☒
|
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 S
|
1
|
|
Part I – FINANCIAL INFORMATION
|
|
2
|
|
2
|
|
3
|
|
3
|
|
4
|
|
5
|
|
6
|
|
17
|
|
17
|
|
18
|
|
24
|
|
26
|
|
30
|
|
30
|
|
31
|
|
Part II – OTHER INFORMATION
|
|
32
|
|
32
|
|
32
|
|
32
|
|
32
|
|
32
|
|
32
|
|
33
|
§ | management’s plans and objectives for future operations; |
§ | existing cash flows being adequate to fund future operational needs; |
§ | future plans related to budgets, future capital requirements, market share growth, and anticipated capital projects and obligations; |
§ | the realization of net deferred tax assets; |
§ | the ability to curtail operating expenditures; |
§ | global statutory tax rates remaining unchanged; |
§ | the impact of future market changes due to exposure to foreign currency translations; |
§ | the possibility of certain policies, procedures, and internal processes minimizing exposure to market risk; |
§ | the impact of new accounting pronouncements on financial condition, results of operations, or cash flows; |
§ | the outcome of new or existing litigation matters; |
§ | the outcome of new or existing regulatory inquiries or investigations; and |
§ | other assumptions described in this report underlying such forward-looking statements. |
§ | overall growth or lack of growth in the nutritional supplements industry; |
§ | plans for expected future product development; |
§ | changes in manufacturing costs; |
§ | shifts in the mix of packs and products; |
§ | the future impact of any changes to global associate career and compensation plans or incentives or the regulations thereto; |
§ | the ability to attract and retain independent associates and members; |
§ | new regulatory changes that may affect operations, products or compensation plans or incentives; |
§ | the competitive nature of our business with respect to products and pricing; |
§ | publicity related to our products or network-marketing; and |
§ | the political, social, and economic climate. |
March 31,
2016
(unaudited)
|
December 31,
2015
|
|||||||
ASSETS
|
||||||||
Cash and cash equivalents
|
$
|
33,581
|
$
|
31,994
|
||||
Restricted cash
|
1,513
|
1,511
|
||||||
Accounts receivable, net of allowance of $413 and $261 in 2016 and 2015, respectively
|
219
|
369
|
||||||
Income tax receivable
|
8
|
4
|
||||||
Inventories, net
|
11,228
|
9,199
|
||||||
Prepaid expenses and other current assets
|
3,998
|
2,905
|
||||||
Deferred commissions
|
3,969
|
3,443
|
||||||
Deferred tax assets, net
|
430
|
460
|
||||||
Total current assets
|
54,946
|
49,885
|
||||||
Property and equipment, net
|
3,617
|
3,848
|
||||||
Construction in progress
|
1,362
|
839
|
||||||
Long-term restricted cash
|
6,741
|
6,586
|
||||||
Other assets
|
3,878
|
3,759
|
||||||
Long-term deferred tax assets, net
|
3,766
|
3,725
|
||||||
Total assets
|
$
|
74,310
|
$
|
68,642
|
||||
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
||||||||
Current portion of capital leases
|
$
|
418
|
$
|
447
|
||||
Accounts payable
|
5,617
|
2,683
|
||||||
Accrued expenses
|
4,698
|
6,221
|
||||||
Commissions and incentives payable
|
7,628
|
6,818
|
||||||
Taxes payable
|
1,489
|
736
|
||||||
Current deferred tax liability
|
85
|
84
|
||||||
Current notes payable
|
971
|
713
|
||||||
Deferred revenue
|
9,926
|
8,677
|
||||||
Total current liabilities
|
30,832
|
26,379
|
||||||
Capital leases, excluding current portion
|
518
|
612
|
||||||
Long-term deferred tax liabilities
|
6
|
24
|
||||||
Long-term notes payable
|
979
|
1,069
|
||||||
Other long-term liabilities
|
2,003
|
1,994
|
||||||
Total liabilities
|
34,338
|
30,078
|
||||||
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, 2,773,972 shares issued and 2,696,986 shares outstanding as of March 31, 2016 and 2,773,972 shares issued and 2,682,078 shares outstanding as of December 31, 2015
|
—
|
—
|
||||||
Additional paid-in capital
|
38,904
|
40,494
|
||||||
Retained earnings
|
9,180
|
8,589
|
||||||
Accumulated other comprehensive income
|
1,273
|
686
|
||||||
Treasury stock, at average cost, 76,986 shares as of March 31, 2016 and 91,894 shares as of December 31, 2015, respectively
|
(9,385
|
)
|
(11,205
|
)
|
||||
Total shareholders’ equity
|
39,972
|
38,564
|
||||||
Total liabilities and shareholders’ equity
|
$
|
74,310
|
$
|
68,642
|
Three months ended
March 31,
|
||||||||
2016
|
2015
|
|||||||
Net sales
|
$
|
40,708
|
$
|
44,370
|
||||
Cost of sales
|
8,389
|
8,553
|
||||||
Gross profit
|
32,319
|
35,817
|
||||||
Operating expenses:
|
||||||||
Commissions and incentives
|
15,618
|
17,542
|
||||||
Selling and administrative expenses
|
8,142
|
8,813
|
||||||
Depreciation and amortization
|
443
|
396
|
||||||
Other operating costs
|
7,580
|
6,555
|
||||||
Total operating expenses
|
31,783
|
33,306
|
||||||
Income from operations
|
536
|
2,511
|
||||||
Interest income (expense)
|
(13
|
)
|
30
|
|||||
Other income (expense), net
|
334
|
(932
|
)
|
|||||
Income before income taxes
|
857
|
1,609
|
||||||
Provision for income taxes
|
266
|
510
|
||||||
Net income
|
$
|
591
|
$
|
1,099
|
||||
Earnings per common share:
|
||||||||
Basic
|
$
|
0.22
|
$
|
0.41
|
||||
Diluted
|
$
|
0.21
|
$
|
0.40
|
||||
Weighted-average common shares outstanding:
|
||||||||
Basic
|
2,696
|
2,677
|
||||||
Diluted
|
2,780
|
2,730
|
Three months ended
March 31,
|
||||||||
|
2016
|
2015
|
||||||
Net income
|
$
|
591
|
$
|
1,099
|
||||
Foreign currency translations
|
587
|
242
|
||||||
Comprehensive income
|
$
|
1,178
|
$
|
1,341
|
Common stock
Par value
|
Additional
paid in
capital
|
Retained
earnings
|
Accumulated
other
comprehensive
income
|
Treasury
stock
|
Total
shareholders’
equity
|
|||||||||||||||||||
Balance at December 31, 2015
|
$
|
—
|
$
|
40,494
|
$
|
8,589
|
$
|
686
|
$
|
(11,205
|
)
|
$
|
38,564
|
|||||||||||
Net income
|
—
|
—
|
591
|
—
|
—
|
591
|
||||||||||||||||||
Charge related to stock-based compensation
|
—
|
(1,357
|
)
|
—
|
—
|
1,575
|
218
|
|||||||||||||||||
Stock option exercises
|
—
|
(233
|
)
|
—
|
—
|
245
|
12
|
|||||||||||||||||
Foreign currency translations
|
—
|
—
|
—
|
587
|
—
|
587
|
||||||||||||||||||
Balance at March 31, 2016
|
$
|
—
|
$
|
38,904
|
$
|
9,180
|
$
|
1,273
|
$
|
(9,385
|
)
|
$
|
39,972
|
Three months ended
March 31,
|
||||||||
2016
|
2015
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net income
|
$
|
591
|
$
|
1,099
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation and amortization
|
443
|
396
|
||||||
Provision for inventory losses
|
88
|
196
|
||||||
Provision for doubtful accounts
|
243
|
128
|
||||||
Loss on disposal of assets
|
3
|
7
|
||||||
Stock-based compensation expense
|
218
|
141
|
||||||
Tax benefit from exercise of stock options
|
—
|
(16
|
)
|
|||||
Deferred income taxes
|
28
|
(1
|
)
|
|||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(89
|
)
|
(26
|
)
|
||||
Income tax receivable
|
(4
|
)
|
(6
|
)
|
||||
Inventories
|
(1,951
|
)
|
(3,124
|
)
|
||||
Prepaid expenses and other current assets
|
(673
|
)
|
962
|
|||||
Deferred commissions
|
(470
|
)
|
58
|
|||||
Other assets
|
(35
|
)
|
(83
|
)
|
||||
Accounts payable
|
2,912
|
3,126
|
||||||
Accrued expenses and other liabilities
|
(1,591
|
)
|
(334
|
)
|
||||
Taxes payable
|
669
|
(527
|
)
|
|||||
Commissions and incentives payable
|
689
|
(1,347
|
)
|
|||||
Deferred revenue
|
1,119
|
516
|
||||||
Change in restricted cash
|
(14
|
)
|
9
|
|||||
Net cash provided by operating activities
|
2,176
|
1,174
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Acquisition of property and equipment
|
(709
|
)
|
(787
|
)
|
||||
Net cash used in investing activities
|
(709
|
)
|
(787
|
)
|
||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds from stock options exercised
|
12
|
20
|
||||||
Tax benefit from exercise of stock options
|
—
|
16
|
||||||
Repayment of financing arrangement obligations
|
(364
|
)
|
(369
|
)
|
||||
Net cash used in financing activities
|
(352
|
)
|
(333
|
)
|
||||
Effect of currency exchange rate changes on cash and cash equivalents
|
472
|
346
|
||||||
Net increase in cash and cash equivalents
|
1,587
|
400
|
||||||
Cash and cash equivalents at the beginning of the period
|
31,994
|
27,999
|
||||||
Cash and cash equivalents at the end of the period
|
$
|
33,581
|
$
|
28,399
|
||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Income taxes paid, net
|
$
|
5,335
|
$
|
3,245
|
||||
Interest paid on capital leases
|
$
|
26
|
$
|
24
|
||||
Assets acquired through financing arrangements
|
$
|
409
|
$
|
1,271
|
NOTE 1: | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Loyalty program
|
(in thousands)
|
|||
Loyalty deferred revenue as of January 1, 2015
|
$
|
9,703
|
||
Loyalty points forfeited or expired
|
(8,801
|
)
|
||
Loyalty points used
|
(15,077
|
)
|
||
Loyalty points vested
|
20,403
|
|||
Loyalty points unvested
|
1,845
|
|||
Loyalty deferred revenue as of December 31, 2015
|
$
|
8,073
|
Loyalty deferred revenue as of January 1, 2016
|
$
|
8,073
|
||
Loyalty points forfeited or expired
|
(1,535
|
)
|
||
Loyalty points used
|
(4,063
|
)
|
||
Loyalty points vested
|
3,672
|
|||
Loyalty points unvested
|
2,276
|
|||
Loyalty deferred revenue as of March 31, 2016
|
$
|
8,423
|
Sales reserve as of January 1, 2016
|
$
|
147
|
||
Provision related to sales made in current period
|
213
|
|||
Adjustment related to sales made in prior periods
|
(32
|
)
|
||
Actual returns or credits related to current period
|
(79
|
)
|
||
Actual returns or credits related to prior periods
|
(104
|
)
|
||
Sales reserve as of March 31, 2016
|
$
|
145
|
NOTE 2: | INVENTORIES |
March 31, 2016
|
December 31, 2015
|
|||||||
Raw materials
|
$
|
969
|
$
|
1,187
|
||||
Finished goods
|
11,330
|
9,277
|
||||||
Inventory reserves for obsolescence
|
(1,071
|
)
|
(1,265
|
)
|
||||
Total
|
$
|
11,228
|
$
|
9,199
|
NOTE 3:
|
INCOME TAXES
|
NOTE 4: | EARNINGS PER SHARE |
NOTE 5: | STOCK-BASED COMPENSATION |
Three months ending
March 31,
|
||||||||
2016 | 2015 | |||||||
Total gross compensation expense
|
$
|
218
|
$
|
141
|
||||
Total tax benefit associated with compensation expense
|
19
|
31
|
||||||
Total net compensation expense
|
$
|
199
|
$
|
110
|
Nine months
|
Year ending December 31,
|
|||||||||||||||
ending
December 31,
2016
|
2017
|
2018
|
2019
|
|||||||||||||
Total gross unrecognized compensation expense
|
$
|
297
|
$
|
255
|
$
|
71
|
$
|
29
|
||||||||
Tax benefit associated with unrecognized compensation expense
|
32
|
17
|
—
|
—
|
||||||||||||
Total net unrecognized compensation expense
|
$
|
265
|
$
|
238
|
$
|
71
|
$
|
29
|
NOTE 6: | SHAREHOLDERS’ EQUITY |
Foreign
Currency
Translation
|
Pension
Postretirement
Benefit
Obligation
|
Accumulated
Other
Comprehensive
Income, Net
|
||||||||||
Balance as of December 31, 2015
|
$
|
358
|
$
|
328
|
$
|
686
|
||||||
Current-period change 1
|
587
|
—
|
587
|
|||||||||
Balance as of March 31, 2016
|
$
|
945
|
$
|
328
|
$
|
1,273
|
1 | No amounts reclassified from accumulated other comprehensive income |
NOTE 7: | LITIGATION |
NOTE 8: | FAIR VALUE |
March 31, 2016
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Money Market Funds – Fidelity, US
|
$
|
1,161
|
$
|
—
|
$
|
—
|
$
|
1,161
|
||||||||
Interest bearing deposits – various banks
|
19,969
|
—
|
—
|
19,969
|
||||||||||||
Total assets
|
$
|
21,130
|
$
|
—
|
$
|
—
|
$
|
21,130
|
||||||||
Amounts included in:
|
||||||||||||||||
Cash and cash equivalents
|
$
|
14,825
|
$
|
—
|
$
|
—
|
$
|
14,825
|
||||||||
Restricted cash
|
739
|
—
|
—
|
739
|
||||||||||||
Long-term restricted cash
|
5,566
|
—
|
—
|
5,566
|
||||||||||||
Total
|
$
|
21,130
|
$
|
—
|
$
|
—
|
$
|
21,130
|
December 31, 2015
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Money Market Funds – Fidelity, US
|
$
|
319
|
$
|
—
|
$
|
—
|
$
|
319
|
||||||||
Interest bearing deposits – various banks
|
14,134
|
—
|
—
|
14,134
|
||||||||||||
Total
|
$
|
14,453
|
$
|
—
|
$
|
—
|
$
|
14,453
|
||||||||
Amounts included in:
|
||||||||||||||||
Cash and cash equivalents
|
$
|
8,281
|
$
|
—
|
$
|
—
|
$
|
8,281
|
||||||||
Restricted cash
|
737
|
—
|
—
|
737
|
||||||||||||
Long-term restricted cash
|
5,435
|
—
|
—
|
5,435
|
||||||||||||
Total
|
$
|
14,453
|
$
|
—
|
$
|
—
|
$
|
14,453
|
NOTE 9: | SEGMENT INFORMATION |
Three months ended March 31
|
||||||||||||||||
Region
|
2016
|
2015
|
||||||||||||||
Americas
|
$
|
16.0
|
39.3
|
%
|
$
|
18.1
|
40.8
|
%
|
||||||||
Asia/Pacific
|
21.4
|
52.6
|
%
|
22.7
|
51.1
|
%
|
||||||||||
EMEA
|
3.3
|
8.1
|
%
|
3.6
|
8.1
|
%
|
||||||||||
Total
|
$
|
40.7
|
100.0
|
%
|
$
|
44.4
|
100.0
|
%
|
Three months ended
March 31
|
||||||||
2016
|
2015
|
|||||||
Consolidated product sales
|
$
|
33.7
|
$
|
34.2
|
||||
Consolidated pack sales
|
5.8
|
8.9
|
||||||
Consolidated other, including freight
|
1.2
|
1.3
|
||||||
Total
|
$
|
40.7
|
$
|
44.4
|
Region
|
March 31,
2016
|
December 31,
2015
|
||||||
Americas
|
$
|
3.9
|
$
|
3.5
|
||||
Asia/Pacific
|
1.0
|
1.1
|
||||||
EMEA
|
0.1
|
0.1
|
||||||
Total
|
$
|
5.0
|
$
|
4.7
|
Region
|
March 31,
2016
|
December 31,
2015
|
||||||
Americas
|
$
|
4.5
|
$
|
3.4
|
||||
Asia/Pacific
|
4.1
|
4.3
|
||||||
EMEA
|
2.6
|
1.5
|
||||||
Total
|
$
|
11.2
|
$
|
9.2
|
NOTE 10:
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
· | Require an entity to determine whether it is a principal or an agent for each distinct good or service to be provided to the customer; |
· | Illustrate how an entity that is a principal might apply the control principle to goods, services, or rights to services, when another party is involved in providing goods or services to a customer; |
· | Clarify that the purpose of certain specific control indicators is to support or assist in the assessment of whether an entity controls a specified good or service before it is transferred to the customer, provide more specific guidance on how the indicators should be considered, and clarify that their relevance will vary depending on the facts and circumstances; |
· | Revise existing examples and add two new ones to more clearly depict how the guidance should be applied. |
2016
|
2015
|
Change
|
||||||||||||||||||||||
Total
Dollars
|
% of
net sales
|
Total
dollars
|
% of
net sales
|
Dollar
|
Percentage
|
|||||||||||||||||||
Net sales
|
$
|
40,708
|
100.0
|
%
|
$
|
44,370
|
100.0
|
%
|
$
|
(3,662
|
)
|
(8.3
|
)%
|
|||||||||||
Cost of sales
|
8,389
|
20.6
|
%
|
8,553
|
19.3
|
%
|
(164
|
)
|
(1.9
|
)%
|
||||||||||||||
Gross profit
|
32,319
|
79.4
|
%
|
35,817
|
80.7
|
%
|
(3,498
|
)
|
(9.8
|
)%
|
||||||||||||||
Operating expenses:
|
||||||||||||||||||||||||
Commissions and incentives
|
15,618
|
38.4
|
%
|
17,542
|
39.5
|
%
|
(1,924
|
)
|
(11.0
|
)%
|
||||||||||||||
Selling and administrative expenses
|
8,142
|
20.0
|
%
|
8,813
|
19.9
|
%
|
(671
|
)
|
(7.6
|
)%
|
||||||||||||||
Depreciation and amortization
|
443
|
1.1
|
%
|
396
|
0.9
|
%
|
47
|
11.9
|
%
|
|||||||||||||||
Other operating costs
|
7,580
|
18.6
|
%
|
6,555
|
14.8
|
%
|
1,025
|
15.6
|
%
|
|||||||||||||||
Total operating expenses
|
31,783
|
78.1
|
%
|
33,306
|
75.1
|
%
|
(1,523
|
)
|
(4.6
|
)%
|
||||||||||||||
Income from operations
|
536
|
1.3
|
%
|
2,511
|
5.7
|
%
|
(1,975
|
)
|
(78.7
|
)%
|
||||||||||||||
Interest income (expense)
|
(13
|
)
|
0.0
|
%
|
30
|
0.1
|
%
|
(43
|
)
|
(143.3
|
)%
|
|||||||||||||
Other income (expense), net
|
334
|
0.8
|
%
|
(932
|
)
|
(2.1
|
)%
|
1,266
|
135.8
|
%
|
||||||||||||||
Income before income taxes
|
857
|
2.1
|
%
|
1,609
|
3.6
|
%
|
(752
|
)
|
(46.7
|
)%
|
||||||||||||||
Income tax provision
|
266
|
0.6
|
%
|
510
|
1.1
|
%
|
(244
|
)
|
(47.8
|
)%
|
||||||||||||||
Net income
|
$
|
591
|
1.5
|
%
|
$
|
1,099
|
2.5
|
%
|
$
|
(508
|
)
|
(46.2
|
)%
|
Three months ended
March 31, 2016
|
Three months
ended
March 31, 2015
|
Reconciliation –
Constant $
|
||||||||||||||||||
GAAP
Measure:
Total $
|
Non-GAAP
Measure:
Constant $
|
GAAP
Measure:
Total $
|
Dollar
|
Percent
|
||||||||||||||||
Net sales
|
$
|
40.7
|
$
|
42.8
|
$
|
44.4
|
$
|
(1.6
|
)
|
(3.6
|
)%
|
|||||||||
Product
|
33.7
|
35.3
|
34.2
|
1.1
|
3.2
|
% | ||||||||||||||
Pack
|
5.8
|
6.2
|
8.9
|
(2.7
|
)
|
(30.3
|
)%
|
|||||||||||||
Other
|
1.2
|
1.2
|
1.3
|
(0.1
|
)
|
(7.7
|
)%
|
|||||||||||||
Gross profit
|
32.3
|
33.8
|
35.8
|
(2.0
|
)
|
(5.6
|
)%
|
|||||||||||||
Income from operations
|
0.5
|
0.8
|
2.5
|
(1.7
|
)
|
(68.0
|
)%
|
Three months ended
March 31, 2016
|
Three months ended
March 31, 2015
|
|||||||||||||||
Americas
|
$
|
16.0
|
39.3
|
%
|
$
|
18.1
|
40.8
|
%
|
||||||||
Asia/Pacific
|
21.4
|
52.6
|
%
|
22.7
|
51.1
|
%
|
||||||||||
EMEA
|
3.3
|
8.1
|
%
|
3.6
|
8.1
|
%
|
||||||||||
Total
|
$
|
40.7
|
100.0
|
%
|
$
|
44.4
|
100.0
|
%
|
• | changes in our sales prices; |
• | 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. |
Change
|
||||||||||||||||
2016
|
2015
|
Dollar
|
Percentage
|
|||||||||||||
Consolidated product sales
|
$
|
33.7
|
$
|
34.2
|
$
|
(0.5
|
)
|
(1.5
|
)%
|
|||||||
Consolidated pack sales
|
5.8
|
8.9
|
(3.1
|
)
|
(34.8
|
)%
|
||||||||||
Consolidated other, including freight
|
1.2
|
1.3
|
(0.1
|
)
|
(7.7
|
)%
|
||||||||||
Total consolidated net sales
|
$
|
40.7
|
$
|
44.4
|
$
|
(3.7
|
)
|
(8.3
|
)%
|
Three months ended March 31 | Change | ||||||||||||||||
|
2016
|
|
2015
|
Dollar
|
Percentage
|
||||||||||||
New
|
$
|
2.3
|
$
|
2.0
|
$
|
0.3
|
15.0
|
%
|
|||||||||
Continuing
|
3.5
|
6.9
|
(3.4
|
)
|
(49.3
|
)%
|
|||||||||||
Total
|
$
|
5.8
|
$
|
8.9
|
$
|
(3.1
|
)
|
(34.8
|
)%
|
• | explored new international markets; |
• | 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. |
2016
|
2015
|
|||||||||||||||
New
|
94,000
|
43.1
|
%
|
108,000
|
47.0
|
%
|
||||||||||
Continuing
|
124,000
|
56.9
|
%
|
122,000
|
53.0
|
%
|
||||||||||
Total Active
|
218,000
|
100.0
|
%
|
230,000
|
100.0
|
%
|
Country
|
2016
|
2015
|
||||||
Australia
|
30.0
|
%
|
30.0
|
%
|
||||
Canada
|
26.5
|
%
|
26.5
|
%
|
||||
Cyprus
|
12.5
|
%
|
12.5
|
%
|
||||
Colombia(1)
|
25.0
|
%
|
—
|
%
|
||||
Denmark
|
22.0
|
%
|
23.5
|
%
|
||||
Gibraltar
|
10.0
|
%
|
10.0
|
%
|
||||
Hong Kong
|
16.5
|
%
|
16.5
|
%
|
||||
Japan
|
35.4
|
%
|
37.1
|
%
|
||||
Mexico
|
30.0
|
%
|
30.0
|
%
|
||||
Norway
|
25.0
|
%
|
27.0
|
%
|
||||
Republic of Korea
|
22.0
|
%
|
22.0
|
%
|
||||
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
|
%
|
||||
United Kingdom
|
20.0
|
%
|
20.0
|
%
|
||||
United States
|
37.5
|
%
|
37.5
|
%
|
Country
|
2016
|
2015
|
||||||
Mexico
|
$
|
2.5
|
$
|
2.5
|
||||
Sweden
|
0.1
|
0.1
|
||||||
Switzerland
|
1.0
|
1.0
|
||||||
Taiwan
|
1.2
|
1.2
|
||||||
Ukraine
|
0.1
|
0.1
|
||||||
United States
|
4.0
|
4.0
|
||||||
Other Jurisdictions
|
0.1
|
0.1
|
||||||
Total
|
$
|
9.0
|
$
|
9.0
|
Provided by / (used in):
|
2016
|
2015
|
||||||
Operating activities
|
$
|
2.2
|
$
|
1.2
|
||||
Investing activities
|
$
|
(0.7
|
)
|
$
|
(0.8
|
)
|
||
Financing activities
|
$
|
(0.4
|
)
|
$
|
(0.3
|
)
|
Commitments and
obligations
|
Remaining
2016
|
2017
|
2018
|
2019
|
2020
|
Thereafter
|
Total
|
|||||||||||||||||||||
Capital lease obligations
|
$
|
354
|
$ |
370
|
$ |
205
|
$ |
53
|
$ |
13
|
$ |
—
|
$ |
995
|
||||||||||||||
Purchase obligations(1)(2)
|
4,970
|
—
|
—
|
—
|
—
|
—
|
4,970
|
|||||||||||||||||||||
Operating leases
|
1,284
|
1,519
|
806
|
309
|
118
|
—
|
4,036
|
|||||||||||||||||||||
Employment agreements
|
1,086
|
277
|
—
|
—
|
—
|
—
|
1,363
|
|||||||||||||||||||||
Royalty agreement
|
44
|
59
|
59
|
59
|
59
|
6
|
286
|
|||||||||||||||||||||
Tax liability (3)
|
118
|
534
|
—
|
—
|
—
|
150
|
802
|
|||||||||||||||||||||
Notes payable and other financing arrangements
|
812
|
648
|
579
|
—
|
—
|
—
|
2,039
|
|||||||||||||||||||||
Other obligations(4)
|
327
|
178
|
53
|
52
|
105
|
749
|
1,464
|
|||||||||||||||||||||
Total commitments and obligations
|
$
|
8,995
|
$ |
3,585
|
$ |
1,702
|
$ |
473
|
$ |
295
|
$ |
905
|
$ |
15,955
|
(1) | For purposes of the table, a purchase obligation is defined as an agreement to purchase goods or services that is non-cancelable, enforceable and legally binding on the Company that specifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. |
(2) | Excludes approximately $12.5 million of finished product purchase orders that may be cancelled or with delivery dates that have changed as of March 31, 2016. |
(3) | Represents the tax liability associated with uncertain tax positions, see Note 3 “Income Taxes” to our consolidated financial statements. |
(4) | Other obligations are composed of pension obligations related to the Company's international operations (approximately $1.0 million) and lease restoration obligations (approximately $0.4 million). |
Estimated useful life
|
Net carrying value at
March 31, 2016 |
|||
Office furniture and equipment
|
5 to 7 years
|
$
|
0.4 million
|
|
Computer hardware and software
|
3 to 5 years
|
2.1 million
|
||
Automobiles
|
3 to 5 years
|
— million
|
||
Leasehold improvements
|
2 to 10 years(1)
|
1.1 million
|
||
Total net carrying value at March 31, 2016
|
$
|
3.6 million
|
Loyalty program
|
(in thousands)
|
|||
Loyalty deferred revenue as of January 1, 2015
|
$
|
9,703
|
||
Loyalty points forfeited or expired
|
(8,801
|
)
|
||
Loyalty points used
|
(15,077
|
)
|
||
Loyalty points vested
|
20,403
|
|||
Loyalty points unvested
|
1,845
|
|||
Loyalty deferred revenue as of December 31, 2015
|
$
|
8,073
|
Loyalty deferred revenue as of January 1, 2016
|
$
|
8,073
|
||
Loyalty points forfeited or expired
|
(1,535
|
)
|
||
Loyalty points used
|
(4,063
|
)
|
||
Loyalty points vested
|
3,672
|
|||
Loyalty points unvested
|
2,276
|
|||
Loyalty deferred revenue as of March 31, 2016
|
$
|
8,423
|
· | 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 the remaining countries. 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 the remaining countries 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, 2016
|
As of
March 31, 2016
|
|||||||||||||||
Country (foreign currency name)
|
Low
|
High
|
Average
|
Spot
|
||||||||||||
Australia (Australian Dollar)
|
0.68691
|
0.76549
|
0.72185
|
0.76549
|
||||||||||||
Canada (Canadian Dollar)
|
0.68483
|
0.76969
|
0.72844
|
0.76788
|
||||||||||||
Colombia (Peso)
|
0.00029
|
0.00033
|
0.00031
|
0.00033
|
||||||||||||
Czech Republic (Koruna)
|
0.03980
|
0.04186
|
0.04081
|
0.04182
|
||||||||||||
Denmark (Kroner)
|
0.14414
|
0.15181
|
0.14781
|
0.15181
|
||||||||||||
Hong Kong (Hong Kong Dollar)
|
0.12785
|
0.12903
|
0.12864
|
0.12897
|
||||||||||||
Japan (Yen)
|
0.00825
|
0.00898
|
0.00867
|
0.00889
|
||||||||||||
Mexico (Peso)
|
0.05237
|
0.05810
|
0.05553
|
0.05789
|
||||||||||||
New Zealand (New Zealand Dollar)
|
0.63880
|
0.68968
|
0.66428
|
0.68968
|
||||||||||||
Norway (Krone)
|
0.11191
|
0.12003
|
0.11591
|
0.11983
|
||||||||||||
Republic of Korea (Won)
|
0.00081
|
0.00087
|
0.00084
|
0.00087
|
||||||||||||
Singapore (Singapore Dollar)
|
0.69341
|
0.73944
|
0.71276
|
0.73944
|
||||||||||||
South Africa (Rand)
|
0.05949
|
0.06651
|
0.06330
|
0.06651
|
||||||||||||
Sweden (Krona)
|
0.11607
|
0.12239
|
0.11834
|
0.12239
|
||||||||||||
Switzerland (Franc)
|
0.97787
|
1.03649
|
1.00671
|
1.03649
|
||||||||||||
Taiwan (New Taiwan Dollar)
|
0.02968
|
0.03111
|
0.03024
|
0.03093
|
||||||||||||
United Kingdom (British Pound)
|
1.38762
|
1.48045
|
1.43328
|
1.43950
|
||||||||||||
Various countries (1) (Euro)
|
1.07517
|
1.13138
|
1.10272
|
1.13138
|
MANNATECH, INCORPORATED
|
||
Dated: May 10, 2016
|
By:
|
/s/ Alfredo Bala
|
Alfredo Bala
|
||
Chief Executive Officer
|
||
(principal executive officer)
|
||
Dated: May 10, 2016
|
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
|
3.1
|
Amended and Restated Articles of Incorporation of Mannatech, dated May 19, 1998.
|
S-1
|
333-63133
|
3.1
|
October 28, 1998
|
3.2
|
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
|
3.3
|
Fifth Amended and Restated Bylaws of Mannatech, effective August 25, 2014.
|
8-K
|
000-24657
|
3.1
|
August 27, 2014
|
4.1
|
Specimen Certificate representing Mannatech’s common stock, par value $0.0001 per share.
|
S-1
|
333-63133
|
4.1
|
October 28, 1998
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech.
|
*
|
*
|
*
|
*
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, of the Chief Financial Officer of Mannatech.
|
*
|
*
|
*
|
*
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, of the Chief Executive Officer of Mannatech.
|
*
|
*
|
*
|
*
|
|
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
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.LAB*
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase Document
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase Document
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* | Filed herewith. |
Dated: May 10, 2016
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By:
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/s/ Alfredo Bala
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Alfredo Bala
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Chief Executive Officer
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(principal executive officer)
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Dated: May 10, 2016
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By:
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/s/ David A. Johnson
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David A. Johnson
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Chief Financial Officer
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(principal financial officer)
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Dated: May 10, 2016
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By:
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/s/ Alfredo Bala
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Alfredo Bala
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Chief Executive Officer
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(principal executive officer)
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Dated: May 10, 2016
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By:
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/s/ David A. Johnson
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David A. Johnson
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Chief Financial Officer
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(principal financial officer)
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Document and Entity Information - shares |
3 Months Ended | |
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Mar. 31, 2016 |
Apr. 29, 2016 |
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Document and Entity Information [Abstract] | ||
Entity Registrant Name | MANNATECH INC | |
Entity Central Index Key | 0001056358 | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 2,706,986 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q1 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2016 |
CONSOLIDATED BALANCE SHEETS - (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
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ASSETS | ||
Accounts receivable, allowance for doubtful accounts | $ 413 | $ 261 |
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) | 2,773,972 | 2,773,972 |
Common stock, shares outstanding (in shares) | 2,696,986 | 2,682,078 |
Treasury stock, shares (in shares) | 76,986 | 91,894 |
CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
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Mar. 31, 2016 |
Mar. 31, 2015 |
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CONSOLIDATED STATEMENTS OF OPERATIONS - (UNAUDITED) [Abstract] | ||
Net sales | $ 40,708 | $ 44,370 |
Cost of sales | 8,389 | 8,553 |
Gross profit | 32,319 | 35,817 |
Operating expenses: | ||
Commissions and incentives | 15,618 | 17,542 |
Selling and administrative expenses | 8,142 | 8,813 |
Depreciation and amortization | 443 | 396 |
Other operating costs | 7,580 | 6,555 |
Total operating expenses | 31,783 | 33,306 |
Income from operations | 536 | 2,511 |
Interest income (expense) | (13) | 30 |
Other income (expense), net | 334 | (932) |
Income before income taxes | 857 | 1,609 |
Provision for income taxes | 266 | 510 |
Net income | $ 591 | $ 1,099 |
Earnings per common share: | ||
Basic (in dollars per share) | $ 0.22 | $ 0.41 |
Diluted (in dollars per share) | $ 0.21 | $ 0.40 |
Weighted-average common shares outstanding: | ||
Basic (in shares) | 2,696 | 2,677 |
Diluted (in shares) | 2,780 | 2,730 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (UNAUDITED) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2016 |
Mar. 31, 2015 |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (UNAUDITED) [Abstract] | ||
Net income | $ 591 | $ 1,099 |
Foreign currency translations | 587 | 242 |
Comprehensive income | $ 1,178 | $ 1,341 |
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - (UNAUDITED) - 3 months ended Mar. 31, 2016 - USD ($) $ in Thousands |
Common Stock Par Value [Member] |
Additional Paid in Capital [Member] |
Retained Earnings [Member] |
Accumulated Other Comprehensive Income [Member] |
Treasury Stock [Member] |
Total |
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Balance at Dec. 31, 2015 | $ 0 | $ 40,494 | $ 8,589 | $ 686 | $ (11,205) | $ 38,564 |
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||
Net income | 0 | 0 | 591 | 0 | 0 | 591 |
Charge related to stock-based compensation | 0 | (1,357) | 0 | 0 | 1,575 | 218 |
Stock option exercises | 0 | (233) | 0 | 0 | 245 | 12 |
Foreign currency translations | 0 | 0 | 0 | 587 | 0 | 587 |
Balance at Mar. 31, 2016 | $ 0 | $ 38,904 | $ 9,180 | $ 1,273 | $ (9,385) | $ 39,972 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 (“Nasdaq”) under the symbol “MTEX”. The Company develops, markets, and sells high-quality, proprietary nutritional supplements, topical and skin care products, and weight-management products. We currently sell our products in three regions: (i) the Americas (the United States, Canada, Colombia and Mexico); (ii) Europe/the Middle East/Africa (“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 and Hong Kong). 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 independent associates are eligible to earn commissions and incentives. 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, 2015 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, 2015 and filed with the United States Securities and Exchange Commission (the “SEC”) on March 15, 2016 (the “2015 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 2015 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 of submission to the credit card processor. For each of the periods ended March 31, 2016 and December 31, 2015, credit card receivables were $1.9 million and $0.4 million, respectively, and cash and cash equivalents held in bank accounts in foreign countries totaled $30.4 million and $31.3 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) Australia building lease collateral. As of March 31, 2016 and December 31, 2015, our total restricted cash was $8.3 million and $8.1 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 March 31, 2016 and December 31, 2015, receivables consisted primarily of amounts due from members and independent 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. At March 31, 2016 and December 31, 2015, the Company held an allowance for doubtful accounts of $0.4 million and $0.3 million, respectively. 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, 2016 and December 31, 2015, other assets were $3.9 million and $3.8 million, respectively, and primarily consisted of deposits for building leases in various locations of $2.0 million and $1.9 million, respectively. Additionally, included in the March 31, 2016 and December 31, 2015 balances was $1.6 million 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 the March 31, 2016 and December 31, 2015 balances was $0.2 million of indefinite lived intangible assets relating to the Manapol® powder trademark. Notes Payable Notes payable were $1.9 million and $1.8 million at March 31, 2016 and December 31, 2015, respectively, 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, 2016, the current portion was $1.0 million and the long-term portion was $0.9 million. Other Long-Term Liabilities Other long-term liabilities were $2.0 million at each of March 31, 2016 and December 31, 2015. At each of March 31, 2016 and December 31, 2015, the Company recorded $0.7 million in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes of the Company’s 10-K, filed March 15, 2016). 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, 2016 and December 31, 2015, accrued restoration costs related to these leases amounted to $0.5 million and $0.4 million, respectively. At each of March 31, 2016 and December 31, 2015, 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 $0.5 million (see Note 10, Employee Benefit Plans, of the Company’s 10-K, filed March 15, 2016). 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, 2016 and December 31, 2015, the Company’s deferred revenue was $9.9 million and $8.7 million, respectively. When participating in the Company’s loyalty program, customers earn loyalty points from qualified automatic orders that can be applied to future purchases. The Company defers the dollar equivalent in revenue of these points until the points are applied, forfeited or expired, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited or expired. The deferred revenue associated with the loyalty program at March 31, 2016 and December 31, 2015 was $8.4 million and $8.1 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. 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 $4.0 million and $3.4 million at March 31, 2016 and December 31, 2015, respectively.
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 for 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, 2016, sales return reserve consisted of the following (in thousands):
Shipping and Handling 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 and Mexico operations, and changes in the pension obligation for its Japanese employees. |
INVENTORIES |
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INVENTORIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||
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, 2016 and December 31, 2015, consisted of the following (in thousands):
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INCOME TAXES |
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Mar. 31, 2016 | |||
INCOME TAXES [Abstract] | |||
INCOME TAXES |
For the three months ended March 31, 2016 and 2015, the Company’s effective tax rate was 31.0% and 31.7%, respectively, and was determined based on the estimated annual effective income tax rate. The effective tax rates 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 rate differences in foreign jurisdictions, valuation allowance and foreign income tax credit attributable to profit positions in certain foreign jurisdictions. The effective tax rates for the three months ended March 31, 2015 was slightly lower than what would have been expected if the U.S. federal statutory rate were applied to income before taxes. The decrease in the effective income tax rates was primarily due to favorable rate differences in foreign jurisdictions and release of valuation allowance due to profit in certain foreign jurisdictions, partially offset by permanent differences between the tax code and U.S. GAAP. |
EARNINGS PER SHARE |
3 Months Ended | ||
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Mar. 31, 2016 | |||
EARNINGS PER SHARE [Abstract] | |||
EARNINGS PER SHARE |
The Company calculates basic Earnings Per Share (“EPS”) by dividing net income 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. The Company reported net income for the three months ended March 31, 2016 and 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 net income for the three months ended March 31, 2015 and during that period a negligible amount of common stock subject to options was dilutive. In determining the potential dilution effect of outstanding stock options during the three months ended March 31, 2016 and 2015, the Company used the quarter’s average common stock close price of $18.50 and $21.36 per share, respectively. |
STOCK-BASED COMPENSATION |
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STOCK-BASED COMPENSATION [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 ten 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, 2016, the 2008 Plan had 94,282 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, 2016 and March 31, 2015. The Company recognized compensation expense as follows for the three months ended March 31 (in thousands):
As of March 31, 2016, 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 [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS' EQUITY |
Accumulated Other Comprehensive Income Accumulated other comprehensive income, displayed in the Consolidated Statements of Shareholders’ Equity and Comprehensive Income, 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):
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LITIGATION |
3 Months Ended | ||
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Mar. 31, 2016 | |||
LITIGATION [Abstract] | |||
LITIGATION |
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 the Defendants’ 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 has submitted its list of claim constructions/definitions and a list of the supporting authority. Each party has filed its opening brief and its respective responsive brief. Defendants 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. Mediation on this matter was held on April 24, 2015. 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 Defendants’ 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. This matter remains open. This lawsuit continues the Company’s enforcement of its patent rights, and the Company intends to vigorously prosecute this matter. 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, and Xiong Lo, 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. 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 Ms. Diana Anselmo and New Day Today Corporation (collectively, the “Plaintiffs”) filed suit against Mannatech alleging breach of contract pertaining to a portion of proceeds from a Mannatech Associate position once held by Ms. Anselmo’s former husband, Ray Gebauer. Plaintiffs are seeking damages in excess of $1,000,000 and a declaration that the Company continue to pay Plaintiffs proceeds from Mr. Gebauer’s former account. The Company filed its answer on March 23, 2015 denying the Plaintiffs’ allegations. The Court set the case for trial on March 7, 2016; however, on December 7, 2015 the Court granted the parties Agreed Motion for Continuation and reset the trial for July 11, 2016. The Court issued a mediation order on April 20, 2015. Mediation must be conducted no later than June 17, 2016. The parties have scheduled depositions and remain engaged in the discovery process. It is not possible at this time to predict 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. Trademark Opposition – U.S. Patent and Trademark Office (“USPTO”) United States Trademark Opposition No. 91221493, Shaklee Corporation v. Mannatech, Incorporated re: UTH On April 15, 2015 the Company received notice that Shaklee Corporation filed a Notice of Opposition to the Company’s trademark application for UTH (stylized as Ūth) 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 has been 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 ŪTH 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. The TTAB suspended the case on January 27, 2016 for further review. This matter remains open. It is not possible at this time to predict the outcome of the USPTO 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. Arbitration Proceeding Mannatech v. Samuel L. Caster and Wonder Enterprises, LLC, Demand for Arbitration, Case No. 01-15-0003-6812. On May 29, 2015 the Company initiated arbitration proceedings against Samuel L. Caster and Wonder Enterprises, LLC (“Respondents”) alleging breach of contract by Mr. Caster and his company, Wonder Enterprises, under a series of consulting agreements entered into by the parties. Mannatech seeks to recover actual damages, costs of court and prejudgment interest together with disgorgement of all benefits received by the Respondents. The Company estimates its damages to be between $500,000.00 and $3,500,000.00. On June 12, 2015 Respondents contacted the Company’s counsel to request mediation. The parties agreed to mediate this dispute, and mediation was held on August 17, 2015. However, a settlement was not reached. A preliminary hearing for arbitration was held on September 18, 2015, and a final hearing commenced on April 25, 2016. A hearing was held on March 2, 2016 where the arbitrator granted Respondents’ request to file a motion for summary judgment and granted the Company until March 21, 2016 to issue its response. The arbitrator also granted the Company’s motion to compel the Respondents to produce the customer list for Mr. Caster’s former company, EM Squared. The Company filed its response to Respondents’ Motion for Summary Judgment on March 21, 2016. The arbitration hearing is scheduled to begin on August 29, 2016. The parties remain engaged in the discovery process. This matter remains open. Administrative Proceedings On 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, which was paid in January 2014. Both parties submitted a response to the Court’s inquiry on January 15, 2016. The Court set the hearing for March 24, 2016, which was delayed to April 28, 2016 due to scheduling conflicts. At the hearing held on April 28, 2016, the presiding judge expressed concerns that the underpaid customs duty was assessed while the overpaid customs duty was not refunded. The judge set the next hearing for May 26, 2016 to set a decision. This matter remains open. There are other ongoing audits in various international jurisdictions that the Company does not expect will have a material effect on our financial statements. Litigation in General The Company is or may become subject to 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 or are 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 [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) 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: · 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. 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, 2016. The table below presents the recorded amount of financial assets measured at fair value (in thousands) on a recurring basis as of March 31, 2016 and December 31, 2015.
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SEGMENT INFORMATION |
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SEGMENT INFORMATION [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION |
The Company conducts its business as a single operating segment, consolidating all of its business units into a single reportable entity, as a seller of proprietary nutritional supplements, topical and skin care and anti-aging products, and weight-management and fitness products through its network marketing distribution channels operating in twenty-five countries. Each of the Company’s 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 operates facilities in thirteen countries and sells product in twenty-five 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, Hong Kong, Singapore, Colombia and Mexico. 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); (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan and Hong Kong). 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 progress for the Company and its subsidiaries, as of March 31, 2016 and December 31, 2015, reside in the following regions, as follows (in millions):
Inventory balances, which consist of raw materials, work in progress, 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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RECENT ACCOUNTING PRONOUNCEMENTS |
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RECENT ACCOUNTING PRONOUNCEMENTS [Abstract] | |||||||||||||||
RECENT ACCOUNTING PRONOUNCEMENTS |
In March 2016, the FASB issued ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarifies the principal versus agent implementation guidance, but does not change the core principle of the new standard. The updates:
The effective date and transition requirements are the same as the effective date and transition requirements of Topic 606, Revenue from Contract with Customers (see ASU 2015-14 above). In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which is intended to simplify the accounting for stock based compensation. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transaction, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The update is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted, provided that, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period, and all amendments are adopted in the same period. Certain detailed transition provisions apply if an entity elects to early adopt. Management is currently evaluation the impact of this standard 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. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [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 of submission to the credit card processor. For each of the periods ended March 31, 2016 and December 31, 2015, credit card receivables were $1.9 million and $0.4 million, respectively, and cash and cash equivalents held in bank accounts in foreign countries totaled $30.4 million and $31.3 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) Australia building lease collateral. As of March 31, 2016 and December 31, 2015, our total restricted cash was $8.3 million and $8.1 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 March 31, 2016 and December 31, 2015, receivables consisted primarily of amounts due from members and independent 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. At March 31, 2016 and December 31, 2015, the Company held an allowance for doubtful accounts of $0.4 million and $0.3 million, respectively. |
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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, 2016 and December 31, 2015, other assets were $3.9 million and $3.8 million, respectively, and primarily consisted of deposits for building leases in various locations of $2.0 million and $1.9 million, respectively. Additionally, included in the March 31, 2016 and December 31, 2015 balances was $1.6 million 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 the March 31, 2016 and December 31, 2015 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 $1.9 million and $1.8 million at March 31, 2016 and December 31, 2015, respectively, 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, 2016, the current portion was $1.0 million and the long-term portion was $0.9 million. |
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Other Long-Term Liabilities | Other Long-Term Liabilities Other long-term liabilities were $2.0 million at each of March 31, 2016 and December 31, 2015. At each of March 31, 2016 and December 31, 2015, the Company recorded $0.7 million in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes of the Company’s 10-K, filed March 15, 2016). 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, 2016 and December 31, 2015, accrued restoration costs related to these leases amounted to $0.5 million and $0.4 million, respectively. At each of March 31, 2016 and December 31, 2015, 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 $0.5 million (see Note 10, Employee Benefit Plans, of the Company’s 10-K, filed March 15, 2016). |
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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, 2016 and December 31, 2015, the Company’s deferred revenue was $9.9 million and $8.7 million, respectively. When participating in the Company’s loyalty program, customers earn loyalty points from qualified automatic orders that can be applied to future purchases. The Company defers the dollar equivalent in revenue of these points until the points are applied, forfeited or expired, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited or expired. The deferred revenue associated with the loyalty program at March 31, 2016 and December 31, 2015 was $8.4 million and $8.1 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. 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 $4.0 million and $3.4 million at March 31, 2016 and December 31, 2015, respectively.
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 for 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, 2016, sales return reserve consisted of the following (in thousands):
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Shipping and Handling | Shipping and Handling 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 and Mexico operations, and changes in the pension obligation for its Japanese employees. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loyalty deferred revenue |
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Sales return reserve | For the three months ended March 31, 2016, sales return reserve consisted of the following (in thousands):
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INVENTORIES (Tables) |
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INVENTORIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventory | Inventories at March 31, 2016 and December 31, 2015, consisted of the following (in thousands):
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STOCK-BASED COMPENSATION (Tables) |
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STOCK-BASED COMPENSATION [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of compensation cost | The Company recognized compensation expense as follows for the three months ended March 31 (in thousands):
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Schedule of unrecognized compensation expense | As of March 31, 2016, 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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Components of accumulated other comprehensive income | The after-tax components of accumulated other comprehensive income, are as follows (in thousands):
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FAIR VALUE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE [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, 2016 and December 31, 2015.
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SEGMENT INFORMATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 progress for the Company and its subsidiaries, as of March 31, 2016 and December 31, 2015, 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 progress, 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, 2016 |
Dec. 31, 2015 |
---|---|---|
INVENTORIES [Abstract] | ||
Raw materials | $ 969 | $ 1,187 |
Finished goods | 11,330 | 9,277 |
Inventory reserves for obsolescence | (1,071) | (1,265) |
Total | $ 11,228 | $ 9,199 |
INCOME TAXES (Details) |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
INCOME TAXES [Abstract] | ||
Effective tax rate | 31.00% | 31.70% |
EARNINGS PER SHARE (Details) - $ / shares shares in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Average common stock close price (in dollars per share) | $ 18.50 | $ 21.36 |
Stock Options [Member] | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive securities excluded from computation of earnings per share (in shares) | 0.1 |
SHAREHOLDERS' EQUITY (Details) $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2016
USD ($)
| ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Beginning balance | $ 686 | |||
Current-period change | 587 | [1] | ||
Ending balance | 1,273 | |||
Foreign Currency Translation [Member] | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Beginning balance | 358 | |||
Current-period change | 587 | [1] | ||
Ending balance | 945 | |||
Pension Postretirement Benefit Obligation [Member] | ||||
Accumulated Other Comprehensive Income (Loss) [Line Items] | ||||
Beginning balance | 328 | |||
Current-period change | 0 | [1] | ||
Ending balance | $ 328 | |||
|
LITIGATION (Details) - USD ($) |
1 Months Ended | ||
---|---|---|---|
Feb. 18, 2015 |
Jan. 31, 2014 |
May. 29, 2015 |
|
Ms. Diana Anselmo and New Day Today Corporation [Member] | Pending Litigation [Member] | |||
Loss Contingencies [Line Items] | |||
Damages sought | $ 1,000,000 | ||
Busan Custom Office [Member] | Pending Litigation [Member] | |||
Loss Contingencies [Line Items] | |||
Damages paid | $ 1,000,000 | ||
Samuel L. Caster and Wonder Enterprises, LLC [Member] | |||
Loss Contingencies [Line Items] | |||
Minimum estimated damages | $ 500,000 | ||
Maximum estimated damages | $ 3,500,000 |
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