Nature's Sunshine Products reports 5.4% net sales increase in Q2

Nature's Sunshine Products reports 5.4% net sales increase in Q2

Nature's Sunshine Products, Inc. reported consolidated financial results for the second quarter ended June 30, 2011.


Nature's Sunshine Products, Inc., a leading natural health and wellness company, reported consolidated financial results for the second quarter ended June 30, 2011.

   For the Second Quarter of 2011:

          -  Net sales were $91.8 million, compared with $87.1 million in the same

              quarter a year ago, an increase of 5.4 percent.

          -  Operating income from continuing operations was $8.1 million, compared

              with $3.3 million in the same quarter a year ago, an increase of 146.0

              percent.

          -  EBITDA, defined here as net income before taxes, depreciation and

              amortization, other income and adjusted to exclude share-based

              compensation expense, was $10.2 million, compared with $4.5 million in

              the same quarter a year ago, an increase of 128.3 percent.

          -  Net income from continuing operations was $5.6 million, compared with

              net income of $1.4 million in the same quarter a year ago, an increase

              of 299.3 percent.

          -  Basic and diluted net income per share from continuing operations was

              $0.36 compared with earnings per share of $0.09, for the same quarter a

              year ago.

          -  As of June 30, 2011, shareholders' equity was $83.6 million, compared to

              $68.4 million on December 31, 2010, an increase of 22.2 percent.

          - As of June 30, 2011, active Managers worldwide were 29,600, a decrease

              of 2.3 percent from the end of the prior quarter, while active

              distributors and customers worldwide declined 3.1 percent from the end

              of the prior quarter to 675,100.    

         For the First Six Months of 2011:

          -  Net sales were $184.7 million, compared with $173.9 million in the same

              period a year ago, an increase of 6.2 percent.

          -  Operating income from continuing operations was $15.7 million, compared

              with $3.8 million in the same period a year ago, an increase of 307.8

              percent.

          -  EBITDA, defined here as net income before taxes, depreciation and

              amortization, other income and adjusted to exclude share-based

              compensation expense, was $18.9 million, compared with $6.2 million in

              the same period a year ago, an increase of 204.7 percent.

          -  Net income from continuing operations was $12.2 million, compared with

              net income of $6.2 million in the same period a year ago, an increase of

              98.1 percent.

          -  Basic and diluted net income per share from continuing operations was

              $0.79 and $0.78, respectively, compared with earnings per share of $0.40

              and $0.40, for the same period a year ago, respectively.

    NSP United States Segment Results for the Second Quarter:

         -  Net sales were $35.9 million, compared with $36.2 million in the same

              quarter a year ago, a decrease of 0.9 percent. Shifting the timing of

              our national convention from the fall of 2010 to the spring of 2011

              negatively affected Manager retention and Distributor recruiting efforts

              during the prior year and the current quarter. Net sales revenue also

              decreased compared to the same period in the prior year due to changes

              to some of our promotional programs.

          -  Operating income was $3.7 million, compared with $2.2 million in the

              same quarter a year ago, an increase of 68.4 percent. The increase in

              operating income is primarily the result of significant cost reductions

              in our selling, general and administrative expenses and improvements in

              our cost of goods sold.

      NSP International Segment Results for the Second Quarter:

         -  Net sales were $33.1 million, compared with $34.3 million in the same

              quarter a year ago, a decrease of 3.7 percent. In local currencies, net

              sales decreased by 5.2 percent compared to the same quarter a year ago.

              Higher sales in our Russian markets and positive currency fluctuations

              were offset by lower sales in our Dominican Republic, Japan and Mexico

              markets.

          -  Operating income was $1.8 million, compared with $1.1 million in the

              same quarter a year ago, an increase of 75.6 percent. This increase was

              the result of higher sales in our Russian markets, cost reductions, and

              the impact of prior year value-added tax reserve charges in our Mexico

              business.

          Synergy Worldwide Results for the Second Quarter:

         -  Net sales were $22.9 million, compared with $16.6 million in the same

              quarter a year ago, an increase of 37.7 percent. In local currencies,

              net sales increased 29.5 percent compared to the same quarter a year

              ago. The increase in net sales was primarily due to strong growth in our

              United States, Korean and European markets.

          -  Operating income was $2.5 million, compared with just above break-even

              for the same quarter in the prior year. This increase was primarily due

              to significant sales growth and managing expenses. 

NutriPlus Arbitration

In 1999 and 2000, the Company and Nutriplus LLC ("NutriPlus") entered into an Asset Purchase Agreement and subsequent Settlement Agreement (together the "Purchase Agreement") under which the Company acquired certain assets in order to establish its Russian business, and Nutriplus acquired rights to receive certain royalty payments from the Company expressed as a percentage of the Company's net sales in its Russian business.

On July 12, 2010, the Company submitted a demand for arbitration to the American Arbitration Association (the "AAA") naming NutriPlus as respondent. The Company sought a declaration of its rights and obligations, including with respect to royalty payments and the calculation thereof, arising out of the Purchase Agreement.

On July 20, 2010, NutriPlus submitted its own demand for arbitration to the AAA naming the Company as respondent. NutriPlus alleged that the Company underpaid NutriPlus for royalties arising out of the Purchase Agreement. In arbitration, NutriPlus sought damages related to the alleged underpayment and a declaratory judgment with respect to the method the Company must use in determining the amount of royalties to pay NutriPlus in the future.

The arbitration demands were consolidated into a single proceeding, and the hearing was scheduled for July 2011.

On July 8, 2011, the Company and NutriPlus entered into a Settlement Agreement, wherein both parties settled all claims in the arbitration and bore their own costs associated with the arbitration. As a result of the settlement, the Company will pay NutriPlus $21.7 million and all of the Company's ongoing obligations under the Purchase Agreement were extinguished, including all obligations with respect to accrued unpaid royalties and all obligations to pay future royalties to NutriPlus in perpetuity. In 2010, the Company recorded total royalty costs for the year of approximately $5.6 million. The Company recorded royalty costs of approximately $1.3 million and $1.3 million for the three months ended June 30, 2011 and 2010, respectively, and $2.9 million and $2.8 million for the six months ended June 30, 2011 and 2010, respectively. As of June 30, 2011, the Company had accrued $7.0 million related to the liability for unpaid royalties to NutriPlus for the period from April 1, 2010 through June 30, 2011. The Company will apply such accrual to the settlement payment.

Effective Income-tax Rate

The effective income tax rate was 26.4 percent compared with 40.7 percent in the same quarter a year ago. The effective income tax rate of 26.4 percent for the current quarter was below the U.S. federal statutory tax rate of 35.0 percent due to tax deductions taken for financial reporting purposes related to foreign earnings. The effective income tax rate of 40.7 percent for the same quarter a year ago was above the U.S. federal statutory tax rate of 35.0 percent as a result of foreign subsidiary net losses for which no tax benefit was recognized.

Non-GAAP Financial Measures

The Company has included information concerning EBITDA because management utilizes this information in the evaluation of its operations and believes that this measure is a useful indicator of the Company's ability to fund its business. EBITDA has not been prepared in accordance with generally accepted accounting principles (GAAP). This non-GAAP financial measure should not be considered as an alternative to, or more meaningful than, net income as an indicator of the Company's operating performance. Further, this non-GAAP financial measure, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. The Company has included a reconciliation of EBITDA to reported earnings under GAAP in the attached financial tables.

About Nature's Sunshine Products

Nature's Sunshine Products, a leading natural health and wellness company, markets and distributes nutritional, herbal, weight management, energy, and other complementary products through a global direct sales force of over 600,000 independent distributors in more than 40 countries. Nature's Sunshine manufactures its products through its own state-of-the-art facilities to ensure its products continue to set the standard for the highest quality, safety and efficacy on the market today. The Company also supports health and wellness for children around the world through its partnership with the Little Heroes Foundation. Additional information about the Company can be obtained at its website, www.natr.com.

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