Commentary on Usana Health Sciences - From Yahoo
Tracy Coenen posts
an interesting commentary on Usana Health Sciences:
"The whole thread is interesting, but I want to focus on the allegations that USANA should be experiencing cash flow difficulties. If so, we should see a number of accounting devices used to increase reported earnings, to deflect the attention away from free cash flow.A poster on the Yahoo message board for Usana Health Sciences provided this interesting analysis early this morning. I am putting in bold the most interesting parts.
Here is why I hope the ‘insider’ is right that others are beginning to come forward: the company has been left with almost no assets after years of operations.
In many corporations, the stock of a company represents the value of the buildings, some patents, investments, etc. In Usana’s case, a lot of cash has come in the door. I’ll give them that. They know how to do this thing right, as Len would have the AG saying.
But what happened? The cash is gone because the officers cashed in a huge number of options at around 80 cents and sold for $50 to $60. The increased number of shares created would then dilute the earnings per share. So management (while selling their own shares) decided to use the company’s cash to buy those shares back.
How did this hurt associates? It was their money flowing in from required autoship in order to stay eligible for commission. If Usana would have deployed that cash to create unique products or make operations so efficient that the cost of the product decreased, then associates would have had an easier time building their business.
How did the stock buy back hurt other investors? Roughly 50% of the company’s owners didn’t receive stock options they could sell to take money out of the company. The profits of the company could have created unique products, made operations more efficient, OR paid a dividend to all holders of the stock or diversified the business."
I will have more on this in the coming weeks.
