Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2018

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (the “Company,” “we,” “us,” or “our”) included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), for interim reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnotes that are normally required by GAAP have been condensed or omitted. However, in the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair presentation of the financial position and results of operations have been included and management believes the disclosures that are made are adequate to make the information presented not misleading. The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited consolidated financial statements at that date.

The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2018. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 2017 audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (“2017 Form 10-K”).

Presentation of Financial Statements

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of the Medifast, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Recent Accounting Pronouncements

Accounting Pronouncements Adopted in 2018 –

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue recognition standard requires the Company to recognize revenue for the transfer of goods or services to customers for the amount the Company expects to be entitled to receive in exchange for those goods or services. The Company is required to identify the contract, identify the relevant performance obligations, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when the entity satisfies a performance obligation. Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the guidance. On January 1, 2018, the Company adopted the new revenue standard on a modified retrospective basis and recorded an after-tax transition adjustment to reduce retained earnings as of January 1, 2018 by $2.0 million. This is comprised of $5.6 million of revenue offset by $3.6 million of inventory costs, deferred shipping expense, credit card fees and income taxes. The results of ASC 606 primarily impact the Company’s timing of revenue recognition for product shipments, as product revenue is recognized upon customer receipt instead of at the time of shipment. The new standard requires more extensive revenue-related disclosures.

As required by ASC 606, the impact of the adoption of the new revenue standard on our Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets was as follows (in thousands):


	Three months ended September 30, 2018						Nine months ended September 30, 2018
	As Reported		Balances without adoption of ASC 606		Effect of Change		As Reported		Balances without adoption of ASC 606		Effect of Change

Revenue	$	139,239	$	139,582	$	(343)	$	355,159	$	356,442	$	(1,283)
Cost of sales		32,038		32,071		33		84,351		84,544		193
Gross profit		107,201		107,511		(310)		270,808		271,898		(1,090)

Selling, general, and administrative		89,734		89,831		97		221,548		221,908		360

Income from operations		17,467		17,680		(213)		49,260		49,990		(730)

Other income (expense)
Interest income, net		361		361		-		940		940		-
Other income (expense)		-		-		-		178		178		-
		361		361		-		1,118		1,118		-

Income from operations before income taxes		17,828		18,041		(213)		50,378		51,108		(730)

Provision for income taxes		4,047		4,092		45		10,242		10,396		154

Net income	$	13,781	$	13,949	$	(168)	$	40,136	$	40,712	$	(576)

Earnings per share - basic	$	1.15	$	1.17	$	(0.02)	$	3.34	$	3.39	$	(0.05)

Earnings per share - diluted	$	1.14	$	1.15	$	(0.01)	$	3.31	$	3.36	$	(0.05)

Weighted average shares outstanding -
Basic		11,954		11,954				12,006		12,006
Diluted		12,097		12,097				12,112		12,112


	September 30, 2018
	As Reported		Balances without adoption of ASC 606		Effect of Change

ASSETS
Accounts receivable, net	$	1,017	$	118	$	899
Inventory		43,845		42,793		1,052
Prepaid expenses and other current assets		3,851		3,711		140
Deferred tax assets		2,355		1,656		699

LIABILITIES
Accounts payable and accrued expenses		62,806		57,422		5,384

STOCKHOLDERS' EQUITY
Retained earnings		124,601		127,195		(2,594)

The cumulative effect of the changes made to our January 1, 2018 Condensed Consolidated Balance Sheet from the modified retrospective adoption of ASC 606 was as follows (in thousands):


	Balance at December 31, 2017		Adjustments due to ASC 606		Balance at January 1, 2018

ASSETS
Accounts receivable, net	$	576	$	557	$	1,133
Inventory		19,328		902		20,230
Prepaid expenses and other current assets		4,188		116		4,304
Deferred tax assets		-		336		336

LIABILITIES
Accounts payable and accrued expenses		37,140		4,137		41,277
Deferred tax liabilities		208		(208)		-

STOCKHOLDERS' EQUITY
Retained earnings		103,762		(2,018)		101,744

Recent Accounting Pronouncements –

We have considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition, or cash flows, based on current information, except for:

ASU 2016-02, Leases (Topic 842) requires the rights and obligations of all leased assets with a term greater than 12 months to be presented on the balance sheet. The new guidance also changes the definition of a lease and requires expanded quantitative and qualitative disclosures for both lessees and lessors. The pronouncement is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We plan to adopt ASU 2016-02 on January 1, 2019. The Company currently expects that upon adoption of ASU 2016-02 right-to-use assets and lease liabilities will be recognized in the Company’s Consolidated Balance Sheet in amounts that will be material. Management is currently evaluating the effect that the provisions of ASU 2016-02 will have on the Company’s financial statements.

ASU 2018-02, Income Statement Reporting - Comprehensive Income (Topic 220) allows the reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from tax effects resulting from the Tax Cuts and Jobs Act (TCJA) and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this pronouncement are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We plan to adopt ASU 2018-02 on January 1, 2019. Management is currently evaluating the effect that the provisions of ASU 2018-02 will have on the Company’s financial statements.