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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 March 31, 2012

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                 

 

Commission file number: 0-21116

 

 

USANA HEALTH SCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

3838 West Parkway Blvd., Salt Lake City, Utah 84120

(Address of principal executive offices, Zip Code)

 

 

(801) 954-7100

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

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 registrant’s common stock as of May 4, 2012 was 14,857,757.

 

 

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USANA HEALTH SCIENCES, INC.

 

FORM 10-Q

 

For the Quarterly Period Ended March 31, 2012

 

INDEX

 

			Page
	PART I. FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)
	Consolidated Balance Sheets		3
	Consolidated Statements of Comprehensive Income — Quarter Ended		4
	Consolidated Statements of Stockholders’ Equity		5
	Consolidated Statements of Cash Flows		6
	Notes to Consolidated Financial Statements		7-11
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12-19
Item 3	Quantitative and Qualitative Disclosures About Market Risk		19
Item 4	Controls and Procedures		20
	PART II. OTHER INFORMATION
Item 6	Exhibits		20
Signatures			22

 

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PART I.  FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands)

 

		As of			As of
		December 31,			March 31,
		2011			2012
					(unaudited)
ASSETS
Current assets
Cash and cash equivalents		$	50,353		$	71,164
Inventories		36,968			35,286
Prepaid expenses and other current assets		18,738			18,884
Total current assets		106,059			125,334
Property and equipment, net		60,754			61,188
Goodwill		17,740			17,776
Intangible assets, net		42,637			42,495
Deferred tax assets		11,033			11,248
Other assets		6,273			6,471
		$	244,496		$	264,512
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	7,952		$	7,572
Other current liabilities		51,744			54,817
Total current liabilities		59,696			62,389
Deferred tax liabilities		9,948			10,160
Other long-term liabilities		942			901
Stockholders’ equity
Common stock, $0.001 par value; Authorized — 50,000 shares, issued and outstanding 14,940 as of December 31, 2011 and 14,991 as of March 31, 2012		15			15
Additional paid-in capital		49,257			52,258
Retained earnings		118,799			132,550
Accumulated other comprehensive income		5,839			6,239
Total stockholders’ equity		173,910			191,062
		$	244,496		$	264,512

 

The accompanying notes are an integral part of these statements.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended
		April 2,			March 31,
		2011			2012
Net sales		$	143,566		$	154,120
Cost of sales		25,662			27,217
Gross profit		117,904			126,903
Operating expenses:
Associate incentives		64,807			68,009
Selling, general and administrative		35,870			38,032
Total operating expenses		100,677			106,041
Earnings from operations		17,227			20,862
Other income (expense):
Interest income		50			38
Interest expense		(6		)	—
Other, net		57			94
Other income, net		101			132
Earnings before income taxes		17,328			20,994
Income taxes		5,978			7,243
Net earnings		$	11,350		$	13,751
Earnings per common share
Basic		$	0.71		$	0.92
Diluted		$	0.70		$	0.90
Weighted average common shares outstanding
Basic		15,911			14,964
Diluted		16,217			15,288
Comprehensive income:
Net earnings		$	11,350		$	13,751
Other comprehensive income, net of tax:
Foreign currency translation adjustment		864			695
Tax (expense) benefit related to foreign currency translation adjustment		(208		)	(295		)
Other comprehensive income, net of tax		656			400
Comprehensive income		$	12,006		$	14,151

 

The accompanying notes are an integral part of these statements.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 

Three Months Ended April 2, 2011 and March 31, 2012

(in thousands)

(unaudited)

 

													Accumulated
							Additional						Other
		Common Stock					Paid-in			Retained			Comprehensive
		Shares		Value			Capital			Earnings			Income (Loss)			Total
For the Three Months Ended April 2, 2011
Balance at January 1, 2011		15,985		$	16		$	51,222		$	90,207		$	5,357		$	146,802
Net earnings		—		—			—			11,350			—			11,350
Other comprehensive income, net of tax		—		—			—			—			656			656
Equity-based compensation expense							3,235						—			3,235
Common stock repurchased and retired		(251	)	—			(3,030		)	(5,492		)	—			(8,522		)
Common stock issued under equity award plans, including tax benefit of $35		8					35						—			35
Balance at April 2, 2011		15,742		16			51,462			96,065			6,013			153,556
For the Three Months Ended March 31, 2012
Balance at December 31, 2011		14,940		$	15		49,257			118,799			5,839			173,910
Net earnings		—		—			—			13,751			—			13,751
Other comprehensive income, net of tax		—		—			—			—			400			400
Equity-based compensation expense		—		—			2,866			—			—			2,866
Common stock issued under equity award plans, including tax benefit of $176		51		—			176			—			—			176
Tax impact of canceled vested equity awards		—		—			(41		)	—			—			(41		)
Balance at March 31, 2012		14,991		$	15		$	52,258		$	132,550		$	6,239		$	191,062

 

The accompanying notes are an integral part of these statements.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

(unaudited)

 

		Three Months Ended
		April 2,			March 31,
		2011			2012
Cash flows from operating activities
Net earnings		$	11,350		$	13,751
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization		2,136			2,196
(Gain) loss on sale of property and equipment		—			(22		)
Equity-based compensation expense		3,235			2,866
Excess tax benefits from equity-based payment arrangements		(35		)	(176		)
Deferred income taxes		(1,743		)	(729		)
Changes in operating assets and liabilities:
Inventories, net		640			2,185
Prepaid expenses and other assets		5,721			414
Accounts payable		1,440			(314		)
Other liabilities		(5,199		)	2,472
Total adjustments		6,195			8,892
Net cash provided by operating activities		17,545			22,643
Cash flows from investing activities
Proceeds from sale of property and equipment		—			51
Purchases of property and equipment		(676		)	(2,227		)
Net cash used in investing activities		(676		)	(2,176		)
Cash flows from financing activities
Excess tax benefits from equity-based payment arrangements		35			176
Repurchase of common stock		(8,522		)	—
Net cash (used in) provided by financing activities		(8,487		)	176
Effect of exchange rate changes on cash and cash equivalents		114			168
Net increase in cash and cash equivalents		8,496			20,811
Cash and cash equivalents, beginning of period		24,222			50,353
Cash and cash equivalents, end of period		$	32,718		$	71,164
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest		$	7		$	—
Income taxes		344			741

 

The accompanying notes are an integral part of these statements.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

Organization, Consolidation, and Basis of Presentation

 

USANA Health Sciences, Inc. develops and manufactures high-quality nutritional and personal care products that are sold internationally through a global network marketing system, which is a form of direct selling.  The Consolidated Financial Statements include the accounts and operations of USANA Health Sciences, Inc. and its wholly-owned subsidiaries (collectively, the “Company” or “USANA”) in two geographic regions: North America and Asia Pacific, which is further divided into three sub-regions; Southeast Asia/Pacific, Greater China, and North Asia.  North America includes the United States (including direct sales from the United States to the United Kingdom and the Netherlands), Canada, Mexico, France, and Belgium.  Southeast Asia/Pacific includes Australia, New Zealand, Singapore, Malaysia, the Philippines, and Thailand; Greater China includes Hong Kong, Taiwan and China; and North Asia includes Japan and South Korea.  All significant inter-company accounts and transactions have been eliminated in this consolidation.

 

The condensed balance sheet as of December 31, 2011, derived from audited financial statements, and the unaudited interim consolidated financial information of the Company have been prepared in accordance with Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission.  Certain information and footnote disclosures that are normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting of normal recurring adjustments that are necessary to present fairly the Company’s financial position as of March 31, 2012 and results of operations for the three months ended April 2, 2011 and March 31, 2012.  These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.  The results of operations for the three months ended March 31, 2012, may not be indicative of the results that may be expected for the fiscal year 2012 ending December 29, 2012.

 

Recently adopted accounting pronouncements

 

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (ASU 2011-05).  The objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  To increase the prominence of items reported in other comprehensive income and to facilitate the convergence of U.S. GAAP and IFRS, ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity.  Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  These amendments do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.  Also, the amendments do not change the option for an entity to present components of other comprehensive income either net of related tax effects or before related tax effects, with one amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items. The Company adopted ASU 2011-05 during the first quarter ended March 31, 2012.  Adoption of this standard did not have a material impact on the Company’s consolidated financial statements, as it only affected financial statement presentation.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(in thousands, except per share data)

(unaudited)

 

Revisions

 

As disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2011, revisions have been made to the Company’s previously issued financial statements to record the impact of currency translation on intangible assets acquired as a part of the 2010 purchase of BabyCare Holdings, Ltd.  These revisions had no effect on our earnings from operations, net earnings or earnings per share.

 

The following tables illustrate the effects of the revision on the Company’s consolidated financial statements for only those line items that were affected and have not been previously disclosed:

 

Consolidated Statements of Comprehensive Income

(in thousands)

 

		For the three months ended April 2, 2011
		As Previously Reported			Adjustment			As Revised
Comprehensive income		$	11,667		$	339		$	12,006

 

Consolidated Statements of Stockholders’ Equity

(in thousands)

 

		For the three months ended April 2, 2011
		As Previously Reported			Adjustment			As Revised
Other comprehensive income, net of tax		$	317		$	339		$	656
Accumulated Other Comprehensive Income (Loss), Balance at April 2, 2011		4,038			1,975			6,013
Total Stockholders’ Equity, Balance at April 2, 2011		151,581			1,975			153,556

 

NOTE A — INVENTORIES

 

Inventories consist of the following:

 

		December 31,			March 31,
		2011			2012
Raw materials		$	9,670		$	9,981
Work in progress		6,917			7,104
Finished goods		20,381			18,201
		$	36,968		$	35,286

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(in thousands, except per share data)

(unaudited)

 

NOTE B — COMMON STOCK AND EARNINGS PER SHARE

 

Basic earnings per share are based on the weighted-average number of shares outstanding for each period.  Shares that have been repurchased and retired during the periods specified below have been included in the calculation of the number of weighted-average shares that are outstanding for the calculation of basic earnings per share.  Diluted earnings per common share are based on shares that are outstanding (computed under basic EPS) and on potentially dilutive shares.  Shares that are included in the diluted earnings per share calculations under the treasury stock method include equity awards that are in-the-money but have not yet been exercised.

 

		Three Months Ended
		April 2,			March 31,
		2011			2012
Net earnings available to common shareholders		$	11,350		$	13,751
Basic EPS
Shares
Common shares outstanding entire period		15,985			14,940
Weighted average common shares:
Issued during period		4			24
Canceled during period		(78		)	—
Weighted average common shares outstanding during period		15,911			14,964
Earnings per common share from net earnings - basic		$	0.71		$	0.92
Diluted EPS
Shares
Weighted average common shares outstanding during period - basic		15,911			14,964
Dilutive effect of in-the-money equity awards		306			324
Weighted average common shares outstanding during period - diluted		16,217			15,288
Earnings per common share from net earnings - diluted		$	0.70		$	0.90

 

Equity awards for 1,312 and 1,148 shares of stock were not included in the computation of diluted EPS for the quarters ended April 2, 2011, and March 31, 2012, respectively, due to the fact that their exercise prices were greater than the average market price of the shares.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(in thousands, except per share data)

(unaudited)

 

NOTE C — SEGMENT INFORMATION

 

USANA operates in a single operating segment as a direct selling company that develops, manufactures, and distributes high-quality nutritional and personal care products that are sold through a global network marketing system of independent distributors (“Associates”).  As such, management has determined that the Company operates in one reportable business segment.  Performance for a region or market is primarily evaluated based on sales.  The Company does not use profitability reports on a regional or market basis for making business decisions.  No single Associate accounted for 10% or more of net sales for the periods presented.  The table below summarizes the approximate percentage of total product revenue that has been contributed by the Company’s nutritional and personal care products for the periods indicated.

 

		Three Months Ended
		April 2,		March 31,
		2011		2012
USANA® Nutritionals		78	%	80	%
USANA Foods		11	%	11	%
Sensé – beautiful science®		8	%	7	%

 

Selected financial information for the Company is presented for two geographic regions: North America and Asia Pacific, with three sub-regions under Asia Pacific.  Individual markets are categorized into these regions as follows:

 

·                  North America — United States (including direct sales from the United States to the United Kingdom and the Netherlands), Canada, Mexico, France(1), and Belgium(1)

 

·                  Asia Pacific

 

·                  Southeast Asia/Pacific — Australia, New Zealand, Singapore, Malaysia, the Philippines, and Thailand(2)

 

·                  Greater China — Hong Kong, Taiwan, and China

 

·                  North Asia — Japan and South Korea

 

(1)         The Company commenced operations in France and Belgium during the last week of the first quarter of 2012.  Net sales and customer count information for these two markets have been included with the United States for the quarter ended March 31, 2012.

(2)         The Company commenced operations in Thailand at the end of the first quarter of 2012.

 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (continued)

(in thousands, except per share data)

(unaudited)

 

NOTE C — SEGMENT INFORMATION — CONTINUED

 

Selected Financial Information

 

Financial information by geographic region is presented for the periods indicated below:

 

		Three Months Ended
		April 2,			March 31,
		2011			2012
Net Sales to External Customers
North America		$	60,021		$	58,632
Asia Pacific
Southeast Asia/Pacific		24,694			32,252
Greater China		52,111			56,635
North Asia		6,740			6,601
Asia Pacific Total		83,545			95,488
Consolidated Total		$	143,566		$	154,120

 

The following table provides further information on markets representing ten percent or more of consolidated net sales and long-lived assets, respectively:

 

		Three Months Ended
		April 2,			March 31,
		2011			2012
Net Sales to External Customers
Hong Kong		$	40,203		$	43,807
United States		37,036			36,491
Canada		17,327			16,189

 

		As of
		December 31,			March 31,
		2011			2012
Long-lived Assets
China		$	59,806		$	59,662
United States		46,991			46,605
Australia		15,280			15,408

 

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Item 2.         MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of USANA’s financial condition and results of operations 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 Consolidated Financial Statements and Notes thereto that are contained in this quarterly report, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations that are included in our Annual Report on Form 10-K for the year ended December 31, 2011, and our other filings, including Current Reports on Form 8-K, that have been filed with the Securities and Exchange Commission (“SEC”) through the date of this report.

 

Overview

 

We develop and manufacture high-quality, science-based nutritional and personal care products that are distributed internationally through a network marketing system, which is a form of direct selling.  Our customer base comprises two types of customers: “Associates” and “Preferred Customers.”  Associates are independent distributors of our products who also purchase 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 March 31, 2012, we had approximately 219,000 active Associates and approximately 67,000 active Preferred Customers worldwide.  For purposes of this report, we only count as active customers those Associates and Preferred Customers who have purchased product from USANA at any time during the most recent three-month period, either for personal use or for resale.

 

We have ongoing operations in the following markets, which are grouped and presented as follows:

 

·                  North America — United States (including direct sales from the United States to the United Kingdom and the Netherlands), Canada, Mexico, France(1), and Belgium(1)

 

·                  Asia Pacific

 

·                  Southeast Asia/Pacific — Australia, New Zealand, Singapore, Malaysia, the Philippines, and Thailand(2)

 

·                  Greater China — Hong Kong, Taiwan, and China

 

·                  North Asia — Japan and South Korea

 

(1)         We commenced operations in France and Belgium during the last week of the first quarter of 2012.  We have included sales and customer count information for these two markets with the United States for this quarter.

(2)         We commenced operations in Thailand at the end of the first quarter of 2012.

 

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Our primary product lines consist of USANAâ Nutritionals, USANA Foods, and Sensé — beautiful scienceâ (Sensé), which is our line of personal care products.  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 indicated:

 

		Quarter Ended
		April, 2,		March 31,
		2011		2012
Product Line
USANA® Nutritionals
Essentials		29	%	28	%
Optimizers		49	%	52	%
USANA Foods		11	%	11	%
Sensé — beautiful science®		8	%	7	%
All Other		3	%	2	%
Key Product
USANA® Essentials		18	%	18	%
Proflavanol®		12	%	12	%
HealthPak 100 ™		9	%	8	%

 

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 these factors include: the general public’s heightened awareness and understanding of the connection between diet and long-term health, the aging of the worldwide population as older people generally tend to consume more nutritional supplements, and the growing desire for a secondary source of income and small business ownership.

 

We believe that our high-quality products and our financially rewarding Associate Compensation Plan are the key components to attracting and retaining Associates.  We strive to ensure that our products are up-to-date with the latest science in nutrition research and to keep our product lines relatively compact, which we believe simplifies the selling and buying process for our Associates and Preferred Customers.  We also periodically make changes to our Compensation Plan in an effort to ensure that our plan is among the most rewarding in the industry, to encourage behavior that we believe leads to a more successful business for our Associates, and to ensure that our plan provides us with leverage to grow sales and earnings.  There is a risk, however, that such changes may not accomplish their intended purpose and may cause an unanticipated shift in Associate behavior, which could negatively affect our business.

 

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 some of 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 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, net sales and gross profit are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar.  Currency fluctuations, however, have the opposite effect on our Associate incentives and selling, general and administrative expenses.  During the quarter ended March 31, 2012, net sales outside of the United States represented approximately 76.4% 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.

 

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Customers

 

Because we utilize a direct selling model for the distribution of our products, the success and growth of our business is primarily based on our ability to attract new Associates and retain existing Associates to sell and consume our products.  Notably, sales to Associates account for the majority of our product sales, representing 90% of product sales during the quarter ended March 31, 2012.  Additionally, it is important to attract and retain Preferred Customers as consumers of our products.  Increases or decreases in product sales are typically the result of variations in product sales volumes relating to fluctuations in the number of active Associates and Preferred Customers purchasing our products.  The number of active Associates and Preferred Customers is, therefore, used by management as a key non-financial measure.

 

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.

 

		Active Associates By Region
		As of				As of				Change from		Percent
		April 2, 2011				March 31, 2012				Prior Year		Change
North America		83,000		39.0	%	77,000		35.1	%	(6,000	)	(7.2	)%
Asia Pacific:
Southeast Asia/Pacific		40,000		18.8	%	51,000		23.3	%	11,000		27.5	%
Greater China		82,000		38.5	%	83,000		37.9	%	1,000		1.2	%
North Asia		8,000		3.7	%	8,000		3.7	%	—		0.0	%
Asia Pacific Total		130,000		61.0	%	142,000		64.9	%	12,000		9.2	%
		213,000		100.0	%	219,000		100.0	%	6,000		2.8	%

 

		Active Preferred Customers By Region
		As of				As of				Change from		Percent
		April 2, 2011				March 31, 2012				Prior Year		Change
North America		55,000		78.6	%	53,000		79.1	%	(2,000	)	(3.6	)%
Asia Pacific:
Southeast Asia/Pacific		6,000		8.6	%	6,000		9.0	%	—		0.0	%
Greater China		8,000		11.4	%	7,000		10.4	%	(1,000	)	(12.5	)%
North Asia		1,000		1.4	%	1,000		1.5	%	—		0.0	%
Asia Pacific Total		15,000		21.4	%	14,000		20.9	%	(1,000	)	(6.7	)%
		70,000		100.0	%	67,000		100.0	%	(3,000	)	(4.3	)%

 

Current Focus and Recent Developments

 

We are currently focusing our efforts on: (i) growing our business in Greater China, (ii) the implementation of our strategy to stabilize and grow our North American markets, and (iii) international expansion.

 

Our development efforts in China during the first quarter of 2012 included further educating our Associates on the USANA products that we introduced in that market throughout 2011, and on our China compensation plan.  Additionally, we continued our efforts to obtain additional provincial licenses and opened a new branch office in Shenzhen, which is a key city for our business in southern China.

 

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Table of Contents

 

In North America, we continue to execute our stabilization and growth strategy and expect initial results from this strategy as early as the fourth quarter of 2012.  In this regard, we held several meetings and events during the first quarter where members of our management team worked together with our Associate Leaders to strengthen our relationship with our North American Associate base and offered a promotion specifically for Mexico that has delivered short-term success.

 

In terms of international expansion, we commenced operations in Thailand toward the end of the first quarter of 2012, and commenced operations in France and Belgium during the last week of the quarter.  Thailand operated on a limited basis for much of the first quarter as we worked to finalize logistical issues, but became fully operational near the end of the quarter.  We expect Thailand, France and Belgium to begin contributing to our results of operations during the second quarter of 2012.

 

Results of Operations

 

Summary of Financial Results

 

Net sales for the first quarter of 2012 increased 7.4%, or $10.6 million, compared with the first quarter in 2011.  The increase in net sales for the quarter was primarily due to: (i) sales growth in our Southeast Asia Pacific region, which was driven by significant sales and Associate growth in the Philippines, as well as higher sales in several other markets in this region; and (ii) sales growth in our Greater China region, which was driven by higher sales in our Hong Kong and Taiwan markets.  The sales growth in these regions was partially offset by a 2.3% sales decline in our North America region.  Several factors contributed to our sales results in these regions, the most significant of which are discussed below under our regional results.  Currency fluctuation during the quarter had a very minor impact on year-over-year net sales growth.

 

Net earnings for the first quarter of 2012 increased 21.2%, or $2.4 million, to $13.8 million, compared with the first quarter in 2011.  This increase was primarily the result of higher net sales and lower relative Associate incentives.

 

Quarters Ended April 2, 2011 and March 31, 2012

 

Net Sales

 

The following table summarizes the changes in our net sales by geographic region for the quarters ended as of the dates indicated:

 

		Net Sales by Region
		(in thousands)										Change
		Quarter Ended										from prior			Percent
		April 2, 2011					March 31, 2012					year			change
North America		60,021			41.8	%	58,632			38.1	%	(1,389		)	(2.3	)%
Asia Pacific:
Southeast Asia/Pacific		24,694			17.2	%	32,252			20.9	%	7,558			30.6	%
Greater China		52,111			36.3	%	56,635			36.7	%	4,524			8.7	%
North Asia		6,740			4.7	%	6,601			4.3	%	(139		)	(2.1	)%
Asia Pacific Total		83,545			58.2	%	95,488			61.9	%	11,943			14.3	%
		$	143,566		100.0	%	$	154,120		100.0	%	$	10,554		7.4	%

 

North America:  The decrease in net sales in this region was the result of fewer active Associates in the United States and Canada.  These decreases were partially offset by an increase in sales and the number of active Associates in Mexico, where local currency net sales increased 13.2%.  During the quarter, we continued to execute our strategy in North America by working to strengthen our sales force, advance our personalization strategy, and implement incentives specifically for North America.  As noted above, we commenced operations in France and Belgium during the last week of the quarter ended March 31, 2012, and anticipate that these markets will contribute to our regional results beginning in the second quarter.

 

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