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 January 31, 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 February 28, 1994, there were outstanding 25,702,612 shares Common Stock, par
value $.001 per share.
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NEUTROGENA CORPORATION
AND SUBSIDIARIES
I N D E X
Page
Number
______
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
January 31, 1994 and October 31, 1993
(Unaudited)
Condensed Consolidated Statements of 4
Income and Retained Earnings
Three Months Ended January 31, 1994
and 1993 (Unaudited)
Condensed Consolidated Statements of Cash 5
Flows
Three Months Ended January 31, 1994
and 1993 (Unaudited)
Notes to Condensed Consolidated Financial 6
Statements (Unaudited)
Independent Accountants' Report 8
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 11
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<TABLE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)
(UNAUDITED)
<CAPTION>
January 31, October 31,
1994 1993
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,021 $ 10,274
Temporary investments, at cost, which
approximates market 32,808 32,450
Accounts receivable, less allowance
for doubtful accounts of $775
(1994) and $743 (1993) 36,849 54,638
Inventories (Note C) 25,807 22,137
Prepaid income taxes (Note D) 1,721 1,837
Prepaid expenses and other
current assets 7,826 6,921
Total current assets 115,032 128,257
FIXED ASSETS, less accumulated depreciation
and amortization of $27,966 (1994)
and $26,704 (1993) 57,544 56,022
OTHER ASSETS, net (Note F) 11,986 12,051
TOTAL ASSETS $184,562 $196,330
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 4,342 $ 9,601
Accounts payable 16,576 17,624
Accrued liabilities 30,367 32,864
Income taxes payable (Note D) 2,158 3,540
Total current liabilities 53,443 63,629
DEFERRED COMPENSATION 3,248 3,098
DEFERRED INCOME TAXES (Note D) 975 975
Total liabilities 57,666 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 (1994)
and 26,724,844 shares (1993) 27 27
Common stock in excess of par value 15,935 15,876
Retained earnings 130,402 133,130
Cumulative translation adjustments (1,175) (1,258)
Treasury stock, at cost, 1,023,232 (1994)
and 1,069,794 (1993) shares (Note E) (18,293) (19,147)
Total stockholders' equity 126,896 128,628
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $184,562 $196,330
See notes to condensed consolidated financial statements.
* Condensed from Audited Consolidated Balance Sheet
</TABLE>
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<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 January 31,
1994 1993
<S> <C> <C>
NET SALES $ 60,675 $ 70,245
COST OF SALES 15,372 17,959
GROSS PROFIT 45,303 52,286
OPERATING EXPENSES:
Marketing and selling 35,478 41,257
General and administrative 2,906 4,243
INCOME FROM OPERATIONS 6,919 6,786
OTHER INCOME, NET 515 281
INCOME BEFORE INCOME TAXES 7,434 7,067
PROVISION FOR INCOME TAXES (Note D) 2,713 2,544
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 4,721 4,523
CUMULATIVE EFFECT ON PRIOR YEARS
(TO OCTOBER 31, 1992) OF CHANGE IN
ACCOUNTING FOR INCOME TAXES (Note D) - 1,069
NET INCOME 4,721 5,592
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 (514) (1,078)
RETAINED EARNINGS, end of period $130,402 $112,764
PER SHARE AMOUNTS:
Income before cumulative effect
of accounting change $ .18 $ .17
Cumulative effect of change in
accounting for income taxes $ - .04
Net income $ .18 $ .21
WEIGHTED AVERAGE NUMBER OF SHARES
AND EQUIVALENT SHARES OUTSTANDING 25,952,169 26,873,012
See notes to condensed consolidated financial statements
</TABLE>
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<TABLE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(UNAUDITED)
<CAPTION>
For the Three Months
Ended January 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,721 $ 5,592
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,520 1,312
(Gain) loss on sale of fixed assets (5) 18
Deferred income taxes payable - (307)
Deferred compensation 150 203
Exchange loss (gain) 83 (456)
Decrease in accounts receivable 17,789 2,432
(Increase) decrease in inventories (3,670) 1,083
Increase in prepaid expenses and
other current assets (789) (1,315)
Decrease in accounts payable (1,241) (4,154)
(Decrease) increase in accrued liabilities (2,160) 891
(Decrease) Increase in taxes payable (1,323) 1,596
Net cash provided by operating activities 15,075 6,895
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,720) (4,517)
Proceeds from sale of fixed assets 17 36
Purchase of short term investments (358) (396)
Increase in other assets (413) (2,810)
Net cash used in investing activities (3,474) (7,687)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short term borrowings (5,259) 2,778
Proceeds from exercise of employee stock options 340 276
Dividends paid (6,935) (6,344)
Common stock repurchased - (650)
Net cash used in financing activities (11,854) (3,940)
NET DECREASE IN CASH AND CASH EQUIVALENTS (253) (4,732)
CASH AND CASH EQUIVALENTS, beginning of period 10,274 11,893
CASH AND CASH EQUIVALENTS, end of period $10,021 $ 7,161
Cash paid during the period:
Interest expense $ 149 $ 153
Income taxes $ 3,969 $ 904
See notes to condensed consolidated financial statements.
</TABLE>
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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 January 31, 1994, the related
statements of income and retained earnings and statements of cash flows for the
three months ended January 31, 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 January 31,
l994 and for the three month period then ended.
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 for the year ended October 31, 1993. These condensed consolidated
financial statements should be read in conjunction with the audited financial
statement and notes thereto contained in that annual report.
The results of operations for the period ended January 31, 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 January 31,
1994 and 1993, and for the three months then ended, follows (in thousands):
1994 1993
Net sales $14,012 $13,822
Net income (loss) $ 312 $(1,006)
Total assets $24,777 $21,240
NOTE C -
Inventories consisted of the following (in thousands):
January 31, October 31,
1994 1993
Raw materials $ 9,842 $ 7,816
Work in process 889 815
Finished goods 15,076 13,506
$25,807 $22,137
======= =======
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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 No. 109 increased net income for the three months ended
January 31, 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 January 31, 1994, the Company
has not purchased any shares under this authorization.
NOTE F -
Included in other assets are intangibles consisting of trademarks, patents and
a distributor buy-out at cost less accumulated amortization. Costs are
amortized over the estimated useful lives of the related assets which range
from 5-40 years. Other assets also includes a venture capital minority interest
investment in Cellegy Pharmaceuticals, Inc., a company specializing in
developing dermatologic products, which the Company has recorded under the cost
method of accounting for long-term investments.
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Board of Directors
Neutrogena Corporation
We have reviewed the condensed consolidated balance sheet of Neutrogena
Corporation as of January 31, 1994, and the related condensed consolidated
statements of income and cash flows for the three month period ended January 31,
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 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
February 15, 1994
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NEUTROGENA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1994 COMPARED WITH THREE MONTHS ENDED
JANUARY 31, 1993
Net sales for the fiscal quarter ended January 31, 1994 totaled $60.7 million
for a decrease of $9.5 million or 13.6%. New product sales reached $5.4
million. A product is defined as new until it has a full fiscal year of
sales. During the first quarter in the United States the Company launched
Heat Safe, a product for heat-damaged hair. Volume on existing products
declined $14.2 million and a strengthening U.S. dollar held back reported sales
by $.7 million.
United States division sales were $46.7 million compared to
$56.4 million during 1993. The majority of the U.S. sales decline is
attributable to the lack of a strong sell-in of the first quarter Shower Care
promotion. It is also believed that the first quarter sales were impacted
by unusually severe winter in the midwest and eastern United States which
impacted delivery schedules to the retail trade, and to a limited extent by
the earthquake in Southern California.
International division (which includes U.S. based export) sales were $14.0
million compared to $13.8 million in 1993. New product sales contributed $1.0
million. International division sales represented 23% of total Company sales
during the quarter. 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.
Gross profit margin for the quarter improved to 74.7% from 74.4% during 1993.
The margin improvement was primarily due to lower promotional sales, product mix
shifts and greater manufacturing efficiency in the United States. Marketing and
selling expense was 59% of sales, the same as during the first quarter 1993.
Income before income taxes reached $7.4 million for an increase of 5%. Income
before income taxes increased as cost controls limited expenditures on selling,
marketing, and general and administrative expenses for the quarter. The income
before income tax margin grew to 12.3% of sales from 10.1% during the first
quarter of 1993.
The effective tax rate increased to 36.5% from 36.0% during the first quarter of
1993. This increase reflects the effect of the Omnibus Budget Reconciliation
Act of 1993, changes in tax exempt interest earned on the Company's portfolio,
partially offset by the effect of the Company's manufacturing facility located
in a tax-free zone in France.
<PAGE>
NEUTROGENA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1994 COMPARED WITH THREE MONTHS ENDED
JANUARY 31, 1993 (CONTINUED)
Net income for the quarter decreased to $4.7 million from $5.6 million in 1993.
Net income during 1993 benefited by $1.1 million from the cumulative effect on
prior years of the change in accounting for income taxes Statement of Financial
Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes," which was
implemented November 1, 1992. The impact of this accounting change was $.04 per
share during the first quarter of 1993. Excluding this accounting change, net
income was up 4%.
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended January 31, 1994, cash and temporary cash investments
increased by $105 thousand. During the first quarter the Company paid the
annual cash dividend of $6.9 million, repaid short term borrowing of $5.3
million, and incurred capital expenditures of $2.7 million. The Company
experienced strong cash flow from operating activities as a result of
collections from the fourth quarter 1993 sales.
Shareholder's equity decreased by $1.7 million or 1% principally because of the
payment of the annual cash dividend.
The Company has no long term-term debt. The Company believes that 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:
10.1* Neutrogena Corporation Executive Retirement Plan and
Designation of Initial Plan Participants and Dates of
Participation.
11.1 Statement re: computation of per share earnings
15.1 Letter re: unaudited interim financial information
(b) Reports on Form 8-K:
None
* Management contract or compensating plan or arrangement.
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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
March 10, 1994 /s/ Donald R. Schort
Date Donald R. Schort
Senior Vice President and
Chief Financial Officer
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NEUTROGENA CORPORATION AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
Three Months
Ended January 31,
1994 1993
PRIMARY SHARES:
Weighted average shares
outstanding 25,678,205 26,408,167
Dilutive effect of stock
options after application
of Treasury stock method 273,964 464,846
Total 25,952,169 26,873,013
FULLY DILUTED SHARES:
Weighted average shares
outstanding 25,678,205 26,408,167
Dilutive effect of stock
options after application
of Treasury stock method 369,585 464,845
Total fully dilutive shares 26,047,790 26,873,012
Income before cumulative
effect of accounting change $ 4,721 $ 4,523
Cumulative effect on prior years of
change in accounting for income taxes - 1,069
Net income $ 4,721 $ 5,592
PER SHARE AMOUNTS:
PRIMARY:
Income before cumulative
effect of accounting change $ .18 $ .17
Cumulative effect of change in
accounting for income taxes $ - .04
Net income $ .18 $ .21
FULLY DILUTED SHARES:
Income before cumulative
effect of accounting change $ .18 $ .17
Cumulative effect of change in
accounting for income taxes $ - .04
Net income $ .18 $ .21
Exhibit 11.1
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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 February 15, 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
March 7, 1994
Exhibit 15.1
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