UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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 ____________
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
(Registrants 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 registrants common stock as of November 8, 2001 was 9,663,837.
For the Quarterly Period Ended September 29, 2001
INDEX
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PART I. FINANCIAL INFORMATION |
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Item 1 |
Financial Statements |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
(in thousands, except per share data)
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December 30, |
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September 29, |
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2000 |
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2001 |
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(unaudited) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
2,900 |
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$ |
4,105 |
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Accounts recievable, net |
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362 |
|
675 |
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Income taxes receivable |
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1,401 |
|
922 |
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Inventories, net (Note A) |
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10,880 |
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10,274 |
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Prepaid expenses |
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654 |
|
819 |
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Deferred income taxes |
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730 |
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46 |
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Total current assets |
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16,927 |
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16,841 |
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Property and equipment, net (Note C) |
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17,614 |
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20,500 |
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Other assets |
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Deferred taxes |
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27 |
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35 |
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Other |
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924 |
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891 |
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$ |
35,492 |
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$ |
38,267 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Current maturities of long-term debt |
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$ |
- |
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$ |
1,500 |
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Accounts payable |
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3,352 |
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4,605 |
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Other current liabilites (Note B) |
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4,098 |
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5,701 |
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Line of credit |
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7,169 |
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5,808 |
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Total current liabilities |
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14,619 |
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17,614 |
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Long-term debt, less current maturities |
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8,000 |
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6,500 |
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Stockholders' equity (Note D) |
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Common stock, $0.001 par value; authorized 50,000 shares, issued and outstanding 9,683 as of December 30, 2000 and 9,665 as of September 29, 2001 |
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10 |
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10 |
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Additional paid-in capital |
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2,364 |
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2,359 |
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Retained earnings |
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10,581 |
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12,106 |
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Accumulated other comprehensive loss |
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(82 |
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(322 |
) |
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Total stockholders' equity |
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12,873 |
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14,153 |
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$ |
35,492 |
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$ |
38,267 |
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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)
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Quarter Ended |
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September 30, |
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September 29, |
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2000 |
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2001 |
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Net sales |
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$ |
30,362 |
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$ |
29,341 |
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Cost of sales |
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9,251 |
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8,232 |
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Gross profit |
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21,111 |
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21,109 |
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Operating expenses: |
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Associate incentives |
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11,275 |
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11,187 |
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Selling, general and administrative |
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8,247 |
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8,538 |
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Research and development |
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311 |
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276 |
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Total operating expenses |
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19,833 |
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20,001 |
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Earnings from operations |
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1,278 |
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1,108 |
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Other income (expense): |
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Interest income |
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41 |
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39 |
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Interest expense |
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(300 |
) |
(186 |
) |
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Other, net |
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(206 |
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(23 |
) |
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Total other expense |
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(465 |
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(170 |
) |
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Earnings before income taxes |
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813 |
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938 |
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Income taxes |
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325 |
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352 |
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Net earnings |
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$ |
488 |
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$ |
586 |
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Earnings per common share (Note D) |
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Basic |
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$ |
0.05 |
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$ |
0.06 |
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Diluted |
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$ |
0.05 |
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$ |
0.06 |
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Weighted average common and dilutive common equivalent shares outstanding (Note D) |
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Basic |
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9,683 |
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9,682 |
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Diluted |
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9,771 |
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9,708 |
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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)
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Nine Months Ended |
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September 30, |
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September 29, |
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2000 |
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2001 |
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Net sales |
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$ |
93,471 |
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$ |
85,561 |
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Cost of sales |
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26,577 |
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24,568 |
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Gross profit |
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66,894 |
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60,993 |
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Operating expenses: |
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Associate incentives |
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35,985 |
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32,648 |
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Selling, general and administrative |
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25,085 |
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24,262 |
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Research and development |
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1,104 |
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827 |
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Total operating expenses |
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62,174 |
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57,737 |
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Earnings from operations |
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4,720 |
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3,256 |
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Other income (expense): |
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Interest income |
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92 |
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110 |
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Interest expense |
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(870 |
) |
(653 |
) |
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Other, net |
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(165 |
) |
(231 |
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Total other expense |
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(943 |
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(774 |
) |
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Earnings before income taxes |
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3,777 |
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2,482 |
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Income taxes |
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1,511 |
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931 |
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Net earnings |
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$ |
2,266 |
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$ |
1,551 |
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Earnings per common share (Note D) |
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Basic |
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$ |
0.23 |
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$ |
0.16 |
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Diluted |
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$ |
0.23 |
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$ |
0.16 |
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Weighted average common and dilutive common equivalent shares outstanding (Note D) |
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Basic |
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9,821 |
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9,682 |
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Diluted |
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9,950 |
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9,720 |
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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)
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Accumulated |
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Additional |
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Other |
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Common Stock |
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Paid-in |
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Retained |
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Comprehensive |
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Shares |
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Value |
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Capital |
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Earnings |
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Loss |
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Total |
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For the Nine Months Ended September 30, 2000 |
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Balance at January 1, 2000 |
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10,169 |
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$ |
10 |
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$ |
2,867 |
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$ |
10,078 |
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$ |
(36 |
) |
$ |
12,919 |
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Comprehensive income |
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Net earnings |
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- |
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- |
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- |
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2,266 |
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- |
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2,266 |
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Foreign currency translation adjustment |
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- |
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- |
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- |
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- |
|
42 |
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42 |
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Comprehensive income |
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2,308 |
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Common stock retired |
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(531 |
) |
- |
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(625 |
) |
(2,364 |
) |
- |
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(2,989 |
) |
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Common stock issued under stock option plan, including tax benefit of $29 |
|
45 |
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- |
|
97 |
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- |
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- |
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97 |
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Balance at September 30, 2000 |
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9,683 |
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$ |
10 |
|
$ |
2,339 |
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$ |
9,980 |
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$ |
6 |
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$ |
12,335 |
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For the Nine Months Ended September 29, 2001 |
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Balance at December 30, 2000 |
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9,683 |
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$ |
10 |
|
$ |
2,364 |
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$ |
10,581 |
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$ |
(82 |
) |
$ |
12,873 |
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Comprehensive income |
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Net earnings |
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- |
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- |
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- |
|
1,551 |
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- |
|
1,551 |
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Foreign currency translation adjustment |
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- |
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- |
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- |
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- |
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(240 |
) |
(240 |
) |
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Comprehensive income |
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1,311 |
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Common stock retired |
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(18 |
) |
- |
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(5 |
) |
(26 |
) |
- |
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(31 |
) |
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Balance at September 29, 2001 |
|
9,665 |
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$ |
10 |
|
$ |
2,359 |
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$ |
12,106 |
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$ |
(322 |
) |
$ |
14,153 |
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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)
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Nine Months Ended |
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September 30, |
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September 29, |
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2000 |
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2001 |
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Increase (decrease) in cash and cash equivalents |
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|
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Cash flows from operating activities |
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Net earnings |
|
$ |
2,266 |
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$ |
1,551 |
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Adjustments to reconcile net earnings to net cash provided by |
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Operating activities |
|
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Depreciation and amortization |
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3,137 |
|
3,001 |
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(Gain) loss on sale of property and equipment |
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(4 |
) |
19 |
|
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Deferred income taxes |
|
1,098 |
|
631 |
|
||
Provision for inventory valuation |
|
104 |
|
543 |
|
||
Provision for losses on receivables |
|
43 |
|
15 |
|
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Changes in operating assets and liabilities: |
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|
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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 |
) |
- |
|
||
|
|
|
|
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|
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Total adjustments |
|
(678 |
) |
7,222 |
|
||
|
|
|
|
|
|
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Net cash provided by operating activities |
|
1,588 |
|
8,773 |
|
||
|
|
|
|
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|
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Cash flows from investing activities |
|
|
|
|
|
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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 Companys 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 Companys 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 |
|
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 companys 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 Companys 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 Companys 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 |
|
Long-lived |
|
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 |
|
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. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of USANAs 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 USANAs 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.
USANAs 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. USANAs 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 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|