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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 28, 2019

or

¨  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

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

USNA

New York Stock Exchange

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 ¨

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 ¨

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 ¨

Non-accelerated filer ¨

Smaller reporting company ¨

Emerging growth company ¨

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.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No x

The number of shares outstanding of the registrant’s common stock as of November 1, 2019 was 21,643,055


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USANA HEALTH SCIENCES, INC.

FORM 10-Q

For the Quarterly Period Ended September 28, 2019

INDEX

Page

PART I. FINANCIAL INFORMATION

Item 1

Financial Statements (unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Comprehensive Income

2

Condensed Consolidated Statements of Stockholders’ Equity

3

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

6 - 17

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18 - 25

Item 3

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4

Controls and Procedures

25

PART II. OTHER INFORMATION

Item 1

Legal Proceedings

26

Item 1A

Risk Factors

26

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3

Defaults Upon Senior Securities

26

Item 4

Mine Safety Disclosures

26

Item 5

Other Information

26

Item 6

Exhibits

27

Signatures

28

 


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Cautionary Note Regarding Forward-Looking Statements and Certain Risks

This report contains, “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the SEC including our most recent Annual Report on Form 10-K. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments, the occurrence of unanticipated events or otherwise. Important factors that could cause our actual results, performance and achievements, or industry results to differ materially from estimates or projections contained in our forward-looking statements include, among others, the following:

Our ability to attract and maintain a sufficient number of Associates and Preferred Customers;

Our dependence upon a direct selling system to distribute our products and the activities of our independent Associates;

The operation and expansion of our business in China through BabyCare;

Unanticipated effects of changes to our Compensation Plan;

Uncertainties relating to the interpretation and enforcement of applicable laws and regulations, particularly in the United States and China, governing direct selling and anti-pyramiding;

Our inability to obtain or maintain the necessary licenses for our direct selling business in China and elsewhere;

Adverse changes in the Chinese economy, marketplace in general, or consumer environment;

Challenges associated with our planned expansion into new international markets, delays in commencement of sales or product offerings in such markets, delays in compliance with local marketing or other regulatory requirements, or changes in target markets;

General economic conditions, both domestically and internationally;

The impact of changes in trade policies and tariffs;

Potential political events, natural disasters, or other events that may negatively affect economic conditions;

Potential effects of adverse publicity regarding USANA, nutritional supplements, or the direct selling industry;

Reliance on our key management personnel;

Extensive government regulation of our products, manufacturing, and direct selling business model;

Potential inability to sustain or manage growth, including the failure to continue to develop new products;

An increase in Associate incentives as a percentage of net revenues;

Our reliance on the use of information technology;

Disruption in operations or increased liability resulting from cybersecurity incidents, data breaches, or failure to comply with data privacy or data security laws and regulations;

The effects of competition from new as well as from established network and direct selling organizations in our key markets;

The adverse effect of the loss of a high-level sponsoring Associate, together with a group of leading Associates, in that person’s downline;

The loss of product market share or Associates to competitors;

Potential adverse effects of customs, duties, taxation, and transfer pricing regulations, including regulations governing distinctions between and our responsibilities to employees and independent contractors;


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The fluctuation in the value of foreign currencies against the U.S. dollar;

Our reliance on outside suppliers for raw materials and certain manufactured items;

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

Significant price increases of our key raw materials;

Product liability claims and other risks that may arise with our manufacturing activity;

Intellectual property risks;

Liability claims that may arise in connection with our “Athlete Guarantee” program;

Continued compliance with debt covenants;

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

The introduction of new laws or changes to existing laws, both domestically and internationally; and

The outcome of the internal investigation into our China operations, as well as other regulatory and litigation matters.

 


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PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)

As of

As of

December 29,

September 28,

2018

2019

ASSETS

Current assets

Cash and cash equivalents

$

214,326

$

182,748

Securities held-to-maturity

63,539

Inventories

81,948

76,141

Prepaid expenses and other current assets

32,522

24,089

Total current assets

392,335

282,978

Property and equipment, net

92,025

91,515

Goodwill

16,815

16,456

Intangible assets, net

31,811

29,667

Deferred tax assets

3,348

5,267

Other assets

18,129

37,158

$

554,463

$

463,041

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$

9,947

$

8,605

Other current liabilities

138,739

121,041

Total current liabilities

148,686

129,646

Deferred tax liabilities

13,367

5,433

Other long-term liabilities

1,264

13,676

Stockholders' equity

Common stock, $0.001 par value; Authorized -- 50,000 shares,

issued and outstanding 23,567 as of December 29, 2018

and 21,631 as of September 28, 2019

24

22

Additional paid-in capital

72,008

56,893

Retained earnings

329,501

275,392

Accumulated other comprehensive income (loss)

(10,387)

(18,021)

Total stockholders' equity

391,146

314,286

$

554,463

$

463,041

The accompanying notes are an integral part of these statements.


1


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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 29,

September 28,

September 29,

September 28,

2018

2019

2018

2019

Net sales

$

296,767

$

260,598

$

890,225

$

789,604

Cost of sales

51,877

47,819

151,243

140,214

Gross profit

244,890

212,779

738,982

649,390

Operating expenses:

Associate incentives

130,264

111,059

392,416

345,100

Selling, general and administrative

69,112

66,262

206,781

202,671

Total operating expenses

199,376

177,321

599,197

547,771

Earnings from operations

45,514

35,458

139,785

101,619

Other income (expense):

Interest income

1,269

966

3,140

3,751

Interest expense

(8)

(22)

(27)

(44)

Other, net

(249)

(514)

(851)

(632)

Other income (expense), net

1,012

430

2,262

3,075

Earnings before income taxes

46,526

35,888

142,047

104,694

Income taxes

15,486

11,666

48,154

34,922

Net earnings

$

31,040

$

24,222

$

93,893

$

69,772

Earnings per common share

Basic

$

1.28

$

1.09

$

3.88

$

3.04

Diluted

$

1.24

$

1.09

$

3.80

$

3.01

Weighted average common shares outstanding

Basic

24,269

22,180

24,179

22,969

Diluted

25,001

22,223

24,705

23,173

Comprehensive income:

Net earnings

$

31,040

$

24,222

$

93,893

$

69,772

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment

(6,381)

(6,186)

(10,087)

(7,004)

Tax benefit (expense) related to foreign currency

translation adjustment

344

422

1,612

(630)

Other comprehensive income (loss), net of tax

(6,037)

(5,764)

(8,475)

(7,634)

Comprehensive income

$

25,003

$

18,458

$

85,418

$

62,138

The accompanying notes are an integral part of these statements.


2


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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

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

For the nine months ended September 28, 2019

Accumulated

Additional

Other

Common Stock

Paid-in

Retained

Comprehensive

Shares

Value

Capital

Earnings

Income (Loss)

Total

Balance at December 29, 2018

23,567

$

24

$

72,008

$

329,501

$

(10,387)

$

391,146

Net earnings

69,772

69,772

Other comprehensive income (loss), net of tax

(7,634)

(7,634)

Equity-based compensation expense

12,684

12,684

Common stock repurchased and retired

(2,009)

(2)

(26,117)

(123,881)

(150,000)

Common stock issued under equity award plans

73

Tax withholding for net-share settled equity awards

(1,682)

(1,682)

Balance at September 28, 2019

21,631

$

22

$

56,893

$

275,392

$

(18,021)

$

314,286

The accompanying notes are an integral part of these statements.


3


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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

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</