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 April 1, 2006

 

 

 

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
of incorporation or organization)

 

(I.R.S. Employer
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

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

 

Accelerated filer ý

 

Non-accelerated filer 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  ý

 

The number of shares outstanding of the registrant’s common stock as of May 5, 2006 was 18,337,698.

 

 



 

USANA HEALTH SCIENCES, INC.

 

FORM 10-Q

 

For the Quarterly Period Ended April 1, 2006

 

INDEX

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

 

Financial Statements

 

 

 

 

Consolidated Balance Sheets

 

 

 

 

Consolidated Statements of Earnings

 

 

 

 

Consolidated Statement of Stockholders’ Equity and Comprehensive Income

 

 

 

 

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

 

 

Item 4

 

Controls and Procedures

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1A

 

Risk Factors

 

 

Item 6

 

Exhibits

 

 

 

 

 

 

 

Signatures

 

 

 

 

 

2



 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands)

 

 

 

December 31,

 

April 1,

 

 

 

2005

 

2006

 

 

 

 

 

(unaudited)

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

$

10,579

 

$

25,505

 

Inventories, net

 

22,223

 

21,295

 

Prepaid expenses and other current assets

 

6,024

 

6,432

 

Deferred income taxes

 

3,004

 

3,166

 

 

 

 

 

 

 

Total current assets

 

41,830

 

56,398

 

 

 

 

 

 

 

Property and equipment, net

 

23,302

 

23,489

 

 

 

 

 

 

 

Goodwill

 

5,690

 

5,690

 

 

 

 

 

 

 

Other assets

 

2,886

 

2,771

 

 

 

 

 

 

 

 

 

$

73,708

 

$

88,348

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

4,955

 

$

5,652

 

Other current liabilities

 

21,601

 

24,624

 

 

 

 

 

 

 

Total current liabilities

 

26,556

 

30,276

 

 

 

 

 

 

 

Long-term liabilities

 

1,414

 

832

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock, $0.001 par value; authorized 50,000 shares, issued and outstanding 18,343 as of December 31, 2005 and 18,511 as of April 1, 2006

 

18

 

19

 

Additional paid-in capital

 

9,161

 

11,228

 

Retained earnings

 

35,720

 

45,280

 

Accumulated other comprehensive income

 

839

 

713

 

 

 

 

 

 

 

Total stockholders’ equity

 

45,738

 

57,240

 

 

 

 

 

 

 

 

 

$

73,708

 

$

88,348

 

 

The accompanying notes are an integral part of these statements.

 

3



 

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF EARNINGS

 

(in thousands, except per share data)

 

(unaudited)

 

 

 

Quarter Ended

 

 

 

April 2,

 

April 1,

 

 

 

2005

 

2006

 

 

 

 

 

 

 

Net sales

 

$

76,578

 

$

89,651

 

 

 

 

 

 

 

Cost of sales

 

18,010

 

21,338

 

 

 

 

 

 

 

Gross profit

 

58,568

 

68,313

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Associate incentives

 

29,550

 

35,428

 

Selling, general and administrative

 

14,849

 

17,626

 

Research and development

 

599

 

732

 

 

 

 

 

 

 

Total operating expenses

 

44,998

 

53,786

 

 

 

 

 

 

 

Earnings from operations

 

13,570

 

14,527

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

Interest income

 

104

 

142

 

Other, net

 

61

 

153

 

 

 

 

 

 

 

Other income, net

 

165

 

295

 

 

 

 

 

 

 

Earnings before income taxes

 

13,735

 

14,822

 

 

 

 

 

 

 

Income taxes

 

4,807

 

5,262

 

 

 

 

 

 

 

Net earnings

 

$

8,928

 

$

9,560

 

 

 

 

 

 

 

Earnings per common share

 

 

 

 

 

Basic

 

$

0.47

 

$

0.52

 

Diluted

 

$

0.45

 

$

0.50

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

Basic

 

19,068

 

18,460

 

Diluted

 

19,971

 

19,228

 

 

The accompanying notes are an integral part of these statements.

 

4



 

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

 

Quarters Ended April 2, 2005 and April 1, 2006

 

(in thousands)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Common Stock

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

Shares

 

Value

 

Capital

 

Earnings

 

Income (Loss)

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended April 2, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2005

 

18,953

 

$

19

 

$

11,853

 

$

34,496

 

$

1,475

 

$

47,843

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

8,928

 

 

8,928

 

Foreign currency translation adjustment, net

 

 

 

 

 

(633

)

(633

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

8,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued under stock option plan, including tax benefit of $2,585

 

210

 

 

4,122

 

 

 

4,122

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 2, 2005

 

19,163

 

$

19

 

$

15,975

 

$

43,424

 

$

842

 

$

60,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended April 1, 2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2005

 

18,343

 

$

18

 

$

9,161

 

$

35,720

 

$

839

 

$

45,738

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

9,560

 

 

9,560

 

Foreign currency translation adjustment, net

 

 

 

 

 

(126

)

(126

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

9,434

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

947

 

 

 

947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued under stock option plan, including tax benefit of $381

 

168

 

1

 

1,120

 

 

 

1,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at April 1, 2006

 

18,511

 

$

19

 

$

11,228

 

$

45,280

 

$

713

 

$

57,240

 

 

The accompanying notes are an integral part of these statements.

 

5



 

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

 

(unaudited)

 

 

 

Quarter Ended

 

 

 

April 2,

 

April 1,

 

 

 

2005

 

2006

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net earnings

 

$

8,928

 

$

9,560

 

Adjustments to reconcile net earnings to net cash provided by operating activities

 

 

 

 

 

Depreciation and amortization

 

1,348

 

1,464

 

Excess tax benefit from equity-based payment arrangements

 

 

(212

)

Equity-based compensation expense

 

 

947

 

Deferred income taxes

 

234

 

(603

)

Allowance for inventory valuation

 

644

 

796

 

Changes in operating assets and liabilities:

 

 

 

 

 

Inventories

 

(5,497

)

44

 

Prepaid expenses and other assets

 

(1,860

)

(617

)

Accounts payable

 

42

 

700

 

Other current liabilities

 

3,698

 

3,298

 

 

 

 

 

 

 

Total adjustments

 

(1,391

)

5,817

 

 

 

 

 

 

 

Net cash provided by operating activities

 

7,537

 

15,377

 

 

The accompanying notes are an integral part of these statements.

 

6



 

 

 

Quarter Ended

 

 

 

April 2,

 

April 1,

 

 

 

2005

 

2006

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of property and equipment

 

(1,596

)

(1,487

)

 

 

 

 

 

 

Net cash used in investing activities

 

(1,596

)

(1,487

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from equity awards exercised

 

1,537

 

739

 

Excess tax benefit from equity-based payment arrangements

 

 

212

 

 

 

 

 

 

 

Net cash provided by financing activities

 

1,537

 

951

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(512

)

85

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

6,966

 

14,926

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

15,067

 

10,579

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

22,033

 

$

25,505

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

 

$

 

Income taxes

 

704

 

1,018

 

 

The accompanying notes are an integral part of these statements.

 

7



 

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 April 1, 2006, and results of operations for the quarters ended April 1, 2006 and April 2, 2005. 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 31, 2005. The results of operations for the quarter ended April 1, 2006 may not be indicative of the results that may be expected for the fiscal year ending December 30, 2006.

 

NOTE A – EQUITY-BASED COMPENSATION

 

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment,” using the modified version of prospective application. Under this method, compensation expense includes the estimated fair value of equity awards vested during the reported period. Expense for equity awards vested is determined based on grant date fair value previously calculated for pro forma disclosures under SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—An Amendment of FASB Statement No. 123.”  For the quarter ended April 1, 2006, equity-based compensation expense of $127, $707, and $113 was included in cost of sales, selling, general and administrative, and research and development, respectively, for a total reduction in earnings from operations and earnings before income taxes of $947. The impact of equity-based compensation expense on net earnings and earnings per share for the quarter, ended April 1, 2006, can be found in the pro forma table in this footnote. Taking into account recent grants of equity awards since the date of the Company’s Annual Meeting of Shareholders, we now anticipate that equity-based compensation expense will reduce 2006 basic and diluted earnings per share by approximately $0.18. The following table shows remaining unrecognized compensation expense on a pre-tax basis related to nonvested equity awards outstanding as of May 5, 2006, which includes grants issued since April 1, 2006, but which does not include an estimate for future grants to be issued.

 

Remainder of 2006

 

$

3,905

 

2007

 

$

5,123

 

2008

 

$

4,676

 

2009

 

$

2,798

 

2010

 

$

2,161

 

Thereafter

 

$

397

 

 

 

$

19,060

 

 

The weighted-average period over which the expense above will be recognized is 2.5 years.

 

Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits resulting from equity-based compensation as cash flows from operating activities in the condensed consolidated statements of cash flows. SFAS No. 123(R) requires cash flows resulting from tax deductions in excess of the grant-date fair value of equity awards to be included in cash flows from financing activities. The excess tax benefits of $212 related to equity-based compensation included in cash flows from financing activities in the first quarter of 2006 would have been included in cash flows from operating activities if the Company had not adopted SFAS No. 123(R).

 

8



 

As permitted by SFAS No. 148, prior to the adoption of SFAS No. 123(R) the Company accounted for equity award expense under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” under which no compensation was recognized in the Company’s financial statements for the quarter, ended April 2, 2005. In connection with the modified prospective method, disclosures made for periods prior to the adoption of SFAS No. 123(R) do not reflect restated amounts.

 

The following table presents equity-based compensation expense included in our financial statements for the quarter ended April 1, 2006, and also illustrates the pro forma effects on net earnings and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, to equity-based compensation for the quarter ended April 2, 2005:

 

 

 

 

 

 

Quarter Ended

 

 

 

 

 

April 2, 2005

 

April 1, 2006

 

 

 

 

 

 

 

 

 

Net earnings

 

As reported

 

$

8,928

 

$

9,560

 

 

 

 

 

 

 

 

 

Add: Compensation cost included in reported net income

 

 

 

 

685

 

 

 

 

 

 

 

 

 

Deduct: Total compensation expense under the fair value method for all awards

 

 

 

(449

)

(685

)

 

 

 

 

 

 

 

 

Net earnings

 

Pro forma

 

$

8,479

 

$

9,560

 

 

 

 

 

 

 

 

 

Earnings per share - basic

 

As reported

 

$

0.47

 

$

0.52

 

 

 

 

 

 

 

 

 

 

 

Pro forma

 

$

0.44

 

$

0.52

 

 

 

 

 

 

 

 

 

Earnings per share - diluted

 

As reported

 

$

0.45

 

$

0.50

 

 

 

 

 

 

 

 

 

 

 

Pro forma

 

$

0.42

 

$

0.50

 

 

The Company continues to use the Black-Scholes option pricing model to estimate fair value of equity awards, which requires the input of highly subjective assumptions, including the expected stock price volatility. Prior to the implementation of SFAS No. 123(R), expected volatility represented the historical share prices of the Company’s common stock over the expected life of the award and the risk-free interest rate was based on the U.S. Treasury yield curve on the date of grant with respect to the expected life of the award. Expected life was based on the contractual term of the award.

 

Preceding the adoption of SFAS No. 123(R), the Company engaged a third-party valuation expert to analyze assumptions used by the Company and to determine changes necessary for a more accurate reflection of the estimated fair value of equity awards granted by the Company. Based on this analysis the Company decided that, effective January 1, 2006, expected volatility will be calculated by averaging the historical volatility of the Company and a peer group index. The risk-free interest rate will continue to be based on the U.S. Treasury yield curve on the date of grant with respect to the expected life of the award. Also, effective January 1, 2006, due to the “plain vanilla” characteristics of the Company’s stock options, the simplified method, as permitted by the guidance provided in Staff Accounting Bulletin No. 107, will be used to determine expected life. We estimate that the equity-based compensation expense included in earnings before income taxes for the first quarter 2006 was decreased by approximately $30 due to the change in assumptions used to estimate fair value of awards granted during the first quarter of 2006.

 

9



 

Weighted-average assumptions used to calculate the fair value of awards granted during the quarters ended as of the dates indicated, as well as the weighted-average fair value of awards granted are as follows:

 

 

 

Quarter Ended

 

 

 

April 2,

 

April 1,

 

 

 

2005

 

2006

 

 

 

 

 

 

 

Expected volatility

 

*

 

57.04

%

Risk free interest rate

 

*

 

4.46

%

Expected life

 

*

 

4.125

yrs.

Expected dividend yield

 

*

 

 

Weighted average fair value of awards granted**

 

*

 

$

19.15

 

 


*      No grants were issued during the quarter ended April 2, 2005.

**   All awards during the periods indicated have been granted at the market value on the date of grant, which is established by averaging the closing price of the Company’s common stock over the five trading days preceding the date of grant.

 

The Company’s 2006 Equity Incentive Award Plan (2006 Plan), which was approved by the shareholders at the Annual Shareholders’ Meeting held on April 19, 2006, allows for the grant of stock options, restricted stock, and other types of equity-based awards to the Company’s directors, officers, and key employees. Prior to the approval of the 2006 Plan, the Company maintained the 2002 Stock Option Plan (2002 Plan), which was limited to the granting of incentive and non-qualified stock options. The 2006 Plan replaces the 2002 Plan for all future grants, and no new awards will be granted under the 2002 Plan. The 2006 Plan authorized 5,000 shares of common stock for issuance, of which all of such shares were available for future issuance as of April 1, 2006. Options granted under the 2002 Plan generally vest 20% each year on the anniversary of the grant date and expire five to ten years from the date of grant. The Company’s Compensation Committee has initially determined that awards to be granted under the 2006 Plan will generally vest 20% each year on the anniversary of the grant date and expire five to 5.25 years from the date of grant.

 

A summary of the Company’s equity award activity for the period ended April 1, 2006 is as follows:

 

 

 

Shares

 

Weighted-
average
exercise price

 

Weighted-average
remaining
contractual term

 

Aggregate
intrinsic
value*

 

Outstanding at December 31, 2005

 

1,773

 

$

17.43

 

6.97

 

$

37,121

 

Granted

 

175

 

$

39.14

 

 

$

 

Exercised

 

(168

)

$

4.41

 

 

$

 

Canceled or expired

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

Outstanding at April 1, 2006

 

1,780

 

$

20.78

 

6.63

 

$

37,281

 

 

 

 

 

 

 

 

 

 

 

Exercisable at April 1, 2006

 

570

 

$

25.74

 

7.94

 

$

9,120

 

 

 

 

 

 

 

 

 

 

 

 


*      Aggregate intrinsic value is defined as the difference between the current market value and the exercise price and is estimated using the closing price of the Company’s common stock on the last trading day of the periods ended as of the dates indicated.

 

10



 

Total intrinsic value of awards exercised during the quarters, ended April 2, 2005 and April 1, 2006, was $7,093 and $5,917, respectively. The total fair value of awards vested during the quarters ended April 2, 2005 and April 1, 2006, was $723 and $947, respectively.

 

A summary of the Company’s nonvested equity award activity for the period ended April 1, 2006 is as follows:

 

 

 

Shares

 

Weighted-
average fair
value

 

Nonvested at December 31, 2005

 

1,133

 

$

11.84

 

Granted

 

175

 

$

19.15

 

Vested

 

(98

)

$

20.28

 

Canceled or expired

 

 

$

 

 

 

 

 

 

 

Nonvested at April 1, 2006

 

1,210

 

$

12.21

 

 

NOTE B – INVENTORIES

 

Inventories consist of the following:

 

 

 

December 31,

 

April 1,

 

 

 

2005

 

2006

 

 

 

 

 

 

 

Raw materials

 

$

11,878

 

$

11,893

 

Work in progress

 

3,533

 

3,234

 

Finished goods

 

9,482

 

9,392

 

 

 

 

 

 

 

 

 

24,893

 

24,519

 

 

 

 

 

 

 

Less allowance for inventory valuation

 

2,670

 

3,224

 

 

 

 

 

 

 

 

 

$

22,223

 

$

21,295

 

 

NOTE C – PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets consist of the following:

 

 

 

December 31,

 

April 1,

 

 

 

2005

 

2006

 

 

 

 

 

 

 

Prepaid expenses

 

$

2,038

 

$

1,599

 

Miscellaneous receivables, net

 

3,537

 

3,881

 

Other current assets

 

449

 

952

 

 

 

 

 

 

 

 

 

$

6,024

 

$

6,432

 

 

11



 

NOTE D – PROPERTY AND EQUIPMENT

 

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

 

 

 

 

 

December 31,

 

April 1,

 

 

 

Years

 

2005

 

2006

 

 

 

 

 

 

 

 

 

Building

 

40

 

$

10,377

 

$

10,345

 

Laboratory and production equipment

 

5-7

 

9,706

 

9,959

 

Sound and video library

 

5

 

600

 

600

 

Computer equipment and software

 

3-5

 

23,083

 

23,249

 

Furniture and fixtures

 

3-5

 

2,654

 

2,654

 

Automobiles

 

3-5

 

248

 

248

 

Leasehold improvements

 

3-5

 

2,709

 

2,750

 

Land improvements

 

15

 

931

 

931

 

 

 

 

 

 

 

 

 

 

 

 

 

50,308

 

50,736

 

 

 

 

 

 

 

 

 

Less accumulated depreciation and amortization

 

 

 

29,605

 

30,684

 

 

 

 

 

 

 

 

 

 

 

 

 

20,703

 

20,052

 

 

 

 

 

 

 

 

 

Land

 

 

 

2,064

 

2,064

 

 

 

 

 

 

 

 

 

Deposits and projects in process

 

 

 

535

 

1,373

 

 

 

 

 

 

 

 

 

 

 

 

 

$

23,302

 

$

23,489

 

 

NOTE E – OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

 

 

 

December 31,

 

April 1,

 

 

 

2005

 

2006

 

 

 

 

 

 

 

Associate incentives

 

$

3,528

 

$

3,877

 

Accrued employee compensation

 

6,257

 

2,829

 

Income taxes

 

2,429

 

6,681

 

Sales taxes

 

2,354

 

2,060

 

Associate promotions

 

616

 

960

 

Deferred revenue

 

1,903

 

2,904

 

Provision for returns and allowances

 

943

 

846

 

All other

 

3,571

 

4,467

 

 

 

 

 

 

 

 

 

$

21,601

 

$

24,624

 

 

NOTE F – COMMON STOCK AND EARNINGS PER SHARE

 

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

 

12



 

 

 

For the Quarter Ended

 

 

 

April 2,

 

April 1,

 

 

 

2005

 

2006

 

Earnings available to common shareholders

 

$

8,928

 

$

9,560

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

Common shares outstanding entire period

 

18,953

 

18,343

 

Weighted average common shares:

 

 

 

 

 

Issued during period

 

115

 

117

 

Canceled during period

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding during period

 

19,068

 

18,460

 

 

 

 

 

 

 

Earnings per common share - basic

 

$

0.47

 

$

0.52

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

 

 

 

Weighted average shares outstanding during period - basic

 

19,068

 

18,460

 

 

 

 

 

 

 

Dilutive effect of stock options

 

903

 

768

 

 

 

 

 

 

 

Weighted average shares outstanding during period - diluted

 

19,971

 

19,228

 

 

 

 

 

 

 

Earnings per common share - diluted

 

$

0.45

 

$

0.50

 

 

Options to purchase 66 shares of stock were not included in the computation of diluted EPS for the quarter ended April 1, 2006 due to the exercise price being greater than the average market price of the shares.

 

NOTE G – SEGMENT INFORMATION

 

The Company’s operations are distinguished by regions served and the method of distribution employed. Two reportable business segments are recognized by the Company: Direct Selling and Contract Manufacturing. 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 net sales and the amount of operating income or loss. Segment profitability is based on profit or loss from operations before income taxes. All intercompany transactions, intercompany profit, currency gains and losses, interest income and expense, and income taxes are excluded in the Company’s determination of segment profit or loss.

 

Direct Selling

 

The Company’s Direct Selling segment develops, manufactures, and distributes nutritional and personal care products, and is the primary segment in which the Company operates. Products are distributed through a network marketing system using independent distributors that are referred to as “Associates”. Products are also sold directly to “Preferred Customers,” who purchase products for personal use and are not permitted to resell or distribute the products.

 

Selected financial information for the Direct Selling segment is reported for two geographic regions: North America and Pacific Rim. North America includes the United States, Canada, and Mexico. All other entities outside of North America are located within the Pacific Rim region, which includes Australia-New Zealand, Hong Kong, Japan, Taiwan, South Korea, and Singapore.

 

13



 

The profitability of each reported region within the Direct Selling segment is representative of what is controllable within that region by local management and is not necessarily indicative of actual profit or loss generated by a fully burdened region. However, the presentation of the data is consistent with how management evaluates each region and the respective markets within that region.

 

Contract Manufacturing

 

Operating activities for the Contract Manufacturing segment primarily exist for the production of the Company’s Sensé™ line of skin and personal care products. In addition to the production of the Sensé product line, contract manufacturing services are provided to a limited number of external customers. This segment includes operations located in Draper, Utah and at a facility in Tianjin, China, which the Company acquired in October 2005. Manufacturing and packaging activities for the Company’s Sensé products began at the Draper, Utah facility during the fourth quarter of 2003. In the first quarters of 2005 and 2006, we had four and two external customers, respectively, that each accounted for more then ten percent of sales within this segment.

 

Financial information summarized by operating segment and geographic region for the quarters ended April 2, 2005 and April 1, 2006 is listed below:

 

 

 

Net Sales from
External
Customers

 

Inter-segment
Revenues

 

Earnings
before Income
Taxes

 

Long-lived
Assets

 

Total Assets

 

Quarter ended April 2, 2005:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct Selling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

49,258

 

$

17,936

 

$

6,976

 

$

22,869

 

$

54,028

 

Pacific Rim

 

25,391

 

1,276

 

5,645

 

3,072

 

15,297

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Total

 

74,649

 

19,212

 

12,621

 

25,941

 

69,325

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract Manufacturing

 

1,929

 

2,075

 

551

 

6,291

 

12,758

 

 

 

 

 

 

 

 

 

 

 

 

 

Reportable Segments Total

 

76,578

 

21,287

 

13,172

 

32,232

 

82,083

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated and Other (1)

 

 

(21,287

)

563

 

(39

)

3,395

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Total

 

$

76,578

 

$

 

$

13,735

 

$

32,193

 

$

85,478

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter ended April 1, 2006:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct Selling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

$

60,134

 

$

16,015

 

$

8,344

 

$

21,267

 

$

58,140

 

Pacific Rim

 

26,619

 

1,242

 

5,926

 

2,750

 

12,607

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment Total

 

86,753

 

17,257

 

14,270

 

24,017

 

70,747

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract Manufacturing

 

2,898

 

1,089

 

(84

)

7,651

 

14,590

 

 

 

 

 

 

 

 

 

 

 

 

 

Reportable Segments Total

 

89,651

 

18,346

 

14,186

 

31,668

 

85,337

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated and Other (1)

 

 

(18,346

)

636

 

282

 

3,011

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Total

 

$

89,651

 

$

 

$

14,822

 

$

31,950

 

$

88,348

 

 


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

 

 

14



 

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 contained in this quarterly report.

 

General

 

USANA Health Sciences, Inc. 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 using independent distributors, whom we refer to as “Associates.”  As of April 1, 2006, we had approximately 136,000 active Associates worldwide. We also sell products directly to “Preferred Customers,” who purchase our products for personal use and are not permitted to resell or distribute our products. As of April 1, 2006, we had approximately 73,000 active Preferred Customers worldwide. The majority of sales in the Direct Selling segment come from Associates. For the quarter ended April 1, 2006, sales to Associates accounted for approximately 86% of net sales for the Direct Selling segment. 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.

 

Our fiscal year end is the Saturday closest to December 31 of each year. Fiscal year 2005 ended on December 31, 2005, and fiscal year 2006 will end on December 30, 2006.

 

As discussed more fully in Note G – Segment Information, beginning on page 13 to the consolidated financial statements, we have two reportable segments: Direct Selling and Contract Manufacturing. The Direct Selling segment develops, manufactures, and distributes nutritional and personal care products through a network marketing system and is our principal line of business. The Contract Manufacturing segment exists primarily to manufacture and package the Company’s Sensé™ line of skin and personal care products, but also includes contract manufacturing services for a limited number of third-party customers.

 

Our primary product lines within the Direct Selling segment consist of USANAâ Nutritionals and Sensé – beautiful scienceâ (Sensé). The USANA Nutritionals product line is further categorized into three separate classifications: Essentials, Optimizers, and Macro Optimizers. Additionally, we offer combination packs, which generally contain a variety of products from each product line.

 

USANAâ Nutritionals

 

The Essentials include core vitamin and mineral supplements that provide a foundation of advanced nutrition for every age group. To help meet the “essential” nutrient needs of children and teens during the years of development, when good nutrition is especially important, USANA offers: UsanimalsÔ, a formulation of vitamins, minerals, and antioxidants, in an easy-to-take chewable tablet for children 13 months to 12 years old; and Body RoxÔ, a nutritional supplement containing 31 essential vitamins, minerals, antioxidants, and cofactors for adolescents 12 to 18 years old. USANAâ Essentials for adults is a combination of two products: Mega Antioxidant, a balanced, high-potency blend of 30 vitamins, antioxidants, and other important nutrients to support cellular metabolism and to counteract free-radical damage; and Chelated Mineral, a complete spectrum of essential minerals, in balanced, highly bioavailable forms. The USANAâ Essentials are also provided in a convenient pillow pack format, HealthPak 100Ô.

 

Optimizers are more targeted supplements designed to meet individual health and nutritional needs. Products in this category include Proflavanolâ,Poly Câ, Procosaâ II, CoQuinoneâ 30, BiOmega-3Ô, E-PrimeÔ, Active CalciumÔ, Active CalciumÔ Chewable, PhytoEstrinÔ, Palmetto PlusÔ, Ginkgo-PSÔ, Garlic ECÔ, Visionexâ, OptOmegaâ, and Hepasil DTXÔ.

 

The Macro Optimizers include healthy, low-glycemic functional foods and other related products. NutrimealÔ, Fibergyâ, and SoyaMaxÔ drink mixes, as well as nutrition and fiber bars, are included in this product category. This product line also includes our RESET™ Weight Management Program designed to assist in a long-term change in diet, and the accompanying RESET kit. The RESET kit is conveniently packaged in a self-contained box with the USANA products needed to complete a five-day regimen, designed to assist in losing weight and alleviating carbohydrate and sugar cravings.

 

15



 

Sensé - beautiful scienceâ

 

The Sensé™ product line includes premium, science-based personal care products that support healthy skin and hair by providing advanced topical nourishment, moisturization, and protection. These products are produced with our patent-pending, self-preserving technology. This technology uses a unique blend of botanicals, antioxidants, and active ingredients to keep products fresh, without adding traditional chemical preservatives. Products in this line include Perfecting Essence, Gentle Daily Cleanser, Hydrating Toner, Daytime Protective Emulsion, Eye Nourisher, Night Renewal, Serum Intensive, Rice Bran Polisher, Nutritious Crème Masque, Revitalizing Shampoo, Nourishing Conditioner, Firming Body Nourisher, Energizing Shower Gel, and Intensive Hand Therapy.

 

All Other

 

In addition to these principal product lines, we have developed and sell to Associates materials and online tools that are designed to assist them in building their businesses and selling our products. These resource materials or sales tools include product brochures and business forms that are designed by us and printed by outside publishers. We periodically contract with authors and publishers to produce or provide books, tapes, and other items that deal with health topics and personal motivation, which we then sell to Associates. We also write and develop our own materials for CDs and DVDs, which are produced by our wholly-owned subsidiary FMG Productions. New Associates are required to purchase a starter kit, which contains USANA training materials that assist Associates in starting and growing their businesses. Associates do not earn commissions on the sale of starter kits or sales tools.

 

The following table summarizes the approximate percentage of total product revenue from our Direct Selling segment that have been contributed by our major product lines for the quarters ended as of the dates indicated:

 

 

 

Sales By Product Line
Quarter Ended

 

 

 

April 2,

 

April 1,

 

Product Line

 

2005

 

2006

 

USANAâ Nutritionals

 

 

 

 

 

Essentials *

 

37

%

38

%

Optimizers

 

34

%

33

%

Macro Optimizers

 

9

%

13

%

Sensé — beautiful scienceâ

 

16

%

12

%

All Other

 

4

%

4

%

 

 

 

 

 

 

 


* The Essentials category under the USANAâ Nutritionals product line includes USANAâ Essentials, HealthPak 100™, Body Rox™, and Usanimals™.

 

Key Products
 

The following highlights sales data for our top-selling products as a percentage of product sales from our Direct Selling segment for the quarters ended as of the dates indicated.

 

 

 

Quarter Ended

 

 

 

April 2,

 

April 1,

 

 

 

2005

 

2006

 

USANAâ Essentials

 

23

%

22

%

HealthPak 100™

 

12

%

14

%

Proflavanolâ

 

10

%

9

%

 

16



 

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, hopes, 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 future operations and capital spending needs. 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 detailed in our most recent Annual Report on Form 10-K at pages 20 through 30. The fact that some of the risk factors may be the same or similar to our past reports filed with the Securities and Exchange Commission 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 compete and will likely be present in all periods reported. The fact that certain risks are endemic to 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 actual results could differ from those projected in such forward-looking statements. 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;

 

                  High turnover 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 that may negatively affect economic conditions;

 

                  Potential natural disasters that may negatively affect economic conditions;

 

                  Potential effects of adverse publicity regarding nutritional supplements or the network marketing industry;

 

                  Reliance on key management personnel, including our Founder, Chairman of the Board of Directors, and Chief Executive Officer Myron W. Wentz, Ph.D.;

 

                  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 paid;

 

                  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 market share of our products or the Associates to competitors;

 

17



 

                  Potential adverse effects of taxation and transfer pricing regulations;

 

                  The fluctuation in the value of foreign currencies against the US dollar;

 

                  Our reliance on outside suppliers for raw materials;

 

                  Shortages of raw materials that we use in certain of our products;

 

                  Significant price increases of our key raw materials;

 

                  Product liability claims and other risks associated with our manufacturing activity;

 

                  Intellectual property risks;

 

                  Liability claims associated with our “Athlete Guarantee” program; and

 

                  Disruptions to shipping channels that are used to distribute our products to international warehouses.

 

Results of Operations
 

Implementation of SFAS No. 123(R)

 

Effective January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), which require equity-based compensation expense to be recognized in financial statements. The Company used the modified version of prospective application to adopt these provisions. Under this method, compensation expense includes the estimated fair value of equity awards vested during the reported period. Our financial statements for the quarter, ended April 1, 2006, are the first to reflect equity-based compensation expense. Cost of sales, selling, general and administrative expenses, and research and development expenses for the quarter include $127 thousand, $707 thousand, and $113 thousand, respectively, for equity-based compensation. The aforementioned expenses decreased earnings from operations and earnings before income taxes by $947 thousand. Net of tax, earnings were reduced by $685 thousand. Earnings per basic and diluted share were reduced $0.03 from what earnings would have been exclusive of equity-based compensation. Taking into account recent grants of equity awards since the date of the Company’s Annual Meeting of Shareholders’, we now anticipate that equity-based compensation expense will reduce 2006 diluted earnings per share by approximately $0.18. The following table shows remaining unrecognized compensation expense on a pre-tax basis related to nonvested equity awards outstanding as of May 5, 2006, which includes grants issued since April 1, 2006, but which does not include an estimate for future grants to be issued.

 

Remainder of 2006

 

$

3,905

 

2007

 

$

5,123

 

2008

 

$

4,676

 

2009

 

$

2,798

 

2010

 

$

2,161

 

Thereafter

 

$

397

 

 

 

$

19,060

 

 

The weighted-average period over which the expense above will be recognized is 2.5 years.

 

More information on the Company’s equity-based compensation plans and the accounting for equity-based compensation expense can be found in note A—Equity-based Compensation, beginning on page 8 to the consolidated financial statements.

 

Quarters Ended April 2, 2005 and April 1, 2006

 

Net Sales. Net sales increased 17.1% to $89.7 million for the quarter ended April 1, 2006, an increase of $13.1 million from the $76.6 million reported for the comparable quarter in 2005. During the current quarter, net sales in the Direct Selling segment increased by $12.1 million, and net sales in the Contract Manufacturing segment increased by $1.0 million, when compared with the same period in 2005.

 

18



 

The following table summarizes the changes in net sales by segment and country for the fiscal quarters ended April 2, 2005 and April 1, 2006.

 

 

Net Sales By Segment and Region

(in thousands)

 

 

 

Quarter Ended

 

Change from

 

Percent

 

Segment / Region

 

April 2, 2005

 

April 1, 2006

 

Prior Year

 

Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct Selling

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

31,203

 

40.7

%

$

39,057

 

43.6

%

$

7,854

 

25.2

%

Canada

 

14,862

 

19.4

%

16,979

 

18.9

%

2,117

 

14.2

%

Mexico

 

3,193

 

4.2

%

4,098

 

4.6

%

905

 

28.3

%

North America Total

 

49,258

 

64.3

%

60,134

 

67.1

%

10,876

 

22.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pacific Rim

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia-New Zealand

 

10,644

 

13.9

%

11,274

 

12.6

%

630

 

5.9

%

Hong Kong

 

3,040

 

4.0

%

3,176

 

3.5

%

136

 

4.5

%

Japan

 

2,498

 

3.3

%

2,432

 

2.7

%

(66

)

(2.6

)%

Taiwan

 

5,064

 

6.6

%

4,981

 

5.6

%

(83

)

(1.6

)%

South Korea

 

1,045

 

1.4

%

1,216

 

1.4

%

171

 

16.4

%

Singapore

 

3,100

 

4.0

%

3,540

 

3.9

%

440

 

14.2

%

Pacific Rim Total

 

25,391

 

33.2

%

26,619

 

29.7

%

1,228

 

4.8

%

Segment Total

 

74,649

 

97.5

%

86,753

 

96.8

%

12,104

 

16.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract Manufacturing

 

1,929

 

2.5

%

2,898

 

3.2

%

969

 

50.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

$

76,578

 

100.0

%

$

89,651

 

100.0

%

$

13,073

 

17.1

%

 

The increase in net sales from the Direct Selling segment during the first quarter of 2006 can be attributed primarily to a 14.3% increase in the number of active Associates and a 10.6% increase in the number of active Preferred Customers. Net sales were also bolstered in this segment by the success of our RESET™ Weight Management Program.

 

The increase in net sales from the Contract Manufacturing segment can be attributed primarily to the fulfillment of backlogged orders. We anticipate that sales from this segment will be between $1.5 million and $2.0 million per quarter for the foreseeable future.

 

Based on information that is currently available to the Company, we expect consolidated net sales for the second quarter of 2006 to be between $92 and $94 million. We expect consolidated net sales to grow between 15% and 20% for fiscal year 2006. Realization of the upper end of the fiscal year range depends, in part, on commencing operations in a new market during the second half of 2006, which the Company has been unable to open for several months because the Company has been unable to obtain approval from the government to operate there.

 

19



 

The following tables summarize the changes in active customer counts for the Direct Selling segment by country as of the dates indicated:

 

Active Associates By Region

(rounded to the nearest thousand)

 

 

 

As of

 

As of

 

Change from

 

Percent

 

Region

 

April 2, 2005

 

April 1, 2006

 

Prior Year

 

Change

 

North Amercia

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

45,000

 

37.8

%

54,000

 

39.7

%

9,000

 

20.0

%

Canada

 

22,000

 

18.5

%

23,000

 

16.9

%

1,000

 

4.5

%

Mexico

 

8,000

 

6.7

%

9,000

 

6.6

%

1,000

 

12.5

%

North America Total

 

75,000

 

63.0

%

86,000

 

63.2

%

11,000

 

14.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pacific Rim

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia-New Zealand

 

15,000

 

12.6

%

17,000

 

12.5

%

2,000

 

13.3

%

Hong Kong

 

5,000

 

4.2

%

5,000

 

3.7

%

 

0.0

%

Japan

 

4,000

 

3.4

%

5,000

 

3.7

%

1,000

 

25.0

%

Taiwan

 

10,000

 

8.4

%

13,000

 

9.6

%

3,000

 

30.0

%

South Korea

 

2,000

 

1.7

%

1,000

 

0.7

%

(1,000

)

(50.0

)%

Singapore

 

8,000

 

6.7

%

9,000

 

6.6

%

1,000

 

12.5

%

Pacific Rim Total

 

44,000

 

37.0

%

50,000

 

36.8

%

6,000

 

13.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

119,000

 

100.0

%

136,000

 

100.0

%

17,000

 

14.3

%

 

We believe that various factors contributed to the year-over-year first quarter increase in the number of active Associates, including ongoing communication with Associate leaders in the field and company-sponsored events and promotions that were held to motivate Associates.

 

Active Preferred Customers By Region

(rounded to the nearest thousand)

 

 

 

As of

 

As of

 

Change from

 

Percent

 

Region

 

April 2, 2005

 

April 1, 2006

 

Prior Year

 

Change

 

North Amercia

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

40,000

 

60.6

%

46,000

 

63.0

%

6,000

 

15.0

%

Canada

 

18,000

 

27.3

%

18,000

 

24.7

%

 

0.0

%

Mexico

 

1,000

 

1.5

%

2,000

 

2.7

%

1,000

 

100.0

%

North America Total

 

59,000

 

89.4

%

66,000

 

90.4

%

7,000

 

11.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pacific Rim

 

 

 

 

 

 

 

 

 

 

 

 

 

Australia-New Zealand

 

5,000

 

7.6

%

6,000

 

8.2

%

1,000

 

20.0

%

Hong Kong

 

1,000

 

1.5

%

**

 

0.0

%

(1,000

)

(100.0

)%

Japan

 

1,000

 

1.5

%

1,000

 

1.4

%

 

0.0

%

Taiwan

 

**

 

0.0

%

**

 

0.0

%

 

N/A

 

South Korea

 

**

 

0.0

%

**

 

0.0

%

 

N/A

 

Singapore

 

**

 

0.0

%

**

 

0.0

%

 

N/A

 

Pacific Rim Total

 

7,000

 

10.6

%

7,000

 

9.6

%

 

0.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

66,000

 

100.0

%

73,000

 

100.0

%

7,000

 

10.6

%

 


** Active Preferred Customer count is less than 500.

 

20



 

Total Active Customers By Region

(rounded to the nearest thousand)

 

 

 

As of

 

As of

 

Change from

 

Percent

 

Region

 

April 2, 2005

 

April 1, 2006

 

Prior Year

 

Change

 

North America