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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, 1996
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.
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(Exact Name of Registrant)
Utah 87-0327982
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(State of Incorporation) (I.R.S. Employer Identification Number)
75 East 1700 South
Provo, Utah 84606
(Address of Principal Executive Offices)
(801) 342-4407
(Registrant's Telephone Number, including Area Code)
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 May
1, 1996, was 18,633,104.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollar Amounts In Thousands)
(Unaudited)
March 31 December 31
1996 1995
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $22,877 $14,172
Accounts receivable, net 5,530 6,042
Inventories 22,655 23,127
Notes receivable due from related parties 218 213
Prepaid expenses and other 5,470 3,619
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Total Current Assets 56,750 47,173
PROPERTY, PLANT AND
EQUIPMENT, net 15,134 13,088
LONG-TERM INVESTMENTS 2,430 2,381
OTHER ASSETS 2,488 2,605
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$76,802 $65,247
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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)
(Dollar Amounts In Thousands)
(Unaudited)
March 31 December 31
1996 1995
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 2,768 $ 2,042
Accounts payable 4,338 5,031
Accrued volume incentives 10,481 7,207
Accrued liabilities 10,168 6,577
Income taxes payable 3,097 1,883
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Total Current Liabilities 30,852 22,740
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DEFERRED INCOME TAXES 1,199 1,002
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SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000,000 shares
authorized; 19,445,734 shares issued 31,408 31,263
Retained earnings 21,869 19,214
Treasury stock, at cost, 943,810 and 1,011,607
shares at March 31, 1996 and December 31,
1995, respectively (4,891) (4,942)
Receivables due from related parties (231) (293)
Cumulative translation adjustments (3,404) (3,737)
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Total Shareholders' Equity 44,751 41,505
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$76,802 $65,247
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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
(Amounts In Thousands, Except Per-Share Information)
Three Months Ended
March 31
-----------------------
(Unaudited)
1996 1995
-------- --------
SALES REVENUE $60,113 $47,062
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COSTS AND EXPENSES:
Cost of goods sold 10,384 9,229
Volume incentives 27,896 21,794
Selling, general and administrative 16,753 13,052
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55,033 44,075
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OPERATING INCOME 5,080 2,987
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OTHER INCOME (EXPENSE):
Interest and other income 744 398
Interest expense (32) (44)
Foreign exchange loss (207) (127)
Minority interest (5) 226
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500 453
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INCOME BEFORE INCOME TAXES 5,580 3,440
PROVISION FOR INCOME TAXES 2,304 1,426
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NET INCOME $ 3,276 $ 2,014
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NET INCOME PER COMMON SHARE $ 0.17 $ 0.11
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WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 19,458 18,605
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The accompanying notes to the financial statements are an integral
part of these consolidated condensed statements of income.
4
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollar Amounts In Thousands)
Three Months Ended
March 31
-------------------------
(Unaudited)
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales revenue $60,494 $46,980
Cash paid as volume incentives (24,936) (19,925)
Cash paid to suppliers and employees (24,176) (21,769)
Interest paid (32) (44)
Interest received 668 427
Income taxes paid (893) (443)
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Net Cash Provided by Operating Activities 11,125 5,226
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,830) (652)
Purchase of other assets --- (212)
Investment in joint venture 5 (226)
Payments received on long-term receivables 68 42
Payment received on related party receivables 91 2
Proceeds from sale of assets --- 257
(Purchase) sale of long-term investments (49) 44
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Net Cash Used in Investing Activities (2,715) (745)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (620) (613)
Short-term loan 726 143
Proceeds from exercise of stock options 197 ---
Purchase of treasury stock --- (1,070)
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Net Cash Provided By (Used in)
Financing Activities 303 (1,540)
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EFFECT OF EXCHANGE RATES ON CASH (8) (310)
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NET INCREASE IN CASH AND CASH
EQUIVALENTS 8,705 2,631
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 14,172 11,201
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $22,877 $13,832
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The accompanying notes to the financial statements are an integral
part of these consolidated condensed statements of cash flows.
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
(Dollar Amounts In Thousands)
Three Months Ended
March 31
-------------------------
(Unaudited)
1996 1995
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NET INCOME $ 3,276 $ 2,014
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Bad debt expense 16 60
Depreciation and amortization 867 742
Decrease in accounts receivable 497 74
Decrease (increase) in inventories 472 (177)
Increase in prepaid expenses and other assets (1,924) (385)
Increase in income taxes payable 1,214 973
Increase in accrued liabilities and volume
incentives 6,864 3,547
Decrease in accounts payable (693) (729)
Increase (decrease) in deferred income taxes 197 (119)
Cumulative translation adjustments 339 (774)
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Total Adjustments 7,849 3,212
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Net Cash Provided by Operating Activities $11,125 $ 5,226
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The accompanying notes to the financial statements are an integral
part of these consolidated condensed statements of cash flows.
6
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per-Share Information)
(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 present fairly the
financial position as of March 31, 1996, and 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 three-for-
two stock split effected in February of 1996.
It is suggested that these consolidated condensed financial statements be
read in conjunction with the consolidated 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
1996 1995
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Raw materials $ 7,065 $ 7,772
Work in process 1,133 1,123
Finished goods 14,457 14,232
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$22,655 $23,127
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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, 1996 and 1995.
As of March 31, 1996, the Company had a total of 3,449,769 options
outstanding. The options were all granted at market prices, which vary from
$1.79 to $20.00 per share.
(4) QUARTERLY CASH DIVIDENDS
The Company has declared 31 consecutive quarterly cash dividends. The most
recent quarterly cash dividend of 3 1/3 cents per common share was declared May
6, 1996, to shareholders of record on May 17, 1996, payable May 30, 1996.
(5) TRANSLATION OF FOREIGN CURRENCY
The financial statements of the international subsidiaries have been
translated to U.S. dollars in accordance with the provisions of SFAS No. 52.
As a result of its international operations, the Company is subject to
foreign currency fluctuations which may impact current earnings.
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 ------------------------------------------------------
--------------------------- 1996 to 1995 1995 to 1994
Three Months Ended ------------------------------------ --------------
March 31 Amount of Percent Percent
----------------------- Income and Increase/ of of
1996 1995 Expense Items (Decrease) Change Change
---------- ---------- ------------- -------------- ---------- ----------
100.00% 100.00% Sales revenue $13,051 27.73% 26.05%
---------- ---------- -------------- ---------- ----------
17.27 19.61 Cost of sales 1,155 12.51 30.94
46.41 46.31 Volume incentives 6,102 28.00 23.00
27.87 27.73 SG&A expenses 3,701 28.36 37.34
---------- ---------- -------------- ---------- ----------
91.55 93.65 10,958 24.86 28.61
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8.45 6.35 Operating income 2,093 70.07 (2.61)
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1.24 0.85 Interest and other income 346 86.93 171.86
(0.05) (0.09) Interest expense 12 27.27 (4,794.01)
(0.35) (0.28) Foreign exchange loss (80) (62.99) 39.83
(0.01) 0.48 Minority interest (231) (102.21) 529.85
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0.83 0.96 47 10.38 1,637.84
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9.28 7.31 Income before income taxes 2,140 62.21 13.26
3.83 3.03 Provision for income taxes 878 61.57 6.73
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5.45% 4.28% Net income $ 1,262 62.66% 18.39%
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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, 1996. Sales revenue for the three months ended March 31, 1996, was
$60.1 million compared to $47.1 million in the same period the prior year, an
increase of 28 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. The Company's international operations reported sales
revenue of $19.8 million for the three-month period in 1996, an increase of 32
percent compared to the same period in 1995.
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 14,268 at March 31, 1996, from 10,616 at March 31, 1995.
The number of Distributors at March 31, 1996, was 427,777 compared to 262,453 at
March 31, 1995.
COST OF GOODS SOLD:
The Company has experienced a decrease in cost of goods sold, as a
percentage of sales, for the three months ended March 31, 1996, compared to the
same period last year. The decrease in cost of goods sold, as a percentage of
sales, was primarily the result of the increase in volume as well as increased
efficiencies in the Company's manufacturing operations. Management expects cost
of goods sold to decrease slightly as a percent of sales during the rest of
1996.
10
VOLUME INCENTIVES:
The increase in volume incentives, for the three months ended March 31,
1996, is directly related to the increase in sales revenue. Volume
incentives are an integral part of the Company's 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.
Management expects volume incentives to decrease slightly, as a percent of
sales, during the rest of 1996. The decrease is anticipated as the result of
increasing sales from Japan and Brazil, which have comparatively lower volume
incentive payments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
The Company experienced increased selling, general and administrative
expenses (SG&A) of approximately $3.7 million during the period ended March 31,
1996. However as a percent of sales, SG&A expenses were consistent with the
first quarter of 1995.
SG&A expenses for the first quarter of 1996 included startup costs for the
Company's new operations in Guatemala, El Salvador, Panama and Peru. Management
expects SG&A to decrease, as a percent of sales, during the remainder of 1996.
11
SUBSIDIARY OPERATIONS:
Domestic and international sales revenue for the three months ended March
31, 1996, compared to the previous year are as follows:
SALES REVENUE (Dollars in Thousands)
1996 1995
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DOMESTIC SALES REVENUE $40,335 $32,057
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INTERNATIONAL SALES REVENUE:
Americas 15,371 11,659
Asia Pacific 3,493 2,212
Other 914 1,134
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TOTAL INTERNATIONAL 19,778 15,005
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TOTAL SALES REVENUE $60,113 $47,062
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Domestic and international operating income for the three months ended March
31, 1996, compared to the previous year are as follows:
OPERATING INCOME (Dollars in Thousands)
1996 1995
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DOMESTIC OPERATING INCOME $ 3,340 $ 2,201
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INTERNATIONAL OPERATING INCOME:
Americas 1,942 1,069
Asia Pacific (183) (451)
Other (19) 168
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TOTAL INTERNATIONAL 1,740 786
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TOTAL OPERATING INCOME $ 5,080 $ 2,987
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Domestic and international assets as of March 31, 1996, compared to
December 31, 1995, balances are as follows:
(Dollars in Thousands)
March 31 December 31
ASSETS 1996 1995
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DOMESTIC ASSETS $47,176 $40,996
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INTERNATIONAL ASSETS:
Americas 24,169 18,941
Asia Pacific 4,472 4,239
Other 985 1,071
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TOTAL INTERNATIONAL 29,626 24,251
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TOTAL ASSETS $76,802 $65,247
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12
BALANCE SHEET
PREPAID EXPENSES AND OTHER
Prepaid expenses and other increased approximately $1.9 million during the
period ended March 31, 1996. The increase was the result of advance deposits
and payments required for the Company's incentive travel awards, including
conventions. The increase also includes advance tax payments made by certain of
the Company's international operations.
ACCRUED VOLUME INCENTIVES
Accrued volume incentives increased approximately $3.3 million during the
first three months of the year as a direct result of increased sales.
ACCRUED LIABILITIES
Accrued liabilities increased approximately $3.6 million during the period
ended March 31, 1996. 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 $1.2 million since year end.
The increase in income taxes payable is primarily related to the timing of the
estimated income tax payments.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $8.7 million for the
three months ended March 31, 1996. The increase in cash is primarily the result
of the increased sales and income as well as increases in current liabilities.
13
The Company acquired approximately $2.8 million in property, plant and
equipment improvements during the first three months of 1996 to improve its
manufacturing and administrative capabilities. The Company increased its short-
term borrowings in Japan by approximately $.7 million during the period ended
March 31, 1996. 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 660,000 share stock
buyback program, may utilize a portion of its available cash to purchase up to
the remaining balance of approximately 153,000 shares of its stock should market
conditions warrant.
The Company is in the process of establishing a new international
subsidiary. Management expects that this new operation may require initial
capitalization of approximately $1 million during the next twelve to eighteen
months.
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.
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with its legal counsel,
believes that any liability as a result of these matters should not have a
material effect upon the Company's results of operations or financial position.
Management believes that future working capital requirements can be
internally funded. Management expects cash and investments to increase during
1996, 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.
May 9, 1996 /s/ Alan D. Kennedy
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Alan D. Kennedy, President & Chief Executive Officer
May 9, 1996 /s/ Douglas Faggioli
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Douglas Faggioli, Chief Financial Officer
15