The following Management's Discussion and Analysis discussion should be read in conjunction with the unaudited 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 our Annual Report on Form 10-K/A for the year ended December 31, 2008, and our other filings, including Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, that have been filed with the SEC through the date of this report.

Throughout this report, we refer to Natures Sunshine Products, Inc., together with its subsidiaries, as "we," "us," "our Company" or "the Company."

OVERVIEW

Nature's Sunshine Products, Inc. and its subsidiaries are primarily engaged in the manufacturing and marketing of herbal products, vitamin and mineral supplements, personal care products, and miscellaneous products. Nature's Sunshine Products, Inc. is a Utah corporation with its principal place of business in Provo, Utah. We sell our products to a sales force of independent Distributors and Managers who use the products themselves or resell them to other Distributors or consumers. The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of each of our major product groups are subject to regulation by one or more governmental agencies.

We market our products in the United States, Mexico, Central America, Canada, Venezuela, the Dominican Republic, Japan, Ecuador, the United Kingdom, Colombia, Peru, Israel, Russia, Ukraine, Latvia, Lithuania, Kazakhstan, Mongolia, Belarus, China, Poland, and Brazil. We also export our products to several other countries, including Argentina, Australia, Chile, New Zealand, and Norway.

We also sell our products through a separate division and operating business segment, Synergy Worldwide, which was acquired by us in 2000. Synergy Worldwide offers products with formulations different from those of the Nature's Sunshine Products offerings. In addition, Synergy Worldwide's marketing and Distributor compensation plans are sufficiently different from those of Nature's Sunshine Products. Synergy Worldwide sells products in Japan, the United States, South Korea, Singapore, Thailand, Taiwan, Malaysia, Hong Kong, the Philippines, Indonesia, the United Kingdom, Germany, Austria, the Netherlands, Norway, Sweden, the Czech Republic, and Australia.

During the first nine months of 2009, we experienced a decline in our consolidated net sales compared to the same period in 2008 of 11.2 percent. This decline is primarily due to the negative impact of currency exchange rates in our foreign markets, as well as weakening demand in certain foreign markets as a result of current economic conditions. Our Nature's Sunshine Products International business segment ("NSP International") experienced a decline in net sales of approximately 22.3 percent compared to the same period in 2008, while in our domestic business segment ("NSP United States") net sales decreased approximately 1.6 percent. Our Synergy Worldwide business segment ("Synergy Worldwide") experienced a decline in net sales revenue of approximately 4.4 percent compared to 2008, primarily due to current economic conditions and foreign currency fluctuations. A significant portion of the decline in our NSP International is the result of significant declines in the values of the Russian ruble and the Ukrainian hryvnia against the U.S. dollar, which have increased the price of our products significantly in these markets. Over the same period, our cost of goods sold increased as a percentage of net sales revenue primarily as a result of increased promotions within our foreign markets and increases in the manufacturing costs of some of our products, while our selling, general and administrative expenses decreased primarily as a result of reduced spending in our Russian, Ukrainian, and Eastern European markets as a result of reduced sales in these markets, as well as the positive impact of foreign currency fluctuations in many of our foreign markets.

RESULTS OF OPERATIONS



The following table summarizes our unaudited consolidated operating results in
U.S. dollars and as a percentage of net sales for the three months ended
September 30, 2009 and 2008 (dollar amounts in thousands).



                                                                            Change from
                             2009                     2008                 2008 to 2009
                      Total     Percent of     Total     Percent of
                     dollars    net sales     dollars    net sales      Dollar    Percentage
Net sales revenue    $ 85,777        100.0 %  $ 92,661        100.0 %  $ (6,884 )       (7.4 )%

Cost of goods sold     17,299         20.2      17,146         18.5         153          0.9
Volume incentives      31,068         36.2      34,580         37.3      (3,512 )      (10.2 )
SG&A expenses          31,203         36.4      38,864         42.0      (7,661 )      (19.7 )
Total operating
expenses               79,570         92.8      90,590         97.8     (11,020 )      (12.2 )
Operating income        6,207          7.2       2,071          2.2       4,136        199.7
Other income
(expense), net          1,300          1.5        (448 )       (0.5 )     1,748        390.2
Income before
provision for
income taxes            7,507          8.7       1,623          1.7       5,884        362.5
Provision for
income taxes            5,427          6.3       1,789          1.9       3,638        203.4
Net income (loss)    $  2,080          2.4 %  $   (166 )       (0.2 )% $  2,246      1,353.0 %

The following table summarizes our unaudited consolidated operating results in U.S. dollars and as a percentage of net sales for the nine months ended September 30, 2009 and 2008 (dollar amounts in thousands).

                                                                              Change from
                              2009                      2008                  2008 to 2009
                       Total     Percent of      Total     Percent of
                      dollars    net sales      dollars    net sales      Dollar     Percentage
Net sales revenue    $ 253,102        100.0 %  $ 285,023        100.0 %  $ (31,921 )      (11.2 )%

Cost of goods sold      50,633         20.0       53,159         18.6       (2,526 )       (4.8 )
Volume incentives       93,281         36.9      107,634         37.8      (14,353 )      (13.3 )
SG&A expenses          103,769         41.0      117,882         41.4      (14,113 )      (12.0 )
Total operating
expenses               247,683         97.9      278,675         97.8      (30,992 )      (11.1 )
Operating income         5,419          2.1        6,348          2.2         (929 )      (14.6 )
Other income
(expense), net           3,048          1.2         (495 )       (0.2 )      3,543        715.8
Income before
provision for
income taxes             8,467          3.3        5,853          2.0        2,614         44.7
Provision for
income taxes             6,315          2.5        7,163          2.5         (848 )      (11.8 )
Net income (loss)    $   2,152          0.8 %  $  (1,310 )       (0.5 )% $   3,462        264.3 %

Net Sales Revenue

Net sales revenue for the three and nine months ended September 30, 2009 was $85.8 million and $253.1 million compared to $92.7 million and $285.0 million for the same periods in 2008, decreases of approximately 7.4 percent and 11.2 percent, respectively. The decrease in net sales revenue for the three and nine months ended September 30, 2009 is primarily due to the negative impact of currency exchange rates in our foreign markets as a result of the strengthening of the U.S. dollar against most foreign currencies in which our subsidiaries operate and its impact on consumer demand in these markets, as well as weakening demand in certain foreign markets and our domestic markets as a result of current economic conditions.

Net sales revenue of NSP United States for the three and nine months ended September 30, 2009, was $37.6 million and $113.6 million, respectively, compared to $37.3 million and $115.4 million for the same periods in the prior year, an increase of 0.8 percent and a decrease of 1.6 percent, respectively. The decrease in sales of NSP United States is primarily related to a decrease in consumer demand as a result of current economic conditions in the United States during the first part of the nine months ended September 30, 2009 from the same period in the prior year.

NSP International reported net sales revenue for the three and nine months ended September 30, 2009 of $33.2 million and $98.4 million, respectively, compared to $41.4 million and $126.7 million for the same periods in 2008, decreases of approximately 19.8 percent and 22.3 percent. The decrease in sales is primarily due to foreign currency fluctuations as a result of the strengthening of the U.S. dollar against the currencies in substantially all markets in which NSP International operates, and the effect of the strengthening U.S. dollar on customer purchasing power for our products in these markets. A significant portion of the decline in NSP International's net sales is the result of significant declines in the values of the Russian ruble and the Ukrainian hryvnia against the U.S. dollar, which have increased the price of our products significantly in these markets. In the Ukraine, net sales decreased $3.6 million, or 42.5 percent, and $10.8 million, or 42.7 percent, during the three month and nine month ended September 30, 2009, respectively, compared to the same periods in 2008, primarily as a result of a decrease in the Ukrainian hryvnia of approximately 72.0 percent and 64.4 percent, respectively, against the U.S. dollar compared to the same periods in 2008. In Russia, we experienced a decrease in sales of $2.3 million, or 26.5 percent, and $7.5 million, or 25.7 percent, during the three and nine month periods ended September 30, 2009, respectively, compared to the same periods in 2008, primarily as a result of a decrease in the Russian ruble of approximately 29.4 percent and 35.3 percent, respectively, against the U.S. dollar compared to the same periods in 2008. Foreign currency exchange rate fluctuations excluding Ukraine and Russia negatively impacted revenues for the three and nine month periods ended September 30, 2009 by $2.1 million and $6.2 million, respectively, compared to the same periods in 2008. For the three months and nine months ended September 30, 2009, approximately $1.0 million and $3.0 million, respectively, of the negative foreign currency rate fluctuations relate to Mexico. Excluding the impact of foreign currency fluctuations, sales for Mexico decreased approximately $0.2 million, or 4.5 percent, and $1.3 million, or 9.0 percent, during three and nine month periods ended September 30, 2009, respectively, compared to the same periods in 2008 primarily due to a corresponding decrease in Distributors as a result of current economic conditions. Excluding the impact of foreign currency fluctuations, we experienced decreases in Japan net sales of $0.9 million or 38.2 percent and $2.4 million, or 32.4 percent during the three and nine months ended September 30, 2009, respectively, compared to the same periods in 2008, as a result of a corresponding decrease in the number of Distributors as well as current economic conditions in Japan.

Net sales revenue of Synergy Worldwide for the three and nine months ended September 30, 2009 was $15.0 million and $41.1 million, respectively, compared to $14.0 million and $43.0 million for the same periods in 2008, an increase of 7.1 percent and a decrease of 4.4 percent, respectively. These changes are primarily due to sales growth in the United States, Indonesia, and Europe, which were offset by declines in Japan due to the current economic conditions in that market. Net sales revenue in the three and nine month periods of 2009 were negatively impacted compared to the prior year by $0.9 million and $2.1 million as a result of the U.S. dollar strengthening against the currencies of the markets in which Synergy Worldwide operates.

We distribute our products to customers through an independent sales force comprised of Distributors and Managers. A person who joins our independent sales force begins as a "Distributor," and a Distributor interested in earning additional income by committing more time and effort to selling our products may earn "Manager" status. Manager status is contingent upon attaining certain purchase volume levels, recruiting additional Distributors, and demonstrating leadership abilities. Active Distributors totaled approximately 695,000 and 713,200, at September 30, 2009 and 2008, respectively. Active Managers totaled approximately 28,400 and 26,200 at September 30, 2009 and 2008, respectively.

Further information related to the NSP United States, NSP International and Synergy Worldwide is set forth in Note 8 to the Unaudited Condensed Consolidated Financial Statements in Part 1, Item 1 of this report.

Cost of Goods Sold

For the three and nine months ended September 30, 2009, cost of goods sold, as a percent of net sales revenue, increased to 20.2 percent and 20.0 percent of net sales revenue, respectively, compared to 18.5 percent and 18.6 percent for the same periods in the prior year primarily as a result of additional promotions offered in our foreign markets, increases in raw material costs for some of our products, and reduced production volumes.

Volume Incentives

We pay sales commissions ("Volume Incentives") to our Managers and Distributors based upon the amount of sales group product purchases. Volume Incentives are a significant part of our direct sales marketing program. These payments are designed to provide incentives for reaching higher sales levels and for recruiting additional Distributors. As a percent of net sales revenue, Volume Incentives decreased during the three and nine months ended September 30, 2009 as compared to the same period in 2008, primarily as a result of decreased Volume Incentives in our United States and Japanese markets. Volume Incentives decreased due to declines in qualifying sales volumes and the impact on the mix of sales within our various markets, which have differing Volume Incentive rates based upon their respective sales marketing programs.

Selling, General and Administrative

Selling, general and administrative expenses as a percent of net sales revenue decreased to 36.4 percent and 41.0 percent in the three and nine months ended September 30, 2009, respectively, compared to 42.0 percent and 41.4 percent for the same periods in 2008. In absolute terms, our selling, general and administrative expenses decreased by $7.7 million for the three months ended September 30, 2009 compared to the same period in 2008, from $38.9 million to $31.2 million, and by $14.1 million for the nine months ended September 30, 2009 compared to the same period in 2008, from $117.9 million to $103.8 million. The decreases were primarily due to decreased spending in our Russian, Ukrainian, and Eastern European markets of approximately $1.7 million and $5.6 million during the three and nine months ended September 30, 2009, respectively, as a result of the declines in net sales revenue in these markets. The decreases are also a result of foreign currency fluctuations in our other foreign markets of $1.1 million and $3.4 million, of which $0.3 million and $0.8 million relates to Synergy Worldwide. Within NSP United States selling, general, and administrative costs decreased approximately $2.4 million for the three months ended September 30, 2009 compared to the same period in 2008 due to decreased professional fees compared to the same period in 2008, which fees were primarily related to our significant efforts to become current in the filing of our financial reports during the same quarter last year, as well as other legal matters. For the nine months ended September 30, 2009, NSP United States selling, general and administrative costs decreased $2.0 million. Approximately $0.3 million and $1.8 million of the decrease in NSP United States selling, general and administrative costs for the three and nine months ended September 30, 2009 are related to decreases in non-income tax contingencies. The decreases for the nine months ended September 30, 2009 are offset by approximately $0.6 million related to the settlement of the SEC investigation of the Company as described in Note 10 of the Unaudited Condensed Financial Statements in Part 1, Item 1 of this report.

Operating Income (Loss)

Operating income increased $4.1 million during the three months ended September 30, 2009 compared to the same period in 2008, from operating income of $2.1 million to operating income of $6.2 million, and decreased $0.9 million during the nine months ended September 30, 2009 compared to same period in 2008, from operating income of $6.3 million to operating income of $5.4 million. Operating income for NSP International increased $0.7 million and decreased $4.5 million for the three and nine months ended September 30, 2009 compared to same periods in 2008 as a result of decreased sales due to foreign currency fluctuations and general economic conditions within these markets, which had a more significant impact earlier in the nine month period ended September 30, 2009. Operating losses for Synergy Worldwide remained flat at $4.4 million for the nine months ended September 30, 2009 compared to the same period in 2008. However, its operating losses decreased $1.1 million in the third quarter compared to the same period in the prior year to break-even, primarily due to growth in Synergy Worldwide sales in its United States, Indonesian and European markets as noted above. In addition, the operating income of NSP United States increased approximately $2.2 million and $3.5 million during the three and nine months ended September 30, 2009 compared with the same periods in 2008 primarily due to decreases in professional fees related to becoming current with our filings in the same quarter of the prior year in comparison to the current year, the reduction of non-income tax related contingencies, as well as declines in volume incentives as a percentage of sales during the three and nine months ended September 30, 2009 compared to the same periods in the prior year.

Other Income (Expense), Net

Other income (expense), net for the three and nine months ended September 30, 2009 increased $1.7 million and $3.5 million, respectively, compared to the same periods in 2008 primarily due to foreign exchange gains in certain markets based on changes in exchange rates.

Income Taxes

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. For the three months ended September 30, 2009 and 2008, the Company's provision for income taxes, as a percentage of income before income taxes, was approximately 72.3 percent and 110.2 percent, respectively, compared with a U.S. federal statutory rate of 35.0 percent. For the nine months ended September 30, 2009 and 2008, the Company's provision for income taxes, as a percentage of income before income taxes, was approximately 74.6 percent and 122.4 percent, respectively, compared with a U.S. federal statutory rate of 35.0 percent.

The differences between the effective rate and the U.S. federal statutory rate for the three and nine months ended September 30, 2009 and 2008, are primarily attributed to increases in tax liabilities associated with uncertain tax positions, the U.S. tax impact of foreign operations, and increases in foreign valuation allowances primarily related to foreign subsidiary net losses for which no tax benefit is being recognized. Tax amounts recorded related to the uncertain tax positions, valuation allowances, and other permanent tax items have a significant impact on the effective tax rate. The effective rate declined in the three and nine-month periods ended September 30, 2009 compared to the same periods in the prior year primarily as a result of the permanent tax items having less impact on the higher pre-tax income.

As of September 30, 2009, the Company had accrued $20,399 (net of $11,277 of other assets related to competent authority and royalty benefits) related to unrecognized tax positions compared with $19,675 (net of $11,277 of other assets related to competent

authority and royalty benefits) as of December 31, 2008. This net increase is primarily attributed to increases in liabilities recorded related to transfer pricing.

In October 2009, the Internal Revenue Service ("IRS") issued an examination report formally proposing adjustments with respect to the 2003 through 2005 taxable years, which primarily relate to the prices that were charged in intragroup transfers of property and the disallowance of related deductions. The Company expects to commence administrative proceedings with the Office of Appeals of the Internal Revenue Service challenging the proposed adjustments. Management believes that the Company has appropriately reserved for these matters at an amount which it believes will ultimately be due upon resolution of the administrative proceedings. The Company is currently unable to determine the outcome of these discussions and their related impact, if any, on the Company's financial condition, results of operations, or cash flows.

The Company has also been advised by the IRS that it will begin to examine the Company's tax returns for the 2006 and 2007 taxable years. The Company anticipates this audit will commence during the quarter ending December 31, 2009. The Company's U.S. federal income tax returns are open from 2003 to 2008, and the Company has several foreign jurisdictions that have open years between 2003 and 2008.

Although the Company believes its estimates for unrecognized tax benefits 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 difference 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.

LIQUIDITY AND CAPITAL RESOURCES

Our principal use of cash is to pay for operating expenses, including Volume Incentives, capital assets, inventory purchases, and the funding of international expansion. As of September 30, 2009, working capital was $34.3 million compared to $30.2 million as of December 31, 2008. At September 30, 2009, we had $36.3 million in cash and cash equivalents, of which $33.2 million is held in our foreign markets and may be subject to various withholding taxes and other restrictions related to repatriation, and $3.4 million of short-term investments, which are available to be used along with our normal cash flows from operations to fund unanticipated shortfalls in future cash flows.

For the nine months ended September 30, 2009, we generated cash of $1.0 million from operating activities compared to $3.8 million for the same period in 2008. The decrease in cash provided from operating cash flows is primarily due to decreases in accrued liabilities related to the payment of significant professional fees which were primarily accrued during the prior year, as well as changes in the timing of cash payments related to fluctuations in other operating assets and liabilities.

Capital expenditures for the first nine months of 2009 were $2.5 million related to the purchase of equipment, computer systems and software, compared to $6.8 million, for the same period in the prior year, of which $4.0 million is related to the purchase of a warehouse in Venezuela.

We also had cash proceeds of $2.1 million from the sale of restricted investments during the nine months ended September 30, 2009 and cash proceeds of $0.6 million from the sale of investments available-for-sale during each of the nine month periods ended September 30, 2009 and 2008.

We used cash to pay quarterly dividends of $0.8 million for the nine months ended September 30, 2009 compared to $2.3 million for the same period in 2008. The Company suspended payment of its quarterly cash dividends, effective the second quarter of 2009, in an effort to conserve cash in the United States. The suspension of cash dividends is expected to preserve approximately $3.1 million of cash flow on an annual basis.

There were no stock options exercised during the nine months ended September 30, 2009 and 2008.

We believe that working capital requirements can be met for the foreseeable future through our available cash and cash equivalents, and cash generated from operating activities; however, a prolonged economic downturn, a decrease in the demand for our products, the unfavorable settlement of our unrecognized tax positions and non-income tax contingencies could adversely affect our long-term liquidity. In the event of a significant decrease in cash provided by operating activities, it might be necessary for us to obtain additional external sources of funding.

We do not currently maintain a long-term credit facility or any other external sources of long-term funding; however, we are exploring the issue and believe that such funding could be obtained on competitive terms in the event additional sources of funding become necessary.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and form the basis for the following discussion and analysis on critical accounting policies and estimates. The preparation of these financial statements requires us 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 we evaluate our estimates and assumptions. We base our 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 our 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 our significant accounting policies is provided in Note 1 of the Notes to Consolidated Financial Statements in Item 8 of our Annual Report on Form 10-K/A for the year ended December 31, 2008. We believe the critical accounting policies and estimates described below reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements. The impact and any associated risks on our 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 . . .