_________________________________________________________________________
_________________________________________________________________________
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X]QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to __________________
Commission File #0-8707
NATURE'S SUNSHINE PRODUCTS, INC.
--------------------------------
(Exact Name of Registrant)
Utah 87-0327982
- -------------------------- ---------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
75 East 1700 South
Provo, Utah 84606
(801) 342-4300
(Address of Principal Executive Offices)
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
such shorter period that the Registrant was required to file such
report(s), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
The number of shares of common stock, without par value, outstanding
as of April 28, 1995, was 12,160,650.
_________________________________________________________________________
_________________________________________________________________________
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
March 31 December 31
1995 1994
----------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $13,831,868 $11,200,550
Accounts receivable, net 4,713,599 4,787,333
Inventories 17,454,348 17,277,762
Notes receivable due from related parties 100,000 205,000
Prepaid expenses and other 3,324,712 3,092,438
----------- -----------
Total Current Assets 39,424,527 36,563,083
PROPERTY, PLANT AND
EQUIPMENT, net 9,849,479 9,918,699
LONG-TERM INVESTMENTS 3,009,616 3,053,156
OTHER ASSETS 3,013,049 2,922,621
----------- -----------
$55,296,671 $52,457,559
=========== ===========
The accompanying notes to the financial statements are an
integral part of these consolidated condensed balance sheets.
2
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
(Unaudited)
March 31 December 31
1995 1994
------------ -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 1,675,932 $ 1,533,042
Accounts payable 3,743,832 4,472,689
Accrued volume incentives 7,744,888 5,877,083
Accrued liabilities 6,497,473 4,818,173
Income taxes payable 2,037,143 1,064,239
------------ -----------
Total Current Liabilities 21,699,268 17,765,226
------------ -----------
DEFERRED INCOME TAXES 852,568 971,434
------------ -----------
MINORITY INTEREST 215,826 441,684
------------ -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares
authorized; 13,278,544 shares issued 29,845,544 29,849,452
Retained earnings 11,183,622 9,778,478
Treasury stock, at cost, 1,120,378 and 1,033,278
shares at March 31, 1995 and December 31,
1994, respectively (4,812,182) (3,742,495)
Receivables due from related parties (402,436) (404,804)
Cumulative translation adjustments (3,285,539) (2,201,416)
------------ -----------
Total Shareholders' Equity 32,529,009 33,279,215
------------ -----------
$55,296,671 $52,457,559
------------ -----------
------------ -----------
The accompanying notes to the financial statements are an
integral part of these consolidated condensed balance sheets.
3
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Three Months Ended
March 31
-----------------------------
(Unaudited)
1995 1994
----------- -----------
SALES REVENUE $47,061,760 $37,336,982
----------- -----------
COSTS AND EXPENSES:
Cost of goods sold 9,229,373 7,048,537
Volume incentives 21,793,528 17,717,774
Selling, general and administrative 13,051,809 9,503,470
----------- -----------
44,074,710 34,269,781
----------- -----------
OPERATING INCOME 2,987,050 3,067,201
----------- -----------
OTHER INCOME (EXPENSE):
Interest and other income 398,676 146,647
Interest expense (44,144) (902)
Foreign exchange loss (127,018) (211,085)
Minority interest 225,858 35,859
----------- -----------
453,372 (29,481)
----------- -----------
INCOME BEFORE INCOME TAXES 3,440,422 3,037,720
PROVISION FOR INCOME TAXES 1,426,535 1,336,602
----------- -----------
NET INCOME $ 2,013,887 $ 1,701,118
----------- -----------
----------- -----------
NET INCOME PER COMMON SHARE $ 0.16 $ 0.14
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 12,403,582 12,526,690
----------- -----------
----------- -----------
The accompanying notes to the financial statements are an
integral part of these consolidated condensed balance sheets.
4
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended
March 31
-----------------------------
(Unaudited)
1995 1994
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales revenue $46,980,158 $37,284,297
Cash paid as volume incentives (19,925,723) (14,366,134)
Cash paid to suppliers and employees (21,768,746) (17,155,370)
Interest paid (44,144) (902)
Interest received 426,994 82,462
Income taxes paid (442,500) (120,200)
----------- -----------
Net Cash Provided by Operating Activities 5,226,039 5,724,153
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (652,372) (758,441)
Purchase of other assets (212,000) (1,374,562)
Investment in joint venture --- 890,602
Minority interest elimination (225,858) ---
Payments received on long-term receivables 41,702 46,517
Payments on short-term related party receivables 2,368 87,084
Proceeds from sale of assets 257,566 ---
Purchase(Sale) of long-term investments 43,540 (212,663)
----------- -----------
Net Cash Used in Investing Activities (745,054) (1,321,463)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (612,651) (557,268)
Purchase of treasury stock (1,069,687) ---
Proceeds from short-term debt 142,890 ---
Issuance of treasury stock --- 200,003
Proceeds from exercise of stock options --- 128,620
----------- -----------
Net Cash Used in Financing Activities (1,539,448) (228,645)
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH (310,219) (132,707)
----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 2,631,318 4,041,338
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 11,200,550 8,666,915
----------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $13,831,868 $12,708,253
=========== ===========
The accompanying notes to the financial statements are an
integral part of these consolidated condensed balance sheets.
5
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
Reconciliation of Net Income to Net Cash Provided by Operating Activities
Three Months Ended
March 31
------------------------------
(Unaudited)
1995 1994
----------- -----------
NET INCOME $2,013,887 $1,701,118
----------- -----------
Bad debt expense 59,870 225,840
Depreciation and amortization 741,592 656,669
Loss on sale of fixed assets --- 920
(Increase) decrease in accounts receivable 73,734 (131,625)
Increase in inventories (176,586) (54,242)
Increase in prepaid expenses and other assets (384,840) (548,062)
Increase in income taxes payable 972,904 1,333,255
Increase in accrued liabilities and volume incentives 3,547,105 2,412,751
Increase (decrease) in accounts payable (728,857) 91,621
Increase (decrease) in deferred income taxes (118,866) 191,574
Cumulative translation adjustments (773,904) (155,666)
----------- -----------
Total Adjustments 3,212,152 4,023,035
----------- -----------
Net Cash Provided by Operating Activities $5,226,039 $5,724,153
----------- -----------
----------- -----------
The accompanying notes to the financial statements are an
integral part of these consolidated condensed balance sheets.
6
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL STATEMENT POLICIES AND DISCLOSURES
The unaudited, consolidated, condensed financial statements of
Nature's Sunshine Products, Inc. and subsidiaries included herein
have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally required in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading.
These consolidated, condensed financial statements reflect all
adjustments, which in the opinion of management, are necessary to a
fair statement of the results of operations for the interim periods
presented. All of the adjustments which have been made in these
consolidated, condensed financial statements are of a normal
recurring nature.
Weighted average shares outstanding and all per share amounts
included in the condensed financial statements have been adjusted to
reflect the ten percent stock dividend effected in February of 1995.
It is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes
thereto included in the Company's latest Annual Report on Form 10-K.
(2) INVENTORIES
Inventories consist of:
(Unaudited)
March 31 December 31
1995 1994
------------ -----------
Raw materials $ 6,266,704 $ 6,124,791
Work in process 1,155,349 1,303,024
Finished goods 10,032,295 9,849,947
------------ -----------
$17,454,348 $17,277,762
============ ===========
7
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(3) EARNINGS PER SHARE
Outstanding stock options are considered common stock
equivalents and are included in the computation of primary earnings
per share for the three-month periods ended March 31, 1995 and 1994.
As of March 31, 1995, the Company had a total of 1,273,614
options outstanding. The options were all granted at market prices,
which vary from $2.69 to $12.73 per share.
(4) QUARTERLY CASH DIVIDENDS
The Company has declared 27 consecutive quarterly cash
dividends. The most recent quarterly cash dividend of $.05 per
common share was declared May 5, 1995, to shareholders of record on
May 17, 1995, payable May 30, 1995.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
The following table identifies (i) the relationship that net income items
disclosed in the consolidated condensed financial statements have to total
sales, and (ii) amount and percent of change of such items compared to the
corresponding prior period.
(i) (ii)
Income and Expense Three Months Ended March 31
Items as a Percent of Sales ------------------------------------
- --------------------------- 1995 to 1994 1994 to 1993
Three Months Ended ------------------------------------
March 31 Amount of Percent Percent
- --------------------------- Income and Increase/ of of
1995 1994 Expense Items (Decrease) Change Change
- ------- ------- ------------- ---------- --------- -----------
100.00% 100.00% Sales revenue $9,724,778 26.05% 25.16%
- ------ ------ ---------- --------- ----------
19.61 18.88 Cost of sales 2,180,836 30.94 17.01
46.31 47.46 Volume incentives 4,075,754 23.00 30.31
27.73 25.45 SG&A expenses 3,548,339 37.34 16.70
- ------ ------ ---------- --------- ---------
93.65 91.79 9,804,929 28.61 23.43
- ------ ------ ---------- --------- ---------
6.35 8.21 Operating income (80,151) (2.61) 48.42
- ------ ------ ---------- --------- ---------
0.85 0.39 Interest and other income 252,029 171.86 15.19
(0.09) --- Interest expense (43,242) (4,794.01) (100.00)
(0.28) (0.56) Foreign exchange (loss) 84,067 39.83 (17,943.20)
0.48 0.10 Minority interest 189,999 529.85 100.00
- ------ ------ ---------- --------- ---------
0.96 (0.07) 482,853 1,637.84 (122.94)
- ------ ------ ---------- --------- ---------
7.31 8.14 Income before income taxes 402,702 13.26 38.39
- ------ ------ ---------- --------- ---------
3.03 3.58 Provision for income taxes 89,933 6.73 29.01
- ------ ------ ---------- --------- ---------
4.28% 4.56% Net income $ 312,769 18.39% 46.77%
- ------ ------ ---------- --------- ---------
- ------ ------ ---------- --------- ---------
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
SALES REVENUE:
The Company reported record consolidated sales for the three
months ended March 31, 1995. Sales revenue for the three months
ended March 31, 1995, was $47.1 million compared to $37.3 million in
the same period the prior year, an increase of 26 percent.
Management believes the increase in sales for the three-month
period is attributable to the expansion of the Company's independent
sales force, a continued increase of consumer awareness and
interest in natural health and nutritional products and incentives
the Company offers its independent sales force. In addition, the
Company's sales revenue growth has been enhanced by its
international expansion. Despite a sales decresae of 38 percent in
Mexico as a result of the devaluation of the Peso and related
economic turmoil, the Company's international operations reported
sales revenue of $15.0 million for the three-month period in 1995,
an increase of 47 percent compared to the same period in 1994.
The Company's independent sales force consists of Managers and
Distributors. A Distributor interested in earning additional income
by committing more time and effort to selling the Company's products
may attain the rank of "Manager." Appointment as a Manager is
dependent upon attaining certain purchase volume levels and
demonstrating leadership abilities. The number of Managers
increased to 10,616 at March 31, 1995, from 7,367 at March 31, 1994.
The number of Distributors at March 31, 1995, was 262,453 compared
to 160,044 at March 31, 1994.
VOLUME INCENTIVES:
The increase in volume incentives, for the three months ended
March 31, 1995, is directly related to the increase in sales
revenue. Volume incentives are an integral part of the Company's
10
direct sales marketing program and are payments to
independent sales force members for reaching certain levels
of sales performance and organizational development. Volume
incentives vary slightly, on a percentage basis, by product due to
the Company's pricing policies. Volume incentives decreased
approximately one percent, as a percentage of sales for the three-
month period ended March 31, 1995, primarily as the result of
lower volume incentive payments in the Company's newest operations,
Japan and Brazil. Lower volume incentive payments are generally
expected initially from newer operations.
Management expects volume incentives to decrease slightly, as a
percent of sales, during the rest of 1995. The decrease is
anticipated as the result of increasing sales from Japan and Brazil,
which have comparatively lower volume incentive payments.
COST OF GOODS SOLD:
The Company has experienced a slight increase in cost of goods
sold, as a percentage of sales, for the three months ended March 31,
1995, compared to the same period last year. The increase in cost
of goods sold, as a percentage of sales, was primarily related to
the Company's operations in Mexico, as a result of the recent
devaluation in the Mexican peso. Management expects cost of goods
sold to decrease slightly as a percent of sales during the rest of
1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
The Company experienced increased selling, general and
administrative expenses (SG&A) as a percent of sales during the
period ended March 31, 1995, increasing from less than 26 percent to
more than 27 percent of sales.
The increase in SG&A expenses, as a percentage of sales, results
primarily from the incremental costs of approximately $2.1 million
incurred in the Company's newest operations in Japan and Brazil.
Management expects SG&A to decrease slightly, as a percentage of
sales, for the entire year as sales increase in both Brazil and
Japan in the remainder of 1995.
11
SUBSIDIARY OPERATIONS:
Domestic and international sales for the three months ended
March 31, 1995, compared to the previous year are as follows:
SALES (Dollars in Thousands)
THREE MONTHS ENDED MARCH 31 1995 1994
--------------------------- ------- -------
DOMESTIC SALES $32,057 $27,108
======= =======
INTERNATIONAL SALES:
Mexico $ 4,204 $ 6,728
Colombia 1,920 767
Canada 1,868 1,553
Japan 1,549 ---
Brazil 1,446 ---
Venezuela 1,413 161
Great Britain 914 690
Costa Rica 808 ---
Malaysia 521 140
Export 362 190
------- -------
TOTAL INTERNATIONAL $15,005 $10,229
------- -------
------- -------
Domestic and international operating income for the three months
ended March 31, 1995, compared to the previous year are as follows:
OPERATING INCOME (Dollars in Thousands)
THREE MONTHS ENDED MARCH 31 1995 1994
------ ------
DOMESTIC OPERATING INCOME $2,201 $1,839
------ ------
------ ------
INTERNATIONAL OPERATING INCOME:
Mexico $ 317 $1,393
Colombia 296 13
Canada 93 18
Japan (513) ---
Brazil (116) (35)
Venezuela 126 (194)
Great Britain 28 (28)
Costa Rica 353 ---
Malaysia 30 (85)
Export 172 146
------ ------
TOTAL INTERNATIONAL $ 786 $1,228
====== ======
12
Domestic and international assets as of March 31, 1995,
compared to December 31, 1994, balances are as follows:
(Dollars in Thousands)
March 31 December 31
ASSETS 1995 1994
-------- -----------
DOMESTIC ASSETS $ 36,862 $34,973
-------- -----------
-------- -----------
INTERNATIONAL ASSETS:
Mexico $ 4,874 $ 5,885
Colombia 2,271 1,967
Canada 1,843 1,598
Japan 3,038 2,677
Brazil 1,765 1,598
Venezuela 1,936 1,635
Great Britain 1,192 1,028
Costa Rica 685 287
Malaysia 831 810
-------- -----------
TOTAL INTERNATIONAL $18,435 $17,485
-------- -----------
-------- -----------
BALANCE SHEET
ACCRUED VOLUME INCENTIVES
Accrued volume incentives increased approximately $1.9 million
during the first three months of the year as a direct result of
increased sales.
ACCRUED LIABILITIES
The balance of accrued liabilities increased approximately $1.7
million during the period ended March 31, 1995. The increase in
accrued liabilities reflects the increased level of sales and
related accruals for sales incentives such as conventions and other
travel awards.
INCOME TAXES PAYABLE
Income taxes payable increased approximately $1.0 million since
year end. The increase in income taxes payable is primarily related
to the increase in pre-tax income for the three months ended March
31, 1995.
13
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $2.6 million
for the three months ended March 31, 1995. The increase in cash is
primarily the result of the increased sales and income as well as
increases in short-term liabilities.
The Company acquired approximately $.7 million in machinery,
equipment and building improvements during the first three months of
1995 to improve its manufacturing and administrative capabilities.
During the period ended March 31, 1995, the Company acquired
approximately $1.1 million of treasury stock in the market.
Approximately $.6 million was used for the payment of dividends
during the first quarter.
Management believes the Company's stock is an attractive
investment and, from time to time pursuant to its previously
announced 440,000 share stock buyback program, may utilize a portion
of its available cash to purchase up to the remaining balance of
102,210 shares of its stock should market conditions warrant. The
Company purchased 94,150 treasury shares during the first quarter of
1995.
The Company is evaluating the need to expand its domestic
manufacturing, inventory and other facilities. The Company may
consider long-term financing for these projects in the event that
they require significant capital outlays.
Management believes that future working capital requirements can
be internally funded. Management expects cash and investments to
increase during 1995, as the result of operations. However, cash
and investments may be reduced in the event the Company proceeds
with the capital projects mentioned above.
14
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a) No exhibits are required to be filed by Item 601 of Regulation S-K.
b) No reports were filed on Form 8-K during the quarter for which this
report is filed.
Other Items
- -----------
There were no other items to be reported under Part II of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NATURE'S SUNSHINE PRODUCTS, INC.
Date: 5/12/95 /s/ Alan D. Kennedy
-------------------- -----------------------------------------
ALAN D. KENNEDY, President
Chief Executive Officer
Date: 5/12/95 /s/ Douglas Faggioli
-------------------- -----------------------------------------
DOUGLAS FAGGIOLI, Chief Financial Officer
15