SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
0-8707
(Commission File Number)
NATURE'S SUNSHINE PRODUCTS, INC.
(Exact name of Registrant as specified in its charter)
UTAH 87-0327982
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
75 EAST 1700 SOUTH, PROVO, UTAH 84606
(Address of principal executive offices) (Zip Code)
(801) 342-4370
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
(TITLE OF CLASS)
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 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 voting stock held by non- affiliates of
the registrant on March 20, 2001 was approximately $96,937,791.
The number of shares of Common Stock, no par value, outstanding on March
20, 2001 was 16,266,586 shares.
Documents Incorporated by Reference:
Proxy Statement for the May 22, 2001 Annual Meeting of Shareholders (Part
III of this Report).
PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Nature's Sunshine Products, Inc., incorporated in Utah in 1976, and its
subsidiaries (hereinafter referred to collectively as the "Company") are
primarily engaged in the manufacturing and marketing of nutritional and personal
care products. The Company, founded in 1972, sells its products worldwide to a
sales force of independent Distributors who use the products themselves or
resell them to other Distributors or consumers.
The Company's operations are conducted in the United States as well as in
certain other countries. The Company's subsidiaries are located in South Korea,
Brazil, Mexico, Venezuela, Japan, Canada, Central America, Colombia, the Russian
Federation, the United Kingdom, Argentina, Peru, Ecuador, Chile and Israel. The
Company also exports its products to several other countries, including
Australia, Malaysia, New Zealand and Norway.
RECENT DEVELOPMENTS
On October 31, 2000, the Company acquired certain assets of Synergy
Worldwide, Inc. ("Synergy"). Synergy is a direct marketing company involved in
the distribution and sale of high quality nutritional, personal care and other
products with an emphasis in the Asian markets. The total consideration paid in
connection with this transaction was $4.8 million in cash.
FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company is principally engaged in one line of business, namely, the
manufacturing and marketing of nutritional and personal care products.
Information for each of the Company's last three fiscal years, with respect to
the amounts of sales revenue, operating income and the last two years of
identifiable assets by geographical business segment, is set forth under Item 8
of this Report.
PRODUCTS AND MANUFACTURING
The Company's line of over 500 products includes herbal products, vitamins,
mineral supplements and homeopathic products. The Company purchases herbs and
other raw materials in bulk and, after quality control testing, formulates,
encapsulates, tablets or concentrates and packages them for shipment. Most of
the Company's products are manufactured at its facility in Spanish Fork, Utah.
Contract manufacturers produce certain of the Company's personal care and
homeopathic products for the Company in accordance with the Company's
specifications and standards. The Company has implemented stringent quality
control procedures to verify that the contract manufacturers have complied with
its specifications and standards.
The Company's product lines are described below.
HERBAL PRODUCTS
The Company manufactures a wide selection of herbal products, which are
sold in the form of capsules or tablets. These capsules or tablets contain herb
powder or a combination of two or more herb powders. The Company also produces
both single herbs and herb combinations in the form of liquid herbs and
extracts. Liquid herbs are manufactured by concentrating herb constituents in a
vegetable glycerin base. Extracts are created by dissolving powdered herbs into
liquid solvents that separate the
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key elements of the herbs from the fibrous plant material. Sales of the
Company's herbal products accounted for approximately 69 percent of total sales
revenue in 2000, 65 percent in 1999 and 67 percent in 1998.
VITAMINS AND MINERAL SUPPLEMENTS
The Company manufactures a wide variety of single vitamins, which are sold
in the form of chewable or non-chewable tablets. The Company also manufactures
several multiple vitamins and mineral supplements, including a line containing
natural antioxidants. Generally, mineral supplements are sold in the form of
tablets; however, certain minerals are offered only in liquid form. Combined
sales of the Company's vitamins and mineral supplements were approximately 23
percent of total sales revenue in 2000, 26 percent in 1999 and 23 percent in
1998.
PERSONAL CARE PRODUCTS
The Company manufactures or contracts with independent manufacturers to
supply a variety of personal care products for external use, including oils and
lotions, aloe vera gel, herbal shampoo, herbal skin treatment, toothpaste and
skin cleanser. Sales of personal care products accounted for approximately 2
percent of the Company's total sales revenue in 2000 and 3 percent in 1999 and
1998.
HOMEOPATHIC PRODUCTS
The Company markets a line of more than 40 distinctive homeopathic products
designed for the treatment of certain common ailments, including several items
designed especially for various allergies and common childhood maladies. Sales
of the Company's homeopathic products accounted for approximately 1 percent of
total sales revenue in 2000, 1999 and 1998.
DISTRIBUTION AND MARKETING
The Company's independent Distributors market the Company's products to
consumers through direct-selling techniques as well as sponsor other
Distributors. The Company motivates and provides incentives to its independent
Distributors through a combination of high quality products, product support,
financial benefits, sales conventions, travel programs and a variety of training
seminars.
The Company's products that are sold domestically are shipped directly from
its manufacturing and warehouse facilities located in Spanish Fork, Utah, as
well as from its regional warehouses located in Columbus, Ohio; Dallas, Texas
and Atlanta, Georgia. Each international operation maintains warehouse
facilities with inventory to supply its customers.
Demand for the Company's products is created from approximately 589,000
active Distributors at December 31, 2000, which includes approximately 216,000
in the United States. A person who wishes to join the Company's independent
sales force begins as a "Distributor". An individual can become a Distributor by
applying to the Company under the sponsorship of someone who is already a
Distributor. Each Distributor is required to renew his/her distributorship on a
yearly basis; approximately 30 percent renew annually. Many Distributors sell
the Company's products on a part-time basis to friends or associates or consume
the products themselves. A Distributor interested in earning additional income
by committing more time and effort to selling the Company's products may be
appointed to "Manager" status. Appointment as a Manager is contingent upon
attaining certain purchase volume levels, recruiting additional Distributors and
demonstrating leadership abilities. Managers numbered approximately 16,100 at
December 31, 2000, including approximately 5,900 in the
3
United States. Managers resell the products they purchase from the Company to
Distributors within their sales group, to consumers or use the products
themselves. Once a Distributor is appointed to the status of Manager,
approximately 70 percent continue to maintain that status.
Domestically, the Company generally sells its products on a cash or credit
card basis. From time to time, the Company's domestic operation extends
short-term credit associated with product promotions. For certain of the
Company's international operations, the Company uses independent distribution
centers and offers credit terms consistent with industry standards within each
respective country.
The Company pays sales commissions and volume discounts (collectively,
"Volume Incentives") to its Managers based upon the amount of personal and sales
group product purchases. Reference is made to Item 8 contained herein for Volume
Incentives paid by the Company for the years ended December 31, 2000, 1999 and
1998. In addition, Managers who qualify by attaining certain levels of monthly
product purchases are eligible for additional incentive programs including
automobile allowances, sales conventions and travel.
SOURCE AND AVAILABILITY OF RAW MATERIALS
Raw materials used in the manufacture of the Company's products are
available from a number of suppliers. To date, the Company has not experienced
any major difficulty in obtaining adequate sources of supply. The Company
attempts to assure the availability of many of its raw materials by contracting,
in advance, for its annual requirements. In the past, the Company has found
alternative sources of raw materials when needed. Although there can be no
assurance the Company will be successful in locating such sources in the future,
the Company believes it will be able to do so.
TRADEMARKS AND TRADE NAMES
The Company has obtained trademark registrations of its basic trademarks,
"Nature's Sunshine", and the landscape logo for all of its product lines. The
Company also owns numerous trademark registrations in the United States and in
many other countries.
SEASONALITY
The business of the Company does not reflect significant seasonality.
WORKING CAPITAL
The Company maintains a substantial inventory of raw materials and finished
goods in order to provide a high level of product availability to its
independent Distributors.
DEPENDENCE UPON CUSTOMERS
The Company is not dependent upon a single customer or a few customers, the
loss of which would have a material adverse effect on its business.
BACKLOG
Orders for the Company's products are typically shipped within 24 hours
after receipt. As a result, there is no significant backlog at any time.
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COMPETITION
The Company's products are sold in competition with other companies, some
of which have greater sales volumes and financial resources than the Company,
and which sell brands that are, through advertising and promotions, better known
to consumers. The Company competes in the nutritional and personal care industry
against companies, which sell through retail stores as well as against other
direct selling companies. For example, the Company competes against
manufacturers and retailers of nutritional and personal care products, which are
distributed through supermarkets, drug stores, health food stores, discount
stores, beauty salons, etc. In addition to its competition with these
manufacturers and retailers, the Company competes for product sales and
independent Distributors with many other direct sales companies, including
Shaklee, NuSkin and Amway. The principal competitors in the encapsulated and
tableted herbal products market include TwinLab, Nature's Way, USANA,
Nutraceuticals and NBTY. The Company believes that the principal components of
competition in the direct sales marketing of nutritional and personal care
products are quality, price and brand name. In addition, the recruitment,
training, travel and financial incentives for the independent sales force are
important factors.
RESEARCH AND DEVELOPMENT
The Company conducts its research and development activities at its
manufacturing facility located in Spanish Fork, Utah. The principal emphasis of
the Company's research and development activities is the development of new
products and enhancement of existing products. The amount, excluding capital
expenditures, spent on research and development activities was approximately
$1.8 million, $1.7 million and $1.5 million in 2000, 1999 and 1998,
respectively. During the period, the Company did not have any
third-party-sponsored research.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
The nature of the Company's business has not required any material capital
expenditures to comply with Federal, State or local provisions enacted or
adopted regulating the discharge of materials into the environment. No material
expenditures to meet such provisions are anticipated. Such regulatory provisions
have not had any material effect upon the Company's earnings or competitive
position.
REGULATION
The formulation, manufacturing, packaging, labeling, advertising,
distribution and sale of each of the Company's major product groups are subject
to regulation by one or more governmental agencies. The most active of these is
the Food and Drug Administration ("FDA") which regulates the Company's products
under the Federal Food, Drug and Cosmetic Act ("FDCA") and regulations
promulgated thereunder. The FDCA defines the terms "food" and "dietary
supplement" and sets forth various conditions that unless complied with may
constitute adulteration or misbranding of such products. The FDCA has been
amended several times with respect to dietary supplements, most recently by the
Nutrition Labeling and Education Act of 1990 (the "NLEA") and the Dietary
Supplement Health and Education Act of 1994 (the "DSHEA").
FDA regulations relating specifically to foods for human use are set forth
in Title 21 of the Code of Federal Regulations. These regulations include basic
food labeling requirements and Good Manufacturing Practices ("GMPs") for foods.
Detailed dietary supplement GMPs have been proposed; however, no regulations
establishing such GMPs have been adopted. Additional regulations to
5
implement the specific DSHEA requirements for dietary supplement labeling have
also been proposed, and final regulations should be implemented over a period of
time upon final publication.
The Company's products are also regulated by the Federal Trade Commission
("FTC"), the Consumer Product Safety Commission ("CPSC"), the United States
Department of Agriculture ("USDA") and the Environmental Protection Agency
("EPA"). The Company's activities, including its multi-level distribution
activities, are also regulated by various agencies of the states, localities and
foreign countries in which the Company's products are sold.
In the future, the Company may be subject to additional laws or regulations
administered by the FDA or other Federal, State, local or foreign regulatory
authorities, the repeal or amendment of laws or regulations which the Company
considers favorable and/or more stringent interpretations of current laws or
regulations from time to time in the future. The Company can neither predict the
nature of such future laws, regulations, interpretations or applications, nor
what effect additional governmental regulations or administrative orders, when
and if promulgated, would have on its business. They could, however, require
reformulation of certain products to meet new standards, recall or
discontinuance of certain products not able to be reformulated, imposition of
additional record-keeping requirements, expanded documentation of the properties
of certain products, expanded or altered labeling and/or scientific
substantiation. Any or all such requirements could have a material adverse
effect on the Company's results of operations and financial position.
EMPLOYEES
The number of people employed by the Company as of December 31, 2000, was
1,080. The Company believes that its relations with its employees are
satisfactory.
INTERNATIONAL OPERATIONS
The Company's direct sales of nutritional and personal care products are
established internationally in South Korea, Brazil, Mexico, Venezuela, Japan,
Canada, Central America, Colombia, the Russian Federation, the United Kingdom,
Argentina, Peru, Ecuador, Chile and Israel. The Company also exports its
products to numerous other countries, including Australia, Malaysia, New Zealand
and Norway. Information for each of the last three years with respect to the
amounts of sales revenue and operating income and the last two years of
identifiable assets attributable to domestic and international segments is set
forth in Note 13 of the Notes to Consolidated Financial Statements, appearing in
Item 8 of this Report.
The Company's international operations are conducted in a manner comparable
with those conducted domestically; however, in order to conform to local
variations, economic realities, market customs, consumer habits and regulatory
environments, differences may exist in the products and in the distribution and
marketing programs.
The Company's international operations are subject to many of the same
risks faced by the Company's domestic operations, including competition and the
strength of the local economy. In addition, international operations are subject
to certain risks inherent in carrying on business abroad, including foreign
regulatory restrictions, fluctuations in monetary exchange rates, import-export
controls and the economic and political policies of foreign governments. The
importance of these risks increases as the Company's international operations
grow and expand.
6
ITEM 2. PROPERTIES
The Company's corporate offices are located in two adjacent office
buildings in Provo, Utah. The facilities consist of approximately 63,000 square
feet and are leased from an unaffiliated third party through lease agreements,
which expire as early as two years but are renewable upon expiration.
The Company's principal warehousing and manufacturing facilities are housed
in a building of approximately 265,000 square feet owned by the Company and
located on approximately ten acres in Spanish Fork, Utah. On March 2, 2000, the
Company announced its plans to complete an expansion of the manufacturing
portion of the warehouse and manufacturing facility in which construction was
completed in 1998. The cost of this project is expected to be approximately
$14.0 million of which $1.4 million had been paid as of December 31, 2000.
Construction began during the fourth quarter of 2000, and the expansion is
expected to be completed in early 2002. The Company expects to fund this
expansion from working capital.
The Company owns approximately 60,000 square feet of office and warehouse
space in Mexico and approximately 10,800 square feet of office space in
Venezuela.
The Company leases properties used primarily as distribution warehouses
located in Columbus, Ohio; Dallas, Texas; Atlanta, Georgia; as well as offices
and distribution warehouses in Brazil, Japan, South Korea, Venezuela, Canada,
Colombia, the Russian Federation, the United Kingdom, Argentina, Peru, El
Salvador, Ecuador, Honduras, Guatemala, Costa Rica, Panama, Chile, Nicaragua and
Israel. Management believes these facilities are suitable for their respective
uses and are, in general, adequate for the Company's present needs. During 2000,
1999 and 1998, the Company spent approximately $3.6 million, $3.1 million and
$2.9 million, respectively, for all of its leased facilities.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with legal counsel, believes
that any liability as a result of these matters will not have a material effect
upon the Company's results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market System
(symbol NATR). The information in the table below reflects the actual high and
low sales prices of the Company's stock for 2000 and 1999.
MARKET PRICES MARKET PRICES
2000 HIGH LOW 1999 HIGH LOW
- ---- ---- --- ---- ---- ---
First Quarter $10.63 $7.75 First Quarter $15.88 $10.75
Second Quarter 9.13 6.63 Second Quarter 13.75 9.75
Third Quarter 8.28 6.69 Third Quarter 12.38 8.75
Fourth Quarter 7.38 6.38 Fourth Quarter 9.75 6.94
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There were approximately 1,464 shareholders of record as of March 9, 2001.
During 2000 and 1999, the Company paid quarterly cash dividends of 3 1/3 cents
per common share. On February 9, 2001, the Company declared a cash dividend of 3
1/3 cents per common share to shareholders of record on February 20, 2001. On
February 27, 2001, the Company paid approximately $0.6 million related to this
declared dividend. The Company expects to continue to pay equivalent cash
dividends in the future.
ITEM 6. SELECTED FINANCIAL DATA
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
DOLLAR AND SHARE AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION
INCOME STATEMENT DATA
Sales Cost of Volume Selling, General Operating Income Before Net
Revenue Goods Sold Incentives & Administrative Income Income Taxes Income
-------- ---------- ---------- ---------------- --------- ------------- --------
2000 $314,820 $ 55,448 $139,441 $ 93,303 $ 26,628 $ 27,920 $ 17,131
1999 294,779 51,138 132,268 84,263 27,110 28,991 17,796
1998 301,665 52,191 136,490 76,917 36,067 38,373 23,278
1997 285,900 51,608 130,709 72,578 31,005 33,203 20,133
1996 253,201 44,886 114,419 67,407 26,489 27,869 16,848
BALANCE SHEET DATA
Working Current Property, Plant & Total Long-Term Shareholders'
Capital Ratio Inventories Equipment, Net Assets Debt Equity
-------- ------- ----------- ----------------- -------- --------- -------------
2000 $ 43,570 2.48:1 $ 26,043 $ 25,293 $118,447 $ -- $ 84,884
1999 35,594 2.28:1 26,660 25,193 107,435 -- 77,537
1998 35,557 2.30:1 22,494 25,896 103,699 -- 73,967
1997 38,571 2.40:1 19,555 23,711 95,796 -- 66,857
1996 39,560 2.44:1 24,459 20,197 91,966 -- 63,163
COMMON SHARE SUMMARY
Basic Diluted Basic Diluted
Cash Dividends Net Income Net Income Book Value Weighted Weighted
Per Share Per Share Per Share Per Share(1) Average Shares Average Shares
-------------- ---------- ----------- ------------ -------------- --------------
2000 $ 0.133 $ 1.02 $ 1.02 $ 5.17 16,830 16,875
1999 0.133 1.01 1.00 4.53 17,585 17,745
1998 0.133 1.27 1.25 4.10 18,383 18,639
1997 0.133 1.08 1.06 3.60 18,653 19,070
1996 0.133 0.90 0.86 3.30 18,793 19,684
OTHER INFORMATION
Return on Square Footage
Shareholders' Return on Number of of Property Number of
Equity(2) Assets(3) Managers in Use Employees
------------- --------- --------- -------------- ---------
2000 21.1% 15.2% 16,081 719,884 1,080
1999 23.5 16.9 14,462 621,252 1,013
1998 33.1 23.3 14,006 631,430 971
1997 31.0 21.4 13,776 522,373 994
1996 32.2 21.4 11,694 485,772 955
(1) Year end shareholders' equity divided by actual shares outstanding at the
end of each year.
(2) Net income divided by average shareholders' equity.
(3) Net income divided by average total assets.
The information in the preceding tables has been adjusted, where necessary,
to reflect stock dividends and splits.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SALES REVENUE
Consolidated sales revenue for the year ended December 31, 2000, was $314.8
million compared to $294.8 million in 1999, an increase of approximately 7
percent. Sales revenue decreased approximately 2 percent in 1999 compared to
$301.7 million in 1998. The change in sales revenue is related to the number of
independent Distributors and the growth of the Company's international
operations.
The Company distributes its products to consumers through an independent
sales force comprised of Managers and Distributors. Active Managers totaled
approximately 16,100, 14,500 and 14,000 at December 31, 2000, 1999 and 1998,
respectively. Active Distributors totaled approximately 589,000, 530,000 and
516,000 at December 31, 2000, 1999 and 1998, respectively. At December 31, 2000,
the number of active Distributors increased 11 percent as compared to 1999. The
Company anticipates the number of active Distributors to increase as the Company
expands its existing, international operations, enters new markets and as
current Distributors grow their businesses.
Sales revenue related to the Company's domestic operations decreased
approximately 6 percent in 2000 to $177.2 million compared to $188.8 million in
1999, and approximately 4 percent for 1999 compared to $195.7 million in 1998.
The decrease in sales revenue is primarily the result of increased competition
for Distributors as well as a decline in the growth of the supplement industry.
Price increases of 1 percent in the Company's domestic market went into effect
in both 2000 and 1999, and resulted in greater sales revenue for these years. A
price increase of approximately 1 percent, primarily associated with increased
raw material costs, is scheduled to become effective on April 1, 2001.
Management believes this price increase in its domestic market will be
acceptable to its sales force and will result in increased sales revenue.
International sales revenue increased to $137.6 million in 2000 compared to
$106.0 million in both 1999 and 1998, an increase of 30 percent. Sales revenue
in the Company's Asian and Latin American segment increased approximately 104
percent and 13 percent, respectively. South Korea represented approximately 20
percent of international sales revenue for 2000. Price increases are planned in
various international markets to adjust for foreign currency devaluations and
increases in the cost of finished products. Management believes the price
increases will be acceptable to its sales force and will result in increased
sales. Further information related to the Company's domestic and international
segments is set forth in Note 13 of Notes to Consolidated Financial Statements
appearing in Item 8 of this Report.
COSTS AND EXPENSES
The Company's costs and expenses, which include cost of goods sold, volume
incentives, and selling, general and administrative, are identified as a
percentage of sales in the table below:
9
Year ended December 31 2000 1999 1998
---- ---- ----
Cost of goods sold 17.6% 17.3% 17.3%
Volume incentives 44.3 44.9 45.2
Selling, general and
administrative 29.6 28.6 25.5
---- ---- ----
91.5% 90.8% 88.0%
==== ==== ====
COST OF GOODS SOLD
Cost of goods sold as a percent of sales increased in 2000 as compared to
1999 and 1998, primarily as a result of the increase in international sales
revenue where cost of goods sold was slightly higher than in the Company's
domestic operations.
Management believes that cost of goods sold as a percent of sales will
increase slightly during 2001 as compared to 2000 due to the growth of the
Company's international operations. Expansion of the Company's manufacturing
facility will be completed in early 2002 and will not have an impact on cost of
goods sold during 2001.
VOLUME INCENTIVES
Volume incentives are a significant part of the Company's direct sales
marketing program and represent payments made to its independent Distributors.
These payments are designed to provide incentives for reaching higher sales
levels and for recruiting additional Distributors. Volume incentives as a
percent of sales decreased slightly during 2000 as compared to 1999 and 1998,
primarily as a result of the increase in international sales revenue where
volume incentives are slightly lower than in the Company's domestic operation.
Management expects volume incentives as a percent of sales to decrease
slightly during 2001 as compared to 2000 due to the growth of the Company's
international operations.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative increased $9.0 million in 2000 as
compared to 1999, and $7.4 million in 1999 compared to 1998, primarily as the
result of continued expansion in the Company's international operations.
Selling, general and administrative as a percent of sales increased in 2000 as
compared to 1999 and 1998. This category includes costs for research and
development, distribution as well as incentive programs such as the Company's
conventions.
Management believes that selling, general and administrative as a percent
of sales will decrease slightly during 2001 as compared to 2000 due to
cost-control measures effected in the Company's domestic operations.
INCOME TAXES
The Company's effective income tax rate was 38.6, 38.6 and 39.3 percent for
2000, 1999 and 1998, respectively. The decrease in the effective income tax rate
in 2000 and 1999 was primarily due to the utilization of net operating losses of
a foreign subsidiary, which had not been previously realized. The Company
expects its effective income tax rate to decrease slightly during 2001 as a
result of the utilization of net operating losses in several of its
international operations.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its cash and cash equivalents
and cash generated from operations. At December 31, 2000, cash and cash
equivalents increased approximately $10.4 million as compared to December 31,
1999. Cash provided by operating activities was approximately $29.1 million in
2000 compared to approximately $17.6 million in 1999. The increase was primarily
due to a decrease in inventories and increases in accrued liabilities.
During 2000, the Company purchased approximately 719,000 shares of its
common stock for $5.5 million. The Company purchased approximately $5.0 million
of property, plant and equipment and approximately $1.4 million of other
long-term assets. The majority of these purchases was associated with the
Company's international expansion. Additionally, the Company paid approximately
$2.2 million in cash dividends during 2000. Management believes the Company's
stock is an attractive investment and, pursuant to its 1,000,000-share buyback
program announced in February 2001, may utilize some of its available cash to
purchase shares as market conditions warrant.
On October 31, 2000, the Company used cash of approximately $4.8 million to
purchase certain assets of Synergy. Further information related to the purchase
of certain assets of Synergy is set forth in Note 2 of Notes to Consolidated
Financial Statements appearing in Item 8 of this Report.
Management believes that working capital requirements can be met through
the Company's available cash and cash equivalents and cash generated from
operating activities for the foreseeable future; however, a prolonged economic
downturn or a decrease in the demand for the Company's products could adversely
affect the long-term liquidity of the Company. In the event of a significant
decrease in cash provided by the Company's operating activities, it might be
necessary for the Company to obtain external sources of funding. The Company
does not currently maintain a credit facility or any other external sources of
long-term funding; however, management believes that such funding could be
obtained on competitive terms in the event additional sources of funds become
necessary.
On March 2, 2000, the Company announced its plans to complete the
manufacturing, research and development and quality assurance areas of its
recent expansion. Management expects the project will cost approximately $14.0
million of which $1.4 million had been paid as of December 31, 2000.
Construction began during the fourth quarter of 2000, and the expansion should
be completed in early 2002.
FORWARD-LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and other items of this Form 10-K
may contain forward-looking statements. Such forward- looking statements are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements may relate but not be limited to projections
of revenues, costs and expenses, income or loss, capital expenditures, the
expected development schedule of existing real estate projects, plans for growth
and future operations, financing needs, as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. When used in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations", and elsewhere in this Form 10-K the words "estimates", "expects",
"anticipates", "forecasts", "plans", "intends" and variations of such words and
similar expressions are intended to identify forward-looking statements that
involve
11
risks and uncertainties. Future events and actual results could differ
materially from those set forth in, contemplated by or underlying the
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company conducts its business in several countries and intends to
continue to expand its foreign operations. Sales revenue, operating income and
net income are affected by fluctuations in currency exchange rates, interest
rates and other uncertainties inherent in doing business and selling product in
more than one currency. In addition, the Company's operations are exposed to
risks associated with changes in social, political and economic conditions
inherent in foreign operations, including changes in the laws and policies that
govern foreign investment in countries where it has operations as well as, to a
lesser extent, changes in United States laws and regulations relating to foreign
trade and investment.
FOREIGN CURRENCY RISK
During the year ended December 31, 2000, approximately 45 percent of the
Company's revenue and expenses were realized outside of the United States.
Inventory purchases are transacted primarily in U.S. dollars from vendors
located in the United States. The local currency of each international
subsidiary is considered the functional currency, and all revenue and expenses
are translated at average exchange rates for the periods reported. Therefore,
the Company's reported sales and expenses will be positively impacted by a
weakening of the U.S. dollar and will be negatively impacted by a strengthening
of the U.S. dollar. Given the uncertainty of exchange rate fluctuations, the
Company cannot estimate the effect of these fluctuations on the Company's future
business, product pricing, results of operations or financial condition. Changes
in currency exchange rates affect the relative prices at which the Company sells
its products. The Company regularly monitors its foreign currency risks and
periodically takes measures to reduce the impact of foreign exchange rate
fluctuations on the Company's operating results. The Company does not use
derivative instruments for hedging, trading or speculating on foreign exchange
rate fluctuations.
The following table sets forth average currency exchange rates of one U.S.
dollar into local currency for each of the countries in which sales revenue
exceeded $10.0 million during any of the years presented.
Year ended December 31 2000 1999 1998
------- ------- -------
Brazil 1.8 1.8 1.2
Japan 107.8 113.0 129.8
Mexico 9.4 9.5 9.1
South Korea 1,129.9 1,186.2 1,379.8
Venezuela 679.3 605.3 548.4
INTEREST RATE RISK
The primary objective of the Company's investment activities to preserve
principal while maximizing yields without significantly increasing risk. This is
accomplished by purchasing in investment grade securities, substantially all of
which either mature within the next twelve months or have characteristics of
marketable securities. At December 31, 2000, the Company had investments of
$13.8 million of which $8.5 million were held as municipal obligations and carry
fixed interest rates. Approximately $8.3 million mature between one and five
years and carry a weighted average interest rate of 5.4 percent. A hypothetical
1 percent change in interest rates would not have had a material effect on the
Company's liquidity, financial condition or results of operations.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nature's Sunshine Products, Inc.:
We have audited the accompanying consolidated balance sheets of Nature's
Sunshine Products, Inc. (a Utah corporation) and subsidiaries as of December 31,
2000 and 1999, and the related consolidated statements of income and
comprehensive income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2000. 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 did not audit the
financial statements of Nature's Sunshine Korea, Ltd., Nature's Sunshine
Products N.S.P. de Venezuela, C.A., and Nature's Sunshine, Japan Co., Ltd.,
wholly owned subsidiaries, as of December 31, 2000 and for the year then ended.
Those statements collectively reflect 17 percent of both total consolidated
assets and total consolidated revenues. The statements of Nature's Sunshine
Korea, Ltd., Nature's Sunshine Products N.S.P. de Venezuela, C.A., and Nature's
Sunshine, Japan Co., Ltd. were audited by other auditors whose reports have been
furnished to us and our opinion, insofar as it relates to amounts included for
those entities, is based solely on the reports of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and the reports of the auditors
described above provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Nature's Sunshine Products, Inc. and subsidiaries as
of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 6, 2001
13
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
Year Ended December 31 2000 1999 1998
--------- --------- ---------
Sales Revenue $ 314,820 $ 294,779 $ 301,665
--------- --------- ---------
Costs and Expenses:
Cost of goods sold 55,448 51,138 52,191
Volume incentives 139,441 132,268 136,490
Selling, general and administrative 93,303 84,263 76,917
--------- --------- ---------
288,192 267,669 265,598
--------- --------- ---------
Operating Income 26,628 27,110 36,067
--------- --------- ---------
Other Income (Expense):
Interest and other income 1,935 2,585 2,095
Interest expense (20) (39) (48)
Foreign exchange loss (623) (665) (78)
Minority interest -- -- 337
--------- --------- ---------
1,292 1,881 2,306
--------- --------- ---------
Income Before Provision for Income Taxes 27,920 28,991 38,373
Provision for Income Taxes 10,789 11,195 15,095
--------- --------- ---------
Net Income 17,131 17,796 23,278
--------- --------- ---------
Other Comprehensive Loss, net of tax:
Foreign currency translation adjustments (1,962) (2,736) (1,722)
Unrealized gain (loss) on marketable securities (23) 109 (14)
Realized gains on marketable securities included
in net income (111) (136) (38)
--------- --------- ---------
(2,096) (2,763) (1,774)
--------- --------- ---------
Comprehensive Income $ 15,035 $ 15,033 $ 21,504
========= ========= =========
Basic Net Income Per Common Share $ 1.02 $ 1.01 $ 1.27
========= ========= =========
Diluted Net Income Per Common Share $ 1.02 $ 1.00 $ 1.25
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
14
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS
As of December 31 2000 1999
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 28,803 $ 18,433
Accounts receivable, net of allowance for doubtful
accounts of $1,208 and $1,291, respectively 7,326 7,090
Inventories 26,043 26,660
Deferred income tax assets 2,174 2,565
Prepaid expenses and other 8,631 8,575
--------- ---------
Total current assets 72,977 63,323
Property, plant and equipment, net 25,293 25,193
Long-term investments 10,715 12,368
Intangible and other assets, net 9,462 6,551
--------- ---------
$ 118,447 $ 107,435
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Line of credit $ 385 $ 1,018
Accounts payable 4,961 5,279
Accrued volume incentives 9,807 10,685
Accrued liabilities 12,060 8,479
Income taxes payable 2,194 2,268
--------- ---------
Total current liabilities 29,407 27,729
--------- ---------
Long-Term Liabilities:
Deferred income tax liabilities 2,814 1,116
Deferred compensation 1,342 1,053
--------- ---------
Total long-term liabilities 4,156 2,169
--------- ---------
Commitments and Contingencies (Notes 10 and 12)
Shareholders' Equity:
Common stock, no par value; 20,000 shares authorized,
19,446 shares issued 37,435 37,659
Retained earnings 102,347 87,463
Treasury stock, at cost, 3,020 and 2,318 shares, respectively (43,391) (38,174)
Accumulated other comprehensive loss (11,507) (9,411)
--------- ---------
Total shareholders' equity 84,884 77,537
--------- ---------
$ 118,447 $ 107,435
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
15
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AMOUNTS IN THOUSANDS
Year Ended December 31 2000 1999 1998
--------- --------- ---------
Common Stock:
Balance at beginning of year $ 37,659 $ 37,528 $ 37,896
Tax benefit related to exercise of stock options 36 -- 809
Issuance of stock options -- 132 --
Issuance of 17, 0 and 161 shares of
treasury stock, respectively (260) (1) (1,177)
--------- --------- ---------
Balance at end of year 37,435 37,659 37,528
--------- --------- ---------
Retained Earnings:
Balance at beginning of year 87,463 72,013 51,190
Net income 17,131 17,796 23,278
Cash dividends (2,247) (2,346) (2,455)
--------- --------- ---------
Balance at end of year 102,347 87,463 72,013
--------- --------- ---------
Treasury Stock:
Balance at beginning of year (38,174) (28,926) (17,278)
Purchase of 719, 897 and 721 shares
of common stock, respectively (5,509) (9,249) (14,306)
Issuance of 17, 0 and 161 shares of
treasury stock, respectively 292 1 2,658
--------- --------- ---------
Balance at end of year (43,391) (38,174) (28,926)
--------- --------- ---------
Receivables From Related Parties:
Balance at beginning of year -- -- (77)
Reductions -- -- 77
--------- --------- ---------
Balance at end of year -- -- --
--------- --------- ---------
Accumulated Other Comprehensive Loss:
Balance at beginning of year (9,411) (6,648) (4,874)
Other comprehensive loss (2,096) (2,763) (1,774)
--------- --------- ---------
Balance at end of year (11,507) (9,411) (6,648)
--------- --------- ---------
Total Shareholders' Equity $ 84,884 $ 77,537 $ 73,967
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
16
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN THOUSANDS
Increase (Decrease) in Cash and Cash Equivalents
Year Ended December 31 2000 1999 1998
-------- -------- --------
Cash Flows from Operating Activities:
Net income $ 17,131 $ 17,796 $ 23,278
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase (Decrease) in allowance for doubtful accounts (83) 472 229
Depreciation and amortization 6,926 6,060 4,812
Tax benefit from stock option exercise 36 -- 809
Loss (Gain) on sale of property and equipment 110 68 (75)
Deferred income taxes 2,089 (1,046) 321
Deferred compensation 290 794 259
Changes in assets and liabilities, net of effects
of acquisition:
Accounts receivable (153) 2,377 (2,704)
Inventories 2,291 (4,166) (2,939)
Prepaid expenses and other assets (683) (3,848) 2,533
Accounts payable (318) 876 (691)
Accrued volume incentives (878) 1,047 107
Accrued liabilities 3,581 89 1,168
Income taxes payable (74) (1,011) 333
Cumulative currency translation adjustments (1,119) (1,943) (1,074)
-------- -------- --------
Net cash provided by operating activities 29,146 17,565 26,366
-------- -------- --------
Cash Flows from Investing Activities:
Cash paid for acquisition (4,824) -- --
Capital expenditures (5,005) (4,459) (6,473)
Proceeds from (Purchase of) investments, net 1,519 (720) (8,260)
Payments received (advances) on long-term receivables 23 (229) 305
Purchase of other assets (1,357) (2,811) (861)
Proceeds from sale of property and equipment 72 86 153
Minority interest elimination -- -- (337)
-------- -------- --------
Net cash used in investing activities (9,572) (8,133) (15,473)
-------- -------- --------
Cash Flows from Financing Activities:
Payments of cash dividends (2,247) (2,346) (2,455)
Purchase of treasury stock (5,509) (9,249) (14,306)
Repayments of short-term debt (634) (710) (678)
Proceeds from exercise of stock options 29 -- 1,481
-------- -------- --------
Net cash used in financing activities (8,361) (12,305) (15,958)
-------- -------- --------
Effect of Exchange Rates on Cash and Cash Equivalents (843) (793) (649)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 10,370 (3,666) (5,714)
Cash and Cash Equivalents at Beginning of Year 18,433 22,099 27,813
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 28,803 $ 18,433 $ 22,099
-------- -------- --------
17
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
AMOUNTS IN THOUSANDS
Year Ended December 31 2000 1999 1998
-------- -------- --------
Supplemental disclosure of cash flow information:
Cash paid for income taxes $ 9,668 $ 13,682 $ 14,209
Cash paid for interest 20 37 48
-------- -------- --------
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of minority interest $ -- $ 1,131 $ --
Issuance of stock options -- 132 --
-------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
18
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
NOTE 1: OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Nature's Sunshine Products, Inc., and its subsidiaries (hereinafter
referred to collectively as the "Company") are primarily engaged in the
manufacturing and marketing of herbal products, vitamin and mineral supplements,
personal care and homeopathic products. The Company sells its products to a
sales force of independent Distributors who use the products themselves or
resell them to other Distributors or consumers. The formulation, manufacturing,
packaging, labeling, advertising, distribution and sale of each of the Company's
major product groups are subject to regulation by one or more governmental
agencies.
The Company markets its products in the United States, South Korea, Brazil,
Mexico, Venezuela, Japan, Canada, Central America, Colombia, the Russian
Federation, the United Kingdom, Argentina, Peru, Ecuador, Chile and Israel. The
Company also exports its products to several other countries, including
Australia, Malaysia, New Zealand and Norway.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
transactions of Nature's Sunshine Products, Inc. and its subsidiaries.
Inter-company balances and transactions have been eliminated in consolidation.
During 1998, the Company's subsidiary in Japan was majority- owned. During
1999, the Company forgave receivables due from the minority shareholders
totaling $1,131 in exchange for their minority interest. At December 31, 2000
and 1999, all of the Company's subsidiaries were wholly owned.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts in these financial
statements and accompanying notes. Actual results could differ from these
estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid short-term investments to be cash equivalents, which generally
include only investments with original maturities of three months or less.
INVESTMENTS
A substantial portion of the Company's investments are categorized as
available-for-sale securities and are reported at fair value, with unrealized
gains and losses, net of tax, recorded in
19
accumulated other comprehensive income in shareholders' equity. The cost of the
securities sold is based on the specific identification method. Realized gains
and losses on sales of available-for-sale securities are included in interest
and other income.
During 1998, the Company began purchasing investments classified as trading
securities. The Company maintains its trading securities portfolio to generate
returns that offset changes in certain liabilities related to the Company's
deferred compensation arrangements (see Note 10). The trading securities
portfolio consists of marketable securities, which are recorded at fair value.
Both realized and unrealized gains and losses on trading securities are included
in interest and other income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade and notes receivable, long-term investments, trade payables
and debt instruments. The carrying values of these financial instruments
approximate their fair values. The estimated fair values have been determined
using appropriate market information and valuation methodologies.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market value. At December 31, 2000, management believes the Company
had incurred no material impairments in the carrying value of its inventories,
other than impairments for which a provision has been made.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets. Estimated useful
lives for buildings and improvements range from 20 to 30 years, and equipment,
furniture and fixtures range from 3 to 10 years. Leasehold improvements are
amortized over the lesser of the life of the applicable lease or the estimated
useful life of the applicable asset. Maintenance and repairs are expensed as
incurred, and major improvements are capitalized. Gains or losses on sales or
retirements are included in the consolidated statement of income in the year of
disposition.
INTANGIBLE ASSETS
Intangible assets include trademarks, customer lists and goodwill
associated with the acquisition of Synergy Worldwide, Inc. ("Synergy") (see Note
2) and the acquisition of the minority interest of the Company's subsidiary in
Japan. Goodwill is being amortized using the straight-line method over periods
from five to ten years. Other intangibles are amortized using the straight-line
method over their estimated useful lives ranging from three to five years.
Amortization expense associated with intangible assets was $1,036, $499 and $108
in 2000, 1999 and 1998, respectively. Intangible assets, net of accumulated
amortization, totaled $5,297 and $2,651 at December 31, 2000 and 1999,
respectively. Accumulated amortization totaled $1,655 and $619 at December 31,
2000 and 1999, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including intangibles, for
impairment when events or changes in circumstances indicate that the book value
of an asset may not be recoverable. The
20
Company uses an estimate of future undiscounted net cash flows of the related
asset or group of assets over the remaining life in measuring whether the assets
are recoverable. At December 31, 2000, the Company did not consider any of its
long-lived assets impaired.
TRANSLATION OF FOREIGN CURRENCIES
The local currency of the international subsidiaries is used as the
functional currency in translation, except for subsidiaries operating in highly
inflationary economies. The financial statements of foreign subsidiaries, where
the local currency is the functional currency, are translated into U.S. dollars
using exchange rates in effect at the year end for assets and liabilities and
average exchange rates during each year for the results of operations.
Adjustments resulting from translation of financial statements are reflected in
accumulated other comprehensive loss.
Countries considered having highly inflationary economies were Venezuela
and Ecuador during 2000 and 1999; and Mexico, Venezuela and Ecuador during 1998.
The functional currency in these highly inflationary economies is the U.S.
dollar and transactions denominated in a local currency are re-measured as if
the functional currency were the U.S. dollar. The re-measurement of local
currencies into U.S. dollars creates translation adjustments which are included
in the consolidated statements of income.
REVENUE RECOGNITION
For domestic sales, the Company generally receives its product sales price
in the form of cash or credit card accompanying the orders from independent
Distributors. From time to time, the Company's domestic operation extends
short-term credit associated with product promotions. For certain of the
Company's international operations, the Company offers credit terms consistent
with industry standards within each respective country. Sales revenue and
related volume incentives are recorded when the merchandise is shipped. Amounts
received for unshipped merchandise are recorded as customer deposits and are
included in accrued liabilities. Payments of volume incentives related to
product orders are made in the month following the sale.
SELLING EXPENSES
Independent Distributors may earn Company-paid attendance at conventions as
well as other travel awards by achieving the required levels of product
purchases within a specified qualification period. Convention costs and other
travel expenses are accrued over the qualification period as they are earned.
Accordingly, the Company has accrued convention costs of approximately $3,724
and $4,237 at December 31, 2000 and 1999, respectively.
ADVERTISING COSTS
Advertising costs are expensed as incurred and totaled $0, $1,441 and $117
in 2000, 1999 and 1998, respectively.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred. Total research
and development costs were approximately $1,830, $1,657 and $1,528 in 2000, 1999
and 1998, respectively.
21
INCOME TAXES
The Company recognizes a liability or asset for the deferred income tax
consequences of temporary differences between the tax basis of assets or
liabilities and their reported amounts in the financial statements. These
temporary differences will result in taxable or deductible amounts in future
years when the reported amounts of the assets or liabilities are recovered or
settled. The deferred income tax assets are reviewed for recoverability and
valuation allowances are provided as necessary. Foreign and other tax credits
are accounted for using the liability method, which reduces income tax expense
in the year in which these credits are generated.
NET INCOME PER COMMON SHARE
Basic net income per common share (Basic EPS) excludes dilution and is
computed by dividing net income by the weighted-average number of common shares
outstanding during the year. Diluted net income per common share (Diluted EPS)
reflects the potential dilution that could occur if stock options or other
contracts to issue common stock were exercised or converted into common stock.
The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an anti-dilutive effect on net income per common
share.
Following is a reconciliation of the numerator and denominator of Basic EPS
to the numerator and denominator of Diluted EPS for all years:
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
December 31, 2000
Basic EPS $17,131 16,830 $ 1.02
Effect of options -- 45
------- ------
Diluted EPS $17,131 16,875 $ 1.02
December 31, 1999
Basic EPS $17,796 17,585 $ 1.01
Effect of options -- 160
------- ------
Diluted EPS $17,796 17,745 $ 1.00
December 31, 1998
Basic EPS $23,278 18,383 $ 1.27
Effect of options -- 256
------- ------
Diluted EPS $23,278 18,639 $ 1.25
At December 31, 2000, 1999 and 1998, there were outstanding options to
purchase 1,103, 557 and 87 shares of common stock, respectively, that were not
included in the computation of Diluted EPS because the options' exercise prices
were greater than the average market price of the common shares during the year.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' consolidated
financial statements to conform to the current year presentation.
22
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities" effective for fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, which
delayed the effective date of SFAS No. 133 for one year, to fiscal years
beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, which
amended the accounting and reporting standards of SFAS No. 133 for certain
derivative instruments and certain hedging activities. SFAS No. 133, as amended
by SFAS No. 137 and No. 138, cannot be applied retroactively and must be applied
to (a) derivative instruments and (b) certain derivative instruments embedded in
hybrid contracts that were issued, acquired or substantively modified after a
transition date to be selected by the Company of either December 31, 1997 or
December 31, 1998. The statement establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement requires
that changes in the derivative's fair value to be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statements of operations, and requires a
company to formally document, designate and assess the effectiveness of
transactions that receive hedge accounting treatment. The Company will adopt
SFAS No. 133, as amended, in the first quarter of 2001 and does not expect the
adoption to have a material effect on the Company's results of operations or
financial position.
Effective December 31, 2000, the Company adopted the FASB guidelines on
revenue recognition pursuant to Emerging Issues Task Force ("EITF") No. 00-10,
"Accounting for shipping and Handling Fees and Costs" ("EITF 00-10"). Under EITF
00-10 guidelines, historical and future revenue relating to amounts billed to a
customer for shipping and handling should be classified as revenue. Shipping and
handling revenues of approximately $5,571, $5,590 and $5,613, have been
reclassified as sales revenue for the years ended December 31, 2000, 1999 and
1998, respectively. The corresponding shipping and handling expenses are
classified in selling, general and administrative for the years ended December
31, 2000, 1999 and 1998, and were approximately equivalent to the amounts
reclassified as sales revenue.
In July 2000, the EITF issued EITF No. 00-15, "Classification in the
Statement of Cash Flows of the Income Tax Benefit Realized by a Company upon
Employee Exercise of a Nonqualified Stock Option" ("EITF 00-15"), which requires
companies to classify the income tax benefits related to employee exercises of
nonqualified stock options as an operating activity in the statement of cash
flows for both current and prior periods. Prior to the adoption of EITF 00-15 in
the third quarter of 2000, the Company classified these amounts in financing
activities in its consolidated statements of cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
adopted SAB 101 in the fourth quarter of 2000 and its adoption has not had a
material effect on the Company's results of operations or financial position.
23
NOTE 2: ACQUISITION OF SYNERGY WORLDWIDE, INC.
On October 31, 2000, the Company acquired certain assets of Synergy, which
is a direct marketing company involved in the distribution and sale of high
quality nutritional, personal care and other products with an emphasis on the
Asian markets. The total consideration paid in connection with this transaction
was approximately $4,824 in cash. The acquisition was accounted for as a
purchase. The excess of the purchase price over the fair value of the net
identifiable assets acquired was approximately $2,595. This amount was recorded
as goodwill and is being amortized using the straight-line method over a period
of 10 years.
NOTE 3: INVENTORIES
The composition of inventories is as follows:
As of December 31 2000 1999
------- -------
Raw materials $ 6,400 $ 8,113
Work in process 1,345 1,608
Finished goods 18,298 16,939
------- -------
$26,043 $26,660
======= =======
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
As of December 31 2000 1999
-------- --------
Buildings and improvements $ 18,975 $ 17,936
Machinery and equipment 13,758 12,633
Furniture and fixtures 17,155 16,138
49,888 46,707
Accumulated depreciation and amortization (25,864) (22,844)
Land 1,269 1,330
-------- --------
$ 25,293 $ 25,193
======== ========
NOTE 5: INVESTMENTS
The amortized cost and estimated market values of available-for- sale
securities by balance sheet classification are as follows:
24
Gross Gross
Amortized Unrealized Unrealized Market
As of December 31, 2000 Cost Gains Losses Value
--------- ----------- ---------- ---------
Cash equivalents:
Municipal obligations $ 4,408 $ -- $ -- $ 4,408
------- ------- ------- -------
Total cash equivalents 4,408 -- -- 4,408
------- ------- ------- -------
Long-term investments:
Municipal obligations 8,457 95 (50) 8,502
Equity securities 588 360 (77) 871
------- ------- ------- -------
Total long-term investments 9,045 455 (127) 9,373
------- ------- ------- -------
Total available-for-sale securities $13,453 $ 455 $ (127) $13,781
======= ======= ======= =======
Gross Gross
Amortized Unrealized Unrealized Market
As of December 31, 1999 Cost Gains Losses Value
--------- ----------- ---------- ---------
Cash equivalents:
Municipal obligations $ 4,629 $ -- $ -- $ 4,629
------- ------- ------- -------
Total cash equivalents 4,629 -- -- 4,629
------- ------- ------- -------
Long-term investments:
Municipal obligations 10,278 98 (292) 10,084
Equity securities 494 744 (7) 1,231
------- ------- ------- -------
Total long-term investments 10,772 842 (299) 11,315
------- ------- ------- -------
Total available-for-sale securities $15,401 $ 842 $ (299) $15,944
======= ======= ======= =======
Contractual maturities of long-term debt securities at market value at
December 31, 2000, are as follows:
Mature after one year through five years $8,337
Mature after five years 165
------
Total long-term investments $8,502
======
During 2000, 1999 and 1998, the proceeds from the sales of
available-for-sale securities were $1,786, $1,689 and $11,763, respectively. The
gross realized gains on sales of available-for-sale securities were $159, $165
and $65 for each of the years ended December 31, 2000, 1999 and 1998,
respectively. The gross realized losses on the sales of available-for-sale
securities were $48 and $29 for the years ended December 31, 2000 and 1999,
respectively.
The Company's trading securities portfolio totaled $1,342 and $1,053 at
December 31, 2000 and 1999, respectively, including gains of $43 and $176,
respectively.
NOTE 6: LINE OF CREDIT
The Company has an operating line of credit in Japan, which is payable in
local currency to facilitate payment of operating expenses. The line of credit
is unsecured and matures during 2001. The outstanding amounts relating to the
line of credit at December 31, 2000 and 1999, were $385 and $1,018,
respectively, with an interest rate of 2 percent at December 31, 2000. The
weighted average amounts outstanding relating to this line of credit were $662
and $1,414 for 2000 and 1999, respectively.
25
NOTE 7: ACCUMULATED OTHER COMPREHENSIVE LOSS
The composition of accumulated other comprehensive loss, net of tax, is as
follows:
Net Unrealized Total
Foreign Currency Gains (Losses) On Accumulated
Translation Available-For-Sale Other Comprehensive
Adjustments Securities Loss
---------------- ------------------ -------------------
Balance as of December 31, 1998 $ (7,012) $ 364 $ (6,648)
Period change (2,736) (27) (2,763)
-------- -------- --------
Balance as of December 31, 1999 (9,748) 337 (9,411)
Period change (1,962) (134) (2,096)
-------- -------- --------
Balance as of December 31, 2000 $(11,710) $ 203 $(11,507)
======== ======== ========
NOTE 8: INCOME TAXES
The domestic and foreign components of income before provision for income
taxes are as follows:
Year Ended December 31 2000 1999 1998
------- ------- -------
Domestic $17,227 $26,751 $30,569
Foreign 10,693 2,240 7,804
------- ------- -------
Total $27,920 $28,991 $38,373
======= ======= =======
The provision (benefit) for income taxes consists of the following:
Year Ended December 31 2000 1999 1998
-------- -------- --------
Current:
Federal $ 4,913 $ 8,778 $ 9,574
State 1,324 1,638 1,858
Foreign 2,463 2,031 3,342
-------- -------- --------
8,700 12,447 14,774
-------- -------- --------
Deferred:
Federal 1,169 (889) 209
State 415 (163) 42
Foreign 505 (200) 70
-------- -------- --------
2,089 (1,252) 321
-------- -------- --------
Total provision for income taxes $ 10,789 $ 11,195 $ 15,095
======== ======== ========
The income tax benefit associated with the nonqualified stock option plan
decreased the income tax payable by $36, $0 and $809 in 2000, 1999 and 1998,
respectively. These benefits were recorded as an increase to common stock.
The provision for income taxes as a percentage of income before provision
for income taxes differs from the statutory Federal income tax rate due to the
following:
26
Year Ended December 31 2000 1999 1998
---- ---- ----
Statutory Federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of Federal
income tax benefit 2.9 3.4 3.1
Foreign and other tax credits (10.8) (4.3) (5.6)
Net effect of foreign subsidiaries'
tax attributes 10.4 6.3 7.1
Other 1.1 (1.8) (0.3)
---- ---- ----
Effective income tax rate 38.6% 38.6% 39.3%
==== ==== ====
The significant components of the deferred income tax assets and
liabilities are as follows:
Year Ended December 31 2000 1999
------- -------
Deferred income tax assets:
Inventory $ 397 $ 254
Accrued liabilities 1,125 1,049
State income taxes 464 615
Foreign tax credits 126 126
Deferred compensation 518 406
Amortization of intangibles 359 137
Bad debts 152 260
Other 892 262
------- -------
Total deferred income tax assets 4,033 3,109
======= =======
Deferred tax liabilities:
Accelerated depreciation (3,550) (1,386)
Unrealized gain on investments (141) (274)
Prepaid expenses (560) --
Other (422) --
------- -------
Total deferred income tax liabilities (4,673) (1,660)
------- -------
Net deferred income tax assets (liabilities) $ (640) $ 1,449
======= =======
Although realization of the net deferred tax assets is not assured,
management believes it is more likely than not that all of the net deferred
income tax assets will be realized. The amount of net deferred tax assets
considered realizable could be reduced based on changing conditions.
As of December 31, 2000, the Company has available net operating losses
from its foreign subsidiaries for foreign income tax purposes and financial
reporting purposes of approximately $10,600. The tax net operating losses will
expire in 2001 through 2005. Certain of these net operating losses may be
limited by the extent of foreign taxable income in future years. Due to the
uncertainty regarding the utilization of these net operating loss
carry-forwards, management has provided valuation allowances equal to the amount
of the deferred income tax assets related to the net operating loss
carry-forwards of the foreign subsidiaries.
27
NOTE 9: CAPITAL TRANSACTIONS
TREASURY STOCK
During 2000, 1999 and 1998, the Company repurchased 719, 897 and 721 shares
of common stock for a total of $5,509, $9,249 and $14,306, respectively. In
October 1999, the Board of Directors approved the repurchase of up to 1,000
shares of the Company's common stock. As of December 31, 2000, approximately 839
shares had been repurchased under this approval. Subsequent to December 31,
2000, the Company repurchased the remaining 161 shares. On February 6, 2001, the
Board of Directors authorized the repurchase of an additional 1,000 shares of
its common stock.
STOCK OPTIONS
The Company maintains a stock option plan, which provides for the granting
or awarding of certain nonqualified stock options to officers, directors and
employees. The term, not to exceed 10 years, and the vesting and exercise period
of each stock option awarded under the plan are determined by the Company's
Board of Directors. Such grants have been made at the fair market value of the
stock at the date of grant. At December 31, 2000, the Company had approximately
729 shares available to be granted under the plan. At December 31, 2000, the
Company had reserved approximately 3,020 treasury shares to accommodate the
exercise of outstanding options.
Stock option activity for 2000, 1999 and 1998 consisted of the following:
Weighted Average
Number of Exercise Price
Shares Per Share
--------- ----------------
Options outstanding at December 31, 1997 1,233 $ 13.26
Issued 83 18.32
Forfeited or canceled (27) 15.83
Exercised (160) 9.15
-----
Options outstanding at December 31, 1998 1,129 14.15
Issued 2,945 8.42
Forfeited or canceled (667) 18.15
Exercised -- --
-----
Options outstanding at December 31, 1999 3,407 8.65
Issued 175 8.63
Forfeited or canceled (68) 8.99
Exercised (16) 1.79
-----
Options outstanding at December 31, 2000 3,498 8.67
=====
Shares related to the exercise of stock options were issued from treasury
stock during 2000 and 1998. Options for 1,216, 452 and 908 shares of common
stock with weighted average exercise prices of $8.08, $8.14 and $12.91, were
exercisable on December 31, 2000, 1999 and 1998, respectively.
The following table summarizes information about options outstanding and
options exercisable at December 31, 2000.
28
Options Outstanding Options Exercisable
------------------------------------------------- -----------------------------
Range of Weighted-Avg. Weighted-Avg. Weighted-Avg.
Option Prices Shares Remaining Exercise Price Shares Exercise Price
Per Share Outstanding Contractual Life Per Share Exercisable Per Share
- ---------------- ----------- ---------------- -------------- ----------- --------------
$4.03 to $9.56 2,860 4.9 years $ 7.77 1,154 $ 7.60
$10.00 to $16.88 623 8.8 years 12.51 48 15.92
$20.00 to $22.25 15 5.0 years 20.38 15 20.38
----- -----
$4.03 to $22.25 3,498 5.6 years 8.67 1,217 8.08
===== =====
The Company accounts for stock-based compensation plans under Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized in the accompanying consolidated statements of income for the years
ended December 31, 2000, 1999 and 1998. Had compensation costs been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been reduced to the
following proforma amounts:
Year ended December 31 2000 1999 1998
---------- ---------- ----------
Net Income As reported $ 17,131 $ 17,796 $ 23,278
Proforma 14,579 15,612 22,613
Basic Earnings Per Share As reported $ 1.02 $ 1.01 $ 1.27
Proforma .87 .89 1.23
Diluted Earnings Per Share As reported $ 1.02 $ 1.00 $ 1.25
Proforma .86 .88 1.21
The weighted average fair value of options granted was $8.63, $8.42 and
$10.30 for 2000, 1999 and 1998, respectively. The fair value of each option
granted is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted- average assumptions used for grants:
risk-free interest rate of 6.5 percent with expected lives of six years in 2000,
and seven years in 1999 and 1998; expected dividend yield of approximately 1.5,
1.5 and 0.6 percent in 2000, 1999 and 1998, respectively; and expected
volatility of 46, 63 and 49 percent in 2000, 1999 and 1998, respectively. The
estimated fair value of options granted is subject to the assumptions made, and
if the assumptions were to change, the estimated fair value amounts could be
significantly different.
NOTE 10: EMPLOYEE BENEFIT PLANS
DEFERRED COMPENSATION PLANS
The Company sponsors a qualified deferred compensation plan, which
qualifies under Section 401(k) of the Internal Revenue Code. The Company
contributes matching contributions of 100 percent of employee contributions up
to a maximum of five percent of the employee's compensation. The Company's
contributions to the plan vest after a period of four years. During 2000, 1999
and 1998, the Company contributed to the plan approximately $623, $640 and $545,
respectively.
29
During 1998, the Company established a nonqualified deferred compensation
plan for its officers and certain key employees. Under this plan, participants
may defer up to 100 percent of their annual salary and bonus (less the
participant's share of employment taxes). The deferrals become an obligation
owed to the participant by the Company under the plan. At the end of each year
and at other times provided under the plan, the Company adjusts its obligation
to a participant by the investment return on the funds selected by the
participant under rules established in the plan. The plan is not qualified under
Section 401 of the Internal Revenue Code. Upon separation of the participant
from the service of the Company, the obligation owed to the participant under
the plan will be paid over a period of either three or five years (and will
continue to be adjusted by the applicable investment return during the period of
pay-out.) At December 31, 2000 and 1999, the amounts payable under the plan are
valued at the fair market value of the related assets and total $1,342 and
$1,053, respectively.
MANAGEMENT AND EMPLOYEE BONUS PLAN
The Company has a bonus plan that provides for participants to receive
payments based upon the achievement of specified annual increases in revenue and
operating income as set by the Board of Directors. The expense related to the
bonus plan was approximately $2,065, $160 and $1,239 for 2000, 1999 and 1998,
respectively, and was included in accrued liabilities at year end. All domestic
employees as well as key international employees participate in the bonus plan.
NOTE 11: RELATED-PARTY TRANSACTION
During 1999, as part of the Company's marketing efforts, the Company spent
approximately $410 for the services of an outside advertising agency. The
president and chief executive officer of the advertising agency is a relative of
an executive officer and director of the Company.
NOTE 12: COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment used in its operations.
The Company incurred expenses of approximately $3,640, $3,123 and $2,865 in
connection with operating leases during 2000, 1999 and 1998, respectively. The
approximate aggregate commitments under non-cancelable operating leases in
effect at December 31, 2000, were as follows:
Year Ending December 31
2001 $ 3,213
2002 2,728
2003 2,168
2004 1,892
2005 1,113
Thereafter 439
-------
$11,553
=======
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with legal counsel, believes
that any liability as a result of these matters will not have a material adverse
effect upon the Company's results of operations or financial position.
30
NOTE 13: OPERATING SEGMENT AND INTERNATIONAL OPERATION INFORMATION
The Company has four operating segments. These operating segments are
components of the Company for which separate information is available that is
evaluated regularly by management in deciding how to allocate resources and in
assessing performance. The Company evaluates performance based on operating
income (loss).
The Company's operating segments are based on geographic operations and
include a domestic segment (United States) and three international segments
(Latin America, Asia Pacific and other regions). The segments have similar
business characteristics and each offers similar products through similar
methods of distribution as described in Note 1. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies in Note 1. Inter-segment sales, eliminated in consolidation,
are not material.
Operating segment information for the years ended December 31, 2000, 1999
and 1998 is as follows:
Year Ended December 31 2000 1999 1998
--------- --------- ---------
Sales Revenue:
Domestic $ 177,228 $ 188,786 $ 195,736
International:
Latin America 79,089 69,805 80,798
Asia Pacific 39,659 19,406 10,581
Other 18,844 16,782 14,550
--------- --------- ---------
314,820 294,779 301,665
--------- --------- ---------
Operating Expenses:
Domestic 156,845 163,942 166,373
International:
Latin America 76,094 67,332 72,508
Asia Pacific 37,086 20,941 13,172
Other 18,167 15,454 13,545
--------- --------- ---------
288,192 267,669 265,598
--------- --------- ---------
Operating Income (Loss):
Domestic 20,383 24,844 29,363
International:
Latin America 2,995 2,473 8,290
Asia Pacific 2,573 (1,535) (2,591)
Other 677 1,328 1,005
--------- --------- ---------
26,628 27,110 36,067
--------- --------- ---------
Unallocated Amounts
Other Income 1,292 1,881 2,306
--------- --------- ---------
Income Before Provision for Income Taxes $ 27,920 $ 28,991 $ 38,373
========= ========= =========
31
Year Ended December 31 2000 1999 1998
--------- --------- ---------
Capital Expenditures:
Domestic $ 3,205 $ 2,699 $ 5,880
International:
Latin America 903 830 477
Asia Pacific 573 770 76
Other 324 160 40
--------- --------- ---------
$ 5,005 $ 4,459 $ 6,473
========= ========= =========
Year Ended December 31 2000 1999 1998
--------- --------- ---------
Depreciation and Amortization:
Domestic $ 4,513 $ 4,084 $ 3,439
International:
Latin America 1,594 1,453 1,169
Asia Pacific 642 416 138
Other 177 107 66
--------- --------- ---------
$ 6,926 $ 6,060 $ 4,812
========= ========= =========
Revenues by classes of principal product lines for the years ended December
31, 2000, 1999 and 1998 are as follows:
Year Ended December 31 2000 1999 1998
--------- --------- ---------
Sales Revenue by Product Lines:
Herbal Products $ 217,202 $ 188,816 $ 198,355
Vitamins and Mineral Supplements 71,680 75,190 68,092
Personal Care Products 7,511 7,488 8,882
Homeopathic 2,163 2,483 2,961
Other 16,264 20,802 23,375
--------- --------- ---------
$ 314,820 $ 294,779 $ 301,665
========= ========= =========
Individual countries which comprise 10 percent or more of consolidated
sales revenue for the years ended December 31, 2000, 1999 and 1998 are as
follows:
Year Ended December 31 2000 1999 1998
--------- --------- ---------
Sales Revenue:
United States $ 177,228 $ 188,786 $ 195,736
International:
Brazil 22,090 21,673 30,289
Other 115,502 84,320 75,640
--------- --------- ---------
$ 314,820 $ 294,779 $ 301,665
========= ========= =========
Individual countries which comprise 10 percent or more of consolidated
sales revenue for the years ended December 31, 2000, 1999 and 1998 are as
follows:
32
Year Ended December 31 2000 1999 1998
--------- --------- ---------
Long-Lived Assets:
United States $ 19,492 $ 20,422 $ 19,349
International:
Mexico 3,084 3,094 3,085
Other 8,014 4,196 4,012
--------- --------- ---------
$ 30,590 $ 27,712 $ 26,446
========= ========= =========
As of December 31 2000 1999
-------- --------
Assets:
Domestic $ 66,232 $ 66,372
International:
Latin America 29,434 29,343
Asia Pacific 17,858 8,670
Other 4,923 3,050
-------- --------
Total Assets $118,447 $107,435
======== ========
NOTE 14: SUMMARY OF QUARTERLY OPERATIONS -- UNAUDITED
Income Basic Diluted
Selling, Before Net Net
Sales Cost of Volume General Operating Other Income Net Income Income
2000 Revenue Goods Sold Incentives and Admin. Income Income Taxes Income Per Share Per Share
-------- ---------- ---------- ---------- --------- -------- -------- -------- --------- ---------
First Qtr $ 81,426 $ 14,365 $ 36,567 $ 23,559 $ 6,935 $ 404 $ 7,339 $ 4,496 $ 0.26 $ 0.26
Second Qtr 79,689 13,797 35,325 22,869 7,698 357 8,055 4,891 0.29 0.29
Third Qtr 77,145 13,696 33,940 22,186 7,323 20 7,343 4,472 0.27 0.27
Fourth Qtr 76,560 13,590 33,609 24,689 4,672 511 5,183 3,272 0.20 0.20
-------- -------- -------- -------- -------- -------- -------- -------- ------ -------
$314,820 $ 55,448 $139,441 $ 93,303 $ 26,628 $ 1,292 $ 27,920 $ 17,131 $ 1.02 $ 1.02
======== ======== ======== ======== ======== ======== ======== ======== ====== =======
1999
First Qtr $ 73,589 $ 12,857 $ 33,123 $ 19,950 $ 7,659 $ 597 $ 8,256 $ 4,990 $ 0.28 $ 0.28
Second Qtr 73,071 12,284 32,764 20,642 7,381 545 7,926 4,796 0.27 0.27
Third Qtr 74,629 13,151 33,275 22,011 6,192 304 6,496 4,128 0.24 0.24
Fourth Qtr 73,490 12,846 33,106 21,660 5,878 435 6,313 3,882 0.23 0.23
-------- -------- -------- -------- -------- -------- -------- -------- ------ -------
$294,779 $ 51,138 $132,268 $ 84,263 $ 27,110 $ 1,881 $ 28,991 $ 17,796 $ 1.01 $ 1.00
======== ======== ======== ======== ======== ======== ======== ======== ====== =======
Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not equal
the total computed for the year.
33
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 2000, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 2000, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Item 12 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 2000, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 13 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 2000, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) LIST OF FINANCIAL STATEMENTS
The following are filed as part of this Report:
Report of Independent Public Accountants
Consolidated statements of income and comprehensive income for
the years ended December 31, 2000, 1999 and 1998.
Consolidated balance sheets as of December 31, 2000 and 1999.
Consolidated statements of shareholders' equity for the years
ended December 31, 2000, 1999 and 1998.
34
Consolidated statements of cash flows for the years ended
December 31, 2000, 1999 and 1998.
Notes to Consolidated Financial Statements
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Consolidated
Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts.
Financial statement schedules other than the one listed are
omitted for the reason that they are not required or are not
applicable, or the required information is shown in the financial
statements or notes thereto, or contained in this Report.
(a)(3) LIST OF EXHIBITS
3.1(1) - Restated Articles of Incorporation
3.2(2) - By-laws, as amended
10.2(3) - Form of Employment Agreement between the Registrant and its
executive officers together with a schedule identifying the
agreements omitted and setting forth the material differences
between the filed agreement and the omitted agreements
10.3(4) - 1995 Stock Option Plan
10.4(4) - Form of Stock Option Agreement (1995 Stock Option Plan)
10.5(5) - 1998 Employee Incentive Compensation Plan
10.6(6) - Supplemental Elective Deferral Plan
10.7(6) - Executive Loan Program
21 - List of Subsidiaries of Registrant
23.1 - Consent of Arthur Andersen LLP
23.2 - Report of Kinoshita CPA Office
23.3 - Consent of Kinoshita CPA Office
23.4 - Report of Lara Marambio, Fernandez Machado & Asociados
23.5 - Consent of Lara Marambio, Fernandez Machado & Asociados
23.6 - Report of Daesung Accounting Corporation
35
23.7 - Consent of Daesung Accounting Corporation
[1] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1988 and is incorporated herein
by reference.
[2] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1985 and is incorporated herein
by reference.
[3] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated herein
by reference.
[4] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1995 and is incorporated herein
by reference.
[5] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1997 and is incorporated herein
by reference.
[6] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1998 and is incorporated herein
by reference.
(b) REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the last
quarter of the year ended December 31, 2000.
(c) EXHIBITS
Exhibits required to be filed in respect to this paragraph of Item 14
are listed above in subparagraph (a)(3).
(d) FINANCIAL STATEMENT SCHEDULES
See subparagraph (a)(2) above.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Nature's Sunshine Products, Inc.
(Registrant)
Date: March 20, 2001 By: /s/ Daniel P. Howells
-----------------------------------
Daniel P. Howells, President,
C.E.O. and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Daniel P. Howells President, Chief Executive March 20, 2001
- ---------------------- Officer and Director
Daniel P. Howells
/s/ Craig D. Huff Vice President of Finance, Treasurer, March 20, 2001
- ---------------------- Chief Financial Officer,
Craig D. Huff Chief Accounting Officer
/s/ Douglas Faggioli Chief Operating Officer March 20, 2001
- ---------------------- and Director
Douglas Faggioli
/s/ Kristine F. Hughes Chairman of the Board and Director March 20, 2001
- ----------------------
Kristine F. Hughes
/s/ Eugene L. Hughes Vice President and Director March 20, 2001
- ----------------------
Eugene L. Hughes
/s/ Pauline T. Hughes Director March 20, 2001
- ----------------------
Pauline T. Hughes
/s/ Richard Hinckley Director March 20, 2001
- ----------------------
Richard Hinckley
37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To Nature's Sunshine Products, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Nature's Sunshine
Products, Inc. and subsidiaries appearing in Item 8 in this Annual Report on
Form 10-K, and have issued our report thereon dated February 6, 2001. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14(a)(2) is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 6, 2001
38
NATURE'S SUNSHINE PRODUCTS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollar Amounts in Thousands)
Balance at Balance at
Beginning Amounts Amounts End of
Description of Year Provisions Written Off Recovered Year
---------- ---------- ----------- --------- ----------
Year ended December 31, 2000
Allowance for doubtful
accounts receivable $1,291 $ 206 $ (293) $ 4 $1,208
Allowance for obsolete
inventory 422 1,232 (499) -- 1,155
Allowance for notes
receivable 14 -- -- -- 14
Year ended December 31, 1999
Allowance for doubtful
accounts receivable $ 819 $ 625 $ (157) $ 4 $1,291
Allowance for obsolete
inventory 627 506 (711) -- 422
Allowance for notes
receivable 14 -- -- -- 14
Year ended December 31, 1998
Allowance for doubtful
accounts receivable $ 661 $ 229 $ (71) -- $ 819
Allowance for obsolete
inventory 534 468 (375) -- 627
Allowance for notes
receivable 14 -- -- -- 14
39
LIST OF EXHIBITS
LOCATED AT
SEQUENTIALLY
ITEM NO. EXHIBIT NUMBERED PAGE
- -------- ------- -------------
3.1(1) - Restated Articles of Incorporation --
3.2(2) - By-laws, as amended --
10.2(3) - Form of Employment Agreement between the Registrant and its --
executive officers together with a schedule identifying the
agreements omitted and setting forth the material differences
between the filed agreement and the omitted agreements.
10.3(4) - 1995 Stock Option Plan --
10.4(4) - Form of Stock Option Agreement (1995 Stock Option Plan) --
10.5(5) - 1998 Employee Incentive Compensation Plan
10.6(6) - Supplemental Elective Deferral Plan --
10.7(6) - Executive Loan Program --
21 - List of Subsidiaries of Registrant 41
23.1 - Consent of Arthur Andersen LLP 42
23.2 - Report of Kinoshita CPA Office 43
23.3 - Consent of Kinoshita CPA Office 44
23.4 - Report of Lara Marambio, Fernandez Machado & Asociados 45
23.5 - Consent of Lara Marambio, Fernandez Machado & Asociados 47
23.6 - Report of Daesung Accounting Corporation 48
23.7 - Consent of Daesung Accounting Corporation 49
- -------------------
[1] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1988 and is incorporated herein
by reference.
[2] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1985 and is incorporated herein
by reference.
[3] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated herein
by reference.
[4] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1995 and is incorporated herein
by reference.
[5] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1997 and is incorporated herein
by reference.
[6] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1998 and is incorporated herein
by reference.
40