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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
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
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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) 342-4300
(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
August 5, 1999, was 17,514,399.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands)
(UNAUDITED)
June 30, December 31,
1999 1998
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,468 $ 22,099
Accounts receivable, net 9,668 9,939
Inventories 20,869 22,494
Deferred income tax assets 2,242 2,438
Prepaid expenses and other 7,513 6,025
----------- -----------
Total Current Assets 65,760 62,995
PROPERTY, PLANT AND
EQUIPMENT, net 25,943 25,896
LONG-TERM INVESTMENTS 12,161 11,675
OTHER ASSETS 3,234 3,133
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$107,098 $103,699
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The accompanying notes to the financial statements are an
integral part of these consolidated condensed financial statements.
2
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Amounts In Thousands)
(UNAUDITED)
June 30, December 31,
1999 1998
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 1,221 $ 1,728
Accounts payable 3,341 4,403
Accrued volume incentives 10,472 9,638
Accrued liabilities 10,833 8,649
Income taxes payable 3,112 3,279
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Total Current Liabilities 28,979 27,697
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LONG-TERM LIABILITIES:
Deferred income tax liabilities 1,971 2,035
Deferred compensation 647 ---
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Total Long-Term Liabilities 2,618 2,035
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SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares
authorized; 19,446 shares issued 37,528 37,528
Retained earnings 80,610 72,013
Treasury stock, at cost, 1,803 and 1,421
shares at June 30, 1999 and
December 31, 1998, respectively (33,459) (28,926)
Accumulated other comprehensive loss (9,178) (6,648)
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Total Shareholders' Equity 75,501 73,967
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$107,098 $103,699
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The accompanying notes to the financial statements are an
integral part of these consolidated condensed financial statements.
3
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Amounts In Thousands, Except Per-Share Information)
(UNAUDITED)
Three Months Ended
June 30,
-----------------------------------------
1999 1998
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SALES REVENUE $ 71,639 $ 77,201
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COSTS AND EXPENSES:
Cost of goods sold 12,284 13,646
Volume incentives 32,764 35,474
Selling, general and administrative 19,210 18,858
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64,258 67,978
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OPERATING INCOME 7,381 9,223
OTHER INCOME, net 545 700
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INCOME BEFORE PROVISION FOR INCOME TAXES 7,926 9,923
PROVISION FOR INCOME TAXES 3,130 3,818
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NET INCOME 4,796 6,105
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OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments (109) (198)
Unrealized holding gains arising during the period 54 20
Reclassification adjustment for gains
included in net income (31) (9)
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(86) (187)
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COMPREHENSIVE INCOME $ 4,710 $ 5,918
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BASIC NET INCOME PER COMMON SHARE $ 0.27 $ 0.33
----------- ------------
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WEIGHTED AVERAGE BASIC SHARES 17,725 18,477
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DILUTED NET INCOME PER COMMON SHARE $ 0.27 $ 0.32
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WEIGHTED AVERAGE DILUTED SHARES 17,825 18,791
----------- ------------
----------- ------------
The accompanying notes to the financial statements are an
integral part of these consolidated condensed financial statements.
4
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Amounts In Thousands, Except Per-Share Information)
(UNAUDITED)
Six Months Ended
June 30,
---------------------------------------
1999 1998
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SALES REVENUE $143,817 $152,484
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COSTS AND EXPENSES:
Cost of goods sold 25,141 27,187
Volume incentives 65,887 70,673
Selling, general and administrative 37,749 37,543
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128,777 135,403
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OPERATING INCOME 15,040 17,081
OTHER INCOME, net 1,142 1,029
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INCOME BEFORE PROVISION FOR INCOME TAXES 16,182 18,110
PROVISION FOR INCOME TAXES 6,396 7,138
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NET INCOME 9,786 10,972
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OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments (2,546) (156)
Unrealized holding gains (losses) arising
during the period 47 (105)
Reclassification adjustment for gains
included in net income (31) (9)
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(2,530) (270)
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COMPREHENSIVE INCOME $ 7,256 $ 10,702
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BASIC NET INCOME PER COMMON SHARE $ 0.55 $ 0.59
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WEIGHTED AVERAGE BASIC SHARES 17,850 18,532
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DILUTED NET INCOME PER COMMON SHARE $ 0.54 $ 0.58
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WEIGHTED AVERAGE DILUTED SHARES 17,961 18,871
--------- -----------
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The accompanying notes to the financial statements are an
integral part of these consolidated condensed financial statements.
5
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Amounts In Thousands)
(UNAUDITED)
Six Months Ended
June 30,
-------------------------------------------
1999 1998
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,786 $ 10,972
Adjustments to reconcile net income to net cash
provided by operating activities:
Bad debt expense 106 70
Depreciation and amortization 2,808 2,535
Gain on sale of fixed assets (7) (25)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 165 (1,679)
Decrease in inventories 1,625 203
(Increase) decrease in prepaid expenses and other assets (715) 1,839
Decrease in accounts payable (1,062) (1)
Increase in accrued volume incentives 834 1,583
Increase in accrued liabilities 2,831 4,382
Decrease in income taxes payable (167) (1,045)
Increase in deferred income taxes 133 194
Cumulative translation adjustments (1,555) 190
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Net Cash Provided by Operating Activities 14,782 19,218
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,371) (4,818)
(Purchase) sale of long-term investments (485) 77
Payments received on long-term receivables 41 94
Purchase of other assets (1,402) (884)
Proceeds from sale of assets 25 51
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Net Cash Used in Investing Activities (4,192) (5,480)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (1,190) (1,237)
Purchase of treasury stock (4,533) (5,521)
Repayments of short-term debt (506) (836)
Proceeds from exercise of stock options --- 1,041
Tax benefit from stock option exercise --- 318
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Net Cash Used in Financing Activities (6,229) (6,235)
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EFFECT OF EXCHANGE RATES ON CASH (992) (346)
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NET INCREASE IN CASH AND
CASH EQUIVALENTS 3,369 7,157
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 22,099 27,813
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $25,468 $34,970
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The accompanying notes to the financial statements are an
integral part of these consolidated condensed financial statements.
6
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts In Thousands, Except Per-Share Information)
(UNAUDITED)
(1) INTERIM FINANCIAL STATEMENT POLICIES AND DISCLOSURES
The unaudited, condensed consolidated 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 following disclosures
are adequate to make the information presented not misleading.
These condensed consolidated financial statements reflect all
adjustments, which in the opinion of management, are necessary to present
fairly the financial position as of June 30, 1999, and the results of
operations for the periods presented. All of the adjustments which have been
made in these condensed consolidated financial statements are of a normal
recurring nature. Operating results for the three- and six-month periods
ended June 30, 1999, are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999.
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 Annual Report on Form 10-K
for the year ended December 31, 1998.
(2) INVENTORIES
Inventories consist of the following:
June 30, December 31,
1999 1998
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Raw materials $ 5,678 $ 6,104
Work in process 1,396 1,377
Finished goods 13,795 15,013
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$20,869 $22,494
-------- --------
-------- --------
7
(3) NET INCOME PER 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 period. 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. Net income per common share amounts and share data
have been restated for all periods presented to reflect basic and diluted per
share presentations.
As of June 30, 1999, the Company had a total of 1,115 options
outstanding. The options were all granted at market prices and have a
weighted average exercise price of $10.92.
Following is a reconciliation of the numerator and denominator of
Basic EPS to the numerator and denominator of Diluted EPS for the three and
six months ended:
8
Net Income Shares Per Share
(Numerator) (Denominator) Amount
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THREE MONTHS ENDED JUNE 30, 1999
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Basic EPS $4,710 17,725 $0.27
Effect of stock options --- 100
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Diluted EPS $4,710 17,825 $0.27
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Three Months Ended June 30, 1998
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Basic EPS $5,918 18,477 $0.33
Effect of stock options --- 314
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Diluted EPS $5,918 17,791 $0.32
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Net Income Shares Per Share
(Numerator) (Denominator) Amount
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SIX MONTHS ENDED JUNE 30, 1999
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Basic EPS $ 9,786 17,850 $0.55
Effect of stock options --- 111
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Diluted EPS $ 9,786 17,961 $0.54
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Six Months Ended June 30, 1998
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Basic EPS $10,972 18,532 $0.59
Effect of stock options --- 339
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Diluted EPS $10,972 18,871 $0.58
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For the three months ended June 30, 1999 and 1998, there were
outstanding options to purchase 708 and 26 shares of common stock,
respectively, that were not included in the computation of Diluted EPS, as
their effect would have been anti-dilutive. For the six months ended June 30,
1999 and 1998, there were outstanding options to purchase 142 and 18 shares
of common stock, respectively, that were not included in the computation of
Diluted EPS, as their effect would have been anti-dilutive.
(4) EQUITY TRANSACTIONS
The Company has declared 44 consecutive quarterly cash dividends. The
most recent quarterly cash dividend of 3 1/3 cents per common share was
declared on July 28, 1999, to shareholders of record on August 9, 1999 and is
payable on August 19, 1999.
9
For the six months ended June 30, 1999, the Company repurchased
approximately 382 shares of its common stock. During the second quarter the
Company completed the 500 common share repurchase program previously
authorized by the Board in September 1998. On May 11, 1999, the Board of
Directors authorized the repurchase up to 500 shares of the Company's common
stock as market conditions warrant. As of June 30, 1999, the Company had
repurchased approximately 108 shares of common stock under this approval.
Subsequent to June 30, 1999, the Company repurchased an additional 128 shares
of common stock under this authorization.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards requiring that derivative instruments be
recorded in the balance sheet as either an asset or liability measured at its
fair value and that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 2000. The
adoption of this statement will not have a material effect on the Company's
consolidated financial statements as the Company does not currently hold any
derivative or hedging instruments.
(6) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The composition of accumulated other comprehensive income (loss), net
of tax, is as follows:
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Unrealized Total
Gains/(Losses) on Accumulated
Foreign Currency Available-for Sale Other Comprehensive
Adjustments Securities Income (Loss)
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Balance as of December 31, 1998 $(7,012) $364 $(6,648)
Current period change (2,546) 16 (2,530)
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Balance as of June 30, 1999 $(9,558) $380 $(9,178)
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10
During the six months ended June 30, 1999, the Brazilian real
devalued (approximately 46 percent) relative to the U.S. dollar. A
significant portion of the foreign currency adjustment is associated with the
devaluation of the Brazilian real.
(7) LEGAL PROCEEDINGS
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 the ultimate disposition of these matters will not
have a material effect upon the Company's consolidated results of operations
or financial position.
(8) SEGMENT 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 consisting of Latin America, Asia Pacific and other regions.
Intersegment sales, eliminated in consolidation, are not material.
Prior balances have been restated to reflect the Company's
implementation of SFAS No. 131.
11
Segment information for the three and six months ended June 30, 1999 and
1998, are as follows:
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Three Months Ended Six Months Ended
June 30, June 30,
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1999 1998 1999 1998
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Sales Revenue:
Domestic $46,392 $49,268 $ 94,972 $ 98,761
International:
Latin America 17,521 21,888 34,652 41,962
Asia Pacific 3,705 2,266 6,707 4,561
Other 4,020 3,779 7,486 7,200
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71,638 77,201 143,817 152,484
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Operating Expenses:
Domestic 39,833 41,691 81,581 85,122
International:
Latin America 16,837 20,060 32,636 38,064
Asia Pacific 3,992 2,999 7,832 5,914
Other 3,596 3,229 6,728 6,303
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64,258 67,978 128,777 135,403
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Operating Income:
Domestic 6,559 7,577 13,391 13,641
International:
Latin America 684 1,828 2,016 3,898
Asia Pacific (287) (732) (1,125) (1,353)
Other 424 550 758 895
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7,380 9,223 15,040 17,081
Other Income (Expense) 546 700 1,142 1,029
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Income Before Provision for Income Taxes $ 7,926 $ 9,923 $ 16,182 $ 18,110
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Segment assets as of June 30, 1999 and December 31, 1998, are as follows:
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JUNE 30, December 31,
1999 1998
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Assets
Domestic $ 66,130 $ 62,971
International:
Latin America 31,823 32,154
Asia Pacific 6,212 6,236
Other 2,933 2,338
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$107,098 $103,699
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12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements, the notes thereto and management's
discussion and analysis included in the Company's Annual Report for the year
ended December 31, 1998.
RESULTS OF OPERATIONS
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.
(Dollar Amounts in Thousands)
(UNAUDITED)
(i) (ii)
Income and Expense Three Months Ended June 30
Items as a Percent of Sales 1999 to 1998
- ----------------------------------------- -------------------------------------------
Three Months Ended
June 30 Amount of Percent
- ----------------------------------------- Income and Increase of
1999 1998 Expense Items (Decrease) Change
------- ------- ------------- ---------- ------
100.0% 100.0% Sales revenue $(5,562) (7.2)%
------- ------- ---------
17.2 17.7 Cost of sales (1,362) (10.0)
45.7 45.9 Volume incentives (2,710) (7.6)
26.8 24.4 SG&A expenses 352 1.9
------- ------- ---------
89.7 88.0 Total operating expenses (3,720) (5.5)
------- ------- ---------
10.3 12.0 Operating income (1,842) (20.0)
0.8 0.9 Other income (155) (22.2)
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11.1 12.9 Income before income taxes (1,997) (20.1)
4.4 5.0 Provision for income taxes (688) (18.0)
------- ------- ---------
6.7% 7.9% Net income $(1,309) (21.4)%
------- ------- ---------
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13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
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.
(Dollar Amounts in Thousands)
(UNAUDITED)
(i) (ii)
Income and Expense Six Months Ended June 30
Items as a Percent of Sales 1999 to 1998
- ----------------------------------------- -------------------------------------------
Six Months Ended
June 30 Amount of Percent
- ----------------------------------------- Income and Increase of
1999 1998 Expense Items (Decrease) Change
------ ------- ------------- --------- ------
100.0% 100.0% Sales revenue $(8,667) (5.7)%
------- ------- ---------
17.5 17.8 Cost of sales (2,046) (7.5)
45.8 46.4 Volume incentives (4,786) (6.8)
26.2 24.6 SG&A expenses 206 0.5
------- ------- ---------
89.5 88.8 Total operating expenses (6,626) (4.9)
------- ------- ---------
10.5 11.2 Operating income (2,041) (11.9)
0.8 0.7 Other income 113 11.0
------- ------- ---------
11.3 11.9 Income before income taxes (1,928) (10.6)
4.5 4.7 Provision for income taxes (742) (10.4)
------- ------- ---------
6.8% 7.2% Net income $(1,186) (10.8)%
------- ------- ---------
------- ------- ---------
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SALES REVENUE
Sales revenue for the three months ended June 30, 1999, was $71.6
million compared to $77.2 million in the prior year, and a decrease of
approximately 7 percent. Sales revenue for the six months ended June 30,
1999, was $143.8 million compared to $152.5 million in the same period the
prior year, a decrease of approximately 6 percent. Management believes the
decrease in sales for the three and six months ended June 30, 1999, is
attributable to increased product and price competition in the nutritional
supplement market as well as increased competition for new distributors and
the continued devaluation of foreign currencies against the U.S. dollar.
Sales revenue in the Company's domestic operations for the three and six
months ended June 30, 1999, were $46.4 million and $95.0 million, a decrease
of approximately 6 percent and 4 percent, respectively, over the same periods
in the prior year. The domestic sales revenue growth rate was negatively
impacted during the period by increased product and price competition in the
nutritional supplement market. The Company expects competition to remain
strong for the foreseeable future. Management is testing and evaluating
various marketing programs in an effort to restore current growth rates to
those experienced previously.
The Company's international operations reported sales revenue of
$25.2 million and $48.8 million for the three and six months ended June 30,
1999, a decrease of 10 percent and 9 percent, respectively, compared to the
same periods in 1998. The declining rate of growth of international sales
revenue was primarily the result of the increased valuation of the U.S.
dollar against foreign currencies. The international operation which reported
the most significant foreign currency impact was Brazil. During the six
months ended June 30, 1999, the Brazilian real devalued (approximately 46
percent) relative to the U.S. dollar. Effective March 1, 1999, the Company
instituted a price increase in Brazil, to offset a portion of this
devaluation. Eliminating the adverse effect of the foreign currency
devaluation,
15
international sales revenue would have increased approximately 4 percent. The
Company also experienced a decrease in sales revenue in local currency in
certain of its Latin American subsidiaries, most notably, Colombia and
Venezuela.
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 at June 30, 1999, was 15,559 compared to 15,606 at June
30, 1998. The number of Distributors at June 30, 1999, was approximately
532,000 compared to approximately 516,000 at December 31, 1998, an increase
of approximately 3 percent.
COST OF GOODS SOLD
For the three and six months ended June 30, 1999, the Company
experienced a slight decrease in cost of goods sold, as a percentage of
sales, compared to the same period in the prior year.
Management expects cost of goods sold to remain relatively constant
as a percent of sales during the remainder of 1999, as compared to the six
months ended June 30, 1999.
VOLUME INCENTIVES
Volume incentives are payments to independent sales force members for
reaching certain levels of sales performance and organizational development
and are an integral part of the Company's direct sales marketing program.
Volume incentives vary slightly, on a percentage basis, by product due to the
Company's pricing policies. For the six months ended June 30, 1999, the
Company experienced a 0.6 percent decrease in volume incentives, as a
percentage of sales, compared to the same period the prior year. The decrease
in volume incentives is primarily the result of change in product sales mix
to products that have a lower volume incentive payout. Management expects
volume incentives to remain
16
relatively constant, as a percent of sales, during the remainder of 1999, as
compared to the quarter ended June 30, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three and six
months ended June 30, 1999, increased, as a percent of sales, as the result
of the decrease in sales revenue. Actual SG&A expenses increased slightly
during the six months ended June 30, 1999, as compared to the same period the
prior year. Management expects SG&A to decrease slightly, as a percent of
sales, for the year ended December 31, 1999, compared to the quarter ended
June 30, 1999.
SEGMENT INFORMATION
See information included in the condensed consolidated financial
statements under Item 1 Note 8.
BALANCE SHEET
ACCRUED LIABILITIES
Accrued liabilities increased approximately $2.2 million as of June
30, 1999, as compared to December 31, 1998, as a result of accruals
associated with the Company's sales conventions and travel programs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $3.4 million for
the six months ended June 30, 1999. The increase in cash and cash equivalents
is primarily the result of net income as well as the increases in accrued
liabilities. During the six months ended June 30, 1999, cash totaling $4.5
million was used to repurchase approximately 382,000 shares of common stock.
Management believes the Company's stock is an attractive investment and
pursuant to its recently announced 500,000 common share buyback program
purchased an additional 128,000 shares of its common stock subsequent to June
30, 1999.
17
On February 23, 1999, the Company's Board of Directors authorized the
expenditure of $6.0 million for revitalizing and relaunching the Company's
products in Japan. The authorized funds will be used for marketing and
advertising costs as well as capital improvements. The Company anticipates a
majority of these expenditures to take place during the third and fourth
quarters of 1999, and will be funded from the Company's current working
capital. The Company expects operating results for the third and fourth
quarters of 1999 to be impacted by the planned investments associated with
the relaunch of its Japanese operations.
Management believes that working capital requirements can be met
through the Company's available cash and cash equivalents and
internally-generated funds 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 operations, it
may 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 became necessary.
LEGAL PROCEEDING
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 the ultimate disposition of these matters will not
have a material effect upon the Company's consolidated results of operations
or financial position.
THE YEAR 2000 ISSUE
In an effort to ensure the Company's information systems as well as
all other systems are Year 2000 ("Y2K") compliant, the Company is actively
engaged in assessing and correcting any potential
18
problems. During 1997, the Company formed a committee to review all systems
and correct any potential problems. After initial review of all internal
systems, the Company determined that the majority are currently Y2K
compliant. It is estimated by third quarter of 1999, systems which are not
currently Y2K compliant will be brought into compliance.
The Company has estimated that it may need to spend from $0.5 million
to $1.0 million to ensure that all areas of non-compliance are corrected.
Most of the systems that are not currently compliant had previously been
scheduled for replacement as part of the Company's ongoing maintenance and
upgrading programs.
The Company anticipates that risks related to its information and
non-information systems will be mitigated by current efforts being made in
conjunction with ongoing testing and review of its systems. However, the
primary Y2K risk to the Company's operation is potential service disruption
from third-party providers. These services include but are not limited to
providers that supply telephone, electricity, banking, shipping and raw
materials for the Company's manufacturing operations. Any disruption of these
critical services would hinder the Company's ability to receive, process and
ship orders. In the event of a temporary disruption in the supply of raw
materials, the Company believes it currently maintains an adequate supply of
finished goods and raw material inventories to sustain manufacturing and
distribution of finished product until alternative sources become available.
Although in the past the Company has been able to locate alternative sources,
there can be no assurance the Company will be successful in locating such
sources in the future. The Company also believes that a temporary disruption
of communication services would seriously impact the Company's ability to
receive and process orders. The Company has manual processes in place, which
it believes would provide temporary replacement for such services. Efforts
are currently underway to verify Y2K compliance of the Company's major
service providers.
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Notwithstanding the foregoing, there can be no assurance that the
Company will not experience operational difficulties as a result of Y2K
issues, either arising out of internal operations or caused by third-party
service providers, which individually or collectively could have an adverse
impact on business operations and require the Company to incur unanticipated
expenses to remedy any problems. The Company is currently evaluating what
contingency plans, if any, may need to be made in the event the Company or
third-party providers with whom the Company does business experience Y2K
problems.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and other items of this Form
10-Q 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, income or loss, capital expenditures, 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-Q 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 risks and uncertainties. Future
events and actual results could differ materially from those set forth in,
contemplated by or underlying the forward-looking statements.
20
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 17,
1999, the stockholders re-elected the following persons to three-year terms
to the Board of Directors:
WITHHOLD
NOMINEE FOR AUTHORITY
------- --- ---------
Kristine F. Hughes 16,296,476 336,716
Daniel P. Howells 16,296,412 336,780
Pauline T. Hughes, Douglas Faggioli, Robert H. Daines and Eugene L.
Hughes also serve as directors of the Company, and their terms of office
continued after the Annual Meeting.
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: August 11, 1999 /s/ Daniel P. Howells
-----------------------------------------
Daniel P. Howells, President & Chief
Executive Officer
Date: August 11, 1999 /s/ Craig D. Huff
-----------------------------------------
Craig D. Huff, Chief Financial Officer
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