Usana

From Wikipedia, the free encyclopedia

Usana (NASDAQ: USNA), or USANA Health Sciences, Inc., is a network marketing company that produces a variety of health-care products, including vitamins, skin-care products, and nutritional supplements. Most of these products are manufactured in the United States[1] and sold in thirteen international markets. Its products are used by many USANA-sponsored Olympic and professional athletes. In 2007, several of its executives were discovered to have made false statements in their resumes.[1] USANA currently faces a class action lawsuit from some of its distributors.[2]

Contents

[edit] Background

The company employs approximately 1,000 people worldwide, and approximate sales are $427 million annually. The company is based in Salt Lake City, Utah. The company was rated by Forbes as one of the top 200 small companies from 2004-2006. A more recent article published by Forbes took a critical stance on the company, quoting industry and government experts who question both the business practices and product quality of USANA.[3][4]

USANA manufactures their nutritional supplements to a level which conforms to Good Manufacturing Practices for Dietary Supplements as set forth by NSF International.[5] This certification guarantees that their NSF reviewed products contain the identity and quantity of dietary ingredients declared on the product label and do not contain unacceptable quantities of unwanted contaminants. The USANA Essentials and HealthPak received 5-star ratings in the 4th edition of the Nutrisearch Comparative Guide to Nutritional Supplements in the United States and Canada.[6], a publication which may not be independent

The company is based on the concept of network marketing and follows a binary plan for compensation.[7] Due to this, products from the company are not available through retail channels, but instead may only be obtained by a direct order to the company through one of its independent associates.

USANA's Q2 filing for the 2007 fiscal year marked the 20th consecutive quarter of record sales for the company.[8] USANA's Q3 earnings release for the 2007 fiscal year marked the second best quarter for sales in company history.[9] However, USANAs Q4 earnings for 2007 fell flat with earnings declining slightly to $11.06 million from $11.1 million. The company attributed this to a 5% decline in the number of US associates.[10] A month later USANA cut its estimated earnings per share for its first quarter of 2008 from 63 cents - 66 cents per share to 44 cents - 46cents pers share.[11]

[edit] Countries

All associates for USANA operate independently. Current USANA markets exist in:

An outdoor venue, USANA Amphitheatre, which is also located in West Valley City, is named after the company.

[edit] Products

USANA products encompass three brands: USANA Nutritionals, USANA Macro-Optimizer foods, and Sensé skin- and body-care products.

[edit] Nutritionals

The USANA Nutritionals brand composed of the company’s Essentials and Optimizers nutritional supplements.

[edit] Macro-Optimizers

The USANA Macro-Optimizers brand is composed of a variety of drink mixes and nutritional bars. USANA also has designed a weight-loss and weight-maintenance program called RESET, which utilizes the Macro-Optimizers and Essentials.

[edit] Sensé

The USANA Sensé brand includes the Basics and the Enhancers, which are made up of facial-care products, as well as Sensé Splash, which consists of hair- and body-care products.

In 2007, USANA announced it was waiting on a U.S. patent for their preserving technology they utilize in their Sensé formulas. The technology allows the company to manufacture Sensé products without adding the paraben preservatives which have been linked to tumors and other health problems.[12]

[edit] Athlete sponsorships

USANA sponsors many athletic teams and individual athletes, providing them with free nutritional supplements as well as monetary donations in certain cases. USANA sponsorships include:

USANA's partnership with the WTA in 2006 made headlines, as it was the first time the women's professional tennis organization had provided its players with vitamins and health supplements that were backed by an "athlete guarantee" of purity from substances prohibited by the World Anti-Doping Agency.[13][14]

[edit] Legal allegations

In March 2007, Barry Minkow, an executive of the Fraud Discovery Institute, delivered a 500-page report to the United States Securities and Exchange Commission (SEC) accusing Usana of operating a pyramid scheme.[15] The report alleged that:

  • 86% of profits are derived from sales to associates.
  • Only 37% of sales associates had ever earned a commission.
  • Of the 37% who earned a commission, 87% did not earn enough to cover the original $116 cost of becoming an associate.

These allegations prompted an informal investigation into USANAs business practices by the SEC which concluded on January 11th with the SEC recommending that no enforcement action be taken against the company.[16]

Barry Minkow, a convicted felon-turned-investigator of corporate fraud, had openly admitted to short selling Usana's stock, in order to make a profit from a decline in the stock price,[17] prior to delivering the report. On page 8 of the report, Mr. Minkow admitted to receiving payment for writing the report, which was submitted under the name of his company, the Fraud Discovery Institute (FDI).[original research?]Mr. Minkow has since netted about $61,000 dollars from option activity related to USANA's stock.[18] Usana denied Minkows claims and initially sued him for defamation, a claim they later dropped[19]. USANA then filed a lawsuit against Barry Minkow citing stock manipulation.[20][15] On March 5th, 2008 a federal judge threw out all but one of USANAs claims against Barry Minkow after she found USANA guilty of violating California's anti-SLAPP law by suing Minkow for fair criticism. The judge determined USANA did now show a reasonable probability they would win based on those claims and cited two examples where USANA failed to refute Minkow's claims that USANAs products were overpriced due to their not being of better quality than other lower-priced brands. An May 9th Federal Magistrate Samuel Alba ordered USANA to pay $142,510 to Minkow to recoup his attorney fees for defending himself against the thrown out charges[21]. The judges ruling retained USANAs ability to identify and sue any institutional investors, hedge funds an individual investors it believes conspired with Minkow to profit from the company's falling stock. Currently no further lawsuits have been laid in this matter, but the charge against Minkow is still moving forward.[22]

One day after the release of the Barry Minkow report, shares of the company's stock declined by 15%..[23] Accusations leveled against Usana by Barry Minkow and the FDI, were listed as contributory factors in the decline of the stock price and have subsequently led to several lawsuits being filed against the company.

On April 4, 2007 Guerin Senter and two other USANA shareholders filed a class-action lawsuit against USANA Health Sciences, Myron W. Wentz, David A. Wentz and Gilbert A. Fuller. The suit alleges that USANA presented materially false and misleading statements about the company's financial situation and business practices. Included in the allegations were that USANA's business model was unsustainable and amounted to a pyramid scheme. The lawsuit references several of the allegations made in the Minkow report.[24]

USANA has also been named the defendant in a proposed class-action lawsuit brought against them by some of the company’s distributors. On June 21st the Associate Press reported that the lawsuit was being filed in the state court of California, which has tough multilevel marketing laws. This lawsuit seeks to ban USANA from doing further business in the state, which is one of USANA’s largest markets. The lawsuit alleges that USANA failed to disclose “material adverse facts” to those recruited to sell the companies products. The lawsuit seeks damages for "downline" distributors who purchased products which they claim they were unable to sell due to the inflated prices.[2]

In early August, 2007, Forbes reported that through sources the FBI had launched a criminal investigation into Usana [2]. Usana has denied these allegations, stating that they have not been contacted by the FBI and are not aware of such and investigation [3].

In October 2007, Minkow alleged through a new Fraud Discovery Institute website that USANA is illegally operating in China. USANA has denied these claims. [25]

On January 3rd, 2008 a derivative lawsuit in the Utah state court, which was brought by shareholders of the company against its directors, was dismissed by the court after USANA filed a motion to dismiss and the plaintiff agreed with prejudice. [4]

On January 11, 2008 it was announced that the Securities and Exchange Commission (SEC) closed its informal inquiry and will not take any action against USANA.[5] Additionally, the Wall Street Journal reported that the FBI has deferred to the SEC and is not investigating the company.[6]

[edit] Résumé controversy

In 2007, Usana faced repeated controversy as a number of their executives were discovered to have made false statements regarding their certification.[1]

Denis Waitley, a member of the board of directors, resigned from his post after it was discovered that he did not have a Master's degree from the Naval Postgraduate School in Monterey, California.[26]. In addition to this USANA informed the Wall Street Journal that they were unable to verify Waitley's Ph.D. from the unaccredited La Jolla University.[27]

Ladd McNamara, a Usana sales associate, quit the company's medical advisory board after it was discovered his license to practice medicine had been revoked by the State Medical Board of Ohio in May of 2007.[28] McNamara was required to tell the Ohio Medical Board that he had surrendered his license in Georgia [7] when he renewed his license in Ohio in 2006. Instead, Ohio learned that information elsewhere.[29]

The Vice President of Research and Development, Timothy Wood, was forced to change his résumé to list his doctorate from Yale University as being in forestry, as opposed to the doctorate in biology he claimed.[30]

Most recently Usana's Executive Vice President and chief financial officer, Gilbert Fuller, reported biographical information that showed him as a CPA,[31] despite his license having lapsed in 1986; his license expired due to his "failure to pay renewal fees".[32] Mr. Fuller received his CPA license in 1970, and remained active until 1986.[32] While it is not required of a CFO to be a CPA, use of the CPA title while inactive is considered unlawful by the by-laws of the Utah Association of Public Accountants.[30]

[edit] References

  1. ^ a b Paul Foy. "Another Usana official forced to revise resume", Daily Herald, 2007-06-12. 
  2. ^ a b Paul Foy. "Vitamin Marketer Sued by Distributors", AP, 2007-06-21. 
  3. ^ Hard To Swallow - Forbes.com
  4. ^ National Business Review (NBR) - Business, News, Arts, Media, Share Market & More
  5. ^ NSF Certified Products - Dietary Supplements
  6. ^ Lyle MacWilliam (2007). Nutrisearch Comparative Guide to Nutritional Supplements, 4th edition. Northern Dimensions Publishing. ISBN 097325386X. 
  7. ^ http://www.nbr.co.nz/docs/US-CEN-Binary%20Comp%20Plan.pdf
  8. ^ http://www.sec.gov/Archives/edgar/data/896264/000110465907074109/a07-26263_110qa.htm
  9. ^ http://www.sec.gov/Archives/edgar/data/896264/000115752307009889/a5519605ex99.txt
  10. ^ USANA Shares Slide on Profit Report: Financial News - Yahoo! Finance
  11. ^ UPSDATE 1-USANA Health Sciences cuts Q1, '08 view; shares tumble: Financial News - Reuters Finance
  12. ^ Marilyn Much. "New Recipe Leads to New Revenue Growth", Investor's Business Daily, 2005-03-21. 
  13. ^ Liz Robbins. "WTA Tour Signs On With Vitamin Supplier", New York Times, 2006-08-23. 
  14. ^ "USANA, women’s tennis tour ink deal on ‘clean’ supplements", Salt Lake Tribune, 2006-08-23. 
  15. ^ a b Dave Anderson. "As stocks plunge, Usana sues Minkow over report", Deseret Morning News. 
  16. ^ Pratish Narayanan. "UPDATE 1-SEC ends Usana probe with no action; shares up", Reuters, 2008-01-11. 
  17. ^ Keith J. Winstein. "USANA Sales Plan Draws Fire from Felon Turned Gumshoe", Wall Street Journal, 2007-03-15. 
  18. ^ http://www.marketwaveinc.com/articles/WSJPrintEdition.pdf
  19. ^ Associated Press. "USANA ordered to pay for SLAPP violation", Salt Lake Tribune, 2008-05-07. 
  20. ^ Form 8-K for USANA HEALTH SCIENCES INC
  21. ^ Associated Press. "USANA ordered to pay for SLAPP violation", Salt Lake Tribune, 2008-05-07. 
  22. ^ tom Harvey. "Usana Claims Tossed", Salt Lake Tribune, 2008-03-05. 
  23. ^ Dave Anderton. "As Stocks Plunge, USANA Sues Minkow Over Report", Deseret Morning News, 2007-03-17. 
  24. ^ Linda Fantin. "Supplements suit says USANA duped investors", Salt Lake Tribune, 2007-03-28.  See also plaintiff press releases from Milberg Weiss, Brower Piven, and Brodsky & Smith, LLC, March 29, 2007.
  25. ^ Roddy Boyd. "Minkow Accuses USANA of Illegal Sales in China,", New York Post, 2007-10-19. 
  26. ^ http://www.sec.gov/Archives/edgar/data/896264/000110465907026138/a07-10015_1defa14a.htm
  27. ^ Don Bauder. "Pyramid, Phony Bios", "San Diego Reader, 2007-09-13. 
  28. ^ http://www.nbr.co.nz/docs/35081069_ohio.pdf
  29. ^ Helen Malmgren. "Troubled USANA faces new stock woes", The National Business Review, 2007-08-16. 
  30. ^ a b Roddy Boyd. "CFO's no CPA - USANA under fire on executive bios", New York Post, 2007-06-12. 
  31. ^ http://www.sec.gov/Archives/edgar/data/896264/000110465907018746/a07-6205_1def14a.htm
  32. ^ a b License 120645-2601 Detail

[edit] External links