1A of this Report.
| 2 | ||
Page | ||||
PART I | ||||
| Item 1 | Business | 4 | ||
| Item 1A | Risk Factors | 17 | ||
| Item 1B | Unresolved Staff Comments | 21 | ||
| Item 2 | Properties | 21 | ||
| Item 3 | Legal Proceedings | 21 | ||
| Item 4 | Mine Safety Disclosure | 21 | ||
PART II | ||||
| Item 5 | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 22 | ||
| Item 6 | Selected Financial Data | 24 | ||
| Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | ||
| Item 7A | Quantitative and Qualitative Disclosures about Market Risk | 32 | ||
| Item 8 | Financial Statements and Supplementary Data | 33 | ||
| Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 33 | ||
| Item 9A | Controls and Procedures | 33 | ||
| Item 9B | Other Information | 35 | ||
PART III | ||||
| Item 10 | Directors, Executive Officers and Corporate Governance | 36 | ||
| Item 11 | Executive Compensation | 36 | ||
| Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 36 | ||
| Item 13 | Certain Relationships and Related Transactions, and Director Independence | 36 | ||
| Item 14 | Principal Accounting Fees and Services | 36 | ||
PART IV | ||||
| Item 15 | Exhibits and Financial Statement Schedules | 37 | ||
| 3 | ||
MARKETS
Distribution Channels
| 4 | ||
| · | 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 products, and their order is shipped directly from the Company to the client’s home or designated address.Our Health Coaches do not handle payments and are not required to purchase or store products in order to receive a commission.In addition, Health Coaches do not receive a commission on their own personal product orders. Health Coaches pay the same price for products as their clients.The Company pays retail commissions to qualified Health Coaches on a weekly basis. |
| · | Bonuses:Health Coaches are offered several bonus opportunities, including client support bonuses, certification bonuses, team growth bonuses, generation bonuses, elite leadership bonuses, |
| o | Client Support bonuses are paid to Health Coaches who have at least 1,200 in frontline product sales to either clients or personally sponsored Health Coaches. These are incremental bonuses based on the Health Coach frontline product sales performance. |
| o | Certification bonus are paid to Health Coaches who have purchased the COPE online certification course, completed the course work and passed a final examination. This bonus is earned on all frontline product sales starting in the month certification status is obtained. |
| o | Team growth bonuses are paid to Health Coaches who have at least five ordering clients per month and who have generated over $1,200 in group product sales per month.Monthly growth bonuses are incremental bonuses that enable Health Coaches to earn income on product orders placed by clients and/or Health Coach teams within their network. |
| o | Generation bonuses are paid to Health Coaches who qualify as an “Executive Director” and have one or more Health Coaches in their business who have achieved the rank of Executive Director.An “Executive Director” is a Health Coach who has obtained five Qualifying Points. “Qualifying Points” are points earned for every $1,200 in frontline product sales generated or every qualified Senior Coach team.A “Senior Coach” is a Health Coach who generates at least $1,200 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 who qualify as an Executive Director and have three or more Health Coaches in their business who have achieved the rank of Executive Director. |
| o | Consistency bonuses are paid to Health Coaches who are certified and maintain frontline product sales and/or qualified Senior Coach team performance with order consistency month after month. Health Coaches who generate at least $2,000 or more in frontline product sales for three consecutive months are paid a Health Coach consistency bonus. Certified Health Coaches who maintain at least $6,000 in frontline product sales, at least $15,000 in group product sales, and qualify five Senior Coach teams for three consecutive months are paid a Fully Integrated Business Coach Consistency Bonus. |
| o | The client acquisition bonuses are paid to new Health Coaches who develop five clients and generate $1,000 in frontline product sales within their first 30 calendar days in Take Shape For Life program. |
| o | The assist bonuses are paid to Health Coaches who assist a newly sponsored Health Coach attain the Client acquisition bonus. |
| · | 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 products, and their order is shipped directly from the Company to the client’s home or designated address.Our Health Coaches do not handle payments and are not required to purchase or store products in order to receive a commission.In addition, Health Coaches do not receive a commission on their own personal product orders. Health Coaches pay the same price for products as their clients.The Company pays retail commissions to qualified Health Coaches on a weekly basis. |
| 5 | ||
| · | Bonuses:Health Coaches are offered several bonus opportunities, including growth bonuses, generation bonuses, elite leadership bonuses, rolling consistency bonuses, client acquisition bonuses, and new Health Coach 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 support and develop other Health Coaches within their network.The Company pays bonuses on a monthly basis to qualified Health Coaches. |
| o | Growth bonuses are paid to Health Coaches who have at least five ordering clients per month and who 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 who have one or more Health Coaches in their business who have achieved the rank of Executive Director.An Executive Director is a Health Coach who either generates $6,000 a month in frontline product sales to either |
| o | Elite leadership bonuses are paid to Health Coaches who have three or more Health Coaches in their business who have achieved the rank of Executive Director. |
| o | Rolling consistency bonuses are paid to Health Coaches who display frontline product sales with order consistency month after month. Health Coaches who 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 who develop five |
| o | The assist bonuses are paid to Health Coaches who assist a newly sponsored Health Coach attain the Client acquisition bonus. |
Integrated Compensation Plan in order to:
| · | Align our compensation plan with our evolving business |
| · | Incorporate the concepts of full integration and reward Health Coaches for becoming certified |
| · | Offer more rewards to those Health Coaches who support clients as well as build Health Coach teams |
| · | Ensure that the compensation plan is efficient and rewards Health Coaches appropriately. |
Medifast
Ourfranchisee.
which are subject to MFSI’s approval.
| 6 | ||
| i. | designate the Center’s |
| ii. |
| iii. |
| 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 to five days |
| vii. | provide the franchisee with online access to a password-protected, electronic version of the Medifast Weight Control Centers® Franchise Operations |
No
MEDIFAST WHOLESALE PHYSICIANS-improve their health. Medifast physicians have been implementing the Medifast Program within their practice or clinic since 1980. These physiciansprovider practices carry an inventory of wholesale Medifast products and resell them to patients. They also providepatients while providing appropriate medical monitoring, testing, and support for patients on the Medifast Program. Medifast products and programs have been recommended by over 20,000 doctors since 1980. Many Medifast physicians take advantage of the Medifast Direct or the Take Shape For Life program to support their patient base.
ensure healthy weight loss.
SEASONALITY
The Company's weight management products and programs have historically been subject to seasonality. Traditionally the holiday season in November/December of each year is considered poor for diet control products and services. January and February generally show increases in sales, as these months are considered the commencement of the “diet season.”
INTERNATIONAL
On June 13,
brand. Inventory is shipped to Medix is a leading pharmaceutical manufacturerwithin the United States and distributor in Mexico with over 55 years of experience, specializing in comprehensive health care solutions to aid in the struggle against obesity. Medix offers a wide range of weight control products and also conducts business in Central and South America.
On December 17, 2012resulting revenues are classified as domestic sales for the Company.
Mexico City. Medix now has three weight control centers open in Mexico with plans to expand. In December 2013, Medix opened the first Medifast Weight Control Center in Bogota, Colombia. The Company continuesexpects this relationship to explorecontinue to grow throughout 2014 with the focus on opening centers in additional countries and further penetration in established regions.
presence into Canada in March 2014, opening new channels of distribution. Our current sales are through the Medifast Direct and Medical Provider channels, with the long-term goal of expanding other Medifast channels into Canada.
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| 10 | ||
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8
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Study 9
Reference
Crowell, M. D., Cheskin, L. J., (1993). Multicenter evaluation of health benefits and weight loss on the Medifast weight management program: A statistical review of patient charts.Unpublished Data on File.
Purpose
To retrospectively evaluate the efficacy of a medically supervised, protein-supplemented modified program (Medifast) for weight reduction and to evaluate the impact of weight reduction on coexisting health problems.
Methods
This study provides a systematic evaluation of weight loss data randomly selected from a medically-supervised weight control center. Data was obtained and analyzed from patient medical charts that had completed at least 16 weeks of the program. Outcomes included weight loss, blood pressure, and blood lipids.
Results
The combined sample lost an average of 49.5 ± 24.2 lbs and were in the program an average of 21.3 ± 7.7 weeks. Males lost an average of 64.8 ± 29.2 lbs and females lost an average of 47.3 ± 22.5 lbs. The study found significant reductions in total cholesterol and triglycerides, systolic and diastolic blood pressure, and normalized blood pressure in hypertensive patients.
Conclusions
Medically supervised, protein-sparing meal-replacement programs offer a safe and effective means of weight reduction and are accompanied by significant improvements in coexisting health problems.
A statistical review of patient charts, unpublished data on file. 1993.
Study 10
Reference
Davis, L. M., Cheskin L. J. (2006) Dietary intervention using Medifast meal replacement in pre-bariatric surgery patients: A statistical review of patient charts.Unpublished Data on File.
Purpose
To evaluate the efficacy of a dietary intervention that included a reduced-calorie meal plan utilizing Medifast meal replacements, behavior counseling, and physical activity at achieving weight loss in low-income pre-bariatric surgery patients.
Methods
14 severely obese patients—13 females (11 African Americans, 2 Caucasians) and 1 male (Caucasian)—with a mean BMI of 64.14 kg/m2 (range 40.2kg/m2 to 91.7kg/m2) entered a 6-month weight-control program at the Johns Hopkins Weight Management Center. All patients were Medicaid recipients. The program provided a comprehensive approach to weight control focused on diet, behavior, and physical activity. Portion-controlled meal replacements (MRs) supplied by Medifast were utilized as part of the dietary-behavior intervention. All subjects met with a licensed dietitian and were prescribed a 1,000-1,200 kcal/day diet plan incorporating up to 6 MRs/day. Only 1 subject chose not to incorporate meal replacements as part of a low-calorie diet plan. The average intake of meal replacements was 2.5-3 per day through the duration of the study.
Results
After 6 months on the program, patients lost an average of 26.73 lbs (-2.86kg/m2) and 6.96% of their body weight. A high level of satisfaction was reported with their diet plan. Program completers at 1 month were N=13, at 3 months N=12, and 6 months N=10.
Conclusions
Bariatric surgical candidates who enter weight control programs to lose weight pre-operatively have been shown to have lower rates of morbidity and mortality. We have demonstrated that use of meal replacements preoperatively is effective at achieving significant weight loss, and can thus be expected to improve immediate and longer-term results in bariatric surgery patients.
A statistical review of patient charts, unpublished data on file. 2006.
Reference
Tchernof, A., Starling, R., Turner, A., Shuldiner, A. R., Watson, J. D., Silver, K., Poehlman, E. T. (2000). Impaired capacity to lose visceral adipose tissue during weight reduction in obese postmenopausal women with the Trp64Arg beta3-adrenoceptor gene variant.Diabetes,49, 1709-1713.
Purpose
To examine the effect of the Trp64Arg gene variant on total and visceral adipose tissue loss, and cardiovascular risk factors in response to weight reduction among 24 obese women (age 57 ± 4 yrs) in a 13 ± 3 mos weight reduction program of 1,200 kcal with or without the inclusion of Medifast.
Methods
Obese, postmenopausal Caucasian women in the greater Burlington, Vermont area were recruited by local advertisement. A total of 491 obese women were screened, of which 38 were heterozygotes for the Trp64Arg variant (allele frequency 0.10). Of this initial cohort, 24 obese women (1 Arg64Arg homozygote, 10 Trp64Arg heterozygotes, and 13 normal homozygotes) completed the weight loss program.
Inclusion criteria were the cessation of menstruation for at least 1 year, a BMI >27 kg/m2, and physical inactivity. Women also had to be nonsmokers and non-diabetic. Other exclusion criteria included atherosclerosis, hypertension (diastolic blood pressure >90 mmHg), orthopedic limitations or history of fractures, weight loss/gain over the previous 6 months, or thyroid or pituitary disease.
Results
No baseline differences were noted in adiposity measurements, glucose disposal, and lipid profiles among carriers and non-carriers of the variant allele. Whether women were carriers or non-carriers of the Trp64Arg allele, significant weight loss (-16.4 ± 5.0kg vs. -14.1 ± 6.2kg, NS) and reductions in body fat (-10.0 ± 5.2 vs. -11.5 ± 3.9kg, NS) were observed in response to a calorie-restricted program with or without Medifast.
However, loss of visceral adipose tissue was 43% lower in carriers of the Trp64Arg allele compared with non-carriers (–46 ± 27 vs. –81 ± 51 cm2, P = 0.05). Furthermore, there was less improvement in the total cholesterol–to–HDL cholesterol ratio (–0.18 ± 0.54 vs. -0.72 ± 0.56, P = 0.04) in carriers compared with non-carriers of the allele. Although glucose disposal improved in both groups, there was no difference in the magnitude of improvement between carriers and non-carriers of the variant allele.
Conclusion
Older women carrying the Trp64Arg B3-adrenoceptor gene variant have an impaired capacity to lose visceral adipose tissue in response to a calorie-restricted diet.
Journal Description:
Diabetes publishes original research about the physiology and pathophysiology of diabetes mellitus. Submitted manuscripts can report any aspect of laboratory, animal, or human research. Emphasis is on investigative reports focusing on areas such as the pathogenesis of diabetes and its complications, normal and pathologic pancreatic islet function and intermediary metabolism, pharmacological mechanisms of drug and hormone action, and biochemical and molecular aspects of normal and abnormal biological processes.
SCIENTIFIC ADVISORY BOARD
In September 2008, Medifast announced the formation of its Scientific Advisory Board.
Medifast The Scientific Advisory Board – 2011 - 2012
is chaired by Lawrence Cheskin, M.D., F.A.C.P.
Associate Professor, associate professor of Health, Behavior, and Society at the Johns Hopkins Bloomberg School of Public Health
Director, and director at Johns Hopkins Weight Management Center
John E. Hayes, Ph.D.,
Assistant Professor of Food Science, Director, Sensory Evaluation Center, The Pennsylvania State University
John P. Foreyt, Ph.D.
Professor, Department of Psychiatry and Behavioral Sciences, Department of Medicine, Baylor College of Medicine
George A. Bray, M.D.
Boyd Professor, Pennington Biomedical Research Center at Louisiana State University
Slyvia B. Rowe, M.A.
President, S.R. Strategy, LLC
Adjunct Professor, University of Massachusetts Amherst
Adjunct Professor, Tufts Friedman School of Nutrition Science and Policy
Mark Messina, Ph.D.
Adjunct Associate Professor, Department of Nutrition, School of Public Health, Loma Linda University
President, Nutrition Matters, Inc.
Param Dedhia, M.D.
Physician of Integrative Medicine, Canyon Ranch
Center.
COMPETITION
The Company’s other
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soups.
that meet consumer demand.
| 15 | ||
| 16 | ||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
| 2012 | ||||||||||||||||
| Revenue | $ | 88,924,000 | $ | 93,571,000 | $ | 90,968,000 | $ | 83,243,000 | ||||||||
| Gross Profit | 66,755,000 | 70,140,000 | 68,336,000 | 62,804,000 | ||||||||||||
| Income before income taxes | 6,333,000 | 5,502,000 | 8,979,000 | 3,644,000 | ||||||||||||
| Net Income | 3,990,000 | 2,813,000 | 7,208,000 | 1,865,000 | ||||||||||||
| Earnings per common share- diluted | 0.29 | 0.20 | 0.52 | 0.13 | ||||||||||||
| 2011 | ||||||||||||||||
| Revenue | $ | 74,295,000 | $ | 78,255,000 | $ | 76,067,000 | $ | 69,572,000 | ||||||||
| Gross Profit | 56,681,000 | 59,041,000 | 56,442,000 | 52,332,000 | ||||||||||||
| Income before income taxes | 10,281,000 | 9,142,000 | 6,802,000 | 1,455,000 | ||||||||||||
| Net Income | 6,358,000 | 5,944,000 | 5,069,000 | 1,170,000 | ||||||||||||
| Earnings per common share- diluted | 0.44 | 0.41 | 0.36 | 0.08 | ||||||||||||
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||
| 2013 | |||||||||||||
| Revenue | $ | 96,043,000 | $ | 97,072,000 | $ | 86,480,000 | $ | 77,291,000 | |||||
| Gross Profit | 72,409,000 | 72,930,000 | 64,853,000 | 57,654,000 | |||||||||
| Income before income taxes | 8,710,000 | 10,878,000 | 7,878,000 | 6,721,000 | |||||||||
| Net Income | 5,933,000 | 7,073,000 | 5,673,000 | 5,290,000 | |||||||||
| Earnings per common share- diluted | 0.43 | 0.51 | 0.41 | 0.39 | |||||||||
| 2012 | |||||||||||||
| Revenue | $ | 88,924,000 | $ | 93,571,000 | $ | 90,968,000 | $ | 83,243,000 | |||||
| Gross Profit | 66,755,000 | 70,140,000 | 68,336,000 | 62,804,000 | |||||||||
| Income before income taxes | 6,333,000 | 5,502,000 | 8,979,000 | 3,644,000 | |||||||||
| Net Income | 3,990,000 | 2,813,000 | 7,208,000 | 1,865,000 | |||||||||
| Earnings per common share- diluted | 0.29 | 0.20 | 0.52 | 0.13 | |||||||||
Since we cannot exert the same level
us.
| 17 | ||
| 18 | ||
| 19 | ||
stockholders.
| · | Economic and political instability; |
| · | Import or export licensing requirements; |
| · | Trade restrictions; |
| 20 | ||
| · | Product registration requirements; |
| · | Longer payment cycles; |
| · | Changes in regulatory requirements and tariffs; |
| · | Fluctuations in currency exchange rates; |
| · | Potentially adverse tax consequences; and |
| · | Potentially weak protection of intellectual rights. |
On July 20, 2012, Jason Pharmaceuticals, Inc., a wholly-owned subsidiary of the Company, signed a proposed consent decree with the Federal Trade Commission (“FTC”) in response to the FTC’s investigation of certain statements in the Company’s advertising for its weight-loss programs. On September 17, 2012, the consent decree was entered and approved by the United States District Court for the District of Columbia. The consent decree replaces a previous consent order entered into by Jason Pharmaceuticals, Inc. and the FTC in 1992. The FTC expressed concern that some of the Company’s advertising contained claims which were not compatible with current standards for substantiation. Pursuant to the consent decree, the Company agreed to modify certain advertising claims in this regard and agreed to ensure that its clinical studies meet the protocol contained in the consent agreement. The Company paid a civil penalty of $3.7 million to resolve the FTC’s concerns and avoid protracted legal proceedings.
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 U.S. District Court, District of Maryland. The similarly worded complaints allege breach of fiduciary duties, unjust enrichment, and 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 U.S. District Judge ordered consolidation of the two cases, appointment of co-lead counsel, and the filing of a consolidated complaint, among other matters. No consolidated complaint has been filed, and therefore 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.
On March 17, 2011, a putative 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 U.S. 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 putative 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 U.S. 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 U.S. 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 these allegations, and subsequently filed a Motion to Dismiss which is currently pending.
In early 2010, Defendant FitzPatrick’s motion was denied as to 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 subsidiaryCompany’s defamation claim, and FitzPatrick has appealed that portion of the Court’s ruling. Both appeals have been fully-briefed and oral argument was held on March 5, 2013. To date, no decision has been issued.
The Company and its subsidiaries are periodicallytime, subject to claims or charges filed by former ora variety of litigation and similar proceedings incidental to its business. Based upon the Company’s experience, current employees or employment applicants alleging discrimination or harassment in violation of various federal or state regulations. The Companyinformation and applicable law, it does not believe that anythese proceedings and claims will have a material adverse effect on its results of the pending employment-related claims are material.
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| 2013 | |||||
| Low | High | ||||
| Quarter Ended March 31, 2013 | 22.26 | 28.10 | |||
| Quarter Ended June 30, 2013 | 22.23 | 29.32 | |||
| Quarter Ended September 30, 2013 | 24.85 | 28.88 | |||
| Quarter Ended December 31, 2013 | 23.31 | 27.49 | |||
| 2012 | |||||
| Low | High | ||||
| Quarter Ended March 31, 2012 | 14.78 | 17.67 | |||
| Quarter Ended June 30, 2012 | 16.70 | 20.24 | |||
| Quarter Ended September 30, 2012 | 20.03 | 28.87 | |||
| Quarter Ended December 31, 2012 | 25.41 | 32.28 | |||
| 2011 | ||||||||
| Low | High | |||||||
| Quarter Ended March 31, 2011 | 16.63 | 29.83 | ||||||
| Quarter Ended June 30, 2011 | 15.95 | 26.72 | ||||||
| Quarter Ended September 30, 2011 | 14.46 | 24.36 | ||||||
| Quarter Ended December 31, 2011 | 13.01 | 17.30 | ||||||
On May 29, 2012, Boardassets.
Stock repurchases under this program may be made by brokers through open market and privately negotiated transactions at times and in such amounts as management shall deem appropriate pursuant to Rule 10b-18 of the Exchange Act. The timing and actual number of shares which may be repurchased will depend on a variety of factors including price, corporate authorization provisions, above noted regulatory requirements, and other market conditions.
We are not obligated to purchase any shares. Subject to applicable securities laws repurchases may be made at such times and in such amounts, as our management deems appropriate. The share repurchase program may be discontinued or terminated at any time and we have not established a date for completion of the share repurchase program. The repurchases will be funded from our available cash.
There are 1,125,000 remaining authorized shares that may be repurchased.
No stock repurchases were madepurchases during the quarter ended December 31, 2012.
2013:
| Maximum Number of Shares | ||||||||||
| Total Number | Average | Total Number of Shares | that May Yet Be Purchased | |||||||
| of Shares | Price Paid | Purchased as Part of Publicly | Under the Plans or | |||||||
| Period | Purchased | per Share | Announced Plans or Programs | Programs1,2 | ||||||
| October 1 - October 31, 2013 | - | $ | - | - | 1,125,000 | |||||
| November 1 - November 30, 2013 | 786,000 | $ | 25.46 | 786,000 | 339,000 | |||||
| December 1 - December 31, 2013 | - | $ | - | - | 339,000 |
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| 12/07 | 12/08 | 12/09 | 12/10 | 12/11 | 12/12 | |||||||||||||||||||
| Medifast, Inc. | 100.00 | 113.81 | 630.52 | 595.46 | 282.89 | 544.12 | ||||||||||||||||||
| S&P500 | 100.00 | 63.00 | 79.67 | 91.67 | 93.61 | 108.59 | ||||||||||||||||||
| Peer Group | 100.00 | 63.24 | 88.43 | 122.32 | 169.14 | 133.19 | ||||||||||||||||||
Recent Sales of Unregistered Securities
Since 2010, the Company issued 35,514 unregistered, restricted common shares to its non-employee directors as part of their annual director compensation. In addition, upon his appointment as Executive Chairman, the Company granted Michael C. MacDonald 60,000 unregistered, restricted common shares, which vest in three yearly increments commencing on October 31, 2012.
All of the restricted common shares were issued in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering.
| 12/08 | 12/09 | 12/10 | 12/11 | 12/12 | 12/13 | ||||||||
| Medifast, Inc. | 100.00 | 553.99 | 523.19 | 248.55 | 478.08 | 473.37 | |||||||
| S&P 500 | 100.00 | 126.46 | 145.51 | 148.59 | 172.37 | 228.19 | |||||||
| Peer Group | 100.00 | 139.82 | 193.41 | 267.44 | 210.60 | 356.42 |
| 23 | ||
| 2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||||||
| Revenue | $ | 356,706 | $ | 298,189 | $ | 257,552 | $ | 169,743 | $ | 110,076 | ||||||||||
| Income from Operations | 23,262 | 27,382 | 31,640 | 18,497 | 7,367 | |||||||||||||||
| Income before Income Taxes | 24,458 | 27,680 | 31,692 | 18,424 | 7,018 | |||||||||||||||
| EPS - Basic | $ | 1.16 | $ | 1.33 | $ | 1.39 | $ | 0.84 | $ | 0.33 | ||||||||||
| EPS - Diluted | 1.16 | 1.31 | 1.35 | 0.77 | 0.30 | |||||||||||||||
| Total Assets | $ | 130,251 | $ | 105,665 | $ | 94,059 | $ | 62,960 | $ | 49,925 | ||||||||||
| Current Portion of long-term debt and capital lease facilities | 528 | 1,426 | 944 | 796 | 3,421 | |||||||||||||||
| Total long-term debt and capital leases | 3,809 | 4,251 | 4,855 | 5,444 | 4,313 | |||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||
| Basic | 13,722 | 13,965 | 14,082 | 13,515 | 13,126 | |||||||||||||||
| Diluted | 13,740 | 14,198 | 14,573 | 14,737 | 14,329 | |||||||||||||||
| 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Revenue | $ | 356,886 | $ | 356,706 | $ | 298,189 | $ | 257,552 | $ | 169,743 | ||||||
| Income from Operations | 33,590 | 23,262 | 27,382 | 31,640 | 18,497 | |||||||||||
| Income before Income Taxes | 34,187 | 24,458 | 27,680 | 31,692 | 18,424 | |||||||||||
| EPS - Basic | $ | 1.74 | $ | 1.16 | $ | 1.33 | $ | 1.39 | $ | 0.84 | ||||||
| EPS - Diluted | 1.73 | 1.16 | 1.31 | 1.35 | 0.77 | |||||||||||
| Total Assets | $ | 132,650 | $ | 130,251 | $ | 105,665 | $ | 94,059 | $ | 62,960 | ||||||
| Current Portion of long-term debt and capital lease facilities | 222 | 528 | 1,426 | 944 | 796 | |||||||||||
| Total long-term debt and capital leases | 474 | 3,809 | 4,251 | 4,855 | 5,444 | |||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | 13,774 | 13,722 | 13,965 | 14,082 | 13,515 | |||||||||||
| Diluted | 13,818 | 13,740 | 14,198 | 14,573 | 14,737 | |||||||||||
FORWARD LOOKING STATEMENTS
This document contains forward-looking statements which may involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results and performance in future periods to be materially different from any future results or performance suggested by these statements. These factors include, but are not necessarily limited to those risks set forth in Item 1A of this Annual Report on Form 10-K. Words such as “projects”, “believe”, “plan”, “anticipate” and “expect” and similar expressions are intended to qualify as forward-looking statements. Medifast, Inc. cautions investors not to place undue reliance on forward-looking statements, which speak only to management's expectations on this date. We undertake no obligation to update any forward-looking statements even if actual results may differ from projections.
The following discussion should be read in conjunction with the financial information included elsewhere in this Annual Report on Form10-K.
2007.
| 24 | ||
At December 31, 2012, Medifast Weight Control Centers were operating in eighty-seven corporate locations in Pennsylvania, New Jersey, Delaware, Texas, Florida, Maryland, North Carolina and Virginia, and thirty-five franchise centers were in operation.
2012.
| 25 | ||
CONSOLIDATED RESULTS OF OPERATIONS
| Twelve Months ended December 31, | ||||||||||||||
| 2013 | 2012 | $ Change | % Change | |||||||||||
| Revenue | $ | 356,886,000 | $ | 356,706,000 | $ | 180,000 | 0 | % | ||||||
| Cost of sales | 89,040,000 | 88,671,000 | 369,000 | 0 | % | |||||||||
| Gross Profit | 267,846,000 | 268,035,000 | (189,000) | 0 | % | |||||||||
| Selling, general, and administrative costs | 234,256,000 | 244,773,000 | (10,517,000) | -4 | % | |||||||||
| Income from operations | 33,590,000 | 23,262,000 | 10,328,000 | 44 | % | |||||||||
| Other income | ||||||||||||||
| Interest income, net | 506,000 | 301,000 | 205,000 | 68 | % | |||||||||
| Other expense | 91,000 | 895,000 | (804,000) | -90 | % | |||||||||
| 597,000 | 1,196,000 | (599,000) | -50 | % | ||||||||||
| Income before provision for income taxes | 34,187,000 | 24,458,000 | 9,729,000 | 40 | % | |||||||||
| Provision for income tax expense | 10,218,000 | 8,582,000 | 1,636,000 | 19 | % | |||||||||
| Net income | $ | 23,969,000 | $ | 15,876,000 | $ | 8,093,000 | 51 | % | ||||||
| % of revenue | ||||||||||||||
| Gross Profit | 75.1 | % | 75.1 | % | ||||||||||
| Selling, general, and administrative costs | 65.6 | % | 68.6 | % | ||||||||||
| Income from Operations | 9.4 | % | 6.5 | % | ||||||||||
| 26 | ||
| 27 | ||
| Years Ended December 31, | ||||||||||
| 2013 | 2012 | 2011 | ||||||||
| Income from operations | $ | 33,590,000 | $ | 23,262,000 | $ | 27,382,000 | ||||
| Adjustments | ||||||||||
| Sales Tax Expense Accrual | - | 3,256,000 | - | |||||||
| FTC Settlement Expense | - | 3,700,000 | - | |||||||
| Adjusted Income from operations | $ | 33,590,000 | $ | 30,218,000 | $ | 27,382,000 | ||||
| Years Ended December 31, | ||||||||||
| 2013 | 2012 | 2011 | ||||||||
| Net income | $ | 23,969,000 | $ | 15,876,000 | $ | 18,541,000 | ||||
| Adjustments | ||||||||||
| Sales Tax Expense Accrual | - | 2,026,000 | ||||||||
| FTC Settlement Expense | - | 3,700,000 | - | |||||||
| Adjusted Net Income | $ | 23,969,000 | $ | 21,602,000 | $ | 18,541,000 | ||||
| Diluted earnings per share | $ | 1.73 | $ | 1.16 | $ | 1.31 | ||||
| Impact for adjustments | - | 0.41 | - | |||||||
| Adjusted diluted earnings per share | $ | 1.73 | $ | 1.57 | $ | 1.31 | ||||
| Net Sales by Segment for the years ended December 31, | ||||||||||||||||||
| 2013 | 2012 | 2011 | ||||||||||||||||
| Segments | Sales | % of Total | Sales | % of Total | Sales | % of Total | ||||||||||||
| Medifast | $ | 304,249,000 | 85 | % | $ | 300,511,000 | 84 | % | $ | 259,191,000 | 87 | % | ||||||
| MWCC and Wholesale | 52,637,000 | 15 | % | 56,195,000 | 16 | % | 38,998,000 | 13 | % | |||||||||
| Total Sales | $ | 356,886,000 | 100 | % | $ | 356,706,000 | 100 | % | $ | 298,189,000 | 100 | % | ||||||
| 28 | ||
| Income Before Income Taxes by Segment for the years ended December 31, | ||||||||||||||||||
| 2013 | 2012 | 2011 | ||||||||||||||||
| Segments | Profit | % of Total | Profit | % of Total | Profit | % of Total | ||||||||||||
| Medifast | $ | 39,269,000 | 115 | % | $ | 32,690,000 | 133 | % | $ | 36,210,000 | 131 | % | ||||||
| MWCC and Wholesale | 342,000 | 1 | % | (576,000) | -2 | % | (2,738,000) | -10 | % | |||||||||
| All Other | (5,424,000) | -16 | % | (7,656,000) | -31 | % | (5,792,000) | -21 | % | |||||||||
| Income before income taxes | $ | 34,187,000 | 100 | % | $ | 24,458,000 | 100 | % | $ | 27,680,000 | 100 | % | ||||||
| 29 | ||
| 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||||
| Operating Leases (a) | 4,623,000 | 4,381,000 | 3,508,000 | 1,734,000 | 430,000 | 50,000 | 14,726,000 | |||||||||||||||
| Capital Leases (b) | 248,000 | 248,000 | 248,000 | - | - | - | 744,000 | |||||||||||||||
| Unconditional Purchase Obligations (c) | 804,000 | 677,000 | - | 366,000 | - | - | 1,847,000 | |||||||||||||||
| Total contractual obligations | $ | 5,675,000 | $ | 5,306,000 | $ | 3,756,000 | $ | 2,100,000 | $ | 430,000 | $ | 50,000 | $ | 17,317,000 | ||||||||
| (a) | The Company has operating leases in place for corporate-owned Medifast Weight Control Centers, leased corporate offices, our Texas distribution center, and our new raw materials warehouse as detailed in Note 8 of the notes to the financial statements. |
| (b) | We lease large commercial printers for our printing operations that are accounted for as capital leases, these obligations are detailed in Note 8 of the financial statements. |
| (c) | We enter into long-term contracts with hotel vendors to secure lower rates for our annual Take Shape For Life conventions and other similar events.The balances depicted above represent the estimated cost we would incur should we cancel the event. |
| 30 | ||
| Twelve Months Ended December 31, | ||||||||||||||||
| 2012 | 2011 | $ Change | % Change | |||||||||||||
| Revenue | $ | 356,706,000 | $ | 298,189,000 | $ | 58,517,000 | 20 | % | ||||||||
| Cost of sales | 88,671,000 | 73,693,000 | 14,978,000 | 20 | % | |||||||||||
| Gross Profit | 268,035,000 | 224,496,000 | 43,539,000 | 19 | % | |||||||||||
| Selling, general, and administrative costs | 244,773,000 | 197,114,000 | 47,659,000 | 24 | % | |||||||||||
| Income from operations | 23,262,000 | 27,382,000 | (4,120,000 | ) | -15 | % | ||||||||||
| Other income | ||||||||||||||||
| Interest income, net | 301,000 | 319,000 | (18,000 | ) | -6 | % | ||||||||||
| Other expense | 895,000 | (21,000 | ) | 916,000 | -4362 | % | ||||||||||
| 1,196,000 | 298,000 | 898,000 | 301 | % | ||||||||||||
| Income before provision for income taxes | 24,458,000 | 27,680,000 | (3,222,000 | ) | -12 | % | ||||||||||
| Provision for income tax expense | 8,582,000 | 9,139,000 | (557,000 | ) | -6 | % | ||||||||||
| Net income | $ | 15,876,000 | $ | 18,541,000 | $ | (2,665,000 | ) | -14 | % | |||||||
| % of revenue | ||||||||
| Gross Profit | 75.1 | % | 75.3 | % | ||||
| Selling, general, and administrative costs | 68.6 | % | 66.1 | % | ||||
| Income from Operations | 6.5 | % | 9.2 | % | ||||
| Twelve Months Ended December 31, | ||||||||||||||
| 2012 | 2011 | $ Change | % Change | |||||||||||
| Revenue | $ | 356,706,000 | $ | 298,189,000 | $ | 58,517,000 | 20 | % | ||||||
| Cost of sales | 88,671,000 | 73,693,000 | 14,978,000 | 20 | % | |||||||||
| Gross Profit | 268,035,000 | 224,496,000 | 43,539,000 | 19 | % | |||||||||
| Selling, general, and administrative costs | 244,773,000 | 197,114,000 | 47,659,000 | 24 | % | |||||||||
| Income from operations | 23,262,000 | 27,382,000 | (4,120,000) | -15 | % | |||||||||
| Other income | ||||||||||||||
| Interest income, net | 301,000 | 319,000 | (18,000) | -6 | % | |||||||||
| Other expense | 895,000 | (21,000) | 916,000 | -4362 | % | |||||||||
| 1,196,000 | 298,000 | 898,000 | 301 | % | ||||||||||
| Income before provision for income taxes | 24,458,000 | 27,680,000 | (3,222,000) | -12 | % | |||||||||
| Provision for income tax expense | 8,582,000 | 9,139,000 | (557,000) | -6 | % | |||||||||
| Net income | $ | 15,876,000 | $ | 18,541,000 | $ | (2,665,000) | -14 | % | ||||||
| % of revenue | |||||
| Gross Profit | 75.1 | % | 75.3 | % | |
| Selling, general, and administrative costs | 68.6 | % | 66.1 | % | |
| Income from Operations | 6.5 | % | 9.2 | % |
| 31 | ||
The rollforward of the restructuring charges is as follows:
Restructuring Charges
| Medifast | MWCC & Wholesales | Total | ||||||||||
| Accrued restructuring charges as of December 31, 2011 | $ | - | $ | - | $ | - | ||||||
| Restructuring charges accrued | $ | 335,000 | $ | 388,000 | $ | 723,000 | ||||||
| Payments during the quarter | - | - | - | |||||||||
| Ending balance accrued as of March 31, 2012 | $ | 335,000 | $ | 388,000 | $ | 723,000 | ||||||
| Additional restructuring charges accrued | $ | 37,000 | $ | 43,000 | $ | 80,000 | ||||||
| Payments during the quarter | (269,000 | ) | (360,000 | ) | (629,000 | ) | ||||||
| Ending balance accrued as of June 30, 2012 | $ | 103,000 | $ | 71,000 | $ | 174,000 | ||||||
| Additional restructuring charges accrued | $ | - | $ | - | $ | - | ||||||
| Payments during the quarter | (63,000 | ) | (71,000 | ) | (134,000 | ) | ||||||
| Ending balance accrued as of September 30, 2012 | $ | 40,000 | $ | - | $ | 40,000 | ||||||
| Additional restructuring charges accrued | $ | - | $ | - | $ | - | ||||||
| Payments during the quarter | (40,000 | ) | - | (40,000 | ) | |||||||
| Ending balance accrued as of December 31, 2012 | $ | - | $ | - | $ | - | ||||||
Non-GAAP Financial Measures
In addition to providing results that are determined in accordance with generally accepted accounting principles in the United States, referred to as GAAP, the Company has provided certain financial measures that are not in accordance with GAAP. The Company’s non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share exclude the charges the Company incurred in relation to the anticipated non-tax deductible FTC settlement as well as the charge taken to accrue for sales tax exposures. Because both charges are unique events, not directly related to the Company’s normal operations, the Company believes these non-GAAP financial measures may help investors better understand and compare our operating results and trends by eliminating this component.
The reconciliations of these non-GAAP financial measures are as follows:
| Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Income from operations | $ | 23,262,000 | $ | 27,382,000 | $ | 31,640,000 | ||||||
| Adjustments | ||||||||||||
| Sales Tax Expense Accrual | 3,256,000 | - | - | |||||||||
| FTC Settlement Expense | 3,700,000 | - | - | |||||||||
| Adjusted Income from operations | $ | 30,218,000 | $ | 27,382,000 | $ | 31,640,000 | ||||||
| Years Ended December 31, | ||||||||||||
| 2012 | 2011 | 2010 | ||||||||||
| Net income | $ | 15,876,000 | $ | 18,541,000 | $ | 19,611,000 | ||||||
| Adjustments | ||||||||||||
| Sales Tax Expense Accrual | 2,026,000 | - | - | |||||||||
| FTC Settlement Expense | 3,700,000 | - | - | |||||||||
| Adjusted net income | $ | 21,602,000 | $ | 18,541,000 | $ | 19,611,000 | ||||||
| Diluted earnings per share | $ | 1.16 | $ | 1.31 | $ | 1.35 | ||||||
| Impact for adjustments | 0.41 | - | - | |||||||||
| Adjusted diluted earnings per share | $ | 1.57 | $ | 1.31 | $ | 1.35 | ||||||
The weighted-average diluted shares outstanding used in the calculation of theses non-GAAP financial measures are the same as the weighted-average shares outstanding used in the calculation of the reported per share amounts.
| Weighted average shares outstanding - | ||||||||||||
| Basic | 13,721,997 | 13,965,018 | 14,082,213 | |||||||||
| Diluted | 13,739,824 | 14,198,495 | 14,572,921 | |||||||||
Excluding the impact of the $3.7 million expense for the FTC settlement and the $3.3 million sales tax charge recognized during 2012, income from operations for the year ended December 31, 2012, increased $2.8 million to $30.2 million from $27.4 million for the year ended December 31, 2011. Adjusted net income for the year ended December 31, 2012 increased to $21.6 million from $18.5 million for the year ended December 31, 2011. The costs associated with the FTC settlement are non-deductible for tax purposes and resulted in an increased effective tax rate for the year ended December 31, 2012. Adjusted diluted earnings per share for the year ended December 31, 2012 increased to $1.57 as compared to diluted earnings per share of $1.31 for same period in 2011.
SEGMENT RESULTS OF OPERATIONS
| Net Sales by Segment for the years ended December 31, | ||||||||||||||||||||||||
| 2012 | 2011 | 2010 | ||||||||||||||||||||||
| Segments | Sales | % of Total | Sales | % of Total | Sales | % of Total | ||||||||||||||||||
| Medifast | $ | 300,511,000 | 84 | % | $ | 259,191,000 | 87 | % | $ | 229,879,000 | 89 | % | ||||||||||||
| MWCC and Wholesale | 56,195,000 | 16 | % | 38,998,000 | 13 | % | 27,673,000 | 11 | % | |||||||||||||||
| Total Sales | $ | 356,706,000 | 100 | % | $ | 298,189,000 | 100 | % | $ | 257,552,000 | 100 | % | ||||||||||||
2012 vs. 2011
Medifast Segment: The Medifast segment consists of the sales from Medifast Direct Marketing and Take Shape for Life. As this represents the majority of our business, this is discussed in the “Consolidated Results of Operations” management discussion for 2012 vs. 2011.
The MWCC and Wholesale segment consists of the sales of Medifast Corporate and Franchise Weight Control Centers as well as Medifast Wholesale Physicians and international sales. Sales increased by $17.2 million, or 44% year-over-year due to the opening of nineteen new corporate-owned and five new franchise centers during 2012. The sales increase is also attributable to a 12% increase in the same store sales for Centers open for greater than one year, increased maturity of centers opened in 2011, increased sales to the Company’s franchise centers, and was partially offset by the closure of two corporate-owned centers in 2012.
2011 vs. 2010
Medifast Segment: The Medifast segment consists of the sales from Medifast Direct Marketing and Take Shape for Life. As this represents the majority of our business, this is discussed in the “Consolidated Results of Operations” management discussion for 2011 vs. 2010.
The MWCC and Wholesale segment consists of the sales of Medifast Corporate and Franchise Weight Control Centers as well as Medifast Wholesale Physicians. Sales increased by $11.3 million, or 41% year-over-year due to the opening of thirty-one new corporate-owned centers during 2011. A 13% increase in the same store sales for Centers open for greater than one year and increased sales to the Company’s franchise centers, also contributed to the sales increase. Improved advertising effectiveness, the launching of a new operating system to enhance the customer experience and store operations, and the hiring of more experienced clinic personnel contributed to sales growth in the period. At the end of 2011, there were seventy corporate-owned centers as compared to thirty-nine centers at the end of 2010. The Company had thirty franchise centers in operation as of December 31, 2011 as compared to twenty-one franchise centers at the end of the prior year.
| Income Before Income Taxes by Segment for the years ended December 31, | ||||||||||||||||||||||||
| 2012 | 2011 | 2010 | ||||||||||||||||||||||
| Segments | Profit | % of Total | Profit | % of Total | Profit | % of Total | ||||||||||||||||||
| Medifast | $ | 32,690,000 | 133 | % | $ | 36,210,000 | 131 | % | $ | 30,773,000 | 97 | % | ||||||||||||
| MWCC and Wholesale | (576,000 | ) | -2 | % | (2,738,000 | ) | -10 | % | 6,762,000 | 21 | % | |||||||||||||
| All Other | (7,656,000 | ) | -31 | % | (5,792,000 | ) | -21 | % | (5,843,000 | ) | -18 | % | ||||||||||||
| Income before income taxes | $ | 24,458,000 | 100 | % | $ | 27,680,000 | 100 | % | $ | 31,692,000 | 100 | % | ||||||||||||
See Note 13, “Business Segments” of the financial statements for a detailed breakout of cost of sales, selling, general, and administrative expense, depreciation and amortization, and interest (net) and other.
2012 vs. 2011
Medifast Segment: The Medifast reporting segment consists of the profits of Medifast Direct Marketing and Take Shape for Life. As this represents the majority of our business this is referenced to the “Consolidated Results of Operations” management discussion for 2012 vs. 2011 above.
MWCC and Wholesale Segment: This segment increased net profitability in 2012 as compared to 2011 by $2.2 million. The increase was the result of savings from the staffing re-alignment completed in the first quarter of 2012, increased customer sales, and reduced advertising spend as a percentage of sales for each corporate center.
All Other Segment: The All other segment consists of corporate expenses related to the parent Company operations. Year-over-year parent company expenses increased $1.9 million. This includes the $3.7 million FTC settlement recognized in the second quarter. Excluding that expense, parent company expenses decreased $1.8 million year-over-year, attributable to a decrease of $0.5 million in consulting and legal expenses, a decrease of $0.3 million in stock compensation expense, and a one-time $0.8 million gain in other income associated with a key man insurance proceed for the Company’s former Executive Chairman of the Board of Directors during the second quarter. Corporate expenses include items such as auditors’ fees, attorney’s fees, stock compensation expense and corporate governance related to NYSE, Sarbanes Oxley, and SEC regulations.
2011 vs. 2010
Medifast Segment: The Medifast reporting segment consists of the profits of Medifast Direct Marketing and Take Shape for Life. As this represents the majority of our business this is referenced to the “Consolidated Results of Operations” management discussion for 2011 vs. 2010 below.
MWCC and Wholesale Segment: This segment decreased net profitability in 2011 as compared to 2010 by $9.5 million. The decrease in net profitability is primarily due to the hiring of expertise in key areas to build the internal infrastructure to open new Medifast Weight Control Centers in 2011 and beyond. Hires included regional trainers, district managers, area managers, mobile managers, Dietitians, HR recruiters, operations support, and marketing. In addition, thirty-one new corporate centers were opened in 2011. Start-up costs such as rent, other office expenses and new employee hires contributed to the decreased profitability of the Centers.
The Company is continuing to focus on improved advertising effectiveness in both mature and new MWCC markets and enhancing the customer experience through additional offerings such as metabolic testing the support of a dietitian, and medical review of labs to show members the impact of weight loss on their overall health.
All Other Segment: The All other segment consists of corporate expenses related to the parent Company operations. Year-over-year parent company profitability decreased by $51,000. Corporate expenses include items such as auditors’ fees, attorney’s fees, stock compensation expense and corporate governance related to NYSE, Sarbanes Oxley, and SEC regulations.
Contractual Obligations and Commercial Commitments
The Company has the following contractual obligations as of December 31, 2012:
| 2013 | 2014 | 2015 | 2016 | 2017 | Thereafter | Total | ||||||||||||||||||||||
| Total Debt (a) | $ | 225,000 | $ | 225,000 | $ | 225,000 | $ | 225,000 | $ | 225,000 | $ | 2,213,000 | $ | 3,338,000 | ||||||||||||||
| Operating Leases (b) | 4,570,000 | 4,508,000 | 4,265,000 | 3,409,000 | 1,650,000 | 530,000 | 18,932,000 | |||||||||||||||||||||
| Capital Leases (c) | 338,000 | 248,000 | 248,000 | 248,000 | - | - | 1,082,000 | |||||||||||||||||||||
| Unconditional Purchase Obligations (d) | 95,000 | 458,000 | 368,000 | - | 166,000 | - | 1,087,000 | |||||||||||||||||||||
| Total contractual obligations | $ | 5,228,000 | $ | 5,439,000 | $ | 5,106,000 | $ | 3,882,000 | $ | 2,041,000 | $ | 2,743,000 | $ | 24,439,000 | ||||||||||||||
LIQUIDITY AND CAPITAL RESOURCES
The Company had stockholders’ equity of $90.8 million and working capital of $59.8 million on December 31, 2012 compared with $73.4 million and $43.7 million at December 31, 2011, respectively. The $17.4 million net increase in stockholder’s equity reflects $15.9 million in 2012 profits as well as equity transactions as outlined in the “Consolidated Statement of Changes in Stockholders’ Equity and accumulated other comprehensive income (loss),” offset by the purchase of $2.8 million treasury stock. The Company’s cash and cash equivalents position increased from $14.3 million at December 31, 2011 to $39.9 million at December 31, 2012.
In the year ended December 31, 2012 the Company generated cash flow of $40.3 million from operations, partially attributable to $15.9 million in net operating income. Sources of cash include an increase in payables and accrued expenses of $9.4 million, a decrease in other assets of $0.2 million and an increase of income taxes payable of $4.6 million, depreciation and amortization of $11.2 million, share-based compensation of $2.9 million, and a loss on disposal of fixed assets of $0.1 million. The increase in payables and accrued expenses includes the $3.3 million sales tax accrual. This was offset by a total use of $3.9 million which includes an increase in prepaid expenses and other current assets of $1.0 million, an increase in accounts receivable of $0.7 million, a deferred income tax benefit of $1.3 million, and an increase in inventory of $0.8 million.
In the year ended December 31, 2012, net cash used in investing activities was $11.7 million, which was primarily due to $11.4 million for the purchase of property and equipment. The increase in property and equipment relates to the addition of infrastructure in 2012 to support growth. This included the opening of nineteen new Medifast Weight Control Center locations, infrastructure to support our computer systems and additions to corporate offices, manufacturing, and distribution facilities to support future growth.
In the year ended December 31, 2012, financing activities used $2.9 million in cash. Cash was used to purchase $2.8 million of treasury stock in the open market and to repay $1.4 million in outstanding debt. The Company realized a cash benefit for excess tax benefits from share-based compensation in the amount of $1.3 million.
In pursuing its business strategy, the Company may require additional cash for operating and investing activities. The Company expects future cash requirements, if any, to be funded from operating cash flow and financing activities.
The Company evaluates acquisitions from time to time as presented, but there are no current plans or discussions for acquisitions.
As of December 31, 2012, except for operating leases entered into in the normal course of business, the Company was not party to any material off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
CONSOLIDATED RESULTS OF OPERATIONS
2011 COMPARISON WITH 2010
Overview of the Twelve Months Ended December 31, 2011 Compared to Twelve Months Ended December 31, 2010
| Twelve Months Ended December 31, | ||||||||||||||||
| 2011 | 2010 | $ Change | % Change | |||||||||||||
| Revenue | $ | 298,189,000 | $ | 257,552,000 | $ | 40,637,000 | 16 | % | ||||||||
| Cost of sales | 73,693,000 | 65,083,000 | 8,610,000 | 13 | % | |||||||||||
| Gross Profit | 224,496,000 | 192,469,000 | 32,027,000 | 17 | % | |||||||||||
| Selling, general, and administrative costs | 197,114,000 | 160,829,000 | 36,285,000 | 23 | % | |||||||||||
| Income from operations | 27,382,000 | 31,640,000 | (4,258,000 | ) | -13 | % | ||||||||||
| Other income | ||||||||||||||||
| Interest income, net | 319,000 | 274,000 | 45,000 | 16 | % | |||||||||||
| Other expense | (21,000 | ) | (222,000 | ) | 201,000 | -91 | % | |||||||||
| 298,000 | 52,000 | 246,000 | 473 | % | ||||||||||||
| Income before provision for income taxes | 27,680,000 | 31,692,000 | (4,012,000 | ) | -13 | % | ||||||||||
| Provision for income tax expense | 9,139,000 | 12,081,000 | (2,942,000 | ) | -24 | % | ||||||||||
| Net income | $ | 18,541,000 | $ | 19,611,000 | $ | (1,070,000 | ) | -5 | % | |||||||
| % of revenue | ||||||||
| Gross Profit | 75.3 | % | 74.7 | % | ||||
| Selling, general, and administrative costs | 66.1 | % | 62.4 | % | ||||
| Income from Operations | 9.2 | % | 12.3 | % | ||||
Revenue: Revenue increased to $298.2 million in 2011 compared to $257.6 million in 2010, an increase of $40.6 million or 16%. The Take Shape for Life sales channel accounted for 62.4%, the Medifast Direct channel accounted for 24.5%, and Medifast Weight Control Centers and Medifast Wholesale Physicians accounted for 13.1% of total revenue. Take Shape for Life sales, which are fueled by increased customer product sales as a result of an increase in active Health Coaches, increased by 12% compared to 2010. As compared to 2010, the Medifast Direct Response sales channel, which is fueled primarily by consumer advertising, increased revenues by approximately 14% year-over-year. The Medifast Weight Control Centers and Medifast Wholesale Physicians increased sales by 41% due to the opening of new corporate and franchise locations and year- over- year improvement in same store sales.
Take Shape for Life revenue increased 12% to $186.2 million compared with $165.6 million in 2010. Growth in revenues for the distribution channel was driven by increased customer product sales as a result of an increase in active Health Coaches. The number of active Health Coaches at the end of 2011 increased to approximately 9,600 compared with 9,000 during 2010, an increase of 7%. In today’s environment where trust and personal recommendations are becoming a more important component in consumer purchasing decisions, the Take Shape for Life model of one-on-one communication continues to excel. Take Shape for Life customers who have utilized the Medifast products and programs and successfully have addressed their body weight and health issues are increasingly choosing to become active Health Coaches. Becoming a Health Coach is a business opportunity with a low cost of start-up and requires no holding of inventory as orders are shipped to the end consumer.
The Medifast Direct Response Sales division sales increased 14% to $73.0 million as compared with $64.2 million in 2010, an increase of $8.8 million. Due to a more effective advertising message, more targeted advertising through extensive analytical analysis, and improved call center closing rates, the Company experienced a 2.8-to-1 return on advertising spend during 2011 and 2010.
The Medifast Weight Control Centers and Medifast Wholesale Physicians channel represented approximately 13.1% of the Company’s overall revenues in 2011. At December 31, 2011, Medifast Weight Control Centers were operating in seventy corporate locations in Austin, Dallas, Houston, San Antonio, Orlando, Baltimore, Philadelphia, Northern Virginia, and South Florida, and thirty franchise centers were in operation. In 2011, the Company experienced revenue growth of 41% to $39 million as compared to $27.7 million in 2010, an increase of $11.3 million. In 2011, same store sales increased by 13% for corporate-owned Centers open greater than one year.
Costs of Sales: Cost of sales increased $8.6 million in 2011 to $73.7 million as compared to $65.1 million in 2010. As a percentage of sales, gross margin increased to 75.3% from 74.7% in 2010. The improvement in gross margin percentage resulted in a $1.7 million improvement in gross margin leverage based on 2011 sales volume of $298.2 million. The gross margin improvement was primarily the result of leveraging fixed overhead costs in our manufacturing facility. A modest mid-year price increase in 2011 offset increased raw material, fuel and other transportation charges.
Selling, General and Administrative Costs: Selling, general and administrative expenses increased by $36.3 million compared to 2010. As a percentage of sales, selling, general and administrative expenses increased to 66.1% versus 62.4% in 2010. Take Shape for Life commission expense, which is variable based upon product sales, increased by approximately $9.0 million as Take Shape for Life sales grew 12% as compared to 2010. Take Shape for Life Health Coaches are independent contractors that are paid commissions on product sales referred to the Company. 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 order and payment of product and their order is shipped directly to their home or designated address. Health Coaches are not required to purchase product in order to receive a commission. In addition, Health Coaches do not receive a commission on their personal product orders.
Salaries and benefits increased by approximately $11.5 million in 2011 as compared to 2010. The increase primarily reflects the hiring of regional trainers, district managers, area managers, mobile managers, dietitians, human resource recruiters, operations, and marketing staff to support the opening of 31 new Medifast Weight Control Centers in 2011. There were seventy corporate-owned centers and thirty franchise centers in operation as of December 31, 2011. In late 2010 and throughout 2011, the Company has invested in key executive hires in the areas of Information Technology, Human Resources, Finance and Marketing in order to support growth. The opening of the Company’s new Dallas, Texas distribution center in July of 2010 also led to the hiring of additional personnel in both distribution and the call center. Sales and marketing expense increased by $5.7 million in 2011 as compared to prior year, primarily due to the $3.0 million increase in Medifast Direct advertising as well as increased advertising spend for the Medifast Weight Control Centers. Communication expenses increased $.5 million. Office expenses increased $6.4 million due to higher rent for administrative offices and Medifast Weight Control Centers, information technology consulting fees, insurance, office expenses primarily at the new centers, and higher accounting fees. Other expenses consisting primarily of depreciation and credit card processing fees, increased by $2.6 million.
Income taxes:In 2011, the Company recorded $9.1 million in income tax expense, an effective rate of 33%. In 2010, the Company recorded $12.1 million in income tax expense, an effective rate of 38.1%. The decline in the effective tax rate was a result of extensive tax planning performed by the Company. As part of its tax planning process, the Company amended several returns filed in prior years. As a manufacturing entity based in Maryland, the Company adopted the single sales factor apportionment method in addition to claiming new state job credits, reducing the Company’s overall effective tax rate compared to the prior year.
Net income: Net income was approximately $18.5 million in 2011 as compared to approximately $19.6 million in 2010, a decrease of $1.1 million. Pre-tax profit as a percent of sales decreased to 9.3% in 2011 as compared to 12.3% in 2010. The decrease in profitability in 2011 was primarily a result of the expansion of the corporate Medifast Weight Control Centers. The MWCC and Wholesale segment income before income taxes decreased from a gain of $6.8 million in 2010 to a loss of $2.7 million in 2011, a decrease of $9.5 million. The decrease in net profitability is primarily due to the hiring of expertise in key areas to build the internal infrastructure to open new Medifast Weight Control Centers in 2011 and beyond. Hires included regional trainers, district managers, area managers, mobile managers, dietitians, human resource recruiters, operations support, and marketing. In addition, thirty-one new corporate centers were opened in 2011 which also resulted in decreased profitability attributable to the startup costs as the stores were in the start-up phase during 2011. The decrease in earnings as a result of the MWCC corporate clinic expansion was partially offset by improved profit in the “Medifast” segment as a result of its $29.3 million increase in sales.
INFLATION
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AND FINANCIAL DISCLOSURES
2013.
2013.
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Commission in 1992.
/s/ McGladrey LLP
Baltimore, Maryland
March 15, 2013
| /s/ McGladrey LLP | |
| Baltimore, Maryland | |
| March 17, 2014 |
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EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
Michael C. MacDonald, age 59, Mr. MacDonald joined Medifast’s Executive Committee of the Board of Directors in 1998, was appointed Executive Chairman in November 2011, and was promoted to Chairman & Chief Executive Officer in February 2012. Prior to this role, Mr. MacDonald was Executive Vice President of OfficeMax, overseeing the Contract Division – a $3.6 billion division of the OfficeMax Company. Mr. MacDonald has spent an additional 33 years in sales, marketing, and general management at Xerox Corporation. Among his most significant roles was leading the turnaround in North America from the years 2000 to 2004 as President of the North American Solutions Group, a $6.5 billion division of Xerox. In addition, Mr. MacDonald was President of Global Accounts and Marketing from 2004 to 2007, where he led the re-branding of the Xerox Corporation. Mr. MacDonald also has international experience in marketing, sales, and operations with both Xerox and OfficeMax.
Mr. MacDonald received his Bachelor of Arts, Political Science at Rutgers University, earned 44 MBA Credits at Iona College, and attended premier executive education courses in leadership and management at Harvard and Columbia Universities.
In addition to serving as Chairman and Chief Executive Officer of Medifast, Inc., Mr. MacDonald also serves on the Jimmy V Foundation and the Archdiocese of Baltimore Catholic Community Foundation. Mr. MacDonald is the uncle of Margaret Sheetz.
Margaret Sheetz,age 35, is the President and Chief Operating Officer of Medifast, Inc. In March 2011, Ms. Sheetz also became the Chief Executive Officer of Take Shape for Life. Prior to joining the Company in 2000, she worked with the firm of Carrington, Coleman, Sloman and Blumenthal in Dallas, Texas. As Medifast continues to see strong year-over-year growth, Ms. Sheetz has provided the operational and technical leadership that has resulted in Medifast providing the proper infrastructure to support the growth of the company. Her accomplishments include making dramatic productivity improvement in the Company’s operational capabilities, as well as building a strong infrastructure of distribution, manufacturing, information systems and human resource operations necessary to support rapid business growth. Ms. Sheetz was first selected as a Management Director in 2008 after she had assumed the positions of President and Chief Operating Officer of Medifast, Inc. Her leadership and oversight skills are greatly admired, and she is recognized in the Company as a detail-orientated executive who builds high-performance teams. The Board considers her the source person to get information pertinent to the oversight of Medifast’s operations. Ms. Sheetz is the niece of Michael C. MacDonald.
Ms. Sheetz supports the efforts of the American Diabetes Association, the American Heart Association, and Toys for Tots Foundation. She sits on the Board of Directors for Stevenson University, the Greater Baltimore Committee, Siloam, and is also a member of the Villanova President’s Leadership Circle. In addition, she is the managing trustee of the MacDonald Family Foundation and the Take Shape for Life Foundation which focuses on grants to support educational programs for disadvantaged students. She holds a Bachelor of Arts degree from Villanova University and received an Executive MBA from Loyola University.
Timothy G. Robinson, CPA, age 50, is the Company’s Chief Financial Officer. Mr. Robinson was appointed as the Company’s Chief Financial Officer on February 1, 2013. Prior to joining the Company, Mr. Robinson was Vice President, Business Operations for Canon Business Solutions, Inc. from 2008 – 2013, where he served as a key member of the executive team for this national office products subsidiary of Canon U.S.A. From 1995 to 2008, Mr. Robinson was Vice President, Finance & Administration for Canon Business Solutions-East, Inc. Mr. Robinson was Controller of Dupli-Fax, Inc. from 1989 to 1995 and was a Senior Emerging Business Consultant for Deloitte & Touche from 1985 to 1989. Mr. Robinson received his Bachelor of Science degree in accounting from Villanova University.
Donald Gould, age 55, is the Company’s Executive Vice President for Information Technology. Mr. Gould joined the Company in January 2011. Prior to joining the Company, Mr. Gould worked in information technology at Godiva Chocolatier, Inc. and Campbell Soup Company. Mr. Gould has 30 years of information technology experience with the majority being in the consumer products industry. Mr. Gouldhas managed a variety projects both in the U.S. and internationally, mostly focusing on supply chain and retail operations. Mr. Gould holds a Bachelor of Science degree from Slippery Rock University and a Master of Business Administration degree from Saint Joseph’s University.
Directors
Harvey C. “Barney” Barnum, Jr., age 72, was sworn in as the Deputy Assistant Secretary of the Navy for Reserve Affairs on July 23, 2001. In this capacity he was responsible for all matters regarding the Navy and Marine Corps Reserve including manpower, equipment, policy and budgeting. On January 20, 2009, Barnum was designated Acting Assistant Secretary of the Navy (Manpower and Reserve Affairs), a position he held until May 2009. Mr. Barnum was the fourth Marine to be awarded the nation’s highest honor, the Medal of Honor for valor in Vietnam. He retired from the Marine Corps as a Colonel in August 1989 after 27 and one-half years of service. Mr. Barnum served multiple tours as an artilleryman with both the 3rd and 2nd Marine Divisions to include two tours in Vietnam; 2nd Marine Aircraft Wing; guard officer at Marine Barracks, Pearl Harbor, and operations officer, Hawaiian Armed Forces Police; weapons instructor at the Officer Basic School; four years at Marine Corps Recruit Depot, Parris Island, as commanding officer, Headquarters Company and the 2nd Recruit Training Battalion of the Training Regiment; Chief of Current Operations, US Central Command where he planned and executed the first U.S./Jordanian joint exercise staff as the commander of U.S. Forces and twice planned and executed Operation Bright Star spread over four southwest Asian countries involving 26,000 personnel. Headquarters Marine Corps tours included: aide to the assistant commandant as a captain and deputy director of Public Affairs, Director Special Projects Directorate and Military Secretary to the Commandant as a colonel. Upon retirement in 1989, Mr. Barnum served as the principal director, Drug Enforcement Policy, Office of the Secretary of Defense. Mr. Barnum’s personal medals and decorations include: the Medal of Honor; Defense Superior Service Medal; Legion of Merit; the Bronze Star Medal with Combat “V” and gold star in lieu of a second award; Purple Heart; Meritorious Service Medal; Navy Commendation Medal; Navy Achievement Medal with Combat “V”; Combat Action Ribbon; Presidential Unit Citation; Army Presidential Unit Citation; Joint Meritorious Unit Award; Navy Unit Citation; two awards of the Meritorious Unit Citation; the Vietnamese Cross of Gallantry (silver) and the Department of the Navy Distinguished Public Service Award. Mr. Barnum has attended The Basic School, U.S. Army Field Artillery School, Amphibious Warfare School, U.S. Army Command and General Staff College and the U.S. Naval War College. He is the past president of the Congressional Medal of Honor Society, Connecticut Man of the Year ’67, presented Honorary LegumDoctorem St Anselm College; Rotary Paul Harris Fellow; Abe Pollin Leadership Award ’03, Marine Corps League “Iron Mike” Award, Order of the Carabao Distinguished Service Award, and Ted Williams Leadership Award.
Harvey C. “Barney” Barnum was first selected to be a director in 2009 because of his extensive distinguished government service at the Department of the Navy Executive level and his distinguished military career which includes the Medal of Honor Award for bravery in Vietnam. Mr. Barnum will bring expertise to the Board in the area of Public Policy initiatives as it relates to his knowledge of the Executive and Legislative Branch of the US Government and his oversight of our Governmental Relations and Policy initiatives on Obesity related to Medifast products, protocols and clinical studies.
Barry B. Bondroff, CPA, age 64, is an officer and director with Gorfine, Schiller & Gardyn, PA, a full-service certified public accounting firm offering a wide range of accounting and consulting services. Previously, he was a Senior Managing Director with SMART, a diverse team of business advisory professionals. Mr. Bondroff brings over 42 years of experience providing companies of all sizes and industries with practical and cost-effective accounting, assurance, tax, business, technology and financial advisory services. Prior to managing SMART, Mr. Bondroff was the Managing Director for Grabush, Newman & Co., P.A., which combined with SMART in May 2003. Mr. Bondroff began his career with Grabush Newman in 1970, and in 1976 became Officer and was promoted to Managing Director in 1982. He earned his Bachelor of Science degree in Accounting from the University of Baltimore. Additionally, Mr. Bondroff serves on the Board of Directors for First Mariner Bank of Maryland, a NASDAQ listed company. He is active with First Mariner serving on the Executive Committee, Loan Committee, Audit Committee and as Chairman of the Compensation Committee. In addition to his professional affiliations, Mr. Bondroff served on the Executive Committee for Israel Bonds and was a Director of Cycle Across Maryland. He has served on the National Jewish Medical and Research Center, the Jewish Center for Business Development and has assisted the Baltimore Symphony Orchestra in its fundraising efforts. In addition, Mr. Bondroff was a past President and Treasurer of the Edward A. Meyerberg Northwest Senior Center, and also served as a Member of the Board of Directors for the Levindale Hebrew Geriatric Center and Hospital. He was Treasurer for Special Olympics of Maryland, his term ending in 2012. He is currently a Trustee for Stevenson University in Maryland, and is a member of the Audit Committee of the Associated.
Barry B. Bondroff was first selected as a director in 2008 because of his more than 36 years experience as a CPA, and with corporate governance including serving on the board of another public company. He utilizes that experience as a financial expert and his elected position of Vice Chairman of the Board. His service on the Audit Committee and his availability as a local director in Baltimore provide for local oversight and practical consulting in the area of financial management, risk assessment and Sarbanes-Oxley regulations. He also provides an extensive rolodex that assists Medifast’s management team to find the best talent in the market to assist in our growth and development.
Charles P. Connolly, age 64, is currently an independent director focusing on bank relationships, debt refinancing, merger and acquisition strategy and executive compensation design. Mr. Connolly spent 29 years at First Union Corp. that merged with Wachovia Bank in 2001. He retired in 2001 as the President and Chief Executive Officer of First Union Corp. of Pennsylvania and Delaware. Mr. Connolly serves on the Boards of numerous profit and non-profit organizations. He holds an MBA from the University of Chicago and AB from Villanova University.
Charles P. Connolly was first selected as a director in 2006 for his extensive executive experience and financial acumen derived from an executive banking resume. His current selection as director leverages that background of reviewing the financials and performance of hundreds of companies in the public and private sector. He possesses a unique financial and risk assessment perspective into the operations and financial management of the Company. He spends an extraordinary amount of time with our executive team providing guidance and consultation on key metrics and performance objectives that have served Medifast well in the past few years. As the Chairman of the Audit Committee he has served diligently to insure that the Company maintains its high standards of accountability.
Jason L. Groves, Esq.,age 42, is the Company’s Executive Vice President and General Counsel. Prior to joining Medifast in November 2011, Mr. Groves served as Assistant Vice President of Government Affairs for Verizon Maryland, since 2003. Mr. Groves is also an Army veteran. He was a direct commissioned Judge Advocate in the United States Army Judge Advocate General’s Corp (“JAG”). As a JAG Officer, he practiced law and had the distinction of prosecuting criminal cases in the District Court of Maryland as a Special Assistant United States Attorney. Over the course of three years, he received two Army Achievement Medals, and one Army Commendation Medal. Mr. Groves received his Bachelor of Science degree, cum laude, in Business with a concentration in Hospitality Management, from Bethune-Cookman University. He also obtained his law degree from North Carolina Central University School of Law and is a member of the New Jersey and District of Columbia bars as well as several bar associations. Additionally, he sits on several non-profit boards including Anne Arundel Medical Center and the Maryland Hospital Association.
Jason L. Groves, Esq. was first selected as a director in 2009 based on his military, business and legal background. In addition he has extensive experience with government relations and knowledge of the healthcare and communications technology fields. He was a Federal prosecutor thus providing keen insight on the regulatory and legal issues the Company faces in today’s business climate. His service on the Audit Committee has provided timely oversight for all projects he has undertaken.
George J. Lavin, Jr., Esq., age 84, was the senior founding partner of the law firm Lavin, O’Neil, Ricci, Ceprone & Disipio. Mr. Lavin is a 1951 graduate of Bucknell University. He attended the University of Pennsylvania School of Law, receiving an L.L.B. in 1956, and then served as a Special Agent, Federal Bureau of Investigation, United States Department of Justice, until 1959. Mr. Lavin has extensive national experience in products liability defense. He has had regional responsibilities in several automotive specialty areas, and was called upon to try matters throughout the county on behalf of his clients. Mr. Lavin's practice emphasized his commitment to defending the automotive industry. Mr. Lavin is admitted to practice before the Supreme Court of Pennsylvania, the United States Court of Appeals for the Third Circuit and the United States District Courts for the Eastern and Middle Districts of Pennsylvania. He is a member of the Faculty Advisory Board of the Academy of Advocacy, the Association of Defense Counsel, The Defense Research Institute, The American Board of Trial Advocates, and the Temple University Law School faculty. He has also been elected a fellow of the American College of Trial Lawyers. On March 1, 1994, Mr. Lavin assumed the title of Counsel to his name sake firm. Mr. Lavin has served as the General Counsel to the Augustinian order of Villanova, PA.
George J. Lavin, Esq. was first selected as a director in 2005 for his prestigious demonstrated legal experience on behalf of major international businesses, management experience in his law firm and his extensive service with the FBI. His current selection as Director values his experiential oversight on legal matters as well as his service on the Audit Committee and mentoring talents.
Sr. Catherine T. Maguire RSM, age 62, a Sister of Mercy, has served as Executive Director at SILOAM, a Body, Mind, Spirit wellness center for the HIV/AIDS community, from 2011 to present. Prior to this Sr. Maguire worked in AIDS Ministry within the prison system in Washington, DC. and has served as a vocation director for her religious community for 8 years. She received a BS degree in Education/English in 1972, a MS degree in Library Science in 1974 both from Villanova University, and a MA degree in Theology with an emphasis in Pastoral Ministry & Spirituality in 1995 from St. Michael’s College in Vermont. She served on the board of the National Religious Vocation Conference from 1990 to 1992.
Sister Catherine T. Maguire, RSM was first selected as a director in 2009 for her extensive executive experience with not for profit human services organizations and her strong background in organizational ethics and human resources and personnel management. She has multiple advanced degrees and will assist in developing the “women executives” of Medifast. As a result of her extensive management and human resources background she was elected to the Nominations Committee where she will assist in screening and evaluating potential Director Candidates and insure the corporate values related to diversity are implemented in the Company and on the Board.
John P. McDaniel, age 70, is a seasoned healthcare executive with more than 36 years of experience as a chief executive officer, most recently at MedStar Health in Columbia, Maryland, one of the largest and most comprehensive healthcare delivery systems in the mid-Atlantic region with annual revenues exceeding $4 billion, encompassing 25,000 employees 5,000 physicians and nine leading hospitals and other health related businesses. Mr. McDaniel has a degree in Business Administration from Wittenberg University, an MHA in Health Management and Policy from the University of Michigan, and an Honorary Doctorate of Humane Letters from Wittenberg University. He is presently Chair and Partner in The Hickory Ridge Group, an advisory, development and investment company that focuses on emerging healthcare and technology related entities. He is also a past member of the board of the Greater Baltimore Committee, a member of the Executive Committee of the Greater Washington Board of Trade, Wittenberg University and is Chair of the Washington Real Estate Trust, a NYSE listed company.
John P. McDaniel was first elected a director in 2009 for his extensive executive and entrepreneurial experience as well as his service on other public boards. His extensive management and board knowledge concerning the health care industry and health care policy will provide seasoned oversight on behalf of shareholders. Because of his board related experience and leadership experience as a longstanding member of the Maryland Racing Commission, past Director of First Mariner Bank and former Chief Executive Officer of Medstar Health Systems, he is serving on the Executive and Audit Committees in order to bring his business acumen and organizational knowledge to the Company.
Jeannette M. Mills, age 46, is currently serving as Senior Vice President with the Baltimore Gas and Electric Company, an Exelon Company. A Baltimore, MD native, Ms. Mills earned her Bachelor of Science in Electrical Engineering from Virginia Polytechnic Institute & State University (Virginia Tech). In 2006, Ms. Mills earned her Masters of Business Administration from Loyola College. Ms. Mills also works in the community, serving on the board of directors for Greater Baltimore Committee Leadership, the Leadership (a program of the Greater Baltimore Committee), the Baltimore Polytechnic Institute Foundation, Inc., the Esophageal Cancer Action Network, and the Center Club.
Ms. Mills was first selected as a director in 2008 not only for her technical background but primarily for her high level of executive experience. Her service as Chairperson of the Compensation Committee has effectively utilized her talents to review and assess the operations and metrics used to evaluate key executives in the Company. She has been instrumental in providing guidance and direction to ensure that all executives maintain the transparent high performance culture, and entrepreneurial philosophy of executive compensation balanced with appropriate risk assessment analysis.
Jerry D. Reece,age 72, is Chief Executive Officer of Reece & Nichols, a Berkshire Hathaway Affiliate. The company is involved in residential and commercial real estate brokerage, mortgage origination, title insurance and insurance. He has been the chief executive officer since 2011. The real estate arm of the company is the largest real estate brokerage in Greater Kansas City. With over 40 years experience in real estate, Mr. Reece formed J.D. Reece Realtors in early 1987. He sold the company in 2001 to Homeservices of America, Inc. After graduating from the University of Oregon in 1963 with a B.S. in Finance, Jerry Reece joined the United States Marine Corps and served in Hawaii and Vietnam as a first lieutenant. Following active duty, he continued his service in the Marine Corps Reserve. His various assignments included the command of a rifle battalion and service as a member of the Secretary of the Navy's Marine Corps Reserve Policy Board at the Pentagon. Retired with the rank of Colonel, he is a past member of the board of directors of the Marine Toys for Tots Foundation. His personal decorations include the Legion of Merit, the Navy Commendation Medal with Combat "V" and the Combat Action Ribbon. Mr. Reece was an Advisory Board Member of Commerce Bank, K.C., from 2003 to 2011.
Jerry D. Reece was first selected as a director in 2009 for his executive, entrepreneurial and broad real estate expertise. Additional specific skills include experience in sales and marketing, finance, compensation, and recruiting. He is a leader in his community in Kansas City and has served on many for profit and nonprofit boards.
Donald F. Reilly,OSA, age 65, holds a Doctorate in Ministry (Counseling) from New York Theological and an M.A. from Washington Theological Union as well as a B.A. from Villanova University. Reverend Don Reilly was ordained a priest in 1974. His assignments included Associate Pastor, Pastor at St. Denis, Havertown, Pennsylvania, Staff at Villanova University, Personnel Director of the Augustinian Province of St. Thomas of Villanova, Provincial Counselor, Co-Founder of SILOAM Ministries where he ministers and counsels HIV/AIDS patients and caregivers. He is currently on the board of directors of Villanova University. He also serves on the board of trustees of Merrimack College, MA, St. Augustine Prep, NJ, and Malvern Prep, PA. Fr. Reilly was Prior Provincial of the Augustinian Order at Villanova, PA from 2002 to 2010. He oversaw more than 220 Augustinian Friars and their service to the Church, teaching at universities and high schools, ministering to parishes, serving as chaplain in the Armed Forces and hospitals, ministering to AIDS victims, and serving missions in Japan, Peru, and South Africa. Fr. Reilly is currently the President of St. Augustine Preparatory School in Richland, New Jersey.
Very Rev. Donald F. Reilly, OSA was first selected as a director in 1998 for his strong background in personnel and executive management with the Augustinian Community which serves the Catholic Church at Villanova University, Merrimack College, high schools, parishes and missions in Japan, South Africa and Peru. His current selection as director utilizes his extensive knowledge of the Company serving as a Director and participating in the restructuring of the company in 1999. He was also instrumental in developing the current business model in consultation with the Business School at Villanova University. As Chairman of the Nominations committee and nationally known academic holding a Ph.D, he has been an invaluable asset providing guidance to the company and creating shareholder value. He also is the primary person on the Nomination Committee to identify and evaluate potential Director Candidates for character necessary to perform high performance, risk assessment and be transparent which are desirable characteristics for all potential directors. This will ensure continuity in respect to the company’s corporate governance practices and philosophy.
CORPORATE GOVERNANCE
Board Involvement in Risk Oversight
The Company takes a comprehensive approach to risk management. We believe risk can arise in every decision and action taken by the Company, whether strategic or operational. The Company, therefore, seeks to include risk management principles in all of its management processes and in the responsibilities of its employees at every level. Our comprehensive approach is reflected in the reporting processes by which our management provides timely and comprehensive information to the Board to support the Board’s role in oversight, approval and decision-making.
The Board of Directors closely monitors the information it receives from management and provides oversight and guidance to our management team concerning the assessment and management of risk. The Board approves the Company’s high level goals, strategies and policies to set the tone and direction for appropriate risk taking within the business. The Board and its committees then emphasize this tone and direction in its oversight of management’s implementation of the Company’s goals, strategies and policies.
Our senior executives provide the Board and its committees with regular updates about the Company’s strategies and objectives and the risks inherent within them at Board and committee meetings and in regular reports. Board and committee meetings also provide a venue for directors to discuss issues with management. The Board and committees call special meetings when necessary to address specific issues. In addition, our directors have access to Company management at all levels to discuss any matters of interest, including those related to risk. Those members of management most knowledgeable of the issues attend Board meetings to provide additional insight into items being discussed, including risk exposures.
The Board has delegated oversight for matters involving certain specific areas of risk exposure to its three committees. Each committee reports to the Board of Directors at regularly scheduled Board meetings, and more frequently if appropriate, with respect to the matters and risks for which the committee provides oversight.
The Audit Committee oversees the integrity of our financial statements, reporting process and internal controls, the internal audit function, the independent auditors’ qualifications, independence and performance, and the Company’s corporate finance matters including its capital structure. The Audit Committee also provides oversight with respect to the Company’s risk management process, including, as
Our Compensation Committeethis item is responsible primarily for the design and oversight of the Company’s executive compensation policies, plans and practices. A key objective of the Compensation Committee is to ensure that the Company’s overall executive compensation program appropriately links pay to performance and aligns the interests of the Company’s executives with its stockholders without encouraging unnecessary risk. In furtherance of this objective, the Compensation Committee evaluates the potential compensation payable under the Company’s executive compensation plans based on alternative performance scenarios. The Compensation Committee also monitors the design and administration of the Company’s overall incentive compensation programs to ensure that they include appropriate safeguards to avoid encouraging unnecessary or excessive risk takingincorporated herein by Company employees. Elements of our executive compensation program that mitigate excessive risk taking, such as our combination of short and long-term incentives are described below under “Compensation Discussion and Analysis.”
The Nominating and Corporate Governance Committee oversees risks related to our corporate governance, including Board and director performance, director succession, director education and the Company’s Corporate Governance Guidelines and other governance documents. The Nominating and Corporate Governance Committee also oversees the Company’s quality and regulatory affairs operations and the Company’s programs regarding ethics and compliance, and social and environmental responsibility.
Pursuant to Medifast Inc.’s bylaws and governance guidelines, the rules of the NYSE, and the Chairman of the Board, the Nominations Committee along with the consent of the Board of Directors determines the best committee structure for Medifast. The Board elects the Officers of the Company.
Certain Relationships and Related Transactions
The Board of Directors of the Company has established a policy and certain procedures that must be followed prior to any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships, including any indebtedness or guarantee of indebtedness, with a related party. Under this policy, the Nominating and Corporate Governance Committee monitors and reviews issues involving potential conflicts of interest involving officers and directors of the Company, including reviewing all related party transactions.
Director Independence
As of March 15, 2013, the Board consists of 12 members. During the first fiscal year ended December 31, 2012, there were 9 non-management directors. Determination as to the qualifications of an independent directors are determined under section 303A.02 of the New York Stock Exchange, or the NYSE, Listed Company Manual and the Company’s Categorical Standards of Independence. The NYSE’s independence guidelines and the Company’s categorical standards include a series of objective tests, such as the director is not an employee of the Company and has not engaged in various types of business dealings involving the Company, which would prevent a director from being independent. The Board of Directors has affirmatively determined that none of the Company’s independent directors had any relationships with the Company.
The Board, in applying the above referenced standards, has affirmatively determined the Company’s current independent directors are: Harvey C. Barnum, Jr., Barry B. Bondroff, Charles P. Connolly, George J. Lavin, Jr. Esq., Catherine T. Maguire, John P. McDaniel, Jeannette M. Mills, Jerry D. Reece, and Donald F. Reilly.
Board Meetings
For the fiscal year ended December 31, 2012 (“Fiscal 2011”), the Board of Directors held sevenmeetings. All Board members attended at least 75% of the aggregate number of Board meetings and applicable committee meetings held while such individuals were serving on the Board of Directors, or such committees. Under the Company’s Principles of Corporate Governance, which is available on the Company’s website www.choosemedifast.com, by following the link through “Investor Relations” to “Corporate Governance,” each director is expected to dedicate sufficient time, energy and attention to ensure the diligent performance of his or her duties, including attending meetings of the shareholders of the Company, the Board of Directors and committees of which he or she is a member. Four directors attended the 2012 annual shareholder meeting.
Codes of Business Conduct and Ethics and Corporate Governance Guidelines
Our Board of Directors has adopted a corporate Code of Business Conduct and Ethics applicable to our directors, officers, including our principal executive officer, principal financial officer and principal accounting officer, and employees, as well as Corporate Governance Guidelines, in accordance with applicable rules and regulations of the SEC and the NYSE. Each of our Code of Business Conduct and Ethics and Corporate Governance Guidelines are available on our website at www.choosemedifast.com by following the links through “Investor Relations” to “Corporate Governance.”
Any amendment to, or waiver from, a provision of the Company’s Code of Business Conduct and Ethics with respect to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller will be posted on the Company’s website, www.choosemedifast.com.
Committees of the Board
Our Board of Directors has a standing audit committee, nominating and corporate governance committee, compensation committee, and executive committee.
Audit Committee
Our audit committee consists of Charles P. Connolly, Chairperson, Barry B. Bondroff, George J. Lavin, Jr. Esq., and John P. McDaniel each of whom are independent as discussed above under “Director Independence.” As required by Rule 303A.07 of the NYSE Listed Company Manual, the Board of Directors has affirmatively determined that each audit committee member is financially literate, and that Mr. Connolly is an “audit committee financial expert,” as defined in Item 407(d)(5) of Regulation S-K.
The principal duties of the audit committee are as follows:
Our Board of Directors has adopted a written charter for the audit committee which is available on the Company’s website atwww.choosemedifast.comby following the links through “Investor Relations” to “Corporate Governance.” In fiscal 2012, the audit committee met sixtimes.
Nomination Committee
The nomination committee consists of Donald F. Reilly, OSA, Chairperson, Catherine T. Maguire, RSM, and Harvey C. Barnum, Jr., all of whom are independent as discussed above under “Director Independence.” The Nominating and Corporate Governance Committee identifies and recommends to the Board of Directors qualified candidates for election as Directors, recommends Director Committee assignments, and recommends actions necessary for the proper governance of Medifast, Inc., and for the evaluation of the performance of the Board of Directors and Chief Executive Officer. With input from the Chairman of the Board and Chief Executive Officer, the Nominating and Corporate Governance Committee recommends certain executive officers for annual election. The Nominating and Corporate Governance Committee reviews issues and developments related to corporate governance practices and makes recommendations to the Board of Directors on changes in structure, rule or practice necessary for compliance and for good corporate governance. The Nominations committee has been tasked to assist the Chairman in selecting the most qualified and appropriate directors to serve on the Company’s separate Board committees.
The Company’s Nominating and Corporate Governance Committee Charter provides that the skills and characteristics required generally of Directors include diversity, age, business background and experience, accomplishments, experiences in Medifast, Inc.’s business and a willingness to make the requisite commitment of time and effort. Accordingly, the Board of Directors has not set minimum standards for Director candidates. Rather, it seeks highly qualified individuals with diverse backgrounds, business and life experiences that will enable them to constructively review and guide management of the Company. Medifast, Inc. has successfully obtained diverse highly qualified candidates for Directors without utilizing a paid outside consultant. The Corporate Governance Committee considers and evaluates potential Director candidates and makes its recommendations to the full Board of Directors. Any shareholder may submit a recommendation for nomination to the Board of Directors by sending a written statement of the qualifications of the recommended individual to the Corporate Secretary, Medifast, Inc., 11445 Cronhill Dr., Owings Mills, Maryland 21117. The Nominating and Corporate Governance Committee will utilize the same process for evaluating all nominees, regardless of whether the nominee recommendation is submitted by a shareholder or some other source.
If a shareholder wishes to nominate a candidate for election to the Board of Directors, in order for the nomination to be properly made the shareholder must give written notice to the Corporate Secretary of Medifast, Inc. Notice must be received at Medifast, Inc.’s principal executive offices at least 90 days before the date that is one year after the prior year’s annual shareholder regular meeting. The notice must set forth: (i) the name and address of the shareholder who intends to make the nomination and of the nominee or nominees, (ii) a representation that the shareholder is a holder of record of shares of Medifast, Inc. entitled to vote at the meeting and that the shareholder intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (iii) a description of all arrangements or understanding between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder, (iv) such other information regarding each nominee proposed by the shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the SEC and the Company Bylaws had each nominee been nominated, or intended to be nominated, by the Board of Directors, and (v) the consent of each nominee to serve as a Director of Medifast, Inc. if so elected.
Our Board of Directors has adopted a written charter for the nominating and corporate governance committee, which is available on the Company’s website atwww.choosemedifast.comby following the links through “Investor Relations” to “Corporate Governance” or in print to any shareholder who requests it as set forth under “Additional Information — Annual Report, Financial and Additional Information.” In fiscal 2012, the nominating and corporate governance committee did not formally meet.
Compensation Committee
The compensation committee currently consists of Jeannette M. Mills, Chairperson, Harvey C. “Barney” Barnum, Jr. and Jerry D. Reece, all of whom are independent as discussed above under “— Director Independence.”
The principal duties of the compensation committee are as follows:
Our Board of Directors has adopted a written charter for the compensation committee which is available on the Company’s website atwww.choosemedifast.comby following the links through “Investor Relations” to “Corporate Governance.” In fiscal 2012, the Compensation Committee met four times.
Executive Committee
Michael C. MacDonald, Chairperson, Barry B. Bondroff, Jason L. Groves, Jeannette M. Mills, and Margaret E. Sheetz are members of the executive committee. The executive committee has all the authority of the Board of Directors, except with respect to certain matters that by statute may not be delegated by the Board of Directors. The executive committee meets periodically during the year to develop and review strategic operational and management policies for the Company. The executive committee did not meet in Fiscal 2012.
The Medifast Board of Directors on July 24, 2008 approved restricted common stock grants to Board members with a 5 year vesting period, beginning on the grant date. The grant was to tenured Board members that successfully implemented the Senior Management Succession Plan over the last four years through advice, counsel, and mentorship. A total of 55,000 shares of restricted common stock were granted to tenured Directors.
ADDITIONAL INFORMATION
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who beneficially own more than ten percent of a registered class of the Company’s equity securities to file with the SEC and the NYSE initial reports of ownership and reports of changes in ownership of equity securities of the Company. Directors, officers and greater-than-ten-percent beneficial owners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms filed by them. In 2012, to the Company’s knowledge, based solely on a review of the copies of such filings on file with the Company and written representationsreference from the Company’s directors and executive officersProxy Statement for the fiscal year ended December 31, 2012, we have identified late filings due to an administrative error, for the required Form 4 for the grant2014 Annual Meeting of Company shares as part of the director’s annual share-based compensation on March 31, 2012, for Mr. Barnum, Mr. Bondroff, Mr. Connolly, Mr. Lavin, Sr. Maguire, Mr. McDaniel, Ms. Mills and Mr. Reece. In addition, a Form 4 for the grant of 5,000 shares to Mr. Connolly in May 2009 was filed late due to an administrative oversight, as was a Form 4 for the grant of 60,000 shares to Mr. MacDonald on October 31, 2011.
COMPENSATION DISCUSSION AND ANALYSIS
Purpose and Philosophy
The Compensation Committee of
The Compensation Committee is responsibleCompany’s Proxy Statement for the creation and periodic review of the overall executive compensation philosophy of the Company related analysis and assessment of any material risk to the Company related thereto, and outlines the components of executive compensation for the executive officers. The Company believes that strong, effective leadership is the cornerstone of its continued growth and success. To be successful, the Company must be able to attract, retain, and motivate highly qualified executive officers with the competencies needed to excel in a rapidly changing marketplace and to understand issues relating to a diverse group of companies in several different industries.
Executive compensation at Medifast is focused on executive performance keyed to results. The Company provides fair and equitable compensation to its executive officers by combining conservative base pay, annual cash incentive, and stock-based long-term incentive. The Executive Cash Bonus Plan is designed to reward executives for the Company’s current year financial success and recognize the responsibilities of the executive officers for meeting the Company’s financial performance goals. Stock-based incentives focus on long-term performance by aligning the executive officers’ long-term financial interests with Company’s shareholders’ interest.
Total direct compensation which includes base pay, annual cash incentive and stock-based long-term incentive is measured against organizations in the general weight-loss industry. In general, there are different kinds of diet products and programs within the weight loss industry. These include a wide variety of commercial weight loss programs, pharmaceutical products, weight loss books, self-help diets, dietary supplements, appetite suppressants and meal replacement shakes and bars. Some of our competitors are substantially larger than we are, and have considerably greater financial resources than we have. Our ability to remain competitive depends, in significant part, on our success in recruiting and retaining executive leadership with an attractive compensation package. The Company targets total direct compensation for each executive officer near median for organizations in the general weight-loss industry. The mix of pay (base pay, annual cash incentive and long-term incentive) is designed to reflect a strong bias towards pay for performance by placing a majority of target compensation at risk. The only element of total direct compensation that is not performance based is base pay. Both annual cash incentive and long-term incentive are performance based.
Elements of Executive Compensation
Base Salary
Our base salary determinations principally reflect the skills and performance levels of individual executives, the needs of the Company, and pay practices of comparable public companies within the general health and wellness diet industry. Medifast’s identified peers in the general health and wellness diet industry are NutriSystem Inc., Nutraceutical, Inc., Herbalife Ltd., USANA Health Sciences, and Weight Watchers International Inc. It is not our policy to pay our executive officers at the highest base salary level. Instead, we establish executive base salaries below the midpoint level relative to our peers. We believe this policy sets a prudent and fiscally responsible tone for the Company’s overall base salary compensation programs. Please refer to the discussion below under “Peer Group” for a more detailed discussion of our use of peer group and general industry revenue data.
Target Bonus
Cash bonuses principally reflect the Company’s financial performance and achievement of corporate objectives established by our Board prior to the fiscal year. The executive bonus plan is designed to reward our executive officers for the achievement of shorter-term financial goals, predominantly revenue growth, profitability, and cash flow. In consultation with the Chairman and Chief Executive Officer, the Compensation Committee evaluates, adjusts and approves the amount and allocation of the bonus pool to each executive officer. In determining the cash bonus allocation among senior executives, the Compensation Committee and the Chairman and Chief Executive Officer consider each executive’s 1) contribution to current and long-term corporate goals, and 2) value in the labor market.
The financial targets for annual cash incentive are premised upon the executive officers delivering on their financial performance projections to Medifast, Inc. as reflected in part, in the annual budget approved by the Board of Directors. In 2011 targeted annual incentive compensation was tied to the annual budget approved by the Board of Directors. The Compensation Committee set the target for pre-tax profit as a percentage of sales at 10%, the target for corporate revenue at $310 million, and net increase in cash, cash equivalents, and investments at $15.5 million, excluding treasury stock repurchases. The target performance level is set to promote solid performance. The financial targets for annual cash incentive are divided into three components as follows:
Equity Compensation
Stock option and restricted stock awards principally reflect the responsibilities to be assumed by each executive in the upcoming fiscal year, the responsibilities of each executive in prior periods, the size of awards made to each executive in prior years relative to the Company’s overall performance, available stock for issuance under share plans, and potential grants in future years. The compensation committee believes that stock option and restricted stock grants (1) align the interests of executives with long-term stockholder interests as the grants vest within 6 years, (2) give executives a significant, long-term interest in the Company’s success, and (3) help retain key executives in a competitive market for executive talent. The restricted stock awards reward the continuity of service of the executive officers since the restricted stock awards vest up to 6 years and unvested, restricted stock is forfeited upon voluntary termination. In addition, the value of shares awarded increase or decrease with the value provided to shareholders.
In 2012 a new Share Incentive Plan was approved by the Company’s shareholders. As of March 15, 2013, no shares have been issued under the 2012 Share Incentive Plan.
Equity Ownership by Executives
We do not currently have a formal equity ownership requirement for our executives. However, we encourage our executives to own equity in the Company on a voluntary basis. All of our executive officers own stock, restricted stock and vested and unvested stock options. We periodically review the vested and unvested equity holdings of our executives and evaluate whether these holdings sufficiently align the interests of our executives with the long-term interests of our stockholders. We may consider adopting equity ownership requirements in the future.
Peer Group
We believe that it is appropriate to offer industry competitive cash and equity compensation to our senior executives in support of our objective to assemble and maintain a high performing management team. Our current level of compensation for our executive officers was compared to compensation paid by an industry peer group approved by the Committee. The criteria used to identify the peer group were: (1) industry — we compete for talent with other healthy living and wellness companies and general weight-loss industry companies of similar and larger size; and (2) financial scope — our management talent should be compensated similar to that of companies of a similar and larger size in terms of revenues.
For 2012, the peer group was comprised of five corporations listed above in “Elements of Executive Compensation – Base Salary”. The peer group revenue range is from $401 million to $3.5 billion with a median revenue of $1.7 billion for 2011. The peer group revenue percent change ranged from a decline of 21.2% to an increase of 26.3%, with a median revenue increase of 13.4% in 2012.
Advisory Vote on the Company’s Executive Officers’ Compensation
At the Company’s 2011 annual meeting, we provided our shareowners with the opportunity to cast an advisory vote regarding the compensation of our executive officers as disclosed in the proxy statement for the 20112014 Annual Meeting of Stockholders. At our 2011 annual meeting, our stockholders overwhelmingly approved the proposal, with more than 97% of the votes cast voting in favor of the proposal. We also asked our shareowners to indicate if we should hold a "say-on-pay" vote every one, two or three years. Consistent with the recommendation of our board of directors, our shareowners indicated
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATEDSTOCKHOLDERMATTERS |
Compensation Committee Interlocks and Insider Participation
No member of our compensation committee was an employee during Fiscal 2012, or has ever been an officer of Medifast or its subsidiaries. No executive officer of Medifast has served as a director or a member of the Compensation Committee of another company whose executive officers are also members of Medifast’s Board of Directors or Compensation Committee.
Compensation Committee Report
We have reviewed and discussed with management certain Compensation Discussion and Analysis provisions to be included in this Form 10-K. Based on the review and discussions referred to above, we recommend to the Board of Directors that the Compensation Discussion and Analysis referred to above be included on the Form 10-KProxy Statement for the year-ended December 31, 2012.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
Jeannette M. Mills, Chairman
Harvey C. “Barney” Barnum
Jerry D. Reece
DIRECTOR COMPENSATION
The non-employee Directors2014 Annual Meeting of Medifast, Inc. receive an annual stock grant for their services as director. In Fiscal 2012, each director received 500 shares of restricted stock, with the exception of the Vice-Chairman of the Board, Barry Bondroff whom received 600 shares. In Fiscal 2012, Directors received a meeting fee for attending either quarterly committee or Board of Director meetings. The Committee fees and Board of Director meeting fees may be received in cash or converted to Medifast stock at a 125% premium based on each Board members election. For additional committee meetings or board service, Directors receive $1,500 per day or a pro rata portion thereof. Employee Directors do not receive any additional compensation for their services as director.
2012 Director Compensation Table
The table below summarizes the compensation paid by the Company to non-employee directors for Fiscal 2012.
| Name | Fees Earned or Paid in Cash | Stock Awards(1) | Total | |||||||||
| Harvey C. Barnum | $ | 656 | $ | 33,733 | $ | 34,389 | ||||||
| Barry B. Bondroff | 9,281 | 35,479 | 44,760 | |||||||||
| Charles P. Connolly | 10,500 | 68,971 | (2) | 79,471 | ||||||||
| George Lavin, Jr., Esq. | 1,969 | 53,973 | (2) | 55,942 | ||||||||
| Catherine T. Maguire | 9,094 | 19,974 | 29,068 | |||||||||
| John P. McDaniel | 1,594 | 33,733 | 35,327 | |||||||||
| Jeannette M. Mills | 281 | 38,726 | 39,007 | |||||||||
| Jerry D. Reece | 94 | 31,236 | 31,330 | |||||||||
| Rev. Donald F. Reilly, OSA (2) | 20,094 | 40,480 | (2) | 60,574 | ||||||||
2012 Summary Compensation Table
The following table sets forth the annual and long-term compensation for the last three fiscal years of the Company’s Chairman of the Board and Chief Executive Officer, Chief Operating Officer and President, the current Chief Financial Officer, the Chief Financial Officer from 2010 – 2012, the acting Chief Financial Officers, and the Executive Vice President, Information Technology. In addition the following table includes annual and long term compensation for the Company’s former Chief Financial Officer and the two acting Chief Financial Officers who served in that capacity in 2012. These individuals are collectively referred to as the Named Executive Officers.
| Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value & Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||||||||||
| Name and Pricipal Position | Year | ($) | ($)(2) | ($)(1) | ($)(1) | ($) | ($) | ($)(3) | ($) | |||||||||||||||||||||||||||
| Michael C. MacDonald | 2012 | 344,231 | 577,500 | 550,880 | - | - | - | 1,321 | 1,473,932 | |||||||||||||||||||||||||||
| Chairman of the Board | 2011 | 35,000 | - | - | - | - | - | - | 35,000 | |||||||||||||||||||||||||||
| Chief Executive Officer | 2010 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Margaret Sheetz | 2012 | 247,115 | 485,761 | 1,100,600 | - | - | - | 6,083 | 1,839,559 | |||||||||||||||||||||||||||
| Chief Operating Officer, President | 2011 | 225,000 | 477,000 | 450,000 | - | - | - | 6,800 | 1,158,800 | |||||||||||||||||||||||||||
| 2010 | 155,000 | 755,000 | 531,000 | - | - | - | 4,650 | 1,445,650 | ||||||||||||||||||||||||||||
| Timothy G. Robinson (5) | 2012 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
| Edward Powers (6) | 2012 | 207,615 | 60,000 | - | - | - | - | 829 | 268,444 | |||||||||||||||||||||||||||
| Acting Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
| Joseph Kelleman (7) | 2012 | 120,308 | 3,141 | - | - | - | - | 379 | 123,828 | |||||||||||||||||||||||||||
| Acting Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
| Brendan N. Connors (8) | 2012 | 261,736 | 330,512 | 463,440 | - | - | - | 6,207 | 1,061,895 | |||||||||||||||||||||||||||
| Chief Financial Officer | 2011 | 185,000 | 167,000 | 151,000 | - | - | - | 5,550 | 508,550 | |||||||||||||||||||||||||||
| 2010 | 125,000 | 270,000 | 167,000 | - | - | - | 3,750 | 565,750 | ||||||||||||||||||||||||||||
| Michael S. McDevitt (9) | 2012 | 250,000 | 83,366 | 1,303,320 | - | - | - | 1,554 | 1,638,240 | |||||||||||||||||||||||||||
| Chief Executive Officer | 2011 | 250,000 | 560,000 | 532,000 | - | - | - | 7,000 | 1,349,000 | |||||||||||||||||||||||||||
| 2010 | 185,000 | 826,000 | 639,000 | - | - | - | 5,550 | 1,655,550 | ||||||||||||||||||||||||||||
| Donald Gould (10) | 2012 | 220,000 | 174,900 | - | - | - | - | 4,114 | 399,014 | |||||||||||||||||||||||||||
| Executive Vice President | 2011 | 211,539 | 20,000 | - | - | - | - | 451 | 231,990 | |||||||||||||||||||||||||||
| Information Technology | 2010 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
2012 Grants of Plan-Based Awards
The Board of Directors approved restricted stock grants effective October 31, 2011 to Michael C. MacDonald on the date of his appointment as Chairman of the Board of Directors. He was granted 60,000 shares as an employee inducement which will vest in three equal annual installments of 20,000 shares beginning on October 31, 2012.
The Medifast Board of Directors on May 7, 2009 approved restricted common stock grants to key executives and Board members with a 5-year vesting period, beginning on the grant date. Key executives were granted 460,000 shares of restricted common stock to retain their services over the next five years and recognize continued sales and profit growth in accordance with targets set by the Board of Directors.
The Medifast Board of Directors on November 24, 2008 approved restricted common stock grants to key executives as a 2008 performance bonus for exceeding internal sales and profit forecasts. Key executives were granted 150,000 shares of restricted common stock over a 5-year vesting period, beginning on January 1, 2009.
The Medifast Board of Directors on July 24, 2008 approved restricted common stock grants to the Named Executives Officers with a 5-year vesting period, beginning on the grant date. Named Executive Officers were granted 425,000 shares of restricted common stock to retain their services over the next five years, reward their efforts in the participation of the successful succession and transition of the Company operations to the new senior management team, and incentivize continued sales and profit growth in accordance with targets set by the Board of Directors.
Outstanding Equity Awards at 2012 Fiscal Year-End Table
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Number of Securities Underlying Unexercised Options (#) | Number of Securities Underlying Unexercised Options (#) | Equity Incentive Awards: Number of Securities Underlying Unexercised Unearned Options | Option Exercise | Number of | Market Value of Shares or Units of Stock that have not Vested | Equity incentive Plan Awards: Number of Unearned Shares, Units or Other rights | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other rights That Have Not Vested | |||||||||||||||||||||||||||||
| Name | Exercisable | Un-Exercisable | (#) | Price ($) | Vested (#)(1)(3) | ($)(2) | (#) | ($) | ||||||||||||||||||||||||||||
| Michael S. McDevitt former Chief Executive Officer | - | - | - | - | 87,000 | 2,295,930 | - | - | ||||||||||||||||||||||||||||
| Margaret Sheetz Chief Operating Officer, President | - | - | - | - | 73,000 | 1,926,470 | - | - | ||||||||||||||||||||||||||||
| Michael C. MacDonald Chairman of the Board | - | - | - | - | 42,000 | 1,108,380 | - | - | ||||||||||||||||||||||||||||
2012 Option Exercises and Stock Vested Table
The following table sets forth information regarding option exercises and stock vesting for the Named Executive Officers during 2012 and the resulting value realized.
| Option Awards | Stock Awards | |||||||||||||||
| Number of Shares Acquired on Exercise | Value Realized on Exercise | Number of Shares Acquired on Vesting | Value Realized on Vesting | |||||||||||||
| Name | (#) | ($)(1) | (#) | ($)(2) | ||||||||||||
| Michael S. McDevitt | - | - | ||||||||||||||
| former Chief Executive Officer | 33,333 | 564,994 | ||||||||||||||
| 30,000 | 607,200 | |||||||||||||||
| 24,000 | 435,120 | |||||||||||||||
| 9,000 | 261,000 | |||||||||||||||
| Margaret Sheetz | ||||||||||||||||
| Chief Operating Officer, President | - | - | 25,000 | 423,750 | ||||||||||||
| 25,000 | 506,000 | |||||||||||||||
| 20,000 | 362,600 | |||||||||||||||
| 8,000 | 232,000 | |||||||||||||||
| Brendan N. Connors | - | - | ||||||||||||||
| Chief Financial Officer | 5,000 | 84,750 | ||||||||||||||
| 10,000 | 202,400 | |||||||||||||||
| 8,000 | 145,040 | |||||||||||||||
| 4,000 | 116,000 | |||||||||||||||
| Michael C. MacDonald | ||||||||||||||||
| Chairman of the Board | - | - | 2,000 | 40,480 | ||||||||||||
| Chief Executive Officer | 20,000 | 510,400 | ||||||||||||||
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards
Michael S. McDevitt.Mr. McDevitt entered into a six year employment agreement effective February 8, 2006. The employment agreement expired in February 2012 and was not renewed. Beginning in February 2012, Mr. McDevitt became a non-executive employee of the Company subject to the terms of a two-year employment agreement under which he is paid a salary of $250,000 per year. Mr. McDevitt was granted 200,000 shares of Medifast, Inc. restricted common stock over a six year vesting period beginning on February 8, 2006 in consideration for his six year commitment and to align his interests with the interests of long-term shareholders. Mr. McDevitt was granted 150,000 shares of common stock vesting over a five year period on July 24, 2008; 45,000 shares of common stock vesting over a five year period on November 21, 2008; and 120,000 common shares vesting over a five year period on May 7, 2009. Provided that he complies with the terms of his employment agreement, Mr. McDevitt will be eligible to receive unvested common stock grants as they vest.
Margaret Sheetz.Ms. Sheetz entered into a six year employment agreement effective February 8, 2006. The employment agreement expired in February 2012 and was not renewed. Ms. Sheetz is presently an at will employee. Ms. Sheetz was granted 150,000 shares of Medifast, Inc. restricted common stock over a six year vesting period beginning on February 8, 2006 in consideration for her six year commitment and to align her interests with the interests of long-term shareholders. Ms. Sheetz was granted 125,000 shares of common stock vesting over a five year period on July 24, 2008; 40,000 shares of common stock vesting over a five year period on November 21, 2008; and 100,000 common shares vesting over a five year period on May 7, 2009.
Brendan N. Connors. Mr. Connors entered into a six year employment agreement effective February 8, 2006. The employment agreement expired in February 2012 and was not renewed. Mr. Connors resigned as Chief Financial Officer on November 13, 2012. Mr. Connors was granted 30,000 shares of Medifast, Inc. restricted common stock over a six year vesting period beginning on February 8, 2006 in consideration for his six year commitment and to align his interests with the interests of long-term shareholders. Mr. Connors was granted 50,000 shares of common stock vesting over a five year period on July 24, 2008; 20,000 shares of common stock vesting over a five year period on November 21, 2008; and 40,000 common shares vesting over a five year period on May 7, 2009. Upon his termination in 2012, Mr. Connors forfeited 8,000 unvested shares.
Potential Payments upon Termination or Change in Control
As of December 31, 2012, the Company had no change in control or other agreements which would provide payments to employees upon termination. No severance or other termination payments were made under any of the employment agreements with the Named Executive Officers which expired in February 2012. Effective upon his employment as Chief Financial Officer on February 1, 2013, in the event his employment is terminated by the Company without cause, Timothy G. Robinson is eligible for a payment equal to twelve months of his base salary and bonus payable for the year in which his employment is terminated.
Compensation Polices and Risk
Medifast, Inc. does not believe that its compensation policies and practices create risks that are reasonably likely to have a material adverse effect on Medifast, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table shows as of December 31, 2012, the amount and percentage of our outstanding common stock beneficially owned by each person who is known by us to beneficially own more than 5% of our outstanding common stock.
| Name and Address of 5% Beneficial Owner | Shares Beneficially Owned (1) | Percent of Outstanding Common Stock | ||||||
BlackRock Inc. (1) 40 East 52nd Street New York, NY 10022 | 1,128,378 | 8.20 | % | |||||
| Vanguard Group, Inc. (2) 100 Vanguard Blvd. Malvern, PA 19355 | 867,125 | 6.30 | % | |||||
The following table shows as of March 15, 2013, the amount and percentage of our outstanding common stock beneficially owned (unless otherwise indicated) by each of our (i) directors and nominees for director, (ii) Named Executive Officers and (iii) our directors, nominees for director and executive officers as a group.
| Name of Beneficial Owner | Shares Beneficially Owned (1)(2) | Shares Acquirable Within 60 days | Percent of Outstanding Common Stock (%) | |||||||||
| Michael S. McDevitt | 309,347 | - | 2.25 | % | ||||||||
| Margaret Sheetz | 326,692 | - | 2.37 | % | ||||||||
| Brendan N. Connors, CPA | 141,450 | - | 1.03 | % | ||||||||
| Donald F. Reilly | 57,766 | - | * | |||||||||
| Michael C. MacDonald (1) | 92,656 | - | * | |||||||||
| Charles P. Connolly | 48,325 | - | * | |||||||||
| John P. McDaniel | 24,114 | - | * | |||||||||
| Catherine T. Maguire | 10,929 | - | * | |||||||||
| George J. Lavin, Jr., Esq. | 22,891 | - | * | |||||||||
| Barry B. Bondroff, CPA | 21,591 | - | * | |||||||||
| Jeannette M. Mills | 17,123 | - | * | |||||||||
| Harvey C. Barnum | 4,002 | * | ||||||||||
| Jerry D. Reece | 3,859 | |||||||||||
| Jason L. Groves | 1,229 | * | ||||||||||
| All directors, nominees for directors and executive officers as a group: | 1,081,974 | - | 7.86 | % | ||||||||
As
The fees incurred
| 2012 | 2011 | |||||||
| Audit Fees (1) | $ | 245,000 | $ | 203,000 | ||||
| Audit -Related Fees (2) | 26,000 | 35,000 | ||||||
| Tax Fees (3) | 138,000 | 270,000 | ||||||
| All Other Fees | 14,000 | 25,000 | ||||||
| Total | $ | 423,000 | $ | 533,000 | ||||
| 36 |
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| (a) | 1. Financial Statements |
| 2. | Financial Statement Schedules |
| 3. | Exhibits |
Report.
| 37 | ||
| Report of Independent Registered Public Accounting Firm | 39 | |
| Consolidated Balance Sheets | 40 | |
| Consolidated Statements of Income | 41 | |
| Consolidated Statements of Comprehensive Income | 42 | |
| Consolidated Statements of Changes in Stockholders’ Equity | 43 | |
| 44 | ||
| Notes to Consolidated Financial Statements | 45 |
| 38 | ||
| /s/ McGladrey LLP | |
| Baltimore, Maryland | |
| March |
| 39 | ||
| 2012 | 2011 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 39,937,000 | $ | 14,262,000 | ||||
| Accounts receivable-net of allowance for sales returns and doubtful accounts of $542,000 and $504,000 | 2,148,000 | 1,477,000 | ||||||
| Inventory | 20,804,000 | 19,969,000 | ||||||
| Investment securities | 20,057,000 | 19,538,000 | ||||||
| Income taxes, prepaid | 873,000 | 5,434,000 | ||||||
| Prepaid expenses and other current assets | 3,296,000 | 2,251,000 | ||||||
| Deferred tax assets | 1,460,000 | 1,055,000 | ||||||
| Total current assets | 88,575,000 | 63,986,000 | ||||||
| Property, plant and equipment - net | 40,109,000 | 38,852,000 | ||||||
| Trademarks and intangibles - net | 428,000 | 1,003,000 | ||||||
| Other assets | 1,139,000 | 1,824,000 | ||||||
| TOTAL ASSETS | $ | 130,251,000 | $ | 105,665,000 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 28,221,000 | $ | 18,830,000 | ||||
| Current maturities of long-term debt and capital leases | 528,000 | 1,426,000 | ||||||
| Total current liabilities | 28,749,000 | 20,256,000 | ||||||
| Other liabilities | ||||||||
| Long-term debt, net of current portion | 3,113,000 | 3,337,000 | ||||||
| Capital leases, net of current portion | 696,000 | 914,000 | ||||||
| Deferred tax liabilities | 6,907,000 | 7,756,000 | ||||||
| Total liabilities | 39,465,000 | 32,263,000 | ||||||
| Stockholders' Equity: | ||||||||
| Preferred stock, $.001 par value (1,500,000 authorized, no shares issued and outstanding) | - | - | ||||||
| Common stock; par value $.001 per share; 20,000,000 shares authorized; 15,525,955 and 15,510,185 issued; 13,767,380 and 13,596,021 issued and outstanding | 16,000 | 16,000 | ||||||
| Additional paid-in capital | 40,191,000 | 36,076,000 | ||||||
| Accumulated other comprehensive income | 553,000 | 396,000 | ||||||
| Retained earnings | 76,534,000 | 60,658,000 | ||||||
| Less: cost of 1,608,908 and 1,458,908 shares of common stock in treasury | (26,508,000 | ) | (23,744,000 | ) | ||||
| Total stockholders' equity | 90,786,000 | 73,402,000 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 130,251,000 | $ | 105,665,000 | ||||
2012
| 2013 | 2012 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 36,382,000 | $ | 39,937,000 | |||
| Accounts receivable-net of allowance for sales returns and doubtful accounts of $647,000 and $542,000 | 1,246,000 | 2,148,000 | |||||
| Inventory | 18,059,000 | 20,804,000 | |||||
| Investment securities | 31,420,000 | 20,057,000 | |||||
| Income taxes, prepaid | - | 873,000 | |||||
| Prepaid expenses and other current assets | 2,890,000 | 3,296,000 | |||||
| Deferred tax assets | 1,957,000 | 1,460,000 | |||||
| Total current assets | 91,954,000 | 88,575,000 | |||||
| Property, plant and equipment - net | 40,336,000 | 40,109,000 | |||||
| Trademarks and intangibles - net | - | 428,000 | |||||
| Other assets | 360,000 | 1,139,000 | |||||
| TOTAL ASSETS | $ | 132,650,000 | $ | 130,251,000 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued expenses | $ | 26,780,000 | $ | 28,221,000 | |||
| Income taxes payable | 99,000 | - | |||||
| Current maturities of long-term debt and capital leases | 222,000 | 528,000 | |||||
| Total current liabilities | 27,101,000 | 28,749,000 | |||||
| Other liabilities: | |||||||
| Long-term debt, net of current portion | - | 3,113,000 | |||||
| Capital leases, net of current portion | 474,000 | 696,000 | |||||
| Deferred tax liabilities | 6,659,000 | 6,907,000 | |||||
| Total liabilities | 34,234,000 | 39,465,000 | |||||
| Stockholders' Equity: | |||||||
| Preferred stock, $.001 par value (1,500,000 authorized, no shares issued and outstanding) | - | - | |||||
| Common stock; par value $.001 per share; 20,000,000 shares authorized; 13,143,309 and 15,525,955 issued; 13,115,642 and 13,767,380 issued and outstanding | 13,000 | 16,000 | |||||
| Additional paid-in capital | - | 40,191,000 | |||||
| Accumulated other comprehensive income | 703,000 | 553,000 | |||||
| Retained earnings | 97,700,000 | 76,534,000 | |||||
| Less: cost of 0 and 1,608,908 shares of common stock in treasury | - | (26,508,000) | |||||
| Total stockholders' equity | 98,416,000 | 90,786,000 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 132,650,000 | $ | 130,251,000 | |||
| 40 | ||
| 2012 | 2011 | 2010 | ||||||||||
| Revenue | $ | 356,706,000 | $ | 298,189,000 | $ | 257,552,000 | ||||||
| Cost of sales | 88,671,000 | 73,693,000 | 65,083,000 | |||||||||
| Gross Profit | 268,035,000 | 224,496,000 | 192,469,000 | |||||||||
| Selling, general, and administration | 244,773,000 | 197,114,000 | 160,829,000 | |||||||||
| Income from operations | 23,262,000 | 27,382,000 | 31,640,000 | |||||||||
| Other income | ||||||||||||
| Interest and divided income, net | 301,000 | 319,000 | 274,000 | |||||||||
| Other income (expense) | 895,000 | (21,000 | ) | (222,000 | ) | |||||||
| 1,196,000 | 298,000 | 52,000 | ||||||||||
| Income before income taxes | 24,458,000 | 27,680,000 | 31,692,000 | |||||||||
| Provision for income taxes | 8,582,000 | 9,139,000 | 12,081,000 | |||||||||
| Net income | $ | 15,876,000 | $ | 18,541,000 | $ | 19,611,000 | ||||||
| Basic earnings per share | $ | 1.16 | $ | 1.33 | $ | 1.39 | ||||||
| Diluted earnings per share | $ | 1.16 | $ | 1.31 | $ | 1.35 | ||||||
| Weighted average shares outstanding - | ||||||||||||
| Basic | 13,721,997 | 13,965,018 | 14,082,213 | |||||||||
| Diluted | 13,739,824 | 14,198,495 | 14,572,921 | |||||||||
2011
| 2013 | 2012 | 2011 | ||||||||
| Revenue | $ | 356,886,000 | $ | 356,706,000 | $ | 298,189,000 | ||||
| Cost of sales | 89,040,000 | 88,671,000 | 73,693,000 | |||||||
| Gross Profit | 267,846,000 | 268,035,000 | 224,496,000 | |||||||
| Selling, general, and administration | 234,256,000 | 244,773,000 | 197,114,000 | |||||||
| Income from operations | 33,590,000 | 23,262,000 | 27,382,000 | |||||||
| Other income | ||||||||||
| Interest and dividend income, net | 506,000 | 301,000 | 319,000 | |||||||
| Other income (expenses) | 91,000 | 895,000 | (21,000) | |||||||
| 597,000 | 1,196,000 | 298,000 | ||||||||
| Income before income taxes | 34,187,000 | 24,458,000 | 27,680,000 | |||||||
| Provision for income taxes | 10,218,000 | 8,582,000 | 9,139,000 | |||||||
| Net income | $ | 23,969,000 | $ | 15,876,000 | $ | 18,541,000 | ||||
| Basic earnings per share | $ | 1.74 | $ | 1.16 | $ | 1.33 | ||||
| Diluted earnings per share | $ | 1.73 | $ | 1.16 | $ | 1.31 | ||||
| Weighted average shares outstanding - | ||||||||||
| Basic | 13,774,083 | 13,721,997 | 13,965,018 | |||||||
| Diluted | 13,817,693 | 13,739,824 | 14,198,495 | |||||||
| 41 | ||
| 2012 | 2011 | 2010 | ||||||||||
| Net income | $ | 15,876,000 | $ | 18,541,000 | $ | 19,611,000 | ||||||
| Other comprehensive income, net of tax | ||||||||||||
| Unrealized gains on investment securities, net | 157,000 | 156,000 | 81,000 | |||||||||
| Other comprehensive income | 157,000 | 156,000 | 81,000 | |||||||||
| Comprehensive income | $ | 16,033,000 | $ | 18,697,000 | $ | 19,692,000 | ||||||
2011
| 2013 | 2012 | 2011 | ||||||||
| Net income | $ | 23,969,000 | $ | 15,876,000 | $ | 18,541,000 | ||||
| Other comprehensive income, net of tax | ||||||||||
| Change in unrealized gains/losses on marketable securities: | ||||||||||
| Change in fair value of marketable securities, net of tax | 257,000 | 269,000 | 143,000 | |||||||
| Adjustment for net (gains)/losses realized and included in net income, net of tax | (107,000) | (112,000) | 13,000 | |||||||
| Total change in unrealized gains/losses on marketable securities, net of tax | 150,000 | 157,000 | 156,000 | |||||||
| Other comprehensive income | 150,000 | 157,000 | 156,000 | |||||||
| Comprehensive income | $ | 24,119,000 | $ | 16,033,000 | $ | 18,697,000 | ||||
| 42 | ||
AND ACCUMULATED OTHER COMPREHENSIVE INCOME
| Number of Shares Issued | Par Value $0.001 Amount | Additional Paid- In Capital | Retained Earnings | Accumulated other comprehensive income | Treasury Stock | Total | ||||||||||||||||||||||
| Balance, December 31, 2009 | 15,398,941 | $ | 16,000 | $ | 28,456,000 | $ | 22,506,000 | $ | 159,000 | $ | (3,320,000 | ) | $ | 47,817,000 | ||||||||||||||
| Common stock issued to directors | 5,660 | 150,000 | 150,000 | |||||||||||||||||||||||||
| Share-based compensation to executives and directors | 2,528,000 | 2,528,000 | ||||||||||||||||||||||||||
| Exercise of stock options | 10,000 | 34,000 | 34,000 | |||||||||||||||||||||||||
| Share-based compensation tax benefit | 1,770,000 | 1,770,000 | ||||||||||||||||||||||||||
| Restricted shares issued to executives and directors | 16,500 | - | - | |||||||||||||||||||||||||
| Treasury stock purchases | (35,000 | ) | (35,000 | ) | ||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net income | 19,611,000 | 19,611,000 | ||||||||||||||||||||||||||
| Net change in unrealized gain on investments | 81,000 | 81,000 | ||||||||||||||||||||||||||
| Comprehensive income | 19,692,000 | |||||||||||||||||||||||||||
| Balance, December 31, 2010 | 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 | 2,524,000 | 2,524,000 | ||||||||||||||||||||||||||
| Share-based compensation tax benefit | 614,000 | 614,000 | ||||||||||||||||||||||||||
| Restricted shares issued to executives and directors | 79,084 | - | - | |||||||||||||||||||||||||
| Treasury stock purchases | (20,389,000 | ) | (20,389,000 | ) | ||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net income | 18,541,000 | 18,541,000 | ||||||||||||||||||||||||||
| Net change in unrealized gain on investments | 156,000 | 156,000 | ||||||||||||||||||||||||||
| Comprehensive income | 18,697,000 | |||||||||||||||||||||||||||
| Balance, December 31, 2011 | 15,510,185 | $ | 16,000 | $ | 36,076,000 | $ | 60,658,000 | $ | 396,000 | $ | (23,744,000 | ) | $ | 73,402,000 | ||||||||||||||
| Share-based compensation to executives and directors | 2,850,000 | 2,850,000 | ||||||||||||||||||||||||||
| Share-based compensation tax benefit | 1,265,000 | 1,265,000 | ||||||||||||||||||||||||||
| Restricted shares issued to executives and directors | 15,770 | - | ||||||||||||||||||||||||||
| Treasury stock purchases | (2,764,000 | ) | (2,764,000 | ) | ||||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net income | 15,876,000 | 15,876,000 | ||||||||||||||||||||||||||
| Net change in unrealized gain on investments | 157,000 | 157,000 | ||||||||||||||||||||||||||
| Comprehensive income | 16,033,000 | |||||||||||||||||||||||||||
| Balance, December 31, 2012 | 15,525,955 | $ | 16,000 | $ | 40,191,000 | $ | 76,534,000 | $ | 553,000 | $ | (26,508,000 | ) | $ | 90,786,000 | ||||||||||||||
2011
| Number of Shares Issued | Par Value $0.001 Amount | Additional Paid- In Capital | Retained Earnings | Accumulated other comprehensive income | Treasury Stock | Total | ||||||||||||||||
| Balance, December 31, 2010 | 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 | 2,524,000 | 2,524,000 | ||||||||||||||||||||
| Share-based compensation tax benefit | 614,000 | 614,000 | ||||||||||||||||||||
| Restricted shares issued to executives and directors | 79,084 | - | ||||||||||||||||||||
| Treasury stock purchases | (20,389,000) | (20,389,000) | ||||||||||||||||||||
| Net income | 18,541,000 | 18,541,000 | ||||||||||||||||||||
| Net change in unrealized gain on investments | 156,000 | 156,000 | ||||||||||||||||||||
| Balance, December 31, 2011 | 15,510,185 | $ | 16,000 | $ | 36,076,000 | $ | 60,658,000 | $ | 396,000 | $ | (23,744,000) | $ | 73,402,000 | |||||||||
| Share-based compensation to executives and directors | 2,850,000 | 2,850,000 | ||||||||||||||||||||
| Share-based compensation tax benefit | 1,265,000 | 1,265,000 | ||||||||||||||||||||
| Restricted shares issued to executives and directors | 15,770 | - | ||||||||||||||||||||
| Treasury stock purchases | (2,764,000) | (2,764,000) | ||||||||||||||||||||
| Net income | 15,876,000 | 15,876,000 | ||||||||||||||||||||
| Net change in unrealized gain on investments | 157,000 | 157,000 | ||||||||||||||||||||
| Balance, December 31, 2012 | 15,525,955 | $ | 16,000 | $ | 40,191,000 | $ | 76,534,000 | $ | 553,000 | $ | (26,508,000) | $ | 90,786,000 | |||||||||
| Shares issued to executives | 16,163 | |||||||||||||||||||||
| Share-based compensation to executives and directors | 3,209,000 | 3,209,000 | ||||||||||||||||||||
| Share-based compensation tax benefit | 383,000 | 383,000 | ||||||||||||||||||||
| Treasury stock purchases | (20,081,000) | (20,081,000) | ||||||||||||||||||||
| Treasury stock retirement | (2,398,809) | (3,000) | (43,783,000) | (2,803,000) | 46,589,000 | - | ||||||||||||||||
| Net income | 23,969,000 | 23,969,000 | ||||||||||||||||||||
| Net change in unrealized gain on investments | 150,000 | 150,000 | ||||||||||||||||||||
| Balance, December 31, 2013 | 13,143,309 | $ | 13,000 | $ | - | $ | 97,700,000 | $ | 703,000 | $ | - | $ | 98,416,000 | |||||||||
| 43 | ||
| 2012 | 2011 | 2010 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 15,876,000 | $ | 18,541,000 | $ | 19,611,000 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities from continuing operations: | ||||||||||||
| Depreciation and amortization | 11,205,000 | 8,344,000 | 5,859,000 | |||||||||
| Realized loss on investment securities, net | 2,000 | 207,000 | 205,000 | |||||||||
| Common stock issued for services | - | - | 50,000 | |||||||||
| Share-based compensation | 2,850,000 | 2,524,000 | 2,628,000 | |||||||||
| Deferred income taxes | (1,337,000 | ) | 6,015,000 | (70,000 | ) | |||||||
| Loss on disposal of fixed assets | 117,000 | - | - | |||||||||
| Changes in assets and liabilities which provided (used) cash: | ||||||||||||
| Accounts receivable | (671,000 | ) | (854,000 | ) | 53,000 | |||||||
| Inventory | (835,000 | ) | (435,000 | ) | (8,302,000 | ) | ||||||
| Prepaid expenses and other current assets | (1,045,000 | ) | (143,000 | ) | 1,639,000 | |||||||
| Other assets | 150,000 | (971,000 | ) | 138,000 | ||||||||
| Accounts payable and accrued expenses | 9,391,000 | 3,810,000 | 7,302,000 | |||||||||
| Income taxes | 4,561,000 | (2,168,000 | ) | (344,000 | ) | |||||||
| Net cash provided by operating activities | 40,264,000 | 34,870,000 | 28,769,000 | |||||||||
| Cash Flow from Investing Activities: | ||||||||||||
| Sale of investment securities | 8,109,000 | 8,064,000 | 5,487,000 | |||||||||
| Purchase of investment securities | (8,390,000 | ) | (10,278,000 | ) | (16,973,000 | ) | ||||||
| Purchase of property and equipment | (11,383,000 | ) | (14,273,000 | ) | (12,055,000 | ) | ||||||
| Purchase of intangible assets | - | (387,000 | ) | - | ||||||||
| Net cash used in investing activities | (11,664,000 | ) | (16,874,000 | ) | (23,541,000 | ) | ||||||
| Cash Flow from Financing Activities: | ||||||||||||
| Issuance of stock options | - | - | 34,000 | |||||||||
| Proceeds of long-term debt | - | - | 393,000 | |||||||||
| Repayment of long-term debt and capital leases | (1,444,000 | ) | (1,136,000 | ) | (834,000 | ) | ||||||
| Decrease in note receivable | 18,000 | 12,000 | 5,000 | |||||||||
| Excess tax benefits from share-based compensation | 1,265,000 | 614,000 | 1,770,000 | |||||||||
| Purchase of treasury stock | (2,764,000 | ) | (20,389,000 | ) | (35,000 | ) | ||||||
| Net cash used in financing activities | (2,925,000 | ) | (20,899,000 | ) | 1,333,000 | |||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | 25,675,000 | (2,903,000 | ) | 6,561,000 | ||||||||
| Cash and cash equivalents - beginning of the period | 14,262,000 | 17,165,000 | 10,604,000 | |||||||||
| Cash and cash equivalents - end of period | $ | 39,937,000 | $ | 14,262,000 | $ | 17,165,000 | ||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Interest paid | $ | 123,000 | $ | 96,000 | $ | 111,000 | ||||||
| Income taxes paid | $ | 4,093,000 | $ | 4,125,000 | $ | 10,677,000 | ||||||
| Supplemental disclosure of non cash activity: | ||||||||||||
| Capitalized lease additions | $ | 104,000 | $ | 1,014,000 | $ | - | ||||||
2013, 2012 & 2011
| 2013 | 2012 | 2011 | ||||||||
| Cash flows from operating activities: | ||||||||||
| Net income | $ | 23,969,000 | $ | 15,876,000 | $ | 18,541,000 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities from continuing operations: | ||||||||||
| Depreciation and amortization | 11,382,000 | 11,205,000 | 8,344,000 | |||||||
| Realized (gain)/loss on investment securities, net | (74,000) | 2,000 | 207,000 | |||||||
| Share-based compensation | 3,209,000 | 2,850,000 | 2,524,000 | |||||||
| Deferred income taxes | (888,000) | (1,337,000) | 6,015,000 | |||||||
| Loss on disposal of fixed assets | 425,000 | 117,000 | - | |||||||
| Changes in assets and liabilities which provided (used) cash: | ||||||||||
| Accounts receivable | 902,000 | (671,000) | (854,000) | |||||||
| Inventory | 2,745,000 | (835,000) | (435,000) | |||||||
| Prepaid expenses and other current assets | 406,000 | (1,045,000) | (143,000) | |||||||
| Other assets | 753,000 | 150,000 | (971,000) | |||||||
| Accounts payable and accrued expenses | (1,441,000) | 9,391,000 | 3,810,000 | |||||||
| Income taxes | 972,000 | 4,561,000 | (2,168,000) | |||||||
| Net cash provided by operating activities | 42,360,000 | 40,264,000 | 34,870,000 | |||||||
| Cash Flow from Investing Activities: | ||||||||||
| Sale of investment securities | 14,359,000 | 8,109,000 | 8,064,000 | |||||||
| Purchase of investment securities | (25,355,000) | (8,390,000) | (10,278,000) | |||||||
| Purchase of property and equipment | (11,606,000) | (11,383,000) | (14,273,000) | |||||||
| Purchase of intangible assets | - | - | (387,000) | |||||||
| Net cash used in investing activities | (22,602,000) | (11,664,000) | (16,874,000) | |||||||
| Cash Flow from Financing Activities: | ||||||||||
| Repayment of long-term debt and capital leases | (3,641,000) | (1,444,000) | (1,136,000) | |||||||
| Decrease in note receivable | 26,000 | 18,000 | 12,000 | |||||||
| Excess tax benefits from share-based compensation | 383,000 | 1,265,000 | 614,000 | |||||||
| Purchase of treasury stock | (20,081,000) | (2,764,000) | (20,389,000) | |||||||
| Net cash used in financing activities | (23,313,000) | (2,925,000) | (20,899,000) | |||||||
| NET CHANGE IN CASH AND CASH EQUIVALENTS | (3,555,000) | 25,675,000 | (2,903,000) | |||||||
| Cash and cash equivalents - beginning of the period | 39,937,000 | 14,262,000 | 17,165,000 | |||||||
| Cash and cash equivalents - end of period | $ | 36,382,000 | $ | 39,937,000 | $ | 14,262,000 | ||||
| Supplemental disclosure of cash flow information: | ||||||||||
| Interest paid | $ | 57,000 | $ | 123,000 | $ | 96,000 | ||||
| Income taxes paid | $ | 9,983,000 | $ | 4,093,000 | $ | 4,125,000 | ||||
| Supplemental disclosure of non cash activity: | ||||||||||
| Capitalized lease additions | $ | - | $ | 104,000 | $ | 1,014,000 | ||||
| 44 | ||
2011
| 45 | ||
2007.
| 2013 | ||||
| One-time employee severance costs | $ | 80,000 | ||
| Net lease liability | 1,131,000 | |||
| Fixed asset disposals | 771,000 | |||
| Other closure expenses | 148,000 | |||
| $ | 2,130,000 |
| Building and building improvements | 10 - 35 years |
| Equipment and fixtures | 3 - 15 years |
| Leasehold Improvements | Lease term |
| Vehicles | 5 years |
The carrying amount of all long-lived assets is evaluated periodically to determine whether adjustment to the useful life or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets and the projected undiscounted cash flows of the operations in which the long-lived assets are used.
| 46 | ||
| 2012 | 2011 | 2010 | ||||||||||
| Numerator: | ||||||||||||
| Net income | $ | 15,876,000 | $ | 18,541,000 | $ | 19,611,000 | ||||||
| Denominator: | ||||||||||||
| Weighted average shares of common stock outstanding | 13,721,997 | 13,965,018 | 14,082,213 | |||||||||
| Effect of dilutive common stock equivalents | 17,827 | 233,477 | 490,708 | |||||||||
| Weighted average diluted common shares outstanding | 13,739,824 | 14,198,495 | 14,572,921 | |||||||||
| EPS: | ||||||||||||
| Basic | $ | 1.16 | $ | 1.33 | $ | 1.39 | ||||||
| Diluted | $ | 1.16 | $ | 1.31 | $ | 1.35 | ||||||
| 2013 | 2012 | 2011 | ||||||||
| Numerator: | ||||||||||
| Net income | $ | 23,969,000 | $ | 15,876,000 | $ | 18,541,000 | ||||
| Denominator: | ||||||||||
| Weighted average shares of common stock outstanding | 13,774,083 | 13,721,997 | 13,965,018 | |||||||
| Effect of dilutive common stock equivalents | 43,610 | 17,827 | 233,477 | |||||||
| Weighted average diluted common shares outstanding | 13,817,693 | 13,739,824 | 14,198,495 | |||||||
| EPS: | ||||||||||
| Basic | $ | 1.74 | $ | 1.16 | $ | 1.33 | ||||
| Diluted | $ | 1.73 | $ | 1.16 | $ | 1.31 |
In February 2013, the Financial Accounting Standards Board (“FASB”) issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This amendment requires the Company to present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. This amendment does not apply when the effectsloss is not available at the reporting date under the tax law of netthe applicable jurisdiction for the use of settling any additional income line itemstaxes that are significant amounts reclassified outwould result from the disallowance of accumulated other comprehensive income if the item is required under U.S. GAAPtax position or the jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for this purpose. Under those circumstances, the unrecognized tax benefit should be reclassified to net income in entirety in the same reporting period. The Company must also cross-reference to other U.S. GAAP disclosures for other reclassification items,shown as a liability and not required under U.S. GAAP, to be reclassed directly to net income in entirety in the same reporting period.combined with deferred tax assets. Management is currently evaluating the effect that the provisions of ASU 2013-022013-11 will have on the Company’s financial statements.
| 47 | ||
| 2012 | ||||||||||||||||||||||||||||
| Cost | Unrealized Gains | Unrealized Losses | Accrued Interest | Estimated FairValue | Cash & Cash Equivalents | Investment Securities | ||||||||||||||||||||||
| Cash | $ | 38,977,000 | $ | - | $ | - | $ | - | $ | 38,977,000 | $ | 38,977,000 | $ | - | ||||||||||||||
| Level 1: | ||||||||||||||||||||||||||||
| Money Market Accounts | 960,000 | - | - | - | 960,000 | 960,000 | - | |||||||||||||||||||||
| Mutual Funds | 234,000 | 13,000 | (1,000 | ) | - | 246,000 | - | 246,000 | ||||||||||||||||||||
| Corporate Equity Securities | 1,853,000 | 489,000 | (46,000 | ) | - | 2,296,000 | - | 2,296,000 | ||||||||||||||||||||
| Government & Agency Securities | 7,004,000 | 180,000 | (3,000 | ) | 34,000 | 7,215,000 | - | 7,215,000 | ||||||||||||||||||||
| 10,051,000 | 682,000 | (50,000 | ) | 34,000 | 10,717,000 | 960,000 | 9,757,000 | |||||||||||||||||||||
| Level 2: | ||||||||||||||||||||||||||||
| Municipal Bonds | 4,197,000 | 124,000 | (4,000 | ) | 27,000 | 4,344,000 | - | 4,344,000 | ||||||||||||||||||||
| Corporate Bonds | 5,772,000 | 136,000 | (2,000 | ) | 50,000 | 5,956,000 | - | 5,956,000 | ||||||||||||||||||||
| 9,969,000 | 260,000 | (6,000 | ) | 77,000 | 10,300,000 | - | 10,300,000 | |||||||||||||||||||||
| Total | $ | 58,997,000 | $ | 942,000 | $ | (56,000 | ) | $ | 111,000 | $ | 59,994,000 | $ | 39,937,000 | $ | 20,057,000 | |||||||||||||
| 2011 | ||||||||||||||||||||||||||||
| Cost | Unrealized Gains | Unrealized Losses | Accrued Interest | Estimated Fair Value | Cash & Cash Equivalents | Investment Securities | ||||||||||||||||||||||
| Cash | $ | 13,459,000 | $ | - | $ | - | $ | - | $ | 13,459,000 | $ | 13,459,000 | $ | - | ||||||||||||||
| Level 1: | ||||||||||||||||||||||||||||
| Money Market Accounts | 803,000 | - | - | - | 803,000 | 803,000 | - | |||||||||||||||||||||
| Mutual Funds | 755,000 | 17,000 | (8,000 | ) | - | 764,000 | - | 764,000 | ||||||||||||||||||||
| Corporate Equity Securities | 1,319,000 | 270,000 | (37,000 | ) | - | 1,552,000 | - | 1,552,000 | ||||||||||||||||||||
| Government & Agency Securities | 8,172,000 | 258,000 | (2,000 | ) | 43,000 | 8,471,000 | - | 8,471,000 | ||||||||||||||||||||
| 11,049,000 | 545,000 | (47,000 | ) | 43,000 | 11,590,000 | 803,000 | 10,787,000 | |||||||||||||||||||||
| Level 2: | ||||||||||||||||||||||||||||
| Municipal Bonds | 4,212,000 | 119,000 | - | 27,000 | 4,358,000 | - | 4,358,000 | |||||||||||||||||||||
| Corporate Bonds | 4,317,000 | 44,000 | (15,000 | ) | 47,000 | 4,393,000 | - | 4,393,000 | ||||||||||||||||||||
| 8,529,000 | 163,000 | (15,000 | ) | 74,000 | 8,751,000 | - | 8,751,000 | |||||||||||||||||||||
| Total | $ | 33,037,000 | $ | 708,000 | $ | (62,000 | ) | $ | 117,000 | $ | 33,800,000 | $ | 14,262,000 | $ | 19,538,000 | |||||||||||||
2012:
| 2013 | ||||||||||||||||||||||
| Cost | Unrealized Gains | Unrealized Losses | Accrued Interest | Estimated Fair Value | Cash & Cash Equivalents | Investment Securities | ||||||||||||||||
| Cash | $ | 30,958,000 | $ | - | $ | - | $ | - | $ | 30,958,000 | $ | 30,958,000 | $ | - | ||||||||
| Level 1: | ||||||||||||||||||||||
| Money Market Accounts | 5,424,000 | - | - | - | 5,424,000 | 5,424,000 | - | |||||||||||||||
| Mutual Funds | 7,887,000 | 127,000 | (164,000) | - | 7,850,000 | - | 7,850,000 | |||||||||||||||
| Corporate Equity Securities | 4,614,000 | 1,076,000 | (9,000) | - | 5,681,000 | - | 5,681,000 | |||||||||||||||
| Government & Agency Securities | 6,112,000 | 62,000 | (43,000) | 26,000 | 6,157,000 | - | 6,157,000 | |||||||||||||||
| 24,037,000 | 1,265,000 | (216,000) | 26,000 | 25,112,000 | 5,424,000 | 19,688,000 | ||||||||||||||||
| Level 2: | ||||||||||||||||||||||
| Municipal Bonds | 3,524,000 | 103,000 | - | 25,000 | 3,652,000 | - | 3,652,000 | |||||||||||||||
| Corporate Bonds | 7,995,000 | 74,000 | (47,000) | 58,000 | 8,080,000 | - | 8,080,000 | |||||||||||||||
| 11,519,000 | 177,000 | (47,000) | 83,000 | 11,732,000 | - | 11,732,000 | ||||||||||||||||
| Total | $ | 66,514,000 | $ | 1,442,000 | $ | (263,000) | $ | 109,000 | $ | 67,802,000 | $ | 36,382,000 | $ | 31,420,000 | ||||||||
| 2012 | ||||||||||||||||||||||
| Cost | Unrealized Gains | Unrealized Losses | Accrued Interest | Estimated Fair Value | Cash & Cash Equivalents | Investment Securities | ||||||||||||||||
| Cash | $ | 38,977,000 | $ | - | $ | - | $ | - | $ | 38,977,000 | $ | 38,977,000 | $ | - | ||||||||
| Level 1: | ||||||||||||||||||||||
| Money Market Accounts | 960,000 | - | - | - | 960,000 | 960,000 | - | |||||||||||||||
| Mutual Funds | 234,000 | 13,000 | (1,000) | - | 246,000 | - | 246,000 | |||||||||||||||
| Corporate Equity Securities | 1,853,000 | 489,000 | (46,000) | - | 2,296,000 | - | 2,296,000 | |||||||||||||||
| Government & Agency Securities | 7,004,000 | 180,000 | (3,000) | 34,000 | 7,215,000 | - | 7,215,000 | |||||||||||||||
| 10,051,000 | 682,000 | (50,000) | 34,000 | 10,717,000 | 960,000 | 9,757,000 | ||||||||||||||||
| Level 2: | ||||||||||||||||||||||
| Municipal Bonds | 4,197,000 | 124,000 | (4,000) | 27,000 | 4,344,000 | - | 4,344,000 | |||||||||||||||
| Corporate Bonds | 5,772,000 | 136,000 | (2,000) | 50,000 | 5,956,000 | - | 5,956,000 | |||||||||||||||
| 9,969,000 | 260,000 | (6,000) | 77,000 | 10,300,000 | - | 10,300,000 | ||||||||||||||||
| Total | $ | 58,997,000 | $ | 942,000 | $ | (56,000) | $ | 111,000 | $ | 59,994,000 | $ | 39,937,000 | $ | 20,057,000 | ||||||||
| 48 | ||
| 2012 | 2011 | |||||||
| Raw Materials | $ | 5,318,000 | $ | 4,591,000 | ||||
| Packaging | 1,614,000 | 2,204,000 | ||||||
| Finished Goods | 14,224,000 | 13,295,000 | ||||||
| Reserve for Obsolete Inventory | (352,000 | ) | (121,000 | ) | ||||
| $ | 20,804,000 | $ | 19,969,000 | |||||
2012:
| 2013 | 2012 | ||||||
| Raw Materials | $ | 5,381,000 | $ | 5,685,000 | |||
| Packaging | 757,000 | 653,000 | |||||
| Non-food Finished Goods | 855,000 | 961,000 | |||||
| Finished Goods | 11,356,000 | 13,857,000 | |||||
| Reserve for Obsolete Inventory | (290,000) | (352,000) | |||||
| $ | 18,059,000 | $ | 20,804,000 | ||||
| 2012 | 2011 | |||||||
| Land | $ | 650,000 | $ | 650,000 | ||||
| Building and leasehold improvements | 19,366,000 | 14,999,000 | ||||||
| Equipment and fixtures | 51,511,000 | 47,657,000 | ||||||
| Vehicle | 147,000 | 170,000 | ||||||
| $ | 71,674,000 | $ | 63,476,000 | |||||
| Less accumulated depreciation and amortization | 31,565,000 | 24,624,000 | ||||||
| Property, plant and equipment- net | $ | 40,109,000 | $ | 38,852,000 | ||||
Substantially all of the Company’s property, plant and equipment are pledged as collateral for various loans (see Note 12).
2012:
| 2013 | 2012 | ||||||
| Land | $ | 650,000 | $ | 650,000 | |||
| Building and leasehold improvements | $ | 20,041,000 | 19,366,000 | ||||
| Equipment and fixtures | $ | 57,345,000 | 51,511,000 | ||||
| Vehicle | $ | 155,000 | 147,000 | ||||
| $ | 78,191,000 | $ | 71,674,000 | ||||
| Less accumulated depreciation and amortization | $ | 37,855,000 | 31,565,000 | ||||
| Property, plant and equipment- net | $ | 40,336,000 | $ | 40,109,000 | |||
| As of December 31, 2012 | As of December 31, 2011 | ||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Weighted-Avg. Amortization Period | |||||||||||||||
| Customer lists | $ | 235,000 | $ | 206,000 | $ | 235,000 | $ | 128,000 | 3 years | ||||||||||
| Trademarks, patents, and copyrights | 2,437,000 | 2,038,000 | 2,440,000 | 1,544,000 | 4 years | ||||||||||||||
| Total | $ | 2,672,000 | $ | 2,244,000 | $ | 2,675,000 | $ | 1,672,000 | |||||||||||
| As of December 31, 2013 | As of December 31, 2012 | ||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | Weighted-Avg. Amortization Period | |||||||||||
| Customer lists | $ | 235,000 | $ | 235,000 | $ | 235,000 | $ | 206,000 | 3 years | ||||||
| Trademarks, patents, and copyrights | 2,437,000 | 2,437,000 | 2,437,000 | 2,038,000 | 4 years | ||||||||||
| Total | $ | 2,672,000 | $ | 2,672,000 | $ | 2,672,000 | $ | 2,244,000 | |||||||
| 2012 | 2011 | 2010 | ||||||||||
| Customer lists | $ | 78,000 | $ | 78,000 | $ | 50,000 | ||||||
| Trademarks, patents, and copyrights | 494,000 | 378,000 | 241,000 | |||||||||
| Total trademarks and intangibles | $ | 572,000 | $ | 456,000 | $ | 291,000 | ||||||
| 2013 | 2012 | 2011 | ||||||||
| Customer lists | $ | 29,000 | $ | 78,000 | $ | 78,000 | ||||
| Trademarks, patents, and copyrights | 399,000 | 494,000 | 378,000 | |||||||
| Total trademarks and intangibles | $ | 428,000 | $ | 572,000 | $ | 456,000 | ||||
The estimated future amortization expense of trademarks and intangible assets is as follows:
| For the years ending December 31, | Amount | |||
| 2013 | $ | 428,000 | ||
| 49 | ||
| 2012 | 2011 | |||||||
| Trade payables | $ | 16,226,000 | $ | 12,678,000 | ||||
| Sales commissions payable | 5,549,000 | 4,578,000 | ||||||
| Sales tax accrual | 3,295,000 | - | ||||||
| Accrued payroll and related taxes | 3,151,000 | 1,574,000 | ||||||
| $ | 28,221,000 | $ | 18,830,000 | |||||
2012:
| 2013 | 2012 | ||||||
| Trade payables | $ | 14,619,000 | $ | 16,226,000 | |||
| Sales commissions payable | 5,535,000 | 5,549,000 | |||||
| Sales tax payable | 1,335,000 | 3,295,000 | |||||
| Accrued MWCC center closure costs | 1,361,000 | - | |||||
| Accrued payroll and related taxes | 3,930,000 | 3,151,000 | |||||
| $ | 26,780,000 | $ | 28,221,000 | ||||
| Current portion | Operating Leases | Capital Leases | ||||||
| 2013 | $ | 4,570,000 | $ | 338,000 | ||||
| 2014 | 4,508,000 | 248,000 | ||||||
| 2015 | 4,265,000 | 248,000 | ||||||
| 2016 | 3,409,000 | 248,000 | ||||||
| 2017 | 1,650,000 | - | ||||||
| Thereafter | 530,000 | - | ||||||
| Total minimum lease payments | $ | 18,932,000 | $ | 1,082,000 | ||||
| Less amount representing interest | 83,000 | |||||||
| Present value of minimum lease payments | $ | 999,000 | ||||||
| Current portion | 303,000 | |||||||
| Long-term portion | $ | 696,000 | ||||||
2013:
| Current portion | Operating Leases | Capital Leases | |||||
| 2014 | $ | 4,623,000 | $ | 248,000 | |||
| 2015 | 4,381,000 | 248,000 | |||||
| 2016 | 3,508,000 | 248,000 | |||||
| 2017 | 1,734,000 | - | |||||
| 2018 | 430,000 | - | |||||
| Thereafter | 50,000 | - | |||||
| Total minimum lease payments | $ | 14,726,000 | $ | 744,000 | |||
| Less amount representing interest | 48,000 | ||||||
| Present value of minimum lease payments | $ | 696,000 | |||||
| Current portion | 222,000 | ||||||
| Long-term portion | $ | 474,000 | |||||
| 50 | ||
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 The Company accrued for the penalty in the U.S. District Court, Districtsecond quarter of Maryland. The similarly worded complaints allege breach2012 as part 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 U.S. District Judge ordered consolidation of the two cases, appointment of co-lead counsel, and the filing of a consolidated complaint, among other matters. No consolidated complaint has been filed, and therefore 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.
On March 17, 2011, a putative 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 U.S. 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 putative 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 U.S. 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 U.S. 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 these allegations, and subsequently filed a Motion to Dismiss which is currently pending.
The Company filed a civil complaint on February 17, 2010 in the U.S. District Court (SD, Cal) against Barry Minkow and the Fraud Discovery Institute, Inc. (collectively, “Minkow”), iBusiness Reporting, and its editor William Lobdell, Tracy Coenen and Sequence, Inc. (collectively, “Coenan”), “Zee Yourself”, and Robert L. Fitzpatrick (“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 and its meal replacement weight loss products. Bradley T. MacDonald, former Executive Chairman of Medifast, who was also a significant shareholder of the Company, joined the lawsuit individually. The lawsuit seeks $270.0 million in compensatory damages, punitive damages, and ancillary relief. In March 2011, the District Court granted in part and denied in part certain SLAPP Motions (i.e. motions to dismiss) previously filed by all Defendants. The Company continues prosecution of this civil lawsuit and has appealed that portion of the District Court’s ruling which dismissed its defamation claims against Minkow and Coenan. The appeal remains pending in the 9th Circuit Court of Appeals.
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 the Company, 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 disputed the Trustee’s allegations. This action was by Court order placed on hold while the Trustee litigated similar issues against another party. This matter was recently settled by Jason Pharmaceuticals, Inc. for $6,500. Upon court approval of the settlement, all matters related to this case will be resolved.
The Company and its subsidiaries are periodically subject to claims or charges filed by former or current employees or employment applicants alleging discrimination or harassment in violation of various federal or state regulations. The Company does not believe that any of the pending employment-related claims are material.
| 51 | ||
| 2012 | 2011 | 2010 | ||||||||||
| Current | ||||||||||||
| Federal | $ | 9,787,000 | $ | 2,347,000 | $ | 9,688,000 | ||||||
| State | 132,000 | 777,000 | 2,463,000 | |||||||||
| Total Current | 9,919,000 | 3,124,000 | 12,151,000 | |||||||||
| Deferred | ||||||||||||
| Federal | $ | (1,210,000 | ) | $ | 5,446,000 | $ | (62,000 | ) | ||||
| State | (127,000 | ) | 569,000 | (8,000 | ) | |||||||
| Total Deferred | (1,337,000 | ) | 6,015,000 | (70,000 | ) | |||||||
| Total Income Tax Expense | $ | 8,582,000 | $ | 9,139,000 | $ | 12,081,000 | ||||||
| 2013 | 2012 | 2011 | ||||||||
| Current | ||||||||||
| Federal | $ | 11,308,000 | $ | 9,787,000 | $ | 2,347,000 | ||||
| State | (202,000) | 132,000 | 777,000 | |||||||
| Total Current | 11,106,000 | 9,919,000 | 3,124,000 | |||||||
| Deferred | ||||||||||
| Federal | $ | (863,000) | $ | (1,210,000) | $ | 5,446,000 | ||||
| State | (25,000) | (127,000) | 569,000 | |||||||
| Total Deferred | (888,000) | (1,337,000) | 6,015,000 | |||||||
| Total Income Tax Expense | $ | 10,218,000 | $ | 8,582,000 | $ | 9,139,000 | ||||
| 2012 | 2011 | 2010 | ||||||||||
| Deferred Compensation | - | 301,000 | 314,000 | |||||||||
| Reserves on inventory and sales | 336,000 | 242,000 | 140,000 | |||||||||
| Credit and loss carryforwards | 692,000 | 545,000 | 178,000 | |||||||||
| Stock compensation | - | - | 601,000 | |||||||||
| Other | 690,000 | 516,000 | 77,000 | |||||||||
| Inventory Capitalization | 526,000 | 555,000 | - | |||||||||
| Sales tax accrual | 1,228,000 | - | - | |||||||||
| Total deferred tax assets | 3,472,000 | 2,159,000 | 1,310,000 | |||||||||
| Unrealized gain/loss on investments | (333,000 | ) | (250,000 | ) | (145,000 | ) | ||||||
| Prepaid expenses | (752,000 | ) | (426,000 | ) | (429,000 | ) | ||||||
| Depreciation | (7,729,000 | ) | (8,075,000 | ) | (1,317,000 | ) | ||||||
| Stock compensation | (105,000 | ) | (109,000 | ) | - | |||||||
| Total deferred tax liabilities | (8,919,000 | ) | (8,860,000 | ) | (1,891,000 | ) | ||||||
| Net deferred tax liabilities | $ | (5,447,000 | ) | $ | (6,701,000 | ) | $ | (581,000 | ) | |||
| 2013 | 2012 | 2011 | ||||||||
| Deferred compensation | - | - | 301,000 | |||||||
| Reserves on inventory and sales | 332,000 | 336,000 | 242,000 | |||||||
| Credit and loss carryforwards | 413,000 | 692,000 | 545,000 | |||||||
| Stock compensation | 896,000 | - | - | |||||||
| Accrued expenses and deferred costs | 1,260,000 | 690,000 | 516,000 | |||||||
| Inventory capitalization | 337,000 | 526,000 | 555,000 | |||||||
| Sales tax accrual | 337,000 | 1,228,000 | - | |||||||
| Total deferred tax assets | 3,575,000 | 3,472,000 | 2,159,000 | |||||||
| Unrealized gain/loss on investments | (476,000) | (333,000) | (250,000) | |||||||
| Prepaid expenses | (710,000) | (752,000) | (426,000) | |||||||
| Depreciation | (7,091,000) | (7,729,000) | (8,075,000) | |||||||
| Stock compensation | - | (105,000) | (109,000) | |||||||
| Total deferred tax liabilities | (8,277,000) | (8,919,000) | (8,860,000) | |||||||
| Net deferred tax liabilities | $ | (4,702,000) | $ | (5,447,000) | $ | (6,701,000) | ||||
| 2012 | 2011 | 2010 | ||||||||||||||||||||||
| Statutory federal tax | $ | 8,559,000 | 35.0 | % | $ | 9,688,000 | 35.0 | % | $ | 11,093,000 | 35.0 | % | ||||||||||||
| State income taxes, net of federal benefit | 679,000 | 2.8 | % | 1,015,000 | 3.7 | % | 1,699,000 | 5.4 | % | |||||||||||||||
| Domestic manufacturer deduction | (902,000 | ) | -3.7 | % | (248,000 | ) | -0.9 | % | (861,000 | ) | -2.7 | % | ||||||||||||
| FTC settlement | 1,389,000 | 5.7 | % | - | - | |||||||||||||||||||
| Other permanent differences | (190,000 | ) | -0.8 | % | 71,000 | 0.3 | % | 75,000 | 0.2 | % | ||||||||||||||
| Research and development and jobs credits | (267,000 | ) | -1.1 | % | (336,000 | ) | -1.2 | % | - | |||||||||||||||
| Other state income tax benefits | (686,000 | ) | -2.8 | % | (1,051,000 | ) | -3.9 | % | - | |||||||||||||||
| Other | - | - | 75,000 | 0.2 | % | |||||||||||||||||||
| $ | 8,582,000 | 35.1 | % | $ | 9,139,000 | 33.0 | % | $ | 12,081,000 | 38.1 | % | |||||||||||||
| 2013 | 2012 | 2011 | ||||||||||||||||||||||
| Statutory federal tax | $ | 11,965,000 | 35.0 | % | $ | 8,559,000 | 35.0 | % | $ | 9,688,000 | 35.0 | % | ||||||||||||
| State income taxes, net of federal benefit | 304,000 | 0.9 | % | 679,000 | 2.8 | % | 1,015,000 | 3.7 | % | |||||||||||||||
| Domestic manufacturer deduction | (979,000) | -2.9 | % | (902,000) | -3.7 | % | (248,000) | -0.9 | % | |||||||||||||||
| FTC settlement | - | 0.0 | % | 1,389,000 | 5.7 | % | - | |||||||||||||||||
| Other permanent differences | 173,000 | 0.5 | % | (190,000) | -0.8 | % | 71,000 | 0.3 | % | |||||||||||||||
| Research and development and jobs credits | (459,000) | -1.3 | % | (267,000) | -1.1 | % | (336,000) | -1.2 | % | |||||||||||||||
| Other state income tax benefits | (707,000) | -2.1 | % | (686,000) | -2.8 | % | (1,051,000) | -3.9 | % | |||||||||||||||
| Other | (79,000) | -0.2 | % | - | - | |||||||||||||||||||
| $ | 10,218,000 | 29.9 | % | $ | 8,582,000 | 35.1 | % | $ | 9,139,000 | 33.0 | % | |||||||||||||
2013 the Company benefited from research and development credits effective January 1, 2013, applicable retroactively to 2012 activity.
SHARE-BASED COMPENSATION
| Shares | Weighed-Average Grant Date Fair Value | |||||||
| Unvested at December 31, 2011 | 455,256 | $ | 7.08 | |||||
| Granted | 15,770 | 17.46 | ||||||
| Vested | (313,359 | ) | 7.07 | |||||
| Forfeited | (8,000 | ) | 6.55 | |||||
| Unvested at December 31, 2012 | 149,667 | $ | 8.21 | |||||
| Weighed-Average | ||||||
| Shares | Grant Date Fair Value | |||||
| Unvested at December 31, 2012 | 149,667 | $ | 8.21 | |||
| Granted | 365,856 | 25.12 | ||||
| Vested | (122,000) | 7.24 | ||||
| Forfeited | - | - | ||||
| Unvested at December 31, 2013 | 393,523 | $ | 24.23 | |||
In September 2012, the 2012 Share Incentive Plan was approved at the 2012 Annual Meeting of Shareholders. The plan has a ten year term, expiring in 2022, and allows for an additional 1,000,000 shares of Company stock to be issued to participants. The awards may be issued in the form of stock options, stock appreciation rights, and restricted shares. No shares have been granted for this incentive plan as of December 31, 2012.
| 2012 | 2011 | |||||||
| $3,000,000 ten-year term loan with Merrill Lynch at LIBOR plus 1.3%, approximately 1.51% at December 31, 2012. Due 2017. | 2,225,000 | $ | 2,375,000 | |||||
| $1,500,000 ten-year term loan with Merrill Lynch at LIBOR plus 1.3%, approximately 1.51% at December 31, 2012. Due 2017. | 1,113,000 | 1,188,000 | ||||||
| $2,600,000 three-year term loan with Bank of America at LIBOR plus 2%, and repaid in August 2012. | - | 893,000 | ||||||
| $ | 3,338,000 | $ | 4,456,000 | |||||
| Less current portion | 225,000 | 1,119,000 | ||||||
| $ | 3,113,000 | $ | 3,337,000 | |||||
2012:
| 2013 | 2012 | ||||||
| $3,000,000 ten-year term loan with Merrill Lynch at LIBOR plus 1.3%, approximately 1.51% at December 31, 2012. Due 2017, repaid in 2013. | - | $ | 2,225,000 | ||||
| $1,500,000 ten-year term loan with Merrill Lynch at LIBOR plus 1.3%, approximately 1.51% at December 31, 2012. Due 2017, repaid in 2013. | - | 1,113,000 | |||||
| $ | - | $ | 3,338,000 | ||||
| Less current portion | - | 225,000 | |||||
| $ | - | $ | 3,113,000 | ||||
Future principal payments on long-term debt are as follows:
| 2013 | $ | 225,000 | ||
| 2014 | 225,000 | |||
| 2015 | 225,000 | |||
| 2016 | 225,000 | |||
| 2017 | 225,000 | |||
| Thereafter | 2,213,000 | |||
| $ | 3,338,000 |
2, 2014
.| 52 | ||
| Year Ended December 31, 2012 | ||||||||||||||||
| Medifast | MWCC & Wholesale | Other | Consolidated | |||||||||||||
| Revenues | $ | 300,511,000 | $ | 56,195,000 | $ | - | $ | 356,706,000 | ||||||||
| Cost of Sales | 74,984,000 | 13,687,000 | - | 88,671,000 | ||||||||||||
| Selling, General and Administrative Expense | 184,615,000 | 40,194,000 | 8,759,000 | 233,568,000 | ||||||||||||
| Depreciation and Amortization | 8,081,000 | 2,864,000 | 260,000 | 11,205,000 | ||||||||||||
| Interest(net) and other | 141,000 | 26,000 | (1,363,000 | ) | (1,196,000 | ) | ||||||||||
| Income before income taxes | $ | 32,690,000 | $ | (576,000 | ) | $ | (7,656,000 | ) | $ | 24,458,000 | ||||||
| Segment Assets | $ | 86,944,000 | $ | 14,610,000 | $ | 28,697,000 | $ | 130,251,000 | ||||||||
| Year Ended December 31, 2011 | ||||||||||||||||
| Medifast | MWCC & Wholesale | Other | Consolidated | |||||||||||||
| Revenues | $ | 259,191,000 | $ | 38,998,000 | $ | - | $ | 298,189,000 | ||||||||
| Cost of Sales | 63,888,000 | 9,805,000 | - | 73,693,000 | ||||||||||||
| Selling, General and Administrative Expense | 152,647,000 | 30,335,000 | 5,788,000 | 188,770,000 | ||||||||||||
| Depreciation and Amortization | 6,416,000 | 1,596,000 | 332,000 | 8,344,000 | ||||||||||||
| Interest(net) and other | 30,000 | - | (328,000 | ) | (298,000 | ) | ||||||||||
| Income before income taxes | $ | 36,210,000 | $ | (2,738,000 | ) | $ | (5,792,000 | ) | $ | 27,680,000 | ||||||
| Segment Assets | $ | 64,388,000 | $ | 12,658,000 | $ | 28,619,000 | $ | 105,665,000 | ||||||||
| Year Ended December 31, 2010 | ||||||||||||||||
| Medifast | MWCC & Wholesale | Other | Consolidated | |||||||||||||
| Revenues | $ | 229,879,000 | $ | 27,673,000 | $ | - | $ | 257,552,000 | ||||||||
| Cost of Sales | 58,795,000 | 6,288,000 | - | 65,083,000 | ||||||||||||
| Selling, General and Administrative Expense | 135,441,000 | 13,837,000 | 5,693,000 | 154,971,000 | ||||||||||||
| Depreciation and Amortization | 4,765,000 | 786,000 | 307,000 | 5,858,000 | ||||||||||||
| Interest(net) and other | 105,000 | - | (157,000 | ) | (52,000 | ) | ||||||||||
| Income before income taxes | $ | 30,773,000 | $ | 6,762,000 | $ | (5,843,000 | ) | $ | 31,692,000 | |||||||
| Segment Assets | $ | 55,858,000 | $ | 9,301,000 | $ | 28,900,000 | $ | 94,059,000 | ||||||||
2011:
| Year Ended December 31, 2013 | |||||||||||||
| MWCC & | |||||||||||||
| Medifast | Wholesale | Other | Consolidated | ||||||||||
| Revenues | $ | 304,249,000 | $ | 52,637,000 | $ | - | $ | 356,886,000 | |||||
| Cost of Sales | 75,200,000 | 13,840,000 | - | 89,040,000 | |||||||||
| Selling, General and Administrative Expense | 182,098,000 | 34,899,000 | 5,877,000 | 222,874,000 | |||||||||
| Depreciation and Amortization | 7,600,000 | 3,520,000 | 262,000 | 11,382,000 | |||||||||
| Interest(net) and other | 82,000 | 36,000 | (715,000) | (597,000) | |||||||||
| Income before income taxes | $ | 39,269,000 | $ | 342,000 | $ | (5,424,000) | $ | 34,187,000 | |||||
| Segment Assets | $ | 76,182,000 | $ | 10,950,000 | $ | 45,518,000 | $ | 132,650,000 | |||||
| Year Ended December 31, 2012 | |||||||||||||
| MWCC & | |||||||||||||
| Medifast | Wholesale | Other | Consolidated | ||||||||||
| Revenues | $ | 300,511,000 | $ | 56,195,000 | $ | - | $ | 356,706,000 | |||||
| Cost of Sales | 74,984,000 | 13,687,000 | - | 88,671,000 | |||||||||
| Selling, General and Administrative Expense | 184,615,000 | 40,194,000 | 8,759,000 | 233,568,000 | |||||||||
| Depreciation and Amortization | 8,081,000 | 2,864,000 | 260,000 | 11,205,000 | |||||||||
| Interest(net) and other | 141,000 | 26,000 | (1,363,000) | (1,196,000) | |||||||||
| Income before income taxes | $ | 32,690,000 | $ | (576,000) | $ | (7,656,000) | $ | 24,458,000 | |||||
| Segment Assets | $ | 86,944,000 | $ | 14,610,000 | $ | 28,697,000 | $ | 130,251,000 | |||||
| Year Ended December 31, 2011 | |||||||||||||
| MWCC & | |||||||||||||
| Medifast | Wholesale | Other | Consolidated | ||||||||||
| Revenues | $ | 259,191,000 | $ | 38,998,000 | $ | - | $ | 298,189,000 | |||||
| Cost of Sales | 63,888,000 | 9,805,000 | - | 73,693,000 | |||||||||
| Selling, General and Administrative Expense | 152,647,000 | 30,335,000 | 5,788,000 | 188,770,000 | |||||||||
| Depreciation and Amortization | 6,416,000 | 1,596,000 | 332,000 | 8,344,000 | |||||||||
| Interest(net) and other | 30,000 | - | (328,000) | (298,000) | |||||||||
| Income before income taxes | $ | 36,210,000 | $ | (2,738,000) | $ | (5,792,000) | $ | 27,680,000 | |||||
| Segment Assets | $ | 64,388,000 | $ | 12,658,000 | $ | 28,619,000 | $ | 105,665,000 | |||||
| 53 | ||
No. | ||
| 3.1 | Certificate of Incorporation of the Company and amendments | |
| 3.2 | ||
| 3.3 | Amendment to the Amended and Restated By Laws incorporated by reference to Exhibit 3.1 to the Company’s current report on Form 8-K filed on February 11, 2014. | |
| 10.1 | 2012 Share Incentive | |
| 10.2 | Form of Incentive Stock Option Agreement incorporated by reference to Exhibit 99.1 of the Company’s current report on Form 8-K filed February 4, 2014.* | |
| 10.3 | Lease relating to the Company's Owings Mills, Maryland | |
| 21.1 | Subsidiaries of Medifast, Inc. (filed herewith). | |
| 23.1 | Consent of McGladrey LLP (filed herewith). | |
| 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 | |
| 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 | |
| Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (furnished herewith). |
| 101 | The following financial statements from Medifast, Inc.’s Annual Report on Form |
| MEDIFAST, INC. | ||
| (Registrant) | ||
| /s/ MICHAEL C. MACDONALD | ||
| Michael C. MacDonald | ||
| (Principal Executive Officer) | ||
| Dated: March | 17, 2014 | |
| /s/ TIMOTHY G. ROBINSON | ||
| Timothy G. Robison | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| Dated: March | 14, 2014 | |
| 54 | ||
| Name | Title | Date | ||
| /s/ HARVEY C. BARNUM | Director | March | ||
Harvey C. Barnum | ||||
| /s/ BARRY B. BONDROFF, CPA | Lead Director | March | ||
Barry B. Bondroff, CPA | ||||
| /s/ KEVIN G. BRYNES | Director | March 14, 2014 | ||
Kevin G. Brynes | ||||
| /s/ CHARLES P. CONNOLLY | Director | March | ||
Charles P. Connolly | ||||
| /s/ JASON L. GROVES, | ||||
| Director | March | |||
Jason L. Groves, Esq. | ||||
| /s/ MICHAEL C. MACDONALD | Chairman and Chief Executive Officer | March | ||
Michael C. MacDonald | Director | |||
| /s/ JERRY D. REECE | Director | March | ||
Jerry D. Reece | ||||
| /s/ REV. DONALD F. REILLY, OSA | Director | March | ||
Rev. Donald F. Reilly, OSA | ||||
| /s/ CARL E. SASSANO | Director | March 14, 2014 | ||
Carl E. Sassano | ||||
| /s/ MARGARET E. SHEETZ | Director | March | ||
Margaret E. Sheetz |
| 55 | ||