UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________________________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2016

OR

o         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.)

2500 West Executive Parkway, Suite 100

Lehi, Utah 84043

(Address of principal executive offices and zip code)

(801) 341-7900

(Registrant’s telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý  No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

Large accelerated filer  o	Accelerated filer  x
Non-accelerated filer  o	Smaller reporting company  o
(Do not check if a smaller reporting company)

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

The number of shares of Common Stock, no par value, outstanding on July 29, 2016, was 18,747,314 shares.

NATURE’S SUNSHINE PRODUCTS, INC.

FORM 10-Q

For the Quarter Ended June 30, 2016

Table of Contents

Part I. Financial Information			5
	Item 1.	Financial Statements (Unaudited)	5
		Condensed Consolidated Balance Sheets	5
		Condensed Consolidated Statements of Operations	6
		Condensed Consolidated Statements of Comprehensive Income	8
		Condensed Consolidated Statement of Changes in Stockholders’ Equity	8
		Condensed Consolidated Statements of Cash Flows	9
		Notes to Condensed Consolidated Financial Statements	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
	Item 4.	Controls and Procedures	41
Part II. Other Information			42
	Item 1.	Legal Proceedings	42
	Item 1A.	Risk Factors	42
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
	Item 3.	Defaults Upon Senior Securities	42
	Item 4.	Mine Safety Disclosures	42
	Item 5.	Other Information	42
	Item 6.	Exhibits	43

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 the Company's objectives, plans and strategies. All statements (other than statements of historical fact) that address activities, events or developments that the Company intends, expects, projects, believes or anticipates 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 by management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they 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, 2015, but include the following:

• any negative consequences resulting from the economy, including the availability of liquidity to the Company, its independent distributors and its suppliers or the willingness of its customers to purchase products;

• its relationship with, and its inability to influence the actions of, its independent distributors, and other third parties with whom it does business;

• improper activity by its employees or independent distributors;

• negative publicity related to its products, ingredients, or direct selling organization and the nutritional supplement industry;

• changing consumer preferences and demands;

• its reliance upon, or the loss or departure of any member of, its senior management team which could negatively impact its distributor relations and operating results;

• increased state and federal regulatory scrutiny of the nutritional supplement industry, including, but not limited to targeting of ingredients, testing methodology and product claims;

• the competitive nature of its business and the nutritional supplement industry;

• regulatory matters governing its products, ingredients, the nutritional supplement industry, its direct selling program, or the direct selling market in which it operates;

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

• recent settlement between the Federal Trade Commission and a competitor of the Company may have implications for the direct selling industry and the Company;

• risks associated with operating internationally and the effect of economic factors, including foreign exchange, inflation, disruptions or conflicts with the its third party importers, governmental sanctions, ongoing Ukraine and Russia political conflict, pricing and currency devaluation risks, especially in countries such as Ukraine, Russia and Belarus;

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

• its dependence on increased penetration of existing markets;

• cyber security threats and exposure to data loss;

• its reliance on its information technology infrastructure;

• the sufficiency of trademarks and other intellectual property rights;

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

• taxation relating to its independent distributors;

• product liability claims;

• the full implementation of its joint venture for operations in China with Fosun Industrial Co., Ltd., as well as the legal complexities, unique regulatory environment and challenges of doing business in China generally;

• its inability to register products for sale in Mainland China and difficulty or increased cost of importing products into Mainland China;

• managing rapid growth in China; and

• the slowing of the Chinese economy.

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, the Company expressly disclaims any obligation to publicly release any revisions to forward-looking statements to reflect events after the

3

date of this report.  Throughout this report, Nature’s Sunshine Products, Inc., together with its subsidiaries, are referred to as “the Company.”

4

PART I FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

	June 30, 2016			December 31, 2015
Assets
Current assets:
Cash and cash equivalents	$	41,428		$	41,420
Accounts receivable, net of allowance for doubtful accounts of $232 and $190, respectively	7,968			7,700
Investments available for sale	1,797			1,772
Inventories	45,002			38,495
Deferred income tax assets	4,795			5,021
Prepaid expenses and other	8,039			7,110
Total current assets	109,029			101,518
Property, plant and equipment, net	70,423			68,728
Investment securities - trading	1,275			1,044
Intangible assets, net	513			559
Deferred income tax assets	17,385			17,339
Other assets	12,410			11,332
	$	211,035		$	200,520
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	8,971		$	6,341
Accrued volume incentives	17,860			14,913
Accrued liabilities	23,995			23,726
Deferred revenue	4,895			4,160
Revolving credit facility payable	3,920			2,696
Income taxes payable	1,322			1,300
Total current liabilities	60,963			53,136
Liability related to unrecognized tax benefits	7,811			7,809
Deferred compensation payable	1,275			1,044
Other liabilities	2,368			2,266
Total liabilities	72,417			64,255
Commitments and contingencies
Shareholders’ equity:
Common stock, no par value, 50,000 shares authorized, 18,747 and 18,588 shares issued and outstanding, respectively	128,146			126,670
Retained earnings	18,969			18,088
Noncontrolling interests	2,268			2,750
Accumulated other comprehensive loss	(10,765		)	(11,243		)
Total shareholders’ equity	138,618			136,265
	$	211,035		$	200,520

See accompanying notes to condensed consolidated financial statements.

5

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share information)

(Unaudited)

	Three Months Ended June 30,
	2016			2015
Net sales revenue	$	89,366		$	81,247
Cost of sales	(23,078		)	(21,068		)
Gross profit	66,288			60,179
Operating expenses:
Volume incentives	30,791			29,603
Selling, general and administrative	31,249			27,392
Operating income	4,248			3,184
Other income (loss), net	(622		)	(2		)
Income before provision for income taxes	3,626			3,182
Provision for income taxes	1,260			787
Net income from continuing operations	2,366			2,395
Income from discontinued operations	—			—
Net income	2,366			2,395
Net loss attributable to noncontrolling interests	(202		)	(166		)
Net income attributable to common shareholders	$	2,568		$	2,561
Basic and diluted net income per common share
Basic earnings per share attributable to common shareholders:
Net income from continuing operations	$	0.14		$	0.13
Income from discontinued operations	$	—		$	—
Net income attributable to common shareholders	$	0.14		$	0.14
Diluted earnings per share attributable to common shareholders:
Net income from continuing operations	$	0.14		$	0.12
Income from discontinued operations	$	—		$	—
Net income attributable to common shareholders	$	0.14		$	0.13
Weighted average basic common shares outstanding	18,723			18,720
Weighted average diluted common shares outstanding	18,940			19,244
Dividends declared per common share	$	0.10		$	0.10

See accompanying notes to condensed consolidated financial statements.

6

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share information)

(Unaudited)

	Six Months Ended June 30,
	2016			2015
Net sales revenue	$	171,768		$	165,125
Cost of sales	(45,098		)	(42,949		)
Gross profit	126,670			122,176
Operating expenses:
Volume incentives	60,668			59,940
Selling, general and administrative	59,634			53,722
Operating income	6,368			8,514
Other income (loss), net	937			(320		)
Income before provision for income taxes	7,305			8,194
Provision for income taxes	3,150			1,596
Net income from continuing operations	4,155			6,598
Income from discontinued operations	—			1,312
Net income	4,155			7,910
Net loss attributable to noncontrolling interests	(482		)	(318		)
Net income attributable to common shareholders	$	4,637		$	8,228
Basic and diluted net income per common share
Basic earnings per share attributable to common shareholders:
Net income from continuing operations	$	0.25		$	0.35
Income from discontinued operations	$	—		$	0.07
Net income attributable to common shareholders	$	0.25		$	0.44
Diluted earnings per share attributable to common shareholders:
Net income from continuing operations	$	0.24		$	0.34
Income from discontinued operations	$	—		$	0.07
Net income attributable to common shareholders	$	0.24		$	0.43
Weighted average basic common shares outstanding	18,708			18,671
Weighted average diluted common shares outstanding	18,946			19,157
Dividends declared per common share	$	0.20		$	0.20

See accompanying notes to condensed consolidated financial statements.

7

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in thousands)

(Unaudited)

	Three Months Ended June 30,
	2016		2015
Net income	$	2,366	$	2,395
Foreign currency translation gain (loss) (net of tax)	537		(125		)
Reclassification of net realized gains on marketable securities in net income (net of tax)	—		(294		)
Net unrealized gains on investment securities (net of tax)	4		7
Total comprehensive income	$	2,907	$	1,983

	Six Months Ended June 30,
	2016		2015
Net income	$	4,155	$	7,910
Foreign currency translation gain (loss) (net of tax)	462		(146		)
Reclassification of net realized gains on marketable securities in net income (net of tax)	—		(294		)
Net unrealized gains on investment securities (net of tax)	16		29
Total comprehensive income	$	4,633	$	7,499

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			Noncontrolling Interests			Accumulated Other Comprehensive Income (Loss)			Total
	Shares	Value
Balance at January 1, 2016	18,588	$	126,670		$	18,088		$	2,750		$	(11,243	)	$	136,265
Share-based compensation expense	—	1,586			—			—			—			1,586
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax	159	(110		)	—			—			—			(110		)
Cash dividends ($0.20 per share)	—	—			(3,756		)	—			—			(3,756		)
Net income	—	—			4,637			(482		)	—			4,155
Other comprehensive income	—	—			—			—			478			478
Balance at June 30, 2016	18,747	$	128,146		$	18,969		$	2,268		$	(10,765	)	$	138,618

See accompanying notes to condensed consolidated financial statements.

8

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

	Six Months Ended June 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,155		$	7,910
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for doubtful accounts	62			33
Depreciation and amortization	2,396			2,152
Share-based compensation expense	1,586			2,085
Loss (gain) on sale of property and equipment	78			(1,251		)
Deferred income taxes	311			(46		)
Purchase of trading investment securities	(252		)	(156		)
Proceeds from sale of trading investment securities	56			82
Realized and unrealized gains on investments	(60		)	(493		)
Foreign exchange (gains) losses	(546		)	764
Changes in assets and liabilities:
Accounts receivable	(164		)	(271		)
Inventories	(6,177		)	(659		)
Prepaid expenses and other current assets	(912		)	(4,057		)
Other assets	(1,027		)	16
Accounts payable	2,402			1,124
Accrued volume incentives	2,798			(146		)
Accrued liabilities	950			(2,102		)
Deferred revenue	735			(727		)
Income taxes payable	(150		)	(1,452		)
Liability related to unrecognized tax benefits	231			230
Deferred compensation payable	(9		)	93
Net cash provided by operating activities	6,463			3,129
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(4,592		)	(13,071		)
Proceeds from sale of property, plant and equipment	—			1,373
Proceeds from sale/maturities of investments available for sale	—			810
Net cash used in investing activities	(4,592		)	(10,888		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of cash dividends	(3,756		)	(3,740		)
Net borrowings on revolving credit facility	1,224			—
Net proceeds from the exercise of stock options	59			3,476
Payment of withholding taxes related to the vesting of restricted stock units	(169		)	—
Repurchase of common stock	—			(3,783		)
Net cash used in financing activities	(2,642		)	(4,047		)
Effect of exchange rates on cash and cash equivalents	779			(676		)
Net increase (decrease) in cash and cash equivalents	8			(12,482		)
Cash and cash equivalents at the beginning of the period	41,420			58,699
Cash and cash equivalents at the end of the period	$	41,428		$	46,217
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	3,036		$	6,185
Cash paid for interest	122			59

See accompanying notes to condensed consolidated financial statements.

9

NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)    Basis of Presentation

Nature’s Sunshine Products, Inc., together with its subsidiaries (hereinafter referred to collectively as the “Company”), is a natural health and wellness company primarily engaged in the manufacturing and direct selling of nutritional and personal care products. The Company is a Utah corporation with its principal place of business in Lehi, Utah, and sells its products to a sales force of independent distributors who use the products themselves or resell them to other independent distributors or consumers. The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of each of the Company’s major product groups are subject to regulation by one or more governmental agencies.

The Company markets its products in Australia, Austria, Belarus, Canada, Colombia, Costa Rica, the Czech Republic, Denmark, the Dominican Republic, Ecuador, El Salvador, Finland, Germany, Guatemala, Honduras, Hong Kong, Iceland, Indonesia, Ireland, Italy, Japan, Kazakhstan, Latvia, Lithuania, Malaysia, Mexico, Moldova, Mongolia, the Netherlands, New Zealand, Nicaragua, Norway, Panama, the Philippines, Poland, Russia, Singapore, Slovenia, South Korea, Spain, Sweden, Taiwan, Thailand, Ukraine, the United Kingdom, and the United States. The Company also markets its products through a wholesale model to Australia, Chile, Israel, New Zealand, Norway, Peru, Portugal, Spain and the United Kingdom.

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 significant 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 the Company’s financial information as of June 30, 2016, and for the three and six-month periods ended June 30, 2016 and 2015.  The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year ending December 31, 2016.

It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Restructuring Related Activities

During the year ended December 31, 2015, the Company announced a restructuring plan that has been substantially completed. Of the $3.3 million of non-recurring restructuring costs incurred during the year ended December 2015, $9,788 of severance costs and $0.1 million of other exit costs remained payable as of June 30, 2016 and $0.6 million of severance costs and $0.2 million of other exit costs remained payable as of December 31, 2015. There were $0 and $2.1 million of restructuring costs incurred during the six months ended June 30, 2016 and 2015, respectively.

Noncontrolling Interests

Noncontrolling interest decreased as a result of the net loss attributable to the noncontrolling interests by $0.5 million and $0.3 million during the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and 2015, noncontrolling interests were $2.3 million and $3.5 million, respectively.

10

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 Revenue from Contracts with Customers (Topic 606). This update requires an entity to recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. As such, this update affects an entity that either enters into contracts with customers or transfers goods and services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. This update will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance, and creates a Topic 606.  In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers-Principal versus Agent Considerations (Reporting Revenue Gross versus Net),which further clarifies the implementation guidance on principal versus agent considerations contained in ASU 2014-09. In April 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers-Identifying Performance Obligations and Licensing, which further clarifies the implementation guidance relating to identifying performance obligations and the licensing implementation guidance. These standards, pursuant to ASU No. 2015-14, Revenue from Contracts with Customers-Deferral of the Effective Date issued by the FASB in August 2015, will be effective for the Company in the first quarter of 2018.  The adoption of this ASU is not expected to have a material impact on the Company’s results of operations, consolidated financial statements and footnote disclosures.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements: "Going Concern" (Subtopic 205-40). The purpose of this ASU is to incorporate into U.S. Generally Accepted Accounting Principles ("U.S. GAAP") management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued, and to provide related footnote disclosures. This update is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations, consolidated financial statements and footnote disclosures.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update specifies that inventory should be subsequently measured at the lower of cost or net realizable value, which is the ordinary selling price less any completion, transportation and disposal costs. However, the ASU does not apply to inventory measured using the last-in-first-out or retail methods. This update is effective for interim and annual periods beginning after December 15, 2016. Adoption of the ASU is prospective. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations, consolidated financial statements and footnote disclosures.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. This guidance requires that entities with a classified statement of financial position present all deferred tax assets and liabilities as noncurrent. This update is effective for annual and interim periods for fiscal years beginning after December 15, 2016, which will require the Company to adopt the new guidance in the first quarter of fiscal 2017. Early adoption is permitted for financial statements that have not been previously issued and may be applied on either a prospective or retrospective basis. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations, consolidated financial statements and footnote disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This update amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. This update is effective for interim and annual periods beginning after December 15, 2017. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations, consolidated financial statements and footnote disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Accounting for Leases. This update specifies that lessees should recognize assets and liabilities arising from all leases, except for leases with a lease term of 12 months or less. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will largely remain unchanged and continue to depend on its classification as a finance or operating lease. For public companies, the ASU will be effective for annual periods beginning after December 15, 2018 with early adoption permitted. The adoption of this ASU is not expected to have a material impact on the Company’s results of operations; however, it is expected to gross-up the consolidated balance sheet.

11

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods, with early adoption permitted. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The Company is currently in the process of evaluating the impact of the adoption on its financial statements.

(2)Discontinued Operations

In November 2014, the Company ceased its operations in Venezuela due to the difficulties and uncertainties related to import controls, difficulties associated with repatriating cash and high inflation. This market was part of the Company’s NSP Americas segment and all of the income from discontinued operations is attributable to the common shareholders of the Company.

The following table summarizes the operating results of the Company’s discontinued operations (dollar amounts in thousands):

	June 30, 2016		June 30, 2015
Net sales revenue	$	—	$	—
Income before income tax provision	$	—	$	1,312
Income tax provision	—		—
Income from discontinued operations	$	—	$	1,312

During the six months ended June 30, 2015, the Company received $1.3 million in net proceeds from the sales of its fixed assets in Venezuela, which is included in the results from discontinued operations.

(3)Inventories

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

	June 30, 2016		December 31, 2015
Raw materials	$	14,728	$	13,351
Work in progress	1,038		789
Finished goods	29,236		24,355
Total inventory	$	45,002	$	38,495

(4)      Investments

The amortized cost and estimated fair values of available-for-sale securities by balance sheet classification are as follows (dollar amounts in thousands):

As of June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government securities funds	$	1,793	$	4	$	—	$	1,797
Total short-term investment securities	$	1,793	$	4	$	—	$	1,797

As of December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government securities funds	$	1,794	$	—	$	(22	)	$	1,772
Total short-term investment securities	$	1,794	$	—	$	(22	)	$	1,772

There were no proceeds from the sales of available-for-sale securities during the six-month periods ended June 30, 2016 and 2015.

The Company’s trading securities portfolio totaled $1.3 million at June 30, 2016, and $1.0 million at December 31, 2015, and generated gains of $35,000 and $21,000 for the six months ended June 30, 2016 and 2015, respectively.

As of June 30, 2016 and December 31, 2015, the Company had an unrealized gain of $4,000 and an unrealized loss of $22,000, respectively, in its U.S. government securities funds. There were no securities that were in a loss position for more than 12 months.

(5)  Revolving Credit Facility

The Company’s revolving credit agreement with Wells Fargo Bank, N.A., permits the Company to borrow up to $25.0 million through September 1, 2017, bearing interest at LIBOR plus 1.25 percent (1.75 percent as of June 30, 2016 and December 31, 2015). The Company must pay an annual commitment fee of 0.25 percent on the unused portion of the commitment. The revolving credit agreement matures on September 1, 2017. The Company settles its net borrowings under the revolving credit agreement daily, and as a result, has classified its outstanding borrowings as current on its condensed consolidated balance sheet as of June 30, 2016. At June 30, 2016 and December 31, 2015, the outstanding balance under the revolving credit agreement was $3.9 million and $2.7 million, respectively.

The revolving credit agreement contains restrictions on leverage, minimum net income and consecutive quarterly net losses. In addition, the agreement restricts capital expenditures, lease expenditures, other indebtedness, liens on assets, guaranties, loans and advances and the merger, consolidation and the transfer of assets except in the ordinary course of business. The Company remains in compliance with these debt covenants as of June 30, 2016.

(6)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 six months ended June 30, 2016 and 2015 (dollar and share amounts in thousands, except for per share information): 

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Net income attributable to common shareholders:
Net income from continued operations	$	2,568	$	2,561	$	4,637	$	6,916
Income from discontinued operations	$	—	$	—	$	—	$	1,312
Net income	$	2,568	$	2,561	$	4,637	$	8,228
Basic weighted average shares outstanding	18,723		18,720		18,708		18,671
Basic earnings per share attributable to common shareholders:
Net income from continued operations	$	0.14	$	0.13	$	0.25	$	0.35
Income from discontinued operations	$	—	$	—	$	—	$	0.07
Net income	$	0.14	$	0.14	$	0.25	$	0.44
Diluted shares outstanding
Basic weighted-average shares outstanding	18,723		18,720		18,708		18,671
Stock-based awards	217		524		238		486
Diluted weighted-average shares outstanding	18,940		19,244		18,946		19,157
Diluted earnings per share attributable to common shareholders:
Net income from continued operations	$	0.14	$	0.12	$	0.24	$	0.34
Income from discontinued operations	$	—	$	—	$	—	$	0.07
Net income	$	0.14	$	0.13	$	0.24	$	0.43
Potentially dilutive shares excluded from diluted-per-share amounts:
Stock options	86		348		86		348
Potentially anti-dilutive shares excluded from diluted-per-share amounts:
Stock options	1,445		691		1,445		641

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 years presented.

(7)       Capital Transactions

Dividends

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

On February 25, 2016, the Company announced a cash dividend of $0.10 per common share in an aggregate amount of $1.9 million, which was paid on March 22, 2016 to shareholders of record as of March 11, 2016. On May 10, 2016, the

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Company announced a cash dividend of $0.10 per common share in an aggregate amount of $1.9 million, which was paid on June 6, 2016 to shareholders of record as of May 25, 2016.

Share Repurchase Program

In November 2014, the Board of Directors authorized a $20.0 million share repurchase program beginning January 1, 2015. Such purchases may be made in the open market, through block trades, in privately negotiated transactions or otherwise. The timing and amount of any shares repurchased will be determined based on the Company’s evaluation of market conditions and other factors and the program may be discontinued or suspended at any time. At June 30, 2016, the remaining balance available for repurchases under the program was $13.4 million. There were no repurchases of common shares by the Company during the six months ended June 30, 2016.

Share-Based Compensation

During the year ended December 31, 2012, the Company’s 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 the Company’s common stock were originally authorized for the granting of awards under the 2012 Incentive Plan. In 2015, the Company’s 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.

The Company also maintains 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

The Company’s outstanding stock options include time-based stock options, which vest over differing periods ranging from the date of issuance up to 48 months from the option grant date; 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; performance-based stock options, which vest upon achieving cumulative annual net sales revenue growth targets over a rolling two-year period, subject to the Company maintaining at least an eight percent operating income margin during the applicable period; and performance-based stock options, which vest upon achieving annual net sales targets over a rolling one-year period.

Stock option activity for the six-month period ended June 30, 2016, is as follows (amounts in thousands, except per share information):

	Number of Shares		Weighted Average Exercise Price Per Share
Options outstanding at December 31, 2015	1,683		$	12.21
Granted	—		—
Forfeited or canceled	(59	)	11.77
Exercised	(25	)	2.35
Options outstanding at June 30, 2016	1,599		12.39

Share-based compensation expense from time-based stock options for the three-month periods ended June 30, 2016 and 2015, was approximately $0.2 million and $0.2 million, respectively. Share-based compensation expense from time-based stock options for the six-month periods ended June 30, 2016 and 2015, was approximately $0.4 million and $0.7 million, respectively. As of June 30, 2016 and December 31, 2015, the unrecognized share-based compensation expense related to the

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grants described above was $0.6 million and $1.1 million, respectively. As of June 30, 2016, the remaining compensation cost is expected to be recognized over the weighted-average period of approximately 1.3 years.

The Company has not recognized any share-based compensation expense related to the net sales revenue performance-based stock options for the six-month periods ended June 30, 2016 and 2015.  Should the Company attain all of the net sales revenue metrics related to the net sales revenue performance-based stock option grants, the Company would recognize up to $0.4 million of potential share-based compensation expense.

At June 30, 2016, the aggregate intrinsic value of outstanding stock options to purchase 1,599,000 shares of common stock, exercisable stock options to purchase 1,141,000 shares of common stock and stock options to purchase 377,000 shares of common stock that are expected to vest was $0.6 million, $0.6 million and $0.0 million, respectively. At December 31, 2015, the aggregate intrinsic value of outstanding options to purchase 1,683,000 shares of common stock, the exercisable options to purchase 958,000 shares of common stock, and options to purchase 588,000 shares of common stock expected to vest was $0.9 million, $0.9 million and $0.0 million, respectively.

For the six-month periods ended June 30, 2016 and 2015, the Company issued 25,000 and 373,000 shares of common stock upon the exercise of stock options at an average exercise price of $2.35, and $9.58 per share, respectively. The aggregate intrinsic values of options exercised during the six-month periods ended June 30, 2016 and 2015 was $0.2 million, and $1.4 million, respectively. For the three-month period ended June 30, 2015, the Company recognized $0.1 million of tax benefits from the exercise of stock options during the period. For the six-month periods ended June 30, 2016 and 2015, the Company recognized $0.1 million and $0.5 million of tax benefits from the exercise of stock options during the period, respectively.

Restricted Stock Units

The Company’s outstanding restricted stock units ("RSUs") include time-based RSUs, which vest over differing periods ranging from 12 months up to 48 months from the RSU grant date. RSUs granted to the Board of Directors contain a restriction period in which the shares are not issued until two years after vesting. At June 30, 2016 and December 31, 2015, there were 44,000 and 60,000 vested RSUs granted to the Board of Directors that had a restriction period.

RSU activity for the six-month period ended June 30, 2016, 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, 2015	744		$	12.48
Granted	206		8.61
Forfeited	(10	)	11.73
Issued	(154	)	13.05
Restricted Stock Units outstanding at June 30, 2016	786		11.38

During the six-month period ended June 30, 2016, the Company granted 206,000 RSUs under the 2012 Incentive Plan to the Company’s Board of Directors, executive officers and other employees, which are composed of both time-based RSUs and net sales and operating income and earnings-per-share performance-based RSUs. The time-based RSUs were issued with a weighted-average grant date fair value of $8.61 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 net sales and operating income and earnings-per-share performance-based RSUs were issued with a weighted-average grant date fair value of $13.05 per share and vest upon achieving both (i) net sales and operating income targets over a three-year period from the grant date and (ii) earnings-per-share targets over a six-year period from the grant date.

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. 

Share-based compensation expense for RSUs for the three-month periods ended June 30, 2016 and 2015, was approximately $0.5 million and $0.6 million, respectively. Share-based compensation expense from RSUs for the six-month periods ended June 30, 2016 and 2015, was approximately $1.1 million and $1.3 million, respectively. As of June 30, 2016 and December 31, 2015, the unrecognized share-based compensation expense related to the grants described above was $2.5

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million and $2.5 million, respectively. As of June 30, 2016, the remaining compensation expense is expected to be recognized over the weighted average period of approximately 1.6 years.

The Company has not recognized any share-based compensation expense related to the net sales revenue and earnings-per-share performance-based RSUs for the six-month periods ended June 30, 2016 and 2015.  Should the Company attain all of the net sales revenue metrics related to the net sales revenue performance-based stock option grants, the Company would recognize up to $3.3 million of potential share-based compensation expense.

The number of shares issued upon vesting of RSUs granted pursuant to the Company's share-based compensation plans is net of the minimum statutory withholding requirements that the Company pays on behalf of its employees, which was 20,000 shares for the six-month period ended June 30, 2016. 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.

(8)Segment Information

The Company has four business segments. These business segments are components of the Company for which separate information is available that is evaluated regularly by the chief executive officer in deciding how to allocate resources and in assessing relative performance.

The Company's four business segments are divided based on the different characteristics of their distributor bases, selling and distributor compensation plans and product formulations, as well as the internal organization of its officers and their responsibilities and business operations.  Three business segments operate under the Nature’s Sunshine Products brand (NSP Americas; NSP Russia, Central and Eastern Europe; and China and New Markets). The Company’s China and New Markets segment anticipates deploying a multi-channel go-to-market strategy that offers select Nature’s Sunshine branded products through a direct selling model across China as well as through e-commerce channels.  The time to market will be dependent upon regulatory processes including product registration and permit approvals. The China and New Markets segment also includes the Company’s wholesale business, in which the Company sells its products to various locally managed entities independent of the Company that have distribution rights for the relevant market. All of the net sales revenue to date in the China and New Markets segment is through the Company’s wholesale business to foreign markets, and beginning in the second quarter of 2016, pre-opening product sales through Hong Kong. The fourth business segment operates under the Synergy® WorldWide brand.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2016			2015			2016		2015
Net sales revenue:
NSP Americas	$	44,725		$	45,050		$	89,908	$	91,560
NSP Russia, Central and Eastern Europe	6,269			6,815			12,621		14,258
Synergy WorldWide	33,013			28,480			62,861		57,248
China and New Markets	5,359			902			6,378		2,059
Total net sales revenue	89,366			81,247			171,768		165,125
Contribution margin (1):
NSP Americas	19,103			19,027			38,020		38,547
NSP Russia, Central and Eastern Europe	2,065			2,314			4,246		4,910
Synergy WorldWide	10,245			8,820			19,184		17,868
China and New Markets	4,084			415			4,552		911
Total contribution margin	35,497			30,576			66,002		62,236
Selling, general and administrative (2)	31,249			27,392			59,634		53,722
Operating income	4,248			3,184			6,368		8,514
Other income (expense), net	(622		)	(2		)	937		(320		)
Income from continuing operations before provision for income taxes	$	3,626		$	3,182		$	7,305	$	8,194

_________________________________________

(1)Contribution margin consists of net sales revenue less cost of sales and volume incentives expense. For the China and New Markets segment, contribution margin does not includes services fees related to pre-opening product sales through Hong Kong.

(2)Service fees in the China and New Markets segment related to pre-opening product sales through Hong Kong totaled $2.0 million for the three and six month periods ended June 30, 2016, and $0.0 million for the three and six month periods ended June 30, 2015. These service fees are included in selling, general and administrative expense.

From an individual country perspective, only the United States and South Korea comprise 10 percent or more of consolidated net sales revenue for the three and six-month periods ended June 30, 2016 and 2015, as follows (dollar amounts in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Net sales revenue:
United States	$	37,598	$	37,054	$	75,893	$	75,576
South Korea	15,473		12,070		28,671		24,150
Other	36,295		32,123		67,204		65,399
	$	89,366	$	81,247	$	171,768	$	165,125

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Revenue generated by each of the Company’s product lines is set forth below (dollar amounts in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
NSP Americas:
General health	$	20,234	$	19,456	$	39,851	$	39,488
Immune	3,738		5,038		9,314		11,255
Cardiovascular	3,418		3,543		6,530		6,644
Digestive	11,845		13,263		24,924		26,628
Personal care	2,853		870		3,783		1,840
Weight management	2,637		2,880		5,506		5,705
	44,725		45,050		89,908		91,560
NSP Russia, Eastern and Central Europe:
General health	$	2,501	$	2,799	$	5,224	$	5,678
Immune	857		763		1,397		1,676
Cardiovascular	493		446		970		899
Digestive	1,407		1,852		3,528		3,822
Personal care	853		627		1,102		1,509
Weight management	158		328		400		674
	6,269		6,815		12,621		14,258
Synergy WorldWide:
General health	$	9,694	$	7,645	$	18,334	$	15,347
Immune	41		84		250		277
Cardiovascular	13,505		12,411		26,198		25,067
Digestive	3,442		2,374		5,929		4,668
Personal care	1,948		1,732		3,887		3,562
Weight management	4,383		4,234		8,263		8,327
	33,013		28,480		62,861		57,248
China and New Markets:
General health	$	1,537	$	426	$	2,008	$	957
Immune	216		103		347		261
Cardiovascular	1,450		73		1,523		154
Digestive	1,262		225		1,522		515
Personal care	439		19		461		46
Weight management	455		56		517		126
	5,359		902		6,378		2,059
	$	89,366	$	81,247	$	171,768	$	165,125

Beginning in 2016, for the Synergy WorldWide segment, the Company changed its allocation of products sold within promotional product kits from the category associated with the predominant product, to each individual product being included in its respective category. Prior periods have been reclassified to conform to the current period’s presentation.

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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):

	June 30, 2016		December 31, 2015
Property, plant and equipment:
United States	$	68,089	$	66,044
Other	2,334		2,684
Total property, plant and equipment	$	70,423	$	68,728

(9)            Income Taxes

For the three months ended June 30, 2016 and 2015, the Company’s provision for income taxes, as a percentage of income before income taxes was 34.7 percent and 24.7 percent, respectively, compared with a U.S. federal statutory rate of 35.0 percent. For the six months ended June 30, 2016 and 2015, the Company’s provision for income taxes, as a percentage of income before income taxes was 43.1 percent and 19.5 percent, respectively, compared with a U.S. federal statutory rate of 35.0 percent.

The difference between the effective tax rate and the U.S. federal statutory tax rate for the three months ended June 30, 2016, was attributed to foreign tax credits arising from intercompany dividends paid by foreign subsidiaries to the U.S. corporation, offset by current year foreign losses, primarily related to China, that presently do not provide future tax benefit, and unfavorable adjustments related to foreign operations.

The difference between the effective tax rate and the U.S. federal statutory tax rate for the six months ended June 30, 2016, was attributed to current year foreign losses, primarily related to China, that presently do not provide future tax benefit, and an adjustment of a prior year deferred tax assets related to foreign currency translation amounts, offset partially by foreign tax credits arising from intercompany dividends paid by foreign subsidiaries to the U.S. corporation.

The difference between the effective tax rate and the U.S. federal statutory tax rate for the three and six months ended June 30, 2015, was primarily attributed to adjustments to the valuation allowances on U.S. foreign tax credits and on U.S. capital loss carryforwards, offset by the impact of current year losses that will not provide tax benefit.

Changes to the effective rate due to dividends received from foreign subsidiaries and the impact of foreign tax credits are expected to be recurring. Depending on various factors, changes from the foregoing items may be favorable or unfavorable in a particular period.

The Company’s U.S. federal income tax returns for 2012 through 2014 are open to examination for federal tax purposes. The Company has several foreign tax jurisdictions that have open tax years from 2009 through 2015.

As of June 30, 2016 and December 31, 2015, the Company had accrued $7.8 million 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 the Company believes its tax estimates are reasonable, the Company can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in its historical income tax provisions and accruals.  Such differences could have a material impact on the Company’s income tax provision and operating results in the period in which the Company makes such determination.

(10)  Commitments and Contingencies

Legal Proceedings

The Company is party to various legal proceedings. Management cannot predict the ultimate outcome of these proceedings, individually or in the aggregate, or their resulting effect on the Company’s 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 the business, financial position, results of operations, or cash flows for the period in which the ruling occurs and/or future periods. The Company

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maintains product liability, general 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 the Company, 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

The Company has 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. The Company provides 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. The Company provides provisions for U.S. state sales taxes in each of the states where the Company has nexus. As of June 30, 2016 and December 31, 2015, accrued liabilities were $0.3 million related to non-income tax contingencies. While management believes that the assumptions and estimates used to determine this liability are reasonable, the ultimate outcome of those matters cannot presently be determined. The Company believes future payments related to these matters could range from $0 to approximately $4.0 million.

Other Litigation

The Company is party to various other legal proceedings in several foreign jurisdictions related to value-added tax assessments and other civil litigation.  While there is a reasonable possibility that a loss may be incurred, either the losses are not considered to be probable or the Company cannot at this time estimate the loss, if any; therefore, no provision for losses has been provided.  The Company believes future payments related to these matters could range from $0 to approximately $0.2 million.

(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 the Company’s hierarchy for its assets, measured at fair value on a recurring basis, as of June 30, 2016 (dollar amounts in thousands):

	Level 1		Level 2		Level 3
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total
Investments available-for-sale
U.S. government security funds	$	1,797	$	—	$	—	$	1,797
Investment securities	1,275		—		—		1,275
Total assets measured at fair value on a recurring basis	$	3,072	$	—	$	—	$	3,072

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The following table presents the Company’s hierarchy for its assets, measured at fair value on a recurring basis, as of December 31, 2015 (dollar amounts in thousands):

	Level 1		Level 2		Level 3
	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs		Total
Investments available-for-sale
U.S. government security funds	$	1,772	$	—	$	—	$	1,772
Investment securities	1,044		—		—		1,044
Total assets measured at fair value on a recurring basis	$	2,816	$	—	$	—	$	2,816

Investments available-for-sale — The majority of the Company’s investment portfolio consists of U.S. government security funds. The Level 1 securities are valued using quoted prices for identical assets in active markets including equity securities and U.S. government treasuries. 

Investment securities — The Company’s trading portfolio consists of various marketable securities that are valued using quoted prices in active markets.

For the six months ended June 30, 2016, and for the year ended December 31, 2015, there were no fair value measurements using the significant unobservable inputs (Level 3).

The carrying amounts reflected on the condensed consolidated balance sheet for cash and cash equivalents, accounts receivable, accounts payable and the revolving credit facility payable approximate fair value due to their short-term nature. During the six months ended June 30, 2016 and 2015, the Company did not have any re-measurements of non-financial assets at fair value on a nonrecurring basis subsequent to their initial recognition.

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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in this report, as well as the consolidated financial statements, the notes thereto, and management’s discussion and analysis included in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and its Reports on Form 8-K filed since the date of such Form 10-K.

OVERVIEW

Nature’s Sunshine Products, Inc., together with its subsidiaries, is a natural health and wellness company primarily engaged in the manufacturing and direct selling of nutritional and personal care products. The Company is a Utah corporation with its principal place of business in Lehi, Utah, and sells its products to customers and to a sales force of independent distributors who use the products themselves or resell them to consumers. The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of each of the Company's major product groups are subject to regulation by one or more governmental agencies.

The Company has four business segments that are divided based on the different characteristics of their Distributor bases, selling and Distributor compensation plans and product formulations, as well as the internal organization of its officers and their responsibilities and business operations.  Three business segments operate under the Nature’s Sunshine Products brand (NSP Americas; NSP Russia, Central and Eastern Europe; and China and New Markets). The Company’s China and New Markets segment anticipates deploying a multi-channel go-to-market strategy that offers select Nature’s Sunshine branded products through a direct selling model across China as well as through e-commerce channels.  The time to market will be dependent upon regulatory processes including product registration and permit approvals. The China and New Markets segment also includes the Company’s wholesale business, in which the Company sells its products to various locally managed entities independent of the Company that have distribution rights for the relevant market. All of the net sales revenue to date in the China and New Markets segment is through the Company’s wholesale business to foreign markets, and beginning in the second quarter of 2016, pre-opening product sales through Hong Kong. The fourth business segment operates under the Synergy® WorldWide brand.

 The Company markets its products in Australia, Austria, Belarus, Canada, Colombia, Costa Rica, the Czech Republic, Denmark, the Dominican Republic, Ecuador, El Salvador, Finland, Germany, Guatemala, Honduras, Hong Kong, Iceland, Indonesia, Ireland, Italy, Japan, Kazakhstan, Latvia, Lithuania, Malaysia, Mexico, Moldova, Mongolia, the Netherlands, New Zealand, Nicaragua, Norway, Panama, the Philippines, Poland, Russia, Singapore, Slovenia, South Korea, Spain, Sweden, Taiwan, Thailand, Ukraine, the United Kingdom and the United States. The Company markets its products through a wholesale model to Australia, Chile, Israel, New Zealand, Norway, Peru, Portugal, Spain and the United Kingdom.

In the second quarter of 2016, the Company experienced an increase in its consolidated net sales of 10.0 percent (an increase of 11.5 percent in local currencies), compared to the same period in 2015. NSP Americas net sales decreased approximately 0.7 percent (but increased 0.7 percent in local currencies), compared to the same period in 2015. NSP Russia, Central and Eastern Europe net sales decreased approximately 8.0 percent compared to the same period in 2015. China and New Markets net sales increased approximately 494.0 percent compared to the same period in 2015 as a result of the pre-opening product sales through Hong Kong. Synergy WorldWide net sales increased approximately 15.9 percent (or 17.9 percent in local currencies) compared to the same period in 2015. During the quarter, the NSP Americas segment experienced net sales growth in local currencies in the United States and Canada and the Synergy Worldwide segment experienced net sales growth in local currencies in Indonesia, Japan, South Korea, and Thailand. These increases were offset by declines in local currencies sales in the NSP Americas segment in Latin America, in the NSP Russia, Central and Eastern Europe segment, and in the Synergy Worldwide segment in Europe and North America. The strengthening of the U.S. dollar versus the local currencies of the Company's European, Latin American and Asian markets resulted in an approximate 1.5 percent or $1.2 million reduction of its net sales during the quarter.

The Company expects that sales in NSP Russia, Central and Eastern Europe will continue to be affected by political unrest in Ukraine and Russia, sanctions against Russia and the significant impact of currency devaluation. The Company remains strongly supportive and engaged with its independent Distributors in the region, and believes its solid foundation and strong relationships in the region will allow it to return to growth if and when the political situation and currency stabilizes.

In absolute terms, selling, general and administrative expenses increased $3.9 million in the second quarter of 2016 compared to the same period in 2015. Over the same period, selling, general and administrative costs as a percentage of net sales revenue for 2016, increased to 35.0 percent from 33.7 percent in 2015. The increase in selling, general and administrative

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expenses for the quarter ended June 30, 2016, was primarily related to payment of $2.0 million of independent service fees related to its pre-opening product sales through Hong Kong, increased investment of $1.8 million in China and increased non-capitalizable training costs related to the Oracle ERP implementation project of $0.8 million, partially offset by $2.1 million reduction related to prior year non-recurring restructuring charges.

The Company distributes products to consumers through a sales force comprised of independent distributors, some of whom also consume the Company's products. Typically a person who joins the Company's independent sales force begins as a distributor. A distributor may earn Manager status by attaining certain product sales levels. On a worldwide basis, active Managers were approximately 13,200 and 13,400, and active Distributors and customers were approximately 248,900 and 262,300, at June 30, 2016 and 2015, respectively, primarily due to declines in the NSP Russia, Central and Eastern Europe segment as a result of the conditions noted above.

Net sales revenuerepresents net sales including shipping and handling revenues offset by volume rebates given to independent distributors and customers. Volume rebates as a percentage of retail sales may vary by country depending upon regulatory restrictions that limit or otherwise restrict rebates. The Company also offers reduced volume rebates with respect to certain products and promotions worldwide. For pre-opening product sales through Hong Kong, the Company pays independent service fees, which are included in selling, general and administrative expenses.

The Company's gross profit consists of net sales less cost of sales, which represents manufacturing costs, the price it pays to its raw material suppliers and manufacturers of its products, duties and tariffs, as well as shipping and handling costs related to product shipments and distribution to its independent distributors and customers.

Volume incentives are a significant part of the Company's direct sales marketing program, and represent commission payments made to independent distributors. These payments are designed to provide incentives for reaching higher sales levels. Volume incentives vary slightly, on a percentage basis, by product due to pricing policies and commission plans in place in the various operations.

Selling, general and administrative expensesrepresent operating expenses, components of which include labor and benefits, sales events, professional fees, travel and entertainment, marketing, occupancy costs, communication costs, bank fees, depreciation and amortization, independent service fees related to pre-opening product sales through Hong Kong and other miscellaneous operating expenses.

 Most of the Company's sales to independent distributors and customers outside the United States are made in the local currency of the independent distributor or customer. In preparing the financial statements, the Company translates revenue into U.S. dollars using average exchange rates for the periods reported. Additionally, the majority of the Company's purchases from its suppliers generally are made in U.S. dollars. Consequently, a strengthening of the U.S. dollar versus a foreign currency can have a negative impact on reported sales and contribution margins and can generate transaction losses on intercompany transactions.

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RESULTS OF OPERATIONS

The following table summarizes the Company's unaudited consolidated operating results from continuing operations in U.S. dollars and as a percentage of net sales revenue for the three months ended June 30, 2016 and 2015 (dollar amounts in thousands):

	Three Months Ended June 30, 2016					Three Months Ended June 30, 2015					Change
	Total dollars			Percent of net sales		Total dollars			Percent of net sales		Total dollars			Percentage
Net sales revenue	$	89,366		100.0	%	$	81,247		100.0	%	$	8,119		10.0	%
Cost of sales	(23,078		)	(25.8	)	(21,068		)	(25.9	)	(2,010		)	(9.5	)
	66,288			74.2		60,179			74.1		6,109			10.2
Volume incentives	30,791			34.5		29,603			36.4		1,188			4.0
SG&A expenses	31,249			35.0		27,392			33.7		3,857			14.1
Operating income	4,248			4.8		3,184			3.9		1,064			33.4
Other income (loss), net	(622		)	(0.7	)	(2		)	—		(620		)	(31,000.0	)
Income from continuing operations before income taxes	3,626			4.1		3,182			3.9		444			14.0
Provision for income taxes	1,260			1.4		787			1.0		473			60.1
Net income from continuing operations	$	2,366		2.6	%	$	2,395		2.9	%	$	(29	)	(1.2	)%

The following table summarizes the Company's unaudited consolidated operating results from continuing operations in U.S. dollars and as a percentage of net sales revenue for the six months ended June 30, 2016 and 2015 (dollar amounts in thousands):

	Six Months Ended June 30, 2016					Six Months Ended June 30, 2015					Change
	Total dollars			Percent of net sales		Total dollars			Percent of net sales		Total dollars			Percentage
Net sales revenue	$	171,768		100.0	%	$	165,125		100.0	%	$	6,643		4.0	%
Cost of sales	(45,098		)	(26.3	)	(42,949		)	(26.0	)	(2,149		)	(5.0	)
	126,670			73.7		122,176			74.0		4,494			3.7
Volume incentives	60,668			35.3		59,940			36.3		728			1.2
SG&A expenses	59,634			34.7		53,722			32.5		5,912			11.0
Operating income	6,368			3.7		8,514			5.2		(2,146		)	(25.2	)
Other income (loss), net	937			0.5		(320		)	(0.2	)	1,257			392.8
Income from continuing operations before income taxes	7,305			4.3		8,194			5.0		(889		)	(10.8	)
Provision for income taxes	3,150			1.8		1,596			1.0		1,554			97.4
Net income from continuing operations	$	4,155		2.4	%	$	6,598		4.0	%	$	(2,443	)	(37.0	)%

Net Sales Revenue

The Company’s international operations have provided, and are expected to continue to provide, a significant portion of its total net sales. As a result, total net sales will continue to be affected by fluctuations in the U.S. dollar against foreign currencies. In order to provide a framework for assessing how its underlying businesses performed excluding the effect of foreign currency fluctuations, in addition to comparing the percent change in net sales from one period to another in U.S. dollars, the Company compares the percentage change in net sales from one period to another period by excluding the effects of foreign currency exchange as shown below. Net sales excluding the impact of foreign exchange fluctuations is not a U.S. GAAP financial measure. Net sales in local currency removes from net sales in U.S. dollars the impact of changes in exchange rates between the U.S. dollar and the functional currencies of its foreign subsidiaries, by translating the current period net sales into U.S. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous

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comparable period. The Company believes presenting the impact of foreign currency fluctuations is useful to investors because it allows a more meaningful comparison of net sales of its foreign operations from period to period. However, net sales excluding the impact of foreign currency fluctuations should not be considered in isolation or as an alternative to net sales in U.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance with U.S. GAAP. Throughout the last five years, foreign currency exchange rates have fluctuated significantly. See Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The following table summarizes the changes in net sales revenue by operating segment with a reconciliation to net sales revenue excluding the impact of currency fluctuations for the three months ended June 30, 2016 and 2015 (dollar amounts in thousands):

	Net Sales Revenue by Operating Segment
	Three Months Ended June 30, 2016		Three Months Ended June 30, 2015		Percent Change		Impact of Currency Exchange			Percent Change Excluding Impact of Currency
NSP Americas:
NSP North America	$	37,439	$	36,816	1.7	%	$	(122	)	2.0	%
NSP Latin America	7,286		8,234		(11.5	)	(511		)	(5.3	)
	44,725		45,050		(0.7	)	(633		)	0.7
NSP Russia, Central and Eastern Europe	6,269		6,815		(8.0	)	(40		)	(7.4	)
Synergy WorldWide:
Synergy Asia Pacific	23,397		18,765		24.7		(711		)	28.5
Synergy Europe	6,738		6,669		1.0		138			(1.0	)
Synergy North America	2,878		3,046		(5.5	)	—			(5.5	)
	33,013		28,480		15.9		(573		)	17.9
China and New Markets	5,359		902		494.1		—			494.1
	$	89,366	$	81,247	10.0	%	$	(1,246	)	11.5	%

The following table summarizes the changes in net sales revenue by operating segment with a reconciliation to net sales revenue excluding the impact of currency fluctuations for the six months ended June 30, 2016 and 2015 (dollar amounts in thousands):

	Net Sales Revenue by Operating Segment
	Six Months Ended June 30, 2016		Six Months Ended June 30, 2015		Percent Change		Impact of Currency Exchange			Percent Change Excluding Impact of Currency
NSP Americas:
NSP North America	$	75,745	$	74,990	1.0	%	$	(423	)	1.6	%
NSP Latin America	14,163		16,570		(14.5	)	(1,111		)	(7.8	)
	89,908		91,560		(1.8	)	(1,534		)	(0.1	)
NSP Russia, Central and Eastern Europe	12,621		14,258		(11.5	)	(93		)	(10.8	)
Synergy WorldWide:
Synergy Asia Pacific	44,213		37,463		18.0		(2,137		)	23.7
Synergy Europe	12,994		13,398		(3.0	)	(7		)	(3.0	)
Synergy North America	5,654		6,387		(11.5	)	—			(11.5	)
	62,861		57,248		9.8		(2,144		)	13.5
China and New Markets	6,378		2,059		209.8		—			209.8
	$	171,768	$	165,125	4.0	%	$	(3,771	)	6.3	%

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Consolidated net sales revenue for the three and six months ended June 30, 2016, was $89.4 million and $171.8 million, respectively. That is compared to $81.2 million and $165.1 million for the same period in 2015, or increases of approximately 10.0 percent and 4.0 percent, respectively. The increase was principally related to increases in the Synergy WorldWide and China and New Markets segments. Synergy WorldWide increased $4.5 million and $5.6 million for the three and six months ended June 30, 2016, respectively. China and New Markets similarly increased $4.5 million and $4.3 million for the same periods. The primary offsets related to unfavorable impacts of $1.2 million and $3.8 million in foreign currency exchange rate fluctuations in the three and six months ended June 30, 2016, respectively. Excluding the unfavorable impact of foreign currency exchange rate fluctuations, consolidated net sales revenue would have increased by 11.5 percent and 6.3 percent from same periods in 2015.

NSP Americas

Net sales revenue related to NSP Americas for the three and six months ended June 30, 2016, was $44.7 million and $89.9 million, respectively, compared to $45.1 million and $91.6 million for the same periods in 2015, or a decrease of 0.7 percent and 1.8 percent, respectively. In local currency, net sales increased 0.7 percent and decreased 0.1 percent, compared to the same periods in 2015. Fluctuations in foreign exchange rates had a $0.6 million and $1.5 million unfavorable impact on net sales for the three and six months ended June 30, 2016, respectively. Active Managers within NSP Americas totaled approximately 7,000 and 7,200 at June 30, 2016 and 2015, respectively. Active Distributors and customers within NSP Americas totaled approximately 129,700 and 135,600 at June 30, 2016 and 2015, respectively. The number of independent Managers, Distributors and customers decreased primarily due to lower recruiting in the Latin American markets. Independent Managers and active independent Distributors and customers were down 4.3 percent, compared to the prior year. The active independent Managers category includes independent Managers under the Company's various compensation plans that have achieved and maintained certain product sales levels. As such, all independent Managers are considered to be active independent Managers. The active independent Distributors and customers category includes independent Distributors and customers who have purchased products directly from the Company for resale and/or personal consumption during the previous three months.

Notable activity in the following markets contributed to the results of NSP Americas:

In the United States, net sales revenues increased approximately $0.7 million and $1.1 million, or 2.1 percent and 1.5 percent, for the three and six months ended June 30, 2016, respectively, compared to the same period in 2015. This market has noted growth for eight consecutive quarters as it continued to see its new sales programs gain traction. More specifically, it has seen increased adoption of retails sales tools and the IN.FORM business model, which is a group-focused weight management program incorporating a habit of healthy eating, daily activity and consumption of the Company's products.

In Canada, net sales revenues decreased approximately $0.1 million and $0.3 million, or 3.5 percent and 5.3 percent, for the three and six months ended June 30, 2016, respectively, compared to the same period in 2015. In local currency, net sales increased 0.8 percent and 2.0 percent compared to the same periods in 2015, which is the eighth consecutive quarter of growth year over year. The Company believes increased momentum in this market has been a result of the increased adoption of the IN.FORM business model and the introduction of seven new products.

In Latin America, net sales revenues decreased approximately $0.9 million and $2.4 million, or 11.5 percent and 14.5 percent, for the three and six months ended June 30, 2016, respectively, compared to the same periods in 2015. In local currency, net sales decreased 5.3 percent and 7.8 percent compared to the same periods in 2015. Currency devaluation had a $0.5 million and $1.1 million unfavorable impact on net sales for the three and six months ended June 30, 2016, respectively. In Latin America, the Company faced continued headwinds due in part to changing regulations for product registration. To address this, the Company continues to emphasize the IN.FORM business model, which includes products the Company anticipates will be acceptable for registration under the changing product registration requirements in Latin America.

NSP Russia, Central and Eastern Europe

Net sales revenue related to NSP Russia, Central and Eastern Europe markets (primarily Russia, Ukraine, Poland, and Belarus), for the three and six months ended June 30, 2016, was $6.3 million and $12.6 million, respectively, compared to $6.8 million and $14.3 million for the same periods in 2015, or decreases of 8.0 percent and 11.5 percent. Active independent Managers within NSP Russia, Central and Eastern Europe totaled approximately 2,400 and 2,900 at June 30, 2016 and 2015, respectively. Active independent Distributors and customers within NSP Russia, Central and Eastern Europe totaled approximately 62,600 and 72,000 at June 30, 2016 and 2015, respectively. Net sales and the number of independent Managers, Distributors and customers buying and distributing the Company's products decreased primarily as a result of the current political uncertainty in Ukraine and across the region, and the market decline in the value of the Ukrainian hryvnia and Russian

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ruble against the U.S. dollar. Although changes in exchange rates between the U.S. dollar and Ukrainian hryvnia do not result in currency fluctuations within the financial statements, the Company’s products in Ukraine and Russia are priced in local currencies pegged to current U.S. dollar exchange rates and therefore become more expensive when the local currency declines in value. The Company remains strongly supportive and engaged with its independent distributors in the region, and are supporting their activity with additional promotions and training. However, at this time, the Company expects that sales in its NSP Russia, Central and Eastern Europe segment will continue to be significantly affected by the political unrest in Ukraine and Russia, sanctions in Russia and the impact of currency devaluation. The Company continues to evaluate various options to keep the distributor base engaged. The Company believes that its strong partnership with its local partner will provide a solid foundation to reignite growth once the political and economic conditions stabilize.

Synergy WorldWide

Synergy WorldWide reported net sales revenue for the three and six months ended June 30, 2016, of $33.0 million and $62.9 million, respectively, compared to $28.5 million and $57.2 million for the same periods in 2015, or increases of 15.9 percent and 9.8 percent. This increase was primarily due to local currency sales growth in the Company's Asia Pacific region, partially offset by local currency sales declines in Europe and North America and the adverse impacts of fluctuations in foreign exchange rates, which had $0.6 million and $2.1 million unfavorable impacts on net sales for the three and six months ended June 30, 2016, respectively. Excluding the impact of fluctuations in foreign exchange rates, net sales in Synergy WorldWide would have increased by 17.9 percent and 13.5 percent from the same periods in 2015. Active independent Managers within Synergy WorldWide totaled approximately 3,800 and 3,300 at June 30, 2016 and 2015, respectively. Active independent Distributors and customers within Synergy WorldWide totaled approximately 56,600 and