<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
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) 342-4370
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, during the preceding 12 months (or such shorter period that the
Registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares of common stock, without par value, outstanding as of
August 10, 1998, was 18,389,699.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Amounts In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
-------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,970 $27,813
Accounts receivable, net 9,074 7,465
Inventories 19,352 19,555
Prepaid expenses and other 8,827 11,197
-------- -------
Total Current Assets 72,223 66,030
PROPERTY, PLANT AND
EQUIPMENT, net 26,390 23,711
LONG-TERM INVESTMENTS 3,276 3,468
OTHER ASSETS 3,563 2,587
-------- -------
$105,452 $95,796
-------- -------
-------- -------
</TABLE>
The accompanying notes to the financial statements are an
integral part of these consolidated condensed financial statements.
2
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (CONTINUED)
(Amounts In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
-------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 1,828 $ 2,665
Accounts payable 5,093 5,094
Accrued volume incentives 11,114 9,531
Accrued liabilities 11,605 7,223
Income taxes payable 1,901 2,946
-------- --------
Total Current Liabilities 31,541 27,459
-------- --------
DEFERRED INCOME TAXES 1,674 1,480
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares
authorized; 19,446 shares issued 37,981 37,896
Retained earnings 60,925 51,190
Treasury stock, at cost, 1,008 and 861
shares at June 30, 1998 and December 31,
1997, respectively (21,525) (17,278)
Receivables due from related parties --- (77)
Unrealized gain on securities available for sale 302 416
Cumulative translation adjustments (5,446) (5,290)
-------- --------
Total Shareholders' Equity 72,237 66,857
-------- --------
$105,452 $ 95,796
-------- --------
-------- --------
</TABLE>
The accompanying notes to the financial statements are an
integral part of these consolidated condensed financial statements.
3
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Amounts In Thousands, Except Per-Share Information)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30
-------------------------
1998 1997
------- -------
<S> <C> <C>
SALES REVENUE $77,201 $71,411
------- -------
COSTS AND EXPENSES:
Cost of goods sold 13,646 13,405
Volume incentives 35,474 33,319
Selling, general and administrative 18,858 16,720
------- -------
67,978 63,444
------- -------
OPERATING INCOME 9,223 7,967
------- -------
OTHER INCOME (EXPENSE):
Interest and other income 494 559
Interest expense (10) (11)
Foreign exchange gain 102 48
Minority interest 114 76
------- -------
700 672
------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 9,923 8,639
PROVISION FOR INCOME TAXES 3,818 3,392
------- -------
NET INCOME $ 6,105 $ 5,247
------- -------
------- -------
BASIC NET INCOME PER COMMON SHARE $ 0.33 $ 0.28
------- -------
------- -------
WEIGHTED AVERAGE BASIC SHARES 18,477 18,627
------- -------
------- -------
DILUTED NET INCOME PER COMMON SHARE $ 0.32 $ 0.28
------- -------
------- -------
WEIGHTED AVERAGE DILUTED SHARES 18,791 18,947
------- -------
------- -------
</TABLE>
The accompanying notes to the financial statements are an integral
part of these consolidated condensed financial statements.
4
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Amounts In Thousands, Except Per-Share Information)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
1998 1997
-------- --------
<S> <C> <C>
SALES REVENUE $152,484 $139,236
-------- --------
COSTS AND EXPENSES:
Cost of goods sold 27,187 25,465
Volume incentives 70,673 64,723
Selling, general and administrative 37,543 34,671
-------- --------
135,403 124,859
-------- --------
OPERATING INCOME 17,081 14,377
-------- --------
OTHER INCOME (EXPENSE):
Interest and other income 953 1,026
Interest expense (28) (22)
Foreign exchange loss (139) (118)
Minority interest 243 147
-------- --------
1,029 1,033
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 18,110 15,410
PROVISION FOR INCOME TAXES 7,138 6,154
-------- --------
NET INCOME $ 10,972 $ 9,256
-------- --------
-------- --------
BASIC NET INCOME PER COMMON SHARE $ 0.59 $ 0.49
-------- --------
-------- --------
WEIGHTED AVERAGE BASIC SHARES 18,532 18,804
-------- --------
-------- --------
DILUTED NET INCOME PER COMMON SHARE $ 0.58 $ 0.48
-------- --------
-------- --------
WEIGHTED AVERAGE DILUTED SHARES 18,871 19,152
-------- --------
-------- --------
</TABLE>
The accompanying notes to the financial statements are an integral
part of these consolidated condensed financial statements.
5
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Amounts In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales revenue $150,619 $136,164
Cash paid as volume incentives (69,090) (62,791)
Cash paid to suppliers and employees (55,363) (52,147)
Interest paid (28) (23)
Interest received 1,070 1,062
Income taxes paid (7,990) (5,121)
-------- --------
Net Cash Provided by Operating Activities 19,218 17,144
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,818) (1,859)
Sale of long-term investments 77 66
Payments received on long-term receivables 94 106
Purchase of other assets (641) (392)
Minority interest elimination (243) 76
Proceeds from sale of property & equipment 51 ---
-------- --------
Net Cash Used in Investing Activities (5,480) (2,003)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (1,237) (1,252)
Purchase of treasury stock (5,521) (14,447)
(Repayments) Proceeds of short-term debt (836) 108
Proceeds from exercise of stock options 1,041 1,148
Tax benefit from stock option exercise 318 415
Issuance of treasury stock --- 9
-------- --------
Net Cash Used in Financing Activities (6,235) (14,019)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH (346) (140)
-------- --------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 7,157 982
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 27,813 27,879
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 34,970 $ 28,861
-------- --------
-------- --------
</TABLE>
The accompanying notes to the financial statements are an integral
part of these consolidated condensed financial statements.
6
<PAGE>
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
(Amounts In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------
1998 1997
------- -------
<S> <C> <C>
NET INCOME $10,972 $ 9,256
------- -------
Bad debt expense 70 97
Depreciation and amortization 2,535 2,243
Gain on sale of property and equipment (25) ---
Increase in accounts receivable (1,679) (3,015)
Decrease in inventories 203 3,835
Decrease in prepaid expenses & other assets 1,839 17
(Decrease) Increase in income taxes payable (1,045) 985
Increase in accrued liabilities and volume incentives 5,965 2,762
(Decrease) Increase in accounts payable (1) 1,061
Increase in deferred income taxes 194 46
Cumulative translation adjustments 190 (143)
------- -------
Total Adjustments 8,246 7,888
------- -------
Net Cash Provided by Operating Activities $19,218 $17,144
------- -------
------- -------
</TABLE>
The accompanying notes to the financial statements are an integral
part of these consolidated condensed financial statements.
7
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Dollar Amounts In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------
1998 1997
------- ------
<S> <C> <C>
NET INCOME $10,972 $9,256
------- ------
OTHER COMPREHENSIVE INCOME, net of tax
Foreign currency translation adjustments (156) (282)
Unrealized holding losses arising during the period (114) ---
------- ------
Total other comprehensive income, net of tax (270) (282)
------- ------
COMPREHENSIVE INCOME, net of tax $10,702 $8,974
------- ------
------- ------
</TABLE>
The accompanying notes to the financial statements are an integral
part of these consolidated condensed financial statements.
8
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Amounts In Thousands, Except Per-Share Information)
(UNAUDITED)
(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 following 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 June 30, 1998, and the results of operations for the
periods presented. All of the adjustments which have been made in these
consolidated condensed financial statements are of a normal recurring nature.
Operating results for the three- and six-month periods ended June 30, 1998, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998.
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 for the
year ended December 31, 1997.
(2) INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------- -----------
<S> <C> <C>
Raw materials $ 6,410 $ 5,912
Work in process 1,304 1,455
Finished goods 11,638 12,188
------- -------
$19,352 $19,555
------- -------
------- -------
</TABLE>
9
<PAGE>
(3) NET INCOME PER SHARE
Basic net income per common share (Basic EPS) excludes dilution and is
computed by dividing net income by the weighted-average number of common shares
outstanding during the period. Diluted net income per common share (Diluted
EPS) reflects the potential dilution that could occur if stock options or other
contracts to issue common stock were exercised or converted into common stock.
The computation of Diluted EPS does not assume exercise or conversion of
securities that would have an anti-dilutive effect on net income per common
share. Net income per common share amounts and share data have been restated
for all periods presented to reflect basic and diluted per share presentations.
As of June 30, 1998, the Company had a total of 1,165 options outstanding.
The options were all granted at market prices and have a weighted average
exercise price of $13.45.
Following is a reconciliation of the numerator and denominator of Basic EPS
to the numerator and denominator of Diluted EPS for the six months ended:
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
June 30, 1998
- --------------------------------------------------------------------------------
Basic EPS $10,972 18,532 $0.59
Effect of options --- 339
- --------------------------------------------------------------------------------
Diluted EPS $10,972 18,871 $0.58
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
June 30, 1997
- --------------------------------------------------------------------------------
Basic EPS $9,256 18,804 $0.49
Effect of options --- 348
- --------------------------------------------------------------------------------
Diluted EPS $9,256 19,152 $0.48
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
At June 30, 1998 and 1997, there were outstanding options to purchase 18
and 440 shares of common stock, respectively, that were not included in the
computation of Diluted EPS, as their effect would have been anti-dilutive.
10
<PAGE>
(4) EQUITY TRANSACTIONS
The Company has declared 40 consecutive quarterly cash dividends. The most
recent quarterly cash dividend of 3 1/3 cents per common share was declared
July 29, 1998, to shareholders of record on August 10, 1998 and is payable
August 19, 1998.
During the six months ended June 30, 1998, the Company acquired 236,000
shares of treasury stock as part of its 500,000 share buyback program.
Subsequent to the end of the second quarter, the Company has purchased an
additional 128,000 shares of treasury stock.
(5) RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 131 establishes new standards for public companies to report information
about their operating segments, products and services, geographic areas and
major customers. This statement is effective for financial statements issued
for years beginning after December 15, 1997. Accordingly, the Company will
adopt SFAS No. 131 in its December 31, 1998 consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that derivative
instruments be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999.
The adoption of this statement will not have a material effect on the Company's
consolidated financial statements as the Company does not currently hold any
derivative or hedging instruments.
11
<PAGE>
(6) ACCUMULATED OTHER COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components.
The composition of accumulated other comprehensive income, net of tax, is
as follows:
<TABLE>
<CAPTION>
Total
Accumulated
Foreign Unrealized Other
Currency Gains on Comprehensive
Items Securities Income
-------- ---------- -------------
<S> <C> <C> <C>
Balance as of December 31, 1997 $(5,290) $ 416 $(4,874)
Current period change (156) (114) (270)
------- ----- -------
Balance as of June 30, 1998 $(5,446) $ 302 $(5,144)
------- ----- -------
------- ----- -------
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated Financial Statements, the Notes there to and Management's
Discussion and Analysis included the Company's Annual Report for the year ended
December 31, 1997.
RESULTS OF OPERATIONS
The following table identifies (i) the relationship that net income items
disclosed in the consolidated condensed financial statements have to total
sales, and (ii) amount and percent of change of such items compared to the
corresponding prior period.
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
(i) (ii)
Income and Expense
Items as a Percent of Sales Three Months Ended June 30
- --------------------------- 1998 to 1997
Three Months Ended --------------------------
June 30 Amount of Percent
- --------------------------- Income and Increase/ of
1998 1997 Expense Items (Decrease) Change
------ ------ ------------- ---------- ------
<C> <C> <S> <C> <C>
100.0% 100.0% Sales revenue $5,790 8.1%
------ ------ ------ ----
17.7 18.8 Cost of sales 241 1.8
45.9 46.6 Volume incentives 2,155 6.5
24.4 23.4 SG&A expenses 2,138 12.8
------ ------ ------ ----
88.0 88.8 Total operating expenses 4,534 7.2
------ ------ ------ ----
12.0 11.2 Operating income 1,256 15.8
------ ------ ------ ----
0.9 0.9 Other income and expenses 28 4.1
------ ------ ------ ----
Income before provision
12.9 12.1 for income taxes 1,284 14.9
5.0 4.7 Provision for income taxes 426 12.6
------ ------ ------ ----
7.9% 7.4% Net income $ 858 16.3%
------ ------ ------ ----
------ ------ ------ ----
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
The following table identifies (i) the relationship that net income items
disclosed in the consolidated condensed financial statements have to total
sales, and (ii) amount and percent of change of such items compared to the
corresponding prior period.
(Dollar Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
(i) (ii)
Income and Expense
Items as a Percent of Sales Six Months Ended June 30
- --------------------------- 1998 to 1997
Six Months Ended --------------------------
June 30 Amount of Percent
- --------------------------- Income and Increase/ of
1998 1997 Expense Items (Decrease) Change
------ ------ ------------- ---------- ------
<C> <C> <S> <C> <C>
100.0% 100.0% Sales revenue $13,248 9.5%
------ ------ ------- ----
17.8 18.3 Cost of sales 1,722 6.8
46.4 46.5 Volume incentives 5,950 9.2
24.6 24.9 SG&A expenses 2,872 8.3
------ ------ ------- ----
88.8 89.7 Total operating expenses 10,544 8.4
------ ------ ------- ----
11.2 10.3 Operating income 2,704 18.8
------ ------ ------- ----
0.7 0.8 Other income and expenses (4) (0.4)
------ ------ ------- ----
Income before provision
11.9 11.1 for income taxes 2,700 17.5
4.7 4.4 Provision for income taxes 984 16.0
------ ------ ------- ----
7.2% 6.7% Net income $ 1,716 18.5%
------ ------ ------- ----
------ ------ ------- ----
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SALES REVENUE:
The Company reported record consolidated sales revenue for the three and
six months ended June 30, 1998. Sales revenue for the three months ended June
30, 1998, was $77.2 million compared to $71.4 million in the prior year, an
increase of approximately 8 percent. Sales revenue for the six months ended
June 30, 1998, was $152.5 million compared to $139.2 million in the prior year,
an increase of approximately 10 percent.
Management believes the increase in sales for the three- and six-month
periods 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 to its
independent sales force. Sales revenue in the Company's domestic operations
was $98.8 million for the six months ended June 30, 1998, an increase of
approximately 10 percent over the same period in the prior year. Domestic
sales revenue was impacted by decreased sales in the Hispanic market and
increased competition in the nutritional supplement market.
The Company's international operations reported sales revenue of $53.7
million for the six months ended June 30, 1998, an increase of 8 percent
compared to the same period in 1997. The declining rate of growth of
international sales revenue was primarily the result of the increased
valuation of the U.S. dollar against foreign currencies. International
operations which reported the most significant foreign currency impact were
Brazil, Colombia, Venezuela, Mexico and Japan. Price increases are planned in
various markets to adjust for the foreign currency devaluation that have taken
place. Management believes that the price increases will be acceptable to its
sales force and will result in increased sales revenue. The Company also
experienced a decrease in operating income which resulted primarily from
losses associated with the Company's subsidiary in South Korea, which began
operations in the fourth quarter of 1997.
15
<PAGE>
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 15,606 at June 30, 1998, compared to 13,776 at December
31, 1997, an increase of approximately 13 percent. The number of Distributors
at June 30, 1998, was approximately 619,000 compared to approximately 660,000
at December 31, 1997. The decrease in the number of Distributors is primarily
the result of restrictions placed on the qualification requirements in two of
the Company's international operations.
COST OF GOODS SOLD:
For the three and six months ended June 30, 1998, the Company experienced a
decrease in cost of goods sold, as a percentage of sales, of 1.10 percent and
.5 percent, respectively, compared to the same period in the prior year. The
decrease in cost of goods sold, as a percentage of sales, was primarily related
to a price increase of approximately 2 percent that was effected in the
Company's domestic operations on April 1, 1998.
Management expects cost of goods sold to remain relatively constant as a
percent of sales during the remainder of 1998.
VOLUME INCENTIVES:
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 remain relatively constant, as a
percent of sales, during the remainder of 1998.
16
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
The Company experienced increased selling, general and administrative
expenses (SG&A), as a percent of sales, during the three-month period ended
June 30, 1998. The increase, as a percent of sales, was primarily the result
of costs associated with conventions and incentives for the Company's
independent sales force. Costs associated with the Company's annual
conventions were accrued over the qualification period, which ended June 30,
1998. Selling, general and administrative expenses for the six months ended
June 30, 1998, decreased slightly, as a percent of sales, as the result of
increased budgetary controls and management's efforts to reduce expenses.
Management expects SG&A to decrease, as a percent of sales, for the year
ended December 31, 1998.
SEGMENT INFORMATION:
Segment information for the six months ended June 30, 1998, compared to the
previous year are as follows:
<TABLE>
<CAPTION>
SALES REVENUE (Dollars in Thousands)
(Unaudited)
1998 1997
-------- --------
<S> <C> <C>
DOMESTIC SALES REVENUE $ 98,761 $ 89,474
INTERNATIONAL SALES REVENUE:
Americas 46,445 41,995
Asia Pacific 5,040 5,633
Other 2,238 2,134
-------- --------
TOTAL INTERNATIONAL 53,723 49,762
-------- --------
TOTAL SALES REVENUE $152,484 $139,236
-------- --------
-------- --------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
OPERATING INCOME (Dollars in Thousands)
(Unaudited)
1998 1997
-------- -------
<S> <C> <C>
DOMESTIC OPERATING INCOME $ 13,519 $11,114
-------- -------
INTERNATIONAL OPERATING INCOME (LOSS):
Americas 4,347 3,171
Asia Pacific (1,248) (171)
Other 463 263
-------- -------
TOTAL INTERNATIONAL 3,562 3,263
-------- -------
TOTAL OPERATING INCOME $ 17,081 $14,377
-------- -------
-------- -------
</TABLE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
(Unaudited)
June 30 December 31
ASSETS 1998 1997
-------- ----------
<S> <C> <C>
DOMESTIC ASSETS $ 65,734 $58,700
-------- -------
INTERNATIONAL ASSETS:
Americas 33,749 31,818
Asia Pacific 5,321 4,685
Other 648 593
-------- -------
TOTAL INTERNATIONAL 39,718 37,096
-------- -------
TOTAL ASSETS $105,452 $95,796
-------- -------
-------- -------
</TABLE>
BALANCE SHEET
ACCOUNTS RECEIVABLE
Accounts receivable increased approximately $1.6 million during the six
months ended June 30, 1998. The increase in receivables is primarily related
to the Company's growing international operations.
ACCRUED VOLUME INCENTIVES
Accrued volume incentives increased approximately $1.6 million during the
month of June as a direct result of increased sales revenue.
18
<PAGE>
ACCRUED LIABILITIES
Accrued liabilities increased approximately $4.4 million during the six
months ended June 30, 1998. The increase is primarily the result of accruals
associated with the Company's sales conventions and travel programs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $7.2 million for the six
months ended June 30, 1998. The increase in cash is primarily the result of
the increased sales and net income as well as increases in accrued liabilities.
Management believes the Company's stock is an attractive investment and,
from time to time pursuant to its previously announced 500,000 share stock
buyback program, may utilize a portion of its available cash to purchase up to
the remaining balance of approximately 264,000 shares of its stock as market
conditions warrant. During the six months ended June 30, 1998, the Company
acquired $5.5 million, or approximately 236,000 shares, of treasury stock as
part of the 500,000 share buyback program.
During 1997, the Company began expansion of its domestic manufacturing and
warehouse facilities. The Company paid approximately $3.5 million during the
six months ended June 30, 1998, for continued construction costs. The new
facility was completed during the second quarter of 1998. Total costs
associated with the expansion were approximately $6.2 million. The entire
amount was financed from working capital.
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with its legal counsel,
believes that the ultimate disposition of these matters will not have a
material effect upon the Company's consolidated results of operations or
financial position.
Management believes that working capital requirements can be met through
the Company's available cash and cash equivalents and internally-generated
funds for the foreseeable future;
19
<PAGE>
however, a prolonged economic downturn or a decrease in the demand for the
Company's products could adversely affect the long-term liquidity of the
Company. In the event of a significant decrease in cash provided by the
Company's operations, it may be necessary for the Company to obtain external
sources of funding. The Company does not currently maintain a credit facility
or any other external sources of long-term funding; however, Management
believes that such funding could be obtained on competitive terms in the event
additional sources of funds became necessary.
THE YEAR 2000 ISSUE
The Company has formed a committee to address the Year 2000 issue and is
in the process of insuring that its internal computer systems are Year 2000
compliant. With respect to third-party providers whose services are critical
to the Company, the Company intends to monitor the efforts of such providers as
they become Year 2000 compliant. Management is not presently aware of any Year
2000 issues that have been encountered by any such third-party which could
materially affect the Company's operations. Notwithstanding the foregoing,
there can be no assurance that the Company will not experience operational
difficulties as a result of Year 2000 issues, either arising out of internal
operations or caused by third-party service providers, which individually or
collectively could have an adverse impact on business operations or require the
Company to incur unanticipated expenses to remedy any problems.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and other items of this Form 10-Q
may contain forward-looking statements. Such forward-looking statements are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements may relate but not be limited
to projections of revenues, income or loss, capital expenditures, the expected
development schedule of existing real estate projects, plans for growth and
future operations, financing needs, as well as assumptions relating to the
foregoing. Forward-looking statements are inherently subject to risks and
20
<PAGE>
uncertainties, some of which cannot be predicted or quantified. When used in
this "Management's Discussion and Analysis of Financial Condition and Results
of Operations", and elsewhere in this Form 10-Q the words "estimates",
"expects", "anticipates", "forecasts", "plans", "intends" and variations of
such words and similar expressions are intended to identify forward-looking
statements that involve risks and uncertainties. Future events and actual
results could differ materially from those set forth in, contemplated by or
underlying the forward-looking statements.
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on May 18, 1998, the
stockholders re-elected the following persons to three-year terms to the Board
of Directors:
<TABLE>
<CAPTION>
WITHHOLD
NOMINEE FOR AUTHORITY
---------------- ---------- ---------
<S> <C> <C>
Robert H. Daines 11,732,687 69,142
Eugene L. Hughes 11,735,184 66,646
</TABLE>
Kristine F. Hughes, Daniel P. Howells, Merrill Gappmayer, Pauline T. Hughes
and Douglas Faggioli also serve as directors of the Company, and their terms of
office continued after the Annual Meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) No exhibits are required to be filed by Item 601 of Regulation S-K.
b) No reports were filed on Form 8-K during the quarter for which this
report is filed.
21
<PAGE>
OTHER ITEMS
There were no other items to be reported under Part II of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATURE'S SUNSHINE PRODUCTS, INC.
Date: August 13, 1998 /s/ Daniel P. Howells
---------------------------------------
Daniel P. Howells, President &
Chief Executive Officer
Date: August 13, 1998 /s/ Craig D. Huff
---------------------------------------
Craig D. Huff, Chief Financial Officer
22
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 34,970
<SECURITIES> 0
<RECEIVABLES> 9,074
<ALLOWANCES> 0
<INVENTORY> 19,352
<CURRENT-ASSETS> 72,223
<PP&E> 26,390
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,452
<CURRENT-LIABILITIES> 31,541
<BONDS> 0
0
0
<COMMON> 37,981
<OTHER-SE> 34,256
<TOTAL-LIABILITY-AND-EQUITY> 72,237
<SALES> 152,484
<TOTAL-REVENUES> 152,484
<CGS> 27,187
<TOTAL-COSTS> 135,403
<OTHER-EXPENSES> 1,029
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28
<INCOME-PRETAX> 18,110
<INCOME-TAX> 7,138
<INCOME-CONTINUING> 10,972
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,972
<EPS-PRIMARY> 0.59
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