NU SKIN ENTERPRISES, INC. - FORM 10-Q

Attached files

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EX-3.1 - BYLAWS - NU SKIN ENTERPRISES, INC.	ex3-1.htm
EX-31.1 - CEO CERTIFICATION - NU SKIN ENTERPRISES, INC.	ex31-1.htm
EX-31.2 - CFO CERTIFICATION - NU SKIN ENTERPRISES, INC.	ex31-2.htm
EX-32.2 - CFO CERTIFICATION - NU SKIN ENTERPRISES, INC.	ex32-2.htm
EXCEL - IDEA: XBRL DOCUMENT - NU SKIN ENTERPRISES, INC.	Financial_Report.xls
EX-32.1 - CEO CERTIFICATION - NU SKIN ENTERPRISES, INC.	ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number: 001-12421

	NU SKIN ENTERPRISES, INC.
	(Exact name of registrant as specified in its charter)
Delaware		87-0565309
(State or other jurisdiction of incorporation or organization)	75 WEST CENTER STREET PROVO UT 84601	(IRS Employer Identification No.)
	(Address of principal executive offices, including zip code)
	(801) 345-1000
	(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or 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 þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ¨

Non-accelerated filer ¨ Smaller reporting company ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of July 31, 2011, 62,404,575 shares of the registrant’s Class A common stock, $.001 par value per share, were outstanding.

NU SKIN ENTERPRISES, INC.

2011 FORM 10-Q QUARTERLY REPORT – SECOND QUARTER

TABLE OF CONTENTS

			Page
Part I.	Financial Information
	Item 1.	Financial Statements (Unaudited):
		Consolidated Balance Sheets	1
		Consolidated Statements of Income	2
		Consolidated Statements of Cash Flows	3
		Notes to Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	23
	Item 4.	Controls and Procedures	23


Part II.	Other Information
	Item 1.	Legal Proceedings	24
	Item 1A.	Risk Factors	24
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	24
	Item 3.	Defaults Upon Senior Securities	25
	Item 4.	(Removed and Reserved)	25
	Item 5.	Other Information	25
	Item 6.	Exhibits	25

	Signature		26

Nu Skin, Pharmanex and ageLOC are trademarks of Nu Skin Enterprises, Inc. or its subsidiaries. The italicized product names used in this Quarterly Report on Form 10-Q are product names, and also, in certain cases, our trademarks.

-i-

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NU SKIN ENTERPRISES, INC.

Consolidated Balance Sheets (Unaudited)

(U.S. dollars in thousands)

	June 30,			December 31,
	2011			2010
ASSETS
Current assets:
Cash and cash equivalents	$	233,403		$	230,337
Accounts receivable		32,885			25,701
Inventories, net		108,431			114,475
Prepaid expenses and other		58,831			52,013
		433,550			422,526

Property and equipment, net		138,981			133,722
Goodwill		112,446			112,446
Other intangible assets, net		75,317			78,270
Other assets		127,909			145,260
Total assets	$	888,203		$	892,224

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	28,620		$	25,480
Accrued expenses		125,500			146,108
Current portion of long-term debt		27,972			27,865
Related party payable	─				16,995
		182,092			216,448

Long-term debt		118,287			133,013
Other liabilities		79,565			71,514
Total liabilities		379,944			420,975

Commitments and contingencies (Note 10)

Stockholders’ equity:
Class A common stock – 500 million shares authorized, $.001 par value, 90.6 million shares issued		91			91
Additional paid-in capital		271,957			256,505
Treasury stock, at cost – 28.5 million shares		(500,063	)		(476,748	)
Retained earnings		790,236			749,940
Accumulated other comprehensive loss		(53,962	)		(58,539	)
		508,259			471,249
Total liabilities and stockholders’ equity	$	888,203		$	892,224

The accompanying notes are an integral part of these consolidated financial statements.

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NU SKIN ENTERPRISES, INC.

Consolidated Statements of Income (Unaudited)

(U.S. dollars in thousands, except per share amounts)

Three Months Ended

Six Months Ended

June 30,

2011

2010

2011

2010

Revenue

424,426

388,362

820,271

752,486

Cost of sales

71,168

67,937

171,822

(1)

132,770

Gross profit

353,258

320,425

648,449

619,716

Operating expenses:

Selling expenses

183,500

160,739

352,642

315,001

General and administrative expenses

103,712

100,525

204,854

199,437

Total operating expenses

287,212

261,264

557,496

514,438

Operating income

66,046

59,161

90,953

105,278

Other income (expense), net

(127

)

(7profit excluding Japan customs expenses for the six months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended June 30,
	2011		2010

Revenue	$	820,271	$	752,486
Gross profit	$	648,449	$	619,716
Japan customs expense		32,754	─
Gross profit, excluding Japan customs expense	$	681,203	$	619,716

Gross profit, excluding Japan customs expense, as a % of revenue		83.0%

Gross profit as a % of revenue		79.1%		82.4%

The following is a reconciliation of net income and diluted earnings per share, as reported, to net income and diluted earnings per share excluding Japan customs expenses for the six months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended June 30,
	2011			2010

Net income	$	57,009		$	63,432
Japan customs expense		32,754		─
Tax effect of Japan customs expense		(12,099	)	─
Net income, excluding Japan customs expense	$	77,664		$	63,432

Diluted earnings per share, excluding Japan customs expense	$	1.21

Diluted earnings per share	$	0.89		$	0.98

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by Item 3 of Part I of Form 10-Q is incorporated herein by reference from the section entitled “Currency Risk and Exchange Rate Information” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation” of Part I and also in Note 4 to the Financial Statements contained in Item 1 of Part I of this Quarterly Report on Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

As of the end of the period covered by this report, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, our disclosure controls and procedures were effective as of June 30, 2011.

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Changes in internal controls over financial reporting.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the most recent fiscal quarter covered by this report, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please refer to our recent SEC filings, including our Annual Report on Form 10-K for the 2010 fiscal year and subsequent Quarterly Report on Form 10-Q, for information regarding the status of certain legal proceedings that have been previously disclosed.

On May 13, 2011, we received notice that, as we had anticipated, the Ministry of Finance in Japan denied our administrative appeal of additional customs assessments made by Yokohama Customs for the period of October 2006 through September 2009 in connection with post-importation audits, as well as the disputed portion of the Company’s import duties from October 2009 to the present. We disagree with the Ministry of Finance’s administrative decision. We are preparing to pursue the matter through the court system in Japan, which we believe will provide a more independent determination of the matter.

ITEM 1A. RISK FACTORS

The information presented below supplements and should be read in conjunction with the detailed discussion of risks associated with our business in our recent SEC filings, including our Annual Report on Form 10-K for the 2010 fiscal year and subsequent Quarterly Report on Form 10-Q.

New regulations governing the marketing and sale of nutritional supplements could harm our business.

There has been an increasing movement in the United States and other markets to increase the regulation of dietary supplements, which could impose additional restrictions or requirements in the future. In the United States, for example, some legislators and industry critics continue to push for increased regulatory authority by the FDA over nutritional supplements. Our business could be harmed if more restrictive legislation is successfully introduced and adopted in the future. For example, the FDA has recently proposed draft guidance for the industry to clarify the FDA's interpretation of the new dietary ingredient notification requirements. This draft guidance is not final but appears to indicate that the FDA is expanding its definition of what is considered a “new dietary ingredient” in the United States. The industry is providing comments and working with the FDA to modify this guidance, however, if enacted in final form as proposed this guidance could impose new and significant regulatory barriers for our nutritional supplement products, many of which could delay or inhibit our ability to formulate, introduce and sell nutritional supplements as we have in the past. We face similar pressures in our other markets, including Europe, which is expected to adopt additional regulations setting new limits on acceptable maximum levels of vitamins and minerals. In the United States, effective December 1, 2009, the FTC approved revisions to its Guides Concerning the Use of Endorsements and Testimonials in Advertising, or Guides, that require disclosure of material connections between an endorser and the company they are endorsing and do not allow marketing using atypical results. The requirements and restrictions of the revised Guides may diminish the impact of our marketing efforts and negatively impact our sales results. If we or our distributors fail to comply with these Guides, the FTC could bring an enforcement action against us and we could be fined and/or forced to alter our operations. Our operations also could be harmed if new laws or regulations are enacted that restrict our ability to market or distribute nutritional supplements or impose additional burdens or requirements on nutritional supplement companies or require us to reformulate our products.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

	(a)	(b)	(c)	(d)
Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions)(1)

April 1 – 30, 2011	217,600	$ 29.44	217,600	$ 145.9
May 1 – 31, 2011	40,000	$ 33.46	40,000	$ 141.0
June 1 – 30, 2011	112,314	$ 36.62	112,100	$ 119.3
Total	369,914(2)

(1)

In August 1998, our board of directors approved a plan to repurchase $10.0 million of our Class A common stock on the open market or in private transactions. Our board has from time to time increased the amount authorized under the plan and a total amount of approximately $485.0 million is currently authorized. As of June 30, 2011, we had repurchased approximately $365.7 million of shares under the plan. There has been no termination or expiration of the plan since the initial date of approval.

(2)

We have authorized the repurchase of shares acquired by our employees and distributors in certain foreign markets because of regulatory and other issues that make it difficult or costly for these persons to sell such shares in the open market. These shares were awarded or acquired in connection with our initial public offering in 1996. Of the shares listed in this column, 214 relate to repurchases from such employees and distributors at an average price per share of $37.84.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

(a)

As previously reported in a Form 8-K filed May 31, 2011, at our Annual Meeting of Stockholders on May 24, 2011, a plurality of our stockholders voted in favor of one year as the frequency of stockholder advisory votes on our executive compensation. Accordingly, until the next stockholder advisory vote on the frequency of stockholder advisory votes on our executive compensation, we intend to hold a stockholder advisory vote on our executive compensation annually.

(b)

As previously reported in a Form 8-K filed July 22, 2011, on July 18, 2011 our Board of Directors adopted an amendment and restatement of our bylaws (the “Second Amended and Restated Bylaws”), which, among other amendments, modified provisions regarding advance notice requirements for stockholders to make director nominations, including shortening the advance notice period from 120 days to 90 days for nominations not included in our proxy statement and identifying specific information that must be provided by the nominating stockholder. The Second Amended and Restated Bylaws are filed as Exhibit 3.1 to this quarterly report on Form 10-Q and are incorporated by reference.

ITEM 6.

EXHIBITS

Exhibits

Regulation S-K

Number Description

3.1	Second Amended and Restated Bylaws of Nu Skin Enterprises, Inc.

31.1	Certification by M. Truman Hunt, President and Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.

31.2	Certification by Ritch N. Wood, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification by M. Truman Hunt, President and Chief Executive Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification by Ritch N. Wood, Chief Financial Officer, pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

August 4, 2011

NU SKIN ENTERPRISES, INC.



	By:	/s/ Ritch N. Wood
		Ritch N. Wood
	Its:	Chief Financial Officer
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

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