Thursday, January 28, 2016

USANA Should Disclose What The Actual United States of America Net Sales, Active Associates, and Active Preferred Customers Are For The Last 5 Years.

Many may not know, but when USANA Health Sciences (USNA) reports their United States figures in their quarterly and annual financial statements they also include the United Kingdom and the Netherlands. These foreign markets are about 4200 miles apart from the United States, but that hasn't stopped USANA from considering them all part of their domestic market. So when USANA reports net sales for the United States after the closing bell on Tuesday, February 9, 2016 would it mean anything different to investors if the United States of America figures were actually only half of what they are reporting for the United States? I believe I have evidence to suggest this may be the case.

USANA reports in their North American Average Total Earnings for 2011 that the total number of US associates that purchased at least one product (active associate) was 135,590. The next available figure, which was finally disclosed just last November after Fox13 news in Salt Lake City asked USANA if they can provide updated information since 2011 was a bit outdated, shows in their North American Average Total Earnings for 2014 that only 61,400 US associates purchased at least one product. That is a 54.7% decline in the United States of America according to those reports. However, USANA has not made any such disclosure in SEC filings regarding this massive decline of US active associates. In fact, SEC filings only show a slight decline for the United States from 2011 to 2014.

Regarding their SEC filings (10-Q and 10-K), USANA reports only 3 months worth of associate activity for each quarter. In 2011, USANA had on average 47,500 active associates each quarter for their US market. In 2014, USANA had about 40,000 active associates on average each quarter. So according to SEC filings, USANA only declined 15.8%. So why is there a massive discrepancy between a 54.7% decline (undisclosed to investors) versus a 15.8% decline (disclosed to investors)? I believe the answer is the United Kingdom and the Netherlands, which may account for half of the active associates USANA reports for the United States in their SEC Filings.

This begs the question - what are the actual net sales, active associate numbers and active preferred customer numbers for the United States of America? I thought USANA was required by law to disclose their domestic sales figures separately and not sure how they can still be including sales to associates and preferred customers from the United Kingdom or Netherlands as domestic sales. If I am right and a substantial part of USANA's United States sales figures are non-domestic, does this spell trouble for USANA? Are they trying to conceal their massive decline in the US from investors? Does this warrant a SEC investigation? Will class action lawsuits be filed as a result? If I am wrong, then someone please explain what happened to all the active associates they reported in the average total earnings reports.

Below is a table showing each year's total number of US associates and the number of distributors reported in SEC filings for the 4th quarters (except 2014, which was not disclosed in SEC filings, but deduced from statements made regarding % increases or decreases).

YEAR 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
# of US Associates in 4th Quarter Per SEC Filings 51,000 59,000 61,000 63,000 57,000 51,000 45,000 Not Disclosed Not Disclosed 40,000 (Deduced)
Total # US Associates in Year per Average Total Earnings Disclosures 101,361 142,841 126,146 158,934 165,710 146,714 135,590 Not Disclosed Not Disclosed 61,400
Total US sales (in millions) per 10K SEC Filing $134.2 $159.4 $169.6 $161.2 $151.7 $150.9 $148.1 $152.5 $157.5 $143.7
10K SEC Filing 10K-2005 10K-2006 10K-2007 10K-2008 10K-2009 10K-2010 10K-2011 10K-2012 10K-2013 10K-2014
North American Average Total Earnings Disclosure Disclosure 2005 Disclosure 2006 Disclosure 2007 Disclosure 2008 Disclosure 2009 Disclosure 2010 Disclosure 2011 Not Disclosed Not Disclosed Disclosure 2014

To find out when USANA began including the UK and the Netherlands with US domestic data, we must rewind over a decade in time.

USANA states the following in their second quarter 10-Q for 2000:
"Since the beginning of the second quarter of 2000, the Company's United Kingdom market has been serviced from the United States and is now considered a part of the domestic operating segment of the Company." - Q2-2000

In the third quarter 10-Q for 1999, USANA states the following:
"The Company began selling products into the Netherlands in the third quarter of 1999. The Netherlands will be serviced by the Company's United Kingdom administrative facility." - Q3-1999