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 September 29, 2018
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: 001-35024
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 every Interactive Data File required to be submitted 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 such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer x |
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company o |
|
Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 2, 2018 was 23,976,585
USANA HEALTH SCIENCES, INC.
FORM 10-Q
For the Quarterly Period Ended September 29, 2018
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Page |
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3 | |
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4 | |
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5 | |
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6 | |
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8-18 | |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
20-28 | |
29 | ||
29 | ||
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29 | ||
29 | ||
30 | ||
30 | ||
30 | ||
30 | ||
30 | ||
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31 |
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
|
|
As of |
|
As of |
| ||
|
|
December 30, |
|
September 29, |
| ||
|
|
2017 |
|
2018 |
| ||
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
247,131 |
|
$ |
239,751 |
|
Securities held-to-maturity, net |
|
|
|
81,673 |
| ||
Inventories |
|
62,918 |
|
81,110 |
| ||
Prepaid expenses and other current assets |
|
30,110 |
|
32,228 |
| ||
Total current assets |
|
340,159 |
|
434,762 |
| ||
|
|
|
|
|
| ||
Property and equipment, net |
|
102,847 |
|
93,555 |
| ||
|
|
|
|
|
| ||
Goodwill |
|
17,417 |
|
16,829 |
| ||
Intangible assets, net |
|
35,154 |
|
32,217 |
| ||
Deferred tax assets |
|
2,859 |
|
3,771 |
| ||
Other assets |
|
20,833 |
|
18,247 |
| ||
|
|
$ |
519,269 |
|
$ |
599,381 |
|
|
|
|
|
|
| ||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Accounts payable |
|
$ |
11,787 |
|
$ |
14,467 |
|
Other current liabilities |
|
129,396 |
|
138,419 |
| ||
Total current liabilities |
|
141,183 |
|
152,886 |
| ||
|
|
|
|
|
| ||
Deferred tax liabilities |
|
13,730 |
|
9,848 |
| ||
Other long-term liabilities |
|
1,146 |
|
1,058 |
| ||
|
|
|
|
|
| ||
Stockholders equity |
|
|
|
|
| ||
Common stock, $0.001 par value; Authorized 50,000 shares, issued and outstanding 24,024 as of December 30, 2017 and 24,201 as of September 29, 2018 |
|
24 |
|
24 |
| ||
Additional paid-in capital |
|
76,542 |
|
83,216 |
| ||
Retained earnings |
|
288,070 |
|
362,250 |
| ||
Accumulated other comprehensive income (loss) |
|
(1,426 |
) |
(9,901 |
) | ||
Total stockholders equity |
|
363,210 |
|
435,589 |
| ||
|
|
$ |
519,269 |
|
$ |
599,381 |
|
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
|
|
Quarter Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 29, |
|
September 30, |
|
September 29, |
| ||||
|
|
2017 |
|
2018 |
|
2017 |
|
2018 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
$ |
261,765 |
|
$ |
296,767 |
|
$ |
774,151 |
|
$ |
890,225 |
|
Cost of sales |
|
47,135 |
|
51,877 |
|
133,691 |
|
151,243 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Gross profit |
|
214,630 |
|
244,890 |
|
640,460 |
|
738,982 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
Associate incentives |
|
116,010 |
|
130,264 |
|
350,195 |
|
392,416 |
| ||||
Selling, general and administrative |
|
67,263 |
|
69,112 |
|
193,653 |
|
206,781 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total operating expenses |
|
183,273 |
|
199,376 |
|
543,848 |
|
599,197 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Earnings from operations |
|
31,357 |
|
45,514 |
|
96,612 |
|
139,785 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense): |
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
571 |
|
1,269 |
|
1,644 |
|
3,140 |
| ||||
Interest expense |
|
(10 |
) |
(8 |
) |
(31 |
) |
(27 |
) | ||||
Other, net |
|
129 |
|
(249 |
) |
19 |
|
(851 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Other income (expense), net |
|
690 |
|
1,012 |
|
1,632 |
|
2,262 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Earnings before income taxes |
|
32,047 |
|
46,526 |
|
98,244 |
|
142,047 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Income taxes |
|
8,278 |
|
15,486 |
|
29,858 |
|
48,154 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net earnings |
|
$ |
23,769 |
|
$ |
31,040 |
|
$ |
68,386 |
|
$ |
93,893 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per common share |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
$ |
0.98 |
|
$ |
1.28 |
|
$ |
2.80 |
|
$ |
3.88 |
|
Diluted |
|
$ |
0.97 |
|
$ |
1.24 |
|
$ |
2.75 |
|
$ |
3.80 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
| ||||
Basic |
|
24,283 |
|
24,269 |
|
24,462 |
|
24,179 |
| ||||
Diluted |
|
24,588 |
|
25,001 |
|
24,871 |
|
24,705 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive income: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net earnings |
|
$ |
23,769 |
|
$ |
31,040 |
|
$ |
68,386 |
|
$ |
93,893 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
| ||||
Foreign currency translation adjustment |
|
2,941 |
|
(6,381 |
) |
10,153 |
|
(10,087 |
) | ||||
Tax benefit (expense) related to foreign currency translation adjustment |
|
(625 |
) |
344 |
|
(2,601 |
) |
1,612 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss), net of tax |
|
2,316 |
|
(6,037 |
) |
7,552 |
|
(8,475 |
) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive income |
|
$ |
26,085 |
|
$ |
25,003 |
|
$ |
75,938 |
|
$ |
85,418 |
|
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(in thousands)
(unaudited)
For the nine months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
| |||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
| |||||
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
| |||||||
|
|
Shares |
|
Value |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at December 31, 2016 |
|
24,485 |
|
$ |
24 |
|
$ |
71,505 |
|
$ |
265,405 |
|
$ |
(11,647 |
) |
325,287 |
| |
Net earnings |
|
|
|
|
|
|
|
68,386 |
|
|
|
68,386 |
| |||||
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
7,552 |
|
7,552 |
| |||||
Equity-based compensation expense |
|
|
|
|
|
11,711 |
|
|
|
|
|
11,711 |
| |||||
Common stock repurchased and retired |
|
(865 |
) |
(1 |
) |
(10,129 |
) |
(39,870 |
) |
|
|
(50,000 |
) | |||||
Common stock issued under equity award plans |
|
326 |
|
1 |
|
|
|
|
|
|
|
1 |
| |||||
Tax withholding for net-share settled equity awards |
|
|
|
|
|
(125 |
) |
|
|
|
|
(125 |
) | |||||
Balance at September 30, 2017 |
|
23,946 |
|
$ |
24 |
|
$ |
72,962 |
|
$ |
293,921 |
|
$ |
(4,095 |
) |
$ |
362,812 |
|
For the nine months ended September 29, 2018
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
| |||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
| |||||
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
| |||||||
|
|
Shares |
|
Value |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at December 30, 2017 |
|
24,024 |
|
$ |
24 |
|
$ |
76,542 |
|
$ |
288,070 |
|
$ |
(1,426 |
) |
$ |
363,210 |
|
Cumulative effect of accounting change |
|
|
|
|
|
|
|
994 |
|
|
|
994 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance after cumulative effect of accounting change |
|
24,024 |
|
24 |
|
76,542 |
|
289,064 |
|
(1,426 |
) |
364,204 |
| |||||
Net earnings |
|
|
|
|
|
|
|
93,893 |
|
|
|
93,893 |
| |||||
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
(8,475 |
) |
(8,475 |
) | |||||
Equity-based compensation expense |
|
|
|
|
|
11,026 |
|
|
|
|
|
11,026 |
| |||||
Common stock repurchased and retired |
|
(217 |
) |
|
|
(4,883 |
) |
(20,707 |
) |
|
|
(25,590 |
) | |||||
Common stock issued under equity award plans |
|
394 |
|
|
|
|
|
|
|
|
|
|
| |||||
Tax withholding for net-share settled equity awards |
|
|
|
|
|
(376 |
) |
|
|
|
|
(376 |
) | |||||
Disgorgement of short-swing stock profits |
|
|
|
|
|
907 |
|
|
|
|
|
907 |
| |||||
Balance at September 29, 2018 |
|
24,201 |
|
$ |
24 |
|
$ |
83,216 |
|
$ |
362,250 |
|
$ |
(9,901 |
) |
$ |
435,589 |
|
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
(in thousands)
(unaudited)
For the three months ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
| |||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
| |||||
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
| |||||||
|
|
Shares |
|
Value |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at July 1, 2017 |
|
24,624 |
|
$ |
24 |
|
$ |
79,507 |
|
$ |
310,022 |
|
$ |
(6,411 |
) |
$ |
383,142 |
|
Net earnings |
|
|
|
|
|
|
|
23,769 |
|
|
|
23,769 |
| |||||
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
2,316 |
|
2,316 |
| |||||
Equity-based compensation expense |
|
|
|
|
|
3,709 |
|
|
|
|
|
3,709 |
| |||||
Common stock repurchased and retired |
|
(865 |
) |
(1 |
) |
(10,129 |
) |
(39,870 |
) |
|
|
(50,000 |
) | |||||
Common stock issued under equity award plans |
|
187 |
|
1 |
|
|
|
|
|
|
|
1 |
| |||||
Tax withholding for net-share settled equity awards |
|
|
|
|
|
(125 |
) |
|
|
|
|
(125 |
) | |||||
Balance at September 30, 2017 |
|
23,946 |
|
$ |
24 |
|
$ |
72,962 |
|
$ |
293,921 |
|
$ |
(4,095 |
) |
$ |
362,812 |
|
For the three months ended September 29, 2018
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
| |||||
|
|
|
|
|
|
Additional |
|
|
|
Other |
|
|
| |||||
|
|
Common Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
|
| |||||||
|
|
Shares |
|
Value |
|
Capital |
|
Earnings |
|
Income (Loss) |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Balance at June 30, 2018 |
|
24,220 |
|
$ |
24 |
|
$ |
83,542 |
|
$ |
349,579 |
|
$ |
(3,864 |
) |
$ |
429,281 |
|
Net earnings |
|
|
|
|
|
|
|
31,040 |
|
|
|
31,040 |
| |||||
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
(6,037 |
) |
(6,037 |
) | |||||
Equity-based compensation expense |
|
|
|
|
|
3,968 |
|
|
|
|
|
3,968 |
| |||||
Common stock repurchased and retired |
|
(178 |
) |
|
|
(4,278 |
) |
(18,369 |
) |
|
|
(22,647 |
) | |||||
Common stock issued under equity award plans |
|
159 |
|
|
|
|
|
|
|
|
|
|
| |||||
Tax withholding for net-share settled equity awards |
|
|
|
|
|
(16 |
) |
|
|
|
|
(16 |
) | |||||
Balance at September 29, 2018 |
|
24,201 |
|
$ |
24 |
|
$ |
83,216 |
|
$ |
362,250 |
|
$ |
(9,901 |
) |
$ |
435,589 |
|
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Nine Months Ended |
| ||||
|
|
September 30, |
|
September 29, |
| ||
|
|
2017 |
|
2018 |
| ||
|
|
|
|
|
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net earnings |
|
$ |
68,386 |
|
$ |
93,893 |
|
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities |
|
|
|
|
| ||
Depreciation and amortization |
|
11,797 |
|
12,734 |
| ||
(Gain) loss on sale of property and equipment |
|
8 |
|
1,804 |
| ||
Equity-based compensation expense |
|
11,711 |
|
11,026 |
| ||
Deferred income taxes |
|
(12,801 |
) |
(3,524 |
) | ||
Impairment on notes receivable |
|
|
|
(658 |
) | ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Inventories |
|
4,556 |
|
(21,938 |
) | ||
Prepaid expenses and other assets |
|
6,343 |
|
(2,396 |
) | ||
Accounts payable |
|
550 |
|
2,855 |
| ||
Other liabilities |
|
(21,909 |
) |
17,897 |
| ||
|
|
|
|
|
| ||
Net cash provided by (used in) operating activities |
|
68,641 |
|
111,693 |
| ||
|
|
|
|
|
| ||
Cash flows from investing activities |
|
|
|
|
| ||
Receipts on notes receivable |
|
259 |
|
4,801 |
| ||
Proceeds from the settlement of net investment hedges |
|
|
|
739 |
| ||
Purchases of investment securities held-to-maturity |
|
|
|
(81,673 |
) | ||
Proceeds from sale of property and equipment |
|
16 |
|
381 |
| ||
Purchases of property and equipment |
|
(9,168 |
) |
(8,862 |
) | ||
|
|
|
|
|
| ||
Net cash provided by (used in) investing activities |
|
(8,893 |
) |
(84,614 |
) | ||
|
|
|
|
|
| ||
Cash flows from financing activities |
|
|
|
|
| ||
Repurchase of common stock |
|
(50,000 |
) |
(25,590 |
) | ||
Proceeds from disgorgement of short-swing stock profits |
|
|
|
907 |
| ||
Borrowings on line of credit |
|
3,500 |
|
|
| ||
Payments on line of credit |
|
(3,500 |
) |
|
| ||
Payments related to tax withholding for net-share settled equity awards |
|
(125 |
) |
(376 |
) | ||
|
|
|
|
|
| ||
Net cash provided by (used in) financing activities |
|
(50,125 |
) |
(25,059 |
) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
6,481 |
|
(9,784 |
) | ||
|
|
|
|
|
| ||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
16,104 |
|
(7,764 |
) | ||
|
|
|
|
|
| ||
Cash, cash equivalents, and restricted cash, at beginning of period |
|
178,952 |
|
250,535 |
| ||
|
|
|
|
|
| ||
Cash, cash equivalents, and restricted cash at end of period |
|
$ |
195,056 |
|
$ |
242,771 |
|
|
|
|
|
|
| ||
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets |
|
|
|
|
| ||
|
|
|
|
|
| ||
Cash and equivalents |
|
$ |
191,745 |
|
$ |
239,751 |
|
Restricted cash included in prepaid expenses and other current assets |
|
305 |
|
108 |
| ||
Restricted cash included in other assets |
|
3,006 |
|
2,912 |
| ||
Total cash, cash equivalents, and restricted cash |
|
$ |
195,056 |
|
$ |
242,771 |
|
|
|
|
|
|
| ||
Supplemental disclosures of cash flow information |
|
|
|
|
| ||
|
|
|
|
|
| ||
Cash paid during the period for: |
|
|
|
|
| ||
Interest |
|
$ |
9 |
|
$ |
5 |
|
Income taxes |
|
40,532 |
|
59,244 |
| ||
Cash received during the period for: |
|
|
|
|
| ||
Income tax refund |
|
4,700 |
|
2,451 |
| ||
Non-cash investing activities: |
|
|
|
|
| ||
Credits on notes receivable |
|
412 |
|
|
| ||
Accrued purchases of property and equipment |
|
202 |
|
50 |
|
The accompanying notes are an integral part of these statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
NOTE A ORGANIZATION, CONSOLIDATION, AND BASIS OF PRESENTATION
USANA Health Sciences, Inc. develops and manufactures high-quality nutritional and personal care/skincare products that are sold internationally through a global network marketing system, which is a form of direct selling. The Condensed Consolidated Financial Statements include the accounts and operations of USANA Health Sciences, Inc., a Utah corporation and its wholly-owned subsidiaries (collectively, the Company or USANA) in two geographic regions: Asia Pacific, and Americas and Europe. Asia Pacific is further divided into three sub-regions: Greater China, Southeast Asia Pacific, and North Asia. Greater China includes Hong Kong, Taiwan and China; Southeast Asia Pacific includes Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand, and Indonesia; North Asia includes Japan, and South Korea. Americas and Europe includes the United States, Canada, Mexico, Colombia, the United Kingdom, France, Germany, Spain, Italy, Romania, Belgium, and the Netherlands. All intercompany accounts and transactions have been eliminated in consolidation.
The condensed consolidated balance sheet as of December 30, 2017, derived from audited consolidated financial statements, and the unaudited interim consolidated financial information of the Company have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC). Accordingly, 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 (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. In the opinion of management, the accompanying interim condensed consolidated financial information contains all adjustments, consisting only of normal recurring adjustments that are necessary to state fairly the Companys financial position as of September 29, 2018 and results of operations for the quarters and nine months ended September 30, 2017 and September 29, 2018.
The interim condensed consolidated 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 December 30, 2017. The results of operations for the nine months ended September 29, 2018, are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2018.
Recent Accounting Pronouncements
Adopted accounting pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). Also referred to as ASC 606, this update replaces existing revenue recognition guidance with a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with customers. ASC 606 includes a five-step process by which entities recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which an entity expects to be entitled in exchange for those goods or services. This standard also requires enhanced disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company adopted ASC 606 effective at the beginning of fiscal 2018 and applied the modified retrospective approach. Accordingly, the Company recognized the cumulative effect of initially applying ASC 606 as an adjustment to the fiscal 2018 opening balance of retained earnings. The comparative information has not been restated and continues to be presented according to accounting standards in effect for those periods. The adoption of ASC 606 did not have a material impact on the Companys consolidated financial statements. As a result of the adoption of ASC 606, the Company updated its accounting policies related to revenue recognition. See Note B Revenue Recognition for additional information regarding the Companys revenue recognition policies under the new standard.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE A ORGANIZATION, CONSOLIDATION, AND BASIS OF PRESENTATION - CONTINUED
Under ASC 606, the Company made a change in the timing for recognizing revenue on orders that have shipped but have not been delivered at period end. Under the new standard, revenue is recognized when the customer obtains control of the goods and considering the indicators used to determine when control has passed to the customer, the Company has concluded that control transfers upon shipment. Therefore, revenue and related expense items including cost of goods sold and Associate incentives on orders that have shipped but have not been delivered at period end are no longer deferred. Subsequent to the period of adoption, there has been no material impact on net income and related per-share amounts.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule is effective on November 5, 2018. The Company is in the process of evaluating the impact of the final rule on its consolidated financial statements.
Issued accounting pronouncements not yet adopted
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). ASU 2016-02 is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Additionally, the ASU will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The update requires lessees to apply a modified retrospective approach for recognition and disclosure, beginning with the earliest period presented. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) Targeted Improvements, which allows an additional transition method to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption. The Company will adopt ASU 2016-02 in the first quarter of 2019, specifically, using the alternative transition method. The Company is currently in the process of accumulating and evaluating all the necessary information required to properly account for its lease portfolio under the new standard. The Company is also in the process of implementing changes to its systems and processes in conjunction with its review of lease agreements to support the ongoing accounting and disclosure requirements. Although the Company is in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements, the Company currently believes the most significant change will be related to the recognition of right-of-use assets and lease liabilities on the Companys balance sheet for facility lease agreements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 better aligns an entitys risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. To satisfy that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-12 will have a material impact on its consolidated financial statements.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE A ORGANIZATION, CONSOLIDATION, AND BASIS OF PRESENTATION - CONTINUED
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 modifies the disclosure requirements for fair value measurements. The modifications removed the following disclosure requirements: (i) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU added the following disclosure requirements: (i) the changes in unrealized gains and losses for the period included in other comprehensive income (OCI) for recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The Company does not expect the adoption of ASU 2018-13 will have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs of a hosting arrangement that is a service contract will be expensed over the term of the hosting arrangement. For public business entities, the amendments in this ASU are effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The amendments can be applied either retrospectively or prospectively to all implementation costs incurred after the adoption date. The Company does not expect the adoption of ASU 2018-15 will have a material impact on its consolidated financial statements.
NOTE B REVENUE RECOGNITION
Revenue is recognized when, or as, control of a promised product or service transfers to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. Revenue excludes taxes that have been assessed by governmental authorities and that are directly imposed on revenue-producing transactions between the Company and its customers, including sales, use, value-added, and some excise taxes. Revenue recognition is evaluated through the following five-step process:
1) identification of the contract with a customer;
2) identification of the performance obligations in the contract;
3) determination of the transaction price;
4) allocation of the transaction price to the performance obligations in the contract; and
5) recognition of revenue when or as a performance obligation is satisfied.
Product Revenue
A majority of the Companys sales are for products sold at a point in time and shipped to customers, for which control is transferred as goods are delivered to the third party carrier for shipment. The Company receives payment, primarily via credit card, for the sale of products at the time customers place orders and payment is required prior to shipment.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE B REVENUE RECOGNITION - CONTINUED
The Companys product sales contracts include terms that could cause variability in the transaction price for items such as discounts, credits, or sales returns. Accordingly, the transaction price for product sales includes estimates of variable consideration to the extent it is probable that a significant reversal of revenue recognized will not occur. At the time of sale, the Company estimates a refund liability for the variable consideration based on historical experience.
Initial product orders with a new customer may include multiple performance obligations related to sales discounts earned under the Companys initial order reward program. Under this program, the customer receives an option to apply the discounts earned on the initial order to two subsequent Auto Orders, which conveys a material right to the customer. As such, the initial order transaction price is allocated to each separate performance obligation based on its relative standalone selling price and recognized as revenue as each performance obligation is satisfied.
Associate incentives represent consideration paid to a customer and include all forms of commissions, and other incentives paid to our Associates. With the exception of commissions paid to Associates on personal purchases, which are considered a sales discount and are reported as a reduction to net sales, the incentives are paid for distinct services related to the Companys product sales and are recorded as an expense when revenue for the goods is recognized.
Shipping and handling activities are performed after the customer obtains control of the goods transferred. The Company accounts for these activities as fulfillment costs. Therefore, the Company recognizes the costs of these activities when revenue for the goods is recognized. Shipping and handling costs are included in cost of sales for all periods presented.
With respect to will-call orders, the Company periodically assesses the likelihood that customers will exercise their contractual right to pick up orders and revenue is recognized when the likelihood is estimated to be remote.
Other Revenue
Other types of revenue include fees for access to online customer service applications and annual account renewal fees for Associates, for which control is transferred over time as services are delivered and are recognized as revenue on a straight-line basis over the term of the respective contracts.
Revenue Disaggregation
Disaggregation of revenue by geographical region and major product line is included in Segment Information in Note L.
Contract Balances
Contract liabilities, which are recorded within Other current liabilities in the condensed consolidated balance sheets, primarily relate to deferred revenue for product sales for customer payments received in advance of shipment, for outstanding material rights under the initial order program, and for services where control is transferred over time as services are delivered.
The following table provides information about contract liabilities from contracts with customers, including significant changes in the contract liabilities balances during the period.
|
|
Nine Months Ended |
| |
|
|
September 29, |
| |
|
|
2018 |
| |
|
|
|
| |
Contract liabilities at beginning of period |
|
$ |
14,417 |
|
Increase due to deferral of revenue |
|
17,601 |
| |
Decreases due to recognition of revenue |
|
(14,141 |
) | |
|
|
|
| |
Contract liabilities at end of period |
|
$ |
17,877 |
|
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE C FAIR VALUE MEASURES
The Company measures at fair value certain of its financial and non-financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, essentially an exit price, based on the highest and best use of the asset or liability. The levels of the fair value hierarchy are:
· 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.
As of the dates indicated, the following financial assets and liabilities were measured at fair value on a recurring basis using the type of inputs shown:
|
|
|
|
Fair Value Measurements Using |
| ||||||||
|
|
|
|
Inputs |
| ||||||||
|
|
December 30, 2017 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Money market funds included in cash equivalents |
|
$ |
106,090 |
|
$ |
106,090 |
|
$ |
|
|
$ |
|
|
Foreign currency contracts included in other current liabilities |
|
(139 |
) |
|
|
(139 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
|
$ |
105,951 |
|
$ |
106,090 |
|
$ |
(139 |
) |
$ |
|
|
|
|
|
|
Fair Value Measurements Using |
| ||||||||
|
|
|
|
Inputs |
| ||||||||
|
|
September 29, 2018 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Money market funds included in cash equivalents |
|
$ |
128,418 |
|
$ |
128,418 |
|
$ |
|
|
$ |
|
|
Foreign currency contracts included in other current liabilities |
|
(93 |
) |
|
|
(93 |
) |
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
|
|
$ |
128,325 |
|
$ |
128,418 |
|
$ |
(93 |
) |
$ |
|
|
There were no transfers of financial assets or liabilities between levels of the fair value hierarchy for the periods indicated.
The majority of the Companys non-financial assets, which include goodwill, intangible assets, and property and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or tested at least annually for goodwill and indefinite-lived intangibles) such that a non-financial asset is required to be evaluated for impairment, an impairment charge is recorded to reduce the carrying value to the fair value, if the carrying value exceeds the fair value. At December 30, 2017 and September 29, 2018, there were no non-financial assets measured at fair value on a non-recurring basis.
The Companys financial instruments include cash equivalents, securities held-to-maturity, accounts receivable, restricted cash, notes receivable, and accounts payable. The recorded values of cash equivalents, accounts receivable, restricted cash, and accounts payable approximate their fair values, based on their short-term nature. Historically, the carrying value of the notes receivable approximated fair value because the variable interest rates in the notes reflected current market rates. During the year ended December 30, 2017, an impairment was recorded on a note receivable (discussed in Note G) based on the estimated recoverable amount using Level 3 inputs, which approximates fair value.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE C FAIR VALUE MEASURES - CONTINUED
Securities held-to-maturity consist of corporate bonds, commercial paper, and U.S. treasuries. The fair value of corporate bonds, commercial paper, and U.S. treasuries are priced using quoted market prices for similar instruments or non-binding market prices that are corroborated by observable market data, which is considered to be a Level 2 input. The carrying values of these corporate bonds, commercial paper, and U.S. treasuries approximate their fair values due to their short-term maturities.
NOTE D INVESTMENTS
The carrying amount, gross unrealized holding gains, gross unrealized holding losses, and fair value of securities held-to-maturity by major security type and class of security were as follows:
|
|
As of September 29, 2018 |
| ||||||||||
|
|
Amortized Cost |
|
Unrecognized |
|
Unrecognized |
|
Estimated Fair |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Corporate bonds |
|
60,743 |
|
5 |
|
(24 |
) |
60,724 |
| ||||
U.S. treasuries |
|
14,981 |
|
|
|
(1 |
) |
14,980 |
| ||||
Commercial paper |
|
5,949 |
|
|
|
|
|
5,949 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total securities held-to-maturity |
|
$ |
81,673 |
|
$ |
5 |
|
$ |
(25 |
) |
$ |
81,653 |
|
All held-to-maturity securities as of September 29, 2018 mature within one year.
NOTE E INVENTORIES
Inventories consist of the following:
|
|
December 30, |
|
September 29, |
| ||
|
|
2017 |
|
2018 |
| ||
|
|
|
|
|
| ||
Raw materials |
|
$ |
20,737 |
|
$ |
22,066 |
|
Work in progress |
|
8,461 |
|
14,318 |
| ||
Finished goods |
|
33,720 |
|
44,726 |
| ||
|
|
|
|
|
| ||
|
|
$ |
62,918 |
|
$ |
81,110 |
|
NOTE F INTANGIBLE ASSETS
The Company performed its annual goodwill impairment test during the third quarter of 2018. The Company performed a qualitative assessment of each reporting unit and determined that it was not more-likely-than-not that the fair value of any reporting unit was less than its carrying amount. As a result, no impairments of goodwill were recognized.
The Company also performed its annual indefinite-lived intangible asset impairment test during the third quarter of 2018. The Company performed a qualitative assessment of the indefinite-lived intangible asset and determined that is was not more-likely-than-not that the fair value of the indefinite-lived intangible asset was less than the carrying amount. As a result, no impairment of the indefinite-lived intangible asset was recognized.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE G OTHER ASSETS
Other assets consist primarily of land use rights related to a production facility in China. At December 30, 2017, other assets also included a secured loan to the former supplier of the Companys nutrition bars. The Company extended non-revolving credit to this former supplier to allow them to acquire equipment that was necessary to manufacture the USANA nutrition bars, which was secured by the equipment. This relationship was intended to provide improved supply chain stability for USANA and create a mutually beneficial relationship between the parties. Interest accrued at an annual interest rate of LIBOR plus 400 basis points. The note had a maturity date of February 1, 2024 and was to be repaid by a combination of cash payments and credits for the manufacture of USANAs nutrition bars.
A loan is considered impaired when, based on current information and events; it is probable that the Company will be unable to collect the scheduled payments in accordance with the contractual terms of the loan. Factors considered in determining impairment include payment status, collateral value and the probability of collecting payments when due. During the first half of 2017, the Company experienced challenges with the former supplier of nutrition bars and subsequently determined to no longer use this supplier. The Company evaluated the recoverability of the note receivable from this supplier and recorded impairments totaling $2,734 during the year ended December 30, 2017. The total contractual unpaid principal balance, including accrued unpaid interest on the note receivable from this supplier as of December 30, 2017 was $6,734. During April 2018, the Company reached a settlement with the supplier to terminate the relationship and received $4,800 in cash as payment in full under the terms of the settlement.
NOTE H LINE OF CREDIT
The Company has a $75,000 line of credit with Bank of America. Interest 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, pursuant to a separate pledge agreement with the bank. On February 19, 2016, the Company entered into an Amended and Restated Credit Agreement with Bank of America, which extends the term of the Credit Agreement to April 27, 2021 and increases the Companys consolidated rolling four-quarter adjusted EBITDA covenant to $100,000 or greater and its ratio of consolidated funded debt to adjusted EBITDA of 1.0 at the end of each quarter.
The adjusted EBITDA under the Credit Agreement is modified for certain non-cash expenses. Any existing bank guarantees are considered a reduction of the overall availability of credit and part of the covenant calculation under the credit agreement. This resulted in a $4,273 and $6,602 reduction in the available borrowing limit as of December 30, 2017 and September 29, 2018, respectively, due to existing normal course of business guarantees in certain markets.
There was no outstanding debt on this line of credit at December 30, 2017 or at September 29, 2018. The Company will be required to pay any balance on this line of credit in full at the time of maturity in April 2021 unless the line of credit is replaced or terms are renegotiated.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE I CONTINGENCIES
The Company is involved in various lawsuits, claims, and other legal matters from time to time that arise in the ordinary course of conducting business, including matters involving our products, intellectual property, supplier relationships, distributors, competitor relationships, employees and other matters. The Company records a liability when a particular contingency is probable and estimable. The Company faces contingencies that are reasonably possible to occur; however, they cannot currently be estimated. While complete assurance cannot be given to the outcome of these proceedings, management does not currently believe that any of these matters, individually or in the aggregate, will have a material adverse effect on the Companys financial condition, liquidity or results of operations.
On February 7, 2017, the Company disclosed in a Current Report on Form 8-K filed with the SEC that it is conducting a voluntary internal investigation regarding its BabyCare operations in China. In connection with this investigation, the Company expects to continue to incur costs in conducting the on-going review and investigation, in responding to requests for information in connection with any government investigations and in defending any potential civil or governmental proceedings that are instituted against it or any of its current or former officers or directors. The Company has voluntarily contacted the SEC and the United States Department of Justice to advise both agencies that an internal investigation is underway and intends to provide additional information to both agencies as the investigation progresses. Because the internal investigation is ongoing, the Company cannot predict the duration, scope, or result of the investigation. One or more governmental actions could be instituted in respect of the matters that are the subject of the internal investigation, and such actions, if brought, may result in judgments, settlements, fines, penalties, injunctions, cease and desist orders, criminal penalties, or other relief.
On February 13, 2017, a purported shareholder class action lawsuit (Rumbaugh v. USANA Health Sciences Inc., et al., Case No. 2:17-cv-00106) was filed in the United States District Court for the District of Utah by April Rumbaugh, a purported shareholder of USANA, alleging that the Company failed to disclose that (i) the Companys BabyCare subsidiary had engaged in improper reimbursement practices in China, (ii) these practices constituted violations of the Foreign Corrupt Practices Act or FCPA, (iii) as such, the Companys China revenues were in part the product of unlawful conduct and unlikely to be sustainable, and (iv) the foregoing conduct, when it became known, was likely to subject the Company to significant regulatory scrutiny. On behalf of herself and a putative class of purchasers of USANA stock between March 14, 2014 and February 7, 2017, the plaintiff asserted claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act) and Rule 10b-5 promulgated thereunder. The plaintiff sought, among other things, an award of damages, interest, reasonable attorneys fees, expert fees, and other costs. The lawsuit named as defendants the Company; its former Co-Chief Executive Officer, David A. Wentz; and our Chief Leadership Development Officer, Paul A. Jones. On June 2, 2017, the court appointed Chi Wah On (another purported shareholder of USANA) as lead plaintiff. On August 4, 2017, lead plaintiff filed a consolidated amended complaint seeking similar relief. This new complaint asserted additional allegations and added the Companys Chief Executive Officer, Kevin G. Guest, and Chief Financial Officer, G. Douglas Hekking, as defendants. On September 18, 2017, the Company filed a motion to dismiss the amended complaint, and briefing was completed on November 8, 2017. The motion to dismiss was argued on April 25, 2018. Subsequent to September 29, 2018, on October 16, 2018, the United States District Court for the District of Utah dismissed the action with prejudice.
NOTE J DERIVATIVE FINANCIAL INSTRUMENTS
The Companys risk management strategy includes the select use of derivative instruments to reduce the effects of volatility in foreign currency exchange exposure on operating results and cash flows. In accordance with the Companys risk management policies, the Company does not hold or issue derivative instruments for trading or speculative purposes.
The Company recognizes all derivative instruments as either assets or liabilities in the balance sheet at their respective fair values. When the Company becomes a party to a derivative instrument and intends to apply hedge accounting, the Company formally documents the hedge relationship and the risk management objective for undertaking the hedge, the nature of risk being hedged, and the hedged transaction, which includes designating the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge. The Company also documents how the hedging instruments effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE J DERIVATIVE FINANCIAL INSTRUMENTS - CONTINUED
The Company periodically uses derivative hedging instruments to hedge its net investment in its non U.S. subsidiaries designed to hedge a portion of the foreign currency exposure that arises on translation of the foreign subsidiaries into U.S. dollars. The effective portion of gains and losses attributable to these net investment hedges is recorded to foreign currency translation adjustment (FCTA) within accumulated other comprehensive income (loss) (AOCI) to offset the change in the carrying value of the net investment being hedged, and will subsequently be reclassified to net earnings in the period in which the hedged investment is either sold or substantially liquidated.
As of December 30, 2017, there were no derivatives outstanding for which the Company has applied hedge accounting. During the second quarter of 2018, the Company entered into and settled a forward contract designated as a net investment hedge with a notional value of $105,000 and realized a net gain of $739, which is reflected in the FCTA within AOCI. The Company assessed hedge effectiveness determining the hedged instrument was highly effective and recorded no ineffectiveness. As of September 29, 2018, there were no derivatives outstanding for which the Company has applied hedge accounting.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED 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 based on the time they were outstanding in any period. 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.
The following is a reconciliation of the numerator and denominator used to calculate basic earnings per share and diluted earnings per share for the periods indicated:
|
|
Quarter Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 29, |
|
September 30, |
|
September 29, |
| ||||
|
|
2017 |
|
2018 |
|
2017 |
|
2018 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net earnings available to common shareholders |
|
$ |
23,769 |
|
$ |
31,040 |
|
$ |
68,386 |
|
$ |
93,893 |
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding - basic |
|
24,283 |
|
24,269 |
|
24,462 |
|
24,179 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Dilutive effect of in-the-money equity awards |
|
305 |
|
732 |
|
409 |
|
526 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding - diluted |
|
24,588 |
|
25,001 |
|
24,871 |
|
24,705 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Earnings per common share from net earnings - basic |
|
$ |
0.98 |
|
$ |
1.28 |
|
$ |
2.80 |
|
$ |
3.88 |
|
|
|
|
|
|
|
|
|
|
| ||||
Earnings per common share from net earnings - diluted |
|
$ |
0.97 |
|
$ |
1.24 |
|
$ |
2.75 |
|
$ |
3.80 |
|
Equity awards for the following shares were not included in the computation of diluted EPS due to the fact that their effect would be anti-dilutive:
|
|
Quarter Ended |
|
Nine Months Ended |
| ||||
|
|
September 30, |
|
September 29, |
|
September 30, |
|
September 29, |
|
|
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
|
|
2,035 |
|
|
|
2,091 |
|
601 |
|
During the quarter ended September 30, 2017 and September 29, 2018, the Company repurchased and retired 865 shares and 178 shares for $50,000 and $22,647, respectively, under the Companys share repurchase plan.
During the nine months ended September 30, 2017 and September 29, 2018, the Company repurchased and retired 865 shares and 217 shares for $50,000 and $25,590, respectively under the Companys share repurchase plan. The excess of the repurchase price over par value is allocated between additional paid-in capital and retained earnings on a pro-rata basis. The purchase of shares under this plan reduces the number of shares outstanding in the above calculations.
As of September 29, 2018, the remaining approved repurchase amount under the stock repurchase plan was $24,410. There currently is no expiration date on the remaining approved repurchase amount and no requirement for future share repurchases.
On October 23, 2018, the Companys Board of Directors authorized an increase in the amount available under its share repurchase plan to a total of $150,000. The authorization is inclusive of the $24,410 that was remaining under the prior authorization at September 29, 2018. Subsequent to September 29, 2018, and through November 2, 2018, the Company repurchased and retired 235 shares of common stock for $26,677, at an average market price of $113.57 per share.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE L SEGMENT INFORMATION
USANA operates as a direct selling company that develops, manufactures, and distributes high-quality nutritional and personal care/skincare products that are sold through a global network marketing system of independent distributors (Associates). As such, management aggregates its operating segments into one reportable segment as management believes that the Companys segments exhibit similar long-term financial performance and have similar economic characteristics. Performance for a region or market is evaluated based on sales. 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, foods, and personal care/skincare products for the periods indicated.
|
|
Quarter Ended |
|
Nine Months Ended |
| ||||
|
|
September 30, |
|
September 29, |
|
September 30, |
|
September 29, |
|
|
|
2017 |
|
2018 |
|
2017 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
USANA® Nutritionals |
|
83 |
% |
83 |
% |
84 |
% |
82 |
% |
USANA Foods |
|
9 |
% |
9 |
% |
9 |
% |
9 |
% |
Personal care/Skincare |
|
|
|
|
|
|
|
|
|
Sensé beautiful science® |
|
6 |
% |
2 |
% |
6 |
% |
4 |
% |
Celavive®(1) |
|
N/A |
|
5 |
% |
N/A |
|
4 |
% |
(1) We launched Celavive® in every market except China in the first quarter of 2018 and recently launched in China late in the third quarter of 2018.
Selected financial information for the Company is presented for two geographic regions: Asia Pacific, with three sub-regions under Asia Pacific, and Americas and Europe. Individual markets are categorized into these regions as follows:
· Asia Pacific
· Greater China Hong Kong, Taiwan and China. Our business in China is conducted by BabyCare Holding, Ltd. (BabyCare), our wholly-owned subsidiary.
· Southeast Asia Pacific Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand, and Indonesia
· North Asia Japan and South Korea
· Americas and Europe United States, Canada, Mexico, Colombia, the United Kingdom, France, Germany(2), Spain(2), Italy(2), Romania(2), Belgium, and the Netherlands.
(2) We commenced operations in Germany, Spain, Italy, and Romania near the end of the second quarter of 2018.
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)
NOTE L SEGMENT INFORMATION - CONTINUED
Selected Financial Information
Financial information by geographic region is presented for the periods indicated below:
|
|
Quarter Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 29, |
|
September 30, |
|
September 29, |
| ||||
|
|
2017 |
|
2018 |
|
2017 |
|
2018 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net Sales to External Customers |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Asia Pacific |
|
|
|
|
|
|
|
|
| ||||
Greater China |
|
$ |
131,273 |
|
$ |
160,932 |
|
$ |
399,713 |
|
$ |
486,581 |
|
Southeast Asia Pacific |
|
52,310 |
|
58,770 |
|
151,381 |
|
169,769 |
| ||||
North Asia |
|
15,708 |
|
19,899 |
|
42,612 |
|
56,969 |
| ||||
Asia Pacific Total |
|
199,291 |
|
239,601 |
|
593,706 |
|
713,319 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Americas and Europe |
|
62,474 |
|
57,166 |
|
180,445 |
|
176,906 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Consolidated Total |
|
$ |
261,765 |
|
$ |
296,767 |
|
$ |
774,151 |
|
$ |
890,225 |
|
The following table provides further information on markets representing ten percent or more of consolidated net sales and long-lived assets, respectively:
|
|
Quarter Ended |
|
Nine Months Ended |
| ||||||||
|
|
September 30, |
|
September 29, |
|
September 30, |
|
September 29, |
| ||||
|
|
2017 |
|
2018 |
|
2017 |
|
2018 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net sales: |
|
|
|
|
|
|
|
|
| ||||
China |
|
$ |
116,174 |
|
$ |
144,625 |
|
$ |
352,462 |
|
$ |
436,327 |
|
United States |
|
$ |
34,183 |
|
$ |
29,790 |
|
$ |
93,219 |
|
$ |
88,734 |
|
|
|
As of |
| ||||
|
|
December 30, |
|
September 29, |
| ||
|
|
2017 |
|
2018 |
| ||
Long-lived assets: |
|
|
|
|
| ||
China |
|
$ |
96,248 |
|
$ |
89,236 |
|
United States |
|
$ |
59,589 |
|
$ |
51,218 |
|
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations is presented in six sections:
· Overview
· Customers
· Current Focus and Recent Developments
· Results of Operations
· Liquidity and Capital Resources
· Forward-Looking Statements and Certain Risks
This discussion and analysis should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto that are contained in this quarterly report, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 30, 2017, and our other filings, including Current Reports on Form 8-K, that have been filed with the SEC through the date of this report.
Overview
We develop and manufacture high-quality, science-based nutritional, personal care and skincare products that are distributed internationally through a network marketing system, which is a form of direct selling. We have chosen this distribution method as we believe it is more conducive to meeting our vision as a company, which is improving the overall health and nutrition of individuals and families around the world. Our customer base comprises two types of customers: Associates and Preferred Customers referred to together collectively as active Customers. Associates share in our company vision by acting as independent distributors of our products in addition to purchasing our products for their personal use. Preferred Customers purchase our products strictly for their personal use and are not permitted to resell or to distribute the products. As of September 29, 2018, we had approximately 615,000 active Customers worldwide. For purposes of this report, we only count as active Customers those Associates and Preferred Customers who have purchased products from us at any time during the most recent three-month period.
We have ongoing operations in the following markets, which are grouped and presented as follows:
· Asia Pacific
· Greater China Hong Kong, Taiwan, and China. Our business in China is conducted by BabyCare, our wholly-owned subsidiary.
· Southeast Asia Pacific Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand, and Indonesia
· North Asia Japan and South Korea
· Americas and Europe United States, Canada, Mexico, Colombia, the United Kingdom, France, Germany(1), Spain(1), Italy(1), Romania(1), Belgium, and the Netherlands
Our primary product lines consist of (i) USANAâ Nutritionals, (ii) USANA Foods, (ii) Sensé beautiful scienceâ (Sensé), our historical line of personal care products, and (iv) Celaviveâ, our new innovative skincare system with our InCelligence TechnologyTM. The USANA Nutritionals product line is further categorized into two separate classifications: Essentials and Optimizers. The following tables summarize the approximate percentage of total product revenue that has been contributed by our major product lines and our top-selling products for the current and prior-year periods as indicated:
(1) We commenced operations in Germany, Spain, Italy, and Romania near the end of the second quarter of 2018.
|
|
Nine Months Ended |
| ||
|
|
September 30, 2017 |
|
September 29, 2018 |
|
|
|
|
|
|
|
Product Line |
|
|
|
|
|
USANA® Nutritionals |
|
|
|
|
|
Essentials/CellSentials |
|
19 |
% |
17 |
% |
Optimizers |
|
65 |
% |
65 |
% |
USANA Foods |
|
9 |
% |
9 |
% |
Personal care/Skincare |
|
|
|
|
|
Sensé beautiful science® |
|
6 |
% |
4 |
% |
Celavive®(1) |
|
N/A |
|
4 |
% |
All Other |
|
1 |
% |
1 |
% |
|
|
|
|
|
|
Key Product |
|
|
|
|
|
USANA® Essentials/CellSentials |
|
13 |
% |
11 |
% |
Proflavanol® |
|
12 |
% |
11 |
% |
BiOmega-3 |
|
14 |
% |
14 |
% |
(1) We launched Celavive® in every market except China in the first quarter of 2018 and recently launched in China late in the third quarter of 2018.
We believe that our ability to attract and retain Associates and Preferred Customers to sell and consume our products is positively influenced by a number of factors, some of which include: the general publics heightened awareness and understanding of the connection between diet and long-term health, and a growing desire for a secondary source of income and small business ownership.
We believe that our high-quality products and our Associate Compensation Plan are the key components to attracting and retaining Associates. We periodically make changes to our Compensation Plan in an effort to ensure that our plan is among the most competitive in the industry, to encourage behavior that we believe leads to a successful business for our Associates, and to ensure that our plan provides us with leverage to grow sales and earnings.
To further support our Associates in building their businesses, we sponsor meetings and events throughout the year, which offer information about our products and our network marketing system. These meetings are designed to assist Associates in their business development and to provide a forum for interaction with our Associate leaders and members of our management team. We also provide low cost sales tools, including online sales, business management, and training tools, which we believe are an integral part of building and maintaining a successful home-based business for our Associates. Although we provide training and sales tools, we ultimately rely on our Associates to sell our products, attract new active Customers to purchase our products, and educate and train new Associates.
Because we have operations in multiple markets, with sales and expenses being generated and incurred in multiple currencies, our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates. In general, our operating results are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar. During the nine months ended September 29, 2018, net sales outside of the United States represented 90.0% of consolidated net sales. In our net sales discussions that follow, we approximate the impact of currency fluctuations on net sales by translating current year sales at the average exchange rates in effect during the comparable periods of the prior year.
Customers
Because we sell our products exclusively to a customer base of independent Associates and Preferred Customers, we must increase the number of active Customers and/or increase the amount they spend, on average, to increase net sales. Our primary focus continues to be increasing the number of active Customers. We believe this focus is consistent with our vision of improving the overall health and nutrition of individuals and families around the world. Sales to Associates account for approximately 57% of product sales during the nine months ended September 29, 2018; the remainder of our sales are to Preferred Customers. Increases or decreases in product sales are typically the result of variations in the volume of product sold relating to fluctuations in the number of active Customers purchasing our products. The number of active Associates and Preferred Customers is, therefore, used by management as a key non-financial indicator to evaluate our operational performance.
The tables below summarize the changes in our active Customer base by geographic region. These numbers have been rounded to the nearest thousand as of the dates indicated.
|
|
Total Active Customers by Region |
|
|
|
|
| ||||||
|
|
As of |
|
As of |
|
Change from |
|
Percent |
| ||||
|
|
September 30, 2017 |
|
September 29, 2018 |
|
Prior Year |
|
Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Greater China |
|
285,000 |
|
50.6 |
% |
330,000 |
|
53.7 |
% |
45,000 |
|
15.8 |
% |
Southeast Asia Pacific |
|
106,000 |
|
18.8 |
% |
115,000 |
|
18.7 |
% |
9,000 |
|
8.5 |
% |
North Asia |
|
34,000 |
|
6.1 |
% |
39,000 |
|
6.3 |
% |
5,000 |
|
14.7 |
% |
Asia Pacific Total |
|
425,000 |
|
75.5 |
% |
484,000 |
|
78.7 |
% |
59,000 |
|
13.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas and Europe |
|
138,000 |
|
24.5 |
% |
131,000 |
|
21.3 |
% |
(7,000 |
) |
(5.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
563,000 |
|
100.0 |
% |
615,000 |
|
100.0 |
% |
52,000 |
|
9.2 |
% |
Current Focus and Recent Developments
Our primary objective is to increase the number of active Customers who purchase and use our products throughout the world. We have several strategies in place to support this objective, including:
· We successfully launched our Celavive® skincare line in every market. Our 2018 objective is to promote Celavive® to our existing Customers and to also use it to acquire a new customer demographic for USANA. With the anticipated growth from Celavive®, our goal is to grow our personal care and skincare line to an estimated run rate of 10% of net sales by the end of fiscal 2018.
· We completed the development of our new WeChat platform in China during the second quarter of 2018 and made it available to our China Customers during the third quarter of 2018. WeChat is a Chinese multi-purpose messaging and social media app that is widely thought of as Chinas app for everything because of its wide range of functionality. This platform is part of our Customer experience initiative and is intended to make it easier for Customers in China to do business as they will be able to use the app to introduce USANA to new customers, complete sales of products and enroll new customers.
· We continue to develop and deploy information technology tools across the enterprise, including a new social sharing platform. This platform, which we began rolling out during the first quarter of 2018, allows our Associates to more fully utilize social media to promote USANA products and interact directly with Customers and potential customers. In particular, we are utilizing our social selling platform in connection with the launch of Celavive® around the world.
During the quarter, we held our International Convention in Salt Lake City, where a number of our Associates gathered to celebrate their success, engage with management and receive additional training.
Non-GAAP Financial Measures
Regulation S-K Item 10(e), Use of non-GAAP Financial Measures in Commission Filings, and other SEC regulations define and prescribe the conditions for use of certain non-GAAP financial information. Constant and local currency net sales, earnings, EPS and other currency-related financial information (collectively, Financial Results) are non-GAAP financial measures that remove the impact of fluctuations in foreign-currency exchange rates and help facilitate period-to-period comparisons of our Financial Results and thus provide investors an additional perspective on trends and underlying business results. Constant currency Financial Results are calculated by translating the current periods Financial Results at the same average exchange rates in effect during the applicable prior-year period and then comparing this amount for the current period to the prior-year periods Financial Results. A reconciliation of these non-GAAP financial measures accompanies any reference to them in the presentation in the accompanying financial statements and notes thereto. Management believes that the non-GAAP financial measures assist management and investors in evaluating, and comparing from period to period, results from ongoing operations in a meaningful and consistent manner while also highlighting meaningful trends in the results of operations. These measures are used in addition to and in conjunction with results presented in accordance with GAAP. Investors should rely primarily on our GAAP results and use non-GAAP financial measures only supplementally in making investment decisions.
Results of Operations
Summary of Financial Results
Net sales for the third quarter of 2018 increased 13.4% to $296.8 million, an increase of $35.0 million, compared with the third quarter of 2017. This increase was driven by several factors, including: (i) growth in active Customers, which increased 9.2% year-over-year to 615,000, and (ii) our new Celavive® line, which contributed approximately $9.5 million in incremental sales. This increase was partially offset by unfavorable changes in currency exchange rates that reduced net sales for the third quarter by $6.2 million.
Net earnings for the third quarter of 2018 increased 30.6% to $31.0 million, an increase of $7.3 million, compared with the third quarter of 2017. The increase in net earnings was primarily the result of higher net sales, and lower relative operating expenses.
Quarters Ended September 30, 2017 and September 29, 2018
Net Sales
The following table summarizes the changes in our net sales by geographic region for the fiscal quarters ended as of the dates indicated:
|
|
Net Sales by Region |
|
|
|
|
|
|
|
Percent |
| ||||||||||
|
|
(in thousands) |
|
|
|
|
|
|
|
change |
| ||||||||||
|
|
Quarter Ended |
|
|
|
|
|
Currency |
|
excluding |
| ||||||||||
|
|
September 30, |
|
September 29, |
|
Change from |
|
Percent |
|
impact on |
|
currency |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Greater China |
|
$ |
131,273 |
|
50.1 |
% |
$ |
160,932 |
|
54.2 |
% |
$ |
29,659 |
|
22.6 |
% |
$ |
(3,221 |
) |
25.0 |
% |
Southeast Asia Pacific |
|
52,310 |
|
20.0 |
% |
58,770 |
|
19.8 |
% |
6,460 |
|
12.3 |
% |
(1,942 |
) |
16.1 |
% | ||||
North Asia |
|
15,708 |
|
6.0 |
% |
19,899 |
|
6.7 |
% |
4,191 |
|
26.7 |
% |
182 |
|
25.5 |
% | ||||
Asia Pacific Total |
|
199,291 |
|
76.1 |
% |
239,601 |
|
80.7 |
% |
40,310 |
|
20.2 |
% |
(4,981 |
) |
22.7 |
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Americas and Europe |
|
62,474 |
|
23.9 |
% |
57,166 |
|
19.3 |
% |
(5,308 |
) |
(8.5 |
)% |
(1,236 |
) |
(6.5 |
)% | ||||
|
|
$ |
261,765 |
|
100.0 |
% |
$ |
296,767 |
|
100.0 |
% |
$ |
35,002 |
|
13.4 |
% |
$ |
(6,217 |
) |
15.7 |
% |
Asia Pacific: The increase in constant currency net sales in Greater China continues to be driven by growth in Mainland China, where local currency net sales increased 27.0%. The increase in constant currency net sales in Southeast Asia Pacific was driven by double digit local currency growth in several markets, including Malaysia, Philippines, Australia, and New Zealand. The increase in constant currency net sales in North Asia continues to be driven by growth in South Korea, where local currency net sales increased 25.6%, and the number of active Customers increased 15.6%.
Americas and Europe: The decrease in constant currency net sales in this region was driven by decreases in the U.S. and Mexico, where sales decreased 12.9% and 11.9%, respectively. Net sales in the U.S. were down compared with the prior year period due to higher sales related to the introduction of our Celavive® product line at our 2017 International Convention. Sustainable customer growth remains our top priority for each of our reporting regions.
Gross Profit
Gross profit increased 50 basis points to 82.5% of net sales for the third quarter of 2018, from 82.0% in the prior year. This increase can be attributed to changes in sales mix by market, leverage from higher sales on fixed costs, and lower relative freight costs, as well as annual price adjustments. These increases were partially offset by higher reserves for inventory obsolescence and costs associated with Celavive®, which carries a higher relative cost than our previous skincare line.
Associate Incentives
Associate incentives were 43.9% of net sales for the third quarter of 2018, compared with 44.3% in the prior year. This decrease can be primarily attributed to sales from Celavive®, which has a lower incentive payout as compared to our other product categories.
Selling, General and Administrative Expenses
In absolute terms, our selling, general and administrative expense increased $1.8 million during the third quarter of 2018
when compared with the same period of the prior year. This increase can be attributed to higher employee related costs in the current year period. This absolute increase was partially offset by a reduction in expense related to China and our internal investigation and an impairment charge related to our note receivable from a former third-party supplier in the prior-year period.
Income Taxes
Income taxes were 33.3% of earnings in the third quarter of 2018 compared with 25.8% of earnings in the prior year. The higher effective tax rate for the third quarter compared with the same period of the prior-year is primarily due to higher excess tax benefits from equity award exercises recognized during the prior year quarter. Our effective tax rate, on a year-over-year basis, is not (and will not be) comparable during 2018 because of the impact of U.S. tax reform.
Diluted Earnings Per Share
Diluted earnings per share increased 27.8% in the third quarter of 2018 when compared with the prior-year quarter. This increase was due to higher net earnings offset, in part, by a higher diluted share count.
Nine Months Ended September 30, 2017 and September 29, 2018
Net Sales
The following table summarizes the changes in our net sales by geographic region for the periods ended as of the dates indicated:
|
|
Net Sales by Region |
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|
|
|
|
|
|
Percent |
| ||||||||||
|
|
(in thousands) |
|
|
|
|
|
|
|
change |
| ||||||||||
|
|
Nine Months Ended |
|
Change |
|
|
|
Currency |
|
excluding |
| ||||||||||
|
|
September 30, |
|
September 29, |
|
from prior |
|
Percent |
|
impact on |
|
currency |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Asia Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Greater China |
|
$ |
399,713 |
|
51.6 |
% |
$ |
486,581 |
|
54.7 |
% |
$ |
86,868 |
|
21.7 |
% |
$ |
18,481 |
|
17.1 |
% |
Southeast Asia Pacific |
|
151,381 |
|
19.6 |
% |
169,769 |
|
19.0 |
% |
18,388 |
|
12.1 |
% |
916 |
|
11.5 |
% | ||||
North Asia |
|
42,612 |
|
5.5 |
% |
56,969 |
|
6.4 |
% |
14,357 |
|
33.7 |
% |
2,203 |
|
28.5 |
% | ||||
Asia Pacific Total |
|
593,706 |
|
76.7 |
% |
713,319 |
|
80.1 |
% |
119,613 |
|
20.1 |
% |
21,600 |
|
16.5 |
% | ||||
|
|
|
|
|
|
|
|