USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________

FORM 10-Q

(Mark One)

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

For the quarterly period ended March ~~30, 2019~~28, 2020

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

For the transition period from ___________ to ____________

Commission file number: 001-35024

______________________

USANA HEALTH SCIENCES, INC.

(Exact name of registrant as specified in its charter)

~~Utah~~		~~87-0500306~~
Utah	87-0500306
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

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

______________________

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

(Address of principal executive offices) (Zip Code)

______________________

(801) 954-7100

(Registrant’s telephone number, including area code)

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


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

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

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

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



Large accelerated filer x	Accelerated filer o¨
Non-accelerated filer ¨	Smaller reporting company ¨
~~Non-accelerated filer~~ o	~~Smaller reporting company~~ o

	Emerging growth company o¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o¨

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

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

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

~~The~~ number of shares outstanding of each of the ~~registrant’s~~issuer’s classes of common stock, as of the latest practicable date: As of May ~~3, 2019 was 23,338,643~~1, 2020, 21,014,330 shares of common stock, $.001 par value, of the registrant were outstanding.
‎

Table of Contents

USANA HEALTH SCIENCES, INC.

FORM 10-Q

For the Quarterly Period Ended March ~~30, 2019~~28, 2020

~~INDEX~~TABLE OF CONTENTS

		~~Page~~
		Page
Cautionary Note Regarding Forward-Looking Statements and Certain Risks		1
PART I. FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	2
~~Item 1~~	~~Financial Statements (unaudited)~~
	Condensed Consolidated Balance Sheets	32
	Condensed Consolidated Statements of Comprehensive Income	43
	Condensed Consolidated Statements of Stockholders’ Equity	54
	Condensed Consolidated Statements of Cash Flows	65
	Notes to Condensed Consolidated Financial Statements	~~7-18~~6 - 12
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~19-26~~13 - 19
Item 3	Quantitative and Qualitative Disclosures About Market Risk	2619
Item 4	Controls and Procedures	2619

PART II. OTHER INFORMATION
Item 1	Legal Proceedings	20
Item 11A	~~Legal Proceedings~~Risk Factors	2720
Item 1A2	~~Risk Factors~~	27
~~Item 2~~	Unregistered Sales of Equity Securities and Use of Proceeds	3021
Item 3	Defaults Upon Senior Securities	3021
Item 4	Mine Safety Disclosures	3021
Item 5	Other Information	3021
Item 6	Exhibits	3121
Signatures
~~Signatures~~		3223

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Table of Contents

Cautionary Note Regarding Forward-Looking Statements and Certain Risks

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

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

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

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

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

Unanticipated effects of changes to our Compensation Plan;

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

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

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

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

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

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

Our continued compliance with debt covenants in our credit facility, and;

The outcome of the internal investigation into our China operations.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

(unaudited)


	As of			As of
	December 29,			March 30,			As of		As of
	2018			2019			March 28,		December 28,
							2020		2019
ASSETS
Current assets
Cash and cash equivalents	$	214,326		$	225,041		$	194,098	$	234,830
Securities held-to-maturity	63,539			26,854
Inventories	81,948			86,465				60,568		68,905
Prepaid expenses and other current assets	32,522			31,819				32,097		25,544
Total current assets	392,335			370,179				286,763		329,279

Property and equipment, net	92,025			91,994				97,246		95,233

Goodwill	16,815			17,073				16,493		16,636
Intangible assets, net	31,811			32,227				29,071		29,840
Deferred tax assets	3,348			3,249				2,756		3,090
Other assets	18,129			36,861				41,421		42,856
	$	554,463		$	551,583		$	473,750	$	516,934

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	9,947		$	11,700		$	11,824	$	12,525
Other current liabilities	138,739			118,292				112,680		123,573
Total current liabilities	148,686			129,992				124,504		136,098

Deferred tax liabilities	13,367			17,507				13,730		10,282
Other long-term liabilities	1,264			12,867				17,908		18,842

Stockholders’ equity
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
Stockholders' equity
Common stock, $0.001 par value; Authorized -- 50,000 shares,
issued and outstanding 20,995 as of March 28, 2020
and 21,655 as of December 28, 2019								21		22
Additional paid-in capital	72,008			69,100				52,004		59,445
Retained earnings	329,501			329,001				284,682		306,146
Accumulated other comprehensive income (loss)	(10,387		)	(6,907		)		(19,099)		(13,901)
Total stockholders’ equity	391,146			391,217
Total stockholders' equity								317,608		351,712
	$	554,463		$	551,583		$	473,750	$	516,934

The accompanying notes are an integral part of these statements.

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Table of Contents

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)

Quarter Ended

March 31,

March 30,

2018

2019

Net sales

$
291,998

$
272,990

Cost of sales

49,375

45,901

Gross profit

242,623

227,089

Operating expenses:

Associate incentives

129,362

122,530

Selling, general and administrative

70,132

69,555

Total operating expenses

199,494

192,085

Earnings from operations

43,129

35,004

Other income (expense):

Interest income

840

1,484

Interest expense

(10
)
(12
)
Other, net

32

(182
)

Other income (expense), net

862

1,290

Earnings before income taxes

43,991

36,294

Income taxes

15,045

12,122

Net earnings

$
28,946

$
24,172

Earnings per common share

Basic

$
1.20

$
1.03

Diluted

$
1.19

$
1.01

Weighted average common shares outstanding

Basic

24,074

23,484

Diluted

24,273

23,927

Comprehensive income:

Net earnings

$
28,946

$
24,172

Other comprehensive income (loss), net of tax:

Foreign currency translation adjustment

7,814

4,774

Tax benefit (expense) related to foreign currency translation adjustment

(540
)
(1,294
)

Other comprehensive income (loss), net of tax

7,274

3,480

Comprehensive income

$
36,220

$
27,652



	Quarter Ended
	March 28,		March 30,
	2020		2019
Net sales	$	266,619	$	272,990
Cost of sales		46,059		45,901
Gross profit		220,560		227,089
Operating expenses:
Associate incentives		116,069		122,530
Selling, general and administrative		65,479		69,555
Total operating expenses		181,548		192,085
Earnings from operations		39,012		35,004
Other income (expense):
Interest income		984		1,484
Interest expense		(21)		(12)
Other, net		(812)		(182)
Other income (expense), net		151		1,290
Earnings before income taxes		39,163		36,294
Income taxes		12,611		12,122
Net earnings	$	26,552	$	24,172

Earnings per common share
Basic	$	1.24	$	1.03
Diluted	$	1.23	$	1.01

Weighted average common shares outstanding
Basic		21,497		23,484
Diluted		21,551		23,927

Comprehensive income:
Net earnings	$	26,552	$	24,172
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		(6,237)		4,774
Tax benefit (expense) related to foreign currency
translation adjustment		1,039		(1,294)
Other comprehensive income (loss), net of tax		(5,198)		3,480
Comprehensive income	$	21,354	$	27,652

The accompanying notes are an integral part of these statements.

‎

Table of Contents

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

~~For the three months ended March 31, 2018~~


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

For the three months ended March 28, 2020
								Accumulated
				Additional				Other
	Common Stock			Paid-in		Retained		Comprehensive
	Shares	Value		Capital		Earnings		Income (Loss)		Total
Balance at December 28, 2019	21,655	$	22	$	59,445	$	306,146	$	(13,901)	$	351,712
Net earnings							26,552				26,552
Other comprehensive income (loss), net of tax									(5,198)		(5,198)
Equity-based compensation expense					3,394						3,394
Common stock repurchased and retired	(785)		(1)		(9,012)		(48,016)				(57,029)
Common stock issued under equity award plans	125		—								—
Tax withholding for net-share settled equity awards					(1,823)						(1,823)
Balance at March 28, 2020	20,995	$	21	$	52,004	$	284,682	$	(19,099)	$	317,608

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.

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Table of Contents

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	Three Months Ended
	March 28,		March 30,
	2020		2019
Cash flows from operating activities
Net earnings	$	26,552	$	24,172
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities
Depreciation and amortization		3,494		3,866
Right-of-use asset amortization		2,255		2,023
(Gain) loss on sale of property and equipment		—		23
Equity-based compensation expense		3,394		3,832
Deferred income taxes		4,611		3,048
Changes in operating assets and liabilities:
Inventories		5,153		(3,630)
Prepaid expenses and other assets		(4,262)		1,480
Accounts payable		(174)		1,750
Other liabilities		(10,237)		(31,043)
Net cash provided by (used in) operating activities		30,786		5,521
Cash flows from investing activities
Receipts on notes receivable		85		55
Payments for net investment hedge		(1,089)		(1,660)
Maturities of investment securities held-to-maturity		—		36,685
Proceeds from sale of property and equipment		—		6
Purchases of property and equipment		(7,266)		(2,577)
Net cash provided by (used in) investing activities		(8,270)		32,509
Cash flows from financing activities
Repurchase of common stock		(57,029)		(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		(1,823)		(1,413)
Net cash provided by (used in) financing activities		(58,852)		(31,413)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(4,436)		4,170
Net increase (decrease) in cash, cash equivalents, and restricted cash		(40,772)		10,787
Cash, cash equivalents, and restricted cash at beginning of period		237,688		217,234
Cash, cash equivalents, and restricted cash at end of period	$	196,916	$	228,021
Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	194,098	$	225,041
Restricted cash included in other assets		2,818		2,980
Total cash, cash equivalents, and restricted cash	$	196,916	$	228,021
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	2	$	5
Income taxes		9,694		10,163
Cash received during the period for:
Income tax refund		—		5,095
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for lease obligations		1,914		20,286
Accrued purchases of property and equipment		608		251

Three Months Ended

March 31,

March 30,

2018

2019

Cash flows from operating activities

Net earnings

$
28,946

$
24,172

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities

Depreciation and amortization

4,531

3,866

Right-of-use asset amortization

—

2,023

(Gain) loss on sale of property and equipment

1,782

23

Equity-based compensation expense

3,805

3,832

Deferred income taxes

3,102

3,048

Changes in operating assets and liabilities:

Inventories

(4,469
)
(3,630
)
Prepaid expenses and other assets

(3,379
)
1,480

Accounts payable

649

1,750

Other liabilities

(15,449
)
(31,043
)

Net cash provided by (used in) operating activities

19,518

5,521

Cash flows from investing activities

Receipts on notes receivable

301

55

Payments for net investment hedge

—

(1,660
)
Maturities of investment securities

—

36,685

Proceeds from sale of property and equipment

35

6

Purchases of property and equipment

(2,948
)
(2,577
)

Net cash provided by (used in) investing activities

(2,612
)
32,509

Cash flows from financing activities

Repurchase of common stock

(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
)
(1,413
)

Net cash provided by (used in) financing activities

(3,251
)
(31,413
)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

5,519

4,170

Net increase (decrease) in cash, cash equivalents and restricted cash

19,174

10,787

Cash, cash equivalents, and restricted cash, at beginning of period

250,535

217,234

Cash, cash equivalents, and restricted cash at end of period

$
269,709

$
228,021

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

Cash and equivalents

$
266,197

$
225,041

Restricted cash included in prepaid expenses and other current assets

330

—

Restricted cash included in other assets

3,182

2,980

Total cash, cash equivalents, and restricted cash

$
269,709

$
228,021

Supplemental disclosures of cash flow information

Cash paid during the period for:

Interest

$
2

$
5

Income taxes

19,495

10,163

Cash received during the period for:

Income tax refund

49

5,095

Non-cash operating activities:

Right-of-use assets obtained in exchange for lease obligations

—

20,286

Non-cash investing activities:

Accrued purchases of property and equipment

159

251

The accompanying notes are an integral part of these statements.

Table of Contents

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, science-based nutritional and personal ~~care/skincare~~care 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~~2 geographic regions: (1) Asia Pacific, and (2) Americas and Europe. Asia Pacific is further divided into ~~three~~3 sub-regions: (i) Greater China, (ii) Southeast Asia Pacific, and (iii) North Asia. All intercompany accounts and transactions have been eliminated in consolidation. The countries included in these regions and sub-regions are as follows:

(1)Asia Pacific -

(i)Greater China ~~includes~~- Hong Kong, Taiwan, and ~~China;~~ China. The Company’s business in China is conducted by BabyCare Holdings, Ltd., the Company’s wholly-owned subsidiary.

(ii)Southeast Asia Pacific ~~includes~~– Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand and ~~Indonesia;~~ Indonesia.

(iii)North Asia ~~includes~~– Japan and South Korea.

(2)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 ~~29, 2018,~~28, 2019, derived from audited consolidated financial statements, and the unaudited interim condensed consolidated financial information of the Company have been prepared in accordance with the instructions to Form 10-Q and ~~Article 10~~Rule 10-01 of Regulation S-X promulgated by the ~~Securities and Exchange Commission (“SEC”).~~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 ~~30, 2019~~28, 2020 and results of operations for the three months ended March ~~31, 2018~~28, 2020 and March 30, ~~2019.~~2019.

The interim 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 ~~29, 2018.~~28, 2019. The results of operations for the three months ended March ~~30, 2019,~~28, 2020, are not necessarily indicative of the results that may be expected for the fiscal year ending ~~December~~January 2, 2021.

The Company considered the current and expected future economic and market conditions surrounding the global pandemic involving the novel strain of coronavirus known as COVID-19 to assess whether a triggering event had occurred that would result in a potential impairment of goodwill, indefinite-lived intangible assets, and long-lived assets. Based on this assessment, the Company concluded that a triggering event has not occurred which would require further impairment testing to be performed. The Company’s operations were not materially affected by COVID-19 for the three months ended March 28, ~~2019.~~2020. While the Company did not incur significant disruptions to its operations during the first quarter of 2020 from COVID-19, it is unable at this time to predict the impact that COVID-19 will have on its business, financial position and operating results in future periods due to numerous uncertainties and is closely monitoring the impact of the pandemic on all aspects of its business.

‎

Table of Contents
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

Recent Accounting Pronouncements

Adopted accounting pronouncements

In ~~February 2016,~~August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” ASU 2016-02 is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Additionally, the ASU requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases, including qualitative and quantitative requirements. The update requires lessees to apply a modified retrospective approach for recognition and disclosure, beginning with the earliest period presented. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842)”—Targeted Improvements, which allows an additional transition method to adopt the new lease standard at the adoption date, as compared to the beginning of the earliest period presented, and recognize a cumulative-effect adjustment to the beginning balance of retained earnings in the period of adoption.

~~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~~

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 the 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 all leases~~

· ~~The Company did not elect the hindsight practical expedient, for all leases.~~

· ~~The Company did not elect the land easement practical expedient.~~

The adoption of Topic 842 had a material impact to the Company’s consolidated balance sheets, but did not materially impact the Company’s consolidated statements of comprehensive income. The most significant changes to the consolidated balance 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 period ended March 30, 2019. See Note B - Operating Leases for additional information regarding the Company’s lease policies under the new standard.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ASU 2017-12 better aligns an 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 hedge results. To satisfy that objective, the amendments expand and refine hedge accounting for both non-financial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company adopted ASU 2017-12 during the quarter ended March 30, 2019 and the adoption of the standard did not have 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~~

~~Issued accounting pronouncements not yet adopted~~

~~In August 2018, the FASB issued ASU~~ 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement.” ASU 2018-13 modifies the disclosure requirements for fair value measurements. The modifications removed the following disclosure requirements: (i) the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy; (ii) the policy for timing of transfers between levels; and (iii) the valuation processes for Level 3 fair value measurements. This ASU added the following disclosure requirements: (i) the changes in unrealized gains and losses for the period included in other comprehensive income (“OCI”) for recurring Level 3 fair value measurements held at the end of the reporting period; and (ii) the range and weighted average of significant ~~observable~~unobservable inputs used to develop Level 3 fair value measurements. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses,the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ~~Early adoption is permitted.~~ The Company ~~does not expect~~adopted ASU 2018-13 during the quarter ended March 28, 2020 and the adoption of ~~ASU 2018-13 will~~the standard did not have ~~a material~~an impact on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 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 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The capitalized implementation costs of a hosting arrangement that is a service contract will be expensed over the term of the hosting arrangement. For public business entities, the amendments in this ASU are effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period. The amendments can be applied either retrospectively or prospectively to all implementation costs incurred after the adoption date. The Company ~~does not expect~~adopted ASU 2018-15 during the quarter ended March 28, 2020 and the adoption of ~~ASU 2018-15 will~~the standard did not have an impact on its condensed consolidated financial statements.

No other new accounting pronouncement issued or effective during the quarter had, or is expected to have, a material impacton ~~its~~the Company’s condensed consolidated financial statements.

NOTE B ~~— OPERATING LEASES~~

With the exception of 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 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 lease and whether the lease should be classified as an 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 lease term, and operating lease liabilities represent the obligation to 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 — OPERATING LEASES — CONTINUED~~

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.

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE B – FAIR VALUE MEASURES - CONTINUED

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
											March 28,		Inputs
											2020		Level 1		Level 2		Level 3
Money market funds included in cash equivalents											$	139,404	$	139,404	$	—	$	—
Net investment hedge included in prepaid expenses and other current assets												1,939		—		1,939		—
Foreign currency contracts included in prepaid expenses and other current assets												323		—		323		—
											$	141,666	$	139,404	$	2,262	$	—
				Fair Value Measurements Using
				Inputs									Fair Value Measurements Using
	December 29, 2018			Level 1		Level 2			Level 3		December 28,		Inputs
											2019		Level 1		Level 2		Level 3
Money market funds included in cash equivalents	$	129,449		$	129,449	$	—		$	—	$	180,032	$	180,032	$	—	$	—
Foreign currency contracts included in other current liabilities	(309		)	—		(309		)	—			(764)		—		(764)		—
											$	179,268	$	180,032	$	(764)	$	—
	$	129,140		$	129,449	$	(309	)	$	—

Fair Value Measurements Using

Inputs

March 30, 2019

Level 1

Level 2

Level 3

Money market funds included in cash equivalents

$
141,120

$
141,120

$
—

$
—

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

—

$
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, property and equipment, and ROU~~long-lived 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~~required, a non-financial asset would be written down to ~~reduce the carrying value to the fair value, if the carrying value exceeds the~~ fair value. At March 28, 2020 and December ~~29, 2018 and March 30,~~28, 2019, there were no0 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.

Securities held-to-maturity consist of corporate bonds. The fair value of 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 values due to their short-term maturities.

NOTE C – INVENTORIES

~~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 29,		March 30,		March 28,		December 28,
	2018		2019		2020		2019
Raw materials	$	19,502	$	22,336	$	14,054	$	15,879
Work in progress	14,485		11,755			9,922		12,111
Finished goods	47,961		52,374			36,592		40,915
					$	60,568	$	68,905
	$	81,948	$	86,465

‎

Table of Contents
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)

NOTE ~~F —~~D – REVENUE AND 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 receives payment, primarily via credit card, for the sale of products at the time customers place orders and payment is required prior to shipment. Contract liabilities, which are recorded within ~~Other~~the “Other current ~~liabilities~~liabilities” line item 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.

Other revenue includes fees, which are paid by the customer at the beginning of the service period, 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. Other revenue for the three months ended March 28, 2020 and March 30, 2019 was $643 and $466, respectively.

Disaggregation of revenue by ~~geographical~~geographic region and major product line is included in Segment Information in Note K.

~~USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES~~I.

~~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,			March 28,		December 28,
	2018			2019			2020		2019
Contract liabilities at beginning of period	$	14,417		$	15,055		$	13,852	$	15,055
Increase due to deferral of revenue at period end	15,055			14,191				13,361		13,852
Decrease due to beginning contract liabilities recognized as revenue	(14,417		)	(14,291		)		(13,132)		(15,055)

Contract liabilities at end of period	$	15,055		$	14,955		$	14,081	$	13,852

NOTE ~~G —~~E – LINE OF CREDIT

The Company has a $75,000 line of credit (“Credit Agreement”) with Bank of America (‘(“Bank”). Interest is computed at the Bank’s Prime Rate or a ~~LIBOR plus~~LIBOR-plus “Eurodollar” 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~~extended the term of the Credit Agreement to April 27, 2021 and ~~increases~~increased 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.

On July 15, 2019, the Company entered into a Third Amendment to the Amended and Restated Credit Agreement (the “Third Amendment”). The Third Amendment established a procedure for the Company to request an increase in the line of credit by an amount not to exceed $125,000 (up to $200,000 in the aggregate). The Company may make a maximum of 3 such requests in increments of at least $25,000 to the Bank. The Bank, at its election, will notify the Company whether or not it agrees to increase the line of credit and, if so, whether by an amount equal to or less than the amount requested by the Company. The line of credit will be automatically reduced to $100,000, as of September 30, 2020.

The adjusted EBITDA under the Credit Agreement is modified for certain non-cash expenses. Any existing bank guarantees are considered a reduction of the overall availability of credit and part of the covenant calculation under the Credit Agreement. This provision resulted in a ~~$6,619~~$9,234 and ~~$6,001~~$8,924 reduction in the available borrowing limit as of March 28, 2020 and December ~~29, 2018 and March 30,~~28, 2019, respectively, due to existing normal course of business guarantees in certain markets.

There was no0 outstanding debt on this line of credit at ~~December 29, 2018~~March 28, 2020 or at ~~March 30,~~December 28, 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 Credit Agreement is replaced or its terms are renegotiated. Due to the uncertainty surrounding COVID-19 and to ensure the availability of additional liquidity under the Credit Agreement, subsequent to March 28, 2020, the Company drew on the line of credit ~~is replaced or terms are renegotiated.~~for $60,000.

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE H —F – 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~~its 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 iswas 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~~may be instituted against it or any of its current or former officers or directors. ~~The~~In 2017, 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~~was underway. The Company has provided information to both agencies asthroughout the ~~investigation progresses. Because the~~internal investigation. The Company’s internal investigation is ~~ongoing,~~substantially complete, however the Company continues to cooperate with the SEC and the United States Department of Justice to seek a final resolution of the matter. 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.

NOTE I —G – 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 balance sheet at their respective fair values. When the Company becomes a party to a derivative instrument and intends to apply hedge accounting, the Company formally documents the hedge relationship and the risk management objective for undertaking the hedge, the nature of risk being hedged, and the hedged transaction, which includes designating the instrument for financial reporting purposes as a fair value hedge, a cash flow hedge, or a net investment hedge. The Company also documents how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed prospectively and retrospectively, and a description of the method used to measure ineffectiveness.

The Company periodically uses derivative ~~hedging~~ instruments to hedge the foreign currency exposure of its net investment in ~~its non U.S. subsidiaries designed to hedge a portion of the foreign currency exposure that arises on translation of the~~ foreign subsidiaries into U.S. dollars. Initially, the Company records derivative assets on a gross basis in ~~our~~its condensed 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 in the subsidiary is either sold or substantially liquidated.

~~As of December 29, 2018, there were no derivatives outstanding for which the Company has applied hedge accounting.~~ During the ~~first quarter of~~three months ended March 28, 2020 and March 30, 2019, the Company entered into a European option designated as a net investment hedge with a notional ~~value~~amount of ~~$110,000. As of~~$90,000 and $110,000, respectively. For the three months ended March 28, 2020 and March 30, 2019, the Company had ~~recorded~~ an unrealized again of $850 and an unrealized loss of $986, ~~which is~~respectively, recorded to FCTA within ~~AOCI. The~~OCI.

As of March 28, 2020, the Company assessed hedge effectiveness under the forward rate method, determining the hedging instrument was highly effective.

‎

Table of Contents
USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except per share data)
(unaudited)

NOTE J—H – 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 EPS based on the time they were outstanding in any period. Diluted ~~earnings per common share~~EPS are based on shares that are outstanding (computed under basic EPS) and on potentially dilutive shares. Shares that are included in the diluted 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~~exercised.

~~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 EPS and diluted ~~earnings per share~~EPS for the periods ~~indicated:~~indicated:

Quarter Ended

March 31,

March 30,

2018

2019

Net earnings available to common shareholders

$
28,946

$
24,172

Weighted average common shares outstanding - basic

24,074

23,484

Dilutive effect of in-the-money equity awards

199

443

Weighted average common shares outstanding - diluted

24,273

23,927

Earnings per common share from net earnings - basic

$
1.20

$
1.03

Earnings per common share from net earnings - diluted

$
1.19

$
1.01



	Quarter Ended
	March 28,		March 30,
	2020		2019
Net earnings available to common shareholders	$	26,552	$	24,172
Weighted average common shares outstanding - basic		21,497		23,484
Dilutive effect of in-the-money equity awards		54		443
Weighted average common shares outstanding - diluted		21,551		23,927
Earnings per common share from net earnings - basic	$	1.24	$	1.03
Earnings per common share from net earnings - diluted	$	1.23	$	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:

Quarter Ended

March 31,

March 30,

2018

2019

1,802

105

During the ~~quarters~~three months ended March ~~31, 2018~~28, 2020 and March 30, 2019, the Company repurchased and retired 39785 shares and 284 shares for ~~$2,943~~$57,029 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 ~~30, 2019,~~28, 2020, the remaining authorized repurchase amount under the stock repurchase plan was ~~$40,216.~~$72,971. There is no expiration date on the remaining approved repurchase amount and no requirement for future share repurchases.

~~On April 30, 2019,~~Due to the ~~Company’s Board~~uncertainty surrounding the impact of ~~Directors authorized an increase~~the COVID-19 pandemic, in order to preserve liquidity, the ~~repurchase amount under~~Company has temporarily suspended its share repurchase ~~plan to a total~~program.

Table of ~~$150,000. The authorization includes the $40,216 that was remaining under the prior authorization at March 30, 2019.~~Contents

Quarter Ended

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

NOTE ~~K —~~I – SEGMENT INFORMATION

USANA operates as a direct selling company that develops, manufactures, and distributes high-quality nutritional, personal care and ~~personal care/~~skincare products that are sold through a global network marketing system of independent distributors (“Associates”). The Company aggregates its operating segments into ~~one~~1 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,~~nutritionals, foods, and personal ~~care/~~care and skincare products for the periods indicated.

Quarter Ended

March 31,

March 30,

2018

2019

USANA® Nutritionals

83
%
84
%
USANA Foods

8
%
8
%
Personal care/Skincare

Sensé — beautiful science®

4
%
1
%
Celavive®(1)

4
%
6
%



	Quarter Ended
	March 28,	March 30,
	2020	2019
USANA^® Nutritionals	86%	84%
USANA Foods	8%	8%
Personal care and Skincare	5%	7%
All Other	1%	1%

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

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

· ~~Asia Pacific —~~

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

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

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

· ~~Americas and Europe — United States, Canada, Mexico, Colombia, the United Kingdom, France, Germany(2), Spain(2), Italy(2), Romania(2), Belgium, and the Netherlands~~

~~(2) 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 K — SEGMENT INFORMATION - CONTINUED~~

Selected Financial Information

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

Quarter Ended

March 31,

March 30,

2018

2019

Net Sales to External Customers

Asia Pacific

Greater China

$
157,808

$
144,153

Southeast Asia Pacific

56,228

54,515

North Asia

18,084

22,228

Asia Pacific Total

232,120

220,896

Americas and Europe

59,878

52,094

Consolidated Total

$
291,998

$
272,990



	Quarter Ended
	March 28,		March 30,
	2020		2019
Net Sales to External Customers
Asia Pacific
Greater China	$	131,432	$	144,153
Southeast Asia Pacific		56,922		54,515
North Asia		27,251		22,228
Asia Pacific Total		215,605		220,896
Americas and Europe		51,014		52,094
Consolidated Total	$	266,619	$	272,990

The following table provides further information on markets representing ~~ten percent~~10% or more of consolidated net sales and ~~long-lived~~long-lived assets, respectively:

Three Months Ended

March 31,

March 30,

2018

2019

Net sales:

China

$
140,592

$
127,372



					Quarter Ended
					March 28,		March 30,
					2020		2019
Net sales:
China					$	115,478	$	127,372

	As of				As of
	December 29,		March 30,		March 28,		December 28,
	2018		2019		2020		2019
Long-lived assets:
China	$	89,509	$	95,386	$	88,131	$	90,886
United States	$	49,195	$	49,875	$	59,345	$	54,809

Table of Contents

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

The following 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.~~management regarding the results of operations of USANA Health Sciences, Inc. and subsidiaries (“USANA,” the “Company,” “we,” “us,” or “our”). The following discussion and analysis of our financial condition and results of operations is presented in ~~five~~six sections:

Overview

· ~~Overview~~Trends Affecting Our Business – COVID-19

·Customers

·Non-GAAP Financial Measures

Results of Operations

·Liquidity and Capital Resources

· ~~Forward-Looking Statements and Certain Risks~~

This ~~discussion and analysis~~MD&A 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 Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations ~~included in~~of our Annual Report on Form 10-K for the year ended December ~~29, 2018,~~28, 2019, and our other filings, including the 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 and personal care ~~and skincare~~ products that ~~we distribute~~are distributed internationally through a network marketing system, which is a form of direct selling. We ~~have chosen~~use this distribution method asbecause we believe it is more conducive to meeting our vision as a company, which is to improve the overall health and nutrition of individuals and families around the world. Our customerbase ~~comprises~~is primarily comprised of two types of customers: “Associates” and “Preferred Customers,” referred to together ~~collectively in this report~~ as “active Customers.” Our Associates also sell our products to retail ~~customers and~~customers. Associates share in our company vision by acting as independent distributors of our products in addition to purchasing our products for their personal use. Preferred Customers purchase our products strictly for ~~their~~ personal use and are not permitted to resell or to distribute the products. ~~As of March 30, 2019, we had approximately 586,000 active Customers worldwide. For purposes of this report, we~~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. As of March 28, 2020, we had approximately 573,000 active Customers worldwide.

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

(1)Asia Pacific -

· ~~Asia Pacific:~~

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

·(ii)Southeast Asia Pacific —– Australia, New Zealand, Singapore, Malaysia, the Philippines, Thailand and ~~Indonesia~~Indonesia.

·(iii)North Asia —– Japan and South ~~Korea;~~Korea.

·(2)Americas and Europe —– United States, Canada, Mexico, Colombia, the United Kingdom, France, ~~Germany(1), Spain(1), Italy(1), Romania(1),~~Germany, Spain, Italy, Romania, Belgium, and the ~~Netherlands~~Netherlands.

‎

~~(1)~~ ~~We commenced operations in Germany, Spain, Italy, and Romania near the end~~Table of ~~the second quarter of 2018.~~Contents

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

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
%



	Three Months Ended
	March 28,	March 30,
	2020	2019
Product Line
USANA^® Nutritionals
Optimizers	68%	65%
Essentials/CellSentials*	18%	19%
USANA Foods	8%	8%
Personal care and Skincare	5%	7%
All Other	1%	1%
Key Product
BiOme^ga-3™	12%	15%
USANA® Esseⁿtials/CellSentials	12%	12%
Proflavan^ol®	11%	11%

~~(1)~~*Represents a product line consisting of multiple products, as opposed to the actual Essentials / CellSentials product.

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 28, 2020, net sales outside of the United States represented 90.5% 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.

Trends Affecting Our Business – COVID-19

On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. COVID-19, which is believed to have originated in Wuhan City, China, has spread and significantly impacted various countries around the world, including the United States and the other markets in which USANA sells products and has operations. Various policies and initiatives have been implemented around the world to reduce the spread of COVID-19, including work-from-home requirements or requests, shelter-in-place requirements, social distancing requirements, travel restrictions or bans in and to certain countries, the closure of retail stores, restaurants and other business establishments and the cancellation of major sporting and entertainment events. Local, state and national governments continue to emphasize the importance of overall health, wellness and nutrition during this pandemic and have allowed, and requested, that manufacturers of nutritional supplements and health food products, such as USANA, remain open to meet the needs of the general public. Consequently, as of the date of this report, we can report that (i) our manufacturing facilities in the U.S. and China remain fully operational, (ii) we continue to sell and distribute products in each of our markets throughout the world, and (iii) we have not experienced any meaningful disruption to our world-wide supply chain, though it is possible that disruptions could occur if the COVID-19 pandemic continues to impact markets around the world for a prolonged period of time.

The health and safety of our employees and customers around the world remains our top priority. We ~~launched Celavive~~®are also committed to being socially responsible as a corporate leader in ~~every market except China~~each of our markets and doing our part to reduce the spread of COVID-19. As such, we modified our business operations in each of our markets during the first quarter pursuant to applicable guidelines from government and health officials. During the quarter, we implemented a work-from-home plan for all non-manufacturing and non-distribution employees. Although our manufacturing and distribution employees continue to work on site, they are following additional health and safety guidelines. While we have historically maintained high standards for safety and sanitation in manufacturing, we have raised those standards with additional measures, including body temperature monitoring, social distancing, and mandatory use of face masks. Also, where possible, we have adjusted shift schedules, time and attendance policies, and sick-leave policies to promote safety and flexibility. In nearly all of our markets, we have also temporarily closed product will-call centers and are instead offering curbside delivery and subsidized shipping to customers. Finally, we have a risk management team in place monitoring the rapidly evolving COVID-19 situation and recommending risk mitigation actions where necessary.

Our Associate sales force has also modified their business operations as a result of COVID-19. While many of our Associates have transitioned over the last several years to doing business online through social media, person-to-person and face-to-face selling remains an important part of our business and of direct selling in general. Consequently, as a result of the social distancing and stay-at-home orders put in place across all of our markets, our Associates have also been required to modify their business practices to conduct the entirety of their business virtually. We are doing what we can to assist our Associates in their efforts, including providing increased sales, technology and systems support in each of our markets.

Table of Contents

While the overall impact of the COVID-19 pandemic on our consolidated results of operations for the three months ended March 28, 2020 was not material, the social distancing, shelter-at-home and other efforts to reduce the spread of COVID-19 began to negatively affect our momentum and operating results late in the first quarter. To promote the safety and health of our customers, employees and the general public, we chose to cancel several significant in-person Associate events and incentive trips during the first quarter and we have also cancelled certain upcoming events and converted others to virtual events. While the overall impact that the COVID-19 pandemic, and the measures taken to restrain the spread of ~~2018 and launched in China late~~the virus, will have on our operating results remains uncertain, we expect it to negatively affect our results in the ~~third~~second quarter and throughout the remainder of ~~2018.~~the year, and the negative impact may continue well beyond the containment of the outbreak. The extent of the disruption to our business in each of our markets going forward will depend on a host of factors, many of which are outside of our control. We will, however, actively continue working to safeguard against additional disruptions to our business, particularly through strategic efforts to sure up (i) raw material procurement, manufacturing and distribution; (ii) product sales and operating cash flows; (iii) liquidity and capital resources; and (iv) Associate and employee engagement and activity.

While we expect to continue to fund our business with cash flow from operations and believe that we have sufficient liquidity to satisfy our cash needs, we cannot assure you that this will be the case due to the uncertainty surrounding the COVID-19 pandemic. Consequently, the impact from the COVID-19 pandemic on our business, financial condition or longer-term financial or operational results remains uncertain. However, we continue to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate at full strength during these uncertain times. For instance, we are taking action to align spending with sales performance and defer non-essential capital investments amid the COVID-19 pandemic. To further enhance our financial flexibility, we also (i) drew $60.0 million on our line of credit subsequent to March 28, 2020 to ensure availability of additional liquidity under our credit facility, and (ii) have temporarily suspended our share repurchase program. Based on the actions we have taken and our assumptions regarding the impact of COVID-19, we believe that our current financial resources and cash flows from operations are sufficient to fund our liquidity requirements.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law. The CARES Act provides a substantial stimulus and assistance package intended to address the impact of the COVID-19 pandemic, including tax relief and government loans, grants and investments. The CARES Act did not have a material impact on our consolidated financial statements for the three months ended March 28, 2020. We continue to monitor any effects that may result from the CARES Act.

Customers

Because we sell our products to a customer base of independent Associates and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, 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 approximately 58% of product sales during the three months ended March 28, 2020; 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.

We believe that our ability to attract and retain active Customers is positively influenced by a number of factors, including our high-quality product offerings and the general public’s heightened awareness and understanding of the connection between diet and long-term 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 are key to our ability to attract and retain Associates. We periodically make changes to our Compensation Plan in an effort to ensure that ~~our plan~~it is among the most competitive plans 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 social sharing strategies are designed to promote active Customer growth.

To further support our Associates in building their businesses, we traditionally 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~~intended to support our Associates in building and maintaining a successful home-based ~~business for our Associates.~~business. 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~~ We sponsor meetings designed to assist Associates in ~~multiple markets,~~their business development and to provide a forum for interaction with ~~sales~~our Associate leaders and ~~expenses being generated and incurred~~members of our management team. As noted above 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 30, 2019, net sales outside of the United States represented 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 effectthis report, during the ~~comparable periods~~first quarter we chose to either cancel several of ~~the prior year.~~

~~Customers~~

~~Because we sell our products~~these types of meetings and other Associate events, or change them to virtual events, as a customer base of independent Associates and Preferred Customers, we increase our sales by increasing the number of our active Customers, the amount they spend on average, 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 approximately 59% of product sales during the three months ended March 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~~COVID-19. Additionally, upcoming Associate meetings and events of ~~product sold relating~~this nature have either been cancelled or changed to ~~fluctuations in the number~~virtual events.

Table of ~~active Customers purchasing our products.~~ Contents

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, rounded to the nearest thousand as of the dates indicated.

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
%

Total Active Customers by Region
As of
As of
Change from
Percent
March 28, 2020
March 30, 2019
Prior Year
Change
Asia Pacific:
Greater China
277,000
48.3%
304,000
51.9%
(27,000)
(8.9%)
Southeast Asia Pacific
115,000
20.1%
111,000
18.9%
4,000
3.6%
North Asia
57,000
10.0%
44,000
7.5%
13,000
29.5%
Asia Pacific Total
449,000
78.4%
459,000
78.3%
(10,000)
(2.2%)
Americas and Europe
124,000
21.6%
127,000
21.7%
(3,000)
(2.4%)
573,000
100.0%
586,000
100.0%
(13,000)
(2.2%)

Non-GAAP Financial Measures

We believe that presentation of certain non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. We believe that these non-GAAP financial 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.

WeIn this report, we use ~~constant currency~~“constant currency” net sales, ~~local currency~~“local currency” net sales, ~~earnings, diluted EPS~~ and other currency-related financial information terms ~~used~~that are non-GAAP financial measures to discuss our financial results in ~~this report that are non-GAAP financial measures to remove~~a way we believe is helpful in understanding the impact of fluctuations in foreign-currency exchange rates and ~~to help facilitate~~facilitating period-to-period comparisons of our results of operations and thus ~~provide~~providing investors an additional perspective on trends and underlying business results. Changes in our reported revenue and profits in this report include the impacts of changes in foreign currency exchange rates. As additional information to the reader, we provide constant currency assessments in the tables and the narrative information 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~~financial results are calculated by translating the current period’s ~~Financial Results~~financial results at the same average exchange rates in effect during the applicable prior-year period and then comparing this amount to the prior-year period’s ~~Financial Results.~~financial results. The GAAP reconciliations of these non-GAAP measures are contained in the tables within Results of Operations.

Results of Operations

Summary of Financial Results

Net sales for the first quarter of ~~2019~~2020 decreased ~~6.5%~~2.3% to ~~$273.0~~$266.6 million, a decrease of ~~$19.0~~$6.4 million, compared with the ~~first quarter of 2018.~~prior-year quarter. This decrease ~~resulted from (i)~~was due primarily to the unfavorable impact of a ~~lack~~strengthening U.S. dollar, which impacted net sales by $6.6 million during the quarter. Measures taken to contain the spread of ~~promotional activity~~COVID-19 in each of our markets around the world ~~during the quarter; (ii) negative media~~also began to negatively impact net sales later in China regarding the health products and direct sales industries, which was associated with the Chinese government’s 100-day review of these industries during the quarter; and (iii) a negative impact of $13.3 million related to unfavorable changes in currency exchange 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~~and are expected to further impact ~~on our worldwide momentum than we anticipated. Promotional activity in our various markets is commencing~~net sales in the second quarter and throughout the remainder 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 2019.2020.

Our results for the first quarter were also negatively affected by media coverage in China associated with the Chinese government’s 100-day review of the health products and direct selling industries that occurred during the 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 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 second quarter of 2019, we believe that our results in China will further accelerate during the second half of the year.

Net earnings for the first quarter of ~~2019~~2020 were ~~$24.2~~$26.6 million, ~~a decrease~~an increase of ~~16.5%,~~ 9.8% compared with ~~$28.9~~$24.2 million during the prior-year ~~period.~~period. The ~~decrease~~increase in net earnings was mainly the result of lower ~~net sales, and higher~~ relative ~~operating expenses.~~operating expenses, partially offset by lower gross margins.

‎

Table of Contents

Quarters Ended March ~~31, 2018~~28, 2020 and March 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

change

(in thousands)

Currency

excluding

Quarter Ended

Change from

Percent

impact on

currency

March 31, 2018

March 30, 2019

prior year

change

sales

impact

Asia Pacific

Greater China

$
157,808

54.0
%
$
144,153

52.8
%
$
(13,655
)
(8.7
)%
$
(8,252
)
(3.4
)%
Southeast Asia Pacific

56,228

19.3
%
54,515

20.0
%
(1,713
)
(3.0
)%
(2,566
)
1.5
%
North Asia

18,084

6.2
%
22,228

8.1
%
4,144

22.9
%
(1,074
)
28.9
%
Asia Pacific Total

232,120

79.5
%
220,896

80.9
%
(11,224
)
(4.8
)%
(11,892
)
0.3
%

Americas and Europe

59,878

20.5
%
52,094

19.1
%
(7,784
)
(13.0
)%
(1,412
)
(10.6
)%

$
291,998

100.0
%
$
272,990

100.0
%
$
(19,008
)
(6.5
)%
$
(13,304
)
(2.0
)%

Net Sales by Region
(in thousands)
Quarter Ended
March 28, 2020
March 30, 2019
Change
‎from
‎prior year
Percent
‎change
Currency
‎impact
‎on sales
Percent
‎change
‎excluding
‎currency
‎impact
Asia Pacific
Greater China
$
131,432
49.3%
$
144,153
52.8%
$
(12,721)
(8.8%)
$
(3,708)
(6.3%)
Southeast Asia Pacific
56,922
21.4%
54,515
20.0%
2,407
4.4%
(1,126)
6.5%
North Asia
27,251
10.2%
22,228
8.1%
5,023
22.6%
(1,538)
29.5%
Asia Pacific Total
215,605
80.9%
220,896
80.9%
(5,291)
(2.4%)
(6,372)
0.5%
Americas and Europe
51,014
19.1%
52,094
19.1%
(1,080)
(2.1%)
(271)
(1.6%)
$
266,619
100.0%
$
272,990
100.0%
$
(6,371)
(2.3%)
$
(6,643)
0.1%

Asia Pacific: The decrease in constant currency net sales in Greater China was ~~driven~~ largely bythe result of a sales decline in Mainland China, where local currency net sales decreased ~~3.9%.~~6.3% due to a 10.0% decrease in active Customers. The ~~decrease~~increase in constant currency net sales in Southeast Asia Pacific was

driven primarily by ~~local currency declines in several markets, including Australia and Singapore,~~Malaysia which declined 7.0% and 13.0%, respectively. These decreases were partially offset by local currency increases in the Philippines and Thailand, which increased 20.6% and 25.8%, respectively. Growth in South Korea, wherehad local currency net sales ~~increased 30.3% and the number~~growth of 40.5% due to a 24.0% increase in active ~~Customers increased 27.3% continues to drive the~~Customers. The increase in constant currency net sales in North ~~Asia.~~Asia was driven by South Korea which had local currency net sales growth of 31.2% due to a 31.0% increase in active Customers.

Americas and Europe: ~~The decrease in constant~~Constant currency net sales in this region ~~was driven by decreases~~declined 1.6% due to a 2.4% decrease in ~~several markets. Sales decreased 12.2%~~active Customers. This decrease is largely due to a decline in ~~the U.S., 9.2%~~active Customers and sales in Canada, and 17.9% in Mexico during the quarter. During fiscal year 2019, we will introduce several new, trial initiatives in the 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.Mexico.

Gross Profit

Gross profit ~~increased 10~~decreased 50 basis points to 82.7% of net sales, down from 83.2% in the prior-year quarter. This decrease can be attributed to (i) more favorable inventory pricing in the prior-year quarter, and (ii) higher manufacturing costs in the current-year quarter.

Associate Incentives

Associate incentives decreased 140 basis points to 43.5% of net sales for the first quarter of ~~2019, from 83.1%~~2020, compared with 44.9% in the ~~prior year. This increase~~prior-year quarter. The relative decrease can be attributed to ~~(i)~~price adjustments as well as lower ~~scrap reserves, (ii) lower conversion costs resulting from higher production levels, (iii) price changes, and (iv) favorable changes~~relative sales in ~~sales mix by market. These increases were partially offset by (i) costs associated with our Celavive~~® ~~skincare line, which carries~~markets where Associate incentives run at 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. With the exception of China, where products are manufactured in-market, changes in currency exchange rates affect the valuation of U.S.-manufactured inventory that is transferredrate compared to ~~our~~ other ~~international subsidiaries.~~markets.

~~Associate Incentives~~

Associate incentives increased 60 basis points to 44.9% of net sales for the first quarter of 2019, compared with 44.3% in the prior year. The relative increase can be attributed to a typical pattern of modestly higher commissions and bonuses in periods of softer sales performance.

Selling, General and Administrative Expenses

In absolute terms, our selling, general and administrative ~~expense~~expenses decreased ~~$0.6 million during the first quarter of 2019 when compared with the same period of the prior year. This~~$4.1 million. The decrease iscan be attributed to (i) decrease in variable expenses tied to Associate events that were cancelled or postponed due to ~~the~~COVID-19, (ii) lower ~~spend in the quarter on information technology systems~~advertising expense, and ~~infrastructure, partially offset by increased advertising expense.~~(iii) lower employee related costs.

Income Taxes

Income taxes were ~~33.4%~~32.2% of earnings in the first quarter of ~~2019~~2020 compared ~~with 34.2%~~to 33.4% of earnings in the prior-year quarter. The lower effective tax rate for the first quarter of 2020 compared with the prior ~~year. This small improvement~~year quarter is due ~~primarily~~ to ~~recognition of~~increased earnings before income taxes in the U.S., which allows for greater foreign tax ~~benefits from equity award exercises that occurred~~credit utilization.

Diluted Earnings per Share

Diluted EPS increased 21.8% in the first quarter of ~~2019.~~

~~Diluted Earnings Per Share~~

~~Diluted EPS decreased 15.1% in the first quarter of 2019 when~~2020 compared with the prior-year quarter. This ~~decrease was due~~increase can be attributed to ~~lower~~both higher net earnings ~~offset, in part, by~~and a lower diluted share count.

Table of Contents

Liquidity and Capital Resources

We have historically met our working capital and capital expenditure requirements by using both net cash flow from operations and by drawing ~~periodically~~ 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 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 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 China to the United States may be limited in the future.

We believe we have sufficient liquidity to satisfy our cash needs and expect to continue to fund our business with cash flow from operations. We continue, however, to evaluate and take action, as necessary, to preserve adequate liquidity and ensure that our business can continue to operate during these uncertain times. Consequently, we are actively monitoring spending and taking action, when necessary, to align spending with sales performance. We also plan to defer non-essential capital investments amid the COVID-19 pandemic. To further enhance our financial flexibility, we (i) drew $60.0 million on our line of credit subsequent to March 28, 2020 to ensure availability of additional liquidity under our credit facility, and (ii) have temporarily suspended our share repurchase program.

Cash and Cash Equivalents

Cash and cash equivalents decreased to $194.1 million at March 28, 2020, from $234.8 million at December 28, 2019. The decrease is primarily due to cash paid for share repurchases of $57.0 million. This decrease was partially offset by $30.8 million cash provided by operating activities. Of the $194.1 million cash and cash equivalents at March 28, 2020, $12.2 million was held in the United States. Of the remaining $181.9 million held by our international subsidiaries, $143.5 million was held in China. Of the $234.8 million cash and cash equivalents at December 28, 2019, $85.3 million was held in the United States. Of the remaining $149.5 million held by our international subsidiaries, $114.9 million was held in China.

Cash Flows Provided by Operations

We have ~~typically~~historically generated positive cash flow due to our strong operating margins. Net cash flow from operating activities totaled $30.8 million in the first three months of 2020, which was up $25.3 million from $5.5 million in the first three months of 2019. ~~Items increasing~~The increase in cash flows from ~~operations~~operating activities was mainly driven by larger payments 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~~for accrued employee compensation costs, ~~and~~ accrued Associate ~~incentives.~~incentives, and inventory purchases.

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, (ii) tax payments, and (iii) cash used on inventories.

Cash and cash equivalents and securities held-to-maturity at March 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 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 remaining $191.1 million held by our international subsidiaries, $157.3 million was held in China. Net working capital decreased to $240.2 million at March 30, 2019, from $243.6 million at December 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 GE to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this ~~Report on Form 10-Q.~~report.

Share Repurchase

~~During~~Information with respect to share repurchases may be found in Note H to the ~~three months ended March 30, 2019, we repurchased 283,600 shares~~Condensed Consolidated Financial Statements included in Item 1 of ~~our common stock for $30.0 million under our share repurchase plan, at an average market price~~Part I of ~~$105.78 per share. At March 30, 2019, the remaining authorized repurchase amount~~this report and Part II, Item 2 of this report, under the ~~plan was $40.2 million. There is no expiration date on~~heading “Purchases of Equity Securities by the ~~repurchase plan~~Issuer and ~~no requirement for future share repurchases.~~Affiliated Purchasers”.

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 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~~

Table of Contents

~~This report contains, “forward-looking statements” within~~

Critical Accounting Policies

There were no changes during 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,~~quarter to our critical accounting policies as ~~amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are “forward-looking statements” for~~

purposes of federal and state securities laws, including any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “estimate,” “expect,” “strategy,” “future,” “likely,” “may,” “should,” “will” and similar references to future periods. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties, such as those disclosed ~~or incorporated by reference~~ in our ~~filings with~~Form 10-K for the ~~SEC including our most recent~~ ~~Annual Report on~~year ended December 28, 2019 (the “2019 Form ~~10-K~~10-K”). ~~Any forward-looking statement made by us~~Our significant accounting policies are disclosed in this report is based only on information currently available to us and speaks only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments, the occurrence of unanticipated events or otherwise.

· ~~Our ability to attract and maintain a sufficient number of 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~~Note A 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~~Consolidated Financial Statements filed with our planned expansion into new international markets, delays in commencement of sales or product offerings in such markets, delays in compliance with local marketing or other regulatory requirements, or changes in target markets;2019 Form 10-K.

· ~~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 Associate incentives as a percentage of net revenues;~~

· ~~Our reliance on the use of information technology;~~

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

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

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

· ~~The loss of product market share or Associates to competitors;~~

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

· ~~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~~Quantitative and Qualitative Disclosures About Market Risk

~~There~~We have ~~been~~ no material changes ~~from~~to the ~~information presented~~disclosures on this matter made in our Annual Report on Form 10-K for the year ended December ~~29, 2018.~~28, 2019.

Item 4.CONTROLS AND PROCEDURES

Evaluation of 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 Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March ~~30, 2019.~~28, 2020.

Changes in Internal Control Over Financial Reporting

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

~~Except for the preceding changes, there~~There were no changes in our internal control over financial reporting during the fiscal quarter ended March ~~30, 2019~~28, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

‎

Table of Contents

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 HF to the Condensed Consolidated Financial Statements included in Item 1 Part I of this 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 ~~2018~~2019 Form 10-K filed with the SEC on February ~~26, 2019. Except as provided below, the~~25, 2020. The following additional risk factors ~~identified in our 2018 Form 10-K have not changed in any material respect. The information presented below supplements and~~relating to COVID-19 should be read in conjunction with the ~~detailed discussion of risks associated with our business~~risk factors previously disclosed in our ~~recent SEC filings, including our Annual~~2019 Form 10-K and the information contained in this Quarterly Report on Form ~~10-K for~~10-Q

Our business, operating results and financial condition have been adversely affected by the ~~2018 fiscal year.~~COVID-19 pandemic and could be adversely affect by other epidemics, pandemics or similar widespread public health concern.

~~Our operations in China are subject to significant government regulation, as well as~~COVID-19, which has been declared a ~~variety of legal, political,~~pandemic by the World Health Organization, has rapidly spread around the world and is impacting worldwide health and economic ~~risks. If the government modifies the direct selling regulations, or interprets~~activity and ~~enforces the regulations in a manner that is adverse~~began to adversely affect our ~~business in China, our consolidated business and~~ results of operations and financial condition toward the latter end of the first fiscal quarter of 2020. The reality, or fear, of the COVID-19 pandemic, or another pandemic, epidemic or similar widespread health concern, poses the risk that we and/or our Associates, customers, employees, suppliers, and other partners may be ~~materially harmed.~~

~~Our~~prevented from conducting business activities for an indefinite period of time, including due to shutdowns, travel restrictions or bans, social distancing requirements, shelter at home orders and advisories, avoidance of public gatherings, and other restrictions that have been or may be suggested or mandated by governmental authorities, or due to the impact of COVID-19 itself, on our operations ~~in China are conducted by BabyCare, a direct selling company that~~or the operations of other companies with whom 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.do business. 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 COVID-19 pandemic and/or ~~future iterations. Regulators in China~~other similar pandemics may also ~~modify~~have the ~~current regulations. As a result, there can be no assurance that~~effect of heightening many of 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 additionalother risks ~~resulting from changes in China’s data privacy and security requirements. Accordingly, any adverse change~~described in the ~~Chinese governmental, economic or other policies could have a material adverse effect on BabyCare’s business in China and~~“Risk Factors” section of our ~~consolidated results of operations.~~

~~Certain trade policies, tariffs, other trade actions implemented by the United States in 2018 against other countries,~~2019 Form 10-K, including ~~China,~~but not limited to those 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 partregulation of our business ~~model~~and industry; our customer growth strategy; our supply chain; disruption 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 modelmanufacturing, distribution or other operations; our international markets; the activities of ~~its employees, direct sellers~~ our Associates; and general economic and/or ~~independent distributors will be deemed by Chinese regulatory authorities~~political conditions.

The COVID-19 pandemic is expected 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~~continue 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 materialan adverse effect on our business and ~~operations. There can be no assurance that~~ the ~~Chinese government’s interpretation~~results of operations.

At the latter part of the quarter ended March 28, 2020, we began to see adverse effects of the response to and ~~enforcement~~efforts to contain the COVID-19 pandemic in many of ~~applicable laws~~our markets. Due to the uncertainty surrounding the COVID-19 pandemic, we will continue to assess the situation, including government-imposed restrictions, market by market. To promote the health and ~~regulations will not negatively impact BabyCare’s business, result in regulatory investigations or lead to fines or penalties against BabyCare, USANA or~~safety of 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~~employees and customers, 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 oramong other ~~applicable laws and regulations and, therefore, might result in regulatory action and adverse publicity, which would harm~~things, modified our business in ~~China.~~

~~BabyCare must apply for~~a number of ways and ~~receive government approval~~may be required to ~~expand its~~adopt further modifications to our 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, eithermany 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 negativenegatively 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 or financial condition. It is not possible at this time to estimate the full impact that the COVID-19 pandemic could ~~be adversely affected if~~have on our ~~public image~~business, the continued spread of COVID-19, and any additional measures taken by governments, health officials or ~~reputation were~~by us in response to ~~be tarnished by negative publicity including dissemination via print, broadcast or social media, or other forms~~such spread, could have on our business, results 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~~operations and financial condition. The COVID-19 pandemic and mitigation measures have also negatively impacted global economic conditions, which, 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 Chinaturn, could adversely affect our business, results of operations and financial condition. For instance, our sales and operating results may be affected by uncertain or changing economic and ~~result~~market conditions arising in ~~further regulatory scrutiny~~connection with 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~~response to the ~~press~~COVID-19 pandemic, including inflation, deflation, prolonged weak consumer demand, political instability or other changes. The extent to which the COVID-19 outbreak continues to impact our financial condition will depend on future developments that are highly uncertain and ~~regulatory agencies, causing us~~cannot be predicted, including new government actions or restrictions, new information that may emerge concerning the severity, longevity and impact of the COVID-19 pandemic on economic activity.

The COVID-19 pandemic has increased capital markets volatility.

The global stock markets have experienced, and may continue to ~~incur~~experience, significant ~~expense~~volatility as a result of the COVID-19 pandemic, and the price of our common stock has been volatile in ~~defending~~recent months. The COVID-19 pandemic and ~~dispelling~~ the ~~allegations during 2007~~significant uncertainties it has caused for the global economy, business activity, and ~~2008. In 2012, we were again the target of false~~business confidence have had, and ~~misleading statements concerning our business practices, particularly in China and Hong Kong. This adverse publicity also had an adverse impact~~is likely to continue to have, a significant effect on the market price of securities generally, including our ~~stock and caused insecurity among our Associates.~~securities.

~~There has been significant media and short-seller attention regarding the viability and legality~~Table 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.Contents

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

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

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,~~28, 2020, the authorized amount available for repurchases under the plan was ~~$40.2~~$73 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 is no expiration date of the repurchase plan.

Due to the uncertainty surrounding the impact of the COVID-19 pandemic, in order to preserve liquidity, at the end of the first quarter we announced that we are temporarily suspending repurchases under the share repurchase program.

The following table summarizes information relating to purchases of our common stock made by or on behalf of the Company ~~of shares of the Company’s common stock~~ during the quarter ended March ~~30, 2019.~~28, 2020.



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. 29, 2019 through Feb. 1, 2020)	0	$0.00	0	$130,000
Fiscal February
(Feb. 2, 2020 through Feb. 29, 2020)	292	$77.31	292	$107,447
Fiscal March
(Mar. 1, 2020 through Mar. 28, 2020)	493	$69.85	493	$72,971
	785		785

~~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.~~None.

Item 4.MINE SAFETY DISCLOSURES

~~None.~~None.

Item 5.OTHER INFORMATION

~~None.~~None.

Item 6.~~EXHIBITS~~Exhibits

Exhibits marked with an asterisk (*) are filed herewith.

~~Exhibit~~
Exhibit Number		Description
31.1
~~3.2~~		Second Amended and Restated Bylaws, effective as of March 14, 2019 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on March 15, 2019 Exhibit 3.1, File No. 01-35024)

~~31.1~~		*Certification of Principal Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 ~~(filed herewith)~~
31.2
~~31.2~~		*Certification of Principal Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 ~~(filed herewith)~~
32.1
~~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
~~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.INS~~101.SCH		~~XBRL Instance Document~~

~~101.SCH~~		XBRL Taxonomy Extension Schema Document
101.CAL
~~101.CAL~~		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
~~101.DEF~~		XBRL Taxonomy Extension Definition Linkbase Document

Table of Contents

101.LAB
~~101.LAB~~		XBRL Taxonomy Extension Label Linkbase Document
101.PRE
~~101.PRE~~		XBRL Taxonomy Extension Presentation Linkbase Document

~~SIGNATURES~~

‎

Table of Contents

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 ~~7, 2019~~5, 2020

	USANA HEALTH SCIENCES, INC.


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

	Quarter Ended
	March 31,			March 30,
	2018			2019
Net sales	$	291,998		$	272,990
Cost of sales	49,375			45,901

Gross profit	242,623			227,089

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

Total operating expenses	199,494			192,085

Earnings from operations	43,129			35,004

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

Other income (expense), net	862			1,290

Earnings before income taxes	43,991			36,294

Income taxes	15,045			12,122

Net earnings	$	28,946		$	24,172

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

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

Comprehensive income:

Net earnings	$	28,946		$	24,172

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

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

Comprehensive income	$	36,220		$	27,652

											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

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

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

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

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

Cash flows from financing activities
Repurchase of common stock	(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		)	(1,413		)

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

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

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

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

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

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

Cash and equivalents	$	266,197		$	225,041
Restricted cash included in prepaid expenses and other current assets	330			—
Restricted cash included in other assets	3,182			2,980
Total cash, cash equivalents, and restricted cash	$	269,709		$	228,021

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

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

	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		%

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

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

	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

	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	%

	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	%


	Total Active Customers by Region
	As of		As of		Change from	Percent
	March 28, 2020		March 30, 2019		Prior Year	Change
Asia Pacific:
Greater China	277,000	48.3%	304,000	51.9%	(27,000)	(8.9%)
Southeast Asia Pacific	115,000	20.1%	111,000	18.9%	4,000	3.6%
North Asia	57,000	10.0%	44,000	7.5%	13,000	29.5%
Asia Pacific Total	449,000	78.4%	459,000	78.3%	(10,000)	(2.2%)
Americas and Europe	124,000	21.6%	127,000	21.7%	(3,000)	(2.4%)
	573,000	100.0%	586,000	100.0%	(13,000)	(2.2%)

																	Percent
	Net Sales by Region																change
	(in thousands)													Currency			excluding
	Quarter Ended								Change from			Percent		impact on			currency
	March 31, 2018				March 30, 2019				prior year			change		sales			impact
Asia Pacific
Greater China	$	157,808	54.0	%	$	144,153	52.8	%	$	(13,655	)	(8.7	)%	$	(8,252	)	(3.4	)%
Southeast Asia Pacific	56,228		19.3	%	54,515		20.0	%	(1,713		)	(3.0	)%	(2,566		)	1.5	%
North Asia	18,084		6.2	%	22,228		8.1	%	4,144			22.9	%	(1,074		)	28.9	%
Asia Pacific Total	232,120		79.5	%	220,896		80.9	%	(11,224		)	(4.8	)%	(11,892		)	0.3	%

Americas and Europe	59,878		20.5	%	52,094		19.1	%	(7,784		)	(13.0	)%	(1,412		)	(10.6	)%

	$	291,998	100.0	%	$	272,990	100.0	%	$	(19,008	)	(6.5	)%	$	(13,304	)	(2.0	)%


	Net Sales by Region
	(in thousands)
	Quarter Ended
	March 28, 2020			March 30, 2019			Change ‎from ‎prior year		Percent ‎change	Currency ‎impact ‎on sales		Percent ‎change ‎excluding ‎currency ‎impact
Asia Pacific
Greater China	$	131,432	49.3%	$	144,153	52.8%	$	(12,721)	(8.8%)	$	(3,708)	(6.3%)
Southeast Asia Pacific		56,922	21.4%		54,515	20.0%		2,407	4.4%		(1,126)	6.5%
North Asia		27,251	10.2%		22,228	8.1%		5,023	22.6%		(1,538)	29.5%
Asia Pacific Total		215,605	80.9%		220,896	80.9%		(5,291)	(2.4%)		(6,372)	0.5%
Americas and Europe		51,014	19.1%		52,094	19.1%		(1,080)	(2.1%)		(271)	(1.6%)
	$	266,619	100.0%	$	272,990	100.0%	$	(6,371)	(2.3%)	$	(6,643)	0.1%

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