10-Q 1 natr-2016331x10q.htm 10-Q
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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 March 31, 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 April 29, 2016, was 18,718,910 shares.

Table of Contents
NATURE’S SUNSHINE PRODUCTS, INC.
FORM 10-Q
For the Quarter Ended March 31, 2016
Table of Contents

Part I. Financial Information | 4
| Item 1. | Financial Statements (Unaudited) | 4
|  | Condensed Consolidated Balance Sheets | 4
|  | Condensed Consolidated Statements of Operations | 5
|  | Condensed Consolidated Statements of Comprehensive Income | 6
|  | Condensed Consolidated Statement of Changes in Stockholders’ Equity | 6
|  | Condensed Consolidated Statements of Cash Flows | 7
|  | Notes to Condensed Consolidated Financial Statements | 8
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 35
| Item 4. | Controls and Procedures | 38
Part II. Other Information | 39
| Item 1. | Legal Proceedings | 39
| Item 1A. | Risk Factors | 39
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 39
| Item 3. | Defaults Upon Senior Securities | 39
| Item 4. | Mine Safety Disclosures | 39
| Item 5. | Other Information | 39
| Item 6. | Exhibits | 40

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information included or incorporated herein by reference in this report may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to 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;

• | 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 and/or the devaluation of the Chinese Renminbi.

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 date of this report. Throughout this report, Nature’s Sunshine Products, Inc., together with its subsidiaries, are referred to as “the Company.”
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)

| March 31, 2016 |  | December 31, 2015
Assets |  |  |  |  |
Current assets: |  |  |  |  |
Cash and cash equivalents | $ | 46,433 |  |  | $ | 41,420 |
Accounts receivable, net of allowance for doubtful accounts of $181 and $190, respectively | 8,146 |  |  | 7,700 |
Investments available for sale | 1,791 |  |  | 1,772 |
Inventories | 41,570 |  |  | 38,495 |
Deferred income tax assets | 4,795 |  |  | 5,021 |
Prepaid expenses and other | 7,262 |  |  | 7,110 |
Total current assets | 109,997 |  |  | 101,518 |
Property, plant and equipment, net | 69,374 |  |  | 68,728 |
Investment securities - trading | 1,199 |  |  | 1,044 |
Intangible assets, net | 536 |  |  | 559 |
Deferred income tax assets | 17,105 |  |  | 17,339 |
Other assets | 12,264 |  |  | 11,332 |
| $ | 210,475 |  |  | $ | 200,520 |
Liabilities and Shareholders’ Equity |  |  |  |  |
Current liabilities: |  |  |  |  |
Accounts payable | $ | 8,658 |  |  | $ | 6,341 |
Accrued volume incentives | 17,313 |  |  | 14,913 |
Accrued liabilities | 21,226 |  |  | 23,726 |
Deferred revenue | 6,491 |  |  | 4,160 |
Revolving credit facility payable | 7,531 |  |  | 2,696 |
Income taxes payable | 1,019 |  |  | 1,300 |
Total current liabilities | 62,238 |  |  | 53,136 |
Liability related to unrecognized tax benefits | 7,777 |  |  | 7,809 |
Deferred compensation payable | 1,199 |  |  | 1,044 |
Other liabilities | 2,370 |  |  | 2,266 |
Total liabilities | 73,584 |  |  | 64,255 |
Commitments and contingencies |  |  |  |  |
Shareholders’ equity: |  |  |  |  |
Common stock, no par value, 50,000 shares authorized, 18,719 and 18,588 shares issued and outstanding, respectively | 127,442 |  |  | 126,670 |
Retained earnings | 18,285 |  |  | 18,088 |
Noncontrolling interests | 2,470 |  |  | 2,750 |
Accumulated other comprehensive loss | (11,306 | ) |  | (11,243 | )
Total shareholders’ equity | 136,891 |  |  | 136,265 |
| $ | 210,475 |  |  | $ | 200,520 |

See accompanying notes to condensed consolidated financial statements.
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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share information)
(Unaudited)

| Three Months Ended March 31,
| 2016 |  | 2015
Net sales revenue | $ | 82,402 |  |  | $ | 83,878 |
Cost of sales | (22,020 | ) |  | (21,881 | )
Gross profit | 60,382 |  |  | 61,997 |
Operating expenses: |  |  |  |  |
Volume incentives | 29,877 |  |  | 30,337 |
Selling, general and administrative | 28,385 |  |  | 26,330 |
Operating income | 2,120 |  |  | 5,330 |
Other income (loss), net | 1,559 |  |  | (318 | )
Income before provision for income taxes | 3,679 |  |  | 5,012 |
Provision for income taxes | 1,890 |  |  | 809 |
Net income from continuing operations | 1,789 |  |  | 4,203 |
Income from discontinued operations | — |  |  | 1,312 |
Net income | 1,789 |  |  | 5,515 |
Net loss attributable to noncontrolling interests | (280 | ) |  | (152 | )
Net income attributable to common shareholders | $ | 2,069 |  |  | $ | 5,667 |
Basic and diluted net income per common share |  |  |  |  |
Basic earnings per share attributable to common shareholders: |  |  |  |  |
Net income from continuing operations | $ | 0.11 |  |  | $ | 0.23 |
Income from discontinued operations | $ | — |  |  | $ | 0.07 |
Net income attributable to common shareholders | $ | 0.11 |  |  | $ | 0.30 |
Diluted earnings per share attributable to common shareholders: |  |  |  |  |
Net income from continuing operations | $ | 0.11 |  |  | $ | 0.23 |
Income from discontinued operations | $ | — |  |  | $ | 0.07 |
Net income attributable to common shareholders | $ | 0.11 |  |  | $ | 0.30 |
Weighted average basic common shares outstanding | 18,694 |  |  | 18,621 |
Weighted average diluted common shares outstanding | 19,130 |  |  | 19,192 |
Dividends declared per common share | $ | 0.10 |  |  | $ | 0.10 |

See accompanying notes to condensed consolidated financial statements.
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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)

| Three Months Ended March 31,
| 2016 |  | 2015
Net income | $ | 1,789 |  |  | $ | 5,515 |
Foreign currency translation loss (net of tax) | (75 | ) |  | (21 | )
Net unrealized gains on investment securities (net of tax) | 12 |  |  | 22 |
Total comprehensive income | $ | 1,726 |  |  | $ | 5,516 |

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 | — |  |  | 882 |  |  | — |  |  | — |  |  | — |  |  | 882 |
Shares issued from the exercise of stock options and vesting of restricted stock units, net of shares exchanged for withholding tax | 131 |  |  | (110 | ) |  | — |  |  | — |  |  | — |  |  | (110 | )
Cash dividends ($0.10 per share) | — |  |  | — |  |  | (1,872 | ) |  | — |  |  | — |  |  | (1,872 | )
Net income | — |  |  | — |  |  | 2,069 |  |  | (280 | ) |  | — |  |  | 1,789 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (63 | ) |  | (63 | )
Balance at March 31, 2016 | 18,719 |  |  | $ | 127,442 |  |  | $ | 18,285 |  |  | $ | 2,470 |  |  | $ | (11,306 | ) |  | $ | 136,891 |

See accompanying notes to condensed consolidated financial statements.
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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)

| Three Months Ended March 31,
| 2016 |  | 2015
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |
Net income | $ | 1,789 |  |  | $ | 5,515 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
Provision for doubtful accounts | 62 |  |  | 30 |
Depreciation and amortization | 1,170 |  |  | 996 |
Share-based compensation expense | 882 |  |  | 1,339 |
Tax benefit from the exercise of stock options | — |  |  | (52 | )
(Gain) loss on sale of property and equipment | 68 |  |  | (1,312 | )
Deferred income taxes | 589 |  |  | 50 |
Purchase of trading investment securities | (177 | ) |  | (112 | )
Proceeds from sale of trading investment securities | 29 |  |  | 55 |
Realized and unrealized gains (losses) on investments | (25 | ) |  | (46 | )
Foreign exchange (gains) losses | (913 | ) |  | 351 |
Changes in assets and liabilities: |  |  |  |  |
Accounts receivable | (432 | ) |  | (1,411 | )
Inventories | (2,695 | ) |  | (1,989 | )
Prepaid expenses and other current assets | (107 | ) |  | (1,837 | )
Other assets | (792 | ) |  | 74 |
Accounts payable | 2,607 |  |  | 3,010 |
Accrued volume incentives | 2,152 |  |  | 1,539 |
Accrued liabilities | (3,433 | ) |  | (6,707 | )
Deferred revenue | 2,331 |  |  | (461 | )
Income taxes payable | (364 | ) |  | (268 | )
Liability related to unrecognized tax benefits | (34 | ) |  | 230 |
Deferred compensation payable | 155 |  |  | 80 |
Net cash provided by (used in) operating activities | 2,862 |  |  | (926 | )
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |
Purchases of property, plant and equipment | (1,312 | ) |  | (6,019 | )
Proceeds from sale of property, plant and equipment | 14 |  |  | 1,312 |
Purchase of investments available for sale | — |  |  | (15 | )
Net cash used in investing activities | (1,298 | ) |  | (4,722 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |
Payments of cash dividends | (1,872 | ) |  | (1,865 | )
Net borrowings on revolving credit facility | 4,835 |  |  | 348 |
Net proceeds from the exercise of stock options | 59 |  |  | 1,640 |
Payment of withholding taxes related to the vesting of restricted stock units | (169 | ) |  | — |
Tax benefit from stock option exercise | — |  |  | 52 |
Repurchase of common stock | — |  |  | (2,857 | )
Net cash provided by (used in) financing activities | 2,853 |  |  | (2,682 | )
Effect of exchange rates on cash and cash equivalents | 596 |  |  | (304 | )
Net increase (decrease) in cash and cash equivalents | 5,013 |  |  | (8,634 | )
Cash and cash equivalents at the beginning of the period | 41,420 |  |  | 58,699 |
Cash and cash equivalents at the end of the period | $ | 46,433 |  |  | $ | 50,065 |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |  |  |  |  |
Cash paid for income taxes | $ | 1,474 |  |  | $ | 2,608 |
Cash paid for interest | 20 |  |  | 25 |

See accompanying notes to condensed consolidated financial statements.
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NATURE’S SUNSHINE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
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 Managers and 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 Argentina, 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 March 31, 2016, and for the three-month periods ended March 31, 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.
Classification of Belarus as a Highly Inflationary Economy and Devaluation of Its Currency
Since June 30, 2012, Belarus has been designated as a highly inflationary economy. The U.S. dollar is the Company’s functional currency for this market. As a result, there were no resulting gains or losses from a re-measurement of the financial statements using official rates of the Company’s Belarusian subsidiary. However, as a result of the weakening of the Belarusian ruble, the purchasing power of the Company’s independent Distributors in this market is reduced. During the three months ended March 31, 2016 and 2015, the Company’s Belarusian subsidiary’s net sales revenue represented approximately 1.6 percent and 2.1 percent of consolidated net sales revenue, respectively.
Restructuring Related Activities
During 2015, the Company announced a restructuring plan that has been substantially completed. Of the restructuring costs incurred during the year ended December 2015, $0.1 million of severance costs and $0.1 million of other exit costs remained payable as of March 31, 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 no restructuring costs incurred during the three months ended March 31, 2016 or 2015, respectively.
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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. 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 or footnote disclosures; however, it is expected to gross-up the consolidated balance sheet.
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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. 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):

| March 31, 2016 |  | March 31, 2015
Net sales revenue | $ | — |  |  | $ | — |
Income before income tax provision | $ | — |  |  | $ | 1,312 |
Income tax provision | — |  |  | — |
Income from discontinued operations | $ | — |  |  | $ | 1,312 |

During the three months ended March 31, 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):

| March 31, 2016 |  | December 31, 2015
Raw materials | $ | 14,183 |  |  | $ | 13,351 |
Work in progress | 758 |  |  | 789 |
Finished goods | 26,629 |  |  | 24,355 |
Total inventory | $ | 41,570 |  |  | $ | 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 March 31, 2016 | Amortized Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
U.S. government securities funds | $ | 1,794 |  |  | $ | — |  |  | $ | (3 | ) |  | $ | 1,791 |
Total short-term investment securities | $ | 1,794 |  |  | $ | — |  |  | $ | (3 | ) |  | $ | 1,791 |

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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 three-month periods ended March 31, 2016 and 2015.
The Company’s trading securities portfolio totaled $1.2 million at March 31, 2016, and $1.0 million at December 31, 2015, and generated gains of $7,000 and $23,000 for the three months ended March 31, 2016 and 2015, respectively.
As of March 31, 2016 and December 31, 2015, the Company had unrealized losses of $3,000 and $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 March 31, 2016 and December 31, 2015). The Company must pay an annual commitment fee of 0.25 percent on the unused portion of the commitment. Currently, 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 March 31, 2016. At March 31, 2016 and December 31, 2015, the outstanding balance under the revolving credit agreement was $7.5 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 March 31, 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 months ended March 31, 2016 and 2015 (dollar and share amounts in thousands, except for per share information):

| Three Months Ended March 31,
| 2016 |  | 2015
Net income attributable to common shareholders: |  |  |  |  |
Net income from continued operations | $ | 2,069 |  |  | $ | 4,355 |
Income from discontinued operations | $ | — |  |  | $ | 1,312 |
Net income | $ | 2,069 |  |  | $ | 5,667 |
Basic weighted average shares outstanding | 18,694 |  |  | 18,621 |
Basic earnings per share attributable to common shareholders: |  |  |  |  |
Net income from continued operations | $ | 0.11 |  |  | $ | 0.23 |
Income from discontinued operations | $ | — |  |  | $ | 0.07 |
Net income | $ | 0.11 |  |  | $ | 0.30 |
Diluted shares outstanding |  |  |  |  |
Basic weighted-average shares outstanding | 18,694 |  |  | 18,621 |
Stock-based awards | 436 |  |  | 571 |
Diluted weighted-average shares outstanding | 19,130 |  |  | 19,192 |
Diluted earnings per share attributable to common shareholders: |  |  |  |  |
Net income from continued operations | $ | 0.11 |  |  | $ | 0.23 |
Income from discontinued operations | $ | — |  |  | $ | 0.07 |
Net income | $ | 0.11 |  |  | $ | 0.30 |
Potentially dilutive shares excluded from diluted-per-share amounts: |  |  |  |  |
Stock options | 86 |  |  | 399 |
Potentially anti-dilutive shares excluded from diluted-per-share amounts: |  |  |  |  |
Stock options | 1,454 |  |  | 733 |

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.
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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 March 31, 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 three months ended March 31, 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. During the three-month period ended March 31, 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 three-month period ended March 31, 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 | (50 | ) |  | 11.72 |
Exercised | (25 | ) |  | 2.35 |
Options outstanding at March 31, 2016 | 1,608 |  |  | 12.38 |

Share-based compensation expense from time-based stock options for the three-month periods ended March 31, 2016 and 2015, was approximately $0.3 million and $0.6 million, respectively. As of March 31, 2016 and December 31, 2015, the unrecognized share-based compensation expense related to the grants described above was $0.8 million and $1.1 million, respectively. As of March 31, 2016, the remaining compensation cost is expected to be recognized over the weighted-average period of approximately 1.5 years.
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The Company has not recognized any share-based compensation expense related to the net sales revenue performance-based stock options for the three-month periods ended March 31, 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 March 31, 2016, the aggregate intrinsic value of outstanding stock options to purchase 1,608,000 shares of common stock, exercisable stock options to purchase 1,143,000 shares of common stock and stock options to purchase 384,000 shares of common stock that are expected to vest was $0.7 million, $0.7 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 three-month periods ended March 31, 2016 and 2015, the Company issued 25,000 and 227,000 shares of common stock upon the exercise of stock options at an average exercise price of $2.35, and $7.63 per share, respectively. The aggregate intrinsic values of options exercised during the three-month periods ended March 31, 2016 and 2015 was $0.2 million, and $1.3 million, respectively. For the three-month periods ended March 31, 2016 and 2015, the Company recognized $0.1 million and $0.6 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 March 31, 2016 and December 31, 2015, there were 59,000 and 60,000 vested RSUs granted to the Board of Directors that had a restriction period.
RSU activity for the three-month period ended March 31, 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 | 167 |  |  | 8.73 |
Forfeited | (2 | ) |  | 13.45 |
Issued | (125 | ) |  | 13.17 |
Restricted Stock Units outstanding at March 31, 2016 | 784 |  |  | 11.53 |

During the three-month period ended March 31, 2016, the Company granted 167,000 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 $9.08 per share and vest in annual installments over a three-year period from the grant date. The net sales and operating income and earnings-per-share performance-based RSUs were issued with a weighted-average grant date fair value of $8.16 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 from RSUs for the three-month periods ended March 31, 2016 and 2015, was approximately $0.6 million and $0.8 million, respectively. As of March 31, 2016 and December 31, 2015, the unrecognized share-based compensation expense related to the grants described above was $2.8 million and $2.5 million, respectively. As of March 31, 2016, the remaining compensation expense is expected to be recognized over the weighted average period of approximately 1.8 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 three-month periods ended March 31, 2016 and 2015. Should the Company attain
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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 three-month period ended March 31, 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.
Stock Appreciation Rights
The Company’s outstanding stock appreciation rights ("SARs") are time-based SARs, which vest over differing periods ranging from 12 months up to 48 months from the SAR grant date. The SARs have a strike price equal to the fair market value of one share of common stock on the grant date. Subsequent to vesting, the employee has the option to exercise the SAR and will receive the intrinsic value of the SAR as income on the exercise date. SARs do not entitle a participant to receive or purchase shares and are settled in cash. SARs will not reduce the number of shares of common stock available for issuance under the Company’s Stock Incentive Plans.
SAR activity for the three-month period ended March 31, 2016, is as follows (amounts in thousands, except per share information):

| Number of Shares |  | Weighted Average Grant Date Fair Value
Stock Appreciation Rights outstanding at December 31, 2015 | 20 |  |  | $ | 5.27 |
Granted | — |  |  | — |
Forfeited or canceled | — |  |  | — |
Exercised | — |  |  | — |
Stock Appreciation Rights outstanding at March 31, 2016 | 20 |  |  | 5.27 |

Share-based compensation expense from SARs for the three-month period ended March 31, 2016 and 2015, was approximately $1,000 and $3,000, respectively. As of March 31, 2016 and December 31, 2015, the unrecognized share-based compensation expense related to the grants described above was $17,000 and $32,000, respectively. As of March 31, 2016, the remaining compensation expense is expected to be recognized over the weighted average period of approximately 1.9 years.
(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 outside of China detailed below. 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 March 31,
| 2016 |  | 2015
Net sales revenue: |  |  |  |  |
NSP Americas | $ | 45,183 |  |  | $ | 46,510 |
NSP Russia, Central and Eastern Europe | 6,352 |  |  | 7,443 |
Synergy WorldWide | 29,848 |  |  | 28,768 |
China and New Markets | 1,019 |  |  | 1,157 |
Total net sales revenue | 82,402 |  |  | 83,878 |
Contribution margin (1): |  |  |  |  |
NSP Americas | 18,917 |  |  | 19,520 |
NSP Russia, Central and Eastern Europe | 2,181 |  |  | 2,596 |
Synergy WorldWide | 8,939 |  |  | 9,048 |
China and New Markets | 468 |  |  | 496 |
Total contribution margin | 30,505 |  |  | 31,660 |
Selling, general and administrative | 28,385 |  |  | 26,330 |
Operating income | 2,120 |  |  | 5,330 |
Other income (expense), net | 1,559 |  |  | (318 | )
Income from continuing operations before provision for income taxes | $ | 3,679 |  |  | $ | 5,012 |

_________________________________________
(1) Contribution margin consists of net sales revenue less cost of sales and volume incentives 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-month periods ended March 31, 2016 and 2015, as follows (dollar amounts in thousands):

| Three Months Ended March 31,
| 2016 |  | 2015
Net sales revenue: |  |  |  |  |
United States | $ | 38,295 |  |  | $ | 38,522 |
South Korea | 13,198 |  |  | 12,080 |
Other | 30,909 |  |  | 33,276 |
| $ | 82,402 |  |  | $ | 83,878 |

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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 March 31,
| 2016 |  | 2015
NSP Americas: |  |  |  |  |
General health | $ | 19,617 |  |  | $ | 20,032 |
Immune | 5,576 |  |  | 6,217 |
Cardiovascular | 3,112 |  |  | 3,101 |
Digestive | 13,079 |  |  | 13,365 |
Personal care | 930 |  |  | 970 |
Weight management | 2,869 |  |  | 2,825 |
| 45,183 |  |  | 46,510 |
NSP Russia, Eastern and Central Europe: |  |  |  |  |
General health | $ | 2,723 |  |  | $ | 2,879 |
Immune | 540 |  |  | 913 |
Cardiovascular | 477 |  |  | 453 |
Digestive | 2,121 |  |  | 1,970 |
Personal care | 249 |  |  | 882 |
Weight management | 242 |  |  | 346 |
| 6,352 |  |  | 7,443 |
Synergy WorldWide: |  |  |  |  |
General health | $ | 8,640 |  |  | $ | 7,702 |
Immune | 209 |  |  | 193 |
Cardiovascular | 12,693 |  |  | 12,655 |
Digestive | 2,487 |  |  | 2,294 |
Personal care | 1,939 |  |  | 1,830 |
Weight management | 3,880 |  |  | 4,094 |
| 29,848 |  |  | 28,768 |
China and New Markets: |  |  |  |  |
General health | $ | 471 |  |  | $ | 531 |
Immune | 131 |  |  | 158 |
Cardiovascular | 73 |  |  | 81 |
Digestive | 260 |  |  | 290 |
Personal care | 22 |  |  | 27 |
Weight management | 62 |  |  | 70 |
| 1,019 |  |  | 1,157 |
| $ | 82,402 |  |  | $ | 83,878 |

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):

| March 31, 2016 |  | December 31, 2015
Property, plant and equipment: |  |  |  |  |
United States | $ | 66,949 |  |  | $ | 66,044 |
Other | 2,425 |  |  | 2,684 |
Total property, plant and equipment | $ | 69,374 |  |  | $ | 68,728 |

(9) Income Taxes
For the three months ended March 31, 2016 and 2015, the Company’s provision for income taxes, as a percentage of income before income taxes was 51.4 percent and 16.1 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 March 31, 2016, was primarily 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 asset related to foreign currency translation amounts offset by net favorable foreign items related to tax rate differences.
The difference between the effective tax rate and the U.S. federal statutory tax rate for the three months ended March 31, 2015 was primarily attributed to the partial utilization of discrete foreign tax credit benefits related to intercompany dividends paid by foreign subsidiaries to the U.S. corporation in prior years.
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 2008 through 2015.
As of March 31, 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 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.
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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 March 31, 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 $3.6 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 $0.1 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 March 31, 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 | $ | 1,791 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,791 |
Investment securities | 1,199 |  |  | — |  |  | — |  |  | 1,199 |
Total assets measured at fair value on a recurring basis | $ | 2,990 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,990 |

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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 consist of various securities such as state and municipal obligations, U.S. government security funds, short-term deposits and various equity securities. 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 three months ended March 31, 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 three months ended March 31, 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 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 outside of China detailed below. The wholesale business was previously part of NSP Americas. 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 Argentina, Australia, Chile, Israel, New Zealand, Norway, Peru, Portugal, Spain and the United Kingdom.
In the first quarter of 2016, the company experienced a decrease in its consolidated net sales of 1.8 percent (but an increase of 1.3 percent in local currencies). NSP Russia, Central and Eastern Europe net sales decreased approximately 14.7 percent compared to the same period in 2015. NSP Americas net sales decreased approximately 2.9 percent compared to the same period in 2015 (or 0.9 percent in local currencies). China and New Markets net sales decreased approximately 11.9 percent compared to the same period in 2015. Synergy WorldWide net sales increased approximately 3.8 percent compared to the same period in 2015 (or 9.2 percent in local currencies). During the quarter, the Synergy Worldwide segment experienced net sales growth in local currencies in Indonesia, Japan, South Korea, Thailand, and the NSP Americas segment experienced net sales growth in local currencies in the United States and Canada. These increases were offset by declines in local currencies sales in NSP Russia, Central and Eastern Europe, in the Synergy Worldwide segment in Europe and North America, and in the NSP Americas segment in Latin 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 3.1 percent or $2.5 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 does not expect this decline in net sales to reverse in the near term. 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 reignite growth once the political situation and currency value stabilize.
In absolute terms, selling, general and administrative expenses increased $2.1 million in the first 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 34.4 percent from 31.4 percent in 2015. The increase in selling, general and administrative
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expenses for the three months ended March 31, 2016, was primarily related to increased non-capitalizable training costs related to our ERP project and increased investment in China.
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 13,800 and 14,700, and active Distributors and customers were approximately 253,400 and 277,000, at March 31, 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 revenue represents 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.
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 expenses represent 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, 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.
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 March 31, 2016 and 2015 (dollar amounts in thousands):

| Three Months Ended March 31, 2016 |  | Three Months Ended March 31, 2015 |  | Change
| Total dollars |  | Percent of net sales |  | Total dollars |  | Percent of net sales |  | Total dollars |  | Percentage
Net sales revenue | $ | 82,402 |  |  | 100.0 | % |  | $ | 83,878 |  |  | 100.0 | % |  | $ | (1,476 | ) |  | (1.8 | )%
Cost of sales | (22,020 | ) |  | (26.7 | ) |  | (21,881 | ) |  | (26.1 | ) |  | (139 | ) |  | (0.6 | )
| 60,382 |  |  | 73.3 |  |  | 61,997 |  |  | 73.9 |  |  | (1,615 | ) |  | (2.6 | )
Volume incentives | 29,877 |  |  | 36.3 |  |  | 30,337 |  |  | 36.2 |  |  | (460 | ) |  | (1.5 | )
SG&A expenses | 28,385 |  |  | 34.4 |  |  | 26,330 |  |  | 31.4 |  |  | 2,055 |  |  | 7.8 |
Operating income | 2,120 |  |  | 2.6 |  |  | 5,330 |  |  | 6.4 |  |  | (3,210 | ) |  | (60.2 | )
Other income (loss), net | 1,559 |  |  | 1.9 |  |  | (318 | ) |  | (0.4 | ) |  | 1,877 |  |  | 590.3 |
Income from continuing operations before income taxes | 3,679 |  |  | 4.5 |  |  | 5,012 |  |  | 6.0 |  |  | (1,333 | ) |  | (26.6 | )
Provision for income taxes | 1,890 |  |  | 2.3 |  |  | 809 |  |  | 1.0 |  |  | 1,081 |  |  | 133.6 |
Net income from continuing operations | $ | 1,789 |  |  | 2.2 | % |  | $ | 4,203 |  |  | 5.0 | % |  | $ | (2,414 | ) |  | (57.4 | )%

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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, it 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 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 March 31, 2016 and 2015 (dollar amounts in thousands):

| Net Sales Revenue by Operating Segment
| Three Months Ended March 31, 2016 |  | Three Months Ended March 31, 2015 |  | Percent Change |  | Impact of Currency Exchange |  | Percent Change Excluding Impact of Currency
NSP Americas: |  |  |  |  |  |  |  |  |  |  |  |  |  |
NSP North America | $ | 38,306 |  |  | $ | 38,174 |  |  | 0.3 | % |  | $ | (301 | ) |  | 1.1 | %
NSP Latin America | 6,877 |  |  | 8,336 |  |  | (17.5 | ) |  | (596 | ) |  | (10.4 | )
| 45,183 |  |  | 46,510 |  |  | (2.9 | ) |  | (897 | ) |  | (0.9 | )
NSP Russia, Central and Eastern Europe | 6,352 |  |  | 7,443 |  |  | (14.7 | ) |  | (53 | ) |  | (13.9 | )
Synergy WorldWide: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Synergy Asia Pacific | 20,816 |  |  | 18,698 |  |  | 11.3 |  |  | (1,434 | ) |  | 19.0 |
Synergy Europe | 6,257 |  |  | 6,728 |  |  | (7.0 | ) |  | (143 | ) |  | (4.9 | )
Synergy North America | 2,775 |  |  | 3,342 |  |  | (17.0 | ) |  | — |  |  | (17.0 | )
| 29,848 |  |  | 28,768 |  |  | 3.8 |  |  | (1,577 | ) |  | 9.2 |
China and New Markets | 1,019 |  |  | 1,157 |  |  | (11.9 | ) |  | — |  |  | (11.9 | )
| $ | 82,402 |  |  | $ | 83,878 |  |  | (1.8 | )% |  | $ | (2,527 | ) |  | 1.3 | %

Consolidated net sales revenue for the three months ended March 31, 2016, was $82.4 million compared to $83.9 million for the same period in 2015, or a decrease of approximately 1.8 percent. The decline was principally related to a $1.1 million decline in net sales revenue in the NSP Russia, Central and Eastern Europe segment, as well as a $2.5 million unfavorable impact in foreign currency exchange rate fluctuations in the three months ended March 31, 2016, partially offset by a $0.1 million increase in sales in NSP North America. Excluding the unfavorable impact of foreign currency exchange rate fluctuations, consolidated net sales revenue would have increased by 1.3 percent from 2015.
NSP Americas
Net sales revenue related to NSP Americas for the three months ended March 31, 2016, was $45.2 million, compared to $46.5 million for the same period in 2015, or a decrease of 2.9 percent. In local currency, net sales decreased 0.9 percent, compared to the same period in 2015. Fluctuations in foreign exchange rates had a $0.9 million unfavorable impact on net sales for the three months ended March 31, 2016. Active Managers within NSP Americas totaled approximately 7,300 and 7,700 at March 31, 2016 and 2015, respectively. Active Distributors and customers within NSP Americas totaled approximately 133,800
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and 141,200 at March 31, 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 5.2 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 $0.3 million, or 1.0 percent, for the three months ended March 31, 2016, compared to the same period in 2015, with growth for seventh consecutive quarters as it continued to see its new sales programs gain traction. This market 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 $0.2 million, or 6.9 percent, for the three months ended March 31, 2016, compared to the same period in 2015. In local currency, net sales increased 3.1 percent compared to the same period in 2015, which is the seventh consecutive quarter of growth. 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 $1.5 million, or 17.5 percent, for the three months ended March 31, 2016, compared to the same period in 2015. In local currency, net sales decreased 10.4 percent compared to the same period in 2015. Currency devaluation had a $0.6 million unfavorable impact on net sales for the three months ended March 31, 2016. In Latin America, the Company faced continued headwinds due in part to changing regulations for product registration. To address this, the Company intends to introduce 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, the Ukraine, Poland, and Belarus), for the three months ended March 31, 2016, was $6.4 million, compared to $7.4 million for the same period in 2015, a decrease of 14.7 percent. Active independent Managers within NSP Russia, Central and Eastern Europe totaled approximately 2,800 and 3,400 at March 31, 2016 and 2015, respectively. Active independent Distributors and customers within NSP Russia, Central and Eastern Europe totaled approximately 65,200 and 78,300 at March 31, 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 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 months ended March 31, 2016, of $29.8 million, compared to $28.8 million for the same period in 2015 an increase of 3.8 percent. This increase was primarily due to local currency sales growth in the Company's Asia Pacific region, offset by local currency sales declines in Europe and North America and the adverse impact of fluctuations in foreign exchange rates, which had a $1.6 million unfavorable impact on net sales for the three months ended March 31, 2016. Excluding the impact of fluctuations in foreign exchange rates, local currency net sales in Synergy WorldWide would have increased by 9.2 percent from 2015. Active independent Managers within Synergy WorldWide totaled approximately 3,700 and 3,600 at March 31, 2016 and 2015, respectively. Active independent Distributors and customers within Synergy WorldWide totaled approximately 54,400 and 57,500 at March 31, 2016 and 2015, respectively. Synergy WorldWide’s business model is operating under a traditional direct selling approach.
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Notable activity in the following markets contributed to the results of Synergy WorldWide:
In South Korea, net sales revenue increased $1.1 million, or 9.3 percent, for the three months ended March 31, 2016, compared to the same period in 2015. In local currencies, net sales increased 19.5 percent compared to the same period in 2015. The increase in local currency net sales was primarily due to the launched new distributor acquisition programs, including a new Home Health Party program and improvements in the rank advancement and recognitions program.
In Japan, net sales revenues increased approximately $1.0 million, or 40.1 percent, for the three months ended March 31, 2016, compared to the same period in 2015. In local currencies, net sales increased 35.6 percent compared to the same period in 2015. The Company continues to see the growth of new products and implemented programs to stimulate activity, including the adoption of Korea's distributor recognition program, which had a positive impact on sales volume in this market in the first quarter of 2016.
In Europe, net sales revenues decreased approximately $0.5 million, or 7.0 percent, for the three months ended March 31, 2016, compared to the same period in 2015. Fluctuations in foreign exchange rates, had a $0.1 million unfavorable impact on net sales the three months ended March 31, 2016. Excluding the impact of fluctuations in foreign exchange rates, local currency net sales decreased 4.9 percent compared to the same period in 2015. The decline in local currencies has been driven by residual sales in the prior year tied to launch of the Company's weight management product plan, that did not recur this period.
In North America, net sales revenues decreased approximately $0.6 million, or 17.0 percent, for the three months ended March 31, 2016, compared to the same period in 2015. The decline in sales is primarily driven by lower Distributor recruiting. Growth initiatives have been developed and implemented to more effectively support recruiting and Distributor training and motivation.
China and New Markets
China and New Markets reported wholesale related net sales revenue for the three months ended March 31, 2016, of $1.0 million, compared to $1.2 million for the same period in 2015, a decrease of 11.9 percent.
Further information related to NSP Americas, NSP Russia, Central and Eastern Europe, Synergy WorldWide, and China and New Markets business segments is set forth in Note 8 to the Unaudited Condensed Consolidated Financial Statements in Part 1, Item 1 of this report.
Cost of Sales
Cost of sales as a percent of net sales revenue increased to 26.7 percent for the three months ended March 31, 2016, compared to 26.1 percent for the same period in 2015. The increase in the cost of sale percentage is primarily due to the strengthening of the U.S. dollar against the local currencies in many foreign markets, which has made the Company's products more expensive in those markets.
Volume Incentives
Volume incentives as a percent of net sales revenue increased to 36.3 percent for the three months ended March 31, 2016, compared to 36.2 percent in 2015.
Selling, General and Administrative
Selling, general and administrative expenses increased by approximately $2.1 million to $28.4 million for the three months ended March 31, 2016. Selling, general and administrative expenses were 34.4 percent of net sales revenue for the three months ended March 31, 2016, compared to 31.4 percent for the same period in 2015, respectively. The increase in selling, general and administrative expenses for the three months ended March 31, 2016, was primarily related to increased non-capitalizable training costs related to our ERP project of $1.0 million and $0.6 million of increased investment in China.
Other Income (Expense), Net
Other income (expense) net, for the three months ended March 31, 2016 increased $1.9 million to $1.6 million as compared to the same period in 2015. The change in other income was primarily due to an increase in foreign exchange gains.
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Income Taxes
For the three months ended March 31, 2016 and 2015, the Company’s provision for income taxes, as a percentage of income before income taxes was 51.4 percent and 16.1 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 March 31, 2016, was primarily 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 asset related to foreign currency translation amounts offset by net favorable foreign items related to tax rate differences.
The difference between the effective tax rate and the U.S. federal statutory tax rate for the three months ended March 31, 2015 was primarily attributed to the partial utilization of discrete foreign tax credit benefits related to intercompany dividends paid by foreign subsidiaries to the U.S. corporation in prior years.
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 2008 through 2015.
As of March 31, 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.
Product Categories
The Company’s line of over 700 products includes several different product classifications, such as immune, cardiovascular, digestive, personal care, weight management and other general health products. The Company purchases herbs and other raw materials in bulk and, after rigorous quality control testing, it formulates, encapsulates, tablets or concentrates them, labels and packages them for shipment. Most products are manufactured at the Company's facility in Spanish Fork, Utah. Contract manufacturers produce some of its products in accordance with its exacting specifications and standards. The Company has implemented stringent quality control procedures to verify that its contract manufacturers have complied with its specifications and standards.
Presented below are the U.S. dollar amounts and associated revenue percentages from the sale of general health, immune, cardiovascular, digestive, personal care and weight management products for the three months ended March 31, 2016 and 2015, by business segment.
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Three Months Ended March 31, | 2016 |  | 2015
NSP Americas: |  |  |  |  |  |  |  |  |  |  |
General health | $ | 19,617 |  |  | 43.4 | % |  | $ | 20,032 |  |  | 43.1 | %
Immune | 5,576 |  |  | 12.3 |  |  | 6,217 |  |  | 13.4 |
Cardiovascular | 3,112 |  |  | 6.9 |  |  | 3,101 |  |  | 6.7 |
Digestive | 13,079 |  |  | 28.9 |  |  | 13,365 |  |  | 28.7 |
Personal care | 930 |  |  | 2.1 |  |  | 970 |  |  | 2.1 |
Weight management | 2,869 |  |  | 6.3 |  |  | 2,825 |  |  | 6.1 |
Total NSP Americas | 45,183 |  |  | 100.0 |  |  | 46,510 |  |  | 100.0 |
NSP Russia, Central and Eastern Europe: |  |  |  |  |  |  |  |  |  |  |
General health | $ | 2,723 |  |  | 42.9 | % |  | $ | 2,879 |  |  | 38.7 | %
Immune | 540 |  |  | 8.5 |  |  | 913 |  |  | 12.3 |
Cardiovascular | 477 |  |  | 7.5 |  |  | 453 |  |  | 6.1 |
Digestive | 2,121 |  |  | 33.4 |  |  | 1,970 |  |  | 26.5 |
Personal care | 249 |  |  | 3.9 |  |  | 882 |  |  | 11.9 |
Weight management | 242 |  |  | 3.8 |  |  | 346 |  |  | 4.6 |
Total NSP Russia, Central and Eastern Europe | 6,352 |  |  | 100.0 |  |  | 7,443 |  |  | 100.0 |
Synergy WorldWide: |  |  |  |  |  |  |  |  |  |  |
General health | $ | 8,640 |  |  | 28.9 | % |  | $ | 7,702 |  |  | 26.8 | %
Immune | 209 |  |  | 0.7 |  |  | 193 |  |  | 0.7 |
Cardiovascular | 12,693 |  |  | 42.5 |  |  | 12,655 |  |  | 44.0 |
Digestive | 2,487 |  |  | 8.3 |  |  | 2,294 |  |  | 8.0 |
Personal care | 1,939 |  |  | 6.5 |  |  | 1,830 |  |  | 6.4 |
Weight management | 3,880 |  |  | 13.0 |  |  | 4,094 |  |  | 14.2 |
Total Synergy WorldWide | 29,848 |  |  | 100.0 |  |  | 28,768 |  |  | 100.0 |
China and New Markets: |  |  |  |  |  |  |  |  |  |  |
General health | $ | 471 |  |  | 46.2 | % |  | $ | 531 |  |  | 45.9 | %
Immune | 131 |  |  | 12.9 |  |  | 158 |  |  | 13.7 |
Cardiovascular | 73 |  |  | 7.2 |  |  | 81 |  |  | 7.0 |
Digestive | 260 |  |  | 25.5 |  |  | 290 |  |  | 25.1 |
Personal care | 22 |  |  | 2.2 |  |  | 27 |  |  | 2.3 |
Weight management | 62 |  |  | 6.1 |  |  | 70 |  |  | 6.1 |
Total China and New Markets | 1,019 |  |  | 100.0 |  |  | 1,157 |  |  | 100.0 |
Consolidated: |  |  |  |  |  |  |  |  |  |  |
General health | $ | 31,451 |  |  | 38.2 | % |  | $ | 31,253 |  |  | 37.3 | %
Immune | 6,456 |  |  | 7.8 |  |  | 7,372 |  |  | 8.8 |
Cardiovascular | 16,355 |  |  | 19.8 |  |  | 16,285 |  |  | 19.4 |
Digestive | 17,947 |  |  | 21.8 |  |  | 17,925 |  |  | 21.4 |
Personal care | 3,140 |  |  | 3.8 |  |  | 3,709 |  |  | 4.4 |
Weight management | 7,053 |  |  | 8.6 |  |  | 7,334 |  |  | 8.7 |
Total Consolidated | $ | 82,402 |  |  | 100.0 | % |  | $ | 83,878 |  |  | 100.0 | %

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The following table summarizes the Company's product lines by category:

Category |  | Description |  | Selected Representative Products
General health |  | The Company distributes a wide selection of general health products. The general health line is a combination of assorted health products related to blood sugar support, bone health, cellular health, cognitive function, joint health, mood, sexual health, sleep, sports and energy, and vision. |  | NSP Americas; NSP Russia, Central and Eastern Europe; China and New Markets: Anxiousless tm, CurcuminBP, Everflex®, Ionic Minerals, Mind-Max, Nutri-Calm®, Perfect Eyes®, Skeletal Strength®, Super Supplemental Vitamin and Mineral, Super Trio, Tai-Go®, Vitamin B-Complex, Vitamin D3 Synergy WorldWide: Core Greens®, Mistica®, Noni Plus, NutriBurst, Spirulina
Immune |  | The Company distributes immune products. The immune line has been designed to offer products that support and strengthen the human immune system. |  | NSP Americas; NSP Russia, Central and Eastern Europe; China and New Markets: Elderberry D3fense, HistaBlock®, Immune Stimulator, Silver Shield, VS-C® Synergy WorldWide: BodyGuard, Colostrum
Cardiovascular |  | The Company distributes cardiovascular products. The cardiovascular line has been designed to offer products that combine a variety of superior heart health ingredients to give the cardiovascular system optimum support. |  | NSP Americas; NSP Russia, Central and Eastern Europe; China and New Markets: CardioxLDL, Blood Pressurex, Co-Q10, Flax Seed Oil, Mega-Chel®, Red Yeast Rice, Super Omega-3 EPA Synergy WorldWide: E-9, ProArgi-9 Plus®
Digestive |  | The Company distributes digestive products. The digestive line has been designed to offer products that regulate intestinal and digestive functions in support of the human digestive system. |  | NSP Americas; NSP Russia, Central and Eastern Europe; China and New Markets: Bifidophilus Flora Force®, CleanStart®, Food Enzymes, LBS II®, Liquid Chlorophyll, Proactazyme®, Probiotic Eleven® Synergy WorldWide: Detox Plus, Liquid Chlorophyll
Personal care |  | The Company distributes a variety of personal care products for external use, including oils and lotions, aloe vera gel, herbal shampoo, herbal skin treatment, toothpaste and skin cleanser. |  | NSP Americas; NSP Russia, Central and Eastern Europe; China and New Markets: EverFlex® Cream , HSN-W®, Pau-D Arco Lotion, Pro-G Yam® Cream, Tei-Fu® Lotion, Vari-Gone® Synergy WorldWide: Bright Renewal Serum, Hydrating Toner, 5 in 1 Shampoo, Repair Complex
Weight management |  | The Company distributes a variety of weight management products. The weight management line has been designed to simplify the weight management process by providing healthy meal replacements and products that increase caloric burn rate. |  | NSP Americas; NSP Russia, Central and Eastern Europe; China and New Markets: Fat Grabbers®, Garcinia Combination, Love and Peas, Nature’s Harvest, Nutri-Burn®, SmartMeal, Stixated™, Ultra Therm™ Synergy WorldWide: Double Burn, SLMSmart™

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Distribution and Marketing
The Company’s independent distributors, also known as Managers and Distributors, market its products to customers through direct selling techniques and sponsor other independent distributors who also market the Company's products to customers. The Company seeks to motivate and provide incentives to its independent distributors by offering high quality products and providing its independent distributors with product support, training seminars, sales conventions, travel programs and financial incentives.
The Company’s products sold in the United States are shipped directly from its manufacturing and warehouse facilities located in Spanish Fork, Utah, as well as from its regional warehouses located in Georgia, Ohio and Texas. Many of the Company's international operations maintain warehouse facilities with inventory to supply their independent distributors and customers. However, in foreign markets where it does not maintain warehouse facilities, it has contracted with third-parties to distribute its products and provide support services to its independent sales force of independent distributors.
As of March 31, 2016, the Company had approximately 253,400 "active independent Distributors and customers" (as defined below). A person who joins the Company’s independent sales force begins as an independent distributor. Many independent distributors sell the Company’s products on a part-time basis to friends or associates or use the products themselves. An independent distributor may earn Manager status by attaining certain product sales levels. As of March 31, 2016, the Company had approximately 13,800 "active independent Managers" (as defined below) worldwide. In many of the Company's markets, its independent Managers and Distributors are primarily retailers of the Company's products, including practitioners, proprietors of retail stores and other health and wellness specialists.
In the United States, the Company generally sells its products on a cash or credit card basis. From time to time, the Company's U.S. operations extend short-term credit associated with product promotions. For certain of its international operations, the Company uses independent distribution centers and offers credit terms that are generally consistent with industry standards within each respective country.
The Company pays sales commissions, or “volume incentives” to its Managers and Distributors based upon the amount of their sales group product purchases. These volume incentives are recorded as an expense in the year earned. The amounts of volume incentives that the Company expensed during the quarters ended March 31, 2016 and 2015, are set forth in the Condensed Consolidated Financial Statements in Item 1 of this report. In addition to the opportunity to receive volume incentives, Managers who attain certain levels of monthly product sales are eligible for additional incentive programs including automobile allowances, sales convention privileges and travel awards.
Distributor Information
The Company's revenue is highly dependent upon the number and productivity of its independent Managers and Distributors. Growth in sales volume requires an increase in the productivity and/or growth in the total number of independent Managers and Distributors.
Within the Company, there are a number of different distributor compensation plans and qualifications, which generate active independent Managers and Distributors with different sales values in the different business segments. Within the NSP Americas and NSP Russia, Central and Eastern Europe segments, the declines in active independent Managers and Distributors have resulted in declines in sales revenues. Within Synergy WorldWide, the sales qualifications required for active independent Managers and Distributors varies by market according to local economic factors. As sales grow in markets with higher qualification values, and decline in those with lower qualification values, the resultant mix change influences the active independent Manager and Distributor counts. As a result, from time-to-time, changes in overall active independent Manager and Distributor counts may not be indicative of actual sales trends for the segment. There are no Managers, Distributors, and customers in the China and New Markets segment as the wholesale business accounts for all of the segment’s sales to date.
The following table provides information concerning the number of total independent Managers, Distributors and customers by segment, as of the dates indicated:
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Total Managers, Distributors and Customers by Segment as of March 31,

| 2016 |  | 2015
| Distributors & Customers |  | Managers |  | Distributors & Customers |  | Managers
NSP Americas | 282,700 |  |  | 7,300 |  |  | 293,100 |  |  | 7,700 |
NSP Russia, Central and Eastern Europe | 154,900 |  |  | 2,800 |  |  | 210,600 |  |  | 3,400 |
Synergy WorldWide | 121,800 |  |  | 3,700 |  |  | 124,200 |  |  | 3,600 |
China and New Markets | — |  |  | — |  |  | — |  |  | — |
| 559,400 |  |  | 13,800 |  |  | 627,900 |  |  | 14,700 |

“Total Managers” includes independent Managers under the Company's various compensation plans that have achieved and maintained specified and personal groups sale volumes as of the date indicated. To maintain Manager status, an individual must continue to meet certain product sales volume levels. As such, all Managers are considered to be “Active Managers”.
“Total Distributors and customers” includes the Company's independent Distributors and customers who have purchased products directly from the Company for resale and/or personal consumption during the previous twelve months ended as of the date indicated. This includes independent Manager, Distributor and customer accounts that may have become inactive since such respective dates.
The following table provides information concerning the number of active Distributors and customers by segment, as of the dates indicated:
Active Distributors and Customers by Segment as of March 31,

| 2016 |  | 2015
| Distributors & Customers |  | Managers |  | Distributors & Customers |  | Managers
NSP Americas | 133,800 |  |  | 7,300 |  |  | 141,200 |  |  | 7,700 |
NSP Russia, Central and Eastern Europe | 65,200 |  |  | 2,800 |  |  | 78,300 |  |  | 3,400 |
Synergy WorldWide | 54,400 |  |  | 3,700 |  |  | 57,500 |  |  | 3,600 |
China and New Markets | — |  |  | — |  |  | — |  |  | — |
| 253,400 |  |  | 13,800 |  |  | 277,000 |  |  | 14,700 |

“Active Distributors and customers” includes the Company's independent Distributors and customers who have purchased products directly from the Company for resale and/or personal consumption during the previous three months ended as of the date indicated.
The following tables provide information concerning the number of new independent Managers, Distributors and customers by segment, for the periods indicated:
New Managers, Distributors and Customers by Segment for the Quarter Ended March 31,

| 2016 |  | 2015
| Distributors & Customers |  | Managers |  | Distributors & Customers |  | Managers
NSP Americas | 31,600 |  |  | 800 |  |  | 33,600 |  |  | 800 |
NSP Russia, Central and Eastern Europe | 11,200 |  |  | 100 |  |  | 12,100 |  |  | 200 |
Synergy WorldWide | 17,000 |  |  | 600 |  |  | 19,300 |  |  | 600 |
China and New Markets | — |  |  | — |  |  | — |  |  | — |
| 59,800 |  |  | 1,500 |  |  | 65,000 |  |  | 1,600 |

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“New Managers” includes independent Managers under the Company's various compensation plans that first achieved the rank of Manager during the previous three months ended as of the date indicated.
“New Distributors and Customers” include the Company's independent Distributors and customers who have made their initial product purchase directly from the Company for resale and/or personal consumption during the previous three months ended as of the date indicated.
The following tables provide information concerning the number of new Managers, Distributors and customers by segment, for the periods indicated:
New Managers, Distributors and Customers by Segment for the Twelve Months Ended March 31,

| 2016 |  | 2015
| Distributors & Customers |  | Managers |  | Distributors & Customers |  | Managers
NSP Americas | 126,000 |  |  | 3,000 |  |  | 130,200 |  |  | 3,100 |
NSP Russia, Central and Eastern Europe | 46,000 |  |  | 600 |  |  | 56,200 |  |  | 1,000 |
Synergy WorldWide | 74,300 |  |  | 2,300 |  |  | 75,800 |  |  | 2,100 |
China and New Markets | — |  |  | — |  |  | 400 |  |  | — |
| 246,300 |  |  | 5,900 |  |  | 262,600 |  |  | 6,200 |

“New Managers” includes independent Managers under the Company's various compensation plans that first achieved the rank of Manager during the previous twelve months ended as of the date indicated.
“New Distributors and Customers” include the Company's independent Distributors and customers who have made their initial product purchase directly from the Company for resale and/or personal consumption during the previous twelve months ended as of the date indicated.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal use of cash is to pay for operating expenses, including volume incentives, inventory and raw material purchases, capital assets and funding of international expansion. As of March 31, 2016, working capital was $47.8 million, compared to $48.4 million as of December 31, 2015. At March 31, 2016, the Company had $46.4 million in cash and cash equivalents, of which $42.8 million was held in foreign markets and may be subject to various withholding taxes and other restrictions related to repatriation before becoming available to be used along with the normal cash flows from operations to fund any unanticipated shortfalls in future cash flows.
The Company's net consolidated cash inflows (outflows) are as follows (in thousands):

| Three Months Ended March 31,
| 2016 |  | 2015
Operating activities | $ | 2,862 |  |  | $ | (926 | )
Investing activities | (1,298 | ) |  | (4,722 | )
Financing activities | 2,853 |  |  | (2,682 | )

Operating Activities
For the three months ended March 31, 2016, operating activities provided cash in the amount of $2.9 million, compared to cash used in the amount of $0.9 million for the same period in 2015. Operating cash flows increased due to timing of payments and receipts for accounts receivable, prepaid expenses, accrued liabilities, and deferred revenue, and were partially offset by the timing of payments and receipts for inventories, other assets, and accounts payable, as well as the decline in net income between periods.
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Investing Activities
For the three months ended March 31, 2016, investing activities used cash in the amount of $1.3 million, and $4.7 million for the same period in 2015. Capital expenditures related to the purchase of equipment, computer systems and software for the three months ended March 31, 2016 and 2015, were $1.7 million and $6.0 million, respectively. In 2013, the Company began to significantly reinvest in its information technology systems. Included within this plan is an Oracle ERP implementation program to provide the Company with a single integrated software solution that will integrate the Company’s business process on a worldwide basis. The Company anticipates completion of this project by early 2017.
Financing Activities
For the three months ended March 31, 2016, financing activities provided cash in the amount of $2.9 million, compared to cash used in the amount of $2.7 million for the same period in 2015. During the three months ended March 31, 2016 and 2015, the Company used cash to pay dividends in an aggregate amount of $1.9 million and $1.9 million, respectively.
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. The Company will fund future dividends and the share repurchase program through available cash on hand, future cash flows from operations and borrowings under its revolving credit facility. During the three-month period ended March 31, 2016, there were no share repurchased by the Company under the share repurchase program. At March 31, 2016, the remaining balance available for repurchases under the program was $13.4 million.
The Company has a revolving credit agreement with Wells Fargo Bank, N.A. with a borrowing limit of $25.0 million that matures September 1, 2017. The Company pays interest at LIBOR plus 1.25 percent on any borrowings on the agreement (1.75 percent as of March 31, 2016). The Company must pay an annual commitment fee of 0.25 percent on the unused portion of the commitment. The Company retains ample capital capacity to continue making long-term investments in its sales, marketing, science and product development initiatives and overall operations, as well as pursue strategic opportunities as they may arise. At March 31, 2016 and December 31, 2015, the Company had a balance of $7.5 million and $2.7 million, respectively, under the revolving credit agreement.
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. As of March 31, 2016, the Company was in compliance with these debt covenants.
The Company believes that cash generated from operations, along with available cash and cash equivalents, will be sufficient to fund its normal operating needs; including dividends, share repurchases, and capital expenditures, as well as potential business development activity for the foreseeable future. However, among other things, a prolonged economic downturn, a decrease in demand for the Company's products, an unfavorable settlement of its unrecognized tax positions or non-income tax contingencies could adversely affect the Company's long-term liquidity.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP and form the basis for the following discussion and analysis on critical accounting policies and estimates. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, the Company evaluates its estimates and assumptions. It bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates and those differences could have a material effect on the Company's financial position and results of operations. Management has discussed the development, selection and disclosure of these estimates with the Board of Directors and its Audit Committee.
A summary of the Company's significant accounting policies is provided in Note 1 of the Notes to Consolidated Financial Statements in Item 8 of the Annual Report on Form 10-K for the year ended December 31, 2015. The Company believes the critical accounting policies and estimates described below reflect the more significant estimates and assumptions
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used in the preparation of its consolidated financial statements. The impact and any associated risks on its business that are related to these policies are also discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and expected financial results.
Revenue Recognition
Net sales revenue and related volume incentive expenses are recorded when persuasive evidence of an arrangement exists, collectability is reasonably assured, the amount is fixed and determinable, and title and risk of loss have passed. The amount of the volume incentive is determined based upon the amount of qualifying purchases in a given month. Amounts received for undelivered merchandise are recorded as deferred revenue.
From time to time, the Company’s U.S. operations extend short-term credit associated with product promotions. In addition, for certain of the Company’s international operations, the Company offers credit terms consistent with industry standards within the country of operation. Payments to independent Managers and Distributors for sales incentives or rebates are recorded as a reduction of revenue. Payments for sales incentives and rebates are calculated monthly based upon qualifying sales. Membership fees are deferred and amortized as revenue over the life of the membership, primarily one year. Prepaid event registration fees are deferred and recognized as revenues when the related event is held.
A reserve for product returns is recorded based upon historical experience. The Company allows independent Managers or Distributors to return the unused portion of products within ninety days of purchase if they are not satisfied with the product. In some of the Company’s markets, the requirements to return product are more restrictive.
Accounts Receivable Allowances
Accounts receivable have been reduced by an allowance for amounts that may be uncollectible in the future. This estimated allowance is based primarily on the aging category, historical trends and management’s evaluation of the financial condition of the customer. This reserve is adjusted periodically as information about specific accounts becomes available.
Investments
The Company’s available-for-sale investment portfolio is recorded at fair value and consists of various securities such as state and municipal obligations, U.S. government security funds, short-term deposits and various equity securities. These investments are valued using (a) quoted prices for identical assets in active markets or (b) from significant inputs that are observable or can be derived from or corroborated by observable market data for substantially the full term of the asset. The Company’s trading portfolio is recorded at fair value and consists of various marketable securities that are valued using quoted prices in active markets.
For equity securities, when assessing whether a decline in fair value below the Company’s cost basis is other-than-temporary, the Company considers the fair market value of the security, the length of time and extent to which market value has been less than cost, the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer, and the Company’s intent and ability to hold the investment for a sufficient time in order to enable recovery of the cost. New information and the passage of time can change these judgments. Where the Company has determined that it lacks the intent and ability to hold an equity security to its expected recovery, the security’s decline in fair value is deemed to be other-than-temporary and is recorded within earnings as an impairment loss.
Inventories
Inventories are stated at the lower-of-cost-or-market, using the first-in, first-out method. The components of inventory cost include raw materials, labor and overhead. To estimate any necessary obsolescence or lower-of-cost-or-market adjustments, various assumptions are made in regard to excess or slow-moving inventories, non-conforming inventories, expiration dates, current and future product demand, production planning and market conditions.
Self-Insurance Liabilities
Similar to other manufacturers and distributors of products that are ingested, the Company faces an inherent risk of exposure to product liability claims in the event that, among other things, the use of its products results in injury. The Company has a wholly-owned captive insurance company to provide it with product liability insurance coverage. The Company has accrued an amount that it believes is sufficient to cover probable and reasonably estimable liabilities related to product liability claims based on the Company’s history of such claims. However, there can be no assurance that these estimates will prove to be
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sufficient, nor can there be any assurance that the ultimate outcome of any litigation for product liability will not have a material negative impact on the Company’s business prospects, financial position, results of operations or cash flows.
The Company self-insures for certain employee medical benefits. The recorded liabilities for self-insured risks are calculated using actuarial methods and are not discounted. The liabilities include amounts for actual claims and claims incurred but not reported. Actual experience, including claim frequency and severity as well as health care inflation, could result in actual liabilities being more or less than the amounts currently recorded.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, such as property, plant and equipment and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. It may use an estimate of future undiscounted net cash flows of the related assets or groups of assets over their remaining lives in measuring whether the assets are recoverable. An impairment loss is calculated by determining the difference between the carrying values and the fair values of these assets. During the three months ended March 31, 2016 and 2015, the Company received $0 and $1.3 million, respectively, in net proceeds from the sales of its fixed assets in Venezuela, which is included in the results from discontinued operations.
Incentive Trip Accrual
The Company accrues for expenses associated with its direct sales program, which rewards independent Managers and Distributors with paid attendance for incentive trips, including Company conventions and meetings. Expenses associated with incentive trips are accrued over qualification periods as they are earned. It specifically analyzes incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual. Actual results could generate liabilities more or less than the amounts recorded.
Contingencies
The Company is involved in certain legal proceedings. When a loss is considered probable in connection with litigation or non-income tax contingencies and when such loss can be reasonably estimated with a range, it records its best estimate within the range related to the contingency. If there is no best estimate, it records the minimum of the range. As additional information becomes available, it assesses the potential liability related to the contingency and revise the estimates. Revision in estimates of the potential liabilities could materially affect its results of operations in the period of adjustment. The Company's contingencies are discussed in further detail in Note 10, “Commitments and Contingencies”, to the Notes of its Condensed Consolidated Financial Statements, of Item 1, Part 1 of this report.
Income Taxes
The Company’s income tax expense, deferred tax assets and liabilities and contingent reserves reflect management’s best assessment of estimated future taxes to be paid. It is subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the Company’s consolidated income tax expense.
Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating the Company’s ability to recover its deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, the Company develops assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent with the plans and estimates that the Company is using to manage the underlying businesses. Valuation allowances are recorded as reserves against net deferred tax assets by the Company when it is determined that net deferred tax assets are not likely to be realized in the foreseeable future.
Changes in tax laws and rates could also affect recorded deferred tax assets and liabilities in the future. Management is not aware of any such changes that would have a material effect on the Company’s results of operations, cash flows or financial position.
The calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across its global operations. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
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Share-Based Compensation
The Company recognizes all share-based payments to Directors and employees, including grants of stock options and restricted stock units, to be recognized in the statement of operations based on their grant-date fair values. It records compensation expense, net of an estimated forfeiture rate, over the vesting period of the stock options based on the fair value of the stock options on the date of grant. The estimated forfeiture rate is based upon historical experience.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company conducts business in several countries and intends to continue to grow its international operations. Net sales revenue, operating income and net income are affected by fluctuations in currency exchange rates, interest rates and other uncertainties inherent in doing business and selling product in more than one currency. In addition, its operations are exposed to risks associated with changes in social, political and economic conditions inherent in international operations, including changes in the laws and policies that govern international investment in countries where it has operations, as well as, to a lesser extent, changes in U.S. laws and regulations relating to international trade and investment.
Foreign Currency Risk
During the three months ended March 31, 2016, approximately 53.5 percent of the Company's net sales revenue and approximately 51.6 percent of its operating expenses were realized outside of the United States. Inventory purchases are transacted primarily in U.S. dollars from vendors located in the United States. The local currency of each international subsidiary is generally the functional currency. It conducts business in multiple currencies with exchange rates that are not on a one-to-one relationship with the U.S. dollar. All revenues and expenses are translated at average exchange rates for the periods reported. Therefore, its operating results will be positively or negatively affected by a weakening or strengthening of the U.S. dollar in relation to another fluctuating currency. Given the uncertainty and diversity of exchange rate fluctuations, the Company cannot estimate the effect of these fluctuations on its future business, product pricing, results of operations or financial condition, but it has provided consolidated sensitivity analyses below of functional currency/reporting currency exchange rate risks. Changes in various currency exchange rates affect the relative prices at which it sells its products. The Company regularly monitors its foreign currency risks and periodically takes measures to reduce the risk of foreign exchange rate fluctuations on its operating results. It does not use derivative instruments for hedging, trading or speculating on foreign exchange rate fluctuations. Additional discussion of the impact on the effect of currency fluctuations has been included in its management’s discussion and analysis included in Part I, Item 2 of this report.
The following table sets forth a composite sensitivity analysis of the Company’s net sales revenue, costs and expenses and operating income in connection with the strengthening of the U.S. dollar (its reporting currency) by 10%, 15%, and 25% against every other fluctuating functional currency in which it conducts business. The Company notes that its individual net sales revenue, cost and expense components and its operating income were equally sensitive to increases in the strength of the U.S. dollar against every other fluctuating currency in which it conducts business.
Exchange rate sensitivity for the three months ended March 31, 2016 (dollar amounts in thousands)

|  |  | With Strengthening of U.S. Dollar by:
|  |  | 10% |  | 15% |  | 25%
|  |  | ($) |  | (%) |  | ($) |  | (%) |  | ($) |  | (%)
Net sales revenue | $ | 82,402 |  |  | (3,181 | ) |  | (3.9 | )% |  | $ | (4,565 | ) |  | (5.5 | )% |  | $ | (6,999 | ) |  | (8.5 | )%
Cost and expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales | 22,020 |  |  | (1,012 | ) |  | (4.6 | ) |  | (1,452 | ) |  | (6.6 | ) |  | (2,227 | ) |  | (10.1 | )
Volume incentives | 29,877 |  |  | (1,220 | ) |  | (4.1 | ) |  | (1,751 | ) |  | (5.9 | ) |  | (2,685 | ) |  | (9.0 | )
Selling, general and administrative | 28,385 |  |  | (796 | ) |  | (2.8 | ) |  | (1,143 | ) |  | (4.0 | ) |  | (1,752 | ) |  | (6.2 | )
Operating income | $ | 2,120 |  |  | $ | (153 | ) |  | (7.2 | )% |  | $ | (219 | ) |  | (10.3 | )% |  | $ | (335 | ) |  | (15.8 | )%

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Certain of the Company’s operations, including Russia and Ukraine, are served by a U.S. subsidiary through third-party entities, for which all business is conducted in U.S. dollars. Although changes in exchange rates between the U.S. dollar and the Russian ruble or the Ukrainian hryvnia do not result in currency fluctuations within its financial statements, a weakening or strengthening of the U.S. dollar in relation to these other currencies can significantly affect the prices of its products and the purchasing power of its independent Managers, Distributors and customers within these markets. As a result of the current tension between Russia and Ukraine, economic pressures resulting from lower oil prices, and resultant government sanctions, the Russian ruble and the Ukrainian hryvnia have weakened significantly against the U.S. dollar, impacting net sales in this market. Should the conflict continue to escalate, exchanges rates for Russian ruble, as well as the Ukrainian hryvnia could weaken further against the U.S. dollar, further impacting net sales in these markets.
The following table sets forth a composite sensitivity analysis of the Company’s financial assets and liabilities by those balance sheet line items that are subject to exchange rate risk, together with the total gain or loss from the strengthening of the U.S. dollar in relation to its various fluctuating functional currencies. The sensitivity of its financial assets and liabilities, taken by balance sheet line items, is somewhat less than the sensitivity of its operating income to increases in the strength of the U.S. dollar in relation to other fluctuating currencies in which it conducts business.
Exchange rate sensitivity of the Balance Sheet financial instruments as of March 31, 2016, (dollar amounts in thousands).

|  |  | With Strengthening of U.S. Dollar by:
|  |  | 10% |  | 15% |  | 25%
|  |  | ($) |  | (%) |  | ($) |  | (%) |  | ($) |  | (%)
Financial Instruments Included in Current Assets Subject to Exchange Rate Risk |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents | $ | 46,433 |  |  | $ | (3,074 | ) |  | (6.6 | )% |  | $ | (4,411 | ) |  | (9.5 | )% |  | $ | (6,763 | ) |  | (14.6 | )%
Accounts receivable, net | 8,146 |  |  | (236 | ) |  | (2.9 | ) |  | (338 | ) |  | (4.1 | ) |  | (518 | ) |  | (6.4 | )
Financial Instruments Included in Current Liabilities Subject to Exchange Rate Risk |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts payable | 8,658 |  |  | (68 | ) |  | (0.8 | ) |  | (98 | ) |  | (1.1 | ) |  | (150 | ) |  | (1.7 | )
Net Financial Instruments Subject to Exchange Rate Risk | $ | 45,921 |  |  | $ | (3,242 | ) |  | (7.1 | )% |  | $ | (4,651 | ) |  | (10.1 | )% |  | $ | (7,131 | ) |  | (15.5 | )%

The following table sets forth the local currencies other than the U.S. dollar in which the Company’s assets that are subject to exchange rate risk were denominated as of March 31, 2016, and exceeded $1 million upon translation into U.S. dollars. None of its liabilities that are denominated in a local currency other than the U.S. dollar and that are subject to exchange rate risk exceeded $1 million upon translation into U.S. dollars. The Company uses the spot exchange rate for translating balance sheet items from local currencies into its reporting currency. The respective spot exchange rate for each such local currency meeting the foregoing thresholds is provided in the table as well.
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Translation of Balance Sheet Amounts Denominated in Local Currency as of March 31, 2016, (dollar amounts in thousands).

|  | Translated into U.S. Dollars |  | At Spot Exchange Rate per One U.S. Dollar as of March 31, 2016
Cash and cash equivalents |  |  |  |  |  |
China (Yuan Renminbi) |  | $ | 8,910 |  |  | 6.5 |
South Korea (Won) |  | 6,380 |  |  | 1,142.6 |
Japan (Yen) |  | 4,185 |  |  | 112.4 |
European Markets (Euro) |  | 3,756 |  |  | 0.9 |
Thailand (Baht) |  | 1,640 |  |  | 35.2 |
Canada (Dollar) |  | 1,502 |  |  | 1.3 |
Other |  | 7,445 |  |  | Varies |
Total foreign denominated cash and cash equivalents |  | 33,818 |  |  |  |
U.S. dollars held by foreign subsidiaries |  | 8,954 |  |  |  |
Total cash and cash equivalents held by foreign subsidiaries |  | $ | 42,772 |  |  |  |

Finally, the following table sets forth the annual weighted average of fluctuating currency exchange rates of each of the local currencies per one U.S. dollar for each of the local currencies in which annualized net sales revenue would exceed $10.0 million during any of the three periods presented. The Company uses the annual average exchange rate for translating items from the statement of operations from local currencies into the Company’s reporting currency.

Three Months Ended March 31, |  | 2016 |  | 2015
Canada (Dollar) |  | 1.4 |  |  | 1.2 |
European Markets (Euro) |  | 0.9 |  |  | 0.9 |
Japan (Yen) |  | 115.3 |  |  | 119.2 |
South Korea (Won) |  | 1,205.8 |  |  | 1,102.6 |
Mexico (Peso) |  | 18.0 |  |  | 15.0 |

The local currency of the foreign subsidiaries is used as the functional currency, except for subsidiaries operating in highly inflationary economies or where the Company’s operations are served by a U.S. based subsidiary (for example, Russia and Ukraine). The financial statements of foreign subsidiaries, where the local currency is the functional currency, are translated into U.S. dollars using exchange rates in effect at year-end for assets and liabilities and average exchange rates during each year for the results of operations. Adjustments resulting from translation of financial statements are reflected in accumulated other comprehensive loss, net of income taxes. Foreign currency transaction gains and losses are included in other income (expense) in the consolidated statements of operations.
The functional currency in highly inflationary economies is the U.S. dollar and transactions denominated in the local currency are re-measured as if the functional currency were the U.S. dollar. The re-measurement of local currencies into U.S. dollars creates translation adjustments, which are included in the consolidated statements of operations. A country is considered to have a highly inflationary economy if it has a cumulative inflation rate of approximately 100 percent or more over a three-year period as well as other qualitative factors including historical inflation rate trends (increasing and decreasing), the capital intensiveness of the operation and other pertinent economic factors. During the three months ended March 31, 2016, Belarus was considered to be highly inflationary. During the three-month periods ended March 31, 2016 and 2015, the Company’s Belarusian subsidiary’s net sales revenue represented approximately 1.6 percent and 2.1 percent, of consolidated net sales revenue, respectively. With the exception of Belarus, there were no other countries in which the Company operates that are considered to have a highly inflationary economy during the three-month periods ended March 31, 2016 and 2015.
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Interest Rate Risk
The primary objectives of the Company's investment activities are to preserve principal while maximizing yields without significantly increasing risk. These objectives are accomplished by purchasing investment grade securities. On March 31, 2016, the Company had investments of $1.8 million. A hypothetical 1.0 percent change in interest rates would not have had a material effect on the Company's liquidity, financial position or results of operations.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to provide reasonable assurance that the information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the SEC, and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures. The Company’s management, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2016. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that its disclosure controls and procedures were effective as of March 31, 2016, at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended March 31, 2016, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the risks discussed under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, which could materially affect the Company's business or consolidated financial statements, results of operations, and cash flows. Additional risks not currently known, or risks that are currently believed to be not material, may also impair business operations. There have been no material changes to the Company's risk factors since the filing of its Annual Report on Form 10-K for the year ended December 31, 2015.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
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. There were no shares repurchaed by the Company during the three months ended March 31, 2016. At March 31, 2016, the remaining balance available for repurchases under the program was $13.4 million.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None.
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Item 6. EXHIBITS
a) Index to Exhibits

Item No. |  | Exhibit
31.1(1) |  | Certification of Chief Executive Officer under SEC Rule 13a-14(a)/15d-14(a) promulgated under the Securities Exchange Act of 1934
31.2(1) |  | Certificate of Chief Financial Officer under SEC Rule 13a-14(a)/15d-14(a) promulgated under the Securities Exchange Act of 1934
32.1(1) |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2(1) |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350
99.1(1) |  | Compliance Committee Charter
101.INS |  | XBRL Instance Document
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document

_________________________________________
(1) Filed currently herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Nature's Sunshine Products, Inc.
Date: | May 10, 2016 | /s/ Gregory L. Probert
|  | Gregory L. Probert,
|  | Chief Executive Officer and Chairman of the Board
Date: | May 10, 2016 | /s/ Stephen M. Bunker
|  | Stephen M. Bunker,
|  | Executive Vice President, Chief Financial Officer and Treasurer

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