794 12,063
OTHER INCOME, NET 951 983
INCOME BEFORE INCOME TAXES 14,745 13,046
PROVISION FOR INCOME TAXES (NOTE D) 5,456 4,762
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 9,289 8,284
CUMULATIVE EFFECT ON PRIOR YEARS OF
CHANGE IN ACCOUNTING FOR INCOME
TAXES (NOTE D) - 1,069
NET INCOME 9,289 9,353
RETAINED EARNINGS, beginning of period 133,130 114,594
CASH DIVIDENDS ($.27 per share in 1994;
$.24 per share in 1993) (6,935) (6,344)
TREASURY STOCK ISSUED FOR STOCK
OPTIONS EXERCISED (547) (1,118)
RETAINED EARNINGS, end of period $134,937 $116,485
PER SHARE AMOUNTS:
Income before cumulative effect
of accounting change $ .36 $ .31
Cumulative effect of change in
accounting for income taxes - .04
Net income $ .36 $ .35
WEIGHTED AVERAGE NUMBER OF SHARES
AND EQUIVALENT SHARES OUTSTANDING 25,937,229 26,655,502
See notes to condensed consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<CAPTION>
For the Six Months
Ended April 30,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,289 $ 9,353
Adjustments to reconcile net income to cash
used in operating activities:
Depreciation and amortization 3,133 2,788
Gain on sale of fixed assets (32) (19)
Deferred income taxes 59 (307)
Deferred compensation 475 328
Decrease (increase) in accounts receivable 5,904 (1,513)
(Increase) decrease in inventories (3,978) 1,017
Increase in prepaid expenses and other
current assets (4,902) (724)
Increase in accounts payable 2,199 872
Decrease in accrued liabilities (10,495) (10,288)
Decrease in income taxes payable (3,534) (3,470)
Net cash used in operating activities (1,882) (1,963)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,214) (6,877)
Proceeds from sale of fixed assets 70 105
Purchase of short-term investments (847) (1,478)
Sale of short-term investments 9,678 12,125
Increase in other assets (829) (2,465)
Net cash provided by investing activities 1,858 1,410
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings (2,985) 6,068
Proceeds from exercise of employee stock options 468 329
Dividends paid (6,935) (6,344)
Common stock repurchased - (11,201)
Net cash used in financing activities (9,452) (11,148)
NET DECREASE IN CASH AND CASH EQUIVALENTS (9,476) (11,701)
CASH AND CASH EQUIVALENTS, beginning of period 10,274 11,893
Effect of translation rate changes on cash 434 (192)
CASH AND CASH EQUIVALENTS, end of period $ 1,232 $ -
Cash paid during the period:
Interest expense $ 245 $ 279
Income taxes $ 9,924 $ 7,509
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
NOTE A -
The condensed consolidated balance sheet as of April 30, 1994, the related
statements of income and retained earnings for the three and six months ended
April 30, 1994 and 1993 and cash flows for the six months ended April 30, 1994
and 1993 have been prepared by Neutrogena Corporation (the "Company") without
audit. In the opinion of management, all adjustments (consisting only of normal
recurring accruals) have been made which are necessary to present fairly the
financial position, results of operations and cash flows of the Company and its
consolidated subsidiaries at April 30, l994 and for all periods presented.
Although the Company believes that the disclosure in the condensed consolidated
financial statements is adequate for a fair presentation thereof, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The October 31, 1993 audited statements were included in
the Company's annual report on Form 10-K under the Securities Exchange Act of
1934. These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
that annual report.
The results of operations for the period ended April 30, 1994 are not
necessarily indicative of the results for the full year.
NOTE B -
Financial information relative to the foreign operations (includes subsidiaries,
branches, U.S. export and U.S. international administration) as of April 30,
1994 and 1993, and for the six months then ended, follows (in thousands):
1994 1993
Net sales $30,469 $29,597
Net income (loss) $ 171 ($ 1,033)
Total assets $27,604 $23,809
NOTE C -
Inventories comprised the following (in thousands):
April 30, October 31,
1994 1993
Raw materials $11,550 $ 7,816
Work in process 855 815
Finished goods 13,710 13,506
$26,115 $22,137
<PAGE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
(Continued)
NOTE D -
The Company adopted, effective November 1, 1992, Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," issued in
February 1992. Under the asset and liability method of SFAS No. 109, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
The adoption of SFAS 109 increased net income, on a one-time basis, for the six
months ended April 30, 1993 by $1,069 or $.04 per share.
NOTE E -
On September 21, 1993, the Board of Directors authorized the Company to purchase
up to 1,000,000 shares of its Common Stock from time to time in the open market
and in privately negotiated transactions. As of April 30, 1994, the Company has
not purchased any shares under this authorization.
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
Neutrogena Corporation
We have reviewed the condensed consolidated balance sheet of Neutrogena
Corporation as of April 30, 1994, and the related condensed consolidated
statements of income and cash flows for the three and six month periods ended
April 30, 1994 in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these condensed consolidated financial
statements is the representation of management of Neutrogena Corporation.
A review consists principally of inquiries of Company personnel and analytical
procedures applied to financial data. It is substantially less in scope than an
audit in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Neutrogena Corporation as of
October 31, 1993, and the related consolidated statements of income and cash
flows for the year then ended (not presented herein); and in our report dated
November 30, 1993, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of October 31, 1993,
is fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
KPMG PEAT MARWICK
Los Angeles, California
May 19, 1994
<PAGE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1994 COMPARED WITH THREE MONTHS ENDED APRIL 30,
1993
Net sales for the three months ended April 30, 1994 reached $73.0 million for an
increase of $6.5 million or 10%. New product sales reached $6.2 million (a
product is defined as a new product until it has completed one full fiscal year
of sales). Both volume on existing products and price changes had an
insignificant impact on sales growth for the quarter.
Sales in the United States reached $56.6 million for an increase of $5.8 million
or 11%. Sales turned up well into the second quarter and are continuing their
growth into May. International sales (which includes U.S. based export) reached
$16.5 million for an increase of $.7 million or 4%.
Gross profit margin decreased to 73.9% of sales from 74.4% primarily due to a
change in the mix of products sold in Europe. Marketing and selling expense
decreased to 60% of sales from 62%. This decrease reflects the timing of
promotions and advertising campaigns. General and Administrative expense
remained constant at 4% of sales for the quarter, but may increase in the second
half of the year if business volume continues to grow.
Income from operations increased 30% and is 9.4% of sales. The increase in
income is principally attributable to the U.S. sales increase.
SIX MONTHS ENDED APRIL 30, 1994 COMPARED WITH SIX MONTHS ENDED APRIL 30, 1993
Net sales for the first half reached $133.7 million for a decrease of $3.1
million or 2%. New product sales contributed $11.4 million, while volume on
existing products fell by $13.0 million. A stronger U.S. dollar as compared to
the same period in 1993 reduced reported sales by $1.3 million.
Sales in the United States totaled $103.2 million for a decrease of $4.0 million
or 4%. The decline was attributable to the lack of a strong sell-in of the
first quarter Shower Care promotion. The first quarter sales were impacted
by the unusually severe winter in the midwest and eastern United States.
International sales reached $30.5 million for an increase of $.9 million or 3%.
Sales in Europe were below expectations as the Company continued through the
start-up period relating to both establishing its own sales force in France
effective November 1, 1993 and a new distributor in Spain and Portugal. The
poor economic conditions, particularly in France, had a negative impact on
sales. Sales remained strong in Mexico and Latin America.
SIX MONTHS ENDED APRIL 30, 1994 COMPARED WITH SIX MONTHS ENDED APRIL 30, 1993
(Continued)
Gross profit margins for the first six months were 74.2% of sales compared to
74.4% during 1993. Gross profit margin was negatively impacted by product and
promotional mix changes. Marketing and Selling expense decreased by .9% to
59.4% of sales from 60.3% in 1993. This decline is due to the timing of
promotions and advertising campaigns.
Income from operations increased 14% and is 10.3% of sales as compared to 8.8%
of sales during 1993. This increase in operating income was the result of tight
cost controls limiting expenditures on Marketing and Selling and General and
Administrative expenses, as well as the timing of marketing programs.
The effective tax rate for the first half was 37.0% compared to 36.5% during
1993. The effective tax rate is impacted by changes in tax exempt interest
earned on the Company's investment portfolio and the effect of sales volume
manufactured in the Company's facility located in a tax-free zone in France.
Net income (before the cumulative effect of changes in accounting for income
taxes SFAS 109) increased by 12.1%.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended April 30, 1994, cash and temporary investments
decreased by $17.9 million. This seasonal decrease is caused by annual payments
of trade allowance programs, dividends, and acquisition of fixed assets offset
by cash generated from operations.
The Company continues to use short-term debt in Europe to, in part, assist in
foreign exchange management. As of April 30, 1994, the debt balance was $6.2
million. Additional borrowing may be made as deemed necessary.
Stockholders' equity increased $3.3 million or 3% principally due to first half
net earnings offset by the payment of the annual dividend.
The Company believes its current cash position, the working capital generated by
future operations and the ability to borrow from financial institutions should
be adequate to meet its financing requirements for current operations and the
foreseeable future.
<PAGE>
NEUTROGENA CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit:
11.1 Statement re: computation of per share earnings
15.1 Letter re: unaudited interim financial information
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEUTROGENA CORPORATION
June 10, 1994 /s/ Donald R. Schort
Date Donald R. Schort
Senior Vice President and
Chief Financial Officer
<PAGE>
<TABLE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
Six Months Three Months
Ended April 30, Ended April 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
PRIMARY SHARES:
Weighted average shares
outstanding 25,705,251 26,297,659 25,705,251 26,297,659
Dilutive effect of stock
options after application of
Treasury stock method 231,978 357,843 189,992 250,839
Total 25,937,229 26,655.502 25,895,243 26,548,498
Income before cumulative effect
of accounting change $ 9,289 $ 8,284 $ 4,568 $ 3,761
Cumulative effect on prior years
of change in accounting for
income taxes - 1,069 $ - $ -
Net income $ 9,289 $ 9,353 $ 4,568 $ 3,761
PER SHARE AMOUNTS:
PRIMARY:
Income before cumulative effect
of accounting change $ .36 $ .31 $ .18 $ .14
Cumulative effect of change in
accounting for income taxes - .04 - -
Net income $ .36 $ .35 $ .18 $ .14
Fully dilutive shares are not shown because the difference between primary and
fully dilutive shares is immaterial.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' CONSENT
Neutrogena Corporation
Los Angeles, California
Gentlemen:
Re: Registration Statement No. 33-18115 on Form S-8, Registration Statement
No. 33-18116 on Form S-8, Registration Statement No. 33-38535 on Form S-8,
and Registration Statement No. 33-18160-3 on Form S-3
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated May 19, 1994 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered a part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
Very truly yours,
KPMG PEAT MARWICK
Los Angeles, California
June 7, 1994
