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Article by DailyStocks_admin    (07-06-08 07:11 AM)

The Daily Magic Formula Stock for 07/06/2008 is USANA Health Sciences Inc. According to the Magic Formula Investing Web Site, the ebit yield is 15% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

General

USANA Health Sciences, Inc. ("We," "USANA" or the "Company") is a Utah corporation, founded in 1992 by Myron W. Wentz, Ph.D., that develops and manufactures high-quality, science-based nutritional and personal care products, with a commitment to continuous product innovation and sound scientific research. We distribute and sell our products internationally through a network marketing system, which is a form of direct selling. Our international markets include Canada, Mexico, Australia, New Zealand, Singapore, Malaysia, Hong Kong, Taiwan, Japan, and South Korea, and direct sales from the United States to the United Kingdom and the Netherlands. Our customer base comprises two types of customers; "Associates" and "Preferred Customers." Associates are independent distributors of our products, who also purchase our products for 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 December 29, 2007, we had 176,000 active Associates and 78,000 active Preferred Customers worldwide. For purposes of this report, we only count as "active" those Associates and Preferred Customers who have purchased product from USANA at any time during the most recent three-month period. Our net sales in fiscal year 2007 were $423.1 million, of which 87% was generated by Associates, and 13% by Preferred Customers.

Associates are encouraged to build and manage their own sales force by recruiting, managing, and training others to sell our products, and they are compensated on sales generated by their business group. Associates can also receive compensation by purchasing products at wholesale prices and selling them at retail prices. We believe that network marketing is an effective way to distribute our products because it allows person-to-person product education, which is not readily available through traditional distribution channels. This personal touch may enhance consumers' awareness of the health benefits of our products, as well as motivate them to live and support a healthier lifestyle. Additionally, we feel that network marketing appeals to a broad cross-section of people, particularly those seeking to supplement their income, start a home-based business, or pursue entrepreneurial opportunities other than conventional full-time employment. We consider our high-quality products, compact product lines, the rewarding USANA Associate compensation plan (the "Compensation Plan"), distributor support and recognition, and weekly Associate incentive payments to be attractive components of the USANA network marketing system.

We sell products from two primary product lines: USANA® Nutritionals, which includes high-quality supplements and functional foods, and Sensé—beautiful science® (Sensé), a unique line of skin and personal care products. We also offer sales and marketing tools that are designed to assist our Associates in building their businesses and in selling our products, as well as combination packs, which include a variety of products from each product line. In 2007, the USANA Nutritionals and Sensé™ product lines represented approximately 87% and 10%, respectively, of our total product sales. Sales from other items, the majority of which include marketing and sales tools, accounted for the remaining 3% of total product sales. We limit our product lines to include only science-based products that we believe can provide health benefits to a significant percentage of our customers. Additionally, while not required, our products are designed, manufactured, packaged, and labeled at levels that we believe are consistent with the more rigorous pharmaceutical standards.

From July 2003 through August 2007, we also operated a third-party contract manufacturing business at a facility located in Draper, Utah, which we historically disclosed as a separate reportable business segment. We acquired the contract manufacturing business as part of a vertical integration strategy to manufacture and package our Sensé™ line of skin and beauty care products. On August 10, 2007, we sold our third-party contract manufacturing business in order to focus on our direct selling business. We retained the assets that are associated with manufacturing and packaging our Sensé products. We currently lease space from the Draper facility, where we continue to manufacture and package our Sensé products. As a result of the sale of the third-party contract manufacturing business, we now consider our operations to be a single reportable segment: Direct Selling.

Products

Our primary product lines consist of USANA® Nutritionals and Sensé™. The USANA® Nutritionals product line is further categorized into three separate classifications: Essentials, Optimizers, and Macro-Optimizers.

USANA ® Nutritionals

The Essentials include core vitamin and mineral supplements that provide a foundation of advanced nutrition for every age group. To help meet the "essential" nutrient needs of children and teens during the years of development, when good nutrition is especially important, USANA offers: Usanimals™, a formulation of vitamins, minerals, and antioxidants, in an easy-to-take, chewable tablet for children who are 13 months to 12 years old; and Body Rox™, a nutritional supplement containing 31 essential vitamins, minerals, antioxidants, and cofactors for adolescents who are 12 to 18 years old. USANA® Essentials for adults consists of two products: Mega Antioxidant, a balanced, high-potency blend of 30 vitamins, antioxidants, and other important nutrients to support cellular metabolism and to counteract free-radical damage; and Chelated Mineral, a complete spectrum of essential minerals, in balanced, highly absorbable forms. The USANA® Essentials are also a part of the HealthPak 100™, a convenient pillow pack that also includes some key Optimizers. During the third quarter of 2007, we introduced a new product concept for our customers called MyHealthPak™. This concept offers a fully customizable packaging system for our supplement products that allows customers to create their own personalized selection of our full line of nutritional supplements in a pillow pack that is similar to our HealthPak 100 product.

Optimizers are more targeted supplements that are designed to meet individual health and nutritional needs. Products in this category include Proflavanol®, Poly C®, Procosa® II, CoQuinone® 30, BiOmega-3™, E-Prime™, BodyRox™—Active Calcium™ Chewable, Active Calcium™, PhytoEstrin™, Palmetto Plus™, Ginkgo-PS™, Garlic EC™, Visionex®, OptOmega®, Hepasil DTX™, and TenX™ Antioxidant Blast.

The Macro Optimizers include healthy, low-glycemic functional foods and other related products: Nutrimeal™, Fibergy®, and SoyaMax™ drink mixes, as well as Nutrition and Fibergy Bars™. Our RESET™ weight management program and the accompanying RESET kit are also part of the Macro-Optimizers. The RESET kit is conveniently packaged in a self-contained box with all of the USANA products that are needed to complete a five-day regimen, which is designed to assist adults in losing weight and in beginning a positive, long-term change in their diet.

Sensé—beautiful science ®

The Sensé product line includes premium, science-based, personal care products that support healthy skin and hair by providing advanced topical nourishment, moisturization, and protection. These products are manufactured with our patented self-preserving technology, which uses a unique blend of botanicals, antioxidants, and active ingredients to keep products fresh, without adding traditional chemical preservatives. Products in this line include Perfecting Essence, Gentle Daily Cleanser, Hydrating Toner, Daytime Protective Emulsion, Eye Nourisher, Night Renewal, Serum Intensive, Rice Bran Polisher, Crème Masque, Revitalizing Shampoo, Nourishing Conditioner, Firming Body Nourisher, Energizing Shower Gel, and Intensive Hand Therapy.

All Other

In addition to these principal product lines, we develop and sell materials and online tools that are designed to assist our Associates in building their businesses and in marketing our products. These resource materials and sales tools include product brochures and business forms that are designed by us and are printed by outside publishers. In addition, we occasionally provide reprints of other commercial publications that feature USANA and may be used as a sales tool. We also periodically contract with authors and publishers to produce or provide books, tapes, and other items that deal with health topics and personal motivation, which we then sell to our Associates. New Associates are required to purchase a starter kit, which contains USANA training materials that help them to build their businesses. Associates do not earn commissions on the sale of starter kits or sales tools.

Geographic Presence

Our products are distributed and sold in 13 countries throughout the world. We have historically presented information for these countries in two geographic regions: North America and Asia Pacific. North America included the United States, Canada, Mexico, and direct sales to the United Kingdom and the Netherlands; and Asia Pacific included Australia-New Zealand, Hong Kong, Japan, Taiwan, South Korea, Singapore, and Malaysia. As our international presence has continued to grow, we now present this information in four geographic regions:

Currently, a significant portion of our net sales are concentrated in the North America region, which represented 63.1% of net sales in 2007. The United States continues to be our largest market, representing 40.1% of net sales during 2007. As we continue to expand internationally, our operating results will likely become more sensitive to economic and political conditions in foreign markets, as well as to foreign currency fluctuations. Net sales reported for each geographic region are determined by the location from which the product shipment originates and are reported for the last three fiscal years below. Additional financial information relating to our geographic regions can be found in Note M to the Consolidated Financial Statements.

Research and Development

We focus our research and development efforts on developing and providing the highest quality, science-based products that reduce the risk of chronic degenerative disease and promote long-term health. Our research and development activities include developing products that are new to USANA and new to the industry, updating existing formulas to keep them current with the latest science, and adapting existing formulas to meet ever-changing regulations in new and existing international markets. Our scientists are continually reviewing the latest published research on nutrition, attending scientific conferences, and working in collaboration with a number of outside research institutions and researchers to identify possible new products and opportunities to reformulate existing products.

In 2007, we expanded our existing relationship with the Linus Pauling Institute ("LPI") at Oregon State University in an effort to better determine the function and role of micronutrients such as vitamins, minerals, and antioxidants in promoting optimal health and preventing disease. As part of this relationship, our in-house research team will collaborate with LPI on nutritional and clinical research. Additionally, we plan to contribute $500,000 annually to LPI to help fund research on the role of nutrition in preventing oxidative stress, glycemic stress, and chronic inflammation, as well as the development of physiological markers of these conditions.

Our goal is to maintain a sharp focus on nutrition—both inside and outside the body—in the prevention of chronic degenerative diseases, and on healthy weight management. Because we believe in focusing on key health issues within our society rather than on fads, we do not introduce a new product unless we believe that it can provide health benefits to a significant percentage of our customers. As a result, we maintain a focused and compact line of products, which we believe simplifies the selling and buying process for Associates and Preferred Customers.

We follow pharmaceutical standards established by the U.S. Pharmacopeia in the development and reformulation of our products. Our ingredients are selected to meet a number of criteria, including, but not limited to: safety, potency, purity, stability, bio-availability, natural versus synthetic, and whether the ingredients are readily available. We control the quality of our products beginning at the formulation stage, and we maintain our quality control through controlled sourcing of raw ingredients, manufacturing, packaging, and labeling. In fiscal years 2005, 2006, and 2007, we expended $2.2 million, $3.0 million, and $3.4 million, respectively, on research and development activities. We intend to continue dedicating resources at similar levels for the research and development of new products and the reformulation of existing products.

Manufacturing and Quality Assurance

Tablet Manufacturing

Tablet manufacturing is conducted at our Salt Lake City, Utah manufacturing facility. Our tablet production process uses automatic and semi-automatic equipment and includes the following: identifying and evaluating suppliers of raw materials, acquiring raw materials, analyzing raw material quality, weighing or otherwise measuring raw materials, mixing raw materials into batches, forming mixtures into tablets, coating and sorting the tablets, analyzing tablet quality, packaging finished products, and analyzing finished product quality. We conduct sample testing of raw materials, in-process materials, and finished products for purity, potency, and composition to determine whether our products conform to our internal specifications, and we maintain complete documentation for each of these tests.

Our Salt Lake City manufacturing facility is registered with the U.S. Food and Drug Administration ("FDA"), Health Canada, the Australian Therapeutic Goods Administration ("TGA"), and other governmental agencies, as required. This facility is audited regularly by various organizations and government agencies to assess, among other things, compliance with Good Manufacturing Practice regulations ("GMPs") and with labeling claims. Based on these audits, our Salt Lake City manufacturing facility has received and maintains certifications from the Islamic Foods and Nutrition Counsel of America in compliance with Halal, NSF International in compliance with product testing and GMP, and the TGA in compliance with the Therapeutic Goods Act of 1989.

For the last several years, the manufacture of nutritional or dietary supplements and related products in the United States has required compliance with food-model GMPs. On June 22, 2007, however, the FDA published GMPs for dietary supplements, which will become effective June 1, 2008. The dietary supplement GMPs are based on the food-model GMPs, with additional requirements that are specific to dietary supplements. We believe that our processes comply with the FDA's more demanding drug-model GMPs and, therefore, do not anticipate making any significant changes to our current processes to comply with these stricter requirements.

Personal Care Manufacturing

In addition to tablet manufacturing, we manufacture our personal care products at the Draper, Utah manufacturing facility. The production process for personal care products includes identifying and evaluating suppliers of raw materials, acquiring raw materials, analyzing raw material quality, weighing or otherwise measuring the raw materials, mixing raw materials into batches, analyzing liquid batch quality, packaging finished products, and analyzing finished product quality. We conduct sample testing of raw materials, in-process materials, and finished products for purity, potency, and composition to determine whether our products conform to our internal specifications, and we maintain complete documentation for each of these tests.

At the Draper facility, we have standard technology for producing batches of personal care items, and we have semi-automatic packaging equipment for packaging the end product. We employ qualified staff to develop, implement, and maintain a quality system. Although the FDA has not promulgated GMP requirements for manufacturing personal care products, we voluntarily maintain compliance with the product development and GMP guidance of the Cosmetic, Toiletry and Fragrance Association.

Third-Party Suppliers and Manufacturers

We contract with third-party suppliers and manufacturers for the production of some of our products. These third-party suppliers and manufacturers produce and, in most cases, package these products according to formulations that have been developed by or in conjunction with our in-house product development team. These products include gelatin-capsuled supplements, Garlic EC™, OptOmega®, certain powdered drink mixes, and nutrition bars.

Quality Control

We conduct quality control processes in two in-house laboratories that are located in Salt Lake City, Utah. In our microbiology laboratory, scientists test for biological contamination of raw materials and finished goods. In our analytical chemistry laboratory, scientists test for chemical contamination and accurate levels of active ingredients in both raw materials and finished products. Both laboratories conduct stability tests on finished products to determine the shelf life of our products. Our laboratory staff also performs chemical assays on vitamin and mineral constituents, using United States Pharmacopoeia methods and other internally validated methods. In addition to our quality control and clinical laboratories, our headquarters facility also houses a laboratory designated for research and development.

Most of the raw ingredients that are used in the manufacture of our products are available from a number of suppliers. We have not generally experienced difficulty in obtaining necessary quantities of raw ingredients. When supplies of certain raw materials have tightened, we have been able to find alternative sources of raw materials, as needed, and believe we will be able to do so in the future, if the need arises. Our raw material suppliers must demonstrate stringent process and product quality control before we use their products in our manufacturing process.

Distribution and Marketing

General

We distribute our products internationally through a network marketing system, which is a form of person-to-person direct selling through a network of vertically organized independent distributors. These distributors purchase products at wholesale prices from the manufacturer and then make retail sales to consumers. The concept of network marketing is based on the strength of personal recommendations that frequently come from friends, neighbors, relatives, and close acquaintances. We believe that network marketing is an effective way to distribute our products because it allows person-to-person product education, which is not as readily available through other distribution channels.

Structure of Network Marketing Program

A person who wishes to sell USANA products must join our independent sales force as an Associate. A person becomes an Associate by completing an application under the sponsorship of an existing Associate. The new Associate then becomes part of the sponsoring Associate's downline sales organization. New Associates sign a written contract and agree to adhere to the USANA policies and procedures. New Associates are also required to purchase a starter kit that includes a detailed manual, including our policies and procedures. We sell starter kits at our cost for a price of approximately U.S. $49. We also offer starter kits in an electronic format at a lower price, which we also sell at our cost. Subject to payment of a minimal annual renewal fee, Associates may continue to distribute products until they voluntarily withdraw or are terminated for failing to adhere to our policies and procedures.

We also sell directly to customers who purchase products only for personal consumption. This program is our "Preferred Customer" program. Preferred Customers may not resell or distribute our products. We believe this program gives us access to a market that would otherwise be missed, by targeting customers who enjoy USANA products, but who prefer not to maintain a selling, distribution, or other business relationship with us. Although our policies prohibit Preferred Customers from engaging in retail sales of products, they may enroll as Associates at any time, if they desire. Preferred Customers are not eligible to earn commissions, nor to participate in our Compensation Plan.

Associate Training and Motivation

Initial training of Associates about the products, the Compensation Plan, network marketing, and about USANA is provided primarily by an Associate's sponsor and others in their sales organization. We develop and sell training materials and sales tools to assist Associates in building their businesses, as well as provide reprints from other commercial publications that feature USANA and may be used as sales tools. We also sponsor and conduct regional, national, and international Associate events, as well as intensive leadership training seminars. Attendance at these sessions is voluntary, and we undertake no generalized effort to provide individualized training to Associates, although experience shows that the most effective and successful Associates participate in training activities.

Associate Compensation

The Compensation Plan provides several opportunities for Associates to earn compensation, provided they are willing to consistently work at building, training, and retaining their downline organizations to sell USANA products to consumers. We believe this Compensation Plan is distinctive for its weekly payouts, which are designed to create appropriate incentives for the sale of USANA products. Associates cannot simply recruit others for the purpose of developing a downline and earn income passively, depending solely on the efforts of their downline. The primary way in which an Associate can earn compensation is by generating sales volume points through our base Compensation Plan. Sales volume points are assigned to each of our products and are generally targeted to represent a certain percent of the price in U.S. dollars. Each Associate is required to purchase a certain amount of product each month ("Qualifying Purchases"), which they must either resell to consumers or use personally in order to qualifiy to earn commissions or bonuses under USANA's Compensation Plan. Associates do not earn commissions on these Qualifying Purchases. The purpose of our Compensation Plan is to reward Associates for actively selling our products and for recruiting and retaining others to sell our products.

Associates can earn compensation in four ways:

•
Generating sales volume points, which are based on product sales of their downline sales organization;

•
Participating in a leadership bonus pool, which is based on certain performance requirements;

•
Purchasing products at wholesale prices from USANA and selling them to consumers at higher retail prices; and

•
Earning prizes or bonuses through Company-sponsored promotions and contests.

Most Associates sell our products on a part-time basis and consume them personally. The sponsoring of new Associates results in the creation of multiple levels within our network marketing structure. Sponsored Associates are referred to as the "downline" of the sponsoring Associate. Downline Associates may also sponsor new Associates, creating additional levels in their network, but also forming a part of the same downline as the original sponsoring Associate. Associates who are interested in earning additional income and who successfully expand their business network or downline can qualify for higher levels of compensation, as well as leadership bonuses, by attaining certain sales volume levels and by demonstrating leadership abilities. We do not pay commissions based on recruiting or sponsorship activity. Associates may not sell competitive products to other USANA Associates or solicit USANA Associates to participate in other network marketing opportunities. Our policies and procedures also restrict Associates' advertising and representations or claims concerning USANA products or our Compensation Plan.

We endeavor to seamlessly integrate this Compensation Plan across all markets in which USANA products are sold, allowing Associates to receive commissions for global—not merely local—product sales. This seamless downline structure is designed to allow an Associate to build a global network by establishing downlines in any of the markets where we operate. Associates may expand their downline organizations into new markets without establishing new downlines or requalifying for higher levels of compensation in the newly opened markets. We believe this seamless Compensation Plan significantly enhances our ability to expand internationally, and we intend, where permitted, to continue to integrate new markets into our Compensation Plan.

Industry Overview

As both a manufacturer and a direct seller of nutritional and personal care products, we compete within two industries: nutrition and direct selling. The nutrition industry includes many small- and medium-sized companies that manufacture and distribute products that are generally intended to maintain the body's health and general well being, including the following:

•
Nutritional Supplements—products such as vitamins and minerals, specialty supplements, herbs and botanicals, meal replacements, dietary supplements, and derivative compounds;

•
Natural and Organic Foods—products such as cereals, milk, non-dairy beverages, and frozen entrees;

•
Functional Foods—products with added ingredients or fortification that are designed specifically for health or performance purposes; and

•
Natural Personal Care—products combining nutrition with skin care.

We believe that the following factors drive growth in the nutrition industry:

•
The general public's heightened awareness and understanding of the connection between diet and health;

•
The aging population in most of our markets, particularly the baby-boomer generation in the U.S., who tend to use more nutritional supplementation as they age;

•
Rising health care costs and the worldwide trend toward preventative health care; and

•
Product introductions in response to new scientific findings.

Nutritional products are distributed through six major sales channels. Each channel has changed in recent years, primarily due to advances in technology and communications that have resulted in improved product distribution and faster dissemination of information. The major sales channels are as follows:

•
Mass market retailers, including mass merchandisers, drug stores, supermarkets, and discount stores;

•
Natural health food retailers;

•
Network marketing;

•
Mail order;

•
Healthcare professionals and practitioners; and

•
The Internet.

We distribute our products through a network marketing system, which is a common form of direct selling. According to the World Federation of Direct Selling Associations ("WFDSA"), the direct selling industry currently generates approximately $110 billion annually in worldwide retail sales, through approximately 60 million independent distributors.

According to statistics compiled by the Direct Selling Association (the U.S. member of the WFDSA), the United States remains the largest market for direct selling, with $32 billion in annual retail sales and 15 million independent distributors in 2006. According to the Direct Selling Association, wellness products, which include nutritional supplements and functional foods, accounted for 20.3% of the U.S. direct retail sales in 2006, and personal care products accounted for 33.7% of such sales.

We believe that we are well positioned to capitalize on growth trends in direct sales, as both a developer and manufacturer of nutritional supplements and personal care products.

CEO BACKGROUND

David A. Wentz, 37, President. Mr. Wentz joined USANA as a part-time employee in 1992. He has been a full-time employee since March 1994. From 1993 until April 2004, he was a member of the Company's Board of Directors. Mr. Wentz was appointed President of USANA in July 2002 and previously served as the Company's Executive Vice President from October 2001 to July 2002. He served as the Company's Senior Vice President of Strategic Development from June 1999 to October 2001, and as the Company's Vice President of Strategic Development from August 1996 to June 1999. Mr. Wentz received a B.S. degree in Bioengineering from the University of California, San Diego. Mr. Wentz is the son of Dr. Wentz, who is the Chairman and Chief Executive Officer of the Company.

Fred W. Cooper, Ph.D., 45, Executive Vice President of Operations. Dr. Cooper was a consultant to the Company from 1997 until early 1998. In February 1998 he joined the Company as Director of Special Projects. From April 1998 until April 1999, he was employed as a full-time employee of the Company in the capacity of Executive Director of Information Technology, and from April 1999 until August 2000, as the Company's Vice President of Information Technology. From August 2000 until July 2003, Dr. Cooper was employed by the Company on a part-time basis as Vice President of Information Technology. Thereafter, he became a full-time employee in July 2003 as the Company's Vice President of Operations. In January 2006, he was appointed as the Company's Executive Vice President of Operations. Prior to joining USANA, from April 1994 to February 1998, Dr. Cooper was the Director of Market Research and then the Director of Corporate Network Operations for Human Affairs International, a subsidiary of Aetna. Dr. Cooper received a B.S. in Finance and a B.S. in Psychology from the University of Utah. He earned a Ph.D. in Business Administration from the University of Utah.

Gilbert A. Fuller, 67, Executive Vice President, Chief Financial Officer, and Secretary. Mr. Fuller joined USANA in May 1996 as the Vice President of Finance. Mr. Fuller served in this role from May 1996 to June 1999, when he was appointed as the Company's Senior Vice President. Mr. Fuller has been the Company's Chief Financial Officer since October 1997. In January 2006, he was appointed as the Company's Executive Vice President and Chief Financial Officer. Before joining USANA, from January 1994 to May 1996, Mr. Fuller was the Executive Vice President of Winder Dairy, Inc., a regional commercial dairy operation. From May 1991 through October 1993, Mr. Fuller was Chief Administrative Officer and Treasurer of Melaleuca, Inc., a manufacturer and network marketer of personal care products. From July 1984 through January 1991, Mr. Fuller was the Vice President and Treasurer of Norton Company, a multinational manufacturer of ceramics and abrasives. He obtained his certified public accountant license in 1970 and kept it current until his career path developed into corporate finance. Mr. Fuller received a B.S. in Accounting and an M.B.A. from the University of Utah.

Kevin Guest, 45, Executive Vice President of Marketing. Mr. Guest joined USANA on a part-time basis in April 2003, as Executive Director of Media and Events. Following the acquisition of FMG Productions, a media, video, and event productions company that was founded by Mr. Guest, he became a full-time employee of the Company and was promoted to Vice President of Media and Events in February 2004. In January 2006, he was appointed as the Company's Executive Vice President of Marketing. Prior to joining USANA full-time, from 1992 to February 2004, Mr. Guest served as the Managing Partner of FMG Productions. Mr. Guest has been part of the media production arena for more than 20 years and has received numerous awards for producing, directing, and writing. He has produced USANA's audio, video, and event productions worldwide since the Company's inception. Mr. Guest earned a B.A. in Communications from Brigham Young University.

Bradford Richardson, 43, Executive Vice President of Asia Pacific. Mr. Richardson joined USANA in December 1997 as Director of International Development. Mr. Richardson served as the Company's Executive Director of International Development from November 1998 to December 1999. Until January 2006, when he was appointed as the Company's Executive Vice President of Asia Pacific, he served as Vice President of International. Prior to joining USANA, Mr. Richardson held international business development positions with Dell, Inc. and Lexmark International, Inc., where he focused on business development in the Asia Pacific region. Mr. Richardson received a B.A. from American University in Washington, D.C., and an M.B.A. from the Wharton School of the University of Pennsylvania.

Mark H. Wilson, 43, Executive Vice President of Customer Relations. Mr. Wilson joined USANA in October 1996 as Director of Customer Relations. Mr. Wilson served as the Company's Executive Director of Customer Relations from 1998 to April 2000. From April 2000 to January 2006, he served as the Company's Vice President of Customer Relations. In January 2006, he was appointed as the Company's Executive Vice President of Customer Relations. Prior to joining USANA, from October 1994 to October 1996, Mr. Wilson was an owner/partner of Great Basin Marketing, a consulting company, specializing in call center start-up and operational management. Prior to joining Great Basin Marketing, from July 1991 until October 1994, Mr. Wilson was Director of Inbound Order Express and Data Processing for Melaleuca, Inc. Mr. Wilson holds a B.S. in Communications from the University of Utah.

Timothy E. Wood, Ph.D., 59, Executive Vice President of Research and Development. Dr. Wood joined USANA in June 1996 as Director of Research and Development. Dr. Wood served in this role from June 1996 to June 1999, when he was appointed as the Company's Vice President of Research and Development. In January 2006, he was appointed as the Company's Executive Vice President of Research and Development. Before joining USANA, Dr. Wood served as Vice President of Research and Development for AgriDyne Technologies, Inc., formerly known as NPI, from 1992 to 1995, where he managed a team of 25 scientists. From 1980 to 1992, Dr. Wood served as Research Manager and Senior Scientist for AgriDyne Technologies. Dr. Wood received a Bachelors Degree in Environmental Biology from the University of California, Santa Barbara. He earned a Masters Degree in Environmental Sciences and a Ph.D. from Yale University. He also earned an M.B.A. from Westminster College in Salt Lake City, Utah.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

We develop and manufacture high-quality nutritional and personal care products that are distributed internationally through a network marketing system, which is a form of direct selling. Our customer base comprises two types of customer; "Associates" and "Preferred Customers." Associates are independent distributors of our products who also purchase our products for their personal use. Preferred Customers purchase our products strictly for their personal use and are not permitted to resell or to distribute the products.

Our results of operations and financial condition are directly related to the recruitment and retention of Associates and Preferred Customers. We believe that our high quality products and our financially rewarding Compensation Plan are the key components to attracting and retaining Associates. Additionally, we sponsor meetings and events throughout the year, which offer information about our products and our network marketing system. These meetings are designed to assist Associates in business development and to provide a forum for interaction with successful Associates and members of the USANA management team. We also provide low cost sales tools, which we believe are an integral part of building and maintaining a successful home-based business for Associates.

In addition to Company-sponsored meetings and sales tools, we maintain a website exclusively for our Associates where they can keep up on the latest USANA news, obtain training materials, manage their personal information, enroll new customers, shop, and register for Company-sponsored events. Additionally, through this website, Associates can access other online services to which they may subscribe. For example, we offer an online business management service, which includes a tool that helps Associates track and manage their business activity, a personal webpage to which their prospects or retail customers can be directed, e-cards for advertising, and a tax management tool.

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

•
North America—United States, Canada, Mexico, and direct sales from the United States to the United Kingdom and the Netherlands

•
Southeast Asia/Pacific—Australia-Ne w Zealand, Singapore, and Malaysia*

The number of active Associates and Preferred Customers are used by management as a key non-financial measure because they are a leading indicator for net sales. For purposes of this report, we only count as "active" those Associates and Preferred Customers who have purchased product from USANA at any time during the most recent three-month period. During the years presented, changes in net sales were not significantly affected by product price changes, rather, they were affected by increased product sales volume resulting from an increasing number of Associates and Preferred Customers.

Presentation

Due to the sale of our third-party contract manufacturing business, we now operate as one reportable business segment, Direct Selling. Our financial results have been adjusted to reflect the reclassification of sales and related expenses in our former Contract Manufacturing segment to "discontinued operations" for all periods presented. Further information on this sale of assets can be found in Note B to the Consolidated Financial Statements herein under "Discontinued Operations."

Sales and shipping and handling billed to our customers are recorded as revenue when the product is delivered, title has transferred, and risk of loss passes to the customer, net of applicable sales discounts. Payments received for undelivered products are recorded as deferred revenue and are included in other current liabilities. A provision for product returns and allowances is included and is founded on our historical experience. Additionally, the Company collects an annual renewal fee from Associates that is deferred on receipt and is recognized as income on a straight-line basis over a twelve-month period.

Cost of sales primarily consists of expenses related to raw materials, labor, quality assurance, and overhead costs that are directly associated with the production and distribution of our products and sales materials, as well as duties and taxes that are associated with the import and export of products. As our international sales increase as a percentage of net sales, cost of sales are increasingly affected by additional duties, freight, and other factors, such as changes in foreign currency.

Associate incentive expenses represent our most significant expense at 40.3% of net sales in 2007. Associate incentives include commissions and leadership bonuses that are paid weekly, based on group sales volume points. Compensation paid to our Associates for promotions and contests are also reported as a component of Associate incentives. Products are assigned a sales volume point value that is independent of the product's price. Associates earn commissions based on sales volume points that are generated in their downline organization. Items such as our starter kits and sales tools have no sales volume point value, and commissions are not paid on the sale of these items. Although insignificant to our financial statements, an Associate may earn commissions on sales volume points that are generated from personal purchases that are not considered to be part of their "Qualifying Purchases." Qualifying Purchases are the amount of product that Associates must purchase each month, which they must either resell to consumers or personally use in order to qualify to earn commissions or bonuses under USANA's Compensation Plan. Commissions paid to an Associate on personal purchases are considered a sales discount and are reported as a reduction to our net sales.

Selling, general, and administrative expenses include wages and benefits, depreciation and amortization, rents and utilities, Associate events, advertising, and professional fees, along with other marketing and administrative expenses. Wages and benefits represent the largest component of selling, general, and administrative expenses. Significant depreciation and amortization expense is incurred as a result of investments in physical facilities, computer and telecommunications equipment, and systems to support international expansion. We anticipate that additional capital investments will be required in future periods to promote and support our anticipated growth in sales and customers.

Research and development expenses include costs incurred in developing new products, enhancing existing products, and in formulating products for introduction into international markets.

Sales to customers outside the United States are made in the respective local currencies and are translated to U.S. dollars at weighted-average currency exchange rates for the period. Most of our raw material purchases from suppliers and our product purchases from third-party manufacturers are transacted in U.S. dollars. Consequently, our sales and net earnings may be affected by changes in currency exchange rates, with sales and earnings generally increasing with a weakening U.S. dollar and decreasing with a strengthening U.S. dollar.

Results of Operations

Summary of 2007 Financial Results and Developments

Fiscal 2007 marked the sixth consecutive year of net sales and earnings growth for USANA, with net sales increasing nearly 16% to $423.1 million and with income from continuing operations increasing 9.0% to $45.9 million. Overall sales growth during the year can be attributed to an increased number of active Associates who purchased our products. Additionally, in January 2007, we began operations in Malaysia, which contributed $17.1 million to net sales for the year. Also, during 2007, we benefited from changes in foreign currency, which added $10.9 million to net sales for the full year. The increase in income from continuing operations can be attributed in large part to increased net sales and to improved gross profit margin, which were offset partially by higher operating costs.

During fiscal 2007, we held our second Asia Pacific Convention in Sydney, Australia, as well as our 15th annual International Convention in Salt Lake City, Utah. At our International Convention, we introduced MyHealthPak™, a new, customizable packaging system for our supplement products that allows customers to create personalized selections of nutritional supplements in daily AM and PM pillow packs. MyHealthPak is currently available only to U.S. and Canadian customers. Because MyHealthPak is simply a new packaging system of the bottled products that many customers currently consume, we expect that sales of this product will increase gradually as customers begin to see the benefits of custom pillow packs and consume their existing supplies of bottled products.

Also, during the year, we sold our third-party contract manufacturing business, which resulted in operations for the Contract Manufacturing segment being accounted for as "discontinued operations" in accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." We retained the assets that are associated with manufacturing and packaging our Sense™ skin and beauty care products and will continue to manufacture these products.

Fiscal Year 2007 compared to Fiscal Year 2006

North America. Net sales in North America, our largest region, increased $20.7 million, or 8.4%, in 2007, compared with 2006. This growth consisted of modest growth in our most mature market, the United States, of 6.4%, strong growth in Mexico of 23.1%, and growth in Canada, much of which came from changes in foreign currency, resulting in a benefit of approximately $4.2 million. Sales growth in this region, however, was adversely affected by various false allegations against the Company that were disseminated in the mass media. We believe these challenges are now largely behind us. During 2008, we plan to implement several new Associate-related initiatives that are designed to regain our momentum in this region.

Southeast Asia/Pacific. Net sales in Southeast Asia/Pacific increased $25.6 million, or 39.3%, in 2007, compared with 2006. This growth was bolstered by the opening of our Malaysia market in January 2007, which contributed $17.1 million in net sales during the year. Also contributing to growth in this region during 2007 were changes in foreign currency, which resulted in a benefit of approximately $6.9 million, most of which came from Australia-New Zealand.

Although Malaysia added significantly to net sales in this region, we believe that a portion of the sales generated in Malaysia would have otherwise been generated in existing markets within this region, as well as in the North Asia and East Asia regions, due to the seamless nature of our Compensation Plan.

East Asia. Net sales in East Asia increased $11.8 million, or 31.6%, in 2007, compared with 2006. This growth included strong growth in Hong Kong of 62.2% to $26.4 million, and modest growth in Taiwan of 8.0% to $22.9 million. Sales growth in this region was largely driven by an increase in the number of active Associates in this region.

North Asia. Net sales in North Asia decreased $185 thousand, or 1.1%, in 2007, compared with 2006. This decline was due to a 2.0% decrease in South Korea sales to $6.8 million. Net sales in this region continue to be soft due to the lack of Associate leadership. A strategic decision was made during mid-2007 to reorganize our internal reporting structure with our vice president of East Asia now having oversight in this region. We believe this change will help bolster trust with our Associate leadership and foster growth in this region.

Gross Profit

Gross profit increased to 79.2% of net sales in 2007 from 78.1% in 2006. This improvement in gross profit margin can be attributed to reduced inventory scrap of about $1.5 million, and lower relative freight costs on shipments to our customers. Also contributing to the improvement in gross profit was a reduction of sales of the edition of Success From Home magazine that features the Company (which were sold at cost and included free shipping during the third and fourth quarters of 2006).

Associate Incentives

Associate incentives were slightly higher during 2007, at 40.3% of net sales, compared with 40.1% in 2006. This increase is the result of a higher payout of base Compensation Plan commissions, which was partially offset by reduced amounts spent on contests and promotions relative to 2006.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses increased to 21.5% of net sales in 2007 from 19.8% in 2006. In absolute terms, our selling, general and administrative expenses increased in 2007 by $18.4 million. This increase, both as a percentage of net sales and in absolute terms, can be attributed to the following:

•
Wage-related increases of $9.8 million, which includes a strategic initiative to hire additional employees to add "bench strength," and additional wages expense related to Malaysia, and increased equity compensation expense;

•
A $6.1 million increase in spending to support growing sales and an increased number of customers, which includes $1.2 million spent to support our Malaysia market that commenced operations in January 2007; and

•
Legal and other professional services of $2.5 million that related to defending false allegations against the Company that were disseminated in the mass media.

Other Income

Other income decreased from $1.4 million in 2006 to $471 thousand in 2007. This decrease can largely be attributed to an increase in interest expense, resulting from our line of credit, of $696 thousand (net of $705 thousand related to funds borrowed for the expansion of our corporate and Australia facilities, which was capitalized). Additionally, and to a lesser extent, interest income also decreased due to lower cash balances and to lower foreign currency gains.

Income Taxes

Income taxes totaled 35.5% of earnings before income taxes in 2007, compared with 35.3% in 2006. This change was due to the complete phase-out of the Extraterritorial Income Exclusion ("EIE"), which provided an effective tax rate reduction of 1.8% in 2006. In 2007, the complete EIE phase-out was partially offset by tax benefits from a 6.0% deduction for qualified production activities, a favorable adjustment due to the expiration of statutes of limitations on uncertain tax positions, and favorable 2006 tax return adjustments.

Income from Continuing Operations

Income from continuing operations increased 9.0% to $45.9 million in 2007, which is an increase of $3.8 million from $42.1 million in 2006. This increase is due primarily to increased net sales and an improved gross profit margin, which were offset partially by higher operating costs.

Diluted earnings per share from continuing operations improved to $2.67 during 2007, which is an increase of $0.42, or 18.7%, from $2.25 in 2006. This improvement resulted from share repurchases and retirements during the first nine months of 2007, which lowered the diluted shares outstanding by 8.1%, resulting in an $0.18 benefit per share. Also contributing to the improvement was an increase in income from continuing operations.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Summary of Financial Results and Recent Developments


Net sales for the first quarter of 2008 were $101.6 million compared with $100.7 million in the first quarter of 2007. The modest increase in net sales was primarily the result of benefits from changes in foreign currency. The slowdown in net sales growth was the result of slowing growth in our customer base, primarily in North America, which we believe is due to disappointing results from new promotional incentive activities that we tried during the quarter, economic uncertainties in the United States, and to the lingering effects of negative misinformation about the Company that appeared in the mass media during 2007.



Income from continuing operations decreased 36.0% to $7.5 million in the first quarter of 2008 from $11.8 million in the first quarter of 2007. This decrease was due primarily to a combination of slowing sales growth and increased operating costs. The increase in operating costs resulted from significant investments that we have made in both infrastructure and human capital in order to keep pace with growth that we have experienced over the last few years.



Quarters Ended March 31, 2007 and March 29, 2008



Net Sales

North America. Net sales in North America, our largest region as a percentage of net sales, decreased $2.3 million, or 3.5%, in the first quarter of 2008, compared with the same period of the prior year. This decrease was partially offset by changes in foreign currency, which increased net sales in this region by $2.8 million. The majority of the decrease in this region came from the United States, where net sales decreased 8.3%, primarily due to a decrease in the number of active Associates. We believe that the decrease in the number of active Associates in this region was primarily due to disappointing results from new promotional and incentive activities that we tried during the quarter, economic uncertainty in the U.S, and the lingering effects of negative misinformation about the Company that appeared in the mass media during 2007.



Southeast Asia/Pacific. Net sales in Southeast Asia/Pacific increased $912 thousand, or 4.4%, in the first quarter of 2008, compared with the first quarter of 2007. The most significant factor contributing to the modest growth in this region was a $2.3 million benefit from changes in foreign currency, most of which came from Australia and New Zealand. Additionally, sales in our newest market, Malaysia, increased $1.4 million over the first quarter of 2007.

East Asia. Net sales in East Asia increased $1.7 million, or 14.6%, in the first quarter of 2008, compared with the same period of the prior year. This increase included strong growth in Hong Kong of 48.8%, which was partially offset by a 16.3% decline in Taiwan. These changes in net sales are reflective of an increase in active Associates in Hong Kong and a decrease in active Associates in Taiwan.



North Asia. Net sales in North Asia increased 14.6% in the first quarter of 2008, compared with the first quarter of 2007. This growth was the result of increasing net sales in both markets within this region. Net sales in Japan and South Korea increased 15.5% and 13.5%, respectively.



Gross Profit



Gross profit decreased to 78.8% of net sales for the quarter ended March 29, 2008, compared with 79.6% for the same quarter in 2007. This decrease in gross profit margin can be attributed to an increase in relative freight costs on shipments to customers. Also contributing to the decrease were higher relative period expenses, such as labor, that have been leveraged by larger growth in net sales over the past few quarters.



Associate Incentives



As a percentage of net sales, Associate incentives increased to 40.7% during the first quarter of 2008, compared with 39.3% for the first quarter of 2007. This increase is due in equal part to changes in foreign currency and a higher payout rate of our base Compensation Plan commissions.



Selling, General, and Administrative Expenses



Selling, general and administrative expenses increased to 25.4% of net sales for the quarter ended March 29, 2008, compared with 21.4% for the comparable quarter in 2007. In absolute terms, our selling, general and administrative expenses increased by $4.3 million. This increase, both as a percentage of net sales and in absolute terms, can be attributed to the following:



• Increased spending of $1.1 million in Associate support activities;



• An increase of $900 thousand in wage-related expenses;



• An increase of $840 thousand relating to the expansion of our facilities, both domestically and internationally;



• An increase in advertising expense of $500 thousand, including investments in market research;



• An increase in legal and other professional services of $480 thousand that related to defending false allegations against the Company that were disseminated in the mass media;



• A $380 thousand increase in accounting and auditing services; and



• Changes in foreign currency, most of which are reflected in the items above.



Other Income



Other income (expense) changed from net other income of $471 thousand in the first quarter of 2007 to net other expense of $71 thousand in the first quarter of 2008. This change was due to an increase in interest expense of $233 thousand resulting from line of credit borrowings, a decrease in interest income of $209 thousand due to lower cash balances, and lower foreign currency gains.

Income from Continuing Operations



Income from continuing operations decreased 36.0% to $7.5 million for the first quarter of 2008, a decrease of $4.3 million, compared with $11.8 million for the first quarter in 2007. This decrease is due primarily to minimal growth in net sales combined with higher operating costs.



Diluted earnings per share from continuing operations decreased $0.18, or 28.1%, to $0.46 during the first quarter of 2008, compared with $0.64 for the first quarter of 2007. This change was the result of a decrease in income from continuing operations and was partially offset by a decrease in the number of diluted shares outstanding, which added approximately $0.05 per share.



Liquidity and Capital Resources



We have historically met our working capital and capital expenditure requirements through net cash flows that have been generated from our operating activities and have also periodically utilized our line of credit. Our principal source of liquidity is our operating cash flows, the availability of which is directly affected by variations in the sales of our products. There are no material restrictions on our ability to transfer and remit funds among our international subsidiaries.



In the first quarter of 2008, net cash flows from operating activities totaled $9.1 million, compared with $16.1 million for the same period in 2007. This decrease was primarily the result of slowing sales growth, combined with an increase in operating costs.



Cash and cash equivalents increased to $17.6 million at March 29, 2008, from $12.9 million at December 29, 2007. Net working capital increased to $13.1 million at March 29, 2008, compared with $5.8 million at December 29, 2007. This increase, which contributed to the increase in net working capital, is due to a combination of the following:



• Decreased spending on property, plant, and equipment relating to our facility expansion projects, both of which are discussed further below;



• No share repurchases; and



• No activity on our line of credit.



We currently maintain a $40.0 million credit facility with a bank. As of March 29, 2008, our outstanding balance on this line of credit was $28.0 million. We used this money to expand our facilities in Salt Lake City, Utah, and in Sydney, Australia. We will be required to pay the balance on this line of credit in full at the time of maturity in May 2011.



The credit agreement relating to our line of credit contains restrictive covenants that are based on our EBITDA and a specified debt coverage ratio. As of March 29, 2008, we were in compliance with these covenants. This credit agreement also contains other covenants which are customary for a financing transaction, including a covenant that requires us to comply in all material respects with all applicable laws, which we believe we were doing as of March 29, 2008.



We are expanding our corporate headquarters and anticipate that this expansion will involve a total investment of approximately $21 million. As of March 29, 2008, billings on this expansion totaled $19.8 million, of which $18.8 million was paid and of which $1.0 million was accrued for work performed through March 29, 2008.



We have purchased a facility in Sydney, Australia, and we expect to move our Australian operations to this new facility in mid-2008. We anticipate that the purchase, remodel, and fit-out of this facility will require a total investment of approximately $14 million. As of March 29, 2008, billings and payments on this facility, including the remodel and fit-out, totaled $10.6 million for work performed through March 29, 2008.

CONF CALL

Riley Timmer

We appreciate you joining us today to review our final first quarter results. As a reminder today’s conference call is being broadcast live via webcast and can be accessed directly from our website at www.usanahealthsciences.com and as always a replay will be available on our website shortly after this call.

Before I turn the time over to Gil, I remind you that during the course of this conference call management will make forward-looking statements regarding future events or the future financial performance of our company. Those statements involve risks and uncertainties that could cause our actual result to differ perhaps materially from the results projected in those forward-looking statements.

We caution you that these statements should be considered in conjunction with the disclosures including the specific risk factors and financial data contained in our most recent filings with the SEC. Also during the course of this call management will discuss non-GAAP information. We provide non-GAAP measures to assist investors in understanding our operating performance.

I’ll now turn the call of over to Gil Fuller, our Executive Vice President and CFO.

Gil Fuller

I am pleased to be joined by Dave Wentz, our President, who you will hear from shortly. Also in attendance are Fred Cooper, Executive Vice President of Operations; Bradford Richardson, Executive Vice President of Asia-Pacific; and Mark Wilson, Executive Vice President of Customer Relations.

This afternoon I will provide you with a review of our first quarter financial results and a few of the challenges that we faced during the quarter. I will then talk about our guidance for the second quarter of 2008 as well as our updated forecast for the full year.

Net sales in the first quarter were $101.6 million, an increase of 0.9%, just under 1%, compared with $100.6 million reported in the first quarter of 2007. Net sales growth during the quarter was primarily driven by a 2.5% increase in the number of active associates compared with the same period last year and a $5.6 million benefit from stronger foreign currencies.

Obviously, we were disappointed with this result. Dave will address the factors that caused sales to be lower than expected during his prepared comments. However, before I move on I will make one quick comment.

During our preliminary call three weeks ago, a question was asked about retention of our customers. Let me reiterate that our first quarter results were not the result of decreased customer retention. In fact our monthly auto ship rate during the first quarter continued to grow and represented 52.3% of our total product sales.

Our earnings per share from continuing operations were $0.46 in the first quarter, a decrease of about 28% compared with the $0.64 per share in the first quarter of 2007.

Let’s now go through our operating results and talk about the major line items on the first quarter statement of earnings.

Our gross margins in the first quarter of 2008 decreased by 80 basis points as a percentage of net sales to 78.8%. This is compared with 79.6% of net sales in the first quarter of 2007. This year-over-year decline can be attributed to higher relative freight costs and the decline in sales.

For the second quarter we expect gross margins to be more in line with margins achieved in the second quarter of last year, or approximately 79%. Associate incentives expense in the first quarter of 2008 was 40.7% of sales compared with 39.3% in the first quarter of last year.

This increase of 140 basis points relates largely to the opening of our Malaysian market last year and also to promotions and contests designed to increase sales. As we go forward, we expect that associate incentive expense will be up modestly as a percent of sales in the second quarter of 2008 compared with our first quarter of this year.

Selling, general and administrative expenses increased relative to net sales to 25.4% during the first quarter of 2008 compared with 21.4% in the first quarter of the prior year.

This year-over-year increase in SG&A was due primarily to the following factors.

Lower than expected net sales, which has a deleveraging impact on our SG&A expense line; higher wages related expenses of about $1.3 million which is primarily due to an increase in human resources staffing; higher than anticipated accounting and legal expenses that increased about $930,000; an $850,000 increase related to our worldwide regional celebrations and our Asia-Pacific Convention; a $840,000 increase in depreciation and rent expense related to our new Salt Lake facility, Australia facility and other facility improvements that were made to many of our international markets during 2007; and an increase in advertising expenses of about $500,000, including our investment in market research, which we believe will show a return in future quarters.

Over the last few quarters we have made several step expense investments including the expansion of facility space in several of our markets in order to keep pace with our associate and sales growth. We have also had to hire a number of new employees both locally and abroad to meet the growing needs of our customers. These were critical investments to align our infrastructure with our operational needs.

During the quarter our marketing group spent most of their efforts completing market research to identify factors that motivate our associates. Moving forward we plan to run a combination of both new promotions based on our market research as well as the tried and tested promotions that have produced significant results historically and Dave will talk more about this in his prepared remarks.

Please note that we are looking very closely at our current cost structure and have cancelled certain future expenses and postponed others until we see a sustained return to top line growth. However we fully expect that our investments in human and capital resources will pay off in the long run though the benefits don’t always coincide with the timing of expenditures.

Let’s now review the balance sheet. Cash at the end of the first quarter was $17.6 million compared with $12.9 million at year-end 2007. Inventories at the end of the first quarter were up to $21.1 million compared with $19.4 million at year-end 2007.

Capital expenditures for the quarter totaled about $6.1 million down from $8.8 million in the same quarter one year ago. These expenses are due to the various facility expansion projects mentioned earlier. While the increased depreciation did cause some near term expense pressures we expect to realize future operating leverage as we see sales growth return.

Now before I turn the call over to Dave I’ll comment on our guidance. Earlier today in our press release we provided second quarter guidance and updated full-year guidance for 2008.

Based on our current business trends we believe that net sales for the second quarter of 2008 will be between $103 million and $106 million. We anticipate that earnings per share will be between $0.48 and $0.51.

For the full year 2008 we believe that net sales will increase approximately 2% over 2007 and that earnings per share could decline as much as 20% compared with the full-year 2007. Operationally our business model is strong and we are confident that we can regain our momentum.

With that I’ll now turn the call over to Dave to comment on our operating activities.

David Wentz

The first quarter of 2008 was a challenging quarter for USANA. I was personally disappointed with our financial results but I am very optimistic about our future growth prospects.

Our sales in the U.S. during the first quarter declined 8.3% to $38.6 million compared with $42.1 million in the first quarter of last year. The addition in the number of active associates declined 3.3% on a year-over-year basis. There were three main factors that I believe contributed to our results in the U.S.

First, our promotions during the quarter did not have the positive impact that typically drives our sales. Frankly some of the new things we tried were simply not effective. For example this year we held our RESET meetings via a live satellite broadcast. We have been successfully doing this in our Mexico market and delivering good results.

We tried this technology in the U.S. and Canada because we thought we could reach more people throughout North America. What we found is that at least in the short-term, the live broadcast was far less effective than going out on the road and meeting face to face with our associate leaders.

Unfortunately the results did not pan out the way we had hoped. Keep in mind however that we often see a delayed or lag effect with our promotions. So it’s not always easy to tell right away if a promotion has or has not been effective. Our plans for future in sales and promotions in the U.S. is to do a combination of both new promotions based on our market research as well as the tried and tested promotions that we know incent and excite associates to grow the business.

As was mentioned on our preliminary conference call on March 27, we’ve launched a global promotion on March 29. This is the PaceSetter Creator cash reward program. While we are pleased with the first two weeks of sales in the current quarter, it is too early at this point to determine whether these results represent a lag effect from first-quarter promotions and events or the success of our new PaceSetter Creator promotions. Nevertheless, we are optimistic that this promotion and other planned promotions will turn on momentum and drive top line growth.

Second, we are hearing from our leaders that the economic uncertainties in the U.S. are making it more difficult to bring in new customers. As a result we have modified some of our marketing approaches and are considering other ways to help our associates capitalize on a deteriorating economic conditions in the U.S.

We continue to believe that our home-based business model offers us flexibility in both up and down economic environment. While declining disposable income spending has impacted us and our associates in the near term, we believe that in the long run our direct selling opportunity will attract individuals as a way to supplement their income and/or provide security during tough economic times.

Third and to a lesser extent is the negative noise that is still pervasive on the Internet however it is important to note that we continue to hear less about this as every day passes. We believe that we are doing everything possible to counter the false and malicious attacks that have been levied against us. The third-party detractors and short sellers have been, we believe, discredited. Now we will just take time for the remaining noise to filter out of the Internet.

In Asia-Pacific during the first quarter of 2008, net sales in our Asia-Pacific regions increased by 8.8% to $39.3 million. The growth in these regions was led by year-over-year growth in Hong Kong of 48.8% and growth in Malaysia of 43.8%. These increases were partially offset by declines in Taiwan and Singapore.

Over the past few quarters Taiwan has been hampered by some political uncertainty and the election of a new president. We believe this uncertainty is now behind us and we expect Taiwan to return to one of our strong growth markets.

What I hope you take away from this call today is that we have a clear plan of action for the future. We have a solid management team, who know and understand our leaders and this business model. We are 100% committed to turning the momentum back in our favor. We are focused on ensuring that our partnership with the field remains strong and becomes stronger.

We have planned a meeting with our top associates to make sure that management is in lock step with our leaders. They are no doubt the key to making USANA a successful company. It is our job to provide the tools and resources that they need to build successful and residual home-based business.

Next we are offering promotions that incent our leaders to grow and build their businesses. We just completed a great convention in Kuala Lumpur and have also had successful regional meetings in North America. We also have another global promotion that we will be announcing in the next couple of weeks that we believe will add to the upward momentum of our field leaders.

And finally we are considering ways to increase profitability including delaying and cutting certain expenses. Without question we needed to invest in our business infrastructure to support the significant growth we have seen over the past several years. We are now to a point where we can better manage our operating costs and leverage our business model as we grow sales.

On a call three weeks ago it was mentioned that we are also considering some enhancements to our associate compensation plan. These changes are based on our market research and will provide our business builders with incentives to grow their businesses beyond their current levels of activity.

We believe we can fund these enhancements through improved gross margins and better cost control. By targeting our business builders and leaders, we can do a better job of efficiently returning value for both our associates and our shareholders.

Finally, we are working diligently on some exciting new products that we plan to rollout at our international convention. Again it is our marketing research that is driving this effort and we look to target our growing customer demographic.

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