What changed in NATURES SUNSHINE PRODUCTS INC's 10-K — 2022 vs 2023
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Paragraph-level year-over-year comparison of NATURES SUNSHINE PRODUCTS 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.
+160 added−185 removedSource: 10-K (2023-12-31) vs 10-K (2022-12-31)
Top changes in NATURES SUNSHINE PRODUCTS INC's 2023 10-K
160 paragraphs added · 185 removed · 125 edited across 6 sections
- Item 7. Management's Discussion & Analysis+76 / −87 · 60 edited
- Item 1A. Risk Factors+45 / −54 · 27 edited
- Item 1. Business+18 / −20 · 18 edited
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk+12 / −13 · 12 edited
- Item 5. Market for Registrant's Common Equity+8 / −10 · 7 edited
Item 1. Business
Business — how the company describes what it does
18 edited+0 added−2 removed78 unchanged
Item 1. Business
Business — how the company describes what it does
18 edited+0 added−2 removed78 unchanged
2022 filing
2023 filing
Biggest changeInventories In order to provide a high level of product availability to our independent consultants, we maintain considerable inventory of raw materials in the United States and of finished goods in most countries in which we sell our products.
Biggest changeChanges in the relative size of our revenues in one region of the world compared to another could cause seasonality to more significantly affect our reported quarterly results. 5 Table of Contents Inventories In order to provide a high level of product availability to our independent consultants, we maintain considerable inventory of raw materials in the United States and of finished goods in most countries in which we sell our products.
Such Regulations exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions, including Regulations pertaining to: (1) the formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products; (2) product and earnings claims and advertising, including direct claims and advertising by us, as well as claims and advertising by independent consultants, for which we may be held responsible; (3) our direct selling program; (4) transfer pricing and similar regulations that affect the level of U.S. and foreign taxable income and customs duties; (5) taxation of our independent consultants (which in some instances may impose an obligation on us to collect the taxes and maintain appropriate records); and (6) currency exchange and repatriation.
Such Regulations exist at the federal, state or local levels in the United States and at all levels of government in foreign jurisdictions, including Regulations pertaining to: (1) the formulation, manufacturing, packaging, labeling, distribution, importation, sale and storage of our products; (2) product and earnings claims and advertising, including direct claims and advertising by us, as well 6 Table of Contents as claims and advertising by independent consultants, for which we may be held responsible; (3) our direct selling program; (4) transfer pricing and similar regulations that affect the level of U.S. and foreign taxable income and customs duties; (5) taxation of our independent consultants (which in some instances may impose an obligation on us to collect the taxes and maintain appropriate records); and (6) currency exchange and repatriation.
A summary of the U.S. dollar amounts from the sale of general health, immune, cardiovascular, digestive, personal care and weight management products for the years ended December 31, 2022 and 2021, by business segment can be found in Note 12, “Operating Business Segment and International Operation Information,” to our Consolidated Financial Statements, in Item 8, Part 2 of this report.
A summary of the U.S. dollar amounts from the sale of general health, immune, cardiovascular, digestive, personal care and weight management products for the years ended December 31, 2023 and 2022, by business segment can be found in Note 12, “Operating Business Segment and International Operation Information,” to our Consolidated Financial Statements, in Item 8, Part 2 of this report.
“Operational Compliance” is defined by the Compliance Committee’s charter to include: consultant compliance and direct selling best practices; employee compliance, including code of conduct and other mandated trainings; product and product distribution regulatory compliance, including adherence to FTC, FDA and other similar regulatory bodies’ mandates; compliance with data protection regulations; and non-financial, whistleblower reports.
“Operational Compliance” is defined by the Risk Management Committee’s charter to include: consultant compliance and direct selling best practices; employee compliance, including code of conduct and other mandated trainings; product and product distribution regulatory compliance, including adherence to FTC, FDA and other similar regulatory bodies’ mandates; compliance with data protection regulations; and non-financial, whistleblower reports.
Noted below are the short- and long-term goals we have set to address the environmental impacts from our operations: • 50 percent reduction of greenhouse gas emissions for Scope 1 & 2 by 2025; • Zero waste at all distribution centers by 2025; • 35 percent waste reduction at our owned manufacturing facility by 2025; To learn more about our environmental, social and governance (“ESG”) initiatives, as well as review our annual ESG report and accompanying policies, access the ESG section of our website at: https://ir.naturessunshine.com/esg.
Noted below are the goals we have set to address the environmental impacts from our operations: • 50 percent reduction of greenhouse gas emissions for Scope 1 & 2 by 2025; • Zero waste at all distribution centers by 2025; • 35 percent waste reduction at our owned manufacturing facility by 2025; To learn more about our environmental, social and governance (“ESG”) initiatives, as well as review our annual ESG report and accompanying policies, access the ESG section of our website at: https://ir.naturessunshine.com/esg.
Our failure to comply with these regulations can result in a product being removed from sale in a particular market, either temporarily or permanently. Direct Selling Our business practices and products are also regulated by the following United States governmental entities: the Federal Trade Commission (“FTC”), Consumer Product Safety Commission (“CPSC”), Department of Agriculture (“USDA”) and Environmental Protection Agency (“EPA”).
Our failure to comply with these regulations can result in a product being removed from sale in a particular market, either temporarily or permanently. 7 Table of Contents Direct Selling Our business practices and products are also regulated by the following United States governmental entities: the Federal Trade Commission (“FTC”), Consumer Product Safety Commission (“CPSC”), Department of Agriculture (“USDA”) and Environmental Protection Agency (“EPA”).
They could, however, require: (1) reformulation of some products not capable of being reformulated; (2) imposition of additional record keeping requirements; (3) expanded documentation of the properties of some products; (4) expanded or different labeling; (5) additional or different scientific substantiation regarding product ingredients, safety or usefulness; and/or (6) additional consultant 7 Table of Contents compliance surveillance and enforcement action by us.
They could, however, require: (1) reformulation of some products not capable of being reformulated; (2) imposition of additional record keeping requirements; (3) expanded documentation of the properties of some products; (4) expanded or different labeling; (5) additional or different scientific substantiation regarding product ingredients, safety or usefulness; and/or (6) additional consultant compliance surveillance and enforcement action by us.
Some examples of our key programs and initiatives that are focused on attracting and retaining top talent include: • Annual scholarship program for multicultural students at the University of Utah in the amount of $0.2 million. • Leadership development program designed to help employees develop leadership skills and obtain executive coaching over a three-year period. 9 Table of Contents • Competitive wage and benefits package building loyalty and engagement in Company performance. • Hybrid work model that recognizes the evolving needs of workers and allows them to build a hybrid work schedule providing greater flexibility for their personal needs. • A wellness rewards program that rewards healthy behaviors such as healthy eating, exercise, and wellness ambassadorship.
Some examples of our key programs and initiatives that are focused on attracting and retaining top talent include: • Annual scholarship program for multicultural students at the University of Utah in the amount of $0.2 million to be completed by December 31, 2024. 9 Table of Contents • Leadership development program designed to help employees develop leadership skills and obtain executive coaching over a three-year period. • Competitive wage and benefits package building loyalty and engagement in Company performance. • Hybrid work model that recognizes the evolving needs of workers and allows them to build a hybrid work schedule providing greater flexibility for their personal needs. • A wellness rewards program that rewards healthy behaviors such as healthy eating, exercise, and wellness ambassadorship.
The amounts of volume incentives that we expensed during the years ended December 31, 2022 and 2021, are set forth in our Consolidated Financial Statements in Item 8 of this report.
The amounts of volume incentives that we expensed during the years ended December 31, 2023 and 2022, are set forth in our Consolidated Financial Statements in Item 8 of this report.
The SEC also maintains an Internet website that contains reports, and other information regarding issuers that file electronically with the SEC at www.sec.gov . We also make available, free of charge on our website, our Code of Conduct Policy and the charters of our Audit Committee, Governance Committee, Compensation Committee and Compliance Committee.
The SEC also maintains an Internet website that contains reports, and other information regarding issuers that file electronically with the SEC at www.sec.gov . We also make available, free of charge on our website, our Code of Conduct Policy and the charters of our Audit Committee, Governance Committee, Compensation Committee and Risk Management Committee.
Such regulatory provisions did not have a material effect upon our results of operations or competitive position during the year ended December 31, 2022. 6 Table of Contents Regulation General In both the United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations and guidance, court decisions and similar constraints (collectively “Regulations”).
Such regulatory provisions did not have a material effect upon our results of operations or competitive position during the year ended December 31, 2023. Regulation General In both the United States and foreign markets, we are affected by extensive laws, governmental regulations, administrative determinations and guidance, court decisions and similar constraints (collectively “Regulations”).
We intentionally build a workforce of people with viewpoints and backgrounds as diverse as the customers we serve around the world. As a responsibility to our team and in an evolving effort, we provide employees with meaningful careers and development opportunities to grow and succeed. We employed 800 individuals as of December 31, 2022.
We intentionally build a workforce of people with viewpoints and backgrounds as diverse as the customers we serve around the world. As a responsibility to our team and in an evolving effort, we provide employees with meaningful careers and development opportunities to grow and succeed. We employed 814 individuals as of December 31, 2023.
Backlog We typically ship orders for our products within 24 hours after receipt of payment. As a result, we have not historically experienced significant backlogs due to our high level of product availability. However, due to disruptions in our supply chain, we have experienced modest increases in backlog that vary market to market.
Backlog We typically ship orders for our products within 24 hours after receipt of payment. As a result, we have not historically experienced significant backlogs due to our high level of product availability. However, from time-to-time we may experience backlogs that vary market to market.
The duration of our trademark registrations is generally between 10 and 20 years, depending on the country in which the marks are registered, and can be renewed.
The duration of our trademark registrations is generally between 10 and 20 years, depending on the country in which the marks are registered, and can be renewed. The scope and duration of our intellectual property protection varies throughout the world by jurisdiction and by individual product.
The scope and duration of our intellectual property protection varies throughout the world by jurisdiction and by individual product. 5 Table of Contents Seasonality We operate in several regions around the world and, as a result, are affected by seasonal factors and trends such as weather changes, holidays and cultural traditions and vacation patterns throughout the world.
Seasonality We operate in several regions around the world, and as a result, are affected by seasonal factors and trends such as weather changes, holidays, cultural traditions and vacation patterns throughout the world.
Our global workforce is comprised of the following ethnicities: 38.8 percent Caucasian, 33.3 percent Asian, 25.2 percent Hispanic, 2.1 percent Black, and 0.6 percent Other. Of those employees, 56.7 percent are female.
Our global workforce is comprised of the following ethnicities: 37.8 percent Caucasian, 32.0 percent Asian, 27.5 percent Hispanic, 2.0 percent Black, and 0.7 percent Other. Of those employees, 55.6 percent are female and 44.4 percent are male.
We attempt to ensure the availability of many of our raw materials by contracting, in advance, for our annual requirements. In the past, we have been able to find alternative sources of raw materials when needed.
During the years ended December 31, 2023 and 2022, we experienced no major complications in obtaining and maintaining adequate sources of raw materials supply. We attempt to ensure the availability of many of our raw materials by contracting, in advance, for our annual requirements. In the past, we have been able to find alternative sources of raw materials when needed.
To further mitigate any compliance risk, a Compliance Committee of the Board of Directors (the “Compliance Committee”) was created in 2014. The purpose of the Compliance Committee is to oversee our efforts with respect to operational compliance.
The Company has a dedicated Risk Management Committee as part of the Board of Directors (the “Risk Management Committee”). The purpose of the Risk Management Committee is to oversee our efforts with respect to operational compliance.
Removed
During the years ended December 31, 2022 and 2021, we experienced complications in obtaining and maintaining adequate sources of raw materials supply. As of December 31, 2022, raw material availability has improved to near pre-COVID-19 pandemic levels; however, some items remain difficult to source.
Removed
Changes in the relative size of our revenues in one region of the world compared to another could cause seasonality to more significantly affect our reported quarterly results.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
27 edited+18 added−27 removed108 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
27 edited+18 added−27 removed108 unchanged
2022 filing
2023 filing
Biggest changeThese risks are heightened as we work with third-party partners and as our sales force uses social media, as the partners and social media platforms could be vulnerable to the same types of breaches. 18 Table of Contents The storage, processing, and use of data, some of which contain personal information, are subject to complex and evolving privacy and data protection laws and regulations that could adversely affect our results of operation and financial condition.
Biggest changeThe storage, processing, and use of data, some of which contain personal information, are subject to complex and evolving privacy and data protection laws and regulations that could adversely affect our results of operation and financial condition.
We are subject to anti-bribery laws, including the FCPA. We are subject to anti-bribery laws, including the FCPA, which generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business as well as requiring companies and their intermediaries to maintain accurate books and records.
We are subject to anti-bribery laws, including the FCPA, which generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business as well as requiring companies and their intermediaries to maintain accurate books and records.
We believe high levels of inflation in 15 Table of Contents the U.S. and other regions in which we do business have resulted, and will continue to result, in increased input costs and lower net sales of our products. We may not be able to pass any inflation-related increases on to customers without adversely affecting net sales.
We believe high levels of inflation in the U.S. and other regions in which we do business have resulted, and will continue to result, in increased input costs and lower 14 Table of Contents net sales of our products. We may not be able to pass any inflation-related increases on to customers without adversely affecting net sales.
Regulators in the United States 17 Table of Contents and in foreign markets closely monitor our corporate structures, intercompany transactions, and how we effectuate intercompany fund transfers. Our effective tax rate could increase, and our results of operations and financial condition could be materially adversely affected if regulators challenge our corporate structures, transfer pricing methodologies or intercompany transfers.
Regulators in the United States and in foreign markets closely monitor our corporate structures, intercompany transactions, and how we effectuate intercompany fund transfers. Our effective tax rate could increase, and our results of operations and financial condition could be 16 Table of Contents materially adversely affected if regulators challenge our corporate structures, transfer pricing methodologies or intercompany transfers.
We may also experience significant interruptions of our manufacturing operations, delays in our ability to deliver products, increased costs or customer order cancellations as a result of: 16 Table of Contents • the failure or inability to accurately forecast demand and obtain sufficient quantities of quality raw materials on a cost-effective basis; • volatility in the availability and cost of materials or services, including rising prices due to inflation; • difficulties or delays in obtaining required import or export approvals; • shipment delays due to transportation interruptions or capacity constraints, such as reduced availability of air or ground transport or port closures; • information technology or infrastructure failures, including those of a third-party supplier or service provider; and • natural disasters or other events beyond our control (such as earthquakes, utility interruptions, tsunamis, hurricanes, typhoons, floods, storms or extreme weather conditions, fires, regional economic downturns, regional or global health epidemics, including the ongoing COVID-19 pandemic, geopolitical turmoil, increased trade restrictions between the U.S. and China and other countries, social unrest, political instability, terrorism, or acts of war) in locations where we or our customers or suppliers have manufacturing or other operations.
We may also experience significant interruptions of our manufacturing operations, delays in our ability to deliver products, increased costs or customer order cancellations as a result of: 15 Table of Contents • the failure or inability to accurately forecast demand and obtain sufficient quantities of quality raw materials on a cost-effective basis; • volatility in the availability and cost of materials or services, including rising prices due to inflation; • difficulties or delays in obtaining required import or export approvals; • shipment delays due to transportation interruptions or capacity constraints, such as reduced availability of air or ground transport or port closures; • information technology or infrastructure failures, including those of a third-party supplier or service provider; and • natural disasters or other events beyond our control (such as earthquakes, utility interruptions, tsunamis, hurricanes, typhoons, floods, storms or extreme weather conditions, fires, regional economic downturns, regional or global health epidemics, pandemics, geopolitical turmoil, increased trade restrictions between the U.S. and China and other countries, social unrest, political instability, terrorism, or acts of war) in locations where we or our customers or suppliers have manufacturing or other operations.
Many factors may affect our ability to attract and retain independent consultants, including: • publicity regarding us, our products, our distribution channels or our competitors; • on-going motivation of our independent consultants; • the public’s perceptions about the value and efficacy of our products; • the public’s perceptions and acceptance of direct selling; • general and economic business conditions; • government regulations; 13 Table of Contents • our compensation arrangements, including any changes thereto, training and support for our independent consultants; and • competition in attracting and retaining independent consultants.
Many factors may affect our ability to attract and retain independent consultants, including: • publicity regarding us, our products, our distribution channels or our competitors; • on-going motivation of our independent consultants; • the public’s perceptions about the value and efficacy of our products; • the public’s perceptions and acceptance of direct selling; • general and economic business conditions; • government regulations; • our compensation arrangements, including any changes thereto, training and support for our independent consultants; and • competition in attracting and retaining independent consultants.
Such changes could result in unintended or unforeseen negative economic and non-economic consequences to our business, such as higher than anticipated costs or difficulty in attracting and 14 Table of Contents retaining independent consultants, either of which could have a material adverse effect on our results of operations and financial condition.
Such changes could result in unintended or unforeseen negative economic and non-economic consequences to our business, such as higher than anticipated costs or difficulty in attracting and retaining independent consultants, either of which could have a material adverse effect on our results of operations and financial condition.
In preparing our financial statements, we translate net sales and expenses in foreign countries from their local currencies into U.S. dollars using average exchange rates. Because a majority of our sales are in foreign countries, exchange rate fluctuations may have a significant effect on net sales and earnings.
In preparing our financial statements, we translate net sales and expenses in 13 Table of Contents foreign countries from their local currencies into U.S. dollars using average exchange rates. Because a majority of our sales are in foreign countries, exchange rate fluctuations may have a significant effect on net sales and earnings.
These laws and regulations are generally intended to prevent fraudulent or deceptive practices and to ensure that sales are made 10 Table of Contents to consumers of the products, and that compensation is based primarily upon bone fide sale of products to consumers and not primarily upon the recruitment of other persons as participants in the compensation program.
These laws and regulations are generally intended to prevent fraudulent or deceptive practices and to ensure that sales are made to consumers of the products, and that compensation is based primarily upon bone fide sale of products to consumers and not primarily upon the recruitment of other persons as participants in the compensation program.
For example, in recent years, U.S. based direct selling companies with operations in China have been the subject of investigations and enforcement actions, or in some cases have initiated their own internal investigation, relating to alleged violations of the FCPA.
For example, in recent years, U.S. based direct selling companies with operations in 12 Table of Contents China have been the subject of investigations and enforcement actions, or in some cases have initiated their own internal investigation, relating to alleged violations of the FCPA.
Our efforts to protect our intellectual property may be unsuccessful and third-parties may assert claims against us for infringement of intellectual property rights, which could result in us being required to obtain costly licenses for such rights, to pay royalties or to terminate our manufacturing of infringing products, all of which could have a material adverse effect on our results of operations and financial condition. 19 Table of Contents Item 1B.
Our efforts to protect our intellectual property may be unsuccessful and third-parties may assert claims against us for infringement of intellectual property rights, which could result in us being required to obtain costly licenses for such rights, to pay royalties or to terminate our manufacturing of infringing products, all of which could have a material adverse effect on our results of operations and financial condition.
Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather, public health crises such as the current COVID-19 pandemic (or other future pandemics or epidemics), and increased transportation costs, associated with our third-party contract manufacturers’ and carriers’ ability to provide products and services to meet our requirements.
Accordingly, we are subject to the risks, including labor disputes, union organizing activity, inclement weather, public health crises such as pandemics or epidemics, and increased transportation costs, associated with our third-party contract manufacturers’ and carriers’ ability to provide products and services to meet our requirements.
Russia’s invasion of Ukraine and the continuing war between Russia and Ukraine has negatively impacted our operations in both countries and the region. In fiscal 2021, operations in our Russia and Other market, a market within our Europe business segment that includes Russia, Ukraine, Belarus and other Common Independent States in the region, accounted for 13.8% of net sales.
Russia’s invasion of Ukraine and the continuing war between Russia and Ukraine has negatively impacted our operations in both countries and the region. In fiscal 2023, operations in our Russia and Other market, a market within our Europe business segment that includes Russia, Ukraine, Belarus and other Common Independent States in the region, accounted for 12.2% of net sales.
We carry product liability insurance coverage; however, such insurance may not be sufficient to cover one or more large claims, or the insurer may successfully disclaim coverage as to a pending or future claim, which could have a material adverse effect on our results of operations and financial condition.
We carry product liability insurance coverage; however, such insurance may not be sufficient to cover one or more large claims, or the insurer may successfully disclaim coverage as to a pending or future claim, which could have a material adverse effect on our results of operations and financial condition. We are subject to anti-bribery laws, including the FCPA.
In 2022, we recognized approximately 70.9 percent of our net sales in markets outside the United States, the majority of which were recognized in each market’s respective local currency. We purchase inventory from companies in foreign markets and in the United States, primarily in U.S. dollars.
In 2023, we recognized approximately 71.0 percent of our net sales in markets outside the United States, the majority of which were recognized in each market’s respective local currency. We purchase inventory from companies in foreign markets and in the United States, primarily in U.S. dollars.
Whether and how existing domestic and international privacy and consumer protection laws and regulations apply is still uncertain and may take years to resolve.
Whether and how 18 Table of Contents existing domestic and international privacy and consumer protection laws and regulations apply is still uncertain and may take years to resolve.
An enforcement action brought by a government agency, like the FTC in the United States, or a class action lawsuit, could adversely affect our reputation and potentially result in significant penalties and costs, either of which could have a material adverse effect on our results of operations and financial condition. 11 Table of Contents Our direct selling system could be challenged in one or more countries in which we do business.
An enforcement action brought by a government agency, like the FTC in the United States, or a class action lawsuit, could adversely affect our 11 Table of Contents reputation and potentially result in significant penalties and costs, either of which could have a material adverse effect on our results of operations and financial condition.
In 2020, we launched our new sales compensation plan for independent consultants in North America and Latin America. If the requirements in FTC settlements or judicial cases lead to new industry standards or rules, our business could be impacted, and we may need to amend our global sales compensation plan.
If the requirements in FTC settlements or judicial cases lead to new industry standards or rules, our business could be impacted, and we may need to amend our global sales compensation plan.
Legal and regulatory requirements concerning the direct selling industry generally do not include “bright line” rules and are inherently fact-based and subject to interpretation. As a result, regulators and courts often have discretion in their application of these laws and regulations.
Our direct selling system could be challenged in one or more countries in which we do business. Legal and regulatory requirements concerning the direct selling industry generally do not include “bright line” rules and are inherently fact-based and subject to interpretation. As a result, regulators and courts often have discretion in their application of these laws and regulations.
Our business prospects, financial condition or results of operations could be adversely affected by any of the following risks. If we are adversely affected by such risks, the market price of our common stock could decline.
Our business prospects, financial condition or results of operations could be adversely affected by any of the following risks.
As more fully discussed in the risk factor “The ongoing coronavirus pandemic and the responses thereto around the world could adversely impact our business and operating results” above, the ongoing COVID-19 pandemic and measures taken in response by governments and businesses worldwide to contain its spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or stay at home and social distancing orders, have adversely impacted and may continue to adversely impact our supply chain, manufacturing, logistics, workforce and operations, as well as the operations of our customers and suppliers globally.
A widespread pandemic and measures taken in response by governments and businesses worldwide to contain its spread, including quarantines, facility closures, travel and logistics restrictions, border controls, and shelter in place or stay at home and social distancing orders, may adversely impact our supply chain, manufacturing, logistics, workforce and operations, as well as the operations of our customers and suppliers globally.
Certain suppliers, vendors, independent distributors and customers are all impacted by the war and their ability to successfully maintain their operations could also impact our results of operations or product sales throughout the world. The ongoing coronavirus pandemic and the responses thereto around the world could adversely impact our business and operating results.
Certain suppliers, vendors, independent distributors and customers are all impacted by the war and their ability to successfully maintain their operations could also impact our results of operations or product sales throughout the world. High inflation and other difficult economic conditions could adversely affect our results of operations and financial condition.
Foreign governments also may attempt to apply such laws extraterritorially or through treaties or other arrangements with U.S. governmental entities. We cannot assure you that the privacy policies and other statements regarding our practices will be found sufficient to protect us from liability or adverse publicity relating to the privacy and security of personal information.
We cannot assure you that the privacy policies and other statements regarding our practices will be found sufficient to protect us from liability or adverse publicity relating to the privacy and security of personal information.
For example, in February 2023 we were targeted by a sophisticated social engineering attack, in which a third party fraudulently induced personnel at our wholly owned subsidiary in Japan to make wire transfers totaling $4.8 million. We anticipate recording a one-time pre-tax charge of up to $4.8 million in the first quarter of 2023 as a result of this event.
For example, in February 2023 we were targeted by a sophisticated social engineering attack, in which a third party fraudulently induced personnel at our wholly owned subsidiary in Japan to make wire transfers totaling $4.8 million. These and other attacks could result in additional losses and harm our business and results of operations.
Regulatory and Litigation Risks Laws and regulations regarding direct selling may prohibit or restrict our ability to sell our products in some markets or require us to make changes to our business model in some markets. Direct selling companies are subject to laws and regulations by various government agencies throughout the world.
If we are adversely affected by such risks, the market price of our common stock could decline. 10 Table of Contents Regulatory and Litigation Risks Laws and regulations regarding direct selling may prohibit or restrict our ability to sell our products in some markets or require us to make changes to our business model in some markets.
Risks Related to Our Use of Technology and Intellectual Property Cybersecurity risks and the failure to maintain the integrity of data could expose us to data loss, litigation and liability, which could adversely affect our results of operations and financial condition.
Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition. Cybersecurity risks and the failure to maintain the integrity of data could expose us to data loss, litigation and liability, which could adversely affect our results of operations and financial condition.
Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information to gain access to our data or our users’ or customers’ data.
For various reasons or circumstances, our employees may work remotely from time to time. During such times, remote access heightens the risk of a cyber-attack. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information to gain access to our data or our users’ or customers’ data.
Removed
At various times during the COVID-19 pandemic, the FTC sent warning letters to retailers of dietary supplements and direct selling companies for deceptive or scientifically unsupported claims that their products could effectively treat, prevent, diagnose or cure COVID-19.
Added
Direct selling companies are subject to laws and regulations by various government agencies throughout the world.
Removed
Companies in the dietary supplement and direct selling industries have met increased scrutiny throughout the COVID-19 pandemic based on allegations that the company or its independent distributors use false or misleading claims that one or more of their dietary supplements are effective cures, treatments, or preventions for COVID-19.
Added
Risks Related to Our Use of Technology and Intellectual Property If we fail to maintain an effective system of internal controls, we may not be able to report our financial results accurately, may make a material misstatement in our financial statements, or may experience a financial loss.
Removed
Our CBD product line is subject to varying, rapidly changing federal, state and local laws, regulations, and rules, which could adversely affect our results of operations and financial condition. The CBD industry is evolving and subject to varying, and rapidly changing, laws, regulations and administrative practices.
Added
Any inability to report and file our financial results accurately and timely could harm our business and adversely affect the value of our business.
Removed
For example, the Agricultural Improvement Act of 2018 (the “2018 Farm Bill”) formally defined “hemp” as the Cannabis sativa plant and its derivatives, extracts and cannabinoids with a delta-9 tetrahydrocannabinol concentration of not more than 0.3%, and removed hemp from the federal definition of marijuana, making it no longer a Schedule I illegal drug under the Controlled Substances Act.
Added
As a public company, we are required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC.
Removed
The 2018 Farm Bill thus opened a pathway for the production and marketing of hemp and 12 Table of Contents hemp derivatives, subject to compliance with certain federal requirements and state and local law. Our CBD products are derived from hemp as defined in the 2018 Farm Bill.
Added
Even when such controls are implemented, management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors or loss.
Removed
The FDA, however, has taken the position that CBD is currently not lawful in food and dietary supplements because of the FDA’s prior approval of CBD as an active pharmaceutical ingredient in an approved new drug, though the agency has stated it will prioritize enforcement against CBD marketers making claims that their products can treat, prevent, or mitigate disease.
Added
Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company or perpetrated against us will be prevented or have been detected.
Removed
At the direction of Congress, the FDA is currently engaged in a process of evaluating a regulatory approach for the lawful marketing of CBD-containing foods and dietary supplements. Continued development of CBD-related industries is dependent upon continued legalization of CBD-related products at the federal and state levels, and a number of factors could slow or halt progress in this area.
Added
These inherent limitations include the possibility that judgments in decision-making can be faulty and subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls.
Removed
Additionally, changes in applicable federal, state and local laws or regulations could restrict the products and services we offer or impose additional compliance costs on us or our customers. In addition, the manufacture, labeling, and distribution of our CBD products are regulated by various federal, state and local agencies.
Added
The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Removed
These governmental authorities or litigators, such as class action lawyers or attorneys general, may commence regulatory or legal proceedings, which could restrict the permissible scope of our product claims or our ability to sell products in the future.
Added
Over time, measures of control may become inadequate because of changes in conditions, new fraudulent schemes, or the deterioration of compliance with policies or procedures. Because of inherent limitations in a cost-effective control system, financial loss or misstatements due to error or fraud may occur and/or may not be detected.
Removed
Violations of applicable laws, or allegations of such violations, could disrupt our business and result in material adverse effects on our operations and financial condition.
Added
The accuracy of our financial reporting and safeguarding of our assets depends on the effectiveness of our internal control over financial reporting. Internal control over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or detect financial loss or misstatements.
Removed
We cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will have a material adverse effect on our business, including our ability to develop, sell, and expand our CBD-infused product line.
Added
Failure to maintain effective internal control over financial reporting, or lapses in disclosure controls and procedures, could undermine the ability to provide accurate disclosure (including with respect to financial information) on a timely basis or prevent or timely detect unauthorized wire transfers , which could cause investors to lose confidence in our internal controls (including with respect to financial information), require significant resources to remediate the lapse or deficiency, and expose us to legal or regulatory proceedings.
Removed
Further, in the event of either repeal of federal, state or local laws and regulations, or of amendments thereto that are averse to our intended products, we may be restricted or limited with respect to those products that we may sell or distribute, which could adversely impact our intended business plan with respect to such products.
Added
In the first quarter of 2023, we identified a material weakness in internal controls over financial reporting related to the prevention and timely detection of unauthorized wire transfers.
Removed
In September 2020, we implemented significant changes to our compensation plan for independent consultants in our North America and Latin America operating segments.
Added
Because the material weakness resulted in the inability to prevent and timely detect misappropriation of cash assets , our management concluded that at March 31, 2023, the Company’s internal control over financial reporting was ineffective.
Removed
Throughout the COVID-19 pandemic, governments around the world have issued orders restricting travel, the number of people who may gather, or for their citizens to shelter-in-place to slow the spread of COVID-19.
Added
We continue to evaluate, design and work through the process of implementing controls and procedures under a remediation plan designed to address this material weakness, but there can be no assurance that we will be able to remediate this material weakness in a timely manner or at all.
Removed
Such orders, restrictions and recommendations have resulted in widespread closures of businesses not deemed “essential,” work stoppages, limitations on the number of people allowed to gather in one location, slowdowns and delays in world-wide supply chains, work-from-home policies, travel restrictions and cancellation of events, among other effects.
Added
If our remediation measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our financial statements may contain material misstatements, we could experience another financial loss, or we could be required to restate our financial results, which could lead to substantial additional costs for accounting and legal fees and stockholder litigation. 17 Table of Contents Any failure to maintain such internal control could adversely impact our ability to report our financial position and results from operations on a timely and accurate basis, and result in unauthorized access to our assets, including through unauthorized wire transfers.
Removed
In particular, travel and logistics restrictions, shelter-in-place orders and other measures, including working remotely, social distancing and other policies implemented in foreign and domestic sites to protect the health and safety of employees, have resulted in, and are expected to continue to result in, transportation disruptions (such as reduced availability of air transport, port closures, and increased border controls or closures), production delays and capacity limitations at our facilities and some of our customers and suppliers, as well as reduced workforce availability or productivity.
Added
If such unauthorized transfers are not prevented or detected in a timely manner, our financial position could be adversely affected. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Removed
These and other adverse impacts on our supply chain could limit our ability to obtain required materials in a timely manner, maintain adequate inventory levels, and respond to changes in customer demand, which could adversely affect our business and result of operations. The duration and extent of COVID-19’s impact on our business are difficult to assess or predict.
Added
In addition, we may face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from any restatement and material weaknesses in our internal controls over financial reporting.
Removed
Conditions vary significantly by geography, and the continued rise of COVID-19 variants and associated spread have resulted in additional disruptions, government lockdowns, and other restrictive measures. Stay-at-home and quarantine mandates have disrupted or halted our operations in certain parts of China during 2022 and may continue to impact our business in the near term.
Added
These risks are heightened as we work with third-party partners and as our sales force uses social media, as the partners and social media platforms could be vulnerable to the same types of breaches.
Removed
Further quarantines, government reactions or shutdowns could disrupt or halt our operations and materially harm our business, financial condition and results of operations. Our manufacturing personnel and other employees could also be affected by COVID-19, potentially reducing their availability, and a widespread outbreak of COVID-19 among our manufacturing or supply-chain employees could disrupt or halt our operations.
Removed
Further, restrictions on gatherings of individuals may limit the ability of our independent consultants to sell our products.
Removed
Additionally, the procedures we take to mitigate the effect of COVID-19 on our workforce, including but not limited to, social distancing and additional sanitizing measures, could reduce the efficiency of our operations, increase our operating costs or prove insufficient to protect our employees. High inflation and other difficult economic conditions could adversely affect our results of operations and financial condition.
Removed
These and other attacks could result in additional losses and harm our business and results of operations. For various reasons or circumstances, our employees may work remotely from time to time. For example, many of our employees have worked remotely in response to the spread of the COVID-19 pandemic. During such times, remote access heightens the risk of a cyber-attack.
Removed
While several proposals and discussions are before the United States federal government, a number of states have enacted laws or are considering the enactment of laws governing the release of credit card or other personal information received from consumers.
Removed
For example, the California Consumer Privacy Act (“CCPA”), which went into effect January 1, 2020, among other things, requires covered companies to provide new disclosures to California consumers, affords such consumers new abilities to opt-out of certain sales of personal information, and subjects companies to increased financial penalties and damages in the event of a data breach or other violation.
Removed
Additionally, the EU General Data Protection Regulation (“GDPR”), which went into effect on May 25, 2018, establishes requirements applicable to the processing of personal data, affords data protection rights to individuals, and imposes penalties for serious data breaches, including fines of up to 4% of our annual revenue, or €20 million, whichever is greater.
Removed
Individuals also have a right to compensation under both CCPA and GDPR for financial or non-financial losses. GDPR and CCPA have imposed additional responsibility and liability in relation to our processing of personal data in the EU and our collection, use and sharing of personal information of California residents.
Removed
GDPR and CCPA have also required us to change our various policies and procedures in the EU and the U.S., and if we are not compliant, could have a material adverse effect on our results of operations and financial condition. Another example is China’s new cybersecurity law.
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−0 removed3 unchanged
Item 2. Properties
Properties — owned and leased real estate
1 edited+0 added−0 removed3 unchanged
2022 filing
2023 filing
Biggest changeFor additional disclosure of leased properties, see Note 15, “Leases,” to our Consolidated Financial Statements, in Item 8, Part 2 of this report. We believe that our current facilities are adequate for our business operations. Item 3.
Biggest changeFor additional disclosure of leased properties, see Note 14, “Leases,” to our Consolidated Financial Statements, in Item 8, Part 2 of this report. We believe that our current facilities are adequate for our business operations. Item 3.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
7 edited+1 added−3 removed4 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
7 edited+1 added−3 removed4 unchanged
2022 filing
2023 filing
Biggest changeIssuer Stock Purchases The following table summarizes the purchases of our common stock during the quarter ended December 31, 2022: Periods Total Number of Shares Purchased (in thousands) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands) Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) (in thousands) October 1, 2022 to October 31, 2022 — — — November 1, 2022 to November 30, 2022 — — — December 1, 2022 to December 31, 2022 75 $ 8.39 75 Total 75 75 $ 24,004 (1) On March 10, 2021, we announced a $15.0 million common share repurchase program.
Biggest changeIssuer Stock Purchases The following table summarizes the purchases of our common stock during the quarter ended December 31, 2023: Periods Total Number of Shares Purchased (in thousands) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (in thousands) Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (1) (in thousands) October 1, 2023 to October 31, 2023 24 16.4 24 November 1, 2023 to November 30, 2023 173 17.28 173 December 1, 2023 to December 31, 2023 47 $ 16.82 47 Total 244 244 $ 17,598 (1) On March 10, 2021, we announced a $15.0 million common share repurchase program.
We have no obligation to repurchase any common shares under the authorization, and the repurchase plan may be suspended, discontinued, or modified at any time and for any reason. 21 Table of Contents Performance Graph The graph below depicts our common stock as an index, assuming $100.00 was invested on December 31, 2017, along with the composite prices of companies listed on the NASDAQ Stock Market and a selection of our peer group.
We have no obligation to repurchase any common shares under the authorization, and the repurchase plan may be suspended, discontinued, or modified at any time and for any reason. 21 Table of Contents Performance Graph The graph below depicts our common stock as an index, assuming $100.00 was invested on December 31, 2018, along with the composite prices of companies listed on the NASDAQ Stock Market and a selection of our peer group.
On March 8, 2022 we announced an amendment to the share repurchase program allowing the repurchase of an additional $30.0 million shares. The repurchases may be made from time to time as market conditions warrant and are subject to regulatory considerations. For the year ended December 31, 2022, we repurchased 909,000 shares of our common stock for $13.6 million.
On March 8, 2022 we announced an amendment to the share repurchase program allowing the repurchase of an additional $30.0 million shares. The repurchases may be made from time to time as market conditions warrant and are subject to regulatory considerations. For the year ended December 31, 2023, we repurchased 424,000 shares of our common stock for $6.4 million.
The declaration of dividends is subject to the discretion of our Board of Directors and will depend upon various factors, including our earnings, financial condition, restrictions imposed by any indebtedness that may be outstanding, cash requirements, future prospects and other factors deemed relevant by our Board of Directors.
Recent Sales of Unregistered Securities None Dividends The declaration of future dividends is subject to the discretion of our Board of Directors and will depend upon various factors, including earnings, financial condition, restrictions imposed by any indebtedness that may be outstanding, cash requirements, future prospects, and other factors deemed relevant by our Board of Directors.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market and Share Prices Our common stock is traded on the NASDAQ Global Market (symbol “NATR”). The approximate number of our shareholders of record as of February 24, 2023, was 1,255.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Market and Share Prices Our common stock is traded on the NASDAQ Global Market (symbol “NATR”). The approximate number of our shareholders of record as of February 23, 2024, was 1,224.
At December 31, 2022, the remaining balance available for repurchases under the program was $24.0 million.
At December 31, 2023, the remaining balance available for repurchases under the program was $17.6 million.
The material in this section captioned “Performance Graph” is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall the material in this section be deemed to be incorporated by reference in any registration statement or other document filed with the SEC under the Securities Act of 1933, except to the extent we specifically and expressly incorporate it by reference into such filing. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Nature’s Sunshine Products, Inc. $ 100.00 $ 70.56 $ 77.32 $ 129.44 $ 169.13 $ 76.06 NASDAQ Index 100.00 97.16 132.81 192.47 235.15 158.65 Peer Group 100.00 145.45 110.53 118.90 112.93 61.63 Item 6. [Reserved]
The material in this section captioned “Performance Graph” is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall the material in this section be deemed to be incorporated by reference in any registration statement or other document filed with the SEC under the Securities Act of 1933, except to the extent we specifically and expressly incorporate it by reference into such filing. 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Nature’s Sunshine Products, Inc. $ 100.00 $ 109.57 $ 183.44 $ 239.68 $ 107.79 $ 224.01 NASDAQ Index 100.00 136.69 198.10 242.03 163.28 236.17 Peer Group 100.00 75.99 81.74 77.64 42.37 33.34 Item 6. [Reserved]
Removed
Recent Sales of Unregistered Securities None Dividends On March 10, 2021, we announced a special non-recurring cash dividend of $1.00 per common share in an aggregate amount of $19.9 million that was paid on April 5, 2021, to shareholders of record on March 29, 2021.
Added
No dividend was paid for the year ended December 31, 2023.
Removed
In accordance with the provisions of our 2012 Stock Incentive Plan (the “2012 Incentive Plan”), as a result of the special dividend we are required to make the participant’s original grant whole by preventing either dilution or enlargement of the benefits or potential benefits intended by the original grant.
Removed
The 2012 Incentive Plan provides our Compensation Committee with the discretion to meet this requirement. See further discussion in the Share-Based Compensation section of this Note. No dividend was declared for the year ended December 31, 2022.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
60 edited+16 added−27 removed43 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
60 edited+16 added−27 removed43 unchanged
2022 filing
2023 filing
Biggest changeCONTRACTUAL OBLIGATIONS The following table summarizes information about contractual obligations as of December 31, 2022 ( in thousands ): Total Less than 1 year 1-3 years 3-5 years After 5 years Operating lease obligations $ 19,932 $ 4,936 $ 7,644 $ 4,768 $ 2,584 Self-insurance reserves (1) 562 562 — — Other long-term liabilities reflected on the balance sheet (2) 702 — — — 702 Unrecognized tax benefits(3) 209 — — — 209 Revolving credit facility (4) — — — — — Capital credit agreement (5) 1,174 1,174 — — — Total $ 22,579 $ 6,672 $ 7,644 $ 4,768 $ 3,495 _______________________________________ (1) At December 31, 2022, there were $1.1 million of liabilities.
Biggest changeIn addition, other things such as a prolonged economic downturn, a decrease in demand for our products, an unfavorable settlement of our unrecognized tax positions or non-income tax contingencies could adversely affect our long-term liquidity. 30 Table of Contents CONTRACTUAL OBLIGATIONS The following table summarizes information about contractual obligations as of December 31, 2023 ( in thousands ): Total Less than 1 year 1-3 years 3-5 years After 5 years Operating lease obligations $ 16,555 $ 5,341 $ 6,241 $ 4,456 $ 517 Self-insurance reserves (1) 544 544 — — Other long-term liabilities reflected on the balance sheet (2) 747 — — — 747 Unrecognized tax benefits(3) 312 — — — 312 Revolving credit facility (4) — — — — — Total $ 18,158 $ 5,885 $ 6,241 $ 4,456 $ 1,576 _______________________________________ (1) At December 31, 2023, there were $0.8 million of liabilities.
Our consultants in our Russia and Other market, a market within our Europe business segment that includes Russia, Ukraine, Belarus and other Common Independent States in the region , continue to operate their independent businesses, albeit at a reduced level than prior to the start of the conflict.
Our consultants in our Eastern Europe market within our Europe business segment that includes Russia, Ukraine, Belarus and other Common Independent States in the region, continue to operate their independent businesses, albeit at a reduced level than prior to the start of the conflict.
Because of the high degree of uncertainty regarding the timing of future cash outflows associated with the product liability obligations, we are unable to estimate the years in which cash settlement may occur. (2) At December 31, 2022, there were $0.7 million of liabilities. We provide a nonqualified deferred compensation plan for our officers and certain key employees.
Because of the high degree of uncertainty regarding the timing of future cash outflows associated with the product liability obligations, we are unable to estimate the years in which cash settlement may occur. (2) At December 31, 2023, there were $0.7 million of liabilities. We provide a nonqualified deferred compensation plan for our officers and certain key employees.
However, there can be no assurance that these estimates will prove to be sufficient, nor can there be any assurance that the ultimate outcome of any litigation for product liability will not have a material negative impact on our business prospects, 31 Table of Contents financial position, results of operations or cash flows.
However, there can be no assurance that these estimates will prove to be sufficient, nor can there be any assurance that the ultimate outcome of any litigation for product liability will not have a material negative impact on our business prospects, financial position, results of operations or cash flows.
As we cannot easily determine when our officers and key employees will separate from us, we are unable to estimate the years in which cash settlement may occur. (3) At December 31, 2022, there were $0.2 million of liabilities.
As we cannot easily determine when our officers and key employees will separate from us, we are unable to estimate the years in which cash settlement may occur. (3) At December 31, 2023, there were $0.3 million of liabilities.
Most of our sales to independent consultants outside the United States are made in the respective local currencies. In preparing our consolidated financial statements, sales are translated into U.S. dollars using average exchange rates. Additionally, the majority of our purchases from suppliers are generally made in U.S. dollars.
Most of our sales to independent consultants outside the United States are made in the respective local currencies. In preparing our consolidated financial statements, sales are translated into U.S. dollars using average exchange rates. 25 Table of Contents Additionally, the majority of our purchases from suppliers are generally made in U.S. dollars.
Volume incentives are a significant part of our direct sales marketing program, and represent commission payments made to our independent consultants. These payments are designed to provide incentives for reaching higher sales levels 25 Table of Contents through their own sales and the sales of independent consultants in their sales organization.
Volume incentives are a significant part of our direct sales marketing program, and represent commission payments made to our independent consultants. These payments are designed to provide incentives for reaching higher sales levels through their own sales and the sales of independent consultants in their sales organization.
Included was the effect of recording a valuation allowance on foreign tax credits which are not expected to be utilized before expiration along with the impact of current year foreign losses in foreign affiliates that currently do not provide tax benefit. • Adjustments related to operations in foreign countries which are treated as a branch for US tax purposes increased the effective tax rate by 13.1 percent in 2022. • Cumulative unfavorable adjustments related to foreign operations increased the tax rate by 4.3 percent in 2022.
Included was the effect of recording a valuation allowance on foreign tax credits which are not expected to be utilized before expiration along with the impact of current year foreign losses in foreign affiliates that currently do not provide tax benefit. • Adjustments related to operations in foreign countries which are treated as a branch for US tax purposes increased the effective tax rate by 13.8 percent in 2023. • Cumulative unfavorable adjustments related to foreign operations increased the tax rate by 4.8 percent in 2023.
We have entered into long-term agreements with third-parties in the ordinary course of business, in which we have agreed to pay a percentage of net sales in certain regions in which we operate, or royalties on certain products. In 2022 and 2021, the aggregate amounts of these payments were $12,000 and $26,000, respectively.
We have entered into long-term agreements with third-parties in the ordinary course of business, in which we have agreed to pay a percentage of net sales in certain regions in which we operate, or royalties on certain products. In 2023 and 2022, the aggregate amounts of these payments were $8,000 and $12,000, respectively.
RESULTS OF OPERATIONS The following table summarizes our consolidated net income (loss) from continuing operations results as a percentage of net sales for the periods indicated: Year Ended December 31, 2022 2021 Net sales 100.0 % 100.0 % Cost of sales (29.0) (26.0) Gross profit 71.0 74.0 Operating expenses: Volume incentives 30.9 31.5 Selling, general and administrative 36.3 34.7 Operating income 3.8 7.8 Other income (expense): Interest and other income, net — 0.1 Interest expense (0.1) (0.1) Foreign exchange losses, net (0.2) (0.7) (0.3) (0.7) Income before provision for income taxes 3.5 7.1 Provision for income taxes 3.5 0.4 Net income (loss) — % 6.7 % 26 Table of Contents Net Sales International operations have provided, and are expected to continue to provide, a significant portion of our total net sales.
RESULTS OF OPERATIONS The following table summarizes our consolidated net income (loss) from continuing operations results as a percentage of net sales for the periods indicated: Year Ended December 31, 2023 2022 Net sales 100.0 % 100.0 % Cost of sales (27.9) (29.0) Gross profit 72.1 71.0 Operating expenses: Volume incentives 30.4 30.9 Selling, general and administrative 37.5 36.3 Operating income 4.2 3.8 Other income (expense): Interest and other income, net 0.1 — Interest expense — (0.1) Foreign exchange losses, net 0.2 (0.2) 0.3 (0.3) Income before provision for income taxes 4.5 3.5 Provision for income taxes 0.9 3.5 Net income (loss) 3.6 % — % Net Sales International operations have provided, and are expected to continue to provide, a significant portion of our total net sales.
The net operating losses will expire at various dates from 2023 through 2034, with the exception of those in some foreign jurisdictions where there is no expiration. As of December 31, 2022, we had approximately $15.4 million of foreign tax and withholding credits.
The net operating losses will expire at various dates from 2024 through 2034, with the exception of those in some foreign jurisdictions where there is no expiration. As of December 31, 2023, we had approximately $16.7 million of foreign tax and withholding credits.
LIQUIDITY AND CAPITAL RESOURCES Our principal use of cash is to pay for operating expenses and costs, including volume incentives, inventory and raw material purchases, capital assets and funding of international expansion. As of December 31, 2022, working capital was $83.9 million, compared to $88.0 million as of December 31, 2021.
LIQUIDITY AND CAPITAL RESOURCES Our principal use of cash is to pay for operating expenses and costs, including volume incentives, inventory and raw material purchases, capital assets and funding of international expansion. As of December 31, 2023, working capital was $89.1 million, compared to $83.9 million as of December 31, 2022.
Year Ended December 31, 2021, as Compared to the Year Ended December 31, 2020 For a discussion regarding our financial condition and results of operations for fiscal 2021 compared to fiscal 2020, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filled with the SEC on March 8, 2022.
Year Ended December 31, 2022, as Compared to the Year Ended December 31, 2021 For a discussion regarding our financial condition and results of operations for fiscal 2022 compared to fiscal 2021, see Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023.
Latin America and Other net sales decreased approximately 9.7 percent (or 8.9 percent in local currencies) compared to 2021. The strengthening of the U.S. dollar versus the local currencies, primarily in our Asian and European markets, resulted in an approximate 5.2 percent, or $23.1 million, decrease of our net sales during the year ended December 31, 2022.
Latin America and Other net sales decreased approximately 1.1 percent (or 3.5 percent in local currencies) compared to 2022. The strengthening of the U.S. dollar versus the local currencies, primarily in our Asian markets, resulted in an approximate 1.8 percent, or $7.5 million, decrease of our net sales during the year ended December 31, 2023.
As of December 31, 2022 and 2021, we had recorded valuation allowances of $18.0 million and $8.7 million, respectively, as offsets to deferred tax assets. At December 31, 2022, foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $5.1 million.
As of December 31, 2023 and 2022, we had recorded valuation allowances of $18.5 million and $18.0 million, respectively, as offsets to deferred tax assets. At December 31, 2023, foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $4.4 million.
The components of this calculation were: Components of U.S. tax impact of foreign operations 2022 Foreign tax credits (19.4) % Foreign tax rate differentials 1.5 Foreign withholding taxes 2.6 Transfer pricing adjustment 1.2 Impact of Subpart F 1.8 Impact of GILTI 3.7 Impact of FDII — Total (8.6) % 29 Table of Contents Changes to the effective rate due to impact of foreign tax credits, foreign tax rate differentials, foreign withholding taxes, transfer pricing, Subpart F, GILTI and FDII are expected to be recurring; however, depending on various factors, the changes may be favorable or unfavorable for a particular period.
The components of this calculation were: Components of U.S. tax impact of foreign operations 2023 Foreign tax credits (26.7) % Foreign tax rate differentials 0.4 Foreign withholding taxes 4.5 Transfer pricing adjustment 1.4 Impact of Subpart F 0.7 Impact of GILTI (2.4) Impact of FDII (3.2) Total (25.3) % Changes to the effective rate due to impact of foreign tax credits, foreign tax rate differentials, foreign withholding taxes, transfer pricing, Subpart F, GILTI and FDII are expected to be recurring; however, depending on various factors, the changes may be favorable or unfavorable for a particular period.
In our Japan market, net sales increased approximately $3.2 million, or 8.8 percent, for the year ended December 31, 2022, compared to 2021. Fluctuations in foreign exchange rates had a $7.4 million unfavorable impact on net sales for the year ended December 31, 2022.
In our China market, net sales increased approximately $3.4 million, or 8.6 percent, for the year ended December 31, 2023, compared to 2022. Fluctuations in foreign exchange rates had a $2.0 million unfavorable impact on net sales for the year ended December 31, 2023.
For the years ended December 31, 2022 and 2021, these amounts were $7.6 million and $6.7 million, respectively. Financing Activities For the year ended December 31, 2022, financing activities used $16.2 million in cash, compared to $31.7 million in cash used for the same period in 2021.
For the years ended December 31, 2023 and 2022, these amounts were $10.5 million and $7.6 million, respectively. Financing Activities For the year ended December 31, 2023, financing activities used $8.0 million in cash, compared to $16.2 million in cash used for the same period in 2022.
Notable activity in the following markets contributed to the results of Asia: In our South Korea market, net sales decreased approximately $6.2 million, or 10.1 percent, for the year ended December 31, 2022, compared to 2021. Fluctuations in foreign exchange rates had a $6.9 million unfavorable impact on net sales for the year ended December 31, 2022.
Notable activity in the following markets contributed to the results of Asia: In our South Korea market, net sales decreased approximately $5.1 million, or 9.3 percent, for the year ended December 31, 2023, compared to 2022. Fluctuations in foreign exchange rates had a $0.7 million unfavorable impact on net sales for the year ended December 31, 2023.
Our operations have been, and may continue to be, adversely impacted by inflation, primarily from higher costs of raw materials, labor, production, distribution and transportation costs. In 2022, we experienced a decrease in our consolidated net sales of 5.0 percent (or an increase of 0.2 percent in local currencies) compared to 2021.
Our operations have been, and may continue to be, adversely impacted by inflation, primarily from higher costs of raw materials, labor, production, distribution and transportation costs. 2023 Performance In 2023, we experienced an increase in our consolidated net sales of 5.5 percent (or 7.3 percent in local currencies) compared to 2022.
Of the $15.4 million credits, $15.0 million are foreign tax credits, most of which expire in 2024 and a portion of which are offset by valuation allowances. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations.
Of the $16.7 million credits, $16.4 million are foreign tax credits, many of which expire in 2024 and a majority of which are offset by valuation allowances. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations.
These payments are designed to provide incentives for reaching higher sales levels. Volume incentives vary slightly, on a percentage basis, by product due to pricing policies and commission plans in place in the various operations. We do not pay volume incentives in China, instead we pay independent service fees, which are included in selling, general and administrative expenses.
Volume incentives vary slightly, on a percentage basis, by product due to pricing policies and commission plans in place in the various operations. We do not pay volume incentives in China, instead we pay independent service fees, which are included in selling, general and administrative expenses.
We had accrued incentive trip costs of approximately $5.8 million and $6.7 million at December 31, 2022 and 2021, respectively, which are included in accrued liabilities in the consolidated balance sheets. Contingencies We are involved in certain legal proceedings.
We had accrued incentive trip costs of approximately $4.8 million and $5.8 million at December 31, 2023 and 2022, respectively, which are included in accrued liabilities in the consolidated balance sheets. 24 Table of Contents Contingencies We are involved in certain legal proceedings.
In our Taiwan market, net sales increased approximately $25.3 million, or 109.0 percent, for the year ended December 31, 2022, compared to 2021. Fluctuations in foreign exchange rates had a $3.1 million unfavorable impact on net sales for the year ended December 31, 2022.
In our Japan market, net sales increased approximately $2.1 million, or 5.5 percent, for the year ended December 31, 2023, compared to 2022. Fluctuations in foreign exchange rates had a $3.0 million unfavorable impact on net sales for the year ended December 31, 2023.
The effective rate for 2022 differed from the federal statutory rate of 21.0 percent primarily due to the following: • Adjustments to valuation allowances increased the effective rate by 64.3 percent in 2022.
The effective rate for 2023 differed from the federal statutory rate of 21.0 percent primarily due to the following: • Adjustments to valuation allowances increased the effective rate by 5.4 percent in 2023.
Expenses associated with incentive trips are accrued over qualification periods as the trips are earned. We specifically analyze incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual. Actual results could generate liabilities in amounts greater or less than the amounts recorded.
We specifically analyze incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual. Actual results could generate liabilities in amounts greater or less than the amounts recorded.
As an international business, we have significant sales and costs denominated in currencies other than the U.S. dollar. Sales in international markets denominated in foreign currencies are expected to continue to represent a substantial portion of our sales.
The increase was primarily related to compensation, marketing, and variable costs as a result of sales growth. As an international business, we have significant sales and costs denominated in currencies other than the U.S. dollar. Sales in international markets denominated in foreign currencies are expected to continue to represent a substantial portion of our sales.
Year Ended December 31, 2022, as Compared to the Year Ended December 31, 2021 Net Sales The following table summarizes the changes in net sales by operating segment with a reconciliation to net sales, excluding the impact of currency fluctuations, for the years ended December 31, 2022 and 2021 ( dollar amounts in thousands ).
Quantitative and Qualitative Disclosures About Market Risk . 26 Table of Contents Year Ended December 31, 2023, as Compared to the Year Ended December 31, 2022 Net Sales The following table summarizes the changes in net sales by operating segment with a reconciliation to net sales, excluding the impact of currency fluctuations for the years ended December 31, 2023 and 2022 (dollar amounts in thousands).
Cost of sales increased $6.7 million during 2022, compared to the same period in 2021, and as a percentage of net sales were 29.0 percent and 26.0 percent for 2022 and 2021, respectively.
Cost of sales increased $2.0 million during 2023, compared to the same period in 2022, and as a percentage of net sales were 27.9 percent and 29.0 percent for 2023 and 2022, respectively.
To estimate any necessary adjustments, various assumptions are made in regard to excess or slow-moving inventories, non-conforming inventories, expiration dates, current and future product demand, production planning and market conditions.
To estimate any necessary adjustments, various assumptions are made in regard to excess or slow-moving inventories, non-conforming inventories, expiration dates, current and future product demand, production planning and market conditions. If future demand and market conditions are less favorable than our assumptions, additional inventory adjustments could be required.
The decrease was related to product sales declines in our Europe, North America, and Latin America and Other operating segments. Excluding the unfavorable impact of foreign currency exchange rate fluctuations, consolidated net sales for the year ended December 31, 2022 would have increased by 0.2 percent from 2021.
The increase was related to product sales improvements in our Asia, Europe, and North America operating segments. Excluding the unfavorable impact of foreign currency exchange rate fluctuations, consolidated net sales for the year ended December 31, 2023 would have increased by 7.3 percent from 2022.
Asia Net sales related to Asia for the year ended December 31, 2022, were $186.3 million compared to $176.9 million for 2021, an increase of 5.3 percent. In local currency, net sales increased by 16.1 percent compared to 2021. Fluctuations in foreign exchange rates had a $19.0 million unfavorable impact on net sales for the year ended December 31, 2022.
Asia Net sales related to Asia for the year ended December 31, 2023, were $201.3 million compared to $186.3 million for 2022, an increase of 8.0 percent. In local currency, net sales increased by 12.7 percent compared to 2022. Fluctuations in foreign exchange rates had an $8.8 million unfavorable impact on net sales for the year ended December 31, 2023.
Our net consolidated cash inflows (outflows) are as follows ( in thousands ): Year Ended December 31, 2022 2021 Operating activities $ 710 $ 34,608 Investing activities (7,628) (6,612) Financing activities (16,246) (31,721) Operating Activities For the year ended December 31, 2022, operating activities provided cash in the amount of $0.7 million compared to $34.6 million in 2021.
Our net consolidated cash inflows (outflows) are as follows ( in thousands ): Year Ended December 31, 2023 2022 Operating activities $ 41,226 $ 710 Investing activities (10,478) (7,628) Financing activities (7,956) (16,246) Operating Activities For the year ended December 31, 2023, operating activities provided cash in the amount of $41.2 million compared to $0.7 million in 2022.
Fluctuations in foreign exchange rates had a $0.2 million unfavorable impact on net sales for the year ended December 31, 2022. Excluding the impact of fluctuations in foreign exchange rates, local currency net sales in Latin America and Other decreased by 8.9 percent from 2021.
Fluctuations in foreign exchange rates had a $0.4 million unfavorable impact on net sales for the year ended December 31, 2023. Excluding the impact of fluctuations in foreign exchange rates, local currency net sales in North America increased by 5.2 percent from 2022.
In our China market, net sales decreased approximately $8.9 million, or 18.3 percent, for the year ended December 31, 2022, compared to 2021. Fluctuations in foreign exchange rates had a $1.4 million unfavorable impact on net sales for the year ended December 31, 2022.
In our Taiwan market, net sales increased approximately $13.2 million, or 27.3 percent, for the year ended December 31, 2023, compared to 2022. Fluctuations in foreign exchange rates had a $2.9 million unfavorable impact on net sales for the year ended December 31, 2023.
Selling, general and administrative expenses decreased by $1.0 million to $153.1 million for the year ended December 31, 2022. Selling, general and administrative expenses were 36.3 percent and 34.7 percent of net sales for the years ended December 31, 2022 and 2021, respectively.
Selling, general and administrative expenses increased by $13.9 million to $167.1 million for the year ended December 31, 2023. Selling, general and administrative expenses were 37.5 percent and 36.3 percent of net sales for the years ended December 31, 2023 and 2022, respectively.
Operating cash flows decreased primarily due to lower gross margins and the timing of payments for accounts payable, accrued liabilities, accrued volume incentives and service fees, deferred revenue and receipts of accounts receivable payments. Investing Activities Cash used in investing activities includes cash paid for capital expenditures related to the purchase of equipment, computer systems and software.
Operating cash flows increased primarily due to improved net income, the timing of payments for accrued liabilities, accounts payable, reduced inventory purchases, and timing of receipts of accounts receivable. Investing Activities Cash used in investing activities includes cash paid for capital expenditures related to the purchase of equipment, computer systems and software.
North America Net sales related to North America for the year ended December 31, 2022, were $133.2 million, compared to $149.7 million for 2021, a decrease of 11.0 percent. Fluctuations in foreign exchange rates had a $0.4 million unfavorable impact on net sales for the year ended December 31, 2022.
Latin America and Other Net sales related to Latin America and Other markets for the year ended December 31, 2023, were $23.2 million, compared to $23.4 million for 2022, a decrease of 1.1 percent. Fluctuations in foreign exchange rates had a $0.6 million favorable impact on net sales for the year ended December 31, 2023.
The note between the joint venture and the Company eliminates in consolidation. In March 2022, the outstanding principal and interest amounts were repaid. We believe that cash generated from operations, along with available cash and cash equivalents, will be sufficient to fund our normal operating needs, including capital expenditures, on both a short- and long-term basis.
We believe that cash generated from operations, along with available cash and cash equivalents, will be sufficient to fund our normal operating needs, including capital expenditures, on both a short- and long-term basis.
The decrease in volume incentives as a percent of net sales for the year ended December 31, 2022 is primarily due to changes in market mix, reflecting growth in markets where volume incentives as a percentage of net sales are lower than the consolidated average, and reflects cost savings from the September 2020 launch of our new consultant sales and compensation plan in North America and Latin America and Other.
The decrease in volume incentives as a percent of net sales for the year ended December 31, 2023 is primarily due to growth in our digital channel and changes in market mix, reflecting growth in channels and markets where volume incentives as a percentage of net sales are lower than the consolidated average.
For the year ended December 31, 2022, we used cash to repurchase 909,000 shares of our common stock under the share repurchase program for $13.6 million.
For the year ended December 31, 2023, we used cash to repurchase 424,000 shares of our common stock under the share repurchase program for $6.4 million. At December 31, 2023, the remaining balance available for repurchases under the program was $17.6 million.
Asia net sales increased approximately 5.3 percent (or 16.1 percent in local currencies) compared to 2021. Europe net sales decreased approximately 13.7 percent (or 9.9 percent in local currencies) compared to 23 Table of Contents 2021. North America net sales decreased approximately 11.0 percent (or 10.8 percent in local currencies) compared to 2021.
Asia net sales increased approximately 8.0 percent (or 12.7 percent in local currencies) compared to 2022. Europe net sales increased approximately 2.7 percent (or 1.3 percent in local currencies) compared to 2022. North America net sales increased approximately 4.9 percent (or 5.2 percent in local currencies) compared to 2022.
Net sales related to Russia and Other for the years ended December 31, 2022 and 2021, were $53.3 million and $61.4 million, respectively. Operating income related to Russia and Other for the years ended December 31, 2022 and 2021, were $2.9 million and $5.8 million, respectively, prior to the charges noted above.
Operating income related to Russia and Other for the years ended December 31, 2023 and 2022, were $3.1 million and $2.9 million, respectively, prior to the charges noted above. As of December 31, 2023, Russia and Other had assets of $7.4 million, net of working capital reserves related to inventories.
For the year ended December 31, 2022, we have recorded a pretax charge of $1.0 million, primarily related to the impairment of inventory. We expect that this will continue to impact our business for the foreseeable future. We will continue monitoring the social, political, regulatory and economic environment in Ukraine and Russia, and will consider further actions as appropriate.
For the years ended December 31, 2023 and 2022, we have recorded pretax charges of $0 and $1.0 million, respectively, primarily related to the impairment of inventory. We expect that this will continue to impact our business for the foreseeable future.
Net Sales by Operating Segment 2022 2021 Percent Change Impact of Currency Exchange Percent Change Excluding Impact of Currency Asia $ 186,292 $ 176,860 5.3 % $ (19,046) 16.1 % Europe 78,991 91,539 (13.7) % (3,503) (9.9) % North America 133,214 149,746 (11.0) % (385) (10.8) % Latin America and Other 23,413 25,939 (9.7) % (208) (8.9) % $ 421,910 $ 444,084 (5.0) % $ (23,142) 0.2 % Consolidated net sales for the year ended December 31, 2022, were $421.9 million compared to $444.1 million in 2021, or a decrease of approximately 5.0 percent.
Net Sales by Operating Segment 2023 2022 Percent Change Impact of Currency Exchange Percent Change Excluding Impact of Currency Asia $ 201,251 $ 186,292 8.0 % $ (8,773) 12.7 % Europe 81,101 78,991 2.7 % 1,083 1.3 % North America 139,804 133,214 4.9 % (397) 5.2 % Latin America and Other 23,164 23,413 (1.1) % 575 (3.5) % $ 445,320 $ 421,910 5.5 % $ (7,512) 7.3 % Consolidated net sales for the year ended December 31, 2023, were $445.3 million compared to $421.9 million in 2022, or an increase of approximately 5.5 percent.
Income Taxes Our effective tax rate was 96.4 percent for 2022 compared to 5.1 percent for 2021. The increase in the effective rate from 2021 to 2022 is primarily attributable to recording a valuation allowance against deferred tax assets for which we do not expect to receive a benefit.
The decrease in the effective rate from 2022 to 2023 is primarily attributable to a valuation allowance recorded in the prior period against deferred tax assets for which we did not expect to receive a benefit.
Other Income (Loss), Net Other income (loss), net, for the years ended December 31, 2022 and 2021, were losses of $1.0 million and $2.8 million, respectively. Other income (loss), for the year ended December 31, 2022 primarily consisted of foreign exchange gains and losses as a result of net changes in foreign currencies primarily in Asia and Europe.
Other income (loss), for the year ended December 31, 2023 primarily consisted of foreign exchange gains and losses as a result of net changes in foreign currencies primarily in Asia. Income Taxes Our effective tax rate was 18.7 percent for 2023 compared to 96.4 percent for 2022.
We are required to settle our borrowings over thirty-six monthly payments, each equal to $0.1 million. As of December 31, 2022, there was $1.2 million outstanding balance under the Capital Credit Agreement.
During the year ended December 31, 2023, we made monthly payments of $0.1 million pursuant to the Capital Credit Agreement. As of December 31, 2023, there was no outstanding balance under the Capital Credit Agreement.
At December 31, 2022, we had $60.0 million in cash and cash equivalents, of which $51.2 million was held in our foreign markets and may be subject to various withholding taxes and other restrictions related to repatriations.
At December 31, 2023, we had $82.4 million in cash and cash 29 Table of Contents equivalents, of which $67.0 million was held in our foreign markets and may be subject to various withholding taxes and other restrictions related to repatriation before becoming available to be used along with the normal cash flows from operations to fund any unanticipated shortfalls in future cash flows.
If future demand and market conditions are less favorable than our assumptions, additional inventory adjustments could be required. 24 Table of Contents Incentive Trip Accrual We accrue expenses associated with our direct sales program, which rewards independent consultants with paid attendance for incentive trips, including our conventions and meetings.
Incentive Trip Accrual We accrue expenses associated with our direct sales program, which rewards independent consultants with paid attendance for incentive trips, including our conventions and meetings. Expenses associated with incentive trips are accrued over qualification periods as the trips are earned.
Europe Net sales related to Europe were $79.0 million for the year ended December 31, 2022, compared to $91.5 million for 2021, an decrease of 13.7 percent. The functional currency for many of these markets is the U.S. dollar which reduces the effect from foreign currency fluctuations.
The functional currency for many of these markets is the U.S. dollar which reduces the effect from foreign currency fluctuations. Fluctuations in foreign exchange rates had a $1.1 million favorable impact on net sales for the year ended December 31, 2023.
These adjustments relate to foreign items that are treated differently for tax purposes than they are for financial reporting purposes. • Adjustments relating to the U.S. tax impact of foreign operations decreased the effective tax rate by 8.6 percentage points in 2022.
These adjustments relate to foreign items that are treated differently for tax purposes than they are for financial reporting purposes. • Favorable adjustments from filing the prior year tax return decreased the rate 7.9 percent in 2023.
Excluding the impact of fluctuations in foreign exchange rates, local currency net sales in North America decreased by 10.8 percent from 2021. In the United States, net sales decreased $15.3 million, or 11.1 percent, for the year ended December 31, 2022, compared to 2021.
Excluding the impact of fluctuations in foreign exchange rates, local currency net sales in Latin America and Other decreased by 3.5 percent from 2022.
At December 31, 2022, we had $25.0 million available under this facility. At December 31, 2022, there was no outstanding balance under the Credit Agreement. (5) We entered into the Capital Credit Agreement with Banc of America Leasing and Capital, LLC, under which we borrowed $3.7 million, bearing interest at a fixed rate of 3.00 percent.
At December 31, 2023, we had $25.0 million available under this facility. At December 31, 2023, there was no outstanding balance under the Credit Agreement.
In local currency, net sales increased 29.4 percent for the year ended December 31, 2022, compared to 2021. We attribute the growth in net sales primarily to product promotions intended to stimulate activity as well as an increase in demand for nutritional supplements.
In local currency, net sales increased 33.3 percent for the year ended December 31, 2023, compared to 2022.
At this time, the duration of any business disruption and related financial impact cannot be reasonably estimated. Eastern Europe On February 24, 2022, Russian forces launched significant military action against Ukraine. There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future.
There continues to be sustained conflict and disruption in the region, which is expected to endure for the foreseeable future.
Of that amount, $1.0 million related to the conflict between Russia and Ukraine, and $4.3 million related to changes in forecast demand and production issues, among other factors. Selling, general and administrative expenses decreased $1.0 million during 2022, and as a percentage of net sales were 36.3 percent and 34.7 percent for 2022 and 2021, respectively.
Part of the decrease also relates to prior-year inventory valuation reserves taken as a result of the conflict between Russia and Ukraine. 23 Table of Contents Selling, general and administrative expenses increased $13.9 million during 2023, and as a percentage of net sales were 37.5 percent and 36.3 percent for 2023 and 2022, respectively.
In local currency, net sales increased 122.4 percent for the year ended 27 Table of Contents December 31, 2022, compared to 2021. We attribute the growth in net sales primarily to product promotions intended to stimulate activity as well as an increase in demand for nutritional supplements.
In local currency, net sales increased 13.7 percent for the year ended December 31, 2023, compared to 2022.
We seek to motivate and provide incentives to our independent consultants by offering high quality products and providing independent consultants with product support, training seminars, sales conventions, travel programs and financial incentives. COVID-19 In or about December 2019, a novel strain of coronavirus, SARS-CoV-2 “COVID-19”, began aggressively spreading throughout the world, including all the primary markets where we conduct business.
We seek to motivate and provide incentives to our independent consultants by offering high quality products and providing independent consultants with product support, training seminars, sales conventions, travel programs and financial incentives. Eastern Europe On February 24, 2022, Russian forces launched significant military action against Ukraine.
At December 31, 2022, the remaining balance available for repurchases under the program was $24.0 million. 30 Table of Contents On July 11, 2017, we entered into a revolving credit agreement with Bank of America, N.A., with a borrowing limit of $25.0 million (the “Credit Agreement”).
We maintain a revolving credit agreement with Bank of America, N.A (the “Credit Agreement”), as well as a credit agreement with Banc of America Leasing and Capital, LLC (the "Capital Credit Agreement"). At December 31, 2023, there was no outstanding balance under the Credit Agreement.
Removed
As COVID-19 has spread throughout the world, it has impacted our markets differently.
Added
We will continue monitoring the social, political, regulatory and economic environment in Ukraine and Russia, and will consider further actions as appropriate. Net sales related to Eastern Europe for the years ended December 31, 2023 and 2022, were $54.3 million and $53.3 million, respectively.
Removed
At various times during the course of the pandemic and throughout our markets, governments have issued orders and restrictions that have limited the ability of our consultants to meet with consumers, put downward pressure on our sales in many of our markets and added substantial uncertainties to our global supply chain.
Added
Inflation Like many other companies, we are facing significant inflationary pressures in the global economy.
Removed
Different variants of COVID-19 continue to arise and spread in various places around the world. We continue to take actions to mitigate the effects COVID-19 may have on our business, such actions may ultimately be insufficient to avoid substantial impact on the consolidated financial statement or material health of the Company.
Added
The decrease in cost of sales percentage is primarily due to improvements in market mix, sales price increases, and gross margin improvement initiatives, partially offset by increases related to inflation and unfavorable foreign currency exchange.
Removed
As of December 31, 2022, Russia and Other had assets of $6.8 million, net of working capital reserves related to inventories.
Added
In local currency, net sales decreased 8.0 percent compared to 2022. The decrease in net sales was primarily the result of a slower than anticipated response to our field activation initiatives, combined with inflationary and other macroeconomic factors.
Removed
Inflation In 2021, the inflation rate in the U.S. began to increase significantly. In 2022, the inflation rate increase accelerated and during 2022, was the highest in 40 years. Europe and other areas in which we do business are also experiencing higher levels of inflation.
Added
We attribute the growth in net sales primarily to effective execution of fundamentals within our sales force with a strong focus on leadership development and incentives intended to stimulate sales activity, as well as the opening of our new sales center in Kaohsiung, Taiwan.
Removed
The increase in cost of sales percentage is primarily due to changes in inventory valuation reserves, changes in market mix, heightened inflation, and increases in raw materials, production and transportation costs. For the year ended December 31, 2022, we had incremental valuation charges of $5.3 million related to inventory.
Added
In local currency, net sales increased 13.3 percent for the year ended December 31, 2023, compared to 2022. We attribute the growth in net sales primarily to effective execution of fundamentals within our sales force with a strong focus on product resale and leadership development in our key demographic.
Removed
The dollar decrease was primarily related to lower service fees that resulted from a decline in China's net sales, lower expenses relating to declines in Russia and Other's net sales, and lower compensation, partially offset by increases in the expected level of convention and distributor events.
Added
The increase in net sales was primarily the result of our digitally-focused, livestream business model, combined with strong execution and field activation. 27 Table of Contents Europe Net sales related to Europe were $81.1 million for the year ended December 31, 2023, compared to $79.0 million for 2022, an increase of 2.7 percent.
Removed
See Item 7A. Quantitative and Qualitative Disclosures About Market Risk .
Added
Net sales increased primarily as a result of customers' relative acclimation to the conflict between Russia and Ukraine, as well as strong field activation, especially in Central Europe. North America Net sales related to North America for the year ended December 31, 2023, were $139.8 million, compared to $133.2 million for 2022, an increase of 4.9 percent.
Removed
In local currency, net sales increased 1.2 percent compared to 2021. The increase in local currency net sales was primarily the result of product promotions intended to stimulate activity as well as an increase in demand for nutritional supplements.
Added
In the United States, net sales increased $6.4 million, or 5.2 percent, for the year ended December 31, 2023, compared to 2022. The increase was primarily due to growth in our digital channel, along with an increase in new customers.
Removed
In local currency, net sales decreased 15.5 percent for the year ended December 31, 2022, compared to 2021. The decrease in net sales was primarily the result of additional government restrictions in the market intended to slow the spread of COVID-19, which included lockdowns during various parts of the year ended December 31, 2022.
Added
Cost of Sales Cost of sales as a percent of net sales decreased to 27.9 percent in 2023, compared to 29.0 percent in 2022. The decrease in cost of sales percentage is primarily due to improvements in market mix, sales price increases, and gross margin improvement initiatives, partially offset by increases related to inflation and unfavorable foreign currency exchange.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
12 edited+0 added−1 removed12 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
12 edited+0 added−1 removed12 unchanged
2022 filing
2023 filing
Biggest changeForeign Currency Risk During the year ended December 31, 2022, approximately 70.9 percent of our net sales and approximately 60.5 percent of our operating expenses were realized outside of the United States. Inventory purchases are transacted primarily in U.S. dollars from vendors located in the United States. The local currency of each international subsidiary is generally the functional currency.
Biggest changeInventory purchases are transacted primarily in U.S. dollars from vendors located in the United States. The local currency of each international subsidiary is generally the functional currency. We conduct business in multiple currencies with exchange rates that are not on a one-to-one relationship with the U.S. dollar.
It is noted that individual net sales, cost and expense components and operating income were equally sensitive to increases in the strength of the U.S. dollar against every other fluctuating currency in which we conduct business. Exchange rate sensitivity for the year ended December 31, 2022 ( dollar amounts in thousands ): With Strengthening of U.S.
It is noted that individual net sales, cost and expense components and operating income were equally sensitive to increases in the strength of the U.S. dollar against every other fluctuating currency in which we conduct business. Exchange rate sensitivity for the year ended December 31, 2023 ( dollar amounts in thousands ): With Strengthening of U.S.
During the years ended December 31, 2022 and 2021, we did not operate in any countries considered to be highly inflationary. Interest Rate Risk On December 31, 2022, we did not have any available for sale investments. On December 31, 2022, we had no outstanding balance on our revolving credit line. 34 Table of Contents
During the years ended December 31, 2023 and 2022, we did not operate in any countries considered to be highly inflationary. Interest Rate Risk On December 31, 2023, we did not have any available for sale investments. On December 31, 2023, we had no outstanding balance on our revolving credit line. 34 Table of Contents
The following table sets forth a composite sensitivity analysis of net sales, costs and expenses and operating income in connection with the strengthening of the U.S. dollar (our reporting currency) by 10%, 15%, and 25% against every other 32 Table of Contents fluctuating functional currency in which we conduct business.
The following table sets forth a composite sensitivity analysis of net sales, costs and expenses and operating income in connection with the strengthening of the U.S. dollar (our reporting currency) by 10%, 15%, and 25% against every other fluctuating functional currency in which we conduct business.
The respective spot exchange rate for each such local currency meeting the foregoing thresholds is provided in the table as well. 33 Table of Contents Translation of Cash Amounts Denominated in Local Currency as of December 31, 2022 ( dollar amounts in thousands ): Translated into U.S. Dollars At Spot Exchange Rate per One U.S.
The respective spot exchange rate for each such local currency meeting the foregoing thresholds is provided in the table as well. Translation of Cash Amounts Denominated in Local Currency as of December 31, 2023 ( dollar amounts in thousands ): Translated into U.S. Dollars At Spot Exchange Rate per One U.S.
Year ended December 31, 2022 2021 Canada (Dollar) 1.3 1.3 China (Yuan Renminbi) 6.7 6.5 European Markets (Euro) 0.9 0.8 Japan (Yen) 130.5 109.7 South Korea (Won) 1,287.3 1,143.7 Poland (Zloty) 4.4 3.9 Taiwan (Dollar) 29.7 27.9 The local currency of the foreign subsidiaries is used as the functional currency, except for where our operations are served by a U.S. based subsidiary (for example, Russia and Ukraine).
Year ended December 31, 2023 2022 Canada (Dollar) 1.3 1.3 China (Yuan Renminbi) 7.1 6.7 European Markets (Euro) 0.9 0.9 Japan (Yen) 140.1 130.5 South Korea (Won) 1,305.6 1,287.3 Poland (Zloty) 4.2 4.4 Taiwan (Dollar) 31.1 29.7 33 Table of Contents The local currency of the foreign subsidiaries is used as the functional currency, except for where our operations are served by a U.S. based subsidiary (for example, Russia and Ukraine).
We conduct business in multiple currencies with exchange rates that are not on a one-to-one relationship with the U.S. dollar. All revenues and expenses are translated at average exchange rates for the periods reported. Therefore, our operating results will be positively or negatively affected by a weakening or strengthening of the U.S. dollar in relation to another fluctuating currency.
All revenues and expenses are translated at average exchange rates for the periods reported. Therefore, our operating results will be positively or negatively affected by a weakening or strengthening of the U.S. dollar in relation to another fluctuating currency.
The sensitivity of our financial assets and liabilities, taken by balance sheet line items, is somewhat less than the sensitivity of our operating income to increases in the strength of the U.S. dollar in relation to other fluctuating currencies in which we conduct business.
The sensitivity of our financial assets and liabilities, taken by balance sheet line items, is somewhat less than the sensitivity of our operating income to increases in the strength of the U.S. dollar in relation to other fluctuating currencies in which we conduct business. 32 Table of Contents Exchange Rate Sensitivity of financial assets and liabilities as of December 31, 2023 ( dollar amounts in thousands ): With Strengthening of U.S.
Dollar Cash and Cash Equivalents China (Yuan Renminbi) $ 17,775 6.9 South Korea (Won) 8,454 1,259.4 Japan (Yen) 4,126 131.9 Canada (Dollar) 2,062 1.4 Poland (Zloty) 1,108 4.4 Other 13,500 Varies Total foreign denominated cash and cash equivalents 47,025 U.S. dollars held by foreign subsidiaries 4,154 Total cash and cash equivalents held by foreign subsidiaries $ 51,179 Finally, the following table sets forth the annual weighted-average of fluctuating currency exchange rates of each of the local currencies per one U.S. dollar for each of the local currencies in which annualized net sales would exceed $10.0 million during any of the two periods presented.
Dollar Cash and Cash Equivalents China (Yuan Renminbi) $ 28,513 7.1 South Korea (Won) 5,662 1,294.5 Japan (Yen) 4,732 141.0 Canada (Dollar) 2,501 1.3 Poland (Zloty) 4,432 3.9 Other 16,643 Varies Total foreign denominated cash and cash equivalents 62,483 U.S. dollars held by foreign subsidiaries 4,565 Total cash and cash equivalents held by foreign subsidiaries $ 67,048 Finally, the following table sets forth the annual weighted-average of fluctuating currency exchange rates of each of the local currencies per one U.S. dollar for each of the local currencies in which annualized net sales would exceed $10.0 million during any of the two periods presented.
Dollar by: 10% 15% 25% (Loss) ($) (Loss) (%) (Loss) ($) (Loss) (%) (Loss) ($) (Loss) (%) Financial Assets Included in Current Assets Subject to Exchange Rate Risk Cash and cash equivalents $ 60,032 $ (4,287) (7.1) % $ (6,151) (10.2) % $ (9,431) (15.7) % Accounts receivable, net 14,106 (989) (7.0) % (1,419) (10.1) % (2,175) (15.4) % Financial Liabilities Included in Current Liabilities Subject to Exchange Rate Risk Accounts payable 6,349 (138) (2.2) % (197) (3.1) % (303) (4.8) % Net Financial Assets Subject to Exchange Rate Risk $ 67,789 $ (5,138) (7.6) % $ (7,373) (10.9) % $ (11,303) (16.7) % The following table sets forth the local currencies other than the U.S. dollar in which our assets that are subject to exchange rate risk were denominated as of December 31, 2022, and represent a significant concentration upon translation into U.S. dollars.
Dollar by: 10% 15% 25% (Loss) ($) (Loss) (%) (Loss) ($) (Loss) (%) (Loss) ($) (Loss) (%) Financial Assets Included in Current Assets Subject to Exchange Rate Risk Cash and cash equivalents $ 82,373 $ (5,680) (6.9) % $ (8,150) (9.9) % $ (12,497) (15.2) % Accounts receivable, net 8,827 (546) (6.2) % (784) (8.9) % (1,202) (13.6) % Financial Liabilities Included in Current Liabilities Subject to Exchange Rate Risk Accounts payable 7,910 (321) (4.1) % (460) (5.8) % (706) (8.9) % Net Financial Assets Subject to Exchange Rate Risk $ 83,290 $ (5,905) (7.1) % $ (8,474) (10.2) % $ (12,993) (15.6) % The following table sets forth the local currencies other than the U.S. dollar in which our assets that are subject to exchange rate risk were denominated as of December 31, 2023, and represent a significant concentration upon translation into U.S. dollars.
In addition, our operations are exposed to risks associated with changes in social, political and economic conditions inherent in international operations, including changes in the laws and policies that govern international investment in countries where we have operations, as well as, to a lesser extent, changes in U.S. laws and regulations relating to international trade and investment.
In addition, our operations are exposed to risks associated with changes in social, political and economic conditions inherent in international operations, including changes in the laws and policies that govern international investment in countries where we have operations, as well as, to a lesser extent, changes in U.S. laws and regulations relating to international trade and investment. 31 Table of Contents Foreign Currency Risk During the year ended December 31, 2023, approximately 71.0 percent of our net sales and approximately 63.6 percent of our operating expenses were realized outside of the United States.
Dollar by: 10% 15% 25% ($) (%) ($) (%) ($) %) Net sales $ 421,910 $ (21,333) (5.1) % $ (30,608) (7.3) % $ (46,932) (11.1) % Cost and expenses: Cost of sales 122,150 (6,271) (5.1) % (8,998) (7.4) % (13,796) (11.3) % Volume incentives 130,377 (7,787) (6.0) % (11,173) (8.6) % (17,132) (13.1) % Selling, general and administrative 153,125 (4,473) (2.9) % (6,418) (4.2) % (9,841) (6.4) % Operating income $ 16,258 $ (2,802) (17.2) % $ (4,019) (24.7) % $ (6,163) (37.9) % Certain of our operations, including Russia and Ukraine, are served by a U.S. branch through third-party entities, for which all business is conducted in U.S. dollars.
Dollar by: 10% 15% 25% ($) (%) ($) (%) ($) %) Net sales $ 445,320 $ (22,873) (5.1) % $ (32,818) (7.4) % $ (50,320) (11.3) % Cost and expenses: Cost of sales 124,193 (6,400) (5.2) % (9,182) (7.4) % (14,079) (11.3) % Volume incentives 135,320 (8,257) (6.1) % (11,846) (8.8) % (18,164) (13.4) % Selling, general and administrative 167,058 (4,503) (2.7) % (6,460) (3.9) % (9,906) (5.9) % Operating income $ 18,749 $ (3,713) (19.8) % $ (5,330) (28.4) % $ (8,171) (43.6) % Certain of our operations, including Russia and Ukraine, are served by a U.S. branch through third-party entities, for which all business is conducted in U.S. dollars.
Removed
Exchange Rate Sensitivity of financial assets and liabilities as of December 31, 2022 ( dollar amounts in thousands ) With Strengthening of U.S.