What changed in USANA HEALTH SCIENCES INC's 10-K — 2023 vs 2024
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Paragraph-level year-over-year comparison of USANA HEALTH SCIENCES INC's 2023 and 2024 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 2024 report.
+218 added−305 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-28)
Top changes in USANA HEALTH SCIENCES INC's 2024 10-K
218 paragraphs added · 305 removed · 181 edited across 7 sections
- Item 7. Management's Discussion & Analysis+47 / −121 · 35 edited
- Item 1. Business+64 / −68 · 49 edited
- Item 6. [Reserved]+54 / −57 · 47 edited
- Item 1A. Risk Factors+42 / −47 · 40 edited
- Item 5. Market for Registrant's Common Equity+6 / −6 · 5 edited
Item 1. Business
Business — how the company describes what it does
49 edited+15 added−19 removed38 unchanged
Item 1. Business
Business — how the company describes what it does
49 edited+15 added−19 removed38 unchanged
2023 filing
2024 filing
Biggest changeInCelligence™ is our patented technology that supports the body's natural ability to nourish, protect and renew itself. Product Development In 2023, we plan to continue to invest in research and development and product innovation to ensure that USANA remains a leader in clinical nutrition. We also plan to roll-out new science-based products in 2023 and over the next several years.
Biggest changeWe will also continue to simplify and condense our promotional and marketing messaging by supporting our Associates in focusing on the science-based differentiation of USANA's products, which includes our proprietary 3 Table of Contents InCelligence Technology®. InCelligence™ is our patented technology that supports the body's natural ability to nourish, protect and renew itself.
Preferred Customers and Retail Customers . We also sell products directly to Preferred Customers and retail customers who purchase the products only for their personal use. Preferred Customers enroll with USANA, generally through an introduction by an Associate, and purchase product directly from the Company. Retail customers, however, generally purchase directly from Associates.
We also sell products directly to Preferred Customers and retail customers who purchase the products only for their personal use. Preferred Customers enroll with USANA, generally through an introduction by an Associate, and purchase product directly from the Company. Retail customers, however, generally purchase directly from Associates.
Our in-house research team has established and maintained good working relationships with scientists at a number of universities and research institutes, including the University of Washington, the University of Utah, The Foods for Health Institute at The University of California Davis, Roseman University of Health Sciences, University of Memphis, Beijing University of Chinese Medicine (China), Peking University (China), Central Queensland University (Australia), University of Ghent (Belgium), and other academic institutions globally.
Our in-house research team has established and maintained good working relationships with scientists at a number of universities and research institutes, including the University of Washington, the University of Utah, The Foods for Health Institute at The University of California Davis, Roseman University of Health Sciences, University of Memphis, Beijing University of Chinese Medicine (China) ("BUCM"), Peking University (China), Central Queensland University (Australia), University of Ghent (Belgium), and other academic institutions globally.
In 2019, we added a 54,000 square foot manufacturing facility located adjacent to our corporate headquarters, which expanded our manufacturing capabilities to allow us to manufacture our food products in-house. This adjacent facility started to produce saleable product during the fourth quarter of 2020.
In 2019, we added a 54,000 square foot manufacturing facility located adjacent to our corporate headquarters, which expanded our manufacturing capabilities to allow us to manufacture our food products in-house. This adjacent facility started to produce product during the fourth quarter of 2020.
Associates are not required to recruit or sponsor new Associates and we do not compensate Associates for sponsoring or recruiting Associates. The sponsoring of new Associates results in the creation of multiple levels within our direct sales structure. Sponsored Associates are referred to as part of the sales organization of the sponsoring Associate.
Associates are not required to recruit or sponsor new Associates and we do not compensate Associates for sponsoring or recruiting Associates. The sponsoring of new Associates results in the creation of multiple levels within our direct selling structure. Sponsored Associates are referred to as part of the sales organization of the sponsoring Associate.
These promotions are also based on a pay-for-performance philosophy and, therefore, are only paid upon the achievement of certain objectives. With the exception of our China market (discussed below), we endeavor to integrate our Compensation Plan seamlessly across all markets where legally permissible, allowing Associates to receive commissions for global product sales.
These promotions are also based on a pay-for-performance philosophy and, therefore, are only paid upon the achievement of certain objectives. With the exception of our China market (discussed below), we endeavor to integrate our Compensation Plan across markets where legally permissible, allowing Associates to receive commissions for global product sales.
Celavive offers a comprehensive skincare regimen benefiting multiple skincare types and ethnicities, upgraded science, and more noticeable user benefits. 2022 – 5% 2021 – 6% 2020 – 7% Vitalizing Serum Protective Day Cream Replenishing Night Cream Protective Day Cream Perfecting Toner All Other Includes materials and online tools that are designed to assist our Associates in building their businesses and in marketing our products. 2022 – 1% 2021 – 1% 2020 – 1% Associate Starter Kit Product Brochures Logo Merchandise ______________________________ (1) Represents a product line consisting of multiple products.
Celavive offers a comprehensive skincare regimen benefiting multiple skincare types and ethnicities, upgraded science, and more noticeable user benefits. 2023 – 5% 2022 – 5% 2021 – 6% Vitalizing Serum Protective Day Cream Replenishing Night Cream Protective Day Cream Perfecting Toner All Other Includes materials and online tools that are designed to assist our Associates in building their businesses and in marketing our products. 2023 – 1% 2022 – 1% 2021 – 1% Associate Starter Kit Product Brochures Logo Merchandise (1) Represents a product line consisting of multiple products.
Consequently, we have adjusted our direct selling program in China to comply with these laws and regulations. To do this, we operate our business in China through BabyCare. BabyCare utilizes a business model in China that is consistent with the philosophy of our world-wide business model, but different in structure from our other markets.
Consequently, we have adjusted our direct selling program in China to comply with these laws and regulations. To do this, we operate our business in China through BabyCare. BabyCare utilizes a business model in China that is consistent with the philosophy of our world-wide business model, but differs in structure from our other markets.
Rise Bar manufactures and sells high-quality protein bars that are formulated to help customers achieve their health goals through clean and simple ingredients. Oola is an emerging direct selling company that offers a personal development framework that helps individuals create a life of balance, growth, and purpose.
Rise Bar manufactures and sells high-quality protein bars that are formulated to help customers achieve their health goals through clean and simple ingredients. Oola is an emerging direct selling company that offers a personal development framework 4 Table of Contents that helps individuals create a life of balance, growth, and purpose.
These products support needs such as cardiovascular health, skeletal/structural health, and digestive health and are intended to be used in conjunction with the Essentials/CellSentials 2022 – 70% 2021 – 68% 2020 – 66% Proflavanol ® CoQuinone ® 30 BiOmega-3™ Essentials/CellSentials ®(1) Includes core vitamin and mineral supplements that provide a foundation of advanced total body nutrition for every age group beginning with children 13 months of age. 2022 – 17% 2021 – 18% 2020 – 19% USANA CellSentials Essentials HealthPak 100™ Foods (2) Includes meal replacement shakes, snack bars, and other related products that promote healthy weight management, digestive health, energy and hydration through a holistic approach.
These products support needs such as cardiovascular health, skeletal/structural health, and digestive health and are intended to be used in conjunction with the Essentials/CellSentials 2023 – 71% 2022 – 70% 2021 – 68% Proflavanol ® CoQuinone ® 30 BiOmega-3™ Essentials/CellSentials ®(1) Includes core vitamin and mineral supplements that provide a foundation of advanced total body nutrition for every age group beginning with children 13 months of age. 2023 – 16% 2022 – 17% 2021 – 18% USANA CellSentials Essentials HealthPak 100™ Foods (2) Includes meal replacement shakes, snack bars, and other related products that promote healthy weight management, digestive health, energy and hydration through a holistic approach.
Unless otherwise specified, current information reported in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (this “report” or “Annual Report”) is as of or for the fiscal year ended December 31, 2022. We also discuss the development of our company and the geographic areas where we do business.
Unless otherwise specified, current information reported in this Annual Report on Form 10-K for the fiscal year ended December 30, 2023 (this “report” or “Annual Report”) is as of or for the fiscal year ended December 30, 2023. We also discuss the development of our company and the geographic areas where we do business.
Under our policies and procedures, Associates may not, among other things: (i) use deceptive or unlawful practices to sell USANA products; (ii) make deceptive or unlawful claims or representations concerning our products or Compensation Plan; or (iii) sell competitive products to other USANA 9 Table of Contents Associates or solicit USANA Associates to participate in other direct selling opportunities.
Under our policies and procedures, Associates may not, among other things: (i) use deceptive or unlawful practices to sell USANA products; (ii) make deceptive or unlawful claims or representations concerning our products or Compensation Plan; or (iii) sell competitive products to other USANA Associates or solicit USANA Associates to participate in other direct selling opportunities.
Neither Preferred Customers nor retail customers may resell or distribute our 10 Table of Contents products, regardless of where they purchased them. To sell USANA products, a Preferred Customer or retail customer must become an Associate.
Neither Preferred Customers nor retail customers may resell or distribute our products, regardless of where they purchased them. To sell USANA products, a Preferred Customer or retail customer must become an Associate.
Our facility in Beijing is audited regularly by various organizations and government agencies to assess, among other things, compliance with applicable GMPs, and with labeling claims. 8 Table of Contents Third-Party Suppliers and Manufacturers We contract with third-party suppliers and manufacturers for the production of certain of our products, which account for approximately 35% o f our product sales.
Our facility in Beijing is audited regularly by various organizations and government agencies to assess, among other things, compliance with applicable GMPs, and with labeling claims. Third-Party Suppliers and Manufacturers We contract with third-party suppliers and manufacturers for the production of certain of our products, which account for approximately 33% o f our product sales.
For the year ended December 31, 2022, there were no material changes to our corporate structure or our method of conducting business. Current Focus and Growth Strategy In 2023, we plan to execute our global growth strategy which remains focused on increasing the number of active Customers in each of our markets.
For the year ended December 30, 2023, there were no material changes to our corporate structure or our method of conducting business. Current Focus and Growth Strategy In 2024, we plan to continue to execute our global growth strategy which remains focused on increasing the number of active Customers in each of our markets.
We sell these kits at a nominal price averaging approximately $19 in each of our markets and these kits are fully refundable under our return policy, which is described elsewhere in this report. No other direct investment is required to become an Associate.
We sell these kits at a nominal price averaging approximately $15 in each of our 9 Table of Contents markets and these kits are fully refundable under our return policy, which is described elsewhere in this report. No other direct investment is required to become an Associate.
In general, our operating results are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. In 2022, net sales outside of the United States represented approximately 89.4% of consolidated net sales.
In general, our operating results are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. In 2023, net sales outside of the United States represented approximately 89.6% of consolidated net sales.
This seamless sales organization structure is designed to allow Associates to build a global network by establishing or expanding their sales organization in any of the markets where we operate. We believe our Compensation Plan significantly enhances our ability to expand internationally, and we intend to continue to integrate new markets, where permitted, into our Compensation Plan.
This sales organization structure is designed to allow Associates to build a global network by establishing or expanding their sales organization in the markets where we operate. We believe our Compensation Plan significantly enhances our ability to expand internationally, and we intend to continue to integrate new markets, where permitted, into our Compensation Plan. Preferred Customers and Retail Customers .
These relationships help us continue to advance our knowledge, expertise and leadership in several areas of applied human nutrition. Working with these partners, we select products at all stages of development for preclinical and clinical studies.
These relationships help us continue to advance our knowledge, expertise and leadership in several areas of applied human nutrition. Working with these partners, we select products at all stages of development for preclinical and clinical studies, including funding multiple studies through BUCM.
Manufacturing and Quality Assurance We conduct manufacturing, production and quality control operations for approximately 65% of our products in-house. We have established and maintain a manufacturing and quality control facility at our corporate headquarters in Salt 7 Table of Contents Lake City, Utah.
Manufacturing and Quality Assurance We conduct manufacturing, production and quality control operations for approximately 67% of our products in-house. We have established and maintain a manufacturing and quality control facility at our corporate headquarters in Salt Lake City, Utah.
Our business in China is conducted by BabyCare (ii) Southeast Asia Pacific – Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand, and Indonesia (iii) North Asia – Japan and South Korea 6 Table of Contents Americas and Europe (2) Americas and Europe – United States, Canada, Mexico, Colombia, and Europe (the United Kingdom, France, Germany, Spain, Italy, Romania, Belgium, and the Netherlands) Impact of Foreign Currency Exchange Because we have operations in multiple markets, with sales and expenses generated and incurred in multiple currencies, our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates.
Our business in China is conducted by BabyCare (ii) Southeast Asia Pacific – Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand, Indonesia, and India (2) (iii) North Asia – Japan and South Korea Americas and Europe (2) Americas and Europe – United States, Canada, Mexico, Colombia, and Europe (the United Kingdom, France, Germany, Spain, Italy, Romania, Belgium, and the Netherlands) (2) We commenced operation in this market near the end of the fourth quarter of 2023 Impact of Foreign Currency Exchange Because we have operations in multiple markets, with sales and expenses generated and incurred in multiple currencies, our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates.
Manufacturing Our production process uses automatic and semi-automatic equipment and includes the following activities by type: Tablet Manufacturing Foods Manufacturing Personal Care and Skincare Manufacturing Auditing and qualifying suppliers of raw materials x x x Acquiring raw materials x x x Analyzing raw material quality x x x Weighing or otherwise measuring raw materials x x x Mixing raw materials into batches x x x Forming mixtures into tablets x Converting batches into bars and/or finished powders x Coating and sorting the tablets x Analyzing tablet quality x Analyzing bars and/or finished powder quality x Analyzing liquid batch quality x Packaging finished products x x x Analyzing finished product quality x x x We conduct sample testing of raw materials, in-process materials, and finished products for purity, potency, and composition to determine whether our products conform to our internal specifications, and we maintain complete documentation for each of these tests.
BabyCare manufactures and produces the majority of its products in-house and maintains manufacturing and quality control facilities in Beijing, China and Tianjin, China. 7 Table of Contents Manufacturing Our production process uses automatic and semi-automatic equipment and includes the following activities by type: Tablet Manufacturing Foods Manufacturing Personal Care and Skincare Manufacturing Auditing and qualifying suppliers of raw materials x x x Acquiring raw materials x x x Analyzing raw material quality x x x Weighing or otherwise measuring raw materials x x x Mixing raw materials into batches x x x Forming mixtures into tablets x Converting batches into bars and/or finished powders x Coating and sorting the tablets x Analyzing tablet quality x Analyzing bars and/or finished powder quality x Analyzing liquid batch quality x Packaging finished products x x x Analyzing finished product quality x x x We conduct sample testing of raw materials, in-process materials, and finished products for purity, potency, and composition to determine whether our products conform to our internal specifications, and we maintain complete documentation for each of these tests.
We plan to do this by (i) continuing to advance our digital commerce initiatives to support our business; (ii) executing market specific promotional and incentive strategies; (iii) continuing to pursue product development and further leveraging our foods manufacturing facility; (iv) focusing on our China market and our customer base in that market; (v) pursuing growth through international expansion; and (vi) advancing our business development strategy by growing the two companies we acquired in 2022, and evaluating new acquisition opportunities.
We plan to do this by (i) increasing in-person and digital engagement with our Associates around the world; (ii) implementing and executing market specific promotional and incentive strategies; (iii) continuing to advance our digital commerce initiatives to support our business; (iv) introducing new products, and continuing to pursue product development and further leveraging our foods manufacturing facility; (v) focusing on our China market and our customer base in that market; (vi) pursuing growth in India and evaluating further international expansion; and (vii) advancing our business development strategy by evaluating new acquisition opportunities and growing the two companies we acquired in 2022.
Although Rise Bar and Oola will continue to operate and grow independently of USANA, we plan to leverage their knowledge, experience, and technology to grow USANA’s core business. We are also utilizing USANA's assets and resources to generate growth for Rise Bar and Oola.
As Rise Bar and Oola continue to operate and grow independently of USANA, we will continue to leverage their knowledge, experience, and technology to grow USANA’s core business. We will also continue to utilize USANA's assets and resources to support growth objectives for Rise Bar and Oola.
These products can be used along with Essentials and Optimizers to provide a complete and healthy diet and sustained energy throughout the day. 2022 – 7% 2021 – 7% 2020 – 7% Nutrimeal Fibergy RESET™ weight-management program 5 Table of Contents Product Line/Category Description Percent of Product Sales by Fiscal Year Product examples Personal care and Skincare Includes our premium science-based personal care products and Celavive, our innovative skincare system formulated with our USANA InCelligence Technology ® .
These products can be used along with Essentials and Optimizers to provide a complete and healthy diet and sustained energy throughout the day. 2023 – 7% 2022 – 7% 2021 – 7% Nutrimeal Fibergy RESET™ weight-management program Personal care and Skincare Includes our premium science-based personal care products and Celavive, our innovative skincare system formulated with our USANA InCelligence Technology ® .
In our microbiology laboratory, scientists test for biological contamination of raw materials and finished goods. In our analytical chemistry laboratory, scientists test for chemical contamination and accurate levels of active ingredients in both raw materials and finished products. Scientists also identify and confirm all raw materials used in the manufacturing process through scientifically valid means.
In our analytical chemistry laboratory, scientists test for chemical contamination and accurate levels of active ingredients in both raw materials and finished products. Scientists also identify and confirm all raw materials used in the manufacturing process through scientifically valid means. Both laboratories conduct stability tests on finished products to determine the shelf life of our products.
The R&D team is also involved in protecting our proprietary position with exclusive ingredients, proprietary formulations, product-specific scientific validation, and, in some cases, patent protection. In 2020, we announced the issuance of U.S. Patent 10,632,101 for our InCelligence complex formula. Research continues to support our proprietary InCelligence technology, advances in microbiome supplementation, immune system support, stress adaptation, and brain health.
The R&D team is also involved in protecting our proprietary position with exclusive ingredients, proprietary formulations, product-specific scientific validation, and in some cases, patent protection. Research continues to support our proprietary InCelligence technology, advances in microbiome supplementation, immune system support, stress adaptation, healthy aging, and brain health.
Our scientific staff includes experts on human nutrition, cellular biology, biochemistry, genetics, the microbiome, natural product chemistry, foods and cosmetic science, and clinical research. These experts continually review the latest published research on nutrition, present their findings at scientific conferences, publish in scientific journals, and collaborate with third-party researchers and institutions to identify possible new products and product upgrade opportunities.
These experts continually review the latest published research on nutrition, present their findings at scientific conferences, publish in scientific journals, and collaborate with third-party researchers and institutions to identify possible new products and product upgrade opportunities.
Business Development Our strong balance sheet and our willingness to invest in growth continues to allow us to pursue a wide-range of opportunities that are additive to our long-term success. In 2022, we completed the acquisition of two companies, Rise Bar and Oola Global, LLC "(Oola").
Business Development Our strong balance sheet and our willingness to invest in growth continues to allow us to pursue a wide-range of opportunities that are additive to our long-term success.
Notwithstanding the foregoing, BabyCare has not received approval from the Chinese government that its business model, compensation plan or operations comply with applicable laws and regulations, including those pertaining to direct selling.
Consequently, individuals who join BabyCare in China are compensated under BabyCare’s compensation plan, which has been established for China. Notwithstanding the foregoing, BabyCare has not received approval from the Chinese government that its business model, compensation plan or operations comply with applicable laws and regulations, including those pertaining to direct selling.
For further details of these acquisitions, see Note B to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
For further details of these acquisitions, see Note B to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference. Products The following table summarizes information concerning the principal product lines of our Direct-selling segment.
To reduce the risk that the Chinese government might view BabyCare’s business model as conflicting with these laws and regulations, BabyCare utilizes a business model that is different from the model we use elsewhere in the world.
The Chinese government has also implemented a number of administrative and regulatory measures around direct selling to control these prohibited activities. To reduce the risk that the Chinese government might view BabyCare’s business model as conflicting with these laws and regulations, BabyCare utilizes a business model that is different from the model we use elsewhere in the world.
These third-party suppliers and manufacturers produce and, in most cases, package these products according to formulations that have been developed by or in conjunction with our in-house product development team.
These third-party suppliers and manufacturers produce and, in most cases, package these products according to formulations that have been developed by or in conjunction with our in-house product development team. These products include most of our gelatin-capsulated supplements, Rev3 Energy ® Drink, 8 Table of Contents Probiotics, and powdered drink mixes.
In 2023, we will continue to pursue acquisition opportunities in the health and wellness space that strengthen, diversify, and grow our world-wide business by focusing on: (i) overall nutrition, (ii) vertical integration, (iii) product and category expansion, and (iv) geographic expansion. Products The following table summarizes information concerning our principal product lines.
We will continue to pursue acquisition opportunities in the health and wellness space that strengthen, diversify, and grow our world-wide business by focusing on: (i) overall nutrition, (ii) vertical integration, (iii) product and category expansion, and (iv) geographic expansion. In 2022, we completed the acquisition of two companies, Rise Bar and Oola Global, LLC "(Oola").
Our foods plant ("USANA North" facility) in Salt Lake City, UT, houses the manufacturing for our foods-related products. In 2023, we plan to move the production of more of our Active Nutrition products to USANA North.
We also plan to introduce new science-based products in 2024 and over the next several years. Our foods plant ("USANA North" facility) in Salt Lake City, UT, houses the manufacturing for our foods-related products. In 2023, we moved more of the production of our Active Nutrition products to USANA North and plan to do the same in 2024.
(2) Includes our new Active Nutrition line, which launched in five markets in 2021 and all but two of our remaining markets through the third quarter of 2022. In addition to the products described above, we offer products designed specifically for prenatal, infant, and young-child age groups in China.
(2) Includes our Active Nutrition line. In addition to the products described above, we offer products designed specifically for prenatal, infant, and young-child age groups in China.
Additionally, we plan to increase the proportion of the personal care and skincare products that we manufacture. This will reduce our reliance on third-party suppliers and manufacturers and add to our operating strengths, which are described below in this Annual Report. Quality Control and Assurance We have in-house microbiology and analytical chemistry labs in which we conduct quality control processes.
This will reduce our reliance on third-party suppliers and manufacturers and add to our operating strengths, which are described below in this Annual Report. Quality Control and Assurance We have in-house microbiology and analytical chemistry labs in which we conduct quality control processes. In our microbiology laboratory, scientists test for biological contamination of raw materials and finished goods.
Total product sales, as a percentage of net sales, represented by our top-selling products for the last three fiscal years is as follows: Year Ended 2022 2021 2020 Key Product USANA Essentials/CellSentials 11 % 12 % 13 % Proflavanol 10 % 10 % 11 % Probiotic 10 % 9 % 9 % Other top-selling products include our Hepasil, Soy Lecithin, and HealthPak™.
As we continue to focus on innovation, we will look for innovative product opportunities such as our Celavive and Active Nutrition product lines. 5 Table of Contents Total product sales, as a percentage of net sales, represented by our top-selling products for the last three fiscal years is as follows: Year Ended 2023 2022 2021 Key Product USANA Essentials/CellSentials (1) 10 % 11 % 12 % Proflavanol 10 % 10 % 10 % Probiotic 9 % 10 % 9 % (1) Represents specific products within the product line Essentials/CellSentials Other top-selling products include our Hepasil, Soy Lecithin, and HealthPak™.
Distribution and Marketing General We distribute our products internationally through direct selling, which entails person-to-person marketing and selling of products. Direct selling is based on the strength of personal relationships and recommendations that frequently come from friends, neighbors, relatives, and close acquaintances.
Direct selling is based on the strength of personal relationships and recommendations that frequently come from friends, neighbors, relatives, and close acquaintances.
We also plan to move production of Rise Bar's products to USANA North to realize cost savings, increase production efficiency and provide Rise Bar with increased capacity to grow its customer base. Overall, we believe our investment in USANA North allows us to be more agile and cost efficient in responding to both current and future opportunities.
In 2023, we also moved the production of Rise Bar's products to USANA North to realize cost savings, increase production efficiency, and provide Rise Bar with increased capacity to grow its customer base. We plan to increase Rise Bar production in 2024.
Our raw material suppliers must demonstrate stringent process and quality control before we use their products in our manufacturing process. When supplies of certain raw materials have tightened, we have been able to find alternative sources of raw materials, and believe we will be able to do so in the future, if the need arises.
When supplies of certain raw materials have tightened, we have been able to find alternative sources of raw materials, and believe we will be able to do so in the future, if the need arises. Distribution and Marketing General We distribute our products internationally through direct selling, which entails person-to-person marketing and selling of products.
Although these laws and regulations permit direct selling, they impose a number of financial and operational restrictions, including a prohibition of pyramid selling and multi-level compensation systems. The Chinese government has also implemented a number of administrative and regulatory measures around direct selling to control these prohibited activities.
As explained above, the Chinese government maintains direct selling laws and regulations that differ materially from our other markets around the world. Although these laws and regulations permit direct selling, they impose a number of financial and operational restrictions, including a prohibition of pyramid selling and multi-level compensation systems.
Products manufactured by third-party suppliers at their locations must also pass through quality control and assurance procedures to ensure they are manufactured in conformance with our specifications. As noted above, with the expansion of our manufacturing facility in Salt Lake City, Utah, we are able to manufacture our foods product line.
In 2024, our intention is to continue transitioning the production of our powdered drink mixes to our USANA North facility. Products manufactured by third-party suppliers at their locations must also pass through quality control and assurance procedures to ensure they are manufactured in conformance with our specifications.
Both laboratories conduct stability tests on finished products to determine the shelf life of our products. Our Salt Lake City, Utah laboratory staff also performs chemical assays on vitamin and mineral constituents, using USP methods and other internally validated methods.
Our Salt Lake City, Utah laboratory staff also performs chemical assays on vitamin and mineral constituents, using USP methods and other internally validated methods. In addition to our quality control and clinical laboratories, both our headquarters and China facilities also house a laboratory designated for R&D.
These various customer programs give us access to a customer market that would otherwise be missed, by targeting consumers who enjoy USANA products, but who prefer not to maintain a distribution relationship with us.
These various customer programs give us access to a customer market that would otherwise be missed, by targeting consumers who enjoy USANA products, but who prefer not to maintain a distribution relationship with us. 10 Table of Contents Although our policies prohibit Preferred Customers and retail customers from engaging in retail sales of products, they may enroll as Associates at any time in the future, if they desire.
In addition to our quality control and clinical laboratories, both our headquarters and China facilities also house a laboratory designated for R&D. Raw Materials Most of the raw ingredients used in the manufacture of our products are available from a number of suppliers.
Raw Materials Most of the raw ingredients used in the manufacture of our products are available from a number of suppliers. Our raw material suppliers must demonstrate stringent process and quality control before we use their products in our manufacturing process.
Going forward, we expect to continue to increase our spending and resources for R&D to advance our expertise and leadership in cellular nutrition, as well as overall health and wellness. We believe our attention to product quality is a sustainable competitive advantage that also provides a substantial barrier to entry for competitors who wish to enter our space.
In 2024, we plan to shift spending towards increased investments into early stage research and scientific investigations as we believe our trusted history of scientifically-supported products is a sustainable competitive advantage that provides a substantial barrier to entry for competitors who wish to enter our space.
In 2023, we will promote this program in these markets, promote and expand the digital tools for the program, and continue to evaluate offering the program in other markets. Market-Specific Strategies In 2023, we will continue to pursue market-specific strategies to facilitate customer growth and strengthen our business around the world.
Market-Specific Strategies We will continue to pursue market-specific strategies to facilitate customer growth and strengthen our business around the world. While we plan to increase the cadence of promotional and incentive activity across our regions, we will continue to execute strategically timed, market- and region-specific incentives in lieu of larger, world-wide incentive offerings.
We maintain our quality control through controlled sourcing of raw ingredients, manufacturing, packaging and labeling, with testing occurring at several stages of manufacturing. In fiscal years 2022, 2021, and 2020, we expended $11.6 million, $11.1 million, and $10.6 m illion, respectively, on product R&D activities.
In fiscal years 2023, 2022, and 2021, we expended $11.4 million, $11.6 million, and $11.1 m illion, respectively, on product R&D activities. We expect to continue investing in R&D to advance our expertise and leadership in cellular nutrition, as well as overall health and wellness.
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Digital Commerce Initiatives In 2023, we will continue to focus on expanding, enhancing and leveraging our digital capabilities to create the best overall customer experience. Collaboration between our sales leaders and management team, combined with assessment of customer feedback, will continue to be utilized in connection with planned digital investments.
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Further information on these strategies is set out below. Associate Engagement We will continue to offer, promote, and advance in-person engagement events, and incentive trips with our Associates.
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Listed below are some of the digital initiatives we plan to advance in 2023. • Onboarding program and digital tools: In 2022, we launched a new education and communication onboarding program for our new Associates. This program offers product education and utilizes a variety of our key online and app-based digital tools.
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Our engagement efforts will include an increase in smaller meetings and events in our various markets, as well as continuing to promote and offer our large scale events like our China National Meeting and Asia Pacific Convention. Our objective continues to be increasing and improving collaboration amongst our management team, Associates and their customers.
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In 2023, we will continue to promote and improve these digital tools to improve the onboarding process and experience for new Associates through targeted communications, notifications and orientation, which we believe will help drive customer acquisition and retention. • Affiliate program, social selling and digital tools: In January 2023, we launched our Affiliate program in the United States, Canada, and Mexico.
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We also plan to continue offering strategically timed product promotions to increase product demand and drive customer growth. Digital Commerce Initiatives We will continue to invest in, expand, and enhance our digital capabilities to increase our number of active Customers, increase Associate engagement and improve our overall customer experience.
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The Affiliate program offers a new, simplified way for individuals and 3 Table of Contents customers in these markets to share, market, sell, and earn compensation for selling our products. We developed and deployed a variety of digital tools in connection with the launch of this new program.
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In particular, we will continue to enhance our digital tools surrounding the development of promotional and marketing assets for our Associates, our onboarding program, Affiliate program, shopping cart, and other key Associate resources. Product Development We will continue to invest in research and development and product innovation to ensure that USANA remains a leader in clinical nutrition.
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Listed below are some of the strategies we plan to execute on a market-specific basis. • Shifting our focus from large, world-wide incentive offerings to strategically timed, market- and region-specific efforts to incent sales and customer growth. • Continuing to offer product promotions to increase product demand and drive customer growth. • Returning to in-person events and Associate incentive trips where possible.
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Overall, we believe our investment in USANA North allows us to be more agile and cost efficient in responding to both current and future opportunities.
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Examples of these events include our China National Meeting and Asia Pacific Convention, which are both scheduled for the second quarter of 2023. • Increasing the number of in-person meetings and improving collaboration amongst our management team and Associate sales force. • Refocusing our Associate sales force on promoting the science-based differentiation of USANA's products, which includes our proprietary InCelligence Technology®.
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China Strategy We will continue to increase and execute our strategic initiatives in China, some of which include: • Targeting a new customer demographic in China through simple, easy-to-use, digitally-based customer acquisition, fulfillment and service initiatives. • Enhancing our digital capabilities, which entails continued digital investments to improve the overall customer experience.
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China Strategy Notwithstanding the challenges we have experienced over the last several years in China related to the COVID-19 pandemic, we remain optimistic about the long-term growth potential of our China business.
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These investments continue to target improving our (i) onboarding process; (ii) shopping experience and app; and (iii) promotional, marketing and training assets. • Expanding third-party research, collaborations, and partnerships, including those with the National Sports Training Bureau and Beijing University of Chinese Medicine (China).
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Listed below are some of the strategic initiatives in China that we executed in 2022 and plan to continue to advance in 2023: • Advancing our research collaboration with Beijing University of Chinese Medicine (China). • Investing in our branch office redesign strategy, which we believe will enhance the customer experience as well as contribute to increased customer activity and retention. • Advancing and expanding our digital capabilities, which entails continued digital investments to improve the overall customer experience.
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India and International Expansion Late in the fourth quarter of 2023, we commenced operations in India and are optimistic about the long-term growth potential of this new market.
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These investments include: (i) improving the onboarding process through feedback, collaboration with our customers, and automation; (ii) simplifying and enhancing our shopping experience and app in China, which will help increase customer acquisition and retention; and (iii) enhancing our Associate-focused marketing content, which includes new videos and other training materials from our media studio in China. • Continuing to advance and build upon collaborations and partnerships.
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In 2024, we will continue to execute our post-launch market growth strategy by supporting our India team, expanding the portfolio of products we offer in India, and enhancing our promotional and marketing assets in the market. We continue to believe that growth opportunities exist in new international markets and will continue to evaluate new market opportunities for USANA's business.
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We are continuing our partnership with the National Sports Training Bureau and we are looking for additional partnerships to promote our new Active Nutrition line.
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When developing and manufacturing our products, we follow the highest applicable industry quality standards, as established by the U.S. Food and Drug Administration (“FDA”), U.S. Pharmacopeia (“USP”), and other leading non-governmental agencies (“NGO”).
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We also continue to work closely with Beijing University of Chinese Medicine (China) and we hope to have meaningful results from many of these projects and to start commercializing products as soon as possible. 4 Table of Contents International Expansion We continue to believe that China represents a meaningful long-term growth opportunity for the Company, we also believe that growth opportunities exist in new international markets.
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Our ingredients are selected to meet a number of criteria and our quality control is maintained through controlled sourcing of raw ingredients, manufacturing, packaging and labeling, with testing occurring at multiple stages throughout the manufacturing process. 6 Table of Contents Our scientific staff includes experts on human nutrition, cellular biology, biochemistry, genetics, the microbiome, natural product chemistry, foods and cosmetic science, and clinical research.
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Although we have not opened new markets during the COVID-19 pandemic, our team has continued to evaluate new market opportunities for USANA's business and has positioned USANA to announce and launch a new market in late 2023.
Added
In 2023, our research team experienced growth as we dedicated more resources to explore ingredients with a specific emphasis on cell-signaling. This expansion aims to uncover new leads for developing proprietary formulas intended to positively impact cellular health.
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As we continue to focus on innovation, we will look for innovative product opportunities such as our Celavive and Active Nutrition product lines.
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These preclinical and clinical studies are focused on cell-signaling and traditional Chinese medicine to serve as a pipeline of innovative ingredients. During 2023, we had seven clinical studies underway at multiple stages of completion. For completed studies, we published on manuscript, with the others currently under data analysis or manuscript preparation.
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While several studies were paused over the last few years due to the COVID-19 pandemic, in 2021we returned to conducting clinical studies and expect to accelerate the number of studies we conduct in the coming years. When developing and manufacturing our products, we follow the highest applicable industry quality standards, as established by the U.S.
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As noted above, with the expansion of our manufacturing facility in Salt Lake City, Utah, we are able to manufacture our foods product line. Additionally, we plan to increase the proportion of the personal care and skincare products that we manufacture.
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Food and Drug Administration (“FDA”), U.S. Pharmacopeia (“USP”), other leading non-governmental agencies (“NGO”), and government agencies. Our ingredients are selected to meet a number of criteria, including, but not limited to safety, potency, purity, stability, bioavailability, and efficacy. We control the quality of our products throughout all our internal processes, beginning at the formulation stage.
Added
Affiliate program. We offer an Affiliate Program where Affiliates receive unique links to share with others. Affiliates earn a commission on all orders placed through their links, with commission percentages ranging from 15-20% of the product sale amount based on the product category. China Business.
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BabyCare manufactures and produces a significant portion of its products in-house and maintains manufacturing and quality control facilities in Beijing, China and Tianjin, China. This section of this Annual Report gives you more information about our manufacturing, production and quality control operations.
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
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Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
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2024 filing
Biggest changeNeidig received a B.S. in accounting and M.B.A. from the University of Utah. 22 Table of Contents As announced on February 13, 2023, our Board of Directors has appointed Jim Brown as the Company's Chief Executive Officer effective July 1, 2023, at that time, Kevin Guest will transition to Executive Chairman.
Biggest changeBrown was appointed as the Company's Chief Executive Officer, at which time Kevin Guest transitioned to Executive Chairman of the Board. Jim H. Brown was appointed President in 2016 and Chief Executive Officer in July 2023. From 2016 to 2019 Mr. Brown also served as Chief Operating Officer. Mr.
However, these efforts do not completely eliminate the significant risks associated with BabyCare’s operations in China. 11 Table of Contents Associate Training and Motivation. Initial training of Associates about USANA, our products and Compensation Plan, and global direct selling in general, is provided primarily by an Associate’s sponsor and others in the Associate’s sales organization.
However, these efforts do not completely eliminate the significant risks associated with BabyCare’s operations in China. Associate Training and Motivation. Initial training of Associates about USANA, our products and Compensation Plan, and global direct selling in general, is provided primarily by an Associate’s sponsor and others in the Associate’s 11 Table of Contents sales organization.
We believe that our ability to manufacture our own products in-house is a significant competitive advantage for the following reasons: • We can better control the quality of raw materials and finished products; • We can more reliably monitor the manufacturing process to better guarantee potency and bioavailability and to reduce the risk of product contamination; • We can better control production schedules to increase the likelihood of maintaining an uninterrupted supply of products for our customers; 12 Table of Contents • We are able to produce most of our own prototypes in the research phase of product development; and • We are better able to manage the underlying costs associated with manufacturing our products.
We believe that our ability to manufacture our own products in-house is a significant competitive advantage for the following reasons: • We can better control the quality of raw materials and finished products; • We can more reliably monitor the manufacturing process to better guarantee potency and bioavailability and to reduce the risk of product contamination; • We can better control production schedules to increase the likelihood of maintaining an uninterrupted supply of products for our customers; • We are able to produce most of our own prototypes in the research phase of product development; and 12 Table of Contents • We are better able to manage the underlying costs associated with manufacturing our products.
SAMR and other governmental agencies also enforce advertising and other regulations that restrict the ability of health products companies to advertise the benefits of their products in China. In Australia, the TGA regulates product registration, labeling and manufacturing. In Japan, the Ministry of Health, Labor and Welfare regulates these activities.
SAMR and other governmental agencies also enforce advertising and other regulations that restrict the ability of health product companies to advertise the benefits of their products in China. In Australia, the TGA regulates product registration, labeling and manufacturing. In Japan, the Ministry of Health, Labor and Welfare regulates these activities.
Larger markets, including China, however, require more significant local investment. Experienced Management Team. Our management team includes individuals with expertise in various scientific and managerial disciplines, including global direct selling, nutrition, product research and development, international 13 Table of Contents development, marketing, sales, information technology, manufacturing, finance, legal, regulatory, and operations.
Larger markets, including China, however, require more significant local investment. Experienced Management Team. Our management team includes individuals with expertise in various scientific and managerial disciplines, including global direct selling, nutrition, product research and development, international development, marketing, sales, information technology, manufacturing, accounting and finance, legal, regulatory, and 13 Table of Contents operations.
During this review, the Chinese government, among other things, instructed direct selling companies not to hold large distributor meetings, and suspended its application review process for direct sales licenses and authorizations. The Chinese government has yet to re-open the application review process for direct sales licenses and authorizations or indicate if or when it plans to do so.
During this review, the Chinese government, among other things, instructed direct selling companies not to hold large distributor meetings, and suspended its application review process for direct selling licenses and authorizations. The Chinese government has yet to re-open the application review process for direct selling licenses and authorizations or indicate if or when it plans to do so.
To avoid manipulation of our Compensation Plan, return of product when the purchase amount exceeds $100 and the product was not damaged at the time of receipt by the Associate may result in cancellation of an Associate’s distributorship. Major Customers We sell product to independent Associates and Preferred Customers.
To avoid manipulation of our Compensation Plan, return of product when the purchase amount exceeds $100 and the product was not damaged at the time of receipt by the Associate may result in cancellation of an Associate’s distributorship. Major Customers We sell product to independent Associates, Preferred Customers, and retail customers.
Our proprietary product formulations are generally considered trade secrets, but are not otherwise protected under intellectual property laws. 18 Table of Contents We intend to protect our legal rights concerning intellectual property by all appropriate legal action.
Our proprietary product formulations are generally considered trade secrets, but are not otherwise protected under intellectual property laws. 18 Table of Contents We intend to protect our legal rights concerning intellectual property by taking all appropriate legal action.
We believe that our direct-selling business model provides, among others, the following advantages: • No requirement for a company-employed sales force to sell our products, with a relatively low incremental cost to add a new active Customer; • Commissions paid to our Associates are tied to sales performance; • Accounts receivable are minimal because payment is required at the time an active Customer purchases product; • A stream of recurring revenue generated from our monthly product subscription program known as “Auto Order,” which we utilize in all of our markets (this program offers a 10% price discount and represented 65% of our product sales volume for the year ended December 31, 2022); and • The ability to expand into new international markets with moderate investment because we generally maintain only warehouse facilities, customer support, and minimal administrative facilities in those international markets.
We believe that our direct-selling business model provides, among others, the following advantages: • No requirement for a company-employed sales force to sell our products, with a relatively low incremental cost to add a new active Customer; • Commissions paid to our Associates are tied to sales performance; • Accounts receivable are minimal because payment is required at the time an active Customer purchases product; • A stream of recurring revenue generated from our monthly product subscription program known as “Auto Order,” which we utilize in all of our markets (this program offers a 10% price discount and represented 65% of our product sales volume for the year ended December 30, 2023); and • The ability to expand into new international markets with moderate investment because we generally maintain only warehouse facilities, customer support, and minimal administrative facilities in those international markets.
During 2020, for example, the FTC sent warning letters to several nutrition companies and direct-selling companies in connection with advertising claims that the companies and/or their distributor sales people were making about the respective company's products ability to prevent or treat COVID-19. Failure to adhere to FTC warning letters or other orders can result in substantial financial or other penalties.
During 2020, for example, the FTC sent warning letters to several nutrition companies and direct-selling companies in connection with advertising claims that the companies and/or their distributor sales people were making about the respective company's product's ability to prevent or treat COVID-19. Failure to adhere to FTC warning letters or other orders can result in substantial financial or other penalties.
By fostering diversity and inclusion, we are able to create a more vibrant and innovative workplace that benefits all of our employees, customers, and stakeholders.
By fostering diversity, equity, and inclusion, we are able to create a more vibrant and innovative workplace that benefits all of our employees, customers, and stakeholders.
We compete with these entities by emphasizing to our Associates, Preferred Customers, and potential customers the strengths of our business, as described in the "Operating Strengths" section above. Product Returns Product returns have not been a material factor in our business, totaling approximately 0.7%, 0.6%, and 0.7% of net sales in 2022, 2021, and 2020, respectively.
We compete with these entities by emphasizing to our Associates, Preferred Customers, and potential customers the strengths of our business, as described in the "Operating Strengths" section above. Product Returns Product returns have not been a material factor in our business, totaling approximately 0.6%, 0.7%, and 0.6% of net sales in 2023, 2022, and 2021, respectively.
We believe these trademarks, whether registered or claimed under common law, constitute valuable assets, adding to recognition of USANA and the effective marketing of USANA products. Trademark registration once obtained is essentially perpetual, subject to the payment of a renewal fee and continue usage of the trademark.
We believe these trademarks, whether registered or claimed under common law, constitute valuable assets, adding to recognition of USANA and the effective marketing of USANA products. Trademark registration once obtained is essentially perpetual, subject to the payment of a renewal fee and continued usage of the trademark.
We make available, free of charge at our corporate website, copies of our reports filed with the SEC under the Exchange Act, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and all amendments to such reports, as soon as reasonably practicable after such reports or other material have been electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.
We make available, free of charge at our corporate website, copies of our reports filed with the SEC under the Exchange Act, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and all amendments to such reports, as soon as reasonably practicable after such reports or other 22 Table of Contents material have been electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.
Mulham has a postgraduate diploma from Macquarie Graduate School of Management, Sydney. Brent L. Neidig was appointed Executive Vice President of China in February 2017, and in April 2019 was named Chief Officer and Managing Director of China. Mr.
Mulham has a postgraduate diploma from Macquarie Graduate School of Management, Sydney. Brent L. Neidig was appointed Chief Commercial Officer in July 2023. Mr. Neidig was appointed Executive Vice President of China in February 2017, and in April 2019 was named Chief Officer and Managing Director of China. Mr.
It is through our internal R&D efforts, as well as our relationships with outside research organizations and health care providers, that we can provide what we believe to be some of the highest quality health products in the industry. In-house Manufacturing. We manufacture products that account for approximate ly 65% of our product sales.
It is through our internal R&D efforts, as well as our relationships with outside research organizations and health care providers, that we can provide what we believe to be among the highest quality health products in the industry. In-house Manufacturing. We manufacture products that account for approximate ly 67% of our product sales.
Additionally, our global employee population is engaged in online learning platforms and, more than 350 participants have completed our mentorship and coaching program.
Additionally, our global employee population is engaged in online learning platforms and, more than 400 participants have completed our mentorship and coaching program.
Our web applications are supported by a clustered environment providing high availability. All production systems are fully backed up and stored off-site to mitigate the risk of significant interruption of our business in the event of a disaster at the locations of our primary servers.
Our web applications are supported by a clustered environment providing high availability. All systems vital to the functioning of our organization are fully backed up and stored off-site to mitigate the risk of significant interruption of our business in the event of a disaster at the locations of our primary servers.
Our DEI council focuses on education and awareness, access to developmental programs, and community engagement. One of the key elements of our DEI program is our commitment to volunteerism and charitable action. In 2022 we have spent more than 2,600 hours volunteering, working with local organizations to help promote diversity, equity and inclusion in the communities where we operate .
Our DEI council focuses on education and awareness, access to developmental programs, and community engagement. One of the key elements of our DEI program is our commitment to volunteerism and charitable action. In 2023, we spent more than 2,900 hours volunteering, working with local organizations to help promote diversity, equity and inclusion in the communities where we operate .
Our strategy in 2023, and going forward, is to return to in-person meeting and events with our Associates to the extent health and safety practices make it possible. Our plan is to continue to leverage a virtual meeting element as a component of our in-person meetings.
Our strategy in 2024, and going forward, is to offer in-person meetings and events with our Associates to the extent health and safety practices make it possible. Our plan is to continue to leverage a virtual meeting element as a component of our in-person meetings.
We own 28 trademarks that are registered with the U.S. Patent and Trademark Office.
We own 30 trademarks that are registered with the U.S. Patent and Trademark Office.
Additionally, we have launched new programs that foster career development and help to ensure that all employees have the opportunity to reach their full potential. In addition to these internal initiatives, we also partner with other organizations to help achieve our DEI goals.
Additionally, we continued our support of programs that foster career development and help to ensure that all employees have the opportunity to reach their full potential. In addition to these internal initiatives, we also partner with other organizations to help achieve our DEI goals.
Hekking received a B.S. in accounting from the University of Utah and an M.B.A. from Brigham Young University. Paul A. Jones has been our Chief People Officer since 2021. From 2015 to 2021, Mr. Jones was Chief Leadership Development Officer. Mr.
Douglas Hekking became our Chief Financial Officer in May 2017. Mr. Hekking received a B.S. in accounting from the University of Utah and an M.B.A. from Brigham Young University. Paul A. Jones has been our Chief People Officer since 2021. From 2015 to 2021, Mr. Jones was Chief Leadership Development Officer. Mr.
Three of our most critical applications include: • A web-based application that provides online services to Associates, such as training sessions and presentations, online shopping, enrollment, a real-time reporting engine, USANA and product information, web hosting, email, and other tools to help Associates effectively manage their business and sales organizations; • A web-based order-entry system that handles order entry, customer information, compensation, Associate business structure, returns, invoices, and other transactional-based processes; and • A fully integrated world-wide Enterprise Resource Planning (“ERP”) system that handles accounting, human resources, inventory management, production processes, quality assurance, and reporting requirements in a multinational environment.
Below is a list of our most critical applications: • A web-based application and native mobile applications that provide online services to Associates, such as training sessions, presentations, various communication tools, online shopping, enrollment, a real-time reporting engine, product information, web hosting, email, and other tools to help Associates effectively manage their business and sales organizations; • A web-based order-entry system that handles order entry, customer information, compensation, Associate business structure, returns, invoices, and other transactional-based processes; and • A fully integrated world-wide Enterprise Resource Planning (“ERP”) system that handles accounting, human resources, inventory management, production processes, quality assurance, and reporting requirements in a multinational environment.
We also believe that the manner in which we address issues related to workforce demographics, diversity and inclusion, community involvement, talent management, and employee health and safety directly correlates to our success as a business. As of February 24, 2023, we had approximately 1,900 employees working in 23 countries worldwide, as measured by full-time equivalency.
We also believe that the manner in which we address issues related to workforce demographics, diversity, equity, and inclusion, community involvement, talent management, compensation and benefits, and employee health and safety directly correlates to our success as a business. As of February 23, 2024, we had approximately 1,800 employees working in 22 countries worldwide, as measured by full-time equivalency.
As of February 24, 2023, we had no significant backlog of orders. Working Capital Practices Due to our dual role as manufacturer and distributor, we require substantial inventories, as such, we strive to maintain sufficient amounts of inventory in order to provide a high level of service to our customers.
Working Capital Practices Due to our dual role as manufacturer and distributor, we require substantial inventories, as such, we strive to maintain sufficient amounts of inventory in order to provide a high level of service to our customers.
Guest's important role as the leading force of our management and sales efforts, and his talent as a motivating leader, qualify him to serve as a member of the Board. Mr. Guest earned a B.A. in Communications from Brigham Young University. Jim Brown has been President of the Company since 2016.
From 2016 to 2020 Mr. Guest served as Chief Executive Officer. Mr. Guest's important role as the leading force of our management and sales efforts, and his talent as a motivating leader, qualify him to serve as a member of the Board. Mr. Guest earned a B.A. in Communications from Brigham Young University. G.
Corporate Sustainability In 2021, our Board of Directors formed a separate Sustainability Committee to oversee and advise on all matters related to corporate sustainability, including ESG. The Sustainability Committee is composed of directors Peggie Pelosi, Chair; John Fleming; Frederic Winssinger; Tim Wood; and Scott Nixon.
Corporate Sustainability The Sustainability Committee of the Board of Directors oversees and advises on all matters related to corporate sustainability, including ESG. The Sustainability Committee is composed of directors Peggie Pelosi, Chair; John Fleming; Frederic Winssinger; Tim Wood; and J. Scott Nixon.
Seasonality Although we are not significantly affected by seasonality, we do experience variations in the activity of our customers in many of our markets in the first and fourth quarters around major cultural events such as Chinese New Year and Christmas. Backlog Our products are typically shipped within 72 hours after receipt of an order.
Seasonality We experience variations in the activity of our customers in many of our markets in the first and fourth quarters around major cultural events such as Lunar New Year and Christmas. Backlog Our products are typically shipped within 72 hours after receipt of an order. As of February 23, 2024, we had no significant backlog of orders.
Fleming 79 Director Scott Nixon 63 Director Additional Available Information We maintain our corporate headquarters, executive offices, and principal facilities at 3838 West Parkway Boulevard, Salt Lake City, Utah 84120. Our telephone number is (801) 954-7100. Our website address is www.usanahealthsciences.com .
Pelosi 68 Director Frederic J. Winssinger 55 Director Timothy Wood 75 Director John T. Fleming 80 Director J. Scott Nixon 64 Director Additional Available Information We maintain our corporate headquarters, executive offices, and principal facilities at 3838 West Parkway Boulevard, Salt Lake City, Utah 84120. Our telephone number is (801) 954-7100. Our website address is www.usana.com .
We systematically review reports of alleged Associate misbehavior. Infractions of the policies and procedures are reported to our Ethics and Education group, who determine what, if any, disciplinary action is warranted in each case. More serious infractions are also reported to our Ethics Committee, which includes USANA executives.
In the ordinary course of our business, we encounter Associates who fail to adhere to our policies and procedures. We systematically review reports of alleged Associate misbehavior. Infractions of the policies and procedures are reported to our Ethics and Education group, who determine what, if any, disciplinary action is warranted in each case.
In 2022, the USANA Foundation: • Provided over 12 million meals; • Provided over $500,000 in aid and grants to partner charities around the world; • Distributed weekly backpacks of food for children in 42 schools to take home on the weekend; • Supported 44 additional schools by providing large packs of food for children to take home during long holiday breaks; and • Gifted approximately 6,000 bottles of children's vitamins to s ome of the most malnourished children around the world.
In 2023, the USANA Foundation: • Provided over 30 million meals; • Provided aid and grants to partner charities around the world; • Distributed backpacks of food for at risk children in local schools to take home on the weekend and during long holiday breaks; and • Gifted bottles of children's vitamins to s ome of the most malnourished children around the world.
If we determine that an Associate has violated any of our policies and procedures, we may take a number of disciplinary actions, including warnings, fines or probation.
More serious infractions are also reported to our Ethics Committee, which includes USANA executives. If we determine that an Associate has violated any of our policies and procedures, we may take a number of disciplinary actions, including warnings, fines or probation.
Associates are permitted to produce their own marketing and promotional materials. However, prior to doing so, Associates are required to complete an Advertising Certification to help educate them and prevent them from making unapproved product and business claims. In the ordinary course of our business, we encounter Associates who fail to adhere to our policies and procedures.
Associates are permitted to produce their own marketing and promotional materials. However, prior to doing so, Associates are required to complete an Advertising Certification to help educate them and prevent them from making unapproved product and business claims (with the exception of Mainland China where Associates are only allowed to use advertising material created by the Company).
A discussion of the risks relating to our ability to attract and retain active Associates and Preferred Customers, and the loss of key management, is included in Item 1A.
A discussion of the risks relating to our ability to attract and retain active Associates and Preferred Customers, and the loss of key management, is included in Item 1A. Risk Factors . Information About Our Executive Officers and Directors Executive Officers The following table sets forth certain information regarding our Executive Officers as of the date of this Annual Report.
A health clinic located on the campus of our corporate headquarters provides medical and mental health care, and is actively engaged in the health of about 46% of our eligible employees. The health and safety of our employees around the world remains our top priority.
A health clinic located on the campus of our corporate headquarters provides medical and mental health care, and is actively engaged in the health of about 52% of our eligible employees. We recognize that a strong commitment to community is essential to all stakeholders.
Board of Directors The following table sets forth certain information regarding our Directors as of the date of this Annual Report. Name Age Position Kevin Guest 60 Chief Executive Officer and Chairman of the Board Gilbert A. Fuller 82 Director Xia Ding 52 Director Peggie J. Pelosi 67 Director Frederick J. Winssinger 54 Director Timothy Wood 74 Director John T.
Neidig received a B.S. in accounting and M.B.A. from the University of Utah. Board of Directors The following table sets forth certain information regarding our Directors as of the date of this Annual Report. Name Age Position Kevin Guest 61 Executive Chairman of the Board Gilbert A. Fuller 83 Director Xia Ding 53 Director Peggie J.
From 2016 to 2019 he served as President and Chief Operating Officer. Mr. Brown received a bachelor’s degree with a double major in computer science and math, and an M.B.A. from Francis Marion University in Florence, South Carolina. G. Douglas Hekking became our Chief Financial Officer in May 2017. Mr.
Brown received a bachelor’s degree with a double major in computer science and math, and an M.B.A. from Francis Marion University in Florence, South Carolina. 21 Table of Contents Kevin G. Guest was appointed Executive Chairman of the Board in July 2023. From 2020 to July 2023 Mr. Guest served as Chairman of the Board and Chief Executive Officer.
We also watch seasonal commodity markets and may buy ahead of normal demand to hedge against cost increases and supply risks.
At times we may strategically choose to carry a greater amount of inventory for various reasons, such as promotional activity, product launches, and uncertainty in supply and distribution channels. We also watch seasonal commodity markets and may buy ahead of normal demand to hedge against cost increases and supply risks.
Douglas Hekking 53 Chief Financial Officer Paul A. Jones 59 Chief People Officer P. Joshua Foukas 47 Chief Legal Officer, General Counsel and Corporate Secretary Daniel A.
Name Age Position Jim H. Brown (1) 55 Chief Executive Officer and President Kevin G. Guest (1) 61 Executive Chairman of the Board G. Douglas Hekking 54 Chief Financial Officer Paul A. Jones 60 Chief People Officer P. Joshua Foukas 48 Chief Legal Officer, General Counsel and Corporate Secretary Daniel A.
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We remain committed to being socially responsible as a corporate leader in each of our markets and doing our part to reduce the spread of COVID-19. As such, we continue to utilize a modified operating model in each of our markets as necessary to follow applicable guidelines from government and health officials.
Added
We utilize the USANA Foundation, which operates independently of the Company, to provide philanthropic nutrition to underserved children and families worldwide.
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Although a significant portion of our non-manufacturing and non-distribution employees continued with remote working arrangements, we began efforts during the second quarter of 2021 to bring these employees back to our offices, in markets where health and safety best practices have allowed us to safely do so.
Added
Macuga 54 Chief Communications and Marketing Officer Robert Sinnott 59 Chief Scientific Officer Walter Noot 58 Chief Operating Officer David Mulham 63 Chief Sales Officer Brent Neidig 40 Chief Commercial Officer (1) As announced on February 13, 2023, effective July 1, 2023, Jim H.
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In connection with this effort, permit most of our employees to utilize a hybrid work schedule, which allows them to split their time working at the office and remotely. Employees working on site are required to follow applicable health and safety guidelines.
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We continue to utilize flexible shift schedules, time and attendance policies, and sick-leave policies to promote health, wellness and safety. Where necessary in our international markets, we have temporarily closed product will-call centers and continue to offer curbside delivery and subsidized shipping to customers.
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We will continue to monitor the situation surrounding the pandemic and implement additional risk mitigation actions where necessary. We recognize that a strong commitment to community is essential to all stakeholders. In 2012, we established the USANA Foundation, which operates independently to provide nutrition to under-privileged children and families worldwide.
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Risk Factors . 21 Table of Contents Information About Our Executive Officers and Directors Executive Officers The following table sets forth certain information regarding our Executive Officers as of the date of this Annual Report. Name Age Position Kevin G. Guest 60 Chief Executive Officer and Chairman of the Board Jim Brown 54 President G.
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Macuga 53 Chief Communications and Marketing Officer Robert Sinnott 58 Chief Scientific Officer Walter Noot 57 Chief Operating Officer David Mulham 62 Chief Sales Officer Brent Neidig 39 Chief Officer and Managing Director of China Kevin G. Guest was appointed Chief Executive Officer in 2016 and Chairman of the Board and Chief Executive Officer in May 2020. Mr.
Item 2. Properties
Properties — owned and leased real estate
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Item 2. Properties
Properties — owned and leased real estate
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Biggest changeOther Office and Distribution Warehouse Facilities We own a 45,000 square foot office and warehouse building in Sydney, Australia. In other markets, we lease regional offices and distribution warehouses. Additionally, we lease retail centers for our operations in China and a packaging facility in Singapore, which fulfills orders for our MyHealthPak™ product in our Asia Pacific markets.
Biggest changeOther Office and Distribution Warehouse Facilities We own a 45,000 square foot office and warehouse building in Sydney, Australia. In other markets, we lease regional offices and distribution warehouses. Additionally, we lease retail centers for our operations in China. We believe that the facilities referenced above are in good condition and are adequately utilized.
We believe that the facilities referenced above are in good condition and are adequately utilized. Further, we believe that our current and planned manufacturing facilities provide for the productive capacity to meet our foreseeable needs.
Further, we believe that our current and planned manufacturing facilities provide for the productive capacity to meet our foreseeable needs.
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
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Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
5 edited+1 added−1 removed2 unchanged
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Biggest changeEach of the companies included in the Peer Group markets or manufactures products similar to our products or markets its products through a similar marketing channel. The Peer Group includes the following companies: Nu Skin Enterprises, Inc., Herbalife Nutrition Ltd., LifeVantage Corporation, Medifast, Inc., Nature's Sunshine Products, Inc., and Mannatech, Inc.
Biggest changeEach of the companies included in the Peer Group markets or manufactures products similar to our products or markets its products through a similar marketing channel.
The data shown assumes an investment on December 31, 2016, of $100 in our common stock and each of the other equities and reinvestment of all dividends into additional shares of the same class of equity, if applicable to the stock or index.
The data shown assumes an investment on December 31, 2018, of $100 in our common stock and each of the other equities and reinvestment of all dividends into additional shares of the same class of equity, if applicable to the stock or index.
“ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ” Share Repurchases Our share repurchase plan has been ongoing since the fourth quarter of 2000, with our Board of Directors periodically approving additional dollar amounts for share repurchases under the plan. There were no share repurchases made during the quarter ended December 31, 2022.
“ Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. ” Share Repurchases Our share repurchase plan has been ongoing since the fourth quarter of 2000, with our Board of Directors periodically approving additional dollar amounts for share repurchases under the plan. There were no share repurchases made during the quarter ended December 30, 2023.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the NYSE under the symbol “USNA.” As of February 24, 2023, we had approximately 244 holders of record of our common stock. We have never declared or paid cash dividends on our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the NYSE under the symbol “USNA.” As of February 23, 2024, we had approximately 237 holders of record of our common stock. We have never declared or paid cash dividends on our common stock.
As of December 31, 2022, the remaining authorized repurchase amount under the stock repurchase plan was $82.8 million. There is no expiration date on the remaining approved repurchase amount and no requirement for future share repurchases.
As of December 30, 2023, the remaining authorized repurchase amount under the stock repurchase plan was $71.2 million inclusive of accrued excise tax. There is no expiration date on the remaining approved repurchase amount and no requirement for future share repurchases.
Removed
The change to the Index and the Peer Group was made to address changes in the external market and to better reflect our business. 40 Table of Contents USNA Russell 2000 Peer Group Dec 17 $ 100 $ 100 $ 100 Dec 18 $ 159 $ 88 $ 97 Dec 19 $ 106 $ 109 $ 80 Dec 20 $ 104 $ 129 $ 116 Dec 21 $ 137 $ 146 $ 131 Dec 22 $ 72 $ 115 $ 81
Added
The Peer Group includes the following companies: Nu Skin Enterprises, Inc., Herbalife Nutrition Ltd., LifeVantage Corporation, Medifast, Inc., Nature's Sunshine Products, Inc., and Mannatech, Inc. 41 Table of Contents USNA Russell 2000 Peer Group Dec 2018 $100 $100 $100 Dec 2019 $67 $124 $100 Dec 2020 $65 $146 $80 Dec 2021 $86 $166 $111 Dec 2022 $45 $131 $114 Dec 2023 $46 $150 $65
Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
47 edited+7 added−10 removed29 unchanged
Item 6. [Reserved]
Selected Financial Data — reserved (removed by SEC in 2021)
47 edited+7 added−10 removed29 unchanged
2023 filing
2024 filing
Biggest changeFiscal Year 2022 compared to Fiscal Year 2021 Net Sales The following table summarizes the changes in our net sales by geographic region for the fiscal years ended December 31, 2022, and January 1, 2022: Net Sales by Region (in thousands) Change from prior year Percent change Currency impact on sales Percent change excluding currency impact Twelve Months Ended December 31, 2022 January 1, 2022 Asia Pacific Greater China $ 502,486 50.3 % $ 563,469 47.5 % $ (60,983) (10.8) % $ (18,892) (7.5) % Southeast Asia Pacific 190,478 19.1 % 269,803 22.7 % (79,325) (29.4) % (13,994) (24.2) % North Asia 108,952 10.9 % 129,920 11.0 % (20,968) (16.1) % (13,809) (5.5) % Asia Pacific Total 801,916 80.3 % 963,192 81.2 % (161,276) (16.7) % (46,695) (11.9) % Americas and Europe 196,685 19.7 % 223,272 18.8 % (26,587) (11.9) % (3,033) (10.5) % $ 998,601 100.0 % $ 1,186,464 100.0 % $ (187,863) (15.8) % $ (49,728) (11.6) % Asia Pacific: The decline in this region is largely the result of the challenging operating environment as discussed above.
Biggest changeThe decrease in net earnings was primarily the result of decreased sales and higher relative operating expenses. 44 Table of Contents Fiscal Year 2023 compared to Fiscal Year 2022 Net Sales The following table summarizes the changes in our net sales by geographic region for the fiscal years ended December 30, 2023, and December 31, 2022: Net Sales by Region (in thousands) Change from prior year Percent change Currency impact on sales Percent change excluding currency impact Twelve Months Ended December 30, 2023 December 31, 2022 Asia Pacific Greater China $ 475,099 51.6 % $ 502,486 50.3 % $ (27,387) (5.5) % $ (22,498) (1.0) % Southeast Asia Pacific 163,890 17.8 % 190,478 19.1 % (26,588) (14.0) % (4,376) (11.7) % North Asia 101,446 11.0 % 108,952 10.9 % (7,506) (6.9) % (1,774) (5.3) % Asia Pacific Total 740,435 80.4 % 801,916 80.3 % (61,481) (7.7) % (28,648) (4.1) % Americas and Europe 180,575 19.6 % 196,685 19.7 % (16,110) (8.2) % 882 (8.6) % $ 921,010 100.0 % $ 998,601 100.0 % $ (77,591) (7.8) % $ (27,766) (5.0) % Asia Pacific: The decrease in constant currency net sales in Greater China was primarily the result of a sales decline in China and Taiwan where local currency net sales decreased 0.6% and 3.9%, respectively.
Overview We develop and manufacture high quality, science-based nutritional and personal care and skincare products that are distributed internationally through direct selling. We use this distribution method because we believe it is more conducive to meeting our vision as a company, which is to improve the overall health and nutrition of individuals and families around the world.
Overview We develop and manufacture high quality, science-based nutritional and personal care and skincare products that are distributed internationally primarily through direct selling. We use this distribution method because we believe it is more conducive to meeting our vision as a company, which is to improve the overall health and nutrition of individuals and families around the world.
Summary We believe that current cash balances, future cash provided by operations, and amounts available under our line of credit will be sufficient to cover our operating and capital needs in the ordinary course of business for the foreseeable future. If we experience an adverse operating environment or unanticipated and unusual capital expenditure requirements, additional financing may be required.
Summary We believe our current cash balances, future cash provided by operations, and amounts available under our line of credit will be sufficient to cover our operating and capital needs in the ordinary course of business for the foreseeable future. If we experience an adverse operating environment or unanticipated and unusual capital expenditure requirements, additional financing may be required.
Deferred revenue is recognized when or as the related performance obligation is satisfied. On the occasion that will-call orders are not picked up by customers, we periodically assess the likelihood that customers will exercise their contractual right to pick up orders and recognize revenue when the likelihood that customers will pick up orders is remote. Inventory Valuation.
Deferred revenue is recognized when or as the related performance obligation is satisfied. On the occasion that will-call orders are not picked up by customers, we periodically assess the likelihood that customers will exercise their contractual right to pick up orders and recognize revenue when the likelihood that customers will pick up orders becomes remote. Inventory Valuation.
Our customer base is primarily comprised of two types of customers: “Associates” and “Preferred Customers” referred to together as “active Customers.” Our Associates also sell our products to retail customers. Associates share in our company vision by acting as independent distributors of our products in addition to purchasing our products for their personal use.
Our customer base is primarily comprised of two types of customers: “Associates” and “Preferred Customers,” referred to together as “active Customers.” Our Associates also sell our products to retail customers. Associates share in our company vision by acting as independent distributors of our products in addition to purchasing our products for their personal use.
Liquidity and Capital Resources We have historically met our working capital and capital expenditure requirements by using both net cash flow from operations and by drawing on our line of credit. Our principal source of liquidity is our operating cash flow.
Liquidity and Capital Resources We have historically met our working capital and capital expenditure requirements by using net cash flow from operations and by drawing on our line of credit. Our principal source of liquidity is our operating cash flow.
This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes. We provide such non-GAAP financial information for informational purposes only. Readers should consider the information in addition but not instead of or superior to, our Consolidated Financial Statements prepared in accordance with GAAP, accompanying this report.
This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes. We provide such non-GAAP financial information for informational purposes only. Readers should consider the information in addition but not instead of or superior to, our Consolidated Financial Statements prepared in accordance with U.S. GAAP, accompanying this report.
Non-GAAP Financial Measures We believe that presentation of certain non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes these measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business.
Non-GAAP Financial Measures We believe that presentation of certain non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes these measures reflect an additional way of viewing aspects of our business that, when viewed with our U.S. GAAP results, provide a more complete understanding of factors and trends affecting our business.
Results of Operations Summary of 2022 Financial Results Our discussion and analysis is focused on our 2022 and 2021 financial results, including comparisons of our year-over-year performance between these years. Discussion and analysis of our 2020 fiscal year specifically, as well as the year-over-year comparison of our 2021 financial performance to 2020, are located in Part II, Item 7.
Results of Operations Summary of 2023 Financial Results Our discussion and analysis is focused on our 2023 and 2022 financial results, including comparisons of our year-over-year performance between these years. Discussion and analysis of our 2021 fiscal year specifically, as well as the year-over-year comparison of our 2022 financial performance to 2021, are located in Part II, Item 7.
In analyzing business trends and performance, management uses “constant currency” net sales, “local currency” net sales, and other currency-related financial information terms to discuss our financial results in a way we believe is 43 Table of Contents helpful in understanding the impact of fluctuations in foreign-currency exchange rates and facilitating period-to-period comparisons of results of operations and providing investors an additional perspective on trends and underlying business results.
In analyzing business trends and performance, management uses “constant currency” net sales, “local currency” net sales, and other currency-related financial information terms to discuss our financial results in a way we believe is helpful in understanding the impact of fluctuations in foreign-currency exchange rates and facilitating period-to-period comparisons of results of operations and providing investors an additional perspective on trends and underlying business results.
We receive payment, primarily via credit card, for the sale of products at the time customers place orders and payment is required prior to shipment. Our 47 Table of Contents product sales contracts include terms that could cause variability in the transaction price for items such as discounts, credits, or sales returns.
We receive payment, primarily via credit card, for the sale of products at the time customers place orders and payment is required prior to shipment. Our product sales contracts include terms that could cause variability in the transaction price for items such as discounts, credits, or sales returns.
Increases or decreases in product sales are typically the result of variations in the volume of product sold relating to fluctuations in the number of active Customers purchasing our products. The number of active Associates and Preferred Customers is therefore used by management as a key non-financial indicator to evaluate our operational performance.
Increases or decreases in product sales are typically the result of variations in the volume of product sold relating to fluctuations in the number of active Customers purchasing our products. The number of active Associates and 42 Table of Contents Preferred Customers is therefore used by management as a key non-financial indicator to evaluate our operational performance.
Preferred Customers purchase our products strictly for personal use and are not permitted to resell or to distribute the products. We only count as active Customers those Associates and Preferred Customers who have purchased from us at any time during the most recent three-month period. As of December 31, 2022, we had approximately 490,000 active Customers worldwide.
Preferred Customers purchase our products strictly for personal use and are not permitted to resell or to distribute the products. We only count as active Customers those Associates and Preferred Customers who have purchased from us at any time during the most recent three-month period. As of December 30, 2023, we had approximately 483,000 active Customers worldwide.
Net cash flow provided by operating activities totaled $103.9 million in 2022. Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by cash used to payout the annual employee bonus, reduce accruals related to inventories, and a reduction in trade payables.
Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by cash used to payout the annual employee bonus, reduce accruals related to inventories, and a reduction in trade payables.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of USANA’s financial condition and results of operations is presented in 10 sections: • Overview • Impact of the COVID-19 Pandemic • Customers • Presentation • Non-GAAP Financial Measures • Results of Operations • Liquidity and Capital Resources • Contractual Obligations and Commercial Contingencies • Inflation 41 Table of Contents • Critical Accounting Policies and Estimates This discussion and analysis from management's perspective should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of USANA’s financial condition and results of operations is presented in nine sections: • Overview • Customers • Presentation • Non-GAAP Financial Measures • Results of Operations • Liquidity and Capital Resources • Contractual Obligations and Commercial Contingencies • Inflation • Critical Accounting Policies and Estimates This discussion and analysis from management's perspective should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this report.
“ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022, filed with the SEC on March 1, 2022, which is available on our investor relations website at https://ir.usana.com or the SEC’s website at www.sec.gov.
“ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on February 28, 2023, which is available on our investor relations website at https://ir.usana.com or the SEC’s website at www.sec.gov.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased 280 basis points relative to net sales and decreased $16.8 million in absolute terms. The relative increase can be attributed to leverage lost on lower net sales.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased 160 basis points relative to net sales and decreased $5.3 million in absolute terms. The relative increase can be attributed to leverage lost on lower net sales.
Additionally, unfavorable changes in currency exchange rates, have impacted cash and cash equivalents, and restricted cash by an estimated $13.8 million.
Additionally, unfavorable changes in currency exchange rates, have impacted cash and cash equivalents, and restricted cash by an estimated $2.5 million.
Actual results, however, may sometimes differ materially from estimates under different conditions. Critical accounting estimates are defined as both those that are material to the portrayal of our financial condition and results of operations and those that require management’s most subjective judgments. We believe that our most critical accounting policies and estimates are described in this section. Revenue Recognition.
Critical accounting estimates are defined as both those that are material to the portrayal of our financial condition and results of operations and those that require management’s most subjective judgments. We believe that our most critical accounting policies and estimates are described in this section. Revenue Recognition.
The effective tax rate increase is due primarily to a change in the market mix of pre-tax book income. Diluted Earnings Per Share Diluted EPS decreased to $3.59 in 2022 from $5.73 in 2021. This decrease can be attributed to lower net earnings, partially offset by lower diluted share count.
The effective tax rate increase is due primarily to a change in the market mix of pre-tax book income. 45 Table of Contents Diluted Earnings Per Share Diluted EPS decreased to $3.30 in 2023 from $3.59 in 2022. This decrease can be attributed to lower net earnings.
No assurance can be given, however, that additional financing, if required, would be available at all or on favorable terms. We might also require or seek additional financing for the purpose of expanding into new markets, growing our existing markets, or for other reasons. Such financing may include the use of additional debt or the sale of additional equity securities.
No assurance can be given, however, that additional financing, if required, would be available to us at all or on favorable terms. We might also require or seek additional financing for the purpose of expanding into new markets, growing our existing markets, mergers and acquisitions, or for other reasons.
The following table below presents concentrations of cash and cash equivalents by market for the periods indicated: Cash and cash equivalents (in Millions) As of December 31, 2022 As of January 1, 2022 China $ 129.8 $ 139.9 United States 114.1 51.9 All other markets 44.5 48.0 Total Cash and cash equivalents $ 288.4 $ 239.8 Cash Flows Provided by Operations and Significant Uses of Cash As discussed above, our principal source of liquidity comes from cash flows provided by operating activities, which results from a strong operating margin.
The following table below presents concentrations of cash and cash equivalents by market for the periods indicated: Cash and cash equivalents (in Millions) As of December 30, 2023 As of December 31, 2022 United States $ 169.9 $ 114.1 China $ 111.0 $ 129.8 All other markets $ 49.5 $ 44.5 Total Cash and cash equivalents $ 330.4 $ 288.4 Cash Flows Provided by Operations and Significant Uses of Cash As discussed above, our principal source of liquidity comes from cash flows from operations.
Total Active Customers by Region Change from Prior Year Percent Change As of December 31, 2022 As of January 1, 2022 Asia Pacific: Greater China 244,000 49.8 % 255,000 45.5 % (11,000) (4.3 %) Southeast Asia Pacific 87,000 17.8 % 115,000 20.5 % (28,000) (24.3 %) North Asia 53,000 10.8 % 58,000 10.4 % (5,000) (8.6 %) Asia Pacific Total 384,000 78.4 % 428,000 76.4 % (44,000) (10.3 %) Americas and Europe 106,000 21.6 % 132,000 23.6 % (26,000) (19.7 %) 490,000 100.0 % 560,000 100.0 % (70,000) (12.5 %) 42 Table of Contents Presentation Product sales along with the shipping and handling fees billed to our customers are recorded as revenue net of applicable sales discounts when, or as control of, the promised product is transferred to the customer, which is at the time of delivery to the third party carrier for shipment.
Total Active Customers by Region Change from Prior Year Percent Change As of December 30, 2023 As of December 31, 2022 Asia Pacific: Greater China 255,000 52.8 % 244,000 49.8 % 11,000 4.5 % Southeast Asia Pacific 80,000 16.6 % 87,000 17.8 % (7,000) (8.0 %) North Asia 48,000 9.9 % 53,000 10.8 % (5,000) (9.4 %) Asia Pacific Total 383,000 79.3 % 384,000 78.4 % (1,000) (0.3 %) Americas and Europe 100,000 20.7 % 106,000 21.6 % (6,000) (5.7 %) 483,000 100.0 % 490,000 100.0 % (7,000) (1.4 %) Presentation Product sales along with the shipping and handling fees billed to our customers are recorded as revenue net of applicable sales discounts when, or as control of, the promised product is transferred to the customer, which is at the time of delivery to the third party carrier for shipment.
Net realizable value is determined using various assumptions with regard to excess or slow-moving inventories, non-conforming inventories, expiration dates, current and future product demand, production planning, and market conditions. The forecasted future product demand for excess or slow-moving inventories is based on judgment and available information. A change in any valuation assumptions could result in an adjustment to inventory.
Net realizable value is determined using various assumptions with regard to excess or slow-moving inventories, non-conforming inventories, expiration dates, current and future product demand, production planning, and market conditions. The forecasted future product demand for excess or slow-moving inventories is based on judgment 48 Table of Contents and available information.
Like many other global companies, we are facing significant inflationary pressures in the world economy. Inflationary pressures are growing as we renew pricing arrangements, notably for certain direct materials, wages, energy, and transportation costs. These inflationary pressures, including margin pressure from inflation as well as the cost of capital could continue to grow in 2023.
Inflation Like many other global companies, we are facing significant inflationary pressures in the world economy. Inflationary pressures are growing as we renew pricing arrangements, notably for certain direct materials, wages, energy, and transportation costs.
However, the reported carrying value of inventory is not highly sensitive to reasonable changes in individual assumptions.
A change in any valuation assumptions could result in an adjustment to inventory. However, the reported carrying value of inventory is not highly sensitive to reasonable changes in individual assumptions.
That information is incorporated by reference into this report. Net sales in 2022 decreased 15.8%, or $187.9 million, to $998.6 million, compared with 2021.
That information is incorporated by reference into this report. Net sales in 2023 decreased 7.8%, or $77.6 million, to $921.0 million, compared with 2022.
“Other Commitments” generally include consulting- and IT-related services, investments in brand awareness through corporate and athlete sponsorships, facility maintenance, and services related to the events that we hold for our Associates both locally and internationally. Additionally, throughout the year we will enter into various short-term contracts, mostly for services related to events that we hold for our Associates.
“Other Commitments” generally include consulting- and IT-related services, investments in brand awareness through corporate and athlete sponsorships, facility maintenance, services related to the events that we hold for our Associates both locally and internationally, and local lines of credit.
Our primary focus continues to be increasing the number of active Customers. We believe this focus is consistent with our vision of improving the overall health and nutrition of individuals and families around the world. Sales to Associates accounted for approxim ately 53.4% of product sales during 2022 with the remainder of our sales being to Preferred Customers.
We believe this focus is consistent with our vision of improving the overall health and nutrition of individuals and families around the world. Sales to Associates account for approxim ately 52% of Direct-selling segment product sales during 2023, with the remainder of our sales being to Preferred Customers.
Line of Credit Information with respect to our line of credit may be found in Note J to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
Additionally, cash used to repurchase and retire shares was $25.4 million for 2022. 46 Table of Contents Line of Credit Information with respect to our line of credit may be found in Note J to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
Associate Incentives Associate incentives decreased 30 basis points to 43.5% of net sales in 2022, compared with 43.8% in the prior year. The relative decrease can primarily be attributed to a decrease in promotional incentives, as described above, and decreased spend on miscellaneous associate incentives.
Associate Incentives Associate incentives decreased 70 basis points to 42.8% of net sales in 2023, compared with 43.5% in the prior year. The relative decrease can primarily be attributed to decreased spend on promotional and program incentives, as well as modest price increases that occurred throughout the year.
Consequently, our net sales and earnings are affected by changes in currency exchange rates. In general, our operating results are affected positively by a weakening U.S. dollar and negatively by a strengthening U.S. dollar.
With the exception of China, our raw material purchases from suppliers and product purchases from third-party manufacturers are transacted in U.S. dollars. Consequently, our net sales and earnings are affected by changes in currency exchange rates. In general, our operating results are affected positively by a weakening U.S. dollar and negatively by a strengthening U.S. dollar.
The decreased expense in absolute terms can be primarily attributed to lower costs on variable expenses, as well as lower employee related costs. Income Taxes Income taxes increased to 36.2% of pre-tax earnings in 2022, up from 31.7% of pre-tax earnings in 2021.
The decreased expense in absolute terms can be primarily attributed to a decrease in variable operating expenses as well as the capitalization of expenses associated with our digital commerce initiatives . Income Taxes Income taxes increased to 37.7% of pre-tax earnings in 2023, up from 36.2% of pre-tax earnings in 2022.
These factors and others related to the COVID-19 pandemic will likely continue to negatively affect our business throughout 2023 in a number of ways. Customers Because we sell our products to a customer base of independent Associates and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, or both.
Customers Because we sell our products to a customer base of independent Associates and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, or both. Our primary focus continues to be increasing the number of active Customers.
The decrease in constant currency net sales in North Asia was most notable in South Korea, which had a local currency net sales decline of 4.9%.
There were local currency declines in all markets in the Southeast Asia Pacific sub-region, most notable in the Philippines and Australia, which had local currency net sales declines of 25.7% and 8.4%, respectively. The decrease in constant currency net sales in North Asia was most notable in South Korea, which had a local currency net sales decline of 5.6%.
Information with respect to our Unconditional Purchase Obligations may be found in Note K to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference. Inflation We do not believe that inflation has had a material impact on our historical operations or profitability.
Additionally, throughout the year we will enter into various short-term contracts, mostly for services related to events that we hold for our Associates. Information with respect to our Unconditional Purchase Obligations may be found in Note K to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report, which is incorporated by reference.
The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Those estimates and assumptions are derived and are continually evaluated based on our historical experiences, current facts and circumstances, and on changes in the business environment.
Our significant accounting policies are described in the Consolidated Financial Statements included herein. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes.
Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders. 46 Table of Contents Contractual Obligations and Commercial Contingencies The following table summarizes our contractual obligations and commitments as of December 31, 2022 and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods: Payments Due By Period (in thousands) Contractual Obligations Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Operating Leases $ 15,064 $ 7,214 $ 7,233 $ 617 $ — Other Commitments 32,690 23,544 7,583 1,563 — Total Contractual Obligations $ 47,754 $ 30,758 $ 14,816 $ 2,180 $ — “Operating Leases” generally provide that property taxes, insurance, and maintenance expenses are our responsibility.
Contractual Obligations and Commercial Contingencies The following table summarizes our contractual obligations and commitments as of December 30, 2023, and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods: Payments Due By Period (in thousands) Contractual Obligations Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Operating Leases $ 12,900 $ 7,609 $ 5,170 $ 121 $ — Other Commitments 31,771 21,438 10,282 51 — Total Contractual Obligations $ 44,671 $ 29,047 $ 15,452 $ 172 $ — “Operating Leases” generally provide that property taxes, insurance, and maintenance expenses are our responsibility.
Sales to customers outside the United States are transacted in the respective local currencies and translated to U.S. dollars at weighted-average currency exchange rates for each monthly accounting period to which they relate. With the exception of China, our raw material purchases from suppliers and product purchases from third-party manufacturers are transacted in U.S. dollars.
Significant depreciation and amortization expense is incurred as a result of investments in physical facilities, computer and information technology infrastructure to support our international operations. 43 Table of Contents Sales to customers outside the United States are transacted in the respective local currencies and translated to U.S. dollars at weighted-average currency exchange rates for each monthly accounting period to which they relate.
Critical Accounting Policies and Estimates Our Consolidated Financial Statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Our significant accounting policies are described in Consolidated Financial Statements included herein.
These inflationary pressures, including margin pressure from inflation as well as the cost of capital could continue to grow in 2024. 47 Table of Contents Critical Accounting Policies and Estimates Our Consolidated Financial Statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Gross Profit Gross profit decreased 100 basis points to 80.6% of net sales, down from 81.6% in 2021. The decrease in gross profit margin can be attributed to unfavorable changes in currency exchange rates, higher scrap and inventory valuation, increased product costs, and loss of leverage on lower sales.
The increase in gross profit margin can be attributed to decreased inventory valuation adjustments, and the impact of modest price increases that occurred throughout the year. These increases were partially offset by higher material costs, unfavorable changes in currency exchange rates, and loss of leverage on lower sales.
Additionally, unfavorable changes in currency exchange rates decreased net sales for the year by an estimated $49.7 million. Net earnings decreased 40.5% to $69.4 million in 2022, when compared with 2021. The decrease in net earnings was primarily the result of decreased sales and higher relative operating expenses.
Consequently, we experienced a decline in active Customers of 1.4% compared to the prior year. Additionally, unfavorable changes in currency exchange rates decreased net sales for the year by an estimated $27.8 million. Net earnings decreased 8.0% to $63.8 million in 2023, when compared with 2022.
Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by purchase of inventories, the payout of the annual employee bonus, and a reduction in trade payables. Additionally, cash used to repurchase and retires shares was $177.8 million for 2021.
Net cash flow provided by operating activities totaled $70.6 million in 2023. Net earnings combined with adjustments of non-cash items contributed positively to our net cash flow provided by operating activities, partially offset by changes in working capital.
Additionally, cash used to repurchase and retire shares was $25.4 million for 2022. Net cash flow provided by operating activities totaled $121.2 million in 2021.
Other significant uses of cash included an investment of $14.5 million to purchase property and equipment primarily related to our digital commerce initiatives and our India operations. Additionally, cash used to repurchase and retire shares totaled $11.6 million for 2023. Net cash flow provided by operating activities totaled $103.9 million in 2022.
As a result, there were local currency sales declines in all markets in this region. The decrease in constant currency net sales in Greater China was most notable in China, where local currency net sales decreased 7.0%.
Americas and Europe : There were local currency sales declines in all markets in this region.
Cash flow provided by operating activities generated $103.9 million partially offset by cash used in financing activities of $30.1 million, and cash used in investing activities of $12.4 million primarily to acquire property and 45 Table of Contents equipment and assets in business combinations, partially offset by proceeds from the settlement of our net investment hedge.
Cash and Cash Equivalents Cash and cash equivalents increased to $330.4 million at December 30, 2023, from $288.4 million at December 31, 2022. Cash flow provided by operating activities was $70.6 million partially offset by cash used in financing activities of $14.2 million, and cash used in investing activities of $12.0 million.
Wages and benefits represent the largest component of selling, general and administrative expenses. Significant depreciation and amortization expense is incurred as a result of investments in physical facilities, computer and information technology infrastructure to support our international operations.
Wages and benefits represent the largest component of selling, general and administrative expenses.
Removed
Impact of the COVID-19 Pandemic The COVID-19 pandemic, including the spread of new variants of the virus, has negatively impacted our business in various markets around the world. The ongoing COVID-19 pandemic has created an unpredictable operating environment for us in many of our markets around the world and caused meaningful disruptions in both sales and operations.
Added
In 2023, we launched our Affiliate program in the United States, Canada, and Mexico and are evaluating introducing the program in other markets. This program offers another sales and compensation opportunity to individuals who are interested in selling USANA products. Affiliates are discussed and reported in this report with Associates.
Removed
Government-imposed restrictions, health and safety mandated best practices, and public hesitance regarding in-person gatherings have reduced our ability, and the ability of our Associates to hold sales meetings, required our Associates to share and sell our products in a predominantly virtual environment, resulted in cancellations of key Company events and trips, required us to modify our workforce strategies , and required us, at times, to temporarily close our walk-in and fulfillment locations in some markets where we have such properties.
Added
The decrease in net sales was primarily the result of a challenging economic environment in many of our key markets, which had varying degrees of impact on attracting new customers as well as consumer purchasing behavior of our products throughout the year. In some markets, we recognized our consumers were faced with an increasingly challenging economic environment.
Removed
The pandemic has also affected the availability and cost of various of our raw materials, packaging material, and shipping resources to transport our product to our various markets around the world. Our supply chain and logistics have incurred some disruption and we could experience more significant disruptions or closures in the future.
Added
The decrease in constant currency net sales is largely the result of sales declines in the United States and Canada, which had local currency net sales declines of 12.1%, and 7.2%, respectively Gross Profit Gross profit increased 20 basis points to 80.8% of net sales, up from 80.6% in 2022.
Removed
Current year sales programs and market specific promotions have performed below expectations, largely due to disruptions attributable to COVID-19 related lockdowns, and inflationary and economic challenges in many of our markets, particularly in our Asia Pacific markets. These disruptions have contributed to a 12.5% decline in active Customers compared to the prior year.
Added
We believe our current liquidity is adequate to meet our cash requirements and sustain our operations through cash flow from operations. Maintaining a capital structure that emphasizes sufficient liquidity and adaptability in the prevailing economic climate is our top priority. We actively assess potential acquisition opportunities and investments in complementary ventures.
Removed
The decrease in constant currency net sales in Southeast Asia Pacific was most notable in the Philippines, and Malaysia, which had local 44 Table of Contents currency net sales declines of 33.2%, and 27.8%, respectively.
Added
While we continuously aim to preserve ample liquidity and ensure business continuity amid uncertainties, we also explore initiatives such as stock repurchases. These strategic decisions have the potential to impact our liquidity, enabling us to navigate these challenging times effectively.
Removed
Americas and Europe : The decline in this region is largely the result of the challenging operating environment as discussed above, as a result, there were local currency sales declines in all markets in this region, most notable among these markets , Canada and the United States, where local currency net sales decreased 14.8% and 7.1%, respectively.
Added
Such financing may include the use of debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders.
Removed
These decreases were partially offset by favorable changes in market and product sales mix, and increased transportation costs in the prior-year period related to the strategic buildup of inventory due to COVID-19 related disruptions to our supply chain and logistics.
Added
Those estimates and assumptions are derived and are continually evaluated based on our historical experiences, current facts and circumstances, and on changes in the business environment. Actual results, however, may sometimes differ materially from estimates under different conditions.
Removed
We believe we have sufficient liquidity to satisfy our cash needs and expect to continue to fund our business with cash flow from operations. We continue, however, to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times.
Removed
Additionally, we continually evaluate opportunities to repurchase shares of our common stock and will, from time to time, consider the acquisition of, or investment in complementary businesses, products, services and technologies, which has the potential to affect our liquidity.
Removed
Cash and Cash Equivalents Cash and cash equivalents increased to $288.4 million at December 31, 2022, from $239.8 million at January 1, 2022.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
35 edited+12 added−86 removed156 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
35 edited+12 added−86 removed156 unchanged
2023 filing
2024 filing
Biggest changeThere can be no assurance that the Chinese government’s interpretation and enforcement of applicable laws and regulations will not negatively impact BabyCare’s business, result in regulatory investigations or lead to fines or penalties against BabyCare, USANA or our Associates in China. 27 Table of Contents BabyCare must apply for and receive government approval to expand its business in China and the failure to obtain such approvals could negatively impact its ability to expand and grow its business.
Biggest changeThere can be no assurance that the Chinese government’s interpretation and enforcement of applicable laws and regulations will not negatively impact BabyCare’s business, result in regulatory investigations or lead to fines or penalties against BabyCare, USANA or our Associates in China.
During this review, the Chinese government, among other things, (i) instructed direct selling companies not to hold large distributor meetings, and (ii) suspended its application review process for direct sales licenses and authorizations. The Chinese government has yet to re-open the application review process for direct sales licenses and authorizations or indicate if or when it plans to do so.
During this review, the Chinese government, among other things, (i) instructed direct selling companies not to hold large distributor meetings, and (ii) suspended its application review process for direct selling licenses and authorizations. The Chinese government has yet to re-open the application review process for direct selling licenses and authorizations or indicate if or when it plans to do so.
Congestion to ports can affect previously negotiated contracts with shipping companies, resulting in unexpected increases in shipping costs and reduction in our profitability. For example, the COVID-19 pandemic has resulted in several delays, cost increases, and disruptions in our global distribution channel. We may incur liability with respect to our products.
Congestion to ports can affect previously negotiated contracts with shipping companies, resulting in unexpected increases in shipping costs and reduction in our profitability. For example, the COVID-19 pandemic resulted in several delays, cost increases, and disruptions in our global distribution channel. We may incur liability with respect to our products.
For example, BabyCare sells products in China through a variety of methods, including: (a) online through its website; (b) at physical branch retail locations in China; (c) through direct sellers in provinces and municipalities where BabyCare has received a direct sales license; and (d) through independent distributors who are considered independent business owners under Chinese law.
For example, BabyCare sells products in China through a variety of methods, including: (a) online through its website; (b) at physical branch retail locations in China; (c) through direct sellers in provinces and municipalities where BabyCare has received a direct selling license; and (d) through independent distributors who are considered independent business owners under Chinese law.
These agreements provide that, during the term of the agreement, should the athlete test positive for a banned substance included 32 Table of Contents in the WADA, and should such positive result be caused by taking USANA nutritional products, we will compensate that athlete at an amount equal to two times their current annual earnings, up to $1.0 million, based on the athlete’s personal level of competition, endorsement, and other income, as well as other factors.
These agreements provide that, during the term of the agreement, should the athlete test positive for a banned substance included in the WADA, and should such positive result be caused by taking USANA nutritional products, we will compensate that athlete at an amount equal to two times their current annual earnings, up to $1.0 million, based on the athlete’s personal level of competition, endorsement, and other income, as well as other factors.
BabyCare also will be required to obtain licenses from municipalities and provinces within China where it currently does not hold a license. The Chinese government has not reopened its application review process for direct sales licenses and approvals since suspending the process in 2019.
BabyCare also will be required to obtain licenses from municipalities and provinces within China where it currently does not hold a license. The Chinese government has not reopened its application review process for direct selling licenses and approvals since suspending the process in 2019.
Any or all of these requirements could have a material adverse effect on our business, financial condition, or results of operations. Our in-house manufacturing activity is subject to certain risks. We manufacture approximately 65% of the products sold to our customers.
Any or all of these requirements could have a material adverse effect on our business, financial condition, or results of operations. Our in-house manufacturing activity is subject to certain risks. We manufacture approximately 67% of the products sold to our customers.
If we are not successful in growing BabyCare’s sales and customer base in China, our consolidated growth as a company will be negatively affected and our business, financial condition, results of operations and cash flows may be harmed. BabyCare must comply with significant operational, financial, and other regulatory requirements to engage in direct selling in China.
If we are not successful in growing BabyCare’s sales and customer base in China, our consolidated growth as a company will be negatively affected and our business, financial condition, results of operations and cash flows may be harmed. 25 Table of Contents BabyCare must comply with significant operational, financial, and other regulatory requirements to engage in direct selling in China.
Our international business is subject to various anti-corruption laws, including principally the U.S. Foreign Corrupt Practices Act. In recent years, there have been an increasing number of investigations and other enforcement activities under these laws, including a voluntary investigation we recently concluded concerning our China operations.
Our international business is subject to various anti-corruption laws, including principally the U.S. Foreign Corrupt Practices Act. In recent years, there have been an increasing number of investigations and other enforcement activities under these laws, including a voluntary investigation we concluded several years ago concerning our China operations.
If we are found to be liable for violations of these acts (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could incur severe criminal or civil penalties or other sanctions, which could have a material adverse effect on our reputation, business, results of operations or cash flows.
If we are found to be liable for violations of these acts (either due to our own acts or our inadvertence or due to the acts or inadvertence of others), we could incur severe criminal or civil penalties or other sanctions, which could have a material adverse effect on our 32 Table of Contents reputation, business, results of operations or cash flows.
To date, we have not been a party to any product liability litigation, although, like any dietary supplement company, we have received reports from individuals who have asserted that they suffered adverse consequences as a result of using our products. The number of 31 Table of Contents reports we have received to date is nominal.
To date, we have not been a party to any product liability litigation, although, like any dietary supplement company, we have received reports from individuals who have asserted that they suffered adverse consequences as a result of using our products. The number of reports we have received to date is nominal.
If this happens, we may take disciplinary action against the breaching Associate. This disciplinary action is based on the facts and circumstances of the particular case and may include anything from warnings for minor violations to termination of the Associate’s purchase and distribution rights for more serious violations.
If this happens, we may take disciplinary action against the breaching Associate. This disciplinary action is based on the facts and circumstances of the particular case and may include anything from warnings 31 Table of Contents for minor violations to termination of the Associate’s purchase and distribution rights for more serious violations.
If federal, state or local laws and regulations or the interpretation of such laws and regulations change to require us to treat our Associates as employees, or if our Associates are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors, under existing laws and interpretations, we may be deemed to be responsible for a variety of obligations that are imposed upon employers relating to their employees, including social security and related taxes in those jurisdictions, wages, employee benefits, plus any related assessments and penalties, which could harm our financial condition and operating results.
If the 2024 DOL final rule or other federal, state or local laws and regulations or the interpretation of such laws and regulations require us to treat our Associates as employees, or if our Associates are deemed by local regulatory authorities in one or more of the jurisdictions in which we operate to be our employees rather than independent contractors, under existing laws and interpretations, we may be deemed to be responsible for a variety of obligations that are imposed upon employers relating to their employees, including social security and related taxes in those jurisdictions, wages, employee benefits, plus any related assessments and penalties, which could harm our financial condition and operating results.
For instance, China has previously taken or threatened to take trade and other actions in retaliation against U.S. policies, and is likely to continue to do so. Past or future 28 Table of Contents developments in this regard may have a material adverse effect on the economies, financial markets, and currency exchange rates in China and the United States.
For instance, China has previously taken or threatened to take trade and other actions in retaliation against U.S. policies, and is likely to continue to do so. Past or future developments in this regard may have a material adverse effect on the economies, financial markets, and currency exchange rates in China and the United States.
Those settlements resulted from enforcement actions brought by the FTC involving a variety of alleged violations of consumer protection laws, including misleading earnings representations and 23 Table of Contents legal compliance of those companies’ business models and distributor compensation plans.
Those settlements resulted from enforcement actions brought by the FTC involving a variety of alleged violations of consumer protection laws, including misleading earnings representations and legal compliance of those companies’ business models and distributor compensation plans.
These potential effects could include, however, requirements for the reformulation of certain products to meet new standards, the recall or discontinuance of certain products, additional record keeping and reporting requirements, expanded documentation of the properties of certain products, expanded or different labeling, or additional scientific substantiation.
These potential effects could include, however, requirements for the reformulation of certain products to meet new standards, the recall or discontinuance of certain products, additional record keeping and reporting requirements, expanded documentation of the properties of certain products, expanded or different labeling, or additional scientific 29 Table of Contents substantiation.
In addition, there are numerous risks inherent in conducting our business internationally, including, but not limited to, potential instability in international markets, changes in regulatory requirements applicable to international operations, currency fluctuations in foreign countries, political, economic and social conditions in foreign countries and complex U.S. and foreign laws and treaties.
In addition, there are numerous risks inherent in conducting our business internationally, including, but not limited to, potential instability in international markets, changes in regulatory 27 Table of Contents requirements applicable to international operations, currency fluctuations in foreign countries, political, economic and social conditions in foreign countries and complex U.S. and foreign laws and treaties.
The products that we offer and sell through this channel are neither registered for retail sale in China nor registered as direct selling products under BabyCare's direct sales license. 26 Table of Contents Consequently, products sold via our cross-border e-commerce channel can only be sold to China customers for their personal consumption and cannot be sold through BabyCare's direct selling channel.
The products that we offer and sell through this channel are neither registered for retail sale in China nor registered as direct selling products under BabyCare's direct selling license. Consequently, products sold via our cross-border e-commerce channel can only be sold to China customers for their personal consumption and cannot be sold through BabyCare's direct selling channel.
These third-party suppliers and manufacturers produce and, in most cases, package the products according to formulations and specifications that have 30 Table of Contents been developed by or in conjunction with our in-house product development team.
These third-party suppliers and manufacturers produce and, in most cases, package the products according to formulations and specifications that have been developed by or in conjunction with our in-house product development team.
For example, we have been required to use a different compensation plan for our BabyCare operations in China (as noted elsewhere in this report) and have been required to modify our Compensation Plan in South Korea, Malaysia, and Indonesia to comply with 25 Table of Contents applicable laws and regulations.
For example, we have been required to use a different compensation plan for our BabyCare operations in China (as noted elsewhere in this report) and have been required to modify our Compensation Plan in India, South Korea, Malaysia, and Indonesia to comply with applicable laws and regulations.
Settlements, such as those described in the cases above, may require a direct selling company to pay a significant fine, revise its U.S. business model and compensation plan to comply with various restrictions on how it can compensate distributors and change its marketing practices to avoid misleading product or income representations, among other things.
Although the court ruled in favor of the defendant company in this case, settlements such as those described in the other cases above may require a direct selling company to pay a significant fine, revise its U.S. business model and compensation plan to comply with various restrictions on how it can compensate distributors and change its marketing practices to avoid misleading product or income representations, among other things.
Our reliance on third parties to manufacture and supply certain of our products may harm our business, financial condition and operating results. We contract with third-party suppliers and manufacturers for the production of certain of our products, which accounted for approximately 35% of our product sales for the year ended December 31, 2022.
Our reliance on third parties to manufacture and supply certain of our products may harm our business, financial condition and operating results. We contract with third-party suppliers and manufacturers for the production of certain of our products, which accounted for approximately 33% of our product sales for the year ended December 30, 2023.
They 24 Table of Contents also may make statements regarding potential earnings, product claims, or other matters in violation of our policies or applicable laws and regulations concerning these matters. These violations may result in legal action against us in our various markets by regulatory agencies, state attorneys general, or private parties – and in China by the Chinese government.
They also may make statements regarding potential earnings, product claims, or other matters in violation of our policies or applicable laws and regulations concerning these matters. These violations may result in legal action against us in our various markets by regulatory agencies, state attorneys general, or private parties.
Fluctuation in the value of currency exchange rates with the U.S. dollar affects our operations and our net sales and earnings. For the year ended December 31, 2022, 89.4% of our total net sales were generated in markets outside of the United States.
Fluctuation in the value of currency exchange rates with the U.S. dollar affects our operations and our net sales and earnings. For the year ended December 30, 2023, 89.6% of our total net sales were generated in markets outside of the United States.
Following this settlement, the FTC initiated litigation with another direct selling company for similar alleged violations and is seeking similar remedies, including a prohibition of multilevel compensation in the United States. This case remains in litigation.
Following this settlement, the FTC initiated litigation with another direct selling company for similar alleged violations and pursued similar claims and remedies, including a prohibition of multilevel compensation in the United States.
Any changes in enacted tax laws, rules or regulatory or judicial interpretations; any adverse outcome in connection with tax audits in any jurisdiction; or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our effective tax rate, tax payments, financial condition and results of operations. 33 Table of Contents Failure to maintain effective internal controls could negatively impact our business.
Any changes in enacted tax laws, rules or regulatory or judicial interpretations; any adverse outcome in connection with tax audits in any jurisdiction; or any change in the pronouncements relating to accounting for income taxes could materially and adversely impact our effective tax rate, tax payments, financial condition and results of operations.
If BabyCare’s model were deemed to be in violation of applicable regulations, as they are now or may in the future be interpreted or enforced, BabyCare could be subject to fines, penalties or suspension of its business in China or, ultimately, have its direct selling license revoked by the Chinese government, all of which could have a material adverse impact on our business in China.
If BabyCare’s model were deemed to be in violation of applicable regulations, as they are now or may in the future be interpreted or enforced, BabyCare could be subject to fines, penalties or suspension of its business in China or, ultimately, have its direct selling license revoked by the Chinese government, all of which could have a material adverse impact on our business in China. 26 Table of Contents BabyCare’s operations in China, and direct selling companies in general, are subject to significant government oversight, scrutiny and monitoring.
Because we do not control the actual production of certain raw materials, we are also subject to delays caused by any interruption in the production of these materials, based on conditions not within our control, including those related to the COVID-19 pandemic, weather, crop conditions, transportation interruptions, strikes by supplier employees, and natural disasters or other catastrophic events.
Because 30 Table of Contents we do not control the actual production of certain raw materials, we are also subject to delays caused by any interruption in the production of these materials, based on conditions not within our control, including those related to the COVID-19 pandemic, weather, crop conditions, transportation interruptions, strikes by supplier employees, and natural disasters (the nature and severity of which may be impacted by climate change) or other catastrophic events.
Nevertheless, any FDA action determining that our processes were non-compliant with dietary supplement GMPs, could materially adversely affect our ability to manufacture and market our products.
We believe our manufacturing processes comply with these GMPs for dietary supplements. Nevertheless, any FDA action determining that our processes were non-compliant with dietary supplement GMPs, could materially adversely affect our ability to manufacture and market our products.
While we do not believe this litigation is material to our business, and we believe we have legally and appropriately classified our Associates as independent contractors, it is possible that this lawsuit or potential future laws, could negatively impact the independent contractor status of our Associates or distributors in direct selling companies in general. For example, in 2022, the U.S.
Although we prevailed in this litigation and continue to believe we have legally and appropriately classified our Associates as independent contractors, it is possible that future lawsuits or potential future laws, could negatively impact the independent contractor status of our Associates or distributors in direct selling companies in general.
The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by numerous national and local governmental agencies in the United States and other countries, including the FDA and the FTC.
The manufacture, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by numerous national and local governmental agencies in the United States and other countries, including the FDA and the FTC. Failure to comply with FDA regulatory requirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and criminal prosecutions.
BabyCare’s operations in China, and direct selling companies in general, are subject to significant government oversight, scrutiny and monitoring. Chinese regulators regularly monitor and make inquiries about the business activities of direct sellers in China and have done so with BabyCare.
Chinese regulators regularly monitor and make inquiries about the business activities of direct sellers in China and have done so with BabyCare.
The FTC is currently advocating and considering certain legal and regulatory changes that, if implemented, could have a material adverse effect on our business. For example, in 2022 the FTC issued an Advanced Notice of Proposed Rulemaking for a proposed rule concerning deceptive earnings claims that would further regulate how companies like USANA advertise and represent their business.
For example, in 2022 the FTC issued an Advanced Notice of Proposed 23 Table of Contents Rulemaking for a proposed rule concerning deceptive earnings claims that would further regulate how companies like USANA advertise and represent their business.
The manufacture of nutritional or dietary supplements and related products in the United States requires compliance with dietary supplement GMPs, which are based on the food-model GMPs, with additional requirements that are specific to dietary supplements. We believe our manufacturing processes comply with these GMPs for dietary supplements.
Any action of this type by the FDA could materially adversely affect our ability to market our products successfully. The manufacture of nutritional or dietary supplements and related products in the United States requires compliance with dietary supplement GMPs, which are based on the food-model GMPs, with additional requirements that are specific to dietary supplements.
We do not use derivative instruments for speculative purposes. A foreign government may impose, and some have imposed, foreign currency remittance restrictions. For example, several markets in which we conduct business, including China, require that we file the necessary statutory financial statements for the relevant period as a prerequisite to repatriating cash in the form of a dividend.
For example, several markets 28 Table of Contents in which we conduct business, including China, require that we file the necessary statutory financial statements for the relevant period as a prerequisite to repatriating cash in the form of a dividend.
Removed
Department of Labor proposed a regulation that, if adopted, would alter the employee vs. independent contractor analysis in a way that could potentially cause more workers to be classified as employees.
Added
The FTC is currently advocating and considering certain legal and regulatory changes that, if implemented, could have a material adverse effect on our business.
Removed
Failure to comply with FDA regulatory requirements may result in, among other things, injunctions, 29 Table of Contents product withdrawals, recalls, product seizures, fines, and criminal prosecutions. Any action of this type by the FDA could materially adversely affect our ability to market our products successfully.
Added
For example, in January 2024, the Department of Labor (DOL) issued a final rule regarding the classification of workers as employees vs. independent contractors under the Fair Labor Standards Act.
Removed
We are required by federal securities laws to document and test our internal control over financial reporting and are required to have management annually assess the effectiveness of such internal controls. Effective internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud.
Added
The final rule, which becomes effective March 11, 2024, is significantly different from the 2021 rule 24 Table of Contents issued by the DOL and requires companies and courts to consider the totality of six economic factors when deciding whether a worker is an employee or independent contractor.
Removed
In addition, our independent registered public accounting firm must report on the effectiveness of our internal controls.
Added
BabyCare must apply for and receive government approval to expand its business in China and the failure to obtain such approvals could negatively impact its ability to expand and grow its business.
Removed
If we fail to maintain effective internal controls we could be required to take costly and time-consuming corrective measures, to remedy any number of deficiencies, significant deficiencies or material weaknesses, be required to restate the affected historical financial statements, be subjected to investigations and/or sanctions by federal and state securities regulators, and be subjected to civil lawsuits by security holders.
Added
We do not use derivative instruments for speculative purposes. A foreign government may impose, and some have imposed, foreign currency remittance restrictions.
Removed
Any of the foregoing could also cause investors to lose confidence in our reported financial information and in our company and would likely result in a decline in the market price of our stock and in our ability to raise additional financing if needed in the future.
Added
We have identified material weaknesses in our internal control over financial reporting. If we fail to properly remediate the material weaknesses or to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As more fully disclosed in Item 9A.
Removed
ESG issues may have an adverse effect on our reputation, business, financial condition or results of operations. Companies across all industries are facing increasing scrutiny relating to their ESG policies.
Added
“Controls and Procedures,” we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures and internal control over financial reporting. Based on that evaluation, we have concluded that our disclosure controls and procedures were not effective as of December 30, 2023, due to material weaknesses in internal control over financial reporting.
Removed
If we are unable to meet our ESG goals or evolving regulator, investor, industry or stakeholder expectations and standards, or if we are perceived to have not responded appropriately to the growing concern for ESG issues, customers may choose to stop purchasing our products and our reputation, business or financial condition may be adversely affected.
Added
The material weaknesses resulted from an insufficient complement of trained resources with specialized skills and knowledge in information technology general controls (ITGCs), or an alternative contingency plan, to timely respond to the impacts of turnover in key personnel with responsibility for ITGCs that occurred during 2023.
Removed
In particular, these constituencies are increasingly focusing on environmental issues, including climate change, water use, plastic waste, and other sustainability concerns.
Added
As a result, we did not maintain effective ITGCs in the areas of user access, program change management, and computer operations over the information technology (IT) systems that support our financial reporting processes.
Removed
These factors could cause us to incur additional costs, to make changes to our operations to make additional commitments, set targets or establish additional goals and take actions to meet them, which could expose us to market, operational and execution costs or risk.
Added
Process-level automated controls that are dependent on the affected ITGCs and manual controls that rely on the integrity of data or reports from the affected systems across substantially all of our processes were also deemed ineffective because they could have been adversely impacted.
Removed
In addition to environmental issues these constituencies are also focused on social and other governance issues, including matters such as, but not limited to, human capital and social issues. We also have established diversity, equity and inclusion goals as part of our ESG initiative.
Added
Although these material weaknesses did not result in any errors to the financial statements, and there were no changes to previously released financial results, the applicable control deficiencies were not remediated as of December 30, 2023, and, consequently, there was a reasonable possibility that it could have resulted in a material misstatement in the Company's financial statements that would not have been detected.
Removed
Concern over climate change, including plastics and packaging materials, in particular, may result in new or increased legal and regulatory requirements.
Added
While the Company’s management, under the oversight of the Audit Committee, has begun taking steps to implement our remediation plan as described more fully in
Removed
Increased regulatory requirements related to environmental causes, and related ESG disclosure rules, including the SEC's recent disclosure proposal on climate change, may result in increased compliance costs or increased costs of energy, raw materials or compliance with emissions standards, which may cause disruptions in the manufacture of our products or an increase in operating costs.
Removed
Any failure to achieve our ESG goals or a perception (whether or not valid) of our failure to act responsibly with respect to the environmental, human capital, or social issues, or to effectively respond to new, or changes in, legal or regulatory requirements concerning environmental or other ESG matters, or increased operating or manufacturing costs due to increased regulation or environmental causes could adversely affect our business and reputation and increase risk of litigation.
Removed
Risk Associated with Information Technology, Data Security and Data Privacy A failure or interruption of our information technology systems would harm our business. The global nature of our business, shopping and our global compensation plan requires the development and implementation of robust and efficiently functioning information technology systems.
Removed
Such systems are vulnerable to a variety of potential risks, including damage or interruption resulting from natural disasters, power outages, certain aging system architecture, systems failures, hardware or software corruption, human error or hacking, malware, ransomware, phishing or other similar acts. We rely on both self-developed and third-party developed and supported information technology systems.
Removed
Although we have adopted and implemented a business continuity and disaster recovery plan and a variety of other operational safeguards, the occurrence of any of these events could result in costly interruptions or failures adversely affecting our business and the results of our operations. We rely on information technology to support our operations and reporting environments.
Removed
A data breach involving that technology or the data stored in it, could disrupt our ability to operate our businesses effectively, adversely affect our reported financial results and our reputation, and expose us to significant potential liability, government investigations, fines or litigation.
Removed
In the ordinary course of our global business, we collect and store in our data centers and on our networks, including cloud systems, significant amounts of data, including personally identifiable information (PII), intellectual property, and our proprietary business information The secure collection, storage and other processing of this information is critical to our operations, regulatory compliance and business strategy.
Removed
Although we strive to frequently analyze and 34 Table of Contents improve our data security measures, our information technology and infrastructure are subject to persistent attacks of varying degrees and types and we may be vulnerable to attacks by hackers. Such attacks could include viruses, ransomware attacks, computer denial of service attacks, or phishing schemes.
Removed
In some instances, despite our reasonable efforts, it could take us some time to discover that our networks have been breached. Any such breach of our networks and the information and PII stored therein could cause such information and PII to be accessed, publicly disclosed, altered, damaged, held ransom, lost or stolen.
Removed
In any such event, we could suffer significant loss or incur significant liability, including: damage to our reputation; increased cyber insurance premiums; loss of customer confidence or goodwill; and significant expenditures of time and money to address and remediate the resulting damage (including notification and credit monitoring costs, as well as fines and penalties imposed by regulators) to affected individuals or business partners, or to defend ourselves in resulting litigation or other legal proceedings, by affected individuals, business partners or regulators.
Removed
Likewise, a failure to adhere to the payment card industry’s data security standards could lead to significant penalties from payment card associations, termination of our ability to receive credit or debit card payments, any of which could have a material adverse effect on our business and financial condition.
Removed
Furthermore, such data breach could result in significant disruption of our operations, which could adversely affect our business, revenues and competitive position. We are subject to data privacy and security laws and regulations, and our actual or perceived failure to comply with them could adversely affect our business and operating results.
Removed
Compliance with data privacy and security laws and regulations is a significant effort for us in all of our markets because we collect, store and otherwise process significant amounts of customer and employee personal information for business (including for transactional and marketing purposes) and legal purposes.
Removed
The governments of our various markets have adopted, or are adopting, complex and strict laws and regulations governing data privacy and security, and these areas are still rapidly evolving . These laws and regulations have resulted in greater compliance risk and cost for us.
Removed
These laws and regulations often require us to take a variety of actions, including: implementing new data privacy and security policies; granting individuals a wide variety of rights with respect to their PII, including access, correction and deletion rights; informing individuals of security breaches that affect their PII; disclosing to individuals how we process their PII and obtaining their written consent to such processing; and localizing individuals' PII within national borders and complying with cross border PII transfer assessments and requirements, among other things.
Removed
Examples of significant, recent data privacy and security laws affecting our various markets include the European Union General Data Protection Regulation, ("GDPR"), China’s national Data Privacy Law and Personal Information Protection Law, China's Cybersecurity Law, the California Consumer Privacy Act, ("CCPA"), and the California Privacy Rights Act.
Removed
Virginia, Colorado, Connecticut and Utah all have adopted laws introducing new privacy obligations and many other states are considering similar legislation. A broad range of legislative measures also have been introduced at the federal level.
Removed
There also is a wide range of enforcement agencies at both the state and federal levels that can review companies for privacy and data security concerns based on general consumer protection laws. The FTC and state Attorneys General all are aggressive in reviewing privacy and data security protections for consumers.
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We have incurred, and will continue to incur, substantial costs in striving to comply with these various data privacy and security laws and regulations.
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Compliance with these laws and regulations may limit our ability to provide products and services to our customers that they may find valuable or otherwise require us to change our business practices in a manner that is ultimately adverse to our business objectives.
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As such, we cannot assure ongoing compliance with all such laws or regulations, industry standards, contractual obligations and other legal obligations.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
3 edited+0 added−1 removed6 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
3 edited+0 added−1 removed6 unchanged
2023 filing
2024 filing
Biggest changeWe do not use derivative financial instruments for trading or speculative purposes. There can be no assurance that our practices will be successful in eliminating all or substantially all of the risks that we may encounter in connection with our currency transactions. Interest Rate Risks.
Biggest changeThere can be no assurance that our practices will be successful in eliminating all or substantially all of the risks that we may encounter in connection with our currency transactions. Interest Rate Risks. As of December 30, 2023, we had an immaterial amount of outstanding debt on a local line of credit and no outstanding debt on our credit facility.
Additionally, we may enter into short-term foreign currency credit arrangements in our international markets, primarily as a way to reduce our exposure to negative effects of changes in foreign currency exchange rates. We also enter into currency exchange contracts 48 Table of Contents to offset foreign currency exposure in various international markets.
Additionally, we may enter into short-term foreign currency credit arrangements in our international markets, primarily as a way to reduce our exposure to negative effects of changes in foreign currency exchange rates. We also enter into currency exchange contracts to offset foreign currency exposure in various international markets. We do not use derivative financial instruments for trading or speculative purposes.
In the event that it becomes necessary to borrow, there can be no assurance that we will be able to borrow, or at favorable rates.
Based on this limited activity our exposure to interest rate risk is immaterial. It may become necessary to borrow in the future in order to meet our financing needs. In the event that it becomes necessary to borrow, there can be no assurance that we will be able to borrow, or at favorable rates.
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As of December 31, 2022, we had no outstanding debt and therefore, we had no direct exposure to interest rate risk. It may become necessary to borrow in the future in order to meet our financing needs.