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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended
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Jun. 30, 2014
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Mannatech, Incorporated (together with its subsidiaries, the “Company”), located in Coppell, Texas, was incorporated in the state of Texas on November 4, 1993 and is listed on the NASDAQ Global Select Market (“Nasdaq”) under the symbol “MTEX”. The Company develops, markets, and sells high-quality, proprietary nutritional supplements, topical and skin care products, and weight-management products. We currently sell our products into three regions: (i) North America (the United States, Canada and Mexico); (ii) Europe/Middle East/Africa, or “EMEA” (Austria, the Czech Republic, Denmark, Estonia, Finland, Germany, the Republic of Ireland, Namibia, the Netherlands, Norway, South Africa, Sweden, and the United Kingdom); (iii) Asia/Pacific (Australia, Japan, New Zealand, the Republic of Korea, Singapore, Taiwan and Hong Kong). On March 21, 2014, the Company announced temporary suspension of operations in Ukraine due to political turmoil and ongoing instability in the country. Independent associates (“associates”) purchase the Company’s products at published wholesale prices to either sell to retail customers or for personal use. Members purchase the Company’s products at a discount from published retail prices primarily for personal use. The Company cannot distinguish products sold for personal use from other sales because it is not involved with the products after delivery, other than usual and customary product warranties and returns. Only associates are eligible to earn commissions and incentives. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with instructions for Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the Company’s consolidated financial statements and footnotes contained herein do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) to be considered “complete financial statements”. However, in the opinion of the Company’s management, the accompanying unaudited consolidated financial statements and footnotes contain all adjustments, including normal recurring adjustments, considered necessary for a fair presentation of the Company’s consolidated financial information as of, and for, the periods presented. The Company cautions that its consolidated results of operations for an interim period are not necessarily indicative of its consolidated results of operations to be expected for its fiscal year. The December 31, 2013 consolidated balance sheet was included in the audited consolidated financial statements in the Company’s annual report on Form 10-K for the year ended December 31, 2013 and filed with the United States Securities and Exchange Commission (the “SEC”) on March 18, 2014 (the “2013 Annual Report”), which includes all disclosures required by GAAP. Therefore, these unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2013 Annual Report. Principles of Consolidation The consolidated financial statements and footnotes include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Reclassifications Certain reclassifications have been made to the financial statements for prior periods to conform to the current period presentation. Use of Estimates The preparation of the Company’s consolidated financial statements in accordance with generally accepted accounting principles requires the use of estimates that affect the reported value of assets, liabilities, revenues and expenses. These estimates are based on historical experience and various other factors. The Company continually evaluates the information used to make these estimates as the business and economic environment changes. Historically, actual results have not varied materially from the Company’s estimates, and the Company does not currently anticipate a significant change in its assumptions related to these estimates. However, actual results may differ from these estimates under different assumptions or conditions. The use of estimates is pervasive throughout the consolidated financial statements, but the accounting policies and estimates considered the most significant are described in this note to the consolidated financial statements, Organization and Summary of Significant Accounting Policies. Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company includes in its cash and cash equivalents credit card receivables due from its credit card processor, as the cash proceeds from credit card receivables are received within 24 to 72 hours of submission to the credit card processor. As of each of June 30, 2014 and December 31, 2013, credit card receivables were $2.7 million and $0.6 million, respectively. As of each of June 30, 2014 and December 31, 2013, cash and cash equivalents held in bank accounts in foreign countries totaled $23.1 million and $14.7 million, respectively. The Company invests cash in liquid instruments, such as money market funds and interest bearing deposits. The Company also holds cash in high quality financial institutions and does not believe it has an excessive exposure to credit concentration risk. Restricted Cash The Company is required to restrict cash for: (i) direct selling insurance premiums and credit card sales in the Republic of Korea; (ii) reserve on credit card sales in the United States and Canada; and (iii) the Australia building lease collateral. As of June 30, 2014 and December 31, 2013, our total restricted cash was $5.9 million and $5.8 million, respectively. Accounts Receivable Accounts receivable are carried at their estimated collectible amounts. Receivables are created upon shipment of an order if the credit card payment is rejected or does not match the order total. As of June 30, 2014 and December 31, 2013, receivables consisted primarily of amounts due from members and associates. The Company periodically evaluates its receivables for collectability based on historical experience, recent account activities, and the length of time receivables are past due and writes-off receivables when they become uncollectible. As of each of June 30, 2014 and December 31, 2013, the Company held an allowance for doubtful accounts of $0.3 million and $0.1 million, respectively. Inventories Inventories consist of raw materials, finished goods, and promotional materials that are stated at the lower of cost or market (using standard costs that approximate average costs). The Company periodically reviews inventories for obsolescence, and any inventories identified as obsolete are reserved or written off. Other Assets As of June 30, 2014 and December 31, 2013, other assets were $3.9 million and $3.6 million, respectively, and primarily consisted of deposits for building leases in various locations of $1.7 million and $1.4 million, respectively. Additionally, included in the June 30, 2014 and December 31, 2013 balances was $1.8 million, representing a deposit with Mutual Aid Cooperative and Consumer in the Republic of Korea, an organization established by the Republic of Korea’s Fair Trade Commission to protect consumers who participate in network marketing activities. Also included in the June 30, 2014 and December 31, 2013 balances was $0.2 million of indefinite lived intangible assets relating to the Manapol ® powder trademark. Other Long-Term Liabilities Other long-term liabilities were $2.2 million and $2.1 million as of June 30, 2014 and December 31, 2013, respectively. At June 30 and December 31, 2013, the Company recorded $0.7 million in other long-term liabilities related to uncertain income tax positions (see Note 8, Income Taxes of the Company’s 10-K, filed March 18, 2014). Certain operating leases for the Company’s regional office facilities contain a restoration clause that requires the Company to restore the premises to its original condition. Accrued restoration costs related to these leases amounted to $0.4 million and $0.2 million at June 30, 2014 and December 31, 2013, respectively. The Company also recorded a long-term liability for estimated defined benefit obligation related to a non-U.S. defined benefit plan for its Japan operations of $0.7 million and $0.6 million at June 30, 2014 and December 31, 2013, respectively (See Note 10, Employee Benefit Plans, of the Company’s 10-K, filed March 18, 2014). Revenue Recognition and Deferred Commissions The Company’s revenue is derived from sales of individual products, sales of its starter and renewal packs, and shipping fees. Substantially all of the Company’s product and pack sales are made to associates at published wholesale prices and to members at discounted published retail prices. The Company records revenue net of any sales taxes and records a reserve for expected sales returns based on its historical experience. The Company recognizes revenue from shipped packs and products upon receipt by the customer. Corporate-sponsored event revenue is recognized when the event is held. The Company defers certain components of its revenue. Deferred revenue consisted primarily of: (i) sales of packs and products shipped but not received by the customers by the end of the respective period; (ii) revenue from the loyalty program; and (iii) prepaid registration fees from customers planning to attend a future corporate-sponsored event. At June 30, 2014 and December 31, 2013, the Company’s deferred revenue was $11.3 million and $6.4 million, respectively. During the third quarter of 2013, the Company started a loyalty program through which customers earn loyalty points from qualified automatic orders, which can be applied to future purchases. The Company defers the dollar equivalent in revenue of these points until the points are applied or forfeited, which includes an estimate of the percentage of the unvested loyalty points that are expected to be forfeited. The deferred revenue associated with the loyalty program at June 30, 2014 and December 31, 2013, respectively was $9.1 million and $5.5 million. In total current assets, the Company defers commissions on (i) the sales of packs and products shipped but not received by the customers by the end of the respective period and (ii) the loyalty program. Deferred commissions were $4.8 million and $2.7 million at June 30, 2014 and December 31, 2013, respectively.
Loyalty program |  | (in thousands) |
Loyalty deferred revenue as of June 30, 2013 |  | $ | — |
Loyalty points forfeited |  |  | (1,136 | )
Loyalty points used |  |  | (723 | )
Loyalty points vested |  |  | 5,072 |
Loyalty points unvested |  |  | 2,243 |
Loyalty deferred revenue as of December 31, 2013 |  | $ | 5,456 |
Loyalty deferred revenue as of January 1, 2014 |  | $ | 5,456 |
Loyalty points forfeited |  |  | (2,231 | )
Loyalty points used |  |  | (4,619 | )
Loyalty points vested |  |  | 7,342 |
Loyalty points unvested |  |  | 3,188 |
Loyalty deferred revenue as of June 30, 2014 |  | $ | 9,136 |
We estimate a sales return reserve for expected sales refunds based on our historical experience over a rolling six- month period. If actual results differ from our estimated sales return reserve due to various factors, the amount of revenue recorded each period could be materially affected. Historically, our sales returns have not materially changed through the years, as the majority of our customers who return their merchandise do so within the first 90 days after the original sale. Sales returns have averaged 1.5% or less of our gross sales. For the six months ended June 30, 2014 our sales return reserve consisted of the following (in thousands):
Sales reserve as of January 1, 2014 |  | $ | 238 |
Provision related to sales made in current period |  |  | 774 |
Adjustment related to sales made in prior periods |  |  | 10 |
Actual returns or credits related to current period |  |  | (518 | )
Actual returns or credits related to prior periods |  |  | (250 | )
Sales reserve as of June 30, 2014 |  | $ | 254 |
Shipping and Handling Costs The Company records freight and shipping fees collected from its customers as revenue. The Company records inbound freight as a component of inventory and cost of sales. Total revenue from freight and shipping fees were approximately $1.8 million and $1.9 million for the three months ended June 30, 2014 and 2013, respectively, and $3.7 million and $3.8 million for the six months ended June 30, 2014 and 2013, respectively. Total freight costs for shipping products to our customers included in cost of sales were approximately $1.7 million for the three months ended June 30, 2014 and 2013, respectively, and $3.3 million for the six months ended June 30, 2014 and 2013, respectively. Commissions and Incentives Associates earn commissions and incentives based on their direct and indirect commissionable net sales over 13 business periods each year. Each business period equals 28 days. The Company accrues commissions and incentives when earned by associates and pays commissions on product sales three weeks following the business period end and pays commissions on its pack sales five weeks following the business period end. Total commissions and incentive expenses were approximately $19.8 million and $19.2 million for the three months ended June 30, 2014 and 2013, respectively, and $36.8 million and $36.7 million for the six months ended June 30, 2014 and 2013, respectively. Comprehensive Income (loss) and Accumulated Other Comprehensive Income (loss) Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources and includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. The Company’s comprehensive income (loss) consists of the Company’s net income (loss), foreign currency translation adjustments from its Japan, Republic of Korea, Taiwan, Norway, Sweden, and Ukraine operations, and changes in the pension obligation for its Japanese employees.

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6927468&loc=d3e6003-108592 + Details
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