10-Q 1 brhc10043402_10q.htm 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

☑
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

OR

☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO _____________

Commission File Number: 001-12421

 
NU SKIN ENTERPRISES, INC.
  
 
(Exact name of registrant as specified in its charter)
  

Delaware
  
87-0565309
(State or other jurisdiction of incorporation or organization)
  
(IRS Employer Identification No.)

 
75 West Center Street
Provo, Utah 84601
  
 
(Address of principal executive offices, including zip code)
  
 
(801) 345-1000
  
 
(Registrant’s telephone number, including area code)
  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Class A Common Stock, $.001 par value
  
NUS
  
New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☑   No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☑   No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   ☑
Accelerated filer   ☐
Non-accelerated filer   ☐
Smaller reporting company   ☐
 
Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐   No  ☑

As of October 31, 2022, 49,420,202 shares of the registrant’s Class A common stock, $.001 par value per share, were outstanding.

NU SKIN ENTERPRISES, INC.

QUARTERLY REPORT ON FORM 10-Q – THIRD QUARTER 2022

TABLE OF CONTENTS

   
Page
Part I.
Financial Information
  
 
Item 1.
  
   
1
   
2
   
3
   
4
   
6
   
7
 
Item 2.
 18
 
Item 3.
 27
 
Item 4.
 27
       
Part II.
Other Information
  
 
Item 1.
 28
 
Item 1A.
 28
 
Item 2.
 29
 
Item 3.
 29
 
Item 4.
 29
 
Item 5.
 29
 
Item 6.
 30
       
  31

In this Quarterly Report on Form 10-Q, references to “dollars” and “$” are to United States (“U.S.”) dollars.

Nu Skin, Pharmanex, and ageLOC are our trademarks. The italicized product names used in this Quarterly Report on Form 10-Q are product names and also, in certain cases, our trademarks.

PART I.  FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

NU SKIN ENTERPRISES, INC.
Consolidated Balance Sheets (Unaudited)
(U.S. dollars in thousands)

 
September 30,
2022
    
December 31,
2021
  
ASSETS
            
Current assets:
            
Cash and cash equivalents
  
$
294,136
    
$
339,593
  
Current investments
    
13,868
      
15,221
  
Accounts receivable, net
    
47,991
      
41,299
  
Inventories, net
    
327,481
      
399,931
  
Prepaid expenses and other
    
94,366
      
76,906
  
Total current assets
    
777,842
      
872,950
  
                 
Property and equipment, net
    
433,367
      
453,674
  
Operating lease right-of-use assets
    
105,103
      
120,973
  
Goodwill
    
206,432
      
206,432
  
Other intangible assets, net
    
68,743
      
76,991
  
Other assets
    
171,685
      
175,460
  
Total assets
  
$
1,763,172
    
$
1,906,480
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
Accounts payable
  
$
41,620
    
$
49,993
  
Accrued expenses
    
281,418
      
372,201
  
Current portion of long-term debt
    
42,500
      
107,500
  
Total current liabilities
    
365,538
      
529,694
  
                 
Operating lease liabilities
    
78,053
      
88,759
  
Long-term debt
    
382,323
      
268,781
  
Other liabilities
    
95,324
      
106,474
  
Total liabilities
    
921,238
      
993,708
  
                 
Commitments and contingencies (Notes 5 and 11)
    
     
 
                 
Stockholders’ equity:
                
Class A common stock – 500 million shares authorized, $0.001 par value, 90.6 million shares issued
    
91
      
91
  
Additional paid-in capital
    
609,886
      
601,703
  
Treasury stock, at cost – 40.9 million and 40.7 million shares
    
(1,559,967
)
    
(1,526,860
)
Accumulated other comprehensive loss
    
(109,385
)
    
(73,896
)
Retained earnings
    
1,901,309
      
1,911,734
  
Total stockholders’ equity
    
841,934
      
912,772
  
Total liabilities and stockholders’ equity
  
$
1,763,172
    
$
1,906,480
  

The accompanying notes are an integral part of these consolidated financial statements.
1
NU SKIN ENTERPRISES, INC.
Consolidated Statements of Income (Unaudited)
(U.S. dollars in thousands, except per share amounts)

 
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2022
    
2021
    
2022
    
2021
  
Revenue
  
$
537,805
    
$
641,152
    
$
1,703,319
    
$
2,022,233
  
Cost of sales
    
173,500
      
158,907
      
483,099
      
501,448
  
Gross profit
    
364,305
      
482,245
      
1,220,220
      
1,520,785
  
                                 
Operating expenses:
                                
Selling expenses
    
216,478
      
260,333
      
678,603
      
816,887
  
General and administrative expenses
    
137,987
      
156,528
      
428,105
      
490,225
  
Restructuring and impairment expenses
     30,124       —       30,124       —  
Total operating expenses
    
384,589
      
416,861
      
1,136,832
      
1,307,112
  
                                 
Operating income (loss)
    
(20,284
)
    
65,384
      
83,388
      
213,673
  
Other income (expense), net
    
(8,680
)
    
2,781
      
(18,773
)
    
351
  
                                 
Income (loss) before provision for income taxes
    
(28,964
)
    
68,165
      
64,615
      
214,024
  
Provision (benefit) for income taxes
    
(3,574
)
    
18,436
      
17,052
      
57,527
  
                                 
Net income (loss)
  
$
(25,390
)
  
$
49,729
    
$
47,563
    
$
156,497
  
                                 
Net income (loss) per share (Note 6):
                                
Basic
  
$
(0.51
)
  
$
0.99
    
$
0.95
    
$
3.11
  
Diluted
  
$
(0.51
)
  
$
0.97
    
$
0.94
    
$
3.03
  
                                 
Weighted-average common shares outstanding (000s):
                                
Basic
    
50,199
      
50,098
      
50,187
      
50,304
  
Diluted
    
50,199
      
51,260
      
50,822
      
51,629
  

The accompanying notes are an integral part of these consolidated financial statements.

2
NU SKIN ENTERPRISES, INC.
Consolidated Statements of Comprehensive Income (Unaudited)
(U.S. dollars in thousands)

 
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2022
    
2021
    
2022
    
2021
  
Net income (loss)
  
$
(25,390
)
  
$
49,729
    
$
47,563
    
$
156,497
  
                                 
Other comprehensive (loss) income, net of tax:
                                
Foreign currency translation adjustment, net of taxes of $(10) and $(1) for the three months ended September 30, 2022 and 2021, respectively, and $19 and $1 for the nine months ended September 30, 2022 and 2021, respectively
    
(22,502
)
    
(7,165
)
    
(46,914
)
    
(13,431
)
Net unrealized gains/(losses) on cash flow hedges, net of taxes of $(1,262) and $(7) for the three months ended September 30, 2022 and 2021, respectively and $(3,441) and $(678) for the nine months ended September 30, 2022 and 2021, respectively
    
4,570
      
25
      
12,462
      
2,455
  
Reclassification adjustment for realized losses/(gains) in current earnings on cash flow hedges, net of taxes of $225 and $(10) for the three months ended September 30, 2022 and 2021, respectively and $286 and $(24) for the nine months ended September 30, 2022 and 2021, respectively
    
(815
)
    
35
      
(1,037
)
    
86
  
     
(18,747
)
    
(7,105
)
    
(35,489
)
    
(10,890
)
Comprehensive income (loss)
  
$
(44,137
)
  
$
42,624
    
$
12,074
    
$
145,607
  

The accompanying notes are an integral part of these consolidated financial statements.

3
NU SKIN ENTERPRISES, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(U.S. dollars in thousands)

 
For the Three Months Ended September 30, 2022
  
   
Class A
Common Stock
    
Additional
Paid-in Capital
    
Treasury
Stock
    
Accumulated Other
Comprehensive Loss
    
Retained
Earnings
    
Total
  
Balance at July 1, 2022
  
$
91
    
$
606,349
    
$
(1,520,769
)
  
$
(90,638
)
  
$
1,946,002
    
$
941,035
  
                                                 
Net loss
    
—
      
—
      
—
      
—
      
(25,390
)
    
(25,390
)
Other comprehensive loss, net of tax
    
—
      
—
      
—
      
(18,747
)
    
—
      
(18,747
)
Repurchase of Class A common stock (Note 6)
    
—
      
—
      
(40,028
)
    
—
      
—
      
(40,028
)
Exercise of employee stock options (0.1 million shares)/vesting of stock awards
    
—
      
366
      
830
      
—
      
—
      
1,196
  
Stock-based compensation
    
—
      
3,171
      
—
      
—
      
—
      
3,171
  
Cash dividends
    
—
      
—
      
—
      
—
      
(19,303
)
    
(19,303
)
Balance at September 30, 2022
  
$
91
    
$
609,886
    
$
(1,559,967
)
  
$
(109,385
)
  
$
1,901,309
    
$
841,934
  

 
For the Three Months Ended September 30, 2021
  
   
Class A
Common Stock
    
Additional
Paid-in Capital
    
Treasury
Stock
    
Accumulated Other
Comprehensive Loss
    
Retained
Earnings
    
Total
  
Balance at July 1, 2021
  
$
91
    
$
586,976
    
$
(1,509,867
)
  
$
(68,553
)
  
$
1,909,179
    
$
917,826
  
                                                 
Net income
    
—
      
—
      
—
      
—
      
49,729
      
49,729
  
Other comprehensive income, net of tax
    
—
      
—
      
—
      
(7,105
)
    
—
      
(7,105
)
Repurchase of Class A common stock (Note 6)
    
—
      
—
      
(10,005
)
    
—
      
—
      
(10,005
)
Exercise of employee stock options (0.1 million shares)/vesting of stock awards
    
—
      
609
      
1,337
      
—
      
—
      
1,946
  
Stock-based compensation
    
—
      
3,093
      
—
      
—
      
—
      
3,093
  
Cash dividends
    
—
      
—
      
—
      
—
      
(19,007
)
    
(19,007
)
Balance at September 30, 2021
  
$
91
    
$
590,678
    
$
(1,518,535
)
  
$
(75,658
)
  
$
1,939,901
    
$
936,477
  

The accompanying notes are an integral part of these consolidated financial statements.

4
NU SKIN ENTERPRISES, INC.
Consolidated Statements of Stockholders’ Equity (Unaudited)
(U.S. dollars in thousands)

 
For the Nine Months Ended September 30, 2022
  
   
Class A
Common
Stock
    
Additional
Paid-in
Capital
    
Treasury
Stock
    
Accumulated
Other
Comprehensive
Loss
    
Retained
Earnings
    
Total
  
Balance at January 1, 2022
  
$
91
    
$
601,703
    
$
(1,526,860
)
  
$
(73,896
)
  
$
1,911,734
    
$
912,772
  
                                                 
Net income
    
—
      
—
      
—
      
—
      
47,563
      
47,563
  
Other comprehensive loss, net of tax
    
—
      
—
      
—
      
(35,489
)
    
—
      
(35,489
)
Repurchase of Class A common stock (Note 6)
    
—
      
—
      
(60,038
)
    
—
      
—
      
(60,038
)
Exercise of employee stock options (1.2 million shares)/vesting of stock awards
    
—
      
(1,137
)
    
26,931
      
—
      
—
      
25,794
  
Stock-based compensation
    
—
      
9,320
      
—
      
—
      
—
      
9,320
  
Cash dividends
    
—
      
—
      
—
      
—
      
(57,988
)
    
(57,988
)
Balance at September 30, 2022
  
$
91
    
$
609,886
    
$
(1,559,967
)
  
$
(109,385
)
  
$
1,901,309
    
$
841,934
  

 
For the Nine Months Ended September 30, 2021
  
   
Class A
Common Stock
    
Additional
Paid-in Capital
    
Treasury
Stock
    
Accumulated Other
Comprehensive Loss
    
Retained
Earnings
    
Total
  
Balance at January 1, 2021
  
$
91
    
$
579,801
    
$
(1,461,593
)
  
$
(64,768
)
  
$
1,840,740
    
$
894,271
  
                                                 
Net income
    
—
      
—
      
—
      
—
      
156,497
      
156,497
  
Other comprehensive loss, net of tax
    
—
      
—
      
—
      
(10,890
)
    
—
      
(10,890
)
Repurchase of Class A common stock (Note 6)
    
—
      
—
      
(70,415
)
    
—
      
—
      
(70,415
)
Exercise of employee stock options (0.6 million shares)/vesting of stock awards
    
—
      
(5,599
)
    
13,473
      
—
      
—
      
7,874
  
Stock-based compensation
    
—
      
16,476
      
—
      
—
      
—
      
16,476
  
Cash dividends
    
—
      
—
      
—
      
—
      
(57,336
)
    
(57,336
)
Balance at September 30, 2021
  
$
91
    
$
590,678
    
$
(1,518,535
)
  
$
(75,658
)
  
$
1,939,901
    
$
936,477
  

The accompanying notes are an integral part of these consolidated financial statements.

5
NU SKIN ENTERPRISES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(U.S. dollars in thousands)

 
Nine Months Ended
September 30,
  
   
2022
    
2021
  
Cash flows from operating activities:
            
Net income
  
$
47,563
    
$
156,497
  
Adjustments to reconcile net income to cash flows from operating activities:
                
Depreciation and amortization
    
53,935
      
57,858
  
Non-cash lease expense
    
33,250
      
40,703
  
Stock-based compensation
    
9,320
      
16,476
  
Foreign currency losses
    
7,077
      
5,501
  
Loss on disposal of assets
    
568
      
13,210
  
Deferred taxes
    
2,483
      
3,846
  
Impairment of fixed assets and other intangibles
     9,916       —  
Unrealized gain on equity investments
     —       (18,077 )
Changes in operating assets and liabilities:
                
Accounts receivable, net
    
(15,523
)
    
8,377
  
Inventories, net
    
48,422
      
(109,371
)
Prepaid expenses and other
    
(6,801
)
    
(29,311
)
Other assets
    
8,030
      
(18,438
)
Accounts payable
    
(1,224
)
    
(11,182
)
Accrued expenses
    
(95,928
)
    
(89,993
)
Other liabilities
    
(18,551
)
    
5,977
  
Net cash provided by operating activities
    
82,537
      
32,073
  
                 
Cash flows from investing activities:
                
Purchases of property and equipment
    
(45,274
)
    
(50,384
)
Proceeds on investment sales
    
5,535
      
11,171
  
Purchases of investments
    
(13,955
)
    
(14,973
)
Acquisitions, net of cash acquired
     —       (18,963 )
Net cash used in investing activities
    
(53,694
)
    
(73,149
)
                 
Cash flows from financing activities:
                
Exercise of employee stock options and taxes paid related to the net shares settlement of stock awards
    
25,794
      
7,874
  
Payment of cash dividends
    
(57,988
)
    
(57,336
)
Repurchases of shares of common stock
    
(60,038
)
    
(70,415
)
Finance lease principal payments
    
(1,401
)
    
(1,409
)
Payment of debt issuance costs
     (5,077 )     —  
Payments of debt
    
(410,000
)
    
(77,500
)
Proceeds from debt
    
460,000
      
130,000
  
Net cash used in financing activities
    
(48,710
)
    
(68,786
)
                 
Effect of exchange rate changes on cash
    
(25,590
)
    
(10,409
)
                 
Net increase (decrease) in cash and cash equivalents
    
(45,457
)
    
(120,271
)
                 
Cash and cash equivalents, beginning of period
    
339,593
      
402,683
  
                 
Cash and cash equivalents, end of period
  
$
294,136
    
$
282,412
  

The accompanying notes are an integral part of these consolidated financial statements.

6
NU SKIN ENTERPRISES, INC.
Notes to Consolidated Financial Statements

1.
The Company

Nu Skin Enterprises, Inc. (the “Company”) is a holding company, with Nu Skin, being the primary operating unit.  Nu Skin develops and distributes premium-quality, innovative beauty and wellness products that are sold worldwide under the Nu Skin, Pharmanex and ageLOC brands and a small number of other products and services.  The Company reports revenue from nine segments, consisting of its seven geographic Nu Skin segments—Americas, which includes Canada, Latin America and the United States; Mainland China; Southeast Asia/Pacific, which includes Australia, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam; South Korea; Japan; Europe, Middle East and Africa (“EMEA”), which includes markets in Europe as well as Israel and South Africa; and Hong Kong/Taiwan, which also includes Macau—and two Rhyz Investments segments—Manufacturing, which includes manufacturing and packaging subsidiaries it has acquired; and Rhyz other, which includes other investments by its Rhyz strategic investment arm (the Company’s subsidiaries operating within each segment are collectively referred to as the “Subsidiaries”).

2.
Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The unaudited consolidated financial statements include the accounts of the Company and its Subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, considered necessary for a fair statement of the Company’s financial information as of September 30, 2022, and for the three-and nine-month periods ended September 30, 2022 and 2021. The results of operations of any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. The consolidated balance sheet as of December 31, 2021 has been prepared using information from the audited financial statements at that date. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Reclassifications
 
Certain prior period amounts have been reclassified to conform to the current presentation. The Company reclassified $4.6 million and $9.5 million of events and other miscellaneous selling costs from the general and administration expenses line to the selling expenses line on the consolidated statement of income for the three- and nine-month periods ended September 30, 2021, respectively. The Company believes these costs are better reflected in selling expenses. The reclassification had no impact on operating income for the three- and nine-month periods ended September 30, 2021.


Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued, ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for the effects of reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying US GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ASU 2020-04 applies only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. The amendments in ASU 2020-04 are elective and are effective upon issuance for all entities. The Company had previously elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. In the second quarter of 2022, the Company elected the hedge accounting expedient that allows an update to the hedged risk in active hedging relationships without de-designation as the Company’s debt transitioned to Secured Overnight Financing Rate (“SOFR”). Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

7
Inventory

Inventories consist of the following (U.S. dollars in thousands):

 
September 30,
2022
    
December 31,
2021
  
Raw materials
  
$
141,823
    
$
179,891
  
Finished goods
    
185,658
      
220,040
  
Total Inventory, net
  
$
327,481
    
$
399,931
  

Revenue Recognition

Contract Liabilities – Customer Loyalty Programs

Contract liabilities, recorded as deferred revenue within the accrued expenses line in the consolidated balance sheets, include loyalty point program deferrals with certain customers which are accounted for as a reduction in the transaction price and are generally recognized as points are redeemed for additional products.

The balance of deferred revenue related to contract liabilities as of September 30, 2022 and December 31, 2021 was $17.7 million and $22.0 million, respectively. The contract liabilities impact to revenue for the three-month periods ended September 30, 2022, and 2021 was an increase of $0.7 million and a decrease of $0.7 million, respectively. The impact to revenue for the nine-month periods ended September 30, 2022, and 2021 was an increase of $4.3 million and  a decrease of $6.3 million, respectively.

3.
Goodwill

The Company’s reporting units for goodwill are its operating segments, which are also its reportable segments.

The following table presents goodwill allocated to the Company’s reportable segments for the periods ended September 30, 2022 and December 31, 2021 (U.S. dollars in thousands):

 
September 30,
2022
    
December 31,
2021
  
Nu Skin
            
Americas
 
$
9,449
    
$
9,449
  
Mainland China
    
32,179
      
32,179
  
Southeast Asia/Pacific
    
18,537
      
18,537
  
South Korea
    
29,261
      
29,261
  
Japan
    
16,019
      
16,019
  
EMEA
    
2,875
      
2,875
  
Hong Kong/Taiwan
    
6,634
      
6,634
  
Rhyz Investments
                
Manufacturing
    
78,875
      
78,875
  
Rhyz Other
    
12,603
      
12,603
  
Total
  
$
206,432
    
$
206,432
  

4.
Debt

2018 Credit Agreement

On April 18, 2018, the Company entered into a Credit Agreement (the “2018 Credit Agreement”) with several financial institutions as lenders and Bank of America, N.A., as administrative agent. The 2018 Credit Agreement provided for a $400 million term loan facility and a $350 million revolving credit facility, each with a term of five years. Both facilities bore interest at the LIBOR, plus a margin based on the consolidated leverage ratio. The term loan facility amortized in quarterly installments in amounts resulting in an annual amortization of 5.0% during the first and second years, 7.5% during the third and fourth years and 10.0% during the fifth year after the closing date of the 2018 Credit Agreement, with the remainder payable at final maturity. The 2018 Credit Agreement required the Company to maintain a consolidated leverage ratio not exceeding 2.25 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00.

8
Credit Agreement

On June 14, 2022, the Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) with several financial institutions as lenders and Bank of America, N.A., as administrative agent, which amended and restated the 2018 Credit Agreement. The Credit Agreement provides for a $400 million term loan facility and a $500 million revolving credit facility, each with a term of five years.  Both facilities bear interest at the SOFR, plus a margin based on the Company’s consolidated leverage ratio. Commitment fees payable under the Credit Agreement are also based on the consolidated leverage ratio as defined in the Credit Agreement and range from 0.175% to 0.30% on the unused portion of the total lender commitments then in effect.  The term loan facility amortizes in quarterly installments in amounts resulting in an annual amortization of 2.5% during the first year and 5.0% during the second, third, fourth and fifth years after the closing date of the Credit Agreement, with the remainder payable at final maturity. The Credit Agreement is guaranteed by certain of the Company’s domestic subsidiaries and collateralized by assets of such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries. The Credit Agreement requires the Company to maintain a consolidated leverage ratio not exceeding 2.75 to 1.00 and a consolidated interest coverage ratio of no less than 3.00 to 1.00. As of September 30, 2022, the Company was in compliance with all covenants under the Credit Agreement.

The following table summarizes the Company’s debt facilities as of September 30, 2022 and December 31, 2021:

Facility or Arrangement
  
Original
Principal Amount
  
Balance as of
September 30, 2022 (1)(2)
  
Balance as of
December 31, 2021 (1)(2)
  
Interest Rate
  
Repayment Terms
2018 Credit Agreement term loan facility
  $400.0 million
   —   $307.5 million
  
Variable 30 day: 2.80%
   Principal amount was paid in full during June 2022.
 
                    
2018 Credit Agreement revolving credit facility
       —    $70.0 million
  
Variable 30 day: 2.72%
   Principal amount was paid in full during June 2022 and credit line was closed.
 
      
           
Credit Agreement term loan facility
  
$400.0 million
  
$397.5 million
 
  
—
 
Variable 30 day: 4.88%
  
21% of the principal amount is payable in increasing quarterly installments over a five-year period that began on September 30, 2022, with the remainder payable at the end of the five-year term.
 
                    
Credit Agreement revolving credit facility
      
$30.0 million
  
—
 
Variable 30 day: 4.88%
 
Revolving line of credit expires June 14, 2027.

(1)
As of September 30, 2022 and December 31, 2021, the current portion of the Company’s debt (i.e., becoming due in the next 12 months) included $12.5 million and $37.5 million, respectively, of the balance of its term loan under the Credit Agreement and 2018 Credit Agreement.

(2)
The carrying value of the debt reflects the amounts stated in the above table, less debt issuance costs of $2.7 million and $1.2 million as of September 30, 2022 and December 31, 2021, respectively, related to the Credit Agreement and 2018 Credit Agreement, which are not reflected in this table.

5.
Leases

As of September 30, 2022, the weighted average remaining lease term was 8.4 and 3.0 years for operating and finance leases, respectively. As of September 30, 2022, the weighted average discount rate was 3.5% and 3.8% for operating and finance leases, respectively.

The components of lease expense were as follows (U.S. dollars in thousands):

 
Three Months Ended
September 30,
    
Nine Months Ended
September 30,
  
   
2022
    
2021
    
2022
    
2021
  
Operating lease expense
                        
Operating lease cost
  
$
9,479
    
$
12,193
    
$
30,179
    
$
37,408
  
Variable lease cost
    
1,572
      
1,121
      
4,223
      
4,145
  
Short-term lease cost
    
84
      
13
      
181
      
590
  
Sublease income
    
—
      
(1,352
)
    
—
   
(5,164
)
Finance lease expense
                                
Amortization of right-of-use assets
    
530
      
594
      
1,632
      
1,811
  
Interest on lease liabilities
    
53
      
77
      
178
      
248
  
 Total lease expense
  
$
11,718
    
$
12,646
    
$
36,393
    
$
39,038
  

9
Supplemental cash flow information related to leases was as follows (U.S. dollars in thousands):

 
Nine Months Ended
September 30,
  
   
2022
    
2021
  
Operating cash outflow from operating leases
  
$
28,880
    
$
40,072
  
Operating cash outflow from finance leases
  
$
170
    
$
250
  
Financing cash outflow from finance leases
  
$
1,401
    
$
1,409
  
Right-of-use assets obtained in exchange for operating lease obligations
  
$
28,785
    
$
19,120
  
Right-of-use assets obtained in exchange for finance lease obligations
  
$
203
    
$
59
  

Maturities of lease liabilities were as follows (U.S. dollars in thousands):

Year Ending December 31
  
Operating
Leases
    
Finance
Leases
  
2022
  
$
9,453
    
$
505
  
2023
    
26,680
      
1,884
  
2024
    
19,671
      
1,688
  
2025
    
13,775
      
1,209
  
2026
    
8,127
      
264
  
Thereafter
    
46,139
      
4
  
Total
    
123,845
      
5,554
  
Less: Finance charges
    
16,736
      
319
  
Total principal liability
  
$
107,109
    
$
5,235
  

The Company has additional lease liabilities of $0.1 million which have not yet commenced as of September 30, 2022, and as such, have not been recognized on the consolidated balance sheets.

6.
Capital Stock

Net income per share

Net income per share is computed based on the weighted-average number of common shares outstanding during the periods presented. Additionally, diluted earnings per share data gives effect to all potentially dilutive common shares that were outstanding during the periods presented. For the three-month periods ended September 30, 2022 and 2021, stock options of 0.5 million and 0.1 million, respectively, and for the nine-month periods ended September 30, 2022 and 2021, stock options of 0.1 million and 0.1 million, respectively, were excluded from the calculation of diluted earnings per share because they were anti-dilutive.

Dividends

In February, May and August 2022, the Company’s board of directors declared quarterly cash dividends of $0.385 per share. These quarterly cash dividends of $19.3 million, $19.4 million and $19.3 million were paid on March 9, 2022, June 8, 2022 and September 7, 2022, respectively, to stockholders of record on February 28, 2022, May 27, 2022 and August 26, 2022, respectively. In October 2022, the Company’s board of directors declared a quarterly cash dividend of $0.385 per share to be paid on December 7, 2022 to stockholders of record on November 25, 2022.

Repurchase of common stock

During the three-month periods ended September 30, 2022 and 2021, the Company repurchased 1.0 million and 0.2 million shares of its Class A common stock under its stock repurchase plan for $40.0 million and $10.0 million, respectively. During the nine-month periods ended September 30, 2022 and 2021, the Company repurchased 1.4 million shares and 1.4 million shares of its Class A common stock under its stock repurchase plan for $60.0 million and $70.4 million, respectively. As of September 30, 2022, $185.4 million was available for repurchases under the Company’s stock repurchase plan.

7.
Fair Value and Equity Investments

Fair Value

The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximates fair values due to the short-term nature of these instruments. The carrying value of debt approximates fair value due to the variable 30-day interest rate. Fair value estimates are made at a specific point in time, based on relevant market information.

10
The FASB Codification defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. On a quarterly basis, the Company measures at fair value certain financial assets, including cash equivalents. Accounting standards specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:

■
Level 1 – quoted prices in active markets for identical assets or liabilities;
■
Level 2 – inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
■
Level 3 – unobservable inputs based on the Company’s own assumptions.

Accounting standards permit companies, at their option, to measure certain financial instruments and other eligible items at fair value. The Company has elected not to apply the fair value option to existing eligible items beyond what is required by US GAAP.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (U.S. dollars in thousands):

 
Fair Value at September 30, 2022
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Financial assets (liabilities):
                        
Cash equivalents and current investments
  
$
68,552
    
$
—
    
$
—
    
$
68,552
  
Derivative financial instruments asset
    
—
      
21,168
      
—
      
21,168
  
Life insurance contracts
    
—
      
—
      
38,302
      
38,302
  
Contingent consideration
    
—
      
—
      
(8,372
)
    
(8,372
)
Total
  
$
68,552
    
$
21,168
    
$
29,930
    
$
119,650
  

 
Fair Value at December 31, 2021
  
   
Level 1
    
Level 2
    
Level 3
    
Total
  
Financial assets (liabilities):
                        
Cash equivalents and current investments
  
$
66,477
    
$
—
    
$
—
    
$
66,477
  
Derivative financial instruments asset
    
—
      
6,590
      
—
      
6,590
  
Life insurance contracts
    
—
      
—
      
49,851
      
49,851
  
Contingent consideration
    
—
      
—
      
(10,341
)
    
(10,341
)
Total
  
$
66,477
    
$
6,590
    
$
39,510
    
$
112,577
  

The following table provides a summary of changes in fair value of the Company’s Level 3 life insurance contracts (U.S. dollars in thousands):

   
2022
    
2021
  
Beginning balance at January 1
  
$
49,851
    
$
45,453
  
Actual return on plan assets
    
(11,549
)
    
3,172
  
Purchases and issuances
    
—
      
7,016
  
Sales and settlements
    
—
      
(7,016
)
Transfers into Level 3
    
—
      
—
  
Ending balance at September 30
  
$
38,302
    
$
48,625
  

Life insurance contracts: Accounting Standards Codification (“ASC”) 820 preserves practicability exceptions to fair value measurements provided by other applicable provisions of U.S. GAAP. The guidance in ASC 715-30-35-60 allows a reporting entity, as a practical expedient, to use cash surrender value or conversion value as an expedient for fair value when it is present. Accordingly, the Company determines the fair value of its life insurance contracts as the cash-surrender value of life insurance policies held in its Rabbi Trust.
 
11
The following table provides a summary of changes in fair value of the Company’s Level 3 contingent consideration (U.S. dollars in thousands):

   
2022
    
2021
  
Beginning balance at January 1
  
$
(10,341
)
  
$
(3,125
)