<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 September 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) 342-4300
(Registrant's Telephone Number, including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934,
during the preceding 12 months (or such shorter period that the Registrant was
required to file such report(s)), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of common stock, without par value, outstanding as of
November 11, 1998, was 18,140,649.
==============================================================================
<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>
September 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 31,727 $ 27,813
Accounts receivable, net 9,390 7,465
Inventories 20,958 19,555
Prepaid expenses and other 8,735 11,197
-------- --------
Total Current Assets 70,810 66,030
PROPERTY, PLANT AND
EQUIPMENT, net 26,153 23,711
LONG-TERM INVESTMENTS 3,257 3,468
OTHER ASSETS 3,397 2,587
-------- --------
$103,617 $ 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>
September 30 December 31
1998 1997
------------ -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 1,624 $ 2,665
Accounts payable 5,738 5,094
Accrued volume incentives 10,035 9,531
Accrued liabilities 10,855 7,223
Income taxes payable 2,709 2,946
-------- --------
Total Current Liabilities 30,961 27,459
-------- --------
LONG-TERM LIABILITIES 1,877 1,480
-------- --------
SHAREHOLDERS' EQUITY:
Common stock, no par value, 20,000 shares
authorized; 19,446 shares issued 37,218 37,896
Retained earnings 66,371 51,190
Treasury stock, at cost, 1,225 and 861
shares at September 30, 1998 and
December 31, 1997, respectively (25,771) (17,278)
Receivables due from related parties --- (77)
Other comprehensive income, net of tax (7,039) (4,874)
-------- --------
Total Shareholders' Equity 70,779 66,857
-------- --------
$103,617 $ 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
September 30
------------------
1998 1997
------- -------
<S> <C> <C>
SALES REVENUE $73,456 $71,589
------- -------
COSTS AND EXPENSES:
Cost of goods sold 13,155 12,756
Volume incentives 33,628 33,424
Selling, general and administrative 17,774 17,272
------- -------
64,557 63,452
------- -------
OPERATING INCOME 8,899 8,137
OTHER INCOME 749 683
------- -------
INCOME BEFORE PROVISION
FOR INCOME TAXES 9,648 8,820
PROVISION FOR INCOME TAXES 3,589 3,414
------- -------
NET INCOME $ 6,059 $ 5,406
------- -------
------- -------
BASIC NET INCOME PER COMMON SHARE $ 0.33 $ 0.29
------- -------
------- -------
WEIGHTED AVERAGE BASIC SHARES 18,341 18,411
------- -------
------- -------
DILUTED NET INCOME PER COMMON SHARE $ 0.33 $ 0.29
------- -------
------- -------
WEIGHTED AVERAGE DILUTED SHARES 18,548 18,850
------- -------
------- -------
</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>
Nine Months Ended
September 30
------- -------
1998 1997
------- -------
<S> <C> <C>
SALES REVENUE $225,940 $210,825
-------- --------
COSTS AND EXPENSES:
Cost of goods sold 40,342 38,222
Volume incentives 104,301 98,146
Selling, general and administrative 55,317 51,943
-------- --------
199,960 188,311
-------- --------
OPERATING INCOME 25,980 22,514
OTHER INCOME 1,778 1,716
-------- --------
INCOME BEFORE PROVISION
FOR INCOME TAXES 27,758 24,230
PROVISION FOR INCOME TAXES 10,727 9,567
-------- --------
NET INCOME $ 17,031 $ 14,663
-------- --------
-------- --------
BASIC NET INCOME PER COMMON SHARE $ 0.92 $ 0.79
-------- --------
-------- --------
WEIGHTED AVERAGE BASIC SHARES 18,467 18,671
-------- --------
-------- --------
DILUTED NET INCOME PER COMMON SHARE $ 0.91 $ 0.77
-------- --------
-------- --------
WEIGHTED AVERAGE DILUTED SHARES 18,764 19,051
-------- --------
-------- --------
</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>
Nine Months Ended
September 30
----------------------------
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from sales revenue $224,004 $207,933
Cash paid as volume incentives (103,797) (96,211)
Cash paid to suppliers and employees (88,082) (85,518)
Interest paid (37) (141)
Interest received 1,533 1,876
Income taxes paid (10,714) (8,498)
--------- --------
Net Cash Provided by Operating Activities 22,907 19,441
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,678) (3,709)
Sale (Purchase) of long-term investments 156 (915)
Payments received on long-term receivables 130 345
Purchase of other assets (554) (646)
Minority interest elimination (293) 156
--------- --------
Net Cash Used in Investing Activities (6,239) (4,769)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (1,849) (1,868)
Purchase of treasury stock (10,888) (19,186)
Repayments of short-term debt (1,041) (46)
Proceeds from exercise of stock options 1,397 4,395
Tax benefit from stock option exercise 318 1,436
Issuance of treasury stock --- 30
--------- --------
Net Cash Used in Financing Activities (12,063) (15,239)
--------- --------
EFFECT OF EXCHANGE RATES ON CASH (691) (339)
--------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,914 (906)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 27,813 27,879
--------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 31,727 $ 26,973
--------- --------
--------- --------
</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>
Nine Months Ended
September 30
--------------------
1998 1997
-------- --------
<S> <C> <C>
NET INCOME $ 17,031 $ 14,663
-------- --------
Bad debt expense 80 65
Depreciation and amortization 3,777 3,363
Gain on sale of property and equipment (66) ---
Increase in accounts receivable (2,005) (2,673)
Increase (decrease) in inventories (1,403) 2,986
Decrease (increase) in prepaid expenses & other assets 1,982 (1,990)
(Decrease) increase in income taxes payable (237) 1,031
Increase in accrued liabilities and volume incentives 4,136 1,843
Increase in accounts payable 644 608
Increase in deferred income taxes 251 37
Cumulative translation adjustments (1,283) (492)
-------- --------
Total Adjustments 5,876 4,778
-------- --------
Net Cash Provided by Operating Activities $ 22,907 $ 19,441
-------- --------
-------- --------
</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
(Amounts In Thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
---------------------
1998 1997
------- -------
<S> <C> <C>
NET INCOME $17,031 $14,663
------- -------
OTHER COMPREHENSIVE INCOME, net of tax
Foreign currency translation adjustments (1,974) (831)
Unrealized losses on securities (191) ---
------- -------
Total other comprehensive income, net of tax (2,165) (831)
------- -------
COMPREHENSIVE INCOME, net of tax $14,866 $13,832
------- -------
------- -------
</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 September 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 nine-month periods
ended September 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>
September 30 December 31
1998 1997
------- -------
<S> <C> <C>
Raw materials $ 6,343 $ 5,912
Work in process 1,840 1,455
Finished goods 12,775 12,188
------- -------
$20,958 $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 September 30, 1998, the Company had a total of 1,120 options
outstanding. The options were all granted at market prices and have a
weighted average exercise price of $13.96.
Following is a reconciliation of the numerator and denominator of Basic
EPS to the numerator and denominator of Diluted EPS for the nine months ended:
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
September 30, 1998
-----------------------------------------------------------------------------------
Basic EPS $17,031 18,467 $0.92
Effect of stock options --- 297
-----------------------------------------------------------------------------------
Diluted EPS $17,031 18,764 $0.91
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
September 30, 1997
-----------------------------------------------------------------------------------
Basic EPS $14,663 18,671 $0.79
Effect of stock options --- 380
-----------------------------------------------------------------------------------
Diluted EPS $14,663 19,051 $0.77
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
At September 30, 1998 and 1997, there were outstanding options to
purchase 74 and 264 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 41 consecutive quarterly cash dividends. The
most recent quarterly cash dividend of 3 1/3 cents per common share was
declared October 29, 1998, to shareholders of record on November 12, 1998 and
is payable November 20, 1998.
During September 1998, the Company completed its 500,000-share
repurchase program that was authorized in January 1998. On September 23,
1998, the Board of Directors authorized the repurchase of an additional
500,000 shares of common stock as market conditions warrant. Since the end of
the third quarter, the Company has purchased 95,000 shares.
(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
Unrealized Accumulated
Foreign Currency Gains/Losses Other Comprehensive
Items on Securities Income
---------------- ------------- -------------------
<S> <C> <C> <C>
Balance as of December 31, 1997 $(5,290) $416 $(4,874)
Current period change (1,974) (191) (2,165)
-------- ----- --------
Balance as of September 30, 1998 $(7,264) $225 $(7,039)
-------- ----- --------
-------- ----- --------
</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 thereto and Management's
Discussion and Analysis included in 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.
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
(UNAUDITED)
(i) (ii)
Income and Expense
Items as a Percent of Sales Three Months Ended September 30
- --------------------------- 1998 to 1997
Three Months Ended --------------------------
September 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 $1,867 2.6%
------ ------ ------
17.9 17.8 Cost of sales 399 3.1
45.8 46.7 Volume incentives 204 0.6
24.2 24.1 SG&A expenses 502 2.9
------ ------ ------
87.9 88.6 Total operating expenses 1,105 1.7
------ ------ ------
12.1 11.4 Operating income 762 9.4
1.0 0.9 Other income and expenses 66 9.7
------ ------ ------
Income before provision
13.1 12.3 for income taxes 828 9.4
4.9 4.7 Provision for income taxes 175 5.1
------ ------ ------
8.2% 7.6% Net income $ 653 12.1%
------ ------ ------
------ ------ ------
</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.
<TABLE>
<CAPTION>
(Dollar Amounts in Thousands)
(UNAUDITED)
(i) (ii)
Income and Expense
Items as a Percent of Sales Nine Months Ended September 30
- --------------------------- 1998 to 1997
Nine Months Ended --------------------------
September 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 $15,115 7.2%
------ ------ -------
17.8 18.1 Cost of sales 2,120 5.5
46.2 46.6 Volume incentives 6,155 6.3
24.5 24.6 SG&A expenses 3,374 6.5
------ ------ -------
88.5 89.3 Total operating expenses 11,649 6.2
------ ------ -------
11.5 10.7 Operating income 3,466 15.4
0.8 0.8 Other income and expenses 62 3.6
------ ------ -------
Income before provision
12.3 11.5 for income taxes 3,528 14.6
4.8 4.5 Provision for income taxes 1,160 12.1
------ ------ -------
7.5% 7.0% Net income $ 2,368 16.1%
------ ------ -------
------ ------ -------
</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
nine months ended September 30, 1998. Sales revenue for the three months
ended September 30, 1998, was $73.5 million compared to $71.6 million in the
prior year, an increase of approximately 3 percent. Sales revenue for the
nine months ended September 30, 1998, was $225.9 million compared to $210.8
million in the prior year, an increase of approximately 7 percent.
Management believes the increase in sales for the three and nine months
ended September 30, 1998, 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 $145.9 million for the nine months ended September
30, 1998, an increase of approximately 9 percent over the same period in the
prior year. The domestic sales revenue growth rate was negatively impacted
during the period by increased product and price competition in the
nutritional supplement market. The Company expects competition to remain
strong for the foreseeable future. Management is evaluating various programs
and promotions in an effort to restore current growth rates to those
experienced in the past. Domestic sales revenue of the Hispanic market
increased approximately 7 percent during the third quarter of 1998, as
compared to the same period the prior year, despite several successive
quarters of declining sales revenue. These increases were the result of
increased focus on and the introduction of several programs directed
specifically at the Hispanic market.
The Company's international operations reported sales revenue of $80.1
million for the nine months ended September 30, 1998, an increase of 4
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
15
<PAGE>
most significant foreign currency impacts were Brazil, Colombia, Venezuela,
Mexico, Japan and Canada. Price increases are planned in various
international markets to adjust for foreign currency devaluations. 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 in its Asia Pacific markets which resulted
primarily from continued losses associated with the Company's subsidiary in
South Korea, which began operations in the fourth quarter of 1997.
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 14,783 at September 30, 1998, compared to 13,776 at
December 31, 1997, an increase of approximately 7 percent. The number of
Distributors at September 30, 1998, was approximately 636,000 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 Colombia and Mexico.
COST OF GOODS SOLD:
For the nine months ended September 30, 1998, the Company experienced a
decrease in cost of goods sold, as a percentage of sales, of 0.30 percent
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.
16
<PAGE>
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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses for the nine months ended
September 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 slightly decrease, as a percent of sales, for
the year ended December 31, 1998, as compared to the year ended December 31,
1997.
SEGMENT INFORMATION:
Segment information for the nine months ended September 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 $145,880 $133,805
-------- --------
INTERNATIONAL SALES REVENUE:
Americas 68,354 65,183
Asia Pacific 8,335 8,643
Other 3,371 3,194
-------- --------
TOTAL INTERNATIONAL 80,060 77,020
-------- --------
TOTAL SALES REVENUE $225,940 $210,825
-------- --------
-------- --------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
OPERATING INCOME (Dollars in Thousands)
(UNAUDITED)
1998 1997
-------- --------
<S> <C> <C>
DOMESTIC OPERATING INCOME $20,558 $17,947
-------- --------
INTERNATIONAL OPERATING INCOME (LOSS):
Americas 6,414 4,693
Asia Pacific (1,649) (578)
Other 657 452
-------- --------
TOTAL INTERNATIONAL 5,422 4,567
-------- --------
TOTAL OPERATING INCOME $ 25,980 $ 22,514
-------- --------
-------- --------
<CAPTION>
(Dollars in Thousands)
(UNAUDITED)
ASSETS 1998 1997
-------- --------
<S> <C> <C>
DOMESTIC ASSETS $ 64,774 $ 58,700
-------- --------
INTERNATIONAL ASSETS:
Americas 32,575 31,818
Asia Pacific 5,464 4,685
Other 804 593
-------- --------
TOTAL INTERNATIONAL 38,843 37,096
-------- --------
TOTAL ASSETS $103,617 $ 95,796
-------- --------
-------- --------
</TABLE>
BALANCE SHEET
ACCOUNTS RECEIVABLE
Accounts receivable increased approximately $2.0 million during the nine
months ended September 30, 1998. The increase in receivables is primarily
related to credit given for promotions associated with the introduction of
new products in the Company's domestic market.
PREPAID EXPENSES AND OTHER
Prepaid expenses and other decreased approximately $2.0 million during
the nine months ended September 30, 1998. The decrease resulted from the
Company utilizing tax deposits made in Mexico and Brazil during the fourth
quarter of 1997 to offset current tax liabilities.
18
<PAGE>
ACCRUED LIABILITIES
Accrued liabilities increased approximately $3.6 million during the nine
months ended September 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 $3.9 million for the
nine months ended September 30, 1998. The increase in cash is primarily the
result of the increased sales and net income as well as increases in accrued
liabilities. During the first nine months of 1998, cash totaling $10.9
million was used to repurchase approximately 510,000 shares of common stock.
During the nine months ended September 30, 1998, the Company completed
its previously-announced stock buyback program of 500,000 shares and
announced a new authorization of 500,000 shares to be repurchased as market
conditions warrant. 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 395,000 shares
of its stock as market conditions warrant.
During 1997, the Company began expansion of its domestic warehouse and
manufacturing facilities. The Company paid approximately $3.5 million during
the six months ended June 30, 1998, for continued construction costs. The
warehouse portion of the 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.
19
<PAGE>
Management believes that working capital requirements can be met through
the Company's available cash and cash equivalents and internally-generated
funds for the foreseeable future; however, a prolonged economic downturn or a
decrease in the demand for the Company's products could adversely affect the
long-term liquidity of the Company. In the event of a significant decrease in
cash provided by the Company's operations, it may be necessary for the
Company to obtain external sources of funding. The Company does not currently
maintain a credit facility or any other external sources of long-term
funding; however, Management believes that such funding could be obtained on
competitive terms in the event additional sources of funds became necessary.
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 as well as all
other systems are Year 2000 compliant. After initial review of the internal
systems, the Company has determined that the majority are currently Year 2000
compliant. The Company has estimated that it may need to spend from $.5
million to $1.0 million to insure that all systems are Year 2000 compliant.
Most of the costs to replace those systems which are not currently compliant
had previously been scheduled to be replaced as part of the Company's ongoing
maintenance and upgrading programs. Therefore, management believes that the
costs associated with becoming Year 2000 compliant are immaterial. 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
20
<PAGE>
remedy any problems. The Company is currently evaluating what contingency
plans, if any, may need to be made in the event the Company or third party
providers with whom the Company does business experiences Year 2000 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 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.
21
<PAGE>
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: November 11, 1998 /s/ Daniel P. Howells
--------------------------------------
Daniel P. Howells, President & Chief
Executive Officer
Date: November 11, 1998 /s/ Craig D. Huff
--------------------------------------
Craig D. Huff, Chief Financial Officer
22
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