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, 2021

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  ☒
Non-accelerated filer  o	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 October 22, 2021, was 19,760,612 shares.

NATURE’S SUNSHINE PRODUCTS, INC.

FORM 10-Q

For the Quarter Ended September 30, 2021

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	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			32
	Item 1.	Legal Proceedings	32
	Item 1A.	Risk Factors	32
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
	Item 3.	Defaults Upon Senior Securities	34
	Item 4.	Mine Safety Disclosures	34
	Item 5.	Other Information	34
	Item 6.	Exhibits	35

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, 2020, but include the following:

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

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

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

•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;

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

•product liability claims;

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

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

•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.;

•the effect of fluctuating foreign exchange rates;

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

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

•geopolitical issues and conflicts;

•we may be adversely affected by the ongoing coronavirus pandemic;

•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;

•supply chain disruptions, manufacturing interruptions or delays, or the failure to accurately forecast customer demand;

•failure to timely and effectively obtain shipments of products from our manufacturers and deliver products to our independent consultants and customers;

•world-wide slowdowns and delays related to supply chain, ingredient shortages and logistical challenges;

•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;

•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; and

•the sufficiency of trademarks and other intellectual property rights.

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.”

3

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, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	75,535	$	92,069
Accounts receivable, net of allowance for doubtful accounts of $445 and $454, respectively	9,189		7,375
Inventories	57,376		47,683
Prepaid expenses and other	8,627		6,938
Total current assets	150,727		154,065
Property, plant and equipment, net	52,538		54,355
Operating lease right-of-use assets	19,136		20,210
Investment securities - trading	950		989
Deferred income tax assets	5,842		8,693
Other assets	10,559		11,186
Total assets	$	239,752	$	249,498
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	7,580	$	6,486
Accrued volume incentives and service fees	21,868		19,481
Accrued liabilities	29,606		31,710
Deferred revenue	1,513		2,092
Related party notes payable	600		1,200
Income taxes payable	3,540		2,387
Current portion of operating lease liabilities	4,495		4,992
Current portion of note payable	1,235		1,306
Total current liabilities	70,437		69,654
Liability related to unrecognized tax benefits	5		92
Long-term portion of operating lease liabilities	16,510		16,412
Long-term note payable	1,488		2,418
Deferred compensation payable	950		989
Deferred income tax liabilities	1,574		1,391
Other liabilities	1,158		1,308
Total liabilities	92,122		92,264
Shareholders’ equity:
Common stock, no par value, 50,000 shares authorized, 19,775 and 19,697 shares issued and outstanding, respectively	134,252		139,311
Retained earnings	21,586		26,030
Noncontrolling interest	2,838		1,848
Accumulated other comprehensive loss	(11,046)		(9,955)
Total shareholders’ equity	147,630		157,234
Total liabilities and shareholders’ equity	$	239,752	$	249,498

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 September 30,
	2021		2020
Net sales	$	114,746	$	100,250
Cost of sales	29,419		27,175
Gross profit	85,327		73,075
Operating expenses:
Volume incentives	35,793		34,310
Selling, general and administrative	39,528		33,294
Operating income	10,006		5,471
Other income (loss), net	(886)		671
Income before provision for income taxes	9,120		6,142
Provision (benefit) for income taxes	3,662		(1,027)
Net income	5,458		7,169
Net income attributable to noncontrolling interests	600		414
Net income attributable to common shareholders	$	4,858	$	6,755
Basic and diluted net income per common share:
Basic earnings per share attributable to common shareholders	$	0.24	$	0.35
Diluted earnings per share attributable to common shareholders	$	0.24	$	0.34
Weighted average basic common shares outstanding	19,894		19,533
Weighted average diluted common shares outstanding	20,375		19,859

See accompanying notes to condensed consolidated financial statements.

5

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,
	2021		2020
Net sales	$	326,145	$	283,462
Cost of sales	84,861		74,873
Gross profit	241,284		208,589
Operating expenses:
Volume incentives	105,491		96,493
Selling, general and administrative	108,666		92,863
Operating income	27,127		19,233
Other loss, net	(2,290)		(230)
Income before provision for income taxes	24,837		19,003
Provision for income taxes	8,433		2,695
Net income	16,404		16,308
Net income attributable to noncontrolling interests	990		837
Net income attributable to common shareholders	$	15,414	$	15,471
Basic and diluted net income per common share:
Basic earnings per share attributable to common shareholders	$	0.77	$	0.79
Diluted earnings per share attributable to common shareholders	$	0.76	$	0.78
Weighted average basic common shares outstanding	19,896		19,493
Weighted average diluted common shares outstanding	20,292		19,820
Dividends declared per common share	$	1.00	$	—

See accompanying notes to condensed consolidated financial statements.

6

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited) 

	Three Months Ended September 30,
	2021		2020
Net income	$	5,458	$	7,169
Foreign currency translation income (loss) (net of tax)	(925)		718
Total comprehensive income	$	4,533	$	7,887

 

	Nine Months Ended September 30,
	2021		2020
Net income	$	16,404	$	16,308
Foreign currency translation income (loss) (net of tax)	(1,091)		458
Total comprehensive income	$	15,313	$	16,766

See accompanying notes to condensed consolidated financial statements.

7

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, 2020	19,697	$	139,311	$	26,030	$	1,848	$	(9,955)	$	157,234
Share-based compensation expense	—	1,005		—		—		—		1,005
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	218	(914)		—		—		—		(914)
Cash dividends ($1.00 per share)	—	—		(19,858)		—		—		(19,858)
Net income	—	—		4,016		136		—		4,152
Other comprehensive loss	—	—		—		—		(121)		(121)
Balance at March 31, 2021	19,915	$	139,402	$	10,188	$	1,984	$	(10,076)	$	141,498
Share-based compensation expense	—	1,066		—		—		—		1,066
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	152	(660)		—		—		—		(660)
Repurchase of common stock	(77)	(1,500)		—		—		—		(1,500)
Net income	—	—		6,540		254		—		6,794
Other comprehensive loss	—	—		—		—		(45)		(45)
Balance at June 30, 2021	19,990	$	138,308	$	16,728	$	2,238	$	(10,121)	$	147,153
Share-based compensation expense	—	886		—		—		—		886
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	58	(442)		—		—		—		(442)
Repurchase of common stock	(273)	(4,500)		—		—		—		(4,500)
Net income	—	—		4,858		600		—		5,458
Other comprehensive loss	—	—		—		—		(925)		(925)
Balance at September 30, 2021	19,775	$	134,252	$	21,586	$	2,838	$	(11,046)	$	147,630

8

	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

See accompanying notes to condensed consolidated financial statements.

9

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited) 

	Nine Months Ended September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	16,404	$	16,308
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts	—		116
Depreciation and amortization	8,276		7,834
Non-cash lease expense	4,043		2,398
Share-based compensation expense	2,957		2,141
Loss on sale of property, plant and equipment	24		7
Deferred income taxes	2,891		1,210
Purchase of trading investment securities	(30)		(47)
Proceeds from sale of trading investment securities	175		221
Realized and unrealized gains on investments	(62)		(41)
Foreign exchange losses	2,483		354
Changes in assets and liabilities:
Accounts receivable	(2,054)		(1,692)
Inventories	(10,771)		(1,361)
Prepaid expenses and other current assets	(1,787)		(798)
Other assets	(267)		(30)
Accounts payable	421		1,102
Accrued volume incentives and service fees	2,750		(1,370)
Accrued liabilities	(1,646)		5,106
Deferred revenue	(551)		295
Lease liabilities	(4,170)		(2,276)
Income taxes payable	1,316		(1,078)
Liability related to unrecognized tax benefits	(87)		(1,417)
Deferred compensation payable	(34)		(133)
Net cash provided by operating activities	20,281		26,849
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(4,626)		(3,487)
Net cash used in investing activities	(4,626)		(3,487)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends	(19,858)		—
Principal payments of long-term debt	(1,001)		—
Proceeds from note payable	—		5,374
Principal payments of related party borrowing	(600)		(243)
Proceeds from the exercise of stock awards	—		192
Payments related to tax withholding for net-share settled equity awards	(2,016)		—
Tax benefit from exercise of stock options	—		(298)
Repurchase of common stock	(6,000)		—
Net cash provided by (used in) financing activities	(29,475)		5,025
Effect of exchange rates on cash and cash equivalents	(2,714)		244
Net increase (decrease) in cash and cash equivalents	(16,534)		28,631
Cash and cash equivalents at the beginning of the period	92,069		53,629
Cash and cash equivalents at the end of the period	$	75,535	$	82,260
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes, net of refunds	$	4,431	$	3,293
Cash paid for interest	156		24

See accompanying notes to condensed consolidated financial statements.

10

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 manufacture and sale 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 use the products themselves or resell 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, 2021, and for the three and nine-month periods ended September 30, 2021 and 2020. 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, 2021.

These condensed consolidated financial statements should 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, 2020 as amended by Form 10-K/A on July 9, 2021.

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 $0.6 million and $1.0 million for the three and nine months ended September 30, 2021, respectively. Net income attributable to the noncontrolling interests was $0.4 million and $0.8 million for the three and nine months ended September 30, 2020, respectively. As of September 30, 2021 and December 31, 2020, noncontrolling interests were $2.8 million and $1.8 million, respectively.

Restructuring Related Accruals and Expenses

We recorded $0 and $48,000 of restructuring related expenses during the three and nine months ended September 30, 2021, respectively. We recorded $0 and $0.1 million of restructuring related expenses during the three and nine months ended September 30, 2020, respectively. Accrued severance and restructuring related costs were $0 and $0.4 million as of September 30, 2021 and December 31, 2020, respectively.

11

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. The adoption of this ASU did not 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, 2021		December 31, 2020
Raw materials	$	19,603	$	13,956
Work in progress	1,619		1,351
Finished goods	36,154		32,376
Total inventories	$	57,376	$	47,683

(3)    Investment Securities - Trading

Our trading securities portfolio totaled $1.0 million at September 30, 2021, and $1.0 million at December 31, 2020, and generated losses of $4,000 and gains of $45,000 for the three months ended September 30, 2021 and 2020, respectively, and gains of $62,000 and gains of $41,000 for the nine months ended September 30, 2021 and 2020, 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. On March 8, 2021, we signed an amendment to the credit agreement that eliminates the Index floor from the calculation of interest. We pay interest on any borrowings under the Credit Agreement, which through March 8, 2021, was at LIBOR, or the Index floor of 0.75 percent, plus 2.25 percent (3.00 percent as of December 31, 2020), and an annual commitment fee of 0.25 percent on the unused portion of the commitment. Interest under the amended Credit Agreement is at LIBOR, plus 2.25 percent (2.33 percent as of September 30, 2021), 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, 2021, there was no outstanding balance under the Credit Agreement.

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, inventories and other assets. As of September 30, 2021, 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 (the "Capital Credit Agreement"). On November 19, 2020, we executed on the Capital Credit Agreement and borrowed $3.7 million. We currently do not expect to make any additional borrowings under the Capital Credit Agreement. We pay interest on any borrowings under the Capital Credit Agreement at a fixed rate of 3.00 percent and are

12

required to settle our borrowings under the Capital Credit Agreement in 36 monthly payments, of $0.1 million. The Capital Credit Agreement is collateralized by any new equipment purchased under the agreement. As of September 30, 2021, there was $2.7 million outstanding balance under the Capital Credit Agreement, of which $1.2 million 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.

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, 2021 and 2020 (dollar and share amounts in thousands, except for per share information):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income attributable to common shareholders	$	4,858	$	6,755	$	15,414	$	15,471
Basic weighted average shares outstanding	19,894		19,533		19,896		19,493
Basic earnings per share attributable to common shareholders	$	0.24	$	0.35	$	0.77	$	0.79
Diluted shares outstanding:
Basic weighted-average shares outstanding	19,894		19,533		19,896		19,493
Stock-based awards	481		326		396		327
Diluted weighted-average shares outstanding	20,375		19,859		20,292		19,820
Diluted earnings per share attributable to common shareholders	$	0.24	$	0.34	$	0.76	$	0.78
Dilutive shares excluded from diluted-per-share amounts:
Stock options	460		791		460		791
Anti-dilutive shares excluded from diluted-per-share amounts:
Stock options	—		199		—		199

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

Dividends

On March 10, 2021, we announced a special non-recurring cash dividend of $1.00 per common share in an aggregate amount of $19.9 million that was paid on April 5, 2021, to shareholders of record on March 29, 2021. In accordance with the provisions of our 2012 Stock Incentive Plan (the "2012 Incentive Plan"), as a result of the special dividend we are required to make the participant's original grant whole by preventing either dilution or enlargement of the benefits or potential benefits intended by the original grant. The 2012 Incentive Plan provides our Compensation Committee with the discretion to meet this requirement. See further discussion in the Share-Based Compensation section of this Note.

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The declaration of future dividends is subject to the discretion of our Board of Directors and will depend upon various factors, including our earnings, financial condition, restrictions imposed by any indebtedness that may be outstanding, cash requirements, future prospects and other factors deemed relevant by our Board of Directors.

Share Repurchase Program

On March 10, 2021, we announced a $15.0 million common share repurchase program. The repurchases may be made from time to time as market conditions warrant and are subject to regulatory considerations. At September 30, 2021, the remaining balance available for repurchases under the program was $9.0 million.

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 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. On May 5, 2021, our shareholders approved the Amended and Restated 2012 Stock Incentive Plan, which among other amendments, increased the number of shares of common stock reserved for issuance by 2,000,000 shares. The number of shares available for awards, as well as the terms of outstanding awards, are subject to adjustment as provided in the Amended and Restated 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, 2021, there were no outstanding awards under the 2009 Incentive Plan.

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, 2021, is as follows (amounts in thousands, except per share information):

	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Grant Date Fair Value
Options outstanding at December 31, 2020	226	$	12.10	$	5.42
Granted	—	—		—
Forfeited or canceled	—	—		—
Exercised	(53)	12.00		6.61
Options outstanding at September 30, 2021	173	$	12.13	$	5.05

There was no share-based compensation expense for the three- and nine-month periods ended September 30, 2021 and 2020. As of September 30, 2021 and December 31, 2020, there was no unrecognized share-based compensation expense related to the grants described above.

As a result of the special dividend, we issued 4,300 shares to outstanding option holders as dividend equivalents in order to keep the participant's original grant whole. Because this modification was required under the provisions of our stock incentive plans, no additional share-based compensation expense was recorded. 

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At September 30, 2021, the aggregate intrinsic value of outstanding and exercisable stock options to purchase 173,000 shares of common stock was $0.5 million. At December 31, 2020, the aggregate intrinsic value of outstanding and exercisable options to purchase 226,000 shares of common stock was $0.7 million.

For the nine-month periods ended September 30, 2021 and 2020, we issued 53,000 and 41,000 shares of common stock upon the exercise of stock options at an average exercise price of $12.00 and $7.92 per share, respectively. The aggregate intrinsic value of options exercised during the nine-month periods ended September 30, 2021 and 2020, was $0.4 million and $0.1 million, respectively. For the nine-month periods ended September 30, 2021 and 2020, the Company recognized $0.2 million and $0.1 million of tax benefits from the exercise of stock options, respectively.

As of September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, there were 94,000 and 82,000 vested RSUs, respectively, granted to the Board of Directors with an accompanying restriction period.

Restricted stock unit activity for the nine-month period ended September 30, 2021, 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, 2020	1,179	$	6.18
Granted	306	13.48
Forfeited	(94)	6.91
Issued	(519)	6.38
Restricted Stock Units outstanding at September 30, 2021	872	8.55

During the nine-month period ended September 30, 2021, we granted 306,000 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 $18.05 per share and vest in annual installments over a three-year period from the grant date. The share-priced performance-based RSUs were issued with a weighted-average grant date fair value of $13.87 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 between 50.0 percent and 54.70 percent, and a range of risk-free rates between 0.3 percent and 2.9 percent.

Share-based compensation expense for RSUs for the three-month periods ended September 30, 2021 and 2020, was approximately $0.6 million and $0.5 million, respectively. Share-based compensation expense from RSUs for the nine-month periods ended September 30, 2021 and 2020, was approximately $1.6 million and $1.4 million, respectively. As of September 30, 2021 and December 31, 2020, the unrecognized share-based compensation expense related to the grants described above, excluding incentive awards discussed below, was $2.0 million and $1.3 million, respectively. The remaining compensation expense is expected to be recognized over the weighted average period of approximately 0.8 years.

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Share-based compensation expense related to performance-based RSUs for the three-month periods ended September 30, 2021 and 2020, was $0.3 million and $0.5 million, respectively. Share-based compensation expense related to performance-based RSUs for the nine-month periods ended September 30, 2021 and 2020, was $1.2 million and $0.8 million, respectively. Should we attain all of the metrics related to performance-based RSU grants, we would, and expect to, recognize up to $1.8 million of potential share-based compensation expense.

As a result of the special dividend, we issued 22,000 time-based RSUs and 26,200 performance-based RSUs that mirror the original grant time and performance-based vesting targets and requirements as dividend equivalents in order to keep the participant's original grant whole. These awards are included in the granted share total in the table above. Because this modification was required under the provisions of our stock incentive plans, no additional share-based compensation expense was recorded.

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 150,000 and 41,000 shares for the nine-month periods ended September 30, 2021 and 2020, 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,
	2021		2020		2021		2020
Net sales:
Asia	$	48,417	$	38,099	$	127,708	$	101,814
Europe	21,813		18,006		65,468		54,098
North America	37,738		37,557		112,872		110,785
Latin America and Other	6,778		6,588		20,097		16,765
Total net sales	114,746		100,250		326,145		283,462
Contribution margin (1):
Asia	21,421		17,981		55,203		48,560
Europe	6,959		5,954		20,343		17,987
North America	17,193		12,065		48,892		38,388
Latin America and Other	3,961		2,765		11,355		7,161
Total contribution margin	49,534		38,765		135,793		112,096
Selling, general and administrative expenses (2)	39,528		33,294		108,666		92,863
Operating income	10,006		5,471		27,127		19,233
Other income (loss), net	(886)		671		(2,290)		(230)
Income before provision for income taxes	$	9,120	$	6,142	$	24,837	$	19,003

_________________________________________

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

(2)    Service fees in China totaled $5.2 million and $11.7 million for the three and nine-month periods ended September 30, 2021, respectively, compared to $3.2 million and $8.0 million for the three and nine-month periods ended September 30, 2020. 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, 2021 and 2020, as follows (dollar amounts in thousands):

 

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net sales:
United States	$	34,960	$	35,062	$	104,258	$	103,048
South Korea	15,985		16,592		48,340		47,447
Other	63,801		48,596		173,547		132,967
	$	114,746	$	100,250	$	326,145	$	283,462

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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,
2021	2020