Nature's Sunshine(US:NATR)2021-08-05 21:12markdown [General Information](index=1&type=section&id=General%20Information) [Filing Information](index=1&type=section&id=Filing%20Information) This section provides the basic filing details for Nature's Sunshine Products, Inc.'s Form 10-Q for the quarterly period ended June 30, 2021, including company identification, stock information, and compliance with SEC filing requirements. - The registrant is NATURE'S SUNSHINE PRODUCTS, INC., a Utah corporation, filing a Quarterly Report on Form 10-Q for the period ended June 30, 2021[2](index=2&type=chunk) **Common Stock Information** | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------ | :---------------- | :-------------------------------------- | | Common Stock, no par value | NATR | Nasdaq Capital Market | - As of July 23, 2021, the number of shares of Common Stock outstanding was **19.936 million shares**[4](index=4&type=chunk) [Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section serves as a cautionary note regarding forward-looking statements made in the report, outlining their nature, the assumptions they are based on, and the significant risks and uncertainties that could cause actual results to differ materially. - Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties, including extensive government regulations, legal challenges to direct selling, product liability claims, and the impact of the ongoing coronavirus pandemic[9](index=9&type=chunk)[10](index=10&type=chunk) - The company disclaims any obligation to publicly release revisions to forward-looking statements, except as required by law[10](index=10&type=chunk) [Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of income, comprehensive income, changes in shareholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items. [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) **Condensed Consolidated Balance Sheets (Amounts in millions)** | Assets/Liabilities/Equity | June 30, 2021 (millions) | December 31, 2020 (millions) | | :------------------------ | :----------------------- | :--------------------------- | | **Assets:** | | | | Cash and cash equivalents | $74.902 | $92.069 | | Total current assets | $143.689 | $154.065 | | Total assets | $233.190 | $249.498 | | **Liabilities:** | | | | Total current liabilities | $64.992 | $69.654 | | Total liabilities | $86.037 | $92.264 | | **Shareholders' Equity:** | | | | Total shareholders' equity | $147.153 | $157.234 | | Total liabilities and shareholders' equity | $233.190 | $249.498 | - Total assets decreased by **$16.308 million** from **$249.498 million** at December 31, 2020, to **$233.190 million** at June 30, 2021[13](index=13&type=chunk) - Cash and cash equivalents decreased by **$17.167 million** from **$92.069 million** at December 31, 2020, to **$74.902 million** at June 30, 2021[13](index=13&type=chunk) [Condensed Consolidated Statements of Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) **Condensed Consolidated Statements of Income (Amounts in millions, except per share information)** | Metric | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net sales | $108.978 | $87.286 | $211.399 | $183.212 | | Gross profit | $80.515 | $64.269 | $155.957 | $135.514 | | Operating income | $9.486 | $6.600 | $17.121 | $13.762 | | Net income attributable to common shareholders | $6.540 | $5.754 | $10.556 | $8.716 | | Basic earnings per share | $0.33 | $0.30 | $0.53 | $0.45 | | Diluted earnings per share | $0.32 | $0.29 | $0.52 | $0.44 | | Dividends declared per common share | — | — | $1.00 | — | - Net sales increased by **24.9%** for the three months ended June 30, 2021, and by **15.4%** for the six months ended June 30, 2021, compared to the same periods in 2020[15](index=15&type=chunk)[18](index=18&type=chunk) - Operating income increased by **43.7%** for the three months and **24.4%** for the six months ended June 30, 2021, compared to the same periods in 2020[15](index=15&type=chunk)[18](index=18&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) **Condensed Consolidated Statements of Comprehensive Income (Amounts in millions)** | Metric | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income | $6.794 | $6.133 | $10.946 | $9.139 | | Foreign currency translation loss (net of tax) | $(0.045) | $(0.151) | $(0.166) | $(0.260) | | Total comprehensive income | $6.749 | $5.982 | $10.780 | $8.879 | - Total comprehensive income increased by **12.8%** for the three months and **21.4%** for the six months ended June 30, 2021, compared to the same periods in 2020[19](index=19&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) **Condensed Consolidated Statements of Changes in Shareholders' Equity (Amounts in millions)** | Item | Balance at Dec 31, 2020 (millions) | Share-based comp. expense (millions) | Shares issued (net) (millions) | Cash dividends (millions) | Net income (millions) | Other comp. loss (millions) | Balance at June 30, 2021 (millions) | | :------------------------ | :------------------------- | :--------------------------- | :----------------------- | :------------------------ | :-------------------- | :---------------------- | :-------------------------- | | Common Stock (Amount) | $139.311 | $2.071 | $(1.574) | — | — | — | $138.308 | | Retained Earnings | $26.030 | — | — | $(19.858) | $10.556 | — | $16.728 | | Noncontrolling Interest | $1.848 | — | — | — | $0.390 | — | $2.238 | | Accumulated Other Comprehensive Loss | $(9.955) | — | — | — | — | $(0.166) | $(10.121) | | Total | $157.234 | $2.071 | $(1.574) | $(19.858) | $10.946 | $(0.166) | $147.153 | - Total shareholders' equity decreased from **$157.234 million** at December 31, 2020, to **$147.153 million** at June 30, 2021, primarily due to cash dividends of **$19.858 million** and common stock repurchases[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) **Condensed Consolidated Statements of Cash Flows (Amounts in millions)** | Activity | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $10.712 | $14.420 | | Net cash used in investing activities | $(2.898) | $(2.210) | | Net cash provided by (used in) financing activities | $(23.630) | $5.164 | | Net increase (decrease) in cash and cash equivalents | $(17.167) | $16.626 | | Cash and cash equivalents at end of period | $74.902 | $70.255 | - Net cash provided by operating activities decreased to **$10.712 million** in H1 2021 from **$14.420 million** in H1 2020[24](index=24&type=chunk) - Financing activities used **$23.630 million** in H1 2021, a significant change from providing **$5.164 million** in H1 2020, primarily due to cash dividends and share repurchases[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [(1) Basis of Presentation](index=12&type=section&id=(1)%20Basis%20of%20Presentation) - Nature's Sunshine Products, Inc. is a natural health and wellness company manufacturing and selling nutritional and personal care products through independent consultants[26](index=26&type=chunk) - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and include all adjustments considered necessary for fair presentation[27](index=27&type=chunk) - Significant accounting estimates include independent consultant incentives, income tax assets and liabilities, non-income tax and value-added tax contingencies, and legal contingencies, with potential material impact from COVID-19 uncertainty[29](index=29&type=chunk)[30](index=30&type=chunk) [Recent Accounting Pronouncements](index=13&type=section&id=Recent%20Accounting%20Pronouncements) - The adoption of ASU No. 2019-12 (Income Taxes) did not have a significant impact on the Consolidated Financial Statements[33](index=33&type=chunk) - The adoption of ASU No. 2020-04 (Reference Rate Reform) is not expected to have a significant impact on the Consolidated Financial Statements[34](index=34&type=chunk) [(2) Inventories](index=13&type=section&id=(2)%20Inventories) **Composition of Inventories (Amounts in millions)** | Category | June 30, 2021 (millions) | December 31, 2020 (millions) | | :--------------- | :----------------------- | :--------------------------- | | Raw materials | $16.360 | $13.956 | | Work in progress | $1.736 | $1.351 | | Finished goods | $32.861 | $32.376 | | Total inventories | $50.957 | $47.683 | - Total inventories increased by **$3.274 million** from **$47.683 million** at December 31, 2020, to **$50.957 million** at June 30, 2021[35](index=35&type=chunk) [(3) Investment Securities - Trading](index=13&type=section&id=(3)%20Investment%20Securities%20-%20Trading) - The trading securities portfolio totaled **$1.0 million** at June 30, 2021, and **$1.0 million** at December 31, 2020[36](index=36&type=chunk) **Investment Securities - Trading Gains (Amounts in millions)** | Period | 2021 (millions) | 2020 (millions) | | :----------------------- | :-------------- | :-------------- | | Three months ended June 30 | $0.050 | $0.093 | | Six months ended June 30 | $0.067 | $(0.004) | [(4) Revolving Credit Facility and Other Obligations](index=13&type=section&id=(4)%20Revolving%20Credit%20Facility%20and%20Other%20Obligations) - The company has a revolving credit agreement with Bank of America, N.A., with a borrowing limit of **$25.0 million**, maturing on July 1, 2023. As of June 30, 2021, there was no outstanding balance[37](index=37&type=chunk)[38](index=38&type=chunk) - A Capital Credit Agreement with Banc of America Leasing and Capital, LLC, has a borrowing limit of **$6.0 million**. As of June 30, 2021, **$3.0 million** was outstanding, with **$1.2 million** classified as current[39](index=39&type=chunk)[40](index=40&type=chunk) [(5) Net Income Per Share](index=14&type=section&id=(5)%20Net%20Income%20Per%20Share) **Net Income Per Common Share (Amounts in millions, except per share information)** | Metric | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :----------------------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Net income attributable to common shareholders | $6.540 | $5.754 | $10.556 | $8.716 | | Basic earnings per share | $0.33 | $0.30 | $0.53 | $0.45 | | Diluted earnings per share | $0.32 | $0.29 | $0.52 | $0.44 | | Weighted average basic common shares outstanding | 19.999 | 19.491 | 19.897 | 19.472 | | Weighted average diluted common shares outstanding | 20.503 | 19.783 | 20.340 | 19.725 | - Dilutive shares excluded from diluted EPS include **0.563 million** stock options for both three and six months ended June 30, 2021, and **0.844 million** for the same periods in 2020[42](index=42&type=chunk) [(6) Capital Transactions](index=14&type=section&id=(6)%20Capital%20Transactions) - A special non-recurring cash dividend of **$1.00** per common share, totaling **$19.9 million**, was paid on April 5, 2021[43](index=43&type=chunk) - The company announced a **$15.0 million** common share repurchase program on March 10, 2021, with **$13.5 million** remaining available at June 30, 2021[45](index=45&type=chunk) - Share-based compensation expense for RSUs was approximately **$0.6 million** for Q2 2021 (vs **$0.5 million** in Q2 2020) and **$1.0 million** for H1 2021 (vs **$0.8 million** in H1 2020)[58](index=58&type=chunk) [(7) Segment Information](index=17&type=section&id=(7)%20Segment%20Information) **Net Sales by Operating Segment (Amounts in millions)** | Segment | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :---------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Asia | $43.536 | $32.757 | $79.291 | $63.715 | | Europe | $21.455 | $15.465 | $43.655 | $36.092 | | North America | $37.372 | $34.471 | $75.134 | $73.228 | | Latin America and Other | $6.615 | $4.593 | $13.319 | $10.177 | | Total net sales | $108.978 | $87.286 | $211.399 | $183.212 | **Contribution Margin by Operating Segment (Amounts in millions)** | Segment | Three Months Ended June 30, 2021 (millions) | Three Months Ended June 30, 2020 (millions) | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :---------------------- | :------------------------------------------ | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Asia | $18.463 | $16.052 | $33.782 | $30.579 | | Europe | $6.588 | $5.202 | $13.384 | $12.033 | | North America | $16.259 | $11.904 | $31.699 | $26.323 | | Latin America and Other | $3.762 | $1.946 | $7.394 | $4.396 | | Total contribution margin | $45.072 | $35.104 | $86.259 | $73.331 | **Net Sales by Product Line (Amounts in millions) - Six Months Ended June 30, 2021** | Product Line | Asia (millions) | Europe (millions) | North America (millions) | Latin America and Other (millions) | Total (millions) | | :--------------- | :-------------- | :-------------- | :----------------------- | :--------------------------------- | :--------------- | | General health | $23.990 | $19.139 | $32.619 | $3.848 | $79.596 | | Immune | $0.585 | $3.834 | $8.975 | $1.508 | $14.902 | | Cardiovascular | $22.163 | $5.828 | $8.235 | $0.903 | $37.129 | | Digestive | $14.618 | $11.107 | $19.479 | $5.872 | $51.076 | | Personal care | $7.814 | $2.425 | $3.653 | $0.743 | $14.635 | | Weight management | $10.121 | $1.322 | $2.173 | $0.445 | $14.061 | | Total | $79.291 | $43.655 | $75.134 | $13.319 | $211.399 | [(8) Income Taxes](index=20&type=section&id=(8)%20Income%20Taxes) **Provision for Income Taxes as % of Income Before Income Taxes** | Period | 2021 | 2020 | U.S. Federal Statutory Rate | | :----------------------- | :--- | :--- | :------------------------ | | Three months ended June 30 | 32.2% | 24.4% | 21.0% | | Six months ended June 30 | 30.4% | 28.9% | 21.0% | - The higher effective tax rate in 2021 was primarily due to increased tax liability from transfer pricing adjustments, non-deductible executive compensation, and net unfavorable foreign tax items, partially offset by stock compensation deductions[72](index=72&type=chunk)[74](index=74&type=chunk) [(9) Commitments and Contingencies](index=20&type=section&id=(9)%20Commitments%20and%20Contingencies) - Accrued liabilities for non-income tax contingencies were **$0.2 million** at both June 30, 2021, and December 31, 2020, with potential future payments ranging from **$0** to **$2.8 million**[80](index=80&type=chunk) - Accrued liabilities for other litigation were **$0.5 million** at both June 30, 2021, and December 31, 2020, with potential future payments ranging from **$0** to **$0.3 million**[81](index=81&type=chunk) [(10) Related Party Transactions](index=21&type=section&id=(10)%20Related%20Party%20Transactions) **Outstanding Borrowings by NSP China (Amounts in millions)** | Source | June 30, 2021 (millions) | December 31, 2020 (millions) | | :-------------------- | :----------------------- | :--------------------------- | | From the Company | $3.700 | $4.800 | | From joint venture partner | $0.900 | $1.200 | - The China joint venture (**80%** owned by the company) did not borrow new amounts from the company or its partner during the three and six months ended June 30, 2021 and 2020[82](index=82&type=chunk) [(11) Fair Value Measurements](index=21&type=section&id=(11)%20Fair%20Value%20Measurements) **Assets Measured at Fair Value on a Recurring Basis (Amounts in millions)** | Asset | June 30, 2021 (Level 1) (millions) | December 31, 2020 (Level 1) (millions) | | :-------------------------- | :--------------------------------- | :------------------------------------- | | Investment securities - trading | $0.984 | $0.989 | | Total | $0.984 | $0.989 | - The company's trading portfolio consists of marketable securities valued using quoted prices in active markets (Level 1)[86](index=86&type=chunk) [(12) Revenue Recognition](index=22&type=section&id=(12)%20Revenue%20Recognition) - Revenue is recognized when promised products are transferred to the customer, typically at the shipping point[89](index=89&type=chunk) - A reserve for product returns is recorded based on historical experience, allowing independent consultants to return unused products within ninety days[90](index=90&type=chunk) - Volume incentives and other sales incentives are commission payments to independent consultants, recorded as a reduction of revenue for personal purchases and as expense for qualifying sales[92](index=92&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and results of operations, discussing key performance drivers, segment performance, and critical accounting policies. It highlights the impact of COVID-19, sales growth across segments, and changes in expenses and cash flows. [Overview](index=24&type=section&id=OVERVIEW) - The company is a natural health and wellness company, manufacturing and selling nutritional and personal care products through a sales force of independent consultants[99](index=99&type=chunk) - Sales are highly dependent on the number and productivity of independent consultants, motivated by high-quality products, training, and financial incentives[100](index=100&type=chunk) - Despite COVID-19 restrictions, the company experienced increased sales in Q2 2021 due to higher demand for nutritional supplements, though the pandemic's full impact remains uncertain[101](index=101&type=chunk) [Results of Operations](index=25&type=section&id=RESULTS%20OF%20OPERATIONS) [Consolidated Operating Results](index=25&type=section&id=Consolidated%20Operating%20Results) **Consolidated Operating Results (Amounts in millions, as a percentage of net sales)** | Metric | Q2 2021 Total (millions) | Q2 2021 % of Sales | Q2 2020 Total (millions) | Q2 2020 % of Sales | Change Total (millions) | Change % | | :------------------------ | :----------------------- | :----------------- | :----------------------- | :----------------- | :---------------------- | :------- | | Net sales | $108.978 | **100.0%** | $87.286 | **100.0%** | $21.692 | **24.9%** | | Gross profit | $80.515 | **73.9%** | $64.269 | **73.6%** | $16.246 | **25.3%** | | Operating income | $9.486 | **8.7%** | $6.600 | **7.6%** | $2.886 | **43.7%** | | Net income | $6.794 | **6.2%** | $6.133 | **7.0%** | $0.661 | **10.8%** | | Metric | H1 2021 Total (millions) | H1 2021 % of Sales | H1 2020 Total (millions) | H1 2020 % of Sales | Change Total (millions) | Change % | | :------------------------ | :----------------------- | :----------------- | :----------------------- | :----------------- | :---------------------- | :------- | | Net sales | $211.399 | **100.0%** | $183.212 | **100.0%** | $28.187 | **15.4%** | | Gross profit | $155.957 | **73.8%** | $135.514 | **74.0%** | $20.443 | **15.1%** | | Operating income | $17.121 | **8.1%** | $13.762 | **7.5%** | $3.359 | **24.4%** | | Net income | $10.946 | **5.2%** | $9.139 | **5.0%** | $1.807 | **19.8%** | - Consolidated net sales increased by **24.9%** (**20.7%** in local currencies) for Q2 2021 and **15.4%** (**12.0%** in local currencies) for H1 2021, driven by product sales growth across all operating segments[102](index=102&type=chunk)[107](index=107&type=chunk) [Net Sales by Operating Segment](index=25&type=section&id=Net%20Sales%20by%20Operating%20Segment) **Net Sales by Operating Segment (Amounts in millions, % Change)** | Segment | Q2 2021 Net Sales (millions) | Q2 2020 Net Sales (millions) | Q2 % Change | Q2 % Change (Excl. Currency) | | :---------------------- | :--------------------------- | :--------------------------- | :---------- | :--------------------------- | | Asia | $43.536 | $32.757 | **32.9%** | **26.0%** | | Europe | $21.455 | $15.465 | **38.7%** | **33.9%** | | North America | $37.372 | $34.471 | **8.4%** | **7.4%** | | Latin America and Other | $6.615 | $4.593 | **44.0%** | **39.1%** | | Total | $108.978 | $87.286 | **24.9%** | **20.7%** | | Segment | H1 2021 Net Sales (millions) | H1 2020 Net Sales (millions) | H1 % Change | H1 % Change (Excl. Currency) | | :---------------------- | :--------------------------- | :--------------------------- | :---------- | :--------------------------- | | Asia | $79.291 | $63.715 | **24.4%** | **17.8%** | | Europe | $43.655 | $36.092 | **21.0%** | **17.1%** | | North America | $75.134 | $73.228 | **2.6%** | **1.9%** | | Latin America and Other | $13.319 | $10.177 | **30.9%** | **29.2%** | | Total | $211.399 | $183.212 | **15.4%** | **12.0%** | - Asia's net sales increased by **32.9%** (**26.0%** in local currency) in Q2 2021, driven by strong growth in Japan (**37.5%** in local currency) due to product promotions and increased demand for nutritional supplements[108](index=108&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) - Europe's net sales increased by **38.7%** (**33.9%** in local currency) in Q2 2021, attributed to the stabilization of the Russian ruble, product promotions, and increased demand for nutritional supplements[113](index=113&type=chunk) [Cost of Sales](index=27&type=section&id=Cost%20of%20Sales) - Cost of sales as a percentage of net sales was **26.1%** for Q2 2021 (down from **26.4%** in Q2 2020) and **26.2%** for H1 2021 (up from **26.0%** in H1 2020)[118](index=118&type=chunk) - The decrease in Q2 percentage was due to market mix changes and prior year reserves, while the increase in H1 percentage was primarily due to increased transportation costs and market mix changes[118](index=118&type=chunk) [Volume Incentives](index=28&type=section&id=Volume%20Incentives) - Volume incentives expense as a percentage of net sales decreased to **32.5%** for Q2 2021 (from **33.4%** in Q2 2020) and **33.0%** for H1 2021 (from **33.9%** in H1 2020)[119](index=119&type=chunk) - The decrease is primarily due to changes in market mix, reflecting growth in markets with lower volume incentives as a percentage of net sales, and growth in NSP China where service fees are paid instead[119](index=119&type=chunk) [Selling, General and Administrative](index=28&type=section&id=Selling,%20General%20and%20Administrative) - SG&A expenses increased by **$7.1 million** to **$35.6 million** in Q2 2021 and by **$9.6 million** to **$69.1 million** in H1 2021 compared to the same periods in 2020[121](index=121&type=chunk) - As a percentage of net sales, SG&A remained consistent at **32.7%** for Q2 2021 and increased slightly to **32.7%** for H1 2021 (from **32.5%** in H1 2020)[121](index=121&type=chunk) - The dollar increase was primarily due to increased selling costs aimed at driving growth, including a new compensation plan, virtual events, and growth in markets with higher variable costs[103](index=103&type=chunk)[121](index=121&type=chunk) [Other Income (Loss), Net](index=28&type=section&id=Other%20Income%20(Loss),%20Net) - Other income (loss), net, was a gain of **$0.5 million** in Q2 2021 (vs **$1.5 million** gain in Q2 2020) and a loss of **$1.4 million** in H1 2021 (vs **$0.9 million** loss in H1 2020)[122](index=122&type=chunk) - These fluctuations primarily resulted from foreign exchange gains and losses in Asia, Europe, and Latin America[122](index=122&type=chunk) [Income Taxes](index=28&type=section&id=Income%20Taxes) - The provision for income taxes as a percentage of income before income taxes was **32.2%** for Q2 2021 (vs **24.4%** in Q2 2020) and **30.4%** for H1 2021 (vs **28.9%** in H1 2020)[123](index=123&type=chunk) - The increase in the effective tax rate for 2021 was mainly due to higher tax liability from transfer pricing adjustments and non-deductible executive compensation, partially offset by stock compensation deductions[124](index=124&type=chunk)[126](index=126&type=chunk) [Product Categories](index=29&type=section&id=Product%20Categories) - The company offers over **700** products across categories including general health, immune, cardiovascular, digestive, personal care, and weight management[128](index=128&type=chunk) - Most products are manufactured at the Spanish Fork, Utah facility, with some produced by contract manufacturers under strict quality control[128](index=128&type=chunk) [Distribution and Marketing](index=29&type=section&id=Distribution%20and%20Marketing) - Products are marketed primarily through a network of independent consultants using direct selling techniques[130](index=130&type=chunk) - Independent consultants are incentivized through high-quality products, training, sales conventions, travel programs, and financial incentives (volume incentives)[130](index=130&type=chunk)[133](index=133&type=chunk) - In NSP China, independent service fees are paid instead of volume incentives, and these are included in selling, general and administrative expenses[133](index=133&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) - Working capital was **$78.7 million** at June 30, 2021, down from **$84.4 million** at December 31, 2020[134](index=134&type=chunk) - Cash and cash equivalents totaled **$74.9 million** at June 30, 2021, with **$15.3 million** in the U.S. and **$59.6 million** in foreign markets[134](index=134&type=chunk) **Net Consolidated Cash Inflows (Outflows) (Amounts in millions)** | Activity | Six Months Ended June 30, 2021 (millions) | Six Months Ended June 30, 2020 (millions) | | :----------------------- | :------------------------------------------ | :------------------------------------------ | | Operating activities | $10.712 | $14.420 | | Investing activities | $(2.898) | $(2.210) | | Financing activities | $(23.630) | $5.164 | [Off-Balance Sheet Arrangements](index=30&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) - The company has no off-balance sheet arrangements[142](index=142&type=chunk) [Critical Accounting Policies and Estimates](index=30&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20ESTIMATES) - The preparation of financial statements requires significant estimates and assumptions, including those for revenue recognition, inventory valuation, incentive trip accruals, contingencies, and income taxes[143](index=143&type=chunk)[147](index=147&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Actual results could differ materially from these estimates, potentially affecting financial position and results of operations[143](index=143&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section addresses the company's exposure to market risks, primarily focusing on fluctuations in currency exchange rates, interest rates, and other uncertainties inherent in international business operations. - The company's net sales, operating income, and net income are affected by fluctuations in currency exchange rates and interest rates due to international operations[154](index=154&type=chunk) - Operations are also exposed to risks from changes in social, political, and economic conditions in international markets, including laws and policies governing international investment[154](index=154&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the effectiveness of the company's disclosure controls and procedures and confirms no material changes to internal control over financial reporting during the quarter. - Management, under the supervision of the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2021, at a reasonable assurance level[155](index=155&type=chunk) - There were no material changes in internal controls over financial reporting during the quarter ended June 30, 2021[156](index=156&type=chunk) [Part II. Other Information](index=33&type=section&id=Part%20II.%20Other%20Information) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) This section states that there are no legal proceedings to report for the period. - No legal proceedings are reported for the period[159](index=159&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the risk factors discussed in the company's Annual Report on Form 10-K and confirms no material changes since that filing. - No material changes to the company's risk factors have occurred since the filing of the Annual Report on Form 10-K for the year ended December 31, 2020[160](index=160&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's common stock repurchase activities during the fiscal quarter ended June 30, 2021, under its board-approved program. **Common Stock Repurchases (Amounts in millions)** | Period | Total Number of Shares Purchased (millions) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (millions) | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (millions) | | :-------------------------- | :------------------------------------------ | :--------------------------- | :---------------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------- | | April 1, 2021 to April 30, 2021 | — | $— | — | | | May 1, 2021 to May 31, 2021 | — | — | — | | | June 1, 2021 to June 30, 2021 | 0.077 | $19.43 | 0.077 | | | Total | 0.077 | | 0.077 | $13.500 | - The company repurchased **0.077 million** shares of common stock for **$1.5 million** during the quarter ended June 30, 2021, under a **$15.0 million** share repurchase program announced on March 10, 2021[139](index=139&type=chunk)[161](index=161&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there were no defaults upon senior securities during the reporting period. - No defaults upon senior securities are reported[163](index=163&type=chunk) [Item 4. Mine Safety Disclosures](index=33&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company. - Mine safety disclosures are not applicable to the company[164](index=164&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to report. - No other information is reported[165](index=165&type=chunk) [Item 6. Exhibits](index=34&type=section&id=Item%206.%20Exhibits) This section provides an index to the exhibits filed as part of the Form 10-Q, including various certifications and XBRL documents. - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[167](index=167&type=chunk) [Signatures](index=35&type=section&id=SIGNATURES) This section contains the official signatures of the company's President and Chief Executive Officer, and Executive Vice President, Chief Financial Officer and Treasurer, certifying the report. - The report is signed by Terrence O. Moorehead, President and Chief Executive Officer, and Joseph W. Baty, Executive Vice President, Chief Financial Officer and Treasurer, on August 5, 2021[172](index=172&type=chunk)