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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 September 30, 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 Market

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  o	Accelerated filer  x
Non-accelerated filer  o	Smaller reporting company  ☒
	Emerging growth company  ☐

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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 October 30, 2020, was 19,658,053 shares.

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NATURE’S SUNSHINE PRODUCTS, INC.

FORM 10-Q

For the Quarter Ended September 30, 2020

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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	7
		Condensed Consolidated Statements of Changes in Shareholders’ Equity	8
		Condensed Consolidated Statements of Cash Flows	10
		Notes to Condensed Consolidated Financial Statements	11
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
	Item 4.	Controls and Procedures	31
Part II. Other Information			33
	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	33
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
	Item 3.	Defaults Upon Senior Securities	35
	Item 4.	Mine Safety Disclosures	35
	Item 5.	Other Information	35
	Item 6.	Exhibits	36

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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:

•adverse impacts of the global COVID-19 pandemic;

•changes to the Company's independent consultants' compensation plans:

•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 consultants;

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

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

•the loss of one or more key independent consultants 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 consultants;

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

•geopolitical issues and conflicts;

•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)

	September 30, 2020		December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	82,260	$	53,629
Accounts receivable, net of allowance for doubtful accounts of $494 and $407, respectively	8,977		7,319
Inventories	47,846		46,666
Prepaid expenses and other	5,894		5,091
Total current assets	144,977		112,705
Property, plant and equipment, net	56,164		59,512
Operating lease right-of-use assets	20,632		23,951
Investment securities - trading	1,017		1,150
Intangible assets, net	269		567
Deferred income tax assets	4,087		4,899
Other assets	10,274		10,284
Total assets	$	237,420	$	213,068
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	5,909	$	4,406
Accrued volume incentives and service fees	17,531		18,893
Accrued liabilities	30,816		25,531
Deferred revenue	1,580		1,266
Related party notes payable	1,303		1,518
Income taxes payable	345		1,392
Current portion of operating lease liabilities	4,957		4,941
Current portion of note payable	3,310		—
Total current liabilities	65,751		57,947
Liability related to unrecognized tax benefits	82		1,499
Long-term portion of operating lease liabilities	16,981		20,213
Long-term note payable	2,064		—
Deferred compensation payable	1,017		1,150
Deferred income tax liabilities	2,053		1,655
Other liabilities	1,235		1,168
Total liabilities	89,183		83,632
Shareholders’ equity:
Common stock, no par value, 50,000 shares authorized, 19,592 and 19,410 shares issued and outstanding, respectively	137,776		135,741
Retained earnings	20,164		4,693
Noncontrolling interest	1,064		227
Accumulated other comprehensive loss	(10,767)		(11,225)
Total shareholders’ equity	148,237		129,436
Total liabilities and shareholders’ equity	$	237,420	$	213,068

See accompanying notes to condensed consolidated financial statements.

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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share information)

(Unaudited) 

	Three Months Ended September 30,
	2020		2019
Net sales	$	100,250	$	88,524
Cost of sales	27,175		22,784
Gross profit	73,075		65,740
Operating expenses:
Volume incentives	34,310		29,862
Selling, general and administrative	33,294		31,177
Operating income	5,471		4,701
Other income (loss), net	671		(1,243)
Income before provision for income taxes	6,142		3,458
Provision (benefit) for income taxes	(1,027)		2,107
Net income	7,169		1,351
Net income attributable to noncontrolling interests	414		34
Net income attributable to common shareholders	$	6,755	$	1,317
Basic and diluted net income per common share:
Basic earnings per share attributable to common shareholders	$	0.35	$	0.07
Diluted earnings per share attributable to common shareholders	$	0.34	$	0.07
Weighted average basic common shares outstanding	19,533		19,313
Weighted average diluted common shares outstanding	19,859		19,662

See accompanying notes to condensed consolidated financial statements.

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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except per share information)

(Unaudited) 

	Nine Months Ended September 30,
	2020		2019
Net sales	$	283,462	$	270,520
Cost of sales	74,873		70,078
Gross profit	208,589		200,442
Operating expenses:
Volume incentives	96,493		92,177
Selling, general and administrative	92,863		96,048
Operating income	19,233		12,217
Other loss, net	(230)		(985)
Income before provision for income taxes	19,003		11,232
Provision for income taxes	2,695		5,523
Net income	16,308		5,709
Net income (loss) attributable to noncontrolling interests	837		(54)
Net income attributable to common shareholders	$	15,471	$	5,763
Basic and diluted net income per common share:
Basic earnings per share attributable to common shareholders	$	0.79	$	0.30
Diluted earnings per share attributable to common shareholders	$	0.78	$	0.29
Weighted average basic common shares outstanding	19,493		19,291
Weighted average diluted common shares outstanding	19,820		19,618

See accompanying notes to condensed consolidated financial statements.

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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited) 

	Three Months Ended September 30,
	2020		2019
Net income	$	7,169	$	1,351
Foreign currency translation income (loss) (net of tax)	718		(656)
Write-off of cumulative translation adjustments	—		595
Total comprehensive income	$	7,887	$	1,290

	Nine Months Ended September 30,
	2020		2019
Net income	$	16,308	$	5,709
Foreign currency translation income (loss) (net of tax)	458		(1,502)
Write-off of cumulative translation adjustments	—		595
Total comprehensive income	$	16,766	$	4,802

See accompanying notes to condensed consolidated financial statements.

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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Amounts in thousands)

(Unaudited) 

	Common Stock			Retained Earnings		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
Share-based compensation expense	—	736		—		—		—		736
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	40	(51)		—		—		—		(51)
Net income	—	—		5,754		379		—		6,133
Other comprehensive loss	—	—		—		—		(151)		(151)
Balance at June 30, 2020	19,510	$	136,661	$	13,409	$	650	$	(11,485)	$	139,235
Share-based compensation expense	—	1,011		—		—		—		1,011
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	82	104		—		—		—		104
Net income	—	—		6,755		414		—		7,169
Other comprehensive income	—	—		—		—		718		718
Balance at September 30, 2020	19,592	$	137,776	$	20,164	$	1,064	$	(10,767)	$	148,237

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	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
Share-based compensation expense	—	621		—		—		—		621
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	29	(4)		—		—		—		(4)
Net income (loss)	—	—		2,689		(60)		—		2,629
Other comprehensive loss	—	—		—		—		(530)		(530)
Balance at June 30, 2019	19,302	$	134,342	$	2,374	$	(25)	$	(11,953)	$	124,738
Share-based compensation expense	—	678		—		—		—		678
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	29	60		—		—		—		60
Net income	—	—		1,317		34		—		1,351
Other comprehensive loss	—	—		—		—		(61)		(61)
Balance at September 30, 2019	19,331	$	135,080	$	3,691	$	9	$	(12,014)	$	126,766

See accompanying notes to condensed consolidated financial statements.

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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited) 

	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	16,308	$	5,709
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision for doubtful accounts	116		4
Depreciation and amortization	7,834		7,533
Non-cash lease expense	2,398		3,989
Share-based compensation expense	2,141		1,529
Loss on sale of property, plant and equipment	7		17
Deferred income taxes	1,210		474
Purchase of trading investment securities	(47)		(69)
Proceeds from sale of trading investment securities	221		392
Realized and unrealized gains on investments	(41)		(181)
Foreign exchange losses	354		597
Loss on write-off of cumulative translation adjustment	—		595
Changes in assets and liabilities:
Accounts receivable	(1,692)		152
Inventories	(1,361)		(4,074)
Prepaid expenses and other current assets	(798)		1,065
Other assets	(30)		469
Accounts payable	1,102		(1,073)
Accrued volume incentives and service fees	(1,370)		(1,096)
Accrued liabilities	5,106		(5,277)
Deferred revenue	295		127
Lease liabilities	(2,276)		(3,619)
Income taxes payable	(1,078)		(880)
Liability related to unrecognized tax benefits	(1,417)		(729)
Deferred compensation payable	(133)		(142)
Net cash provided by operating activities	26,849		5,512
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(3,487)		(4,474)
Net cash used in investing activities	(3,487)		(4,474)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of revolving credit facility	—		(547)
Proceeds from revolving credit facility	—		547
Proceeds from note payable	5,374		—
Principal payments of related party borrowing	(243)		—
Proceeds from the exercise of stock awards	192		60
Tax benefit from stock awards	(298)		(193)
Net cash provided by (used in) financing activities	5,025		(133)
Effect of exchange rates on cash and cash equivalents	244		(1,013)
Net increase (decrease) in cash and cash equivalents	28,631		(108)
Cash and cash equivalents at the beginning of the period	53,629		50,638
Cash and cash equivalents at the end of the period	$	82,260	$	50,530
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds	$	3,293	$	5,212
Cash paid for interest	24		63

See accompanying notes to condensed consolidated financial statements.

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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 consultants 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 September 30, 2020, and for the three and nine-month periods ended September 30, 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 independent consultant 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 $0.4 million and $0.8 million for the three and nine months ended September 30, 2020, respectively. Net income attributable to the noncontrolling interests of $34,000 and net loss attributable to noncontrolling interests of $0.1 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020 and December 31, 2019, noncontrolling interests were $1.1 million and $0.2 million, respectively.

Restructuring Related Accruals and Expenses

We recorded $0 and $0.1 million of restructuring related expenses during the three and nine months ended September 30, 2020, respectively. We recorded $0.4 million and $2.4 million restructuring related expenses during the three and nine months ended September 30, 2019. Accrued severance and restructuring related costs were $0 and $0.4 million as of September 30, 2020 and December 31, 2019, respectively.

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Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 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.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update are elective and subject to meeting certain criteria, that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This could affect balances of right of use assets, lease liabilities, and notes payables. The amendments in this update are effective as of March 12, 2020 through December 21, 2022. 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):

	September 30, 2020		December 31, 2019
Raw materials	$	13,464	$	13,329
Work in progress	1,491		1,426
Finished goods	32,891		31,911
Total inventories	$	47,846	$	46,666

(3)    Investment Securities - Trading

Our trading securities portfolio totaled $1.0 million at September 30, 2020, and $1.2 million at December 31, 2019, and generated gains of $45,000 and $8,000 for the three months ended September 30, 2020 and 2019, respectively, and gains of $41,000 and $181,000 for the nine months ended September 30, 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 (the “Credit Agreement”). On June 11, 2020 the credit agreement was amended to extend the term to mature on July 1, 2023. The amendment also allows for additional borrowings of $15.0 million or up to three separate increases of no less than $5.0 million each. We pay interest on any borrowings under the Credit Agreement, which through June 10, 2020, was at LIBOR plus 1.25 percent (3.05 percent as of December 31, 2019), and an annual commitment fee of 0.2 percent on the unused portion of the commitment. Interest under the amended Credit Agreement is at LIBOR, or the Index floor of 0.75 percent, plus 2.25 percent (3.00 percent as of September 30, 2020), and an annual commitment fee of 0.25 percent on the unused portion of the commitment. We are required to settle our net borrowings under the Credit Agreement only upon maturity, and as a result, have classified prior outstanding borrowings as non-current on our condensed consolidated balance sheet. At September 30, 2020, there was no outstanding balance under the Credit Agreement.

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The Credit Agreement contains customary financial covenants, including financial covenants relating to our solvency and leverage. 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 September 30, 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 September 30, 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. As of September 30, 2020, 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, among other considerations, the significant economic uncertainty facing the Company and its supply chain worldwide as a result of COVID-19.

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 Loan at any time prior to maturity with no prepayment penalties. Under the PPP, the principal amount of the Loan and accrued interest are eligible for forgiveness if certain conditions are met. At this time, however, we believe it unlikely we qualify for forgiveness under the guidance provided by the Small Business Administration, who administers the PPP, after we applied for and received the Loan, and we intend to repay the entirety of the principal amount of the Loan, together with accrued interest thereon at the rate set forth above. As of September 30, 2020, there was $5.4 million outstanding under the PPP, $3.3 million of which was classified as current.

(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.

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Following is a reconciliation of the numerator and denominator of Basic EPS to the numerator and denominator of Diluted EPS for the three and nine months ended September 30, 2020 and 2019 (dollar and share amounts in thousands, except for per share information): 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net income attributable to common shareholders	$	6,755	$	1,317	$	15,471	$	5,763
Basic weighted average shares outstanding	19,533		19,313		19,493		19,291
Basic earnings per share attributable to common shareholders	$	0.35	$	0.07	$	0.79	$	0.30
Diluted shares outstanding:
Basic weighted-average shares outstanding	19,533		19,313		19,493		19,291
Stock-based awards	326		349		327		327
Diluted weighted-average shares outstanding	19,859		19,662		19,820		19,618
Diluted earnings per share attributable to common shareholders	$	0.34	$	0.07	$	0.78	$	0.29
Dilutive shares excluded from diluted-per-share amounts:
Stock options	791		439		791		439
Anti-dilutive shares excluded from diluted-per-share amounts:
Stock options	199		218		199		243

Potentially dilutive shares excluded from diluted-per-share amounts include performance-based options to purchase shares of common stock 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

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 have also maintained a stock incentive plan, which was approved by shareholders in 2009 (the “2009 Incentive Plan"), which 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. As of September 30, 2020, there were no awards under the 2009 Incentive Plan.

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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 nine-month period ended September 30, 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	(41)	7.92
Options outstanding at September 30, 2020	249	12.08

There was no share-based compensation expense for the three- and nine-month periods ended September 30, 2020. Share-based compensation expense for the three- and nine-month periods ended September 30, 2019, was $0.1 million. As of September 30, 2020 and December 31, 2019, there was no unrecognized share-based compensation expense related to the grants described above.

At September 30, 2020, the aggregate intrinsic value of outstanding and exercisable stock options to purchase 249,000 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.

For the nine-month periods ended September 30, 2020 and 2019, we issued 41,000 and 27,000 shares of common stock upon the exercise of stock options at an average exercise price of $7.92 and $2.35 per share, respectively. The aggregate intrinsic value of options exercised during the nine-month periods ended September 30, 2020 and 2019, was $0.1 million and $0.2 million, respectively. For the nine-month periods ended September 30, 2020 and 2019, the Company recognized $0.1 million and $0.1 million of tax benefits from the exercise of stock options, respectively.

As of September 30, 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 revenue and earnings 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 September 30, 2020 and December 31, 2019, there were 83,000 and 95,000 vested RSUs, respectively, granted to the Board of Directors with a restriction period.

 Restricted stock unit activity for the nine-month period ended September 30, 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	691	5.79
Forfeited	(26)	12.99
Issued	(196)	8.99
Restricted Stock Units outstanding at September 30, 2020	1,290	6.20

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During the nine-month period ended September 30, 2020, we granted 691,000 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 $7.67 per share and vest in annual installments over a three-year period from the grant date or according to the restrictions for the Board of Directors noted above. The share-priced performance-based RSUs were issued 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 12.7 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 September 30, 2020 and 2019, was approximately $0.5 million and $0.5 million, respectively. Share-based compensation expense from RSUs for the nine-month periods ended September 30, 2020 and 2019, was approximately $1.4 million and $1.1 million, respectively. As of September 30, 2020 and December 31, 2019, the unrecognized share-based compensation expense related to the grants described above, excluding incentive awards discussed below, was $1.9 million and $1.1 million, respectively. The remaining compensation expense is expected to be recognized over the weighted average period of approximately 0.9 years.

Share-based compensation expense related to performance-based RSUs for the three-month periods ended September 30, 2020 and 2019, was $0.5 million and $0.1 million, respectively. Share-based compensation expense related to performance-based RSUs for the nine-month periods ended September 30, 2020 and 2019, was $0.8 million and $0.4 million, respectively. Should we attain all of the metrics related to performance-based RSU grants, we would recognize up to $3.0 million of potential share-based compensation expense. We currently expect to recognize an additional $0.8 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 41,000 and 23,000 shares for the nine-month periods ended September 30, 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.

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.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales:
Asia	$	38,099	$	33,717	$	101,814	$	102,475
Europe	18,006		14,640		54,098		45,312
North America	37,557		34,161		110,785		105,304
Latin America and Other	6,588		6,006		16,765		17,429
Total net sales	100,250		88,524		283,462		270,520
Contribution margin (1):
Asia	17,981		16,236		48,560		48,638
Europe	5,954		4,865		17,987		14,692
North America	12,065		12,169		38,388		37,587
Latin America and Other	2,765		2,608		7,161		7,348
Total contribution margin	38,765		35,878		112,096		108,265
Selling, general and administrative expenses (2)	33,294		31,177		92,863		96,048
Operating income	5,471		4,701		19,233		12,217
Other income (loss), net	671		(1,243)		(230)		(985)
Income before provision for income taxes	$	6,142	$	3,458	$	19,003	$	11,232

_________________________________________

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

(2)  Service fees in China totaled $3.2 million and $8.0 million for the three and nine-month periods ended September 30, 2020, respectively, compared to $2.8 million and $7.3 million for the three and nine-month periods ended September 30, 2019. These service fees are included in selling, general and administrative expenses.

From an individual country perspective, the United States and South Korea comprise 10 percent or more of consolidated net sales for the three and nine-month periods ended September 30, 2020 and 2019, as follows (dollar amounts in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales:
United States	$	35,062	$	31,579	$	103,048	$	97,734
South Korea	16,592		15,226		47,447		52,677
Other	48,596		41,719		132,967		120,109
	$	100,250	$	88,524	$	283,462	$	270,520

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Asia
General health	$	10,055	$	9,450	$	27,364	$	28,287
Immune	85		105		465		462
Cardiovascular	10,622		9,997		29,284		33,390
Digestive	9,935		6,309		24,482		18,417
Personal care	2,575		3,472		7,457