UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended July 1, 2006 |
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OR |
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission file number: 0-21116 |
USANA HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Utah |
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87-0500306 |
(State or other jurisdiction |
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(I.R.S. Employer |
of incorporation or organization) |
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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 x 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 |
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Accelerated filer x |
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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 x
The number of shares outstanding of the registrants common stock as of August 3, 2006 was 17,803,855.
For the Quarterly Period Ended July 1, 2006
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Consolidated Statement of Stockholders Equity and Comprehensive Income |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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2
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
(in thousands)
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December 31, |
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July 1, |
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2005 |
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2006 |
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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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$ |
10,579 |
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$ |
9,173 |
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Inventories |
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22,223 |
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20,458 |
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Prepaid expenses and other current assets |
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6,024 |
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6,048 |
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Deferred income taxes |
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3,004 |
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2,532 |
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Total current assets |
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41,830 |
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38,211 |
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Property and equipment, net |
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23,302 |
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23,777 |
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Goodwill |
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5,690 |
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5,690 |
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Other assets |
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2,886 |
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2,612 |
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$ |
73,708 |
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$ |
70,290 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
4,955 |
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$ |
6,303 |
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Other current liabilities |
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21,601 |
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24,479 |
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Total current liabilities |
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26,556 |
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30,782 |
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Long-term liabilities |
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1,414 |
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69 |
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Stockholders equity |
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Common stock, $0.001 par value; authorized 50,000 shares, issued and outstanding 18,343 as of December 31, 2005 and 17,723 as of July 1, 2006 |
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18 |
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18 |
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Additional paid-in capital |
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9,161 |
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7,420 |
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Retained earnings |
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35,720 |
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31,211 |
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Accumulated other comprehensive income |
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839 |
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790 |
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Total stockholders equity |
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45,738 |
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39,439 |
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$ |
73,708 |
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$ |
70,290 |
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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)
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Quarter Ended |
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July 2, |
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July 1, |
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2005 |
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2006 |
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Net sales |
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$ |
82,015 |
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$ |
93,911 |
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Cost of sales |
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19,499 |
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22,276 |
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Gross profit |
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62,516 |
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71,635 |
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Operating expenses: |
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Associate incentives |
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31,911 |
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37,454 |
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Selling, general and administrative |
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15,168 |
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17,991 |
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Research and development |
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689 |
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830 |
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Total operating expenses |
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47,768 |
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56,275 |
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Earnings from operations |
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14,748 |
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15,360 |
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Other income (expense): |
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Interest income |
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93 |
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169 |
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Interest expense |
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(3 |
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(10 |
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Other, net |
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(157 |
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177 |
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Other income (expense), net |
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(67 |
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336 |
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Earnings before income taxes |
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14,681 |
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15,696 |
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Income taxes |
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5,138 |
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5,352 |
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Net earnings |
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$ |
9,543 |
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$ |
10,344 |
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Earnings per common share |
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Basic |
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$ |
0.50 |
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$ |
0.57 |
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Diluted |
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$ |
0.48 |
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$ |
0.55 |
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Weighted average common shares outstanding |
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Basic |
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18,948 |
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18,149 |
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Diluted |
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19,821 |
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18,777 |
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The accompanying notes are an integral part of these statements.
4
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
(unaudited)
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Six Months Ended |
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July 2, |
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July 1, |
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2005 |
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2006 |
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Net sales |
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$ |
158,593 |
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$ |
183,562 |
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Cost of sales |
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37,509 |
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43,614 |
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Gross profit |
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121,084 |
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139,948 |
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Operating expenses: |
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Associate incentives |
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61,461 |
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72,882 |
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Selling, general and administrative |
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30,017 |
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35,617 |
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Research and development |
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1,288 |
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1,562 |
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Total operating expenses |
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92,766 |
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110,061 |
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Earnings from operations |
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28,318 |
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29,887 |
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Other income (expense): |
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Interest income |
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197 |
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311 |
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Interest expense |
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(3 |
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(10 |
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Other, net |
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(96 |
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330 |
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Other income, net |
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98 |
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631 |
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Earnings before income taxes |
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28,416 |
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30,518 |
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Income taxes |
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9,945 |
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10,614 |
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Net earnings |
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$ |
18,471 |
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$ |
19,904 |
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Earnings per common share |
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Basic |
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$ |
0.97 |
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$ |
1.09 |
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Diluted |
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$ |
0.93 |
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$ |
1.05 |
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Weighted average common shares outstanding |
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Basic |
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19,008 |
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18,304 |
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Diluted |
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19,896 |
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19,002 |
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The accompanying notes are an integral part of these statements.
5
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
Six Months Ended July 2, 2005 and July 1, 2006
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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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Income (Loss) |
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Total |
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For the Six Months Ended July 2, 2005 |
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Balance at January 1, 2005 |
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18,953 |
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$ |
19 |
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$ |
11,853 |
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$ |
34,496 |
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$ |
1,475 |
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$ |
47,843 |
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Comprehensive income |
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Net earnings |
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18,471 |
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18,471 |
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Foreign currency translation adjustment, net |
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(740 |
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(740 |
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Comprehensive income |
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17,731 |
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Common stock retired |
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(353 |
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(3,948 |
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(11,053 |
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(15,001 |
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Common stock issued under equity-based award plan, including tax benefit of $2,679 |
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216 |
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4,230 |
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4,230 |
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Balance at July 2, 2005 |
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18,816 |
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$ |
19 |
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$ |
12,135 |
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$ |
41,914 |
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$ |
735 |
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$ |
54,803 |
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For the Six Months Ended July 1, 2006 |
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Balance at December 31, 2005 |
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18,343 |
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$ |
18 |
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$ |
9,161 |
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$ |
35,720 |
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$ |
839 |
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$ |
45,738 |
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Comprehensive income |
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Net earnings |
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19,904 |
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19,904 |
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Foreign currency translation adjustment, net |
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(49 |
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(49 |
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Comprehensive income |
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19,855 |
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Common stock retired |
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(801 |
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(5,733 |
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(24,413 |
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(30,146 |
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Equity-based compensation expense |
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2,152 |
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2,152 |
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Common stock issued under equity-based award plan, including tax benefit of $1,033 |
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181 |
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1,840 |
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1,840 |
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Balance at July 1, 2006 |
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17,723 |
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$ |
18 |
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$ |
7,420 |
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$ |
31,211 |
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$ |
790 |
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$ |
39,439 |
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The accompanying notes are an integral part of these statements.
6
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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Six Months Ended |
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July 2, |
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July 1, |
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Increase (decrease) in cash and cash equivalents |
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Cash flows from operating activities |
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Net earnings |
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$ |
18,471 |
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$ |
19,904 |
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Adjustments to reconcile net earnings to net cash provided by operating activities |
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Depreciation and amortization |
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2,824 |
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2,924 |
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Loss on sale of property and equipment |
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5 |
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8 |
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Equity-based compensation expense |
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2,152 |
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Excess tax benefit from equity-based payment arrangements |
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(832 |
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Deferred income taxes |
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56 |
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(721 |
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Allowance for inventory valuation |
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43 |
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1,690 |
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Changes in operating assets and liabilities: |
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Inventories |
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(4,545 |
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340 |
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Prepaid expenses and other assets |
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(734 |
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(411 |
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Accounts payable |
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(261 |
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1,379 |
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Other current liabilities |
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6,105 |
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3,805 |
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Total adjustments |
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3,493 |
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10,334 |
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Net cash provided by operating activities |
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21,964 |
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30,238 |
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Cash flows from investing activities |
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Proceeds from the sale of property and equipment |
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4 |
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Purchases of property and equipment |
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(2,688 |
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(3,104 |
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Net cash used in investing activities |
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(2,684 |
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(3,104 |
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Cash flows from financing activities |
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Proceeds from exercise of equity-based awards |
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1,551 |
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807 |
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Excess tax benefit from equity-based payment arrangements |
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832 |
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Redemption of common stock |
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(15,001 |
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(30,146 |
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Net cash used in financing activities |
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(13,450 |
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(28,507 |
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Effect of exchange rate changes on cash and cash equivalents |
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(469 |
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(33 |
) |
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Net increase (decrease) in cash and cash equivalents |
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5,361 |
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(1,406 |
) |
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Cash and cash equivalents, beginning of period |
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15,067 |
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10,579 |
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Cash and cash equivalents, end of period |
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$ |
20,428 |
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$ |
9,173 |
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Supplemental disclosures of cash flow information |
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Cash paid during the period for: |
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Interest |
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$ |
3 |
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$ |
8 |
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Income taxes |
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5,944 |
|
10,491 |
|
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 Companys financial position as of July 1, 2006, and results of operations for the quarters and six months ended July 2, 2005 and July 1, 2006. 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 31, 2005. The results of operations for the quarter and six months ended July 1, 2006 may not be indicative of the results that may be expected for the fiscal year ending December 30, 2006.
Recently Issued Accounting Standards
In June 2006, the FASB issued FIN No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in income tax positions. FIN 48 defines the threshold for recognizing tax return positions in the financial statements as more likely than not that the position is sustainable, based on its technical merits. FIN 48 also provides guidance on the measurement, classification and disclosure of tax return positions in the financial statements. FIN 48 is effective for the first reporting period beginning after December 15, 2006, with the cumulative effect of the change in accounting principle recorded as an adjustment to the beginning balance of retained earnings in the period of adoption. The Company is currently evaluating the impact of adopting FIN 48 on its consolidated financial statements.
NOTE AEQUITY-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 periods. 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 CompensationTransition and DisclosureAn Amendment of FASB Statement No. 123. Equity-based compensation expense recognized for the quarter and six months ended July 1, 2006 was comprised as follows:
|
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Quarter |
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Six Months |
|
||
Cost of sales |
|
$ |
143 |
|
$ |
270 |
|
Selling, general and administrative |
|
930 |
|
1,637 |
|
||
Research and development |
|
132 |
|
245 |
|
||
|
|
$ |
1,205 |
|
$ |
2,152 |
|
8
The impact of equity-based compensation expense on net earnings and earnings per share for the quarter and six months ended July 1, 2006, can be found in the pro forma table in this footnote. The Company currently estimates that equity-based compensation expense will reduce basic and diluted earnings per share in 2006 by $0.18. The following table shows remaining unrecognized compensation expense on a pre-tax basis related to all types of nonvested equity awards outstanding as of July 1, 2006. This table does not include an estimate for future grants that may be issued.
Remainder of 2006 |
|
$ |
2,578 |
|
2007 |
|
5,095 |
|
|
2008 |
|
4,718 |
|
|
2009 |
|
2,840 |
|
|
2010 |
|
2,203 |
|
|
Thereafter |
|
412 |
|
|
|
|
$ |
17,846 |
|
The cost above is expected to be recognized over a weighted-average period of 2.4 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 $832 related to equity-based compensation included in cash flows from financing activities in the first six months of 2006 would have been included in cash flows from operating activities if the Company had not adopted SFAS No. 123(R).
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 Companys financial statements for the quarter and six months ended July 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.
9
The following table presents equity-based compensation expense included in our financial statements for the quarter and six months ended July 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 and six months ended July 2, 2005:
|
|
|
|
Quarter Ended |
|
Six Months Ended |
|
||||||||
|
|
|
|
July 2, 2005 |
|
July 1, 2006 |
|
July 2, 2005 |
|
July 1, 2006 |
|
||||
Net earnings |
|
As reported |
|
$ |
9,543 |
|
$ |
10,344 |
|
$ |
18,471 |
|
$ |
19,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Add: Compensation cost included in reported net income |
|
|
|
|
|
819 |
|
|
|
1,504 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Deduct: Total compensation expense under the fair value method for all awards |
|
|
|
(466 |
) |
(819 |
) |
(914 |
) |
(1,504 |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net earnings |
|
Pro forma |
|
$ |
9,077 |
|
$ |
10,344 |
|
$ |
17,557 |
|
$ |
19,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per sharebasic |
|
As reported |
|
$ |
0.50 |
|
$ |
0.57 |
|
$ |
0.97 |
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Pro forma |
|
$ |
0.48 |
|
$ |
0.57 |
|
$ |
0.92 |
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per sharediluted |
|
As reported |
|
$ |
0.48 |
|
$ |
0.55 |
|
$ |
0.93 |
|
$ |
1.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Pro forma |
|
$ |
0.46 |
|
$ |
0.55 |
|
$ |
0.88 |
|
$ |
1.05 |
|
The Companys 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 various equity awards including stock options, stock-settled stock appreciation rights, deferred stock units, and other types of equity-based awards to the Companys officers, key employees, and non-employee directors. 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. Between January 1, 2006, and April 19, 2006, the Company issued 175 stock options under the 2002 Plan. 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 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 4,704 shares were available for future issuance as of July 1, 2006. Of the 296 shares granted under the 2006 Plan, 290 were stock-settled stock appreciation rights, 3 were stock options, and 3 were deferred stock units. The Companys Compensation Committee has initially determined that awards to be granted to officers and key employees under the 2006 Plan will generally vest 20% each year on the anniversary of the grant date and expire five to five and one-half years from the date of grant. Awards of stock options and stock-settled stock appreciation rights to be granted to non-employee directors will generally vest 25% each quarter commencing on the last day of the fiscal quarter in which the awards are granted, and will expire five years from the date of grant. Awards of deferred stock units are full-value shares at the date of grant, vesting in connection with service period, and do not have expiration dates.
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 Companys 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
10
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 Companys stock options, the simplified method, as permitted by the guidance provided in Staff Accounting Bulletin No. 107, will be used to determine expected life while permitted. We estimate that the equity-based compensation expense included in earnings before income taxes for the six months ended July 1, 2006 was decreased by approximately $128 due to the above mentioned change in assumptions used to estimate fair value of awards granted during the six months ended July 1, 2006.
The following table includes weighted-average assumptions used to calculate the fair value of awards granted during the periods indicated, as well as the weighted-average fair value of awards granted. Deferred stock units are full-value shares at the date of grant and have been excluded from the table below.
|
|
Quarter Ended |
|
Six Months Ended |
|
||||||||
|
|
July 2, |
|
July 1 |
|
July 2 |
|
July 1 |
|
||||
Expected volatility |
|
72.00 |
% |
57.04 |
% |
72.00 |
% |
57.04 |
% |
||||
Risk-free interest rate |
|
3.87 |
% |
4.98 |
% |
3.87 |
% |
4.79 |
% |
||||
Expected life |
|
5.25 yrs. |
|
4.125 yrs. |
|
5.25 yrs. |
|
4.125 yrs. |
|
||||
Expected dividend yield |
|
0.00 |
% |
0.00 |
% |
0.00 |
% |
0.00 |
% |
||||
Weighted-average fair value of awards granted |
|
$ |
26.84 |
|
$ |
18.59 |
|
$ |
26.84 |
|
$ |
18.80 |
|
The weighted-average fair value and grant price of the 3 deferred stock units granted during the quarter and six months ended July 1, 2006 was $37.60.
A summary of the Companys stock option and stock-settled stock appreciation right activity for the six months ended July 1, 2006 is as follows:
|
|
Shares |
|
Weighted- |
|
Weighted-average |
|
Aggregate |
|
||
Outstanding at December 31, 2005 |
|
1,773 |
|
$ |
17.43 |
|
6.97 |
|
$ |
37,121 |
|
Granted |
|
468 |
|
$ |
38.14 |
|
|
|
$ |
|
|
Exercised |
|
(181 |
) |
$ |
4.47 |
|
|
|
$ |
|
|
Canceled or expired |
|
|
|
$ |
|
|
|
|
$ |
|
|
Outstanding at July 1, 2006 |
|
2,060 |
|
$ |
23.26 |
|
6.05 |
|
$ |
31,186 |
|
Exercisable at July 1, 2006 |
|
589 |
|
$ |
26.16 |
|
7.69 |
|
$ |
7,472 |
|
* All awards are granted at the market value on the date of grant, which is established by averaging the closing price of the Companys common stock over the five trading days preceding the date of grant.
** Aggregate intrinsic value is defined as the difference between the current market value and the exercise price of awards that were in-the-money, and is estimated using the closing price of the Companys common stock on the last trading day of periods ended as of the dates indicated.
Total intrinsic value of awards exercised, which includes stock options and stock-settled stock appreciation rights, during the six month periods ending July 2, 2005 and July 1, 2006, was $7,284 and $6,348, respectively.
11
A summary of the Companys deferred stock unit activity for the six months ended July 1, 2006 is as follows:
|
Shares |
|
Weighted- |
|
||
Nonvested at December 31, 2005 |
|
|
|
$ |
|
|
Granted |
|
3 |
|
$ |
37.60 |
|
Vested |
|
(1 |
) |
$ |
37.60 |
|
Canceled or expired |
|
|
|
$ |
|
|
Nonvested at July 1, 2006 |
|
2 |
|
$ |
37.60 |
|
The total fair value of awards vested during the six month periods ending July 2, 2005 and July 1, 2006, which includes stock options, stock-settled stock appreciation rights, and deferred stock units, was $2,383 and $2,561, respectively.
Inventories consist of the following:
|
December 31, |
|
July 1, |
|
|||
Raw materials |
|
$ |
11,878 |
|
$ |
10,676 |
|
Work in progress |
|
3,533 |
|
2,734 |
|
||
Finished goods |
|
9,482 |
|
10,040 |
|
||
|
|
24,893 |
|
23,450 |
|
||
|
|
|
|
|
|
||
Less allowance for inventory valuation |
|
2,670 |
|
2,992 |
|
||
|
|
$ |
22,223 |
|
$ |
20,458 |
|
NOTE CPREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
|
December 31, |
|
July 1, |
|
|||
Prepaid expenses |
|
$ |
2,038 |
|
$ |
1,337 |
|
Miscellaneous receivables, net |
|
3,537 |
|
3,499 |
|
||
Other current assets |
|
449 |
|
1,212 |
|
||
|
|
$ |
6,024 |
|
$ |
6,048 |
|
12
Cost of property and equipment and their estimated useful lives is as follows:
|
|
Years |
|
December 31, |
|
July 1, |
|
||
Building |
|
40 |
|
$ |
10,377 |
|
$ |
10,347 |
|
Laboratory and production equipment |
|
5-7 |
|
9,706 |
|
10,231 |
|
||
Sound and video library |
|
5 |
|
600 |
|
600 |
|
||
Computer equipment and software |
|
3-5 |
|
23,083 |
|
23,549 |
|
||
Furniture and fixtures |
|
3-5 |
|
2,654 |
|
2,669 |
|
||
Automobiles |
|
3-5 |
|
248 |
|
221 |
|
||
Leasehold improvements |
|
3-5 |
|
2,709 |
|
2,742 |
|
||
Land improvements |
|
15 |
|
931 |
|
931 |
|
||
|
|
|
|
50,308 |
|
51,290 |
|
||
|
|
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
|
29,605 |
|
31,814 |
|
||
|
|
|
|
20,703 |
|
19,476 |
|
||
|
|
|
|
|
|
|
|
||
Land |
|
|
|
2,064 |
|
2,066 |
|
||
|
|
|
|
|
|
|
|
||
Deposits and projects in process |
|
|
|
535 |
|
2,235 |
|
||
|
|
|
|
$ |
23,302 |
|
$ |
23,777 |
|
Goodwill represents the excess of the purchase price paid for acquired entities over the fair market value of the net assets acquired. As of July 1, 2006, goodwill totaled $5,690, comprising $4,267 that was associated with the July 1, 2003 acquisition of Wasatch Product Development, Inc. (WPD) and $1,423 that was associated with the February 1, 2004 acquisition of FMG. No events have occurred subsequent to either acquisition that have resulted in an impairment of the original goodwill amounts initially recorded from the transactions. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, goodwill must be tested at least annually and if the carrying amount of goodwill exceeds its fair value, an impairment loss must be recognized in an amount equal to that excess.
There were no changes in the carrying amount of goodwill for the acquired subsidiaries for the six months ended July 1, 2006:
|
WPD |
|
FMG |
|
Consolidated |
|
||||
Balance at December 31, 2005 |
|
$ |
4,267 |
|
$ |
1,423 |
|
$ |
5,690 |
|
Goodwill acquired |
|
|
|
|
|
|
|
|||
Impairment adjustments |
|
|
|
|
|
|
|
|||
Balance at July 1, 2006 |
|
$ |
4,267 |
|
$ |
1,423 |
|
$ |
5,690 |
|
13
NOTE FOTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
|
December 31, |
|
July 1, |
|
|||
Associate incentives |
|
$ |
3,528 |
|
$ |
4,592 |
|
Accrued employee compensation |
|
6,257 |
|
4,435 |
|
||
Income taxes |
|
2,429 |
|
2,446 |
|
||
Sales taxes |
|
2,354 |
|
2,093 |
|
||
Associate promotions |
|
616 |
|
1,937 |
|
||
Unearned revenue |
|
1,903 |
|
3,307 |
|
||
Provision for returns and allowances |
|
943 |
|
883 |
|
||
All other |
|
3,571 |
|
4,786 |
|
||
|
|
$ |
21,601 |
|
$ |
24,479 |
|
NOTE GCOMMON 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 issued and weighted-average shares redeemed during the periods indicated 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. Shares included in diluted earnings per share calculations include stock options granted that are in the money but have not yet been exercised.
|
For the Quarter Ended |
|
|||||
|
|
July 2, |
|
July 2, |
|
||
Earnings available to common shareholders |
|
$ |
9,543 |
|
$ |
10,344 |
|
|
|
|
|
|
|
||
Basic EPS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shares |
|
|
|
|
|
||
Common shares outstanding entire period |
|
18,953 |
|
18,343 |
|
||
Weighted average common shares: |
|
|
|
|
|
||
Issued during period |
|
211 |
|
173 |
|
||
Canceled during period |
|
(216 |
) |
(367 |
) |
||
Weighted average common shares outstanding during period |
|
18,948 |
|
18,149 |
|
||
Earnings per common sharebasic |
|
$ |
0.50 |
|
$ |
0.57 |
|
|
|
|
|
|
|
||
Diluted EPS |
|
|
|
|
|
||
Shares |
|
|
|
|
|
||
Weighted average shares outstanding during periodbasic |
|
18,948 |
|
18,149 |
|
||
Dilutive effect of stock options |
|
873 |
|
628 |
|
||
Weighted average shares outstanding during perioddiluted |
|
19,821 |
|
18,777 |
|
||
Earnings per common sharediluted |
|
$ |
0.48 |
|
$ |
0.55 |
|
14
Options to purchase 571 shares of stock were not included in the computation of EPS for the quarter ended July 1, 2006 due to their exercise price being greater than the average market price of the shares.
|
For the Six Months Ended |
|
|||||
|
|
July 2, |
|
July 1 |
|
||
Earnings available to common shareholders |
|
$ |
18,471 |
|
$ |
19,904 |
|
|
|
|
|
|
|
||
Basic EPS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shares |
|
|
|
|
|
||
Common shares outstanding entire period |
|
18,953 |
|
18,343 |
|
||
Weighted average common shares: |
|
|
|
|
|
||
Issued during period |
|
163 |
|
144 |
|
||
Canceled during period |
|
(108 |
) |
(183 |
) |
||
Weighted average common shares outstanding during period |
|
19,008 |
|
18,304 |
|
||
Earnings per common sharebasic |
|
$ |
0.97 |
|
$ |
1.09 |
|
|
|
|
|
|
|
||
Diluted EPS |
|
|
|
|
|
||
Shares |
|
|
|
|
|
||
Weighted average shares outstanding during periodbasic |
|
19,008 |
|
18,304 |
|
||
Dilutive effect of equity-based awards |
|
888 |
|
698 |
|
||
Weighted average shares outstanding during perioddiluted |
|
19,896 |
|
19,002 |
|
||
Earnings per common sharediluted |
|
$ |
0.93 |
|
$ |
1.05 |
|
Options to purchase 319 shares of stock were not included in the computation of EPS for the six months ended July 1, 2006 due to their exercise price being greater than the average market price of the shares.
During the six months ended July 2, 2005, and July 1, 2006, the Company expended $15,001, and $30,146 to purchase 353 and 801 shares, respectively, under the Companys share repurchase plan. The purchase of shares under this plan reduces the number of shares issued and outstanding.
The Companys operations are distinguished by regions served and 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 profit or loss 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 Companys determination of segment profit or loss.
Direct Selling
The Companys Direct Selling segment develops, manufactures, and distributes nutritional, weight management, 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 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.
15
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.
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 Companys 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 Companys Sensé products began at the Draper, Utah facility during the fourth quarter of 2003. In the second quarters of 2005 and 2006, we had one and two external customers, respectively, that accounted for more than ten percent of segment sales.
Financial information summarized by operating segment and geographic region for the quarters ended July 2, 2005 and July 1, 2006 is listed below:
|
Net Sales from |
|
Inter-segment |
|
Earnings |
|
||||
Quarter ended July 2, 2005: |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Direct Selling |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
52,264 |
|
$ |
15,316 |
|
$ |
7,444 |
|
Pacific Rim |
|
27,548 |
|
1,382 |
|
7,068 |
|
|||
|
|
|
|
|
|
|
|
|||
Segment Total |
|
79,812 |
|
16,698 |
|
14,512 |
|
|||
|
|
|
|
|
|
|
|
|||
Contract Manufacturing |
|
2,203 |
|
1,796 |
|
221 |
|
|||
|
|
|
|
|
|
|
|
|||
Reportable Segments Total |
|
82,015 |
|
18,494 |
|
14,733 |
|
|||
|
|
|
|
|
|
|
|
|||
Unallocated and Other * |
|
|
|
(18,494 |
) |
(52 |
) |
|||
|
|
|
|
|
|
|
|
|||
Consolidated Total |
|
$ |
82,015 |
|
$ |
|
|
$ |
14,681 |
|
16
|
Net Sales from |
|
Inter-segment |
|
Earnings |
|
||||
Quarter ended July 1, 2006: |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Direct Selling |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
North America |
|
$ |
62,201 |
|
$ |
16,651 |
|
$ |
7,917 |
|
Pacific Rim |
|
28,876 |
|
1,402 |
|
8,484 |
|
|||
|
|
|
|
|
|
|
|
|||
Segment Total |
|
91,077 |
|
18,053 |
|
16,401 |
|
|||
|
|
|
|
|
|
|
|
|||
Contract Manufacturing |
|
2,834 |
|
1,236 |
|
(97 |
) |
|||
|
|
|
|
|
|
|
|
|||
Reportable Segments Total |
|
93,911 |
|
19,289 |
|
16,304 |
|
|||
|
|
|
|
|
|
|
|
|||
Unallocated and Other * |
|
|
|
(19,289 |
) |
(608 |
) |
|||
|
|
|
|
|
|
|
|
|||
Consolidated Total |
|
$ |
93,911 |
|
$ |
|
|
$ |
15,696 |
|
Financial information summarized by operating segment and geographic region for the six months ended July 2, 2005 and July 1, 2006 is listed below:
|
|
Net Sales from |
|
Inter-segment |
|
Earnings before |
|
Long-lived |
|
Total |
|
|||||
Six months ended July 2, 2005: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Direct Selling |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
101,522 |
|
$ |
33,251 |
|
$ |
14,419 |
|
$ |
22,426 |
|
$ |
68,688 |
|
Pacific Rim |
|
52,939 |
|
2,659 |
|
12,714 |
|
2,909 |
|
18,778 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment Total |
|
154,461 |
|
35,910 |
|
27,133 |
|
25,335 |
|
87,466 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Contract Manufacturing |
|
4,132 |
|
3,871 |
|
772 |
|
6,361 |
|
12,720 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Reportable Segments Total |
|
158,593 |
|
39,781 |
|
27,905 |
|
31,696 |
|
100,186 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Unallocated and Other * |
|
|
|
(39,781 |
) |
511 |
|
39 |
|
(18,368 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Consolidated Total |
|
$ |
158,593 |
|
$ |
|
|
$ |
28,416 |
|
$ |
31,735 |
|
$ |
81,818 |
|
17
|
|
Net Sales from |
|
Inter-segment |
|
Earnings before |
|
Long-lived |
|
Total |
|
|||||
Six months ended July 1, 2006: |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Direct Selling |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
$ |
122,335 |
|
$ |
32,666 |
|
$ |
16,260 |
|
$ |
21,864 |
|
$ |
41,190 |
|
Pacific Rim |
|
55,495 |
|
2,643 |
|
14,405 |
|
2,681 |
|
13,780 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment Total |
|
177,830 |
|
35,309 |
|
30,665 |
|
24,545 |
|
54,970 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Contract Manufacturing |
|
5,732 |
|
2,325 |
|
(181 |
) |
7,531 |
|
12,892 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Reportable Segments Total |
|
183,562 |
|
37,634 |
|
30,484 |
|
32,076 |
|
67,862 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Unallocated and Other * |
|
|
|
(37,634 |
) |
34 |
|
3 |
|
2,428 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Consolidated Total |
|
$ |
183,562 |
|
$ |
|
|
$ |
30,518 |
|
$ |
32,079 |
|
$ |
70,290 |
|
* Unallocated and Other includes certain corporate items and eliminations that are not allocated to the operating segments.
On July 26, 2006, we announced that our Board of Directors authorized an additional dollar amount for the repurchase of our outstanding shares of $40,000, increasing the total authorized amount to $50,654.
18
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 Unaudited Consolidated Financial Statements and Notes contained in this quarterly report.
General
USANA Health Sciences, Inc. develops and manufactures high-quality nutritional, weight management, 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 July 1, 2006, we had 142,000 active Associates worldwide. We also sell products directly to Preferred Customers who purchase products for personal use and are not permitted to resell or distribute the products. As of July 1, 2006, we had 75,000 active Preferred Customers worldwide. The majority of sales in the Direct Selling segment come from Associates. For the six months ended July 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.
The fiscal year end of USANA 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 H Segment Information to the consolidated financial statements, we have two reportable segments: Direct Selling and Contract Manufacturing. The Direct Selling segment constitutes our principal line of business: developing, manufacturing, and distributing nutritional and personal care products through a network marketing system. The Contract Manufacturing segment primarily consists of manufacturing and packaging the Companys Sensé product line of skin and personal care products, but also includes contract manufacturing services provided to 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 USANAâ 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 available in a convenient pillow pack format, HealthPak 100Ô.
The 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 DTX.
The Macro Optimizers include healthy, low-glycemic convenience foods and other related products. NutrimealÔ, Fibergyâ, and SoyaMaxÔ drink mixes, and Nutrition and Fibergy 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
19
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 providing a start to a long-term change in diet.
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, 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 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 for the Direct Selling segment contributed by major product line for the six months ended as of the dates indicated:
|
Sales By Product Line |
|
|||||
|
|
Six Months Ended |
|
||||
|
|
July 2, |
|
July 1, |
|
||
|
|
2005 |
|
2006 |
|
||
Product Line |
|
|
|
|
|
|
|
USANAâ Nutritionals |
|
|
|
|
|
||
Essentials * |
|
37 |
% |
38 |
% |
||
Optimizers |
|
35 |
% |
33 |
% |
||
Macro Optimizers |
|
9 |
% |
14 |
% |
||
Sensé beautiful scienceâ |
|
15 |
% |
12 |
% |
||
All Other |
|
4 |
% |
3 |
% |
||
* The Essentials category under the USANAâ Nutritionals product line includes USANAâ Essentials, HealthPak 100Ô, Body RoxÔ, and UsanimalsÔ.
The following highlights sales data for our top-selling products as a percentage of Direct Selling segment product sales for the six months ended as of the dates indicated.
|
Six Months Ended |
|
|||
|
|
July 2, |
|
July 1, |
|
|
|
2005 |
|
2006 |
|
USANAâ Essentials |
|
22 |
% |
22 |
% |
HealthPak 100 |
|
12 |
% |
14 |
% |
Proflavanolâ |
|
10 |
% |
9 |
% |
20
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 Managements 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 Companys 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 persons downline;
· The loss of market share of our products or the Associates to competitors;
21
· 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.
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 2006 interim periods are the first to reflect equity-based compensation expense. Equity-based compensation expense recognized for the quarter, and six months ended July 1, 2006 was comprised as follows:
|
Quarter |
|
Six Months |
|
|||
|
|
Ended July 1, |
|
Ended July 1, |
|
||
|
|
2006 |
|
2006 |
|
||
|
|
|
|
|
|
||
Cost of sales |
|
$ |
143 |
|
$ |
270 |
|
Selling, general and administrative |
|
930 |
|
1,637 |
|
||
Research and development |
|
132 |
|
245 |
|
||
|
|
$ |
1,205 |
|
$ |
2,152 |
|
Net of tax, earnings for the quarter and six months ended July 1, 2006 were reduced by $819 thousand, and $1,504 thousand, respectively. Earnings per basic and diluted share were reduced $0.04, and $0.07, respectively, from what earnings would have been exclusive of equity-based compensation. The Company currently estimates that equity-based compensation expense will reduce basic and diluted earnings per share in 2006 by $0.18. The following table shows remaining unrecognized compensation expense on a pre-tax basis related to all types of nonvested equity awards outstanding as of July 1, 2006. This table does not include an estimate for future grants that may be issued.
Remainder of 2006 |
|
$ |
2,578 |
|
2007 |
|
5,095 |
|
|
2008 |
|
4,718 |
|
|
2009 |
|
2,840 |
|
|
2010 |
|
2,203 |
|
|
Thereafter |
|
412 |
|
|
|
|
$ |
17,846 |
|
The expense above is expected to be recognized over a weighted-average period of 2.4 years.
22
More information on the Companys equity-based compensation plans and the accounting for equity-based compensation expense can be found in note AEquity-based Compensation to the consolidated financial statements.
Quarters Ended July 2, 2005 and July 1, 2006
Net Sales. Net sales increased 14.5% to $93.9 million for the quarter ended July 1, 2006, an increase of $11.9 million from $82.0 million for the comparable quarter in 2005. During the current quarter, net sales in the Direct Selling segment increased by $11.3 million, and net sales in the Contract Manufacturing segment increased by $0.6 million, when compared with the same period in 2005.
The following table summarizes the changes in net sales by segment and country for the fiscal quarters ended July 2, 2005 and July 1, 2006.
|
|
Sales By Segment and Region |
|
|
|
|
|
|||||||||||
|
|
(in thousands) |
|
|
|
|
|
|||||||||||
|
|
Quarter Ended |
|
Change from |
|
Percent |
|
|||||||||||
Segment / Region |
|
|
|
July 2, 2005 |
|
July 1, 2006 |
|
Prior Year |
|
Change |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Direct Selling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
United States |
|
$ |
33,067 |
|
40.3 |
% |
$ |
39,818 |
|