<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee required]
For the Fiscal Year Ended December 31, 1995
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OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No fee required]
For the transition period from N/A to N/A
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Commission File Number 0-8707
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NATURE'S SUNSHINE PRODUCTS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 87-0327982
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
75 EAST 1700 SOUTH, PROVO, UTAH 84606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 342-4407
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, without par value
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(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 22, 1996 was approximately $335,233,000.
The number of shares of Common Stock, without par value, outstanding on
March 22, 1996 was 18,501,942 shares.
Documents Incorporated by Reference:
Proxy Statement for May 20, 1996 Annual Meeting of Shareholders (Part III
of this Report).
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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") is
primarily engaged in the manufacturing and marketing of nutritional and personal
care 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 Company markets its products directly in the United States, Mexico,
Venezuela, Colombia, Japan, Brazil, Canada, the United Kingdom, Costa Rica,
Malaysia, Panama, Peru, El Salvador and Guatemala. The Company also exports its
products to numerous other countries, including Australia, New Zealand and
Norway.
FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company is principally engaged in one line of business, namely, the
sale of nutritional and personal care products. Information, for each of the
Company's last three fiscal years, with respect to the amounts of revenue from
sales to unaffiliated customers, operating profit and identifiable assets of
this segment is set forth under Item 6 of this Report and such information is
incorporated by this reference and made a part hereof.
NARRATIVE DESCRIPTION OF BUSINESS
Since 1972, the principal business of the Company and its predecessors
has been the manufacture and sale of nutritional and personal care products.
The Company's nutritional products include herbs, vitamins, beverages, mineral
and food supplements and homeopathic remedies. Personal care products include
natural skin, hair and beauty care products. Additional information with
respect to the Company's business is set forth below:
PRODUCTS AND MANUFACTURING
The Company is engaged in the manufacture and distribution of
nutritional and personal care products which are primarily sold to independent
distributors who resell the Company's products directly to consumers, other
distributors, or use the products themselves. The Company purchases herbs and
other raw materials in bulk, and after quality control testing, encapsulates,
tabulates or concentrates them and then packages them for shipment. Most of the
Company's products are manufactured at its facilities in Spanish Fork, Utah.
Certain of the Company's personal care products are manufactured for the
Company, in accordance with its specifications and standards, by contract
manufacturers. The Company has implemented stringent quality control procedures
to verify that the contract manufacturers have complied with its specifications
and standards.
2
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DISTRIBUTION AND MARKETING
The Company attracts independent distributors who explain and market the
Company's products through direct selling techniques to consumers and sponsor
other distributors. The Company maintains a high level of motivation, morale
and enthusiasm among its independent distributors through a combination of high
quality competitively-priced products, product support, financial incentives,
sales conventions, automobile allowances, health insurance, travel programs and
a variety of training programs, publications and promotional materials.
The Company's domestic product sales are shipped directly from its
manufacturing facilities located in Spanish Fork, Utah, as well as from its
regional warehouses located in Columbus, Ohio; Dallas, Texas and Atlanta,
Georgia. Each subsidiary operation maintains an inventory to supply its
customers.
Demand for the Company's products is created by approximately 373,000
active members (at December 31, 1995) of the Company's independent distributor
sales force. A person who wishes to join the Company's independent sales force
begins as a "Distributor". One can become a Distributor only by applying to the
Company under the sponsorship of someone who is already a member of the
independent sales force. 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 dependent upon
attaining certain purchase volume levels and demonstrating leadership abilities.
Managers numbered approximately 11,500 at December 31, 1995. Managers resell
the products they purchase from the Company to the Distributors in their sales
group, to consumers or use the products themselves. Many Distributors sell on a
part-time basis to friends or associates or consume the Company's products
themselves.
Domestically, the Company generally sells its products on a cash or
credit card basis. For certain of the Company's international operations, the
Company uses independent distribution centers and offers credit terms consistent
with industry standards.
The Company pays its Managers sales commissions ("overrides") and volume
discounts based upon the amount of personal product purchases as well as their
sales group volume. Reference is made to Item 8 contained herein for the total
commissions and discounts ("Volume Incentives") paid by the Company for the
years ended December 31, 1993 through 1995. In addition, Managers who qualify
by attaining certain levels of monthly product purchases are eligible for
additional incentive programs including automobile allowances, medical and
dental insurance 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, and 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, and therefore, believes it
will be able to do so in the future.
3
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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, as well as the trademark "Nature's Spring" for its water purifier. The
Company also owns numerous trademark registrations in the United States and in
many foreign countries.
SEASONALITY
The business of the Company does not reflect significant seasonality.
WORKING CAPITAL ITEMS
The Company maintains a substantial inventory of raw materials and
finished goods in order to provide a high level of service 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; and as a result, there is no significant amount of backlog at any
given time.
GOVERNMENT CONTRACTS
The Company is not a party to any contracts with the government which
may be subject to renegotiation or termination.
COMPETITION
The Company's products are sold in domestic and foreign markets 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
heavily advertised and promoted products through retail stores as well as
against other direct selling companies. For example, the Company competes
against numerous manufacturers and retailers of nutritional and personal care
products which are distributed through supermarkets, department stores, drug
stores, health food 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 Company is one of the world's largest distributors of encapsulated
and tableted herbal products. The principal competitors in the encapsulated and
tableted herbal market include Nature's Herbs (Utah), Nature's Way (Utah) and
Sunrider (California).
4
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The Company believes that the principal methods of competition in the
direct sales marketing of nutritional and personal care products are quality,
price and brand name. In addition, the recruitment, training, financial and
travel incentives for the independent sales force are important factors.
RESEARCH AND DEVELOPMENT
The Company conducts its research and development activities at its
manufacturing facilities located in Spanish Fork, Utah. Principal emphasis of
the Company's research and development activities is the development of new
products and improvement of existing products for domestic and foreign markets.
The amount excluding capital expenditures spent during each of the last three
years on Company-sponsored research and development activities was approximately
$1,100,000, $800,000 and $600,000 in 1995, 1994, and 1993, respectively. The
Company has no 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
One or more of the following agencies regulates the formulation,
labeling and advertising of each of the Company's major product groups: the
Federal Food and Drug Administration ("FDA"), the Federal Trade Commission
("FTC"), the Consumer Product Safety Commission ("CPSC") and various agencies of
the countries and states into which the Company's products are shipped or sold.
In addition, the Company's distribution and sales program is, like that of other
companies operating in interstate commerce, subject to the jurisdiction of the
FTC and a number of other Federal and state agencies. Various state agencies
regulate multi-level distribution activities.
As a result of the Company's efforts to comply with applicable statutes
and regulations, the Company has from time to time reformulated, relabeled or
eliminated certain of its products and revised certain provisions of its sales
and marketing program. The Company believes it is in material compliance with
the applicable Federal and state rules and regulations pertaining to its
products and marketing program.
EMPLOYEES
The approximate number of people employed by the Company as of
December 31, 1995, was 860. The Company believes that its relations with its
employees are satisfactory.
5
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INTERNATIONAL OPERATIONS
The Company's direct sales of nutritional and personal care products are
established internationally in Mexico, Venezuela, Colombia, Japan, Brazil,
Canada, the United Kingdom, Costa Rica, Malaysia, Panama, Peru, El Salvador and
Guatemala. The Company also exports its products to numerous other countries,
including Australia, New Zealand and Norway. Information, for each of the
Company's last three years, with respect to the amounts of revenue, operating
income, and identifiable assets attributable to domestic and international
operations, is set forth in Note 9 of the Notes to Consolidated Financial
Statements appearing in Item 8 of this Report, and such information is
incorporated herein by reference and made a part hereof.
The Company's international operations are conducted in a manner
substantially the same as those conducted domestically; however, in order to
conform to local variations, economic realities, market customs, consumer habits
and regulatory environments, differences 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. These include 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. The Company's operations in Mexico,
Colombia and Venezuela have been affected by currency devaluations.
ITEM 2. PROPERTIES
The Company's corporate offices are located in two adjacent office
buildings in Provo, Utah. The facilities are leased from an unaffiliated third
party and consist of approximately 50,000 square feet of which approximately
10,000 square feet are subleased to an unaffiliated third party. The lease
agreement for the main building, comprising approximately 32,000 square feet, is
for a 5 1/2 year term (of which 1 1/2 years remain) and grants the Company an
option to purchase the premises. The lease for the second building,
approximately 18,000 square feet, expires in five years.
The Company's principal manufacturing facilities are housed in a
building owned by the Company, of approximately 136,000 square feet, located on
approximately ten acres in Spanish Fork, Utah. The building was constructed to
the Company's specifications in 1977. The building has been expanded on several
occasions and presently includes approximately 34,000 square feet of office
space and 102,000 square feet of manufacturing and warehouse space. The
building is suited to the Company's business, and is presently being utilized at
approximately 95 percent of its productive capacity. The Company is in
the process of evaluating the expansion of its manufacturing facilities.
The preliminary cost estimate for this expansion is approximately $12,000,000.
The Company also leases a 65,000 square foot building in Spanish Fork to
supplement the warehousing of finished goods inventory.
During 1995, the Company purchased one floor of an office building in
Venezuela for approximately $2.1 million. This office space, approximately
10,000 square feet, was purchased to provide an adequate facility for the
administrative functions.
6
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In addition to its facilities in Spanish Fork and Provo, the Company
leases other properties used primarily as distribution warehouses which are
located in Columbus, Ohio; Dallas, Texas; Atlanta, Georgia; as well as Mexico,
Venezuela, Colombia, Japan, Brazil, Canada, the United Kingdom, Costa Rica,
Malaysia, Panama, Peru, El Salvador and Guatemala. Management believes these
facilities are suitable for their respective uses and are, in general, adequate
for the Company's present needs.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are presently pending to which the Company
or any of its property is subject, other than ordinary routine litigation
incidental to the Company's business or litigation involving claims for damages
not exceeding 10 percent of the Company's current assets.
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 1995 and 1994 and has been
restated to reflect the three-for-two stock split declared in February 1996.
<TABLE>
<CAPTION>
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Market Prices Market Prices
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1995 HIGH LOW 1994 HIGH LOW
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<S> <C> <C> <C> <C> <C>
First Quarter 9 1/3 6 1/2 First Quarter 10 11/12 6 2/3
Second Quarter 10 1/2 6 2/3 Second Quarter 9 7/10 7 7/10
Third Quarter 18 10 1/6 Third Quarter 9 6/11 7 7/12
Fourth Quarter 18 2/3 14 Fourth Quarter 9 1/3 7 5/12
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</TABLE>
There were approximately 860 shareholders of record as of March 15, 1996.
The Company has paid 30 consecutive quarterly cash dividends.
7
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ITEM 6. SELECTED FINANCIAL DATA
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE INFORMATION
<TABLE>
<CAPTION>
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INCOME STATEMENT DATA
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Selling, General
Sales Cost of Volume & Administrative Operating Other Income Before Net
Revenue Goods Sold Incentives Expenses Income Income Income Taxes Income
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $205,566 $38,533 $94,316 $55,221 $17,496 $2,693 $20,189 $11,878
1994 160,901 30,839 74,163 41,691 14,208 303 14,511 8,448
1993 127,194 24,210 59,741 31,747 11,496 783 12,279 7,455
1992 101,044 18,478 46,433 27,644 8,489 1,396 9,885 5,919
1991 72,605 13,962 33,427 18,685 6,531 716 7,247 4,622
1990 60,069 12,353 27,660 15,089 4,967 843 5,810 3,600
1989 52,082 10,294 24,026 11,997 5,765 634 6,399 3,958
1988 44,516 8,721 20,580 10,465 4,750 369 5,119 3,317
1987 38,184 7,510 18,145 9,118 3,411 316 3,727 2,042
1986 31,072 6,514 14,999 8,225 1,334 17 1,351 775
</TABLE>
<TABLE>
<CAPTION>
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BALANCE SHEET DATA
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Working Current Property, Plant & Total Long-Term Shareholders'
Capital Ratio Inventories Equipment, Net Assets Debt Equity
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<S> <C> <C> <C> <C> <C> <C> <C>
1995 $24,433 2.07:1 $23,127 $13,088 $65,247 $ --- $41,505
1994 18,798 2.06:1 17,278 9,919 52,458 --- 33,279
1993 14,223 2.16:1 11,171 9,672 41,534 --- 28,850
1992 11,125 2.19:1 9,367 8,917 33,987 --- 23,924
1991 10,242 2.35:1 6,523 7,500 27,420 --- 19,614
1990 9,570 2.89:1 4,836 6,885 22,004 11 16,543
1989 7,740 2.47:1 3,747 6,384 20,054 24 14,423
1988 6,939 2.64:1 3,271 5,964 17,538 36 12,855
1987 3,783 1.84:1 2,780 5,797 14,582 239 9,460
1986 2,293 1.74:1 2,661 5,715 11,682 645 7,400
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</TABLE>
(CONTINUED NEXT PAGE)
8
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<TABLE>
<CAPTION>
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COMMON SHARE SUMMARY*
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Cash Dividends Net Income Book Value Weighted
Per Share(1) Per Share Per Share(2) Average Shares
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<C> <S> <S> <S> <S>
1995 $.133 $.63 $2.25 18,887,894
1994 .120 .45 1.81 18,779,229
1993 .120 .40 1.57 18,610,359
1992 .093 .32 1.30 18,555,737
1991 .073 .25 1.07 18,461,408
1990 .067 .19 .91 18,373,494
1989 .067 .21 .79 18,537,480
1988 .026 .17 .69 18,934,971
1987 --- .11 .53 18,011,042
1986 --- .04 .42 18,212,813
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</TABLE>
<TABLE>
<CAPTION>
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OTHER INFORMATION
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Return on Square Footage
Shareholders' Return on Number of of Property Number of
Equity(3) Assets(4) Managers In Use Employees
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<S> <C> <C> <C> <C> <C>
1995 31.8% 20.2% 11,547 443,895 862
1994 27.2 18.0 8,404 346,747 718
1993 28.3 19.6 6,328 315,772 588
1992 27.2 19.3 6,150 244,789 443
1991 25.6 18.7 4,866 195,165 344
1990 23.3 17.1 3,798 161,765 281
1989 29.0 21.1 2,999 161,265 278
1988 29.7 20.7 2,645 157,765 247
1987 24.2 15.6 2,502 150,149 218
1986 10.7 6.8 2,368 150,149 208
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</TABLE>
* The common share information has been adjusted to reflect the 3-for-2 stock
split declared in February 1996.
(1) The Company expects to continue paying cash dividends.
(2) Year end shareholders' equity divided by actual shares outstanding at the
end of each year.
(3) Net income dividend by average shareholders' equity.
(4) Net income divided by average total assets.
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, 1995, was
$205.6 million compared to $160.9 million in 1994, an increase of 28 percent.
Sales revenue increased 27 percent in 1994 compared to $127.2 million reported
in 1993. The increases in sales revenue are directly related to the growth of
the Company's independent sales force and international operations, and the
continued expansion of the nutritional products market.
The Company distributes its products to consumers through an
independent sales force comprised of managers and distributors. Active managers
totaled approximately 11,500, 8,400, and 6,300 for 1995, 1994 and 1993,
respectively. Active distributors totaled approximately 373,000, 212,000 and
144,000 for 1995, 1994 and 1993, respectively.
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Price increases of approximately three percent went into effect on
April 1, 1995 and 1994, and resulted in greater sales revenue for those
years. A price increase of approximately three percent, primarily driven by
increased raw material costs, is scheduled to become effective on April 1, 1996.
Management believes this price increase will be acceptable to its sales force
and will result in increased sales revenue.
Sales revenue, related to the Company's domestic operations, increased
approximately 23 percent for 1995 and 20 percent for 1994. International sales
revenue increased approximately $19.1 million in 1995, or 39 percent, and $15.1
million in 1994, or 43 percent. The Company's operations in Mexico experienced
a sales revenue decrease of $11.4 million in 1995 primarily as the result of the
continued devaluation of the peso during 1995. The decrease in sales revenue
reported for Mexico during 1995 was more than offset by revenue increases in
other international operations, most notably Japan, Venezuela, Brazil and
Colombia. In 1994 the most significant sales increases in the international
markets were in Mexico, Colombia and Canada. International sales revenue
includes export sales to countries where the Company does not have subsidiary
operations.
COSTS AND EXPENSES
The Company's total costs and expenses, which include cost of goods
sold, volume incentives, and selling, general and administrative expenses, are
identified as a percentage of sales in the table below:
<TABLE>
<CAPTION>
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Year ended December 31 1995 1994 1993
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<S> <C> <C> <C>
Cost of goods sold 18.7% 19.2% 19.0%
Volume incentives 45.9 46.1 47.0
Selling, general and
administrative expenses 26.9 25.9 25.0
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91.5% 91.2% 91.0%
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</TABLE>
COST OF GOODS SOLD
Cost of goods sold decreased as a percent of sales during 1995 as a
result of increased efficiencies in the Company's manufacturing operations as
well as pricing adjustments in the Company's subsidiary operations. Cost of
goods sold increased as a percent of sales in 1994, as the result of
disproportionately high import costs for the Company's subsidiary in Venezuela.
Management believes that cost of goods sold will decrease slightly as a
percent of sales during 1996 as a result of continued improvements in
manufacturing efficiencies.
VOLUME INCENTIVES
Volume incentives are a significant part of the Company's direct sales
marketing program and represent payments made to its independent sales force.
These payments are designed to provide incentives for reaching higher sales
levels and to encourage organizational development. Total volume incentives
decreased slightly during 1995 and 1994 as a percent of sales, as the result of
relatively lower volume incentives in the Company's international operations.
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Management expects volume incentives to decrease slightly as a percent
of sales during 1996 since the Company's newer international operations are
expected to generate increased sales for the year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In addition to typical selling and administrative expenses, this expense
category includes costs for research and development, distribution, as well as
incentive programs such as the Company's conventions.
Selling, general and administrative expenses increased as a percent of
sales during 1995 primarily as the result of disproportionate costs of $6.3
million incurred in Japan and Brazil. Additionally, the Company's operations in
Mexico experienced a slight increase in selling, general and administrative
expenses as a percent of sales during 1995, primarily as a result of the
continued devaluation of the Peso.
Selling, general and administrative expenses increased as a percent of
sales during 1994 as the result of incremental costs incurred in the Company's
newest operations in Japan and Brazil which totaled approximately $3.6 million.
Management believes that selling, general and administrative expenses
will decrease as a percent of sales during 1996 as the result of continued
emphasis on cost containment and improved sales revenue in certain of the
Company's international operations.
OTHER INCOME AND EXPENSE
Other income (expense) consists of the following (in thousands):
<TABLE>
<CAPTION>
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Year ended December 31 1995 1994 1993
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<S> <C> <C> <C>
Interest and other income $1,921 $503 $761
Interest expense (173) (46) (1)
Foreign exchange loss (280) (745) (46)
Minority interest 1,225 591 69
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$2,693 $303 $783
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</TABLE>
INTEREST AND OTHER INCOME
Interest and other income is earned principally from investments of
excess operating cash balances. Investment income will vary depending upon the
rate of interest, the investment instruments available and the need for cash in
the Company's operations. It is management's policy to invest only in high-grade
investments.
Interest income increased during 1995 as the result of greater cash
balances available for investment as well as higher yields obtained in certain
of the Company's international operations. Management expects interest and
other income to decrease during 1996 as the result of the cash requirements for
anticipated capital projects during the year.
11
<PAGE>
Interest and other income decreased during 1994 primarily as the result
of the write down of certain other long-term assets.
FOREIGN EXCHANGE GAIN (LOSS)
Because of its operations outside of the United States, the Company is
subject to realized and unrealized foreign exchange gains and losses. The
Company experienced exchange losses of approximately $280,000 and $745,000
during 1995 and 1994, respectively. The losses were primarily related to the
Company's operations in Mexico and Colombia.
MINORITY INTEREST
The Company eliminates the minority interest in its subsidiaries which
are not wholly owned. Accordingly, the Company eliminated approximately
$1,225,000 and $591,000 of losses reported by subsidiaries in 1995 and 1994,
respectively.
INCOME TAXES
The Company's effective tax rate was 41.2, 41.8 and 39.3 percent for
1995, 1994, and 1993, respectively. The increase in the effective tax rate for
1994 and to a lesser extent in 1995 was primarily related to losses in certain
subsidiary operations for which the Company did not record a tax benefit.
INTERNATIONAL OPERATIONS
Sales revenue of the Company's international subsidiaries, including
export sales revenue, totaled $69.4 million in 1995, an increase of
approximately 39 percent over 1994. Sales revenue was $50.1 million and $34.9
million in 1994 and 1993, respectively. The Company's subsidiary operations in
Japan, Brazil, Venezuela and Colombia contributed approximately $26.0 million to
the increase in sales revenue in 1995. The Company's operations in Mexico
experienced a decrease in sales revenue of approximately $11.4 million as the
result of the continued devaluation of the Peso.
INVENTORIES
Consolidated inventories increased approximately $5.8 million or 34
percent in 1995, compared to an increase of $6.1 million or 55 percent in 1994.
These increases resulted primarily from an increase in the level of inventory
the Company maintains due to increased domestic and international sales, the
addition of new subsidiaries as well as the introduction of new products.
ACCOUNTS RECEIVABLE
Accounts receivable increased approximately $1.3 million in 1995 and
$.8 million in 1994. These increases are primarily related to the Company's
international operations. In some of its international markets, the Company
allows its independent distribution centers limited credit lines which are
generally secured by their monthly commissions.
12
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SHORT-TERM DEBT
During 1994, the Company established operating lines of credit in Japan
and Brazil to facilitate payment of start-up and initial operating expenses.
During 1995, the Company paid the outstanding balance on the line of credit in
Brazil. The Company increased its borrowings in Japan as a result of the
favorable interest rate available.
ACCRUED VOLUME INCENTIVES
Accrued volume incentives increased approximately $1.3 million at the
end of 1995, compared to the prior year, as a direct result of increased sales
revenue. Volume incentives are a significant part of the Company's direct sales
marketing program and represent payments made to its independent sales force.
ACCRUED LIABILITIES
Accrued liabilities increased approximately $1.8 million at the end of
1995, compared to the prior year. The increase is generally related to the
growth in sales revenue and expenses associated with the Company's incentive
travel programs.
CUMULATIVE TRANSLATION ADJUSTMENT
The balance of cumulative foreign currency translation adjustments
decreased shareholders' equity by approximately $1.5 million in 1995 and $2.1
million in 1994, primarily as the result of the devaluation of the Mexican peso.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $3.0 million during
1995. The increase was the result of cash generated by operations and an
increase in short-term liabilities.
Working capital was used during 1995 to purchase approximately $6.0
million of property, plant and equipment. The Company paid approximately $2.4
million in cash dividends. Volume incentive payments increased approximately
$21.0 million during 1995, primarily as the result of increased sales. Payments
to suppliers and employees increased approximately $18.0 million as a result of
higher levels of inventory and production to support higher levels of sales, as
well as increased employment-related costs. Treasury stock purchases totaled
approximately $1.3 million. The Company is in the process of evaluating the
expansion of its manufacturing facility. The preliminary cost estimate for the
expansion is approximately $12.0 million. During 1995, the Company purchased
one floor, approximately 10,000 square feet, of an office building in Venezuela
for approximately $2.1 million. In the first quarter of 1996, management agreed
to purchase an office building in Mexico for approximately $1.5 million, to
provide a more adequate facility for its administrative operations. The Company
is in the process of evaluating the purchase of additional properties, which are
necessary to accommodate the Company's continued growth, of approximately $1.6
million.
Management believes that the Company's stock is an attractive
investment and, pursuant to its previously announced 660,000 share buyback
program, may utilize some of its available
13
<PAGE>
cash to purchase up to the remaining balance of approximately 153,000 shares,
should market conditions warrant.
Options for 193,757 shares of the Company's common stock were exercised
during 1995. The cash flow benefit to the Company during the year was
approximately $1.5 million.
Management believes that future working capital requirements can be met
through internally-generated funds or can be arranged through credit facilities
on favorable terms.
14
<PAGE>
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,
1995 and 1994, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. 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 conducted our audits in accordance with generally accepted auditing
standards. 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 provide a reasonable basis for our opinion.
In our opinion, the consolidated 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Salt Lake City, Utah
February 12, 1996
15
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Revenue $205,566 $160,901 $127,194
- ---------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 38,533 30,839 24,210
Volume incentives 94,316 74,163 59,741
Selling, general and administrative expenses 55,221 41,691 31,747
- ---------------------------------------------------------------------------------------------------------
188,070 146,693 115,698
- ---------------------------------------------------------------------------------------------------------
Operating Income 17,496 14,208 11,496
- ---------------------------------------------------------------------------------------------------------
Other income (expense):
Interest and other income 1,921 503 761
Interest expense (173) (46) (1)
Foreign exchange loss (280) (745) (46)
Minority interest 1,225 591 69
- ---------------------------------------------------------------------------------------------------------
2,693 303 783
- ---------------------------------------------------------------------------------------------------------
Income before income taxes 20,189 14,511 12,279
Provision for income taxes 8,311 6,063 4,824
- ---------------------------------------------------------------------------------------------------------
Net Income $ 11,878 $ 8,448 $ 7,455
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net Income Per Common Share $ .63 $ .45 $ .40
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding 18,888 18,779 18,610
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying significant accounting policies and notes to consolidated
financial statements are an integral part of these statements.
16
<PAGE>
CONSOLIDATED BALANCE SHEETS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
As of December 31 1995 1994
- -------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $14,172 $11,201
Accounts receivable, net of allowance for doubtful accounts
of $346 in 1995 and $636 in 1994 6,042 4,787
Inventories 23,127 17,278
Notes receivable due from related parties 213 205
Prepaid expenses and other 3,619 3,092
- -------------------------------------------------------------------------------------------
Total current assets 47,173 36,563
- -------------------------------------------------------------------------------------------
Property, plant and equipment, net 13,088 9,919
Long-term investments 2,381 3,053
Other assets 2,605 2,923
- -------------------------------------------------------------------------------------------
$65,247 $52,458
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------
Current liabilities:
Short-term debt $ 2,042 $ 1,533
Accounts payable 5,031 4,473
Accrued volume incentives 7,207 5,877
Accrued liabilities 6,577 4,818
Income taxes payable 1,883 1,064
- -------------------------------------------------------------------------------------------
Total current liabilities 22,740 17,765
- -------------------------------------------------------------------------------------------
Deferred income taxes 1,002 971
- -------------------------------------------------------------------------------------------
Minority Interest --- 442
- -------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value, authorized 20,000 shares,
issued 19,412 shares 31,263 29,849
Retained earnings 19,214 9,778
Treasury stock, at cost, 1,012 and 1,033
shares held in treasury as of December 31, 1995
and 1994, respectively (4,942) (3,742)
Receivables due from related parties (293) (405)
Cumulative foreign currency translation adjustments (3,737) (2,200)
- -------------------------------------------------------------------------------------------
Total shareholders' equity 41,505 33,280
- -------------------------------------------------------------------------------------------
$65,247 $52,458
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying significant accounting policies and notes to consolidated
financial statements are an integral part of these statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year $29,849 $15,794 $15,769
Tax benefit related to exercise of stock options 683 138 (8)
Issuance of .6, 16 and .4, shares of
treasury stock, respectively 13 202 4
Issuance of 129, 40 and 4 shares of
treasury stock, respectively, on exercise of
stock options 721 157 29
Stock dividend (3) 13,559 ---
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 31,263 29,849 15,794
- ---------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 9,778 17,118 11,890
Net income 11,878 8,448 7,455
Stock dividend --- (13,559) ---
Cash dividends (2,442) (2,229) (2,227)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 19,214 9,778 17,118
- ---------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of year (3,742) (3,500) (3,169)
Purchase of common stock (1,298) (285) (335)
Cost of treasury stock issued 98 43 4
- ---------------------------------------------------------------------------------------------------------
Balance at end of year (4,942) (3,742) (3,500)
- ---------------------------------------------------------------------------------------------------------
RECEIVABLES DUE FROM RELATED PARTIES:
Balance at beginning of year (405) (418) (431)
Reductions 112 13 13
- ---------------------------------------------------------------------------------------------------------
Balance at end of year (293) (405) (418)
- ---------------------------------------------------------------------------------------------------------
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENTS:
Balance at beginning of year (2,200) (144) (135)
Foreign currency translation adjustments (1,537) (2,056) (9)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year (3,737) (2,200) (144)
- ---------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $41,505 $33,280 $28,850
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying significant accounting policies and notes to consolidated
financial statements are an integral part of these statements.
18
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
- -----------------------------------------------------------------------------------------------------------------------
Year ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales revenue $204,085 $159,447 $125,738
Cash paid as volume incentives (92,986) (72,002) (59,991)
Cash paid to suppliers and employees (94,740) (76,727) (56,423)
Interest paid (173) (46) (1)
Interest received 1,868 371 707
Income taxes paid (7,462) (3,774) (2,312)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,592 7,269 7,718
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,098) (2,590) (3,008)
(Purchase) Sale of long-term investments, net 672 (683) (481)
Payments received on long-term receivables, net 393 325 752
Receivables due from related parties 112 13 13
Purchase of other assets (331) (1,235) (397)
Payments (additions) short-term related party receivables (180) 76 133
Minority interest elimination 341 336 106
Proceeds from sales of assets --- --- 137
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,091) (3,758) (2,745)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends (2,446) (2,229) (2,227)
Purchase of treasury stock (1,298) (285) (335)
Proceeds from short-term debt, net 509 1,533 ---
Proceeds from exercise of stock options 819 187 29
Tax benefit from stock option exercise 683 138 ---
Issuance of treasury stock 14 215 ---
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,719) (441) (2,533)
- -----------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH (810) (536) (80)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,971 2,534 2,360
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,201 8,667 6,307
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $14,172 $ 11,201 $ 8,667
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Reconciliation of Net Income to Net Cash Provided by Operating Activities
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 11,878 $ 8,448 $ 7,455
- -----------------------------------------------------------------------------------------------------------------------
Bad debt expense and reserve 242 839 249
Depreciation and amortization 3,467 3,067 2,076
Increase in accounts receivable, net (1,349) (1,681) (1,714)
Increase in inventories (5,849) (6,107) (2,354)
Increase in prepaid expenses and other (1,593) (402) (580)
Increase (decrease) in income taxes payable 818 997 (116)
Increase in accrued liabilities and volume incentives 3,090 1,833 1,381
Increase in accounts payable 558 1,129 1,633
Increase (decrease) in deferred income taxes 55 667 (384)
Foreign currency translation adjustment (725) (1,521) 72
- -----------------------------------------------------------------------------------------------------------------------
Total adjustments (1,286) (1,179) 263
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,592 $ 7,269 $ 7,718
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying significant accounting policies and notes to consolidated
financial statements are an integral part of these statements.
19
<PAGE>
SIGNIFICANT ACCOUNTING POLICIES
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION
NATURE OF OPERATIONS
Nature's Sunshine Products, Inc., incorporated in Utah in 1976, and its
subsidiaries (hereinafter referred to collectively as the "Company") is
primarily engaged in the manufacturing and marketing of nutritional and personal
care 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 Company markets its products directly in the United States, Mexico,
Venezuela, Colombia, Japan, Brazil, Canada, the United Kingdom, Costa Rica,
Malaysia, Panama, Peru, El Salvador and Guatemala. The Company also exports its
products to numerous other countries, including Australia, New Zealand and
Norway.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Nature's
Sunshine Products, Inc. and its majority-owned subsidiaries. Intercompany
transactions have been eliminated in consolidation.
NET INCOME PER SHARE
Net income per share is based upon the weighted average number of common
shares and common equivalent shares outstanding during the period. Common
equivalent shares consist primarily of stock options, which have a dilutive
effect when applying the treasury stock method.
The Board of Directors declared a three-for-two stock split to
shareholders of record March 4, 1996, a ten percent stock dividend to
shareholders of record February 17, 1995, and a four-for-three stock split to
shareholders of record January 13, 1993. All per share amounts included in the
consolidated financial statements and accompanying notes reflect the increased
number of shares, giving retroactive effect to the stock dividend and splits.
INCOME TAXES
The Company recognizes a liability or asset for the deferred tax
consequences of temporary differences between the tax bases 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. 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.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported
20
<PAGE>
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
RECENT ACCOUNTING PRONOUNCEMENT
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets." The Company is required to adopt SFAS No.
121 in 1996. Management does not expect that the adoption of SFAS No. 121 will
have a material impact on the Company's consolidated financial statements.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of the international subsidiaries have been
translated to U.S. dollars in accordance with the provisions of SFAS No. 52.
The Company translated the assets and liabilities of its international
operations at rates of exchange in effect at year end, and the consolidated
statements of income were translated at the average rates of exchange for the
year. Gains and losses resulting from translation are accumulated as a separate
component of shareholders' equity. Gains and losses resulting from foreign
currency transactions are included in the consolidated statements of income.
REVENUE RECOGNITION
For domestic sales, the Company generally receives its product sales
price in cash accompanying orders from independent sales force members. For
certain of the Company's international operations, the Company offers credit
terms consistent with industry standards. A volume incentive payment related to
product orders is made in the month following the sale. Sales and related volume
incentives are recorded when the merchandise is shipped. Cash received for
unshipped merchandise is recorded as a liability.
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
includes only investments with original maturities of three months or less.
SELLING EXPENSES
Independent sales force members may earn Company-paid attendance at
conventions as well as other travel awards by achieving the required levels of
product purchases within the qualification period. Convention costs and other
travel expenses are accrued over the qualification period as they are earned.
Accordingly, the Company accrued approximately $1,450 and $650 at December 31,
1995 and 1994, respectively.
21
<PAGE>
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred. Total
research and development costs were approximately $1,100, $800 and $648 for
1995, 1994 and 1993, respectively.
CASH DIVIDENDS PER COMMON SHARE
The Company declared and paid quarterly cash dividends totaling 13 1/3
cents per common share in 1995. The Company has declared a quarterly cash
dividend of 3 1/3 cents per common share on the newly split shares, which is
unchanged from the $.05 per common share paid on the prior number of outstanding
shares, to shareholders of record on March 4, 1996 and payable March 22, 1996.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION
NOTE 1: INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-
out method) or market value. The composition of inventories is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
As of December 31 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Raw materials $ 7,772 $ 6,125
Work in process 1,123 1,303
Finished goods 14,232 9,850
- -----------------------------------------------------------------
$23,127 $17,278
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
NOTE 2: PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment are recorded at cost.
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. Maintenance and repairs are charged to expense 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. The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
As of December 31 1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $ 8,880 $ 6,223
Machinery and equipment 7,992 6,537
Furniture and fixtures 7,381 6,023
- -----------------------------------------------------------------
24,253 18,783
Accumulated depreciation and
amortization (11,376) (9,075)
Land 211 211
- -----------------------------------------------------------------
$13,088 $ 9,919
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
22
<PAGE>
NOTE 3: INVESTMENTS
The following are the aggregate fair values and related gross unrealized
holding gains and losses for securities available for sale and securities held
to maturity at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Securities available for sale:
Amortized cost $7,922 $6,428
Gross unrealized holding gains 292 86
Gross unrealized holding losses (194) (75)
- -----------------------------------------------------------------
Aggregate fair value $8,020 $6,439
- -----------------------------------------------------------------
Securities held to maturity:
Amortized cost $ --- $1,049
Gross unrealized holding losses --- (95)
- -----------------------------------------------------------------
Aggregate fair value $ --- $ 954
- -----------------------------------------------------------------
- -----------------------------------------------------------------
</TABLE>
During 1995, the proceeds from the sales of available-for-sale
securities was $3,598. The gross realized gains and gross realized losses on
the sales of available-for-sale securities was $34 and $63, respectively, for
the year ended December 31, 1995. In determining the realized gains and losses,
the Company has used the specific identification method to determine the cost of
the investments.
The total net unrealized holding losses on trading securities recognized
in the consolidated statement of income for the year ended December 31, 1994,
was $150.
NOTE 4: SHORT-TERM DEBT
During 1994, the Company established operating lines of credit in Japan and
Brazil to facilitate payment of start-up and initial operating expenses. During
1995, the Company paid the outstanding balance on the line of credit in Brazil.
The Company increased its borrowings, which are payable in local currency, in
Japan as a result of the favorable interest rate. The debt is unsecured and
payable during 1996. The weighted average interest rate approximates two
percent at December 31, 1995.
NOTE 5: INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Year ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $4,984 $3,844 $2,657
State 967 610 446
Foreign 2,305 2,275 2,104
- ----------------------------------------------------------------------------
8,256 6,729 5,207
- ----------------------------------------------------------------------------
Deferred 55 (666) (383)
- ----------------------------------------------------------------------------
Total provision for income taxes $8,311 $6,063 $4,824
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
23
<PAGE>
The domestic and foreign components of income before taxes are as follows:
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $14,617 $11,053 $ 7,889
Foreign 5,572 3,458 4,390
- ----------------------------------------------------------------------------
Total $20,189 $14,511 $12,279
- ----------------------------------------------------------------------------
</TABLE>
The provision for income taxes as a percentage of income before taxes
differs from the statutory Federal income tax rate due to the following:
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax rate 35.0% 34.3% 34.2%
State income taxes, net of Federal
income tax benefit 3.1 2.8 1.6
Foreign and other tax credits (5.1) (6.5) (7.5)
Net effect of foreign subsidiaries
tax attributes 6.8 12.1 12.0
Other 1.4 (.9) (1.0)
- ----------------------------------------------------------------------------
Effective tax rate 41.2% 41.8% 39.3%
- ----------------------------------------------------------------------------
</TABLE>
The components of the deferred income tax assets and liabilities as of
December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 31 $ 293
Inventory unicap adjustment 479 273
Foreign tax credits 158 260
State income taxes 313 236
Accrued vacation 99 76
Inventory obsolescence reserve 170 53
Foreign currency exchange 58 93
Sale of subsidiary -- 15
Intangible assets -- 29
Environmental taxes -- 5
- -----------------------------------------------------------------
Total deferred tax assets $ 1,308 $1,333
- -----------------------------------------------------------------
Deferred tax liabilities:
Accelerated depreciation $ (696) $ (479)
Gain on sale of subsidiaries (306) (492)
- -----------------------------------------------------------------
Total deferred tax liabilities $(1,002) $ (971)
- -----------------------------------------------------------------
</TABLE>
24
<PAGE>
NOTE 6: STOCK OPTIONS
The Company has from time to time granted certain non-qualified stock
options to officers, directors and key employees. Such grants have been made at
the fair market value of the stock at the date of grant. As of December 31,
1995, the Company has reserved approximately one million treasury shares to
accommodate the exercise of the outstanding options.
Stock option activity for 1993, 1994 and 1995 consisted of the following:
<TABLE>
<CAPTION>
Number of
Shares Range of Option
(IN THOUSANDS) Prices Per Share
- ---------------------------------------------------------------------
<S> <C> <C>
Options outstanding
at December 31, 1992 (b) 1,059 $1.79-$6.37
- ---------------------------------------------------------------------
Options issued 531 $6.51-$6.67
Options canceled (13) $5.38-$6.51
Options exercised (a) (7) $1.86-$4.85
- ---------------------------------------------------------------------
Options outstanding
at December 31, 1993 (b) 1,570 $1.79-$6.67
- ---------------------------------------------------------------------
Options issued 406 $8.26-$8.79
Options canceled (1) $3.03
Options exercised (a) (66) $1.79-$6.37
- ---------------------------------------------------------------------
Options outstanding
at December 31, 1994 (b) 1,909 $1.79-$8.79
- ---------------------------------------------------------------------
Options issued 1,701 $8.83-$16.33
Options canceled (39) $6.67
Options exercised (a) (194) $1.79-$6.37
- ---------------------------------------------------------------------
Options outstanding
at December 31, 1995 (b) 3,377 $1.79-$16.33
- ---------------------------------------------------------------------
</TABLE>
(a) Shares issued related to the exercise of stock options were issued from
treasury stock.
(b) Options for 1,389, 1,048 and 940 shares of common stock were exercisable on
December 31, 1995, 1994 and 1993, respectively.
NOTE 7: EMPLOYEE BENEFIT PLANS
DEFERRED COMPENSATION PLAN
The Company sponsors a qualified deferred compensation plan (401(k)).
During 1995, the Company contributed matching contributions of 100 percent of
employee contributions up to a maximum of five percent of the employee's
compensation. Employer contributions to the plan during 1995, 1994 and 1993
were approximately $478, $284, and $314, respectively.
MANAGEMENT AND EMPLOYEE BONUS PLAN
The Company has a bonus plan that provides for participants to receive
payments based upon the annual increase in revenue and operating income. The
expense related to the plan was approximately $2,706, $1,912, and $1,520 for
1995, 1994 and 1993, respectively. Hourly employees have participated in the
plan since 1994.
25
<PAGE>
NOTE 8: RELATED PARTY TRANSACTIONS
In the second quarter of 1995, the Company advanced $120 to one of its
officers on a short-term basis at an interest rate of nine percent. The loan
was repaid with interest during the third quarter.
In the second quarter of 1995, the Company advanced $250 to a key employee.
The loan is collateralized and bears interest at nine percent. The loan is
being repaid over a two-year period.
During the first quarter of 1994, loans totaling approximately $305 were
made to an officer of the Company. The entire amount including interest at six
percent was repaid during 1994.
During 1993 and 1992, the Company made loans of approximately $725 and
$684, respectively, to certain officers of the Company. Approximately $434 was
used by the officers to purchase Company stock in the open market. The stock
that was purchased was pledged as collateral. The loans are payable within 90
days of demand and bear interest at six percent. The outstanding balance of
these loans at December 31, 1995 and 1994, was approximately $393 and $505,
respectively.
NOTE 9: INTERNATIONAL OPERATIONS
Sales for domestic and international operations during the past three years
were as follows:
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Domestic $136,168 $110,839 $ 92,248
- -----------------------------------------------------------------
International:
Americas 53,296 42,215 31,004
Asia Pacific 11,953 4,115 756
Other 4,149 3,732 3,186
- -----------------------------------------------------------------
Total International 69,398 50,062 34,946
- -----------------------------------------------------------------
Total Sales $205,566 $160,901 $127,194
- -----------------------------------------------------------------
</TABLE>
Operating income for domestic and international operations during the past
three years was as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Domestic $13,357 $ 9,706 $ 7,087
- -----------------------------------------------------------------
International:
Americas 5,994 4,578 4,203
Asia Pacific (2,326) (473) (23)
Other 471 397 229
- -----------------------------------------------------------------
Total International 4,139 4,502 4,409
- -----------------------------------------------------------------
Total Operating Income $17,496 $14,208 $11,496
- -----------------------------------------------------------------
</TABLE>
26
<PAGE>
Total assets for domestic and international operations for the past three
years were as follows:
<TABLE>
<CAPTION>
As of December 31 1995 1994 1993
- -----------------------------------------------------------------
<S> <C> <C> <C>
Domestic $40,996 $34,973 $ 28,752
- -----------------------------------------------------------------
International:
Americas 18,941 12,970 11,597
Asia Pacific 4,239 3,487 459
Other 1,071 1,028 726
- -----------------------------------------------------------------
Total International 24,251 17,485 12,782
- -----------------------------------------------------------------
Total Assets $65,247 $52,458 $41,534
- -----------------------------------------------------------------
</TABLE>
NOTE 10: COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment used in its operations.
The approximate aggregate commitments under non-cancelable operating leases in
effect at December 31, 1995, were as follows:
<TABLE>
<CAPTION>
Year ending December 31 Lease Commitments
- ------------------------------------------------------------------
<S> <C>
1996 $2,685
1997 1,186
1998 676
1999 470
2000 and thereafter 824
- ------------------------------------------------------------------
$5,841
- ------------------------------------------------------------------
</TABLE>
The Company incurred expenses of approximately $2,725, $2,434 and $1,605 in
connection with operating leases during 1995, 1994 and 1993, respectively.
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 will not have a
material effect upon the Company's results of operations or financial position.
27
<PAGE>
SUMMARY OF QUARTERLY OPERATIONS -- UNAUDITED
DOLLAR AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE INFORMATION
<TABLE>
<CAPTION>
Income
Selling, General Other Before Net
Sales Cost of Volume & Administrative Operating Income Income Net Income
1995 Revenue Goods Sold Incentives Expenses Income (Expense) Taxes Income Per Share*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Qtr $ 47,062 $ 9,229 $21,794 $13,052 $ 2,987 $ 453 $ 3,440 $ 2,014 $.11
Second Qtr 50,725 9,523 23,104 13,446 4,652 380 5,032 2,972 .16
Third Qtr 53,164 9,817 24,222 13,860 5,265 451 5,716 3,306 .17
Fourth Qtr 54,615 9,964 25,196 14,863 4,592 1,409 6,001 3,586 .19
- ---------------------------------------------------------------------------------------------------------------------------------
$205,566 $38,533 $94,316 $55,221 $17,496 $2,693 $20,189 $11,878 $.63
- ---------------------------------------------------------------------------------------------------------------------------------
1994
- ---------------------------------------------------------------------------------------------------------------------------------
First Qtr $ 37,337 $ 7,049 $17,718 $ 9,503 $ 3,067 $ (29) $ 3,038 $ 1,701 $.09
Second Qtr 38,312 7,508 17,840 9,359 3,605 377 3,982 2,237 .12
Third Qtr 41,003 7,917 18,690 10,930 3,466 192 3,658 2,221 .12
Fourth Qtr 44,249 8,365 19,915 11,899 4,070 (237) 3,833 2,289 .12
- ---------------------------------------------------------------------------------------------------------------------------------
$160,901 $30,839 $74,163 $41,691 $14,208 $ 303 $14,511 $ 8,448 $.45
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*The common share information has been adjusted to reflect the 3-for-2 stock
split declared in February 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
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, 1995, 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, 1995, 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, 1995, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
28
<PAGE>
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, 1995, 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 for the years ended December 31,
1995, 1994 and 1993.
Consolidated balance sheets as of December 31, 1995 and 1994.
Consolidated statements of shareholders' equity for the years ended
December 31, 1995, 1994 and 1993.
Consolidated statements of cash flows for the years ended December
31, 1995, 1994 and 1993.
Significant Accounting Policies
Notes to Consolidated Financial Statements
Summary of Quarterly Operations - Unaudited
(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 those 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.
29
<PAGE>
(a)(3) List of Exhibits
3.1(1) - Restated Articles of Incorporation
3.2(2) - By-laws, as amended
10.1(3) - Lease Agreement dated January 8, 1992 between the
Registrant and East Bay Associates Partnership No.
3
10.2(4) - 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(5) - 1990 Long-Term Incentive Compensation Plan
10.4(5) - Form of Stock Option Agreement (1990 Long-Term
Incentive Compensation Plan)
10.5(6) - Executive Loan Program
10.6(6) - Exempt Employee Incentive Compensation Plan
10.7(7) - 1993 Stock Option Plan
10.8(7) - Forms of Stock Option Agreements for employees and
non-employee directors (1993 Stock Option Plan)
10.9 1995 Stock Option Plan
10.10 Form of Stock Option Agreement (1995 Stock Option
Plan)
10.11 Key Employees' Automobile Incentive Program
22 - List of Subsidiaries of Registrant
24 - Consent of Independent Public Accountants
27 - Financial Data Schedules
____________
- ------------
[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, 1991 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, 1994 and is incorporated herein
by reference.
30
<PAGE>
(5) Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1990 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, 1992 and is incorporated herein
by reference.
(7) Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1993 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, 1995.
(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.
31
<PAGE>
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 25, 1996 By: /s/ Alan D. Kennedy
------------------------------------
Alan D. Kennedy, President and
Chief Executive Officer
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/ Alan D. Kennedy President, Chief Executive Officer March 25, 1996
- -------------------
Alan D. Kennedy and Director
/s/ Kristine F. Hughes Chairman of the Board and Director March 25, 1996
- ----------------------
Kristine F. Hughes
/s/ Douglas Faggioli Vice President of Finance, Treasurer, March 25, 1996
- --------------------
Douglas Faggioli Chief Financial Officer
/s/ Eugene L. Hughes Vice President and Director March 25, 1996
- --------------------
Eugene L. Hughes
/s/ Merrill Gappmayer Director March 25, 1996
- ---------------------
Merrill Gappmayer
/s/ Pauline T. Hughes Director March 25, 1996
- ---------------------
Pauline T. Hughes
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To Nature's Sunshine Products, Inc.:
We have audited in accordance with generally accepted auditing standards, 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 12, 1996. 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 12, 1996
33
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Amounts Amounts End of
Description of Period Provisions Written Off Recovered Period
----------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Allowance for doubtful
accounts receivable $111,750 $279,946 $(128,027) $ (3,621) $260,048
Allowance for obsolete
inventory 306,359 (25,032) --- --- 281,327
Allowance for notes
receivable --- --- --- --- ---
Year ended December 31, 1994
Allowance for doubtful
accounts receivable $260,048 $839,232 $(460,921) $ (2,414) $635,945
Allowance for obsolete
inventory 281,327 --- (77,913) (89,429) 113,985
Allowance for notes
receivable --- 304,086 --- --- 304,086
Year ended December 31, 1995
Allowance for doubtful
accounts receivable $635,945 $182,753 $(462,348) $(10,210) $346,140
Allowance for obsolete
inventory 113,985 321,597 --- --- 435,582
Allowance for notes
receivable 304,086 --- (289,682) --- 14,404
</TABLE>
34
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
Located At
Sequentially
Item No. Exhibit Numbered Page
-------- ------- -------------
<S> <C> <C>
3.1[1] - Restated Articles of Incorporation ---
3.2[2] - By-laws, as amended ---
10.1[3] - Lease Agreement dated January 8, 1992 between the ---
Registrant and East Bay Associates Partnership No. 3
10.2[4] - 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[5] - 1990 Long-Term Incentive Compensation Plan ---
10.4[5] - Form of Stock Option Agreement (1990 Long-Term Incentive ---
Compensation Plan)
10.5[6] - Executive Loan Program ---
10.6[6] - Exempt Employee Incentive Compensation Plan ---
10.7[7] - 1993 Stock Option Plan ---
10.8[7] - Forms of Stock Option Agreements for employees and ---
non-employee directors (1993 Stock Option Plan)
10.9 1995 Stock Option Plan 37
10.10 Form of Stock Option Agreement (1995 Stock Option Plan) 53
10.11 Key Employees' Automobile Incentive Program 56
22 - List of Subsidiaries of Registrant 57
24 - Consent of Independent Public Accountants 58
27 - Financial Data Schedules 59
</TABLE>
____________
[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, 1991 and is incorporated herein
by reference.
35
<PAGE>
[4] 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.
[5] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1990 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, 1992 and is incorporated herein
by reference.
[7] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1993 and is incorporated herein
by reference.
36
<PAGE>
EXHIBIT 10.9
NATURE'S SUNSHINE PRODUCTS, INC.
1995 STOCK OPTION PLAN
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
I. THE PLAN
1.1 PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ADMINISTRATION AND AUTHORIZATION; POWER AND PROCEDURE. . . . . . . . . 1
1.3 PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 SHARES AVAILABLE FOR OPTIONS . . . . . . . . . . . . . . . . . . . . . 3
1.5 GRANT OF OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 TERM OF OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.7 LIMITATIONS ON EXERCISE OF OPTIONS . . . . . . . . . . . . . . . . . . 4
1.8 ACCEPTANCE OF NOTES TO FINANCE EXERCISE. . . . . . . . . . . . . . . . 4
1.9 NO TRANSFERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 5
II. EMPLOYEE OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 GRANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 OPTION PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 LIMITATIONS ON GRANT AND TERMS OF INCENTIVE STOCK OPTIONS. . . . . . . 6
2.4 LIMITS ON 10% HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER OF RESTRICTIONS . . . 7
III. OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES . . . . . 8
3.2 ADJUSTMENTS; ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . 8
3.3 EFFECT OF TERMINATION OF EMPLOYMENT. . . . . . . . . . . . . . . . . . 10
3.4 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5 TAX WITHHOLDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.6 PLAN AMENDMENT, TERMINATION AND SUSPENSION . . . . . . . . . . . . . . 11
3.7 PRIVILEGES OF STOCK OWNERSHIP. . . . . . . . . . . . . . . . . . . . . 12
3.8 EFFECTIVE DATE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . 12
3.9 TERM OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.10 GOVERNING LAW; CONSTRUCTION; SEVERABILITY. . . . . . . . . . . . . . . 12
3.11 CAPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.12 EFFECT OF CHANGE OF SUBSIDIARY STATUS. . . . . . . . . . . . . . . . . 13
3.13 NON-EXCLUSIVITY OF PLAN. . . . . . . . . . . . . . . . . . . . . . . . 13
IV. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC.
1995 STOCK OPTION PLAN
I. THE PLAN
1.1 Purpose
The purpose of this Plan is to promote the success of the Company by
providing an additional means through the grant of stock options to attract,
motivate, retain and reward key employees, including officers, whether or not
directors, of the Company with incentives for high levels of individual
performance and improved financial performance of the Company. "Corporation"
means Nature's Sunshine Products, Inc., a Utah corporation, and "Company"
means the Corporation and its Subsidiaries, collectively. These terms and
other capitalized terms are defined in Article IV.
1.2 Administration and Authorization; Power and Procedure
(a) Committee. This Plan shall be administered by and all Options to
Eligible Employees shall be authorized by the Committee. Action of
the Committee with respect to the administration of this Plan shall
be taken pursuant to a majority vote or by written consent of its
members.
(b) Plan Options; Interpretation; Powers of Committee. Subject to the
express provisions of this Plan, the Committee shall have the
authority:
(i) to determine from among those persons eligible the particular
Eligible Employees who will receive any Options;
(ii) to grant Options to Eligible Employees, determine the price at
which the Options may be exercised (equal to at least Fair
Market Value), the amount of securities to be subject to such
Options, and determine the other specific terms and conditions
of such Options consistent with the express limits of this Plan,
and establish the installments (if any) in which such Options
shall become exercisable, or determine that no delayed
exercisability is required, and establish the events of
termination of such Options;
(iii) to approve the forms of Option Agreements (which need not be
identical either as to type of option or as among Participants);
(iv) to construe and interpret this Plan and any agreements defining
the rights and obligations of the Company and employee
Participants under this Plan, further define the terms used in
this Plan, and prescribe, amend and rescind rules and regulations
relating to the administration of this Plan;
(v) to cancel, modify, or waive the Corporation's rights with respect
to, or modify, discontinue, suspend, or terminate any or all
outstanding Options held by Eligible Employees, subject to any
required consent under Section 3.6;
<PAGE>
(vi) to accelerate or extend the exercisability or extend the term of
any or all such outstanding Options within the maximum ten-year
term of Options under Section 1.6; and
(vii) to make all other determinations and take such other action as
contemplated by this Plan or as may be necessary or advisable for
the administration of this Plan and the effectuation of its
purposes.
(c) Binding Determinations. Any action taken by, or inaction of, the
Corporation, any Subsidiary, the Board or the Committee relating or
pursuant to this Plan shall be within the absolute discretion of that
entity or body and shall be conclusive and binding upon all persons.
No member of the Board or Committee, or officer of the Corporation or
any Subsidiary, shall be liable for any such action or inaction of the
entity or body, of another person or except in circumstances involving
bad faith, of himself or herself. Subject only to compliance with the
express provisions hereof, the Board and Committee may act in their
absolute discretion in matters within their authority related to this
Plan.
(d) Reliance on Experts. In making any determination or in taking or not
taking any action under this Plan, the Committee or the Board, as the
case may be, may obtain and may rely upon the advice of experts,
including professional advisors to the Corporation. No director,
officer or agent of the Company shall be liable for any such action
or determination taken or made or omitted in good faith.
(e) Delegation. The Committee may delegate ministerial, non-discretionary
functions to individuals who are officers or employees of the Company.
1.3 Participation
Options may be granted by the Committee only to those persons that
the Committee determines to be Eligible Employees. An Eligible Employee who
has been granted an Option may, if otherwise eligible, be granted additional
Options if the Committee shall so determine. Non-Employee Directors shall
not be eligible to receive any Options through this Plan.
1.4 Shares Available for Options
Subject to the provisions of Section 3.2, the capital stock that may
be delivered under this Plan shall be shares of the Corporation's authorized
but unissued Common Stock and any shares of its Common Stock held as treasury
shares. The shares may be delivered for any lawful consideration.
(a) Number of Shares. The maximum number of shares of Common Stock that
may be issued pursuant to Options granted to Eligible Employees under
this Plan is 1,100,000 shares, subject to adjustments contemplated by
Section 3.2.
(b) Calculation of Available Shares and Replenishment. Shares subject to
outstanding Options that are derivative securities (as defined in
Rule 16a-1(c) under the Exchange Act) shall be reserved for issuance.
If any Option shall expire or be canceled or
<PAGE>
terminated without having been exercised in full, the unpurchased
share subject thereto shall again be available for the purposes of the
Plan, subject to any applicable limitations under Rule 16b-3. If the
Corporation withholds shares of Common Stock pursuant to Section 3.5,
the number of shares that would have been deliverable with respect to
an Option but that are withheld pursuant to the provisions of Section
3.5 may in effect not be issued, but the aggregate number of shares
issuable with respect to the applicable Option and under the Plan
shall be reduced by the number of shares withheld and such shares
shall not be available for additional Options under this Plan.
1.5 Grant of Options
Subject to the express provisions of this Plan, the Committee shall
determine the number of shares of Common Stock subject to each Option and the
exercise price thereof. Each Option shall be evidenced by an Option Agreement
signed by the Corporation and by the Participant.
1.6 Term of Options
Each Option and all executory rights or obligations under the
related Option Agreement shall expire on such date as shall be determined by
the Committee but not later than ten (10) years after the Grant date.
1.7 Limitations on Exercise of Options
(a) Provisions for Exercise. No Option shall be exercisable until at
least six months after the later of (i) the initial Grant Date or
(ii) stockholder approval of the Plan, and once exercisable an Option
shall remain exercisable until the expiration or earlier termination
of the Option, unless the Committee otherwise provides.
Notwithstanding the foregoing, the Committee may reduce or eliminate
the six month requirement for Participants who are not subject to
Section 16 of the Exchange Act.
(b) Procedure. Any exercisable Option shall be deemed to be exercised
when the Treasurer of the Corporation receives written notice of such
exercise from the Participant, together with the required payment
made in accordance with Section 2.2(b) or 5.3, as the case may be.
(c) Fractional Shares/Minimum Issue. Fractional share interests shall be
disregarded, but may be accumulated. The Committee, however, may
determine in the case of Eligible Employees that cash, other
securities or other property will be paid or transferred in lieu of
any fractional share interests. No fewer than 100 shares may be
purchased on exercise of any Option at one time unless the number
purchased is the total number at the time available for purchase
under the Option.
1.8 Acceptance of Notes to Finance Exercise
The Corporation may, with the Committee's approval, accept one or
more notes from any Eligible Employee in connection with the exercise or
receipt of any outstanding Option, provided that any such note shall be
subject to the following terms and conditions:
<PAGE>
(a) The principal of the note shall not exceed the amount required to be
paid to the Corporation upon the exercise or receipt of one or more
Options under the Plan and the note shall be delivered directly to
the Corporation in consideration of such exercise or receipt.
(b) The initial term of the note shall be determined by the Committee;
provided that the term of the note, including extensions, shall not
exceed a period of 10 years.
(c) The note shall provide for full recourse to the Employee Participant
and shall bear interest at a rate determined by the Committee but not
less than the applicable imputed interest rate specified by the Code.
(d) If the employment of the Employee Participant terminates, the unpaid
principal balance of the note shall become due and payable on the 10th
business day after such termination; provided, however, that if a sale
of such shares would cause such Employee Participant to incur liability
under Section 16(b) of the Exchange Act, the unpaid balance shall
become due and payable on the 10th business day after the first day on
which a sale of such shares could have been made without incurring
such liability assuming for these purposes that there are no other
transactions by the Employee Participant subsequent to such
termination.
(e) The note shall be secured by a pledge of any shares or rights financed
thereby in compliance with applicable law.
(f) The terms, repayment provisions, and collateral release provisions of
the note and the pledge securing the note shall conform with applicable
rules and regulations of the Federal Reserve Board as then in effect.
1.9 No Transferability
Options may be exercised only by, and shares issuable pursuant to an
Option shall be issued only to (or registered only in the name of), the
Participant or, if the Participant has died, the Participant's Beneficiary
or, if the Participant has suffered a Disability, the Participant's Personal
Representative, if any, or if there is none, the Participant, or (to the
extent permitted by applicable law and Rule 16b-3) to a third party pursuant
to such conditions and procedures as the Committee may establish. Other than
by will or the laws of descent and distribution or pursuant to a QDRO or
other exception to transfer restrictions under Rule 16b-3 (except to the
extent not permitted in the case of an Incentive Stock Option), no right or
benefit under this Plan or any Option, shall be transferrable by the
Participant or shall be subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge (other than to the
Corporation) and any such attempted action shall be void. The Corporation
shall disregard any attempt at transfer, assignment or other alienation
prohibited by the preceding sentences and shall deliver such shares of Common
Stock in accordance with the provisions of this Plan. The designation of a
Beneficiary hereunder shall not constitute a transfer for these purposes.
<PAGE>
II. EMPLOYEE OPTIONS
2.1 Grants
One or more Options may be granted under this Article to any
Eligible Employee. Each Option granted may be either an Option intended to
be an Incentive Stock Option, or an Option not so intended, and such intent
shall be indicated in the applicable Option Agreement.
2.2 Option Price
(a) Pricing Limits. The purchase price per share of the Common Stock
covered by each Option shall be determined by the Committee at the
time the Option is granted, but in the case of Incentive Stock Options
shall not be less than 100% (110% in the case of a Participant who owns
or is deemed to own under Section 424(d) of the Code more than 10% of
the total combined voting power of all classes of stock of the
Corporation) of the Fair Market Value of the Common Stock on the
Grant Date.
(b) Payment Provisions. The purchase price of any shares purchased on
exercise of an Option granted under this Article shall be paid in full
at the time of each purchase in one or a combination of the following
methods: (i) in cash or by electronic funds transfer; (ii) by check
payable to the order of the Corporation; (iii) if authorized by the
Committee or specified in the applicable Option Agreement, by a
promissory note of the Participant consistent with the requirements
of Section 1.8; (iv) by notice and third party payment in such manner
as may be authorized by the Committee; or (v) by the delivery of shares
of Common Stock of the Corporation already owned by the Participant,
provided, however, that the Committee may in its absolute discretion
limit the Participant's ability to exercise an Option by delivering
such shares. Shares of Common Stock used to satisfy the exercise
price of an Option shall be valued at their Fair Market Value on the
date of exercise and any such shares used in payment shall have been
owned by the Participant at least six months prior to the date of
exercise.
2.3 Limitations on Grant and Terms of Incentive Stock Options
(a) $100,000 Limit. To the extent that the aggregate "fair market value"
of stock with respect to which incentive stock options first become
exercisable by a Participant in any calendar year exceeds $100,000,
taking into account both Common Stock subject to Incentive Stock
Options under this Plan and stock subject to incentive stock options
under all other plans of the Company, such options shall be treated
as nonqualified stock options. For this purpose, the "fair market
value" of the stock subject to options shall be determined as of the
date the options were optioned. In reducing the number of options
treated as incentive stock options to meet the $100,000 limit, the
most recently granted options shall be reduced first. To the extent a
reduction of simultaneously granted options is necessary to meet the
$100,000 limit, the Committee may, in the manner and to the extent
permitted by law, designate which shares of Common Stock are to be
treated as shares acquired pursuant to the exercise of an Incentive
Stock Option.
(b) Option Period. Each Incentive Stock Option and all rights thereunder
shall expire no later than ten years after the Grant Date.
<PAGE>
(c) Other Code Limits. There shall be imposed in any Option Agreement
relating to Incentive Stock Options such terms and conditions as from
time to time are required in order that the Option be an "incentive
stock option" as that term is defined in Section 422 of the Code.
2.4 Limits on 10% Holders
No Incentive Stock Option may be granted to any person who, at the
time the Option is granted, owns (or is deemed to own under Section 424(d) of
the Code) shares of outstanding Common Stock possessing more than 10% of the
total combined voting power of all classes of stock of the Corporation,
unless the exercise price of such Option is at least 110% of the Fair Market
Value of the stock subject to the Option and such Option by its terms is not
exercisable after the expiration of five years from the date such Option is
granted.
2.5 Option Repricing/Cancellation and Regrant/Waiver of Restrictions
Subject to Section 1.4 and Section 3.6 and the specific limitations
on Options contained in this Plan, the Committee from time to time may
authorize, generally or in specific cases only, for the benefit of any
Eligible Employee, any adjustment in the exercise price, the number of shares
subject to or the term of, an Option granted under this Article by
cancellation of an outstanding Option and a subsequent regranting of an
Option, by amendment, by substitution of an outstanding Option, by waiver or
by other legally valid means. Such amendment or other action may result among
other changes in an exercise price which is higher or lower than the exercise
or purchase price of the original or prior Option, provide for a greater or
lesser number of shares subject to the Option, or provide for a longer or
shorter vesting or exercise period.
III. OTHER PROVISIONS
3.1 Rights of Eligible Employees, Participants and Beneficiaries
(a) Employment Status. Status as an Eligible Employee shall not be
construed as a commitment that any Option will be granted under this
Plan to an Eligible Employee or to Eligible Employees generally.
(b) No Employment Contract. Nothing contained in this Plan (or in any
other documents related to this Plan or to any Option) shall confer
upon any Eligible Employee or other Participant any right to continue
in the employ or other service of the Company or constitute any
contract or agreement of employment or other service, nor shall
interfere in any way with the right of the Company to change such
person's compensation or other benefits or to terminate the employment
of such person, with or without cause, but nothing contained in this
Plan or any document related hereto shall adversely affect any
independent contractual right of such person without his or her
consent thereto.
(c) Plan Not Funded. No Participant, Beneficiary or other person shall
have any right, title or interest in any fund or in any specific
asset (including shares of Common Stock, except as expressly otherwise
provided) of the Company by reason of any Option hereunder.
<PAGE>
Neither the provisions of this Plan (or of any related documents), nor
the creation or adoption of this Plan, nor any action taken pursuant
to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Company
and any Participant, Beneficiary or other person.
3.2 Adjustments; Acceleration
(a) Adjustments. If there shall occur any extraordinary dividend or other
extraordinary distribution in respect of the Common Stock (whether in
the form of cash, Common Stock, other securities, or other property),
or any recapitalization, stock split (including a stock split in the
form of a stock dividend), reverse stock split, reorganization, merger,
combination, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the
Corporation, or there shall occur any other like corporate transaction
or event in respect of the Common Stock, then the Committee shall, in
such manner and to such extent (if any) as it deems appropriate and
equitable (1) proportionately adjust any or all of (a) the number and
type of shares of Common Stock (or other securities) which thereafter
may be made the subject of Options (including the specific maximum and
numbers of shares set forth elsewhere in this Plan), (b) the number,
amount and type of shares of Common Stock (or other securities or
property) subject to any or all outstanding Options, (c) the grant,
purchase, or exercise price of any or all outstanding Options, (d) the
securities issuable upon exercise of any outstanding Options, or (2)
in the case of an extraordinary dividend or other distribution, merger,
reorganization, consolidation, combination, sale of assets, split up,
exchange, or spin off, make provision for a cash payment or for the
substitution or exchange of any or all outstanding Options or the
securities deliverable to the holder of any or all outstanding Options
based upon the distribution or consideration payable to holders of the
Common Stock of the Corporation upon or in respect of such event;
provided, however, in each case, that with respect to Incentive Stock
Options, no such adjustment shall be made which would cause the Plan
to violate Section 424(a) of the Code or any successor provisions
thereto.
(b) Acceleration of Options Upon Change in Control. As to any Eligible
Employee Participant, unless prior to a Change in Control Event the
Committee determines that, upon its occurrence, there shall be no
acceleration of benefits under Options or determines that only certain
or limited benefits under Options shall be accelerated and the extent
to which they shall be accelerated, and/or establishes a different
time in respect of such Event for such acceleration, then upon the
occurrence of a Change in Control Event each Option shall become
immediately exercisable. The Committee may override the limitations
on acceleration in this Section 3.2(b) by express provision in the
Option Agreement and may accord any Eligible Employee a right to
refuse any acceleration, whether pursuant to the Option Agreement or
otherwise, in such circumstances as the Committee may approve. Any
acceleration of Options shall comply with applicable regulatory
requirements, including, without limitation, Section 422 of the Code.
(c) Possible Early Termination of Accelerated Options. If any Option or
other right to acquire Common Stock under this Plan has been fully
accelerated as permitted by Section 3.2(b) but is not exercised prior
to (i) a dissolution of the Corporation, or (ii) a reorganization
event described in Section 3.2(a) that the Corporation does not
survive, or
<PAGE>
(iii) the consummation of reorganization event described in Section
3.2(a) that results in a Change of Control approved by the Board, and
no provision has been made for the survival, substitution, exchange or
other settlement of such Option or right, such Option or right shall
thereupon terminate.
3.3 Effect of Termination of Employment
The Committee shall establish in respect of each Option granted to
an Eligible Employee the effect of a termination of employment on the rights
and benefits thereunder and in so doing may make distinctions based upon the
cause of termination.
3.4 Compliance with Laws
This Plan, the granting and vesting of Options under this Plan and
the issuance and delivery of shares of Common Stock under this Plan or under
Options granted hereunder are subject to compliance with all applicable
federal and state laws, rules and regulations (including, but not limited to,
state and federal securities laws and federal margin requirements) and to
such approvals by any listing, regulatory or governmental authority as may,
in the opinion of counsel for the Corporation, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be
subject to such restrictions, and the person acquiring such securities shall,
if requested by the Corporation, provide such assurances and representations
to the Corporation as the Corporation may deem necessary or desirable to
assure compliance with all applicable legal requirements.
3.5 Tax Withholding
(a) Cash or Shares. Upon any exercise or vesting of any Option or upon
the disposition of shares of Common Stock acquired pursuant to the
exercise of an Incentive Stock Option prior to satisfaction of the
holding period requirements of Section 422 of the Code, the Company
shall have the right at its option to (i) require the Participant
(or Personal Representative or Beneficiary, as the case may be) to pay
or provide for payment of the amount of any taxes which the Company
may be required to withhold with respect to such transaction or (ii)
deduct from any amount payable in cash the amount of any taxes which
the Company may be required to withhold with respect to such cash
amount. In any case where a tax is required to be withheld in
connection with the delivery of shares of Common Stock under this Plan,
the Committee may grant (either at the time the Option is granted or
thereafter) to the Participant the right to elect, pursuant to such
rules and subject to such conditions as the Committee may establish,
to have the Corporation reduce the number of shares to be delivered by
(or otherwise reacquire) the appropriate number of shares valued at
their then Fair Market Value, to satisfy such withholding obligation.
(b) Tax Loans. The Committee may, in its discretion, authorize a loan to
an Eligible Employee in the amount of any taxes which the Company may
be required to withhold with respect to shares of Common Stock received
(or disposed of, as the case may be) pursuant to a transaction
described in subsection (a) above. Such a loan shall be for a term,
at a rate of interest and pursuant to such other terms and conditions
as the
<PAGE>
Committee, under applicable law, may establish and such loan must
comply with the provisions of Section 1.8.
3.6 Plan Amendment, Termination and Suspension
(a) Board Authorization. The Board may, at any time, terminate or, from
time to time, amend, modify or suspend this Plan, in whole or in part.
No Options may be granted during any suspension of this Plan or after
termination of this Plan, but the Committee shall retain jurisdiction
as to Options then outstanding in accordance with the terms of this
Plan.
(b) Stockholder Approval. If any amendment would (i) materially increase
the benefits accruing to Participants under this Plan, (ii) materially
increase the aggregate number of securities that may be issued under
this Plan, or (iii) materially modify the requirements as to
eligibility for participation in this Plan, then to the extent then
required by Rule 16b-3 to secure benefits thereunder or to avoid
liability under Section 16 of the Exchange Act(and Rules thereunder)
or required under Section 425 of the Code or any other applicable law,
or deemed necessary or advisable by the Board, such amendment shall
be subject to stockholder approval.
(c) Amendments to Options. Without limiting any other express authority
of the Committee under but subject to the express limits of this Plan,
the Committee by agreement or resolution may waive conditions of or
limitation on Options to Eligible Employees that the Committee in the
prior exercise of its discretion has imposed, without the consent of a
Participant, and may make other changes to the terms and conditions
of Options that do not affect in any manner materially adverse to the
Employee Participant, his or her rights and benefits under an Option.
(d) Limitations on Amendment to Plan and Options. No amendment, suspension
or termination of the Plan or change of or affecting any outstanding
Option shall, without written consent of the Participant, affect in
any manner materially adverse to the Participant any rights or benefits
of the Participant or obligations of the Corporation under any Option
granted under this Plan prior to the effective date of such change.
Changes contemplated by Section 3.2 shall not be deemed to constitute
changes or amendments for purposes of this Section 3.6.
3.7 Privileges of Stock Ownership
Except as otherwise expressly authorized by the Committee or this
Plan, a Participant shall not be entitled to any privilege of stock ownership
as to any shares of Common Stock not actually delivered to and held of record
by him or her. No adjustment will be made for dividends or other rights as a
stockholders for which a record date is prior to such date of delivery.
3.8 Effective Date of the Plan
This Plan shall be effective as of December 20, 1995, the date of
Board approval, subject to stockholder approval within 12 months thereafter.
<PAGE>
3.9 Term of the Plan
No Option shall be granted more than three years after the effective
date of this Plan (the "termination date"). Unless otherwise expressly
provided in this Plan or in an applicable Option Agreement, any Option
theretofore granted may extend beyond such date, and all authority of the
Committee with respect to Options hereunder shall continue during any
suspension of this Plan and in respect of outstanding Options on such
termination date.
3.10 Governing Law; Construction; Severability
(a) Choice of Law. This Plan, the Options, all documents evidencing
Options and all other related documents shall be governed by, and
construed in accordance with the laws of the State of Utah.
(b) Severability. If any provision shall be held by a court of competent
jurisdiction to be invalid and unenforceable, the remaining provisions
of this Plan shall continue in effect.
(c) Plan Construction. It is the intent of the Corporation that this Plan
and Options hereunder satisfy and be interpreted in a manner that in
the case of Participants who are or may be subject to Section 16 of
the Exchange Act satisfies the applicable requirements of Rule 16b-3
so that such persons will be entitled to the benefits of Rule 16b-3 or
other exemptive rules under Section 16 of the Exchange Act and will
not be subjected to avoidable liability thereunder. If any provision
of this Plan or of any Option would otherwise frustrate or conflict
with the intent expressed above, that provision to the extent possible
shall be interpreted and deemed amended so as to avoid such conflict,
but to the extent of any remaining irreconcilable conflict with such
intent as to such persons in the circumstances, such provision shall
be deemed void.
3.11 Captions
Captions and headings are given to the sections and subsections of
this Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
3.12 Effect of Change of Subsidiary Status
For purposes of this Plan and any Option hereunder, if an entity
ceases to be a Subsidiary a termination of employment shall be deemed to have
occurred with respect to each employee of such Subsidiary who does not
continue as an employee of another entity within the Company.
3.13 Non-Exclusivity of Plan
Nothing in this Plan shall limit or be deemed to limit the authority
of the Board or the Committee to grant options or authorize any other
compensation, with or without reference to the Common Stock, under any other
plan or authority.
<PAGE>
IV. DEFINITIONS
4.1 Definitions
(a) "Beneficiary" shall mean the person, persons, trust or trusts entitled
by will or the laws of descent and distribution to receive the benefits
specified in the Option Agreement and under this Plan in the event of
a Participant's death, and shall mean the Participant's personal
representative, executor or administrator if no other Beneficiary is
identified and able to act under the circumstances.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Change in Control Event" shall mean any of the following:
(i) Approval by the stockholders of the Corporation of the
dissolution or liquidation of the Corporation;
(ii) Approval by the stockholders of the Corporation of an agreement
to merge or consolidate, or otherwise reorganize, with or into
one or more entities that are not Subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the
surviving or resulting entity immediately after the
reorganization are, or will be, owned by stockholders of the
Corporation immediately before such reorganization (assuming for
purposes of such determination that there is no change in the
record ownership of the Corporation's securities from the record
date for such approval until such reorganization and that such
record owners hold no securities of the other parties to such
reorganization);
(iii) Approval by the stockholders of the Corporation of the sale of
substantially all of the Corporation's business and/or assets to
a person or entity which is not a Subsidiary;
(iv) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) (other than a person having such ownership
at the time of adoption of this Plan) becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Corporation
representing more than 50% of the combined voting power of the
Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation; or
(v) During any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the
Board cease to constitute at least a majority thereof, unless the
election, or the nomination for election by the Corporation's
stockholders, of each new Board member was approved by a vote
of at least three-fourths of the Board members then still in
office who were Board members at the beginning of such period
(including for these purposes, new members whose election or
nomination was so approved).
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(e) "Commission" shall mean the Securities and Exchange Commission.
<PAGE>
(f) "Committee" shall mean a committee appointed by the Board to administer
this Plan, which committee shall be comprised only of two or more
directors or such greater number of directors as may be required under
applicable law, each of whom, during such time as one or more
Participants may be subject to Section 16 of the Exchange Act, shall
be Disinterested.
(g) "Common Stock" shall mean the Common Stock of the Corporation and such
other securities or property as may become subject to Options,
pursuant to an adjustment made under Section 3.2 of this Plan.
(h) "Company" shall mean, collectively, the Corporation and its
Subsidiaries.
(i) "Corporation" shall mean Nature's Sunshine Products, Inc., a Utah
corporation, and its successors.
(j) "Disinterested" shall mean disinterested within the meaning of any
applicable regulatory requirements, including Rule 16b-3.
(k) "Eligible Employee" shall mean an officer (whether or not a director)
or key employee of the Company.
(l) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(n) "Fair Market Value" shall mean (i) if the stock is listed or admitted
to trade on a national securities exchange, the closing sales price of
the stock on the Composite Tape, as published in the Western Edition
of The Wall Street Journal, of the principal national securities
exchange on which the stock is so listed or admitted to trade, on such
date, or, if there is no trading of the stock on such date, then the
closing price of the stock as quoted on such Composite Tape on the next
preceding date on which there was trading in such shares; (ii) if the
stock is not listed or admitted to trade on a national securities
exchange, the last sales price for the stock on such date, as furnished
by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System or a similar
organization if the NASD is no longer reporting such information;
(iii) if the stock is not listed or admitted to trade on a national
securities exchange and is not reported on the National Market
Reporting System, the mean between the bid and asked price for the
stock on such date, as furnished by the NASD or a similar organization;
or (iv) if the stock is not listed or admitted to trade on a national
securities exchange, is not reported on the National Market Reporting
System and if bid and asked prices for the stock are not furnished by
the NASD or a similar organization, the value as established by the
Committee at such time for purposes of this Plan.
(o) "Grant Date" shall mean the date upon which the Committee took the
action granting an Option or such later date as the Committee
designates as the Grant Date at the time of the Option is granted.
<PAGE>
(p) "Incentive Stock Option" shall mean an Option which is designated as
an incentive stock option within the meaning of Section 422A of the
Code, the award of which contains such provisions as are necessary
to comply with that section.
(q) "Nonqualified Stock Option" shall mean an Option that is designated
as a Nonqualified Stock Option and shall include any Option intended
as an Incentive Stock Option that fails to meet the applicable legal
requirements thereof. Any Option granted hereunder that is not
designated as an Incentive Stock Option shall be deemed to be
designated a Nonqualified Stock Option under this Plan and not an
incentive stock option under the Code.
(r) "Non-Employee Director" shall mean a member of the Board of Directors
of the Corporation who is not an officer or employee of the Company.
(s) "Option" shall mean an option to purchase Common Stock under this
Plan. The Committee shall designate any Option granted to an
Eligible Employee as a Nonqualified Stock Option or an Incentive
Stock Option.
(t) "Option Agreement" shall mean any writing setting forth the terms
of an Option that has been authorized by the Committee.
(u) "Option Period" shall mean the period beginning on the Grant Date and
ending on the expiration date of such Option.
(v) "Participant" shall mean an Eligible Employee who has been granted an
Option under this Plan.
(w) "Personal Representative" shall mean the person or persons who, upon
the disability or incompetence of a Participant, shall have acquired
on behalf of the Participant, by legal proceeding or otherwise, the
power to exercise the rights or receive benefits under this Plan and
who shall have become the legal representative of the Participant.
(x) "Plan" shall mean this 1995 Stock Option Plan.
(y) "QDRO" shall mean a qualified domestic relations order as defined in
Section 414(p) of the Code or Title I, Section 206(d)(3) of ERISA
(to the same extent as if this Plan were subject thereto), or the
applicable rules thereunder.
(aa) "Retirement" shall mean retirement with the consent of the
Company.
(bb) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
Commission pursuant to the Exchange Act.
(cc) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
<PAGE>
(dd) "Subsidiary" shall mean any corporation or other entity a
majority of whose outstanding voting stock or voting power is
beneficially owned directly or indirectly by the Corporation.
(ee) "Total Disability" shall mean a "permanent and total disability
within the meaning of Section 22(e)(3) of the Code and such
other disabilities, infirmities, afflictions or conditions as
the Committee by rule may include.
<PAGE>
EXHIBIT 10.10
NATURE'S SUNSHINE PRODUCTS, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is dated as of the
__th day of _________________, 199_ (the "Award Date"), between NATURE'S
SUNSHINE PRODUCTS, INC., a Utah corporation (the "Corporation"), and
("Employee").
A. The Corporation has adopted, subject to the approval of the
shareholders of the Corporation, the Nature's Sunshine Products,
Inc. 1995 Stock Option Plan (the "Plan"); and
B. Pursuant to the Plan and as evidenced by this Agreement, the
Corporation has granted to Employee a certain stock option,
defined in Section 1, hereof, which option is not intended as
and shall not be deemed to be an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code, as may
be amended.
NOW, THEREFORE, in consideration of services rendered and to be
rendered by Employee for the Corporation, the Corporation and Employee hereby
agree to the provisions set forth herein.
1. Option Granted. This Agreement evidences the grant to Employee,
as of the Award Date, subject to shareholder approval of the
Plan, of an option to purchase an aggregate of ______________
(______) shares of Common Stock under the Plan subject to
adjustment as provided in the Plan (the "Option").
2. Exercise Price. The Option entitles Employee to purchase all or
any portion of the Option shares at a price per share of ____
Dollars and ____ Cents ($____), exercisable from time to time,
subject to the provisions of this Agreement and the Plan. Such
price is the Fair Market Value of the shares on the Award Date.
3. Exercisability of Option. The Option may be exercised beginning
on ______________. To the extent Employee does not in any year
purchase all or any portion of the shares to which Employee is
entitled to purchase, Employee has the cumulative right
thereafter to purchase any shares not so purchased and such
right shall continue until the Option terminates. When the
Option terminates for any reason, no additional shares may be
purchased under this Option.
4. Acceleration in Exercisability of Option. Notwithstanding anything
to the contrary contained herein, the date of exercisability of
the Option or a portion of the shares thereof as provided herein
shall be accelerated to the later of (i) the date of shareholder
approval of the Plan, (ii) July 20, 1996 or (iii) the twentieth
day following the end of any quarter (beginning with the quarter
of 199_), where the Corporation achieves (i) an increase in
consolidated net income in such quarter of 25 percent over
consolidated net income for the corresponding quarter in the
preceding year, and (ii) an increase in consolidated sales
revenue of 25 percent over consolidated sales for the
corresponding
<PAGE>
quarter in the preceding year. The amount of shares subject to
acceleration of exercisability shall be as follows: ____ shares
for each full percent over 25 percent that consolidated net
income in such quarter is increased over consolidated net income
for the corresponding quarter for the preceding year. For
example, if consolidated net income in the second quarter of
1996 is 28% higher than consolidated net income in the second
quarter of 1995, then ____ shares subject to the Option shall be
exercisable on July 20, 1996, the twentieth day following such
quarter. For purposes of this Agreement, increases in
consolidated net income and consolidated sales revenue shall be
conclusively determined by the Committee applying generally
accepted accounting principles consistently applied.
5. Termination of Option. The Option shall terminate and be of no
further force or effect upon any of the following:
(i) the tenth annual anniversary of the Award Date;
(ii) three months (or such later date as the Committee may in
its sole discretion specify) after termination of
Employee's employment with the Corporation for any reason
other than for cause (as determined by the Committee in
its sole discretion), or Employee's death or disability
(as determined by the Committee in its sole discretion);
(iii) on the date of termination of Employee's employment with
the Corporation if such termination is for cause (as
determined by the Committee in its sole discretion);
(iv) twelve months after termination of Employee's employment
with the Corporation because of Employee's disability (as
determined by the Committee in its sole discretion); or
(vi) twelve months after Employee's death.
6. Securities Laws. The Committee may from time to time impose such
conditions on the exercise of the Option as it deems necessary
or advisable to ensure that rights granted under the Plan
satisfy the requirements of applicable federal and state
securities laws. Such conditions may include, without
limitation, the partial or complete suspension of the right to
exercise the Option.
7. Nontransferability of Option. The Option may not be transferred
or assigned by Employee or exercised by anyone other than
Employee except pursuant to (i) Employee's will, (ii) applicable
laws of descent and distribution, or (iii) a QDRO.
8. Interpretation. The Option and this Agreement are subject to, and
the Corporation and Employee hereby agree to be bound by, all of
the provisions of the Plan. Such provisions are incorporated
herein and made a part hereof by this reference. Employee
acknowledges receiving a copy of the Plan. Capitalized terms
not otherwise defined in this Agreement shall have the meaning
assigned to such terms in the Plan.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
Corporation: Nature's Sunshine Products, Inc.
By ___________________________________________
Title ________________________________________
Employee: ____________________________________
(Signature)
______________________________________________
(Address)
______________________________________________
<PAGE>
EXHIBIT 10.11
KEY EMPLOYEES' AUTOMOBILE INCENTIVE PROGRAM
The Key Employee's Automobile Incentive Program involves leased
automobiles for officers and other key employees in the United States. Key
subsidiary employees are not included in this program since they already have
automobiles paid for by the Company.
The plan is essentially an incentive for key officers and key employees
to reach net income objectives for 1996 and 1997. Individuals involved in this
program are required to lease automobiles in their name and provide appropriate
insurance and maintenance. The lease expense, not the insurance nor the
maintenance, will be paid for by the Company if the increase in net income for
the year exceeds 35 percent. This is applicable to 1996 and 1997. If the
increase in net income for either year does not exceed 35 percent, the employee
will be responsible for lease payments as well as insurance and maintenance.
The Company would pay up to the following limits on a monthly basis:
Chief Executive Officer $1,000
Senior Officers $800
Officers $600
Key Employees $400
If the Company is able to achieve a net income increase of 35 percent
for both 1996 and 1997, the Company would also pay up to the following limits on
the remaining payout of the leased vehicles:
Chief Executive Officer $45,000
Senior Officers $35,000
Officers $25,000
Key Employees $15,000
37
<PAGE>
EXHIBIT 22
SUBSIDIARIES
Set forth below is a list of all active subsidiaries of the Registrant,
the state or other jurisdiction of incorporation or organization of each, and
the names under which such subsidiaries do business.
Jurisdiction of
Name Incorporation
---- ----------------
Nature's Sunshine Products of Canada, Ltd. Canada
Nature's Sunshine Products de Mexico, S.A. de C.V. Mexico
Nature's Sunshine Products de Colombia, S.A. Colombia
NSSP Malaysia Sdn. Bhd. Malaysia
Nature's Sunshine Produtos Naturais Ltda. Brazil
Nature's Sunshine K.K. Japan
Nature's Sunshine Products de Venezuela Venezuela
Nature's Sunshine Products de Centroamerica Costa Rica
Nature's Sunshine Products de Panama, S.A. Panama
NSP de Guatemala, S.A. Guatemala
Nature's Sunshine Products de El Salvador, S.A. de C.V. El Salvador
Nature's Sunshine Products del Peru, S.A. Peru
________________________
Each subsidiary listed above is doing business under its corporate name.
38
<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-38621 and 33-80582.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 25, 1996
39
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