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'sCompany’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 that could cause actual results to vary materially. 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'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2017, but include the following:

 It is not possible to predict or identify all potential risks and uncertainties and the above list is not a complete list of all potential risks and uncertainties. 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

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 sells its products to a sales force of independent distributors who use the products themselves or resell them to consumers.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation. The Company consolidates the joint ventures in Hong Kong and China in its consolidated financial statements, with another party'sparty’s interest presented as noncontrolling interest. 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 JuneSeptember 30, 2018, and for the three and six-monthnine-month periods ended JuneSeptember 30, 2018 and 2017. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the year ending December 31, 2018.

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, 2017.

Noncontrolling interests decreased as a result of the net loss attributable to the noncontrolling interests by $0.3$0.5 million and $0.5$0.6 million during the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively. As of JuneSeptember 30, 2018 and December 31, 2017, noncontrolling deficits were $41,000 and noncontrolling interests were $0.1 million and $0.4 million, respectively.

Accrued severance and rent costs were $0.4$0.3 million and $0.8 million as of JuneSeptember 30, 2018 and December 31, 2017, respectively. The Company did not record any additional restructuring related expenses during the three and sixnine months ended JuneSeptember 30, 2018 and 2017, respectively.

During the second quarter of 2018, the Company announced the pending retirement of its Chief Executive Officer. As a result, the Company recorded $17,000 and $1.5 million of transition related-related expenses during the three- and six-monthnine-month periods ended JuneSeptember 30, 2018. As of JuneSeptember 30, 2018, accrued transitionstransition costs were $1.4$1.1 million.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842): Accounting for Leases. This update specifies that lessees should recognize right-of-use assets and lease liabilities arising from all leases, except for leases with a lease term of 12 months or less.leases. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will largely remain unchanged and shall continue to depend on its classification as a finance or operating lease. The Company will adopt the ASU and related amendments on January 1, 2019 and expects to elect certain practical expedients permitted under the transition guidance. The Company will elect the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and will not restate prior periods. Under the new guidance, the majority of the Company's leases will continue to be effective for annual periods beginning after December 15, 2018 with earlyclassified as operating. The Company continues to evaluate the potential impact of adoption permitted. of this ASU on its consolidated financial statements, and expects a significant gross-up of total assets and liabilities upon adoption.

The adoption of this ASU will impact the classification of expenses on the statement of operations, primarily the classification between rent expense and interest expense, but is not expected to have a materialsignificant impact on the Company’s net resultsCompany's Consolidated Statements of operations; however, it is also expected to gross-up the consolidated balance sheet as a result of recognizing a lease asset along with a similar lease liability.Income or Cash Flows.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This update amends the scope of modification accounting surrounding share-based payment arrangements as issued in ASU 2016-09 by providing guidance on the various types of changes which would trigger modification accounting for share-based payment awards. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. The adoption of ASU 2017-09 did not have a material effect on the Company'sCompany’s results of operations, consolidated financial statements and footnote disclosures.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Effects from Accumulated Other Comprehensive Income. This update allows a reclassification of stranded tax effects, resulting from the Tax Cuts and Jobs Act 2017, from accumulated other comprehensive income to retained earnings. This ASU will be effective for annual periods beginning after December 15, 2018 with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.

 

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

AsIn August of June 30, 2018, and December 31, 2017, the Company presentedsold an eight-acre property in Provo, Utah as an asset held for sale.$2.7 million. The Company originally acquired the property with the intent to erect a building for the corporate headquarters. As there is no intentionheadquarters and later decided to move the corporate headquarters to this location, Company management decided to sell the property. The property is currently under contract to sell. The Company anticipates the sale of the property to be completed during 2018.elsewhere. As the fair value of the property exceedsexceeded the carrying value, no lossa net gain of $1.7 million was recognized during the three and sixnine months ended JuneSeptember 30, 2018 and 2017, respectively.2018.

In June of 2018, the Company sold a 29,300 square foot building in Mexico City, Mexico for $2.6 million. The Company previously utilized the building for offices as well as warehouse space and has since relocated to a more advantageous location. As the fair value of the property exceeded the carrying value, a net gain of $0 and $2.3 million waswere recognized during the three and sixnine months ended JuneSeptember 30, 2018.2018, respectively.

The Company’s trading securities portfolio totaled $1.5$1.6 million at JuneSeptember 30, 2018, and $2.0 million at December 31, 2017, and generated gains of $34,000$70,000 and $51,000 for the three months ended JuneSeptember 30, 2018 and 2017, respectively, and $34,000$103,000 and $102,000 for the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively.

On July 11, 2017, the Company entered into a revolving credit agreement with Bank of America, N.A., with a borrowing limit of $25.0 million, that matures on July 11, 2020 (the “Credit Agreement”). The Company pays interest on any borrowings under the Credit Agreement at LIBOR plus 1.25 percent (3.34(3.49 percent and 2.82 percent as of JuneSeptember 30, 2018 and December 31, 2017), and an annual commitment fee of 0.2 percent on the unused portion of the commitment. The Company is required to settle its net borrowings under the Credit Agreement only upon maturity, and as a result, has classified its outstanding borrowings as non-current on its condensed consolidated balance sheet as of JuneSeptember 30, 2018. At JuneSeptember 30, 2018, the outstanding balance under the Credit Agreement was $7.2$1.8 million.

The Credit Agreement contains customary financial covenants, including financial covenants relating to the Company’s solvency, leverage, and minimum EBITDA. In addition, the Credit Agreement restricts certain capital expenditures, lease expenditures, other indebtedness, liens on assets, guarantees, loans and advances, dividends, and merger, consolidation and the transfer of assets except as permitted in the Credit Agreement. The Credit Agreement is collateralized by the Company'sCompany’s manufacturing facility, accounts receivable balance, inventory balance and other assets. Effective June 30, 2018, the Company and Bank of America amended the Credit Agreement to modify certain financial covenants. As of JuneSeptember 30, 2018, the Company was in compliance with the debt covenants set forth in the Credit Agreement.

Basic net income (loss) per common share (“Basic EPS”), is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) 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 (loss) per common share.

Following is a reconciliation of the numerator and denominator of Basic EPS to the numerator and denominator of Diluted EPS for the three and sixnine months ended JuneSeptember 30, 2018 and 2017 (dollar and share amounts in thousands, except for per share information): 

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 (loss) per share for each of the periods presented.

During the year ended December 31, 2012, the Company’s shareholders adopted and approved the Nature’s Sunshine Products, Inc. 2012 Stock Incentive Plan (the “2012 Incentive Plan”).  The 2012 Incentive Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance awards, stock awards and other stock-based awards.  The Compensation Committee of the Board of Directors has authority and discretion to determine the type of award, as well as the amount, terms and conditions of each award under the 2012 Incentive Plan, subject to the limitations of the 2012 Incentive Plan. A total of 1,500,000 shares of the Company’s common stock were originally authorized for the granting of awards under the 2012 Incentive Plan. In 2015, the Company’s shareholders approved an amendment to the 2012 Incentive Plan, to increase the number of shares of Common Stock reserved for issuance by 1,500,000 shares. The number of shares available for awards, as well as the terms of outstanding awards, are subject to adjustment as provided in the 2012 Incentive Plan for stock splits, stock dividends, recapitalizations and other similar events.

The Company also maintains a stock incentive plan, which was approved by shareholders in 2009 (the “2009 Incentive Plan”). The 2009 Incentive Plan also provided for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, performance awards, stock awards and

The Company’s outstanding stock options include time-based stock options, which vest over differing periods of time ranging from the date of issuance to up to 48 months from the option grant date, and performance-based stock options, which have already vested upon achieving operating income margins of six, eight and ten percent as reported in four of five consecutive quarters over the term of the options.

Stock option activity for the six-monthnine-month period ended JuneSeptember 30, 2018, is as follows (amounts in thousands, except per share information):

During the sixnine months ended JuneSeptember 30, 2018, the Company granted options to purchase 25,000 share50,000 shares of common stock under the 2012 Stock Incentive Plan to a new membermembers of the Company'sCompany’s Board of Directors. These options were issued with an exercise price of $9.05$8.43 per share and a grant date fair value of $3.64$3.30 per share, with an expected life of five years, risk-free interest rate of 2.8 percent, and expected volatility of 38.8 percent.

Share-based compensation expense from time-based stock options for the three-month periods ended JuneSeptember 30, 2018 and 2017, was approximately $0.1 million and $0.3$(0.2) million, respectively. Share-based compensation expense from time-based stock options for the six-monthnine-month periods ended JuneSeptember 30, 2018 and 2017, was approximately $0.1$0.2 million and $0.4$0.2 million, respectively. As of JuneSeptember 30, 2018 there was no unrecognized share-based compensation expense related to the grants described above as all outstanding options were vested. As of December 31, 2017, the unrecognized share-based compensation expense related to the grants described above was $13,000.

At JuneSeptember 30, 2018, the aggregate intrinsic value of outstanding and vested stock options to purchase 1,268,0001,114,000 shares of common stock was $0.3 million. At December 31, 2017, the aggregate intrinsic value of outstanding options to purchase 1,390,000 shares of common stock, the exercisable options to purchase 1,293,000 shares of common stock, and options to purchase 92,000 shares of common stock expected to vest was $0.9 million, $0.9 million and $0.0 million, respectively.

For the six-monthnine-month periods ended JuneSeptember 30, 2018 and 2017, the Company issued 69,00099,000 and 9,000 shares of common stock upon the exercise of stock options at an average exercise price of $5.11$6.10 and $11.98 per share, respectively. The aggregate intrinsic valuesvalue of options exercised during the six-monthnine-month periods ended JuneSeptember 30, 2018 and 2017, was $0.4 million and $7,000,$0.2 million, respectively. For the six-monthnine-month periods ended JuneSeptember 30, 2018 and 2017, the Company recognized $0.1 million and $0.0 million of tax benefits from the exercise of stock options, respectively.

As of JuneSeptember 30, 2018 and December 31, 2017, the Company did not have any unvested performance-based stock options outstanding.

The Company’s outstanding restricted stock units ("RSUs"(“RSUs”), include time-based RSUs, which vest over differing periods of time ranging from 12 months to up to 48 months from the RSU grant date, as well as performance-based RSUs, which vest either upon achieving cumulative annual net sales growth targets over a rolling one-year period or upon achieving earnings-per-share targets over a rolling one-year period or weighted-average share prices over a rolling 45 day period. RSUs granted to members of the Company'sCompany’s Board of Directors are not issued until the expiration of a two-year restriction period following vesting. There were 56,00071,000 and 96,000 vested RSUs as of JuneSeptember 30, 2018 and December 31, 2017, respectively, that have been granted to members of the Company'sCompany’s Board of Directors but remain subject to the two-year restriction period.

RSU activity for the six-monthnine-month period ended JuneSeptember 30, 2018, is as follows (amounts in thousands, except per share information):

During the six-monthnine-month period ended JuneSeptember 30, 2018, the Company granted 237,000511,000 RSUs under the 2012 Incentive Plan to the Company’s Board of Directors, executive officers and other employees, which were comprised of both time-based RSUs and net sales and adjusted EBITDA performance-based RSUs. The time-based RSUs were issued with a weighted-average grant date fair value of $10.93$10.16 per share and vest in annual installments over a three-year period from the grant date or according to the restrictions for the Board of Directors noted above. The net sales and adjusted EBITDA earnings-per-share performance-based RSUs were issued with a weighted-average grant date fair value of $11.20$9.79 per share and vest upon achieving targets over a three-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. For RSUs with post-vesting restrictions, a Finnerty Model was utilized to calculate a valuation discount from the market value of common shares reflecting the restriction embedded in the RSUs preventing the sale of the underlying shares over a certain period of time. The Finnerty Model proposes to estimate a discount for lack of marketability such as transfer restrictions by using an option pricing theory. The concept underpinning the Finnerty Model is that restricted stock cannot be sold over a certain period of time. Using assumptions previously determined for the application of the option pricing model at the valuation date, the Finnerty Model discount for lack of marketability is approximately 11.9 percent for a common share.

Share-based compensation expense for RSUs for the three-month periods ended JuneSeptember 30, 2018 and 2017, was approximately $0.5$0.3 million and $0.7$0.3 million, respectively. Share-based compensation expense from RSUs for the six-monthnine-month periods ended JuneSeptember 30, 2018 and 2017, was approximately $1.0$1.3 million and $1.3$1.7 million, respectively. As of JuneSeptember 30, 2018 and December 31, 2017, the unrecognized share-based compensation expense related to the grants described above, excluding incentive awards discussed below, was $1.9$2.4 million and $2.0 million, respectively. The remaining compensation expense is expected to be recognized over the weighted average period of approximately 1.31.5 years.

The Company has not recognized any share-based compensation expense related to the net sales and earnings-per-share performance-based RSUs for the six-monthnine-month periods ended JuneSeptember 30, 2018 and 2017.  Should the Company attain all of the net sales metrics related to the net sales performance-based stock option grants, the Company would recognize up to $4.0$4.7 million of potential share-based compensation expense.

The number of shares issued upon vesting of RSUs granted pursuant to the Company'sCompany’s share-based compensation plans is net of the minimum statutory withholding requirements that the Company pays on behalf of its employees, which was 40,00055,000 shares for the six-monthnine-month period ended JuneSeptember 30, 2018. 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. 

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

The Company'sCompany’s four business segments are divided based on the different characteristics of their distributor and customer bases, 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 NSP China), and one business segment operates under the Synergy® WorldWide brand. Net sales for each segment have been reduced by intercompany sales as they are not included in

In the fourth quarter of 2017, the Company moved the reporting of its wholesale business, in which the Company sells its products to a locally managed entity independent of the Company that has distribution rights for the market, from the NSP China segment to the NSP Russia, Central and Eastern Europe segment. The net sales and contribution margin for the three and sixnine months ended JuneSeptember 30, 2017 were recast to reflect that change.

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

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

 

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.

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.

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

The Company is a party to various other legal proceedings in the United States and several foreign jurisdictions related to value-added tax assessments and other civil litigation. As of JuneSeptember 30, 2018 and December 31, 2017, accrued liabilities were $1.4$1.6 million and $1.5 million, respectively, related to the estimated outcome of these proceedings. In addition, the Company is a party to other litigation where 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 $1.9 million.

During the three and sixnine months ended JuneSeptember 30, 2018, NSP China borrowed $0$2.0 million and $2.0$4.0 million from the Company and $0 and $0.5 million and $1.0 million the Company'sCompany’s joint venture partner, respectively. These notes are payable in one year and bear interest of 3.0 percent. As of JuneSeptember 30, 2018 and December 31, 2017 outstanding borrowings by NSP China from the Company were $4.1$6.0 million and $2.0 million, respectively. As of JuneSeptember 30, 2018 and December 31, 2017 outstanding borrowings by NSP China from the Company'sCompany’s joint venture partner were $1.0$1.5 million and $0.5 million, respectively. The notes between NSP China and the Company eliminate in consolidation.

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 JuneSeptember 30, 2018 (dollar amounts in thousands):

The following table presents the Company’s hierarchy for its assets, measured at fair value on a recurring basis, as of December 31, 2017 (dollar amounts in thousands):

For the sixnine months ended JuneSeptember 30, 2018, and for the year ended December 31, 2017, there were no fair value measurements using significant other observable inputs (Level 2) or significant unobservable inputs (Level 3).

 

The carrying amounts reflected on the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short-term nature. The carrying amount reflected on the condensed consolidated balance sheets for the revolving credit facility approximates fair value due to it being variable-rate debt. During the sixnine months ended JuneSeptember 30, 2018 and 2017, the Company did not have any re-measurements of non-financial assets at fair value on a nonrecurring basis subsequent to their initial recognition.

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'sCompany’s Annual Report on Form 10-K for the year ended December 31, 2017, and its other reports filed since the date of such Form 10-K.

 

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 has four business segments that are divided based on the different characteristics of their distributor and customer bases, 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 NSP China), and one business segment operates under the Synergy® WorldWide brand.

In the fourth quarter of 2017, the Company moved the reporting of its wholesale business, in which the Company sells its products to a locally managed entity independent of the Company that has distribution rights for the market, from the NSP China segment to NSP Russia, Central and Eastern Europe segment. The net sales and contribution margin for the three and sixnine months ended JuneSeptember 30, 2017 were recast to reflect that change.

The Company’s independent distributors market and sell the Company'sCompany’s products to customers and sponsor other independent distributors who also market the Company'sCompany’s products to customers. The Company'sCompany’s revenue is highly dependent upon the number and productivity of its independent distributors. Growth in sales volume requires an increase in the productivity of the Company'sCompany’s independent distributors and/or growth in the total number of its independent distributors. 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.

In the secondthird quarter of 2018, the Company experienced an increasea decrease in its consolidated net sales of 12.20.5 percent (or 9.60.4 percent in local currencies) compared to the same period in 2017. NSP China net sales increased approximately 53.519.3 percent compared to the same period in 2017. NSP Russia, Central and Eastern Europe net sales increased approximately 31.415.1 percent compared to the same period in 2017. Synergy WorldWide net sales increased approximately 20.90.1 percent compared to the same period in 2017 (or 15.9decreased 0.2 percent in local currencies). NSP Americas net sales decreased approximately 2.66.8 percent compared to the same period in 2017 (or 2.86.2 percent in local currencies). The weakening of the U.S. dollar versus the local currencies, primarily in the Company'sCompany’s Asian and European markets, resulted in an approximate 2.60.1 percent, or $2.1$0.1 million, increase of its net sales during the quarter.

Although selling,Selling, general and administrative expenses during the three months ended JuneSeptember 30, 2018 increased $1.5decreased $1.3 million compared to the same period in 2017, selling, general and administrative expensesdecreased as a percentage of net sales decreased to 36.535.6 percent from 39.136.9 percent in 2017. The increasedecrease in dollars was primarily the result of transition expense related toa gain on the announced retirementsale of the Company's Chief Executive Officer, the recognition of employee related benefits, and increased service fees in China,real property partially offset by an employee benefit accrual during the sale of an office buildingthird quarter that did not occur in one of the Company's foreign markets.previous year.

The Company distributes its products to consumers through an independent sales force comprised of independent Managers and Distributors, many of whom also consume the Company'sCompany’s products. Typically a person who joins the Company’s independent sales force begins as a Distributor. An independent Distributor may earn Manager status by attaining certain product sales levels. On a worldwide basis, active independent Managers were approximately 13,10012,200 and 13,20013,400 and active independent Distributors and customers were approximately 217,200214,000 and 214,500213,400 at JuneSeptember 30, 2018 and 2017, respectively.

As an international business, the Company has significant sales and costs denominated in currencies other than the U. S. Dollar. Sales in international markets in foreign currencies are expected to continue to represent a substantial portion of the Company'sCompany’s sales. Likewise, the Company expects its foreign markets with functional currencies other than the U.S. Dollar will continue to represent a substantial portion of its overall sales and related operating expenses. Accordingly, changes in foreign currency exchange rates could materially affect sales and costs or the comparability of sales and costs from period to period as a result of translating the market'smarket’s financial statements into its reporting currency.

The following table summarizes the Company'sCompany’s unaudited consolidated operating results from continuing operations in U.S. dollars and as a percentage of net sales for the three months ended JuneSeptember 30, 2018 and 2017 (dollar amounts in thousands):