NATURE'S SUNSHINE PRODUCTS, INC. The following discussion highlights the principal factors that have affected our financial condition, results of operations, liquidity and capital resources for the periods described. This discussion should be read in conjunction with our consolidated financial statements and the related notes in Item 8, Part 2 of this report. This discussion contains forward-looking statements. Please see "Cautionary Note Regarding Forward-Looking Statements" for the risks, uncertainties and assumptions associated with these forward-looking statements.
OVERVIEW
Our Business, Industry and Target Market
We are a natural health and wellness company primarily engaged in the manufacture and sale of nutritional and personal care products. We are aUtah corporation with our principal place of business inLehi, Utah , and sell our products to a sales force of independent consultants who use the products themselves or resell them to consumers. Our independent consultants market and sell our products to customers and sponsor other independent consultants who also market our products to customers. Our sales are highly dependent upon the number and productivity of our independent consultants. Growth in sales volume generally requires an increase in the productivity of our independent consultants and/or growth in the total number of independent consultants. We seek to motivate and provide incentives to our independent consultants by offering high quality products and providing independent consultants with product support, training seminars, sales conventions, travel programs and financial incentives. In or aboutDecember 2019 , a novel strain of coronavirus, SARS-CoV-2 "COVID-19", began aggressively spreading throughout the world, including all the primary markets where we conduct business. As COVID-19 has spread throughout the world, it has impacted our markets differently. At various times during the course of the pandemic and throughout our markets, governments have issued orders and restrictions that have limited the ability of our consultants to meet with consumers, put downward pressure on our sales in many of our markets and added substantial uncertainties to our global supply chain. However, despite such restrictions, we experienced an increase in sales during the fourth quarter due primarily to increased demand for nutritional supplements. Although we are taking appropriate actions to mitigate the effects COVID-19 may have on our business, such actions may ultimately be insufficient to avoid substantial impact on the consolidated financial statement or material health of the Company. At this time, the duration of any business disruption and related financial impact cannot be reasonably estimated. In 2021, we experienced an increase in our consolidated net sales of 15.3 percent (or 13.6 percent in local currencies) compared to 2020.Asia net sales increased approximately 27.5 percent (or 24.4 percent in local currencies) compared to 2020.Europe net sales increased approximately 17.8 percent (or 16.2 percent in local currencies) compared to 2020.North America net sales increased approximately 2.9 percent (or 2.4 percent in local currencies) compared to 2020.Latin America and Other net sales increased approximately 11.2 percent (or 10.1 percent in local currencies) compared to 2020. In absolute terms, selling, general and administrative expenses increased$22.8 million during 2021, and as a percentage of net sales were 34.7 percent and 34.1 percent for 2021 and 2020, respectively. As an international business, we have significant sales and costs denominated in currencies other than theU.S. dollar. Sales in international markets denominated in foreign currencies are expected to continue to represent a substantial portion of our sales. Likewise, we expect foreign markets with functional currencies other than theU.S. dollar will continue to represent a substantial portion of our overall sales and related operating expenses. Accordingly, changes in foreign currency exchange rates could materially affect sales and costs or the comparability of sales and costs from period to period as a result of translating foreign markets financial statements into our reporting currency.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States ("GAAP") and form the basis for the following discussion and analysis on critical accounting policies and estimates. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results 22 -------------------------------------------------------------------------------- Table of Contents could differ from these estimates and those differences could have a material effect on our financial position and results of operations. We have discussed the development, selection and disclosure of these estimates with the Board of Directors and our Audit Committee. A summary of our significant accounting policies is provided in Note 1, "Nature of Operations and Significant Accounting Policies," to our Consolidated Financial Statements, in Item 8, Part 2 of this report. We believe the critical accounting policies and estimates described below reflect our more significant estimates and assumptions used in the preparation of the consolidated financial statements. The impact and any associated risks on our business that are related to these policies are also discussed throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations" where such policies affect reported and expected financial results.
Revenue Recognition
Our revenue recognition practices are discussed in Note 2, "Revenue Recognition," to our Consolidated Financial Statements, in Item 8, Part 2 of this report.
Inventories Inventories are adjusted to lower of cost and net realizable value, using the first-in, first-out method. The components of inventory cost include raw materials, labor and overhead. To estimate any necessary adjustments, various assumptions are made in regard to excess or slow-moving inventories, non-conforming inventories, expiration dates, current and future product demand, production planning and market conditions. If future demand and market conditions are less favorable than our assumptions, additional inventory adjustments could be required.
Incentive Trip Accrual
We accrue expenses associated with our direct sales program, which rewards independent consultants with paid attendance for incentive trips, including our conventions and meetings. Expenses associated with incentive trips are accrued over qualification periods as the trips are earned. We specifically analyze incentive trip accruals based on historical and current sales trends as well as contractual obligations when evaluating the adequacy of the incentive trip accrual. Actual results could generate liabilities in amounts greater or less than the amounts recorded. We had accrued incentive trip costs of approximately$6.7 million and$6.4 million atDecember 31, 2021 and 2020, respectively, which are included in accrued liabilities in the consolidated balance sheets. Of the$6.7 million accrued atDecember 31, 2021 ,$5.5 million was recorded prior toJanuary 1, 2020 . Due to restrictions associated with COVID-19, we were unable to hold traditional incentive trips during the years endedDecember 31, 2021 and 2020. Contingencies We are involved in certain legal proceedings. When a loss is considered probable in connection with litigation or non-income tax contingencies and when such loss can be reasonably estimated, we recognize a liability within a best estimate range related to the contingency. If there is no best estimate, we record the minimum of the range. As additional information becomes available, we assess the liability related to the contingency and revise the estimate. Revisions in estimates of the liabilities could materially affect our results of operations in the period of adjustment. Contingencies are discussed in further detail in Note 13, "Commitments and Contingencies," to our Consolidated Financial Statements, in Item 8, Part 2 of this report.
Income Taxes
Our income tax expense, deferred tax assets and liabilities and contingent reserves reflect our best assessment of estimated future taxes to be paid. We are subject to income taxes in boththe United States and numerous foreign jurisdictions. Significant judgments and estimates are required in determining consolidated income tax expense. Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income, and are consistent with the plans and estimates that we are using to manage the underlying businesses. Valuation allowances are recorded as reserves against net deferred tax assets when it is determined that net deferred tax assets are not likely to be realized 23 -------------------------------------------------------------------------------- Table of Contents in the foreseeable future. As ofDecember 31, 2021 and 2020, we had recorded valuation allowances of$8.7 million and$15.3 million , respectively, as offsets to deferred tax assets. AtDecember 31, 2021 , foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately$4.9 million . The net operating losses will expire at various dates from 2022 through 2031, with the exception of those in some foreign jurisdictions where there is no expiration. As ofDecember 31, 2021 , we had approximately$14.1 million of foreign tax and withholding credits. Of the$14.1 million credits,$13.8 million are foreign tax credits, most of which expire in 2024 and a portion of which are offset by valuation allowances. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Income tax positions must meet a more-likely-than-not recognition threshold to be recognized.
PRESENTATION
Net sales represents gross sales including shipping and handling offset by volume rebates given to independent consultants. Volume rebates as a percentage of retail sales may vary by country, depending upon regulatory restrictions that limit or otherwise restrict rebates. We also offer reduced volume rebates with respect to certain products and promotions worldwide. Our gross profit consists of net sales less cost of sales, which represents our manufacturing costs, the price we pay to raw material suppliers and manufacturers of our products, and duties and tariffs, as well as shipping and handling costs related to product shipments and distribution to our independent consultants. Volume incentives are a significant part of our direct sales marketing program, and represent commission payments made to our independent consultants. These payments are designed to provide incentives for reaching higher sales levels through their own sales and the sales of independent consultants in their sales organization. Volume incentives vary slightly, on a percentage basis, by product due to our pricing policies and commission plans in place in various operations. Selling, general and administrative expenses represent operating expenses, components of which include labor and benefits, sales events, professional fees, travel and entertainment, consultant marketing, occupancy costs, communication costs, bank fees, independent service fees paid to independent service providers inChina , depreciation and amortization, and other miscellaneous operating expenses. Most of our sales to independent consultants outsidethe United States are made in the respective local currencies. In preparing our consolidated financial statements, sales are translated intoU.S. dollars using average exchange rates. Additionally, the majority of our purchases from suppliers are generally made inU.S. dollars. Consequently, a strengthening of theU.S. dollar versus a foreign currency can have a negative impact on our reported sales and contribution margins and can generate transaction losses on intercompany payable balances in the local markets. 24
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RESULTS OF OPERATIONS
The following table summarizes our consolidated net income (loss) from
continuing operations results as a percentage of net sales for the periods
indicated:
Year Ended December 31,
2021 2020
Net sales 100.0 % 100.0 %
Cost of sales (26.0) (26.3)
Gross profit 74.0 73.7
Operating expenses:
Volume incentives 31.5 34.0
Selling, general and administrative 34.7 34.1
Operating income 7.8 5.6
Other income (expense):
Interest and other income, net 0.1 -
Interest expense (0.1) -
Foreign exchange gains (losses), net (0.7) 0.3
(0.7) 0.3
Income before provision for income taxes 7.1
5.9
Provision for income taxes 0.4 - Net income 6.7 % 5.9 % Net Sales International operations have provided, and are expected to continue to provide, a significant portion of our total net sales. As a result, total net sales will continue to be affected by fluctuations in theU.S. dollar against foreign currencies. In order to provide a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency fluctuations, in addition to comparing the percent change in net sales from one period to another inU.S. dollars, we present net sales excluding the impact of foreign exchange fluctuations. We compare the percentage change in net sales from one period to another period by excluding the effects of foreign currency exchange as shown below. Net sales excluding the impact of foreign exchange fluctuations is not aU.S. GAAP financial measure and removes from net sales inU.S. dollars the impact of changes in exchange rates between theU.S. dollar and the functional currencies of our foreign subsidiaries, by translating the current period net sales intoU.S. dollars using the same foreign currency exchange rates that were used to translate the net sales for the previous comparable period. We believe presenting the impact of foreign currency fluctuations is useful to investors because it allows a more meaningful comparison of net sales of our foreign operations from period to period. However, net sales excluding the impact of foreign currency fluctuations should not be considered in isolation or as an alternative to net sales inU.S. dollar measures that reflect current period exchange rates, or to other financial measures calculated and presented in accordance withU.S. GAAP. Throughout the last five years, foreign currency exchange rates have fluctuated significantly. See Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 25
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Year Ended
The following table summarizes the changes in net sales by operating segment with a reconciliation to net sales, excluding the impact of currency fluctuations, for the years endedDecember 31, 2021 and 2020 (dollar amounts in thousands). Net Sales by Operating Segment Percent Change Impact of Excluding Percent Currency Impact of 2021 2020 Change Exchange Currency Asia$ 176,860 $ 138,717 27.5 %$ 4,328 24.4 % Europe 91,539 77,688 17.8 % 1,232 16.2 % North America 149,746 145,481 2.9 % 748 2.4 % Latin America and Other 25,939 23,319 11.2 % 258 10.1 %$ 444,084 $ 385,205 15.3 %$ 6,566 13.6 % Consolidated net sales for the year endedDecember 31, 2021 , were$444.1 million compared to$385.2 million in 2020, or an increase of approximately 15.3 percent. The increase was related to product sales growth in all of our operating business segments. Excluding the favorable impact of foreign currency exchange rate fluctuations, consolidated net sales for the year endedDecember 31, 2021 would have increased by 13.6 percent from 2020.
Net sales related toAsia for the year endedDecember 31, 2021 , were$176.9 million compared to$138.7 million for 2020, an increase of 27.5 percent. In local currency, net sales increased by 24.4 percent compared to 2020. Fluctuations in foreign exchange rates had a$4.3 million favorable impact on net sales for the year endedDecember 31, 2021 .
Notable activity in the following markets contributed to the results of
In ourSouth Korea market, net sales decreased approximately$0.9 million , or 1.5 percent, for the year endedDecember 31, 2021 , compared to 2020. Fluctuations in foreign exchange rates had a$1.8 million favorable impact on net sales for the year endedDecember 31, 2021 . In local currency, net sales decreased 4.4 percent compared to 2020. The decrease in local currency net sales was primarily the result of new product launches and extended promotions in 2020 that did not recur in 2021, as well as more pressure from government restrictions in the market intended to slow the spread of COVID-19. In ourJapan market, net sales increased approximately$8.8 million , or 32.8 percent, for the year endedDecember 31, 2021 , compared to 2020. Fluctuations in foreign exchange rates had a$1.0 million unfavorable impact on net sales for the year endedDecember 31, 2021 . In local currency, net sales increased 36.5 percent for the year endedDecember 31, 2021 , compared to 2020. We attribute the growth in net sales primarily to product promotions intended to stimulate activity as well as an increase in demand for nutritional supplements. In ourChina market, net sales increased approximately$13.7 million , or 39.3 percent, for the year endedDecember 31, 2021 , compared to 2020. Fluctuations in foreign exchange rates had a$2.3 million favorable impact on net sales for the year endedDecember 31, 2021 . In local currency, net sales increased 32.6 percent for the year endedDecember 31, 2021 , compared to 2020. Although net sales in 2020 were affected by government restrictions in the market intended to slow the spread of COVID-19, we attribute the growth in net sales primarily to initiatives designed to increase independent service providers' engagement levels and gain market share.
Net sales related toEurope were$91.5 million for the year endedDecember 31, 2021 , compared to$77.7 million for 2020, an increase of 17.8 percent. The functional currency for many of these markets is theU.S. dollar which reduces the effect from foreign currency fluctuations. Fluctuations in foreign exchange rates had a$1.2 million favorable impact on net sales for the year endedDecember 31, 2021 . Net sales increased primarily as a result of product promotions that have improved consultant engagement as well as an increase in demand for nutritional supplements, among other factors. 26 -------------------------------------------------------------------------------- Table of ContentsNorth America Net sales related toNorth America for the year endedDecember 31, 2021 , were$149.7 million , compared to$145.5 million for 2020, an increase of 2.9 percent. Fluctuations in foreign exchange rates had a$0.7 million favorable impact on net sales for the year endedDecember 31, 2021 . Excluding the impact of fluctuations in foreign exchange rates, local currency net sales inNorth America increased by 2.4 percent from 2020. Inthe United States , net sales increased$3.2 million , or 2.4 percent, for the year endedDecember 31, 2021 , compared to 2020. The increase in the market is due to several factors including, among others, rebranding and rebuilding efforts of the Nature's Sunshine brand and consultant tools in theU.S. and an increase in demand for nutritional supplements in theU.S. .
Net sales related toLatin America and Other markets for the year endedDecember 31, 2021 , were$25.9 million , compared to$23.3 million for 2020, an increase of 11.2 percent. Fluctuations in foreign exchange rates had a$0.3 million favorable impact on net sales for the year endedDecember 31, 2021 . Excluding the impact of fluctuations in foreign exchange rates, local currency net sales inLatin America and Other increased by 10.1 percent from 2020. The increase was primarily the result of changes in the independent consultant compensation plan as well as an increase in demand for nutritional supplements and new product offerings. Further information related to ourAsia ,Europe ,North America , andLatin America and Other business segments is set forth in Note 14, "Operating Business Segment and International Operation Information," to our Consolidated Financial Statements, in Item 8, Part 2 of this report.
Cost of Sales
Cost of sales as a percent of net sales decreased to 26.0 percent in 2021, compared to 26.3 percent in 2020. The decrease in cost of sales percentage is driven by favorable changes in market mix and reserves taken in the prior year, partially offset by increased transportation costs.
Volume Incentives
Volume incentives as a percent of net sales decreased to 31.5 percent in 2021, compared to 34.0 percent in 2020. These payments are designed to provide incentives for reaching higher sales levels. Volume incentives vary slightly, on a percentage basis, by product due to pricing policies and commission plans in place in the various operations. We do not pay volume incentives inChina , instead we pay independent service fees, which are included in selling, general and administrative expenses. Volume incentives as a percentage of net sales can fluctuate based on promotional activity and mix of sales by market. The decrease in volume incentives as a percent of net sales for the year endedDecember 31, 2021 is primarily due to changes in market mix, reflecting growth in markets where volume incentives as a percentage of net sales are lower than the consolidated average, and the growth in NSP China. The decrease also reflects expected cost savings from theSeptember 2020 launch of our new consultant sales and compensation plan inNorth America andLatin America .
Selling, General and Administrative Expenses
Selling, general and administrative expenses represent operating expenses, components of which include labor and benefits, sales events, professional fees, travel and entertainment, marketing, occupancy costs, communications costs, bank fees, depreciation and amortization, independent services fees paid inChina , and other miscellaneous operating expenses. Selling, general and administrative expenses increased by$22.8 million to$154.1 million for the year endedDecember 31, 2021 . Selling, general and administrative expenses were 34.7 percent and 34.1 percent of net sales for the years endedDecember 31, 2021 and 2020, respectively. The increase in selling, general and administrative expenses, was primarily related to higher service fees that resulted from growth inChina's net sales, increased selling costs intended to drive growth initiatives in other markets, and direct selling costs associated with increased sales.
Other Income (Loss), Net
Other income (loss), net, for the years endedDecember 31, 2021 and 2020, were losses of$2.8 million and gains of$1.3 million , respectively. Other income (loss), for the year endedDecember 31, 2021 primarily consisted of foreign exchange gains and losses as a result of net changes in foreign currencies primarily inAsia ,Europe andLatin America . 27
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Income Taxes
For 2021, we had an effective tax rate of 5.1 percent for 2021, compared to a benefit of 0.6 percent for 2020. The increase in the effective rate from 2020 to 2021 is primarily attributable to the decrease in prior year tax liability associated with uncertain tax positions which did not repeat in the current year. The effective rate for 2021 differed from the federal statutory rate of 21.0 percent primarily due to the following: •Adjustments to valuation allowances decreased the effective rate by 19.7 percent in 2021. Included was the effect of releasing the valuation allowance on foreign tax credits which are expected to be utilized before expiration, offset in part by the impact of current year foreign losses in foreign affiliates that currently do not provide tax benefit. •Favorable deductions for stock compensation decreased the tax rate by 4.0 percent in 2021. •Nondeductible executive compensation increased the tax rate by 4.9 percent in 2021. •Cumulative unfavorable adjustments related to foreign operations increased the tax rate by 2.4 percent in 2021. These adjustments relate to foreign items that are treated differently for tax purposes than they are for financial reporting purposes. •Adjustments relating to theU.S. tax impact of foreign operations decreased the effective tax rate by 6.3 percentage points in 2021. The components of this calculation were: Components ofU.S. tax impact of foreign operations 2021 Foreign tax credits (7.4) % Foreign tax rate differentials 0.6 Foreign withholding taxes 1.9 Transfer pricing adjustment 0.6 Impact of GILTI 0.7 Impact of FDII (2.7) Total (6.3) % Changes to the effective rate due to impact of foreign tax credits, foreign tax rate differentials, foreign withholding taxes, transfer pricing, GILTI and FDII are expected to be recurring; however, depending on various factors, the changes may be favorable or unfavorable for a particular period. Given the large number of jurisdictions in which we do business and the number of factors that can impact effective tax rates in any given year, this rate is likely to reflect significant fluctuations from year-to-year.
Year Ended
For a discussion regarding our financial condition and results of operations for fiscal 2020 compared to fiscal 2019, see Part II, Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filled with theSEC onMarch 10, 2021 . 28
-------------------------------------------------------------------------------- Table of Contents SUMMARY OF QUARTERLY OPERATIONS - UNAUDITED
The following tables present our unaudited summary of quarterly operations
during 2021 and 2020 for each of three month periods ended
For the Quarter Ended
September 30, December 31,
March 31, 2021 June 30, 2021 2021 2021
Net sales $ 102,421 $ 108,978 $ 114,746 $ 117,939
Cost of sales (26,979) (28,463) (29,419) (30,606)
Gross profit 75,442 80,515 85,327 87,333
Volume incentives 34,255 35,443 35,793 34,353
Selling, general and administrative 33,552 35,586 39,528 45,437
Operating income 7,635 9,486 10,006 7,543
Other income (expense) (1,933) 529 (886) (558)
Income before income taxes 5,702 10,015 9,120 6,985
Provision (benefit) for income taxes 1,550 3,221 3,662 (6,818)
Net income 4,152 6,794 5,458 13,803
Net income attributable to noncontrolling
interests 136 254 600 364
Net income attributable to common shareholders $ 4,016
Basic and diluted net income per common share:
Basic earnings per share attributable to common shareholders: $ 0.20
$ 0.33
Diluted earnings per share attributable to common shareholders: $ 0.20
$ 0.32
Dividends declared per common share $ 1.00 $ - $ - $ -
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For the Quarter Ended
September 30, December 31,
March 31, 2020 June 30, 2020 2020 2020
Net sales $ 95,926 $ 87,286 $ 100,250 $ 101,743
Cost of sales (24,681) (23,017) (27,175) (26,403)
Gross profit 71,245 64,269 73,075 75,340
Volume incentives 33,018 29,165 34,310 34,657
Selling, general and administrative 31,065 28,504 33,294 38,434
Operating income 7,162 6,600 5,471 2,249
Other income (expense) (2,410) 1,509 671 1,569
Income before income taxes 4,752 8,109 6,142 3,818
Provision (benefit) for income taxes 1,746 1,976 (1,027) (2,832)
Net income from continuing operations 3,006 6,133 7,169 6,650
Net income attributable to noncontrolling
interests 44 379 414 784
Net income attributable to common shareholders $ 2,962
Basic and diluted net income per common share: Basic earnings per share attributable to common shareholders: $ 0.15
$ 0.30
Diluted earnings per share attributable to common shareholders: $ 0.15 $ 0.29$ 0.34 $ 0.29 Basic and diluted income per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly net income per share may not equal the total computed for the year.
LIQUIDITY AND CAPITAL RESOURCES
Our principal use of cash is to pay for operating expenses and costs, including volume incentives, inventory and raw material purchases, capital assets and funding of international expansion. As ofDecember 31, 2021 , working capital was$88.0 million , compared to$84.4 million as ofDecember 31, 2020 . AtDecember 31, 2021 , we had$86.2 million in cash and cash equivalents, of which$67.7 million was held in our foreign markets and may be subject to various withholding taxes and other restrictions related to repatriations.
Our net consolidated cash inflows (outflows) are as follows (in thousands):
Year Ended December 31,
2021 2020
Operating activities $ 34,608 $ 37,659
Investing activities (6,612) (4,905)
Financing activities (31,721) 3,878
Operating Activities
For the year ended December 31, 2021 , operating activities provided cash in the
amount of $34.6 million compared to $37.7 million in 2020. Operating cash flows
decreased primarily due to an investment in inventory and timing of accounts
receivable payments.
Investing Activities
Cash used in investing activities includes cash paid for capital expenditures
related to the purchase of equipment, computer systems and software. For the
years ended December 31, 2021 and 2020, these amounts were $6.7 million and $4.9
million , respectively.
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Financing Activities
For the year endedDecember 31, 2021 , financing activities used$31.7 million in cash, compared to providing$3.9 million in cash used for the same period in 2020. For the years endedDecember 31, 2021 and 2020, we had net borrowings of$0 and$3.7 million , respectively.
For the year ended
For the year endedDecember 31, 2021 , we used cash to repurchase 439,000 shares of our common stock under the share repurchase program for$7.4 million . AtDecember 31, 2021 , the remaining balance available for repurchases under the program was$7.6 million . OnJuly 11, 2017 , we entered into a revolving credit agreement withBank of America, N.A ., with a borrowing limit of$25.0 million (the "Credit Agreement"). OnJune 11, 2020 the Credit Agreement was amended to extend the term to mature onJuly 1, 2023 . The amendment also allows for additional borrowings of$15.0 million or up to three separate increases of no less than$5.0 million each. OnMarch 8, 2021 , we signed an amendment to the Credit Agreement that eliminates the Index floor from the calculation of interest. We pay interest on any borrowings under the Credit Agreement, which throughMarch 8, 2021 , was at LIBOR, or the Index floor of 0.75 percent, plus 2.25 percent (3.00 percent as ofDecember 31, 2020 ), and an annual commitment fee of 0.25 percent on the unused portion of the commitment. Interest under the amended Credit Agreement is at LIBOR, plus 2.25 percent (2.35 percent as ofDecember 31, 2021 ), and an annual commitment fee of 0.25 percent on the unused portion of the commitment. We are required to settle our net borrowings under the Credit Agreement only upon maturity. AtDecember 31, 2021 , there was no outstanding balance under the Credit Agreement. The Credit Agreement contains customary financial covenants, including financial covenants relating to our solvency and leverage. In addition, the Credit Agreement restricts certain capital expenditures, lease expenditures, other indebtedness, liens on assets, guarantees, loans and advances, dividends, mergers, consolidations and transfers of assets except as permitted in the Credit Agreement. The Credit Agreement is collateralized by our manufacturing facility, accounts receivable balance, inventory balance and other assets. We were in compliance with the debt covenants set forth in the Credit Agreement as ofDecember 31, 2021 . OnApril 21, 2020 , we entered into a credit agreement withBanc of America Leasing and Capital, LLC , with a borrowing limit of$6.0 million (the "Capital Credit Agreement"). OnNovember 19, 2020 , we executed on the Capital Credit Agreement and borrowed$3.7 million . We do not expect to make any additional borrowings under the Capital Credit Agreement. We pay interest on any borrowings under the Capital Credit Agreement at a fixed rate of 3.00 percent and are required to settle our borrowings under the Capital Credit Agreement in thirty-six monthly payments, each equal to$0.1 million . The Capital Credit Agreement is collateralized by any new equipment purchased under the agreement. As ofDecember 31, 2021 , there was$2.4 million outstanding balance under the Capital Credit Agreement,$1.2 million of which was classified as current.
During the years ended
We believe that cash generated from operations, along with available cash and cash equivalents, will be sufficient to fund our normal operating needs, including capital expenditures, on both a short- and long-term basis.
In addition, other things such as a prolonged economic downturn, a decrease in
demand for our products, an unfavorable settlement of our unrecognized tax
positions or non-income tax contingencies could adversely affect our long-term
liquidity.
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-------------------------------------------------------------------------------- Table of Contents CONTRACTUAL OBLIGATIONS
The following table summarizes information about contractual obligations as of
Total Less than 1 year 1-3 years 3-5 years After 5 years
Operating lease obligations $ 22,979 $
5,183
424 424 - -
Other long-term liabilities reflected on
the balance sheet (2) - - - - -
Revolving credit facility (3) - - - - -
Capital credit agreement (4) 2,418 1,244 1,174 - -
Total $ 25,821 $ 6,851 $ 9,078 $ 5,281 $ 4,611 _______________________________________
(1) AtDecember 31, 2021 , there were$0.7 million of liabilities. We retain a significant portion of the risks associated with certain employee medical benefits and product liability insurance. Recorded liabilities for self-insured risks are calculated using actuarial methods and are not discounted. Amounts for self-insurance obligations are included in accrued liabilities and long-term other liabilities on the consolidated balance sheet. We maintain product liability coverage to cover possible claims, and still maintain accruals for periods prior to obtaining coverage. Prior to this, we accrued$0.3 million that we believe is sufficient to cover probable and reasonably estimable liabilities related to product liability claims based on our history of such claims. However, there can be no assurance that these estimates will prove to be sufficient, nor can there be any assurance that the ultimate outcome of any litigation for product liability will not have a material negative impact on our business prospects, financial position, results of operations or cash flows. Because of the high degree of uncertainty regarding the timing of future cash outflows associated with the product liability obligations, we are unable to estimate the years in which cash settlement may occur. (2) AtDecember 31, 2021 , there were$1.0 million of liabilities. We provide a nonqualified deferred compensation plan for our officers and certain key employees. Under this plan, participants may defer up to 100 percent of their annual salary and bonus (less the participant's share of employment taxes). The deferrals become an obligation owed to the participant by us under the plan. Upon separation of the participant from the service with us, the obligation owed to the participant under the plan will be paid as a lump sum or over a period of either three or five years. As we cannot easily determine when our officers and key employees will separate from us, we are unable to estimate the years in which cash settlement may occur. (3) We entered into the revolving Credit Agreement withBank of America, N.A ., that permits us to borrow up to$25.0 million throughJuly 1, 2023 , bearing interest at LIBOR, plus 2.25 percent. We must pay an annual commitment fee of 0.25 percent on the unused portion of the commitment. AtDecember 31, 2021 , we had$25.0 million available under this facility. AtDecember 31, 2021 , there was no outstanding balance under the Credit Agreement. (4) We entered into the Capital Credit Agreement withBanc of America Leasing and Capital, LLC , under which we borrowed$3.7 million , bearing interest at a fixed rate of 3.00 percent. We are required to settle our borrowings over thirty-six monthly payments, each equal to$0.1 million . As ofDecember 31, 2021 , there was$2.4 million outstanding balance under the Capital Credit Agreement. We have entered into long-term agreements with third-parties in the ordinary course of business, in which we have agreed to pay a percentage of net sales in certain regions in which we operate, or royalties on certain products. In 2021 and 2020, the aggregate amounts of these payments were$26,000 and$23,000 , respectively.
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