Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2008
OR
o
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: 0-21116
USANA HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Utah
87-0500306
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification No.)
3838 West Parkway Blvd., Salt Lake City, Utah 84120
(Address of principal executive offices, Zip Code)
(801) 954-7100
(Registrant’s telephone number, including area code)
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 x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of the registrant’s common stock as of October 31, 2008 was 15,446,733.
For the Quarterly Period Ended September 27, 2008
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1
Financial Statements
Consolidated Balance Sheets
3
Consolidated Statements of Earnings – Quarter Ended
4
Consolidated Statements of Earnings – Nine Months Ended
5
Consolidated Statements of Stockholders’ Equity and Comprehensive Income
6
Consolidated Statements of Cash Flows
7
Notes to Consolidated Financial Statements
8–16
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17–26
Item 3
Quantitative and Qualitative Disclosures About Market Risk
26-27
Item 4
Controls and Procedures
27
PART II.OTHER INFORMATION
Legal Proceedings
28
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6
Exhibits
29-30
Signatures
31
2
Item 1. Financial Statements
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
(in thousands)
December 29,
September 27,
2007 (1)
2008
(unaudited)
ASSETS
Current assets
Cash and cash equivalents
$
12,865
13,699
Inventories
19,439
22,011
Prepaid expenses and other current assets
11,639
11,090
Deferred income taxes
2,049
2,980
Total current assets
45,992
49,780
Property and equipment, net
52,061
59,392
Assets held for sale
607
Goodwill
5,690
Other assets
4,778
5,673
109,128
121,142
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
8,111
9,384
Other current liabilities
32,074
34,875
Total current liabilities
40,185
44,259
Line of credit
28,000
30,650
Other long-term liabilities
2,305
2,836
Stockholders’ equity
Common stock, $0.001 par value; authorized 50,000 shares, issued and outstanding 16,198 as of December 29, 2007 and 15,647 as of September 27, 2008
16
Additional paid-in capital
7,525
9,612
Retained earnings
30,108
33,361
Accumulated other comprehensive income
989
408
Total stockholders’ equity
38,638
43,397
(1) Derived from audited financial statements.
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
Quarter Ended
September 29,2007
September 27,2008
Net sales
106,181
107,176
Cost of sales
21,960
22,228
Gross profit
84,221
84,948
Operating expenses:
Associate incentives
43,021
44,573
Selling, general and administrative
23,053
26,787
Research and development
864
834
Total operating expenses
66,938
72,194
Earnings from operations
17,283
12,754
Other income (expense):
Interest income
53
Interest expense
(576
)
(84
Other, net
253
(410
Other income (expense), net
(270
(489
Earnings from continuing operations before income taxes
17,013
12,265
Income taxes
5,350
4,126
Income from continuing operations
11,663
8,139
Loss from discontinued operations, net of tax benefit
(405
—
Net earnings
11,258
Earnings per common share
Basic
Continuing operations
0.72
0.51
Discontinued operations
(0.02
0.70
Diluted
0.50
0.68
Weighted average common shares outstanding
16,173
16,031
16,613
16,133
CONSOLIDATED STATEMENTS OF EARNINGS(in thousands, except per share data)
Nine Months Ended
314,401
317,954
64,989
65,614
249,412
252,340
125,850
131,540
67,085
77,696
2,696
2,425
195,631
211,661
53,781
40,679
447
188
(985
(446
726
(367
(625
53,969
40,054
19,099
14,220
34,870
25,834
(612
34,258
2.06
1.59
(0.04
2.02
2.00
1.58
(0.03
1.97
16,926
16,262
17,413
16,351
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Nine Months Ended September 29, 2007 and September 27, 2008
Accumulated
Additional
Other
Common Stock
Paid-in
Retained
Comprehensive
Shares
Value
Capital
Earnings
Income (Loss)
Total
For the Nine Months September 29, 2007
Balance at December 30, 2006
17,859
18
15,573
44,251
355
60,197
Comprehensive income
Foreign currency translation adjustment, net of tax benefit of $335
682
34,940
Common stock retired
(1,892
(2
(20,118
(59,460
(79,580
Common stock awarded to Associates
1
47
Equity-based compensation expense
4,786
Common stock exercised under equity award plan, including tax benefit of $1,458
162
4,543
Balance at September 29, 2007
16,130
4,831
19,049
1,037
24,933
For the Nine Months Ended September 27, 2008
Balance at December 29, 2007
16,198
Foreign currency translation adjustment, net of tax expense of $582
(581
25,253
(809
(5,484
(22,581
(28,065
4,934
Common stock exercised under equity award plan, including tax benefit of $2,095
258
2,637
Balance at September 27, 2008
15,647
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization
3,599
4,894
(Gain) loss on disposition of property and equipment
59
(81
Excess tax benefit from equity-based payment arrangements
(1,071
(2,225
(1,140
(1,603
Provision for inventory valuation
973
700
Changes in operating assets and liabilities:
1,515
(3,746
Prepaid expenses and other assets
(1,640
152
(2,443
3,015
Other liabilities
5,199
6,246
Total adjustments
9,884
12,286
Net cash provided by operating activities
44,142
38,120
Cash flows from investing activities
Receipts on notes receivable
91
561
Increase in notes receivable
(667
Proceeds from the sale of property and equipment
769
136
Purchases of property and equipment
(19,008
(15,081
Net cash used in investing activities
(18,815
(14,380
Cash flows from financing activities
Proceeds from equity awards exercised
3,085
542
1,071
2,225
Repurchase of common stock
Borrowings on line of credit
97,043
46,555
Payments on line of credit
(62,418
(43,905
Net cash used in financing activities
(40,799
(22,648
Effect of exchange rate changes on cash and cash equivalents
161
(258
Net increase (decrease) in cash and cash equivalents
(15,311
Cash and cash equivalents, beginning of period
27,029
Cash and cash equivalents, end of period
11,718
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest, net of amount capitalized
964
315
19,472
16,222
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The unaudited interim consolidated financial information of USANA Health Sciences, Inc. and its subsidiaries (collectively, the “Company” or “USANA”) has been prepared in accordance with Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Certain information and footnote disclosures that are normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting of normal recurring adjustments that are necessary to present fairly the Company’s financial position as of September 27, 2008, and results of operations for the quarters and nine months ended September 29, 2007 and September 27, 2008. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2007. The results of operations for the quarter and nine months ended September 27, 2008 may not be indicative of the results that may be expected for the fiscal year ending January 3, 2009.
NOTE A – ORGANIZATION
USANA develops and manufactures high-quality nutritional and personal care products that are sold internationally through a network marketing system, which is a form of direct selling. The Company’s products are sold throughout the United States, Canada, Mexico, Australia, New Zealand, Singapore, Malaysia, Hong Kong, Taiwan, Japan, South Korea, the United Kingdom, and the Netherlands.
NOTE B – DISCONTINUED OPERATIONS
Consistent with the Company’s long-term objectives of focusing on its direct selling business, on August 10, 2007, the Company sold certain assets of its third-party contract manufacturing business. The Company retained assets that are associated with manufacturing and packaging its Sensé™ skin and beauty care products and continues to manufacture these products at the Draper, Utah facility. Results of the third-party contract manufacturing operations have been classified as “discontinued operations” for all applicable periods.
The Company’s sales that are reported in discontinued operations for the quarter and nine months ended September 29, 2007 were $706 and $4,460 respectively. For the quarter ended September 29, 2007, the loss from discontinued operations was $625 and the related income tax benefit was $220. For the nine months ended September 29, 2007, the loss from discontinued operations was $955 and the related income tax benefit was $343.
NOTE C – INVENTORIES
Inventories consist of the following:
2007
Raw materials
5,730
6,322
Work in progress
5,825
4,734
Finished goods
7,884
10,955
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (continued)
NOTE D – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
Prepaid insurance
1,300
296
Other prepaid expenses
1,646
1,101
Federal income taxes receivable
2,754
3,292
Miscellaneous receivables, net
4,109
3,252
Deferred commissions
1,179
2,545
Other current assets
651
604
NOTE E – PROPERTY AND EQUIPMENT
Years
Buildings
40
23,466
36,229
Laboratory and production equipment
5-7
11,563
13,904
Computer equipment and software
3-5
25,745
25,430
Furniture, fixtures, and other
4,637
5,678
Leasehold improvements
3,700
4,104
Land improvements
15
1,579
1,994
70,690
87,339
Less accumulated depreciation and amortization
36,459
36,794
34,231
50,545
Land
1,956
7,187
Deposits and projects in process
15,874
1,660
The Company has utilized its line of credit in part for the expansion of its facilities in Salt Lake City, Utah, and in Sydney, Australia. As of September 27, 2008, the Company’s balance on its line of credit was $30,650. The interest expense that is associated with these projects has been capitalized as part of the asset to which it relates and will be amortized over the asset’s estimated useful life. Total interest expense that was incurred during the first nine months of 2008 was $866, of which $420 was capitalized.
9
NOTE F – OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
4,733
7,101
Accrued employee compensation
10,139
8,030
2,106
34
Sales taxes
4,111
4,342
Associate promotions
917
317
Deferred revenue
4,302
7,842
Provision for returns and allowances
931
1,118
All other
4,835
6,091
NOTE G – LONG TERM DEBT AND LINE OF CREDIT
The Company has a $40,000 line of credit, which had a balance of $30,650 at September 27, 2008. The Company will be required to pay the balance on this line of credit in full at the time of maturity in May 2011.
The weighted-average interest rate on this line of credit at September 27, 2008 was 3.61%. The interest rate is computed at the bank’s Prime Rate or LIBOR and is adjusted according to the related Credit Agreement. The collateral for this line of credit is the pledge of the capital stock of certain subsidiaries of the Company, as set forth in a separate pledge agreement with the bank. The Credit Agreement contains restrictive covenants that are based on the Company’s EBITDA and on the Company’s debt coverage ratio.
NOTE H – COMMITMENTS AND CONTINGENCIES
Contingencies
During 2008, the Company has been a named defendant in two class action lawsuits, which were filed in 2007. These lawsuits were dismissed, with prejudice, on July 23, 2008 and October 1, 2008, respectively. The Company is also involved in other various disputes arising in the normal course of business. In the opinion of management, based upon advice of counsel, the ultimate outcome of these disputes will not have a material impact on the Company’s financial position or results of operations.
NOTE I – EQUITY-BASED COMPENSATION
During 2007 and 2008 the Company granted equity awards under its 2006 Equity Incentive Award Plan (the “2006 Plan”), which allows for the grant of various equity awards, including stock-settled stock appreciation rights (“SSAR”), stock options, deferred stock units (“DSU”), and other types of equity awards to the Company’s officers, key employees, and non-employee directors. The 2006 Plan authorized 5,000 shares of common stock for issuance. As of September 27, 2008, the Company had issued 3,438 awards under this plan, 2,617 of which were issued in July 2008.
10
NOTE I – EQUITY-BASED COMPENSATION – CONTINUED
Equity-based compensation expense relating to equity awards under the current and previous plans of the Company, together with the related tax benefit recognized in earnings for the periods ended as of the dates indicated is as follows:
September 29,
181
205
496
536
1,315
1,782
3,927
4,204
70
89
363
194
1,566
2,076
Related tax benefit
748
1,647
1,796
Net equity-based compensation expense
1,024
1,328
3,139
3,138
The following table shows the remaining unrecognized compensation expense on a pre-tax basis for all types of equity awards that were outstanding as of September 27, 2008. This table does not include an estimate for future grants that may be issued.
Remainder of 2008
2,689
2009
8,513
2010
7,726
2011
6,317
2013
4,910
2,209
*
32,364
* Expected to be recognized over a weighted-average period of 2.5 years.
As determined by the Company’s Compensation Committee, awards granted to officers and key employees will generally vest 20% each year on the anniversary of the grant date. Awards of stock options and SSARs to be granted to non-employee directors will generally vest 25% each quarter, commencing on the last day of the first fiscal quarter in which the awards are granted. Awards of stock options and SSARs will generally expire five to five and one-half years from the date of grant. Awards of DSUs are full-value shares at the date of grant, vesting over the periods of service, and do not have expiration dates. The exercise price of awards granted under the 2006 Plan is the closing price of the Company’s common stock on the date of grant.
The Company recognizes equity-based compensation expense under the straight-line method over the vesting term based on the grant date fair value and an estimate of forfeitures derived from historical experience. The Company uses the Black-Scholes option pricing model to estimate the fair value of its equity awards, which requires the input of highly subjective assumptions, including expected stock price volatility. For awards granted by the Company prior to 2008, expected volatility was calculated by averaging the historical volatility of the Company and a peer group index. Beginning in 2008, expected volatility became a weighted-average of historical volatility and implied volatility of the Company. Risk-free interest rate is based on the U.S. Treasury yield curve on the date of grant with respect to the expected life of the award. Due to the “plain vanilla” characteristics of the Company’s equity awards, the “simplified method,” as permitted by the guidance in Staff Accounting Bulletin No. 107, was used to determine the expected life of awards granted prior to 2008. Beginning in 2008, expected life became a weighted-average that includes historical settlement data of the Company’s equity awards and a hypothetical holding period for outstanding options.
11
Weighted-average assumptions that were used to calculate the fair value of awards that were granted during the periods ended as of the dates indicated are included in the table below. Because DSUs are full-value shares at the date of grant, they have been excluded.
Expected volatility
37.3
%
41.9
Risk-free interest rate
3.2
4.6
Expected life
4.0 yrs.
4.2 yrs.
Expected dividend yield
Grant price
26.06
42.10
*There were no equity awards granted during the quarter ended September 29, 2007.
A summary of the Company’s stock option and SSAR activity for the nine months ended September 27, 2008, is as follows:
Weighted-averageexercise price
Weighted-averageremainingcontractual term
Aggregateintrinsicvalue*
Outstanding at December 29, 2007
1,864
32.18
4.9
12,606
Granted
2,617
Exercised
(261
2.51
Canceled or expired
(80
41.82
Outstanding at September 27, 2008
4,140
29.99
65,816
Exercisable at September 27, 2008
824
35.14
8,861
Aggregate intrinsic value is defined as the difference between the current market value at the reporting date and the exercise price of awards that were in-the-money. It is estimated using the closing price of the Company’s common stock on the last trading day of the period reported.
The weighted-average fair value of stock options and SSARs that were granted during the nine month periods ended September 29, 2007, and September 27, 2008 was $16.79 and $8.73, respectively. The total intrinsic value of awards that were exercised during the nine month periods ended September 29, 2007, and September 27, 2008, was $5,734 and $8,571, respectively.
The total fair value of awards that vested during the nine month periods ended September 29, 2007, and September 27, 2008, was $5,181 and $5,942, respectively. This total fair value includes equity awards that were issued in the form of stock options, SSARs, and DSUs.
12
NOTE J – COMMON STOCK AND EARNINGS PER SHARE
Basic earnings per share are based on the weighted-average number of shares outstanding for each period. Shares that have been repurchased and retired during the periods specified below have been included in the calculation of the number of weighted-average shares that are outstanding for the calculation of basic earnings per share. Diluted earnings per common share are based on shares that are outstanding (computed under basic EPS) and on potentially dilutive shares. Shares that are included in the diluted earnings per share calculations include equity awards that are in-the-money but have not yet been exercised.
For the Quarter Ended
Earnings from continuing operations available to common shareholders
Loss from discontinued operations available to common shareholders
Net earnings available to common shareholders
Basic EPS
Common shares outstanding - entire period
Weighted-average common shares:
Issued during period
130
223
Canceled during period
(1,816
(390
Weighted-average common shares outstanding during period
Earnings per common share from continuing operations - basic
Loss per common share from discontinued operations - basic
Earnings per common share from net earnings - basic
Diluted EPS
Weighted-average shares outstanding during period - basic
Dilutive effect of equity awards
440
102
Weighted-average shares outstanding during period - diluted
Earnings per common share from continuing operations - diluted
Loss per common share from discontinued operations - diluted
Earnings per common share from net earnings - diluted
Equity awards for 48 and 1,232 shares of stock were not included in the computation of diluted EPS for the quarters ended September 29, 2007, and September 27, 2008, respectively, due to the fact that their exercise prices were greater than the average market price of the shares.
13
NOTE J – COMMON STOCK AND EARNINGS PER SHARE – CONTINUED
For the Nine Months Ended
100
(1,033
(130
487
Equity awards for 28 and 1,344 shares of stock were not included in the computation of diluted EPS for the nine months ended September 29, 2007, and September 27, 2008, respectively, due to the fact that their exercise prices were greater than the average market price of the shares.
During the nine months ended September 29, 2007, and September 27, 2008, the Company expended $79,580 and $28,065 to purchase 1,892 and 809 shares, respectively, under the Company’s share repurchase plan. The purchase of shares under this plan reduces the number of shares issued and outstanding in the above calculations.
14
NOTE K – SEGMENT INFORMATION
USANA operates as a direct selling company that develops, manufactures, and distributes high-quality nutritional and personal care products that are sold through a global network marketing system of independent distributors (“Associates”). The table below summarizes the approximate percentage of total product revenue that has been contributed by the Company’s nutritional and personal care products for the periods indicated.
Product Line
USANA® Nutritionals
87
86
Sensé – beautiful science®
The Company’s primary business is to manage its worldwide Associate base. As such, management has determined that the Company operates in one reportable business segment as defined in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Performance for a region or market is primarily evaluated based on sales. The Company does not use profitability reports on a regional or market basis for making business decisions. No single customer accounted for 10% or more of net sales for the periods presented.
In the table below, selected financial information is presented in four geographic regions: North America, Southeast Asia/Pacific, East Asia, and North Asia. “North America” includes our operations in the United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands. “Southeast Asia/Pacific” includes our operations in Australia, New Zealand, Singapore, and Malaysia. “East Asia” includes our operations in Hong Kong and Taiwan. “North Asia” includes our operations in Japan and South Korea.
Selected Financial Information
Selected financial information, presented by geographic region, is listed below for the periods ended as of the dates indicated:
Quarter ended
Net Sales to External Customers
North America
66,619
64,593
199,328
192,789
Southeast Asia/Pacific
23,303
23,265
67,506
68,980
East Asia
12,230
15,206
35,746
43,878
North Asia
4,029
4,112
11,821
12,307
Consolidated Total
Total Assets
73,305
87,338
17,198
21,393
7,027
8,178
4,118
4,233
101,648
NOTE K – SEGMENT INFORMATION – CONTINUED
The following table provides further information on markets representing ten percent or more of consolidated net sales:
Nine Months ended
Net sales:
United States
42,455
40,169
127,948
118,844
Canada
18,792
18,216
54,898
56,326
Australia-New Zealand
14,163
13,179
41,819
40,625
Due to the centralized structure of the Company’s manufacturing operations and its corporate headquarters in the United States, a significant concentration of assets exists in this market. As of September 29, 2007, and September 27, 2008, long-lived assets in the United States totaled $42,051 and $50,230, respectively. Additionally, due to the purchase, remodel, and fit-out of our new facility in Sydney, Australia during the last few years, long-lived assets in the Australia-New Zealand market as of September 29, 2007 and September 27, 2008 totaled $7,536 and $12,944, respectively. There is no significant concentration of long-lived assets in any other market.
Item 2. 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 should be read in conjunction with the Unaudited Consolidated Financial Statements and Notes thereto that are contained in this quarterly report, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations that are included in our Annual Report on Form 10-K for the year ended December 29, 2007, and our other filings, including Current Reports on Form 8-K, that have been filed with the Securities and Exchange Commission (“SEC”) through the date of this report.
Our fiscal year end is the Saturday closest to December 31st of each year. Fiscal year 2008 will end on January 3, 2009, and is a 53-week year. Fiscal year 2007 ended on December 29, 2007, and was a 52-week year.
Presentation
Due to the sale of certain assets related to our third-party contract manufacturing business on August 10, 2007, we now operate as one reportable business segment, Direct Selling. Our 2007 financial results reflect the reclassification of sales and related expenses in the former Contract Manufacturing segment to “discontinued operations.”
General
USANA develops and manufactures high-quality nutritional and personal care products. We market our products on the basis of high levels of bioavailability, safety, and quality. We distribute our products through a network marketing system, which is a form of direct selling. Our customer base comprises two types of customers: “Associates” and “Preferred Customers.” Associates are independent distributors of our products who also purchase our products for their personal use. Preferred Customers purchase our products strictly for their personal use and are not permitted to resell or to distribute the products. As of September 27, 2008, we had approximately 184,000 active Associates and approximately 73,000 active Preferred Customers worldwide. During the nine months ended September 27, 2008, sales to Associates accounted for approximately 88% of product sales. For purposes of this report, we only count as active customers those Associates and Preferred Customers who have purchased product from USANA at any time during the most recent three-month period, either for personal use or for resale.
We have ongoing operations in the following markets, which are grouped and presented in four geographic regions:
· North America – United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands;
· Southeast Asia/Pacific – Australia-New Zealand, Singapore, and Malaysia;
· East Asia – Hong Kong and Taiwan; and
· North Asia – Japan and South Korea.
Our primary product lines consist of USANAâ Nutritionals and Sensé – beautiful scienceâ (Sensé). The USANA Nutritionals product line is further categorized into three separate classifications:
· Essentials – core vitamin and mineral supplements that provide a foundation of advanced nutrition for every age group;
· Optimizers – targeted supplements that are designed to meet individual health and nutritional needs; and
· Macro Optimizers – healthy, low-glycemic functional foods and other related products.
17
During the third quarter of 2008, at our Annual International Convention, we introduced two new products in our Optimizers category; Rev3 Energy Drink and Rev3 Energy Surge™ Pack. Rev3 Energy Drink is sold in a ready-to-drink 12oz can, while Rev3 Energy Surge Pack is conveniently packaged in single serve packs to be mixed with water or other beverages. These products were developed to be a healthy alternative to traditional energy drinks that are loaded with sugars and artificial flavors. They were formulated with low-glycemic sugars for sustained energy, contain natural caffeine from a blend of teas, and provide vitamins, minerals, and antioxidants to support energy metabolism at the cellular level. We also launched a new product in our Macro Optimizers category, Chocolate Whey Nutrimeal™. Currently, these products are only available for sale in the United States.
The following tables summarize the approximate percentage of total product revenue that has been contributed by our major product lines and our top-selling products for the current and prior year periods indicated:
USANAâ Nutritionals
Essentials
36
Optimizers
37
Macro Optimizers
Sensé – beautiful scienceâ
All Other *
* Includes items such as resource materials and services, sales tools, and logo merchandise.
Key Product
USANAâ Essentials
20
HealthPak 100 ™
Proflavanolâ
As a manufacturer of nutritional and personal care products utilizing direct selling for the distribution of our products, we compete within two industries: nutrition and direct selling. We believe that the most significant factors affecting us are the aging of the worldwide population and the general public’s heightened awareness and understanding of the connection between diet and health, which affect our ability to attract and retain Associates and Preferred Customers to sell and consume our products.
Our results of operations and financial condition are directly related to changes in the number of Associates and Preferred Customers purchasing our products. We believe that our high-quality products and our financially rewarding Compensation Plan are the key components to attracting and retaining Associates. At our Annual International Convention in 2008, we announced two permanent enhancements to our Associate Compensation Plan. These enhancements provide additional opportunities for our Associates to earn income through the Compensation Plan.
To support our Associates in building their businesses, we sponsor meetings and events throughout the year, which offer information about our products and our network marketing system. These meetings are designed to assist Associates in business development and to provide a forum for interaction with some of our top-ranking Associates and members of the USANA management team. We also provide low cost sales tools, which we believe are an integral part of building and maintaining a successful home-based business for our Associates.
In addition to Company-sponsored meetings and sales tools, we maintain a website exclusively for our Associates where they can keep up on the latest USANA news, obtain training materials, manage their business information, enroll new customers, shop, and register for Company-sponsored events. Additionally, through this website, Associates can access other online services to which they may subscribe. For example, we offer an online business management service, which includes a tool that helps
Associates track and manage their business activity, a personal webpage to which their prospects or retail customers can be directed, e-cards for advertising, and a tax management tool.
The number of active Associates and Preferred Customers is used by management as a key non-financial measure because it is a leading indicator of net sales. The tables below summarize the changes in our active customer base by geographic region, which are further discussed in the “Summary of Financial Results and Recent Developments” section below. These numbers have been rounded to the nearest thousand.
Active Associates By Region
As ofSeptember 29, 2007
As ofSeptember 27, 2008
Change fromPrior Year
PercentChange
105,000
58.3
103,000
56.0
(2,000
(1.9
)%
41,000
22.8
42,000
1,000
2.4
27,000
15.0
32,000
17.4
5,000
18.5
7,000
3.9
3.8
0.0
180,000
100.0
184,000
4,000
2.2
Active Preferred Customers By Region
71,000
89.9
64,000
87.7
(7,000
(9.9
6,000
7.5
8,000
10.9
2,000
33.3
1.3
1.4
(1,000
(100.0
79,000
73,000
(6,000
(7.6
Total Active Customers By Region
176,000
68.0
167,000
65.0
(9,000
(5.1
47,000
18.1
50,000
19.5
3,000
6.4
10.8
33,000
12.8
17.9
3.1
2.7
(12.5
259,000
257,000
(0.8
Forward-Looking Statements and Certain Risks
The statements contained in this report that are not purely historical are considered to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act. These statements represent our expectations, beliefs, anticipations, commitments, intentions, and strategies regarding the future. They may be identified by the use of words or phrases such as “believes,” “expects,” “anticipates,” “should,” “plans,” “estimates,” and “potential,” among others. Forward-looking statements include, but are not limited to, statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial performance, revenue, and expense levels in the future and the sufficiency of our existing assets to fund our future operations and capital spending needs.
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Readers are cautioned that actual results could differ materially from the anticipated results or other expectations that are expressed in these forward-looking statements for the reasons that are detailed in our most recent Annual Report on Form 10-K at pages 21 through 31. The fact that some of these risk factors may be the same or similar to those in our past SEC reports means only that the risks are present in multiple periods. We believe that many of the risks detailed here and in our other SEC filings are part of doing business in the industry in which we operate and will likely be present in all periods reported. The fact that certain risks are common in the industry does not lessen their significance. The forward-looking statements contained in this report, are made as of the date of this report, and we assume no obligation to update them or to update the reasons why our actual results could differ from those that we have projected. Among others, risks and uncertainties that may affect our business, financial condition, performance, development, and results of operations include:
· Our ability to attract and maintain a sufficient number of Associates;
· Our dependence upon a network marketing system to distribute our products;
· Activities of our independent Associates;
· Our planned expansion into international markets, including delays in commencement of sales in any new market, delays in compliance with local marketing or other regulatory requirements, or changes in target markets;
· Rigorous government scrutiny of network marketing practices;
· Potential political events, natural disasters, or other events that may negatively affect economic conditions;
· Potential effects of adverse publicity regarding the Company, nutritional supplements, or the network marketing industry;
· Reliance on key management personnel;
· Extensive government regulation of the Company’s products, manufacturing, and network marketing system;
· Potential inability to sustain or manage growth, including the failure to continue to develop new products;
· An increase in the amount of Associate incentives;
· Our reliance on the use of information technology;
· The adverse effect of the loss of a high-level sponsoring Associate, together with a group of leading Associates, in that person’s downline;
· The loss of product market share or Associates to competitors;
· Potential adverse effects of customs, duties, taxation, and transfer pricing regulations, including regulations governing distinctions between and Company responsibilities to employees and independent contractors;
· The fluctuation in the value of currency exchange rates with the U.S. dollar;
· Our reliance on outside suppliers for raw materials and certain manufactured items;
· Shortages of raw materials that we use in certain of our products;
· Significant price increases of our key raw materials;
· Significant increases in transportation costs;
· Product liability claims and other risks that may arise with our manufacturing activity;
· Intellectual property risks;
· Liability claims that may arise with our “Athlete Guarantee” program;
· Continued compliance with debt covenants;
· Disruptions to shipping channels that are used to distribute our products to international warehouses; and
· The outcome of regulatory and litigation matters.
Net sales for the third quarter of 2008 were $107.2 million, compared with $106.2 million in the third quarter of 2007. Net sales during the nine months ended September 27, 2008 were $318.0 million, compared with $314.4 million for the same period in 2007. The increase in net sales for the nine months ended September 27, 2008 was primarily the result of growth in our East Asia region and benefits from changes in currency exchange rates, which were largely offset by decreased sales in the United States and most markets within our Southeast Asia/Pacific region. As a U.S. based multi-national company, for the last several years we have received a benefit to net sales from changes in currency exchange rates; however, as the U.S. dollar has begun to strengthen, we are starting to see this trend reverse. Notably, if the U.S. dollar continues to strengthen against cer tain currencies, our net sales and results of operations will be negatively impacted in the fourth quarter and full-year 2008.
The total number of active Associates increased in the third quarter of 2008 on both a year-over-year and a sequential quarter basis. As a leading indicator for sales, we are optimistic about the increase in the number of Associates during the third quarter. This increase is largely due to the enhancements to our Associate Compensation Plan that we announced in the third quarter. These enhancements consist of an Elite Bonus, which will reward and motivate our top 25 income-earning Associates, and a Matching Bonus, which provides another opportunity for our Associates to earn income through their USANA home-based business. Additionally, we believe that the dismissal/settlement of the distracting lawsuits and challenges relating to the misinformation about the Company, now essentially behind us, improved confidence of our customers.
Although the total number of active Associates increased in the third quarter of 2008 compared with the third quarter of 2007, the number of active Associates in our largest region, North America, declined. We believe this was primarily due to economic uncertainties in the United States during 2008 relative to 2007. We believe, however, that in the current economic environment we may see an overall increase in the number of our Associates as people look for alternative sources of income. In contrast, we may see an overall decrease in the number of our Preferred Customers as they become more conservative with their spending.
Income from continuing operations decreased 30.2% to $8.1 million in the third quarter of 2008 from $11.7 million in the third quarter of 2007. For the nine months ended September 27, 2008, income from continuing operations decreased 25.9% to $25.8 million from $34.9 million in the same period of 2007. These decreases in both periods were due primarily to a combination of slower net sales growth and increased operating costs.
During the third quarter of 2008, we also announced the Company’s plans to begin operations in the Philippines. This opening is expected in early 2009. Subsequent to this announcement, there has been a great deal of excitement from our Associate leaders, and we are optimistic about the potential of this market.
Tender Offer
On June 2, 2008, Unity Acquisition Corp. (“Unity”), a Utah corporation indirectly owned by Gull Holdings, Ltd., the Company’s Chairman, and certain other tender offer participants, initiated a tender offer to acquire all of the outstanding shares of the Company’s common stock for $26.00 per share. Following the announcement of the offer, the independent members of the Company’s Board of Directors formed a Special Committee (the “Special Committee”) to evaluate the offer and engaged both an
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independent legal and independent financial advisor. On June 20, 2008, the Special Committee unanimously determined that the offer was inadequate and recommended that the Company’s stockholders reject the offer. On June 30, 2008, Unity increased the offer price to $28.00 per share and extended the offer to July 14, 2008. On July 3, 2008, the Special Committee again unanimously determined that the offer was inadequate and recommended that the Company’s stockholders reject the offer. On July 15, 2008, Unity announced a third extension of the offer to July 21, 2008. On July 16, 2008, however, Unity terminated the offer.
Quarters Ended September 29, 2007 and September 27, 2008
Net Sales
The following table summarizes the changes in our net sales by geographic region for the quarters ended as of the dates indicated:
Net Sales by Region(in thousands)
Change from
Percent
September 29, 2007
September 27, 2008
Prior Year
Change
62.8
60.3
(2,026
(3.0
21.9
21.7
(38
(0.2
11.5
14.2
2,976
24.3
83
2.1
995
0.9
The majority of the decrease in net sales in North America came from the United States, where net sales decreased 5.4%, or $2.3 million, due to lower active customer counts. We believe that the decrease in active customers in this region was primarily due to economic uncertainties in the United States during 2008 relative to 2007, and the lingering effects of negative misinformation about the Company that appeared in the mass media during 2007. Mexico helped partially offset declining sales in this region during the third quarter of 2008 with an $800 thousand increase in net sales, nearly half of which was in the form of a benefit from changes in currency exchange rates.
Excluding Malaysia, net sales in Southeast Asia/Pacific declined by nearly $1.3 million, or 7.0%. Net sales in Malaysia increased $1.2 million, or 25.2%, over the third quarter of 2007. Declining sales in the other markets within this region were the result of lower active customer counts, particularly in New Zealand. An overall benefit from favorable changes in currency exchange rates in this region during the third quarter of 2008 added $900 thousand to net sales.
The majority of the increase in net sales in East Asia during the third quarter of 2008 came from Hong Kong where net sales increased $2.7 million, or 39.1%, due to a strong increase in the number of Active Associates in that market.
Associate Incentives
As a percentage of net sales, Associate incentives increased to 41.6% during the third quarter of 2008, compared with 40.5% in 2007. This increase is due to a higher payout rate of our base Compensation Plan commissions, as well as an increase in the amount paid for contests and promotions. Additionally, as previously mentioned, we have implemented some permanent enhancements to our Associate Compensation Plan, which have begun to increase Associate incentives as a percentage of net sales.
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Selling, General, and Administrative Expenses
Selling, general and administrative expenses increased to 25.0% of net sales for the third quarter of 2008, compared with 21.7% in 2007. In absolute terms, our selling, general, and administrative expenses increased by $3.7 million. This increase in absolute terms can be attributed to the following:
· An increase of approximately $2.0 million in wage-related expenses;
· Non-recurring legal and other professional fees of approximately $900 thousand, relating to the tender offer process;
· An increase of approximately $500 thousand in depreciation expense, relating to capital projects completed in the United States and Australia; and
· An increase of approximately $500 thousand in equity-based compensation expense.
Included in the increases listed above for wage-related expenses and equity-based compensation expense are increased base salaries and equity grants to certain members of senior management. These particular increases to cash and equity compensation were done in connection with changes that were made in upper management during the third quarter and are expected to reduce earnings per share for 2008 by approximately $0.11.
The increase of selling, general and administrative expenses as a percentage of net sales can be attributed to all of the above, combined with relatively flat sales growth.
Other Income (Expense)
Net other expense increased from $270 thousand in the third quarter of 2007 to $489 thousand in 2008. The largest component of this change was a $414 thousand loss relating to international currency exchange during the third quarter of 2008, compared with a $255 thousand gain in the corresponding period of 2007. This increase in other expense was partially offset by a decrease in interest expense.
Income Taxes
Income taxes totaled 33.6% of earnings from continuing operations before income taxes for the third quarter of 2008, compared with 31.4% in 2007. The increase in our income tax rate is primarily attributed to not having a federal R&D tax credit in 2008. Legislation was passed in October of 2008 that will allow the Company to recognize a federal R&D tax credit during the fourth quarter for all of fiscal 2008.
Diluted Earnings Per Share from Continuing Operations
Diluted earnings per share from continuing operations decreased $0.20, or 28.6%, to $0.50 during the third quarter of 2008, compared with $0.70 in 2007. This change was the result of relatively flat sales, combined with higher operating costs, as well as a higher effective tax rate. Non-recurring charges relating to the recently terminated tender offer reduced earnings per share by $0.04. This decrease was partially offset by a lower number of average shares outstanding due to share buybacks during 2007 and 2008.
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The following table summarizes the changes in our net sales by geographic region for the nine month periods ended as of the dates indicated:
63.4
60.6
(6,539
(3.3
21.5
1,474
11.4
13.8
8,132
22.7
3.7
486
4.1
3,553
1.1
The decrease in net sales in North America came from the United States, where net sales dropped 7.1%, or $9.1 million, primarily due to lower active customer counts. This decrease was partially offset by benefits from changes in currency exchange rates, which increased net sales in this region by $5.0 million. We believe that the decrease in the number of active customers in this region was primarily due to economic uncertainty in the United States during 2008 relative to 2007, and the lingering effects of negative misinformation about the Company that appeared in the mass media during 2007.
Excluding Malaysia, net sales in Southeast Asia/Pacific declined by $2.4 million, or 4.4%. Net sales in Malaysia increased $3.9 million, or 31.1% over the nine months ended September 29, 2007. Because our Malaysia market is still fairly new, we believe that a portion of its net sales would have otherwise been generated in other markets, such as Singapore, within this region. Declining sales in the other markets within this region were offset in part by an overall benefit from changes in currency exchange rates of $5.5 million.
The increase in net sales in East Asia came from strong growth in Hong Kong of 43.9%, or $8.2 million. The change in net sales in this region is reflective of a continued increase in the number of active Associates in Hong Kong and a slight decrease in the number of active Associates in Taiwan.
As a percentage of net sales, Associate incentives increased to 41.4% during the nine months ended September 27, 2008, compared with 40.0% in 2007. This increase is due to a higher payout rate of our base Compensation Plan commissions, and an increase in the amount paid for contests and promotions.
Selling, general and administrative expenses increased to 24.4% of net sales for the nine months ended September 27, 2008, compared with 21.3% in 2007. In absolute terms, our selling, general and administrative expenses increased by $10.6 million. This increase in absolute terms is attributed to the following:
· An increase of approximately $3.9 million in wage-related expenses;
· An increase of approximately $1.9 million relating to higher depreciation and rent expense;
· Non-recurring legal and other professional fees of approximately $1.7 million, relating to the tender offer process;
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· Increased spending of approximately $1.2 million on Associate events and support activities; and
· An increase in accounting and auditing service fees of nearly $700 thousand.
The increase of selling, general and administrative expenses as a percentage of net sales can be attributed to all of the above combined with relatively flat sales growth.
Other income (expense) changed from net other income of $188 thousand during the nine months ended September 29, 2007 to net other expense of $625 thousand during the nine months ended September 27, 2008. The largest component of this change was a $277 thousand loss relating to international currency exchange during the nine months ended September 27, 2008, compared with a $769 thousand gain in the corresponding period of 2007. Interest income also decreased during the nine months ended September 27, 2008. Both of these factors were partially offset by the decrease in interest expense due to a lower average balance on our line of credit.
Diluted earnings per share from continuing operations decreased $0.42, or 21.0%, to $1.58 during the nine months ended September 27, 2008, compared with $2.00 in 2007. This change was the result of relatively flat sales, combined with higher operating costs. Notably, non-recurring charges relating to the recently terminated tender offer reduced earnings per share by $0.07. The decrease in diluted earnings per share was partially offset by a lower number of average shares outstanding due to share buybacks during 2007.
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 from our line of credit. Our principal source of liquidity is our operating cash flow, the availability of which is directly affected by variations in the total revenues of the Company. There are no material restrictions on our ability to transfer and remit funds among our international subsidiaries.
During the nine months ended September 27, 2008, net cash flow from operating activities totaled $38.1 million, compared with $44.1 million for the same period in 2007. This change was primarily the result of a decrease in net earnings during the nine months ended September 27, 2008, compared with the same period in 2007.
Cash and cash equivalents increased to $13.7 million at September 27, 2008, from $12.9 million at December 29, 2007. Net working capital decreased to $5.5 million at September 27, 2008, compared with $5.8 million at December 29, 2007.
We currently maintain a $40.0 million credit facility with Bank of America. As of September 27, 2008, our balance on this line of credit was $30.7 million. This consists of amounts that we have used to complete the expansion of our facilities in Salt Lake City, Utah, and in Sydney, Australia, as well as to fund share repurchases and retirements. We will be required to pay the balance on this line of credit in full at the time of maturity in May 2011. This credit agreement contains restrictive covenants that are based on our EBITDA and on a specified debt coverage ratio. As of September 27, 2008, we were in compliance with these covenants. Management is not aware of any issues currently impacting Bank of America’s ability to honor their commitment to extend credit under this line of credit. If Bank of America became unable to honor their commitment to extend credit under this line of credit, our operating cash flow combined with our cash balances should be adequate to meet our working capital requirements, including payment on this line of credit. We currently have no planned major capital expenditures.
We have completed the final phase of the expansion of our corporate headquarters. As of September 27, 2008, billings on this expansion totaled $21.2 million. Additionally, we have substantially completed our $13 million remodel and fit-out project of our Australian facility, and we moved our Australian operations to this new facility in August 2008.
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We believe that current cash balances, 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 unusual capital expenditure requirements, additional financing may be required. No assurance can be given, however, that additional financing, if required, would be available or on favorable terms. We may also require or seek additional financing for the purpose of expanding 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. 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We conduct business in several countries and intend to continue to expand our international operations. Net sales, earnings from operations, and net earnings are affected by fluctuations in currency exchange rates, interest rates, and other uncertainties that are inherent in doing business and selling product in more than one currency. In addition, our operations are exposed to risks that are associated with changes in social, political, and economic conditions in our international operations, including changes in the laws and policies that govern investment in international countries where we have operations, as well as, to a lesser extent, to changes in United States laws and regulations relating to international trade and investment.
International Currency Risks. Net sales outside the United States represented 59.3% and 62.6% of our net sales in the nine month periods ended September 29, 2007 and September 27, 2008, respectively. Inventory purchases are transacted primarily in U.S. dollars from vendors located in the United States. The local currency of each international subsidiary is considered the functional currency, with all revenue and expenses being translated at weighted-average currency exchange rates for the applicable periods. In general, our reported sales and related earnings are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. Changes in currency exchange rates affect the relative prices at which we sell our products. Given the uncertainty of exchange rate fluctuations, we cannot estimate the effect that these fluctuations may have on our future business, product pricing, results of operations, or financial condition.
We seek to reduce exposure to fluctuations in currency exchange rates primarily through the timing of cash transfers from certain of our international markets. Periodically we will seek to further reduce exposure by creating offsetting positions through the use of currency exchange contracts. We do not use derivative financial instruments for trading or speculative purposes. Our use of currency exchange contracts includes the purchase of put options, which give us the right, but not the obligation, to sell international currency at a specified exchange rate (“strike price”). These contracts provide protection in the event that the currency weakens beyond the option strike price. The fair value of these contracts is estimated based on period-end quoted market prices, and the resulting asset and expense, which historically has not been material, is recognized in our Consolidated Financial Statements. As of September 27, 2008, we had the following contracts in place with Bank of America and Wells Fargo to further offset exposure to currency exchange rate fluctuations:
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Foreign Currency
Coverage
AverageStrike Price
FairValue
MaturityDate
Put options (Company may sell Canadian Dollar / buy U.S. Dollar)
4,509
1.11
October - November, 2008
Put options (Company may sell New Zealand Dollar / buy U.S. Dollar)
803
1.49
Put options (Company may sell New Taiwan Dollar / buy U.S. Dollar)
918
32.68
Put options (Company may sell Mexican Peso / buy U.S. Dollar)
469
10.66
Interest Rate Risks. As of September 27, 2008, we had an outstanding balance of $30.7 million on our line of credit, with a weighted-average interest rate of 3.61%. This interest rate is computed at the bank’s Prime Rate, or LIBOR, and is adjusted by features in the credit agreement for this line of credit, with fixed-rate term options of up to six months. The annual impact of a 100-basis-point increase in the interest rate on the above balance would not materially affect our earnings.
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information that is required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods that are specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure. In designing and evaluating these disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a- 15(e) under the Exchange Act). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 27, 2008.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 28, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. LEGAL PROCEEDINGS
Consolidated Shareholder Class Action Lawsuit: Case No. 2:07cv177DAK
In our Quarterly Report on Form 10-Q, filed on August 7, 2008, we disclosed that, on July 23, 2008, the federal district court granted the Company’s motion to dismiss, with prejudice, the consolidated shareholder class action lawsuit, filed as case no. 2:07cv177DAK. As a matter of law, the plaintiff had the right to appeal the court’s order within 30 days of the date of that order. The deadline for filing the appeal has expired, and the plaintiff did not file a notice of appeal.
Johnson v. USANA
As of September 27, 2008, a distributor class action lawsuit was pending in California State court against the Company. Further information with respect to this litigation is contained under the caption “Legal Proceedings” in Item 3 of Part 1 of our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 13, 2008. In September 2008, the Plaintiffs agreed to request that the court dismiss this litigation with prejudice after the plaintiffs reviewed recent evidence and determined that there was no longer any merit to maintaining a class action lawsuit. On October 1, 2008, the court dismissed this litigation with prejudice.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We had no unregistered sales of equity securities during the quarter ended September 27, 2008. Purchases of shares of Company common stock made by the Company under its share repurchase program for each fiscal month during the quarter ended September 27, 2008 are summarized in the following table:
(c) Repurchases
Issuer Purchases of Equity Securities
(amounts in thousands, except per share data)
Period
TotalNumber ofSharesPurchased
Average PricePaid per Share
Total Number of SharesPurchased as Part ofPublicly AnnouncedPlans or Programs
Approximate DollarValue of Shares thatMay Yet BePurchased Underthe Plans orPrograms *
June 29, 2008 through August 2, 2008 (Fiscal July)
274
36.05
40,360
August 3, 2008 through August 30, 2008 (Fiscal August)
535
33.94
22,197
August 31, 2008 through September 27, 2008 (Fiscal September)
0
0.00
809
34.66
* The Company’s share repurchase plan has been ongoing since the fourth quarter of 2000, with the Company’s Board of Directors periodically approving additional dollar amounts for share repurchases under the plan. At the beginning of the third quarter, the Company had $50,261 remaining under the plan. There currently is no expiration date on the approved repurchase amount.
Item 6. EXHIBITS
ExhibitNumber
Description
.1
Amended and Restated Articles of Incorporation (Incorporated by reference to Report on Form 8-K, filed April 25, 2006)
.2
Bylaws (Incorporated by reference to Report on Form 8-K, filed April 25, 2006)
Specimen Stock Certificate for Common Stock, no par value (Incorporated by reference to Registration Statement on Form 10, File No. 0-21116, effective April 16, 1993)
2002 USANA Health Sciences, Inc. Stock Option Plan (Incorporated by reference to Registration Statement on Form S-8, filed July 18, 2002)*
Form of employee or director non-statutory stock option agreement under the 2002 Stock Option Plan (Incorporated by reference to Report on Form 10-K, filed March 6, 2006)*
.3
Form of employee incentive stock option agreement under the 2002 Stock Option Plan (Incorporated by reference to Report on Form 10-K, filed March 6, 2006)*
.4
Credit Agreement by and between Bank of America, N.A. and USANA Health Sciences, Inc. (Incorporated by reference to Report on Form 10-Q for the period ended July 3, 2004)
.5
Amendment dated May 17, 2006 to Credit Agreement dated June 16, 2004 (Incorporated by reference to Report on Form 10-Q for the period ended September 30, 2006)
.6
Amendment dated April 24, 2007 to Credit Agreement dated June 16, 2004 (Incorporated by reference to Report on Form 10-Q for the period ended March 31, 2007)
.7
USANA Health Sciences, Inc. 2006 Equity Incentive Award Plan (Incorporated by reference to Report on Form 8-K, filed April 25, 2006)*
.8
Form of Stock Option Agreement for award of non-statutory stock options to employees under the USANA Health Sciences, Inc. 2006 Equity Incentive Award Plan (Incorporated by reference to Report on Form 8-K, filed April 26, 2006)*
.9
Form of Stock Option Agreement for award of non-statutory stock options to directors who are not employees under the USANA Health Sciences, Inc. 2006 Equity Incentive Award Plan (Incorporated by reference to Report on Form 8-K, filed April 26, 2006)*
.10
Form of Incentive Stock Option Agreement under the USANA Health Sciences, Inc. 2006 Equity Incentive Award Plan (Incorporated by reference to Report on Form 8-K, filed April 26, 2006)*
.11
Form of Stock-Settled Stock Appreciation Rights Award Agreement for employees under the USANA Health Sciences, Inc. 2006 Equity Incentive Award Plan (Incorporated by reference to Report on Form 8-K, filed April 26, 2006)*
.12
Form of Stock-Settled Stock Appreciation Rights Award Agreement for directors who are not employees under the USANA Health Sciences, Inc. 2006 Equity Incentive Award Plan (Incorporated by reference to Report on Form 8-K, filed April 26, 2006)*
.13
Form of Deferred Stock Unit Award Agreement for grants of deferred stock units to directors who are not employees under the USANA Health Sciences, Inc. 2006 Equity Incentive Award Plan (Incorporated by reference to Report on Form 8-K, filed April 26, 2006)*
.14
Form of Indemnification Agreement between the Company and its directors (Incorporated by reference to Report on Form 8-K, filed May 24, 2006)*
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.15
Form of Indemnification Agreement between the Company and certain of its officers (Incorporated by reference to Report on Form 8-K, filed May 24, 2006)*
Computation of Net Income per Share (included in Notes to Consolidated Financial Statements)
Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002
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Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
* Denotes a management contract or compensatory plan or arrangement.
30
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:
November 6, 2008
/s/ Jeffrey Yates
Jeffrey Yates
Chief Financial Officer(Principal Financial and Accounting Officer)