USANA HEALTH SCIENCES INC - Quarter Report: 2013 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 30, 2013

 

OR

 

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

 

For the transition period from                        to                       

 

Commission file number: 0-21116

 

 

USANA HEALTH SCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

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

(Address of principal executive offices, Zip Code)

 

 

(801) 954-7100

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

 

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

 

The number of shares outstanding of the registrant’s common stock as of May 1, 2013 was 13,484,099.

 

 

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USANA HEALTH SCIENCES, INC.

 

FORM 10-Q

 

For the Quarterly Period Ended March 30, 2013

 

INDEX

 

		Page
	PART I. FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Comprehensive Income — Quarter Ended	4
	Consolidated Statements of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Consolidated Financial Statements	7–10
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11–18
Item 3	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4	Controls and Procedures	18
	PART II. OTHER INFORMATION
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 6	Exhibits	20–21
Signatures		22

 

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PART I.  FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

 

(in thousands)

 

		As of			As of
		December 29,			March 30,
		2012			2013
ASSETS
Current assets
Cash and cash equivalents		$	70,839		$	71,047
Inventories		36,481			42,974
Prepaid expenses and other current assets		25,225			19,633
Total current assets		132,545			133,654
Property and equipment, net		61,751			60,715
Goodwill		17,890			17,933
Intangible assets, net		42,085			41,963
Deferred tax assets		5,956			6,149
Other assets		7,128			8,243
		$	267,355		$	268,657
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable		$	7,040		$	8,152
Other current liabilities		63,804			61,894
Total current liabilities		70,844			70,046
Deferred tax liabilities		10,001			10,054
Other long-term liabilities		938			909
Stockholders’ equity
Common stock, $0.001 par value; Authorized — 50,000 shares, issued and outstanding 13,821 as of December 29, 2012 and 13,432 as of March 30, 2013		14			14
Additional paid-in capital		43,822			41,955
Retained earnings		134,800			138,778
Accumulated other comprehensive income		6,936			6,901
Total stockholders’ equity		185,572			187,648
		$	267,355		$	268,657

 

The accompanying notes are an integral part of these statements.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended
		March 31,			March 30,
		2012			2013
Net sales		$	154,120		$	169,082
Cost of sales		27,217			30,261
Gross profit		126,903			138,821
Operating expenses:
Associate incentives		68,009			69,855
Selling, general and administrative		38,032			42,404
Total operating expenses		106,041			112,259
Earnings from operations		20,862			26,562
Other income (expense):
Interest income		38			78
Other, net		94			(104		)
Other income (expense), net		132			(26		)
Earnings before income taxes		20,994			26,536
Income taxes		7,243			8,757
Net earnings		$	13,751		$	17,779
Earnings per common share
Basic		$	0.92		$	1.30
Diluted		$	0.90		$	1.28
Weighted average common shares outstanding
Basic		14,964			13,643
Diluted		15,288			13,903
Comprehensive income:
Net earnings		$	13,751		$	17,779
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustment		695			31
Tax benefit (expense) related to foreign currency
translation adjustment		(295		)	(66		)
Other comprehensive income (loss), net of tax		400			(35		)
Comprehensive income		$	14,151		$	17,744

 

The accompanying notes are an integral part of these statements.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2012; and March 30, 2013

 

(in thousands)

(unaudited)

 

													Accumulated
							Additional						Other
		Common Stock					Paid-in			Retained			Comprehensive
		Shares		Value			Capital			Earnings			Income (Loss)			Total
For the Three Months Ended March 31, 2012
Balance at December 31, 2011		14,940		$	15		$	49,257		$	118,799		$	5,839		$	173,910
Net earnings										13,751						13,751
Other comprehensive income (loss), net of tax													400			400
Equity-based compensation expense							2,866									2,866
Common stock issued under equity award plans, including tax benefit of $176		51					176									176
Tax impact of canceled vested equity awards							(41		)							(41		)
Balance at March 31, 2012		14,991		15			52,258			132,550			6,239			191,062
For the Three Months Ended March 30, 2013
Balance at December 29, 2012		13,821		$	14		$	43,822		$	134,800		$	6,936		$	185,572
Net earnings										17,779						17,779
Other comprehensive income (loss), net of tax													(35		)	(35		)
Equity-based compensation expense							2,369									2,369
Common stock repurchased and retired		(414	)				(4,284		)	(13,801		)				(18,085		)
Common stock issued under equity award plans, including tax benefit of $48		25					48									48
Balance at March 30, 2013		13,432		$	14		$	41,955		$	138,778		$	6,901		$	187,648

 

The accompanying notes are an integral part of these statements.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands)

(unaudited)

 

		Three Months Ended
		March 31,			March 30,
		2012			2013
Cash flows from operating activities
Net earnings		$	13,751		$	17,779
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization		2,196			2,303
(Gain) loss on sale of property and equipment		(22		)	(3		)
Equity-based compensation expense		2,866			2,369
Excess tax benefits from equity-based payment arrangements		(176		)	(185		)
Deferred income taxes		(729		)	(819		)
Changes in operating assets and liabilities:
Inventories, net		2,185			(6,522		)
Prepaid expenses and other assets		414			6,136
Accounts payable		(314		)	1,097
Other liabilities		2,472			(1,850		)
Total adjustments		8,892			2,526
Net cash provided by operating activities		22,643			20,305
Cash flows from investing activities
Increase in notes receivable		—			(1,142		)
Proceeds from sale of property and equipment		51			3
Purchases of property and equipment		(2,227		)	(872		)
Net cash used in investing activities		(2,176		)	(2,011		)
Cash flows from financing activities
Excess tax benefits from equity-based payment arrangements		176			185
Repurchase of common stock		—			(18,085		)
Net cash provided by (used in) financing activities		176			(17,900		)
Effect of exchange rate changes on cash and cash equivalents		168			(186		)
Net increase in cash and cash equivalents		20,811			208
Cash and cash equivalents, beginning of period		50,353			70,839
Cash and cash equivalents, end of period		$	71,164		$	71,047
Supplemental disclosures of cash flow information
Cash paid during the period for:
Income taxes		$	741		$	1,101

 

The accompanying notes are an integral part of these statements.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

 

NOTE A - Organization, Consolidation, and Basis of Presentation

 

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

 

The condensed balance sheet as of December 29, 2012, derived from audited financial statements, and the unaudited interim consolidated financial information of the Company have been prepared in accordance with Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Certain information and footnote disclosures that are normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying interim consolidated financial information contains all adjustments, consisting of normal recurring adjustments that are necessary to state fairly the Company’s financial position as of March 30, 2013 and results of operations for the three months ended March 31, 2012 and March 30, 2013. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto that are included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2012.  The results of operations for the three months ended March 30, 2013, may not be indicative of the results that may be expected for the fiscal year 2013 ending December 28, 2013.

 

NOTE B — INVENTORIES

 

Inventories consist of the following:

 

		December 29,			March 30,
		2012			2013
Raw materials		$	9,228		$	12,256
Work in progress		7,703			7,488
Finished goods		19,550			23,230
		$	36,481		$	42,974

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

 

NOTE C — COMMON STOCK AND EARNINGS PER SHARE

 

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

 

		Three Months Ended
		March 31,			March 30,
		2012			2013
Net earnings available to common shareholders		$	13,751		$	17,779
Basic EPS
Shares
Common shares outstanding entire period		14,940			13,821
Weighted average common shares:
Issued during period		24			10
Canceled during period		—			(188		)
Weighted average common shares outstanding during period		14,964			13,643
Earnings per common share from net earnings - basic		$	0.92		$	1.30
Diluted EPS
Shares
Weighted average common shares outstanding during period - basic		14,964			13,643
Dilutive effect of in-the-money equity awards		324			260
Weighted average common shares outstanding during period - diluted		15,288			13,903
Earnings per common share from net earnings - diluted		$	0.90		$	1.28

 

Equity awards for 1,918 and 1,085 shares of stock were not included in the computation of diluted EPS for the quarters ended March 31, 2012, and March 30, 2013, respectively, due to the fact that their effect would be anti-dilutive.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

 

NOTE D — SEGMENT INFORMATION

 

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

 

		Three Months Ended
		March 31,		March 30,
		2012		2013
USANA® Nutritionals		80	%	80	%
USANA Foods		11	%	12	%
Sensé — beautiful science®		7	%	6	%

 

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

 

·                 North America/Europe — United States, Canada, Mexico, the United Kingdom, France (1), Belgium (1), and the Netherlands.

 

·                 Asia Pacific —

 

·                  Southeast Asia Pacific — Australia, New Zealand, Singapore, Malaysia, the Philippines, and Thailand (1)

 

·                  Greater China — Hong Kong, Taiwan and China(2)

 

·                  North Asia — Japan and South Korea

 

(1)         The Company commenced operations in Thailand, France, and Belgium at the end of the first quarter of 2012.

(2)         The Company’s business in China is that of BabyCare, its wholly-owned subsidiary.

 

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USANA HEALTH SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(in thousands, except per share data)

(unaudited)

 

NOTE D — SEGMENT INFORMATION - CONTINUED

 

Selected Financial Information

 

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

 

		Three Months Ended
		March 31,			March 30,
		2012			2013
Net Sales to External Customers
North America/Europe		$	58,632		$	64,152
Asia Pacific
Southeast Asia Pacific		32,252			35,309
Greater China		56,635			62,985
North Asia		6,601			6,636
Asia Pacific Total		95,488			104,930
Consolidated Total		$	154,120		$	169,082

 

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

 

		Three Months Ended
		March 31,			March 30,
		2012			2013
Net sales:
Hong Kong		$	43,807		$	41,597
United States		36,491			40,238
Canada		16,189			15,199

 

		As of
		December 29,			March 30,
		2012			2013
Long-lived Assets:
China		$	59,130		$	58,934
United States		46,559			46,948
Australia		15,121			15,087

 

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

 

The following discussion and analysis of USANA’s financial condition and results of operations is presented in six sections:

 

·                  Overview

·                  Customers

·                  Current Focus and Recent Developments

·                  Results of Operations

·                  Liquidity and Capital Resources

·                  Forward-Looking Statements and Certain Risks

 

This discussion and analysis should be read in conjunction with the Unaudited Consolidated Financial Statements and Notes thereto that are contained in this quarterly report, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations that are included in our Annual Report on Form 10-K for the year ended December 29, 2012, and our other filings, including Current Reports on Form 8-K, that have been filed with the Securities and Exchange Commission (“SEC”) through the date of this report.

 

Overview

 

We develop and manufacture high-quality, science-based nutritional and personal care products that are distributed internationally through a network marketing system, which is a form of direct selling.  Our customer base comprises two types of customers: “Associates” and “Preferred Customers.”  Associates are independent distributors of our products who also purchase our products for their personal use.  Preferred Customers purchase our products strictly for their personal use and are not permitted to resell or to distribute the products.  As of March 30, 2013, we had approximately 229,000 active Associates and approximately 67,000 active Preferred Customers worldwide.  For purposes of this report, we only count as active customers those Associates and Preferred Customers who have purchased from us at any time during the most recent three-month period, either for personal use or for resale.

 

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

 

·                  North America/Europe — United States, Canada, Mexico, the United Kingdom, France(1), Belgium(1), and the Netherlands

 

·                  Asia Pacific

 

·                  Southeast Asia/Pacific — Australia, New Zealand, Singapore, Malaysia, the Philippines, and Thailand(1)

 

·                  Greater China — Hong Kong, Taiwan, and China (2)

 

·                  North Asia — Japan and South Korea

 

(1)         We commenced operations in Thailand, France, and Belgium at the end of the first quarter of 2012.

 

(2)         Our business in China is that of BabyCare, our wholly-owned subsidiary.

 

Our primary product lines consist of USANAâ Nutritionals, USANA Foods, and Sensé — beautiful scienceâ (Sensé), which is our line of personal care products.  The USANA Nutritionals product line is further categorized into two separate classifications: Essentials and Optimizers.  The following tables summarize the approximate percentage of total product revenue that has been contributed by our major product lines and our top-selling products for the current and prior-year periods indicated:

 

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		Quarter Ended
		March 31,		March 30,
		2012		2013
Product Line
USANA® Nutritionals
Essentials		28	%	27	%
Optimizers		52	%	53	%
USANA Foods		11	%	12	%
Sensé — beautiful science®		7	%	6	%
All Other		2	%	2	%
Key Product
USANA® Essentials		18	%	18	%
Proflavanol®		12	%	12	%
HealthPak 100 ™		8	%	7	%

 

We believe that our ability to attract and retain Associates and Preferred Customers to sell and consume our products is positively influenced by a number of factors.  Some of these factors include: the general public’s heightened awareness and understanding of the connection between diet and long-term health, the aging of the worldwide population as older people generally tend to consume more nutritional supplements, and the growing desire for a secondary source of income and small business ownership.

 

We believe that our high-quality products and our financially rewarding Associate Compensation Plan are the key components to attracting and retaining Associates.  We strive to ensure that our products are formulated with the latest science in nutrition research and to keep our product lines relatively compact, which we believe simplifies the selling and buying process for our Associates and Preferred Customers.  We also periodically make changes to our Compensation Plan in an effort to ensure that our plan is among the most rewarding in the industry, to encourage behavior that we believe leads to a more successful business for our Associates, and to ensure that our plan provides us with leverage to grow sales and earnings.  For example, during the second quarter of 2012 we modified the Matching Bonus component of our Compensation Plan, changing it from a short-term incentive to a long-term incentive.  We now refer to this bonus as our Lifetime Matching Bonus, which was fully phased in during the fourth quarter of 2012.  We believe that the Lifetime Matching Bonus is a more attractive incentive to our Associates and will help facilitate long-term growth for both our Associates and the Company.

 

To further support our Associates in building their businesses, we sponsor meetings and events throughout the year, which offer information about our products and our network marketing system.  These meetings are designed to assist Associates in their business development and to provide a forum for interaction with our Associate leaders and members of our management team.  We also provide low cost sales tools, including online sales, business management, and training tools, which we believe are an integral part of building and maintaining a successful home-based business for our Associates.  Although we provide training and sales tools, we ultimately rely on our Associates to sell our products, attract new customers to purchase our products, and educate and train new Associates.

 

Because we have operations in multiple markets, with sales and expenses being generated and incurred in multiple currencies, our reported U.S. dollar sales and earnings can be significantly affected by fluctuations in currency exchange rates.  In general, net sales and gross profit are affected positively by a weakening of the U.S. dollar and negatively by a strengthening of the U.S. dollar.  Currency fluctuations, however, have the opposite effect on our Associate incentives and selling, general and administrative expenses.  During the quarter ended March 30, 2013, net sales outside of the United States represented approximately 76% of consolidated net sales.  In our net sales discussions that follow, we approximate the impact of currency fluctuations on net sales by translating current year sales at the average exchange rates in effect during the comparable periods of the prior year.

 

Customers

 

Because we utilize a direct selling model for the distribution of our products, the success and growth of our business is primarily based on our ability to attract new Associates and retain existing Associates to sell and consume our products.  Notably, sales to Associates account for the majority of our product sales, representing 91% of product sales during the quarter ended March 30, 2013.

 

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Additionally, it is important to attract and retain Preferred Customers as consumers of our products.  Increases or decreases in product sales are typically the result of variations in product sales volumes relating to fluctuations in the number of active Associates and Preferred Customers purchasing our products.  The number of active Associates and Preferred Customers is, therefore, used by management as a key non-financial measure.

 

The tables below summarize the changes in our active customer base by geographic region.  These numbers have been rounded to the nearest thousand as of the dates indicated.

 

Active Associates By Region

 

		As of				As of				Change from		Percent
		March 31, 2012				March 30, 2013				Prior Year		Change
North America/Europe		77,000		35.1	%	78,000		34.1	%	1,000		1.3	%
Asia Pacific:
Southeast Asia Pacific		51,000		23.3	%	56,000		24.4	%	5,000		9.8	%
Greater China		83,000		37.9	%	87,000		38.0	%	4,000		4.8	%
North Asia		8,000		3.7	%	8,000		3.5	%	—		0.0	%
Asia Pacific Total		142,000		64.9	%	151,000		65.9	%	9,000		6.3	%
		219,000		100.0	%	229,000		100.0	%	10,000		4.6	%

 

Active Preferred Customers By Region

 

		As of				As of				Change from		Percent
		March 31, 2012				March 30, 2013				Prior Year		Change
North America/Europe		53,000		79.1	%	55,000		82.1	%	2,000		3.8	%
Asia Pacific:
Southeast Asia Pacific		6,000		9.0	%	7,000		10.4	%	1,000		16.7	%
Greater China		7,000		10.4	%	3,000		4.5	%	(4,000	)	(57.1	)%
North Asia		1,000		1.5	%	2,000		3.0	%	1,000		100.0	%
Asia Pacific Total		14,000		20.9	%	12,000		17.9	%	(2,000	)	(14.3	)%
		67,000		100.0	%	67,000		100.0	%	—		0.0	%

 

Current Focus and Recent Developments

 

Our primary initiative for 2013 is to strengthen and grow our active Associate counts throughout the world.  To this end, we continue to execute our Personalization initiative and growth strategies in North America and Greater China, as well as introduce additional market-specific strategies in each of our regions.  Our primary emphasis during the first quarter of 2013 was on training and motivating our Associate sales force through several regional meetings in North America and Asia Pacific, which included our annual Asia Pacific Convention in Hong Kong.   During the quarter, we also implemented a pricing initiative in several of our mature markets, which included price reductions in certain markets.  This initiative is intended to make our products more consistently priced for our Associates and Preferred Customers in all of our markets.  We believe that this strategy will create greater long-term customer growth in these markets and our business in general.  We also offered a promotion in the United States and Canada, which incented our Associates to use our True Health Assessment application to market and personalize our products to new customers.

 

During the first quarter, we also continued our international expansion efforts by announcing that our next market opening will be in Colombia.  We plan to open Colombia during the third-quarter of 2013 and believe it will be a successful market for USANA as

 

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well as an excellent entry point into South America.  For our Greater China region, we also announced our receipt of three additional direct selling licenses in Mainland China, which allow us to expand our direct selling business through BabyCare in China.

 

Results of Operations

 

Summary of Financial Results

 

Net sales for the first quarter of 2013 increased 9.7%, or $15.0 million (including approximately $0.9 million from currency fluctuations), compared with the first quarter in 2012.  The increase in net sales for the quarter was due to sales growth in nearly every market, which was the result of a higher number of active Associates in many of these markets, as well as higher sales volume per Associate from an increased number of our Associate leaders who are actively selling our products and building sales organizations.  Price increases that were implemented at the end of the first quarter of the prior year in certain of our Asia Pacific markets, combined with the price changes made during the first quarter of 2013, added about $1.0 million to net sales for the quarter.  Although we expect an increase in unit sales for the remainder of the year, we believe that the impact of our pricing initiative discussed above will have a neutral-to-negative effect on net sales for fiscal 2013.

 

Net earnings for the first quarter of 2013 increased 29.3%, to $17.8 million, compared with the first quarter in 2012.  This increase was the result of higher net sales, lower relative Associate incentives, and a lower effective tax rate, partially offset by lower gross profit margins and higher relative selling, general and administrative expenses.

 

Quarters Ended March 31, 2012 and March 30, 2013

 

Net Sales

 

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

 

		Net Sales by Region
		(in thousands)										Change
		Quarter Ended										from prior			Percent
		March 31, 2012					March 30, 2013					year			change
North America/Europe		$	58,632		38.1	%	$	64,152		37.9	%	$	5,520		9.4	%
Asia Pacific:
Southeast Asia Pacific		32,252			20.9	%	35,309			20.9	%	3,057			9.5	%
Greater China		56,635			36.7	%	62,985			37.3	%	6,350			11.2	%
North Asia		6,601			4.3	%	6,636			3.9	%	35			0.5	%
Asia Pacific Total		95,488			61.9	%	104,930			62.1	%	9,442			9.9	%
		$	154,120		100.0	%	$	169,082		100.0	%	$	14,962		9.7	%

 

North America:  The increase in net sales in this region was due to (i) increased sales volume per Associate, due mainly to a growing number of Associate leaders within our active Associate base who are actively selling our products and building sales organizations, (ii) an increase in the number of active Associates in Mexico, where local currency net sales increased 30.2%, and (iii) a full quarter of net sales in France and Belgium compared with a partial quarter in 2012, which added $0.8 million to net sales.

 

Asia Pacific:  The increase in net sales in this region was driven by growth in Greater China and Southeast Asia Pacific, which was primarily the result of an increase in the number of active Associates.

 

Growth in Southeast Asia Pacific was again driven largely by the Philippines where local currency net sales increased 18.6%.  Although still strong, sales and Associate growth in the Philippines have been more moderate over the last couple of quarters.  Net sales in Australia and New Zealand were flat during the quarter, primarily as a result of the estimated $1.9 million negative impact from

 

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