<PAGE>
UNITED STATES
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, 2000
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 Number 0-8707
NATURE'S SUNSHINE PRODUCTS, INC.
--------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Utah 87-0327982
---- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
75 East 1700 South
Provo, Utah 84606
(Address of Principal Executive Offices, including Zip Code)
(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, no par value, outstanding as of November
9, 2000, was 16,552,868.
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 29,815 $ 18,433
Accounts receivable, net 9,393 7,090
Inventories 27,193 26,660
Deferred income tax assets 3,175 2,565
Prepaid expenses and other 8,281 8,575
-------- --------
Total Current Assets 77,857 63,323
PROPERTY, PLANT AND
EQUIPMENT, net 24,298 25,193
LONG-TERM INVESTMENTS 11,897 12,368
INTANGIBLE AND OTHER ASSETS, net 7,306 6,551
-------- --------
$121,358 $107,435
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 545 $ 1,018
Accounts payable 5,514 5,279
Accrued volume incentives 11,796 10,685
Accrued liabilities 11,112 8,479
Income taxes payable 3,213 2,268
--------- ---------
Total Current Liabilities 32,180 27,729
--------- ---------
LONG-TERM LIABILITIES:
Deferred income tax liabilities 2,645 1,116
Deferred compensation 1,390 1,053
--------- ---------
Total Long-Term Liabilities 4,035 2,169
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 20,000 shares
authorized, 19,446 shares issued 37,398 37,659
Retained earnings 99,628 87,463
Treasury stock, at cost, 2,749 and 2,318
shares, respectively (41,469) (38,174)
Accumulated other comprehensive loss (10,414) (9,411)
--------- ---------
Total Shareholders' Equity 85,143 77,537
--------- ---------
$ 121,358 $ 107,435
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
SALES $ 75,884 $ 73,240
-------- --------
COSTS AND EXPENSES:
Cost of goods sold 13,696 13,151
Volume incentives 33,940 33,275
Selling, general and administrative 20,925 20,622
-------- --------
68,561 67,048
-------- --------
OPERATING INCOME 7,323 6,192
OTHER INCOME, net 20 304
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 7,343 6,496
PROVISION FOR INCOME TAXES 2,871 2,368
-------- --------
NET INCOME 4,472 4,128
-------- --------
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation adjustments (588) (520)
Unrealized holding gains (losses) 226 (8)
Reclassification adjustment for gains
included in net income 1 (40)
-------- --------
(361) (568)
-------- --------
COMPREHENSIVE INCOME $ 4,111 $ 3,560
======== ========
BASIC NET INCOME PER COMMON SHARE $ 0.27 $ 0.24
======== ========
WEIGHTED AVERAGE BASIC SHARES 16,736 17,472
======== ========
DILUTED NET INCOME PER COMMON SHARE $ 0.27 $ 0.24
======== ========
WEIGHTED AVERAGE DILUTED SHARES 16,764 17,547
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
SALES $ 234,242 $ 217,056
--------- ---------
COSTS AND EXPENSES:
Cost of goods sold 41,858 38,292
Volume incentives 105,832 99,162
Selling, general and administrative 64,596 58,370
--------- ---------
212,286 195,824
--------- ---------
OPERATING INCOME 21,956 21,232
OTHER INCOME, net 781 1,446
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 22,737 22,678
PROVISION FOR INCOME TAXES 8,878 8,763
--------- ---------
NET INCOME 13,859 13,915
--------- ---------
OTHER COMPREHENSIVE LOSS, net of tax:
Foreign currency translation adjustments (1,107) (3,066)
Unrealized holding gains 144 38
Reclassification adjustment for gains
included in net income (40) (71)
--------- ---------
(1,003) (3,099)
--------- ---------
COMPREHENSIVE INCOME $ 12,856 $ 10,816
========= =========
BASIC NET INCOME PER COMMON SHARE $ 0.82 $ 0.79
========= =========
WEIGHTED AVERAGE BASIC SHARES 16,929 17,722
========= =========
DILUTED NET INCOME PER COMMON SHARE $ 0.81 $ 0.78
========= =========
WEIGHTED AVERAGE DILUTED SHARES 17,029 17,821
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
5
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,859 $ 13,915
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,883 6,046
(Gain) loss on sale of property, plant and equipment 17 (7)
Deferred income taxes 919 53
Deferred compensation 337 718
Changes in assets and liabilities:
Accounts receivable, net (2,303) 224
Inventories (533) 139
Prepaid expenses and other assets 327 (2,809)
Accounts payable 235 2,018
Accrued volume incentives 1,111 276
Accrued liabilities 2,633 3,276
Income taxes payable 945 (813)
Cumulative currency translation adjustments (882) (1,889)
-------- --------
Net Cash Provided by Operating Activities 21,548 21,147
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (3,029) (5,198)
Purchase of long-term investments, net 576 (2,156)
Payments received (advances) on long-term receivables (278) 46
Purchase of other assets (1,548) (2,030)
Proceeds from sale of property, plant and equipment 65 25
-------- --------
Net Cash Used in Investing Activities (4,214) (9,313)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (1,695) (1,773)
Purchase of treasury stock (3,588) (8,008)
Repayments of short-term debt (473) (562)
Proceeds from exercise of stock options 29 --
-------- --------
Net Cash Used in Financing Activities (5,727) (10,343)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH (225) (1,177)
-------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 11,382 314
CASH AND CASH EQUIVALENTS AT
BEGINNING OF THE PERIOD 18,433 22,099
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF THE PERIOD $ 29,815 $ 22,413
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER-SHARE INFORMATION)
(UNAUDITED)
(1) INTERIM FINANCIAL STATEMENT POLICIES AND DISCLOSURES
The unaudited, condensed consolidated financial statements of Nature's
Sunshine Products, Inc. and subsidiaries included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally required in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the following disclosures are
adequate to make the information presented not misleading.
These condensed consolidated financial statements reflect all adjustments,
which in the opinion of management are necessary to present fairly the financial
position as of September 30, 2000, and the results of operations for the periods
presented. All of the adjustments which have been made in these condensed
consolidated financial statements are of a normal recurring nature. Operating
results for the three and nine months ended September 30, 2000, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
It is suggested that these condensed consolidated financial statements be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
(2) NET INCOME PER COMMON 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
7
<PAGE>
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.
As of September 30, 2000, the Company had a total of 3,499 common stock
options outstanding. These options were all granted at fair market value and
have a weighted average exercise price of $8.68.
Following is a reconciliation of the numerator and denominator of Basic EPS
to the numerator and denominator of Diluted EPS for the three and nine months
ended at September 30, 2000 and 1999:
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Three Months Ended September 30, 2000
Basic EPS $4,472 16,736 $ 0.27
Effect of stock options 28
------ ------ --------
Diluted EPS $4,472 16,764 $ 0.27
====== ====== ========
Three Months Ended September 30, 1999
Basic EPS $4,128 17,472 $ 0.24
Effect of stock options 75
------ ------ --------
Diluted EPS $4,128 17,547 $ 0.24
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Nine Months Ended September 30, 2000
Basic EPS $13,859 16,929 $ 0.82
Effect of stock options 100
------- ------ --------
Diluted EPS $13,859 17,029 $ 0.81
======= ====== ========
Nine Months Ended September 30, 1999
Basic EPS $13,915 17,722 $ 0.79
Effect of stock options 99
------- ------ --------
Diluted EPS $13,915 17,821 $ 0.78
======= ====== ========
</TABLE>
For the three months ended September 30, 2000 and 1999, there were
outstanding options to purchase 3,240 and 700 shares of common stock,
respectively, that were not included in the computation of Diluted EPS, as their
effect would have been anti-dilutive. For the nine months ended September 30,
2000 and 1999, there were outstanding options to purchase 1,095 and 535 shares
of
8
<PAGE>
common stock, respectively, that were not included in the computation of Diluted
EPS, as their effect would have been anti-dilutive.
(3) EQUITY TRANSACTIONS
The Company has declared consecutive quarterly cash dividends since 1988.
The most recent quarterly cash dividend of 3 1/3 cents per common share was
declared on October 31, 2000, to shareholders of record on November 8, 2000 and
is payable on November 15, 2000.
For the nine months ended September 30, 2000, the Company repurchased
approximately 448 shares of its common stock. On October 28, 1999, the Board of
Directors authorized the repurchase of up to 1,000 shares of the Company's
common stock as market conditions warrant. As of September 30, 2000, the Company
had repurchased approximately 568 shares of common stock under this approval.
Subsequent to September 30, 2000, the Company repurchased an additional 144
shares of common stock under this approval.
(4) ACCUMULATED OTHER COMPREHENSIVE LOSS
The composition of accumulated other comprehensive loss, net of tax, is as
follows:
<TABLE>
<CAPTION>
Unrealized Total
Gains on Accumulated
Foreign Currency Available-for Sale Other Comprehensive
Adjustments Securities Income (Loss)
-------- -------- --------
<S> <C> <C> <C>
Balance as of December 31, 1999 $ (9,748) $ 337 $ (9,411)
Current period change (1,107) 104 (1,003)
-------- -------- --------
Balance as of September 30, 2000 $(10,855) $ 441 $(10,414)
======== ======== ========
</TABLE>
(5) SEGMENT INFORMATION
The Company has four operating segments. These operating segments are
components of the Company for which separate information is available that is
evaluated regularly by management in deciding how to allocate resources and in
assessing performance. The Company evaluates performance based on operating
income (loss).
9
<PAGE>
The Company's operating segments are based on geographic operations and
include a domestic segment (United States) and three international segments
(Latin America, Asia Pacific and other regions). Intersegment sales are
eliminated in consolidation and are not material.
Operating segment information for the three and nine months ended September
30, 2000 and 1999, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales Revenue:
Domestic $ 41,156 $ 44,510 $ 132,085 $ 139,482
International:
Latin America 20,397 18,334 59,718 52,986
Asia Pacific 9,870 6,164 28,865 12,870
Other 4,461 4,230 13,574 11,718
--------- --------- --------- ---------
75,884 73,240 234,242 217,056
--------- --------- --------- ---------
Operating Expenses:
Domestic 36,160 39,053 115,733 120,633
International:
Latin America 19,125 18,326 56,704 50,962
Asia Pacific 8,873 6,006 26,688 13,838
Other 4,403 3,663 13,161 10,391
--------- --------- --------- ---------
68,561 67,048 212,286 195,824
--------- --------- --------- ---------
Operating Income:
Domestic 4,996 5,457 16,352 18,849
International:
Latin America 1,272 8 3,014 2,024
Asia Pacific 997 158 2,177 (968)
Other 58 569 413 1,327
--------- --------- --------- ---------
7,323 6,192 21,956 21,232
--------- --------- --------- ---------
Other Income 20 304 781 1,446
--------- --------- --------- ---------
Income Before Provision for Income Taxes $ 7,343 $ 6,496 $ 22,737 $ 22,678
--------- --------- --------- ---------
</TABLE>
Segment assets as of September 30, 2000 and December 31, 1999, are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
Assets
Domestic $ 70,812 $ 66,372
International:
Latin America 32,528 29,343
Asia Pacific 13,446 8,670
Other 4,572 3,050
-------- --------
$121,358 $107,435
======== ========
</TABLE>
10
<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 on Form 10-K for the year
ended December 31, 1999.
RESULTS OF OPERATIONS
The following table identifies (i) the relationship that net income items
disclosed in the condensed consolidated financial statements have to total
sales, and (ii) the 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 Three Months Ended September 30
Items as a Percent of Sales 2000 to 1999
--------------------------- -------------------------------
Three Months Ended
September 30 Amount of Percent
-------------------------- Income and Increase of
2000 1999 Expense Items (Decrease) Change
------ ------ ------------- ---------- -------
<S> <C> <C> <C> <C>
100.0% 100.0% Sales $ 2,644 3.6%
----- ------
18.0 18.0 Cost of goods sold 545 4.1
44.7 45.4 Volume incentives 665 2.0
27.6 28.1 SG&A expenses 303 1.5
----- ----- -------
90.3 91.5 Total operating expenses 1,513 2.3
----- ----- -------
9.7 8.5 Operating income 1,131 18.3
0.0 0.4 Other income, net (284) (93.4)
----- ----- -------
Income before provision
9.7 8.9 for income taxes 847 13.0
3.8 3.3 Provision for income taxes 503 21.2
----- ----- -------
5.9% 5.6% Net income $ 344 8.3%
===== ===== =======
</TABLE>
11
<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 condensed consolidated financial statements have to total
sales, and (ii) the 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 Nine Months Ended September 30
Items as a Percent of Sales 2000 to 1999
--------------------------- -------------------------------
Nine Months Ended
September 30 Amount of Percent
-------------------------- Income and Increase of
2000 1999 Expense Items (Decrease) Change
------ ------ ------------- ---------- -------
<S> <C> <C> <C> <C>
100.0% 100.0% Sales $ 17,186 7.9%
----- ----- -------
17.9 17.6 Cost of goods sold 3,566 9.3
45.2 45.7 Volume incentives 6,670 6.7
27.5 26.9 SG&A expenses 6,226 10.7
----- ----- -------
90.6 90.2 Total operating expenses 16,462 8.4
----- ----- -------
9.4 9.8 Operating income 724 3.4
0.3 0.6 Other income, net (665) (46.0)
----- ----- -------
Income before provision
9.7 10.4 for income taxes 59 0.3
3.8 4.0 Provision for income taxes 115 1.3
----- ----- -------
5.9% 6.4% Net income $ (56) (0.4)%
===== ===== =======
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SALES
Sales for the three months ended September 30, 2000, were $75.9 million
compared to $73.2 million in the prior year, an increase of approximately 4
percent. Sales for the nine months ended September 30, 2000, were $234.2 million
compared to $217.1 million in the same period the prior year, an increase of
approximately 8 percent. The increase in sales for the three and nine months
ended September 30, 2000, is attributable to strong sales increases throughout
its international operations.
Sales in the Company's domestic operations for the three and nine months
ended September 30, 2000, were $41.2 million and $132.1 million, a decrease of
approximately 8 percent and 5 percent, respectively, compared to the same
periods in the prior year. The domestic sales decrease was caused by increased
product competition in the nutritional supplement market, as well as increased
competition for Distributors. The Company expects competition to remain strong
for the foreseeable future. However, the total number of domestic Distributors
was approximately 216,000 as of September 30, 2000, up 12 percent from December
31, 1999.
The Company's international operations reported sales of $34.7 million and
$102.2 million for the three and nine months ended September 30, 2000, an
increase of approximately 24 percent and 34 percent, respectively, compared to
the same periods in 1999. Year-to-date, international sales accounted for
approximately 44 percent of consolidated sales.
Sales in Latin America were $20.4 million and $59.7 million for the three
and nine months ended September 30, 2000, an increase of 11 percent and 13
percent, respectively, compared to the same periods in the prior year. The sales
growth experienced in Latin America was primarily due to increased sales
reported in Mexico as well as more stable currencies throughout the region.
Sales in Asia Pacific were $9.9 million and $28.9 million for the three and
nine months ended September 30, 2000, an increase of 60 percent and 124 percent,
respectively, compared to the same
13
<PAGE>
periods in the prior year. The sales growth experienced in the Company's Asia
Pacific markets is the result of increased product demand supported by
educational and promotional programs implemented in South Korea.
Sales in the Company's other markets were $4.5 million and $13.6 million
for the three and nine months ended September 30, 2000, an increase of 5 percent
and 16 percent, respectively, compared to the same periods in the prior year.
The sales growth experienced in the Company's other markets is primarily due to
the growth of its operations in Russia, which were launched in April 1999, as
well as the commencement of its operations in Israel during April 2000.
The Company's independent sales force consists of Managers and
Distributors. A Distributor interested in earning additional income by
committing more time and effort to selling the Company's products may attain the
rank of "Manager." Appointment as a Manager is dependent upon attaining certain
purchase volume levels and demonstrating leadership abilities. The number of
Managers at September 30, 2000, was 16,300, up 13 percent from December 31,
1999. The number of Distributors at September 30, 2000, was approximately
573,000, an increase of approximately 8 percent from December 31, 1999.
COST OF GOODS SOLD
For the nine months ended September 30, 2000, the Company experienced a
slight increase in cost of goods sold, as a percentage of sales, compared to the
same period in the prior year. The increase in cost of goods sold was primarily
the result of the increase in international sales where cost of goods sold is
slightly higher than in the Company's domestic operations. Management expects
cost of goods sold to remain relatively constant as a percent of sales during
the remainder of 2000, as compared to the nine months ended September 30, 2000.
14
<PAGE>
VOLUME INCENTIVES
Volume incentives are payments to independent sales force members for
reaching certain levels of sales performance and organizational development and
are an integral part of the Company's direct sales marketing program. Volume
incentives vary slightly, on a percentage basis, by product due to the Company's
pricing policies. For the nine months ended September 30, 2000, the Company
experienced a slight decrease in volume incentives, as a percentage of sales,
compared to the same period the prior year. The decrease in volume incentives is
primarily the result of the increase in international sales where volume
incentives are lower than in the domestic operations. Management expects volume
incentives to remain relatively constant, as a percent of sales, during the
remainder of 2000, as compared to the nine months ended September 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three and nine months
ended September 30, 2000, increased, as a percent of sales, compared to the same
period of the prior year as a result of the decrease in sales in the Company's
domestic market. Increased expenditures in expanding the Company's international
markets also contributed to the increase in selling, general and administrative
expenses. Management expects selling, general and administrative expenses to
decrease slightly as a percent of sales, for the year ending December 31, 2000,
compared to the nine months ended September 30, 2000.
SEGMENT INFORMATION
See information included in the condensed consolidated financial statements
under Item 1 Note 5.
15
<PAGE>
BALANCE SHEET
ACCRUED LIABILITIES
Accrued liabilities increased approximately $2.6 million as of September
30, 2000, as compared to December 31, 1999, as a result of accruals associated
with the Company's sales conventions and travel programs.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $11.4 million for the
nine months ended September 30, 2000. The increase in cash and cash equivalents
is primarily the result of net income as well as the increases in accrued
liabilities and other payables. During the nine months ended September 30, 2000,
cash totaling $3.6 million was used to repurchase approximately 450,000 shares
of common stock. Management believes the Company's stock is an attractive
investment and pursuant to its recently announced 1,000,000 common share buyback
program, the Company purchased an additional 144 shares of its common stock
subsequent to September 30, 2000.
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 operating activities, it might 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.
On March 2, 2000, the Company announced its plans to complete the
manufacturing, research and development and quality assurance areas of its
recent facility expansion. Construction began during the third quarter of 2000.
The cost of this project is expected to be approximately $14.0 million of
16
<PAGE>
which $.6 million was paid during the quarter ended September 30, 2000. It is
expected to take approximately two years to complete the expansion project, and
the Company anticipates this expansion as well as other capital projects to be
funded from working capital.
On October 17, 2000, the Company signed a non-binding letter of intent to
acquire the assets of WorldWide Financial Holdings, Inc., and the assets of its
wholly owned subsidiary, Synergy WorldWide, Inc., which markets nutritional and
personal care products in Japan and Taiwan. On November 2, 2000, the Company
announced it had consummated the acquisitions for approximately $4.7 million in
cash. The purchase price and ongoing operating costs were funded by
internally-generated funds.
The purchase is expected to approximately double the size of the Company's
current operations in Japan. As of September 30, 2000, Synergy WorldWide, Inc.
had over 15,000 active distributors in Japan.
LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations and other items within this Form 10-Q may
contain forward-looking statements. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements may relate but not be limited to projections
of revenues, income or loss, capital expenditures, plans for growth and future
operations, financing needs, as well as assumptions relating to the foregoing.
Forward-looking statements are inherently
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subject to risks and uncertainties, some of which cannot be predicted or
quantified. When used in "Management's Discussion and Analysis of Financial
Condition and Results of Operations", and elsewhere in this Form 10-Q the words
"estimates", "expects", "anticipates", "projects", "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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has investments, which by nature are subject to market risk. At
September 30, 2000, the Company had investments of $15.7 million of which $9.1
million were held as municipal obligations and carry fixed interest rates.
Approximately $8.9 million mature between one and five years and carry a
weighted average interest rate of 5.5 percent. The remaining balance of $.2
million matures after five years and carries a weighted average interest rate of
4.1 percent.
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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: November 9, 2000 /s/ Daniel P. Howells
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Daniel P. Howells, President & Chief
Executive Officer
Date: November 9, 2000 /s/ Craig D. Huff
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Craig D. Huff, Chief Financial Officer
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