Ladies and gentlemen, thank you very much for standing by. Welcome to the USANA Health Sciences fourth quarter and year end Earnings Call. During today's presentation all parties will be in a listen-only mode and following the presentation, instructions will be given for the question-and-answer session. As a reminder this conference is being recorded Wednesday, February 6, 2008. I would now like to turn the conference over to Riley Timmer, Executive Director of Finance. Please go ahead.

Good morning everyone. We appreciate you joining us this morning to review our fourth quarter and our full year 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 a replay will be available on that site shortly after the call. Before I turn the call over to Gil, however 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 results 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 this call, management will discuss non-GAAP information. We provide non-GAAP measures to assist investors in understanding our operating performance. I will now turn the call over to Gil Fuller, Executive Vice President and CFO

Hi, thanks Riley and good morning and welcome everyone. I'm pleased this morning to be joined by Dave Wentz, our President, who you will hear from shortly. Also in attendance this morning are Mark Wilson, Executive Vice President of Customer Relations and Dan Macuga, Vice President of Field Development. This morning I plan to provide you with our fourth quarter and year end financial results. I will then talk about our guidance for the first quarter of 2008, as well as our updated forecast for the full year 2008. Before I talk about our financial results I would like to speak briefly about the closure letter we received from the SEC regarding our informal inquiry. Since the beginning of the inquiry we had been in regular communication with the SEC and have cooperated fully with all of their requests. The company was advised by letter in early January that the SEC had completed its informal inquiry and is not recommending any enforcement action be taken. Obviously, we are pleased with this result and continue to believe in the integrity of our business model. Another part of the development for us during the quarter was the dismissal of the shareholder derivative lawsuit. The plaintiff agreed to dismiss this case with prejudice after USANA and the other defendants filed a Motion to Dismiss. We think this is an important outcome and let me briefly say why. The class action and this derivative lawsuit each contain very similar allegations and claims. Our position has always been and continues to be that these allegations are false. We believe that the recent events support our position and in the light of these outcomes we are optimistic about our position with regard to the two remaining class action lawsuits. Now to our financial results, net sales…

Good morning, everyone. Well, yesterday we reported our financial results for the fourth quarter and year-end 2007. These results did not meet our expectations. Net sales during the fourth quarter in North America were up a modest 3.7% over last year. Sales in the U.S. were disappointing for us, down slightly on both the year-over-year and sequential quarter basis. Mexico, however, continues to grow nicely and was up 11% over last year. In U.S., we faced some challenges. Some of which were our own fault. During the third quarter of this year, we held contests and promotions in North America that brought a significant member of new Associates into the business in an extremely short time, more than quadrupling our average weekly enrolments in one week. I believe this activity hurt us in two ways; firstly, the incentives pushed leaders to bring in more people at one time, than they could reasonably expect to spend the appropriate time, training and supporting. And second, the Herculean effort of those leaders took a toll on our stamina to finish out the year on an aggressive note. We believe this led in part the decrease in our Associate accounts in North America as compared to the third quarter of 2007. We are also faced with public relations challenges as the [shot in the store] scheme ran through the media and on the Internet. These PR challenges have made it more time consuming for our Associates to bring in new customers as it takes longer to educate and dispel the rumors and myths that pervade the Internet. However, we believe these issues are old news and will be largely behind us in 2008. We are planning to implement several new Associate-related initiatives that are specifically designed to regain our momentum in the U.S. I'll…

Thank you, sir. (Operator Instruction). First question comes from the line of Tim Ramey with D.A. Davidson. Please go ahead.

Good morning. When you think about the slowdown in the U.S. business in particular, you certainly mentioned the reputational impact that you took. But, can you see in your SKUs for instance that there is economic sensitivity going on and are you seeing mix shifts occurring within the product mix that's selling or how do you kind of dive a little deeper into the assortment of selling right now?

You know that I'll take a stab at it and Dave and Mark if they want to join in. We have not seen any significant mix shift in our product grouping. It continues to be basically steady as you go. We are seeing some up tick in MyHealthPak which we are very encouraged about. Dave I don't know if you.

I do think we may be seeing a little bit as people are joining because there is so much uncertainty with the economic situation in the U.S. How the media has created such a scary picture that people don't know for sure whether they want to invest in the new business whether they -- what the situation is going to be. I think if we get into a full recession it's definitely beneficial to us because of the downsizing the people are looking for supplement income always goes up in those situations and direct selling is a great alternative for people. So we are kind of stuck in that transition middle period where people don't know if the recession is coming or when it is coming and how they act accordingly. So they are kind of hesitant in limbo at the moment and soon as they see the swing I think we will see them respond appropriately.

Sounds good. And would you comment on why you didn't repurchase stock in the 4Q?

We had and have two very large construction projects going on one in Australia, which is now well underway and a big one here in South Lake. We just absolutely had to add physical capacity both from the inventory and production standpoint as well as from the administrative standpoint. We've just been running so thin that any way we just really needed to add capacity and so with those large commitments and the timing of those been not always something you could manage exactly we got prudent to be on the side line where we get work to some of these things. Now that we have got our admin building here in Salt Lake about wrapped up and the warehouse and production side is getting pretty close I think if we can see little more clearly our cash flows and we would be taking a hard look at that.

Thank you.

Thank you, sir. The next question comes form Simeon Gutman, Goldman Sachs. Please go ahead.

Thanks. Implicit in the guidance the sale trajectory for the U.S. or for the overall business, looks to be improving a lot in the back half of the year. And a question especially given your comments earlier that the incentives the promotions that you ran, just the receptivity wasn't strong maybe because your distributor base was winded. Maybe because of the reputational challenges. So in light of that and the economy how do you get confident in that ramp up and yes you're doing initiatives but do those take a little time to set in?

Well, certainly yes we're working on some strategies that will take some time some will be implemented quicker than others. But it would be nice if the economy could figure itself out fairly soon the sooner the better. So it can help to make the decisions, and I think we'll be able to reenergize our field too. They worked really hard to fight through last year did some incredible efforts bringing in a lot of people and in some cases we formed contests that brought them in too short of a period rather than spreading them out. But they did a lot of work and I think they just kind of relaxed in the fourth quarter to catch their breaths and now we need to get them going again excited and now that they have enjoyed the holidays it's time to get back to work.

And do you have additional meetings and/or not in the scale of conventions. But, can that be used as a tool as well?

Definitely, we have our four regional meetings coming up throughout Canada, U.S. and Mexico. We have just had meetings down in Australia and meetings -- we usually have some meetings to kick off the year in these markets and then after the Chinese New Year those markets start to kick it in, because their holidays are coming. Right about now, I believe this week. Chinese New Year will be affecting those markets and they will kick in kind of launch their year end of February, beginning of March as we have our Malaysia convention in Kuala Lumpur. We are excited about that, to get things back on track after the holidays of Chinese New Year for them.

Well and then searching gives to that market I guess Singapore, Malaysia combined. Are you -- can you track on a regional level and yes, you can see in some of the numbers that some of the other regions may be got a little stronger on a sequential basis. But can you track at least at the distributor level, that there has been a migration back to as a home or origination country. And that focus at least for Malaysia has just taken off for a temporary period?

I wouldn't say that we can track specifically it's more of just talking to the leaders. We have seen this with just about every market we've opened where the initial rush in disappointment and we kind to see a settlement into a certain area. And then they start to build again from there the new leaders start to take over and carry the next way of growth. We've seen it over and over and so we weren't surprised about it and we are extremely happy with the level it got to before this usual transition, as it was much higher then we have ever expected.

And you weren't surprised I know you mentioned it just wanted to hear it with the two to three quarters worth and then a sequential deceleration.

And look back at the financial base in all of them

Yeah. And then, sorry go ahead

The thing to keep in mind Simeon is, when you have a truly seamless global commission plan, you get those leaders over there and they go over there, and get started, and then pull back, as Dave mentioned in his comments, to their home markets, and leave it to the local leaders. And there is some give and take, goes back and forth. But we're certainly enthused about that marker and pleased with where we are.

Okay. And then lastly, how would you characterize the success of last year's convention? And I'm curious if would have done anything different with regard to product launches?

I think, in last year's convention we definitely didn't see the at-event sales. But, I'm so excited about what we did last year. That wasn't a product that drove people to buy immediately, because it was the same inventory that they have, the same products that they had. So, they would wait for their month's supply to run out, before they started purchasing. I'm very excited about the increases we're seeing with My HealthPak, starting to pick up momentum, we're going to put a lot more attention and what we talk about, people focus on. And so, we're very excited about the future of that. I think it'll be huge long term product for us. The one weekend sales are not that important in the grand scheme of things.

Thanks

The next question comes from the line of Bill Leach with Neuberger Berman. Please go ahead.

Good morning.

Good morning, Bill.

Gil, I had a couple of questions. What would you estimate your extraordinary legal expenses were for the full year?

Something in the order of $2.5 million in costs.

Would you expect that to repeat this year or not?

You know, it is a hard thing to judge, we have factored in ongoing legal costs. In the fourth quarter, we were just over $0.5 million on those. And we factored in our guidance to best of our judgment. That has continued, because we don't know the timing of when judges will rule on things, and if there are going to be depositions and so forth, it could jump all over the place. But we have factored that in there. And of course our hope is that like the (inaudible) lawsuits that both the other class-action lawsuits get thrown out. And then we'd see a dramatic drop in those costs ongoing. That's certainly our hope.

Okay. And are you still pursuing your legal suit against Minkow

Yes we are.

And what's the status of that?

Right now, it's in the hands of the judge to determine some rulings on the issues that are raised in the case. We were granted as you may be aware some initial expedited discovery, in a very narrow question of who paid him to write this report. And so, that deposition has taken place. And then his lawyers filed a motion with the judge to, kind of a tit-for-tat, saying that if you gave it for (inaudible) and then it should be [focused on] and it is just sitting there, waiting for the judge to opine on that.

And in terms of you EPS guidance, are you assuming any share buybacks or you are just assuming that that’s go on the shares outstanding.

We are assuming some share buybacks. I mentioned in our prepared remarks that we have about $50.3 million and it wouldn’t surprise me to utilize that during 2008.

So, that is about 8% of your market caps, I mean, that would account for your entire EPS gain if you took that literally.

If we did nothing else but buy shares, you are probably right, Bill.

So, won't you think your guidance would be pretty conservative, if I you did that?

Again with guidance, you could certainly jump to that conclusion. It's always difficult when you look out there to know what the stock price is going to do and.

That’s for sure.

And know what our cash needs are, although I mentioned that our CapEx are going to be somewhat less, $5 million to $10 million less than in 2008, we believe.

Okay. And do you know what the option expensing charge was for the quarter and the year?

Yeah I do. In the quarter it was $1.3 million.

Okay.

By the way that was the same as it was in the third quarter.

Is that pretax?

That is pretax. And for the full year it was $6.1 million.

Have you given estimate for this year?

Well what we've build in there is just going to be about the same.

Okay.

Now that of course depends on what the Board does, in terms granting options, and what the share price does, both of those they are sometimes difficult to estimate with any great accuracy.

And last question. Do you see the tax rate about the same this year?

Yeah we see it about 36% in '08.

Okay. Very good, thanks a lot.

The next question comes from the line of Doug Lane with Jefferies & Co. Please go ahead. Doug Lane - Jefferies & Co: Thanks. Hi, good morning everybody.

Good morning, Doug. Doug Lane - Jefferies & Co: You mentioned in the other income of $0.03 favorable item, some of it was capitalized interest. Was that in your original expectations?

Well we have been tracking that, it really was, I mean we had been tracking it in the second and third quarters. We were really getting underway with the building project, but the amount was very, very nominal at that point. In the fourth quarter the amount reached the point where we went ahead and made the entry. As I mentioned in my prepared remarks this is a GAAP requirement, this isn't something that's optional for us to either do or not do. It's a requirement and there is likely to be some additional interest capitalization in the first two quarters of 2008 probably not to that magnitude. Doug Lane - Jefferies & Co: Was I right that's a $0.03 benefit or $0.03 cost?

No. It's about a $0.025 benefit. Doug Lane - Jefferies & Co: Okay. You talked about Associate incentives let me try not to miss anything of 40.5% in the first quarter. Did you mention a number for the full year?

For the full year, last year or this year we're expecting it to be 40.5%. This year meaning 2008. Doug Lane - Jefferies & Co: For the full year?

For the full year. Yes. Doug Lane - Jefferies & Co: Okay. Okay.

And it was 40.3% for the full year of '07. Doug Lane - Jefferies & Co: Right. So that's only a modest step up. I mean, I guess what I would like to talk about is what you're going to do to try to jump start the U.S.? First of all with the average -- with the active Associates going down from 63,000 in September to 61,000 in December. Can you put little color on that is that from less new people coming in or less people ordering during the quarter? So is it more on a recruiting side or more on the retention side?

Definitely a combination of both. Definitely may be lower retention because we brought in so many people out once and they went out with all the support they needed and the fatigue of the leaders out in the field taking a breather in the fourth quarter because we've been driving them so hard for five years now. They have been carrying it up and they took a breath and now we will be out on the road talking with them, motivating them, and finding out what they need to take it to the next level. What motivates them and we’re also going to be looking to do everything we can to make them more efficient. If they are more productive, if they can do more with less efforts, I think that’s a key and with technology and other things we can definitely help them become more productive. Doug Lane - Jefferies & Co: I was looking back and the last time you went through sort of a retrenchment in the U.S. It was a long time ago it was late '01, early '02. Can you -- obviously you were lots more of a company then but it did turn around pretty quickly. What kind of -- what was the situation then and what did you do then and how can you apply or maybe you less than then to what you’re seeing today?

I think it was -- a large part was getting back and rebuilding the relationship with the field. Getting them onboard and then working together for common goals. We had a lot of meetings, a lot of serious talks with our leaders and they all stepped up. And you’ve seen the run that came about that. It wasn't contest and promotions they got us that running start, it was leaders who wanted to get back to work and take their income up. And they realized the power of the compensation plan. It pays them very well when they work hard. They don't need bonuses and contests to be receiving a very good income. We do those occasionally to help move the procrastinators along given the deadline. But as they climb the leisure brink their pay definitely increases greatly with every step and so they know the reward along the way. So we will need to go back and talk about the tough year we had and talk about the future and get their mind set shifted to focusing on the future and how we can take advantage of our size and the new technology and resources we have available. The credibility associations et cetera to make our next run. Definitely, see this is a cyclical business and it's time for us to reinvent and reinvigorate and we will -- would be working on a lot of things in 2008 so that we get off to running again like we did back in 2002, like you said. Doug Lane - Jefferies & Co: Have you been -- have you noticed has it been a material difference in the mood at the field with the events in January or is that just they don't really care and they just go back doing a day-to-day business. And really where do you go from a motivation stand point to your leadership without the big increase in the promotions and Associates incentive spending and all the things you talked about?

This is Mark Wilson and just responding to that quickly. We've seen some great excitement here in 2008. We have had some great kick-offs in January and we are seeing some large meetings that have taken place and will take place in the upcoming several weeks. I think there is a new initiative to get back to work. It was a little bit as Dave and Gil diluted to a wait and see, with the negative propaganda as well as many of the other things that hit them and the fatigue Dave mentioned. We're feeling and seeing that there is an emphasis on getting back to work and getting out there and getting their teams moving again and I think we'll se that respond in 2008. Doug Lane - Jefferies & Co: Okay Thank you.

Thank you sir. The next question comes from the line of Scott Van Winkle with Canaccord Adams, please go ahead.

Hi everyone. Most of my questions have been asked. But Gill a question for you. If we look back at the third quarter when w started to see a little slowing in the distributed growth in the U.S., there was also lower revenue per distributor that quarter, I think about a 2% decline. I'm wondering if going forward as we look at trends in the distributed growth, is it a good indication to look at that revenue, per distributor? May be if it's falling it shows an indication that there is a precursor of a slowing distributor growth. Am I thinking in the right way?

Well we do look at that Scott. Just looking at the numbers that did drop and it depends which market you're looking at too, but in the US it did drop from the second quarter to the third quarter. But we are pleased to see it rise in the fourth quarter again. And overall, total company wise it did raise in the fourth quarter from both the second and the third quarter. So, it's something that we looked at, but it's not something that we consider a key element.

Okay.

And then (inaudible) account is the key element.

Right. And then speaking, in North America, the Canadian distributor growth on a year-over-year basis anyways been a little volatile, in the last couple of quarter it was up, I think over 20% and then up high single digits this quarter. Is there any co-relation with the US or is there something that was different in Canada?

You see a lot of similarity [just mark] again between Canada and the US. A lot of our leaders work back and forth between those markets. But we were seeing actually an excitement in Canada, I know in January we had 18,000 people in a distributor led meeting in Montreal, Canada for example. And as well as several of the other regions held some great kick off meetings. So, I think you will see some response there as well. But we've always worked very closely as in North Americas, so in US and Canada the border kind of gets a little fuzzy when we were out there and working and interacting.

Great, and if you mentioned it then I apologies you Gil, I think you mentioned or was it Dave that mentioned the success building in the customized nutrition packages. Has there been any affect on the P&L in the form of our lower costs, better margin and anything like that?

Well, we are certainly happy with the margins on the My HealthPak. I think we are still not completely down the learning curve of equipment and packages. For any complicated process, to have that custom interface, when you go online and drive your pills in and drop them in and so forth. And then the machinery has to package that and seal the little envelopes and then put the customized nutritional statement on the box.

And we are very happy with the margin with My HealthPak. We waited a quarter just to make sure that we weren't going to have any bugs in the new technology and new machinery. It's running smoothly, and we are ready to go gang busters on pushing that product and talk about every turn. So, we are excited about the feature of that product, and talk about it every turn, so we are exited about the future of that product.

And Dave one of the things that I assume, but I think you probably do as well, that people on the My HealthPak will have a higher retention rates. Are too early you telling us that's the case?

It's pretty new. Yeah, it will be pretty hard to get any statistically significant information on whether they are staying longer with all the other factors that affect retentions. So, I won't say anything yet, but we are very hopeful of what we saw. I mean with the HealthPak, we saw a better compliance, people taking their products more regularly, you take it when you travel, you take it when you go to dinner, with the bottles it's a lot tougher. The My HealthPak will just ensure that they are taking more of their tablets at those times, rather than just what was in the HealthPak. So the (inaudible) would come home from dinner and hopefully remember to take, we are not too worried about that anymore. So, we believe product compliance will go up. So, they will be going through their products more regularly. Thus they auto ship will work better and that they won't have pills left over at the end of the month, because they forgot to take some here and there. So, we think it will help with retention. It will help with their product inventory and make sure that they are not getting a few tablets at the end of each month etcetera. So, we are very excited about the possibilities.

Great, thank you.

The next question comes from the line of Mimi Noel with Sidoti & Co. Please go ahead. Mimi Noel - Sidoti & Co: Thank you. Hi.

Hello.

Hi. Mimi Noel - Sidoti & Co: Most of my questions have also already been answered, but Gil, I think I have first one for you. Have you seen any unusual changes in auto ship, meaning unusually high cancellations?

No. We haven't. Our Auto Ship number came in at the end of the quarter at 52%, consistent with the third quarter, and no, it's been steady. Mimi Noel - Sidoti & Co: Okay. Can you comment on January or no?

No, it's just a little early. Mimi Noel - Sidoti & Co: Alright. That's right. And then the other one, for Dave, if you can refresh my memory maybe in 2006, 2005, can you recall what was the pace of associate growth in the United States?, Because on the surface you were just about 10% in the first half of 2007., But relative to your overall pace of growth in sales over the last couple of years, it doesn't seem like that much of an acceleration or that would it be so much the existing distributors could not handle the growth. So, it surprises me that they would be so fatigued from such a hard work, because it doesn't look like they've brought in that many distributors over the year.

Well, I think the key is how they brought them in; they brought them in extremely short periods of time. So, there is a crunch, there is deadline with major incentive to bring them in at that time. They also have to spend more time with those people, because, as I said, they had to educate and dispel the rumors and myths and lot more, which would take longer to close the person. So, it was more effort during that time to get the person and they brought them all in at once. And we weren't able to support them as well. And so there was a little frustration, as they lost those people that they weren’t able to work with and take care of. So, it was a weird combination of events. Mimi Noel - Sidoti & Co: Okay.

Where if we have a steady accumulation of those people, where'd have evenly brought in through the weeks and months, it's a much different work load. Mimi Noel - Sidoti & Co: Okay.

Than tax season so to speak where all are crunched into one month. It’s spreading out over the year makes it much more effective, much more -- a better lifestyle so to speak as they are building their business. Mimi Noel - Sidoti & Company: Could you also speculate perhaps that the existing distributors were maybe a little less selective and who they bring into the business than they have been previously because they were under such duress, call it, to get more individuals into the business?

I don’t see that. That doesn’t tend to happen with the numbers we are talking. I mean, maybe, there's a few people out there that change their targets, but people usually, call that human nature, and do what they have been doing. Mimi Noel - Sidoti & Company: Attracted to the same people as they always are. Okay

Yeah. Mimi Noel - Sidoti & Company: Alright. That’s all I have. Thank you very much.

Thank you.

Thank you. Next question comes from the line of Willis Taylor of Gagnon Securities. Please go ahead.

Hi, you mentioned at the beginning of the call, the end of the SEC investigation. Can you tell us of any other government entities are investigating or making enquiries into the company?

There are no other enquiries being made, I mean the typical thing that you get from time-to-time like a state sales tax auditor coming in and workers' comp -- I mean, just the normal kinds of things at this point.

Okay, thank you.

Were you asking about any specific agency?

No.

Okay.

On depreciation and amortization, it’s been trending down over the last two years. And you have these two big projects that are going to come online .Can you tell us what we should expect depreciation and amortization to be after those two projects come online?

Depreciation for the full year 2007 was about $5 million.

Okay

$5.3 million and that’s probably going to go up about $2 million

Okay Thank you very much

Thank you, sir. At this time, there are no further questions. Please go ahead.

Thank you for your questions. We continue to remain confident in the future outlook for USANA and the investment opportunity we provide. If you do have any remaining questions, please feel free to contact us at investor.relations@us.usana.com or call Riley Timmer, Executive Director of Finance at 801-954-7922. We appreciate your interest in USANA and thank you again for joining us this morning.

Thank you. Ladies and gentlemen, this just concludes the USANA Health Sciences fourth quarter and year-end earnings conference call. You may now disconnect and thank you for using ACT Teleconferencing.