UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2010
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-21116
USANA HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Utah |
|
87-0500306 |
(State or other jurisdiction |
|
(I.R.S. Employer |
of incorporation or organization) |
|
Identification No.) |
3838 West Parkway Blvd., Salt Lake City, Utah 84120
(Address of principal executive offices, Zip Code)
(801) 954-7100
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
|
Accelerated filer x |
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|
|
Non-accelerated filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares outstanding of the registrants common stock as of November 5, 2010 was 15,968,838.
USANA HEALTH SCIENCES, INC.
FORM 10-Q
For the Quarterly Period Ended October 2, 2010
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Page |
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3 |
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4 |
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5 |
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Consolidated Statements of Stockholders Equity and Comprehensive Income |
6 |
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7 |
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819 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
1930 |
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3031 |
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31 |
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32 |
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3236 |
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36 |
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37-38 |
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39 |
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
(in thousands)
|
|
As of |
|
As of |
|
||
|
|
January 2, |
|
October 2, |
|
||
|
|
2010 (1) |
|
2010 |
|
||
|
|
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(unaudited) |
|
||
ASSETS |
|
|
|
|
|
||
Current assets |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
13,658 |
|
$ |
22,928 |
|
Inventories |
|
25,761 |
|
32,605 |
|
||
Prepaid expenses and other current assets |
|
10,391 |
|
15,155 |
|
||
Deferred income taxes |
|
2,116 |
|
2,622 |
|
||
Total current assets |
|
51,926 |
|
73,310 |
|
||
|
|
|
|
|
|
||
Property and equipment, net |
|
57,241 |
|
58,327 |
|
||
|
|
|
|
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|
||
Goodwill |
|
5,690 |
|
16,930 |
|
||
Intangible assets, net |
|
|
|
40,872 |
|
||
Other assets |
|
8,581 |
|
12,086 |
|
||
|
|
$ |
123,438 |
|
$ |
201,525 |
|
|
|
|
|
|
|
||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
||
Current liabilities |
|
|
|
|
|
||
Accounts payable |
|
$ |
5,810 |
|
$ |
8,485 |
|
Line of credit - short term |
|
|
|
19,000 |
|
||
Other current liabilities |
|
34,668 |
|
43,017 |
|
||
Total current liabilities |
|
40,478 |
|
70,502 |
|
||
|
|
|
|
|
|
||
Line of credit - long term |
|
7,000 |
|
|
|
||
|
|
|
|
|
|
||
Other long-term liabilities |
|
1,587 |
|
1,076 |
|
||
|
|
|
|
|
|
||
Stockholders equity |
|
|
|
|
|
||
Common stock, $0.001 par value; Authorized 50,000 shares, issued and outstanding 15,309 as of January 2, 2010 and 15,760 as of October 2, 2010 |
|
15 |
|
16 |
|
||
Additional paid-in capital |
|
16,425 |
|
43,705 |
|
||
Retained earnings |
|
56,410 |
|
83,272 |
|
||
Accumulated other comprehensive income |
|
1,523 |
|
2,954 |
|
||
Total stockholders equity |
|
74,373 |
|
129,947 |
|
||
|
|
$ |
123,438 |
|
$ |
201,525 |
|
(1) Derived from audited financial statements.
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(U.S. dollars in thousands, except per share data)
(unaudited)
|
|
Quarter Ended |
|
||||
|
|
October 3, |
|
October 2, |
|
||
|
|
2009 |
|
2010 |
|
||
|
|
|
|
|
|
||
Net sales |
|
$ |
110,764 |
|
$ |
135,006 |
|
|
|
|
|
|
|
||
Cost of sales |
|
22,637 |
|
25,157 |
|
||
|
|
|
|
|
|
||
Gross profit |
|
88,127 |
|
109,849 |
|
||
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
||
Associate incentives |
|
50,799 |
|
60,560 |
|
||
Selling, general and administrative |
|
25,414 |
|
30,751 |
|
||
|
|
|
|
|
|
||
Total operating expenses |
|
76,213 |
|
91,311 |
|
||
|
|
|
|
|
|
||
Earnings from operations |
|
11,914 |
|
18,538 |
|
||
|
|
|
|
|
|
||
Other income (expense): |
|
|
|
|
|
||
Interest income |
|
15 |
|
36 |
|
||
Interest expense |
|
(105 |
) |
(42 |
) |
||
Other, net |
|
200 |
|
557 |
|
||
|
|
|
|
|
|
||
Other income, net |
|
110 |
|
551 |
|
||
|
|
|
|
|
|
||
Earnings before income taxes |
|
12,024 |
|
19,089 |
|
||
|
|
|
|
|
|
||
Income taxes |
|
4,112 |
|
6,240 |
|
||
|
|
|
|
|
|
||
Net earnings |
|
7,912 |
|
12,849 |
|
||
|
|
|
|
|
|
||
Earnings per common share |
|
|
|
|
|
||
Basic |
|
$ |
0.52 |
|
$ |
0.83 |
|
|
|
|
|
|
|
||
Diluted |
|
$ |
0.51 |
|
$ |
0.79 |
|
|
|
|
|
|
|
||
Weighted-average common shares outstanding |
|
|
|
|
|
||
Basic |
|
15,345 |
|
15,562 |
|
||
Diluted |
|
15,547 |
|
16,247 |
|
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(U.S. dollars in thousands, except per share data)
(unaudited)
|
|
Nine Months Ended |
|
||||
|
|
October 3, |
|
October 2, |
|
||
|
|
2009 |
|
2010 |
|
||
|
|
|
|
|
|
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Net sales |
|
$ |
320,156 |
|
$ |
380,104 |
|
|
|
|
|
|
|
||
Cost of sales |
|
66,236 |
|
70,912 |
|
||
|
|
|
|
|
|
||
Gross profit |
|
253,920 |
|
309,192 |
|
||
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
||
Associate incentives |
|
143,010 |
|
171,743 |
|
||
Selling, general and administrative |
|
75,463 |
|
87,358 |
|
||
|
|
|
|
|
|
||
Total operating expenses |
|
218,473 |
|
259,101 |
|
||
|
|
|
|
|
|
||
Earnings from operations |
|
35,447 |
|
50,091 |
|
||
|
|
|
|
|
|
||
Other income (expense): |
|
|
|
|
|
||
Interest income |
|
45 |
|
70 |
|
||
Interest expense |
|
(540 |
) |
(68 |
) |
||
Other, net |
|
640 |
|
301 |
|
||
|
|
|
|
|
|
||
Other income, net |
|
145 |
|
303 |
|
||
|
|
|
|
|
|
||
Earnings before income taxes |
|
35,592 |
|
50,394 |
|
||
|
|
|
|
|
|
||
Income taxes |
|
12,243 |
|
17,134 |
|
||
|
|
|
|
|
|
||
Net earnings |
|
23,349 |
|
33,260 |
|
||
|
|
|
|
|
|
||
Earnings per common share |
|
|
|
|
|
||
Basic |
|
$ |
1.52 |
|
$ |
2.16 |
|
|
|
|
|
|
|
||
Diluted |
|
$ |
1.51 |
|
$ |
2.11 |
|
|
|
|
|
|
|
||
Weighted-average common shares outstanding |
|
|
|
|
|
||
Basic |
|
15,349 |
|
15,397 |
|
||
Diluted |
|
15,421 |
|
15,763 |
|
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
Nine Months Ended October 3, 2009 and October 2, 2010
(in thousands)
(unaudited)
|
|
|
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|
|
|
|
|
|
Accumulated |
|
|
|
|||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
|
|||||
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
|
|||||||
|
|
Shares |
|
Value |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Total |
|
|||||
For the Nine Months Ended October 3, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at January 3, 2009 |
|
15,350 |
|
15 |
|
8,089 |
|
24,107 |
|
(375 |
) |
31,836 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net earnings |
|
|
|
|
|
|
|
23,349 |
|
|
|
23,349 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Foreign currency translation adjustment, net of tax benefit of $1,427 |
|
|
|
|
|
|
|
|
|
1,708 |
|
1,708 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
25,057 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Common stock repurchased and retired |
|
(33 |
) |
|
|
(249 |
) |
(773 |
) |
|
|
(1,022 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity-based compensation expense |
|
|
|
|
|
6,916 |
|
|
|
|
|
6,916 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Common stock issued under equity award plans, including tax expense of $19 |
|
9 |
|
|
|
57 |
|
|
|
|
|
57 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at October 3, 2009 |
|
15,326 |
|
$ |
15 |
|
$ |
14,813 |
|
$ |
46,683 |
|
$ |
1,333 |
|
$ |
62,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
For the Nine Months Ended October 2, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at January 2, 2010 |
|
15,309 |
|
15 |
|
16,425 |
|
56,410 |
|
1,523 |
|
74,373 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net earnings |
|
|
|
|
|
|
|
33,260 |
|
|
|
33,260 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Foreign currency translation adjustment, net of tax benefit of $614 |
|
|
|
|
|
|
|
|
|
1,431 |
|
1,431 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
34,691 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Common stock repurchased and retired |
|
(199 |
) |
|
|
(2,232 |
) |
(6,398 |
) |
|
|
(8,630 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Common stock issued in connection with acquisition |
|
400 |
|
1 |
|
17,715 |
|
|
|
|
|
17,716 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Equity-based compensation expense |
|
|
|
|
|
7,107 |
|
|
|
|
|
7,107 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Common stock issued under equity award plans, including tax benefit of $50 |
|
250 |
|
|
|
4,690 |
|
|
|
|
|
4,690 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at October 2, 2010 |
|
15,760 |
|
$ |
16 |
|
$ |
43,705 |
|
$ |
83,272 |
|
$ |
2,954 |
|
$ |
129,947 |
|
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Nine Months Ended |
|
||||
|
|
October 3, |
|
October 2, |
|
||
|
|
2009 |
|
2010 |
|
||
Cash flows from operating activities |
|
|
|
|
|
||
Net earnings |
|
$ |
23,349 |
|
$ |
33,260 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities |
|
|
|
|
|
||
Depreciation and amortization |
|
5,312 |
|
5,641 |
|
||
Loss (gain) on sale of property and equipment |
|
(155 |
) |
87 |
|
||
Equity-based compensation expense |
|
6,916 |
|
7,107 |
|
||
Excess tax benefit from equity-based payment arrangements |
|
(11 |
) |
(792 |
) |
||
Deferred income taxes |
|
(2,179 |
) |
(1,221 |
) |
||
Provision for inventory valuation |
|
780 |
|
989 |
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
||
Inventories |
|
(1,364 |
) |
(5,040 |
) |
||
Prepaid expenses and other assets |
|
3,776 |
|
30 |
|
||
Accounts payable |
|
(1,311 |
) |
41 |
|
||
Other liabilities |
|
(14,585 |
) |
6,137 |
|
||
|
|
|
|
|
|
||
Total adjustments |
|
(2,821 |
) |
12,979 |
|
||
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
20,528 |
|
46,239 |
|
||
|
|
|
|
|
|
||
Cash flows from investing activities |
|
|
|
|
|
||
Acquisition, net of cash acquired |
|
$ |
|
|
$ |
(42,694 |
) |
Receipts on notes receivable |
|
169 |
|
|
|
||
Increase in notes receivable |
|
(143 |
) |
|
|
||
Proceeds from sale of property and equipment |
|
837 |
|
32 |
|
||
Purchases of property and equipment |
|
(2,871 |
) |
(3,676 |
) |
||
|
|
|
|
|
|
||
Net cash used in investing activities |
|
(2,008 |
) |
(46,338 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities |
|
|
|
|
|
||
Proceeds from equity awards exercised |
|
$ |
76 |
|
$ |
4,640 |
|
Excess tax benefits from equity-based payment arrangements |
|
11 |
|
792 |
|
||
Repurchase of common stock |
|
(1,022 |
) |
(8,630 |
) |
||
Borrowings on line of credit |
|
55,710 |
|
23,350 |
|
||
Payments on line of credit |
|
(73,700 |
) |
(11,350 |
) |
||
|
|
|
|
|
|
||
Net cash (used in) provided by financing activities |
|
(18,925 |
) |
8,802 |
|
||
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
389 |
|
567 |
|
||
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
|
(16 |
) |
9,270 |
|
||
|
|
|
|
|
|
||
Cash and cash equivalents, beginning of period |
|
13,281 |
|
13,658 |
|
||
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
13,265 |
|
$ |
22,928 |
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information |
|
|
|
|
|
||
|
|
|
|
|
|
||
Cash paid during the period for: |
|
|
|
|
|
||
Interest |
|
$ |
503 |
|
$ |
62 |
|
Income taxes |
|
17,874 |
|
18,582 |
|
||
|
|
|
|
|
|
||
Non-cash financing activities |
|
|
|
|
|
||
Common stock issued in connection with acquisitions |
|
|
|
17,716 |
|
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
Basis of Presentation
The condensed balance sheet as of January 2, 2010, derived from audited financial statements, and the unaudited interim consolidated financial information of USANA Health Sciences, Inc. and its subsidiaries (collectively, the Company or USANA) have been prepared in accordance with Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Certain information and footnote disclosures that are normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting of normal recurring adjustments that are necessary to present fairly the Companys financial position as of October 2, 2010 and results of operations for the quarters and nine months ended October 3, 2009 and October 2, 2010. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto that are included in the Companys Annual Report on Form 10-K for the year ended January 2, 2010. The results of operations for the quarter and nine months ended October 2, 2010, may not be indicative of the results that may be expected for the fiscal year 2010 ending January 1, 2011.
NOTE A ORGANIZATION
USANA develops and manufactures high-quality nutritional and personal care products that are sold internationally through a network marketing system, which is a form of direct selling. The Companys products are sold throughout the United States (including direct sales from the United States to the United Kingdom and the Netherlands), Canada, Mexico, Australia, New Zealand, Singapore, Malaysia, the Philippines, Hong Kong, Taiwan, Japan, South Korea, and as of August 2010, the Peoples Republic of China (China or PRC).
NOTE B ACQUISITION
On August 16, 2010, the Company indirectly acquired 100% of BabyCare Ltd. (BabyCare), a limited liability company incorporated under the laws of the PRC, for the purchase price of $62,716, which consisted of $45,000 cash paid and $17,716 common stock issued (400,000 shares of USANA common stock at $44.29).
BabyCare is a direct selling company in China that is principally engaged in developing, manufacturing and selling nutritional products for the entire family, with an emphasis on infant nutrition, through both a distributor sales force and a chain of retail centers. This acquisition was accomplished in the following simultaneous transactions. The Company acquired Pet Lane, Inc., a Delaware corporation (Pet Lane), which is the record owner of BabyCare in China. Simultaneously, the Company entered into and closed a share purchase agreement (the Purchase Agreement) by and among the Company and the following parties: Pet Lane; Yaolan Ltd., an exempted company organized under the laws of the Cayman Islands (Yaolan); and BabyCare Holdings, Ltd., an exempted company organized under the laws of the Cayman Islands (BabyCare Holdings). Pursuant to the Purchase Agreement, the Company, through its acquisition entity Pet Lane, acquired all of the issued and outstanding shares of BabyCare Holdings (the Shares) from Yaolan. BabyCare Holdings is the beneficial owner of BabyCare. As a result of its acquisition of Pet Lane and BabyCare Holdings, the Company, indirectly, has acquired both record and beneficial ownership of BabyCare.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE B ACQUISITION CONTINUED
The acquisition was accounted for as a business combination and as such, the results of operations for BabyCare have been included in the consolidated financial statements since the effective date of acquisition. This acquisition contributed $3,358 in net sales and net earnings of $130 for the quarter ended October 2, 2010. Unaudited supplemental pro forma information had the acquisition occurred at the beginning of each period is as follows:
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
October 3, |
|
October 2, |
|
October 3, |
|
October 2, |
|
||||
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
114,474 |
|
$ |
136,592 |
|
$ |
330,824 |
|
$ |
389,726 |
|
Net earnings |
|
6,570 |
|
12,338 |
|
19,600 |
|
30,782 |
|
||||
The assets acquired and liabilities assumed were recorded at estimated fair values as of the date of the acquisition. The purchase price allocation for BabyCare is as follows:
|
|
August 16, |
|
|
|
|
2010 |
|
|
|
|
|
|
|
Assets Acquired and Liabilities Assumed |
|
|
|
|
Cash and cash equivalents |
|
$ |
3,006 |
|
Inventories |
|
1,702 |
|
|
Prepaid expenses and other current assets |
|
4,663 |
|
|
Property and equipment |
|
1,517 |
|
|
Goodwill |
|
10,540 |
|
|
Intangible assets |
|
41,000 |
|
|
Other assets |
|
3,375 |
|
|
Accounts payable |
|
(2,552 |
) |
|
Other current liabilities |
|
(535 |
) |
|
|
|
|
|
|
|
|
$ |
62,716 |
|
Goodwill of $10,540 has been recognized for the excess of consideration transferred over the acquisition-date fair value of net assets acquired. In accordance with accounting standards governing the subsequent measurement of goodwill, goodwill will not be amortized, but will be tested at least annually for impairment. The fair value of intangible assets acquired in the amount of $41,000 was derived using various methodologies applied within the income approach. For further information on intangible assets, see Note G to these consolidated financial statements. For tax purposes, $52,323 of goodwill and other intangible assets will be deducted over a period of 15 years in computing the Companys United States tax obligation. The anticipated benefits associated with the acquired goodwill and other intangibles include facilitating our expansion and growth in China. The most significant intangible asset is a direct selling license held by BabyCare from the Chinese government to engage in direct selling activities in the Municipality of Beijing. This direct selling license allows BabyCare to engage non-employee distributors to sell their products away from fixed retail locations.
The costs related to the acquisition of BabyCare totaled $1,895 which included; advisory, legal, accounting, valuation, and other professional fees. These costs were expensed as incurred in the periods in which services were received and recognized in the consolidated statements of earnings in Selling, General and Administrative expenses.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE C FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company reports term deposits in accordance with established authoritative guidance, which requires a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.
The three levels are defined as follows:
· Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.
· Level 2 inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
· Level 3 inputs are unobservable and are used to measure fair value in situations where there is little, if any, market activity for the asset or liability at the measurement date.
The fair values of term deposits placed with banks are determined based on the pervasive interest rates in the market, which are also the interest rates as stated in the contracts with the banks. The Company classifies the valuation techniques that use the pervasive interest rates input as Level 2. The carrying values of these term deposits approximate their fair values due to their short-term maturities. As of October 2, 2010, the fair value of term deposits in the consolidated balance sheet totaled $3,588, consisting of $598 classified in cash and cash equivalents, and $2,990 in prepaid expenses and other current assets.
NOTE D INVENTORIES
Inventories consist of the following:
|
|
January 2, |
|
October 2, |
|
||
|
|
2010 |
|
2010 |
|
||
|
|
|
|
|
|
||
Raw materials |
|
$ |
6,785 |
|
$ |
8,551 |
|
Work in progress |
|
5,003 |
|
5,027 |
|
||
Finished goods |
|
13,973 |
|
19,027 |
|
||
|
|
|
|
|
|
||
|
|
$ |
25,761 |
|
$ |
32,605 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE E PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
|
|
January 2, |
|
October 2, |
|
||
|
|
2010 |
|
2010 |
|
||
|
|
|
|
|
|
||
Prepaid insurance |
|
$ |
1,165 |
|
$ |
331 |
|
Other prepaid expenses |
|
2,263 |
|
2,117 |
|
||
Federal income taxes receivable |
|
505 |
|
1,736 |
|
||
Miscellaneous receivables, net |
|
2,775 |
|
3,492 |
|
||
Deferred commissions |
|
2,738 |
|
3,122 |
|
||
Other current assets |
|
945 |
|
4,357 |
|
||
|
|
|
|
|
|
||
|
|
$ |
10,391 |
|
$ |
15,155 |
|
NOTE F PROPERTY AND EQUIPMENT
Cost of property and equipment and their estimated useful lives is as follows:
|
|
|
|
January 2, |
|
October 2, |
|
||
|
|
Years |
|
2010 |
|
2010 |
|
||
|
|
|
|
|
|
|
|
||
Buildings |
|
40 |
|
$ |
37,346 |
|
$ |
38,226 |
|
Laboratory and production equipment |
|
5-7 |
|
16,242 |
|
17,610 |
|
||
Sound and video library |
|
5 |
|
600 |
|
600 |
|
||
Computer equipment and software |
|
3-5 |
|
27,419 |
|
29,057 |
|
||
Furniture and fixtures |
|
3-5 |
|
4,561 |
|
4,820 |
|
||
Automobiles |
|
3-5 |
|
256 |
|
289 |
|
||
Leasehold improvements |
|
3-5 |
|
4,478 |
|
5,171 |
|
||
Land improvements |
|
15 |
|
2,025 |
|
2,041 |
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
92,927 |
|
97,814 |
|
||
|
|
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
|
43,714 |
|
47,916 |
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
49,213 |
|
49,898 |
|
||
|
|
|
|
|
|
|
|
||
Land |
|
|
|
7,352 |
|
7,811 |
|
||
|
|
|
|
|
|
|
|
||
Deposits and projects in process |
|
|
|
676 |
|
618 |
|
||
|
|
|
|
|
|
|
|
||
|
|
|
|
$ |
57,241 |
|
$ |
58,327 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE G INTANGIBLE ASSETS
Intangible assests consist of the following:
|
|
As of October 2, 2010 |
|
Weighted-average |
|
|||||||
|
|
Gross Carrying |
|
Accumulated |
|
Net Carrying |
|
amortization |
|
|||
|
|
Amount |
|
Amortization |
|
Amount |
|
period (years) |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Amortized intangible assets |
|
|
|
|
|
|
|
|
|
|||
Trade Name & Trademarks |
|
$ |
3,900 |
|
$ |
(49 |
) |
$ |
3,851 |
|
10 |
|
Customer Relationships |
|
1,900 |
|
(79 |
) |
1,821 |
|
3 |
|
|||
|
|
5,800 |
|
(128 |
) |
5,672 |
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Unamortized intangible assets |
|
|
|
|
|
|
|
|
|
|||
Product Formulas |
|
8,600 |
|
|
|
8,600 |
|
|
|
|||
Direct Sales License |
|
26,600 |
|
|
|
26,600 |
|
|
|
|||
|
|
35,200 |
|
|
|
35,200 |
|
|
|
|||
|
|
$ |
41,000 |
|
|
|
$ |
40,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
The Aggregate Amortization Expense: |
|
|
|
|
|
|
|
|
|
|||
For quarter ended October 2, 2010 |
|
$ |
128 |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|||
Estimated Amortization Expense: |
|
|
|
|
|
|
|
|
|
|||
Remainder of 2010 |
|
$ |
266 |
|
|
|
|
|
|
|
||
2011 |
|
1,023 |
|
|
|
|
|
|
|
|||
2012 |
|
1,023 |
|
|
|
|
|
|
|
|||
2013 |
|
780 |
|
|
|
|
|
|
|
|||
2014 |
|
390 |
|
|
|
|
|
|
|
|||
Thereafter |
|
2,190 |
|
|
|
|
|
|
|
|||
|
|
$ |
5,672 |
|
|
|
|
|
|
|
||
NOTE H LINE OF CREDIT
The Company has a $40,000 line of credit. At October 2, 2010, there was an outstanding balance of $19,000 associated with the line of credit, with a weighted-average interest rate of 1.26%. The interest rate is computed at the banks Prime Rate or LIBOR, adjusted by features specified in the Credit Agreement. The collateral for this line of credit is the pledge of the capital stock of certain subsidiaries of the Company, as set forth in a separate pledge agreement with the bank. The Credit Agreement contains restrictive covenants based on adjusted EBITDA and a debt coverage ratio. The Company will be required to pay the balance on this line of credit in full at the time of maturity in May 2011 unless the line of credit is replaced or terms are renegotiated.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE I OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
|
|
January 2, |
|
October 2, |
|
||
|
|
2010 |
|
2010 |
|
||
|
|
|
|
|
|
||
Associate incentives |
|
$ |
8,008 |
|
$ |
9,777 |
|
Accrued employee compensation |
|
8,508 |
|
11,637 |
|
||
Income taxes |
|
284 |
|
1,716 |
|
||
Sales taxes |
|
3,683 |
|
4,178 |
|
||
Associate promotions |
|
1,026 |
|
1,200 |
|
||
Deferred revenue |
|
7,387 |
|
8,536 |
|
||
Provision for returns and allowances |
|
1,115 |
|
1,014 |
|
||
All other |
|
4,657 |
|
4,959 |
|
||
|
|
|
|
|
|
||
|
|
$ |
34,668 |
|
$ |
43,017 |
|
NOTE J EQUITY-BASED COMPENSATION
Equity-based compensation expense for the quarters ended October 3, 2009, and October 2, 2010, was $2,298 and $2,967, respectively. The related tax benefit for these periods was $845 and $1,180, respectively. Expense for the nine months ended October 3, 2009, and October 2, 2010, was $6,916 and $7,107, respectively. The related tax benefit for these periods was $2,492 and $2,693, respectively.
The following table shows the remaining unrecognized compensation expense on a pre-tax basis for all types of equity awards that were outstanding as of October 2, 2010. This table does not include an estimate for future grants that may be issued.
Remainder of 2010 |
|
$ |
3,286 |
|
2011 |
|
12,545 |
|
|
2012 |
|
10,455 |
|
|
2013 |
|
6,409 |
|
|
2014 |
|
3,904 |
|
|
2015 |
|
1,651 |
|
|
|
|
$ |
38,250 |
|
The cost above is expected to be recognized over a weighted-average period of 2.4 years.
The following table includes weighted-average assumptions that the Company has used to calculate the fair value of equity awards that were granted during the periods indicated. Deferred stock units are full-value shares at the date of grant and have been excluded from the table below:
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
October 3, |
|
October 2, |
|
October 3, |
|
October 2, |
|
||||
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Expected volatility |
|
55.8 |
% |
54.8 |
% |
41.0 |
% |
54.9 |
% |
||||
Risk-free interest rate |
|
2.1 |
% |
1.4 |
% |
1.8 |
% |
1.7 |
% |
||||
Expected life |
|
4.1 yrs. |
|
4.2 yrs. |
|
4.0 yrs. |
|
4.2 yrs. |
|
||||
Expected dividend yield |
|
|
|
|
|
|
|
|
|
||||
Weighted-average grant price |
|
$ |
27.99 |
|
$ |
43.73 |
|
$ |
26.43 |
|
$ |
38.23 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE J EQUITY-BASED COMPENSATION CONTINUED
A summary of the Companys stock option and stock-settled stock appreciation right activity for the nine months ended October 2, 2010 is as follows:
|
|
Shares |
|
Weighted- |
|
Weighted-average |
|
Aggregate |
|
||
Outstanding at January 2, 2010 |
|
4,267 |
|
$ |
30.26 |
|
3.8 |
|
$ |
17,173 |
|
Granted |
|
1,098 |
|
38.23 |
|
|
|
|
|
||
Exercised |
|
(430 |
) |
28.21 |
|
|
|
|
|
||
Canceled or expired |
|
(89 |
) |
32.98 |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
||
Outstanding at October 2, 2010 |
|
4,846 |
|
$ |
32.20 |
|
3.5 |
|
$ |
41,142 |
|
|
|
|
|
|
|
|
|
|
|
||
Exercisable at October 2, 2010 |
|
1,821 |
|
$ |
32.38 |
|
3.0 |
|
$ |
14,671 |
|
* Aggregate intrinsic value is defined as the difference between the current market value at the reporting date (the closing price of the Companys common stock on the last trading day of the period) and the exercise price of awards that were in-the-money.
The weighted-average fair value of stock-settled stock appreciation rights that were granted during the nine-month periods ended October 3, 2009, and October 2, 2010 was $9.07 and $17.07, respectively. The total intrinsic value of awards that were exercised during the nine-month periods ended October 3, 2009, and October 2, 2010 was $194 and $6,057, respectively.
A summary of the Companys deferred stock unit activity for the nine months ended October 2, 2010 is as follows:
|
|
Shares |
|
Weighted- |
|
|
Nonvested at January 2, 2010 |
|
|
|
$ |
|
|
Granted |
|
100 |
|
$ |
44.29 |
|
Vested |
|
|
|
$ |
|
|
Canceled or expired |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Nonvested at October 2, 2010 |
|
100 |
|
$ |
44.29 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE K COMMON STOCK AND EARNINGS PER SHARE
Basic earnings per share are based on the weighted-average number of shares outstanding for each period. Shares that have been repurchased and retired during the periods specified below have been included in the calculation of the number of weighted-average shares that are outstanding for the calculation of basic earnings per share. Diluted earnings per common share are based on shares that are outstanding (computed under basic EPS) and on potentially dilutive shares. Shares that are included in the diluted earnings per share calculations under the treasury stock method include equity awards that are in-the-money but have not yet been exercised.
|
|
For the Quarter Ended |
|
||||
|
|
October 3, |
|
October 2, |
|
||
|
|
2009 |
|
2010 |
|
||
|
|
|
|
|
|
||
Net earnings available to common shareholders |
|
$ |
7,912 |
|
$ |
12,849 |
|
|
|
|
|
|
|
||
Basic EPS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shares |
|
|
|
|
|
||
Common shares outstanding - entire period |
|
|
|
|
|
||
Weighted-average common shares: |
|
15,350 |
|
15,309 |
|
||
Issued during period |
|
4 |
|
320 |
|
||
Canceled during period |
|
(9 |
) |
(67 |
) |
||
|
|
|
|
|
|
||
Weighted-average common shares outstanding during period |
|
15,345 |
|
15,562 |
|
||
|
|
|
|
|
|
||
Earnings per common share from net earnings - basic |
|
$ |
0.52 |
|
$ |
0.83 |
|
|
|
|
|
|
|
||
Diluted EPS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shares |
|
|
|
|
|
||
Weighted-average shares outstanding during period - basic |
|
15,345 |
|
15,562 |
|
||
Dilutive effect of equity awards |
|
202 |
|
685 |
|
||
|
|
|
|
|
|
||
Weighted-average shares outstanding during period - diluted |
|
15,547 |
|
16,247 |
|
||
|
|
|
|
|
|
||
Earnings per common share from net earnings - diluted |
|
$ |
0.51 |
|
$ |
0.79 |
|
Equity awards for 1,295 and 434 shares of stock were not included in the computation of diluted EPS for the quarters ended October 3, 2009, and October 2, 2010, respectively, due to the fact that their exercise prices were greater than the average market price of the shares.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE K COMMON STOCK AND EARNINGS PER SHARE CONTINUED
|
|
For the Nine Months Ended |
|
||||
|
|
October 3, |
|
October 2, |
|
||
|
|
2009 |
|
2010 |
|
||
|
|
|
|
|
|
||
Net earnings available to common shareholders |
|
$ |
23,349 |
|
$ |
33,260 |
|
|
|
|
|
|
|
||
Basic EPS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shares |
|
|
|
|
|
||
Common shares outstanding - entire period |
|
|
|
|
|
||
Weighted-average common shares: |
|
15,350 |
|
15,309 |
|
||
Issued during period |
|
2 |
|
110 |
|
||
Canceled during period |
|
(3 |
) |
(22 |
) |
||
|
|
|
|
|
|
||
Weighted-average common shares outstanding during period |
|
15,349 |
|
15,397 |
|
||
|
|
|
|
|
|
||
Earnings per common share from net earnings - basic |
|
$ |
1.52 |
|
$ |
2.16 |
|
|
|
|
|
|
|
||
Diluted EPS |
|
|
|
|
|
||
|
|
|
|
|
|
||
Shares |
|
|
|
|
|
||
Weighted-average shares outstanding during period - basic |
|
15,349 |
|
15,397 |
|
||
Dilutive effect of equity awards |
|
72 |
|
366 |
|
||
|
|
|
|
|
|
||
Weighted-average shares outstanding during period - diluted |
|
15,421 |
|
15,763 |
|
||
|
|
|
|
|
|
||
Earnings per common share from net earnings - diluted |
|
$ |
1.51 |
|
$ |
2.11 |
|
Equity awards for 1,571 and 1,627 shares of stock were not included in the computation of diluted EPS for the nine-month periods ended October 3, 2009, and October 2, 2010, respectively, due to the fact that their exercise prices were greater than the average market price of the shares.
NOTE L COMPREHENSIVE INCOME
Total comprehensive income consisted of the following:
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
October 3, |
|
October 2, |
|
October 3, |
|
October 2, |
|
||||
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Net earnings |
|
$ |
7,912 |
|
$ |
12,849 |
|
$ |
23,349 |
|
$ |
33,260 |
|
Foreign currency translation adjustment |
|
797 |
|
1,894 |
|
1,708 |
|
1,431 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Comprehensive income |
|
$ |
8,709 |
|
$ |
14,743 |
|
$ |
25,057 |
|
$ |
34,691 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE M SEGMENT INFORMATION
USANA operates in a single operating segment as a direct selling company that develops, manufactures, and distributes high-quality nutritional and personal care products that are sold through a global network marketing system of independent distributors (Associates). As such, management has determined that the Company operates in one reportable business segment. Performance for a region or market is primarily evaluated based on sales. The Company does not use profitability reports on a regional or market basis for making business decisions. No single Associate accounted for 10% or more of net sales for the periods presented. The table below summarizes the approximate percentage of total product revenue that has been contributed by the Companys nutritional and personal care products for the periods indicated.
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||
|
|
October 3, |
|
October 2, |
|
October 3, |
|
October 2, |
|
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
Product Line |
|
|
|
|
|
|
|
|
|
USANAâ Nutritionals |
|
76 |
% |
78 |
% |
76 |
% |
77 |
% |
USANA Foods |
|
12 |
% |
12 |
% |
12 |
% |
12 |
% |
Sensé beautiful scienceâ |
|
9 |
% |
7 |
% |
9 |
% |
8 |
% |
Selected financial information for the Company is presented for two geographic regions: North America and Asia Pacific, with three sub-regions under Asia Pacific. Individual markets are categorized into these regions as follows:
· North America
· United States
· Canada
· Mexico
· Asia Pacific
· Southeast Asia Pacific Australia, New Zealand, Singapore, Malaysia, and the Philippines
· Greater China(1) Hong Kong, Taiwan, and China(2)
· North Asia Japan and South Korea
(1) Formerly referred to as East Asia.
(2) Our business in China is that of BabyCare, which was indirectly acquired on August 16, 2010.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE M SEGMENT INFORMATION CONTINUED
Selected Financial Information
Selected financial information, presented by geographic region, is listed below for the periods ended as of the dates indicated:
|
|
Quarter Ended |
|
Nine Months Ended |
|
||||||||
|
|
October 3, |
|
October 2, |
|
October 3, |
|
October 2, |
|
||||
|
|
2009 |
|
2010 |
|
2009 |
|
2010 |
|
||||
Net Sales to External Customers |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
North America |
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
38,098 |
|
$ |
38,228 |
|
$ |
114,495 |
|
$ |
113,826 |
|
Canada |
|
16,661 |
|
16,419 |
|
48,051 |
|
52,352 |
|
||||
Mexico |
|
5,535 |
|
5,314 |
|
16,384 |
|
16,416 |
|
||||
North America Total |
|
60,294 |
|
59,961 |
|
178,930 |
|
182,594 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
||||
Southeast Asia Pacific |
|
25,227 |
|
25,730 |
|
69,683 |
|
74,231 |
|
||||
Greater China |
|
20,262 |
|
43,456 |
|
56,866 |
|
106,156 |
|
||||
North Asia |
|
4,981 |
|
5,859 |
|
14,677 |
|
17,123 |
|
||||
Asia Pacific Total |
|
50,470 |
|
75,045 |
|
141,226 |
|
197,510 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Consolidated Total |
|
$ |
110,764 |
|
$ |
135,006 |
|
$ |
320,156 |
|
$ |
380,104 |
|
|
|
As of |
|
||||
|
|
January 2, |
|
October 2, |
|
||
|
|
2010 |
|
2010 |
|
||
Total Assets |
|
|
|
|
|
||
|
|
|
|
|
|
||
North America |
|
|
|
|
|
||
United States |
|
$ |
63,145 |
|
$ |
83,489 |
|
Canada |
|
4,902 |
|
3,853 |
|
||
Mexico |
|
4,904 |
|
3,170 |
|
||
North America Total |
|
72,951 |
|
90,512 |
|
||
|
|
|
|
|
|
||
Asia Pacific |
|
|
|
|
|
||
Southeast Asia Pacific |
|
30,104 |
|
26,591 |
|
||
Greater China |
|
14,505 |
|
77,571 |
|
||
North Asia |
|
5,878 |
|
6,851 |
|
||
Asia Pacific Total |
|
50,487 |
|
111,013 |
|
||
|
|
|
|
|
|
||
Consolidated Total |
|
$ |
123,438 |
|
$ |
201,525 |
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands, except per share data)
(unaudited)
NOTE M SEGMENT INFORMATION CONTINUED
The following provides further information on markets representing ten percent or more of consolidated net sales and long-lived assets, respectively:
|
|
Quarter Ended |
|