UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

_________________________________________________________________

FORM 10-Q 

(Mark One)

☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended March 31, 2020

OR

☐        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the transition period from            to            .

Commission File Number: 001-34483

NATURE’S SUNSHINE PRODUCTS, INC.

(Exact name of Registrant as specified in its charter) 

Utah	87-0327982
(State or other jurisdiction of	(IRS Employer
incorporation or organization)	Identification No.)

2901 Bluegrass Boulevard, Suite 100

Lehi, Utah 84043

(Address of principal executive offices and zip code)

(801) 341-7900

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	NATR	NASDAQ Capital Markets

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  ý  No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ý  No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	ý
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

The number of shares of Common Stock, no par value, outstanding on April 24, 2020 was 19,472,562 shares.

NATURE’S SUNSHINE PRODUCTS, INC.

FORM 10-Q

For the Quarter Ended March 31, 2020

Table of Contents

Part I. Financial Information			4
	Item 1.	Financial Statements (Unaudited)	4
		Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Income	5
		Condensed Consolidated Statements of Comprehensive Income	6
		Condensed Consolidated Statement of Changes in Shareholders’ Equity	6
		Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28
	Item 4.	Controls and Procedures	28
Part II. Other Information			29
	Item 1.	Legal Proceedings	29
	Item 1A.	Risk Factors	29
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
	Item 3.	Defaults Upon Senior Securities	31
	Item 4.	Mine Safety Disclosures	31
	Item 5.	Other Information	31
	Item 6.	Exhibits	32

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information included or incorporated herein by reference in this report may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies. All statements (other than statements of historical fact) that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These statements are often characterized by terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions, and are based on assumptions and assessments made in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. For example, information appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are more fully described in this report, including the risks set forth under “Risk Factors” in Item 1A, and in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, but include the following:

•laws and regulations regarding direct selling may prohibit or restrict our ability to sell our products in some markets or require us to make changes to our business model in some markets;

•extensive government regulations to which the Company's products, business practices and manufacturing activities are subject;

•legal challenges to the Company's direct selling program or to the classification of its independent distributors;

•impact of anti-bribery laws, including the U.S. Foreign Corrupt Practices Act;

•the Company’s ability to attract and retain independent distributors;

•the loss of one or more key independent distributors who have a significant sales network;

•the Company’s joint venture for operations in China with Fosun Industrial Co., Ltd.;

•registration of products for sale in foreign markets, or difficulty or increased cost of importing products into foreign markets;

•cybersecurity threats and exposure to data loss;

•the storage, processing, and use of data, some of which contain personal information, are subject to complex and evolving privacy and data protection laws and regulations;

•reliance on information technology infrastructure;

•the effect of fluctuating foreign exchange rates;

•liabilities and obligations arising from improper activity by the Company’s independent distributors;

•failure of the Company’s independent distributors to comply with advertising laws;

•changes to the Company’s independent distributor compensation plans;

•geopolitical issues and conflicts;

•we may be adversely affected by the coronavirus outbreak;

•negative consequences resulting from difficult economic conditions, including the availability of liquidity or the willingness of the Company’s customers to purchase products;

•risks associated with the manufacturing of the Company's products;

•uncertainties relating to the application of transfer pricing, duties, value-added taxes, and other tax regulations, and changes thereto;

•changes in tax laws, treaties or regulations, or their interpretation;

•actions on trade relations by the U.S. and foreign governments;

•product liability claims;

•the sufficiency of trademarks and other intellectual property rights; and

•our cannabidiol (CBD) product line is subject to varying, rapidly changing laws, regulations, and rules.

All forward-looking statements speak only as of the date of this report and are expressly qualified in their entirety by the cautionary statements included in or incorporated by reference into this report. Except as is required by law, we expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the date of this report. Throughout this report, we refer to Nature’s Sunshine Products, Inc., together with our subsidiaries, as "we," "us," "our," "our Company" or “the Company.”

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PART I FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

	March 31, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	64,145	$	53,629
Accounts receivable, net of allowance for doubtful accounts of $423 and $407, respectively	5,874		7,319
Inventories	45,354		46,666
Prepaid expenses and other	4,860		5,091
Total current assets	120,233		112,705
Property, plant and equipment, net	58,088		59,512
Operating lease right-of-use assets	21,371		23,951
Investment securities - trading	991		1,150
Intangible assets, net	535		567
Deferred income tax assets	4,389		4,899
Other assets	9,835		10,284
Total assets	$	215,442	$	213,068
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	4,897	$	4,406
Accrued volume incentives and service fees	22,856		18,893
Accrued liabilities	22,993		25,531
Deferred revenue	1,660		1,266
Related party note payable	1,526		1,518
Income taxes payable	1,210		1,392
Current portion of operating lease liabilities	4,505		4,941
Total current liabilities	59,647		57,947
Liability related to unrecognized tax benefits	1,426		1,499
Long-term portion of operating lease liabilities	18,138		20,213
Deferred compensation payable	991		1,150
Long-term deferred income tax liabilities	1,471		1,655
Other liabilities	1,201		1,168
Total liabilities	82,874		83,632
Shareholders’ equity:
Common stock, no par value, 50,000 shares authorized, 19,470 and 19,410 shares issued and outstanding, respectively	135,976		135,741
Retained earnings	7,655		4,693
Noncontrolling interest	271		227
Accumulated other comprehensive loss	(11,334)		(11,225)
Total shareholders’ equity	132,568		129,436
Total liabilities and shareholders’ equity	$	215,442	$	213,068

See accompanying notes to condensed consolidated financial statements.

4

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share information)

(Unaudited) 

	Three Months Ended March 31,
	2020		2019
Net sales	$	95,926	$	91,272
Cost of sales	24,681		23,429
Gross profit	71,245		67,843
Operating expenses:
Volume incentives	33,018		31,013
Selling, general and administrative	31,065		33,852
Operating income	7,162		2,978
Other loss, net	(2,410)		(48)
Income before provision for income taxes	4,752		2,930
Provision for income taxes	1,746		1,201
Net income	3,006		1,729
Net income (loss) attributable to noncontrolling interests	44		(28)
Net income attributable to common shareholders	$	2,962	$	1,757
Basic and diluted net income per common share:
Basic earnings per share attributable to common shareholders	$	0.15	$	0.09
Diluted earnings per share attributable to common shareholders	$	0.15	$	0.09
Weighted average basic common shares outstanding	19,453		19,268
Weighted average diluted common shares outstanding	19,589		19,585

See accompanying notes to condensed consolidated financial statements.

5

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited) 

	Three Months Ended March 31,
	2020		2019
Net income	$	3,006	$	1,729
Foreign currency translation loss, net of tax	(109)		(316)
Total comprehensive income	$	2,897	$	1,413

See accompanying notes to condensed consolidated financial statements.

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited) 

	Common Stock			Retained Earnings (Accumulated Deficit)		Noncontrolling Interest		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance at December 31, 2019	19,410	$	135,741	$	4,693	$	227	$	(11,225)	$	129,436
Share-based compensation expense	—	394		—		—		—		394
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	60	(159)		—		—		—		(159)
Net income	—	—		2,962		44		—		3,006
Other comprehensive loss	—	—		—		—		(109)		(109)
Balance at March 31, 2020	19,470	$	135,976	$	7,655	$	271	$	(11,334)	$	132,568

	Common Stock			Retained Earnings (Accumulated Deficit)		Noncontrolling Interest		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance at December 31, 2018	19,204	$	133,684	$	(2,072)	$	63	$	(11,107)	$	120,568
Share-based compensation expense	—	230		—		—		—		230
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	69	(189)		—		—		—		(189)
Net income (loss)	—	—		1,757		(28)		—		1,729
Other comprehensive loss	—	—		—		—		(316)		(316)
Balance at March 31, 2019	19,273	$	133,725	$	(315)	$	35	$	(11,423)	$	122,022

See accompanying notes to condensed consolidated financial statements.

6

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited) 

	Three Months Ended March 31,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	3,006	$	1,729
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts	17		31
Depreciation and amortization	2,602		2,496
Non-cash lease expense	1,270		1,394
Share-based compensation expense	394		230
Tax benefit from the exercise of stock awards	159		—
Loss on sale of property, plant and equipment	6		45
Deferred income taxes	249		258
Purchase of trading investment securities	(11)		(40)
Proceeds from sale of trading investment securities	73		76
Realized and unrealized gains on investments	96		(133)
Foreign exchange losses	2,400		64
Changes in assets and liabilities:
Accounts receivable	1,318		(546)
Inventories	234		(1,038)
Prepaid expenses and other current assets	165		357
Other assets	31		117
Accounts payable	704		(281)
Accrued volume incentives and service fees	4,356		164
Accrued liabilities	(2,206)		(5,683)
Deferred revenue	406		35
Lease liabilities	(1,187)		(1,086)
Income taxes payable	(335)		(2,112)
Liability related to unrecognized tax benefits	(73)		(69)
Deferred compensation payable	(158)		97
Net cash provided by (used in) operating activities	13,516		(3,895)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(1,209)		(387)
Net cash used in investing activities	(1,209)		(387)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of revolving credit facility	—		(1,517)
Proceeds from revolving credit facility	—		1,517
Tax benefit from stock awards	(159)		(189)
Net cash used in financing activities	(159)		(189)
Effect of exchange rates on cash and cash equivalents	(1,632)		(49)
Net increase (decrease) in cash and cash equivalents	10,516		(4,520)
Cash and cash equivalents at the beginning of the period	53,629		50,638
Cash and cash equivalents at the end of the period	$	64,145	$	46,118
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds	$	1,224	$	3,346
Cash paid for interest	3		24

See accompanying notes to condensed consolidated financial statements.

7

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Basis of Presentation

We are a natural health and wellness company primarily engaged in the manufacturing and direct selling of nutritional and personal care products. We are a Utah corporation with our principal place of business in Lehi, Utah, and sell our products to a sales force of independent distributors who uses the products themselves or resells them to consumers.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation of our financial information as of March 31, 2020, and for the three-month periods ended March 31, 2020 and 2019. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2020.

It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Use of Estimates

The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities, in these financial statements and accompanying notes. Actual results could differ from these estimates due to the uncertainty around the magnitude and duration of the COVID-19 pandemic, as well as other factors and those differences could have a material effect on our financial position and results of operations.

The significant accounting estimates inherent in the preparation of our financial statements include estimates associated with our determination of liabilities related to Manager and Distributor incentives, the determination of income tax assets and liabilities, certain other non-income tax and value-added tax contingencies, and legal contingencies. In addition, significant estimates form the basis for allowances with respect to inventory valuations. Various assumptions and other factors enter into the determination of these significant estimates. The process of determining significant estimates takes into account historical experience and current and expected economic conditions.

Noncontrolling Interests

Noncontrolling interests changed as a result of the net income attributable to noncontrolling interests of $44,000 and net losses attributable to the noncontrolling interests of $28,000 for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020 and December 31, 2019, noncontrolling interests were $0.3 million and $0.2 million, respectively.

Restructuring Related Accruals and Expenses

We recorded $0.1 million and $1.6 million of restructuring related expenses during the three months ended March 31, 2020 and 2019, respectively. Accrued severance and restructuring related costs were $0.1 million and $0.4 million as of March 31, 2020 and December 31, 2019, respectively.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements in Topic 820 based on the consideration of costs and benefits to promote the appropriate exercise and

8

discretion by entities when considering fair value measurement disclosures and to clarify that materiality is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The amendments in this update are effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of this ASU did not have a significant impact on our Consolidated Financial Statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. The amendments in this update are effective for reporting periods beginning after December 15, 2020, with early adoption permitted. The adoption of this ASU is not expected to have a significant impact on our Consolidated Financial Statements.

(2) Inventories

The composition of inventories is as follows (dollar amounts in thousands):

	March 31, 2020		December 31, 2019
Raw materials	$	13,245	$	13,329
Work in progress	1,269		1,426
Finished goods	30,840		31,911
Total inventories	$	45,354	$	46,666

(3) Investment Securities - Trading

Our trading securities portfolio totaled $1.0 million at March 31, 2020, and $1.2 million at December 31, 2019, and generated losses of $0.1 million and gains of $0.1 million for the three months ended March 31, 2020 and 2019, respectively.

(4) Revolving Credit Facility and Other Obligations

On July 11, 2017, we entered into a revolving credit agreement with Bank of America, N.A., with a borrowing limit of $25.0 million, that matures on July 11, 2020 (the “Credit Agreement”). We pay interest on any borrowings under the Credit Agreement at LIBOR plus 1.25 percent (2.24 percent and 3.05 percent as of March 31, 2020 and December 31, 2019), and an annual commitment fee of 0.2 percent on the unused portion of the commitment. We are required to settle our net borrowings under the Credit Agreement only upon maturity. At March 31, 2020, there was no outstanding balance under the Credit Agreement.

The Credit Agreement contains customary financial covenants, including financial covenants relating to our solvency, leverage, and minimum EBITDA. In addition, the Credit Agreement restricts certain capital expenditures, lease expenditures, other indebtedness, liens on assets, guarantees, loans and advances, dividends, mergers, consolidations and transfers of assets except as permitted in the Credit Agreement. The Credit Agreement is collateralized by our manufacturing facility, accounts receivable balance, inventory balance and other assets. As of March 31, 2020, we were in compliance with the debt covenants set forth in the Credit Agreement.

On April 21, 2020, we entered into a credit agreement with Banc of America Leasing and Capital, LLC, with a borrowing limit of $6.0 million, that matures sixty months from the Base Date, which must not be later than April 30, 2021 (the "Capital Credit Agreement"). We pay interest on any borrowings under the Capital Credit Agreement at the Indicative Index plus 2.75 percent (3.50 percent as of April 21, 2020). We are required to settle our borrowings under the Capital Credit Agreement in sixty monthly payments, each equal to 1.82 percent of the loan amount. The Capital Credit Agreement is collateralized by any new equipment purchased under the agreement. After inception, there was no outstanding balance under the Capital Credit Agreement.

On April 14, 2020, we obtained a loan (the “Loan”) from Bank of America, B.A. in the amount of $5.4 million under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The PPP is a loan designed to provide an incentive for qualifying businesses to maintain their employees on the payroll despite significant economic uncertainty. We applied to receive the Loan based on the significant economic uncertainty facing the Company in the U.S. and globally.

9

The Loan matures on April 14, 2022 and bears interest at a rate of 1.00 percent per annum, payable monthly commencing on November 15, 2020. We may prepay the Note at any time prior to maturity with no prepayment penalties. The principal amount of the Loan and accrued interest are eligible for forgiveness after eight weeks if we use the Loan proceeds for qualifying expenses, including payroll, rent, and utilities during the eight week period commencing on the date the Loan has been advanced. The amount of the Loan eligible for forgiveness will be reduced to the extent that we have (i) terminated full-time employees during the period commencing February 15, 2020 and ending April 26, 2020 and (ii) reduced salaries (beyond a statutorily prescribed threshold) during the eight week period commencing on the date the Loan has been advanced. We will be obligated to repay any portion of the principal amount of the Note that is not forgiven, together with accrued interest thereon at the rate set forth above until such unforgiven portion is paid in full.

(5) Net Income Per Share

Basic net income per common share (“Basic EPS”), is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue common stock were exercised or converted into common stock. The 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 the three months ended March 31, 2020 and 2019 (dollar and share amounts in thousands, except for per share information): 

	Three Months Ended March 31,
	2020		2019
Net income attributable to common shareholders	$	2,962	$	1,757
Basic weighted average shares outstanding	19,453		19,268
Basic earnings per share attributable to common shareholders	$	0.15	$	0.09
Diluted shares outstanding:
Basic weighted-average shares outstanding	19,453		19,268
Stock-based awards	136		317
Diluted weighted-average shares outstanding	19,589		19,585
Diluted earnings per share attributable to common shareholders	$	0.15	$	0.09
Dilutive shares excluded from diluted-per-share amounts:
Stock options	850		511
Anti-dilutive shares excluded from diluted-per-share amounts:
Stock options	214		1,032

Potentially dilutive shares excluded from diluted-per-share amounts include performance-based restricted stock units ("RSU"), for which certain earnings metrics have not been achieved. Potentially anti-dilutive shares excluded from diluted-per-share amounts include both non-qualified stock options and unearned performance-based options to purchase shares of common stock with exercise prices greater than the weighted-average share price during the period and shares that would be anti-dilutive to the computation of diluted net income per share for each of the periods presented.

(6) Capital Transactions

Share-Based Compensation

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During the year ended December 31, 2012, our shareholders adopted and approved the Nature’s Sunshine Products, Inc. 2012 Stock Incentive Plan (the “2012 Incentive Plan”). The 2012 Incentive Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance awards, stock awards and other stock-based awards. The Compensation Committee of the Board of Directors has authority and discretion to determine the type of award, as well as the amount, terms and conditions of each award under the 2012 Incentive Plan, subject to the limitations of the 2012 Incentive Plan. A total of 1,500,000 shares of our common stock were originally authorized for the granting of awards under the 2012 Incentive Plan. In 2015, our shareholders approved an amendment to the 2012 Incentive Plan, to increase the number of shares of Common Stock reserved for issuance by 1,500,000 shares. The number of shares available for awards, as well as the terms of outstanding awards, are subject to adjustment as provided in the 2012 Incentive Plan for stock splits, stock dividends, recapitalizations and other similar events.

We also maintain a stock incentive plan, which was approved by shareholders in 2009 (the “2009 Incentive Plan”). The 2009 Incentive Plan also provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance awards, stock awards and other stock-based awards. Under the 2012 Incentive Plan, any shares subject to award, or awards forfeited or reacquired by the Company issued under the 2009 Incentive Plan are available for award up to a maximum of 400,000 shares.

Stock Options

Our outstanding stock options include time-based stock options, which vest over differing periods of time ranging from the date of issuance to up to 48 months from the option grant date, and performance-based stock options, which have already vested upon achieving operating income margins of six, eight and ten percent as reported in four of five consecutive quarters over the term of the options.

Stock option activity for the three-month period ended March 31, 2020, is as follows (amounts in thousands, except per share information):

	Number of Shares	Weighted Average Exercise Price Per Share
Options outstanding at December 31, 2019	290	$	11.49
Granted	—	—
Forfeited or canceled	—	—
Exercised	—	—
Options outstanding at March 31, 2020	290	11.49

During the three months ended March 31, 2020, we did not grant any stock options to purchase shares of common stock under the 2012 Stock Incentive Plan to our board members, executive officers or other employees..

Share-based compensation expense from time-based stock options for the three-month periods ended March 31, 2020 and 2019, was approximately $0. As of March 31, 2020 and December 31, 2019, there was no unrecognized share-based compensation expense related to the grants described above.

At March 31, 2020, the aggregate intrinsic value of outstanding and exercisable stock options to purchase 290,000 shares of common stock was $0.1 million. At December 31, 2019, the aggregate intrinsic value of outstanding and exercisable options to purchase 290,000 shares of common stock was $0.1 million.

As of March 31, 2020 and December 31, 2019, we did not have any unvested performance-based stock options outstanding.

Restricted Stock Units

Our outstanding restricted stock units (“RSUs”), include time-based RSUs, which vest over differing periods of time ranging from 12 months to up to 36 months from the RSU grant date, as well as performance-based RSUs, which vest upon achieving targets relating to growth, earnings-per-share, and/or stock price levels. RSUs granted to members of the Board of Directors contain a restriction period in which the shares are not issued until two years after vesting. At March 31, 2020 and December 31, 2019, there were 91,000 and 95,000 vested RSUs, respectively, granted to members of the Board of Directors that had a restriction period.

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 Restricted stock unit activity for the three-month period ended March 31, 2020, is as follows (amounts in thousands, except per share information):

	Number of Shares	Weighted Average Grant Date Fair Value
Restricted Stock Units outstanding at December 31, 2019	821	$	7.43
Granted	630	5.66
Forfeited	(2)	8.68
Issued	(82)	10.18
Restricted Stock Units outstanding at March 31, 2020	1,367	6.45

During the three-month period ended March 31, 2020, we granted 630,000 RSUs under the 2012 Incentive Plan to the Board of Directors, executive officers and other employees, which were comprised of both time-based RSUs and share-priced performance-based RSUs. The time-based RSUs were issued with a weighted-average grant date fair value of $7.83 per share and vest in 12 monthly installments over a one year period from the grant date or in annual installments over a three-year period from the grant date. The share-priced performance-based RSUs were granted with a weighted-average grant date fair value of $4.51 per share and vest upon achieving share-priced targets over a three-year period from the grant date.

Except for share-priced performance RSUs, RSUs are valued at market value on the date of grant, which is the grant date share price discounted for expected dividend payments during the vesting period. For RSUs with post-vesting restrictions, a Finnerty Model was utilized to calculate a valuation discount from the market value of common shares reflecting the restriction embedded in the RSUs preventing the sale of the underlying shares over a certain period of time. Using assumptions previously determined for the application of the option pricing model at the valuation date, the Finnerty Model discount for lack of marketability is approximately 13.4 percent for a common share.

Share-price performance-based RSUs were estimated using the Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved. Our assumptions include a performance period of three years, expected volatility of 50 percent, and a range of risk-free rates between 2.1 percent and 2.9 percent.

Share-based compensation expense for RSUs for the three-month periods ended March 31, 2020 and 2019, was approximately $0.3 million and $0.1 million, respectively. As of March 31, 2020 and December 31, 2019, the unrecognized share-based compensation expense related to the grants described above, excluding incentive awards discussed below, was $2.5 million and $1.1 million, respectively. The remaining compensation expense is expected to be recognized over the weighted average period of approximately 1.1 years.

Share-based compensation expense related to performance-based RSUs for the three-month periods ended March 31, 2020 and 2019, was $0.1 million and $0.1 million, respectively. Should we attain all of the metrics related to performance-based RSU grants, we would recognize up to $3.7 million of potential share-based compensation expense. We currently expect to recognize an additional $1.5 million of that potential share-based compensation expense.

The number of shares issued upon vesting of RSUs granted pursuant to our share-based compensation plans is net of the minimum statutory withholding requirements that we pay on behalf of our employees, which was 22,000 and 11,000 shares for the three-month periods ended March 31, 2020 and 2019, respectively. Although shares withheld are not issued, they are treated as common share repurchases for accounting purposes, as they reduce the number of shares that would have been issued upon vesting. These shares do not count against the authorized capacity under the repurchase program described above. 

(7) Segment Information

We have four business segments (Asia, Europe, North America, and Latin America and Other) based primarily upon the geographic region where each segment operates, as well as the internal organization of our officers and their responsibilities. Each of the geographic segments operate under the Nature’s Sunshine Products and Synergy® WorldWide brands. The Latin America and Other segment includes our wholesale business in which we sell products to various locally-managed entities independent of the Company that we have granted distribution rights for the relevant market.

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Historically, our operating segments were based on brand, customer base, geographical operations with three operating business segments under the Nature’s Sunshine Products brand (NSP Americas; NSP Russia, Central and Eastern Europe; and NSP China), and one operating business segment under the Synergy® WorldWide brand.

During the second quarter of 2019, we realigned into geographic focused operating business segments across brands to further align regional strategies and drive synergies in product, organizational and go-to-market strategies in local markets. Our internal reporting structure was reorganized to support the new reporting segments and the chief operating decision maker now reviews the operating results of the four segments utilizing a geographic focused format. The presentation of the comparative information has been recast to conform to the 2020 presentation.

Net sales for each segment have been reduced by intercompany sales as they are not included in the measure of segment profit or loss reviewed by the chief executive officer. We evaluate performance based on contribution margin by segment before consideration of certain inter-segment transfers and expenses.

Reportable business segment information is as follows (dollar amounts in thousands):

	Three Months Ended March 31,
	2020		2019
Net sales:
Asia	$	30,958	$	33,596
Europe	20,627		15,597
North America	38,757		36,523
Latin America and Other	5,584		5,556
Total net sales	95,926		91,272
Contribution margin (1):
Asia	14,527		15,725
Europe	6,831		4,941
North America	14,419		13,793
Latin America and Other	2,450		2,371
Total contribution margin	38,227		36,830
Selling, general and administrative expenses (2)	31,065		33,852
Operating income	7,162		2,978
Other loss, net	(2,410)		(48)
Income before provision for income taxes	$	4,752	$	2,930

_________________________________________

(1)   Contribution margin consists of net sales less cost of sales and volume incentives expense.

(2)  Service fees in China totaled $1.9 million and $2.2 million for the three-month periods ended March 31, 2020 and 2019, respectively. These service fees are included in selling, general and administrative expenses.

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From an individual country perspective, the United States and South Korea comprise 10 percent or more of consolidated net sales for the three-month periods ended March 31, 2020 and 2019, as follows (dollar amounts in thousands):

	Three Months Ended March 31,
	2020		2019
Net sales:
United States	$	35,839	$	33,961
South Korea	16,389		18,528
Other	43,698		38,783
	$	95,926	$	91,272

Net sales generated by each of our product lines is set forth below (dollar amounts in thousands):

	Three Months Ended March 31,
	2020		2019
Asia
General health	$	9,046	$	8,084
Immune	201		158
Cardiovascular	9,339		11,833
Digestive	6,156		4,775
Personal care	3,005		4,267
Weight management	3,211		4,479
	30,958		33,596
Europe
General health	$	7,961	$	5,748
Immune	2,444		1,273
Cardiovascular	2,897		2,851
Digestive	4,931		3,631
Personal care	1,751		1,499
Weight management	643		595
	20,627		15,597
North America
General health	$	15,464	$	15,748
Immune	7,798		4,218
Cardiovascular	4,167		5,076
Digestive	8,241		8,721
Personal care	1,929		1,348
Weight management	1,158		1,412
	38,757		36,523
Latin America and Other
General health	$	1,614	$	1,612
Immune	809		608
Cardiovascular	378		339
Digestive	2,362		2,536
Personal care	252		257
Weight management	169		204
	5,584		5,556
	$	95,926	$	91,272

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From an individual country perspective, only the United States comprised 10 percent or more of consolidated property, plant and equipment as follows (dollar amounts in thousands):

	March 31, 2020		December 31, 2019
Property, plant and equipment:
United States	$	53,450	$	54,470
Other	4,638		5,042
Total property, plant and equipment, net	$	58,088	$	59,512

Total assets per segment is set forth below (dollar amounts in thousands):

	March 31, 2020		December 31, 2019
Assets:
Asia	$	65,199	$	65,959
Europe	15,171		15,187
North America	127,178		124,337
Latin America and Other	7,894		7,585
Total assets	$	215,442	$	213,068

(8) Income Taxes

For the three months ended March 31, 2020 and 2019, our provision for income taxes, as a percentage of income before income taxes was 36.7 percent and 41.0 percent, respectively, compared with a U.S. federal statutory rate of 21.0 percent.

The difference between the effective tax rate and the U.S. federal statutory tax rate for the three months ended March 31, 2020 and 2019, was primarily attributed to current year foreign losses that presently do not provide future tax benefit, as well as net unfavorable foreign tax related items.

As the U.S. Department of the Treasury is working on finalizing Treasury Regulations with respect to the Tax Cuts and Jobs Act (Tax Reform Act), future changes could likewise affect recorded deferred tax assets and liabilities in later periods. Management is not aware of any such additional changes that would have a material effect on our results of operations, cash flows or financial position.

Our U.S. federal income tax returns for 2016 through 2018 are open to examination for federal tax purposes. We have several foreign tax jurisdictions that have open tax years from 2014 through 2019.

As of March 31, 2020 and December 31, 2019, we had accrued $1.4 million and $1.5 million, respectively, related to unrecognized tax positions.

Interim income taxes are based on an estimated annualized effective tax rate applied to the respective quarterly periods, adjusted for discrete tax items in the period in which they occur. Although we believe our tax estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which we have reflected in our historical income tax provisions and accruals. Such differences could have a material impact on our income tax provision and operating results in the period in which we make such determination.

(9) Commitments and Contingencies

Legal Proceedings

We are party to various legal proceedings. Management cannot predict the ultimate outcome of these proceedings, individually or in the aggregate, or their resulting effect on our business, financial position, results of operations or cash flows as litigation and related matters are subject to inherent uncertainties, and unfavorable rulings could occur. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on our business, financial position, results of operations, or cash flows for the period in which the ruling occurs and/or future periods. We maintain product liability, general

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liability and excess liability insurance coverage. However, no assurances can be given that such insurance will continue to be available at an acceptable cost to us, that such coverage will be sufficient to cover one or more large claims, or that the insurers will not successfully disclaim coverage as to a pending or future claim.

Non-Income Tax Contingencies

We have reserved for certain state sales and use tax and foreign non-income tax contingencies based on the likelihood of an obligation in accordance with accounting guidance for probable loss contingencies. Loss contingency provisions are recorded for probable losses at management’s best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded. We provide provisions for potential payments of tax to various tax authorities for contingencies related to non-income tax matters, including value-added taxes and sales tax. We provide provisions for U.S. state sales taxes in each of the states where we have nexus. At March 31, 2020 and December 31, 2019, accrued liabilities were $0.3 million and $0.4 million, respectively, related to non-income tax contingencies. While we believe that the assumptions and estimates used to determine contingent liabilities are reasonable, the ultimate outcome of these matters cannot presently be determined. We believe future payments related to these matters could range from $0 to approximately $2.7 million.

Other Litigation

We are a party to various other legal proceedings in the United States and several foreign jurisdictions related to value-added tax assessments and other civil litigation. As of March 31, 2020 and December 31, 2019, accrued liabilities were $0.4 million and $0.4 million, respectively, related to the estimated outcome of these proceedings. In addition, we are a party to other litigation where there is a reasonable possibility that a loss may be incurred, either the losses are not considered to be probable or we cannot at this time estimate the loss, if any; therefore, no provision for losses has been provided. We believe future payments related to these matters could range from $0 to approximately $0.3 million.

(10)  Related Party Transactions

During the three months ended March 31, 2020 and March 31, 2019, NSP China did not borrow any amounts from the Company or our joint venture partner. As of March 31, 2020 and December 31, 2019 outstanding borrowings by NSP China from the Company were $6.0 million and $6.0 million, respectively. As of March 31, 2020 and December 31, 2019 outstanding borrowings by NSP China from our joint venture partner were $1.5 million and $1.5 million, respectively. The notes are payable in less than one year and bear interest of 3.0 percent. The notes between NSP China and the Company eliminate in consolidation.

(11) Fair Value Measurements

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values of each financial instrument. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The following table presents our hierarchy for our assets, measured at fair value on a recurring basis, as of March 31, 2020 (dollar amounts in thousands):

Level 1 Level 2 Level 3