The following Management's Discussion and Analysis 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 for the year ended December 31, 2011, and our Reports on Form 8-K, that have been filed with the SEC since then through the date of this report.

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

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, customers and Managers who use the products themselves or resell them to other Distributors or customers. 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.

The Company has two reportable business segments that operate under the Nature's Sunshine Products brand and are divided based on their geographic operations in the United States (NSP United States) and in countries outside the United States (NSP International). We also sell our products through a separate division and operating business segment, Synergy WorldWide. Synergy WorldWide offers marketing plans, Distributor compensation plans and product formulations that are sufficiently different from those of NSP United States and NSP International to warrant its treatment as a separately reportable business segment.

We market our 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, Indonesia, Ireland, Japan, Kazakhstan, Latvia, Lithuania, Malaysia, Mexico, Moldova, Mongolia, the Netherlands, Nicaragua, Norway, Panama, Peru, the Philippines, Poland, Russia, Singapore, South Korea, Spain, Sweden, Taiwan, Thailand, the Ukraine, the United Kingdom, the United States, Venezuela and Vietnam. We export our products to several other countries, including Argentina, Australia, Chile, Israel, New Zealand and Norway.

During the second quarter of 2012, our consolidated net sales increased approximately 1.3 percent compared to the second quarter of 2011. Synergy WorldWide's net sales revenue increased approximately 14.8 percent (or 20.0 percent in local currencies excluding the negative impact of foreign currency fluctuations). NSP International's net sales revenues decreased approximately 5.5 percent compared to the same period in 2011 (or 4.0 percent excluding the negative impact of foreign currency fluctuations), while NSP United States net sales decreased approximately 1.0 percent compared to the same period in 2011. The significant sales revenue growth was from our Synergy businesses in Europe and Korea during 2012. Gains in these markets were partially offset by decreases in our NSP Mexico, NSP and Synergy Japan, and NSP Peru markets.

As a result of our prior year settlement with NutriPlus LLC related to our Russian business, our operating costs for the quarter ended June 30, 2012 were lower than the comparable period of 2011 by $2.1 million, of which $1.3 million was related to lower royalties and $0.8 million was related to lower professional fees.

Over the same period, selling, general and administrative costs as a percentage of net sales revenue for the quarter decreased from 36.2 percent in the prior year period to 34.4 percent in the current year as a result of revenue growth (primarily in Synergy WorldWide), lower royalty and legal costs related to our Russian business as noted above, reductions in variable costs for NSP Mexico and Synergy Japan, as well as favorable currency rate fluctuations, offset by increases in variable costs for Synergy Europe and Korea, and NSP Russia, net changes in sales tax reserves and U.S. healthcare costs.

We distribute our products to consumers through an independent sales force comprised of Managers and Distributors. A person who joins our independent sales force begins as a "Distributor." 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 Managers WorldWide totaled approximately 29,100 and 29,600 at June 30, 2012 and 2011, respectively. Active Distributors and customers WorldWide totaled approximately 656,500 and 675,100 at June 30, 2012 and 2011, respectively.

RESULTS OF OPERATIONS

The following table summarizes our unaudited consolidated operating results in U.S. dollars and as a percentage of net sales revenue for the three months ended June 30, 2012 and 2011 (dollar amounts in thousands).

                                                                             Change from
                                2012                    2011                2012 to 2011
                         Total     Percent of    Total     Percent of
                        dollars    net sales    dollars    net sales     Dollar    Percentage
Net sales revenue       $ 92,991        100.0 % $ 91,811        100.0 % $  1,180          1.3 %

Costs and expenses:
Cost of goods sold        17,086         18.4     17,129         18.6        (43 )       (0.3 )
Volume incentives         33,540         36.1     33,390         36.4        150          0.4
SG&A expenses             32,054         34.4     33,240         36.2     (1,186 )       (3.6 )
Total operating
expenses                  82,680         88.9     83,759         91.2     (1,079 )       (1.3 )
Operating income          10,311         11.1      8,052          8.8      2,259         28.1
Other income, net            165          0.2       (420 )       (0.5 )      585        139.3
Income before
provision for income
taxes                     10,476         11.3      7,632          8.3      2,844         37.3
Provision for income
taxes                      3,190          3.4      2,018          2.2      1,172         58.1
Net income              $  7,286          7.9 % $  5,614          6.1 % $  1,672         29.8 %

The following table summarizes our unaudited consolidated operating results in U.S. dollars and as a percentage of net sales revenue for the six months ended June 30, 2012 and 2011 (dollar amounts in thousands).

                                                                               Change from
                                 2012                     2011                2012 to 2011
                          Total     Percent of     Total     Percent of
                         dollars    net sales     dollars    net sales     Dollar    Percentage
Net sales revenue       $ 185,859        100.0 % $ 184,655        100.0 % $  1,204          0.7 %

Costs and expenses:
Cost of goods sold         35,446         19.1      35,681         19.3       (235 )       (0.7 )
Volume incentives          67,121         36.1      67,688         36.7       (567 )       (0.8 )
SG&A expenses              63,807         34.3      65,613         35.5     (1,806 )       (2.8 )
Total operating
expenses                  166,374         89.5     168,982         91.5     (2,608 )       (1.5 )
Operating income           19,485         10.5      15,673          8.5      3,812         24.3
Other income, net              55          0.0        (155 )       (0.1 )      210       (135.5 )
Income before
provision for income
taxes                      19,540         10.5      15,518          8.4      4,022         25.9
Provision for income
taxes                       5,026          2.7       3,282          1.8      1,744         53.1
Net income              $  14,514          7.8 % $  12,236          6.6 % $  2,278         18.6 %

Net Sales Revenue

Consolidated net sales revenue for the three and six months ended June 30, 2012 was $93.0 million and $185.9 million compared to $91.8 million and $184.7 million for the same periods in 2011, increases of approximately 1.3 percent and 0.7 percent, respectively. The increases in net sales revenue for the three and six months ended June 30, 2012 compared to the same periods in 2011 are primarily due to growth in Synergy WorldWide, offset by declines in NSP United States and NSP International.

NSP United States

Net sales revenue for our NSP United States segment for the three and six months ended June 30, 2012 was $35.5 million and $70.4 million compared to $35.9 million and $71.5 million for the same periods in 2011, or decreases of 1.0 percent and 1.7 percent, respectively, in 2012 compared to 2011. Active Managers within NSP United States totaled approximately 5,800 and 6,200 at June 30, 2012 and 2011, respectively. Active Distributors and customers within NSP United States totaled approximately 193,700 and 194,200 at June 30, 2012 and 2011, respectively. Managers and Distributors within NSP United States are predominantly practitioners of nutritional supplement therapies and retailers and consumers of our products. The number of active Managers, Distributors and customers decreased due to lower retention, partially offset by a modest improvement in recruiting. Net sales for NSP United States core products (Herbal Products Vitamin, Mineral, and Other Nutritional Supplements, and Personal Care Products) increased by 0.3 percent, but were offset by the discontinuance of non-core products (other products including essential oils, sales aids and other miscellaneous products) for the quarter.

NSP United States includes both English and Spanish language sales divisions, of which the English language division is approximately 80 percent of segment net sales revenue. The English language division net sales revenue increased $0.2 million and decreased $0.8 million, or an increase of 0.8 percent and a decrease of 1.4 percent, respectively, for the three and six months ended June 30, 2012, compared to the same period in 2011. The Spanish language division net sales revenue decreased $0.6

million and $0.4 million, or 7.3 percent and 2.7 percent, respectively, for the three and six months ended June 30, 2012, compared to the same period in 2011.

NSP International

NSP International reported net sales revenue for the three and six months ended June 30, 2012 of $31.2 million and $65.9 million, compared to $33.1 million and $69.6 million for the same periods in 2011, decreases of approximately 5.5 percent and 5.3 percent, respectively. In local currencies, net sales decreased 4.0 percent and 4.1 percent, respectively. Fluctuation in foreign exchange rates had a $0.5 million and $0.8 million unfavorable impact on net sales for the three and six months ended June 30, 2012, respectively. Active Managers within NSP International totaled approximately 20,100 and 20,900 at June 30, 2012 and 2011, respectively. Active Distributors and customers within NSP International totaled approximately 373,600 and 398,000 at June 30, 2012 and 2011, respectively. Managers and Distributors within NSP International are predominantly practitioners of nutritional supplement therapies and retailers or consumers of our products, with the exception of our Russian markets which are more network marketing oriented. The number of active Managers, Distributors and customers decreased in NSP International (excluding our Russian markets) due to lower retention, partially offset by a modest improvement in recruiting, in a business environment that continues to be challenging.

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

In our Russian markets (Russia, the Ukraine, Belarus and several other Eastern European nations), net sales revenues increased approximately $0.3 million and decreased approximately $0.3 million, or an increase of 2.3 percent and a decrease of 1.0 percent, for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. Excluding Belarus, net sales increased by $0.3 million for the three and six months ended June 30, 2012. The decrease in year-to date sales was related to the current debt crisis in Belarus, which has adversely affected our Belarusian Distributors' ability to obtain foreign currency to purchase our products, and may continue to adversely affect sales going forward. Sales in Belarus were flat and $0.6 lower for the three and six months ended June 30, 2012, respectively, compared to the same period in 2011.

In Mexico, our net sales revenues decreased approximately $0.6 million and $1.0 million, or 18.8 percent and 16.2 percent, for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. In local currency, net sales decreased 9.4 percent and 6.7 percent, respectively, compared to the same periods in 2011. Fluctuations in foreign exchange rates had a $0.3 million and $0.6 million unfavorable impact on net sales for the three and six months ended June 30, 2012. The decrease in sales is due to difficulties attracting and retaining key talent in managerial positions in the local market, which has a detrimental effect on our recruiting and retention.

In Peru, our net sales revenues decreased approximately $0.5 million and $1.3 million, or 50.0 percent and 60.3 percent, for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. Fluctuations in foreign exchange rates had a nominally favorable impact on net sales for the periods. The decrease in net sales is principally due to a change in local regulations that has restricted our ability to sell several of our key products in this market through a direct selling business model. We continue to evaluate our product mix and selling model for Peru.

In Japan, our net sales revenues decreased approximately $0.4 million and $0.6 million, or 22.2 percent and 18.4 percent, for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. In local currency, net sales decreased 27.8 percent and 20.7 percent compared to the same periods in 2011. Fluctuations in foreign exchange rates had a $0.1 million and $0.1 million favorable impact on net sales for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. The decrease in local currency sales is partially due to the continued difficulty in rebounding from the effects of the 2011 natural disasters, specifically recruiting and retaining Distributors.

Synergy WorldWide

Synergy WorldWide reported net sales revenue for the three and six months ended June 30, 2012 of $26.2 million and $49.6 million, compared to $22.9 million and $43.5 million in 2011, increases of approximately 14.8 percent and 14.0 percent, respectively. In local currencies, net sales increased 20.0 percent and 17.9 percent for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. Fluctuations in foreign exchange rates had a $1.2 million and $1.7 million unfavorable impact on net sales for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. Active Managers within Synergy WorldWide totaled approximately 3,200 and 2,500 at June 30, 2012 and 2011, respectively. Active Distributors and customers within Synergy WorldWide totaled approximately 89,200 and 82,900 at June 30, 2012 and 2011, respectively.

Notable activity in the following markets contributed to the results of Synergy WorldWide:

In Europe, our net sales revenues increased approximately $1.7 million and $4.0 million, or 31.5 percent and 39.2 percent, for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. In local currency, our net sales increased 35.2 percent and 51.6 percent, respectively, compared to the same periods in 2011. Fluctuations in foreign exchange rates had a $0.7 million and $1.1 million unfavorable impact on net sales for the three and six months ended June 30,

2012 compared to the same periods in 2011. Strong Distributor leadership continues to effectively build our Distributor base thereby driving increased market penetration.

In Korea, our net sales revenues increased approximately $2.9 million and $5.0 million, or 59.2 percent and 61.3 percent, for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. In local currency, our net sales increased 67.3 percent and 67.3 percent, compared to the same periods in 2011. Fluctuations in foreign exchange rates had a $0.4 million and $0.5 million unfavorable impact on net sales for the three and six months ended June 30, 2012, compared to the same periods in 2011. Net sales growth is due to productive joint Company and Manager efforts to develop sales groups as well as a broad product line that is well accepted in Korea.

In Japan, our net sales revenues decreased approximately $0.7 million and $2.3 million, or 21.2 percent and 31.4 percent, for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011. In local currency, net sales decreased 24.2 percent and 33.3 percent compared to the same periods in 2011. Fluctuations in foreign exchange rates had a $0.1 million and $0.1 million favorable impact on net sales for the three and six months ended June 30, 2012, compared to the same periods in 2011. The decrease in local currency sales is partially due to the continued difficulty in rebounding from the effects of the 2011 natural disasters, specifically recruiting and retaining Distributors. In addition, unusually high product returns during the first quarter related to a specific promotion contributed significantly to reduced net sales revenue for the six months (returns for the second quarter were insignificant). The product returns were not related to product quality.

Further information related to NSP United States, NSP International and Synergy WorldWide 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 Goods Sold

Cost of goods sold as a percent of net sales revenue decreased to 18.4 percent and 19.1 percent for the three and six months ended June 30, 2012, compared to 18.6 percent and 19.3 percent for the same periods in 2011. Changes in the cost of goods sold are primarily the result of changes in product mix between markets. The year-to-date costs of goods sold rates were greater than the second quarter rates during each period of 2011 and 2012 due to promotions during the first quarter of each year related to new product launches and national/regional conventions during those periods. While the Company intends to seek continued cost reductions where possible, pricing pressure on raw materials, fuel costs and other factors could adversely affect our ability to reduce or maintain our current cost of goods sold rate in the future.

Volume Incentives

Volume incentives are a significant part of our direct sales marketing program, and represent commission payments made to our independent Distributors and Managers. These payments are designed to provide incentives for reaching higher sales levels and for recruiting additional Distributors. Volume incentives vary slightly, on a percentage basis, by product due to our pricing policies and commission plans in place in our various operations. Volume incentives as a percent of net sales revenue decreased to 36.1 percent for the three and six months in 2012, compared to 36.4 percent and 36.7 percent for the same periods in 2011.

Selling, General and Administrative

Selling, general and administrative expenses decreased to 34.5 percent and 34.3 percent of net sales revenue for the three and six months ended June 30, 2012, compared to 36.2 percent and 35.5 percent in 2011, or by approximately $1.2 million and $1.8 million to $32.1 million and $63.8 million for the three and six months ended June 30, 2012, respectively.

Significant increases to selling, general and administrative expenses during the three and six months ended June 30, 2012, compared to the same period in 2011 included:

† $1.4 million and $2.6 million of increased variable costs related to the sales growth of Synergy WorldWide in Europe, Korea and the United States;

†          $0.4 million and $0.7 million of increased healthcare costs for U.S.
employees;

†          $0.2 million and $0.7 million of increased U.S. related sales tax

† $0.1 million and $0.6 million of increased compensation related costs for U.S. employees.

Significant decreases to selling, general and administrative expenses during the three and six months ended June 30, 2012, compared to the same period in 2011 included:

† $1.3 million and $2.9 million of decreased royalty costs related to our Russian business as a result of the NutriPlus LLC settlement;

† $0.8 million and $1.2 million of decreased professional fees related to our Russian business as a result of the NutriPlus LLC settlement;

† $0.5 million and $0.6 million of favorable currency fluctuations; and

† $0.2 million and $1.4 million decrease in variable costs related lower sales of NSP Mexico, Japan, and the United States and Synergy Japan.

We continue to implement cost reduction measures within all of our operating segments.

Operating Income

Consolidated operating income increased approximately $2.3 million during the three months ended June 30, 2012, compared to the same period in 2011, from $8.1 million to $10.3 million. For the six months ended June 30, 2012, operating income increased approximately $3.8 million, compared to the same period in 2011, from $15.7 million to $19.5 million. Operating income increased to 11.1 percent and 10.5 percent of net sales for the three and six months ended June 30, 2012, compared to 8.8 percent and 8.5 percent for the same periods in 2011, respectively.

Operating income for NSP United States increased $0.5 million and decreased $0.3 million for the three and six months ended June 30, 2012, compared to the same period in 2011, from $3.7 million and $7.5 million to $4.2 million and $7.1 million, respectively. The increase in operating income for the three months ended June 30, 2012 compared to the same period 2011 is primarily due to a reduction of the cost of goods sold. The decrease in operating income for the six months ended June 30, 2012 is primarily the result of the decrease in net sales revenue and increases in our selling, general and administrative expenses related to promotional incentive trips and stock-based compensation expense.

Operating income for NSP International increased approximately $1.4 million and $4.0 million for the three and six months ended June 30, 2012, compared to the same periods in 2011, from $1.8 million and $3.9 million to $3.3 million and $7.9 million, respectively. The increase in operating income was primarily the result of the elimination of royalty fees and lower professional fees in our Russian markets related to the termination of the Company's contract with NutriPlus LLC, offset by lower net sales in our Japan, Mexico and Peru markets.

Operating income for Synergy WorldWide increased $0.3 million and $0.2 million for the three and six months ended June 30, 2012, respectively, compared to the same periods in 2011, from $2.5 million and $4.3 million to $2.8 million and $4.5 million, respectively. The increase in operating income is primarily due to net sales growth in our European and Korean markets offset by the decreased sales in Japan and the negative effect of foreign currency fluctuations.

Other Income (Expense), Net

Other income (expense), net for the three and six months ended June 30, 2012 increased $0.6 million and $0.2 million, respectively, compared to the same periods in 2011. The increase in other income, net in 2012 is due to decreased foreign exchange losses in 2012 compared to 2011 offset by the receipt of $0.7 million in restricted cash in Venezuela that had been previously written-down that was recovered in 2011.

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 periods in which they occur. For the three months ended June 30, 2012 and 2011, the Company's provision for income taxes, as a percentage of income before income taxes was 30.5 percent and 26.4 percent, respectively, compared with a U.S. federal statutory rate of 35.0 percent. For the six months ended June 30, 2012 and 2011, the Company's provision for income taxes, as a percentage of income before income taxes was 25.7 percent and 21.1 percent, respectively, compared with a U.S. federal statutory rate of 35.0 percent.

The differences between the effective tax rates and the U.S. federal statutory tax rate for the three months ended June 30, 2012 were primarily attributed to a domestic valuation allowance release related to the utilization of foreign tax credits (-3.4 percent), in addition to net favorable foreign items related to foreign tax rate differences, the impact of unremitted earnings, and adjustments to foreign valuation allowances (-2.2 percent).

The differences between the effective tax rates and the U.S. federal statutory rate for the three months ended June 30, 2011 were primarily attributed to a decrease in deferred tax liabilities related to taxes on unremitted foreign earnings (-3.5 percent).

The differences between the effective tax rate and the U.S. federal statutory tax rate for the six months ended June 30, 2012 were primarily attributed to a domestic valuation allowance release related to the utilization of foreign tax credits (-6.4 percent), in addition to net favorable foreign items related to foreign tax rate differences, the impact of unremitted earnings, and adjustments to foreign valuation allowances (-4.1 percent).

The differences between the effective tax rate and the U.S. federal statutory tax rate for the six months ended June 30, 2011 were primarily attributed to net decreases in tax liabilities associated with uncertain tax positions due to the expiration of the statute of limitations on certain liabilities in various foreign jurisdictions (-6.4%), in addition to a decrease in deferred tax liabilities related to taxes on unremitted foreign earnings (-5.7%).

The Company's U.S. federal income tax returns for 2003 through 2007, and 2009 and 2010 are open to examination for federal tax purposes. The Company has several foreign tax jurisdictions that have open tax years from 2004 through 2011. The Internal Revenue Service ("IRS") is currently conducting an audit of the Company's U.S. federal income tax returns for the 2009 and 2010 tax years.

In October 2009, the IRS issued an examination report formally proposing . . .