x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Texas | 75-2508900 | |
(State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
600 S. Royal Lane, Suite 200, Coppell, Texas | 75019 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer ¨ | Smaller reporting company x | Emerging Growth Company ¨ |
Part I – FINANCIAL INFORMATION | |
Part II – OTHER INFORMATION | |
• | future plans related to budgets, future capital requirements, market share growth, and anticipated capital projects and obligations; |
• | the future impact of our planned changes to global associate career and compensation plans or incentives or the regulations thereto; |
ASSETS | March 31, 2017 (unaudited) | December 31, 2016 | |||||
Cash and cash equivalents | $ | 29,447 | $ | 28,687 | |||
Restricted cash | 1,511 | 1,510 | |||||
Accounts receivable, net of allowance of $486 and $463 in 2017 and 2016, respectively | 178 | 298 | |||||
Income tax receivable | 163 | 1,587 | |||||
Inventories, net | 13,416 | 11,961 | |||||
Prepaid expenses and other current assets | 3,625 | 3,483 | |||||
Deferred commissions | 3,214 | 3,229 | |||||
Total current assets | 51,554 | 50,755 | |||||
Property and equipment, net | 3,631 | 3,611 | |||||
Construction in progress | 1,050 | 1,012 | |||||
Long-term restricted cash | 6,936 | 6,429 | |||||
Other assets | 3,914 | 4,013 | |||||
Long-term deferred tax assets, net | 5,603 | 5,368 | |||||
Total assets | $ | 72,688 | $ | 71,188 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current portion of capital leases | $ | 367 | $ | 357 | |||
Accounts payable | 5,912 | 5,223 | |||||
Accrued expenses | 4,991 | 5,605 | |||||
Commissions and incentives payable | 9,116 | 8,799 | |||||
Taxes payable | 711 | 1,040 | |||||
Current notes payable | 999 | 801 | |||||
Deferred revenue | 8,355 | 8,156 | |||||
Total current liabilities | 30,451 | 29,981 | |||||
Capital leases, excluding current portion | 276 | 261 | |||||
Long-term deferred tax liabilities | 30 | 29 | |||||
Long-term notes payable | 427 | 567 | |||||
Other long-term liabilities | 1,448 | 1,465 | |||||
Total liabilities | 32,632 | 32,303 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued or outstanding | — | — | |||||
Common stock, $0.0001 par value, 99,000,000 shares authorized, 2,758,275 shares issued and 2,710,858 shares outstanding as of March 31, 2017 and 2,758,275 shares issued and 2,688,790 shares outstanding as of December 31, 2016 | — | — | |||||
Additional paid-in capital | 35,873 | 38,190 | |||||
Retained earnings | 5,747 | 7,331 | |||||
Accumulated other comprehensive income | 4,213 | 1,834 | |||||
Treasury stock, at average cost, 47,417 shares as of March 31, 2017 and 69,485 shares as of December 31, 2016, respectively | (5,777 | ) | (8,470 | ) | |||
Total shareholders’ equity | 40,056 | 38,885 | |||||
Total liabilities and shareholders’ equity | $ | 72,688 | $ | 71,188 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Net sales | $ | 40,641 | $ | 40,708 | |||
Cost of sales | 8,762 | 8,389 | |||||
Gross profit | 31,879 | 32,319 | |||||
Operating expenses: | |||||||
Commissions and incentives | 17,081 | 15,618 | |||||
Selling and administrative expenses | 8,654 | 8,142 | |||||
Depreciation and amortization expense | 502 | 443 | |||||
Other operating costs | 7,676 | 7,580 | |||||
Total operating expenses | 33,913 | 31,783 | |||||
Income (loss) from operations | (2,034 | ) | 536 | ||||
Interest income (expense) | 29 | (13 | ) | ||||
Other income, net | 41 | 334 | |||||
Income (loss) before income taxes | (1,964 | ) | 857 | ||||
Income tax provision (benefit) | (717 | ) | 266 | ||||
Net income (loss) | $ | (1,247 | ) | $ | 591 | ||
Earnings (loss) per common share: | |||||||
Basic | $ | (0.46 | ) | $ | 0.22 | ||
Diluted | $ | (0.46 | ) | $ | 0.21 | ||
Weighted-average common shares outstanding: | |||||||
Basic | 2,701 | 2,696 | |||||
Diluted | 2,701 | 2,780 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Net income (loss) | $ | (1,247 | ) | $ | 591 | ||
Foreign currency translations | 2,379 | 587 | |||||
Comprehensive income | $ | 1,132 | $ | 1,178 |
Common stock Par value | Additional paid in capital | Retained earnings | Accumulated other comprehensive income | Treasury stock | Total shareholders’ equity | ||||||||||||||||||
Balance at December 31, 2016 | $ | — | $ | 38,190 | $ | 7,331 | $ | 1,834 | $ | (8,470 | ) | $ | 38,885 | ||||||||||
Net loss | — | — | (1,247 | ) | — | — | (1,247 | ) | |||||||||||||||
Declared dividends | — | — | (337 | ) | — | — | (337 | ) | |||||||||||||||
Charge related to stock-based compensation | — | 77 | — | — | 77 | ||||||||||||||||||
Issuance of unrestricted shares | — | (1,228 | ) | — | — | 1,473 | 245 | ||||||||||||||||
Stock option exercises | — | (1,166 | ) | — | — | 1,220 | 54 | ||||||||||||||||
Foreign currency translations | — | — | — | 2,379 | — | 2,379 | |||||||||||||||||
Balance at March 31, 2017 | $ | — | $ | 35,873 | $ | 5,747 | $ | 4,213 | $ | (5,777 | ) | $ | 40,056 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net income (loss) | $ | (1,247 | ) | $ | 591 | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization | 502 | 443 | |||||
Provision for inventory losses | 111 | 88 | |||||
Provision for doubtful accounts | 44 | 243 | |||||
Loss on disposal of assets | — | 3 | |||||
Stock-based compensation expense | 322 | 218 | |||||
Deferred income taxes | (187 | ) | 28 | ||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | 82 | (89 | ) | ||||
Income tax receivable | 1,431 | (4 | ) | ||||
Inventories | (1,213 | ) | (1,951 | ) | |||
Prepaid expenses and other current assets | 246 | (673 | ) | ||||
Other assets | 327 | (35 | ) | ||||
Deferred commissions | 88 | (470 | ) | ||||
Accounts payable | 638 | 2,912 | |||||
Accrued expenses and other liabilities | (838 | ) | (1,591 | ) | |||
Taxes payable | (383 | ) | 669 | ||||
Commissions and incentives payable | 119 | 689 | |||||
Deferred revenue | 44 | 1,119 | |||||
Change in restricted cash | (14 | ) | (14 | ) | |||
Net cash provided by operating activities | 72 | 2,176 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||
Acquisition of property and equipment | (361 | ) | (709 | ) | |||
Net cash used in investing activities | (361 | ) | (709 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||
Proceeds from stock options exercised | 54 | 12 | |||||
Payment of cash dividends | (337 | ) | — | ||||
Repayment of capital lease obligations | (412 | ) | (364 | ) | |||
Net cash used in financing activities | (695 | ) | (352 | ) | |||
Effect of currency exchange rate changes on cash and cash equivalents | 1,744 | 472 | |||||
Net increase in cash and cash equivalents | 760 | 1,587 | |||||
Cash and cash equivalents at the beginning of the period | 28,687 | 31,994 | |||||
Cash and cash equivalents at the end of the period | $ | 29,447 | $ | 33,581 | |||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||
Income taxes paid | $ | 255 | $ | 5,335 | |||
Interest paid on capital leases and financing arrangements | $ | 18 | $ | 26 | |||
Assets acquired through financing arrangements | $ | 130 | $ | 409 |
Loyalty program | (in thousands) | ||
Loyalty deferred revenue as of January 1, 2016 | $ | 8,073 | |
Loyalty points forfeited | (6,963 | ) | |
Loyalty points used | (15,451 | ) | |
Loyalty points vested | 20,085 | ||
Loyalty points unvested | 1,289 | ||
Loyalty deferred revenue as of December 31, 2016 | $ | 7,033 |
Loyalty deferred revenue as of January 1, 2017 | $ | 7,033 | |
Loyalty points forfeited | (1,288 | ) | |
Loyalty points used | (3,443 | ) | |
Loyalty points vested | 3,020 | ||
Loyalty points unvested | 1,656 | ||
Loyalty deferred revenue as of March 31, 2017 | $ | 6,978 |
Sales reserve as of January 1, 2017 | $ | 129 | |
Provision related to sales made in current period | 288 | ||
Adjustment related to sales made in prior periods | (31 | ) | |
Actual returns or credits related to current period | (166 | ) | |
Actual returns or credits related to prior periods | (98 | ) | |
Sales reserve as of March 31, 2017 | $ | 122 |
March 31, 2017 | December 31, 2016 | ||||||
Raw materials | $ | 406 | $ | 239 | |||
Finished goods | 13,391 | 12,103 | |||||
Inventory reserves for obsolescence | (381 | ) | (381 | ) | |||
Total | $ | 13,416 | $ | 11,961 |
Three months ended March 31, | |||||||
2017 | 2016 | ||||||
Total gross compensation expense | $ | 77 | $ | 218 | |||
Total tax benefit associated with compensation expense | 13 | 19 | |||||
Total net compensation expense | $ | 64 | $ | 199 |
Nine months ending December 31, 2017 | Year ending December 31, | ||||||||||||||
2018 | 2019 | 2020 | |||||||||||||
Total gross unrecognized compensation expense | $ | 148 | $ | 106 | $ | 29 | $ | — | |||||||
Tax benefit associated with unrecognized compensation expense | 24 | 13 | — | — | |||||||||||
Total net unrecognized compensation expense | $ | 124 | $ | 93 | $ | 29 | $ | — |
Foreign Currency Translation | Pension Postretirement Benefit Obligation | Accumulated Other Comprehensive Income, Net | |||||||||
Balance as of December 31, 2016 | $ | 1,534 | $ | 300 | $ | 1,834 | |||||
Current-period change (1) | 2,379 | — | 2,379 | ||||||||
Balance as of March 31, 2017 | $ | 3,913 | $ | 300 | $ | 4,213 |
• | Level 1 – Quoted unadjusted prices for identical instruments in active markets. |
• | Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets. |
• | Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company. |
March 31, 2017 | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets | |||||||||||||||
Money Market Funds – Fidelity, US | $ | — | $ | — | $ | — | $ | — | |||||||
Interest bearing deposits – various banks | 21,305 | — | — | 21,305 | |||||||||||
Total assets | $ | 21,305 | $ | — | $ | — | $ | 21,305 | |||||||
Amounts included in: | |||||||||||||||
Cash and cash equivalents | $ | 14,839 | $ | — | $ | — | $ | 14,839 | |||||||
Restricted cash | 738 | — | — | 738 | |||||||||||
Long-term restricted cash | 5,728 | — | — | 5,728 | |||||||||||
Total | $ | 21,305 | $ | — | $ | — | $ | 21,305 |
December 31, 2016 | Level 1 | Level 2 | Level 3 | Total | |||||||||||
Assets | |||||||||||||||
Money Market Funds – Fidelity, US | $ | 12 | $ | — | $ | — | $ | 12 | |||||||
Interest bearing deposits – various banks | 19,357 | — | — | 19,357 | |||||||||||
Total assets | $ | 19,369 | $ | — | $ | — | $ | 19,369 | |||||||
Amounts included in: | |||||||||||||||
Cash and cash equivalents | $ | 13,326 | $ | — | $ | — | $ | 13,326 | |||||||
Restricted cash | 737 | — | — | 737 | |||||||||||
Long-term restricted cash | 5,306 | — | — | 5,306 | |||||||||||
Total | $ | 19,369 | $ | — | $ | — | $ | 19,369 |
Three months | |||||||||||||
Region | 2017 | 2016 | |||||||||||
Americas | $ | 15.5 | 38.2 | % | $ | 16.0 | 39.3 | % | |||||
Asia/Pacific | 21.9 | 53.9 | % | 21.4 | 52.6 | % | |||||||
EMEA | 3.2 | 7.9 | % | 3.3 | 8.1 | % | |||||||
Totals | $ | 40.6 | 100.0 | % | $ | 40.7 | 100.0 | % |
Three months | |||||||
2017 | 2016 | ||||||
Consolidated product sales | $ | 33.8 | $ | 33.7 | |||
Consolidated pack sales | 5.7 | 5.8 | |||||
Consolidated other, including freight | 1.1 | 1.2 | |||||
Consolidated total net sales | $ | 40.6 | $ | 40.7 |
Region | March 31, 2017 | December 31, 2016 | |||||
Americas | $ | 3.1 | $ | 3.1 | |||
Asia/Pacific | 1.5 | 1.4 | |||||
EMEA | 0.1 | 0.1 | |||||
Total | $ | 4.7 | $ | 4.6 |
Region | March 31, 2017 | December 31, 2016 | |||||
Americas | $ | 5.6 | $ | 4.8 | |||
Asia/Pacific | 5.0 | 4.2 | |||||
EMEA | 2.8 | 3.0 | |||||
Total | $ | 13.4 | $ | 12.0 |
• | The loyalty program increased first quarter 2017 net sales by $0.4 million as compared to the same period in 2016. |
• | The number of orders decreased 6.8% during the first quarter 2017 to approximately 262,000 as compared to 281,000 during the same period in 2016. This decrease was partially offset by a $7 increase in average order value, to $170 for the three months ended March 31, 2017, as compared to $163 for the same period in 2016. |
2017 | 2016 | Change from 2017 to 2016 | ||||||||||||||||||
Total dollars | % of net sales | Total dollars | % of net sales | Dollar | Percentage | |||||||||||||||
Net sales | $ | 40,641 | 100.0 | % | $ | 40,708 | 100.0 | % | $ | (67 | ) | (0.2 | )% | |||||||
Cost of sales | 8,762 | 21.6 | % | 8,389 | 20.6 | % | 373 | 4.4 | % | |||||||||||
Gross profit | 31,879 | 78.4 | % | 32,319 | 79.4 | % | (440 | ) | (1.4 | )% | ||||||||||
Operating expenses: | ||||||||||||||||||||
Commissions and incentives | 17,081 | 42.0 | % | 15,618 | 38.4 | % | 1,463 | 9.4 | % | |||||||||||
Selling and administrative expenses | 8,654 | 21.3 | % | 8,142 | 20.0 | % | 512 | 6.3 | % | |||||||||||
Depreciation and amortization expense | 502 | 1.2 | % | 443 | 1.1 | % | 59 | 13.3 | % | |||||||||||
Other operating costs | 7,676 | 18.9 | % | 7,580 | 18.6 | % | 96 | 1.3 | % | |||||||||||
Total operating expenses | 33,913 | 83.4 | % | 31,783 | 78.1 | % | 2,130 | 6.7 | % | |||||||||||
Income (loss) from operations | (2,034 | ) | (5.0 | )% | 536 | 1.3 | % | (2,570 | ) | (479.5 | )% | |||||||||
Interest income (expense) | 29 | — | % | (13 | ) | — | % | 42 | 323.1 | % | ||||||||||
Other income, net | 41 | 0.1 | % | 334 | 0.8 | % | (293 | ) | (87.7 | )% | ||||||||||
Income (loss) before income taxes | (1,964 | ) | (4.9 | )% | 857 | 2.1 | % | (2,821 | ) | (329.2 | )% | |||||||||
Provision (Benefit) for income taxes | (717 | ) | (1.8 | )% | 266 | 0.6 | % | (983 | ) | (369.5 | )% | |||||||||
Net income (loss) | $ | (1,247 | ) | (3.1 | )% | $ | 591 | 1.5 | % | $ | (1,838 | ) | (311.0 | )% |
Three-month period ended (in millions, except percentages) | March 31, 2017 | March 31, 2016 | Constant $ Change | |||||||||||||||
GAAP Measure: Total $ | Non-GAAP Measure: Constant $ | GAAP Measure: Total $ | Dollar | Percent | ||||||||||||||
Net Sales | $ | 40.6 | $ | 39.7 | $ | 40.7 | $ | (1.0 | ) | (2.5 | )% | |||||||
Product | 33.8 | 33.1 | 33.7 | (0.6 | ) | (1.8 | )% | |||||||||||
Pack | 5.7 | 5.5 | 5.8 | (0.3 | ) | (5.2 | )% | |||||||||||
Other | 1.1 | 1.1 | 1.2 | (0.1 | ) | (8.3 | )% | |||||||||||
Gross Profit | 31.9 | 31.2 | 32.3 | (1.1 | ) | (3.4 | )% | |||||||||||
Income (loss) from Operations | (2.0 | ) | (2.3 | ) | 0.6 | (2.9 | ) | (483.3 | )% |
Region | Three Months Ended March 31, 2017 | Three Months Ended March 31, 2016 | |||||||||||
Americas | $ | 15.5 | 38.2 | % | $ | 16.0 | 39.3 | % | |||||
Asia/Pacific | 21.9 | 53.9 | % | 21.4 | 52.6 | % | |||||||
EMEA | 3.2 | 7.9 | % | 3.3 | 8.1 | % | |||||||
Total | $ | 40.6 | 100.0 | % | $ | 40.7 | 100.0 | % |
• | changes in our sales prices; |
• | changes in shipping fees; |
• | changes in consumer demand; |
• | changes in the number of independent associates and members; |
• | changes in competitors’ products; |
• | changes in economic conditions; |
• | changes in regulations; |
• | announcements of new scientific studies and breakthroughs; |
• | introduction of new products; |
• | discontinuation of existing products; |
• | adverse publicity; |
• | changes in our commissions and incentives programs; |
• | direct competition; and |
• | fluctuations in foreign currency exchange rates. |
Three Months Ended March 31 | Change | |||||||||||||
2017 | 2016 | Dollar | Percentage | |||||||||||
Consolidated product sales | $ | 33.8 | $ | 33.7 | $ | 0.1 | 0.3 | % | ||||||
Consolidated pack sales | 5.7 | 5.8 | (0.1 | ) | (1.7 | )% | ||||||||
Consolidated other, including freight | 1.1 | 1.2 | (0.1 | ) | (8.3 | )% | ||||||||
Total consolidated net sales | $ | 40.6 | $ | 40.7 | $ | (0.1 | ) | (0.2 | )% |
Change | ||||||||||||||
2017 | 2016 | Dollar | Percentage | |||||||||||
New | $ | 2.2 | $ | 2.3 | $ | (0.1 | ) | (4.3 | )% | |||||
Continuing | 3.5 | 3.5 | — | — | % | |||||||||
Total | $ | 5.7 | $ | 5.8 | $ | (0.1 | ) | (1.7 | )% |
• | registered our most popular products with the appropriate regulatory agencies in all countries of operations; |
• | rolled out new products; |
• | launched an aggressive marketing and educational campaign; |
• | continued to strengthen compliance initiatives; |
• | concentrated on publishing results of research studies and clinical trials related to our products; |
• | initiated additional incentives; |
• | explored new advertising and educational tools to broaden name recognition; and |
• | implemented changes to our global associate career and compensation plan. |
2017 | 2016 | ||||||||||
New | 102,000 | 46.4 | % | 94,000 | 43.1 | % | |||||
Continuing | 118,000 | 53.6 | % | 124,000 | 56.9 | % | |||||
Total | 220,000 | 100.0 | % | 218,000 | 100.0 | % |
Country | 2017 | 2016 | |||
Australia | 30.0 | % | 30.0 | % | |
Canada | 26.5 | % | 26.5 | % | |
China | 25.0 | % | 25.0 | % | |
Colombia | 34.0 | % | 25.0 | % | |
Cyprus | 12.5 | % | 12.5 | % | |
Denmark | 22.0 | % | 22.0 | % | |
Gibraltar | 10.0 | % | 10.0 | % | |
Hong Kong | 16.5 | % | 16.5 | % | |
Japan | 34.8 | % | 35.4 | % | |
Mexico | 30.0 | % | 30.0 | % | |
Norway | 24.0 | % | 25.0 | % | |
Republic of Korea | 22.0 | % | 22.0 | % | |
Russia(1) | 20.0 | % | — | % | |
Singapore | 17.0 | % | 17.0 | % | |
South Africa | 28.0 | % | 28.0 | % | |
Sweden | 22.0 | % | 22.0 | % | |
Switzerland | 16.2 | % | 16.2 | % | |
Taiwan | 17.0 | % | 17.0 | % | |
Ukraine(2) | 18.0 | % | 18.0 | % | |
United Kingdom | 20.0 | % | 20.0 | % | |
United States | 37.5 | % | 37.5 | % |
Country | March 31, 2017 | December 31, 2016 | |||||
Colombia | $ | 0.4 | $ | 0.3 | |||
Mexico | 2.6 | 2.4 | |||||
Sweden | 0.1 | 0.1 | |||||
Switzerland | — | 0.1 | |||||
Taiwan | 0.8 | 1.3 | |||||
Ukraine | 0.1 | 0.1 | |||||
United States | 4.1 | 4.1 | |||||
Other Jurisdictions | $ | 0.1 | $ | 0.1 | |||
Total | $ | 8.2 | $ | 8.5 |
Provided by/(Used in): | 2017 | 2016 | |||||
Operating activities | $ | 0.1 | $ | 2.2 | |||
Investing activities | $ | (0.4 | ) | $ | (0.7 | ) | |
Financing activities | $ | (0.7 | ) | $ | (0.4 | ) |
Commitments and obligations | Remaining 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||
Capital lease obligations | $ | 292 | $ | 235 | $ | 80 | $ | 40 | $ | — | $ | — | $ | 647 | |||||||||||||
Purchase obligations (1)(2) | 3,820 | 5,666 | 5,666 | 4,675 | — | — | 19,827 | ||||||||||||||||||||
Operating leases | 2,115 | 1,991 | 882 | 141 | 20 | 12 | 5,161 | ||||||||||||||||||||
Note payable and other financing arrangements | 828 | 641 | — | — | — | — | 1,469 | ||||||||||||||||||||
Employment agreements | 750 | 223 | — | — | — | — | 973 | ||||||||||||||||||||
Royalty agreement | 44 | 59 | 59 | 59 | 6 | — | 227 | ||||||||||||||||||||
Tax liability (3) | 590 | — | — | — | — | 159 | 749 | ||||||||||||||||||||
Other obligations (4) | 352 | 23 | 141 | 89 | 38 | 1,001 | 1,644 | ||||||||||||||||||||
Total commitments and obligations | $ | 8,791 | $ | 8,838 | $ | 6,828 | $ | 5,004 | $ | 64 | $ | 1,172 | $ | 30,697 |
Estimated useful life | Net carrying value at March 31, 2017 | ||
Office furniture and equipment | 5 to 7 years | $0.6 million | |
Computer hardware and software | 3 to 5 years | 1.9 million | |
Automobiles | 3 to 5 years | 0 million | |
Leasehold improvements (1) | 2 to 10 years | 1.1 million | |
Total net carrying value at March 31, 2017 | $3.6 million |
Loyalty program | (in thousands) | ||
Loyalty deferred revenue as of January 1, 2016 | $ | 8,073 | |
Loyalty points forfeited | (6,963 | ) | |
Loyalty points used | (15,451 | ) | |
Loyalty points vested | 20,085 | ||
Loyalty points unvested | 1,289 | ||
Loyalty deferred revenue as of December 31, 2016 | $ | 7,033 |
Loyalty deferred revenue as of January 1, 2017 | $ | 7,033 | |
Loyalty points forfeited | (1,288 | ) | |
Loyalty points used | (3,443 | ) | |
Loyalty points vested | 3,020 | ||
Loyalty points unvested | 1,656 | ||
Loyalty deferred revenue as of March 31, 2017 | $ | 6,978 |
• | Retail Customer Product Return Policy. This policy allows a retail customer to return any of our products to the original associate who sold the product and receive a full cash refund from the associate for the first 180 days following the product’s purchase if located in the United States and Canada, and for the first 90 days following the product’s purchase in other countries where we sell our products. The associate may then return or exchange the product based on the associate product return policy. |
• | Associate and Member Product Return Policy. This policy allows the associate or member to return an order within one year of the purchase date upon terminating his/her account. If an associate or member returns a product unopened and in good condition, he/she may receive a full refund minus a 10% restocking fee. We may also allow the associate or member to receive a full satisfaction guarantee refund if they have tried the product and are not satisfied for any reason, excluding promotional materials. This satisfaction guarantee refund applies in the United States and Canada, only for the first 180 days following the product’s purchase, and applies in other countries where we sell our products for the first 90 days following the product’s purchase; however, any commissions earned by an associate will be deducted from the refund. If we discover abuse of the refund policy, we may terminate the associate’s or member’s account. |
Three months ended March 31, 2017 | As of March 31, 2017 | |||||||||||
Country (foreign currency name) | Low | High | Average | Spot | ||||||||
Australia (Australian Dollar) | 0.72066 | 0.77228 | 0.75728 | 0.76648 | ||||||||
Canada (Canadian Dollar) | 0.74057 | 0.76839 | 0.75553 | 0.75051 | ||||||||
China (Renminbi) | 0.14383 | 0.14613 | 0.14517 | 0.14513 | ||||||||
Colombia (Peso) | 0.00033 | 0.00036 | 0.00034 | 0.00035 | ||||||||
Czech Republic (Koruna) | 0.03863 | 0.04022 | 0.03945 | 0.03971 | ||||||||
Denmark (Kroner) | 0.14032 | 0.14601 | 0.14332 | 0.14432 | ||||||||
Hong Kong (Hong Kong Dollar) | 0.12869 | 0.12896 | 0.12887 | 0.12869 | ||||||||
Japan (Yen) | 0.00850 | 0.00906 | 0.00879 | 0.00899 | ||||||||
Mexico (Peso) | 0.04562 | 0.05345 | 0.04930 | 0.05345 | ||||||||
New Zealand (New Zealand Dollar) | 0.69034 | 0.73257 | 0.71133 | 0.70212 | ||||||||
Norway (Krone) | 0.11564 | 0.12213 | 0.11861 | 0.11726 | ||||||||
Republic of Korea (Won) | 0.00083 | 0.00091 | 0.00087 | 0.00090 | ||||||||
Singapore (Singapore Dollar) | 0.69018 | 0.71742 | 0.70579 | 0.71679 | ||||||||
South Africa (Rand) | 0.07271 | 0.08044 | 0.07572 | 0.07707 | ||||||||
Sweden (Krona) | 0.10943 | 0.11459 | 0.11211 | 0.11242 | ||||||||
Switzerland (Franc) | 0.97481 | 1.01444 | 0.99597 | 1.00276 | ||||||||
Taiwan (New Taiwan Dollar) | 0.03084 | 0.03312 | 0.03219 | 0.03302 | ||||||||
United Kingdom (British Pound) | 1.20519 | 1.26266 | 1.23849 | 1.24555 | ||||||||
Various countries (1) (Euro) | 1.04322 | 1.08617 | 1.06554 | 1.07370 |
MANNATECH, INCORPORATED | ||
Dated: May 9, 2017 | By: | /s/ Alfredo Bala |
Alfredo Bala | ||
Chief Executive Officer | ||
(principal executive officer) |
Dated: May 9, 2017 | By: | /s/ David A. Johnson |
David A. Johnson | ||
Chief Financial Officer | ||
(principal financial officer) |
Incorporated by Reference | ||||||||||
Exhibit Number | Exhibit Description | Form | File No. | Exhibit (s) | Filing Date | |||||
Amended and Restated Articles of Incorporation of Mannatech, dated May 19, 1998. | S-1 | 333-63133 | 3.1 | October 28, 1998 | ||||||
Certificate of Amendment to the Amended and Restated Articles of Incorporation of Mannatech, dated January 13, 2012. | 8-K | 000-24657 | 3.1 | January 17, 2012 | ||||||
Fifth Amended and Restated Bylaws of Mannatech, dated August 25, 2014. | 8-K | 000-24657 | 3.1 | August 27, 2014 | ||||||
Specimen Certificate representing Mannatech’s common stock, par value $0.0001 per share. | S-1 | 333-63133 | 4.1 | October 28, 1998 | ||||||
31.1* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech. | * | * | * | * | |||||
31.2* | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of Mannatech. | * | * | * | * | |||||
32.1* | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech. | * | * | * | * | |||||
32.2* | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of Mannatech. | * | * | * | * | |||||
101.INS* | XBRL Instance Document | * | * | * | * | |||||
101.SCH* | XBRL Taxonomy Extension Schema Document | * | * | * | * | |||||
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | * | * | * | * | |||||
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | * | * | * | * | |||||
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | * | * | * | * | |||||
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | * | * | * | * |
* | Filed herewith. |
1. | I have reviewed this quarterly report on Form 10-Q of Mannatech, Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ Alfredo Bala |
Alfredo Bala |
Chief Executive Officer |
(principal executive officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Mannatech, Incorporated; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ David A. Johnson |
David A. Johnson |
Chief Financial Officer |
(principal financial officer) |
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Alfredo Bala |
Alfredo Bala |
Chief Executive Officer |
(principal executive officer) |
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ David A. Johnson |
David A. Johnson |
Chief Financial Officer |
(principal financial officer) |
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Apr. 28, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | MANNATECH INC | |
Entity Central Index Key | 0001056358 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 2,710,858 |
CONSOLIDATED BALANCE SHEETS - (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
ASSETS | ||
Accounts receivable, allowance for doubtful accounts | $ 486 | $ 463 |
Shareholders' equity: | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 1,000,000 | 1,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized (in shares) | 99,000,000 | 99,000,000 |
Common stock, shares issued (in shares) | 2,758,275 | 2,758,275 |
Common stock, shares outstanding (in shares) | 2,710,858 | 2,688,790 |
Treasury stock, shares (in shares) | 47,417 | 69,485 |
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Income Statement [Abstract] | ||
Net sales | $ 40,641 | $ 40,708 |
Cost of sales | 8,762 | 8,389 |
Gross profit | 31,879 | 32,319 |
Operating expenses: | ||
Commissions and incentives | 17,081 | 15,618 |
Selling and administrative expenses | 8,654 | 8,142 |
Depreciation and amortization expense | 502 | 443 |
Other operating costs | 7,676 | 7,580 |
Total operating expenses | 33,913 | 31,783 |
Income (loss) from operations | (2,034) | 536 |
Interest income (expense) | 29 | (13) |
Other income, net | 41 | 334 |
Income (loss) before income taxes | (1,964) | 857 |
Income tax provision (benefit) | (717) | 266 |
Net income (loss) | $ (1,247) | $ 591 |
Earnings (loss) per common share: | ||
Basic (in dollars per share) | $ (0.46) | $ 0.22 |
Diluted (in dollars per share) | $ (0.46) | $ 0.21 |
Weighted-average common shares outstanding: | ||
Basic (in shares) | 2,701 | 2,696 |
Diluted (in shares) | 2,701 | 2,780 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (UNAUDITED) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Statement of Comprehensive Income [Abstract] | ||
Net income (loss) | $ (1,247) | $ 591 |
Foreign currency translations | 2,379 | 587 |
Comprehensive income | $ 1,132 | $ 1,178 |
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - (UNAUDITED) - 3 months ended Mar. 31, 2017 - USD ($) $ in Thousands |
Total |
Common stock Par value |
Additional paid in capital |
Retained earnings |
Accumulated other comprehensive income |
Treasury stock |
---|---|---|---|---|---|---|
December 31, 2016 at Dec. 31, 2016 | $ 38,885 | $ 0 | $ 38,190 | $ 7,331 | $ 1,834 | $ (8,470) |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Net loss | (1,247) | (1,247) | ||||
Declared dividends | (337) | (337) | ||||
Charge related to stock-based compensation | 77 | 77 | ||||
Issuance of unrestricted shares | 245 | (1,228) | 1,473 | |||
Stock option exercises | 54 | (1,166) | 1,220 | |||
Foreign currency translations | 2,379 | 2,379 | ||||
March 31, 2017 at Mar. 31, 2017 | $ 40,056 | $ 0 | $ 35,873 | $ 5,747 | $ 4,213 | $ (5,777) |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mannatech, Incorporated (together with its subsidiaries, the “Company”), located in Coppell, Texas, was incorporated in the state of Texas on November 4, 1993 and is listed on the NASDAQ Global Select Market under the symbol “MTEX”. The Company develops, markets, and sells high-quality, proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management products. We currently sell our products into three regions: (i) the Americas (the United States, Canada, Colombia and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong, and China). Independent associates (“associates”) purchase the Company’s products at published wholesale prices to either sell to retail customers or for personal use. Members purchase the Company’s products at a discount from published retail prices primarily for personal use. The Company cannot distinguish products sold for personal use from other sales because it is not involved with the products after delivery, other than usual and customary product warranties and returns. Only associates are eligible to earn commissions and incentives. In addition, the Company operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai Daily Necessity & Health Products Co., Ltd. (“Meitai”), is operating as a traditional retailer under a cross-border e-commerce model in China. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the Company’s consolidated financial statements and footnotes contained herein do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) to be considered “complete financial statements”. However, in the opinion of the Company’s management, the accompanying unaudited consolidated financial statements and footnotes contain all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s consolidated financial information as of, and for, the periods presented. The Company cautions that its consolidated results of operations for an interim period are not necessarily indicative of its consolidated results of operations to be expected for its fiscal year. The December 31, 2016 consolidated balance sheet was included in the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2016 and filed with the United States Securities and Exchange Commission (the “SEC”) on March 14, 2017 (the “2016 Annual Report”), which includes all disclosures required by GAAP. Therefore, these unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2016 Annual Report. Principles of Consolidation The consolidated financial statements and footnotes include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors. The Company continually evaluates the information used to make these estimates as the business and economic environment changes. Historically, actual results have not varied materially from the Company’s estimates, and the Company does not currently anticipate a significant change in its assumptions related to these estimates. However, actual results may differ from these estimates under different assumptions or conditions. The use of estimates is pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered the most significant are described in this note to the consolidated financial statements, Organization and Summary of Significant Accounting Policies. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company includes in its cash and cash equivalents credit card receivables due from its credit card processor, as the cash proceeds from credit card receivables are received within 24 to 72 hours. As of March 31, 2017 and December 31, 2016, credit card receivables were $1.8 million and $0.5 million, respectively. As of March 31, 2017 and December 31, 2016, cash and cash equivalents held in bank accounts in foreign countries totaled $27.7 million and $27.5 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest bearing deposits. The Company also holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk. Restricted Cash The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in the Republic of Korea; (ii) reserve on credit card sales in the United States and Canada; and (iii) the Australia building lease collateral. As of March 31, 2017 and December 31, 2016, our total restricted cash was $8.4 million and $7.9 million, respectively. Accounts Receivable Accounts receivable are carried at their estimated collectible amounts. Receivables are created upon shipment of an order if the credit card payment is rejected or does not match the order total. As of each March 31, 2017 and December 31, 2016, receivables consisted primarily of amounts due from members and associates. The Company periodically evaluates its receivables for collectability based on historical experience, recent account activities, and the length of time receivables are past due and writes-off receivables when they become uncollectible. As of each March 31, 2017 and December 31, 2016, the Company held an allowance for doubtful accounts of $0.5 million. Inventories Inventories consist of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that approximate average costs) or market. The Company periodically reviews inventories for obsolescence, and any inventories identified as obsolete are reserved or written off. Other Assets As of March 31, 2017 and December 31, 2016, other assets were $3.9 million and $4.0 million, respectively, and primarily consisted of deposits for building leases in various locations of $2.0 million and $2.2 million, respectively. Additionally, included in the March 31, 2017 and December 31, 2016 balances was $1.7 million and $1.5 million, respectively, representing a deposit with Mutual Aid Cooperative and Consumer in the Republic of Korea, an organization established by the Republic of Korea’s Fair Trade Commission to protect consumers who participate in network marketing activities. Also included in each of the March 31, 2017 and December 31, 2016 balances was $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark. Notes Payable Notes payable were $1.4 million at each of March 31, 2017 and December 31, 2016, as a result of funding from a capital financing agreement related to our investment in computer hardware and software and other financing arrangements. At March 31, 2017, the current portion was $1.0 million and the long-term portion was $0.4 million. At December 31, 2016, the current portion was $0.8 million and the long-term portion was $0.6 million. Other Long-Term Liabilities Other long-term liabilities were $1.4 million and $1.5 million as of March 31, 2017 and December 31, 2016, respectively. At each of March 31, 2017 and December 31, 2016, the Company recorded $0.2 million in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes of the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed March 14, 2017). Certain operating leases for the Company’s regional office facilities contain a restoration clause that requires the Company to restore the premises to its original condition. At March 31, 2017 and December 31, 2016, accrued restoration costs related to these leases amounted to $0.5 million and $0.6 million, respectively. At March 31, 2017 and December 31, 2016, the Company also recorded a long-term liability for estimated defined benefit obligation related to a non-U.S. defined benefit plan for its Japan operations of $0.4 million and $0.5 million, respectively. (see Note 10, Employee Benefit Plans, of the Company’s 10-K, filed March 14, 2017). Related Party Transactions In connection with a confidential settlement agreement discussed in Note 7 Litigation, an associate position valued at $0.8 million is being transferred to NutraScoop, LLC. Jim Hill is the managing member and Marlin Ray Robbins is a member of NutraScoop, LLC. Mr. Robbins is a major shareholder and the father of Mr. Kevin Robbins, a member of the Company's Board of Directors. Revenue Recognition and Deferred Commissions The Company’s revenue is derived from sales of individual products, sales of its starter and renewal packs, and shipping fees. Substantially all of the Company’s product and pack sales are made to associates at published wholesale prices and to members at discounted published retail prices. The Company records revenue net of any sales taxes and records a reserve for expected sales returns based on its historical experience. The Company recognizes revenue from shipped packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held. The Company defers certain components of its revenue. At March 31, 2017 and December 31, 2016, the Company’s deferred revenue was $8.4 million and $8.2 million, respectively. Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. The deferred revenue associated with the loyalty program at each of March 31, 2017 and December 31, 2016 was $7.0 million. In total current assets, the Company defers commissions on (i) the sales of packs and products shipped but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were $3.2 million at each of March 31, 2017 and December 31, 2016.
The Company estimates a sales return reserve for expected sales refunds based on historical experience over a rolling six-month period. If actual results differ from our estimated sales return reserve due to various factors, the amount of revenue recorded each period could be materially affected. Historically, sales returns have not materially changed through the years, as the majority of our customers who return their merchandise do so within the first 90 days after the original sale. Sales returns have historically averaged 1.5% or less of our gross sales. For the three months ended March 31, 2017 our sales return reserve consisted of the following (in thousands):
Shipping and Handling Costs The Company records freight and shipping fees collected from its customers as revenue. The Company records inbound freight as a component of inventory and cost of sales. Commissions and Incentives Associates earn commissions and incentives based on their direct and indirect commissionable net sales over 13 business periods each year. Each business period equals 28 days. The Company accrues commissions and incentives when earned by associates and pays commissions on product sales three weeks following the business period end and pays commissions on its pack sales five weeks following the business period end. Comprehensive Income and Accumulated Other Comprehensive Income Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company’s comprehensive income consists of the Company’s net income, foreign currency translation adjustments from its Japan, Republic of Korea, Taiwan, Denmark, Norway, Sweden, Colombia, Mexico and China operations, remeasurement of intercompany balances classified as equity in its Korea, Mexico and Cyprus operations, and changes in the pension obligation for its Japanese employees. Recently Adopted Accounting Pronouncements The Company adopted Accounting Standard Updated ("ASU") 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes during the first quarter of 2017 and applied it retrospectively to all deferred tax assets and liabilities. This ASU requires classification of deferred income taxes as non-current on the consolidated balance sheets. Deferred income taxes were previously required to be classified as current or non-current on the consolidated balance sheets. The adoption had an immaterial prior year balance sheet change in classification between current deferred tax assets and long-term deferred tax assets. The Company adopted the ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting during the first quarter of 2017. The updated guidance changes how companies account for certain aspects of stock-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of such awards in the statement of cash flows. ASU 2016-09 became effective for us on January 1, 2017. ASU 2016-09 requires that excess tax benefits and deficiencies resulting from the vesting or exercise of stock-based compensation awards to be recognized in the income statement on a prospective basis. Previously, these amounts were recognized in additional paid-in capital. In addition, ASU 2016-09 requires excess tax benefits and deficiencies to be excluded from the assumed future proceeds in the calculation of diluted shares. In accordance with the standard, we elected to continue our historical approach of estimating forfeitures during the award vesting period. ASU 2016-09 had no material impact to the calculation of weighted average shares outstanding for the three month period ended March 31, 2017. The adoption of this standard did not have a material effect on our consolidated financial statements for the three months ended March 31, 2017. Accounting Pronouncements Issued But Not Yet Effective In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers. This new standard requires companies to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. Under the new standard, revenue is recognized when a customer obtains control of a good or service. The standard allows for two transition methods - entities can either apply the new standard (i) retrospectively to each prior reporting period presented, or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which defers the effective date by one year to December 15, 2017 for fiscal years, and interim periods within those fiscal years, beginning after that date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue versus Net), in April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers, identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, which provide additional clarification on certain topics addressed in ASU 2014-09. ASU 2016-08, ASU 2016-10, and ASU 2016-12 follow the same implementation guidelines as ASU 2014-09 and ASU 2015-14. An implementation team has gained an understanding of the standard’s revenue recognition model, is completing the review and documentation of our contracts, and is analyzing whether enhancements are needed to our business and accounting systems. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. Management is currently in the initial stages of evaluating the future impact of ASU 2016-02 on its consolidated financial position, results of operations and cash flows. In November 2016, the FASB issued ASU 2016-18, Restricted Cash (Subtopic 230), which addresses the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendment requires that a statement of cash flows explain the change during the period in the total of cash. The guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. Management is currently in the initial stages of evaluating the future impact of ASU 2016-18 on its consolidated financial position, results of operations and cash flows. In February 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715), which requires an entity to present the service cost component of the net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. In addition, ASU 2017-07 requires an entity to present the other components separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company is currently fully evaluating the impact of this standard, but we do not expect it to have a material impact on the Company’s consolidated results of operations and financial condition. Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future financial statements. |
INVENTORIES |
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INVENTORIES | INVENTORIES Inventories consist of raw materials, finished goods, and promotional materials. The Company provides an allowance for any slow-moving or obsolete inventories. Inventories at March 31, 2017 and December 31, 2016, consisted of the following (in thousands):
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INCOME TAXES |
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Mar. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
INCOME TAXES | INCOME TAXES For the three months ended March 31, 2017 and 2016, the Company’s effective tax rate was 36.5% and 31.0%, respectively, and was determined based on the estimated annual effective income tax rate. The effective tax rate for the three months ended March 31, 2017 generated a tax benefit due to loss before income tax. Items increasing the effective income tax rate are add-backs from foreign loss positions in certain jurisdictions and “Subpart F income” resulting from controlled foreign corporation operations. These increases were partially offset by the items decreasing the effective income tax rate that are primarily favorable foreign rate differences compared to the U.S. tax rate, foreign exchange gains and tax benefit recognition on exercised stock options. The effective tax rate for the three months ended March 31, 2016 was lower than what would have been expected if the U.S. federal statutory rate were applied to income before taxes. Items decreasing the effective income tax rates are primarily favorable foreign rate differences compared to U.S. tax rate, valuation allowance and foreign income tax credit attributable to profit positions in certain foreign jurisdictions. |
EARNINGS (LOSS) PER SHARE |
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Earnings Per Share [Abstract] | |
EARNINGS (LOSS) PER SHARE | EARNINGS (LOSS) PER SHARE The Company calculates basic Earnings per Share ("EPS") by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS also reflects the potential dilution that could occur if common stock were issued for awards outstanding under the 2008 Stock Incentive Plan. In determining the potential dilution effect of outstanding stock options during the three months ended March 31, 2016, the Company used the quarterly average common stock close price of $18.50 per share. In determining the potential dilution effect of outstanding stock options during the three months ended March 31, 2017, the Company used the quarterly average common stock close price of $18.42 per share. For both the three months ended March 31, 2017 and March 31, 2016, approximately 0.1 million shares of the Company's common stock subject to options were excluded from the diluted EPS calculation as the effect would have been antidilutive. The Company reported a net loss for the three months ended March 31, 2017. |
STOCK-BASED COMPENSATION |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCK-BASED COMPENSATION | STOCK-BASED COMPENSATION The Company currently has one active stock-based compensation plan, which was approved by shareholders. The Company grants stock options to employees, consultants, and board members at the fair market value of its common stock, on the date of grant, with a term no greater than 10 years. The majority of stock options vest over two or three years. Shareholders who own 10% or more of the Company’s outstanding stock are granted incentive stock options at an exercise price that may not be less than 110% of the fair market value of the Company’s common stock on the date of grant and have a term no greater than five years. In February 2008, the Company’s Board of Directors approved the Mannatech, Incorporated 2008 Stock Incentive Plan, as amended (the “2008 Plan”), which reserved up to 100,000 (as adjusted for a 1-for-10 reverse stock split) shares of common stock for issuance of stock options and restricted stock to our employees, board members, and consultants, plus any shares reserved under the Company’s then-existing, unexpired stock plans for which options had not yet been issued, and any shares underlying outstanding options under the then-existing stock option plans that terminate without having been exercised in full. The 2008 Plan was approved by the Company’s shareholders at the 2008 Annual Shareholders’ Meeting and was amended at the 2012 Annual Shareholders’ Meeting to increase the number of shares of common stock subject to the plan by 100,000 and amended again at the 2014 Annual Shareholders’ Meeting to increase the number of shares of common stock subject to the plan by an additional 130,000. As of March 31, 2017, the 2008 Plan had 68,326 stock options available for grant before the plan expires on February 20, 2018. The Company records stock-based compensation expense related to granting stock options in selling and administrative expenses. The Company did not grant any options during each of the three months ended March 31, 2017 and 2016. The Company recognized compensation expense as follows for the three months ended March 31, 2017 and 2016 (in thousands):
As of March 31, 2017, the Company expects to record compensation expense in the future as follows (in thousands):
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SHAREHOLDERS' EQUITY |
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SHAREHOLDERS' EQUITY | SHAREHOLDERS’ EQUITY Accumulated Other Comprehensive Income Accumulated other comprehensive income, displayed in the Consolidated Statement of Shareholders’ Equity, represents net income plus the results of certain shareholders’ equity changes not reflected in the Consolidated Statements of Operations, such as foreign currency translation and certain pension and post-retirement benefit obligations. The after-tax components of accumulated other comprehensive income, are as follows (in thousands):
(1)No amounts reclassified from accumulated other comprehensive income. Dividends On February 23, 2017, the Board of Directors declared a dividend of $0.125 per share that was paid on March 29, 2017 to shareholders of record on March 8, 2017. |
LITIGATION |
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Mar. 31, 2017 | |
LITIGATION [Abstract] | |
LITIGATION | LITIGATION Breach of Contract Diana Anselmo and New Day Today Corporation v. Mannatech, Incorporated, Case No. DC-15-01904, Judicial District Court, Dallas County, Texas On February 18, 2015, Diana Anselmo and New Day Today Corporation (collectively, the “Plaintiffs”) filed suit against the Company alleging breach of contract pertaining to a portion of proceeds from a Mannatech associate position once held by Ray Gebauer, alleged to be Ms. Anselmo’s former husband. Plaintiffs seek damages under the contract of approximately $600,000 in past commissions and between $2 million and $3.1 million in future commissions, as well as an award of attorney’s fees. As an alternative to future money damages, Plaintiffs seek a declaration that the Company must continue to pay Plaintiffs proceeds from Mr. Gebauer’s former account. The Company filed its original answer on March 25, 2015, denying Plaintiffs’ allegations. The Company asserts that Plaintiffs cannot establish the conditions precedent to their breach of contract claim and thus are not entitled to any damages. The Company further asserts affirmative defenses of failure of consideration, lack of standing, prior breach, and estoppel. The Company also seeks a declaratory judgment of its rights under the contract and seeks return of certain commissions paid to Plaintiffs that were not earned under the contract. The Company filed a Motion for Summary Judgment on June 15, 2016, on the ground that Plaintiffs could not establish conditions precedent to their recovery as a matter of law. Mediation was conducted on June 17, 2016; however, a final settlement could not be reached. The Court denied the Company’s Motion for Summary Judgment on August 31, 2016. Plaintiffs filed a Motion for Summary Judgment on July 22, 2016, seeking dismissal of the Company’s counterclaim for damages. The Court denied that motion on November 18, 2016. The parties filed cross-motions for summary judgment on November 1, 2016, asking the Court to interpret certain provisions of the contract as a matter of law. By order dated November 21, 2016, the Court denied the Company’s motion and granted the Plaintiffs’ motion on contract interpretation, finding that the contract affords Ms. Anselmo an ownership interest in Mr. Gebauer’s former account and that account remains eligible to earn commissions. Discovery is complete. On March 3, 2017, the parties received notice from the Court that the case is scheduled for trial on June 5, 2017. The parties entered into a confidential settlement agreement on April 13, 2017. If the terms of the settlement are fully performed, the parties will seek dismissal of the case during the third quarter of 2017. On April 18, 2017, the Court set a dismissal hearing for July 31, 2017. The Company has accrued approximately $0.5 million in in estimated accrued liabilities related to this matter. It is not possible at this time to predict whether the Company will incur any additional liability in connection with this matter if the terms of the settlement are not fully performed. However, the Company believes it has a valid defense and will vigorously defend this claim. This matter remains open. Administrative Proceedings Mannatech Korea, Ltd. v. Busan Custom Office, Busan District Court, Korea On or before April 12, 2015, Mannatech Korea, Ltd. filed a suit against the Busan Custom Office (“BCO”) to challenge BCO’s method of calculation regarding its assessment notice issued on July 11, 2013. The assessment notice included an audit of the Company’s imported goods covering fiscal years 2008 through 2012 and required the Company to pay $1.0 million for this assessment, all of which was paid in January 2014. Both parties submitted a response to the Court’s inquiry on January 15, 2016. The final hearing for the case was held on May 26, 2016 where each party presented their respective arguments. The Court set the decision hearing on October 27, 2016, and the Court decided the case in the Company’s favor. However, on November 18, 2016, BCO filed an appeal to the Busan High Court. The first hearing occurred on March 31, 2017, and the second hearing occurred on April 21, 2017. The final hearing will be held on June 2, 2017, and the decision date will be decided at this hearing. This matter remains open. Patent Litigation Mannatech, Incorporated v. Wellness Quest, LLC and Harley Reginald McDaniel, Case No. 3:14-cv-2497, U.S. District Court, for the Northern District of Texas, Dallas Division On July 11, 2014 the Company filed a patent infringement lawsuit against Wellness Quest, LLC and Dr. H. Reginald McDaniel (“Defendants”) alleging the Defendants infringe United States Patent Nos. 7,157,431 and 7,202,220, both entitled “Compositions of Plant Carbohydrates as Dietary Supplements,” (the “Patents”) and seeking to stop their manufacture, offer, and sale of infringing glyconutritional dietary supplement products. On July 16, 2014, the Company filed a Motion for Preliminary Injunction preventing Defendants from infringing the Patents pending a final decision on the merits. On August 29, 2014, the Defendants filed their Response to Plaintiff’s Motion for Preliminary Injunction and Brief in Support along with their Answer and Affirmative Defenses. On November 4, 2014, the Court denied the Company’s Motion for Preliminary Injunction and Motion to Expedite Discovery. On December 15, 2014, the Company deposed Dr. Reginald McDaniel. Each party submitted its list of claim constructions/definitions and a list of the supporting authority. Each party filed its opening brief and their respective responsive briefs. Defendants have designated an expert and the Company deposed the expert on January 27, 2015 regarding his claim construction opinions while reserving the right to examine him later regarding other matters. The parties remain engaged in the claim construction process. Mediation on this matter was held on April 24, 2015 and a settlement was not reached. On May 12, 2015, the Company received notice of an Order of Transfer advising that the case had been reassigned from Judge Ed Kinkeade to Judge David C. Godbey for all further proceedings. On July 20, 2015, the Court issued its Markman ruling adopting the Company’s proposed claim construction for all disputed terms except for “dietary supplement composition” which it found needed no construction. On August 20, 2015, Defendants filed a request for an interlocutory appeal, and the Company filed a reply on October 6, 2015. The Company also filed a separate motion requesting entry of a final judgment and permanent injunction on September 8, 2015. On November 5, 2015, the Court issued an Order accepting Defendant’s stipulation of infringement under the Court’s claim interpretation and granted the Company’s partial motion for summary judgment and issued a permanent injunction against Defendants’ infringement of the Patents. The Court stayed the permanent injunction until the conclusion of Defendants’ appeal to the U.S. Court of Appeals for the Federal Circuit (the “Court of Appeals”). On December 3, 2015, Defendants filed their Notice of Appeal which was docketed by the Court of Appeals on December 8, 2015. Defendants-Appellants filed their brief with the Court of Appeals on February 28, 2016. The Company-Appellee filed its brief with the Court of Appeals on March 24, 2016. Oral argument for the appeal was held on August 1, 2016. On August 5, 2016, the Court of Appeals issued a per curium opinion affirming the trial court’s judgment in favor of the Company. On August 10, 2016, the Company filed a motion to lift the stay of permanent injunction previously issued by the trial court. On August 24, 2016, the Company received confirmation from its counsel that Defendants changed the formulation of the infringing product to a formulation proposed by the Company. Defendants filed their response to the Company’s motion on August 31, 2016. The parties conferred via telephone and electronic mail on August 31, 2016 and September 1, 2016 regarding the Company’s motion and Defendants’ response. On September 1, 2016, the Company filed an Amended Certificate of Conference with the Court advising that the Company’s motion was now unopposed. On October 18, 2016, the Court entered an order lifting the stay and putting the permanent injunction back into full effect. The case is now in the damages phase and the Company will seek attorneys’ fees and have initiated collection of discovery for the assessment of damages. On March 31, 2017, the Court entered the Agreed Scheduling Order for trial on damages and determination of willfulness. A trial date has not yet been set. This matter remains open. This lawsuit continues the Company’s enforcement of its patent rights, and the Company intends to vigorously prosecute these matters. Based on the previous successful patent infringement lawsuits against Country Life, LLC, Glycobiotics International, Inc., Techmedica Health, Inc., IonX Holdings, Inc., Boston Mountain Laboratories, Inc., Green Life, LLC, Xiong Lo, RBC Life Sciences, Inc. and RBC Life Sciences USA, Inc., the Company believes there is a strong likelihood that it will obtain permanent injunctions against the manufacture and sale of any infringing products for the duration of the Company’s patents. Trademark Opposition - U.S. Patent and Trademark Office United States Trademark Opposition No. 91221493, Shaklee Corporation v. Mannatech, Incorporated re: UTH On April 15, 2015, the Company received notice that Shaklee Corporation (“Shaklee”) filed a Notice of Opposition to the Company’s trademark application for UTH (stylized as Û th) with the USPTO. On May 19, 2015, the Company filed an answer to the opposition and also filed a counterclaim seeking to cancel Shaklee’s registration of its YOUTH mark. Shaklee filed an extension to oppose the UTH mark on June 18, 2015, and the request to extend time to oppose was granted until July 18, 2015. Shaklee filed a second extension on July 17, 2015, and the request to extend time to oppose was granted until September 16, 2015. Shaklee filed motions to strike the Company’s Affirmative Defenses to the Opposition and Counterclaim to cancel their registrations. The Company filed responses and the Trademark Trial and Appeal Board (“TTAB”) ruled in Shaklee’s favor. The Company filed an amended Answer to the Opposition and Amended Counterclaim on November 18, 2015. Shaklee then filed an answer to the Company’s Counterclaim on December 30, 2015. On September 15, 2015, Shaklee filed two more Notices of Opposition for the UTH & Design and ÛTH applications. The Company filed Answers and Counterclaims on November 20, 2015. On January 25, 2016, the Company filed a motion to strike Shaklee’s affirmative defense on cancellation. On May 17, 2016, the TTAB granted the Company’s motion to strike Shaklee’s affirmative defense on cancellation. On August 9, 2016, Shaklee filed a Motion for Summary Judgment on the Company’s cancellation filing of its YOUTH mark stating that their mark is in use and they have not abandoned their rights. On September 9, 2016, the Company filed a Motion for Request for Discovery to Respond to Summary Judgment under Rule 56(d) stating that the Company cannot respond without sufficient information due to lack in discovery. On September 28, 2016, Shaklee filed a response to the Company’s motion to cancel the request for discovery. The Company filed a response in support of the motion under Rule 56(d) on October 18, 2016. On December 22, 2016, the TTAB requested that the Company send copies of the request for discovery to Shaklee by January 6, 2017. On March 28, 2017, the TTAB ruled on the 56(d) Motion, granting the Company’s motion in part to oblige Shaklee to answer the Company’s request for discovery related to Shaklee’s use or non-use of the YOUTH mark. Shaklee must answer the Company’s discovery request by May 4, 2017, and the Company expects to receive the response via postal mail. The Company will then have 20 days from Shaklee’s service to take a discovery deposition of their designated witness on the use/non-use of its YOUTH mark. It is not possible at this time to predict the outcome of this office action or whether the Company will incur any liability, or to estimate the ranges of damages, if any, which may be incurred in connection with this matter. However, the Company believes it has a valid defense and will vigorously defend this claim. This matter remains open. Litigation in General The Company has incurred several claims in the normal course of business. The Company believes such claims can be resolved without any material adverse effect on its consolidated financial position, results of operations, or cash flows. The Company maintains certain liability insurance; however, certain costs of defending lawsuits are not covered by or only partially covered by its insurance policies, including claims that are below insurance deductibles. Additionally, insurance carriers could refuse to cover certain claims, in whole or in part. The Company accrues costs to defend itself from litigation as they are incurred or as they become determinable. The outcome of litigation is uncertain, and despite management’s views of the merits of any litigation, or the reasonableness of the Company’s estimates and reserves, the Company’s financial statements could nonetheless be materially affected by an adverse judgment. The Company believes it has adequately reserved for the contingencies arising from current legal matters where an outcome was deemed to be probable, and the loss amount could be reasonably estimated. |
FAIR VALUE |
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FAIR VALUE | FAIR VALUE The Company utilizes fair value measurements to record fair value adjustments to certain financial assets and to determine fair value disclosures. Fair Value Measurements and Disclosure (Topic 820) of the FASB establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:
The primary objective of the Company’s investment activities is to preserve principal while maximizing yields without significantly increasing risk. The investment instruments held by the Company are money market funds and interest bearing deposits for which quoted market prices are readily available. The Company considers these highly liquid investments to be cash equivalents. These investments are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The Company does not have any material financial liabilities that were required to be measured at fair value on a recurring basis at March 31, 2017. The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of March 31, 2017 and December 31, 2016.
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SEGMENT INFORMATION |
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SEGMENT INFORMATION | SEGMENT INFORMATION The Company's primary operating and sole reporting segment is one where we sell proprietary nutritional supplements, skin care and anti-aging products, and weight-management and fitness products through network marketing distribution channels operating in twenty-five countries. Each of the business units sells similar packs and products and possesses similar economic characteristics, such as selling prices and gross margins. In each country, the Company markets its products and pays commissions and incentives in similar market environments. The Company’s management reviews its financial information by country and focuses its internal reporting and analysis of revenues by packs and product sales. The Company sells its products through its independent associates who occupy positions in our network and distribute products through similar distribution channels in each country. No single independent associate has ever accounted for more than 10% of the Company’s consolidated net sales. The Company also operates a non-direct selling business in mainland China. Our subsidiary in China, Meitai, is operating as a traditional retailer under a cross-border e-commerce model. Meitai cannot legally conduct a direct selling business in China unless it acquires a direct selling license in China. The Company operates facilities in fourteen countries and sells product in twenty-six countries around the world. These facilities are located in the United States, Canada, Switzerland, Australia, the United Kingdom, Japan, the Republic of Korea (South Korea), Taiwan, South Africa, Mexico, Hong Kong, Singapore, Colombia and China. Each facility services different geographic areas. We currently sell our products in three regions: (i) the Americas (the United States, Canada, Colombia and Mexico); (ii) EMEA (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Spain, Sweden and the United Kingdom); and (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan, Hong Kong and China). Consolidated net sales shipped to customers in these regions, along with pack and product information for the three months ended March 31, were as follows (in millions, except percentages):
Long-lived assets, which include property and equipment and construction in process for the Company and its subsidiaries, as of March 31, 2017 and December 31, 2016, reside in the following regions, as follows (in millions):
Inventory balances, which consist of raw materials, work in process, finished goods, and promotional materials, as offset by the allowance for slow moving or obsolete inventories, reside in the following regions (in millions):
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Principles of Consolidation | Principles of Consolidation The consolidated financial statements and footnotes include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. |
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Use of Estimates | Use of Estimates The preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors. The Company continually evaluates the information used to make these estimates as the business and economic environment changes. Historically, actual results have not varied materially from the Company’s estimates, and the Company does not currently anticipate a significant change in its assumptions related to these estimates. However, actual results may differ from these estimates under different assumptions or conditions. The use of estimates is pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered the most significant are described in this note to the consolidated financial statements, Organization and Summary of Significant Accounting Policies. |
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Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company includes in its cash and cash equivalents credit card receivables due from its credit card processor, as the cash proceeds from credit card receivables are received within 24 to 72 hours. As of March 31, 2017 and December 31, 2016, credit card receivables were $1.8 million and $0.5 million, respectively. As of March 31, 2017 and December 31, 2016, cash and cash equivalents held in bank accounts in foreign countries totaled $27.7 million and $27.5 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest bearing deposits. The Company also holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk. |
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Restricted Cash | Restricted Cash The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in the Republic of Korea; (ii) reserve on credit card sales in the United States and Canada; and (iii) the Australia building lease collateral. As of March 31, 2017 and December 31, 2016, our total restricted cash was $8.4 million and $7.9 million, respectively. |
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Accounts Receivable | Accounts Receivable Accounts receivable are carried at their estimated collectible amounts. Receivables are created upon shipment of an order if the credit card payment is rejected or does not match the order total. As of each March 31, 2017 and December 31, 2016, receivables consisted primarily of amounts due from members and associates. The Company periodically evaluates its receivables for collectability based on historical experience, recent account activities, and the length of time receivables are past due and writes-off receivables when they become uncollectible. As of each March 31, 2017 and December 31, 2016, the Company held an allowance for doubtful accounts of $0.5 million. |
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Inventories | Inventories Inventories consist of raw materials, finished goods, and promotional materials that are stated at the lower of cost (using standard costs that approximate average costs) or market. The Company periodically reviews inventories for obsolescence, and any inventories identified as obsolete are reserved or written off. |
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Other Assets | Other Assets As of March 31, 2017 and December 31, 2016, other assets were $3.9 million and $4.0 million, respectively, and primarily consisted of deposits for building leases in various locations of $2.0 million and $2.2 million, respectively. Additionally, included in the March 31, 2017 and December 31, 2016 balances was $1.7 million and $1.5 million, respectively, representing a deposit with Mutual Aid Cooperative and Consumer in the Republic of Korea, an organization established by the Republic of Korea’s Fair Trade Commission to protect consumers who participate in network marketing activities. Also included in each of the March 31, 2017 and December 31, 2016 balances was $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark. |
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Notes Payable | Notes Payable Notes payable were $1.4 million at each of March 31, 2017 and December 31, 2016, as a result of funding from a capital financing agreement related to our investment in computer hardware and software and other financing arrangements. At March 31, 2017, the current portion was $1.0 million and the long-term portion was $0.4 million. At December 31, 2016, the current portion was $0.8 million and the long-term portion was $0.6 million. |
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Other Long-Term Liabilities | Other Long-Term Liabilities Other long-term liabilities were $1.4 million and $1.5 million as of March 31, 2017 and December 31, 2016, respectively. At each of March 31, 2017 and December 31, 2016, the Company recorded $0.2 million in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes of the Company’s annual report on Form 10-K for the year ended December 31, 2016, filed March 14, 2017). Certain operating leases for the Company’s regional office facilities contain a restoration clause that requires the Company to restore the premises to its original condition. At March 31, 2017 and December 31, 2016, accrued restoration costs related to these leases amounted to $0.5 million and $0.6 million, respectively. At March 31, 2017 and December 31, 2016, the Company also recorded a long-term liability for estimated defined benefit obligation related to a non-U.S. defined benefit plan for its Japan operations of $0.4 million and $0.5 million, respectively. (see Note 10, Employee Benefit Plans, of the Company’s 10-K, filed March 14, 2017). |
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Revenue Recognition and Deferred Commissions | Revenue Recognition and Deferred Commissions The Company’s revenue is derived from sales of individual products, sales of its starter and renewal packs, and shipping fees. Substantially all of the Company’s product and pack sales are made to associates at published wholesale prices and to members at discounted published retail prices. The Company records revenue net of any sales taxes and records a reserve for expected sales returns based on its historical experience. The Company recognizes revenue from shipped packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held. The Company defers certain components of its revenue. At March 31, 2017 and December 31, 2016, the Company’s deferred revenue was $8.4 million and $8.2 million, respectively. Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. The deferred revenue associated with the loyalty program at each of March 31, 2017 and December 31, 2016 was $7.0 million. In total current assets, the Company defers commissions on (i) the sales of packs and products shipped but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were $3.2 million at each of March 31, 2017 and December 31, 2016.
The Company estimates a sales return reserve for expected sales refunds based on historical experience over a rolling six-month period. If actual results differ from our estimated sales return reserve due to various factors, the amount of revenue recorded each period could be materially affected. Historically, sales returns have not materially changed through the years, as the majority of our customers who return their merchandise do so within the first 90 days after the original sale. Sales returns have historically averaged 1.5% or less of our gross sales. For the three months ended March 31, 2017 our sales return reserve consisted of the following (in thousands):
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Shipping and Handling Costs | Shipping and Handling Costs The Company records freight and shipping fees collected from its customers as revenue. The Company records inbound freight as a component of inventory and cost of sales. |
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Commissions and Incentives | Commissions and Incentives Associates earn commissions and incentives based on their direct and indirect commissionable net sales over 13 business periods each year. Each business period equals 28 days. The Company accrues commissions and incentives when earned by associates and pays commissions on product sales three weeks following the business period end and pays commissions on its pack sales five weeks following the business period end. |
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Comprehensive Income and Accumulated Other Comprehensive Income | Comprehensive Income and Accumulated Other Comprehensive Income Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company’s comprehensive income consists of the Company’s net income, foreign currency translation adjustments from its Japan, Republic of Korea, Taiwan, Denmark, Norway, Sweden, Colombia, Mexico and China operations, remeasurement of intercompany balances classified as equity in its Korea, Mexico and Cyprus operations, and changes in the pension obligation for its Japanese employees. |
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Recently Adopted and Issued But Not Yet Effective Accounting Pronouncements | Recently Adopted Accounting Pronouncements The Company adopted Accounting Standard Updated ("ASU") 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes during the first quarter of 2017 and applied it retrospectively to all deferred tax assets and liabilities. This ASU requires classification of deferred income taxes as non-current on the consolidated balance sheets. Deferred income taxes were previously required to be classified as current or non-current on the consolidated balance sheets. The adoption had an immaterial prior year balance sheet change in classification between current deferred tax assets and long-term deferred tax assets. The Company adopted the ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting during the first quarter of 2017. The updated guidance changes how companies account for certain aspects of stock-based payment awards to employees, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of such awards in the statement of cash flows. ASU 2016-09 became effective for us on January 1, 2017. ASU 2016-09 requires that excess tax benefits and deficiencies resulting from the vesting or exercise of stock-based compensation awards to be recognized in the income statement on a prospective basis. Previously, these amounts were recognized in additional paid-in capital. In addition, ASU 2016-09 requires excess tax benefits and deficiencies to be excluded from the assumed future proceeds in the calculation of diluted shares. In accordance with the standard, we elected to continue our historical approach of estimating forfeitures during the award vesting period. ASU 2016-09 had no material impact to the calculation of weighted average shares outstanding for the three month period ended March 31, 2017. The adoption of this standard did not have a material effect on our consolidated financial statements for the three months ended March 31, 2017. Accounting Pronouncements Issued But Not Yet Effective In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers. This new standard requires companies to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. Under the new standard, revenue is recognized when a customer obtains control of a good or service. The standard allows for two transition methods - entities can either apply the new standard (i) retrospectively to each prior reporting period presented, or (ii) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial adoption. In July 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which defers the effective date by one year to December 15, 2017 for fiscal years, and interim periods within those fiscal years, beginning after that date. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue versus Net), in April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers, identifying Performance Obligations and Licensing, and in May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients, which provide additional clarification on certain topics addressed in ASU 2014-09. ASU 2016-08, ASU 2016-10, and ASU 2016-12 follow the same implementation guidelines as ASU 2014-09 and ASU 2015-14. An implementation team has gained an understanding of the standard’s revenue recognition model, is completing the review and documentation of our contracts, and is analyzing whether enhancements are needed to our business and accounting systems. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under ASU 2016-02, an entity will be required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. Management is currently in the initial stages of evaluating the future impact of ASU 2016-02 on its consolidated financial position, results of operations and cash flows. In November 2016, the FASB issued ASU 2016-18, Restricted Cash (Subtopic 230), which addresses the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendment requires that a statement of cash flows explain the change during the period in the total of cash. The guidance is effective for annual periods beginning after December 15, 2017. Early adoption is permitted. Management is currently in the initial stages of evaluating the future impact of ASU 2016-18 on its consolidated financial position, results of operations and cash flows. In February 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 715), which requires an entity to present the service cost component of the net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. In addition, ASU 2017-07 requires an entity to present the other components separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company is currently fully evaluating the impact of this standard, but we do not expect it to have a material impact on the Company’s consolidated results of operations and financial condition. Other recently issued accounting pronouncements did not or are not believed by management to have a material impact on the Company’s present or future financial statements. |
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Fair Value Measurement, Policy | The Company utilizes fair value measurements to record fair value adjustments to certain financial assets and to determine fair value disclosures. Fair Value Measurements and Disclosure (Topic 820) of the FASB establishes a fair value hierarchy that requires the use of observable market data, when available, and prioritizes the inputs to valuation techniques used to measure fair value in the following categories:
The primary objective of the Company’s investment activities is to preserve principal while maximizing yields without significantly increasing risk. The investment instruments held by the Company are money market funds and interest bearing deposits for which quoted market prices are readily available. The Company considers these highly liquid investments to be cash equivalents. These investments are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loyalty deferred revenue | Deferred commissions were $3.2 million at each of March 31, 2017 and December 31, 2016.
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Sales return reserve | For the three months ended March 31, 2017 our sales return reserve consisted of the following (in thousands):
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INVENTORIES (Tables) |
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Schedule of inventory | Inventories at March 31, 2017 and December 31, 2016, consisted of the following (in thousands):
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STOCK-BASED COMPENSATION (Tables) |
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Schedule of compensation cost | The Company recognized compensation expense as follows for the three months ended March 31, 2017 and 2016 (in thousands):
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Schedule of unrecognized compensation expense | As of March 31, 2017, the Company expects to record compensation expense in the future as follows (in thousands):
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SHAREHOLDERS' EQUITY (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of accumulated other comprehensive income | The after-tax components of accumulated other comprehensive income, are as follows (in thousands):
(1)No amounts reclassified from accumulated other comprehensive income. |
FAIR VALUE (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair value, assets measured on recurring basis | The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of March 31, 2017 and December 31, 2016.
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SEGMENT INFORMATION (Tables) |
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Net sales shipped to customers by geographic region | Consolidated net sales shipped to customers in these regions, along with pack and product information for the three months ended March 31, were as follows (in millions, except percentages):
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Product and pack information |
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Long-lived assets, by geographic region | Long-lived assets, which include property and equipment and construction in process for the Company and its subsidiaries, as of March 31, 2017 and December 31, 2016, reside in the following regions, as follows (in millions):
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Inventory balances, by region | Inventory balances, which consist of raw materials, work in process, finished goods, and promotional materials, as offset by the allowance for slow moving or obsolete inventories, reside in the following regions (in millions):
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INVENTORIES (Details) - USD ($) $ in Thousands |
Mar. 31, 2017 |
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Inventory Disclosure [Abstract] | ||
Raw materials | $ 406 | $ 239 |
Finished goods | 13,391 | 12,103 |
Inventory reserves for obsolescence | (381) | (381) |
Total | $ 13,416 | $ 11,961 |
INCOME TAXES (Details) |
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Mar. 31, 2017 |
Mar. 31, 2016 |
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Income Tax Disclosure [Abstract] | ||
Effective tax rate | 36.50% | 31.00% |
EARNINGS PER SHARE (Details) - $ / shares shares in Millions |
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Mar. 31, 2017 |
Mar. 31, 2016 |
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Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Average common stock closing price (in dollars per share) | $ 18.42 | $ 18.50 |
Stock Options | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive securities excluded from computation of earnings per share (in shares) | 0.1 | 0.1 |
SHAREHOLDERS' EQUITY (Details) - USD ($) $ / shares in Units, $ in Thousands |
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Mar. 29, 2017 |
Feb. 23, 2017 |
Mar. 31, 2017 |
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AOCI Attributable to Parent, Net of Tax [Roll Forward] | |||
December 31, 2016 | $ 38,885 | ||
Current-period change | 2,379 | ||
March 31, 2017 | 40,056 | ||
Dividends [Abstract] | |||
Dividend payable per share (in dollars per share) | $ 0.125 | ||
Dividend paid per share (in dollars per share) | $ 0.125 | ||
Accumulated Other Comprehensive Income, Net | |||
AOCI Attributable to Parent, Net of Tax [Roll Forward] | |||
December 31, 2016 | 1,834 | ||
March 31, 2017 | 4,213 | ||
Foreign Currency Translation | |||
AOCI Attributable to Parent, Net of Tax [Roll Forward] | |||
December 31, 2016 | 1,534 | ||
Current-period change | 2,379 | ||
March 31, 2017 | 3,913 | ||
Pension Postretirement Benefit Obligation | |||
AOCI Attributable to Parent, Net of Tax [Roll Forward] | |||
December 31, 2016 | 300 | ||
Current-period change | 0 | ||
March 31, 2017 | $ 300 |
LITIGATION (Details) - Pending Litigation - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Feb. 18, 2015 |
Dec. 31, 2015 |
Mar. 31, 2017 |
|
Ms. Diana Anselmo and New Day Today Corporation | Past Commissions | |||
Loss Contingencies [Line Items] | |||
Damages sought | $ 0.6 | ||
Loss contingency, estimated damages, accrued liabilities | $ 0.5 | ||
Ms. Diana Anselmo and New Day Today Corporation | Future Commissions | Minimum | |||
Loss Contingencies [Line Items] | |||
Damages sought | 2.0 | ||
Ms. Diana Anselmo and New Day Today Corporation | Future Commissions | Maximum | |||
Loss Contingencies [Line Items] | |||
Damages sought | $ 3.1 | ||
Busan Custom Office | |||
Loss Contingencies [Line Items] | |||
Damages paid | $ 1.0 |
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