USANA HEALTH SCIENCES, INC.

FORM 10-Q

For the Quarterly Period Ended March ~~31, 2018~~30, 2019

		Page

PART I. FINANCIAL INFORMATION

Item 1	Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	~~8-17~~7-18
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~18-25~~19-26
Item 3	Quantitative and Qualitative Disclosures About Market Risk	2526
Item 4	Controls and Procedures	2526

PART II. OTHER INFORMATION

Item 1	Legal Proceedings	2627
Item 1A	Risk Factors	2627
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2730
Item 3	Defaults Upon Senior Securities	2730
Item 4	Mine Safety Disclosures	2730
Item 5	Other Information	2730
Item 6	Exhibits	2731

Signatures		2932

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		As of			As of
	December 30,			March 31,		December 29,			March 30,
	2017			2018		2018			2019

ASSETS
Current assets
Cash and cash equivalents	$	247,131		$	266,197	$	214,326		$	225,041
Securities held-to-maturity						63,539			26,854
Inventories	62,918			68,128		81,948			86,465
Prepaid expenses and other current assets	30,110			31,801		32,522			31,819
Total current assets	340,159			366,126		392,335			370,179

Property and equipment, net	102,847			101,357		92,025			91,994

Goodwill	17,417			17,797		16,815			17,073
Intangible assets, net	35,154			35,969		31,811			32,227
Deferred tax assets	2,859			3,098		3,348			3,249
Other assets	20,833			21,598		18,129			36,861
	$	519,269		$	545,945	$	554,463		$	551,583

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	11,787		$	12,681	$	9,947		$	11,700
Other current liabilities	129,396			113,687		138,739			118,292
Total current liabilities	141,183			126,368		148,686			129,992

Deferred tax liabilities	13,730			17,475		13,367			17,507
Other long-term liabilities	1,146			1,124		1,264			12,867

Stockholders’ equity
Common stock, $0.001 par value; Authorized — 50,000 shares, issued and outstanding 24,024 as of December 30, 2017 and 24,099 as of March 31, 2018	24			24
Common stock, $0.001 par value; Authorized — 50,000 shares, issued and outstanding 23,567 as of December 29, 2018 and 23,335 as of March 30, 2019						24			23
Additional paid-in capital	76,542			79,434		72,008			69,100
Retained earnings	288,070			315,672		329,501			329,001
Accumulated other comprehensive income (loss)	(1,426		)	5,848		(10,387		)	(6,907		)
Total stockholders’ equity	363,210			400,978		391,146			391,217
	$	519,269		$	545,945	$	554,463		$	551,583

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
	April 1,			March 31,			Quarter Ended
	2017			2018			March 31,			March 30,
							2018			2019
Net sales	$	255,323		$	291,998		$	291,998		$	272,990
Cost of sales	42,654			49,375			49,375			45,901

Gross profit	212,669			242,623			242,623			227,089

Operating expenses:
Associate incentives	115,781			129,362			129,362			122,530
Selling, general and administrative	64,001			70,132			70,132			69,555

Total operating expenses	179,782			199,494			199,494			192,085

Earnings from operations	32,887			43,129			43,129			35,004

Other income (expense):
Interest income	483			840			840			1,484
Interest expense	(10		)	(10		)	(10		)	(12		)
Other, net	9			32			32			(182		)

Other income (expense), net	482			862			862			1,290

Earnings before income taxes	33,369			43,991			43,991			36,294

Income taxes	12,011			15,045			15,045			12,122

Net earnings	$	21,358		$	28,946		$	28,946		$	24,172

Earnings per common share
Basic	$	0.87		$	1.20		$	1.20		$	1.03
Diluted	$	0.86		$	1.19		$	1.19		$	1.01

Weighted average common shares outstanding
Basic	24,499			24,074			24,074			23,484
Diluted	24,976			24,273			24,273			23,927

Comprehensive income:

Net earnings	$	21,358		$	28,946		$	28,946		$	24,172

Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment	3,297			7,814			7,814			4,774
Tax benefit (expense) related to foreign currency translation adjustment	(207		)	(540		)	(540		)	(1,294		)

Other comprehensive income (loss), net of tax	3,090			7,274			7,274			3,480

Comprehensive income	$	24,448		$	36,220		$	36,220		$	27,652

The accompanying notes are an integral part of these statements.

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

~~Three Months Ended March 31, 2018~~

(in thousands)

(unaudited)

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

28,946

28,946

Other comprehensive income (loss), net of tax

7,274

7,274

Equity-based compensation expense

3,805

3,805

Common stock repurchased and retired

(39
)
—

(605
)
(2,338
)

(2,943
)
Common stock issued under equity award plans

114

—

—

Tax withholding for net-share settled equity awards

(308
)

(308
)

Balance at March 31, 2018

24,099

$
24

$
79,434

$
315,672

$
5,848

$
400,978

For the three months ended March 31, 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								28,946						28,946
Other comprehensive income (loss), net of tax											7,274			7,274
Equity-based compensation expense					3,805									3,805
Common stock repurchased and retired	(39	)	—		(605		)	(2,338		)				(2,943		)
Common stock issued under equity award plans	114		—											—
Tax withholding for net-share settled equity awards					(308		)							(308		)

Balance at March 31, 2018	24,099		$	24	$	79,434		$	315,672		$	5,848		$	400,978

For the three months ended March 30, 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									24,172						24,172
Other comprehensive income (loss), net of tax												3,480			3,480
Equity-based compensation expense						3,832									3,832
Common stock repurchased and retired	(284	)	(1		)	(5,327		)	(24,672		)				(30,000		)
Common stock issued under equity award plans	52		—												—
Tax withholding for net-share settled equity awards						(1,413		)							(1,413		)

Balance at March 30, 2019	23,335		$	23		$	69,100		$	329,001		$	(6,907	)	$	391,217

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)

	Three Months Ended
	April 1,			March 31,			Three Months Ended
	2017			2018			March 31,			March 30,
							2018			2019
Cash flows from operating activities
Net earnings	$	21,358		$	28,946		$	28,946		$	24,172
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation and amortization	3,466			4,531			4,531			3,866
Right-of-use asset amortization							—			2,023
(Gain) loss on sale of property and equipment	(10		)	1,782			1,782			23
Equity-based compensation expense	4,198			3,805			3,805			3,832
Deferred income taxes	1,380			3,102			3,102			3,048
Changes in operating assets and liabilities:
Inventories	(3,265		)	(4,469		)	(4,469		)	(3,630		)
Prepaid expenses and other assets	3,756			(3,379		)	(3,379		)	1,480
Accounts payable	263			649			649			1,750
Other liabilities	(29,245		)	(15,449		)	(15,449		)	(31,043		)

Net cash provided by (used in) operating activities	1,901			19,518			19,518			5,521

Cash flows from investing activities
Receipts on notes receivable	107			301			301			55
Payments for net investment hedge							—			(1,660		)
Maturities of investment securities							—			36,685
Proceeds from sale of property and equipment	10			35			35			6
Purchases of property and equipment	(3,381		)	(2,948		)	(2,948		)	(2,577		)

Net cash provided by (used in) investing activities	(3,264		)	(2,612		)	(2,612		)	32,509

Cash flows from financing activities
Repurchase of common stock	—			(2,943		)	(2,943		)	(30,000		)
Borrowings on line of credit							—			5,000
Payments on line of credit							—			(5,000		)
Payments related to tax withholding for net-share settled equity awards	—			(308		)	(308		)	(1,413		)

Net cash provided by (used in) financing activities	—			(3,251		)	(3,251		)	(31,413		)

Effect of exchange rate changes on cash, cash equivalents and restricted cash	1,957			5,519			5,519			4,170

Net increase (decrease) in cash, cash equivalents and restricted cash	594			19,174			19,174			10,787

Cash, cash equivalents, and restricted cash, at beginning of period	178,952			250,535			250,535			217,234

Cash, cash equivalents, and restricted cash at end of period	$	179,546		$	269,709		$	269,709		$	228,021

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets

Cash and equivalents	$	176,320		$	266,197		$	266,197		$	225,041
Restricted cash included in prepaid expenses and other current assets	322			330			330			—
Restricted cash included in other assets	2,904			3,182			3,182			2,980

Total cash, cash equivalents, and restricted cash	$	179,546		$	269,709		$	269,709		$	228,021

Supplemental disclosures of cash flow information

Cash paid during the period for:
Interest	$	2		$	2		$	2		$	5
Income taxes	10,087			19,495			19,495			10,163
Cash received during the period for:
Income tax refund	4,700			49			49			5,095
Non-cash operating activities:
Right-of-use assets obtained in exchange for lease obligations							—			20,286
Non-cash investing activities:
Credits on notes receivable	191			—
Accrued purchases of property and equipment	—			159			159			251

The accompanying notes are an integral part of these 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

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 (the “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,~~29, 2018, 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 the Company’s management, the accompanying interim condensed consolidated financial information contains all adjustments, consisting only of normal recurring adjustments that are necessary to state fairly the Company’s financial position as of March ~~31, 2018~~30, 2019 and results of operations for the three months ended ~~April 1, 2017~~March 31, 2018 and March ~~31, 2018.~~30, 2019.

The interim ~~condensed consolidated financial statements~~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 ~~30, 2017.~~29, 2018. The results of operations for the three months ended March ~~31, 2018,~~30, 2019, are not necessarily indicative of the results that may be expected for the fiscal year ending December ~~29, 2018.~~28, 2019.

Recent Accounting Pronouncements

Adopted accounting pronouncements

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2014-09, “Revenue from Contracts with Customers~~2016-02, “Leases (Topic ~~606)~~842).” ~~Also referred~~ASU 2016-02 is intended 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 processincrease transparency and comparability among organizations by ~~which entities recognize revenue to depict~~recognizing lease assets and lease liabilities on the ~~transfer of goods or services to customers in amounts that reflect~~balance sheet and disclosing key information about leasing arrangements. Additionally, the ~~consideration to which an entity expects to be entitled in exchange for those goods or services. This standard also~~ASU requires ~~enhanced~~ disclosures to ~~enable~~help investors and other financial statement users ~~of financial statements to~~better understand the ~~nature,~~ amount, timing, and uncertainty of ~~revenue and~~ cash flows arising from ~~contracts~~leases, including qualitative and quantitative requirements. The update requires lessees to apply a modified retrospective approach for recognition and disclosure, beginning with ~~customers.~~

~~The Company adopted ASC 606 effective~~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 ~~fiscal 2018~~the earliest period presented, and ~~applied the modified retrospective approach. Accordingly, the Company recognized the cumulative effect of initially applying ASC 606 as an~~recognize a cumulative-effect adjustment to the ~~fiscal 2018 opening~~beginning balance of retained ~~earnings. The comparative information has not been restated and continues to be presented according to accounting standards~~earnings in ~~effect for those periods. The adoption~~the period of ASC 606 did not have a material impact on the Company’s 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 Company’s revenue recognition policies under the new standard.~~adoption.

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 adopted Topic 842 in the first quarter of 2019, using the transition method per ASU 2018-11. Accordingly, all periods prior to December 30, 2018 were presented in accordance with the previous Topic 840, Leases, and no retrospective adjustments were made to the comparative periods presented. As a result of the adoption on December 30, 2018, the Company, recorded operating lease right-of-use (“ROU”) assets of $19,671 and operating lease liabilities of $20,010 (of which, $7,120 was current and $12,890 was non-current) on the Company’s balance sheet for facility and equipment lease agreements. Additionally, the Company has prepaid land use rights related to production facilities in China of $6,853 that were reclassified to ROU assets. The Company utilized the incremental borrowing rate for the remaining lease term and remaining minimum rental payments for the calculation of the lease liability at the adoption date. Consistent with the treatment under Topic 840, the Company has excluded the portion of fixed rental payments attributable to executory costs such as taxes, insurance and maintenance in the determination of the future minimum rental payments for purposes of calculation of the lease liability at the adoption date. The Company does not have significant finance leases.

As part of the adoption of Topic 842, the Company made ~~a change in~~ the ~~timing~~following practical expedient elections:

· The Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for ~~recognizing revenue on orders that have shipped but have~~all leases

· The Company did not ~~been delivered at period end. Under~~elect the ~~new standard, revenue is recognized when~~hindsight practical expedient, for all leases.

· The Company did not elect 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. Other than the amounts recorded for this change uponland easement practical expedient.

The adoption of ~~ASC 606 in the condensed consolidated balance sheet, there were no other changes since the adoption that would be materially different from previous accounting standards that would affect~~Topic 842 had a material impact to the Company’s consolidated ~~financial statements.~~

balance sheets, but did not materially impact the Company’s consolidated statements of comprehensive income. The ~~following table summarizes the cumulative effect of the~~most significant changes to ~~our unaudited condensed~~the consolidated balance ~~sheet opening balances~~sheets relate to the recognition of new ROU assets and lease liabilities for operating leases. The adoption of Topic 842 also had no material impact on operating, investing, or financing cash flows in the consolidated statement of cash flows. However, Topic 842 has affected the Company’s disclosures about noncash activities relating to the initial recognition of ROU assets and lease liabilities. Additionally, the Company’s lease-related disclosures have increased as of and for the ~~beginning of fiscal 2018:~~period ended March 30, 2019. See Note B - Operating Leases for additional information regarding the Company’s lease policies under the new standard.

Balance at

ASC 606

Balance after

December 30, 2017

Adjustments

ASC 606 Adjustments

Assets

Inventories

$
62,918

$
(350
)
$
62,568

Prepaid expenses and other current assets

30,110

(1,147
)
28,963

Liabilities

Other current liabilities

$
129,396

$
(2,491
)
$
126,905

Stockholders’ Equity

Retained earnings

$
288,070

$
994

$
289,064

In ~~November 2016,~~August 2017, the FASB issued ASU ~~No. 2016-18, “Statement~~2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 better aligns an entity’s 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 ~~Cash Flows (Topic 230): Restricted Cash.” The ASU requires~~hedge results. To satisfy that ~~a statement~~objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentation of ~~cash flows explain~~ the ~~change during~~effects of the ~~period~~hedging instrument and the hedged item in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconcilingfinancial statements. For public business entities, the ~~beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The~~amendments in this ASU isare effective for ~~annual and interim periods in~~ fiscal years beginning after December 15, ~~2017.~~2018, and interim periods within those fiscal years. The Company adopted ASU ~~2016-18 using a retrospective transition method~~2017-12 during the quarter ended March ~~31, 2018~~30, 2019 and the adoption of the standard did not have ~~a material~~an 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~~

Issued accounting pronouncements not yet adopted

In ~~May 2017~~August 2018, the FASB issued ASU ~~No. 2017-09, “Compensation-Stock Compensation~~2018-13, “Fair Value Measurement (Topic ~~718)~~820): ~~Scope of Modification Accounting.~~Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU ~~2017-09 provides clarification on when modification accounting should be used~~2018-13 modifies the disclosure requirements for ~~changes to~~fair value measurements. The modifications removed the ~~terms or conditions~~following disclosure requirements: (i) the amount of, ~~a share-based payment award.~~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 ~~2017-09 does not change~~added the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required iffollowing disclosure requirements: (i) the changes ~~are considered non-substantive.~~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 ~~ASU is~~amendments in this Update are effective for all ~~annual~~entities for fiscal years, and interim periods inwithin those fiscal years, beginning after December 15, ~~2017.~~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 ~~adopted ASU 2017-09 during the quarter ended March 31, 2018 and~~does not expect the adoption of ~~the standard did not~~ASU 2018-13 will have ana material impact on its consolidated financial statements.

~~Issued accounting pronouncements~~

In ~~February 2016,~~August 2018, the FASB issued ASU ~~No. 2016-02, “Leases (Topic 842).~~2018-15, “Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU ~~2016-02~~2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that 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~~service contract with the ~~earliest period presented.~~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 isare effective for ~~fiscal years~~annual and interim periods beginning after December 15, ~~2018,~~2019. Early adoption is permitted, including adoption in any interim ~~periods within those fiscal years, with early~~period. The amendments can be applied either retrospectively or prospectively to all implementation costs incurred after the adoption ~~permitted.~~date. The Company ~~is currently in~~does not expect the ~~process~~adoption of ~~evaluating the impact of the~~ ASU ~~on the Company’s outstanding leases and expects that adoption~~2018-15 will have ana material impact on ~~the~~its consolidated ~~balance sheets related to recording right-of-use assets and corresponding lease liabilities.~~financial statements.

NOTE B — ~~REVENUE RECOGNITION~~OPERATING LEASES

~~Significant changes to the Company’s accounting policies as a result of adopting ASC 606 are discussed below. Refer to Note A~~ — Summary of Significant Accounting Policies of the Company’s annual report on Form 10-K for the year ended December 30, 2017 for policies in effect for revenue recognition prior to December 31, 2017, which were based on ASC 605, and for all other significant accounting policies.

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 Company’s 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 Company’s 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 Company’s 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~~the Company’s headquarters in Salt Lake City, Utah and its facilities in New South Wales, Australia, and in Beijing and Tianjin, China, the Company generally leases its facilities. Each of the facility lease agreements is a non-cancelable operating lease generally structured with renewal options and expire prior to ~~Associates on personal purchases, which~~or during 2026. In connection with the production facilities in Beijing and Tianjin, China, the Company has prepaid land use rights that are considered under the guidance for lease accounting. The Company utilizes equipment under non-cancelable operating leases, expiring through 2022.

At contract inception, the Company determines whether an arrangement is or contains a ~~sales discount~~lease and ~~are reported as a reduction to net sales,~~whether the ~~incentives are paid for distinct services related to the Company’s product sales and are recorded~~lease should be classified as an ~~expense when revenue~~operating or a financing lease. A contract is or contains a lease if the contract conveys the right to control the use of the identified asset for a period of time in exchange for consideration. Control is determined based on the right to obtain all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset. ROU assets for operating leases represent the right to use an underlying asset for the ~~goods is recognized.~~

~~Shipping~~lease term, and ~~handling activities are performed after~~operating lease liabilities represent 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~~obligation 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 I.~~

~~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.~~make lease payments.

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE B — ~~REVENUE RECOGNITION -~~OPERATING LEASES — CONTINUED

Three Months Ended

March 31,

2018

Contract liabilities at beginning of period

$
14,417

Increase due to deferral of revenue

13,444

Decreases due to recognition of revenue

(12,965
)

Contract liabilities at end of period

$
14,896

Lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date for leases exceeding 12 months. Minimum lease payments include only the fixed lease component of the agreement, as well as any variable rate payments that depend on an index, initially measured using the index at the lease commencement date. Non-lease components are accounted for separately from the fixed lease component for all leases. Most of the Company’s leases do not provide an implicit rate that can readily be determined. Therefore, the applied discount rate is based on the Company’s incremental borrowing rate, which is determined using its credit rating and other information available as of the commencement date and is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Lease terms may include options to renew when it is reasonably certain that the Company will exercise that option. The ROU asset is measured at the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred less any lease incentives received.

Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and selling, general and administrative expense in the Company’s consolidated statements of comprehensive income. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases is recognized on a straight-line basis over the lease term.

The Company monitors for events or changes in circumstances that require a reassessment of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the ROU asset unless doing so would reduce the ROU asset to an amount less than zero, in which case the remaining adjustment would be recorded in the consolidated statements of comprehensive income.

The following table summarizes the classification of lease assets and lease liabilities in the Company’s consolidated balance sheet:

Leases	Classification	March 30, 2019
Assets
ROU operating lease assets, net	Other assets	$	24,746

Total ROU assets		$	24,746

Liabilities
Current:
Operating lease liabilities	Other current liabilities	$	6,764

Non-current:
Operating lease liabilities	Other long-term liabilities	$	11,805

Total lease liabilities		$	18,569

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE B — OPERATING LEASES — CONTINUED

The following table presents supplemental lease information:

	March 30, 2019

Lease cost
Operating lease cost	$	2,166

Total lease cost	$	2,166

Other information

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases	$	2,188

ROU assets obtained in exchange for new operating lease liabilities	$	615

Weighted-average remaining lease term—operating leases	4.04 yrs.

Weighted-average discount rate—operating leases	3.78		%

The following table presents the maturity of the Company’s lease liabilities as of March 30, 2019.

Year ending
Remainder of 2019	$	5,752
2020	6,065
2021	3,703
2022	1,692
2023	1,584
Thereafter	2,610

	$	21,406

Less: imputed interest	$	(2,837	)

Present value	$	18,569

The future minimum commitments under operating leases at December 29, 2018 having a non-cancelable term in excess of one year as determined prior to the adoption of Topic 842 are as follows:

Year ending
2019	$	9,155
2020	6,146
2021	3,825
2022	1,962
2023	1,464
Thereafter	2,514
	$	25,066

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										Fair Value Measurements Using
				Inputs										Inputs
	December 30, 2017			Level 1		Level 2			Level 3		December 29, 2018			Level 1		Level 2			Level 3

Money market funds included in cash equivalents	$	106,090		$	106,090	$	—		$	—	$	129,449		$	129,449	$	—		$	—
Foreign currency contracts included in other current liabilities	(139		)	—		(139		)	—		(309		)	—		(309		)	—

	$	105,951		$	106,090	$	(139	)	$	—	$	129,140		$	129,449	$	(309	)	$	—

				Fair Value Measurements Using									Fair Value Measurements Using
				Inputs									Inputs
	March 31, 2018			Level 1		Level 2			Level 3		March 30, 2019		Level 1		Level 2		Level 3

Money market funds included in cash equivalents	$	167,207		$	167,207	$	—		$	—	$	141,120	$	141,120	$	—	$	—
Foreign currency contracts included in other current liabilities	(369		)	—		(369		)	—
Net investment hedge included in prepaid expenses and other current assets											674		—		674		—
Foreign currency contracts included in prepaid expenses and other current assets											208		—		208		—

	$	166,838		$	167,207	$	(369	)	$	—	$	142,002	$	141,120	$	882	$	—

There were no transfers of financial assets or liabilities between levels of the fair value hierarchy for the periods indicated.

The majority of the Company’s non-financial assets, which include goodwill, intangible assets, ~~and~~ property and equipment, and ROU assets 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~~29, 2018 and March ~~31, 2018,~~30, 2019, there were no non-financial assets measured at fair value on a non-recurring basis.

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

The Company’s 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~~

Securities held-to-maturity consist of corporate bonds. The fair value of ~~the notes receivable approximated~~corporate bonds 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 approximate their 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 E) based on the estimated recoverable amount using Level 3 inputs, which approximates fair value.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 December 29, 2018
	Amortized Cost		Unrecognized Holding Gains		Unrecognized Holding Losses			Estimated Fair Value

Corporate bonds	$	57,554	$	1	$	(46	)	$	57,509
Commercial Paper	5,985		—		—			5,985

Total HTM Securities	$	63,539	$	1	$	(46	)	$	63,494

	As of March 30, 2019
	Amortized Cost		Unrecognized Holding Gains		Unrecognized Holding Losses			Estimated Fair Value

Corporate bonds	$	26,854	$	5	$	(3	)	$	26,856

Total securities held-to-maturity	$	26,854	$	5	$	(3	)	$	26,856

All held-to-maturity securities as of March 30, 2019 mature within one year.

NOTE E — INVENTORIES

Inventories consist of the following:

December 30,

March 31,

2017

2018

Raw materials

$
20,737

$
21,221

Work in progress

8,461

9,616

Finished goods

33,720

37,291

$
62,918

$
68,128

~~NOTE E — OTHER ASSETS~~

Other assets consist primarily of land use rights related to a production facility in China and a secured loan to the former supplier of the Company’s nutrition bars. The Company extended non-revolving credit to this former supplier to allow them to acquire equipment that is necessary to manufacture the USANA nutrition bars, which is 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 has a maturity date of February 1, 2024 and was to be repaid by a combination of cash payments and credits for the manufacture of USANA’s nutrition bars. There is no prepayment penalty. The total contractual unpaid principal balance, including accrued unpaid interest on the note receivable from this supplier as of December 30, 2017 and March 31, 2018 was $6,734 and $6,536, respectively.

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 the Company’s 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. No additional impairments were recorded during the three months ended March 31, 2018. Subsequent to March 31, 2018, the Company received $4,800 in cash from this supplier as settlement in full of the note receivable.

	December 29,		March 30,
	2018		2019
Raw materials	$	19,502	$	22,336
Work in progress	14,485		11,755
Finished goods	47,961		52,374

	$	81,948	$	86,465

NOTE F — ~~LINE OF CREDIT~~REVENUE CONTRACT LIABILITIES

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. A majority of the Company’s 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 ~~has a $75,000 line~~receives payment, primarily via credit card, for the sale of ~~credit with Bank of America. Interest is computed~~products at the ~~bank’s Prime Rate or LIBOR, adjusted by features specified~~time customers place orders and payment is required prior to shipment. Contract liabilities, which are recorded within Other current liabilities in the ~~Credit Agreement. The collateral~~consolidated balance sheets, primarily relate to deferred revenue for ~~this~~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.

Disaggregation of revenue by geographical region and major product 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 Company’s consolidated rolling four-quarter adjusted EBITDA covenant from $60,000 to equal to or greater than $100,000 and its ratio of consolidated funded debt to adjusted EBITDA of 2.0 to 1.0 at the end of each quarter.included in Segment Information in Note K.

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE F — REVENUE CONTRACT LIABILITIES

The following table provides information about contract liabilities from contracts with customers, including significant changes in the contract liabilities balances during the period.

	December 29,			March 30,
	2018			2019
Contract liabilities at beginning of period	$	14,417		$	15,055
Increase due to deferral of revenue at period end	15,055			14,191
Decrease due to beginning contract liabilities recognized as revenue	(14,417		)	(14,291		)

Contract liabilities at end of period	$	15,055		$	14,955

NOTE G — LINE OF CREDIT ~~- CONTINUED~~

The Company has a $75,000 line of credit with Bank of America (‘Bank”). Interest is computed at the Bank’s Prime Rate or a LIBOR plus rate, 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 the Bank, which extends the term of the Credit Agreement to April 27, 2021 and increases the Company’s consolidated rolling four-quarter adjusted EBITDA covenant to $100,000 or greater and its ratio of consolidated funded debt to adjusted EBITDA of equal to or less than 2.0 to 1.0 at the end of each quarter.

The adjusted EBITDA under the ~~line of credit agreement~~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.~~Credit Agreement. This resulted in a ~~$4,273,~~$6,619 and ~~$4,991~~$6,001 reduction in the available borrowing limit as of December ~~30, 2017~~29, 2018 and March ~~31, 2018,~~30, 2019, 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~~29, 2018 or at March ~~31, 2018.~~30, 2019. 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.

NOTE GH — 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 Company’s financial condition, liquidity or results of operations.

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE H — CONTINGENCIES - CONTINUED

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~~NOTE I — DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s 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 Company’s 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 ~~United States District Court for the District of Utah by April Rumbaugh, a purported shareholder of USANA, alleging that~~balance sheet at their respective fair values. When the Company ~~failed~~becomes a party to disclose that (i) the Company’s 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 Company’s 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; is 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 Company’s 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 and a decision is pending. The Company believes that the action is without merit,derivative instrument and intends to ~~vigorously defend against all claims asserted.~~

~~USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES~~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 instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

(The Company periodically uses derivative hedging instruments to hedge its net investment in ~~thousands, except per share data)~~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. Initially, the Company records derivative assets on a gross basis in our consolidated balance sheets. Subsequently the fair value of derivatives is measured for each reporting period. 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.

~~(unaudited)~~

As of December 29, 2018, there were no derivatives outstanding for which the Company has applied hedge accounting. During the first quarter of 2019, the Company entered into a European option designated as a net investment hedge with a notional value of $110,000. As of March 30, 2019, the Company had recorded an unrealized a loss of $986, which is recorded to FCTA within AOCI. The Company assessed hedge effectiveness under the forward rate method, determining the hedging instrument was highly effective.

NOTE H J— COMMON STOCK AND EARNINGS PER SHARE

Basic earnings per share (“EPS”) 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~~EPS 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~~EPS calculations under the treasury stock method include equity awards that are in-the-money but have not yet been exercised.

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE J— COMMON STOCK AND EARNINGS PER SHARE - CONTINUED

The following is a reconciliation of the numerator and denominator used to calculate basic ~~earnings per share~~EPS and diluted earnings per share for the periods indicated:

	Three Months Ended				Quarter Ended
	April 1,		March 31,		March 31,		March 30,
	2017		2018		2018		2019

Net earnings available to common shareholders	$	21,358	$	28,946	$	28,946	$	24,172

Weighted average common shares outstanding - basic	24,499		24,074		24,074		23,484

Dilutive effect of in-the-money equity awards	477		199		199		443

Weighted average common shares outstanding - diluted	24,976		24,273		24,273		23,927

Earnings per common share from net earnings - basic	$	0.87	$	1.20	$	1.20	$	1.03

Earnings per common share from net earnings - diluted	$	0.86	$	1.19	$	1.19	$	1.01

Equity awards consisting of stock-settled stock appreciation rights and restricted stock 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:

Three Months Ended

April 1,

March 31,

2017

2018

2,179

1,802

		Quarter Ended
		March 31,		March 30,
		2018		2019
		1,802		105

~~There were no share repurchases during the three months ended April 1, 2017.~~ During the ~~three months~~quarters ended March 31, 2018 and March 30, 2019, the Company repurchased and retired 39 shares and 284 shares for $2,943 and $30,000, respectively, under the Company’s 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 March ~~31, 2018,~~30, 2019, the remaining ~~approved~~authorized repurchase amount under the stock repurchase plan was ~~$47,057.~~$40,216. There ~~currently~~ is no expiration date on the remaining approved repurchase amount and no requirement for future share repurchases.

On April 30, 2019, the Company’s Board of Directors authorized an increase in the repurchase amount under its share repurchase plan to a total of $150,000. The authorization includes the $40,216 that was remaining under the prior authorization at March 30, 2019.

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE IK — 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~~The Company aggregates its operating segments into one reportable segment as management believes that the Company’s 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 Company’s nutritional, foods, and personal care/skincare products for the periods indicated.

	Three Months Ended				Quarter Ended
	April 1,		March 31,		March 31,		March 30,
	2017		2018		2018		2019

USANA® Nutritionals	85	%	83	%	83	%	84	%
USANA Foods	8	%	8	%	8	%	8	%
Personal care/Skincare
Sensé — beautiful science®	6	%	4	%	4	%	1	%
Celavive®(1)	N/A		4	%	4	%	6	%

(1) The Company launched ~~the Celavive® line~~Celavive® in every market except China in the first quarter of 2018 and ~~anticipates launching~~launched in China ~~during~~late in the ~~fourth~~third quarter of 2018.

Selected financial information for the Company is presented for two geographic regions: Asia Pacific ~~with~~(with three ~~sub-regions under Asia Pacific,~~sub-regions), 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.~~subsidiary;

· Southeast Asia Pacific — Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand, and Indonesia

· North Asia — Japan and South ~~Korea~~

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.~~Netherlands

(2) The Company 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 IK — SEGMENT INFORMATION - CONTINUED

Selected Financial Information

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

	Three Months Ended
	April 1,		March 31,		Quarter Ended
	2017		2018		March 31,		March 30,
					2018		2019
Net Sales to External Customers

Asia Pacific
Greater China	$	131,738	$	157,808	$	157,808	$	144,153
Southeast Asia Pacific	50,406		56,228		56,228		54,515
North Asia	12,956		18,084		18,084		22,228
Asia Pacific Total	195,100		232,120		232,120		220,896

Americas and Europe	60,223		59,878		59,878		52,094

Consolidated Total	$	255,323	$	291,998	$	291,998	$	272,990

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				Three Months Ended
	April 1,		March 31,		March 31,		March 30,
	2017		2018		2018		2019

Net sales:
China	$	115,457	$	140,592	$	140,592	$	127,372
United States	$	30,166	N/A

	As of				As of
	December 30,		March 31,		December 29,		March 30,
	2017		2018		2018		2019
Long-lived assets:
China	$	96,248	$	99,365	$	89,509	$	95,386
United States	$	59,589	$	56,520	$	49,195	$	49,875

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our Unaudited Condensed Consolidated Financial Statements and Notes thereto that are contained in this report, with a narrative from the perspective of management. The following discussion and analysis of ~~USANA’s~~our financial condition and results of operations is presented in ~~six~~ five 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 Management’s 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,~~29, 2018, 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 ~~personal care/~~skincare products that ~~are distributed~~we distribute 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~~to improve the overall health and nutrition of individuals and families around the world. Our customer base comprises two types of customers: “Associates” and “Preferred ~~Customers”~~Customers,” referred to together collectively in this report as “active Customers.” Our Associates also sell products to retail customers and 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 March ~~31, 2018,~~30, 2019, we had approximately ~~585,000~~586,000 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~~Pacific:

· Greater China — Hong Kong, Taiwan, and China. Our business in China is conducted by BabyCare, our wholly-owned ~~subsidiary.~~subsidiary;

· Southeast Asia Pacific — Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand, and Indonesia

· North Asia — Japan and South ~~Korea~~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~~(1) We commenced operations in Germany, Spain, Italy, and Romania near the end of ~~USANA~~â ~~Nutritionals, USANA Foods, Sensé — beautiful science~~â ~~(Sensé), our line~~the second quarter of ~~personal care products, and Celavive~~â ~~the new innovative skincare system with our InCelligence Technology~~TM~~. The USANA Nutritionals product line is further categorized into two separate classifications: Essentials and Optimizers.~~ 2018.

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:

Three Months Ended

April 1, 2017

March 31, 2018

Product Line

USANA® Nutritionals

Essentials/CellSentials

20
%
18
%
Optimizers

65
%
65
%
USANA Foods

8
%
8
%
Personal care/Skincare

Sensé — beautiful science®

6
%
4
%
Celavive®(1)

N/A

4
%
All Other

1
%
1
%

Key Product

USANA® Essentials/CellSentials

13
%
12
%
Proflavanol®

15
%
11
%
BiOmega-3™

15
%
14
%

	Three Months Ended
	March 31, 2018		March 30, 2019

Product Line
USANA® Nutritionals
Essentials/CellSentials	18	%	19	%
Optimizers	65	%	65	%
USANA Foods	8	%	8	%
Personal care/Skincare
Sensé — beautiful science®	4	%	1	%
Celavive®(1)	4	%	6	%
All Other	1	%	1	%

Key Product
USANA® Essentials/CellSentials	12	%	12	%
Proflavanol®	11	%	11	%
BiOmega-3™	14	%	15	%

(1) We launched ~~the Celavive® line~~Celavive® in every market except China in the first quarter of 2018 and ~~anticipate launching~~launched in China ~~during~~late in the ~~fourth~~third quarter of 2018.

We believe that our ability to attract and retain ~~Associates and Preferred~~active Customers ~~to sell and consume our products~~ is positively influenced by a number of factors, ~~some of which include:~~including our high-quality product offerings and the general public’s heightened awareness and understanding of the connection between diet and long-term ~~health,~~health. Additionally, we believe that our Associate compensation plan and the general public’s growing desire for a secondary source of income and small business ~~ownership.~~

~~We believe that~~ownership are key to our ~~high-quality products~~ability to attract and ~~our Associate Compensation Plan are the key components to attracting and retaining~~retain 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. Additionally, the initiatives we are executing under our customer experience, and our social media and sharing strategies are designed to promote active Customer growth.

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 three months ended March ~~31, 2018,~~30, 2019, net sales outside of the United States represented ~~90.2%~~90.8% 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 our sales by increasing the number of our active Customers, ~~and/or increase~~ the amount they spend on average, ~~to increase net sales.~~or both. 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 ~~the majority of our product sales, representing~~ approximately ~~57%~~59% of product sales during the three months ended March ~~31, 2018;~~30, 2019; 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~~region, rounded to the nearest thousand as of the dates indicated.

Active Associates by Region

As of

As of

Change from

Percent

April 1, 2017

March 31, 2018

Prior Year

Change

Asia Pacific:

Greater China

107,000

37.7
%
108,000

37.5
%
1,000

0.9
%
Southeast Asia Pacific

88,000

31.0
%
88,000

30.6
%
—

0.0
%
North Asia

19,000

6.7
%
24,000

8.3
%
5,000

26.3
%
Asia Pacific Total

214,000

75.4
%
220,000

76.4
%
6,000

2.8
%

Americas and Europe

70,000

24.6
%
68,000

23.6
%
(2,000
)
(2.9
)%

284,000

100.0
%
288,000

100.0
%
4,000

1.4
%

Active Preferred Customers by Region

As of

As of

Change from

Percent

April 1, 2017

March 31, 2018

Prior Year

Change

Asia Pacific:

Greater China

183,000

63.1
%
194,000

65.3
%
11,000

6.0
%
Southeast Asia Pacific

14,000

4.8
%
21,000

7.1
%
7,000

50.0
%
North Asia

11,000

3.8
%
11,000

3.7
%
—

0.0
%
Asia Pacific Total

208,000

71.7
%
226,000

76.1
%
18,000

8.7
%

Americas and Europe

82,000

28.3
%
71,000

23.9
%
(11,000
)
(13.4
)%

290,000

100.0
%
297,000

100.0
%
7,000

2.4
%

~~Current Focus and Recent Developments~~

~~Our primary objective is to increase the number of active Customers who use our products throughout the world. We have several strategies in place to support this objective, including:~~

· We successfully launched the Celavive® skincare line in every market with the exception of China, where we anticipate launching in the fourth quarter. Our 2018 objective is to position Celavive® to generate incremental sales to a new customer demographic for USANA and grow our personal care/skincare line from approximately 6% of net sales to an estimated run rate of 10% of net sales by the end of fiscal 2018.

· We plan to roll out our new WeChat platform in China during the second quarter of 2018. WeChat is a Chinese multi-purpose messaging and social media app that is widely thought of as China’s “app for everything” because of its wide range of functionality. This new platform is expected 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. This new platform demonstrates our commitment to making business convenient for our independent Associates.

· 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.

· We will open four new European markets in mid-June: Germany, Spain, Italy, and Romania. Each of these markets will be supported by our European regional headquarters in Paris, France, which presents an efficient opportunity for USANA to expand its consumer base throughout Europe.

	Total Active Customers by Region
	As of			As of			Change from		Percent
	March 31, 2018			March 30, 2019			Prior Year		Change

Asia Pacific:
Greater China	302,000	51.6	%	304,000	51.9	%	2,000		0.7	%
Southeast Asia Pacific	109,000	18.6	%	111,000	18.9	%	2,000		1.8	%
North Asia	35,000	6.0	%	44,000	7.5	%	9,000		25.7	%
Asia Pacific Total	446,000	76.2	%	459,000	78.3	%	13,000		2.9	%

Americas and Europe	139,000	23.8	%	127,000	21.7	%	(12,000	)	(8.6	)%

	585,000	100.0	%	586,000	100.0	%	1,000		0.2	%

Non-GAAP Financial Measures

~~Regulation G, Conditions for Use~~We believe that presentation of non-GAAP ~~Financial Measures,~~financial information is meaningful and ~~other SEC regulations define~~useful in understanding the activities and ~~prescribe the conditions for use~~business metrics of ~~certain~~our operations. We believe that these non-GAAP financial ~~information. Constant~~measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. We provide non-GAAP financial information for informational purposes only. Readers should consider the information in addition but not instead of or superior to, our consolidated financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

We use constant currency net sales, local currency net sales, earnings, diluted EPS and other currency-related financial information ~~(collectively, “Financial Results”)~~terms used to discuss our financial results in this report that are non-GAAP financial measures ~~that~~to remove the impact of fluctuations in foreign-currency exchange rates and to help facilitate period-to-period comparisons of our ~~Financial Results~~results of operations and thus provide investors an additional perspective on trends and underlying business results. ~~Constant~~Changes in our reported revenue and profits include the impacts of changes in foreign currency exchange rates. As additional information to the reader, we provide constant currency assessments in this MD&A to remove or quantify the impact of the fluctuation in foreign exchange rates and utilize constant currency results in our analysis of performance. Our constant currency Financial Results are calculated by translating the current period’s 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 period’s 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 more meaningful and consistent manner while also highlighting more 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 first quarter of ~~2018 increased 14.4%~~2019 decreased 6.5% to ~~$292.0~~$273.0 million, ~~an increase~~a decrease of ~~$36.7~~$19.0 million, compared with the first quarter of ~~2017.~~2018. This ~~increase~~decrease resulted from (i) a lack of promotional activity around the world during the quarter; (ii) negative media in China regarding the health products and direct sales industries, which was ~~mainly driven by three factors:~~associated with the Chinese government’s 100-day review of these industries during the quarter; and (iii) a ~~targeted product promotion in Mainland China contributed approximately $11~~negative impact of $13.3 million related to ~~net sales, the launch of our new Celavive~~® ~~line contributed approximately $9 million in incremental sales, and favorable~~unfavorable changes in currency exchange ~~rates increased net~~rates.

Although our 2019 operating plan contains escalating promotional activity throughout 2019, it contained very little activity during the first quarter. This was the case because we align our annual operating plan and promotional calendar to offer additional promotions and incentives at strategic times throughout the year to drive momentum. While we believed the plan as a whole was well developed, the lack of promotional activity during the first quarter had a more significant impact on our worldwide momentum than we anticipated. Promotional activity in our various markets is commencing in the second quarter of 2019 and the intent of this activity is to generate sales and customer growth around the world. While we believe that we will begin to see positive results from this activity during the second quarter of 2019, we believe our results will accelerate during the second half of 2019.

Our results for the first quarter were also negatively affected by ~~$16.4 million.~~

~~We implemented ASU 2014-09, “Revenue from Contracts~~media coverage in China associated with ~~Customers (Topic 606),” effective at~~ the ~~beginning~~Chinese government’s 100-day review of ~~fiscal 2018~~the health products and ~~applied~~direct selling industries that occurred during the ~~modified retrospective approach. Accordingly,~~quarter. This volume of negative media coverage regarding our industry was unanticipated and slowed the productivity of our Associates, generated skepticism amongst customers and potential customers, all of which adversely affected our sales in China for the quarter. The Chinese government’s 100-day review of these industries concluded in April 2019, and we ~~recognized~~expect to see a more typical operating environment in China going forward. While we believe that we will begin to see progress in China during the ~~cumulative effect~~second quarter of ~~initially applying ASC 606 as an adjustment to~~2019, we believe that our results in China will further accelerate during the ~~fiscal 2018 opening balance~~second half of ~~retained earnings. This adjustment did not have a material impact on our consolidated financial statements. Beyond this adjustment, there were no other changes that were~~

~~materially different from previous accounting standards that would affect our consolidated financial statements. See Notes A and B to~~ the ~~Condensed Consolidated Financial Statements included in Item 1 Part I of this Report on Form 10-Q.~~year.

Net earnings for the first quarter of ~~2018 increased 35.5% to~~2019 were $24.2 million, a decrease of 16.5%, compared with $28.9 million ~~an increase of $7.6 million, compared with~~during the ~~first quarter of 2017.~~prior-year period. The ~~increase~~decrease in net earnings was ~~mostly~~ the result of ~~higher~~lower net sales, ~~benefitted by lower~~and higher relative operating ~~expenses, and a lower effective tax rate.~~expenses.

Quarters Ended ~~April 1, 2017~~March 31, 2018 and March ~~31, 2018~~30, 2019

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:

																																		Percent
	Net Sales by Region															Percent change		Net Sales by Region																change
	(in thousands)													Currency		excluding		(in thousands)													Currency			excluding
	Quarter Ended								Change from			Percent		impact on		currency		Quarter Ended								Change from			Percent		impact on			currency
	April 1, 2017				March 31, 2018				prior year			change		sales		impact		March 31, 2018				March 30, 2019				prior year			change		sales			impact
Asia Pacific
Greater China	$	131,738	51.6	%	$	157,808	54.0	%	$	26,070		19.8	%	$	11,129	11.3	%	$	157,808	54.0	%	$	144,153	52.8	%	$	(13,655	)	(8.7	)%	$	(8,252	)	(3.4	)%
Southeast Asia Pacific	50,406		19.7	%	56,228		19.3	%	5,822			11.6	%	2,244		7.1	%	56,228		19.3	%	54,515		20.0	%	(1,713		)	(3.0	)%	(2,566		)	1.5	%
North Asia	12,956		5.1	%	18,084		6.2	%	5,128			39.6	%	1,209		30.2	%	18,084		6.2	%	22,228		8.1	%	4,144			22.9	%	(1,074		)	28.9	%
Asia Pacific Total	195,100		76.4	%	232,120		79.5	%	37,020			19.0	%	14,582		11.5	%	232,120		79.5	%	220,896		80.9	%	(11,224		)	(4.8	)%	(11,892		)	0.3	%

Americas and Europe	60,223		23.6	%	59,878		20.5	%	(345		)	(0.6	)%	1,807		(3.6	)%	59,878		20.5	%	52,094		19.1	%	(7,784		)	(13.0	)%	(1,412		)	(10.6	)%

	$	255,323	100.0	%	$	291,998	100.0	%	$	36,675		14.4	%	$	16,389	7.9	%	$	291,998	100.0	%	$	272,990	100.0	%	$	(19,008	)	(6.5	)%	$	(13,304	)	(2.0	)%

Asia Pacific: The ~~increase~~decrease in constant currency net sales in Greater China ~~continues to be~~was driven largely by ~~growth~~a sales decline in Mainland China, where local currency net sales ~~increased 12.5%~~decreased 3.9%. The ~~increase~~decrease in constant currency net sales in Southeast Asia Pacific was

driven by ~~double digit~~ local currency ~~growth~~declines in several markets, ~~led by Malaysia,~~including Australia and ~~Singapore. The increase~~Singapore, which declined 7.0% and 13.0%, respectively. These decreases were partially offset by local currency increases in ~~constant currency net sales in North Asia continues to be driven by growth~~the Philippines and Thailand, which increased 20.6% and 25.8%, respectively. Growth in South Korea, where local currency net sales increased ~~31.8%,~~30.3% and the number of active Customers increased ~~17.9%.~~27.3% continues to drive the increase in constant currency net sales in North Asia.

Americas and Europe: The decrease in constant currency net sales in this region ~~continues to be~~was driven by ~~declines~~decreases in several markets. Sales decreased 12.2% in the U.S., ~~where sales decreased $1.5 million or 4.9% due to a decline of 13.4%~~9.2% in Canada, and 17.9% in Mexico during the quarter. During fiscal year 2019, we will introduce several new, trial initiatives in the ~~number of active Customers.~~United States, which are intended to improve our customer experience and simplify our incentive offering to our sales force. We believe that these incentives will help generate sales and customer growth in the United States and potentially other markets in this region.

Gross Profit

Gross profit ~~decreased 20~~increased 10 basis points to ~~83.1%~~83.2% of net sales for the first quarter of ~~2018,~~2019, from ~~83.3%~~83.1% in the prior year. This ~~decrease~~increase can be attributed to (i) lower scrap reserves, (ii) lower conversion costs resulting from higher production levels, (iii) price changes, and (iv) favorable changes in sales mix by ~~market, lower production efficiencies, and higher material costs.~~market. These ~~changes~~increases were partially offset by ~~favorable changes~~(i) costs associated with our Celavive® skincare line, which carries a higher relative cost than our previous skincare line, (ii) leverage lost on fixed period costs associated with lower sales, and (iii) an unfavorable change in currency exchange ~~rates in markets outside of China, leverage from higher sales on fixed costs, and lower relative freight costs, as well as annual price adjustments~~.rates. With the exception of China, where products are manufactured in-market, changes in currency exchange rates affect the valuation of ~~U.S. manufactured~~U.S.-manufactured inventory that is transferred to our other international subsidiaries.

Associate Incentives

Associate incentives ~~were 44.3%~~increased 60 basis points to 44.9% of net sales for the first quarter of ~~2018,~~2019, compared with ~~45.3%~~44.3% in the prior year. ~~This decrease~~The relative increase can be ~~primarily~~ attributed to a typical pattern of modestly higher commissions and bonuses in periods of softer sales from our new Celavive® product line and the product promotion held in China during the first quarter of 2018. To a lesser extent, our annual price adjustments also contributed to lower relative Associate incentives.performance.

Selling, General and Administrative Expenses

In absolute terms, our selling, general and administrative expense ~~increased $6.1~~decreased $0.6 million during the first quarter of ~~2018~~2019 when compared with the same period of the ~~prior-year.~~prior year. This ~~increase can be attributed~~decrease is due to ~~(i) higher wages and benefits expense to support our growing customer base and to further improve our customers’ experience around~~ the ~~world, (ii) investment~~lower spend in the quarter on information technology systems and infrastructure, ~~and (iii) higher costs to support the launch of Celavive®.~~partially offset by increased advertising expense.

Income Taxes

Income taxes were ~~34.2%~~33.4% of earnings in the first quarter of ~~2018~~2019 compared with ~~36.0%~~34.2% of earnings in the prior year. ~~The lower effective~~This small improvement is due primarily to recognition of tax ~~rate for the first quarter compared with the same period of the prior-year is primarily due to higher non-deductible expenses recognized during~~benefits from equity award exercises that occurred in the first quarter of ~~2017. 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.~~2019.

Diluted Earnings Per Share

Diluted ~~earnings per share increased 38.4%~~EPS decreased 15.1% in the first quarter of ~~2018~~2019 when compared with the prior-year quarter. This ~~increase~~decrease was due to ~~higher~~lower net earnings ~~and~~offset, in part, by a lower ~~number of shares outstanding resulting from activity under our~~diluted share ~~buyback program.~~count.

Liquidity and Capital Resources

We have historically met our working capital and capital expenditure requirements by using both net cash flow from operations and drawing periodically ~~drawing~~ on our line of credit. Our principal source of liquidity is our operating cash flow. Although we are required to maintain cash deposits with banks in certain of our markets, there are currently no material restrictions on our ability to transfer and remit funds among our international markets. In ~~Mainland~~ China, however, our compliance with Chinese accounting and tax regulations promulgated by the State Administration of Foreign Exchange (“SAFE”) results in transfer and remittance of our profits and dividends from ~~Mainland~~ China to the United States on a delayed basis. If SAFE or other Chinese regulators introduce new regulations, or change existing regulations which allow foreign investors to remit profits and dividends earned in China to other countries, our ability to remit profits or pay dividends from ~~Mainland~~ China may be limited in the future. Notwithstanding the foregoing, if we were to repatriate the $7.5 million of cumulative earnings that have been indefinitely reinvested in certain of our markets at March 31, 2018, we would have a tax liability of approximately $0.8 million.

We have ~~historically~~typically generated positive cash flow due to our strong operating margins. Net cash flow from operating activities totaled $5.5 million in the first three months of 2019. Items increasing cash flows from operations in the first three months of 2019 include: (i) net earnings, and (ii) adjustments of non-cash items. These increases were partially offset by cash paid to reduce accrued employee compensation costs and accrued Associate incentives.

Net cash flow from operating activities totaled $19.5 million in the first three months of 2018. Items increasing cash flows from operations in the first three months of 2018 include: (i) net earnings, and (ii) depreciation related to investment in information technology systems. These increases were partially offset by (i) payment of accrued employee compensation, ~~costs,~~ (ii) tax payments, and (iii) cash used on inventories.

Net cash flow from operating activities totaled $1.9 million in the first three months of 2017. Items impacting cash flows from operations in the first three months of 2017 include: (i) net earnings, and (ii) depreciation related to investment in information technology systems. These increases were reduced by (i) payment of accrued employee compensation costs, (ii) payment of accrued commissions, and (iii) deferred revenue.

Cash and cash equivalents ~~increased to $266.2 million~~and securities held-to-maturity at March ~~31, 2018, from $247.1~~30, 2019, totaled $251.9 million of which, $17.7 million was held as cash and cash equivalents and $26.9 million as securities held-to-maturity in the United States. Of the remaining $207.3 million held by our international subsidiaries, $175.9 million was concentrated in China. Cash and cash equivalents and securities held-to-maturity at December ~~30, 2017.~~29, 2018, totaled $277.9 million of which, $23.3 million was held as cash and cash equivalents and $63.5 million as securities held-to-maturity in the United States. Of the ~~$266.2~~remaining $191.1 million held ~~at March 31, 2018, $37.1~~by our international subsidiaries, $157.3 million was held in ~~the United States and $229.1 million was held by international subsidiaries. In comparison, of the $247.1 million in cash and cash equivalents held at December 30, 2017, $52.2 million was held in~~

~~the United States and $194.9 million was held by international subsidiaries.~~China. Net working capital ~~increased~~decreased to ~~$239.8~~$240.2 million at March ~~31, 2018,~~30, 2019, from ~~$199.0~~$243.6 million at December ~~30, 2017.~~29, 2018. Net working capital was reduced by $6.8 million due to the adoption of the new lease standard under Topic 842.

Line of Credit

Information with respect to our line of credit may be found in Note FG to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Report on Form 10-Q.

Share Repurchase

During the three months ended March ~~31, 2018~~30, 2019, we repurchased ~~39,000~~283,600 shares of our common stock for ~~$2.9~~$30.0 million under our share repurchase plan, at an average market price of ~~$74.77.~~$105.78 per share. At March ~~31, 2018,~~30, 2019, the remaining ~~approved~~authorized repurchase amount under the plan was ~~$47.1~~$40.2 million. There ~~currently~~ is no expiration date on the ~~remaining approved~~ repurchase ~~amount~~plan and no requirement for future share repurchases.

On April 30, 2019, our Board of Directors authorized an increase in the repurchase amount under the share repurchase plan to a total of $150 million, including the $40.2 million that was remaining under the prior authorization at March 30, 2019.

Off-Balance Sheet Arrangements

None.

Summary

We believe ~~that~~our current cash balances and investments, future cash provided by operations, and amounts available under our line of credit will be sufficient to cover our operating and capital needs in the ordinary course of business for the foreseeable future. If we experience an adverse operating environment or unanticipated and unusual capital expenditure requirements, additional financing may be required. No assurance can be given, however, that additional financing, if required, would be available to us at all or on favorable terms. We might also require or seek additional financing for the purpose of expanding into new markets, growing our existing markets, or for other reasons. Such financing may include the use of additional debt or the sale of additional equity securities. Any financing which involves the sale of equity securities or instruments that are convertible into equity securities could result in immediate and possibly significant dilution to our existing shareholders.

Cautionary Note Regarding Forward-Looking Statements and Certain Risks

~~The statements contained in this~~This report ~~that are not purely historical are considered to be~~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. These~~Act of 1934, as amended (the “Exchange Act”). All statements ~~represent our expectations, hopes, beliefs, anticipations, commitments, intentions,~~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 ~~future. They may~~foregoing. Forward-looking statements can be identified by ~~the use of~~ words ~~or phrases~~ such ~~as “believes,~~as: “anticipate,” ~~“expects,~~“intend,” ~~“anticipates,~~“plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” ~~“plans,” “estimates,”~~“will” and ~~“potential,” among others.~~similar references to future periods. Forward-looking statements ~~include, but~~ are ~~not limited~~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 ~~statements contained~~the future, they are subject to inherent uncertainties, risks and changes in ~~Management’s Discussion~~circumstances that are difficult to predict and ~~Analysis~~many of ~~Financial Condition~~which are outside of our control. Our actual results and ~~Results of Operations regarding our~~ financial ~~performance, revenue, and expense levels~~condition may differ materially from those indicated in the ~~future and~~forward-looking statements.

Although we believe that the ~~sufficiency~~expectations reflected in any of our ~~existing assets to fund our future operations and capital spending needs. Readers~~forward-looking statements are ~~cautioned that~~reasonable, actual results could differ materially from ~~the anticipated~~those projected or assumed in any of our forward-looking statements. Our future financial condition and results ~~or other expectations that are expressed in these~~of operations, as well as any forward-looking statements, ~~for~~are subject to change and to inherent risks and uncertainties, such as those disclosed or incorporated by reference in our filings with the ~~reasons that are detailed in~~SEC including our most recent Annual Report on Form 10-K. The fact that some of these risk factors may be the same or similar to those in our past SEC reports means only that the risks are present in multiple periods. We believe that many of the risks detailed here and in our other SEC filings are part of doing business in the industry in which we operate and will likely be present in all periods reported. The fact that certain risks are common in the industry does not lessen their significance. The10-K. Any forward-looking ~~statements contained~~statement made by us in this report ~~are made~~is based only on information currently available to us and speaks only as of the date ~~of this report, and we assume~~hereof. We undertake no obligation to publicly update ~~them~~any forward-looking statement, whether written or ~~to update the reasons why our actual results could differ from those that we have projected. Among others, risks and uncertainties~~oral, that may ~~affect our business, financial condition, performance, development, and results~~be made from time to time, whether as a result of ~~operations include:~~new information, future developments, the occurrence of unanticipated events or otherwise.

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

· Our dependence upon a network marketing 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 China, governing direct selling and anti-pyramiding, including for example, changes, if any resulting from the 100-day review concluded in April 2019;

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

· Adverse changes in the Chinese economy;

· Challenges associated with our planned expansion into new international markets, ~~including~~ delays in commencement of sales or product offerings in ~~any new market,~~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 network marketing industry;

· Reliance on our key management personnel;

· Extensive government regulation of our products, manufacturing, and network marketing system;

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

· An increase in ~~the amount~~Associate incentives as a percentage of ~~Associate incentives;~~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 ~~and~~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;

· 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.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from the information presented for the year ended December ~~30, 2017.~~29, 2018.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information that is required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods that are specified in the SEC’s rules

and forms and that such information is accumulated and communicated to management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure. In designing and evaluating these disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As of the end of the period covered by this report, our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a- 15(e) under the Exchange Act). Based on this evaluation, the ~~Principal~~Chief Executive Officer and ~~Principal~~Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March ~~31, 2018.~~30, 2019.

Changes in Internal Control Over Financial Reporting

Beginning December ~~31, 2017,~~30, 2018, we implemented ASU ~~2014-09, “Revenue from Contracts with Customers~~2016-02, “Leases (Topic ~~606)~~842).” In connection with its adoption, we implemented changes to our processes and internal control activities related to ~~revenue~~leases to ensure compliance with the new accounting and disclosure rules.

Except for the preceding changes, there were no changes in our internal control over financial reporting during the fiscal quarter ended March ~~31, 2018~~30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are a party to litigation and other proceedings 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.

Information with respect to our legal proceedings may be found in Note GH to the Condensed Consolidated Financial Statements included in Item 1 Part I of this ~~Report~~report on Form 10-Q.

Item 1A. Risk Factors

Our business, results of operations, and financial condition are subject to various risks. These risks are described elsewhere in this Quarterly Report on Form 10-Q and our other filings with the SEC, including the ~~2017~~2018 Form ~~10-K. The~~10-K filed with the SEC on February 26, 2019. Except as provided below, the risk factors identified in our ~~2017~~2018 Form 10-K have not changed in any material respect. The information presented below supplements and should be read in conjunction with the detailed discussion of risks associated with our business in our recent SEC filings, including our Annual Report on Form 10-K for the 2018 fiscal year.

Our operations in China are subject to significant government regulation, as well as a variety of legal, political, and economic risks. If the government modifies the direct selling regulations, or interprets and enforces the regulations in a manner that is adverse to our business in China, our consolidated business and results of operations may be materially harmed.

Our operations in China are conducted by BabyCare, a direct selling company that we indirectly acquired several years ago to facilitate our expansion into China. BabyCare operates in China pursuant to direct selling laws and regulations that are uncertain and evolving. These regulations contain a number of financial and operational restrictions for direct selling companies, most notably on pyramid selling and multi-level compensation. The laws and regulations are also subject to discretionary interpretation and enforcement by various state, provincial and municipal level officials in China. Regulators in China may change how they interpret and enforce the direct selling regulations, both current interpretations and enforcement thereof or future iterations. Regulators in China may also modify the current regulations. As a result, there can be no assurance that the Chinese government’s current or future interpretation and application of existing and new regulations will not negatively impact our business in China, result in regulatory investigations or lead to fines or penalties against us or our Associates.

The Chinese central government also exercises significant control over the Chinese economy, including through controlling capital, controlling foreign exchange and foreign exchange rates, controlling tax regulations, providing preferential treatment to certain industry segments or companies and issuing required licenses to conduct business. In addition, we could face additional risks resulting from changes in China’s data privacy and security requirements. Accordingly, any adverse change in the Chinese governmental, economic or other policies could have a material adverse effect on BabyCare’s business in China and our consolidated results of operations.

Certain trade policies, tariffs, other trade actions implemented by the United States in 2018 against other countries, including China, relating to the import and export of certain products, and negotiations with respect thereto, may have a negative effect on our business, financial condition, and results of operations in China and other markets. China, and certain of our other markets, have imposed, or threatened to impose, tariffs on U.S. imports or to take other actions in retaliation to actions taken by the United States. These developments may have a material adverse effect on the economy, financial markets, and currency exchange rates in China and the United States, which represent our two largest markets. Additionally, any actions taken by the Chinese government, or the government in our other markets, to implement further trade policy changes, financial restrictions, or increased regulatory scrutiny on U.S. companies could negatively impact our business, financial condition, and results of operations.

While BabyCare utilizes a business model that has been developed specifically for China’s laws and regulations, BabyCare’s model has not been formally approved by the Chinese government.

BabyCare’s business model has been designed specifically for China’s laws and regulations based on, among other things: (i) BabyCare’s communications with the Chinese government, (ii) BabyCare’s interpretation of the direct selling laws and

regulations, as well as its understanding of how the government interprets and enforces the regulations, and (iii) BabyCare’s understanding of how other multinational direct selling companies operate in China. Many of the components of BabyCare’s business model are unique to China and are not part of our business model in our markets outside of China. For example, BabyCare sells products in China through a variety of methods, including: (a) online through its website; (b) at physical branch retail locations in China; (c) through direct sellers in provinces and municipalities where BabyCare has received a direct sales license; and (d) through independent distributors who are considered independent business owners under Chinese law. BabyCare has not received formal confirmation from the Chinese government that its business model and operations in China comply with applicable laws and regulations, including those pertaining to direct selling. We cannot be certain that BabyCare’s business model or the activities of its employees, direct sellers or independent distributors will be deemed by Chinese regulatory authorities to be compliant with current or future laws and regulations. If BabyCare’s model is deemed to be in violation of applicable regulations, as they are now or may in the future be interpreted or enforced, BabyCare could be subject to fines, penalties, suspension of its business in China or, ultimately, have its direct selling license revoked by the Chinese government, all of which could have a material adverse impact on our business in China.

BabyCare’s operations in China, and direct selling companies in general, are subject to significant government oversight, scrutiny and monitoring.

Chinese regulators regularly monitor and make inquiries about the business activities of direct sellers in China and have done so with BabyCare. These inquiries can arise in a variety of ways, including from complaints from customers, competitors or the media. For example, following various media reports in 2017, certain departments of the Chinese government, including the former State Administration of Industry and Commerce (now SAMR) and MPS, carried out a three-month review of the direct selling industry to investigate alleged violations of the direct selling regulations and anti-pyramiding regulations. Additionally, following media coverage of certain health product companies and direct selling companies in January of 2019, several departments of the Chinese government, including SAMR, MPS, and MOFCOM, carried out a 100-day review of health product and direct selling companies in China. The 100-day review required applicable companies such as BabyCare to conduct a self-assessment of the regulatory compliance of their business (including product regulatory compliance and direct selling regulatory compliance) and to provide information to the government regarding the same. The 100-day review also entailed a review of a company’s regulatory compliance by various departments of the Chinese government. During this review period, the Chinese government, among other things, (i) instructed direct selling companies to not hold large distributor meetings, and (ii) suspended its application review process for direct sales licenses and authorizations. Although the 100-day review ended on or about April 18, 2019, as of the date of this report the Chinese government has not formally reversed its instruction to direct selling companies regarding holding large distributor meetings, nor started accepting applications for direct sales licenses. These factors, and others, have contributed to the uncertain regulatory and operating environment in China for BabyCare.

The Chinese government has investigated and imposed significant fines on companies and their distributors believed to have violated direct selling and anti-pyramiding regulations. In some cases, it has even shut such companies down. There have been instances where inquiries or complaints about BabyCare’s business have resulted in warnings from the Chinese government as well as the payment of fines by BabyCare. We expect that BabyCare will continue to face the risk of government inquiries, complaints or investigations, and any determination that BabyCare’s business or the activities of its Associates are not in compliance with applicable regulations could result in additional fines, disruption of business, or the suspension or termination of BabyCare’s licenses, including its direct selling licenses, all of which could have a material adverse effect on our business and operations. There can be no assurance that the Chinese government’s interpretation and enforcement of applicable laws and regulations will not negatively impact BabyCare’s business, result in regulatory investigations or lead to fines or penalties against BabyCare, USANA or our Associates in China.

Additionally, the direct selling regulations in China prevent persons who are not Chinese nationals from engaging in direct selling in China. Although we have implemented internal policies that are designed to promote our Associates’ compliance with these regulations, we cannot guarantee that any of our Associates living outside of China or any of BabyCare’s Associates in China have not engaged or will not engage in activities that violate our policies in this market or that violate Chinese law or other applicable laws and regulations and, therefore, might result in regulatory action and adverse publicity, which would harm our business in China.

BabyCare must apply for and receive government approval to expand its business in China and its ability to expand could be negatively impacted if it is unable to obtain such required approvals.

BabyCare has obtained direct selling licenses in certain provinces and municipalities and it must obtain various licenses and approvals from additional municipalities and provinces within China if it is to operate its direct selling business model in

China. While direct selling licenses are centrally issued, the licenses are generally valid only in the jurisdictions within which related approvals have been obtained. Those approvals are generally awarded on local and provincial bases, and the approval process requires involvement with multiple ministries at each level. As of the date of this report, BabyCare has been granted licenses to engage in direct selling in the municipalities and provinces of Beijing, Jiangsu, Shaanxi, and Tianjin. In 2016, BabyCare received preliminary approval from the Chinese government to expand its direct selling business into the following eight additional provinces and municipalities: Liaoning Province, Shandong Province, Shanxi Province, Sichuan Province, Guangdong Province, Dalian City, Qingdao City, and Shenzhen City. Issuance of final direct selling approvals for these municipalities and provinces was contingent upon BabyCare satisfying certain conditions and reporting requirements. Although BabyCare has been working to satisfy these conditions and reporting requirements, we now believe that BabyCare will not be receive the final direct selling approvals for one or more of these eight additional provinces and municipalities under the current applications due to (i) delays by BabyCare in satisfying the conditions, (ii) the reorganization of several departments of the Chinese government in 2018, (iii) the Chinese government’s 100-day review of the direct sales industry, which occurred from early January 2019 through mid-April 2019, and/or (iv) the related suspension of the Chinese government’s application review process for direct sales licenses and approvals in connection with 100-day review. Consequently, if a previously submitted application is not approved, BabyCare will need to reapply for these approvals at some point. Although the 100-day review has ended, the Chinese government has not started accepting applications for direct sales licenses and approvals, nor indicated if, or when, it will do so. Due to these factors, and the discretion maintained by the Chinese government, there is no guarantee that BabyCare will be successful in reapplying for these approvals or that the Chinese government will ultimately grant BabyCare a direct sales license in these or other jurisdictions, either of which could adversely affect BabyCare’s business.

Going forward, BabyCare will be required to obtain licenses from municipalities and provinces within China where it does not hold a license. As noted above, although the 100-day review has now ended, the Chinese government has not started accepting applications for direct sales licenses and approvals, nor indicated if, or when, it will do so. If BabyCare is unable to obtain additional direct selling licenses as quickly as we would like, or at all, it would have a negative impact our ability to expand and grow our business in China. If and when the Chinese government again begins to accept direct selling applications and to issue direct sales licenses and authorizations, the process for obtaining the necessary government approvals will likely remain unpredictable, time-consuming and expensive. If the current processes for obtaining approvals are suspended or otherwise delayed for an extended period of time, or indefinitely, these events could have a negative impact on BabyCare’s growth prospects in China. Ultimately, there can be no assurance that BabyCare will be successful in maintaining its current direct-selling licenses or obtaining additional direct-selling licenses or the required approvals to expand into additional locations in China that are important to its business.

Our business is subject to the effects of adverse publicity and negative public perception.

Our ability to attract and retain Associates and to sustain and enhance sales through our Associates can be affected by adverse publicity or negative public perception regarding our industry, our competition, or our business generally. Our business prospects, financial condition and results of operations could be adversely affected if our public image or reputation were to be tarnished by negative publicity including dissemination via print, broadcast or social media, or other forms of Internet-based communications. This negative public perception may include publicity regarding the legality of direct selling, the quality or efficacy of nutritional supplement products or ingredients in general or our products or ingredients specifically, and regulatory investigations, regardless of whether those investigations involve us or our Associates or the business practices or products of our competitors or other direct selling companies.

During the first several months of 2019, the Chinse government conducted a 100-day review of the health products and direct selling industries in China. This review was accompanied by significant and persistent negative media coverage in China regarding these industries. This negative media coverage slowed the productivity of our Associates in China, generated skepticism amongst customers and potential customers and, ultimately, adversely affected our sales in China for the first quarter of 2019. Continued negative media regarding our industry in China could adversely affect our operating results and result in further regulatory scrutiny and investigations in China.

In April 2017, we were the target of an anonymous short-seller blog that contained distortions of fact and misleading information about BabyCare’s business in China.

In 2007, we were the victim of false statements made to the press and regulatory agencies, causing us to incur significant expense in defending and dispelling the allegations during 2007 and 2008. In 2012, we were again the target of false and misleading statements concerning our business practices, particularly in China and Hong Kong. This adverse publicity also had an adverse impact on the market price of our stock and caused insecurity among our Associates.

There has been significant media and short-seller attention regarding the viability and legality of direct selling in the United States, China, and internationally recently and over the past few years. This attention has led to intense public scrutiny of the industry, as well as volatility in our stock price and the stock price of companies similar to ours. There can be no assurance that we will not be subject to adverse publicity or negative public perception in the future or that such adverse publicity will not have a material adverse effect on our business, financial condition, or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~The following table presents information with respect to our purchases of USANA common stock during the three months ended March 31, 2018:~~

~~Issuer~~(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

~~(amounts in thousands, except per share data)~~

Period

Total
Number of
Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs

Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs *

Fiscal January

(Dec 31, 2017 through Feb. 3, 2018)

0

$
0.00

0

$
50,000

Fiscal February

(Feb. 4, 2018 through Mar. 3, 2018)

39

$
74.77

39

$
47,057

Fiscal March

(Mar. 4, 2018 through Mar. 31, 2018)

0

$
0.00

0

$
47,057

39

39

* Our share repurchase plan has been ongoing since the fourth quarter of 2000, with the Board of Directors periodically approving additional dollar amounts for share repurchases under the plan. At March 30, 2019, the authorized amount available for repurchases under the plan was $40.2 million. On May 1, 2019, our Board of Directors increased the authorized repurchase amount under the plan to $150 million, including the $40.2 million remaining from the prior authorization.

Repurchases are made from time to time at management’s discretion in accordance with applicable federal securities laws. Repurchases may occur through open market purchases, pursuant to a Rule 10b5-1 trading plan, or in other transactions as permitted by the rules of the SEC. There is no requirement for future share repurchases, and there ~~currently~~ is no expiration date of the repurchase plan.

The following table summarizes information relating to purchases made by or on behalf of the ~~approved repurchase amount.~~Company of shares of the Company’s common stock during the quarter ended March 30, 2019.

Issuer Purchases of Equity Securities

(amounts in thousands, except per share data)

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

Fiscal January
(Dec 30, 2018 through Feb. 2, 2019)	0	$	0.00	0	$	70,216

Fiscal February
(Feb. 3, 2019 through Mar. 2, 2019)	284	$	105.78	284	$	40,216

Fiscal March
(Mar. 3, 2019 through Mar. 30, 2019)	0	$	0.00	0	$	40,216

	284			284

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

None.

Item 5. OTHER INFORMATION

None.

Item 6. EXHIBITS

Exhibit
Number		Description

~~3.1~~3.2		Second Amended and Restated ~~Articles~~Bylaws, effective as of ~~Incorporation~~March 14, 2019 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed ~~April 25, 2006,~~with the Securities and Exchange Commission on March 15, 2019 Exhibit 3.1, File No. ~~0-21116).~~01-35024)

~~3.2~~		~~Bylaws (incorporated by reference to Current Report on Form 8-K, filed April 25, 2006, Exhibit 3.2, File No. 0- 21116).~~

~~4.1~~		~~Specimen Stock Certificate for Common Stock (incorporated by reference to Registration Statement on Form 10, File No. 0-21116, effective April 16, 1993)~~

31.1		Certification of Principal Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2		Certification of Principal Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1		Certification of Principal Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith)

32.2		Certification of Principal Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 (filed herewith)

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May ~~9, 2018~~7, 2019

	USANA HEALTH SCIENCES, INC.


	/s/ G. Douglas Hekking
	G. Douglas Hekking
	Chief Financial Officer
	(Principal Financial Officer)

2932

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		~~3838 West Parkway Blvd., Salt Lake City, Utah~~ 84120
(Address of principal executive offices)		(~~Address of principal executive offices,~~ Zip Code)

Large accelerated filer x		Accelerated filer o

Non-accelerated filer o		Smaller reporting company o
~~(Do not check if a smaller reporting company)~~
	Emerging growth company o

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		USNA		New York Stock Exchange

	Balance at		ASC 606			Balance after
	December 30, 2017		Adjustments			ASC 606 Adjustments

Assets
Inventories	$	62,918	$	(350	)	$	62,568
Prepaid expenses and other current assets	30,110		(1,147		)	28,963

Liabilities
Other current liabilities	$	129,396	$	(2,491	)	$	126,905

Stockholders’ Equity
Retained earnings	$	288,070	$	994		$	289,064

	Active Associates by Region
	As of			As of			Change from		Percent
	April 1, 2017			March 31, 2018			Prior Year		Change

Asia Pacific:
Greater China	107,000	37.7	%	108,000	37.5	%	1,000		0.9	%
Southeast Asia Pacific	88,000	31.0	%	88,000	30.6	%	—		0.0	%
North Asia	19,000	6.7	%	24,000	8.3	%	5,000		26.3	%
Asia Pacific Total	214,000	75.4	%	220,000	76.4	%	6,000		2.8	%

Americas and Europe	70,000	24.6	%	68,000	23.6	%	(2,000	)	(2.9	)%

	284,000	100.0	%	288,000	100.0	%	4,000		1.4	%