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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
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Commission File Number 0-8707
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NATURE'S SUNSHINE PRODUCTS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
UTAH 87-0327982
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
75 EAST 1700 SOUTH, PROVO, UTAH 84606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 342-4370
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
<S> <C>
NONE NONE
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, WITHOUT PAR VALUE
(TITLE OF CLASS)
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on March 20, 2000 was approximately $114,534,860.
The number of shares of Common Stock, without par value, outstanding on
March 20, 2000 was 17,111,304 shares.
Documents Incorporated by Reference:
Proxy Statement for May 26, 2000 Annual Meeting of Shareholders (Part III
of this Report).
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Nature's Sunshine Products, Inc., incorporated in Utah in 1976, and its
subsidiaries (hereinafter referred to collectively as the "Company") are
primarily engaged in the manufacturing and marketing of nutritional and personal
care products. The Company, founded in 1972, sells its products worldwide to a
sales force of independent Distributors who use the products themselves or
resell them to other Distributors or consumers. Additional information with
respect to the Company's business is set forth below.
The Company's operations are conducted in the United States as well as in
certain geographical areas outside the United States. The Company's subsidiaries
are located in Brazil, Japan, Mexico, South Korea, Venezuela, Canada, Colombia,
Russia and the former Soviet Republics, the United Kingdom, Argentina, Peru, El
Salvador, Ecuador, Honduras, Guatemala, Costa Rica, Panama, Chile and Nicaragua.
The Company also exports its products to several other countries, including
Australia, Malaysia, New Zealand and Norway.
FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company is principally engaged in one line of business, namely, the
manufacturing and marketing of nutritional and personal care products.
Information for each of the Company's last three fiscal years, with respect to
the amounts of sales revenue, operating income and the last two years for
identifiable assets by geographical business segment, is set forth under Item 8
of this Report.
PRODUCTS AND MANUFACTURING
The Company's line of over 500 products includes herbal products, vitamins,
mineral supplements and homeopathic products. The Company purchases herbs and
other raw materials in bulk and, after quality control testing, formulates,
encapsulates, tablets or concentrates and packages them for shipment. Most of
the Company's products are manufactured at its facility in Spanish Fork, Utah.
Certain of the Company's personal care and homeopathic products are manufactured
for the Company by contract manufacturers in accordance with the Company's
specifications and standards. The Company has implemented stringent quality
control procedures to verify that the contract manufacturers have complied with
its specifications and standards.
The Company's product lines are described below.
HERBAL PRODUCTS
The Company manufactures a wide selection of herbal products, which are
sold in the form of capsules or tablets. These capsules or tablets contain herb
powder or a combination of two or more herb powders. The Company also produces
both single herbs and herb combinations in the form of liquid herbs and
extracts. Liquid herbs are manufactured by concentrating herb constituents in a
vegetable glycerin base. Extracts are created by dissolving powdered herbs in
liquid solvents that
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separate the key elements of the herbs from the fibrous plant material. Sales of
herbal products accounted for approximately 65 percent of the Company's total
sales revenue in 1999, and 67 percent in both 1998 and 1997.
VITAMINS AND MINERAL SUPPLEMENTS
The Company manufactures a wide variety of single vitamins, which are sold
in the form of chewable or non-chewable tablets. The Company also manufactures
several multiple vitamins and mineral supplements, including a line containing
natural antioxidants. Generally, mineral supplements are sold in the form of
tablets; however, certain minerals are offered only in liquid form. Combined
sales of vitamins and mineral supplements were approximately 26 percent of the
Company's total sales revenue in 1999, and 23 percent in both 1998 and 1997.
PERSONAL CARE PRODUCTS
The Company manufactures or contracts with independent manufacturers to
supply a variety of personal care products for external use, including oils and
lotions, aloe vera gel, herbal shampoo, herbal skin treatment, toothpaste and
skin cleanser. Sales of personal care products accounted for approximately 3
percent of the Company's total sales revenue in 1999, 1998 and 1997.
HOMEOPATHIC PRODUCTS
The Company markets a line of more than 50 distinctive homeopathic products
designed for the treatment of certain common ailments, including several items
designed especially for various allergies and common childhood maladies. Sales
of homeopathic products accounted for approximately 1 percent of the Company's
total sales revenue in 1999, 1998 and 1997.
DISTRIBUTION AND MARKETING
The Company's independent Distributors market the Company's products to
consumers through direct-selling techniques as well as sponsor other
Distributors. The Company motivates and provides incentives to its independent
Distributors through a combination of high quality products, product support,
financial benefits, sales conventions, travel programs and a variety of training
seminars.
The Company's products sold domestically are shipped directly from its
manufacturing and warehouse facilities located in Spanish Fork, Utah, as well as
from its regional warehouses located in Columbus, Ohio; Dallas, Texas; and
Atlanta, Georgia. Each international operation maintains warehouse facilities
with inventory to supply its customers.
Demand for the Company's products is created by approximately 530,000
active Distributors at December 31, 1999, which includes approximately 193,000
in the United States. A person who wishes to join the Company's independent
sales force begins as a "Distributor". An individual can become a Distributor by
applying to the Company under the sponsorship of someone who is already a
Distributor. Each Distributor is required to renew his/her distributorship on a
yearly basis; approximately 30 percent renew annually. Many Distributors sell
the Company's products on a part-time basis to friends or associates or consume
the products themselves. A Distributor interested in earning additional income
by committing more time and effort to selling the Company's products may be
appointed to "Manager" status. Appointment as a Manager is dependent upon
attaining certain purchase volume levels, recruiting additional Distributors and
demonstrating leadership abilities. Managers numbered approximately 14,500 at
December 31, 1999, including approximately 6,600
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Managers in the United States. Managers resell the products they purchase from
the Company to Distributors within their sales group, to consumers or use the
products themselves. Once a Distributor is appointed to the status of Manager,
approximately 70 percent continue to maintain that status.
Domestically, the Company generally sells its products on a cash or credit
card basis. From time to time, the Company's domestic operation extends
short-term credit associated with product promotions. For certain of the
Company's international operations, the Company uses independent distribution
centers and offers credit terms consistent with industry standards, within each
respective country.
The Company pays sales commissions and volume discounts (Volume Incentives)
to its Managers based upon the amount of personal and sales group product
purchases. Reference is made to Item 8 contained herein for Volume Incentives
paid by the Company for the years ended December 31, 1999, 1998 and 1997. In
addition, Managers who qualify by attaining certain levels of monthly product
purchases are eligible for additional incentive programs including automobile
allowances, medical and dental insurance and travel.
SOURCE AND AVAILABILITY OF RAW MATERIALS
Raw materials used in the manufacture of the Company's products are
available from a number of suppliers. To date, the Company has not experienced
any major difficulty in obtaining adequate sources of supply. The Company
attempts to assure the availability of many of its raw materials by contracting,
in advance, for its annual requirements. In the past, the Company has found
alternative sources of raw materials when needed. Although there can be no
assurance the Company will be successful in locating such sources in the future,
the Company believes it will be able to do so.
TRADEMARKS AND TRADE NAMES
The Company has obtained trademark registrations of its basic trademarks,
"Nature's Sunshine", and the landscape logo for all of its product lines. The
Company also owns numerous trademark registrations in the United States and in
many foreign countries.
SEASONALITY
The business of the Company does not reflect significant seasonality.
WORKING CAPITAL ITEMS
The Company maintains a substantial inventory of raw materials and finished
goods in order to provide a high level of product availability to its
independent Distributors.
DEPENDENCE UPON CUSTOMERS
The Company is not dependent upon a single customer or a few customers, the
loss of which would have a material adverse effect on its business.
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BACKLOG
Orders for the Company's products are typically shipped within 24 hours
after receipt. As a result, there is no significant backlog at any time.
COMPETITION
The Company's products are sold in domestic and foreign markets in
competition with other companies, some of which have greater sales volumes and
financial resources than the Company, and which sell brands that are, through
advertising and promotions, better known to consumers. The Company competes in
the nutritional and personal care industry against companies which sell through
retail stores as well as against other direct selling companies. For example,
the Company competes against manufacturers and retailers of nutritional and
personal care products, which are distributed through supermarkets, drug stores,
health food stores, discount stores, beauty salons, etc. In addition to its
competition with these manufacturers and retailers, the Company competes for
product sales and independent Distributors with many other direct sales
companies, including Shaklee, NuSkin and Amway. The principal competitors in the
encapsulated and tableted herbal products market include TwinLab, Rexall
Sundown, Nature's Way, USANA, Nutraceuticals and NBTY. The Company believes that
the principal components of competition in the direct sales marketing of
nutritional and personal care products are quality, price and brand name. In
addition, the recruitment, training, travel and financial incentives for the
independent sales force are important factors.
RESEARCH AND DEVELOPMENT
The Company conducts its research and development activities at its
manufacturing facility located in Spanish Fork, Utah. The principal emphasis of
the Company's research and development activities is the development of new
products and enhancement of existing products. The amount, excluding capital
expenditures, spent on research and development activities was approximately
$1.7 million in 1999, and $1.5 million in both 1998 and 1997. The Company has no
third-party-sponsored research.
COMPLIANCE WITH ENVIRONMENTAL LAWS AND REGULATIONS
The nature of the Company's business has not required any material capital
expenditures to comply with Federal, State or local provisions enacted or
adopted regulating the discharge of materials into the environment. No material
expenditures to meet such provisions are anticipated. Such regulatory provisions
have not had any material effect upon the Company's earnings or competitive
position.
REGULATION
The formulation, manufacturing, packaging, labeling, advertising,
distribution and sale of each of the Company's major product groups are subject
to regulation by one or more governmental agencies, the most active of which is
the Food and Drug Administration ("FDA"), which regulates the Company's products
under the Federal Food, Drug and Cosmetic Act ("FDCA") and regulations
promulgated thereunder. The FDCA defines the terms "food" and "dietary
supplement" and sets forth various conditions that unless complied with may
constitute adulteration or misbranding of such products. The FDCA has been
amended several times with respect to dietary supplements, most
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recently by the Nutrition Labeling and Education Act of 1990 (the "NLEA") and
the Dietary Supplement Health and Education Act of 1994 (the "DSHEA").
FDA regulations relating specifically to foods for human use are set forth
in Title 21 of the Code of Federal Regulations. These regulations include basic
food labeling requirements and Good Manufacturing Practices ("GMPs") for foods.
Detailed dietary supplement GMPs have been proposed; however, no regulations
establishing such GMPs have been adopted. Additional regulations to implement
the specific DSHEA requirements for dietary supplement labeling have also been
proposed and final regulations are expected to be implemented over a period of
time following final publication.
The Company's products are also regulated by the Federal Trade Commission
("FTC"), the Consumer Product Safety Commission ("CPSC"), the United States
Department of Agriculture ("USDA") and the Environmental Protection Agency
("EPA"). The Company's activities, including its multi-level distribution
activities, are also regulated by various agencies of the states, localities and
foreign countries in which the Company's products are sold.
The Company may be subject to additional laws or regulations administered
by the FDA or other Federal, State or foreign regulatory authorities, the repeal
or amendment of laws or regulations which the Company considers favorable, or
more stringent interpretations of current laws or regulations, from time to time
in the future. The Company is unable to predict the nature of such future laws,
regulations, interpretations or applications, nor can it predict what effect
additional governmental regulations or administrative orders, when and if
promulgated, would have on its business in the future. They could, however,
require reformulation of certain products to meet new standards, recall or
discontinuance of certain products not able to be reformulated, imposition of
additional record-keeping requirements, expanded documentation of the properties
of certain products, expanded or altered labeling and scientific substantiation.
Any or all such requirements could have a material adverse effect on the
Company's results of operations and financial position.
EMPLOYEES
The number of people employed by the Company as of December 31, 1999, was
1,013. The Company believes that its relations with its employees are
satisfactory.
INTERNATIONAL OPERATIONS
The Company's direct sales of nutritional and personal care products are
established internationally in Brazil, Japan, Mexico, South Korea, Venezuela,
Canada, Colombia, Russia and the former Soviet Republics, the United Kingdom,
Argentina, Peru, El Salvador, Ecuador, Honduras, Guatemala, Costa Rica, Panama,
Chile and Nicaragua. The Company also exports its products to numerous other
countries, including Australia, Malaysia, New Zealand and Norway. Information
for each of the last three years with respect to the amounts of sales revenue
and operating income and the last two years of identifiable assets attributable
to domestic and international segments, is set forth in Note 12 of the Notes to
Consolidated Financial Statements appearing in Item 8 of this Report.
The Company's international operations are conducted in a manner
substantially the same as those conducted domestically; however, in order to
conform to local variations, economic realities, market customs, consumer habits
and regulatory environments, differences may exist in the products and in the
distribution and marketing programs.
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The Company's international operations are subject to many of the same
risks faced by the Company's domestic operations. These include competition and
the strength of the local economy. In addition, international operations are
subject to certain risks inherent in carrying on business abroad, including
foreign regulatory restrictions, fluctuations in monetary exchange rates,
import-export controls and the economic and political policies of foreign
governments. The importance of these risks increases as the Company's
international operations grow and expand. Substantially all of the Company's
international operations have been affected by foreign currency devaluation,
most notably, Brazil, Ecuador, Venezuela and Colombia.
ITEM 2. PROPERTIES
The Company's corporate offices are located in two adjacent office
buildings in Provo, Utah. The facilities consist of approximately 63,000 square
feet and are leased from an unaffiliated third party through lease agreements
which expire as early as two years but are renewable upon expiration.
The Company's principal warehousing and manufacturing facilities are housed
in a building owned by the Company, of approximately 265,000 square feet,
located on approximately ten acres in Spanish Fork, Utah. Subsequent to December
31, 1999, the Company announced its intent to complete an expansion of the
manufacturing portion of the warehouse and manufacturing facility. Management
expects the project will cost approximately $14 million and will take
approximately two years to complete.
The Company owns approximately 60,000 square feet of office and warehouse
space in Mexico and approximately 10,800 square feet of office space in
Venezuela.
The Company leases properties used primarily as distribution warehouses,
which are located in Columbus, Ohio; Dallas, Texas; Atlanta, Georgia; as well as
offices and distribution warehouses in Brazil, Japan, South Korea, Venezuela,
Canada, Colombia, Russia and the former Soviet Republics, the United Kingdom,
Argentina, Peru, El Salvador, Ecuador, Honduras, Guatemala, Costa Rica, Panama,
Chile and Nicaragua. Management believes these facilities are suitable for their
respective uses and are, in general, adequate for the Company's present needs.
During 1999, 1998 and 1997, the Company spent approximately $3.1 million, $2.9
million and $3.0 million, respectively, for all of its leased facilities.
ITEM 3. 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 any liability as a result of these matters will not have a
material effect upon the Company's results of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market System
(symbol NATR). The information in the table below reflects the actual high and
low sales prices of the Company's stock for 1999 and 1998.
<TABLE>
<CAPTION>
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Market Prices Market Prices
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1999 HIGH LOW 1998 HIGH LOW
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<S> <C> <C> <C> <C> <C>
First Quarter 15 7/8 10 3/4 First Quarter 28 5/8 23 1/4
Second Quarter 13 3/4 9 3/4 Second Quarter 27 3/8 21 3/4
Third Quarter 12 3/8 8 3/4 Third Quarter 24 1/4 13 5/8
Fourth Quarter 9 3/4 6 15/16 Fourth Quarter 17 3/4 13 3/4
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</TABLE>
There were approximately 1,455 shareholders of record as of March 8, 2000.
During 1999 and 1998, the Company paid quarterly cash dividends of 3 1/3 cents
per common share. On February 10, 2000, the Company declared a cash dividend of
3 1/3 cents per common share to shareholders of record on February 21, 2000. On
February 29, 2000, the Company paid approximately $0.6 million related to this
declared dividend. The Company expects to continue to pay equivalent cash
dividends in the future.
ITEM 6. SELECTED FINANCIAL DATA
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE INFORMATION
<TABLE>
<CAPTION>
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INCOME STATEMENT DATA
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Selling, General
Sales Cost of Volume & Administrative Operating Income Before Net
Revenue Goods Sold Incentives Expenses Income Income Taxes Income
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<S> <C> <C> <C> <C> <C> <C> <C>
1999 $289,189 $51,138 $132,268 $78,673 $27,110 $28,991 $17,796
1998 296,052 52,191 136,490 71,304 36,067 38,373 23,278
1997 280,902 51,608 130,709 67,580 31,005 33,203 20,133
1996 249,046 44,886 114,419 63,252 26,489 27,869 16,848
1995 205,566 38,533 94,316 55,221 17,496 20,189 11,878
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</TABLE>
<TABLE>
<CAPTION>
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BALANCE SHEET DATA
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Working Current Property, Plant & Total Long-Term Shareholders'
Capital Ratio Inventories Equipment, Net Assets Debt Equity
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<S> <C> <C> <C> <C> <C> <C> <C>
1999 $35,594 2.28:1 $26,660 $25,193 $107,435 $ --- $77,537
1998 35,557 2.30:1 22,494 25,896 103,699 --- 73,967
1997 38,571 2.40:1 19,555 23,711 95,796 --- 66,857
1996 39,560 2.44:1 24,459 20,197 91,966 --- 63,163
1995 24,433 2.07:1 23,127 13,088 65,247 --- 41,505
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</TABLE>
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<TABLE>
<CAPTION>
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COMMON SHARE SUMMARY
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Basic Diluted Basic Diluted
Cash Dividends Net Income Net Income Book Value Weighted Weighted
Per Share Per Share Per Share Per Share(1) Average Shares Average Shares
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<S> <C> <C> <C> <C> <C> <C>
1999 $0.133 $1.01 $1.00 $4.53 17,585 17,745
1998 0.133 1.27 1.25 4.10 18,383 18,639
1997 0.133 1.08 1.06 3.60 18,653 19,070
1996 0.133 0.90 0.86 3.30 18,793 19,684
1995 0.133 0.65 0.63 2.25 18,301 18,888
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</TABLE>
<TABLE>
<CAPTION>
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OTHER INFORMATION
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Return on Square Footage
Shareholders' Return on Number of of Property Number of
Equity(2) Assets(3) Managers In Use Employees
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<S> <C> <C> <C> <C> <C>
1999 23.5% 16.9% 14,462 621,252 1,013
1998 33.1 23.3 14,006 631,430 971
1997 31.0 21.4 13,776 522,373 994
1996 32.2 21.4 11,694 485,772 955
1995 31.8 20.2 11,547 443,895 862
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</TABLE>
1 Year end shareholders' equity divided by actual shares outstanding at the end
of each year.
2 Net income divided by average shareholders' equity.
3 Net income divided by average total assets. The information in the preceding
tables has been adjusted, where necessary, to reflect stock dividends and
splits.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SALES REVENUE
Consolidated sales revenue for the year ended December 31, 1999, was $289.2
million compared to $296.1 million in 1998, a decrease of approximately 2
percent. Sales revenue increased approximately 5 percent in 1998 compared to
$280.9 million in 1997. The change in sales revenue is directly related to the
number of independent Distributors, increased competition and foreign currency
fluctuations. During 1999 and 1998, the Company's sales revenue was negatively
impacted by foreign currency devaluation in the majority of its international
markets, most notably Brazil, and increased competition in the Company's
domestic market. Eliminating the adverse effect of foreign currency devaluation,
sales revenue for the year ended December 31, 1999, would have increased
approximately 3 percent.
The Company distributes its products to consumers through an independent
sales force comprised of Managers and Distributors. Active Managers totaled
approximately 14,500, 14,000 and 13,800 at December 31, 1999, 1998 and 1997,
respectively. Active Distributors totaled approximately 530,000, 516,000 and
660,000 at December 31, 1999, 1998 and 1997, respectively. At December 31, 1998,
the number of active Distributors decreased 22 percent as compared to 1997, as
the result of the Company's standardization of the definition of an active
Distributor in its international operations. A positive impact in the
recruitment of additional Distributors is anticipated due to the introduction of
the new SMARTSTART recruiting program in the Company's domestic market during
the fourth quarter of
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1999. The Company anticipates the number of active Distributors to increase as
the Company expands its existing, international operations, enters new markets
and as current Distributors grow their business.
Price increases of approximately 2 percent in the Company's domestic market
went into effect in both 1999 and 1998, and resulted in greater sales revenue
for these years. A price increase of approximately 2 percent, primarily
associated with increased raw material costs, is scheduled to become effective
on April 1, 2000. Management believes this price increase in its domestic market
will be acceptable to its sales force and will result in increased sales
revenue. Domestic sales revenue for 1999 decreased approximately 4 percent
compared to 1998, and increased approximately 7 percent for 1998 as compared to
1997.
International sales revenue increased slightly to $105.8 million in 1999
compared to $105.7 million in 1998. During 1999, the Company continued to
experience foreign currency devaluation in its international operations. Sales
revenue in the Company's Latin America segment decreased approximately 14
percent, primarily as the result of foreign currency devaluation. International
operations which reported the most significant impact from foreign currency
devaluation were Brazil, Ecuador, Venezuela and Colombia. In 1999, the Brazilian
real devalued approximately 50 percent. Brazil represented approximately 20, 29
and 25 percent of international sales revenue for 1999, 1998 and 1997,
respectively. Price increases are planned in various international markets to
adjust for foreign currency devaluation. Management believes the price increases
will be acceptable to its sales force and will result in increased sales. During
1999, the Company began implementing programs in Japan, the world's largest
direct-selling market, aimed at increasing sales revenue and operating income.
Management anticipates the official re-launch to take place during 2000. Further
information related to the Company's domestic and international segments is set
forth in Note 12 of Notes to the Consolidated Financial Statements appearing in
Item 8 of this Report.
COSTS AND EXPENSES
The Company's costs and expenses, which include cost of goods sold, volume
incentives, and selling, general and administrative expenses, are identified as
a percentage of sales in the table below:
<TABLE>
<CAPTION>
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Year ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cost of goods sold 17.7% 17.6% 18.4%
Volume incentives 45.7 46.1 46.5
Selling, general and
administrative expenses 27.2 24.1 24.1
- ------------------------------------------------------------------------------------
90.6% 87.8% 89.0%
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</TABLE>
COST OF GOODS SOLD
Cost of goods sold as a percent of sales decreased in 1999 and 1998 as
compared to 1997, primarily as a result of efforts made by management to control
costs in its international operations and efficiencies gained through the
construction of its warehousing and manufacturing facility in 1998.
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Management believes that cost of goods sold as a percent of sales will
remain approximately the same during 2000 as compared to 1999. Expansion of the
Company's warehouse and manufacturing facility in 1998 did not have a negative
impact on cost of goods sold due to the savings associated with the elimination
of leased facilities and increased operating efficiencies
VOLUME INCENTIVES
Volume incentives are a significant part of the Company's direct sales
marketing program and represent payments made to its independent Distributors.
These payments are designed to provide incentives for reaching higher sales
levels and for recruiting additional Distributors. Volume incentives as a
percent of sales decreased slightly during 1999 as compared to 1998, and
decreased slightly for 1998 as compared to 1997, primarily as a result of
pricing adjustments in several international operations and the introduction of
new products in the Company's domestic market which have a lower volume
incentive.
Management expects volume incentives as a percent of sales to decrease
slightly during 2000 as compared to 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $7.4 million in 1999
as compared to 1998, primarily as the result of increased expenses associated
with the Company's anticipated re-launch of its Japanese operations and the
expansion of its operations in South Korea. The Company also experienced
increased selling, general and administrative expenses in its domestic
operations as a result of expense in test-market advertising and a change in the
qualification requirements for its National Conventions. Selling, general and
administrative expenses as a percent of sales remained constant in 1998 as
compared to 1997. This category includes costs for research and development,
distribution as well as incentive programs such as the Company's conventions.
Management believes that selling, general and administrative expenses as a
percent of sales will decrease slightly during 2000 as compared to 1999.
INTEREST AND OTHER INCOME
Interest and other income is earned principally from investments and excess
operating cash balances. Investment income varies depending upon the rate of
interest, the investment instruments utilized and the need for cash in the
Company's operations. It is management's policy to invest only in high-grade
investments.
Interest income increased $0.5 million during 1999 compared to 1998 as the
result of greater cash balances available during the year for investment as well
as higher yields obtained in certain of the Company's international operations.
Interest income decreased during 1998 compared to 1997 as the result of lower
yields earned on short-term investments as well as decreased cash balances as a
result of increased capital projects and the Company's stock repurchase program.
Management expects interest and other income to decrease during 2000 as cash is
utilized for the expansion of the Company's manufacturing facility and continued
development of its international markets.
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During 1998, the Company began purchasing investments classified as trading
securities. The Company maintains its trading securities portfolio to generate
returns that offset changes in certain liabilities related to the Company's
deferred compensation arrangements (see Note 9 to Notes to Consolidated
Financial Statements appearing in Item 8 of this Report). The trading securities
portfolio consists of marketable securities which are recorded at fair value.
Both realized and unrealized gains and losses on trading securities are included
in interest and other income. Net gains on the trading securities portfolio were
$179,000 and $9,000 in 1999 and 1998, respectively.
INCOME TAXES
The Company's effective tax rate was 38.6, 39.3 and 39.4 percent for 1999,
1998 and 1997, respectively. The decrease in the effective tax rate in 1999 was
primarily due to the utilization of net operating losses of a foreign
subsidiary, which had not been previously realized.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are its available cash and cash
equivalents and cash generated from operations. At December 31, 1999, cash and
cash equivalents decreased approximately $3.7 million as compared to December
31, 1998. During 1999, cash and cash equivalents of $0.7 million were used to
purchase investments. These investments were made in accordance with the
Company's policy to purchase only high-grade investments. Cash provided by
operating activities was approximately $17.6 million in 1999 compared to
approximately $25.6 million in 1998. The decrease was primarily due to planned
increases in inventory of $4.2 million as part of the anticipated re-launch of
the Japanese operations as well as further international development.
During 1999, the Company purchased approximately 897,000 shares of its
common stock for $9.2 million. The Company purchased approximately $4.5 million
of property, plant and equipment and approximately $2.8 million of other
long-term assets. The majority of these purchases were associated with the
Company's international expansion. Additionally, the Company paid approximately
$2.3 million in cash dividends during 1999. Management believes the Company's
stock is an attractive investment and, pursuant to its previously announced
1,000,000-share buyback program, may utilize some of its available cash to
purchase up to the remaining balance of approximately 860,000 shares, as of
March 13, 2000, should market conditions warrant.
No options to purchase shares of the Company's common stock were exercised
during 1999.
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 become necessary.
On March 2, 2000, the Company announced its plans to complete the
manufacturing, research and development and quality assurance areas of its
recent expansion. Management expects the project will cost approximately $14
million and will take approximately two years to complete.
12
<PAGE>
YEAR 2000
During 1999, the Company's systems that were not Year 2000 ("Y2K")
compliant were brought into compliance. The Company estimates it spent
approximately $1.0 million to ensure that all areas of non-compliance were
corrected. Most of the systems not compliant had previously been scheduled for
replacement as part of the Company's ongoing maintenance and upgrading programs.
As of and subsequent to December 31, 1999, the Company has not experienced
any significant Y2K problems.
Notwithstanding the foregoing, there can be no assurance the Company will
not experience operational difficulties as a result of ongoing Y2K 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 and require the Company to incur unanticipated expenses to
remedy any problems.
FORWARD-LOOKING INFORMATION
Statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and other items of this Form 10-K
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, costs and expenses, 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-K 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has investments which by nature are subject to market risk. At
December 31, 1999, the Company had a total of $10.1 million, which are held as
municipal obligations and carry fixed interest rates. Approximately $9.3 million
mature between one and five years and carry a weighted average interest rate of
5.7 percent. The remaining balance of $0.8 million matures after five years and
carries a weighted average interest rate of 5.3 percent.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Nature's Sunshine Products, Inc.:
We have audited the accompanying consolidated balance sheets of Nature's
Sunshine Products, Inc. (a Utah corporation) and subsidiaries as of December 31,
1999 and 1998, and the related consolidated statements of income and
comprehensive income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nature's Sunshine
Products, Inc. and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 8, 2000
14
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Revenue $289,189 $296,052 $280,902
- --------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of goods sold 51,138 52,191 51,608
Volume incentives 132,268 136,490 130,709
Selling, general and administrative expenses 78,673 71,304 67,580
- --------------------------------------------------------------------------------------------------------------------------
262,079 259,985 249,897
- --------------------------------------------------------------------------------------------------------------------------
Operating Income 27,110 36,067 31,005
- --------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest and other income 2,585 2,095 2,453
Interest expense (39) (48) (182)
Foreign exchange loss (665) (78) (565)
Minority interest --- 337 492
- --------------------------------------------------------------------------------------------------------------------------
1,881 2,306 2,198
- --------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 28,991 38,373 33,203
Provision for Income Taxes 11,195 15,095 13,070
- --------------------------------------------------------------------------------------------------------------------------
Net Income 17,796 23,278 20,133
- --------------------------------------------------------------------------------------------------------------------------
Other Comprehensive Income (Loss), net of tax:
Foreign currency translation adjustments (2,736) (1,722) (1,450)
Unrealized gain (loss) on marketable securities 109 (14) 416
Reclassification adjustment, net of tax (136) (38) ---
- --------------------------------------------------------------------------------------------------------------------------
(2,763) (1,774) (1,034)
- --------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 15,033 $ 21,504 $ 19,099
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Basic Net Income Per Common Share $ 1.01 $ 1.27 $ 1.08
- --------------------------------------------------------------------------------------------------------------------------
Diluted Net Income Per Common Share $ 1.00 $ 1.25 $ 1.06
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
15
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
As of December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 18,433 $ 22,099
Accounts receivable, net of allowance for
doubtful accounts of $1,291 and $819, respectively 7,090 9,939
Inventories 26,660 22,494
Deferred income tax assets 2,565 2,438
Prepaid expenses and other 8,575 6,025
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 63,323 62,995
Property, plant and equipment, net 25,193 25,896
Long-term investments 12,368 11,675
Intangible and other assets, net 6,551 3,133
- --------------------------------------------------------------------------------------------------------------------------
$107,435 $103,699
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------
Current Liabilities:
Short-term debt $ 1,018 $ 1,728
Accounts payable 5,279 4,403
Accrued volume incentives 10,685 9,638
Accrued liabilities 8,479 8,390
Income taxes payable 2,268 3,279
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 27,729 27,438
- --------------------------------------------------------------------------------------------------------------------------
Long-Term Liabilities:
Deferred income tax liabilities 1,116 2,035
Deferred compensation 1,053 259
- --------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 2,169 2,294
- --------------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 11) --- ---
- --------------------------------------------------------------------------------------------------------------------------
Shareholders' Equity:
Common stock, no par value, 20,000 shares authorized,
19,446 shares issued 37,659 37,528
Retained earnings 87,463 72,013
Treasury stock, at cost, 2,318 and 1,421 shares, respectively (38,174) (28,926)
Accumulated other comprehensive loss (9,411) (6,648)
- --------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 77,537 73,967
- --------------------------------------------------------------------------------------------------------------------------
$107,435 $103,699
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
16
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK:
Balance at beginning of year $37,528 $37,896 $39,406
Tax benefit related to exercise of stock options --- 809 3,240
Issuance of stock options 132 --- ---
Issuance of 0, 161 and 886 shares of
treasury stock, respectively (1) (1,177) (4,750)
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year 37,659 37,528 37,896
- --------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 72,013 51,190 33,549
Net income 17,796 23,278 20,133
Cash dividends (2,346) (2,455) (2,492)
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year 87,463 72,013 51,190
- --------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of year (28,926) (17,278) (5,868)
Purchase of 897, 721 and 1,413 shares
of common stock, respectively (9,249) (14,306) (26,128)
Issuance of 0, 161 and 886 shares of
treasury stock, respectively 1 2,658 14,718
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year (38,174) (28,926) (17,278)
- --------------------------------------------------------------------------------------------------------------------------
RECEIVABLES FROM RELATED PARTIES:
Balance at beginning of year --- (77) (84)
Reductions --- 77 7
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year --- --- (77)
- --------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Balance at beginning of year (6,648) (4,874) (3,840)
Other comprehensive loss (2,763) (1,774) (1,034)
- --------------------------------------------------------------------------------------------------------------------------
Balance at end of year (9,411) (6,648) (4,874)
- --------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $77,537 $73,967 $66,857
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
17
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
Increase (Decrease) in Cash and Cash Equivalents
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $17,796 $23,278 $20,133
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in allowance for doubtful accounts 472 229 67
Depreciation and amortization 6,060 4,812 4,292
Loss (Gain) on sale of property and equipment 68 (75) 8
Deferred income taxes (1,046) 321 (389)
Deferred compensation 794 259 ---
Changes in assets and liabilities:
Accounts receivable 2,377 (2,704) (834)
Inventories (4,166) (2,939) 4,904
Prepaid expenses and other assets (3,848) 2,533 (3,106)
Accounts payable 876 (691) 868
Accrued volume incentives 1,047 107 802
Accrued liabilities 89 1,168 (2,769)
Income taxes payable (1,011) 333 1,190
Cumulative currency translation adjustments (1,943) (1,074) (997)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,565 25,557 24,169
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,459) (6,473) (7,453)
Purchase of investments, net (720) (8,260) (1,004)
Payments received (advances) on long-term receivables (229) 305 401
Purchase of other assets (2,811) (861) (599)
Proceeds from sale of property and equipment 86 153 25
Minority interest elimination --- (337) 383
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (8,133) (15,473) (8,247)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends (2,346) (2,455) (2,492)
Purchase of treasury stock (9,249) (14,306) (26,128)
Repayments of short-term debt (710) (678) (123)
Proceeds from exercise of stock options --- 1,481 9,925
Tax benefit from stock option exercise --- 809 3,240
Issuance of treasury stock --- --- 43
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (12,305) (15,149) (15,535)
- --------------------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (793) (649) (453)
- --------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,666) (5,714) (66)
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 22,099 27,813 27,879
- --------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $18,433 $22,099 $27,813
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $13,682 $14,209 $11,744
Cash paid for interest 37 48 182
- --------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition of minority interest $ 1,131 $ --- $ ---
Issuance of stock options 132 --- ---
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
19
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMOUNTS IN THOUSANDS EXCEPT PER SHARE INFORMATION
NOTE 1: OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Nature's Sunshine Products, Inc., and its subsidiaries (hereinafter
referred to collectively as the "Company") are primarily engaged in the
manufacturing and marketing of herbal and homeopathic products, vitamin and
mineral supplements and personal care products. The Company sells its products
to a sales force of independent Distributors who use the products themselves or
resell them to other Distributors or consumers. The formulation, manufacturing,
packaging, labeling, advertising, distribution and sale of each of the Company's
major product groups are subject to regulation by one or more governmental
agencies.
The Company markets its products in the United States, Brazil, Japan,
Mexico, South Korea, Venezuela, Canada, Colombia, Russia and the former Soviet
Republics, the United Kingdom, Argentina, Peru, El Salvador, Ecuador, Honduras,
Guatemala, Costa Rica, Panama, Chile and Nicaragua. The Company also exports its
products to numerous other countries, including Australia, Malaysia, New Zealand
and Norway.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Nature's Sunshine Products, Inc. and its subsidiaries. Inter-company balances
and transactions have been eliminated in consolidation.
During 1998 and 1997, the Company's Japanese subsidiary was majority-owned.
During 1999, the Company forgave receivables due from the minority-interest
shareholders totaling $1,131 in exchange for their minority interest. At
December 31, 1999, all of the Company's subsidiaries were wholly-owned.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid short-term investments to be cash equivalents, which generally
include only investments with original maturities of three months or less.
20
<PAGE>
INVESTMENTS
A substantial portion of the Company's investments are categorized as
available-for-sale securities and are reported at fair value, with unrealized
gains and losses, net of tax, recorded as a net amount in accumulated other
comprehensive income in shareholders' equity. The cost of the securities sold is
based on the specific identification method. Realized gains and losses on sales
of available-for-sale securities are reported in interest and other income.
During 1998, the Company began purchasing investments classified as trading
securities. The Company maintains its trading securities portfolio to generate
returns that offset changes in certain liabilities related to the Company's
deferred compensation arrangements (see Note 9). The trading securities
portfolio consists of marketable securities which are recorded at fair value.
Both realized and unrealized gains and losses on trading securities are included
in interest and other income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, trade and notes receivable, long-term investments, trade payables
and debt instruments. The carrying values of these financial instruments
approximate their fair values. The estimated fair values have been determined
using appropriate market information and valuation methodologies.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market value. At December 31, 1999, management believes the Company
had incurred no material impairments in the carrying value of its inventories,
other than impairments for which a provision has been made.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost less accumulated
depreciation and amortization. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets. Estimated useful
lives for buildings and improvements range from 20 to 30 years, and equipment,
furniture and fixtures range from 3 to 10 years. Leasehold improvements are
amortized over the lesser of the life of the applicable lease or the estimated
useful life of the applicable asset. Maintenance and repairs are expensed as
incurred, and major improvements are capitalized. Gains or losses on sales or
retirements are included in the consolidated statement of income in the year of
disposition.
INTANGIBLE ASSETS
Intangible assets include trademarks, customer lists and goodwill
associated with the acquisition of the minority interest of the Company's
subsidiary in Japan. Goodwill is being amortized using the straight-line method
over a period of five years. Other intangibles are amortized using the
straight-line method over their estimated useful lives with a range from three
to five years. Amortization expense associated with intangible assets was $499,
$108 and $56 in 1999, 1998 and 1997, respectively. Intangible assets, net of
accumulated amortization, totaled $2,651 and $430, at December 31, 1999 and
1998, respectively. Accumulated amortization totaled $619 and $120 at December
31, 1999 and 1998, respectively.
21
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets, including intangibles, for
impairment when events or changes in circumstances indicate that the book value
of an asset may not be recoverable. The Company evaluates, at each balance sheet
date, whether events and circumstances have occurred which indicate possible
impairment. The Company uses an estimate of future undiscounted net cash flows
of the related asset or group of assets over the remaining life in measuring
whether the assets are recoverable. As of December 31, 1999, the Company does
not consider any of its long-lived assets to be impaired.
TRANSLATION OF FOREIGN CURRENCIES
The local currency of the international subsidiaries is used as the
functional currency in translation, except for subsidiaries operating in highly
inflationary economies. The financial statements of foreign subsidiaries, where
the local currency is the functional currency, are translated into U.S. dollars
using exchange rates in effect at the year end for assets and liabilities and
average exchange rates during each year for the results of operations.
Adjustments resulting from translation of financial statements are reflected in
accumulated other comprehensive income.
Countries considered to have highly inflationary economies were Venezuela
and Ecuador during 1999; Mexico, Venezuela and Ecuador during 1998; and Brazil,
Mexico, Venezuela and Ecuador during 1997. The functional currency in these
highly inflationary economies is the U.S. dollar and transactions denominated in
a local currency are re-measured as if the functional currency were the U.S.
dollar. The re-measurement of local currencies into U.S. dollars creates
translation adjustments which are included in the consolidated statements of
income. Effective January 1, 1998, Brazil was no longer considered highly
inflationary. Effective January 1, 1999, Mexico was no longer considered highly
inflationary.
REVENUE RECOGNITION
For domestic sales, the Company generally receives its product sales price
in the form of cash or credit card accompanying the orders from independent
Distributors. From time to time, the Company's domestic operation extends
short-term credit associated with product promotions. For certain of the
Company's international operations, the Company offers credit terms consistent
with industry standards within each respective country. Sales revenue and
related volume incentives are recorded when the merchandise is shipped. Amounts
received for unshipped merchandise are recorded as customer deposits and are
included in accrued liabilities. Payments of volume incentives related to
product orders are made in the month following the sale.
SELLING EXPENSES
Independent Distributors may earn Company-paid attendance at conventions as
well as other travel awards by achieving the required levels of product
purchases within a specified qualification period. Convention costs and other
travel expenses are accrued expenses over the qualification period as they are
earned. Accordingly, the Company has accrued expenses in these areas of
approximately $4,237, $3,089 and $3,456 at December 31, 1999, 1998 and 1997,
respectively.
22
<PAGE>
ADVERTISING COSTS
Advertising costs are expensed as incurred and totaled $1,441, $117 and $0
in 1999, 1998 and 1997, respectively.
RESEARCH AND DEVELOPMENT
All research and development costs are expensed as incurred. Total research
and development costs were approximately $1,657, $1,528 and $1,500 in 1999, 1998
and 1997, respectively.
INCOME TAXES
The Company recognizes a liability or asset for the deferred income tax
consequences of temporary differences between the tax basis of assets or
liabilities and their reported amounts in the financial statements. These
temporary differences will result in taxable or deductible amounts in future
years when the reported amounts of the assets or liabilities are recovered or
settled. The deferred income tax assets are reviewed for recoverability and
valuation allowances are provided as necessary. Foreign and other tax credits
are accounted for using the liability method, which reduces income tax expense
in the year in which these credits are generated.
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 year. 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.
Following is a reconciliation of the numerator and denominator of Basic EPS
to the numerator and denominator of Diluted EPS for all years:
<TABLE>
<CAPTION>
Net Income Shares Per Share
(Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1999
Basic EPS $17,796 17,585 $1.01
Effect of options --- 160
------------ --------
Diluted EPS $17,796 17,745 $1.00
- ------------------------------------------------------------------------------------
DECEMBER 31, 1998
Basic EPS $23,278 18,383 $1.27
Effect of options --- 256
------------ --------
Diluted EPS $23,278 18,639 $1.25
- ------------------------------------------------------------------------------------
DECEMBER 31, 1997
Basic EPS $20,133 18,653 $1.08
Effect of options --- 417
----------- --------
Diluted EPS $20,133 19,070 $1.06
- ------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
At December 31, 1999, 1998 and 1997, there were outstanding options to
purchase 557, 87 and 233 shares of common stock, respectively, that were not
included in the computation of Diluted EPS because the options' exercise prices
were greater than the average market price of the common shares during the year.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior years' consolidated
financial statements to conform with the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The
pronouncement 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, 2000. The adoption of this pronouncement 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.
NOTE 2: INVENTORIES
The composition of inventories is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
As of December 31 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 8,113 $ 6,104
Work in process 1,608 1,377
Finished goods 16,939 15,013
- ------------------------------------------------------------------------------------
$26,660 $22,494
- ------------------------------------------------------------------------------------
</TABLE>
NOTE 3: PROPERTY, PLANT AND EQUIPMENT
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
As of December 31 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $17,936 $17,128
Machinery and equipment 12,633 12,218
Furniture and fixtures 16,138 14,171
- ------------------------------------------------------------------------------------
46,707 43,517
Accumulated depreciation and amortization (22,844) (19,020)
Land 1,330 1,399
- ------------------------------------------------------------------------------------
$25,193 $25,896
- ------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
NOTE 4: INVESTMENTS
The amortized cost and estimated market values of available-for-sale
securities by balance sheet classification are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
As of December 31, 1999 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash equivalents:
Municipal obligations $ 4,629 $ --- $ --- $ 4,629
- --------------------------------------------------------------------------------------------------------------------------
Total cash equivalents 4,629 --- --- 4,629
- --------------------------------------------------------------------------------------------------------------------------
Long-term investments:
Municipal obligations 10,278 98 (292) 10,084
Equity securities 494 744 (7) 1,231
- --------------------------------------------------------------------------------------------------------------------------
Total long-term investments 10,772 842 (299) 11,315
- --------------------------------------------------------------------------------------------------------------------------
Total available-for-sale securities $15,401 $842 $(299) $15,944
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
As of December 31, 1998 Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash equivalents:
Municipal obligations $ 4,750 $ --- $ --- $ 4,750
- --------------------------------------------------------------------------------------------------------------------------
Total cash equivalents 4,750 --- --- 4,750
- --------------------------------------------------------------------------------------------------------------------------
Long-term investments:
Municipal obligations 10,564 81 (34) 10,611
Equity securities 747 335 (18) 1,064
- --------------------------------------------------------------------------------------------------------------------------
Total long-term investments 11,311 416 (52) 11,675
- --------------------------------------------------------------------------------------------------------------------------
Total available-for-sale securities $16,061 $416 $(52) $16,425
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Contractual maturities of long-term debt securities at market value at
December 31, 1999, are as follows:
<TABLE>
- ------------------------------------------------------------------------------------
<S> <C>
Mature after one year through five years $ 9,265
Mature after five years 819
- ------------------------------------------------------------------------------------
Total long-term investments $10,084
- ------------------------------------------------------------------------------------
</TABLE>
During 1999, 1998 and 1997, the proceeds from the sales of
available-for-sale securities were $1,689, $11,763 and $5,153, respectively. The
gross realized gains on sales of available-for-sale securities were $165, $65
and $65, for each of the years ended December 31, 1999, 1998 and 1997,
respectively. The gross realized losses on the sales of available-for-sale
securities were $29 and $26 for the years ended December 31, 1999 and 1998,
respectively.
The Company's trading securities portfolio totaled $1,053 and $259 at
December 31, 1999 and 1998, which included net gains of $176 and $9,
respectively.
25
<PAGE>
NOTE 5: SHORT-TERM DEBT
The Company has operating lines of credit in Japan, which are payable in
local currency to facilitate payment of operating expenses. The debt is
unsecured and matures during 2000. The outstanding amounts relating to the lines
of credit at December 31, 1999 and 1998, were $1,018 and $1,728, respectively,
with a weighted average interest rate of 2 percent at December 31, 1999. The
weighted average amounts outstanding relating to these lines of credit in Japan
were $1,414 and $2,224 for 1999 and 1998, respectively.
NOTE 6: ACCUMULATED OTHER COMPREHENSIVE LOSS
The composition of accumulated other comprehensive loss, net of tax, is as
follows:
<TABLE>
<CAPTION>
Net Unrealized Total
Foreign Currency Gains (Losses) On Accumulated
Translation Available-For-Sale Other Comprehensive
Adjustments Securities Loss
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of December 31, 1997 $(5,290) $416 $(4,874)
Current period change (1,722) (52) (1,774)
- --------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1998 (7,012) 364 (6,648)
Current period change (2,736) (27) (2,763)
- --------------------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1999 $(9,748) $337 $(9,411)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 7: INCOME TAXES
The domestic and foreign components of income before provision for income
taxes are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $26,751 $30,569 $27,919
Foreign 2,240 7,804 5,284
- --------------------------------------------------------------------------------------------------------------------------
Total $28,991 $38,373 $33,203
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 8,778 $ 9,574 $ 9,177
State 1,638 1,858 1,683
Foreign 2,031 3,342 2,768
- --------------------------------------------------------------------------------------------------------------------------
12,447 14,774 13,628
- --------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (889) 209 (374)
State (163) 42 (67)
Foreign (200) 70 (117)
- --------------------------------------------------------------------------------------------------------------------------
(1,252) 321 (558)
- --------------------------------------------------------------------------------------------------------------------------
Total provision for income taxes $11,195 $15,095 $13,070
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
The tax benefit associated with the nonqualified stock option plan
decreased the income tax payable by $0, $809 and $3,240 in 1999, 1998 and 1997,
respectively. These benefits were recorded as an increase to common stock.
The provision for income taxes as a percentage of income before provision
for income taxes differs from the statutory Federal income tax rate due to the
following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of Federal
income tax benefit 3.4 3.1 3.1
Foreign and other tax credits (4.3) (5.6) (3.4)
Net effect of foreign subsidiaries'
tax attributes 6.3 7.1 6.2
Other (1.8) (0.3) (1.5)
- --------------------------------------------------------------------------------------------------------------------------
Effective tax rate 38.6% 39.3% 39.4%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of the deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Year Ended December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory $ 254 $ 300
Accrued liabilities 1,049 703
State income taxes 615 644
Foreign tax credits 126 126
Deferred compensation 406 100
Other 659 565
- --------------------------------------------------------------------------------------------------------------------------
Total deferred tax assets $ 3,109 $ 2,438
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Accelerated depreciation $(1,386) $(2,016)
Unrealized gain on investments of subsidiaries --- (19)
- --------------------------------------------------------------------------------------------------------------------------
Unrealized gain on investments (274) ---
Total deferred tax liabilities $(1,660) $(2,035)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Although realization of the net deferred tax assets is not assured,
management believes it is more likely than not that all of the net deferred tax
assets will be realized. The amount of net deferred tax assets considered
realizable could be reduced based on changing conditions.
As of December 31, 1999, the Company has available net operating losses
from its foreign subsidiaries for foreign income tax purposes and financial
reporting purposes of approximately $13,800 and $15,800, respectively. The tax
net operating losses will expire in 2000 through 2005. Certain of these net
operating losses may be limited by the extent of foreign taxable income in
future years. Due to the uncertainty regarding the utilization of these net
operating loss carry-forwards, management has provided valuation allowances
equal to the amount of the deferred income tax assets related to the net
operating loss carry-forwards of the foreign subsidiaries.
27
<PAGE>
The Company considers all international earnings, which have not been
previously taxed for domestic purposes to be permanently invested in the
international subsidiaries. As of December 31, 1999, such earnings were
approximately $13,500. If Federal taxes and foreign dividend withholding taxes
had been provided on those earnings, net of the effect of utilization of foreign
tax credits, such taxes would have approximated $450 as of December 31, 1999.
NOTE 8: CAPITAL TRANSACTIONS
TREASURY STOCK
During 1999, 1998 and 1997, the Company repurchased 897, 721 and 1,413
shares of common stock for a total of $9,249, $14,306 and $26,128, respectively.
In October 1999, the Board of Directors approved the repurchase of up to 1,000
shares of the Company's common stock. As of December 31, 1999, approximately 120
shares had been repurchased under this approval.
STOCK OPTIONS
The Company maintains a 1995 Stock Option Plan, which provides for the
granting or awarding of certain nonqualified stock options to officers,
directors and employees. The term, not to exceed 10 years, and the vesting and
exercise period of each stock option awarded under the plan are determined by
the Company's Board of Directors. Such grants have been made at the fair market
value of the stock at the date of grant. At December 31, 1999, the Company had
no remaining shares available to be granted. At December 31, 1999, the Company
had reserved approximately 2,318 treasury shares to accommodate the exercise of
the outstanding options.
Stock option activity for 1999, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
Weighted Average
Number of Exercise Price
Shares Per Share
- ------------------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 31, 1996 2,595 $12.81
Issued 139 19.83
Forfeited or canceled (617) 15.61
Exercised (884) 11.33
-------
Options outstanding at December 31, 1997 1,233 13.26
Issued 83 18.32
Forfeited or canceled (27) 15.83
Exercised (160) 9.15
-------
Options outstanding at December 31, 1998 1,129 14.15
Issued 2,945 8.42
Forfeited or canceled (667) 18.15
Exercised --- ---
--------
Options outstanding at December 31, 1999 3,407 8.65
- ------------------------------------------------------------------------------------
</TABLE>
Shares issued related to the exercise of stock options during 1999, 1998
and 1997, were issued from treasury stock. Options for 452, 908 and 956 shares
of common stock were exercisable on
28
<PAGE>
December 31, 1999, 1998 and 1997, respectively, with weighted average exercise
prices of $8.14, $12.91 and $11.36, respectively.
The following table summarizes information about options outstanding and
options exercisable at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------------------------
Range of Weighted-Avg. Weighted-Avg. Weighted-Avg.
Option Prices Shares Remaining Exercise Price Shares Exercise Price
Per Share Outstanding Contractual Life Per Share Exercisable Per Share
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.79 16 1.0 years $1.79 16 $1.79
$4.03 to $9.56 2,743 5.8 years 7.73 384 7.22
$10.81 to $16.88 633 8.8 years 12.55 37 15.66
$20.00 to $22.25 15 5.3 years 20.38 15 20.38
------- ----
$1.79 to $22.25 3,407 6.3 years 8.65 452 8.14
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company accounts for stock-based compensation plans under Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized in the accompanying consolidated statements of income for the years
ended December 31, 1999, 1998 and 1997. Had compensation costs been determined
consistent with SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company's net income and earnings per share would have been reduced to the
following proforma amounts:
<TABLE>
<CAPTION>
Year ended December 31 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income As reported $17,796 $23,278 $20,133
Proforma 15,612 22,613 20,026
Basic Earnings Per Share As reported $ 1.01 $ 1.27 $ 1.08
Proforma .89 1.23 1.07
Diluted Earnings Per Share As reported $ 1.00 $ 1.25 $ 1.06
Proforma .88 1.21 1.05
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted was $8.42, $10.30 and
$8.69 for 1999, 1998 and 1997, respectively. The fair value of each option
granted is estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions used for grants: risk-free
interest rate of 6.5 percent with expected lives of seven years in 1999, 1998
and 1997; expected dividend yield of approximately 1.5, 0.6 and 0.5 percent in
1999, 1998 and 1997, respectively; and expected volatility of 63, 49 and 32
percent in 1999, 1998 and 1997, respectively. The estimated fair value of
options granted is subject to the assumptions made, and if the assumptions were
to change, the estimated fair value amounts could be significantly different.
Because SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting proforma compensation cost may
not be representative of what is to be expected in future years.
29
<PAGE>
NOTE 9: EMPLOYEE BENEFIT PLANS
DEFERRED COMPENSATION PLANS
The Company sponsors a qualified deferred compensation plan, which
qualifies under Section 401(k) of the Internal Revenue Code. The Company
contributes matching contributions of 100 percent of employee contributions up
to a maximum of five percent of the employee's compensation. The Company's
contributions to the plan vest after a period of four years. During 1999, 1998
and 1997, the Company contributed to the plan approximately $640, $545 and $530,
respectively.
During 1998, the Company established a funded nonqualified deferred
compensation plan for its officers, directors and certain key employees. Under
this plan, participants may defer up to 100 percent of their annual salary and
bonus. The amounts deferred remain the sole property of the Company, which uses
them to purchase certain investments as directed by the participants. The
program is not qualified under Section 401 of the Internal Revenue Code. At
December 31, 1999, the amounts payable under the plan are valued at the fair
market value of the assets owned by the Company. Upon separation of service to
the Company, the participants' deferred amounts, together with any gains or
losses thereon, will be paid over a period of either three or five years.
MANAGEMENT AND EMPLOYEE BONUS PLAN
The Company has a bonus plan that provides for participants to receive
payments based upon the achievement of specified annual increases in revenue and
operating income as set by the Board of Directors. The expense related to the
bonus plan was approximately $160, $1,239 and $687 for 1999, 1998 and 1997,
respectively. All domestic employees as well as key international employees
participate in the bonus plan.
NOTE 10: RELATED-PARTY TRANSACTIONS
During 1999 and 1998, as part of the Company's marketing efforts, the
Company spent approximately $410 and $100, respectively, for the services of an
outside advertising agency. The president and chief executive officer of the
advertising agency is a relative of an executive officer and director of the
Company.
30
<PAGE>
NOTE 11: COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment used in its operations.
The approximate aggregate commitments under non-cancelable operating leases in
effect at December 31, 1999, were as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year Ending December 31
- --------------------------------------------------------------------------------
<S> <C>
2000 $2,650
2001 1,512
2002 638
2003 252
2004 150
Thereafter 472
- --------------------------------------------------------------------------------
$5,674
- --------------------------------------------------------------------------------
</TABLE>
The Company incurred expenses of approximately $3,123, $2,865 and $2,962 in
connection with operating leases during 1999, 1998 and 1997, respectively.
The Company is a defendant in various lawsuits which are incidental to the
Company's business. Management, after consultation with legal counsel, believes
that any liability as a result of these matters will not have a material adverse
effect upon the Company's results of operations or financial position.
NOTE 12: OPERATING SEGMENT AND INTERNATIONAL OPERATION 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).
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). The segments have similar
business characteristics and each offers similar products through similar
methods of distribution as described in Note 1. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies in Note 1. Inter-segment sales, eliminated in consolidation,
are not material.
31
<PAGE>
Operating segment information for the years ended December 31, 1999, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Revenue:
Domestic $183,383 $190,309 $177,647
International:
Latin America 69,805 80,798 87,389
Asia Pacific 19,406 10,581 11,413
Other 16,595 14,364 4,453
- ------------------------------------------------------------------------------------
289,189 296,052 280,902
- ------------------------------------------------------------------------------------
Operating Expenses:
Domestic 158,539 160,946 152,474
International:
Latin America 67,332 72,508 81,106
Asia Pacific 20,941 13,172 12,557
Other 15,267 13,359 3,760
- ------------------------------------------------------------------------------------
262,079 259,985 249,897
- ------------------------------------------------------------------------------------
Operating Income (Loss):
Domestic 24,844 29,363 25,173
International:
Latin America 2,473 8,290 6,283
Asia Pacific (1,535) (2,591) (1,144)
Other 1,328 1,005 693
- ------------------------------------------------------------------------------------
27,110 36,067 31,005
- ------------------------------------------------------------------------------------
Unallocated Amounts
Other Income 1,881 2,306 2,198
- ------------------------------------------------------------------------------------
Income Before Provision for Income
Taxes $28,991 $38,373 $33,203
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
As of December 31 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Domestic $ 66,372 $ 62,971
International:
Latin America 29,343 32,154
Asia Pacific 8,670 6,236
Other 3,050 2,338
- ------------------------------------------------------------------------------------
Total Assets $107,435 $103,699
- ------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Expenditures:
Domestic $2,699 $5,880 $6,328
International:
Latin America 830 477 596
Asia Pacific 770 76 438
Other 160 40 91
- ------------------------------------------------------------------------------------
$4,459 $6,473 $7,453
- ------------------------------------------------------------------------------------
Depreciation and Amortization:
Domestic $4,084 $3,439 $2,862
International:
Latin America 1,453 1,169 1,191
Asia Pacific 416 138 132
Other 107 66 107
- ------------------------------------------------------------------------------------
$6,060 $4,812 $4,292
- ------------------------------------------------------------------------------------
</TABLE>
Revenues by classes of principal product lines for the years ended December
31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Revenue by Product Lines:
Herbal Products $188,816 $198,355 $188,204
Vitamins and Mineral Supplements 75,190 68,092 64,607
Personal Care Products 7,488 8,882 8,427
Homeopathic 2,483 2,961 2,809
Other 15,212 17,762 16,855
- ------------------------------------------------------------------------------------
$289,189 $296,052 $280,902
- ------------------------------------------------------------------------------------
</TABLE>
Individual countries which comprise 10 percent or more of consolidated
sales revenue for the years ended December 31, 1999, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year Ended December 31 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Revenue:
United States $183,383 $190,309 $177,647
International:
Brazil 21,673 30,289 25,981
Other 84,133 75,454 77,274
- ------------------------------------------------------------------------------------
$289,189 $296,052 $280,902
- ------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
Individual countries which comprise 10 percent or more of consolidated
long-lived assets, consisting of property, plant and equipment and intangible
assets are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
As of December 31, 1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-Lived Assets:
United States $20,422 $19,349 $16,514
International:
Mexico 3,094 3,085 3,209
Other 4,196 4,012 4,211
- ------------------------------------------------------------------------------------
$27,712 $26,446 $23,934
- ------------------------------------------------------------------------------------
</TABLE>
NOTE 13: SUMMARY OF QUARTERLY OPERATIONS -- UNAUDITED
<TABLE>
<CAPTION>
Selling, Income Basic Diluted
General Other Before Net Net
Sales Cost of Volume and Admin. Operating Income Income Net Income Income
1999 Revenue Goods Sold Incentives Expenses Income (Expense) Taxes Income Per Share Per Share
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Qtr $72,178 $12,857 $33,123 $18,539 $7,659 $597 $8,256 $ 4,990 $0.28 $0.28
Second Qtr 71,639 12,284 32,764 19,210 7,381 545 7,926 4,796 0.27 0.27
Third Qtr 73,240 13,151 33,275 20,622 6,192 304 6,496 4,128 0.24 0.24
Fourth Qtr 72,132 12,846 33,106 20,302 5,878 435 6,313 3,882 0.23 0.23
- ---------------------------------------------------------------------------------------------------------------------------------
$289,189 $51,138 $132,268 $78,673 $27,110 $1,881 $28,991 $17,796 $1.01 $1.00
- ---------------------------------------------------------------------------------------------------------------------------------
1998
- ---------------------------------------------------------------------------------------------------------------------------------
First Qtr $ 75,283 $13,542 $ 35,199 $18,684 $ 7,858 $ 329 $ 8,187 $ 4,867 $0.26 $0.26
Second Qtr 77,201 13,646 35,474 18,858 9,223 700 9,923 6,105 0.33 0.32
Third Qtr 73,456 13,155 33,628 17,774 8,899 749 9,648 6,059 0.33 0.33
Fourth Qtr 70,112 11,848 32,189 15,988 10,087 528 10,615 6,247 0.34 0.34
- ---------------------------------------------------------------------------------------------------------------------------------
$296,052 $52,191 $136,490 $71,304 $36,067 $2,306 $38,373 $23,278 $1.27 $1.25
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 1999, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 1999, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
34
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Item 12 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 1999, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 13 is omitted because the Company intends to
file with the Securities and Exchange Commission, not later than 120 days after
the close of the fiscal year ended December 31, 1999, a definitive Proxy
Statement pursuant to Regulation 14A of the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) LIST OF FINANCIAL STATEMENTS
The following are filed as part of this Report:
Report of Independent Public Accountants
Consolidated statements of income for the years ended December 31,
1999, 1998 and 1997.
Consolidated balance sheets as of December 31, 1999 and 1998.
Consolidated statements of shareholders' equity for the years ended
December 31, 1999, 1998 and 1997.
Consolidated statements of cash flows for the years ended December
31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements
(a)(2) LIST OF FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Consolidated Financial
Statement Schedule.
Schedule II - Valuation and Qualifying Accounts.
Financial statement schedules other than those listed are omitted
for the reason that they are not required or are not applicable, or
the required information is shown in the financial statements or
notes thereto, or contained in this Report.
(a)(3) LIST OF EXHIBITS
3.1 (1) - Restated Articles of Incorporation
35
<PAGE>
3.2 (2) - By-laws, as amended
10.2 (3) - Form of Employment Agreement between the Registrant and
its executive officers together with a schedule
identifying the agreements omitted and setting forth
the material differences between the filed agreement
and the omitted agreements
10.3 (4) 1995 Stock Option Plan
10.4 (4) Form of Stock Option Agreement (1995 Stock Option Plan)
10.5 (5) - 1998 Employee Incentive Compensation Plan
10.6 (6) Supplemental Elective Deferral Plan
10.7 (6) Executive Loan Program
21 - List of Subsidiaries of Registrant
23 - Consent of Independent Public Accountants
27 - Financial Data Schedule
- -----------------
[1] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1988 and is incorporated herein
by reference.
[2] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1985 and is incorporated herein
by reference.
[3] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated herein
by reference.
[4] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1995 and is incorporated herein
by reference.
[5] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1997 and is incorporated herein
by reference.
[6] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1998 and is incorporated herein
by reference.
(b) REPORTS ON FORM 8-K
The Registrant did not file any reports on Form 8-K during the last
quarter of the year ended December 31, 1999.
(c) EXHIBITS
Exhibits required to be filed in respect to this paragraph of Item
14 are listed above in subparagraph (a)(3).
(d) FINANCIAL STATEMENT SCHEDULES
See subparagraph (a)(2) above.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
Date: March 22, 2000 By: /s/ DANIEL P. HOWELLS
-------------------------------------------------
Daniel P. Howells, President, C.E.O. and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Daniel P. Howells President, Chief Executive Officer and Director March 22, 2000
- ---------------------------
Daniel P. Howells
/s/ Craig D. Huff Vice President of Finance, Treasurer, March 22, 2000
- --------------------------- Chief Financial Officer, Chief Accounting Officer
Craig D. Huff
/s/ Douglas Faggioli Chief Operating Officer and Director March 22, 2000
- ---------------------------
Douglas Faggioli
/s/ Kristine F. Hughes Chairman of the Board and Director March 22, 2000
- ---------------------------
Kristine F. Hughes
/s/ Eugene L. Hughes Vice President and Director March 22, 2000
- ---------------------------
Eugene L. Hughes
/s/ Pauline T. Hughes Director March 22, 2000
- ---------------------------
Pauline T. Hughes
/s/ Richard Hinckley Director March 22, 2000
- ---------------------------
Richard Hinckley
</TABLE>
37
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To Nature's Sunshine Products, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements of Nature's Sunshine
Products, Inc. and subsidiaries appearing in Item 8 in this Annual Report on
Form 10-K, and have issued our report thereon dated February 8, 2000. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14(a)(2) is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
February 8, 2000
38
<PAGE>
NATURE'S SUNSHINE PRODUCTS, INC.
SCHEDULE II-- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1999
(Dollar Amounts in Thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Amounts Amounts End of
Description of Year Provisions Written Off Recovered Year
----------- ------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for doubtful
accounts receivable $819 $625 $(157) $4 $1,291
Allowance for obsolete
inventory 627 506 (711) --- 422
Allowance for notes
receivable 14 --- --- --- 14
Year ended December 31, 1998
Allowance for doubtful
accounts receivable $661 $229 $ (46) $(25) $819
Allowance for obsolete
inventory 534 468 (375) --- 627
Allowance for notes
receivable 14 --- --- --- 14
Year ended December 31, 1997
Allowance for doubtful
accounts receivable $417 $394 $(138) $(12) $661
Allowance for obsolete
inventory 304 470 (240) --- 534
Allowance for notes
receivable 14 --- --- --- 14
</TABLE>
39
<PAGE>
LIST OF EXHIBITS
<TABLE>
<CAPTION>
LOCATED AT
SEQUENTIALLY
ITEM NO. EXHIBIT NUMBERED PAGE
<S> <C> <C>
3.1 (1) - Restated Articles of Incorporation ---
3.2 (2) - By-laws, as amended ---
10.2 (3) - Form of Employment Agreement between the Registrant and ---
its executive officers together with a schedule
identifying the agreements omitted and setting forth the
material differences between the filed agreement and the
omitted agreements.
10.3 (4) 1995 Stock Option Plan ---
10.4 (4) Form of Stock Option Agreement (1995 Stock Option Plan) ---
10.5 (5) - 1998 Employee Incentive Compensation Plan ---
10.6 (6) Supplemental Elective Deferral Plan ---
10.7 (6) Executive Loan Program ---
21 - List of Subsidiaries of Registrant 42
23 - Consent of Independent Public Accountants 43
27 - Financial Data Schedule 44
</TABLE>
[1] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1988 and is incorporated herein
by reference.
[2] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1985 and is incorporated herein
by reference.
[3] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1994 and is incorporated herein
by reference.
[4] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1995 and is incorporated herein
by reference.
[5] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1997 and is incorporated herein
by reference.
[6] Previously filed with the Commission as an exhibit to the Annual Report on
Form 10-K for the year ended December 31, 1998 and is incorporated herein
by reference.
40
<PAGE>
EXHIBIT 21
SUBSIDIARIES
Set forth below is a list of all active subsidiaries of the Registrant, the
state or other jurisdiction of incorporation or organization of each, and the
names under which such subsidiaries do business.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
---- -------------
<S> <C>
Nature's Sunshine Products of Canada, Ltd. Canada
Nature's Sunshine Products de Mexico, S.A. de C.V. Mexico
Nature's Sunshine Products de Colombia, S.A. Colombia
Nature's Sunshine Produtos Naturais Ltda. Brazil
Nature's Sunshine K.K. Japan
Nature's Sunshine Korea, Ltd. South Korea
Nature's Sunshine Products de Venezuela Venezuela
Nature's Sunshine Products de Centroamerica Costa Rica
Nature's Sunshine Products de Panama, S.A. Panama
Nature's Sunshine Products de Guatemala, S.A. Guatemala
Nature's Sunshine Products de El Salvador, S.A. de C.V. El Salvador
Nature's Sunshine Products del Peru, S.A. Peru
Nature's Sunshine Products de Argentina Argentina
Comercializadora Nature's Sunshine Chile Ltda. Chile
Nature's Sunshine Products del Ecuador, S.A. Ecuador
Nature's Sunshine Products de Honduras, S.A. Honduras
Nature's Sunshine Products de Nicaragua, S.A. Nicaragua
Nature's Sunshine Products of Russia, Inc. Russia
</TABLE>
- ------------------------
Each subsidiary listed above is doing business under its corporate name.
41
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed Form S-8
Registration Statements File Nos. 33-38621, 33-80582, 33-59497 and 333-08139.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
March 22, 2000
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,433
<SECURITIES> 0
<RECEIVABLES> 7,090
<ALLOWANCES> 1,291
<INVENTORY> 26,660
<CURRENT-ASSETS> 63,323
<PP&E> 25,193
<DEPRECIATION> 22,844
<TOTAL-ASSETS> 107,435
<CURRENT-LIABILITIES> 27,729
<BONDS> 0
0
0
<COMMON> 37,659
<OTHER-SE> 37,659
<TOTAL-LIABILITY-AND-EQUITY> 39,878
<SALES> 289,189
<TOTAL-REVENUES> 289,189
<CGS> 51,138
<TOTAL-COSTS> 262,079
<OTHER-EXPENSES> 1,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> 28,991
<INCOME-TAX> 11,195
<INCOME-CONTINUING> 17,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,796
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.00
</TABLE>
