UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q

 

(Mark One)

ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 29, 2001

 

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 ý  No o

 

 

The number of shares outstanding of the registrant’s common stock as of November 8, 2001 was 9,663,837.

 

 


For the Quarterly Period Ended September 29, 2001

 

INDEX

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1

Financial Statements

 

 

 

Consolidated Balance Sheets

 

 

 

Consolidated Statements of Earnings – Quarter Ended

 

 

 

Consolidated Statements of Earnings – Nine Months Ended

 

 

 

Consolidated Statement of Stockholders’ Equity

 

 

 

Consolidated Statements of Cash Flows

 

 

 

Notes to Consolidated Financial Statements

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 5

Other Information.

 

Item 6

Exhibits and Reports on Form 8-K

 

 

 

 

Signatures

 

 

 


USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

 

 

December 30,

 

September 29,

 

 

 

2000

 

2001

 

 

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

2,900

 

$

4,105

 

Accounts recievable, net

 

362

 

675

 

Income taxes receivable

 

1,401

 

922

 

Inventories, net (Note A)

 

10,880

 

10,274

 

Prepaid expenses

 

654

 

819

 

Deferred income taxes

 

730

 

46

 

 

 

 

 

 

 

Total current assets

 

16,927

 

16,841

 

 

 

 

 

 

 

Property and equipment, net (Note C)

 

17,614

 

20,500

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Deferred taxes

 

27

 

35

 

Other

 

924

 

891

 

 

 

 

 

 

 

 

 

$

35,492

 

$

38,267

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Current maturities of long-term debt

 

$

-

 

$

1,500

 

Accounts payable

 

3,352

 

4,605

 

Other current liabilites (Note B)

 

4,098

 

5,701

 

Line of credit

 

7,169

 

5,808

 

 

 

 

 

 

 

Total current liabilities

 

14,619

 

17,614

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

8,000

 

6,500

 

 

 

 

 

 

 

Stockholders' equity (Note D)

 

 

 

 

 

Common stock, $0.001 par value; authorized 50,000 shares, issued and outstanding 9,683 as of December 30, 2000 and 9,665 as of September 29, 2001

 

10

   

10

   

Additional paid-in capital

 

2,364

 

2,359

 

Retained earnings

 

10,581

 

12,106

 

Accumulated other comprehensive loss

 

(82

)

(322

)

 

 

 

 

 

 

Total stockholders' equity

 

12,873

 

14,153

 

 

 

 

 

 

 

 

 

$

35,492

 

$

38,267

 

 

 

 

 

 

 

The accompanying notes are an integral part of these statements.


USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share data)

(unaudited)

 

 

 

Quarter Ended

 

 

 

September 30,

 

September 29,

 

 

 

2000

 

2001

 

 

 

 

 

 

 

Net sales

 

$

30,362

 

$

29,341

 

 

 

 

 

 

 

Cost of sales

 

9,251

 

8,232

 

 

 

 

 

 

 

Gross profit

 

21,111

 

21,109

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Associate incentives

 

11,275

 

11,187

 

Selling, general and administrative

 

8,247

 

8,538

 

Research and development

 

311

 

276

 

 

 

 

 

 

 

Total operating expenses

 

19,833

 

20,001

 

 

 

 

 

 

 

Earnings from operations

 

1,278

 

1,108

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest income

 

41

 

39

 

Interest expense

 

(300

)

(186

)

Other, net

 

(206

)

(23

)

 

 

 

 

 

 

Total other expense

 

(465

)

(170

)

 

 

 

 

 

 

Earnings before income taxes

 

813

 

938

 

 

 

 

 

 

 

Income taxes

 

325

 

352

 

 

 

 

 

 

 

Net earnings

 

$

488

 

$

586

 

 

 

 

 

 

 

Earnings per common share (Note D)

 

 

 

 

 

Basic

 

$

0.05

 

$

0.06

 

Diluted

 

$

0.05

 

$

0.06

 

 

 

 

 

 

 

Weighted average common and dilutive common equivalent shares outstanding (Note D)

 

 

   

 

   

Basic

 

9,683

 

9,682

 

Diluted

 

9,771

 

9,708

 

 

The accompanying notes are an integral part of these statements.

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(in thousands, except per share data)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

September 29,

 

 

 

2000

 

2001

 

 

 

 

 

 

 

Net sales

 

$

93,471

 

$

85,561

 

 

 

 

 

 

 

Cost of sales

 

26,577

 

24,568

 

 

 

 

 

 

 

Gross profit

 

66,894

 

60,993

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Associate incentives

 

35,985

 

32,648

 

Selling, general and administrative

 

25,085

 

24,262

 

Research and development

 

1,104

 

827

 

 

 

 

 

 

 

Total operating expenses

 

62,174

 

57,737

 

 

 

 

 

 

 

Earnings from operations

 

4,720

 

3,256

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

Interest income

 

92

 

110

 

Interest expense

 

(870

)

(653

)

Other, net

 

(165

)

(231

)

 

 

 

 

 

 

Total other expense

 

(943

)

(774

)

 

 

 

 

 

 

Earnings before income taxes

 

3,777

 

2,482

 

 

 

 

 

 

 

Income taxes

 

1,511

 

931

 

 

 

 

 

 

 

Net earnings

 

$

2,266

 

$

1,551

 

 

 

 

 

 

 

Earnings per common share (Note D)

 

 

 

 

 

Basic

 

$

0.23

 

$

0.16

 

Diluted

 

$

0.23

 

$

0.16

 

 

 

 

 

 

 

Weighted average common and dilutive common equivalent shares outstanding (Note D)

 

 

   

 

   

Basic

 

9,821

 

9,682

 

Diluted

 

9,950

 

9,720

 

 

The accompanying notes are an integral part of these statements.


USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2000 and September 29, 2001

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

Shares

 

Value

 

Capital

 

Earnings

 

Loss

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2000

 

10,169

 

$

10

 

$

2,867

 

$

10,078

 

$

(36

)

$

12,919

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

-

 

-

 

-

 

2,266

 

-

 

2,266

 

Foreign currency translation adjustment

 

-

 

-

 

-

 

-

 

42

 

42

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2,308

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock retired

 

(531

)

-

 

(625

)

(2,364

)

-

 

(2,989

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued under stock option plan, including tax benefit of $29

 

45

   

-

   

97

   

-

   

-

   

97

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2000

 

9,683

 

$

10

 

$

2,339

 

$

9,980

 

$

6

 

$

12,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 29, 2001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 30, 2000

 

9,683

 

$

10

 

$

2,364

 

$

10,581

 

$

(82

)

$

12,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

-

 

-

 

-

 

1,551

 

-

 

1,551

 

Foreign currency translation adjustment

 

-

 

-

 

-

 

-

 

(240

)

(240

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

1,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock retired

 

(18

)

-

 

(5

)

(26

)

-

 

(31

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 29, 2001

 

9,665

 

$

10

 

$

2,359

 

$

12,106

 

$

(322

)

$

14,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of this statement.


USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except per share data)

(unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

September 29,

 

 

 

2000

 

2001

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net earnings

 

$

2,266

 

$

1,551

 

Adjustments to reconcile net earnings to net cash provided by

 

 

 

 

 

Operating activities

 

 

 

 

 

Depreciation and amortization

 

3,137

 

3,001

 

(Gain) loss on sale of property and equipment

 

(4

)

19

 

Deferred income taxes

 

1,098

 

631

 

Provision for inventory valuation

 

104

 

543

 

Provision for losses on receivables

 

43

 

15

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

285

 

(182

)

Inventories

 

(3,576

)

(205

)

Income taxes receivable

 

(3,668

)

421

 

Prepaid expenses and other assets

 

1,215

 

4

 

Accounts payable

 

447

 

1,273

 

Other current liabilities

 

705

 

1,702

 

Restructuring provision

 

(464

)

-

 

 

 

 

 

 

 

Total adjustments

 

(678

)

7,222

 

 

 

 

 

 

 

Net cash provided by operating activities

 

1,588

 

8,773

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Receipts on notes receivable

 

5

 

-

 

Purchases of property and equipment

 

(3,948

)

(6,412

)

Proceeds from the sale of property and equipment

 

2,708

 

468

 

 

 

 

 

 

 

Net cash used in investing activities

 

(1,235

)

(5,944

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Net proceeds from the sale of common stock

 

68

 

-

 

Repurchase of common stock

 

(2,989

)

(31

)

Principal payments of long-term debt

 

(1,500

)

-

 

Increase (decrease) in line of credit

 

6,905

 

(1,362

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

2,484

 

(1,393

)

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(236

)

(231

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

2,601

 

1,205

 

 

 

 

 

 

 

Cash and cash equivalents beginning of period

 

1,411

 

2,900

 

 

 

 

 

 

 

Cash and cash equivalents end of period

 

$

4,012

 

$

4,105

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

860

 

$

771

 

Income taxes

 

3,502

 

944

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash operating activities

 

 

 

 

 

Loss on sale and disposition of plant and equipment against the restructuring

 

 

 

 

 

and impairment provision

 

$

1,820

 

$

-

 

 

The accompanying notes are an integral part of these statements.


USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Basis of Presentation

 

The unaudited interim consolidated financial information of USANA Health Sciences, Inc. and Subsidiaries (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 normally included in financial statements 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, necessary to present fairly the Company’s financial position as of September 29, 2001, and results of operations for the quarters and nine months ended September 30, 2000 and September 29, 2001.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 30, 2000.  The results of operations for the quarter and nine months ended September 29, 2001 may not be indicative of the results that may be expected for the fiscal year ending December 29, 2001.

 

NOTE A – INVENTORIES

 

Inventories consist of the following:

 

 

 

December 30,

 

September 29,

 

 

 

2000

 

2001

 

 

 

 

 

 

 

Raw materials

 

$

1,837

 

$

2,944

 

Work in progress

 

2,138

 

1,910

 

Finished goods

 

7,562

 

6,392

 

 

 

 

 

 

 

 

 

11,537

 

11,246

 

 

 

 

 

 

 

Less provision for inventory valuation

 

657

 

972

 

 

 

 

 

 

 

 

 

$

10,880

 

$

10,274

 

 

 

 

 

 

 

 

NOTE B - OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

 

 

 

December 30,

 

September 29,

 

 

 

2000

 

2001

 

 

 

 

 

 

 

Associate incentives

 

$

703

 

$

893

 

Accrued compensation

 

843

 

1,015

 

Sales taxes

 

490

 

558

 

Other taxes

 

152

 

268

 

Accrued Associate promotions

 

46

 

224

 

Deferred revenue

 

304

 

695

 

All other

 

1,560

 

2,048

 

 

 

 

 

 

 

 

 

$

4,098

 

$

5,701

 

 


 

NOTE C - - PROPERTY AND EQUIPMENT

           Cost of property and equipment and their estimated useful lives are as follows:                                                         

 

 

 

 

 

December 30,

 

September 29,

 

 

 

Years

 

2000

 

2001

 

 

 

 

 

 

 

 

 

Building

 

40

 

$

5,787

 

$

8,115

 

Laboratory and production equipment

 

5-7

 

3,926

 

4,499

 

Computer equipment and software

 

3-5

 

12,370

 

14,912

 

Furniture and fixtures

 

3-5

 

1,888

 

2,111

 

Automobiles

 

3-5

 

318

 

281

 

Leasehold improvements

 

3-5

 

667

 

1,054

 

Land improvements

 

15

 

688

 

931

 

 

 

 

 

 

 

 

 

 

 

 

 

25,644

 

31,903

 

 

 

 

 

 

 

 

 

Less accumulated depreciation and amortization

 

 

 

12,681

 

14,173

 

 

 

 

 

 

 

 

 

 

 

 

 

12,963

 

17,730

 

 

 

 

 

 

 

 

 

Land

 

 

 

1,773

 

1,773

 

 

 

 

 

 

 

 

 

Deposits and projects in process

 

 

 

2,878

 

997

 

 

 

 

 

$

17,614

 

$

20,500

 

 

 

NOTE D – COMMON STOCK AND EARNINGS PER SHARE

 

On September 14, 2001, the Securities and Exchange Commission issued an Emergency Order through Release No. 44791 in response to the terrorist attacks of September 11, 2001. This Release temporarily removed some constraints of a company’s ability to repurchase its own stock. Under the provisions set forth in this Release, USANA repurchased 18 shares of common stock totaling $31 during the third quarter of 2001. We also obtained a waiver from our financial institution to repurchase up to $100 of our own stock.

 

Basic earnings per share are based on the weighted average number of shares outstanding for each period.  Shares redeemed have been included in the calculation of weighted average shares outstanding for basic earnings per share. Diluted earnings per common share are based on shares outstanding (computed under basic EPS) and potentially dilutive shares.  Potential shares included in dilutive earnings per share calculations include stock options granted but not exercised.


 

 

 

 

For the Quarter Ended

 

 

 

September 30,

 

September 29,

 

 

 

2000

 

2001

 

Earnings available to common shareholders

 

$

488

 

$

586

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

Common shares outstanding entire period

 

10,169

 

9,683

 

Weighted average common shares:

 

 

 

 

 

Issued during period

 

45

 

-

 

Canceled during period

 

(531

)

(1

)

 

 

 

 

 

 

Weighted average common shares outstanding during period

 

9,683

 

9,682

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.05

 

$

0.06

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

Weighted average shares outstanding during period - basic

 

9,683

 

9,682

 

 

 

 

 

 

 

Dilutive effect of stock options

 

88

 

26

 

 

 

 

 

 

 

Weighted average shares outstanding during period - diluted

 

9,771

 

9,708

 

 

 

 

 

 

 

Earnings per common share - diluted

 

$

0.05

 

$

0.06

 

 

 

                Options to purchase 1,994 and 1,218 shares of stock were not included in the computation of EPS for the quarters ended September 30, 2000 and September 29, 2001, respectively, due to their exercise price being greater than the average market price of the shares.

 

 

 

For the Nine Months Ended

 

 

 

September 30,

 

September 29,

 

 

 

2000

 

2001

 

Earnings available to common shareholders

 

$

2,266

 

$

1,551

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

Common shares outstanding entire period

 

10,169

 

9,683

 

Weighted average common shares:

 

 

 

 

 

Issued during period

 

25

 

-

 

Canceled during period

 

(373

)

(1

)

 

 

 

 

 

 

Weighted average common shares outstanding during period

 

9,821

 

9,682

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.23

 

$

0.16

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

Weighted average shares outstanding during period - basic

 

9,821

 

9,682

 

 

 

 

 

 

 

Dilutive effect of stock options

 

129

 

38

 

 

 

 

 

 

 

Weighted average shares outstanding during period - diluted

 

9,950

 

9,720

 

 

 

 

 

 

 

Earnings per common share - diluted

 

$

0.23

 

$

0.16

 

 

 

                Options to purchase 1,763 and 1,543 shares of stock were not included in the computation of EPS for the nine months ended September 30, 2000 and September 29, 2001, respectively, due to their exercise price being greater than the average market price of the shares.

 


 

NOTE E – SEGMENT INFORMATION

 

                USANA has four operating segments. Since the beginning of the second quarter of 2000, the United Kingdom (hereinafter includes The Netherlands) market has been serviced from the United States and is considered a part of the domestic operating segment of the Company.  Accordingly, all previously reported financial information for the United Kingdom has been included in the domestic segment for comparability purposes.  Additionally, the Company began its direct export program into Japan during the third quarter of 2000.  These results are also incorporated in the domestic segment. The Company’s operating segments are based on operating geographic regions. Management considers the geographic segments of the Company to be the only reportable operating segments.  These operating segments are evaluated regularly by management in determining the allocation of resources and in assessing the performance of the Company.  Management evaluates performance based on sales revenue and the amount of operating income or loss.

 

                Segment profit or loss is based on profit or loss from operations before income taxes.  Interest income and expense as well as income taxes, while significant, are not included in the Company’s determination of segment profit or loss in assessing the performance of a segment.

 

                Financial information summarized by geographic segment for the nine months ended September 30, 2000 and September 29, 2001 is listed below:

 

 

 

Revenues from External Customers

 

Intersegment Revenues

 

Earnings
 before Income Taxes

 

Long-lived
Assets

 

Total Assets

 

Nine months ended September 30, 2000:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

51,886

 

$

14,047

 

$

5,757

 

$

18,706

 

$

40,959

 

Canada

 

22,007

 

-

 

(646

)

219

 

1,573

 

Australia - New Zealand

 

14,674

 

1,058

 

(2,087

)

496

 

(58

)

Hong Kong

 

4,904

 

-

 

(870

)

478

 

868

 

 

 

 

 

 

 

 

 

 

 

 

 

Reportable Segments Total

 

93,471

 

15,105

 

2,154

 

19,899

 

43,342

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated and Other (1)

 

-

 

(15,105

)

1,623

 

(2,112

)

(3,528

)

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Total

 

$

93,471

 

$

-

 

$

3,777

 

$

17,787

 

$

39,814

 

 

 

 

Revenues from External Customers

 

Intersegment Revenues

 

Earnings
 before Income Taxes

 

Long-lived

Assets

 

Total Assets

 

Nine months ended September 29, 2001:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

50,459

 

$

10,613

 

$

3,038

 

$

29,926

 

$

43,113

 

Canada

 

20,645

 

-

 

149

 

149

 

1,398

 

Australia - New Zealand

 

10,607

 

797

 

(184

)

296

 

2,772

 

Hong Kong

 

3,850

 

-

 

(50

)

302

 

653

 

 

 

 

 

 

 

 

 

 

 

 

 

Reportable Segments Total

 

85,561

 

11,410

 

2,953

 

30,673

 

47,936

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated and Other (1)

 

-

 

(11,410

)

(471

)

(9,247

)

(9,669

)

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Total

 

$

85,561

 

$

-

 

$

2,482

 

$

21,426

 

$

38,267

 


(1) Unallocated and Other includes certain corporate items and eliminations that are not allocated to the operating segments.

 

 


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 Consolidated Financial Statements and Notes thereto contained in this quarterly report.

 

General

 

We did not suffer the loss of any employees, assets or Associates as a result of the terrorist attacks of September 11, 2001, or the anthrax attacks that followed.  Our express and other delivery of product orders was affected because the U.S. air delivery system was shut down for several days following the attacks in New York and Washington, D.C. on September 11.  As a result, some of our customers may have experienced an interruption or delay in delivery.  Orders placed slowed somewhat immediately following September 11, but returned to normal levels by the end of the month.

 

                USANA develops and manufactures high-quality nutritional, personal care and weight management products.  USANA distributes its products through a network marketing system.  USANA refers to its independent distributors as Associates.  As of September 29, 2001, we had approximately 84,000 Associates in the United States, Canada, Australia, New Zealand, Hong Kong, Japan and the United Kingdom.  We also offer a Preferred Customer program specifically designed for customers who desire to purchase USANA’s products for personal use and do not desire to resell or distribute products.  As of September 29, 2001, we had approximately 81,000 Preferred Customers worldwide.  Sales to Preferred Customers accounted for approximately 19% of net sales during the first nine months of 2001.  For purposes of this Report, USANA counts as Associates and Preferred Customers only those who have purchased product from USANA at any time during the most recent 12-month period.

 

The financial results for any quarter or nine-month period referenced within this Report are adjusted to reflect the Financial Accounting Standards Board guidelines on revenue recognition pursuant to Emerging Issues Task Force No. 00-10 (“EITF 00-10”).  Under EITF 00-10 guidelines, historical and future revenue relating to amounts billed to a customer for shipping and handling should be classified as revenue.  The corresponding expenses are reported as cost of sales.  Historically, USANA has reported freight income and expense as a net amount within selling, general and administrative expense.

 

                USANA’s three primary product lines consist of USANAâ Nutritionals, LEAN LifelongÔ and SenséÔ. The USANA Nutritionals product line accounted for approximately 68% of net sales for the nine months ended September 29, 2001.  USANA’s top selling products, USANAâ Essentials and Proflavanolâ represented approximately 29% and 12%, respectively, of net sales for the nine months ended September 29, 2001.  The LEAN Lifelong product line accounted for approximately 11% of net sales for the nine months ended September 29, 2001. The LEAN Lifelong product line includes several completely reformulated food products previously sold under the LEAN or USANA Nutritional brand names.  NutrimealÔ and Fibergyâ drink mixes, Nutribar and Fibergy bar, a LEAN Formula for weight management and several other related products for healthy diets are included in the LEAN Lifelong product line.  The Sensé product line consists of scientifically developed natural products designed to support healthy skin and hair by providing protection and nourishment on both the inside and outside of the dermal layers of the skin.  The Sensé product line accounted for approximately 13% of net sales for the nine months ended September 29, 2001.

 

In addition to these three principal product lines, USANA develops and makes available to Associates a number of materials to assist them in building their business and selling the products. These resource materials or sales aids, which may be purchased from USANA, include product brochures and business forms designed by USANA and printed by outside publishers.  Each major product line incorporates specifically designed sales aids.  From time to time we contract with authors and publishers to provide books, tapes and other items dealing with health and personal motivation and make these available to Associates. USANA also writes and develops materials for audio and videotapes, which are produced by third parties. New Associates are required to purchase a starter kit containing USANA training materials that assist them in starting and growing their business.  Affinity and identity are also furthered through the sale of logo merchandise such as clothing, caps, mugs, and other products. Associates do not earn commissions on sales aids, starter kits or logo merchandise.

 

                The fiscal year end of USANA is the Saturday closest to December 31 of each year.  Fiscal year 2001 will end on December 29, 2001.  Fiscal year 2000 ended on December 30, 2000.


 

Results of Operations

 

Quarters Ended September 29, 2001 and September 30, 2000

 

Net Sales.  Net sales decreased 3.4% to $29.3 million for the quarter ended September 29, 2001, a decrease of $1.0 million from the $30.4 million reported for the comparable quarter in 2000.  The decrease in net sales is the result of:

 

      A 15% decrease in our Associate base, and

 

      Weaker foreign currencies relative to the U. S. dollar, which negatively affected the translation of sales in our foreign markets.

 

The decrease in the Associate base was partially offset by strong enrollments of Preferred Customers.  The Preferred Customer base at September 29, 2001 increased 14% compared to the levels present at September 30, 2000.  In September 2000, we began a direct export program for consumers in Japan.  Sales to Japan under the direct export program increased by $755,000 during the third quarter of 2001 when compared to the same period in 2000.

 

We had $552,000 of sales at our annual international convention in the third quarter of 2001.  The annual convention in 2000 was held in the second quarter of fiscal year 2000.

 

                The following tables illustrate the change in sales and customers by market for the quarters ended September 30, 2000 and September 29, 2001 (sales and customer information for the United Kingdom and Japan are incorporated in the numbers for the United States):

 

 

Sales By Market

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

Quarter Ended

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change from

 

Percent

 

Market

 

September 30, 2000

 

September 29, 2001

 

Prior Year

 

Change

 

United States

 

$

17,197

 

56.6

%

$

17,620

 

60.1

%

$

423

 

2.5

%

Canada

 

7,189

 

23.7

%

6,803

 

23.2

%

(386

)

(5.4

)%

Australia-New Zealand

 

4,552

 

15.0

%

3,591

 

12.2

%

(961

)

(21.1

)%

Hong Kong

 

1,424

 

4.7

%

1,327

 

4.5

%

(97

)

(6.8

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

30,362

 

100.0

%

$

29,341

 

100.0

%

$

(1,021

)

(3.4

)%

 

Associates By Market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

 

Change from

 

Percent

 

Market

 

September 30, 2000

 

September 29, 2001

 

Prior Year

 

Change

 

United States

 

48,000

 

48.5

%

42,000

 

50.0

%

(6,000

)

(12.5

)%

Canada

 

22,000

 

22.2

%

20,000

 

23.8

%

(2,000

)

(9.1

)%

Australia-New Zealand

 

20,000

 

20.2

%

15,000

 

17.9

%

(5,000

)

(25.0

)%

Hong Kong

 

9,000

 

9.1

%

7,000

 

8.3

%

(2,000

)

(22.2

)%