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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to __________________
Commission File #0-8707
NATURE'S SUNSHINE PRODUCTS, INC.
--------------------------------
(Exact Name of Registrant)
UTAH 87-0327982
------------------------ ---------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
75 East 1700 South
Provo, Utah 84606
(Address of Principal Executive Offices)
(801) 342-4407
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of common stock, without par value, outstanding as of April
30, 1997, was 18,721,512.
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollar Amounts In Thousands)
(Unaudited)
March 31 December 31
1997 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $30,937 $27,879
Accounts receivable, net 8,138 6,698
Inventories 22,361 24,459
Prepaid expenses and other 7,380 8,014
------- -------
Total Current Assets 68,816 67,050
PROPERTY, PLANT AND
EQUIPMENT, net 20,036 20,197
LONG-TERM INVESTMENTS 2,069 2,048
OTHER ASSETS 2,633 2,701
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$93,554 $91,996
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------- -------
The accompanying notes to the financial statements are an
integral part of these consolidated condensed balance sheets.
2
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NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
(Dollar Amounts In Thousands)
(Unaudited)
March 31 December 31
1997 1996
---------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 2,376 $ 2,788
Accounts payable 5,670 4,225
Accrued volume incentives 11,048 8,729
Accrued liabilities 9,901 9,992
Income taxes payable 2,949 1,756
-------- --------
Total Current Liabilities 31,944 27,490
-------- --------
DEFERRED INCOME TAXES 1,392 1,343
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares
authorized; 19,446 shares issued 38,885 39,406
Retained earnings 36,929 33,549
Treasury stock, at cost, 650 and 334
shares at March 31, 1997 and December 31,
1996, respectively (11,450) (5,868)
Receivables due from related parties (83) (84)
Cumulative translation adjustments (4,063) (3,840)
-------- --------
Total Shareholders' Equity 60,218 63,163
-------- --------
$ 93,554 $ 91,996
-------- --------
-------- --------
The accompanying notes to the financial statements are an
integral part of these consolidated condensed balance sheets.
3
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NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Amounts In Thousands, Except Per-Share Information)
Three Months Ended
March 31
--------------------------
(Unaudited)
1997 1996
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SALES REVENUE $67,825 $60,113
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COSTS AND EXPENSES:
Cost of goods sold 12,060 10,384
Volume incentives 31,404 27,896
Selling, general and administrative 17,951 16,753
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61,415 55,033
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OPERATING INCOME 6,410 5,080
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OTHER INCOME (EXPENSE):
Interest and other income 467 744
Interest expense (11) (32)
Foreign exchange loss (166) (207)
Minority interest 71 (5)
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361 500
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INCOME BEFORE INCOME TAXES 6,771 5,580
PROVISION FOR INCOME TAXES 2,761 2,304
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NET INCOME $ 4,010 $ 3,276
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------- -------
NET INCOME PER COMMON SHARE $ 0.21 $ 0.17
------- -------
------- -------
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 19,364 19,458
------- -------
------- -------
The accompanying notes to the financial statements are an integral
part of these consolidated condensed statements of income.
4
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NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollar Amounts In Thousands)
Three Months Ended
March 31
--------------------
(Unaudited)
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales revenue $ 66,182 $ 60,494
Cash paid as volume incentives (29,085) (24,936)
Cash paid to suppliers and employees (24,906) (24,176)
Interest paid (11) (32)
Interest received 503 668
Income taxes paid (1,519) (893)
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Net Cash Provided by Operating Activities 11,164 11,125
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (783) (2,830)
Purchase of long-term investments (21) (49)
Payments received on long-term receivables 52 68
Payments received on related party receivables 1 91
Purchase of other assets (132) ---
Minority interest elimination 38 5
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Net Cash Used in Investing Activities (845) (2,715)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (630) (620)
Purchase of treasury stock (6,837) ---
(Repayments of)/proceeds from short-term debt (412) 726
Proceeds from exercise of stock options 733 197
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Net Cash (Used in)/Provided By
Financing Activities (7,146) 303
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EFFECT OF EXCHANGE RATES ON CASH (115) (8)
------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 3,058 8,705
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 27,879 14,172
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CASH AND CASH EQUIVALENTS AT
END OF PERIOD $30,937 $22,877
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The accompanying notes to the financial statements are an integral
part of these consolidated condensed statements of cash flows.
5
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NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)
Reconciliation of Net Income to Net Cash Provided by Operating Activities
(Dollar Amounts In Thousands)
Three Months Ended
March 31
------------------
(Unaudited)
1997 1996
-------- -------
NET INCOME $ 4,010 $ 3,276
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Bad debt expense 66 16
Depreciation and amortization 1,092 867
(Increase) decrease in accounts receivable (1,506) 497
Decrease in inventories 2,099 472
Decrease (increase) in prepaid expenses & other assets 596 (1,924)
Increase in income taxes payable 1,193 1,214
Increase in accrued liabilities and volume incentives 2,228 6,864
Increase (decrease) in accounts payable 1,445 (693)
Increase in deferred income taxes 49 197
Cumulative translation adjustments (108) 339
------- -------
Total Adjustments 7,154 7,849
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Net Cash Provided by Operating Activities $11,164 $11,125
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------- -------
The accompanying notes to the financial statements are an integral
part of these consolidated condensed statements of cash flows.
6
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NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollar Amounts In Thousands, Except Per-Share Information)
(1) INTERIM FINANCIAL STATEMENT POLICIES AND DISCLOSURES
The unaudited, consolidated condensed financial statements of Nature's
Sunshine Products, Inc. and subsidiaries included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally required in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading.
These consolidated condensed financial statements reflect all adjustments,
which in the opinion of management, are necessary to present fairly the
financial position as of March 31, 1997, and the results of operations for the
interim periods presented. All of the adjustments which have been made in these
consolidated condensed financial statements are of a normal recurring nature.
It is suggested that these consolidated condensed financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest Annual Report on Form 10-K.
(2) INVENTORIES
Inventories consist of: (Unaudited)
March 31 December 31
1997 1996
----------- -----------
Raw materials $ 6,864 $ 7,554
Work in process 716 1,146
Finished goods 14,781 15,759
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$22,361 $24,459
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7
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NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(3) EARNINGS PER SHARE
Outstanding stock options are considered common stock equivalents and are
included in the computation of primary earnings per share for the three-month
periods ended March 31, 1997 and 1996.
As of March 31, 1997, the Company had a total of 2,495,759 options
outstanding. The options were all granted at market prices, with a weighted
average exercise price of $12.81.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128 effective for years beginning after December
15, 1996. This statement, which is expected to increase earnings per share when
implemented, is not expected to have a material effect on the Company's
consolidated financial statements.
(4) QUARTERLY CASH DIVIDENDS
The Company has declared 35 consecutive quarterly cash dividends. The most
recent quarterly cash dividend of 3 1/3 cents per common share was declared May
1, 1997, to shareholders of record on May 13, 1997, payable May 26, 1997.
(5) TRANSLATION OF FOREIGN CURRENCY
The financial statements of the international subsidiaries have been
translated to U.S. dollars in accordance with the provisions of SFAS No. 52.
As a result of its international operations, the Company is subject to
foreign currency fluctuations which may impact current earnings.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SUMMARY
The following table identifies (i) the relationship that net income items
disclosed in the consolidated condensed financial statements have to total
sales, and (ii) amount and percent of change of such items compared to the
corresponding prior period.
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
(i) (ii)
Income and Expense Three Months Ended March 31
Items as a Percent of Sales -------------------------------------
- --------------------------- 1997 to 1996 1996 to 1995
Three Months Ended ---------------------- ------------
March 31 Amount of Percent Percent
- --------------------------- Income and Increase/ of of
1997 1996 Expense Items (Decrease) Change Change
---- --- ------------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
100.00% 100.00% Sales revenue $7,712 12.83% 27.73%
------ ------ ------ ----- -----
17.78 17.27 Cost of sales 1,676 16.14 12.51
46.30 46.41 Volume incentives 3,508 12.57 28.00
26.47 27.87 SG&A expenses 1,198 7.15 28.36
------ ------ ------ ----- -----
90.55 91.55 6,382 11.60 24.86
------ ------ ------ ----- -----
9.45 8.45 Operating income 1,330 26.18 70.07
------ ------ ------ ----- -----
0.67 1.24 Interest and other income (288) (38.77) 86.93
--- (0.05) Interest expense 32 100.00 27.27
(0.25) (0.35) Foreign exchange loss 41 19.80 (62.99)
0.11 (0.01) Minority interest 76 1,523.28 (102.21)
------ ------ ------ ----- -----
0.53 0.83 (139) (28.06) 10.38
------ ------ ------ ----- -----
9.98 9.28 Income before income taxes 1,191 21.34 62.21
4.07 3.83 Provision for income taxes 457 19.79 61.57
------ ------ ------ ----- -----
5.91% 5.45% Net income $ 734 22.37% 62.66%
------ ------ ------ ----- -----
------ ------ ------ ----- -----
</TABLE>
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
SALES REVENUE:
The Company reported record consolidated sales for the three months ended
March 31, 1997. Sales revenue for the three months ended March 31, 1997, was
$67.8 million compared to $60.1 million in the same period the prior year, an
increase of 13 percent.
Management believes the increase in sales for the three-month period is
attributable to the expansion of the Company's independent sales force, a
continued increase of consumer awareness and interest in natural health and
nutritional products and incentives the Company offers its independent sales
force. In addition, the Company's sales revenue growth has been enhanced by its
international expansion. The Company's international operations reported sales
revenue of $23.4 million for the three-month period in 1997, an increase of 18
percent compared to the same period in 1996.
The Company's independent sales force consists of Managers and
Distributors. A Distributor interested in earning additional income by
committing more time and effort to selling the Company's products may attain the
rank of "Manager." Appointment as a Manager is dependent upon attaining certain
purchase volume levels and demonstrating leadership abilities. The number of
Managers was 13,946 at March 31, 1997, compared to 14,268 at March 31, 1996.
The decrease in Managers was the result of a policy change in the Company's
international operations during the fourth quarter of 1996. The number of
domestic Managers increased 20 percent since December 31, 1996, and 8 percent
over March 31, 1996. The number of Distributors at March 31, 1997, was 523,040
compared to 427,777 at March 31, 1996.
10
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COST OF GOODS SOLD:
The Company experienced a slight increase in cost of goods sold, as a
percentage of sales, for the three months ended March 31, 1997, compared to the
same period last year. The increase in cost of goods sold, as a percentage
of sales, was primarily related to the Company's international operations.
Additional shipping costs were incurred in the first quarter in order to
maintain appropriate levels of inventory in selected markets. Management
expects cost of goods sold to decrease slightly as a percent of sales during the
rest of 1997 as the result of efficiencies in the Company's manufacturing
operations.
VOLUME INCENTIVES:
The slight decrease in volume incentives, as a percent of sales, for the
three months ended March 31, 1997, is directly related to the increase in
international sales revenue. Volume incentives are an integral part of the
Company's direct sales marketing program and are payments to independent sales
force members for reaching certain levels of sales performance and
organizational development. Volume incentives vary slightly, on a percentage
basis, by product due to the Company's pricing policies.
Management expects volume incentives to decrease slightly, as a percent of
sales, during the rest of 1997. The decrease is anticipated as the result of
increasing sales from the Company's international operations, which have
comparatively lower volume incentive payments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
The Company experienced decreased selling, general and administrative
expenses (SG&A), as a percent of sales, during the period ended March 31, 1997.
The decrease, as a percent of sales, was the result of improved budgetary review
and an effort by management to control costs.
Management expects SG&A to decrease, as a percent of sales, for the year
ended December 31, 1997.
11
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SUBSIDIARY OPERATIONS:
Segment information for the three months ended March 31, 1997, compared to
the previous year are as follows:
SALES REVENUE (Dollars in Thousands)
(Unaudited)
1997 1996
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DOMESTIC SALES REVENUE $44,428 $40,335
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INTERNATIONAL SALES REVENUE:
Americas 19,489 15,371
Asia Pacific 2,914 3,493
Other 994 914
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TOTAL INTERNATIONAL 23,397 19,778
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TOTAL SALES REVENUE $67,825 $60,113
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OPERATING INCOME (Dollars in Thousands)
(Unaudited)
1997 1996
------- -------
DOMESTIC OPERATING INCOME $ 4,935 $ 3,340
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INTERNATIONAL OPERATING INCOME:
Americas 1,396 1,942
Asia Pacific (17) (183)
Other 96 (19)
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TOTAL INTERNATIONAL 1,475 1,740
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TOTAL OPERATING INCOME $ 6,410 $ 5,080
------- -------
------- -------
(Dollars in Thousands)
(Unaudited)
March 31 December 31
ASSETS 1997 1996
------- -------
DOMESTIC ASSETS $57,611 $58,674
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INTERNATIONAL ASSETS:
Americas 31,474 28,764
Asia Pacific 3,881 3,767
Other 588 791
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TOTAL INTERNATIONAL 35,943 33,322
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TOTAL ASSETS $93,554 $91,996
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12
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BALANCE SHEET
INVENTORIES
Inventories decreased approximately $2.1 million during the three months
ended March 31, 1997, as the result of a concerted effort to reduce inventory
levels.
ACCRUED VOLUME INCENTIVES
Accrued volume incentives increased approximately $2.3 million during the
first three months of the year as a direct result of increased sales revenue.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $3.1 million for the
three months ended March 31, 1997. The increase in cash is primarily the result
of the increased sales and income as well as increases in current liabilities.
Management believes the Company's stock is an attractive investment and,
from time to time pursuant to its recently announced 500,000 share stock buyback
program, may utilize a portion of its available cash to purchase up to the
remaining balance of approximately 415,000 shares of its stock as market
conditions warrant. During the first quarter of 1997, the Company acquired $6.8
million, or approximately 413,000 shares, of treasury stock as part of the
previous 500,000 share buyback program.
The Company is in the process of establishing a new international
subsidiary. Management expects that this new operation may require initial
capitalization of approximately $1.5 million during the next twelve to eighteen
months.
The Company is evaluating the need to expand its domestic manufacturing,
inventory and other facilities. Management expects the cost of these projects
to be in the range of $6.0 million to $12.0 million. The Company may consider
long-term financing for these projects.
13
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The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with its legal counsel,
believes that any liability as a result of these matters should not have a
material effect upon the Company's results of operations or financial position.
Management believes that future working capital requirements can be
satisfied by cash, which is generated by the Company's operating activities.
Management expects cash and investments to increase during 1997, as the result
of operations. However, cash and investments may be reduced in the event the
Company proceeds with the capital projects mentioned above.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company has included forward-looking statements concerning its business
and operations in this Form 10-Q. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected.
14
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PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) No exhibits are required to be filed by Item 601 of Regulation S-K.
b) No reports were filed on Form 8-K during the quarter for which this
report is filed.
OTHER ITEMS
There were no other items to be reported under Part II of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATURE'S SUNSHINE PRODUCTS, INC.
Date: May 5, 1997 /s/ Kristine F. Hughes
----------------------------------
Kristine F. Hughes, President &
Chief Executive Officer
Date: May 5, 1997 /s/ Douglas Faggioli
----------------------------------
Douglas Faggioli, Chief
Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 30,937
<SECURITIES> 0
<RECEIVABLES> 8,138
<ALLOWANCES> 0
<INVENTORY> 22,361
<CURRENT-ASSETS> 68,816
<PP&E> 20,036
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,554
<CURRENT-LIABILITIES> 31,944
<BONDS> 0
0
0
<COMMON> 38,885
<OTHER-SE> 21,333
<TOTAL-LIABILITY-AND-EQUITY> 93,554
<SALES> 67,825
<TOTAL-REVENUES> 67,825
<CGS> 12,060
<TOTAL-COSTS> 61,415
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 6,771
<INCOME-TAX> 2,761
<INCOME-CONTINUING> 4,010
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,010
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
