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What changed in USANA HEALTH SCIENCES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of USANA HEALTH SCIENCES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+338 added−336 removedSource: 10-K (2023-02-28) vs 10-K (2022-03-01)

Top changes in USANA HEALTH SCIENCES INC's 2023 10-K

338 paragraphs added · 336 removed · 241 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

43 edited+18 added−8 removed45 unchanged
Biggest changeWe made progress in 2021 in several different areas of the business, including: ● Our research collaboration agreement with Beijing University of Chinese Medicine (China), which has several research projects that have been approved and are underway. ● Our China leadership team, which has been strengthened through the addition of several experienced professionals. ● Our branch office redesign strategy, which we believe will drive increased customer activity and retention.
Biggest changeListed below are some of the strategic initiatives in China that we executed in 2022 and plan to continue to advance in 2023: • Advancing our research collaboration with Beijing University of Chinese Medicine (China). • Investing in our branch office redesign strategy, which we believe will enhance the customer experience as well as contribute to increased customer activity and retention. • Advancing and expanding our digital capabilities, which entails continued digital investments to improve the overall customer experience.
Manufacturing Our production process uses automatic and semi-automatic equipment and includes the following activities by type: Tablet Foods Personal Care and Skincare Manufacturing Manufacturing Manufacturing Auditing and qualifying suppliers of raw materials x x x Acquiring raw materials x x x Analyzing raw material quality x x x Weighing or otherwise measuring raw materials x x x Mixing raw materials into batches x x x Forming mixtures into tablets x Converting batches into bars and/or finished powders x Coating and sorting the tablets x Analyzing tablet quality x Analyzing bars and/or finished powder quality x Analyzing liquid batch quality x Packaging finished products x x x Analyzing finished product quality x x x We conduct sample testing of raw materials, in-process materials, and finished products for purity, potency, and composition to determine whether our products conform to our internal specifications, and we maintain complete documentation for each of these tests.
Manufacturing Our production process uses automatic and semi-automatic equipment and includes the following activities by type: Tablet Manufacturing Foods Manufacturing Personal Care and Skincare Manufacturing Auditing and qualifying suppliers of raw materials x x x Acquiring raw materials x x x Analyzing raw material quality x x x Weighing or otherwise measuring raw materials x x x Mixing raw materials into batches x x x Forming mixtures into tablets x Converting batches into bars and/or finished powders x Coating and sorting the tablets x Analyzing tablet quality x Analyzing bars and/or finished powder quality x Analyzing liquid batch quality x Packaging finished products x x x Analyzing finished product quality x x x We conduct sample testing of raw materials, in-process materials, and finished products for purity, potency, and composition to determine whether our products conform to our internal specifications, and we maintain complete documentation for each of these tests.
Products manufactured by third-party suppliers at their locations must also pass through quality control and assurance procedures to ensure they are manufactured in conformance with our specifications. As noted above, with the expansion of our manufacturing facility in Salt Lake City, Utah, we are able to self-manufacture our foods product line.
Products manufactured by third-party suppliers at their locations must also pass through quality control and assurance procedures to ensure they are manufactured in conformance with our specifications. As noted above, with the expansion of our manufacturing facility in Salt Lake City, Utah, we are able to manufacture our foods product line.
Our business in China is conducted by BabyCare (ii) Southeast Asia Pacific – Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand and Indonesia (iii) North Asia – Japan and South Korea Americas and Europe (2) Americas and Europe – United States, Canada, Mexico, Colombia, the United Kingdom, France, Germany, Spain, Italy, Romania, Belgium, and the Netherlands Impact of Foreign Currency Exchange Because we have operations in multiple markets, with sales and expenses generated and incurred in multiple currencies, our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates.
Our business in China is conducted by BabyCare (ii) Southeast Asia Pacific – Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand, and Indonesia (iii) North Asia – Japan and South Korea 6 Table of Contents Americas and Europe (2) Americas and Europe – United States, Canada, Mexico, Colombia, and Europe (the United Kingdom, France, Germany, Spain, Italy, Romania, Belgium, and the Netherlands) Impact of Foreign Currency Exchange Because we have operations in multiple markets, with sales and expenses generated and incurred in multiple currencies, our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates.
We sell these kits at a nominal price averaging approximately $22 in each of our markets and these kits are fully refundable under our return policy, which is described elsewhere in this report. No other direct investment is required to become an Associate.
We sell these kits at a nominal price averaging approximately $19 in each of our markets and these kits are fully refundable under our return policy, which is described elsewhere in this report. No other direct investment is required to become an Associate.
These products support needs such as cardiovascular health, skeletal/structural health, and digestive health and are intended to be used in conjunction with the Essentials/CellSentials 2021 – 68% 2020 – 66% 2019 – 64% Proflavanol ® CoQuinone ® 30 BiOmega-3™ Essentials/CellSentials ®(1) Includes core vitamin and mineral supplements that provide a foundation of advanced total body nutrition for every age group beginning with children 13 months of age. 2021 – 18% 2020 – 19% 2019 – 19% USANA CellSentials Essentials HealthPak 100™ Foods (2) Includes meal replacement shakes, snack bars, and other related products that promote healthy weight management, digestive health, energy and hydration through a holistic approach.
These products support needs such as cardiovascular health, skeletal/structural health, and digestive health and are intended to be used in conjunction with the Essentials/CellSentials 2022 – 70% 2021 – 68% 2020 – 66% Proflavanol ® CoQuinone ® 30 BiOmega-3™ Essentials/CellSentials ®(1) Includes core vitamin and mineral supplements that provide a foundation of advanced total body nutrition for every age group beginning with children 13 months of age. 2022 – 17% 2021 – 18% 2020 – 19% USANA CellSentials Essentials HealthPak 100™ Foods (2) Includes meal replacement shakes, snack bars, and other related products that promote healthy weight management, digestive health, energy and hydration through a holistic approach.
Our Salt Lake City, Utah manufacturing facility is registered, as required, with the FDA, Health Canada Natural Health Products Directorate, the Australian Therapeutic Goods Administration (“TGA”), and other governmental agencies. These and other various organizations and government agencies regularly audit this facility to assess, among other things, compliance with current Good Manufacturing Practices (“GMPs”) and with labeling claims.
Our Salt Lake City, Utah manufacturing facilities are registered, as required, with the FDA, Health Canada Natural Health Products Directorate, the Australian Therapeutic Goods Administration (“TGA”), and other governmental agencies. These and other various organizations and government agencies regularly audit this facility to assess, among other things, compliance with current Good Manufacturing Practices (“GMPs”) and with labeling claims.
We maintain our quality control through controlled sourcing of raw ingredients, manufacturing, packaging and labeling, with testing occurring at several stages of manufacturing. In fiscal years 2021, 2020, and 2019, we expended $11.1 million, $10.6 million, and $10.3 m illion, respectively, on product R&D activities.
We maintain our quality control through controlled sourcing of raw ingredients, manufacturing, packaging and labeling, with testing occurring at several stages of manufacturing. In fiscal years 2022, 2021, and 2020, we expended $11.6 million, $11.1 million, and $10.6 m illion, respectively, on product R&D activities.
Consequently, we have adjusted our direct selling program in China to comply with these laws and regulations. To do this, we operate our business in China through BabyCare. BabyCare utilizes a business model in China that is consistent with the philosophy of our worldwide business model, but different in structure from our other markets.
Consequently, we have adjusted our direct selling program in China to comply with these laws and regulations. To do this, we operate our business in China through BabyCare. BabyCare utilizes a business model in China that is consistent with the philosophy of our world-wide business model, but different in structure from our other markets.
Our facility in Beijing is audited regularly by various organizations and government agencies to assess, among other things, compliance with applicable GMPs, and with labeling claims. 5 Table of Contents Third-Party Suppliers and Manufacturers We contract with third-party suppliers and manufacturers for the production of certain of our products, which account for approximately 37 % o f our product sales.
Our facility in Beijing is audited regularly by various organizations and government agencies to assess, among other things, compliance with applicable GMPs, and with labeling claims. 8 Table of Contents Third-Party Suppliers and Manufacturers We contract with third-party suppliers and manufacturers for the production of certain of our products, which account for approximately 35% o f our product sales.
Unless otherwise specified, current information reported in this Annual Report on Form 10-K for the fiscal year ended January 1, 2022 (this “report” or “Annual Report”) is as of or for the fiscal year ended January 1, 2022. We also discuss the development of our company and the geographic areas where we do business.
Unless otherwise specified, current information reported in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (this “report” or “Annual Report”) is as of or for the fiscal year ended December 31, 2022. We also discuss the development of our company and the geographic areas where we do business.
Additionally, our Salt Lake City, Utah manufacturing facility is certified, through inspection and audits, with the Islamic Foods and Nutrition Counsel of America in compliance with Halal, The Organized Kashrus Laboratories in compliance with Kosher, NSF International in compliance with product testing and GMPs, and the TGA in compliance with the current Therapeutic Goods Act in Australia.
Additionally, our Salt Lake City, Utah manufacturing facilities are certified, through inspection and audits, with the Islamic Foods and Nutrition Counsel of America in compliance with Halal, The Organized Kashrus Laboratories in compliance with Kosher, NSF International in compliance with product testing and GMPs, and the TGA in compliance with the current Therapeutic Goods Act in Australia.
Under our policies and procedures, Associates may not, among other things: (i) use deceptive or unlawful practices to sell USANA products; (ii) make deceptive or unlawful claims or representations concerning our products or Compensation Plan; or (iii) sell competitive products to other USANA Associates or solicit USANA Associates to participate in other direct selling opportunities.
Under our policies and procedures, Associates may not, among other things: (i) use deceptive or unlawful practices to sell USANA products; (ii) make deceptive or unlawful claims or representations concerning our products or Compensation Plan; or (iii) sell competitive products to other USANA 9 Table of Contents Associates or solicit USANA Associates to participate in other direct selling opportunities.
Neither Preferred Customers nor retail customers may resell or distribute our products, regardless of where they purchased them. To sell USANA products, a Preferred Customer or retail customer must become an Associate.
Neither Preferred Customers nor retail customers may resell or distribute our 10 Table of Contents products, regardless of where they purchased them. To sell USANA products, a Preferred Customer or retail customer must become an Associate.
Celavive offers a comprehensive skincare regimen benefiting multiple skincare types and ethnicities, upgraded science, and more noticeable user benefits. 2021 – 6% 2020 – 7% 2019 – 8% Vitalizing Serum Protective Day Cream Replenishing Night Cream Protective Day Cream Perfecting Toner All Other Includes materials and online tools that are designed to assist our Associates in building their businesses and in marketing our products. 2021 – 1% 2020 – 1% 2019 – 1% Associate Starter Kit Product Brochures Logo Merchandise ______________________ (1) Represents a product line consisting of multiple products, as opposed to the USANA® Essentials/ CellSentials product.
Celavive offers a comprehensive skincare regimen benefiting multiple skincare types and ethnicities, upgraded science, and more noticeable user benefits. 2022 – 5% 2021 – 6% 2020 – 7% Vitalizing Serum Protective Day Cream Replenishing Night Cream Protective Day Cream Perfecting Toner All Other Includes materials and online tools that are designed to assist our Associates in building their businesses and in marketing our products. 2022 – 1% 2021 – 1% 2020 – 1% Associate Starter Kit Product Brochures Logo Merchandise ______________________________ (1) Represents a product line consisting of multiple products.
Item 1. Business ” provides detailed information about our worldwide business, including who we are, what we do and where we are headed.
Item 1. Business ” provides detailed information about our world-wide business, including who we are, what we do and where we are headed.
For the year ended January 1, 2022, there were no material changes to our corporate structure or our method of conducting business. Current Focus and Growth Strategy In 2022 we plan to execute our global growth strategy which is focused on increasing the number of active Customers in each of our markets.
For the year ended December 31, 2022, there were no material changes to our corporate structure or our method of conducting business. Current Focus and Growth Strategy In 2023, we plan to execute our global growth strategy which remains focused on increasing the number of active Customers in each of our markets.
In general, our operating results are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. In 2021, net sales outside of the United States represented approximately 90.7% of consolidated net sales.
In general, our operating results are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. In 2022, net sales outside of the United States represented approximately 89.4% of consolidated net sales.
We are audited by the FDA, specifically for dietary supplements, and have historically been found in compliance with GMPs for dietary supplements. Although the FDA has not promulgated GMPs for personal care items, it has issued guidelines for manufacturing personal care products. We voluntarily maintain compliance with the guidance established by the FDA and the Personal Care Products Council.
We are audited by the FDA, specifically for dietary supplements, and have historically been found to be in compliance with GMPs for dietary supplements. Although the FDA has not promulgated GMPs for personal care items, it has issued guidelines for manufacturing personal care products.
The purpose behind each form of compensation under our Compensation Plan is to reward committed Associates for generating product sales either directly or indirectly through their sales organization and network of product consumers. 6 Table of Contents Associates can earn compensation under the Compensation Plan in four ways: ● Commissions .
The purpose behind each form of compensation under our Compensation Plan is to reward committed Associates for generating product sales either directly or indirectly through their sales organization and network of product consumers. Associates can earn compensation under the Compensation Plan in four ways: • Commissions . The primary way an Associate is compensated is through earning commissions.
This facility started to produce saleable product during the fourth quarter of 2020. BabyCare manufactures and produces a significant portion of its products in-house and maintains manufacturing and quality control facilities in Beijing, China and Tianjin, China. This section of this Annual Report gives you more information about our manufacturing, production and quality control operations.
BabyCare manufactures and produces a significant portion of its products in-house and maintains manufacturing and quality control facilities in Beijing, China and Tianjin, China. This section of this Annual Report gives you more information about our manufacturing, production and quality control operations.
The primary way an Associate is compensated is through earning commissions. Associates earn commissions by generating sales volume points, which are based on product sales of their sales organization. We have assigned each of our products a sales volume point value comprised of a certain percentage of the product price in U.S. dollars.
Associates earn commissions by generating sales volume points, which are based on product sales of their sales organization. We have assigned each of our products a sales volume point value comprised of a certain percentage of the product price in U.S. dollars. To be eligible to earn commissions, an Associate must sell a certain amount of product each month.
These products can be used along with Essentials and Optimizers to provide a complete and healthy diet and sustained energy throughout the day. 2021 – 7% 2020 – 7% 2019 – 8% Nutrimeal Fibergy RESET ™ weight-management program Personal Care and Skincare Includes our premium science-based personal care products and Celavive, our innovative skincare system formulated with our USANA InCelligence Technology ® .
These products can be used along with Essentials and Optimizers to provide a complete and healthy diet and sustained energy throughout the day. 2022 – 7% 2021 – 7% 2020 – 7% Nutrimeal Fibergy RESET™ weight-management program 5 Table of Contents Product Line/Category Description Percent of Product Sales by Fiscal Year Product examples Personal care and Skincare Includes our premium science-based personal care products and Celavive, our innovative skincare system formulated with our USANA InCelligence Technology ® .
Products The following table summarizes information concerning our principal product lines. Product Line/Category Description Percent of Product Sales by Fiscal Year Product examples USANA ® Nutritionals Optimizers Consists of targeted supplements designed to meet individual health and nutritional needs.
Product Line/Category Description Percent of Product Sales by Fiscal Year Product examples USANA ® Nutritionals Optimizers Consists of targeted supplements designed to meet individual health and nutritional needs.
Our ingredients are selected to meet a number of criteria, including, but not limited to safety, potency, purity, stability, bioavailability, and efficacy. We control the quality of our products throughout all our internal processes, beginning at the formulation stage.
Food and Drug Administration (“FDA”), U.S. Pharmacopeia (“USP”), other leading non-governmental agencies (“NGO”), and government agencies. Our ingredients are selected to meet a number of criteria, including, but not limited to safety, potency, purity, stability, bioavailability, and efficacy. We control the quality of our products throughout all our internal processes, beginning at the formulation stage.
Manufacturing and Quality Assurance We conduct manufacturing, production and quality control operations for approximately 63% of our products in-house. We have established and maintain a manufacturing and quality control facility at our corporate headquarters in Salt Lake City, Utah. In 2019, we expanded this facility to allow us to manufacture our food products in-house.
Manufacturing and Quality Assurance We conduct manufacturing, production and quality control operations for approximately 65% of our products in-house. We have established and maintain a manufacturing and quality control facility at our corporate headquarters in Salt 7 Table of Contents Lake City, Utah.
Asia Pacific is further divided into three sub-regions: (i) Greater China, (ii) Southeast Asia Pacific, and (iii) North Asia. The countries included in these regions and sub-regions are described below: Asia Pacific (1) Asia Pacific is organized into three sub-regions: Greater China, Southeast Asia Pacific, and North Asia.
The countries included in these regions and sub-regions are described below: Asia Pacific (1) Asia Pacific is organized into three sub-regions: Greater China, Southeast Asia Pacific, and North Asia. Markets included in each of these sub-regions are as follows: (i) Greater China - Hong Kong, Taiwan, and China.
(2) Includes the Active Nutrition line, which launched in five markets late in the first quarter of 2021 and will roll out to additional markets in future periods . In addition to the products described above, we offer products designed specifically for prenatal, infant, and young-child age groups in China.
(2) Includes our new Active Nutrition line, which launched in five markets in 2021 and all but two of our remaining markets through the third quarter of 2022. In addition to the products described above, we offer products designed specifically for prenatal, infant, and young-child age groups in China.
Total product sales, as a percentage of net sales, represented by our top-selling products for the last three fiscal years is as follows: Year Ended 2021 2020 2019 Key Product USANA Essentials/CellSentials 12 % 13 % 12 % Proflavanol 10 % 11 % 11 % Probiotic 9 % 9 % 10 % Other top-selling products include our Soy Lecithin, Hepasil, and HealthPak™. 3 Table of Contents Geographic Presence We have ongoing operations in the following markets, which are presented in two geographic regions: (1) Asia Pacific, and (2) Americas and Europe.
Total product sales, as a percentage of net sales, represented by our top-selling products for the last three fiscal years is as follows: Year Ended 2022 2021 2020 Key Product USANA Essentials/CellSentials 11 % 12 % 13 % Proflavanol 10 % 10 % 11 % Probiotic 10 % 9 % 9 % Other top-selling products include our Hepasil, Soy Lecithin, and HealthPak™.
With the exception of our China market (discussed below), we endeavor to integrate our Compensation Plan seamlessly across all markets where legally permissible, allowing Associates to receive commissions for global—not merely local—product sales.
These promotions are also based on a pay-for-performance philosophy and, therefore, are only paid upon the achievement of certain objectives. With the exception of our China market (discussed below), we endeavor to integrate our Compensation Plan seamlessly across all markets where legally permissible, allowing Associates to receive commissions for global product sales.
We plan to do this by (i) continuing to advance our digital strategy through targeted investments; (ii) continuing to pursue product development and further leveraging our foods manufacturing facility; (iii) focusing on our China market in particular and our customer base in that market, and (iv) pursuing growth opportunities through business development activities.
We plan to do this by (i) continuing to advance our digital commerce initiatives to support our business; (ii) executing market specific promotional and incentive strategies; (iii) continuing to pursue product development and further leveraging our foods manufacturing facility; (iv) focusing on our China market and our customer base in that market; (v) pursuing growth through international expansion; and (vi) advancing our business development strategy by growing the two companies we acquired in 2022, and evaluating new acquisition opportunities.
To be eligible to earn commissions, an Associate must sell a certain amount of product each month. Associates do not earn commissions for simply recruiting and enrolling others in their organization. Commissions are paid only on the sale of products. In most markets, we pay Associates their commissions on a weekly basis. ● Bonuses .
Associates do not earn commissions for simply recruiting and enrolling others in their organization. Commissions are paid only on the sale of products. In most markets, we pay Associates their commissions on a weekly basis. • Bonuses . We offer Associates several bonus opportunities, including our leadership bonus, elite bonus, and lifetime matching bonus.
CPCs are similar to Preferred Customers in our other markets, but CPCs may also refer other CPCs in China and receive free product value from us on future product purchases based on the volume of product purchased by CPCs they have referred. 7 Table of Contents A CPC may become a direct seller or independent distributor (which we report collectively as Associates) in China by electing to do so and agreeing to adhere to BabyCare’s policies and procedures in China.
CPCs are similar to Preferred Customers in our other markets, but CPCs may also refer other CPCs in China and receive free product value from us on future product purchases based on the volume of product purchased by CPCs they have referred.
Digital Investments Expanding, enhancing and leveraging our digital capabilities to create the best overall customer experience remains a top priority. Collaboration between our sales leaders and management team, combined with assessment of customer feedback, are some of the driving forces behind our planned digital investments in 2022.
Digital Commerce Initiatives In 2023, we will continue to focus on expanding, enhancing and leveraging our digital capabilities to create the best overall customer experience. Collaboration between our sales leaders and management team, combined with assessment of customer feedback, will continue to be utilized in connection with planned digital investments.
We also continue to work closely with Beijing University of Chinese Medicine (China) and we hope to have meaningful results from many of these projects and to start commercializing products as soon as possible.
We also continue to work closely with Beijing University of Chinese Medicine (China) and we hope to have meaningful results from many of these projects and to start commercializing products as soon as possible. 4 Table of Contents International Expansion We continue to believe that China represents a meaningful long-term growth opportunity for the Company, we also believe that growth opportunities exist in new international markets.
We believe this will help with new customer acquisition while also improving longevity. ● Building upon recent collaborations and partnerships. We recently renewed our partnership with the National Sports Training Bureau and we are looking for additional partnerships to promote our new Active Nutrition line.
We are continuing our partnership with the National Sports Training Bureau and we are looking for additional partnerships to promote our new Active Nutrition line.
As discussed previously, in markets where retail mark-ups are permitted, our Associates purchase products from us at the Preferred Price and may resell them to consumers at higher retail prices. This allows the Associate to retain the retail mark-up as another form of compensation. ● Contests and Promotions .
These bonus opportunities are based on a pay-for-performance philosophy and, therefore, are paid out when the Associate achieves certain performance measures. • Retail Mark-Ups . As discussed previously, in markets where retail mark-ups are permitted, our Associates purchase products from us at the Preferred Price and may resell them to consumers at higher retail prices.
We regularly sponsor contests and promotions designed to incentivize Associates to generate sales, grow their active Customer base and ultimately increase the number of USANA product users. These promotions are also based on a pay-for-performance philosophy and, therefore, are only paid upon the achievement of certain objectives.
This allows the Associate to retain the retail mark-up as another form of compensation. • Contests and Promotions . We regularly sponsor contests and promotions designed to incentivize Associates to generate sales, grow their active Customer base and ultimately increase the number of USANA product users.
This year we will focus on the next step of improving the checkout process. ● Onboarding programs and training tools: We plan to roll out a new education and communication onboarding program for our new Associates in Q2 2022. This program will offer product education and utilize our key online and app-based digital tools that we introduced in 2021.
Listed below are some of the digital initiatives we plan to advance in 2023. • Onboarding program and digital tools: In 2022, we launched a new education and communication onboarding program for our new Associates. This program offers product education and utilizes a variety of our key online and app-based digital tools.
Our Beijing, China manufacturing facility is registered with State Administration of Market Regulation (“SAMR”), which incorporated the China Food and Drug Administration in 2018 as part of a larger reorganization of the Chinese government.
We voluntarily maintain compliance with the guidance established by the FDA and the Personal Care Products Council. Our Beijing, China manufacturing facility is registered with State Administration of Market Regulation (“SAMR”), which includes the China Food and Drug Administration.
These investments include: (i) improving the speed and efficiency of the onboarding process through automation, (ii) enhancing notifications within the shopping app, which will help drive increased retention, (iii) simplifying the shopping experience, and (vi) adding features and functionality to existing apps that will help improve overall efficiency and stimulate growth. 2 Table of Contents ● Enhancing our Associate-focused marketing content: We plan to leverage new product training videos, testimonials and business trainings from our new media studio.
These investments include: (i) improving the onboarding process through feedback, collaboration with our customers, and automation; (ii) simplifying and enhancing our shopping experience and app in China, which will help increase customer acquisition and retention; and (iii) enhancing our Associate-focused marketing content, which includes new videos and other training materials from our media studio in China. • Continuing to advance and build upon collaborations and partnerships.
Business Development A strong balance sheet and our willingness to invest in growth allows us to pursue a wide-range of opportunities that are additive to our long-term success. Our focus remains on opportunities that strengthen, diversify, and grow our worldwide business by focusing on: (i) overall nutrition; (ii) vertical integration; (iii) product and category expansion; and (iv) geographic expansion.
In 2023, we will continue to pursue acquisition opportunities in the health and wellness space that strengthen, diversify, and grow our world-wide business by focusing on: (i) overall nutrition, (ii) vertical integration, (iii) product and category expansion, and (iv) geographic expansion. Products The following table summarizes information concerning our principal product lines.
The combination of these learning tools is intended to improve the onboarding process and experience for new Associates through additional communication, notifications and orientation, which we believe will help drive more efficient customer acquisition Product Development Our foods plant ("USANA North" facility) in Salt Lake City, UT, houses the manufacturing for all of our foods-related products, is now fully operational.
In 2023, we will continue to promote and improve these digital tools to improve the onboarding process and experience for new Associates through targeted communications, notifications and orientation, which we believe will help drive customer acquisition and retention. • Affiliate program, social selling and digital tools: In January 2023, we launched our Affiliate program in the United States, Canada, and Mexico.
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Among the many projects planned for the year, we highlight the following: (i) building on shopping cart conversion rate progress made in 2021 and (ii) enhancing onboarding programs and training tools for new Associates. ● Conversion rates: In 2021 we focused on improving the customer shopping experience and our internal data indicates that shopping cart conversion rates have improved meaningfully.
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The Affiliate program offers a new, simplified way for individuals and 3 Table of Contents customers in these markets to share, market, sell, and earn compensation for selling our products. We developed and deployed a variety of digital tools in connection with the launch of this new program.
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We believe the investments in this facility will allow us to be more agile and cost efficient in responding to both current and future opportunity.
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In 2023, we will promote this program in these markets, promote and expand the digital tools for the program, and continue to evaluate offering the program in other markets. Market-Specific Strategies In 2023, we will continue to pursue market-specific strategies to facilitate customer growth and strengthen our business around the world.
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Although the rollout of additional Active Nutrition products were delayed in certain markets in 2021, we have officially resumed the rollout in Q1 2022, beginning with our Nutrimeal Free Active and Collagen Protein Bar, both of which are being manufactured in the USANA North facility.
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Listed below are some of the strategies we plan to execute on a market-specific basis. • Shifting our focus from large, world-wide incentive offerings to strategically timed, market- and region-specific efforts to incent sales and customer growth. • Continuing to offer product promotions to increase product demand and drive customer growth. • Returning to in-person events and Associate incentive trips where possible.
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We intend to introduce additional new Active Nutrition products throughout 2022, as well as several products in conjunction with USANA’s 30 th year anniversary. China Strategy We remain very optimistic about the long-term growth prospects in our China business.
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Examples of these events include our China National Meeting and Asia Pacific Convention, which are both scheduled for the second quarter of 2023. • Increasing the number of in-person meetings and improving collaboration amongst our management team and Associate sales force. • Refocusing our Associate sales force on promoting the science-based differentiation of USANA's products, which includes our proprietary InCelligence Technology®.
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Other key initiatives in China in 2022 include: ● Continuing our digital transformation: We will continue to make several digital investments aimed at improving the overall customer experience.
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InCelligence™ is our patented technology that supports the body's natural ability to nourish, protect and renew itself. Product Development In 2023, we plan to continue to invest in research and development and product innovation to ensure that USANA remains a leader in clinical nutrition. We also plan to roll-out new science-based products in 2023 and over the next several years.
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Markets included in each of these sub-regions are as follows: (i) Greater China - Hong Kong, Taiwan, and China.
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Our foods plant ("USANA North" facility) in Salt Lake City, UT, houses the manufacturing for our foods-related products. In 2023, we plan to move the production of more of our Active Nutrition products to USANA North.
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These relationships help us continue to advance our knowledge, expertise and leadership in several areas of applied human nutrition. 4 Table of Contents When developing and manufacturing our products we follow the highest applicable industry quality standards, as established by the U.S. Food and Drug Administration (“FDA”), U.S. Pharmacopeia (“USP”), other leading non-governmental agencies (“NGO”), and government agencies.
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We also plan to move production of Rise Bar's products to USANA North to realize cost savings, increase production efficiency and provide Rise Bar with increased capacity to grow its customer base. Overall, we believe our investment in USANA North allows us to be more agile and cost efficient in responding to both current and future opportunities.
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We offer Associates several bonus opportunities, including our leadership bonus, elite bonus, and lifetime matching bonus. These bonus opportunities are based on a pay-for-performance philosophy and, therefore, are paid out when the Associate achieves certain performance measures. ● Retail Mark-Ups .
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China Strategy Notwithstanding the challenges we have experienced over the last several years in China related to the COVID-19 pandemic, we remain optimistic about the long-term growth potential of our China business.
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Although we have not opened new markets during the COVID-19 pandemic, our team has continued to evaluate new market opportunities for USANA's business and has positioned USANA to announce and launch a new market in late 2023.
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Business Development Our strong balance sheet and our willingness to invest in growth continues to allow us to pursue a wide-range of opportunities that are additive to our long-term success. In 2022, we completed the acquisition of two companies, Rise Bar and Oola Global, LLC "(Oola").
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Rise Bar manufactures and sells high-quality protein bars that are formulated to help customers achieve their health goals through clean and simple ingredients. Oola is an emerging direct selling company that offers a personal development framework that helps individuals create a life of balance, growth, and purpose.
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Although Rise Bar and Oola will continue to operate and grow independently of USANA, we plan to leverage their knowledge, experience, and technology to grow USANA’s core business. We are also utilizing USANA's assets and resources to generate growth for Rise Bar and Oola.
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For further details of these acquisitions, see Note B to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
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Geographic Presence We have ongoing operations in the following markets, which are presented in two geographic regions: (1) Asia Pacific, and (2) Americas and Europe. Asia Pacific is further divided into three sub-regions: (i) Greater China, (ii) Southeast Asia Pacific, and (iii) North Asia.
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These relationships help us continue to advance our knowledge, expertise and leadership in several areas of applied human nutrition. Working with these partners, we select products at all stages of development for preclinical and clinical studies.
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While several studies were paused over the last few years due to the COVID-19 pandemic, in 2021we returned to conducting clinical studies and expect to accelerate the number of studies we conduct in the coming years. When developing and manufacturing our products, we follow the highest applicable industry quality standards, as established by the U.S.
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In 2019, we added a 54,000 square foot manufacturing facility located adjacent to our corporate headquarters, which expanded our manufacturing capabilities to allow us to manufacture our food products in-house. This adjacent facility started to produce saleable product during the fourth quarter of 2020.
Added
A CPC may become a direct seller or independent distributor (which we report collectively as Associates) in China by electing to do so and agreeing to adhere to BabyCare’s policies and procedures in China.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

61 edited+17 added−36 removed89 unchanged
Biggest changeProduct Returns Product returns have not been a material factor in our business, totaling approximately 0.6% of net sales in 2021, and 0.7% of net sales in 2020, and 2019, respectively. Customer satisfaction has always been and will continue to be a hallmark of our business. We believe that we have always offered a generous product return policy.
Biggest changeWe compete with these entities by emphasizing to our Associates, Preferred Customers, and potential customers the strengths of our business, as described in the "Operating Strengths" section above. Product Returns Product returns have not been a material factor in our business, totaling approximately 0.7%, 0.6%, and 0.7% of net sales in 2022, 2021, and 2020, respectively.
We will continue to monitor the situation surrounding the pandemic and implement additional risk mitigation actions where necessary. We recognize that a strong commitment to community is essential to all stakeholders. To that end, in 2012, we established the USANA Foundation, which operates independently to provide nutrition to under-privileged children and families worldwide.
We will continue to monitor the situation surrounding the pandemic and implement additional risk mitigation actions where necessary. We recognize that a strong commitment to community is essential to all stakeholders. In 2012, we established the USANA Foundation, which operates independently to provide nutrition to under-privileged children and families worldwide.
We develop and sell training materials and sales tools to assist Associates in building their businesses, and we provide reprints from commercial publications that feature USANA that may be used as sales tools. We also sponsor and conduct regional, national, and international Associate events, as well as intensive leadership training seminars.
We develop and provide training materials and sales tools to assist Associates in building their businesses, and we provide reprints from commercial publications that feature USANA that may be used as sales tools. We also sponsor and conduct regional, national, and international Associate events, as well as intensive leadership training seminars.
We believe that our ability to manufacture our own products in-house is a significant competitive advantage for the following reasons: ● We can better control the quality of raw materials and finished products; ● We can more reliably monitor the manufacturing process to better guarantee potency and bioavailability and to reduce the risk of product contamination; ● We can better control production schedules to increase the likelihood of maintaining an uninterrupted supply of products for our customers; ● We are able to produce most of our own prototypes in the research phase of product development; and ● We are better able to manage the underlying costs associated with manufacturing our products.
We believe that our ability to manufacture our own products in-house is a significant competitive advantage for the following reasons: • We can better control the quality of raw materials and finished products; • We can more reliably monitor the manufacturing process to better guarantee potency and bioavailability and to reduce the risk of product contamination; • We can better control production schedules to increase the likelihood of maintaining an uninterrupted supply of products for our customers; 12 Table of Contents • We are able to produce most of our own prototypes in the research phase of product development; and • We are better able to manage the underlying costs associated with manufacturing our products.
Science-based Quality Products. As a result of our emphasis on R&D and our in-house manufacturing capabilities, we have developed a line of high quality products that we believe provides health benefits to our customers. Our products have been developed based on a combination of published research, in-house laboratory and third-party clinical studies, and sponsored research.
Science-based Quality Products. As a result of our emphasis on R&D and our in-house manufacturing capabilities, we have developed a line of high quality products that we believe provide health benefits to our customers. Our products have been developed based on a combination of published research, in-house laboratory and third-party clinical studies, and sponsored research.
We believe that our direct-selling business model provides, among others, the following advantages: ● No requirement for a company-employed sales force to sell our products, with a relatively low incremental cost to add a new active Customer; ● Commissions paid to our Associates are tied to sales performance; ● Accounts receivable are minimal because payment is required at the time an active Customer purchases product; ● A stream of recurring revenue generated from our monthly product subscription program known as “Auto Order,” which we utilize in all of our markets (this program offers a 10% price discount and represented 63 % of our product sales volume for the year ended January 1, 2022); and ● The ability to expand into new international markets with moderate investment because we generally maintain only warehouse facilities, customer support, and minimal administrative facilities in those international markets.
We believe that our direct-selling business model provides, among others, the following advantages: • No requirement for a company-employed sales force to sell our products, with a relatively low incremental cost to add a new active Customer; • Commissions paid to our Associates are tied to sales performance; • Accounts receivable are minimal because payment is required at the time an active Customer purchases product; • A stream of recurring revenue generated from our monthly product subscription program known as “Auto Order,” which we utilize in all of our markets (this program offers a 10% price discount and represented 65% of our product sales volume for the year ended December 31, 2022); and • The ability to expand into new international markets with moderate investment because we generally maintain only warehouse facilities, customer support, and minimal administrative facilities in those international markets.
We detail more of the various risks associated with the regulation of our overall business, direct selling business model and Compensation Plan in this Annual Report in “ Item 1A. “Risk Factors.” Transfer Pricing Regulation.
We detail more of the various risks associated with the regulation of our overall business, direct selling business model and Compensation Plan in this Annual Report in “Item 1A. “Risk Factors.” Transfer Pricing Regulation.
We remain committed to being socially responsible as a corporate leader in each of our markets and doing our part to reduce the spread of COVID-19. As such, we are continuing to utilize a modified operating model in each of our markets as necessary to follow applicable guidelines from government and health officials.
We remain committed to being socially responsible as a corporate leader in each of our markets and doing our part to reduce the spread of COVID-19. As such, we continue to utilize a modified operating model in each of our markets as necessary to follow applicable guidelines from government and health officials.
In connection with this effort, we are permitting most of our employees to utilize a hybrid work schedule, which allows them to split their time working at the office and remotely. Employees working on site are required to follow applicable health and safety guidelines.
In connection with this effort, permit most of our employees to utilize a hybrid work schedule, which allows them to split their time working at the office and remotely. Employees working on site are required to follow applicable health and safety guidelines.
We are also continuing to utilize flexible shift schedules, time and attendance policies, and sick-leave policies to promote health, wellness and safety. Where necessary in our international markets, we have temporarily closed product will-call centers and continue to offer curbside delivery and subsidized shipping to customers.
We continue to utilize flexible shift schedules, time and attendance policies, and sick-leave policies to promote health, wellness and safety. Where necessary in our international markets, we have temporarily closed product will-call centers and continue to offer curbside delivery and subsidized shipping to customers.
Over the last several years, we have meaningfully invested in technology systems and infrastructure to create a better overall customer experience for our customers and we will continue to invest in this area going forward. 10 Table of Contents Our information technology resources are maintained primarily by our in-house staff to optimally support our customer base and core business processes.
Over the last several years, we have meaningfully invested in technology systems and infrastructure to create a better overall customer experience for our customers and we will continue to invest in this area going forward. Our information technology resources are maintained primarily by our in-house staff to optimally support our customer base and core business processes.
Strategic Pillars Tier One Topics Tier Two Topics Products ● Product quality and safety ● Responsible Sourcing ● Health and nutrition ● Affordable and accessible products People ● Talent Management and development ● Employee health, safety, and well-being ● Diversity, equity, and inclusion ● Human rights Planet ● Sustainable packaging ● Waste management ● Greenhouse gas management ● Biodiversity and environmental conservation ● Energy management ● Water management We encourage you to review our 2020 Sustainability Report through our investor relations website https://ir.usana.com/ for more detailed information regarding our human capital programs and initiatives.
Strategic Pillars Tier One Topics Tier Two Topics Products • Product quality and safety • Responsible Sourcing • Health and nutrition • Affordable and accessible products People • Talent Management and development • Employee health, safety, and well-being • Diversity, equity, and inclusion • Human rights Planet • Sustainable packaging • Waste management • Greenhouse gas management • Biodiversity and environmental conservation • Energy management • Water management We encourage you to review our most recent Sustainability Report available on our investor relations website https://ir.usana.com/ for more detailed information regarding our human capital programs and initiatives.
Larger markets, including China, however, require more significant local investment. Experienced Management Team. Our management team includes individuals with expertise in various scientific and managerial disciplines, including global direct selling, nutrition, product research and development, international development, marketing, sales, information technology, manufacturing, finance, legal, regulatory, and operations.
Larger markets, including China, however, require more significant local investment. Experienced Management Team. Our management team includes individuals with expertise in various scientific and managerial disciplines, including global direct selling, nutrition, product research and development, international 13 Table of Contents development, marketing, sales, information technology, manufacturing, finance, legal, regulatory, and operations.
Sinnott holds a B.S. in Biological Sciences, an M.S. in Natural Science, and a Ph.D. in Plant Sciences from Arizona State University, in Tempe, Arizona. His focus was on applied biological sciences, including biotechnology and plant medicinal chemistry. Walter Noot. Mr.
Sinnott holds a B.S. in Biological Sciences, an M.S. in Natural Science, and a Ph.D. in Plant Sciences from Arizona State University, in Tempe, Arizona. His focus was on applied biological sciences, including biotechnology and plant medicinal chemistry.
As of February 25, 2022, we had no significant backlog of orders. Working Capital Practices Due to our dual role as manufacturer and distributor, we require substantial inventories, as such, we strive to maintain sufficient amounts of inventory in order to provide a high level of service to our customers.
As of February 24, 2023, we had no significant backlog of orders. Working Capital Practices Due to our dual role as manufacturer and distributor, we require substantial inventories, as such, we strive to maintain sufficient amounts of inventory in order to provide a high level of service to our customers.
In addition to following mandatory government requirements for health and safety, we have established a wellness program that includes free nutritional products to employees. Employees who work out of our corporate headquarters have access to an on-site gym, exercise classes, free access to massages, and chiropractic care.
In addition to following mandatory government requirements for health and safety, we have established a wellness program that includes free nutritional products to employees. Employees in our corporate headquarters have access to an on-site gym, exercise classes, free access to massages, and chiropractic care.
It is through our internal R&D efforts, as well as our relationships with outside research organizations and health care providers, that we can provide what we believe to be some of the highest quality health products in the industry. 8 Table of Contents In-house Manufacturing. We manufacture products that account for approximate ly 63 % of our product sales.
It is through our internal R&D efforts, as well as our relationships with outside research organizations and health care providers, that we can provide what we believe to be some of the highest quality health products in the industry. In-house Manufacturing. We manufacture products that account for approximate ly 65% of our product sales.
The majority of our employee population resides in the United States (47%) and China ( 28 %). Approximately 58% of our worldwide employee population is female. We are actively working through initiatives such as our Women in Leadership Program, along with formal and informal mentorship programs, to continue promoting and hiring talented and capable women into management roles.
The majority of our employee population resides in the United States (46%) and China (28%). Approximately 58% of our world-wide employee population is female. We are actively working through initiatives such as our Women in Leadership Program, along with formal and informal mentorship programs, to continue promoting and hiring talented and capable women into management roles.
From time to time, we become involved in litigation with Associates whose purchase and distribution rights have been terminated. We consider such litigation to be routine and incidental to our business and we will continue to be aggressive in ensuring that our Associates comply with our policies and procedures.
From time to time, we become involved 14 Table of Contents in litigation with Associates whose purchase and distribution rights have been terminated. We consider such litigation to be routine and incidental to our business and we will continue to be aggressive in ensuring that our Associates comply with our policies and procedures.
We therefore believe that these proprietary rights have been and will continue to be important in enabling us to compete. Patent. We own U.S. Patent 10,632,101 for our InCelligence complex formula. Trade Secrets.
We therefore believe that these proprietary rights have been and will continue to be important in enabling us to compete. Patent. We own U.S. Patent 10,632,101 for our InCelligence complex formula. This patent was issued in 2020. Trade Secrets.
However, these efforts do not completely eliminate the significant risks associated with BabyCare’s operations in China. As sociate Training and Motivation. Initial training of Associates about USANA, our products and Compensation Plan, and global direct selling in general, is provided primarily by an Associate’s sponsor and others in the Associate’s sales organization.
However, these efforts do not completely eliminate the significant risks associated with BabyCare’s operations in China. 11 Table of Contents Associate Training and Motivation. Initial training of Associates about USANA, our products and Compensation Plan, and global direct selling in general, is provided primarily by an Associate’s sponsor and others in the Associate’s sales organization.
Risk Factors . 15 Table of Contents Information About Our Executive Officers and Directors Executive Officers The following table sets forth certain information regarding our Executive Officers as of the date of this Annual Report. Name Age Position Kevin G. Guest 59 Chief Executive Officer and Chairman of the Board Jim Brown 53 President G.
Risk Factors . 21 Table of Contents Information About Our Executive Officers and Directors Executive Officers The following table sets forth certain information regarding our Executive Officers as of the date of this Annual Report. Name Age Position Kevin G. Guest 60 Chief Executive Officer and Chairman of the Board Jim Brown 54 President G.
In addition, a discussion of the risks relating to our ability to attract and retain active Associates and Preferred Customers, and the loss of key management, is discussed further in Item 1A.
A discussion of the risks relating to our ability to attract and retain active Associates and Preferred Customers, and the loss of key management, is included in Item 1A.
We also believe that the manner in which we address issues related to workforce demographics, diversity and inclusion, community involvement, talent management, and employee health and safety directly correlates to our success as a business. As of February 25, 2022, we had approximately 1,978 employees working in 22 countries worldwide, as measured by full-time equivalency.
We also believe that the manner in which we address issues related to workforce demographics, diversity and inclusion, community involvement, talent management, and employee health and safety directly correlates to our success as a business. As of February 24, 2023, we had approximately 1,900 employees working in 23 countries worldwide, as measured by full-time equivalency.
Major Customers We sell product to independent Associates and Preferred Customers. No single Associate or Preferred Customer accounted for 10% or more of net sales in any of the last three fiscal years. Notwithstanding the foregoing, the nature of our business model results in a significant amount of sales to several different Associate leaders and their sales organizations.
No single Associate or Preferred Customer accounted for 10% or more of net sales in any of the last three fiscal years. Notwithstanding the foregoing, the nature of our business model results in a significant amount of sales to several different Associate leaders and their sales organizations.
Under these provisions, if the agency were to find that a product or ingredient of one of our OTC drug products is not generally recognized as safe and effective or is not included in a final monograph that is applicable to one of our OTC drug products, we would be required to reformulate or cease marketing that product until it is the subject of an approved NDA or until the time, if ever, that the monograph is amended to include such product. 11 Table of Contents Advertising of our products in the United States is subject to regulation by the FTC under the FTC Act.
Under these provisions, if the agency were to find that a product or ingredient of one of our OTC drug products is not generally recognized as safe and effective or is not included in a final monograph that is applicable to one of our OTC drug products, we would be required to reformulate or cease marketing that product until it is the subject of an approved NDA or until the time, if ever, that the monograph is amended to include such product.
Brown received a bachelor’s degree with a double major in computer science and math, and an M.B.A. from Francis Marion University in Florence, South Carolina. G. Douglas Hekking. Mr. Hekking became our Chief Financial Officer in May 2017. Mr.
From 2016 to 2019 he served as President and Chief Operating Officer. Mr. Brown received a bachelor’s degree with a double major in computer science and math, and an M.B.A. from Francis Marion University in Florence, South Carolina. G. Douglas Hekking became our Chief Financial Officer in May 2017. Mr.
Guest's important role as the leading force of our management and sales efforts, and his talent as a motivating leader, qualify him to serve as a member of the Board. Mr. Guest earned a B.A. in Communications from Brigham Young University. Jim Brown . Mr. Brown joined USANA in 2006 as Vice President of Operations.
Guest's important role as the leading force of our management and sales efforts, and his talent as a motivating leader, qualify him to serve as a member of the Board. Mr. Guest earned a B.A. in Communications from Brigham Young University. Jim Brown has been President of the Company since 2016.
We intend to protect our legal rights concerning intellectual property by all appropriate legal action. Consequently, we may become involved from time to time in litigation to determine the enforceability, scope, and validity of any of the foregoing proprietary rights. Any intellectual property litigation could result in substantial cost and divert the efforts of management and technical personnel.
Consequently, we may become involved from time to time in litigation to determine the enforceability, scope, and validity of any of the foregoing proprietary rights. Any intellectual property litigation could result in substantial cost and divert the efforts of management and technical personnel.
In 2021, the USANA Foundation: ● Provided over 4 million meals; ● Provided approximately $ 1.1 million in aid and grants to partner charities around the world; ● Distributed weekly backpacks of food for children in 38 schools to take home on the weekend; ● Supported 38 additional schools by providing large packs of food for children to take home during long holiday breaks; and ● Gifted ov er 10,000 bottles of children's vitamins to s ome of the most malnourished children in Africa.
In 2022, the USANA Foundation: • Provided over 12 million meals; • Provided over $500,000 in aid and grants to partner charities around the world; • Distributed weekly backpacks of food for children in 42 schools to take home on the weekend; • Supported 44 additional schools by providing large packs of food for children to take home during long holiday breaks; and • Gifted approximately 6,000 bottles of children's vitamins to s ome of the most malnourished children around the world.
Douglas Hekking 52 Chief Financial Officer Paul A. Jones 58 Chief People Officer P. Joshua Foukas 46 Chief Legal Officer, General Counsel and Corporate Secretary Daniel A.
Douglas Hekking 53 Chief Financial Officer Paul A. Jones 59 Chief People Officer P. Joshua Foukas 47 Chief Legal Officer, General Counsel and Corporate Secretary Daniel A.
We also have a health clinic located on the campus of our corporate headquarters to provide medical and mental health care, which is actively engaged in the health of about 36% of our eligible employees. The health and safety of our employees around the world remains our top priority.
A health clinic located on the campus of our corporate headquarters provides medical and mental health care, and is actively engaged in the health of about 46% of our eligible employees. The health and safety of our employees around the world remains our top priority.
Due to the ongoing COVID-19 pandemic, we continue utilizing a primarily virtual strategy to hold meetings and events with our Associates; however, in markets where health and safety best practices have allowed us to safely do so, we have held in-person meetings.
Throughout the COVID-19 pandemic, we held meetings and events with our Associates using a predominantly virtual meeting strategy; however, in markets where health and safety best practices have allowed us to safely do so, we have held in-person meetings.
Our Values and Culture Our business is driven by our four Core Values: ● Excellence: We rely on scientific research to provide innovative, healthy living solutions, and we empower all individuals to continually improve each day. ● Community: We support, care for, and encourage one another, and the world, to live happier, healthier lives. ● Integrity : We demonstrate honesty, responsibility, and accountability through our individual actions and corporate decision-making. ● Health: We cultivate a holistic view of wellness that supports a healthy body and a strong mind. 14 Table of Contents Corporate Sustainability During the first quarter of 2021, our Board of Directors formed a separate Sustainability Committee to oversee and advise on all matters related to corporate sustainability, including environmental, social and governance (“ESG”).
Our Values and Culture Our business is driven by our four Core Values: • Excellence: We rely on scientific research to provide innovative, healthy living solutions, and we empower all individuals to continually improve each day. • Community: We support, care for, and encourage one another, and the world, to live happier, healthier lives. • Integrity: We demonstrate honesty, responsibility, and accountability through our individual actions and corporate decision-making. • Health: We cultivate a holistic view of wellness that supports a healthy body and a strong mind.
You should consider the following risk factors, in addition to the information presented elsewhere in this Annual Report, particularly under the heading “ Cautionary Note Regarding Forward-Looking Statements ,” on page 1, and the disclosures contained in Part I, “ Item 1. Business ,” and Part II, “
These risk factors are not necessarily in the order of importance or probability of occurrence: You should consider the following risk factors, in addition to the information presented elsewhere in this Annual Report, particularly under the heading “ Cautionary Note Regarding Forward-Looking Statements ,” on page 1, and the disclosures contained in Part I, “ Item 1.
Even where these agreements exist, there can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors. Our proprietary product formulations are generally considered trade secrets, but are not otherwise protected under intellectual property laws.
Even where these agreements exist, there can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors.
There can be no assurance, however, that we will continue to be found to be operating in compliance with transfer pricing regulations or that those laws will not be modified, which may require that we change our operating procedures. 13 Table of Contents Intellectual Property Trademarks.
There can be no assurance, however, that we will continue to be found to be operating in compliance with transfer pricing regulations or that those laws will not be modified, which may require that we change our operating procedures. Intellectual Property Trademarks. We have developed and use registered trademarks in our business, particularly relating to our product names.
BabyCare’s business model has been developed specifically for China based on, among other things: (i) BabyCare’s communications with the Chinese government, (ii) BabyCare’s interpretation of the direct selling laws and regulations, as well as its understanding of how the government interprets and enforces the regulations, and (iii) BabyCare’s understanding of how other multinational direct selling companies operate in China. 12 Table of Contents Notwithstanding the foregoing, the direct selling industry in China, as well as the regulatory environment for the industry, continues to evolve and receive significant attention and scrutiny from the Chinese government and the Chinese media.
BabyCare’s business model has been developed specifically for China based on, among other things: (i) BabyCare’s communications with the Chinese government, (ii) BabyCare’s interpretation of the direct selling laws and regulations, as well as its understanding of how the government interprets and enforces the regulations, and (iii) BabyCare’s understanding of how other multinational direct selling companies operate in China.
Additionally, we have over 90% of our global employee population engaged in our online learning platform and more than 300 participants have completed our mentorship and coaching program.
Additionally, our global employee population is engaged in online learning platforms and, more than 350 participants have completed our mentorship and coaching program.
Future changes could include requirements for the reformulation of certain products to meet new standards, the recall or discontinuation of certain products that cannot be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling, and additional scientific substantiation.
Future changes could include requirements for the reformulation of certain products to meet new standards, the recall or discontinuation of certain products that cannot be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling, and additional scientific substantiation. 16 Table of Contents Any or all of these requirements could have a material adverse effect on our business, financial condition, and operating results.
We are audited annually by the FDA, specifically for dietary supplements and have been found in compliance with GMPs for dietary supplements. The Dietary Supplement & Nonprescription Drug Consumer Protection Act requires manufacturers of dietary supplements and over-the-counter (“OTC”) products to notify the FDA when they receive reports of serious adverse events occurring within the United States.
The Dietary Supplement & Nonprescription Drug Consumer Protection Act requires manufacturers of dietary supplements and over-the-counter (“OTC”) products to notify the FDA when they receive reports of serious adverse events occurring within the United 15 Table of Contents States.
Fleming 78 Director Additional Available Information We maintain our corporate headquarters, executive offices, and principal facilities at 3838 West Parkway Boulevard, Salt Lake City, Utah 84120. Our telephone number is (801) 954-7100. Our website address is www.usanahealthsciences.com . The information on our website should not be considered part of and is not incorporated into this Annual Report by reference.
Fleming 79 Director Scott Nixon 63 Director Additional Available Information We maintain our corporate headquarters, executive offices, and principal facilities at 3838 West Parkway Boulevard, Salt Lake City, Utah 84120. Our telephone number is (801) 954-7100. Our website address is www.usanahealthsciences.com .
We understand the value of developing employees at every level. Our leaders actively participate in leadership development programs that include mentorship and coaching, online learning, and regular company and industry specific training programs.
We will continue to invest in this program, and strive to make our company an inclusive, equitable and welcoming place for all. 20 Table of Contents We understand the value of developing employees at every level. Our leaders actively participate in leadership development programs that include mentorship and coaching, online learning, and regular company and industry specific training programs.
This standard policy differs slightly in a few of our international markets due to applicable regulations in those markets. To avoid manipulation of our Compensation Plan, return of product when the purchase amount exceeds $100 and the product was not damaged at the time of receipt by the Associate may result in cancellation of an Associate’s distributorship.
To avoid manipulation of our Compensation Plan, return of product when the purchase amount exceeds $100 and the product was not damaged at the time of receipt by the Associate may result in cancellation of an Associate’s distributorship. Major Customers We sell product to independent Associates and Preferred Customers.
We believe that we have adequate substantiation for all material advertising claims that we make for our products in the United States, and we believe that we have organized the documentation to support our advertising and promotional practices.
In recent years, the FTC has initiated numerous investigations of and actions against companies that sell dietary supplement, weight-management, and cosmetic products. We believe that we have adequate substantiation for all material advertising claims that we make for our products in the United States, and we believe that we have organized the documentation to support our advertising and promotional practices.
Our standard return policy allows customers to receive a 100% refund on the purchase price on all product orders that are unused and returned within the first 30 days following purchase. Additionally, we offer a 100% refund of the sales price on all product orders that are unused and resalable up to one year from the date of purchase.
Additionally, we offer a 100% refund of the sales price on all product orders that are unused and resalable up to one year from the date of purchase. This standard policy differs slightly in a few of our international markets due to applicable regulations in those markets.
Claims by us or our Associates about our products that cannot be adequately substantiated may be considered unfair or deceptive acts or practices and may expose us to liability under the FTC Act. In recent years, the FTC has initiated numerous investigations of and actions against companies that sell dietary supplement, weight-management, and cosmetic products.
Advertising of our products in the United States is subject to regulation by the FTC under the FTC Act. Claims by us or our Associates about our products that cannot be adequately substantiated may be considered unfair or deceptive acts or practices and may expose us to liability under the FTC Act.
This team is responsible for supporting growth, R&D, international expansion, strengthening our financial condition, and improving our internal controls. 9 Table of Contents Competition Our industry is very competitive and the barriers to entry are not significant.
This team is responsible for supporting growth, R&D, international expansion, strengthening our financial condition, and improving our internal controls. Competition Our industry is very competitive and the barriers to entry are not significant. We compete with manufacturers, distributors, and retailers of nutritional products in many channels, including global direct selling, specialty retail stores, wholesale stores, and the internet generally.
Any or all of these requirements could have a material adverse effect on our business, financial condition, and operating results. Direct Selling Regulation . Various laws and regulations in all of our markets regulate direct selling. These laws and regulations exist at many levels of government in many different forms, including statutes, rules, regulations, judicial decisions, and administrative orders.
Direct Selling Regulation. Various laws and regulations in all of our markets regulate direct selling. These laws and regulations exist at many levels of government in many different forms, including statutes, rules, regulations, judicial decisions, and administrative orders. Direct selling regulations are inherently fact-based and often do not include “bright line” rules.
Historically, there have been instances when inquiries or complaints about BabyCare’s business resulted in warnings from the Chinese government, as well as the payment of fines by BabyCare or its distributors.
Historically, there have been instances when inquiries or complaints about BabyCare’s business resulted in warnings from the Chinese government, as well as the payment of fines by BabyCare or its distributors. 17 Table of Contents BabyCare has obtained direct selling licenses in certain provinces and municipalities in China, but must obtain others from additional provinces and municipalities if it is to continue to expand its direct selling business model in China.
Direct selling regulations are inherently fact-based and often do not include “bright line” rules. In most of our markets, these regulations are subject to discretionary interpretation by regulators and respective legal authorities. Consequently, the regulations, or a regulator’s interpretation and enforcement of the regulations, could change at any time.
In most of our markets, these regulations are subject to discretionary interpretation by regulators and respective legal authorities. Consequently, the regulations, or a regulator’s interpretation and enforcement of the regulations, could change at any time. If that were to occur, we may be required to change our business model in the respective market in an effort to comply.
Our ESG strategy centers on three main pillars - products, people, and planet - that encompass where we are focusing our sustainability efforts now and in the future. To achieve our goals, we plan to continue fortifying each pillar, to deliver meaningful progress while evolving our efforts to ensure our business becomes more sustainable day by day.
To achieve our goals, we plan to continue fortifying each pillar, to deliver meaningful progress while evolving our efforts to ensure our business becomes more sustainable day by day.
We have developed and use registered trademarks in our business, particularly relating to our product names. We own 26 trademarks that are registered with the U.S. Patent and Trademark Office.
We own 28 trademarks that are registered with the U.S. Patent and Trademark Office.
Macuga 52 Chief Communications and Marketing Officer Robert Sinnott 57 Chief Scientific Officer Walter Noot 56 Chief Operating Officer David Mulham 61 Chief Sales Officer Brent Neidig 38 Chief Officer and Managing Director of China Kevin G. Guest. Mr. Guest joined USANA on a part-time basis in April 2003, as Executive Director of Media and Events.
Macuga 53 Chief Communications and Marketing Officer Robert Sinnott 58 Chief Scientific Officer Walter Noot 57 Chief Operating Officer David Mulham 62 Chief Sales Officer Brent Neidig 39 Chief Officer and Managing Director of China Kevin G. Guest was appointed Chief Executive Officer in 2016 and Chairman of the Board and Chief Executive Officer in May 2020. Mr.
Name Age Position Kevin Guest 59 Chief Executive Officer and Chairman of the Board Robert Anciaux 76 Director Gilbert A. Fuller 81 Director Xia Ding 51 Director Peggie J. Pelosi 66 Director Frederick J. Winssinger 53 Director Timothy Wood 73 Director John T.
Board of Directors The following table sets forth certain information regarding our Directors as of the date of this Annual Report. Name Age Position Kevin Guest 60 Chief Executive Officer and Chairman of the Board Gilbert A. Fuller 82 Director Xia Ding 52 Director Peggie J. Pelosi 67 Director Frederick J. Winssinger 54 Director Timothy Wood 74 Director John T.
Jones received a B.S. in finance from Utah State University and M.A. in organizational management from the University of Phoenix. P. Joshua Foukas. Mr. Foukas joined USANA in 2007 as Associate General Counsel and served in that role until he was appointed as Vice President of Finance and Legal in 2011.
Jones received a B.S. in finance from Utah State University and M.A. in organizational management from the University of Phoenix. P. Joshua Foukas has served as our Chief Legal Officer and Corporate Secretary since 2018. Mr. Foukas received a B.A. from the University of Utah and a J.D. from the University of Idaho. Daniel A.
On both fronts, compared to USANA, some of our competitors are significantly larger, have a longer operating history, higher visibility and name recognition, and greater financial resources. We compete with these entities by emphasizing to our Associates, Preferred Customers, and potential customers the strengths of our business, as described in the "Operating Strengths" section above.
We also compete with other public and privately owned global network marketers for distributor talent, including for example Amway, Herbalife, and Nu Skin. On both fronts, compared to USANA, some of our competitors are significantly larger, have a longer operating history, higher visibility and name recognition, and greater financial resources.
If that were to occur, we may be required to change our business model in the respective market in an effort to comply. In the United States, the FTC has jurisdiction to regulate direct selling companies under the FTC Act.
In the United States, the FTC has jurisdiction to regulate direct selling companies under the FTC Act.
The Sustainability Committee is composed of directors Peggie Pelosi, Chair; John Fleming; Frederic Winssinger; and Tim Wood. We will continue to incorporate and advance sustainability-related best practices across all of our markets as part of our commitment to improving the health and wellness of individuals, families and communities around the world.
We will continue to incorporate and advance sustainability-related best practices across all of our markets as part of our commitment to improving the health and wellness of individuals, families and communities around the world. 19 Table of Contents Our ESG strategy centers on three main pillars - products, people, and planet - that encompass where we are focusing our sustainability efforts now and in the future.
Mr. Hekking received a B.S. in accounting from the University of Utah and an M.B.A. from Brigham Young University. Paul A. Jones. Mr. Jones, Chief People Officer, joined USANA in 2005 as Vice President of Human Resources and served in this role until June 2007, when he left to complete a three-year service mission. Mr.
Hekking received a B.S. in accounting from the University of Utah and an M.B.A. from Brigham Young University. Paul A. Jones has been our Chief People Officer since 2021. From 2015 to 2021, Mr. Jones was Chief Leadership Development Officer. Mr.
Noot joined USANA as Chief Information Officer in December 2016 and served in that role until he was promoted to Chief Operating Officer in October 2019. Mr. Noot has more than two decades of executive leadership experience and has worked with a wide range of businesses in many industries, from start-ups to multi-billion dollar companies.
Walter Noot joined USANA as Chief Information Officer in December 2016 and served in that role until he was promoted to Chief Operating Officer in October 2019. He holds a B.S. in mechanical engineering from Brigham Young University. David Mulham was appointed Chief Field Development Officer in 2017. Mr.
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We compete with manufacturers, distributors, and retailers of nutritional products in many channels, including global direct selling, specialty retail stores, wholesale stores, and the internet generally. We also compete with other public and privately owned global network marketers for distributor talent, including for example Amway, Herbalife, and Nu Skin.
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Our strategy in 2023, and going forward, is to return to in-person meeting and events with our Associates to the extent health and safety practices make it possible. Our plan is to continue to leverage a virtual meeting element as a component of our in-person meetings.
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BabyCare has obtained direct selling licenses in certain provinces and municipalities in China, but must obtain others from additional provinces and municipalities if it is to continue to expand its direct selling business model in China.
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Customer satisfaction has always been and will continue to be a hallmark of our business. We believe that we have always offered a generous product return policy. Our standard return policy allows customers to receive a 100% refund on the purchase price on all product orders that are unused and returned within the first 30 days following purchase.
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Additionally, we have strategically increased our inventory levels over the last few years as we have introduced new product lines, supported promotional activity, and attempted to offset disruptions related to the COVID-19 pandemic that have impacted our ability to operate and ship products.
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We are audited annually by the FDA, specifically for dietary supplements and have been found in compliance with GMPs for dietary supplements.
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As our employee and customer base continues to become more diverse, our leadership team recognizes the importance that diversity, equity and inclusion (“DEI”) has on our long-term success.
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Notwithstanding the foregoing, the direct selling industry in China, as well as the regulatory environment for the industry, continues to evolve and receive significant attention and scrutiny from the Chinese government and the Chinese media.
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Consequently, we created a DEI council, which is responsible for developing enterprise goals and strategies in three areas: ● Raising awareness of the unique diversity within our organization and putting policies in place to support an inclusive culture, ● Strengthening career development opportunities for diverse employees; and ● Increasing engagement in our communities through philanthropy and employee volunteerism.
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Our proprietary product formulations are generally considered trade secrets, but are not otherwise protected under intellectual property laws. 18 Table of Contents We intend to protect our legal rights concerning intellectual property by all appropriate legal action.
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Our leadership believes we can have the most significant impact by focusing on education and awareness, career and leadership skill development, and community engagement.
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Corporate Sustainability In 2021, our Board of Directors formed a separate Sustainability Committee to oversee and advise on all matters related to corporate sustainability, including ESG. The Sustainability Committee is composed of directors Peggie Pelosi, Chair; John Fleming; Frederic Winssinger; Tim Wood; and Scott Nixon.
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In 2021, we launched several initiatives related to these focus areas including leadership and employee trainings with an emphasis on fostering a diverse and inclusive workplace, ove r 1,500 employee volunteer hours to organizations that support equity, and creating programs that support internal mobility for underrepresented groups.
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In the United States and abroad there are an increasing number of sustainability-related rules and regulations that have been adopted or proposed. Such regulations may subject us to new disclosure requirements, which could result in risks to our reputation or consumer demand for our products if we do not meet increasingly demanding stakeholder expectations and standards.
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We fully intend to build on what we have done to this point while also expanding into workshops and events, community partnerships, and programs that help to develop and retain talent. This is all achieved by the cross-functional efforts across all areas of the business, coordinated and directed by the DEI council and its executive sponsors.
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We are committed to fostering a diverse, inclusive and equitable workplace. Our diversity, equity and inclusion (“DEI”) program is designed to promote representation and engagement at all levels of the organization. Through our mentorship program and Women in Leadership initiative, we are working to increase representation of underrepresented groups in leadership positions.
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Following our acquisition of the media, video, and event-productions company FMG Productions founded by Mr. Guest, he became a full-time employee of the Company and was promoted to Vice President of Media and Events in February 2004.
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Our DEI council focuses on education and awareness, access to developmental programs, and community engagement. One of the key elements of our DEI program is our commitment to volunteerism and charitable action. In 2022 we have spent more than 2,600 hours volunteering, working with local organizations to help promote diversity, equity and inclusion in the communities where we operate .
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In January 2006, he was appointed Executive Vice President of Marketing and served in that role until July 2008, when he was appointed Chief Marketing Officer. In May 2011, he was appointed President of North America and in October 2012, he was named President of the Americas, Europe and South Pacific. In August 2014, Mr.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Corporate Headquarters Our worldwide corporate headquarters is a 354,000 square foot company-owned facility located in Salt Lake City, Utah. In addition to executive offices, this facility also includes space for manufacturing and quality control, distribution, administrative functions, and research and development. This facility manufactures inventories for all global markets, excluding China.
Biggest changeItem 2. Properties Corporate Headquarters Our world-wide corporate headquarters is a 354,000 square foot company-owned facility located in Salt Lake City, Utah. In addition to executive offices, this facility includes space for manufacturing and quality control, distribution, administrative functions, and research and development. This facility manufactures inventories for all global markets, excluding China.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeInformation with respect to legal proceedings may be found in Note J to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated herein by reference.
Biggest changeInformation with respect to legal proceedings may be found in Note K to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated herein by reference.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest change“ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ” Share Repurchases Issuer Purchases of Equity Securities (amounts in thousands, except per share data) Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Fiscal October (Oct. 3, 2021 through Nov. 6, 2021) 216 $96.94 216 $116,208 Fiscal November (Nov. 7, 2021 through Dec. 4, 2021) 64 $99.76 64 $109,868 Fiscal December (Dec. 5, 2021 through Jan. 1, 2022) 16 $99.94 16 $108,221 296 296 Our share repurchase plan has been ongoing since the fourth quarter of 2000, with our Board of Directors periodically approving additional dollar amounts for share repurchases under the plan.
Biggest change“ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ” Share Repurchases Our share repurchase plan has been ongoing since the fourth quarter of 2000, with our Board of Directors periodically approving additional dollar amounts for share repurchases under the plan. There were no share repurchases made during the quarter ended December 31, 2022.
Stock Performance Graph The following graph and table compare the performance of our common stock to the S&P 500 Index and to a market-weighted index of seven companies selected in good faith from our industry (the “Peer Group”) over the last five years.
Stock Performance Graph The following graph and table compare the performance of our common stock to the Russell 2000 Index ("Index") and to a market-weighted index of six companies selected in good faith from our industry (the “Peer Group”) over the last five years.
The data shown assumes an investment on December 31, 2016, of $100 and reinvestment of all dividends into additional shares of the same class of equity, if applicable to the stock or index. Each of the companies included in the Peer Group markets or manufactures products similar to our products or markets its products through a similar marketing channel.
The data shown assumes an investment on December 31, 2016, of $100 in our common stock and each of the other equities and reinvestment of all dividends into additional shares of the same class of equity, if applicable to the stock or index.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the New York Stock Exchange (“NYSE”) under the symbol “USNA.” As of February 25, 2022, we had approximately 2 47 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the NYSE under the symbol “USNA.” As of February 24, 2023, we had approximately 244 holders of record of our common stock. We have never declared or paid cash dividends on our common stock.
There is no expiration date on the remaining approved repurchase amount and no requirement for future share repurchases.
As of December 31, 2022, the remaining authorized repurchase amount under the stock repurchase plan was $82.8 million. There is no expiration date on the remaining approved repurchase amount and no requirement for future share repurchases.
We have never declared or paid cash dividends on our common stock. Future cash dividends, if any, will be determined by our Board of Directors and will be based on earnings, available capital, our financial condition, and other factors that the Board of Directors deems to be relevant.
Future cash dividends, if any, will be determined by our Board of Directors and will be based on earnings, available capital, our financial condition, and other factors that the Board of Directors deems to be relevant. Information regarding securities authorized for issuance under equity compensation plans is included in Item 12.
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Information regarding securities authorized for issuance under equity compensation plans is included in Item 12.
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Each of the companies included in the Peer Group markets or manufactures products similar to our products or markets its products through a similar marketing channel. The Peer Group includes the following companies: Nu Skin Enterprises, Inc., Herbalife Nutrition Ltd., LifeVantage Corporation, Medifast, Inc., Nature's Sunshine Products, Inc., and Mannatech, Inc.
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We began the fourth quarter of 2021 with $137.2 million remaining under the plan. During the three months ended January 1, 2022 the Company repurchased and retired 296 shares for $29 million under the Company's share repurchase plan. As of January 1, 2022, the remaining authorized repurchase amount under the stock repurchase plan was $108.2 million.
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The change to the Index and the Peer Group was made to address changes in the external market and to better reflect our business. 40 Table of Contents USNA Russell 2000 Peer Group Dec 17 $ 100 $ 100 $ 100 Dec 18 $ 159 $ 88 $ 97 Dec 19 $ 106 $ 109 $ 80 Dec 20 $ 104 $ 129 $ 116 Dec 21 $ 137 $ 146 $ 131 Dec 22 $ 72 $ 115 $ 81
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The Peer Group includes the following companies: Nu Skin Enterprises, Inc., Herbalife Nutrition Ltd., Perrigo Company plc, Reliv International, Inc., Lifeway Foods, Inc., Natural Alternatives International, Inc., and Hain Celestial Group, Inc.
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USNA S&P 500 Peer Group Dec 16 $ 100 $ 100 $ 101 Dec 17 $ 121 $ 119 $ 122 Dec 18 $ 192 $ 112 $ 94 Dec 19 $ 128 $ 144 $ 80 Dec 20 $ 126 $ 168 $ 92 Dec 21 $ 165 $ 213 $ 87 30 Table of Contents

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeFiscal Year 2021 compared to Fiscal Year 2020 Net Sales The following table summarizes the changes in our net sales by geographic region for the fiscal years ended January 1, 2022, and January 2, 2021: Net Sales by Region (in thousands) Twelve Months Ended January 1, 2022 January 2, 2021 Change from prior year Percent change Currency impact on sales Percent change excluding currency impact Asia Pacific Greater China $ 563,469 47.5 % $ 530,505 46.7 % $ 32,964 6.2 % $ 34,781 (0.3 %) Southeast Asia Pacific 269,803 22.7 % 269,555 23.8 % 248 0.1 % 8,381 (3.0 %) North Asia 129,920 11.0 % 114,964 10.1 % 14,956 13.0 % 3,917 9.6 % Asia Pacific Total 963,192 81.2 % 915,024 80.6 % 48,168 5.3 % 47,079 0.1 % Americas and Europe 223,272 18.8 % 219,620 19.4 % 3,652 1.7 % 6,555 (1.3 %) $ 1,186,464 100.0 % $ 1,134,644 100.0 % $ 51,820 4.6 % $ 53,634 (0.2 %) Asia Pacific: Performance across markets varied significantly in this region, with the key underlying factor relating to the relative severity of COVID-19 lockdowns and disruptions.
Biggest changeFiscal Year 2022 compared to Fiscal Year 2021 Net Sales The following table summarizes the changes in our net sales by geographic region for the fiscal years ended December 31, 2022, and January 1, 2022: Net Sales by Region (in thousands) Change from prior year Percent change Currency impact on sales Percent change excluding currency impact Twelve Months Ended December 31, 2022 January 1, 2022 Asia Pacific Greater China $ 502,486 50.3 % $ 563,469 47.5 % $ (60,983) (10.8) % $ (18,892) (7.5) % Southeast Asia Pacific 190,478 19.1 % 269,803 22.7 % (79,325) (29.4) % (13,994) (24.2) % North Asia 108,952 10.9 % 129,920 11.0 % (20,968) (16.1) % (13,809) (5.5) % Asia Pacific Total 801,916 80.3 % 963,192 81.2 % (161,276) (16.7) % (46,695) (11.9) % Americas and Europe 196,685 19.7 % 223,272 18.8 % (26,587) (11.9) % (3,033) (10.5) % $ 998,601 100.0 % $ 1,186,464 100.0 % $ (187,863) (15.8) % $ (49,728) (11.6) % Asia Pacific: The decline in this region is largely the result of the challenging operating environment as discussed above.
Information with respect to our Unconditional Purchase Obligations may be found in Note J to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference. Inflation We do not believe that inflation has had a material impact on our historical operations or profitability.
Information with respect to our Unconditional Purchase Obligations may be found in Note K to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference. Inflation We do not believe that inflation has had a material impact on our historical operations or profitability.
Such expenses are not included in the operating lease amounts in the table above. Information with respect to our Operating Leases may be found in Note F to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
Such expenses are not included in the operating lease amounts in the table above. Information with respect to our Operating Leases may be found in Note G to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of USANA’s financial condition and results of operations is presented in 10 sections: ● Overview ● Impact of the COVID-19 Pandemic ● Customers ● Presentation ● Non-GAAP Financial Measures ● Results of Operations ● Liquidity and Capital Resources ● Contractual Obligations and Commercial Contingencies ● Inflation ● Critical Accounting Policies and Estimates This discussion and analysis from management's perspective should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of USANA’s financial condition and results of operations is presented in 10 sections: • Overview • Impact of the COVID-19 Pandemic • Customers • Presentation • Non-GAAP Financial Measures • Results of Operations • Liquidity and Capital Resources • Contractual Obligations and Commercial Contingencies • Inflation 41 Table of Contents • Critical Accounting Policies and Estimates This discussion and analysis from management's perspective should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this report.
Share Repurchase Information with respect to our share repurchases may be found in Note M to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference. Off-Balance Sheet Arrangements None.
Share Repurchase Information with respect to our share repurchases may be found in Note N to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference. Off-Balance Sheet Arrangements None.
In analyzing business trends and performance, management uses “constant currency” net sales, “local currency” net sales, and other currency-related financial information terms to discuss our financial results in a way we believe is helpful in understanding the impact of fluctuations in foreign-currency exchange rates and facilitating period-to-period comparisons of results of operations and providing investors an additional perspective on trends and underlying business results.
In analyzing business trends and performance, management uses “constant currency” net sales, “local currency” net sales, and other currency-related financial information terms to discuss our financial results in a way we believe is 43 Table of Contents helpful in understanding the impact of fluctuations in foreign-currency exchange rates and facilitating period-to-period comparisons of results of operations and providing investors an additional perspective on trends and underlying business results.
We receive payment, primarily via credit card, for the sale of products at the time customers place orders and payment is required prior to shipment. Our product sales contracts include terms that could cause variability in the transaction price for items such as discounts, credits, or sales returns.
We receive payment, primarily via credit card, for the sale of products at the time customers place orders and payment is required prior to shipment. Our 47 Table of Contents product sales contracts include terms that could cause variability in the transaction price for items such as discounts, credits, or sales returns.
“ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the fiscal year ended January 2, 2021, filed with the SEC on March 2, 2021, which is available on our investor relations website at https://ir.usana.com or the SEC’s website at www.sec.gov.
“ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the SEC on March 1, 2022, which is available on our investor relations website at https://ir.usana.com or the SEC’s website at www.sec.gov.
Our primary focus continues to be increasing the number of active Customers. We believe this focus is consistent with our vision of improving the overall health and nutrition of individuals and families around the world. Sales to Associates accounted for approxim ately 55 % of product sales during 2021 with the remainder of our sales being to Preferred Customers.
Our primary focus continues to be increasing the number of active Customers. We believe this focus is consistent with our vision of improving the overall health and nutrition of individuals and families around the world. Sales to Associates accounted for approxim ately 53.4% of product sales during 2022 with the remainder of our sales being to Preferred Customers.
Preferred Customers purchase our products strictly for personal use and are not permitted to resell or to distribute the products. We only count as active Customers those Associates and Preferred Customers who have purchased from us at any time during the most recent three-month period.
Preferred Customers purchase our products strictly for personal use and are not permitted to resell or to distribute the products. We only count as active Customers those Associates and Preferred Customers who have purchased from us at any time during the most recent three-month period. As of December 31, 2022, we had approximately 490,000 active Customers worldwide.
Critical accounting estimates are defined as both those that are material to the portrayal of our financial condition and results of operations and those that require management’s most subjective judgments. We believe that our most critical accounting policies and estimates are described in this section. Revenue Recognition .
Actual results, however, may sometimes differ materially from estimates under different conditions. Critical accounting estimates are defined as both those that are material to the portrayal of our financial condition and results of operations and those that require management’s most subjective judgments. We believe that our most critical accounting policies and estimates are described in this section. Revenue Recognition.
Government-imposed restrictions, health and safety mandated best practices, and public hesitance regarding in-person gatherings have reduced our ability, and the ability of our Associates to hold sales meetings, required our Associates to share and sell our products in a predominantly virtual environment, resulted in cancellations of key Company events and trips, required us to utilize a work-from-home strategy for all non-manufacturing and non-distribution employees, and required us to temporarily close our walk-in and fulfillment locations in some markets where we have such properties.
Government-imposed restrictions, health and safety mandated best practices, and public hesitance regarding in-person gatherings have reduced our ability, and the ability of our Associates to hold sales meetings, required our Associates to share and sell our products in a predominantly virtual environment, resulted in cancellations of key Company events and trips, required us to modify our workforce strategies , and required us, at times, to temporarily close our walk-in and fulfillment locations in some markets where we have such properties.
The following table below presents concentrations of cash and cash equivalents by market for the periods indicated: Cash and cash equivalents (in Millions) As of As of January 1, 2022 January 2, 2021 China $ 139.9 $ 133.8 United States 51.9 119.7 All other markets 48.0 58.4 Total Cash and cash equivalents $ 239.8 $ 311.9 Cash Flows Provided by Operations As discussed above, our principal source of liquidity comes from our net cash flow from operations, which results from a strong operating margin.
The following table below presents concentrations of cash and cash equivalents by market for the periods indicated: Cash and cash equivalents (in Millions) As of December 31, 2022 As of January 1, 2022 China $ 129.8 $ 139.9 United States 114.1 51.9 All other markets 44.5 48.0 Total Cash and cash equivalents $ 288.4 $ 239.8 Cash Flows Provided by Operations and Significant Uses of Cash As discussed above, our principal source of liquidity comes from cash flows provided by operating activities, which results from a strong operating margin.
There are currently no material restrictions on our ability to transfer and remit funds among our international markets. In China, however, our compliance with Chinese accounting and tax regulations promulgated by the State Administration of Foreign Exchange (“SAFE”) results in transfer and remittance of our profits and dividends from China to the United States on a delayed basis.
In China, however, our compliance with Chinese accounting and tax regulations promulgated by the State Administration of Foreign Exchange (“SAFE”) results in transfer and remittance of our profits and dividends from China to the United States on a delayed basis.
Total Active Customers by Region As of As of Change from Percent January 1, 2022 January 2, 2021 Prior Year Change Asia Pacific: Greater China 255,000 45.5 % 252,000 42.1 % 3,000 1.2 % Southeast Asia Pacific 115,000 20.5 % 142,000 23.7 % (27,000 ) (19.0 %) North Asia 58,000 10.4 % 60,000 9.9 % (2,000 ) (3.3 %) Asia Pacific Total 428,000 76.4 % 454,000 75.7 % (26,000 ) (5.7 %) Americas and Europe 132,000 23.6 % 145,000 24.3 % (13,000 ) (9.0 %) 560,000 100.0 % 599,000 100.0 % (39,000 ) (6.5 %) Presentation Product sales along with the shipping and handling fees billed to our customers are recorded as revenue net of applicable sales discounts when, or as control of, the promised product is transferred to the customer, which is at the time of delivery to the third party carrier for shipment.
Total Active Customers by Region Change from Prior Year Percent Change As of December 31, 2022 As of January 1, 2022 Asia Pacific: Greater China 244,000 49.8 % 255,000 45.5 % (11,000) (4.3 %) Southeast Asia Pacific 87,000 17.8 % 115,000 20.5 % (28,000) (24.3 %) North Asia 53,000 10.8 % 58,000 10.4 % (5,000) (8.6 %) Asia Pacific Total 384,000 78.4 % 428,000 76.4 % (44,000) (10.3 %) Americas and Europe 106,000 21.6 % 132,000 23.6 % (26,000) (19.7 %) 490,000 100.0 % 560,000 100.0 % (70,000) (12.5 %) 42 Table of Contents Presentation Product sales along with the shipping and handling fees billed to our customers are recorded as revenue net of applicable sales discounts when, or as control of, the promised product is transferred to the customer, which is at the time of delivery to the third party carrier for shipment.
The decrease in diluted EPS was offset, in part, by a lower diluted share count. 36 Table of Contents Liquidity and Capital Resources We have historically met our working capital and capital expenditure requirements by using both net cash flow from operations and by drawing on our line of credit. Our principal source of liquidity is our operating cash flow.
Liquidity and Capital Resources We have historically met our working capital and capital expenditure requirements by using both net cash flow from operations and by drawing on our line of credit. Our principal source of liquidity is our operating cash flow.
Additionally, we continually evaluate opportunities to repurchase shares of our common stock and will, from time to time, consider the acquisition of, or investment in complementary businesses, products, services and technologies, which might affect our liquidity. Cash and Cash Equivalents Cash and cash equivalents decreased to $239.8 million at January 1, 2022, from $311.9 million at January 2, 2021.
Additionally, we continually evaluate opportunities to repurchase shares of our common stock and will, from time to time, consider the acquisition of, or investment in complementary businesses, products, services and technologies, which has the potential to affect our liquidity.
Discussion and analysis of our 2019 fiscal year specifically, as well as the year-over-year comparison of our 2020 financial performance to 2019, are located in Part II, Item 7.
Results of Operations Summary of 2022 Financial Results Our discussion and analysis is focused on our 2022 and 2021 financial results, including comparisons of our year-over-year performance between these years. Discussion and analysis of our 2020 fiscal year specifically, as well as the year-over-year comparison of our 2021 financial performance to 2020, are located in Part II, Item 7.
With the exception of China, our raw material purchases from suppliers and product purchases from third-party manufacturers are transacted in U.S. dollars. Consequently, our net sales and earnings are affected by changes in currency exchange rates. In general, our operating results are affected positively by a weakening U.S. dollar and negatively by a strengthening U.S. dollar.
Consequently, our net sales and earnings are affected by changes in currency exchange rates. In general, our operating results are affected positively by a weakening U.S. dollar and negatively by a strengthening U.S. dollar.
We will continue to align spending with sales performance and defer non-essential capital investments amid the COVID-19 pandemic. 32 Customers Because we sell our products to a customer base of independent Associates and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, or both.
These factors and others related to the COVID-19 pandemic will likely continue to negatively affect our business throughout 2023 in a number of ways. Customers Because we sell our products to a customer base of independent Associates and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, or both.
Our significant accounting policies are described in Consolidated Financial Statements included herein. The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes.
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Those estimates and assumptions are derived and are continually evaluated based on our historical experiences, current facts and circumstances, and on changes in the business environment.
As of January 1, 2022, we had approximately 560,000 active Customers worldwide. 31 Impact of the COVID-19 Pandemic The COVID-19 pandemic, including the spread of new variants of the virus, has negatively impacted our business in various markets around the world and continues to create an unpredictable operating environment for us in many of our markets.
Impact of the COVID-19 Pandemic The COVID-19 pandemic, including the spread of new variants of the virus, has negatively impacted our business in various markets around the world. The ongoing COVID-19 pandemic has created an unpredictable operating environment for us in many of our markets around the world and caused meaningful disruptions in both sales and operations.
However, we have begun to experience increased costs due to inflationary pressures that are also expected to negatively impact fiscal year 2022. 38 Table of Contents Critical Accounting Policies and Estimates Our Consolidated Financial Statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Critical Accounting Policies and Estimates Our Consolidated Financial Statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Our significant accounting policies are described in Consolidated Financial Statements included herein.
Contractual Obligations and Commercial Contingencies The following table summarizes our contractual obligations and commitments as of January 1, 2022 and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods: Payments Due By Period (in thousands) Contractual Obligations Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Operating Leases $ 18,041 $ 7,481 $ 9,276 $ 1,253 $ 31 Other Commitments $ 32,820 21,679 9,059 2,082 - Total Contractual Obligations $ 50,861 $ 29,160 $ 18,335 $ 3,335 $ 31 “Operating Leases” generally provide that property taxes, insurance, and maintenance expenses are our responsibility.
Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders. 46 Table of Contents Contractual Obligations and Commercial Contingencies The following table summarizes our contractual obligations and commitments as of December 31, 2022 and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods: Payments Due By Period (in thousands) Contractual Obligations Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Operating Leases $ 15,064 $ 7,214 $ 7,233 $ 617 $ — Other Commitments 32,690 23,544 7,583 1,563 — Total Contractual Obligations $ 47,754 $ 30,758 $ 14,816 $ 2,180 $ — “Operating Leases” generally provide that property taxes, insurance, and maintenance expenses are our responsibility.
Significant depreciation and amortization expense is incurred as a result of investments in physical facilities, computer and information technology infrastructure to support our international operations. 33 Table of Contents Sales to customers outside the United States are transacted in the respective local currencies and translated to U.S. dollars at weighted-average currency exchange rates for each monthly accounting period to which they relate.
Sales to customers outside the United States are transacted in the respective local currencies and translated to U.S. dollars at weighted-average currency exchange rates for each monthly accounting period to which they relate. With the exception of China, our raw material purchases from suppliers and product purchases from third-party manufacturers are transacted in U.S. dollars.
Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by purchases of inventories, the payout of the annual employee bonus, and a reduction in trade payables. 37 Table of Contents Line of Credit Information with respect to our line of credit may be found in Note I to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
Line of Credit Information with respect to our line of credit may be found in Note J to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased 50 basis points relative to net sales and $17.9 million in absolute terms. The increase in expense can be attributed to increased employee related costs, an increase in variable expenses associated with higher sales, higher advertising expense, and increased event costs in certain markets.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased 280 basis points relative to net sales and decreased $16.8 million in absolute terms. The relative increase can be attributed to leverage lost on lower net sales.
Net cash flow provided by operating activities totaled $121.2 million in 2021, a decrease of $39.2 million from $160.4 million in 2020.
Additionally, cash used to repurchase and retire shares was $25.4 million for 2022. Net cash flow provided by operating activities totaled $121.2 million in 2021.
Associate Incentives Associate incentives increased 80 basis point points to 43.8% of net sales in 2021, compared with 43.0% in the prior year. This relative increase can be attributed to changes in market sales mix, costs related to trial incentive programs being tested and evaluated in certain markets, and increased spend on miscellaneous associate incentives.
Associate Incentives Associate incentives decreased 30 basis points to 43.5% of net sales in 2022, compared with 43.8% in the prior year. The relative decrease can primarily be attributed to a decrease in promotional incentives, as described above, and decreased spend on miscellaneous associate incentives.
Additionally, favorable changes in currency exchange rates increased net sales for the year by an estimated $53.6 million. Net earnings decreased 6.5% to $116.5 million in 2021, when compared with 2020. We estimate the extra week contributed approximately $3.6 million to net earnings for the year.
Additionally, unfavorable changes in currency exchange rates decreased net sales for the year by an estimated $49.7 million. Net earnings decreased 40.5% to $69.4 million in 2022, when compared with 2021. The decrease in net earnings was primarily the result of decreased sales and higher relative operating expenses.
Income Taxes Income taxes increased to 31.7% of pre-tax earnings in 2021, up from 29.9% of pre-tax earnings in 2020. The effective tax rate increase is largely due to a decrease in U.S. domestic earnings and an increase related to unreserved tax settlements. Diluted Earnings Per Share Diluted EPS decreased to $5.73 in 2021 from $5.86 in 2020.
The effective tax rate increase is due primarily to a change in the market mix of pre-tax book income. Diluted Earnings Per Share Diluted EPS decreased to $3.59 in 2022 from $5.73 in 2021. This decrease can be attributed to lower net earnings, partially offset by lower diluted share count.
That information is incorporated by reference into this report. Net sales in 2021 increased 4.6%, or $51.8 million, to $1.186 billion, compared with 2020. Fiscal 2020 was a 53-week year and included, comparatively, one additional week of sales. We estimate that this extra week contributed approximately $18.0 million to net sales for the year.
That information is incorporated by reference into this report. Net sales in 2022 decreased 15.8%, or $187.9 million, to $998.6 million, compared with 2021.
Wages and benefits represent the largest component of selling, general and administrative expenses.
Wages and benefits represent the largest component of selling, general and administrative expenses. Significant depreciation and amortization expense is incurred as a result of investments in physical facilities, computer and information technology infrastructure to support our international operations.
Removed
These factors and others related to the COVID-19 pandemic will likely continue to negatively affect our business throughout 2022 in a number of ways, including those described below. ● Our Workforce . The health and safety of our employees around the world remains our top priority.
Added
Current year sales programs and market specific promotions have performed below expectations, largely due to disruptions attributable to COVID-19 related lockdowns, and inflationary and economic challenges in many of our markets, particularly in our Asia Pacific markets. These disruptions have contributed to a 12.5% decline in active Customers compared to the prior year.
Removed
We remain committed to being socially responsible as a corporate leader in each of our markets and doing our part to reduce the spread of COVID-19. As such, we are continuing to utilize a modified operating model in each of our markets as necessary to follow applicable guidelines from government and health officials.
Added
As a result, there were local currency sales declines in all markets in this region. The decrease in constant currency net sales in Greater China was most notable in China, where local currency net sales decreased 7.0%.
Removed
Although a significant portion of our non-manufacturing and non-distribution employees continued with remote working arrangements, we began efforts during the second quarter of 2021 to bring these employees back to our offices, in markets where health and safety best practices have allowed us to safely do so.
Added
The decrease in constant currency net sales in Southeast Asia Pacific was most notable in the Philippines, and Malaysia, which had local 44 Table of Contents currency net sales declines of 33.2%, and 27.8%, respectively.
Removed
In connection with this effort, we are permitting most of our employees to utilize a hybrid work schedule, which allows them to split their time working at the office and remotely. Employees working on site are required to follow applicable health and safety guidelines.
Added
The decrease in constant currency net sales in North Asia was most notable in South Korea, which had a local currency net sales decline of 4.9%.
Removed
We are also continuing to utilize flexible shift schedules, time and attendance policies, and sick-leave policies to promote health, wellness and safety. Where necessary in our international markets, we have temporarily closed product will-call centers and continue to offer curbside delivery and subsidized shipping to customers.
Added
Americas and Europe : The decline in this region is largely the result of the challenging operating environment as discussed above, as a result, there were local currency sales declines in all markets in this region, most notable among these markets , Canada and the United States, where local currency net sales decreased 14.8% and 7.1%, respectively.
Removed
We will continue to monitor the situation surrounding the pandemic and implement additional risk mitigation actions where necessary. ● Our Operations .
Added
Gross Profit Gross profit decreased 100 basis points to 80.6% of net sales, down from 81.6% in 2021. The decrease in gross profit margin can be attributed to unfavorable changes in currency exchange rates, higher scrap and inventory valuation, increased product costs, and loss of leverage on lower sales.
Removed
All of our production facilities remain operational under enhanced safety measures and as of the date of this Annual Report, however we have experienced meaningful disruptions in several of our markets due to the escalation of the COVID-19 pandemic. These disruptions have affected our customers and salesforce and, in some cases our ability to operate and ship products.
Added
These decreases were partially offset by favorable changes in market and product sales mix, and increased transportation costs in the prior-year period related to the strategic buildup of inventory due to COVID-19 related disruptions to our supply chain and logistics.
Removed
In some markets, we have had to postpone or cancel certain planned business events and activities. In other markets, we have delayed the introduction of new product offerings until 2022.
Added
The decreased expense in absolute terms can be primarily attributed to lower costs on variable expenses, as well as lower employee related costs. Income Taxes Income taxes increased to 36.2% of pre-tax earnings in 2022, up from 31.7% of pre-tax earnings in 2021.
Removed
Although we have successfully modified our operations in each of our markets to date, future efforts to reduce the spread of COVID-19, including the spread of new variants of the virus, may negatively affect our business.
Added
Although we are required to maintain cash deposits with banks in certain of our markets, there are currently no material restrictions on our ability to transfer and remit funds among our international markets.
Removed
The extent of any disruption to our business in each of our markets going forward is difficult to estimate and will depend on many factors, many of which are outside of our control.
Added
Cash and Cash Equivalents Cash and cash equivalents increased to $288.4 million at December 31, 2022, from $239.8 million at January 1, 2022.
Removed
Our operating plan continues to entail efforts to safeguard against disruptions through maintaining and operating (i) raw material procurement, (ii) manufacturing, (iii) distribution, (iv) selling, (v) operating cash flows and liquidity, (vi) Associate engagement and activity, and (vii) employee support and engagement. ● Our Sales and Salesforce . Demand for our high quality nutritional products remained high during the pandemic.
Added
Cash flow provided by operating activities generated $103.9 million partially offset by cash used in financing activities of $30.1 million, and cash used in investing activities of $12.4 million primarily to acquire property and 45 Table of Contents equipment and assets in business combinations, partially offset by proceeds from the settlement of our net investment hedge.
Removed
We will continue to utilize a primarily virtual strategy to hold meetings and events with our salesforce; however, in markets where health and safety best practices have allowed us to safely do so, we have held in-person meetings. We will evaluate this strategy as situation with the pandemic progresses.
Added
Additionally, unfavorable changes in currency exchange rates, have impacted cash and cash equivalents, and restricted cash by an estimated $13.8 million.
Removed
Notwithstanding the foregoing, person-to-person and face-to-face selling and events remain an important part of our business, and we plan to begin incorporating the same into our strategy as it becomes safe and appropriate for us and our sales force to do so. ● Our Liquidity . Our liquidity position is strong.
Added
Net cash flow provided by operating activities totaled $103.9 million in 2022. Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by cash used to payout the annual employee bonus, reduce accruals related to inventories, and a reduction in trade payables.
Removed
We expect to continue to fund our business with cash flow from operations and believe that we have sufficient liquidity to satisfy our cash needs. Notwithstanding the foregoing, we will continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate at full strength during these uncertain times.
Added
Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by purchase of inventories, the payout of the annual employee bonus, and a reduction in trade payables. Additionally, cash used to repurchase and retires shares was $177.8 million for 2021.
Removed
Additionally, as long as uncertainty remains surrounding the duration and impact of the COVID-19 pandemic, the potential impact from the pandemic on our business, financial condition or longer-term financial or operational results will remain uncertain.
Added
Like many other global companies, we are facing significant inflationary pressures in the world economy. Inflationary pressures are growing as we renew pricing arrangements, notably for certain direct materials, wages, energy, and transportation costs. These inflationary pressures, including margin pressure from inflation as well as the cost of capital could continue to grow in 2023.
Removed
Results of Operations The following table summarizes our consolidated operating results as a percent of net sales, respectively, for the years indicated: 2021 2020 Consolidated Statements of Earnings Data: Net sales 100.0 % 100.0 % Cost of sales 18.4 18.4 Gross profit 81.6 81.6 Operating expenses: Associate incentives 43.8 43.0 Selling, general and administrative 23.5 23.0 Total operating expenses 67.3 66.0 Earnings from operations 14.3 15.6 Other income (expense), net 0.1 0.1 Earnings before income taxes 14.4 15.7 Income taxes 4.6 4.7 Net earnings 9.8 % 11.0 % 34 Table of Contents Summary of 2021 Financial Results Our discussion and analysis is focused on our 2021 and 2020 financial results, including comparisons of our year-over-year performance between these years.
Removed
The decrease in net earnings was mainly the result of higher relative operating expenses, and an increased income tax rate.
Removed
This region was led by Malaysia and South Korea which had local currency net sales growth of 29.1% and 10.4%, respectively.
Removed
The growth in this region was partially offset by a 22.6% local currency sales decline in the Philippines. 35 Table of Contents Americas and Europe : The increase in constant currency net sales in Americas and Europe region was driven by local currency net sales growth in the United States where local currency net sales increased 2.8%.
Removed
This growth was partially offset by declines in all other markets in this region. Gross Profit Gross profit remained flat at 81.6% of net sales; however, 2021 was positively impacted by favorable changes in currency exchange rates, and lower scrap charges. The current period was also negatively impacted by an unfavorable shift in market mix, and increased freight expense.
Removed
This decrease can be attributed to lower net earnings resulting from higher operating expenses.
Removed
Cash flow provided by operating activities generated $121.2 million during the full year ended January 1, 2022. The decrease in cash and cash equivalents was primarily due to cash used to repurchase and retire shares of our common stock totaling $177.8 million, as well as, $12.8 million of cash used for investments in property and equipment.
Removed
Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders.
Removed
Those estimates and assumptions are derived and are continually evaluated based on our historical experiences, current facts and circumstances, and on changes in the business environment. Actual results, however, may sometimes differ materially from estimates under different conditions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

91 edited+44 added−22 removed142 unchanged
Biggest changeAny action against us in the future by the FTC or another regulator could materially and adversely affect our operations. The FTC is currently advocating and considering certain legal and regulatory changes that, if implemented, could have a material adverse effect on our business.
Biggest changeThe FTC is currently advocating and considering certain legal and regulatory changes that, if implemented, could have a material adverse effect on our business. For example, in 2022 the FTC issued an Advanced Notice of Proposed Rulemaking for a proposed rule concerning deceptive earnings claims that would further regulate how companies like USANA advertise and represent their business.
Settlements, such as those described in the cases described above, may require a direct selling company to pay a significant fine, revise its U.S. business model and compensation plan to comply with various restrictions on how it can compensate independent distributors and change its marketing practices to avoid misleading product or income representations, among other things.
Settlements, such as those described in the cases above, may require a direct selling company to pay a significant fine, revise its U.S. business model and compensation plan to comply with various restrictions on how it can compensate distributors and change its marketing practices to avoid misleading product or income representations, among other things.
In October 2021, the FTC, pursuant to its Penalty Offense Authority under the FTC Act, sent letters to over 1,100 companies, including USANA, warning them that the FTC could seek penalties of up to $43,792 per violation for conduct determined to be unfair, deceptive, or otherwise unlawful in certain prior FTC actions.
In 2021, the FTC, pursuant to its Penalty Offense Authority under the FTC Act, sent letters to over 1,100 companies, including USANA, warning them that the FTC could seek penalties of up to $43,792 per violation for conduct determined to be unfair, deceptive, or otherwise unlawful in certain prior FTC actions.
BabyCare also will be required to obtain licenses from municipalities and provinces within China where it currently does not hold a license. The Chinese government has not yet reopened its application review process for direct sales licenses and approvals since suspending the process in 2019.
BabyCare also will be required to obtain licenses from municipalities and provinces within China where it currently does not hold a license. The Chinese government has not reopened its application review process for direct sales licenses and approvals since suspending the process in 2019.
In September 2019, the FTC entered into a settlement with a direct selling company following an FTC enforcement action, which included the alleged violations noted above. Pursuant to this settlement, the company is permanently prohibited from using a multilevel compensation plan in the United States.
In 2019, the FTC entered into a settlement with a direct selling company following an FTC enforcement action, which included the alleged violations noted above. Pursuant to this settlement, the company is permanently prohibited from using a multilevel compensation plan in the United States.
Examples of significant, recent data privacy and security laws affecting our various markets include the European Union General Data Protection Regulation, ("GDPR"), and the California Consumer Privacy Act, ("CCPA"), China’s national Data Privacy Law and the Personal Information Protection Law, and Cybersecurity Law.
Examples of significant, recent data privacy and security laws affecting our various markets include the European Union General Data Protection Regulation, ("GDPR"), China’s national Data Privacy Law and Personal Information Protection Law, China's Cybersecurity Law, the California Consumer Privacy Act, ("CCPA"), and the California Privacy Rights Act.
If direct sellers become subject to the Business Opportunity Rule, we will have to comply with disclosure requirements that could significantly increase the cost of doing business and have other material adverse effects on our business.
If direct sellers become subject to the rule, we will have to comply with disclosure requirements that could significantly increase the cost of doing business and have other material adverse effects on our business.
Any changes in enacted tax laws, rules or regulatory or judicial interpretations; any adverse outcome in connection with tax audits in any jurisdiction; or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our effective tax rate, tax payments, financial condition and results of operations. 24 Table of Contents Failure to maintain effective internal controls could negatively impact our business.
Any changes in enacted tax laws, rules or regulatory or judicial interpretations; any adverse outcome in connection with tax audits in any jurisdiction; or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our effective tax rate, tax payments, financial condition and results of operations. 33 Table of Contents Failure to maintain effective internal controls could negatively impact our business.
Government-imposed restrictions, health and safety mandated best practices, and public hesitance regarding in-person gatherings have reduced our ability and the ability of our Associates to hold sales meetings, required our associates to share and sell our products in a predominantly virtual environment, resulted in cancellations of key Company events and trips, required us to utilize a work-from-home strategy for all non-manufacturing and non-distribution employees, and required us to temporarily close our walk-in and fulfillment locations we maintain in some markets.
During the pandemic, government-imposed restrictions, health and safety mandated best practices, and public hesitance regarding in-person gatherings reduced our ability and the ability of our Associates to hold sales meetings, required our Associates to share and sell our products in a predominantly virtual environment, resulted in cancellations of key Company events and trips, required us to utilize a work-from-home strategy for all non-manufacturing and non-distribution employees, and required us to temporarily close our walk-in and fulfillment locations we maintain in some markets.
In addition, there are numerous risks inherent in conducting our business internationally, including, but not limited to, potential instability in international markets, changes in regulatory requirements applicable to international operations, currency fluctuations in foreign countries, political, economic and social conditions in foreign countries and complex U.S. and foreign laws and treaties, including tax laws, the U.S.
In addition, there are numerous risks inherent in conducting our business internationally, including, but not limited to, potential instability in international markets, changes in regulatory requirements applicable to international operations, currency fluctuations in foreign countries, political, economic and social conditions in foreign countries and complex U.S. and foreign laws and treaties.
Our operating results in future quarters may be below the expectations of securities analysts and investors. If that were to occur, the price of our common stock, and accordingly, the value of a shareholder’s investment in our company, would likely decline, perhaps substantially. 28 Table of Contents
Our operating results in future quarters 38 Table of Contents may be below the expectations of securities analysts and investors. If that were to occur, the price of our common stock, and accordingly, the value of a shareholder’s investment in our company, would likely decline, perhaps substantially.
Any or all of these requirements could have a material adverse effect on our business, financial condition, or results of operations. Our in-house manufacturing activity is subject to certain risks. We manufacture approximately 63% of the products sold to our customers.
Any or all of these requirements could have a material adverse effect on our business, financial condition, or results of operations. Our in-house manufacturing activity is subject to certain risks. We manufacture approximately 65% of the products sold to our customers.
There have been instances where inquiries or complaints about BabyCare’s business have resulted in warnings from the Chinese government as well as the payment of fines by BabyCare. We expect that BabyCare will continue to face the risk of government inquiries, complaints or investigations.
There have been instances where inquiries or complaints about BabyCare’s business have resulted in warnings from the Chinese government as well as the payment of fines by BabyCare or its distributors. We expect that BabyCare will continue to face the risk of government inquiries, complaints or investigations.
If we are not successful in continuing to grow BabyCare’s sales and customer base in China, our consolidated growth as a company will be negatively affected and our business, financial condition, results of operations and cash flows may be harmed. BabyCare must comply with significant operational, financial, and other regulatory requirements to engage in direct selling in China.
If we are not successful in growing BabyCare’s sales and customer base in China, our consolidated growth as a company will be negatively affected and our business, financial condition, results of operations and cash flows may be harmed. BabyCare must comply with significant operational, financial, and other regulatory requirements to engage in direct selling in China.
These agreements provide that, during the term of the agreement, should the athlete test positive for a banned substance included in the WADA, and should such positive result be caused by taking USANA nutritional products, we will compensate that athlete at an amount equal to two times their current annual earnings, up to $1.0 million dollars, based on the athlete’s personal level of competition, endorsement, and other income, as well as other factors.
These agreements provide that, during the term of the agreement, should the athlete test positive for a banned substance included 32 Table of Contents in the WADA, and should such positive result be caused by taking USANA nutritional products, we will compensate that athlete at an amount equal to two times their current annual earnings, up to $1.0 million, based on the athlete’s personal level of competition, endorsement, and other income, as well as other factors.
They also may make statements regarding potential earnings, product claims, or other matters in violation of our policies or applicable laws and regulations concerning these matters. These violations may result in legal action against us in our various markets by regulatory agencies, state attorneys general, or private parties – and in China by the Chinese government.
They 24 Table of Contents also may make statements regarding potential earnings, product claims, or other matters in violation of our policies or applicable laws and regulations concerning these matters. These violations may result in legal action against us in our various markets by regulatory agencies, state attorneys general, or private parties – and in China by the Chinese government.
If difficult economic conditions continue or worsen as a result of the COVID-19 pandemic, or otherwise, we could experience declines in net sales, profitability and cash flow due to lower demand for our products or other factors caused by economic challenges faced by our customers, potential customers or suppliers.
If difficult economic conditions continue or worsen as a result of the COVID-19 pandemic, or otherwise, we could experience declines in net sales, profitability and cash flow due to lower demand for our products or other factors caused by economic 36 Table of Contents challenges faced by our customers, potential customers or suppliers.
Although we maintain product liability insurance, which we believe to be adequate for our needs, there can be no assurance that we will not be subject to such claims in the future or that our insurance coverage will be adequate. 23 Table of Contents Nutritional supplement products may be supported by only limited availability of conclusive clinical studies.
Although we maintain product liability insurance, which we believe to be adequate for our needs, there can be no assurance that we will not be subject to such claims in the future or that our insurance coverage will be adequate. Nutritional supplement products may be supported by only limited availability of conclusive clinical studies.
In light of the factors listed above, and the other risks to our business, there can be no assurance that we will be successful in continuing to increase sales and customers in China through BabyCare. Our operations in China are subject to significant government regulation, as well as a variety of legal, political, and economic risks.
In light of the factors listed above, and the other risks to our business, there can be no assurance that we will be successful in increasing sales and customers in China through BabyCare. Our operations in China are subject to significant government regulation, as well as a variety of legal, political, and economic risks.
To date, we have not been a party to any product liability litigation, although, like any dietary supplement company, we have received reports from individuals who have asserted that they suffered adverse consequences as a result of using our products. The number of reports we have received to date is nominal.
To date, we have not been a party to any product liability litigation, although, like any dietary supplement company, we have received reports from individuals who have asserted that they suffered adverse consequences as a result of using our products. The number of 31 Table of Contents reports we have received to date is nominal.
Although a settlement between the FTC and a specific company does not generally have force of law or binding effect on other companies, FTC officials have indicated that the direct selling industry should look to these consent orders, and the principles contained therein, for guidance.
Although a settlement between the FTC and a specific company does not generally have force of law or binding effect on other companies, FTC officials have indicated that the direct selling industry should look to these settlements, and the principles contained therein, for guidance.
Our success will also depend on our ability to retain and motivate our existing Associates and attract new Associates to sell our products. Associates typically market and sell our products on a part-time basis and often engage in other business activities, some of which may compete with us.
Our success will also depend on our ability to retain and motivate 35 Table of Contents our existing Associates and attract new Associates to sell our products. Associates typically market and sell our products on a part-time basis and often engage in other business activities, some of which may compete with us.
For instance, China has previously taken or threatened to take trade and other actions in retaliation against U.S. policies, and is likely to continue to do so. Past or future developments in this regard may have a material adverse effect on the economies, financial markets, and currency exchange rates in China and the United States.
For instance, China has previously taken or threatened to take trade and other actions in retaliation against U.S. policies, and is likely to continue to do so. Past or future 28 Table of Contents developments in this regard may have a material adverse effect on the economies, financial markets, and currency exchange rates in China and the United States.
We take what we believe to be commercially reasonable steps to (i) regularly train our active Associate base and (ii) monitor the activities of our Associates to guard against misrepresentation and other illegal or unethical conduct by Associates and to assure compliance with our policies.
We take what we believe to be commercially reasonable steps to (i) regularly train our Associates, and (ii) monitor the activities of our Associates to guard against misrepresentation and other illegal or unethical conduct by Associates and to assure compliance with our policies.
Those settlements resulted from FTC enforcement actions brought by the FTC involving a variety of alleged violations of consumer protection laws, including misleading earnings representations and legal compliance of those companies’ business models and distributor compensation plans.
Those settlements resulted from enforcement actions brought by the FTC involving a variety of alleged violations of consumer protection laws, including misleading earnings representations and 23 Table of Contents legal compliance of those companies’ business models and distributor compensation plans.
The pandemic has also affected the availability and cost of various of our raw materials, packaging materials and shipping resources to transport our product to our various markets around the world. Our supply chain and logistics have incurred some disruption and we could experience more significant disruptions or face more significant closures in the future as the pandemic continues.
The pandemic also affected the availability and cost of several of our raw materials, packaging materials and shipping resources to transport our product to our various markets around the world. Our supply chain and logistics have incurred some disruption and we could experience more significant disruptions or face more significant closures in the future.
While we do not believe this litigation is material to our business, and we believe we have legally and appropriately classified our Associates as independent contractors, it is possible that this lawsuit or potential future laws, could negatively impact the independent contractor status of our Associates or distributors in direct selling companies in general.
While we do not believe this litigation is material to our business, and we believe we have legally and appropriately classified our Associates as independent contractors, it is possible that this lawsuit or potential future laws, could negatively impact the independent contractor status of our Associates or distributors in direct selling companies in general. For example, in 2022, the U.S.
Compliance with these laws and regulations may also require us to restrict our ability to provide services to our customers that they may find valuable or otherwise require us to change our business practices in a manner that is ultimately adverse to our business objectives.
Compliance with these laws and regulations may limit our ability to provide products and services to our customers that they may find valuable or otherwise require us to change our business practices in a manner that is ultimately adverse to our business objectives.
Risk Associated with Information Technology, Data Security and Data Privacy A failure of our information technology systems would harm our business. The global nature of our business and our seamless global compensation plan requires the development and implementation of robust and efficiently functioning information technology systems.
Risk Associated with Information Technology, Data Security and Data Privacy A failure or interruption of our information technology systems would harm our business. The global nature of our business, shopping and our global compensation plan requires the development and implementation of robust and efficiently functioning information technology systems.
In 2020, the FTC sent warning letters to several direct-selling companies regarding product and/or income claims that the companies and/or their distributor sales forces were making related to the COVID-19 pandemic.
In 2020, the FTC sent warning letters to several direct-selling companies regarding product and/or income claims that the companies and/or their distributors were making related to the COVID-19 pandemic.
Our reliance on third parties to manufacture and supply certain of our products may harm our business, financial condition and operating results. We contract with third-party suppliers and manufacturers for the production of certain of our products, which accounted for approximately 37% of our product sales for the year ended January 1, 2022.
Our reliance on third parties to manufacture and supply certain of our products may harm our business, financial condition and operating results. We contract with third-party suppliers and manufacturers for the production of certain of our products, which accounted for approximately 35% of our product sales for the year ended December 31, 2022.
The FCPA prohibits U.S.-based companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. The U.K. Anti-Bribery Act prohibits both domestic and international bribery as well as bribery across both public and private sectors.
The FCPA prohibits U.S.-based companies and their intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business. Other anti-corruption laws prohibit both domestic and international bribery as well as bribery across both public and private sectors.
The Chinese government also exercises significant control over the Chinese economy, including through controlling capital, foreign currency exchange, foreign exchange rates and tax regulations, providing preferential treatment to certain industry segments or companies and issuing required licenses to conduct business. We could face additional risks resulting from changes in China’s data privacy and security requirements.
The Chinese government also exercises significant control over the Chinese economy, including through controlling capital, foreign currency exchange, foreign exchange rates, and tax regulations, providing preferential treatment to certain industry segments or companies and issuing required licenses to conduct business. We also face additional risks resulting from new and expanded China data privacy and security laws and regulations.
Following this settlement, the FTC initiated litigation with another direct selling company for similar alleged violations and is seeking similar remedies, including a prohibition of multilevel compensation in the U.S.
Following this settlement, the FTC initiated litigation with another direct selling company for similar alleged violations and is seeking similar remedies, including a prohibition of multilevel compensation in the United States. This case remains in litigation.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of this report, as well as in the other filings we make from time to time with the SEC, in evaluating us, our business and an investment in our securities. The risks discussed below are not the only risks that we face.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of this report, as well as in the other filings we make from time to time with the SEC, in evaluating us, our business and an investment in our securities.
Tax laws, regulations, and interpretations in various jurisdictions may change, with or without notice, due to social, economic, political and other considerations. As a result, our evaluation and estimates for our provision for income taxes may change perhaps negatively.
We are subject to tax laws and regulations in the United States and numerous other foreign jurisdictions. Tax laws, regulations, and interpretations in various jurisdictions may change, with or without notice, due to social, economic, political and other considerations. As a result, our evaluation and estimates for our provision for income taxes may change perhaps negatively.
We may have or could incur obligations relating to the activities of our Associates. Our Associates are subject to taxation, and, in some instances, legislation or governmental agencies may impose an obligation on us to collect taxes, such as sales taxes or value added taxes, and to maintain appropriate records of such transactions.
Our Associates are subject to taxation, and, in some instances, legislation or governmental agencies may impose an obligation on us to collect taxes, such as sales taxes or value added taxes, and to maintain appropriate records of such transactions.
Fluctuation in the value of currency exchange rates with the U.S. dollar affects our operations and our net sales and earnings. For the year ended January 1, 2022, 90.7% of our total net sales were generated in markets outside of the United States.
Fluctuation in the value of currency exchange rates with the U.S. dollar affects our operations and our net sales and earnings. For the year ended December 31, 2022, 89.4% of our total net sales were generated in markets outside of the United States.
We believe our manufacturing processes comply with these GMPs for dietary supplements. Nevertheless, any FDA action determining that our processes were non-compliant with dietary supplement GMPs, could materially adversely affect our ability to manufacture and market our products.
Nevertheless, any FDA action determining that our processes were non-compliant with dietary supplement GMPs, could materially adversely affect our ability to manufacture and market our products.
If federal, state or local laws and regulations or the interpretation of such laws and regulations change to require us to treat our Associates as employees, or if our Associates are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors, under existing laws and interpretations, we may be deemed to be responsible for a variety of obligations that are imposed upon employers relating to their employees, including social security and related taxes in those jurisdictions, wages, employee benefits, plus any related assessments and penalties, which could harm our financial condition and operating results. 19 Table of Contents Our Associate Compensation Plan, or changes we make to it, may be viewed negatively by some Associates, could fail to achieve our desired objectives, and could have a negative impact on our business.
If federal, state or local laws and regulations or the interpretation of such laws and regulations change to require us to treat our Associates as employees, or if our Associates are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors, under existing laws and interpretations, we may be deemed to be responsible for a variety of obligations that are imposed upon employers relating to their employees, including social security and related taxes in those jurisdictions, wages, employee benefits, plus any related assessments and penalties, which could harm our financial condition and operating results.
Additionally, our strategy over the past several years is to begin self-manufacturing our foods, personal care and skincare products, which will further increase the percentage of products we manufacture in-house. Because of our self-manufacturing practices, we are dependent upon the uninterrupted and efficient operation of our manufacturing facilities.
Additionally, over the past several years we have increased self-manufacturing of our foods, personal care and skincare products, which has increased the percentage of products we manufacture in-house. Because of our self-manufacturing practices, we are dependent upon the uninterrupted and efficient operation of our manufacturing facilities.
In some instances, it could take us some time to discover that we have fallen victim to such a breach. Any such breach of our networks and the information therein could cause such information to be accessed, publicly disclosed, altered, damaged, held ransom, lost or stolen.
In some instances, despite our reasonable efforts, it could take us some time to discover that our networks have been breached. Any such breach of our networks and the information and PII stored therein could cause such information and PII to be accessed, publicly disclosed, altered, damaged, held ransom, lost or stolen.
Furthermore, such data breach could result in significant disruption of our operations, which could adversely affect our business, revenues and competitive position. We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and data security, and our actual or perceived failure to comply with such obligations could adversely affect our business and operating results.
Furthermore, such data breach could result in significant disruption of our operations, which could adversely affect our business, revenues and competitive position. We are subject to data privacy and security laws and regulations, and our actual or perceived failure to comply with them could adversely affect our business and operating results.
A data security failure involving that technology or the data stored in it, could disrupt our ability to operate our businesses effectively, adversely affect our reported financial results and our reputation, and expose us to potential liability or litigation. Likewise, a data breach at USANA could lead to significant liability and reputational damage.
A data breach involving that technology or the data stored in it, could disrupt our ability to operate our businesses effectively, adversely affect our reported financial results and our reputation, and expose us to significant potential liability, government investigations, fines or litigation.
Although we have adopted and implemented a business continuity and disaster recovery plan, which includes routine back-up, off-site archiving and storage, and certain redundancies, the occurrence of any of these events could result in costly interruptions or failures adversely affecting our business and the results of our operations. We rely on information technology to support our operations and reporting environments.
Although we have adopted and implemented a business continuity and disaster recovery plan and a variety of other operational safeguards, the occurrence of any of these events could result in costly interruptions or failures adversely affecting our business and the results of our operations. We rely on information technology to support our operations and reporting environments.
During this review, the Chinese government, among other things, (i) instructed direct selling companies not to hold large distributor meetings, and (ii) suspended its application review process for direct sales licenses and authorizations.
During this review, the Chinese government, among other things, (i) instructed direct selling companies not to hold large distributor meetings, and (ii) suspended its application review process for direct sales licenses and authorizations. The Chinese government has yet to re-open the application review process for direct sales licenses and authorizations or indicate if or when it plans to do so.
Any such adverse effects could also adversely affect our business, financial condition, or results of operations. Risks Related to Our Products, Manufacturing and Operations Our products and manufacturing activities are subject to extensive government regulation, which could limit or prevent the sale of our products in some markets.
Risks Related to Our Products, Manufacturing and Operations Our products and manufacturing activities are subject to extensive government regulation, which could limit or prevent the sale of our products in some markets.
Gull Global, Ltd., an entity that is solely owned and controlled by our founder, Dr. Myron Wentz, owned approximately 41.20 % of our outstanding common stock at January 1, 2022. Dr. Wentz is no longer active in the management of USANA and is an emeritus member of our Board of Directors. By virtue of this stock ownership, Dr.
Myron Wentz, owned approximately 41.6% of our outstanding common stock at December 31, 2022. Dr. Wentz is no longer active in the management of USANA and is an emeritus member of our Board of Directors. By virtue of this stock ownership, Dr.
Foreign Corrupt Practices Act (“FCPA”), and the Bribery Act of 2010 (“U.K. Anti-Bribery Act”). In recent years, there have been an increasing number of investigations and other enforcement activities under these laws, including a voluntary investigation we recently concluded concerning our China operations.
Our international business is subject to various anti-corruption laws, including principally the U.S. Foreign Corrupt Practices Act. In recent years, there have been an increasing number of investigations and other enforcement activities under these laws, including a voluntary investigation we recently concluded concerning our China operations.
There can be no assurance that the Chinese government’s interpretation and enforcement of applicable laws and regulations will not negatively impact BabyCare’s business, result in regulatory investigations or lead to fines or penalties against BabyCare, USANA or our Associates in China.
There can be no assurance that the Chinese government’s interpretation and enforcement of applicable laws and regulations will not negatively impact BabyCare’s business, result in regulatory investigations or lead to fines or penalties against BabyCare, USANA or our Associates in China. 27 Table of Contents BabyCare must apply for and receive government approval to expand its business in China and the failure to obtain such approvals could negatively impact its ability to expand and grow its business.
Any failure or perceived failure by us to comply with data security and privacy laws and regulations may result in governmental enforcement actions and prosecutions, private litigation, significant fines and penalties, adverse publicity, or reputation damage, which could have an adverse effect our business and operating results. 25 Table of Contents Human Capital Risks Associated with our Business If we are unable to attract and retain active Associates and Preferred Customers, our business may be harmed.
Any failure or perceived failure by us to comply with data security and privacy laws and regulations may result in governmental enforcement actions and prosecutions, private litigation, significant fines and penalties, adverse publicity, or reputation damage, which could have an adverse effect our business and operating results.
The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by numerous national and local governmental agencies in the United States and other countries, including the FDA and the FTC. Failure to comply with FDA regulatory requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and criminal prosecutions.
The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by numerous national and local governmental agencies in the United States and other countries, including the FDA and the FTC.
These activities are also subject to regulation by various agencies of the countries in which our products are sold. 22 Table of Contents We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, could have on our business.
We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative orders, when and if promulgated, could have on our business.
These third-party suppliers and manufacturers produce and, in most cases, package the products according to formulations and specifications that have been developed by or in conjunction with our in-house product development team. These products include most of our gelatin-capsulated supplements, Rev3 Energy Drink, Probiotic, our powdered drink mixes, and certain of our personal care products, including our Celavive products.
These third-party suppliers and manufacturers produce and, in most cases, package the products according to formulations and specifications that have 30 Table of Contents been developed by or in conjunction with our in-house product development team.
If an infringement claim is asserted, we may be required to obtain a license of such rights, pay royalties on a retrospective or prospective basis, or terminate our manufacturing and marketing of our infringing products.
Nor can there be any assurance that third parties will not assert claims against us for infringement of their intellectual proprietary rights. If an infringement claim is asserted, we may be required to obtain a license of such rights, pay royalties on a retrospective or prospective basis, or terminate our manufacturing and marketing of our infringing products.
In addition, before marketing commences in a new country or market, it is difficult to assess the extent to which our products and sales techniques will be accepted or successful in any given country. In addition to significant regulatory barriers, we may also encounter problems conducting operations in new markets with different cultures and legal systems from those encountered elsewhere.
We must overcome significant regulatory and legal barriers before we can begin marketing in any international market. In addition, before marketing commences in a new country or market, it is difficult to assess the extent to which our products and sales techniques will be accepted or successful in any given country.
The FTC is also currently reviewing the Business Opportunity Rule, which according to the FTC requires business opportunity sellers to give prospective buyers specific information to help them evaluate a business opportunity, thus ensuring that the prospective purchasers have the information they need in order to assess the risks of buying a work-at-home program or any other business opportunity.
The FTC is also currently reviewing the Business Opportunity Rule, which requires business opportunity sellers to give prospective buyers specific information to help them evaluate a business opportunity or work-at-home program.
The loss or limitation of the services of any of our executive officers or the inability to attract additional qualified management personnel could have a material adverse effect on our business, financial condition, or results of operations. 26 Table of Contents General Economic, Publicity, Competitive, and Intellectual Property Risks Associated with our Business Difficult economic conditions may adversely affect our business.
The loss or limitation of the services of any of our executive officers or the inability to attract additional qualified management personnel could have a material adverse effect on our business, financial condition, or results of operations.
We may also be prohibited from distributing products through direct selling or paying multilevel compensation in some countries. 18 Table of Contents In the United States, the FTC has actively warned various direct selling companies and the industry as a whole about certain business practices associated with direct selling and entered into settlements with several direct selling companies that required those companies to modify their compensation plans and business models.
In the United States, the FTC is one of many regulators who regulate direct selling. The FTC has actively warned various direct selling companies and the industry as a whole about certain business practices associated with direct selling and entered into settlements with several direct selling companies that required those companies to modify their compensation plans and business models.
There can be no assurance that we will be able to obtain and retain necessary permits and approvals in new markets or that we will have sufficient capital to finance our expansion efforts in a timely manner. 21 Table of Contents In many market areas, other direct selling companies already have significant market penetration, the effect of which could be to desensitize the local population to a new opportunity, such as USANA, or to make it more difficult for us to attract qualified Associates or sell to customers generally.
In many market areas, other direct selling companies already have significant market penetration, the effect of which could be to desensitize the local population to a new opportunity, such as USANA, or to make it more difficult for us to attract qualified Associates or sell to customers generally.
We depend upon the services of our Chief Executive Officer, Kevin Guest; our President, Jim Brown; and our Chief Financial Officer, Douglas Hekking, as well as other key members of our executive team. We cannot guarantee continued service by our key executive officers.
We depend upon the services of our Chairman and Chief Executive Officer, Kevin Guest; our President, Jim Brown; and our Chief Financial Officer, Douglas Hekking, as well as other key members of our executive team. We disclosed in February 2023 that, effective July 1, 2023, Mr.
It is difficult to predict the impact on our business, if any, of the emergence of new epidemics or other crises. Risk Associated with Direct Selling Direct selling is subject to intense government scrutiny, and regulation and changes in the law, or the interpretation and enforcement of the law, might adversely affect our business.
Risk Associated with Direct Selling Direct selling is subject to intense government scrutiny, and regulation and changes in the law, or the interpretation and enforcement of the law, might adversely affect our business. Various laws and regulations in the United States and other countries regulate direct selling.
Accordingly, any adverse change in the Chinese governmental, economic or other policies could have a material adverse effect on BabyCare’s business in China and our consolidated results of operations. Although BabyCare utilizes a business model that has been developed specifically for China’s laws and regulations, the Chinese government has not approved BabyCare’s model, compensation plan, and operations.
Accordingly, any adverse change in the Chinese governmental, economic or other policies could have a material adverse effect on BabyCare’s business in China and our consolidated results of operations.
Any action of this type by the FDA could materially adversely affect our ability to market our products successfully. The manufacture of nutritional or dietary supplements and related products in the United States requires compliance with dietary supplement GMPs, which are based on the food-model GMPs, with additional requirements that are specific to dietary supplements.
The manufacture of nutritional or dietary supplements and related products in the United States requires compliance with dietary supplement GMPs, which are based on the food-model GMPs, with additional requirements that are specific to dietary supplements. We believe our manufacturing processes comply with these GMPs for dietary supplements.
Personal privacy and data security are significant for us in all of our markets because we collect, store and transmit significant amounts of company, employee, and active Customer personal information, including personally identifiable information and payment card information, for business purposes, including for transactional and marketing purposes.
Compliance with data privacy and security laws and regulations is a significant effort for us in all of our markets because we collect, store and otherwise process significant amounts of customer and employee personal information for business (including for transactional and marketing purposes) and legal purposes.
The governments of our markets have adopted, or are adopting, strict laws and regulations governing data privacy and data security, and these areas are rapidly evolving and are likely to remain uncertain for the near future.
The governments of our various markets have adopted, or are adopting, complex and strict laws and regulations governing data privacy and security, and these areas are still rapidly evolving . These laws and regulations have resulted in greater compliance risk and cost for us.
No assurance can be given that we will be able to successfully reformulate our products in any of our current or potential international markets to meet local regulatory requirements or to attract local customers. Our failure to do so could have a material adverse effect on our business, financial condition, or results of operations.
Once we have entered a market, we must adhere to the regulatory and legal requirements of that market. No assurance can be given that we will be able to successfully reformulate our products in any of our current or potential international markets to meet local regulatory requirements or to attract local customers.
In 2021, some of our markets, including China, experienced active Customer declines. If our strategies, including our customer experience strategy, do not generate growth in our active Customer base, our operating results could be harmed.
In 2022, most of our markets, including China, experienced active Customer declines. If our strategies, including our customer experience strategy, do not generate growth in our active Customer base, our operating results could be harmed. We also rely on the successful efforts of our Associates who become leaders with our Company.
We currently conduct our business in various foreign countries, and we expect to expand the number of countries in which we operate in the future.
Risk Associated with Our International Operations Risks associated with operating in international markets could restrict our ability to expand globally and harm our business and prospects. We currently conduct our business in various foreign countries, and we expect to expand the number of countries in which we operate in the future.
We have also entered into confidentiality agreements with certain of our employees involved in research and development activities. Additionally, we endeavor to seek, to the fullest extent permitted by applicable law, trademark and trade dress protection for our products, which protection has been sought in many of our existing and potential future markets.
Additionally, we endeavor to seek, to the fullest extent permitted by applicable law, trademark and trade dress protection for our products, which protection has been sought in many of our existing and potential future markets. Notwithstanding our efforts, there can be no assurance that our efforts to protect our trade secrets and trademarks will be successful.
Various laws and regulations in the United States and other countries regulate direct selling. These laws and regulations exist at many levels of government in many different forms, are inherently fact-based, and often do not include “bright line” rules.
These laws and regulations exist at many levels of government in many different forms, are inherently fact-based, and often do not include “bright line” rules. We are also subject to the risk that the laws and regulations, or a regulator’s interpretation and enforcement of the laws and regulations, could change.
It is difficult to predict how any changes to the plan will be viewed by Associates and whether such changes will achieve their desired results.
It is difficult to predict how any changes to the plan will be viewed by Associates and whether such changes will achieve their desired results. For example, in 2023 we launched our Affiliate program in three markets and this program creates a new and different element of our Compensation Plan.
Our Greater China region consists of China, Hong Kong, and Taiwan and has been our largest region for sales over the last several years and China has been our largest market. Our international growth strategy has focused largely on growing our China business.
A decline in sales or customers in this region would harm our business, financial condition and results of operations. Our Greater China region consists of China, Hong Kong, and Taiwan and has been our largest region for sales over the last several years and China has been our largest market.
Products manufactured by third-party suppliers at their locations must also pass through quality control and assurance procedures to ensure they are manufactured in conformance with our specifications.
These products include most of our gelatin-capsulated supplements, Rev3 Energy Drink, Probiotic, our powdered drink mixes, foods, and certain of our personal care products, including our Celavive line for markets outside of China. Products manufactured by third-party suppliers at their locations must also pass through quality control and assurance procedures to ensure they are manufactured in conformance with our specifications.
In addition, detecting, investigating and resolving actual or alleged violations of these acts is expensive and could consume significant time and attention of our senior management. We believe that our ability to achieve future growth is dependent in part on our ability to continue our international expansion efforts.
In addition, detecting, investigating and resolving actual or alleged violations of these acts is expensive and could consume significant time and attention of our senior management. We could be subject to adverse changes in tax laws, regulations and interpretations or challenges to our tax positions.
There can be no assurance, however, that we will be able to grow in our existing international markets or enter new international markets on a timely basis, or that new markets will be profitable. We must overcome significant regulatory and legal barriers before we can begin marketing in any international market.
We believe that our ability to achieve future growth is dependent in part on our ability to continue our international expansion efforts. There can be no assurance, however, that we will be able to grow in our existing international markets or enter new international markets on a timely basis, or that new markets will be profitable.
There can be no assurance, however, that our efforts in this regard will be sufficient to accomplish this objective. Adverse publicity resulting from such activities could also make it more difficult for us to attract and retain Associates and Preferred Customers and may have an adverse effect on our business, financial condition, and results of operations.
This type of adverse publicity has made, and will continue to make, it difficult for us to attract and retain Associates and Preferred Customers and may have an adverse effect on our business, financial condition, and results of operations. We may have or could incur obligations relating to the activities of our Associates.
In 2019, our sales and active Customer counts in both the Greater China region and our China market declined, largely because of a challenging operating environment in China. Additionally, throughout 2021, and 2020, health officials in Greater China continued to respond to the COVID-19 pandemic, which also created a challenging environment for our business in China.
Additionally, in 2019, our sales and active Customer counts in both the Greater China region and our China market declined, largely because of a challenging operating environment in China, following the China’s governments inquiry into and review of the health foods industry in China.
In the ordinary course of our global business, we collect and store in our data centers and on our networks significant amounts of data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, personally identifiable information (some of which is sensitive) and payment card information of our active Customers and employees.
In the ordinary course of our global business, we collect and store in our data centers and on our networks, including cloud systems, significant amounts of data, including personally identifiable information (PII), intellectual property, and our proprietary business information The secure collection, storage and other processing of this information is critical to our operations, regulatory compliance and business strategy.
The secure processing and, when appropriate, deletion of this information is critical to our operations, regulatory compliance and business strategy. Although we strive to frequently analyze and improve our data security measures, our information technology and infrastructure are subject to persistent attacks of varying degrees and types and we may be vulnerable to attacks by hackers.
Although we strive to frequently analyze and 34 Table of Contents improve our data security measures, our information technology and infrastructure are subject to persistent attacks of varying degrees and types and we may be vulnerable to attacks by hackers. Such attacks could include viruses, ransomware attacks, computer denial of service attacks, or phishing schemes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+1 added−1 removed4 unchanged
Biggest changeThere can be no assurance that our practices will be successful in eliminating all or substantially all of the risks that we may encounter in connection with our currency transactions. Interest Rate Risks. As of January 1, 2022, we had no outstanding debt and therefore, we had no direct exposure to interest rate risk.
Biggest changeWe do not use derivative financial instruments for trading or speculative purposes. There can be no assurance that our practices will be successful in eliminating all or substantially all of the risks that we may encounter in connection with our currency transactions. Interest Rate Risks.
Because a significant portion of our sales are generated outside the United States, currency exchange rate fluctuations may have a significant effect on our sales and earnings. The local currency of each international subsidiary is considered the functional currency, with all revenue and expenses being translated at weighted-average currency exchange rates for the applicable periods.
Foreign Currency Risks . Because a significant portion of our sales are generated outside the United States, currency exchange rate fluctuations may have a significant effect on our sales and earnings. The local currency of each international subsidiary is considered the functional currency, with all revenue and expenses being translated at weighted-average currency exchange rates for the applicable periods.
Additionally, we may enter into short-term foreign currency credit arrangements in our international markets, primarily as a way to reduce our exposure to negative effects of changes in foreign currency exchange rates. We also enter into currency exchange contracts to offset foreign currency exposure in various international markets. We do not use derivative financial instruments for trading or speculative purposes.
Additionally, we may enter into short-term foreign currency credit arrangements in our international markets, primarily as a way to reduce our exposure to negative effects of changes in foreign currency exchange rates. We also enter into currency exchange contracts 48 Table of Contents to offset foreign currency exposure in various international markets.
This includes changes in the laws and policies that govern investment in international countries where we have operations, as well as, to a lesser extent, changes in U.S. laws and regulations relating to international trade and investment. 39 Table of Contents Foreign Currency Risks .
In addition, our operations are exposed to risks that are associated with changes in social, political, and economic conditions in our international operations. This includes changes in the laws and policies that govern investment in international countries where we have operations, as well as, to a lesser extent, changes in U.S. laws and regulations relating to international trade and investment.
It may become necessary to borrow in the future in order to meet our financing needs. In the event that it becomes necessary to borrow, there can be no assurance that we will be able to borrow, or at favorable rates. 40 Table of Contents
In the event that it becomes necessary to borrow, there can be no assurance that we will be able to borrow, or at favorable rates.
Removed
In addition, our operations are exposed to risks that are associated with changes in social, political, and economic conditions in our international operations.
Added
As of December 31, 2022, we had no outstanding debt and therefore, we had no direct exposure to interest rate risk. It may become necessary to borrow in the future in order to meet our financing needs.

Other USNA 10-K year-over-year comparisons