<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 June 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 August 2,
2000, was 16,738,804.
<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>
June 30, December 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 23,880 $ 18,433
Accounts receivable, net 10,019 7,090
Inventories 28,576 26,660
Deferred income tax assets 2,982 2,565
Prepaid expenses and other 7,924 8,575
-------- --------
Total Current Assets 73,381 63,323
PROPERTY, PLANT AND
EQUIPMENT, net 24,425 25,193
LONG-TERM INVESTMENTS 12,178 12,368
INTANGIBLE AND OTHER ASSETS, net 7,310 6,551
-------- --------
$117,294 $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>
June 30, December 31,
2000 1999
--------- ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 698 $ 1,018
Accounts payable 5,921 5,279
Accrued volume incentives 11,545 10,685
Accrued liabilities 12,525 8,479
Income taxes payable 2,255 2,268
--------- ---------
Total Current Liabilities 32,944 27,729
--------- ---------
LONG-TERM LIABILITIES:
Deferred income tax liabilities 1,020 1,116
Deferred compensation 1,257 1,053
--------- ---------
Total Long-Term Liabilities 2,277 2,169
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock, no par value; 20,000 shares
authorized, 19,446 shares issued 37,659 37,659
Retained earnings 95,713 87,463
Treasury stock, at cost, 2,697 and 2,318
shares, respectively (41,246) (38,174)
Accumulated other comprehensive loss (10,053) (9,411)
--------- ---------
Total Shareholders' Equity 82,073 77,537
--------- ---------
$ 117,294 $ 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
June 30,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
SALES $ 78,381 $ 71,639
-------- --------
COSTS AND EXPENSES:
Cost of goods sold 13,797 12,284
Volume incentives 35,325 32,764
Selling, general and administrative 21,561 19,210
-------- --------
70,683 $ 64,258
-------- --------
OPERATING INCOME 7,698 7,381
OTHER INCOME, net 357 545
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 8,055 7,926
PROVISION FOR INCOME TAXES 3,164 3,130
-------- --------
NET INCOME 4,891 4,796
-------- --------
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments (778) (109)
Unrealized holding gains (losses) (108) 54
Reclassification adjustment for gains
included in net income (41) (31)
-------- --------
(927) (86)
-------- --------
COMPREHENSIVE INCOME $ 3,964 $ 4,710
======== ========
BASIC NET INCOME PER COMMON SHARE $ 0.29 $ 0.27
======== ========
WEIGHTED AVERAGE BASIC SHARES 16,930 17,725
======== ========
DILUTED NET INCOME PER COMMON SHARE $ 0.29 $ 0.27
======== ========
WEIGHTED AVERAGE DILUTED SHARES 16,992 17,825
======== ========
</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>
Six Months Ended
June 30,
----------------------------
2000 1999
--------- ---------
<S> <C> <C>
SALES $ 158,358 $ 143,817
--------- ---------
COSTS AND EXPENSES:
Cost of goods sold 28,162 25,141
Volume incentives 71,892 65,887
Selling, general and administrative 43,671 37,749
--------- ---------
143,725 128,777
--------- ---------
OPERATING INCOME 14,633 15,040
OTHER INCOME, net 761 1,142
--------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES 15,394 16,182
PROVISION FOR INCOME TAXES 6,007 6,396
--------- ---------
NET INCOME 9,387 9,786
--------- ---------
OTHER COMPREHENSIVE INCOME (LOSS), net of tax:
Foreign currency translation adjustments (519) (2,546)
Unrealized holding gains (losses) (82) 47
Reclassification adjustment for gains
included in net income (41) (31)
--------- ---------
(642) (2,530)
--------- ---------
COMPREHENSIVE INCOME $ 8,745 $ 7,256
========= =========
BASIC NET INCOME PER COMMON SHARE $ 0.55 $ 0.55
========= =========
WEIGHTED AVERAGE BASIC SHARES 17,026 17,850
========= =========
DILUTED NET INCOME PER COMMON SHARE $ 0.55 $ 0.54
========= =========
WEIGHTED AVERAGE DILUTED SHARES 17,174 17,961
========= =========
</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>
Six Months Ended
June 30,
--------------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,387 $ 9,786
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,302 2,808
Gain on sale of fixed assets (19) (7)
Deferred income taxes (513) 133
Deferred compensation 204 647
Changes in assets and liabilities:
Accounts receivable, net (2,929) 271
Inventories (1,916) 1,625
Prepaid expenses and other assets 584 (715)
Accounts payable 642 (1,062)
Accrued volume incentives 860 834
Accrued liabilities 4,046 2,184
Income taxes payable (13) (167)
Cumulative currency translation adjustments (311) (1,555)
-------- --------
Net Cash Provided by Operating Activities 13,324 14,782
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,927) (2,371)
Purchase of long-term investments, net 67 (485)
Payments received (advances) on long-term receivables (296) 41
Purchase of other assets (1,028) (1,402)
Proceeds from sale of property and equipment 44 25
-------- --------
Net Cash Used in Investing Activities (3,140) (4,192)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of cash dividends (1,137) (1,190)
Purchase of treasury stock (3,072) (4,533)
Repayments of short-term debt (320) (506)
-------- --------
Net Cash Used in Financing Activities (4,529) (6,229)
-------- --------
EFFECT OF EXCHANGE RATES ON CASH (208) (992)
-------- --------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 5,447 3,369
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 18,433 22,099
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 23,880 $ 25,468
======== ========
</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 that 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 June 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 six months ended June 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 June 30, 2000, the Company had a total of 3,491 common stock options
outstanding. These options were all granted at fair market value and have a
weighted average exercise price of $8.65.
Following is a reconciliation of the numerator and denominator of Basic EPS
to the numerator and denominator of Diluted EPS for the three and six months
ended at June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Three Months Ended June 30, 2000
Basic EPS $4,891 16,930 $ 0.29
Effect of stock options -- 62
------ ------ --------
Diluted EPS $4,891 16,992 $ 0.29
====== ====== ========
Three Months Ended June 30, 1999
Basic EPS $4,796 17,725 $ 0.27
Effect of stock options -- 100
------ ------ --------
Diluted EPS $4,796 17,825 $ 0.27
====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Six Months Ended June 30, 2000
Basic EPS $9,387 17,026 $ 0.55
Effect of stock options -- 148
------ ------ --------
Diluted EPS $9,387 17,174 $ 0.55
====== ====== ========
Six Months Ended June 30, 1999
Basic EPS $9,786 17,850 $ 0.55
Effect of stock options -- 111
------ ------ --------
Diluted EPS $9,786 17,961 $ 0.54
====== ====== ========
</TABLE>
For the three months ended June 30, 2000 and 1999, there were outstanding
options to purchase 1,125 and 26 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 six months ended June 30, 2000 and
8
<PAGE>
1999, there were outstanding options to purchase 926 and 142 shares of 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 July 27, 2000, to shareholders of record on August 8, 2000 and is
payable on August 18, 2000.
For the six months ended June 30, 2000, the Company repurchased
approximately 379 shares of its common stock. On October 28, 1999, the Board of
Directors authorized the repurchase up to 1,000 shares of the Company's common
stock as market conditions warrant. As of June 30, 2000, the Company had
repurchased approximately 499 shares of common stock under this approval.
Subsequent to June 30, 2000, the Company repurchased an additional 10 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/(Losses) 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 (519) (123) (642)
-------- ---- --------
Balance as of June 30, 2000 $(10,267) $214 $(10,053)
======== ==== ========
</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, eliminated
in consolidation, are not material.
Operating segment information for the three and six months ended June 30,
2000 and 1999, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Sales Revenue:
Domestic $ 42,919 $ 46,392 $ 90,929 $ 94,972
International:
Latin America 20,537 17,520 39,321 34,652
Asia Pacific 10,450 3,705 18,995 6,707
Other 4,475 4,022 9,113 7,486
-------- --------- -------- ---------
78,381 71,639 158,358 143,817
-------- --------- -------- ---------
Operating Expenses:
Domestic 36,808 39,790 79,573 81,581
International:
Latin America 19,734 16,836 37,579 32,636
Asia Pacific 9,597 3,992 17,815 7,832
Other 4,544 3,640 8,758 6,728
-------- --------- -------- ---------
70,683 64,258 143,725 128,777
-------- --------- -------- ---------
Operating Income:
Domestic 6,111 6,602 11,356 13,391
International:
Latin America 803 684 1,742 2,016
Asia Pacific 853 (287) 1,180 (1,125)
Other (69) 382 355 758
-------- --------- -------- ---------
7,698 7,381 14,633 15,040
-------- --------- -------- ---------
Other Income (Expense) 357 545 761 1,142
-------- --------- -------- ---------
Income Before Provision for Income Taxes $ 8,055 $ 7,926 $ 15,394 $ 16,182
======== ========= ======== =========
</TABLE>
Segment assets as of June 30, 2000 and December 31, 1999, are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
<S> <C> <C>
Assets
Domestic $ 69,290 $ 66,372
International:
Latin America 31,068 29,343
Asia Pacific 12,528 8,670
Other 4,408 3,050
-------- --------
$117,294 $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 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 June 30
Items as a Percent of Sales 2000 to 1999
--------------------------- -----------------------------------
Three Months Ended
June 30 Amount of Percent
--------------------------- Income and Increase of
2000 1999 Expense Items (Decrease) Change
---- ---- ------------- ---------- -------
<S> <C> <C> <C> <C>
100.0% 100.0% Sales $6,742 9.4%
----- ----- ------
17.6 17.2 Cost of goods sold 1,513 12.3
45.1 45.7 Volume incentives 2,561 7.8
27.5 26.8 SG&A expenses 2,351 12.2
----- ----- ------
90.2 89.7 Total operating expenses 6,425 10.0
----- ----- ------
9.8 10.3 Operating income 317 4.3
0.5 0.8 Other income, net (188) (34.4)
----- ----- ------
Income before provision
10.3 11.1 for income taxes 129 1.6
4.1 4.4 Provision for income taxes 34 1.1
----- ----- ------
6.2% 6.7% Net income $ 95 2.0%
===== ===== ======
</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 Six Months Ended June 30
Items as a Percent of Sales 2000 to 1999
--------------------------- -----------------------------------
Six Months Ended
June 30 Amount of Percent
--------------------------- Income and Increase of
2000 1999 Expense Items (Decrease) Change
---- ---- ------------- ---------- -------
<S> <C> <C> <C> <C>
100.0% 100.0% Sales $14,541 10.1%
----- ----- -------
17.8 17.5 Cost of goods sold 3,021 12.0
45.4 45.8 Volume incentives 6,005 9.1
27.6 26.2 SG&A expenses 5,922 15.7
----- ----- -------
90.8 89.5 Total operating expenses 14,948 11.6
----- ----- -------
9.2 10.5 Operating income (407) (2.7)
0.5 0.8 Other income, net (381) (33.4)
----- ----- -------
Income before provision
9.7 11.3 for income taxes (788) (4.9)
3.8 4.5 Provision for income taxes (389) (6.1)
----- ----- -------
5.9% 6.8% Net income $ (399) (4.1)%
===== ===== =======
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SALES
Sales for the three months ended June 30, 2000, were $78.4 million compared
to $71.6 million in the prior year, an increase of approximately 9 percent.
Sales for the six months ended June 30, 2000, were $158.3 million compared to
$143.8 million in the same period the prior year, an increase of approximately
10 percent. Management believes the increase in sales for the three and six
months ended June 30, 2000, is attributable to strong sales increases throughout
its international operations.
Sales in the Company's domestic operations for the three and six months
ended June 30, 2000, were $42.9 million and $90.9 million, a decrease of
approximately 7 percent and 4 percent, respectively, over the same periods in
the prior year. The domestic sales decrease was caused by increased product and
price competition in the nutritional supplement market. The Company expects
competition to remain strong for the foreseeable future. However, the total
number of domestic Distributors was approximately 215,000 as of June 30, 2000,
up 30,000 from June 30, 1999.
The Company's international operations reported sales of $35.5 million and
$67.4 million for the three and six months ended June 30, 2000, an increase of
40 percent and 38 percent, respectively, compared to the same periods in 1999.
Year-to-date, international sales accounted for approximately 43 percent of
consolidated sales.
Sales in Latin America were $20.5 million and $39.3 million for the three
and six months ended June 30, 2000, an increase of 17 percent and 14 percent,
respectively, compared to the same periods in 1999. The sales growth experienced
in Latin America was primarily due to increased sales reported in Mexico and
Brazil as well as more stable currencies experienced throughout the region.
Sales in Asia Pacific were $10.5 million and $19.0 million for the three
and six months ended June 30, 2000, an increase of 182 percent and 183 percent,
respectively, compared to the same periods
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
in 1999. 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 $9.1 million for
the three and six months ended June 30, 2000, an increase of 11 percent and 22
percent, respectively, compared to the same periods in 1999. The sales growth
experienced in the Company's other markets is primarily due to the growth of its
operations in Russia, which was 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 June 30, 2000, was 16,290 compared to 15,559 at June 30, 1999. The
number of Distributors at June 30, 2000, was approximately 560,000, an increase
of approximately 5 percent compared to the same period of the prior year.
COST OF GOODS SOLD
For the three and six months ended June 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 six months ended June 30, 2000.
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
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
sales marketing program. Volume incentives vary slightly, on a percentage basis,
by product due to the Company's pricing policies. For the six months ended June
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 six months ended June 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three and six months
ended June 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 six months ended June 30, 2000.
SEGMENT INFORMATION
See information included in the condensed consolidated financial statements
under Item 1 Note 5.
BALANCE SHEET
ACCRUED LIABILITIES
Accrued liabilities increased approximately $4.0 million as of June 30,
2000, as compared to December 31, 1999, as a result of accruals associated with
the Company's sales conventions and travel programs.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased approximately $5.4 million for the six
months ended June 30, 2000. The increase in cash and cash equivalents is
primarily the result of net income as well as the increases in accrued
liabilities. During the six months ended June 30, 2000, cash totaling $3.1
million was used to repurchase approximately 379,000 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 10,000 shares of its common stock subsequent to June 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 are in progress. Management expects that construction
will begin during the third quarter of 2000. The cost of this project is
expected to be approximately $14 million and will take approximately two years
to complete. The Company anticipates the facility expansion as well as other
capital projects will be funded from working capital.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LEGAL PROCEEDINGS
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.
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 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
June 30, 2000, the Company had investments of $12.2 million of which $10.0
million were held as municipal obligations and carry fixed interest rates.
Approximately $9.8 million mature between one and five years and carry a
weighted average interest rate of 5.7 percent. The remaining balance of $0.2
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 26, 2000.
At the meeting, the following persons were re-elected as Directors of the
Company to serve until the next Annual Meeting or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
WITHHOLD
NOMINEE FOR AUTHORITY
------- ---------- ---------
<S> <C> <C>
Pauline T. Hughes 14,736,535 927,051
Douglas Faggioli 14,738,785 924,801
</TABLE>
At the meeting, the shareholders also adopted and approved an amendment to
the Company's 1995 Stock Option Plan increasing the number of shares authorized
for issuance under the Plan from 1,650,000 to 4,150,000 shares, as further
described in the Company's Proxy Statement for the meeting. The proposal to
approve the amendment received 7,158,523 shares FOR, 5,193,276 shares AGAINST,
and 29,984 shares ABSTAINED. There were also 3,281,803 broker non-votes.
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.
18
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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 8, 2000 /s/ Daniel P. Howells
-----------------------------------------
Daniel P. Howells, President &
Chief Executive Officer
Date: August 8, 2000 /s/ Craig D. Huff
-----------------------------------------
Craig D. Huff, Chief Financial Officer
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