x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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13-3714405
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(State or other jurisdiction
of organization)
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(I.R.S. employer
Identification no.)
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Class
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Outstanding at
November 8, 2011
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Common stock, $.001 par value per share
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15,450,185 shares
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Part I - Financial Information:
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||
Item 1 – Financial Statements
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||
Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010 (audited)
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3
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Condensed Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2011 and 2010
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4
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Condensed Consolidated Statements of Changes in Stockholders’ Equity and Accumulated Other Comprehensive Income (unaudited) for the Nine months Ended September 30, 2011
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5
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Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine months Ended September 30, 2011 and 2010
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6
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Notes to Unaudited Condensed Consolidated Financial Statements
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7
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Item 2 - Management’s Discussion and Analysis of Financial Condition And Results of Operations
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14
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Item 3 – Quantitative and Qualitative Disclosures about Market Risk
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23
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Item 4 – Controls and Procedures
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24
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PartII - Other Information:
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Item 1 – Legal Proceedings
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24
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Item 1A – Risk Factors
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25
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Item 5 – Other Information
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25
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Item 6 - Exhibits
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27
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(Unaudited)
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(Audited)
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|||||||
September 30, 2011
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December 31, 2010
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|||||||
ASSETS
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||||||||
Current assets:
|
||||||||
Cash and cash equivalents
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$ | 18,454,000 | $ | 17,165,000 | ||||
Accounts receivable-net of allowance for sales returns and doubtful accounts of $240,000 and $237,000
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1,544,000 | 623,000 | ||||||
Inventory
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19,405,000 | 19,534,000 | ||||||
Investment securities
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18,539,000 | 17,271,000 | ||||||
Income taxes, prepaid
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4,832,000 | 3,266,000 | ||||||
Prepaid expenses and other current assets
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2,154,000 | 2,108,000 | ||||||
Deferred tax assets
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91,000 | 703,000 | ||||||
Total current assets
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65,019,000 | 60,670,000 | ||||||
Property, plant and equipment - net
|
35,635,000 | 30,589,000 | ||||||
Trademarks and intangibles - net
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987,000 | 1,072,000 | ||||||
Other assets
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1,712,000 | 1,728,000 | ||||||
TOTAL ASSETS
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$ | 103,353,000 | $ | 94,059,000 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
Current liabilities:
|
||||||||
Accounts payable and accrued expenses
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21,461,000 | 15,020,000 | ||||||
Current maturities of long-term debt
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881,000 | 944,000 | ||||||
Total current liabilities
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22,342,000 | 15,964,000 | ||||||
Other liabilities
|
||||||||
Long-term debt, net of current portion
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3,957,000 | 4,855,000 | ||||||
Deferred tax liabilities
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5,504,000 | 1,284,000 | ||||||
Total liabilities
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31,803,000 | 22,103,000 | ||||||
Stockholders' Equity:
|
||||||||
Preferred stock, $.001 par value (1,500,000 authorized, no shares issued and outstanding)
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- | - | ||||||
Common stock; par value $.001 per share; 20,000,000 shares authorized; 15,450,185 and 15,431,101 issued and outstanding
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16,000 | 16,000 | ||||||
Additional paid-in capital
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35,607,000 | 32,938,000 | ||||||
Accumulated other comprehensive income
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182,000 | 240,000 | ||||||
Retained earnings
|
59,489,000 | 42,117,000 | ||||||
Less: cost of 1,458,908 and 368,908 shares of common stock in treasury
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(23,744,000 | ) | (3,355,000 | ) | ||||
Total stockholders' equity
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71,550,000 | 71,956,000 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$ | 103,353,000 | $ | 94,059,000 |
Three Months Ended September 30,
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Nine Months Ended September 30,
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|||||||||||||||
2011
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2010
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2011
|
2010
|
|||||||||||||
Revenue
|
$ | 76,067,000 | $ | 67,282,000 | $ | 228,617,000 | $ | 194,527,000 | ||||||||
Cost of sales
|
19,625,000 | 16,823,000 | 56,453,000 | 48,834,000 | ||||||||||||
Gross Profit
|
56,442,000 | 50,459,000 | 172,164,000 | 145,693,000 | ||||||||||||
Selling, general, and administration
|
49,771,000 | 41,411,000 | 146,455,000 | 119,188,000 | ||||||||||||
Income from operations
|
6,671,000 | 9,048,000 | 25,709,000 | 26,505,000 | ||||||||||||
Other income/(expense)
|
||||||||||||||||
Interest income/ (expense), net
|
137,000 | 74,000 | 402,000 | 145,000 | ||||||||||||
Other
|
(6,000 | ) | (41,000 | ) | 115,000 | (151,000 | ) | |||||||||
131,000 | 33,000 | 517,000 | (6,000 | ) | ||||||||||||
Income before income taxes
|
6,802,000 | 9,081,000 | 26,226,000 | 26,499,000 | ||||||||||||
Provision for income taxes
|
(1,733,000 | ) | (3,330,000 | ) | (8,854,000 | ) | (10,310,000 | ) | ||||||||
Net income
|
$ | 5,069,000 | $ | 5,751,000 | $ | 17,372,000 | $ | 16,189,000 | ||||||||
Basic earnings per share
|
$ | 0.37 | $ | 0.41 | $ | 1.24 | $ | 1.15 | ||||||||
Diluted earnings per share
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$ | 0.36 | $ | 0.39 | $ | 1.22 | $ | 1.11 | ||||||||
Weighted average shares outstanding -
|
||||||||||||||||
Basic
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13,782,835 | 14,137,889 | 14,061,371 | 14,032,917 | ||||||||||||
Diluted
|
14,007,947 | 14,769,170 | 14,275,452 | 14,644,461 |
Par Value
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Additional
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Accumulated
|
||||||||||||||||||||||||||
Number
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$0.001 |
Paid-In
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Retained
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other comp
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Treasury
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|||||||||||||||||||||||
of Shares
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Amount
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Capital
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Earnings
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income/(loss)
|
Stock
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Total
|
||||||||||||||||||||||
Balance, December 31, 2010
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15,431,101 | $ | 16,000 | $ | 32,938,000 | $ | 42,117,000 | $ | 240,000 | $ | (3,355,000 | ) | $ | 71,956,000 | ||||||||||||||
Share-based compensation to executives and directors
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1,916,000 | 1,916,000 | ||||||||||||||||||||||||||
Share-based compensation tax benefit
|
753,000 | 753,000 | ||||||||||||||||||||||||||
Restricted shares issued to board of directors
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19,084 | |||||||||||||||||||||||||||
Treasury stock purchases
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(20,389,000 | ) | (20,389,000 | ) | ||||||||||||||||||||||||
Comprehensive income:
|
||||||||||||||||||||||||||||
Net income
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17,372,000 | 17,372,000 | ||||||||||||||||||||||||||
Net change in unrealized gain (loss) on investments, net
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(58,000 | ) | (58,000 | ) | ||||||||||||||||||||||||
Comprehensive income
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17,314,000 | |||||||||||||||||||||||||||
Balance at September 30, 2011
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15,450,185 | $ | 16,000 | $ | 35,607,000 | $ | 59,489,000 | $ | 182,000 | $ | (23,744,000 | ) | $ | 71,550,000 |
Nine Months Ended September 30,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
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$ | 17,372,000 | $ | 16,189,000 | ||||
Adjustments to reconcile net income to net cash provided by operating activities from continuing operations:
|
||||||||
Depreciation and amortization
|
5,793,000 | $ | 4,304,000 | |||||
Realized loss on investment securities, net
|
55,000 | 74,000 | ||||||
Share-based compensation
|
1,916,000 | 1,942,000 | ||||||
Deferred income taxes
|
4,832,000 | 244,000 | ||||||
Changes in assets and liabilities which provided (used) cash:
|
||||||||
Accounts receivable
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(874,000 | ) | (188,000 | ) | ||||
Inventory
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130,000 | (6,308,000 | ) | |||||
Prepaid expenses & other current assets
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(93,000 | ) | 1,721,000 | |||||
Other assets
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(639,000 | ) | 762,000 | |||||
Accounts payable and accrued expenses
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6,440,000 | 9,579,000 | ||||||
Income taxes
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(1,566,000 | ) | (867,000 | ) | ||||
Net cash provided by operating activities
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33,366,000 | 27,452,000 | ||||||
Cash Flows from Investing Activities:
|
||||||||
Sale of investment securities
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6,703,000 | 1,978,000 | ||||||
Purchase of investment securities
|
(8,085,000 | ) | (12,614,000 | ) | ||||
Purchase of property and equipment
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(9,847,000 | ) | (8,246,000 | ) | ||||
Purchase of intangible assets
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(259,000 | ) | - | |||||
Net cash used in investing activities
|
(11,488,000 | ) | (18,882,000 | ) | ||||
Cash Flows from Financing Activities:
|
||||||||
Repayment of long-term debt
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(961,000 | ) | (596,000 | ) | ||||
Issuance of long-term debt
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- | 393,000 | ||||||
Decrease in note receivable
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8,000 | 3,000 | ||||||
Excess tax benefits from share-based compensation
|
753,000 | 1,238,000 | ||||||
Proceeds from issuance of common stock
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- | 34,000 | ||||||
Purchase of treasury stock
|
(20,389,000 | ) | (35,000 | ) | ||||
Net cash (used in) provided by financing activities
|
(20,589,000 | ) | 1,037,000 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
1,289,000 | 9,607,000 | ||||||
Cash and cash equivalents - beginning of the period
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17,165,000 | 10,604,000 | ||||||
Cash and cash equivalents - end of period
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$ | 18,454,000 | $ | 20,211,000 | ||||
Supplemental disclosure of cash flow information:
|
||||||||
Interest paid
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$ | 78,000 | $ | 82,000 | ||||
Income taxes paid
|
$ | 4,854,000 | $ | 9,678,000 |
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1.
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Basis of Presentation
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|
2.
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Presentation of Financial Statements
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3.
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Recent Accounting Pronouncements
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4.
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Revenue Recognition
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5.
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Inventories
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2011
|
2010
|
||||||||
Raw Materials
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$ | 4,970,000 | $ | 5,292,000 | |||||
Packaging
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2,370,000 | 2,791,000 | |||||||
Finished Goods
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12,065,000 | 11,451,000 | |||||||
$ | 19,405,000 | $ | 19,534,000 |
6.
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Intangible Assets
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As of September 30, 2011
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As of December 31, 2010
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Weighted-Avg. | ||||||||||||||||
Gross Carrying
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Accumulated
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Gross Carrying
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Accumulated
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Amortization | ||||||||||||||
Amount
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Amortization
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Amount
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Amortization
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Period
|
||||||||||||||
Customer lists
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$ | 235,000 | $ | 109,000 | $ | 235,000 | $ | 50,000 |
3 years
|
|||||||||
Trademarks, patents, and copyrights
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2,312,000 | 1,451,000 | 2,053,000 | 1,166,000 |
7 years
|
|||||||||||||
Total
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$ | 2,547,000 | $ | 1,560,000 | $ | 2,288,000 | $ | 1,216,000 |
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Customer lists
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$ | 20,000 | $ | 13,000 | $ | 59,000 | $ | 38,000 | ||||||||
Trademarks, patents, and copyrights
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94,000 | 60,000 | 285,000 | 181,000 | ||||||||||||
Total trademarks and intangibles
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$ | 114,000 | $ | 73,000 | $ | 344,000 | $ | 219,000 |
7.
|
Earnings per Share
|
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income
|
$ | 5,069,000 | $ | 5,751,000 | $ | 17,372,000 | $ | 16,189,000 | ||||||||
Denominator:
|
||||||||||||||||
Weighted average shares of common stock outstanding
|
13,782,835 | 14,137,889 | 14,061,371 | 14,032,917 | ||||||||||||
Effect of dilutive common stock equivalents
|
225,112 | 631,281 | 214,080 | 611,544 | ||||||||||||
Weighted average diluted common shares outstanding
|
14,007,947 | 14,769,170 | 14,275,452 | 14,644,461 | ||||||||||||
EPS
|
||||||||||||||||
Basic
|
$ | 0.37 | $ | 0.41 | $ | 1.24 | $ | 1.15 | ||||||||
Diluted
|
$ | 0.36 | $ | 0.39 | $ | 1.22 | $ | 1.11 |
September 30, 2011
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
Investment securities
|
$ | 18,539,000 | - | - | $ | 18,539,000 | ||||||||||
Cash equivalents
|
1,426,000 | - | - | 1,426,000 | ||||||||||||
Total Assets
|
$ | 19,965,000 | $ | - | $ | - | $ | 19,965,000 |
December 31, 2010
|
Level I
|
Level II
|
Level III
|
Total
|
||||||||||||
Investment securities
|
$ | 17,271,000 | - | - | $ | 17,271,000 | ||||||||||
Cash equivalents
|
2,017,000 | - | - | 2,017,000 | ||||||||||||
Total Assets
|
$ | 19,288,000 | $ | - | $ | - | $ | 19,288,000 |
|
10.
|
Share-based Compensation
|
Shares
|
Weighed-Average
Grant Date Fair
Value
|
|||||||
Unvested at January 1, 2011
|
786,421 | $ | 5.57 | |||||
Granted
|
19,084 | 22.40 | ||||||
Vested
|
(284,013 | ) | 6.75 | |||||
Forfeited
|
(40,000 | ) | 6.55 | |||||
Unvested at September 30, 2011
|
481,492 | 5.91 |
|
11.
|
Business Segments
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Three Months Ended September 30,2011
|
||||||||||||||||
Medifast
|
MWCC &
Wholesales
|
Other
|
Consolidated
|
|||||||||||||
Revenues
|
$ | 65,624,000 | $ | 10,443,000 | $ | - | $ | 76,067,000 | ||||||||
Cost of Sales
|
17,089,000 | 2,536,000 | - | 19,625,000 | ||||||||||||
Selling,General and Administrative Expense
|
37,083,000 | 9,091,000 | 1,466,000 | 47,640,000 | ||||||||||||
Depreciation and Amortization
|
1,717,000 | 329,000 | 85,000 | 2,131,000 | ||||||||||||
Interest(net) and other
|
10,000 | - | (141,000 | ) | (131,000 | ) | ||||||||||
Income before income taxes
|
$ | 9,725,000 | $ | (1,513,000 | ) | $ | (1,410,000 | ) | $ | 6,802,000 | ||||||
Segment Assets
|
$ | 48,491,000 | $ | 11,364,000 | $ | 43,498,000 | $ | 103,353,000 |
Three Months Ended September 30,2010
|
||||||||||||||||
Medifast
|
MWCC &
Wholesales
|
Other
|
Consolidated
|
|||||||||||||
Revenues
|
$ | 60,179,000 | $ | 7,103,000 | $ | - | $ | 67,282,000 | ||||||||
Cost of Sales
|
15,188,000 | 1,635,000 | - | 16,823,000 | ||||||||||||
Selling,General and Administrative Expense
|
34,789,000 | 3,813,000 | 1,321,000 | 39,923,000 | ||||||||||||
Depreciation and Amortization
|
1,229,000 | 183,000 | 76,000 | 1,488,000 | ||||||||||||
Interest(net) and other
|
2,000 | - | (35,000 | ) | (33,000 | ) | ||||||||||
Income before income taxes
|
$ | 8,971,000 | $ | 1,472,000 | $ | (1,362,000 | ) | $ | 9,081,000 | |||||||
Segment Assets
|
$ | 49,570,000 | $ | 8,398,000 | $ | 33,352,000 | $ | 91,320,000 |
Nine Months Ended September 30,2011
|
||||||||||||||||
Medifast
|
MWCC &
Wholesales
|
Other
|
Consolidated
|
|||||||||||||
Revenues
|
$ | 200,324,000 | $ | 28,293,000 | $ | - | $ | 228,617,000 | ||||||||
Cost of Sales
|
49,738,000 | 6,715,000 | - | 56,453,000 | ||||||||||||
Selling,General and Administrative Expense
|
115,212,000 | 20,912,000 | 4,538,000 | 140,662,000 | ||||||||||||
Depreciation and Amortization
|
4,682,000 | 861,000 | 250,000 | 5,793,000 | ||||||||||||
Interest(net) and other
|
20,000 | - | (537,000 | ) | (517,000 | ) | ||||||||||
Income before income taxes
|
$ | 30,672,000 | $ | (195,000 | ) | $ | (4,251,000 | ) | $ | 26,226,000 | ||||||
Segment Assets
|
$ | 48,491,000 | $ | 11,364,000 | $ | 43,498,000 | $ | 103,353,000 |
Nine Months Ended September 30,2010
|
||||||||||||||||
Medifast
|
MWCC &
Wholesales
|
Other
|
Consolidated
|
|||||||||||||
Revenues
|
$ | 173,730,000 | $ | 20,797,000 | $ | - | $ | 194,527,000 | ||||||||
Cost of Sales
|
44,018,000 | 4,816,000 | - | 48,834,000 | ||||||||||||
Selling,General and Administrative Expense
|
100,470,000 | 10,616,000 | 3,798,000 | 114,884,000 | ||||||||||||
Depreciation and Amortization
|
3,450,000 | 623,000 | 231,000 | 4,304,000 | ||||||||||||
Interest(net) and other
|
99,000 | - | (93,000 | ) | 6,000 | |||||||||||
Income before income taxes
|
$ | 25,693,000 | $ | 4,742,000 | $ | (3,936,000 | ) | $ | 26,499,000 | |||||||
Segment Assets
|
$ | 49,570,000 | $ | 8,398,000 | $ | 33,352,000 | $ | 91,320,000 |
|
12.
|
Income Taxes
|
13.
|
Contingencies
|
|
·
|
Commissions – The primary way a health coach is compensated is through earning commissions on product sold. Health coaches earn commissions by referring product sales through their own replicated website or through the Company’s in-house call center. The clients of health coaches are responsible for ordering and paying for product, and their order is shipped directly from the Company to a client’s home or designated address. Our health coaches do not handle payment and are not required to purchase or store product in order to receive a commission. In addition, health coaches do not receive a commission on their product orders for their personal use. Health coaches pay the same price for products as their clients. The Company pays retail commissions on a weekly basis.
|
|
·
|
Bonuses – health coaches are offered several bonus opportunities, including growth bonuses, generation bonuses, elite leadership bonuses, rolling consistency bonuses, client acquisition bonuses, and customer assist bonuses. The purposes of these bonuses are to reward health coaches for successfully referring product sales to the Take Shape for Life network and to incentivize health coaches to further develop health coaches within their network. The Company pays bonuses on a monthly basis.
|
|
o
|
Growth bonuses are paid to health coaches who have at least five ordering clients per month and that have generated over $1,000 in product sales per month. Monthly growth bonuses are incremental bonuses that enable health coaches to earn income on product orders placed by clients or health coaches within their network.
|
|
o
|
Generation bonuses are paid to health coaches that have one or more health coaches in their business that have achieved the rank of executive director. An executive director is a health coach that either generates $6,000 a month in frontline product sales to either clients or personally sponsored health coaches or personally sponsors five senior health coaches. A senior health coach is a health coach that generates at least $1,000 a month in group product sales from a combination of at least five personally enrolled, ordering clients, and/or health coaches, health coach teams, or a combination of both.
|
|
o
|
Elite leadership bonuses are paid to health coaches that have three or more health coaches in their business that have achieved the rank of executive director.
|
|
o
|
Rolling consistency bonuses are paid to health coaches that display frontline product sales order consistency month after month. Health coaches that generate at least $2,000 or more in frontline product sales for three consecutive months are paid a rolling consistency bonus.
|
|
o
|
Client acquisition bonuses are paid to new health coaches within their first 30 calendar days in Take Shape for Life if they add five clients and generate $1,000 in frontline product sales.
|
|
o
|
Assist bonuses are paid to health coaches who assist a new health coach in their business to attain a client acquisition bonus.
|
|
i.
|
designate the Center’s Protected Territory,
|
|
ii.
|
if the Company has not already approved a site that the franchisee has selected before signing the Franchise Agreement, designate the area within which the franchisee will locate the Center and approve the site the franchisee has selected for the location of the Center.
|
|
iii.
|
if the Company has not already approved a site before signing the Franchise Agreement, review and approve the franchisee lease or purchase agreement for the site for the approved location.
|
|
iv.
|
provide the franchisee with standard plans and specifications for the build-out of the Center along with a list of equipment and improvements which the franchisee is required to purchase and install.
|
|
v.
|
provide an initial training program.
|
|
vi.
|
provide the franchisee on-site assistance and guidance for approximately three (3) to five (5) days during or close to the opening of the Center.
|
|
vii.
|
provide the franchise with online access to a password-protected, electronic version of theMedifast Weight Control Centers® Operations Manual.
|
2011
|
2010
|
$ Change
|
% Change
|
|||||||||||||
Revenue
|
$ | 76,067,000 | $ | 67,282,000 | $ | 8,785,000 | 13 | % | ||||||||
Cost of sales
|
19,625,000 | 16,823,000 | 2,802,000 | 17 | % | |||||||||||
Gross Profit
|
56,442,000 | 50,459,000 | 5,983,000 | 12 | % | |||||||||||
Selling, general, and administration
|
49,771,000 | 41,411,000 | 8,360,000 | 20 | % | |||||||||||
Income from operations
|
6,671,000 | 9,048,000 | (2,377,000 | ) | -26 | % | ||||||||||
Other income/(expense)
|
||||||||||||||||
Interest income (expense), net
|
137,000 | 74,000 | 63,000 | 85 | % | |||||||||||
Other
|
(6,000 | ) | (41,000 | ) | 35,000 | -85 | % | |||||||||
131,000 | 33,000 | 98,000 | 297 | % | ||||||||||||
Income before income taxes
|
6,802,000 | 9,081,000 | (2,279,000 | ) | -25 | % | ||||||||||
Provision for income tax
|
(1,733,000 | ) | (3,330,000 | ) | 1,597,000 | -48 | % | |||||||||
Net income
|
$ | 5,069,000 | $ | 5,751,000 | $ | (682,000 | ) | -12 | % | |||||||
% of revenue
|
||||||||||||||||
Gross Profit
|
74.2 | % | 75.0 | % | ||||||||||||
Selling, general, and administration
|
65.4 | % | 61.5 | % | ||||||||||||
Income from Operations
|
8.8 | % | 13.4 | % |
Nine Months Ended September 30, 2011,
|
||||||||||||||||
2011
|
2010
|
$ Change
|
% Change
|
|||||||||||||
Revenue
|
$ | 228,617,000 | $ | 194,527,000 | $ | 34,090,000 | 18 | % | ||||||||
Cost of sales
|
56,453,000 | 48,834,000 | 7,619,000 | 16 | % | |||||||||||
Gross Profit
|
172,164,000 | 145,693,000 | 26,471,000 | 18 | % | |||||||||||
Selling, general, and administration
|
146,455,000 | 119,188,000 | 27,267,000 | 23 | % | |||||||||||
Income from operations
|
25,709,000 | 26,505,000 | (796,000 | ) | -3 | % | ||||||||||
Other income/(expense)
|
||||||||||||||||
Interest income (expense), net
|
402,000 | 145,000 | 257,000 | 177 | % | |||||||||||
Other
|
115,000 | (151,000 | ) | 266,000 | -176 | % | ||||||||||
517,000 | (6,000 | ) | 523,000 | -8717 | % | |||||||||||
Income before income taxes
|
26,226,000 | 26,499,000 | (273,000 | ) | -1 | % | ||||||||||
Provision for income tax
|
(8,854,000 | ) | (10,310,000 | ) | 1,456,000 | -14 | % | |||||||||
Net income
|
$ | 17,372,000 | $ | 16,189,000 | $ | 1,183,000 | 7 | % | ||||||||
% of revenue
|
||||||||||||||||
Gross Profit
|
75.3 | % | 74.9 | % | ||||||||||||
Selling, general, and administration
|
64.1 | % | 61.3 | % | ||||||||||||
Income from Operations
|
11.2 | % | 13.6 | % |
Net Sales by Segment for the Three Months Ended September 30,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
Segments
|
Sales
|
% of Total
|
Sales
|
% of Total
|
||||||||||||
Medifast
|
$ | 65,624,000 | 86 | % | $ | 60,179,000 | 89 | % | ||||||||
MWCC and Wholesale
|
10,443,000 | 14 | % | 7,103,000 | 11 | % | ||||||||||
Total Sales
|
$ | 76,067,000 | 100 | % | $ | 67,282,000 | 100 | % |
Net Sales by Segment for the Nine Months Ended September 30,
|
||||||||||||||||
2011 | 2010 | |||||||||||||||
Segments
|
Sales
|
% of Total
|
Sales
|
% of Total
|
||||||||||||
Medifast
|
$ | 200,324,000 | 88 | % | $ | 173,730,000 | 89 | % | ||||||||
MWCC and Wholesale
|
28,293,000 | 12 | % | 20,797,000 | 11 | % | ||||||||||
Total Sales
|
$ | 228,617,000 | 100 | % | $ | 194,527,000 | 100 | % | ||||||||
Operating Profit by Segment for the Three Months Ended September 30,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
Segments
|
Profit
|
% of Total
|
Profit
|
% of Total
|
||||||||||||
Medifast
|
$ | 9,725,000 | 143 | % | $ | 8,971,000 | 99 | % | ||||||||
MWCC & Wholesale
|
$ | (1,513,000 | ) | -22 | % | $ | 1,472,000 | 16 | % | |||||||
All Other
|
(1,410,000 | ) | -21 | % | (1,362,000 | ) | -15 | % | ||||||||
Total Operating Profit
|
$ | 6,802,000 | 100 | % | $ | 9,081,000 | 100 | % |
Operating Profit by Segment for the Nine Months Ended September 30,
|
||||||||||||||||
2011
|
2010
|
|||||||||||||||
Segments
|
Profit
|
% of Total
|
Profit
|
% of Total
|
||||||||||||
Medifast
|
$ | 30,672,000 | 117 | % | $ | 25,693,000 | 97 | % | ||||||||
MWCC & Wholesale
|
$ | (195,000 | ) | -1 | % | $ | 4,742,000 | 18 | % | |||||||
All Other
|
(4,251,000 | ) | -16 | % | (3,936,000 | ) | -15 | % | ||||||||
Total Operating Profit
|
$ | 26,226,000 | 100 | % | $ | 26,499,000 | 100 | % |
Period
|
Total Number of Shares
Purchased
|
Average Price Paid
per Share
|
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
|
Maximum Number of Shares
that May Yet Be Purchased
Under the Plans or Programs
|
||||||||||||
July 1- July 31, 2011
|
- | - | - | 775,000 | ||||||||||||
August 1 - August 31, 2011
|
300,000 | 16.17 | 300,000 | 475,000 | ||||||||||||
September 1 - September 30, 2011
|
200,000 | 15.88 | 200,000 | 275,000 |
BY:
|
/S/ MICHAEL S. MCDEVITT
|
November 9, 2011
|
|
Michael S. McDevitt
|
|||
Chief Executive Officer
|
|||
(principal executive officer )
|
|||
BY:
|
/S/ BRENDAN N. CONNORS
|
November 9, 2011
|
|
Brendan N. Connors
|
|||
Chief Financial Officer
|
|||
(principal financial officer)
|
Exhibit Number
|
Description of Exhibit
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
1.
|
I have reviewed this report on Form 10-Q of Medifast, Inc.;
|
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.
|
I am 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.
|
I have disclosed, based on my 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/
|
Michael S. McDevitt
|
Michael S. McDevitt | |
Chief Executive Officer |
1.
|
I have reviewed this report on Form 10-Q of Medifast, Inc.;
|
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.
|
I am 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.
|
I have disclosed, based on my 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/
|
Brendan N. Connors
|
Chief Financial Officer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
(2)
|
The information contained in the report fairly presents, in all material respects, the financial condition and results of the operations of the Company.
|
By:
|
/s/ Michael S. McDevitt
|
|
Michael S. McDevitt
|
||
Chief Executive Officer
|
||
November 9, 2011
|
||
By:
|
/s/ Brendan N. Connors
|
|
Brendan N. Connors
|
||
Chief Financial Officer
|
||
November 9, 2011
|
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WQS
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
Accounts receivable, allowance for sales returns and doubtful accounts | $ 240,000 | $ 237,000 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, authorized | 1,500,000 | 1,500,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 20,000,000 | 20,000,000 |
Common stock, issued | 15,450,185 | 15,431,101 |
Common stock, outstanding | 15,450,185 | 15,431,101 |
Common stock in treasury, shares | 1,458,908 | 368,908 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) | 3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2011 | Sep. 30, 2010 | Sep. 30, 2011 | Sep. 30, 2010 | |
Revenue | $ 76,067,000 | $ 67,282,000 | $ 228,617,000 | $ 194,527,000 |
Cost of sales | 19,625,000 | 16,823,000 | 56,453,000 | 48,834,000 |
Gross Profit | 56,442,000 | 50,459,000 | 172,164,000 | 145,693,000 |
Selling, general, and administration | 49,771,000 | 41,411,000 | 146,455,000 | 119,188,000 |
Income from operations | 6,671,000 | 9,048,000 | 25,709,000 | 26,505,000 |
Other income/(expense) | ||||
Interest income/ (expense), net | 137,000 | 74,000 | 402,000 | 145,000 |
Other | (6,000) | (41,000) | 115,000 | (151,000) |
Nonoperating Income (Expense), Total | 131,000 | 33,000 | 517,000 | (6,000) |
Income before income taxes | 6,802,000 | 9,081,000 | 26,226,000 | 26,499,000 |
Provision for income taxes | (1,733,000) | (3,330,000) | (8,854,000) | (10,310,000) |
Net income | $ 5,069,000 | $ 5,751,000 | $ 17,372,000 | $ 16,189,000 |
Basic earnings per share | $ 0.37 | $ 0.41 | $ 1.24 | $ 1.15 |
Diluted earnings per share | $ 0.36 | $ 0.39 | $ 1.22 | $ 1.11 |
Weighted average shares outstanding - | ||||
Basic | 13,782,835 | 14,137,889 | 14,061,371 | 14,032,917 |
Diluted | 14,007,947 | 14,769,170 | 14,275,452 | 14,644,461 |
Document and Entity Information | 9 Months Ended | |
---|---|---|
Sep. 30, 2011 | Nov. 08, 2011 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Trading Symbol | MED | |
Entity Registrant Name | MEDIFAST INC | |
Entity Central Index Key | 0000910329 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 15,450,185 |
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Intangible Assets | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets |
The
Company has acquired certain intangible assets, which include:
customer lists, trademarks, patents, and copyrights. The
customer lists are being amortized over a 3 year period based on
management’s best estimate of the expected useful
life. The costs of trademarks, patents and copyrights
are amortized over 3 to 7 years based on their estimated useful
life.
The
Company’s intangible assets and related amortization included
the following:
Amortization
expense for the three and nine months ended September 30, 2011 and
2010 was as follows:
Amortization
expense is included in selling, general and administrative
expenses.
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Business Segments |
Operating
segments are components of an enterprise about which separate
financial information is available that is regularly reviewed by
the chief operating decision maker about how to allocate resources
and in assessing performance. The Company has two
reportable operating segments: Medifast, and MWCC and
Wholesale. The Medifast reporting segment consists of
the following distribution channels: Medifast
Direct and Take Shape for Life. The MWCC and Wholesale segment
consists of Medifast Corporate and Franchise Weight Control Centers
as well as Medifast Wholesale Physicians.
Total
assets and operating expenses not identified with a specific
segment are listed as “Other” and include items such as
auditors’ fees, attorney’s fees, stock compensation
expense and corporate governance related to NYSE, Sarbanes Oxley,
and SEC regulations. Evaluation of the performance
of operating segments is based on their respective income from
operations before taxes. The accounting policies of the segments
are the same as those of the Company. The presentation
and allocation of assets, liabilities and results of operations may
not reflect the actual economic costs of the segments as
stand-alone businesses. If a different basis of allocation were
utilized, the relative contributions of the segments might differ,
but management believes that the relative trends in segments would
likely not be impacted.
We
previously included Medifast Weight Control Centers in
“Other” segment, however, in 2010 due to the Weight
Control Centers growth we separated this segment along with the
Medifast Wholesale Physicians. In addition, we
reclassified segment amounts for the prior periods.
The following tables present segment
information for the three and nine months ended September 30, 2011
and 2010:
|
Presentation of Financial Statements | 9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2011 | ||||
Presentation of Financial Statements |
The
Company’s condensed consolidated financial statements include
the accounts of Medifast, Inc. and its wholly-owned
subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
|
Estimates | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Estimates | 8. Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from
those estimates.
|
Contingencies | 9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2011 | ||||
Contingencies |
The
Company has assessed certain non-income tax contingencies in
accordance with ASC 450, Accounting for Contingencies, that
management believes could be potentially challenged by tax
authorities. During the ordinary course of business, there are many
transactions for which the ultimate tax determination is
uncertain. These potential exposures result from the
varying application of statutes, rules, regulations and
interpretations. Our assessment reflects assumptions and judgments
about potential actions by taxing jurisdictions. We believe that
these assumptions and judgments are reasonable; however, our
assessment of tax exposures in the future due to new developments
may alter our current position on loss contingencies. A
successful assertion by one or more states regarding taxes could
result in substantial tax liabilities and have a material impact on
operating results or cash flows in the periods for which that
determination is made.
The
Company from time to time is involved in legal proceeding and with
claims arising in the ordinary course of
business. Although it is not possible to determine the
outcome of these matters, it is management’s opinion that
estimated likely resolutions of such claims will not have a
material adverse effect on the Company’s financial condition
or results in operations.
Medifast,
Inc. filed a civil complaint on February 17, 2010 in the U.S.
District Court (SD, Cal) against Barry Minkow, his Fraud Discovery
Institute, Inc., its subsidiary iBusiness Reporting, its editor
William Lobdell, as well as Tracy Coenen, her Sequence, Inc.,
“Zee Yourself”, and Robert L. Fitzpatrick for
defamation and violations of California Corporation Code Sections
25400 et seq and 17200 et seq, alleging a scheme of market
manipulation of Medifast stock for Defendants’ monetary
gain, by damaging the business reputation of Medifast, Inc.
(MED-NYSE) and its meal replacement weight loss
products. Bradley T. MacDonald, Executive Chairman of
Medifast, who is also a large shareholder of the Company, joined
the lawsuit individually. The suit seeks at least $270 million in
compensatory damages, punitive damages, and ancillary relief. The
Company also continues to pursue its pending complaints filed in
March, 2009 with the SEC, Maryland Securities Commissioner, and the
U.S. Attorney against most of these same named defendants with
respect to the related matter.
In
early 2010, the Chapter 7 Bankruptcy Trustee for Go Fig, Inc. et
al., Debtors, filed an adversary civil proceeding in the US
Bankruptcy Court (ED, Missouri) against Jason Pharmaceuticals,
Inc., a subsidiary of Medifast, Inc. (MED-NYSE), and other
unrelated entities seeking to recover, as to each, alleged
preferential payments. Jason Pharmaceuticals sold product received
by the Debtors and has previously filed a pending claim in the same
bankruptcy. Medifast disputes the Trustee’s allegations and
intends to vigorously defend itself. This action has
been by Court order placed on hold while the Trustee litigates
similar issues against another Party.
Since
2010, Jason Pharmaceuticals has received five Notices of Charge of
Discrimination filed with the US EEOC alleging discrimination
suffered by 2 current employees and 3 former employees. The EEOC
dismissed two of those charges in the second quarter of 2011. The
EEOC dismissed another charge claim in the third quarter of 2011.
The two Claimants whose charge claims were dismissed during the
second quarter have filed suit to pursue those claims in US
District Court. The Company intends to vigorously defend
against the remaining claims.
As
reported in the Company’s 10-Q for the first
quarter of 2011, on March 17, 2011, a class action complaint titled
Oren Proter et al. v. Medifast, Inc. et al. (Civil Action
2011-CV-720[BEL]), alleging violations of Sections 10(b) and 20(a)
of the Securities Exchange Act of 1934, as amended (the Exchange
Act), and Rule 10b-5 promulgated under the Exchange Act, was filed
for an unspecified amount of damages in the US District Court,
District of Maryland. The complaint alleges that the
defendants made false and/or misleading statements and failed to
disclose material adverse facts regarding the Company’s
business, operations and prospects. On March 24, 2011, a class
action complaint titled Fred Greenberg v Medifast, Inc., et al
(Civil Action 2011-CV776 [BEL], alleging violations of Sections
10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated
under the Exchange Act, was filed for an unspecified amount of
damages in the US District Court, District of Maryland. The
complaint alleges that the defendants made false and/or misleading
statements and failed to disclose material adverse facts regarding
the Company’s business, operations and
prospects. On July 19, 2011, the US District Judge
ordered the consolidation of the cases and appointment of co-lead
counsel among other matters. The Greenberg
case was dismissed without prejudice. The Plaintiffs subsequently
filed an Amended Complaint. The Company has reviewed its
allegations and intends to vigorously defend against that
Complaint.
As
reported in the Company’s Form 10-Q for the first quarter of
2011, on April 1, 2011, a shareholder derivative complaint titled
Shane Rothenberger, derivatively on behalf of Medifast, Inc., v
Bradley T. MacDonald et al. (Civil Action 2011-CV 863 [BEL]); and
on April 11, 2011, a shareholder derivative complaint titled James
A. Thompson, derivatively on behalf of Medifast, Inc., v Bradley T.
MacDonald et al. (Civil Action 2011-CV934 [BEL]) were filed in the
US District Court, District of Maryland. The identically worded
complaints allege breach of fiduciary duties, unjust enrichment,
abuse of control, gross mismanagement, and waste of corporate
assets. Each complaint requests an unspecified amount of
damages, a Court Order directing reformation of corporate
governance, restitution to the Company and payment of costs
and disbursements. The Company is named as a nominal
defendant. On July 19, 2011, the US District Judge ordered
consolidation of the two cases, appointment of co-lead counsel, and
the filing of a consolidated complaint, among other
matters. No response is due from the Company at this
time. After the consolidated complaint is filed, the
Company intends to take whatever action it deems necessary to
protect its interests.
|
Fair Value Measurements | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | 9. Fair
Value Measurements
Certain
financial assets and liabilities are accounted for at fair value,
which is defined as the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The following
fair value hierarchy prioritizes the inputs used to measure fair
value:
Level
1 – Quoted prices are available in active markets for
identical assets or liabilities as of the reporting date. Active
markets are those in which transactions for the asset or liability
occur in sufficient frequency and volume to provide pricing
information on an ongoing basis.
Level
2 – Pricing inputs are other than quoted prices in active
markets included in level 1, which are either directly or
indirectly observable as of the reporting date. Level 2 includes
those financial instruments that are valued using models or other
valuation methodologies.
Level
3 – Pricing inputs include significant inputs that are
generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in
management’s best estimate of fair value from the perspective
of a market participant.
The
Company’s financial instruments include cash and cash
equivalents, trade receivables, investment in available-for-sale
securities and debt. The carrying amounts of cash and cash
equivalents and trade receivables approximate fair value due to
their short maturities. The fair value of investment in
available for-sale securities are based on quoted market
rates. The carrying amount of debt approximates fair value
due to the variable rate associated with the debt.
The
following table represents the fair value hierarchy for those
financial assets measured at fair value on a recurring basis as of
September 30, 2011 and December 31, 2010:
|
Earnings per Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Share |
Basic
earnings per share (“EPS”) computations are calculated
utilizing the weighted average number of common shares outstanding
during the periods presented. Diluted EPS is calculated utilizing
the weighted average number of common shares outstanding adjusted
for the effect of dilutive common stock equivalents.
The
following table sets forth the computation of basic and diluted EPS
for the three and nine months ended September 30:
|
Recent Accounting Pronouncements | 9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2011 | ||||
Recent Accounting Pronouncements |
In
January 2010, the FASB issued authoritative guidance revising
certain disclosure requirements concerning fair value measurements.
The guidance requires an entity to disclose separately significant
transfers into and out of Levels 1 and 2 of the fair value
hierarchy and to disclose the reasons for such transfers. It also
requires the presentation of purchases, sales, issuances and
settlements within Level 3, on a gross basis rather than a net
basis. These new disclosure requirements were effective for the
Company beginning with its first fiscal quarter of 2010, except for
the additional disclosure of Level 3 activity, which is effective
for fiscal years beginning after December 15, 2010. The
Company did not have any such transfers into and out of Levels 1
and 2 during the twelve months ended December 31, 2010. The Company
is currently evaluating the full impact of this guidance, but does
not expect it to have a material impact on the disclosures in its
consolidated financial statements in future filings.
In
May 2011, the FASB issued ASU 2011-4, Amendments to Achieve Common
Fair Value Measurements and Disclosure Requirements in U.S. GAAP
and IFRS, which amended Accounting Standards Codification (ASC)
820, Fair Value Measurements and Disclosures, to converge the fair
value measurement guidance in generally accepted accounting
principles in the United States (GAAP) and International Financial
Reporting Standards (IFRSs). Some of the amendments
clarify the application of existing fair value measurement
requirements, while other amendments change a particular principle
in ASC 820. In addition, ASU 2011-04 requires additional
fair value disclosures. The amendments are to be applied
prospectively and are effective for annual periods beginning after
December 15, 2011. Management is currently evaluating
the effect that the provisions of ASU 2011-04 will have on the
Company’s financial statements.
In
June 2011 The Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2011-05 Comprehensive Income
(Topic 220): Presentation of Comprehensive Income. The Update is
intended to increase the prominence of other comprehensive income
in financial statements. The ASU will supersede
some of the guidance in Topic 220 of the accounting Codification.
The main provisions of this Update provide that an entity that
reports items of other comprehensive income has the option to
present comprehensive income in either one or two consecutive
financial statements. The option in current GAAP that
permits the presentation of other comprehensive income in the
statement of changes in equity has been eliminated. The
amendments required will be applied retrospectively. The
amendments are effective for fiscal years, and interim periods
within those years, beginning after December 15, 2011. The Company
is currently reviewing its reporting options to determine its
method of presentation upon adoption.
|
Revenue Recognition | 9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2011 | ||||
Revenue Recognition |
Revenue
is recognized net of discounts, rebates, promotional adjustments,
price adjustments, and estimated returns and upon transfer of title
and risk to the customer which occurs at shipping (F.O.B.
terms). Upon shipment, the Company has no further
performance obligations and collection is reasonably assured as the
majority of sales are paid for prior to
shipping. Medifast Weight Control Center program fees
are recognized over the estimated service period.
|
Income Taxes | 9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2011 | ||||
Income Taxes |
Income
tax expense for the quarter ended September 30, 2011 was $1.7
million, resulting in an effective rate of 25.5%. For the
third quarter of 2010, income tax expense was $3.3 million,
resulting in an effective tax rate of
36.7%. The
decline in the effective tax rate in the third quarter of 2011 was
a result of extensive state tax planning strategies implemented
along with increasing certain tax credits available to the Company
for 2010 and open tax years (amended returns filed for prior
years). As a manufacturing entity based in Maryland,
the Company adopted the single sales factor apportionment method
and claimed new state job credits on its tax returns. These
state tax strategies and tax credits resulted in favorable
adjustments when the Company filed its 2010 federal and state tax
returns in mid-September 2011 as compared to the estimated tax
provision prepared as of year-end 2010.
|
Inventories | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories |
Inventories
consist principally of packaged meal replacements held in the
Company’s warehouse. Inventory is stated at the lower of cost
or market, utilizing the first-in, first-out method. The cost of
finished goods includes the cost of raw materials, packaging
supplies, direct and indirect labor and other indirect
manufacturing costs. On a quarterly basis, management
reviews inventory for unsalable or obsolete inventory.
Inventories
consist of the following at September 30, 2011 and December 31,
2010:
|
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND ACCUMULATED OTHER COMPREHENSIVE INCOME (USD $) | Total | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated other comp income/(loss) | Treasury Stock |
---|---|---|---|---|---|---|
Beginning Balance at Dec. 31, 2010 | $ 71,956,000 | $ 16,000 | $ 32,938,000 | $ 42,117,000 | $ 240,000 | $ (3,355,000) |
Beginning Balance (in shares) at Dec. 31, 2010 | 15,431,101 | |||||
Share-based compensation to executives and directors | 1,916,000 | 1,916,000 | ||||
Share-based compensation tax benefit | 753,000 | 753,000 | ||||
Restricted shares issued to board of directors | 19,084 | |||||
Treasury stock purchases | (20,389,000) | (20,389,000) | ||||
Comprehensive income: | ||||||
Net income | 17,372,000 | 17,372,000 | ||||
Net change in unrealized gain (loss) on investments, net | (58,000) | (58,000) | ||||
Comprehensive income | 17,314,000 | |||||
Ending Balance at Sep. 30, 2011 | $ 71,550,000 | $ 16,000 | $ 35,607,000 | $ 59,489,000 | $ 182,000 | $ (23,744,000) |
Ending Balance (in shares) at Sep. 30, 2011 | 15,450,185 |
Basis of Presentation | 9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2011 | ||||
Basis of Presentation |
The
condensed unaudited interim consolidated financial statements
included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission.
The condensed consolidated financial statements and notes are
presented as permitted on Form 10-Q and do not contain
information included in the Company’s annual statements and
notes. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not
misleading.
The
results for the three and nine months ended September 30, 2011 are
not necessarily indicative of the results to be expected for the
year ending December 31, 2011 or any other portions
thereof. Certain information in footnote disclosures
normally included in annual financial statements has been condensed
or omitted for the interim periods presented in accordance with the
rules and regulations of the Securities and Exchange Commission
(the “SEC”) for interim consolidated financial
statements.
These
financial statements do not contain all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. However, in the opinion
of management, all adjustments consisting of normal, recurring
adjustments considered necessary for a fair presentation of the
financial position and results of operations have been
included.
The
consolidated balance sheet as of December 31, 2010 is derived from
the audited financial statements included in the Company’s
Annual Report in Form 10-K filed with the Securities and Exchange
Commission for the year ended December 31, 2010 (the 2010 form
10-K), which should be read in conjunction with these consolidated
financial statements.
|
Share-based Compensation | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-based Compensation |
Restricted
Stock
The
Company has issued restricted stock to employees and directors
generally with terms ranging from one to six years. The fair value
is equal to the market price of the Company’s common stock on
the date of grant. Expense for restricted stock is
amortized ratably over the vesting period. The following
table summarizes the restricted stock activity:
The
total restricted stock awards vested and charged against income
during the three months ended September 30, 2011 and 2010 was
$617,000 and $673,000, respectively and $1.9 million for the nine
months ended September 30, 2011 and 2010.The total income tax
benefit recognized in the consolidated statement of income for
these restricted stock awards was approximately $232,000 and
$271,000 for the three months ended September 30, 2011 and 2010,
respectively and $718,000 and $783,000 for the nine months ended
September 30, 2011 and 2010, respectively. The tax benefit
recognized in additional paid-in capital upon vesting of restricted
stock awards was approximately $44,000 and $474,000 for the three
months ended September 30, 2011 and 2010, respectively and $753,000
and $1,238,000 for the nine months ending September 30, 2011 and
2010, respectively. There was approximately $2.8 million of total
unrecognized compensation cost related to restricted stock awards
as of September 30, 2011. The cost is expected to be recognized
over a weighted-average period of approximately 1.5
years.
|
Subsequent Events | 9 Months Ended |
---|---|
Sep. 30, 2011 | |
Subsequent Events | 14. Subsequent
Events
On
November 3, 2011, The Board of Directors announced Bradley T.
MacDonald resigned from the position of Executive Chairman of the
Board effective immediately due to health issues. Mr.
MacDonald will continue as a Director of the Company.
Michael
C. MacDonald, a long-standing Medifast Board member, has been
selected as Bradley T. MacDonald’s
successor. Michael C. MacDonald is the brother of
Bradley T. MacDonald and the uncle of Margaret Sheetz,
Medifast’s President and Chief Operating
Officer. Most recently, Michael C. MacDonald
served as Executive Vice President and President, Contract of
Office Max, Incorporated. Prior to his employment with
Office Max, Mr. MacDonald served in a variety of senior corporate
officer positions for Xerox Corporation including Senior Vice
President of World Wide Operational Effectiveness, President of
Marketing Operations and Global Accounts, and President of Xerox
North America.
Additionally,
Director Jason Groves was appointed Executive Vice President and
General Counsel effective November 17, 2011. Mr. Groves
will remain a Director but will no longer serve as a member of the
Audit Committee. Director John P. McDaniel who meets the
requirements to qualify as an Independent Director was appointed to
the Audit Committee effective October 31, 2011. To align with these
moves, the Company has re-formed the Executive Committee of the
Board of Directors. The Executive Committee will be
chaired by Executive Chairman Michael C. MacDonald with Directors
Barry B. Bondroff, Jason L. Groves, Michael S. McDevitt, Jeannette
M. Mills and Margaret Sheetz as members.
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