INSIDER SELLING AT USANA

So, why have so many USANA insiders sold their stock -- and how can they make so much money? Let's start with a bit of history.

Those around in 1999 and 2000, will remember that USANA's management team was one of the lowest paid group of executives -- many of today's big earners were being paid less than $100K then and their stock options were under water (meaning the exercise price was above the stock price)-- they were worthless pieces of paper. Executives were frustrated because their stock options were expiring -- and the company was performing well -- but Wall Street didn't seem to care.

When Dave Wentz took over as EVP -- soon to be President-- he worked with the board to sure up the management team (which had produced relatively good results -- consistent results -- but had not seen steady stock growth). He granted a relatively modest amount of stock options to the management team at the then bargain price of less than a dollar per share. It worked -- the management team stayed together and it didn't cost the company a lot of cash as Dave used stock rather than salary increases to engage the company's executives.

This was a fat time in America -- prior to the Internet Bubble -- stock options were the darling of Wall Street. Everyone wanted executive compensation to be tied to the stock price and USANA was late, but it finally followed the wisdom of the time and issued stock options that provide the executives an opportunity to benefit if they could turn the company around and create value for the shareholders.

Things didn't improve immediately, and some would argue that things got worse. But the management team stuck together, and eventually the company turned the corner and the stock slowly began to increase in value.

As the executive's options began to vest -- they executives began to sell. Did they know something that others should know? "NO!"

They were scared they would lose it all -- the company's stock had fallen before even though sales and profits were growing. The management team had learned how to grow sales but they had no idea how to affect the stock price.

This management team had been paid lower than their peers for several years -- they did not want to 'miss out' on the chance to cash in on their success. This team knew that there were too many variables outside of their control -- and you can't spend stock options -- you have to convert it to cash.

Put yourselves in their shoes -- none of the management team (other than Dave Wentz) comes from a family with money. They are all first generation success stories. They aren't making $500K or $1 million in salary like many executives at public companies, and this stock represents their 'only' chance of acquiring significant wealth.

This is a hard working management team, who took a risk -- accepted a lower salary in hopes that some day their work would be rewarded by Wall Street. NONE OF THE EXECUTIVES COULD HAVE GUESSED THE STOCK WOULD APPRECIATE AS IT HAS! They have worked hard, they have all fought through some tough years and they got a bit lucky.

Some think that there is something 'fishy' going on. I would argue that management focused on delivering value to shareholders and they all have learned first hand that the American Dream is alive and well.

More about the 'buy back' strategy in another post.