NATURES SUNSHINE PRODUCTS INCNATR

NATURES SUNSHINE PRODUCTS INC Income Taxes Disclosure

10-KFiled Mar 10, 20266 min read
INCOME TAXES
 
Income (loss) from continuing operations before provision for income taxes are taxed under the following jurisdictions (dollar amounts in thousands):
Year Ended December 31,20252024
Domestic$(32,345)$(29,434)
Foreign62,157 47,860 
Total$29,812 $18,426 
 
Components of the provision for income taxes are as follows (dollar amounts in thousands):
Year Ended December 31,20252024
Current:  
Federal$953 $1,061 
State101 824 
Foreign10,580 10,311 
Subtotal11,634 12,196 
Deferred:  
Federal(2,455)(1,705)
State341 (1,109)
Foreign(159)1,152 
Subtotal(2,273)(1,662)
Total provision for income taxes$9,361 $10,534 
 
The provision for income taxes, presented as dollar amounts in thousands and as a percentage of income from continuing operations before provision for income taxes, differs from the statutory U.S. federal income tax rate due to the following:
Year Ended December 31,20252024
Statutory U.S. federal income tax rate$6,261 21.0 %$3,869 21.0 %
State income taxes, net of U.S. federal income tax*349 1.2 (213)(1.2)
Foreign tax effects
Canada191 0.6 218 1.2 
China
Withholding tax on royalties340 1.1 413 2.2 
Disallowance of prior years expenses— — 240 1.3 
Other592 2.0 249 1.4 
Ecuador
Changes in valuation allowance(49)(0.2)238 1.3 
Other53 0.2 (22)(0.1)
Hong Kong(221)(0.7)297 1.6 
Indonesia
Loss adjustment83 0.3 260 1.4 
Other120 0.4 (115)(0.6)
Japan
Non-deductible entertainment104 0.3 310 1.7 
Other(24)(0.1)(121)(0.7)
Korea
Withholding tax on royalties1,200 4.0 1,213 6.6 
Withholding tax on unremitted earnings479 1.6 583 3.2 
Other(22)(0.1)20 0.1 
Mexico
Changes in valuation allowance(275)(0.9)429 2.3 
Other134 0.4 (112)(0.6)
Netherlands
Loss adjustment368 1.2 (191)(1.0)
Changes in valuation allowance(429)(1.4)637 3.5 
Other17 0.1 (75)(0.4)
Poland
Withholding tax on royalties581 2.0 416 2.3 
Other(34)(0.1)(9)— 
Taiwan
Withholding tax on royalties— — 3,200 17.4 
Non-deductible commissions276 0.9 485 2.6 
Other(30)(0.1)(25)(0.1)
Thailand
Changes in valuation allowance19 0.1 240 1.3 
Other47 0.2 (13)(0.1)
Other foreign jurisdictions188 0.6 439 2.4 
Effect of cross-border tax laws
Foreign derived income deduction300 1.0 (2,874)(15.6)
Global intangible low-taxed income, net of credits154 0.5 (350)(1.9)
Foreign flow-through income4,028 13.5 346 1.9 
Transfer pricing adjustments207 0.7 621 3.3 
Other39 0.1 (130)(0.7)
Tax credits
Foreign tax credits(8,182)(27.4)170 0.9 
Other(146)(0.5)(99)(0.6)
Changes in valuation allowance2,669 9.0 (975)(5.3)
Non-taxable or non-deductible items
Executive compensation442 1.5 616 3.3 
Other(279)(1.0)18 0.1 
Changes in unrecognized benefits(189)(0.6)331 1.8 
Effective income tax rate$9,361 31.4 %$10,534 57.2 %
*State taxes in California, Texas, and Georgia made up the majority (greater than 50 percent ) of the tax effect in this category each year.

During the current period, we updated our estimate of intercompany charges for the prior period. This revision affected the calculation of withholding taxes, foreign derived income deduction, and foreign tax credits and required a corresponding adjustment to the valuation allowance. The net impact is not significant to our provision for income taxes, but as a result of these updates, the comparability of certain tax items between periods may appear inconsistent.
The significant components of the deferred tax assets (liabilities) are as follows (dollar amounts in thousands):
As of December 31,20252024
Inventory$2,584 $2,159 
Accrued liabilities2,674 2,256 
Operating lease liabilities3,183 2,136 
Share-based compensation1,254 1,260 
Net operating losses5,094 5,407 
Foreign tax and withholding credits14,822 12,393 
Accrued compensation2,194 1,096 
Fixed assets10,481 8,824 
Other deferred tax assets2,466 3,109 
Valuation allowance(20,878)(18,864)
Total deferred tax assets23,874 19,776 
Right of use assets(2,959)(1,867)
Tax on unremitted earnings(1,731)(1,233)
Other deferred tax liabilities(70)(39)
Total deferred tax liabilities(4,760)(3,139)
Total deferred taxes, net$19,114 $16,637 

The components of deferred tax assets (liabilities), net are as follows (dollar amounts in thousands):
As of December 31,20252024
Net deferred tax assets$20,068 $17,644 
Net deferred tax liabilities(954)(1,007)
Total deferred taxes, net$19,114 $16,637 

We have elected the period cost method (costs are treated as a current period expense when incurred) under U.S. GAAP as it relates to GILTI income inclusions in U.S. taxable income. Each reporting period we analyze our indefinite reinvestment assertions with respect to undistributed foreign earnings. As of December 31, 2025, we continue to assert that we do not intend to reinvest undistributed foreign earnings indefinitely in our foreign subsidiaries.
 
We have provided a valuation allowance of $20.9 million and $18.9 million as of December 31, 2025 and 2024, respectively, for certain deferred tax assets, including foreign net operating losses, which we cannot conclude it is more likely than not that they will be realized. For financial reporting purposes, the increase in valuation allowances increases income tax expense in the year recorded. At December 31, 2025, we had approximately $14.8 million of foreign tax and withholding credits. Of the $14.8 million credits, $14.7 million are foreign tax credits, which begin expiring in 2028. We do not expect to use these credits before expiration and they are offset by a valuation allowance.
 
At December 31, 2025, foreign subsidiaries had unused operating loss carryovers for tax purposes of approximately $5.1 million, tax effected. The net operating losses will expire at various dates from 2026 through 2036, with the exception of those in some foreign jurisdictions where there is no expiration. The foreign net operating losses have a valuation allowance recorded against the portion expected to expire before utilization.
Cash paid for taxes, net of refunds, was as follows (dollar amounts in thousands):
Year Ended December 31,20252024
Federal$1,053 $2,598 
State488 401 
Foreign
Taiwan4,993 5,199 
Korea3,571 3,586 
China996 1,346 
Other foreign jurisdictions1,446 1,658 
Total$12,547 $14,788 
 
We are subject to regular audits by federal, state and foreign tax authorities. These audits may result in additional tax liabilities. We believe we have appropriately provided for income taxes for all years. Several factors drive the calculation of our tax reserves. Some of these factors include: (i) the expiration of various statutes of limitations; (ii) changes in tax law and regulations; (iii) the issuance of tax rulings and (iv) settlements with tax authorities. Changes in any of these factors may result in adjustments to our reserves, which would impact our reported financial results.
 
Our U.S. federal income tax returns for 2022 through 2024 are open to examination for federal tax purposes. We have several foreign tax jurisdictions that have open tax years from 2020 through 2024.

The total outstanding balance for liabilities related to unrecognized tax benefits at December 31, 2025 and 2024 was $0.7 million and $0.9 million, respectively, all of which would favorably impact the rate if recognized. Included in these amounts is approximately $34,000 and $0.1 million, respectively, of combined interest and penalties. We decreased interest and penalties approximately $84,000 for the year ended December 31, 2025 and increased interest and penalties approximately $8,000 for the year ended December 31, 2024. We account for interest expense and penalties for unrecognized tax benefits as part of our income tax provision.
 
A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax benefits, excluding interest and penalties, is as follows for the years (dollar amounts in thousands):
Year Ended December 31,20252024
Unrecognized tax benefits, opening balance$779 $471 
Tax positions taken in a prior period  
Gross increases— 318 
Gross decreases(89)— 
Lapse of applicable statute of limitations(67)— 
Currency translation adjustments11 (10)
Unrecognized tax benefits, ending balance$634 $779 

Although we believe our estimates are reasonable, we can make no assurance that the final tax outcome of these matters will not be different from that which it has reflected in our historical income tax provisions and accruals. Such differences could have a material impact on our income tax provision and operating results in the period in which we make such determination.

Historical Timeline

Fiscal YearFiled
2025Mar 10, 2026Showing above
2024Mar 11, 2025
2023Mar 12, 2024
2022Mar 16, 2023
2021Mar 8, 2022
2020Mar 10, 2021
2019Mar 11, 2020
2018Mar 8, 2019
2017Mar 16, 2018
2016Mar 14, 2017
2015Mar 14, 2016

About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

Other Available Disclosures

RevenueFair ValuePP&EGoodwill & IntangiblesLeasesSegmentsCommitmentsNew Standards