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 June 27, 2020

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of July 31, 2020, 21,020,007 shares of common stock, $.001 par value, of the registrant were outstanding.
‎

USANA HEALTH SCIENCES, INC.

FORM 10-Q

For the Quarterly Period Ended June 27, 2020

TABLE OF CONTENTS

		Page
Cautionary Note Regarding Forward-Looking Statements and Certain Risks		1
PART I. FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Comprehensive Income	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7 - 13
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14 - 21
Item 3	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4	Controls and Procedures	21
PART II. OTHER INFORMATION
Item 1	Legal Proceedings	22
Item 1A	Risk Factors	22
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3	Defaults Upon Senior Securities	22
Item 4	Mine Safety Disclosures	22
Item 5	Other Information	22
Item 6	Exhibits	22
Signatures		23

‎

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 products; 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,” “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 our forward-looking statements are reasonable, actual results could differ materially from those we project or assume in 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 Securities and Exchange Commission (“SEC”). 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 to differ materially from estimates or projections contained in our forward-looking statements in this report include, among others, the following:

Our dependence upon the direct selling business model to distribute our products and the activities of our independent Associates;

Extensive regulation of our business model and uncertainties relating to the interpretation and enforcement of applicable laws and regulations governing direct selling and anti-pyramiding, particularly in the United States and China;

The operation and expansion of our business in China through our subsidiary, BabyCare Holdings, Ltd. (“BabyCare”), including risks related to (i) operating in China in general, (ii) engaging in direct selling in China, (iii) BabyCare’s business model in China, and (iv) changes in the Chinese economy, marketplace or consumer environment;

Unanticipated effects of changes to our Compensation Plan;

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;

Uncertainty related to the magnitude, scope and duration of the impact of the novel strain coronavirus COVID-19 pandemic (“COVID-19” or the “COVID-19 pandemic”) to our business, operations and financial results, including, for example, additional regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19 in the markets where we operate, such as restrictions on business operations, shelter at home, or social distancing requirements;

Political events, natural disasters, pandemics, epidemics or other health crises including, and in addition to, COVID-19 or other events that may negatively affect economic conditions, consumer spending or consumer behavior;

Changes to trade policies and tariffs, the impact of customs, duties, taxation, and transfer pricing regulations, as well as regulations governing distinctions between and our responsibilities to employees and independent contractors;

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

Shortages of raw materials, disruptions in the business of our contract manufacturers, significant price increases of key raw materials, and other disruptions to our supply chain, and;

Our continued compliance with debt covenants in our credit facility.

Unless otherwise indicated or otherwise required by the context, the terms “we,” “our,” “it,” “its,” “Company,” and “USANA” refer to USANA Health Sciences, Inc. and its subsidiaries.

1

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
	June 27,		December 28,
	2020		2019
ASSETS
Current assets
Cash and cash equivalents	$	227,368	$	234,830
Inventories		69,279		68,905
Prepaid expenses and other current assets		28,302		25,544
Total current assets		324,949		329,279
Property and equipment, net		98,435		95,233
Goodwill		16,521		16,636
Intangible assets, net		29,008		29,840
Deferred tax assets		3,741		3,090
Other assets		39,497		42,856
	$	512,151	$	516,934
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	10,942	$	12,525
Other current liabilities		128,775		123,573
Total current liabilities		139,717		136,098
Deferred tax liabilities		6,584		10,282
Other long-term liabilities		16,774		18,842
Stockholders' equity
Common stock, $0.001 par value; Authorized -- 50,000 shares,
issued and outstanding 21,017 as of June 27, 2020
and 21,655 as of December 28, 2019		21		22
Additional paid-in capital		55,526		59,445
Retained earnings		312,659		306,146
Accumulated other comprehensive income (loss)		(19,130)		(13,901)
Total stockholders' equity		349,076		351,712
	$	512,151	$	516,934

The accompanying notes are an integral part of these statements.

‎

2

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

	Quarter Ended				Six Months Ended
	June 27,		June 29,		June 27,		June 29,
	2020		2019		2020		2019
Net sales	$	258,991	$	256,016	$	525,610	$	529,006
Cost of sales		47,674		46,494		93,733		92,395
Gross profit		211,317		209,522		431,877		436,611
Operating expenses:
Associate incentives		110,852		111,511		226,921		234,041
Selling, general and administrative		60,879		66,854		126,358		136,409
Total operating expenses		171,731		178,365		353,279		370,450
Earnings from operations		39,586		31,157		78,598		66,161
Other income (expense):
Interest income		435		1,301		1,419		2,785
Interest expense		(217)		(10)		(238)		(22)
Other, net		175		64		(637)		(118)
Other income (expense), net		393		1,355		544		2,645
Earnings before income taxes		39,979		32,512		79,142		68,806
Income taxes		12,002		11,134		24,613		23,256
Net earnings	$	27,977	$	21,378	$	54,529	$	45,550
Earnings per common share
Basic	$	1.33	$	0.92	$	2.56	$	1.95
Diluted	$	1.32	$	0.91	$	2.56	$	1.93
Weighted average common shares outstanding
Basic		21,034		23,245		21,265		23,364
Diluted		21,129		23,370		21,340		23,648
Comprehensive income:
Net earnings	$	27,977	$	21,378	$	54,529	$	45,550
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		1,861		(5,592)		(4,376)		(818)
Tax benefit (expense) related to foreign currency
translation adjustment		(1,892)		242		(853)		(1,052)
Other comprehensive income (loss), net of tax		(31)		(5,350)		(5,229)		(1,870)
Comprehensive income	$	27,946	$	16,028	$	49,300	$	43,680

The accompanying notes are an integral part of these statements.

‎

3

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

For six months ended June 29, 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							45,550				45,550
Other comprehensive income (loss), net of tax									(1,870)		(1,870)
Equity-based compensation expense					8,601						8,601
Common stock repurchased and retired	(651)		(1)		(10,115)		(47,507)				(57,623)
Common stock issued under equity award plans	64		—								—
Tax withholding for net-share settled equity awards					(1,648)						(1,648)
Balance at June 29, 2019	22,980	$	23	$	68,846	$	327,544	$	(12,257)	$	384,156
For six months ended June 27, 2020
								Accumulated
				Additional				Other
	Common Stock			Paid-in		Retained		Comprehensive
	Shares	Value		Capital		Earnings		Income (Loss)		Total
Balance at December 28, 2019	21,655	$	22	$	59,445	$	306,146	$	(13,901)	$	351,712
Net earnings							54,529				54,529
Other comprehensive income (loss), net of tax									(5,229)		(5,229)
Equity-based compensation expense					6,991						6,991
Common stock repurchased and retired	(785)		(1)		(9,012)		(48,016)				(57,029)
Common stock issued under equity award plans	147		—								—
Tax withholding for net-share settled equity awards					(1,898)						(1,898)
Balance at June 27, 2020	21,017	$	21	$	55,526	$	312,659	$	(19,130)	$	349,076

The accompanying notes are an integral part of these statements.

‎

4

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

For the three months ended June 29, 2019
								Accumulated
				Additional				Other
	Common Stock			Paid-in		Retained		Comprehensive
	Shares	Value		Capital		Earnings		Income (Loss)		Total
Balance at March 30, 2019	23,335	$	23	$	69,100	$	329,001	$	(6,907)	$	391,217
Net earnings							21,378				21,378
Other comprehensive income (loss), net of tax									(5,350)		(5,350)
Equity-based compensation expense					4,769						4,769
Common stock repurchased and retired	(367)		—		(4,788)		(22,835)