MEDIFAST INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ​ MEDIFAST, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ​ ​ Reports of Independent Registered Public Accounting Firm 40 Consolidated Statements of Income 43 Consolidated Statements of Comprehensive Income 44 Consolidated Balance Sheets 45 Consolidated Statements of Cash Flows 46 Consolidated Statements of Changes in Stockholders’ Equity 47 Notes to Consolidated Financial Statements 48 ​ ​ ​ ​ 39 ​ Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Medifast, Inc. and Subsidiaries ​ Opinion on the Internal Control Over Financial Reporting We have audited Medifast, Inc. and Subsidiaries' (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. ​ We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial statements and our report dated February 26, 2021 expressed an unqualified opinion. ​ Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. ​ Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. ​ Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ ​ /s/ RSM US LLP ​ Baltimore, Maryland February 26, 2021 40 ​ Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Medifast, Inc. and Subsidiaries ​ ​ Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Medifast, Inc. and Subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. ​ We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated February 26, 2021 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting. ​ Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. ​ We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. ​ Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. ​ Income Taxes As described in Notes 1 and 11 of the consolidated financial statements, the Company operates in multiple markets in the U.S. and internationally using an e-commerce platform and a direct selling network of OPTA VIA Coaches. The Company's provision for income taxes is impacted based on interpretations of U.S. federal and various state and local income tax laws. Management prepared the Company's provision for income taxes using significant judgment when interpreting the provisions of Treasury and state and local tax regulations and assessing the positions taken as a result of these considerations as to whether or not the amount of benefit recorded would be more-likely-than-not to be sustained upon examination. ​ We identified the evaluation of the Company's provision for income taxes as a critical audit matter due to the significant judgments made by management when assessing the complex provisions of the tax laws and regulations. Auditing the 41 ​ Table of Contents matter required significant auditor judgment and use of our tax specialists, in evaluating the recorded results of management's tax positions and their assessment of the sustainability of these tax positions. ​ Our audit procedures related to the Company’s provision for income taxes included the following, among others: - We obtained an understanding of the relevant controls related to the determination of current and deferred taxes and tested such controls for design and operating effectiveness, including controls related to the interpretation and application of tax laws. ​ - We involved our specialized tax professionals to assist in evaluating the application of Treasury Regulations and state and local tax regulations. Our specialists considered the interpretations of Treasury Regulations, state and local tax positions, and other tax positions requiring significant judgement, made an independent assessment of such positions and related calculations and then compared them to the Company’s recorded positions. ​ - We tested the accuracy and completeness of the data and inputs used to calculate the effective federal and state tax rate, current provision calculations and deferred tax assets/liabilities. ​ /s/ RSM US LLP ​ We have served as the Company's auditor since 2010. ​ Baltimore, Maryland February 26, 2021 ​ ​ ​ ​ ​ ​ 42 ​ Table of Contents MEDIFAST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2020, 2019 and 2018 (U.S. dollars in thousands, except per share amounts & dividend data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue $ 934,842 ​ $ 713,672 ​ $ 501,003 Cost of sales ​ 237,027 ​ ​ 176,814 ​ ​ 121,104 Gross profit ​ 697,815 ​ ​ 536,858 ​ ​ 379,899 ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling, general, and administrative ​ 563,656 ​ ​ 445,819 ​ ​ 310,836 ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from operations ​ 134,159 ​ ​ 91,039 ​ ​ 69,063 ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income ​ ​ ​ ​ ​ ​ ​ ​ Interest income, net ​ 246 ​ ​ 1,295 ​ ​ 1,306 Other income (expense) ​ ( 140 ) ​ ​ 29 ​ ​ 179 ​ ​ 106 ​ ​ 1,324 ​ ​ 1,485 ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from operations before income taxes ​ 134,265 ​ ​ 92,363 ​ ​ 70,548 ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for income taxes ​ 31,406 ​ ​ 14,447 ​ ​ 14,759 ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income $ 102,859 ​ $ 77,916 ​ $ 55,789 ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share - basic $ 8.74 ​ $ 6.62 ​ $ 4.67 ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share - diluted $ 8.68 ​ $ 6.43 ​ $ 4.62 ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares outstanding ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ 11,771 ​ ​ 11,771 ​ ​ 11,947 Diluted ​ 11,850 ​ ​ 12,117 ​ ​ 12,079 ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared per share $ 4.52 ​ $ 3.38 ​ $ 2.19 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 43 ​ Table of Contents ​ MEDIFAST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2020, 2019 and 2018 (U.S. dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income $ 102,859 ​ $ 77,916 ​ $ 55,789 Other comprehensive income (loss), net of tax: ​ ​ ​ ​ ​ ​ ​ ​ Foreign currency translation ​ ( 21 ) ​ ​ 1 ​ ​ ( 2 ) Unrealized gains (losses) on investment securities ​ 37 ​ ​ 197 ​ ​ ( 11 ) Other comprehensive income (loss) ​ 16 ​ ​ 198 ​ ​ ( 13 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Comprehensive income $ 102,875 ​ $ 78,114 ​ $ 55,776 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 44 ​ Table of Contents MEDIFAST, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2020 and 2019 (U.S. dollars in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ 2019 ​ ​ ​ ​ ​ ​ ​ ​ ASSETS Current Assets ​ ​ ​ ​ ​ ​ ​ Cash and cash equivalents ​ ​ $ 163,723 ​ $ 76,974 Accounts receivable - net of doubtful accounts of $ 219 and $ 235 at ​ ​ ​ ​ ​ ​ ​ December 31, 2020 and 2019, respectively ​ ​ ​ 584 ​ ​ 1,437 Inventories ​ ​ ​ 53,392 ​ ​ 48,771 Investment securities ​ ​ ​ 10,752 ​ ​ 15,704 Income taxes, prepaid ​ ​ ​ - ​ ​ 5,169 Prepaid expenses and other current assets ​ ​ ​ 5,863 ​ ​ 6,096 Total current assets ​ ​ ​ 234,314 ​ ​ 154,151 ​ ​ ​ ​ ​ ​ ​ ​ Property, plant and equipment - net of accumulated depreciation ​ ​ ​ 27,633 ​ ​ 26,039 Right-of-use assets ​ ​ ​ 10,508 ​ ​ 12,803 Other assets ​ ​ ​ 2,937 ​ ​ 353 Deferred tax assets ​ ​ ​ 692 ​ ​ 1,307 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TOTAL ASSETS ​ ​ $ 276,084 ​ $ 194,653 ​ ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities ​ ​ ​ ​ ​ ​ ​ Accounts payable and accrued expenses ​ ​ $ 107,677 ​ $ 76,220 Current lease obligations ​ ​ ​ 3,673 ​ ​ 3,168 Total current liabilities ​ ​ ​ 111,350 ​ ​ 79,388 ​ ​ ​ ​ ​ ​ ​ ​ Lease obligations, net of current lease obligations ​ ​ ​ 7,488 ​ ​ 10,433 Total liabilities ​ ​ ​ 118,838 ​ ​ 89,821 ​ ​ ​ ​ ​ ​ ​ ​ Stockholders' Equity ​ ​ ​ ​ ​ ​ ​ Common stock, par value $ .001 per share: 20,000 shares authorized; ​ ​ ​ ​ ​ ​ ​ 11,822 and 12,272 issued and 11,772 and 11,764 outstanding ​ ​ ​ ​ ​ ​ ​ at December 31, 2020 and December 31, 2019, respectively ​ ​ ​ 12 ​ ​ 12 Additional paid-in capital ​ ​ ​ 7,842 ​ ​ - Accumulated other comprehensive income ​ ​ ​ 41 ​ ​ 25 Retained earnings ​ ​ ​ 154,351 ​ ​ 168,788 Less: treasury stock at cost, 46 and 489 shares at December 31, 2020 and ​ ​ ​ ​ ​ ​ ​ December 31, 2019, respectively ​ ​ ​ ( 5,000 ) ​ ​ ( 63,993 ) Total stockholders' equity ​ ​ ​ 157,246 ​ ​ 104,832 ​ ​ ​ ​ ​ ​ ​ ​ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ​ ​ $ 276,084 ​ $ 194,653 ​ The accompanying notes are an integral part of these consolidated financial statements. 45 ​ Table of Contents M EDIFAST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2020, 2019 and 2018 (U.S. dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 102,859 ​ $ 77,916 ​ $ 55,789 Adjustments to reconcile net income to cash provided by operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Depreciation and amortization ​ ​ 7,270 ​ ​ 7,248 ​ ​ 4,435 Share-based compensation ​ ​ 6,796 ​ ​ 4,520 ​ ​ 3,124 Loss on sale of disposal of property, plant and equipment ​ ​ 212 ​ ​ 17 ​ ​ 48 Bad debt expense ​ ​ 556 ​ ​ 3,638 ​ ​ 1,058 Amortization of premium on investment securities ​ ​ 320 ​ ​ 454 ​ ​ 571 Deferred income taxes ​ ​ 601 ​ ​ 1,598 ​ ​ ( 2,687 ) Change in operating assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Accounts receivable ​ ​ 297 ​ ​ ( 4,064 ) ​ ​ ( 936 ) Inventories ​ ​ ( 4,621 ) ​ ​ ( 9,883 ) ​ ​ ( 18,658 ) Income taxes, prepaid ​ ​ 5,169 ​ ​ ( 5,169 ) ​ ​ 2,272 Prepaid expenses and other current assets ​ ​ 233 ​ ​ ( 1,510 ) ​ ​ ( 282 ) Other assets ​ ​ ( 2,506 ) ​ ​ ( 2,615 ) ​ ​ 65 Accounts payable and accrued expenses ​ ​ 28,010 ​ ​ 12,111 ​ ​ 16,017 Net cash flow provided by operating activities ​ ​ 145,196 ​ ​ 84,261 ​ ​ 60,816 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investing Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Sale and maturities of investment securities ​ ​ 4,605 ​ ​ 3,730 ​ ​ 3,545 Sale of property and equipment ​ ​ - ​ ​ - ​ ​ 196 Purchase of property and equipment ​ ​ ( 5,887 ) ​ ​ ( 10,058 ) ​ ​ ( 4,940 ) Net cash flow used in investing activities ​ ​ ( 1,282 ) ​ ​ ( 6,328 ) ​ ​ ( 1,199 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financing Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ Options exercised by executives and directors ​ ​ 1,597 ​ ​ 278 ​ ​ 547 Net shares repurchased for employee taxes ​ ​ ( 551 ) ​ ​ ( 14,092 ) ​ ​ ( 720 ) Cash dividends paid to stockholders ​ ​ ( 53,190 ) ​ ​ ( 35,396 ) ​ ​ ( 23,160 ) Stock repurchases ​ ​ ( 5,000 ) ​ ​ ( 33,114 ) ​ ​ ( 29,995 ) Net cash flow used in financing activities ​ ​ ( 57,144 ) ​ ​ ( 82,324 ) ​ ​ ( 53,328 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Foreign currency impact ​ ​ ( 21 ) ​ ​ 1 ​ ​ ( 2 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Increase (Decrease) in cash and cash equivalents ​ ​ 86,749 ​ ​ ( 4,390 ) ​ ​ 6,287 Cash and cash equivalents - beginning of the period ​ ​ 76,974 ​ ​ 81,364 ​ ​ 75,077 Cash and cash equivalents - end of period ​ $ 163,723 ​ $ 76,974 ​ $ 81,364 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information ​ ​ ​ ​ ​ ​ ​ ​ ​ Income taxes paid ​ $ 24,636 ​ $ 17,314 ​ $ 14,606 Dividends declared included in accounts payable ​ $ 13,831 ​ $ 13,719 ​ $ 9,137 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ ​ 46 ​ Table of Contents MEDIFAST, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Years Ended December 31, 2020, 2019 and 2018 (U.S. dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of Shares Issued ​ ​ Common Stock ​ ​ Additional Paid-In Capital ​ ​ Accumulated Other Comprehensive Income (Loss) ​ ​ Retained Earnings ​ ​ Treasury Stock ​ ​ Total ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, January 1, 2018 ​ 12,103 ​ ​ 12 ​ ​ 4,967 ​ ​ ( 160 ) ​ ​ 101,744 ​ ​ - ​ ​ 106,563 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 55,789 ​ ​ - ​ ​ 55,789 Share-based compensation ​ 19 ​ ​ - ​ ​ 3,124 ​ ​ - ​ ​ - ​ ​ - ​ ​ 3,124 Options exercised by executives and directors ​ 34 ​ ​ - ​ ​ 547 ​ ​ - ​ ​ - ​ ​ - ​ ​ 547 Net shares repurchased for employee taxes ​ ( 7 ) ​ ​ - ​ ​ ( 720 ) ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 720 ) Restricted shares forfeitures ​ ( 40 ) ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - Treasury stock from cashless options ​ 8 ​ ​ - ​ ​ 884 ​ ​ - ​ ​ - ​ ​ ( 884 ) ​ ​ - Treasury stock from stock repurchases ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 29,995 ) ​ ​ ( 29,995 ) Other comprehensive loss ​ - ​ ​ - ​ ​ - ​ ​ ( 13 ) ​ ​ - ​ ​ - ​ ​ ( 13 ) Cash dividends declared to stockholders ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 26,189 ) ​ ​ - ​ ​ ( 26,189 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2018 ​ 12,117 ​ ​ 12 ​ ​ 8,802 ​ ​ ( 173 ) ​ ​ 131,344 ​ ​ ( 30,879 ) ​ ​ 109,106 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 77,916 ​ ​ - ​ ​ 77,916 Share-based compensation ​ 273 ​ ​ - ​ ​ 4,520 ​ ​ - ​ ​ - ​ ​ - ​ ​ 4,520 Options exercised by executives and directors ​ 10 ​ ​ - ​ ​ 278 ​ ​ - ​ ​ - ​ ​ - ​ ​ 278 Net shares repurchased for employee taxes ​ ( 128 ) ​ ​ - ​ ​ ( 13,600 ) ​ ​ - ​ ​ ( 492 ) ​ ​ - ​ ​ ( 14,092 ) Treasury stock from stock repurchases ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 33,114 ) ​ ​ ( 33,114 ) Other comprehensive income ​ - ​ ​ - ​ ​ - ​ ​ 198 ​ ​ - ​ ​ - ​ ​ 198 Cash dividends declared to stockholders ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 39,980 ) ​ ​ - ​ ​ ( 39,980 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2019 ​ 12,272 ​ $ 12 ​ $ - ​ $ 25 ​ $ 168,788 ​ $ ( 63,993 ) ​ $ 104,832 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ 102,859 ​ ​ - ​ ​ 102,859 Share-based compensation ​ 17 ​ ​ - ​ ​ 6,796 ​ ​ - ​ ​ - ​ ​ - ​ ​ 6,796 Options exercised by executives and directors ​ 28 ​ ​ - ​ ​ 1,597 ​ ​ - ​ ​ - ​ ​ - ​ ​ 1,597 Net shares repurchased for employee taxes ​ ( 6 ) ​ ​ - ​ ​ ( 551 ) ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 551 ) Retirement of treasury stock ​ ( 489 ) ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 63,993 ) ​ ​ 63,993 ​ ​ - Treasury stock from stock repurchases ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 5,000 ) ​ ​ ( 5,000 ) Other comprehensive income ​ - ​ ​ - ​ ​ - ​ ​ 16 ​ ​ - ​ ​ - ​ ​ 16 Cash dividends declared to stockholders ​ - ​ ​ - ​ ​ - ​ ​ - ​ ​ ( 53,303 ) ​ ​ - ​ ​ ( 53,303 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2020 ​ 11,822 ​ $ 12 ​ $ 7,842 ​ $ 41 ​ $ 154,351 ​ $ ( 5,000 ) ​ $ 157,246 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ 47 ​ Table of Contents MEDIFAST, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2020, 2019, and 2018 1. NATURE OF THE BUSINESS Medifast, Inc. (the “Company” or “Medifast”) is a Delaware corporation, incorporated in 1989. The Company’s operations are primarily conducted through its wholly owned subsidiaries, Jason Pharmaceuticals, Inc., OPTA VIA, LLC, Jason Enterprises, Inc., Jason Properties, LLC, Medifast Franchise Systems, Inc., Seven Crondall Associates, LLC, Corporate Events, Inc., OPTA VIA (Hong Kong) Limited, OPTA VIA (Singapore) PTE. LTD and OPTA VIA Health Consultation (Shanghai) Co., Ltd. Medifast is the company behind one of the fastest-growing health and wellness communities called OPTA VIA ® . OPTA VIA is a highly effective lifestyle solution for people for whom diets alone have failed. The Company has one modern, United States Food and Drug Administration (the “FDA”) approved manufacturing facility located in Owings Mills, Maryland. Medifast sells a variety of weight loss, weight management and healthy living products all based on our proprietary formulas under the Medifast ® , OPTA VIA ® , Thrive by Medifast, Optimal Health by Take Shape for Life, and Flavors of Home ® brands. The Company’s product line includes more than 137 consumable options, including, but not limited to, bars, bites, pretzels, puffs, cereal crunch, drinks, hearty choices, oatmeal, pancakes, pudding, soft serve, shakes, smoothies, soft bakes, and soups. Medifast’s nutritional products are formulated with high-quality ingredients. The processing, formulation, packaging, labeling and advertising of the Company’s products are subject to regulation by one or more federal agencies, including the FDA, the Federal Trade Commission (the “FTC”), the Consumer Product Safety Commission, the United States Department of Agriculture, and the United States Environmental Protection Agency. 2. SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company’s fiscal year ends on December 31. Reclassification - Certain amounts reported for prior periods have been reclassified to be consistent with the current period presentation. No reclassification in the consolidated financial statements had a material impact on the presentation. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles in the United States 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. Cash and Cash Equivalents - Cash and cash equivalents consist of cash on deposit in financial institutions, institutional money funds and other short-term investments with a maturity of 90 days or less at the time of purchase. Concentration of Credit Risk - Our cash and cash equivalents and available-for-sale securities are maintained at several financial institutions and the balances with these financial institutions often exceed the amount of insurance provided on such accounts by the Federal Deposit Insurance Corporation. The cash and cash equivalents generally are maintained with financial institutions with reputable credit, and therefore bear minimal credit risk. Historically, we have not experienced any losses due to such concentration of credit risk. Fair Value of Financial Instruments - Our financial instruments include cash and cash equivalents, investment in available-for-sale securities, and trade receivables. The carrying amounts of cash and cash equivalents and trade receivables approximate fair value due to their short maturities. The fair value of investments in available-for-sale securities are based on third-party pricing services provided by the Company’s investment advisory firm. 48 ​ Table of Contents Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable are recorded net of provisions for doubtful accounts. We estimate losses on account receivable based on expected losses, including our historical experience of actual losses. Accounts receivable is considered impaired and written-off when it is probable that all contractual payments due will not be collected in accordance with the terms of the agreement. The allowance for doubtful accounts as of December 31, 2020 and 2019 was $ 0.2 million. Inventories - Inventories consist principally of raw materials and packaged meal replacements held in the Company’s warehouses and outsourced distribution centers. Inventories are stated at the lower of cost or net realizable value, utilizing the first-in, first-out method. The cost of finished goods includes the cost of raw materials, packaging supplies, direct and indirect labor, and other indirect manufacturing costs. On a quarterly basis, management reviews inventories for unsalable or obsolete inventories. Investment Securities - The Company’s investments consist of debt securities classified as available-for-sale securities. Available-for-sale debt securities are stated at fair value and unrealized holding gains and losses, net of the related deferred tax effect, are reported as a separate component of accumulated other comprehensive income (loss) in stockholders’ equity. Interest and dividends on marketable debt securities are recognized in income when declared. Realized gains and losses, if any, are included in income. Property, Plant, and Equipment - Property, plant and equipment are stated at cost less accumulated depreciation and amortization. The Company computes depreciation and amortization using the straight-line method over the estimated useful lives of the assets acquired as follows: ​ ​ ​ ​ Building and building improvements ​ ​ 10 - 35 years Leasehold Improvements (1) ​ ​ Lease term Equipment and fixtures ​ ​ 3 - 15 years Software ​ ​ 5 years Vehicles ​ ​ 5 years ​ (1) The depreciation life for leasehold improvements is the lesser of the estimated useful life of the addition or the term of the related lease. Long-lived Asset Impairment - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Revenue Recognition - Our revenue is derived primarily from point of sale transactions executed over an ecommerce platform for weight loss, weight management, and other consumable health and nutritional products. Revenue is recognized upon receipt by customer and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs, and estimated returns. Revenue is recognized when control of the promised products is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products. When determining whether the customer has obtained control of the products, we consider any future performance obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606, Revenue from Contracts with Customers . A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. Our contracts have performance obligations to fulfill and deliver products from the point of sale transaction along with the related customer reward programs. 49 ​ Table of Contents Our performance obligations are satisfied at a point in time. Revenue from products transferred to clients at a point in time accounted for substantially all of our revenue for the years ended December 31, 2020, 2019 and 2018. Revenue on these contracts is recognized when obligations under the terms of the contract with our customer are satisfied. Generally, this occurs with the transfer of control upon receipt of products by our clients. Any consideration received prior to the fulfillment of the Company’s performance obligation is deferred and recognized as a liability. Sales returns Our return policy allows for customer returns within 30 days of purchase and upon our authorization. We adjust revenues for the products expected to be returned and a liability is recognized for expected refunds to clients. We estimate expected returns based on historical levels and project this experience into the future. Customer reward programs and sales incentives Our sales contracts may give clients the option to purchase additional products priced at a discount. Options to acquire additional products at a discount can come in many forms, such as customer reward programs and incentive offerings including pricing arrangements and promotions. We reduce the transaction price for certain customer reward programs and incentive offerings including pricing arrangements, promotions, and incentives that represent variable consideration and separate performance obligations. The Company accounts for sales rewards that provide the customer with a material right as a separate performance obligation of the transactions, and therefore allocates consideration between the initial sale of products and the customer reward program and incentive offering. Shipping and handling costs Amounts billed to clients for shipping and handling activities are treated as a promised service performance obligation and are recorded in revenue in the accompanying Consolidated Statements of Income upon fulfillment of the performance obligation. Shipping and handling costs incurred by the Company for the delivery of products to clients are considered a cost to fulfill the contract and are included in cost of sales in the accompanying Consolidated Statements of Income. Contract costs We expense sales commissions and credit card fees during the period in which the corresponding revenue is earned. These costs are deferred along with the revenues for goods that are in transit and not received by clients by period end. These costs are recorded in selling, general and administrative expense in the accompanying Consolidated Statements of Income. Leases - The Company determines if an arrangement is a lease at inception and categorizes leases with contractual terms longer than twelve months as either operating or finance. All the Company’s leases are operating leases. The right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The ROU asset also consists of any prepaid lease payments and lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. Advertising Costs - Advertising costs are expensed as incurred, except for the preparation, layout, design and production of advertising costs which are expensed when the advertisement is first used. They are recorded in selling, 50 ​ Table of Contents general, and administrative expense in the accompanying Consolidated Statements of Income. Advertising expense, excluding broker fees, for the years ended December 31, 2020, 2019 and 2018, amounted to $ 4.4 million, $ 5.3 million and $ 6.0 million, respectively. Research and Development - The Company incurs research and development costs in connection with the development of new products and programs, which are expensed as incurred. They are recorded in selling, general, and administrative expense in the accompanying Consolidated Statements of Income. The Company incurred $ 2.8 million, $ 2.7 million and $ 2.2 million in research and development expense for the years ended December 31, 2020, 2019 and 2018, respectively. Share-Based Compensation - Share-based compensation consists primarily of restricted stock awards, market and performance-based share awards, and stock options granted to employees and directors. Restricted stock awards are measured at the grant date, based on the calculated fair value of the award, and are recognized as an expense over the requisite service period. The fair value of the incentive stock options and non-qualified stock options is calculated using the Black-Scholes option pricing model as of the grant date and recognized over the service period. Market and performance-based share awards that are tied to the Company’s total stockholder return and stock price are valued using the Monte Carlo method and are recognized as expense over the award’s achievement period. The Company issues new shares upon the exercise of stock options and the granting of restricted stock awards. Income Taxes - Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. The benefit of a tax position is recognized in the consolidated financial statements in the period during which, based on all available evidence, management believes it is more-likely-than-not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50% likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying Consolidated Balance Sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. We evaluated our tax positions and determined that we did not have any material uncertain tax positions. Our policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense. For the years ended December 31, 2020, 2019 and 2018, no material estimated interest or penalties were recognized for the uncertainty of certain tax positions. We file income tax returns in the United States and various states and foreign jurisdictions. We are generally no longer subject to United States federal, state and local income tax examinations by tax authorities for the years before 2017. Earnings Per Share - Basic earnings per share (“EPS”) computations are calculated utilizing the weighted average number of shares of common stock outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of shares of common stock outstanding adjusted for the effect of dilutive common stock equivalents. Comprehensive Income - Other comprehensive income refers to revenues, expenses, and gains and losses that are not included in net income but rather are recorded directly in stockholders’ equity. Comprehensive income consists of net income, unrealized gains and losses on available-for-sale securities, and foreign currency translation adjustments. Accounting Pronouncements - Adopted in 2020 In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), which addresses the accounting for 51 ​ Table of Contents implementation costs associated with a hosted service. The standard provides amendments to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). On January 1, 2020, the Company adopted ASU 2018-15. The Company capitalized $ 2.9 million in total for the year ended December 31, 2020, principally related to the configuration and development of the Company’s new hosted enterprise resource planning tool (“ERP”). The amortization expense associated with the capitalized costs was $ 0.2 million for the year ended December 31, 2020. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which institutes a new model for recognizing credit losses on financial instruments that are not measured at fair value. On January 1, 2020, the Company adopted ASU 2016-13. There was no material impact on the Company's consolidated financial statements. ​ Recently Issued Accounting Pronouncements - Pending Adoption ​ We have considered all new accounting pronouncements and have concluded that there are no new pronouncements that have the potential for a material impact on our results of operations, financial condition, or cash flows, based on current information, except for: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The standard also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Management has determined the effect that the provisions of ASU 2019-12 will have on the Company’s consolidated financial statements is immaterial. 3. INVENTORIES Inventories consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ Raw materials ​ $ 13,428 ​ $ 10,880 Packaging ​ ​ 4,071 ​ ​ 4,109 Non-food finished goods ​ ​ 8,078 ​ ​ 4,421 Finished goods ​ ​ 29,858 ​ ​ 31,314 Reserve for obsolete inventory ​ ​ ( 2,043 ) ​ ​ ( 1,953 ) Total ​ $ 53,392 ​ $ 48,771 ​ 52 ​ Table of Contents 4. PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ December 31, 2019 Land ​ $ 565 ​ $ 565 Building and leasehold improvements ​ ​ 13,013 ​ ​ 12,890 Equipment and fixtures ​ ​ 20,955 ​ ​ 17,739 Software ​ ​ 20,047 ​ ​ 17,716 Vehicles ​ ​ 145 ​ ​ 145 Property, plant and equipment - gross ​ ​ 54,725 ​ ​ 49,055 Less: accumulated depreciation ​ ​ ( 27,092 ) ​ ​ ( 23,016 ) Property, plant and equipment - net ​ $ 27,633 ​ $ 26,039 ​ Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $ 4.1 million, $ 3.7 million and $ 3.6 million, respectively. 5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ December 31, 2019 Trade payables and accrued expenses ​ $ 35,767 ​ $ 22,608 Sales commissions payable ​ ​ 22,598 ​ ​ 13,186 Dividends payable ​ ​ 13,831 ​ ​ 13,719 Accrued payroll and related taxes ​ ​ 16,948 ​ ​ 10,409 Coach incentive accruals ​ ​ 325 ​ ​ 5,598 Promotional sales incentive accruals ​ ​ 7,621 ​ ​ 4,818 Deferred revenue ​ ​ 7,606 ​ ​ 4,333 Sales tax payable ​ ​ 2,981 ​ ​ 1,549 Total ​ $ 107,677 ​ $ 76,220 ​ ​ 6. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted EPS for the years ended December 31, 2020, 2019 and 2018 (in thousands, except per share data): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Numerator: ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 102,859 ​ $ 77,916 ​ $ 55,789 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Denominator: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted average shares of common stock outstanding ​ ​ 11,771 ​ ​ 11,771 ​ ​ 11,947 Effect of dilutive common stock equivalents ​ ​ 79 ​ ​ 346 ​ ​ 132 Weighted average shares of common stock outstanding ​ ​ 11,850 ​ ​ 12,117 ​ ​ 12,079 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share - basic ​ $ 8.74 ​ $ 6.62 ​ $ 4.67 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per share - diluted ​ $ 8.68 ​ $ 6.43 ​ $ 4.62 ​ 53 ​ Table of Contents The calculation of diluted earnings per share excluded 358 , 984 and 298 antidilutive options outstanding for the years ended December 31, 2020, 2019 and 2018, respectively. The calculation of diluted earnings per share for the years ended December 31, 2020, 2019 and 2018 also excluded 2,658 , 718 and 258 antidilutive restricted stock awards, respectively. ​ 7. EQUITY Authorized Shares Pursuant to the Company’s Restated and Amended Certificate of Incorporation, the Company has the authority to issue 21,500,000 capital shares consisting of: (i) 20,000,000 shares of common stock having a par value of $ 0.001 per share and (ii) 1,500,000 shares of preferred stock having a par value $ 0.001 per share. As of December 31, 2020, there were approximately 11,822,000 and 0 shares of common stock and preferred stock issued, respectively. Issuance of Additional Common Stock On May 18, 2017, the stockholders of the Company approved the Medifast, Inc. Amended and Restated 2012 Share Incentive Plan (the “Amended and Restated 2012 Plan”) that increased the number of shares of the Company’s common stock that may be awarded under the Amended and Restated 2012 Plan by 600,000 , to an aggregate of 1,600,000 . Stock Repurchase Plan The Company implemented a stock repurchase plan on September 16, 2014 (the “Stock Repurchase Plan”). On September 12, 2019, the Company's Board of Directors authorized an additional 2,000,000 shares for repurchase under the Stock Repurchase Plan. The Company repurchased approximately 46,000 and 296,000 shares during the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, there were approximately 2,323,000 shares of common stock remaining under the Company’s Stock Repurchase Plan. There is no guarantee as to the exact number of shares of the Company’s common stock, if any, that will be repurchased under the Stock Repurchase Plan. 8. SHARE-BASED COMPENSATION Stock Options: The Company has issued non-qualified and incentive stock options to employees and nonemployee directors. The fair value of these options are estimated on the date of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield. Options outstanding as of December 31, 2020 generally vest over a period of three years and expire ten years from the date of grant. The exercise price of these options ranges from $ 26.52 to $ 171.68 . Due to the Company’s lack of option exercise history on the date of grant, the expected term is calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each option. The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponds to the expected term of the option. The expected volatility is based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected term for each award. The dividend yield is computed as the annualized dividend rate at the grant date divided by the strike price of the stock option. For the years ended December 31, 2020 and 2019, the Company did no t grant stock options. The weighted average input assumptions used for the year ended December 31, 2018 were as follows: ​ ​ ​ 2018 ​ ​ Expected term (in years) 6.4 Risk-free interest rate 2.64 % Expected volatility 33.30 % Dividend yield 2.87 % ​ 54 ​ Table of Contents The number of stock options and weighted-average exercise prices as of December 31, 2020 and 2019 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ Awards ​ Weighted-Average Exercise Price ​ Awards ​ Weighted-Average Exercise Price (awards in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding at beginning of period 97 ​ $ 52.53 ​ 107 ​ $ 49.26 Exercised ( 28 ) ​ ​ 57.79 ​ ( 10 ) ​ ​ 28.21 Forfeited ( 8 ) ​ ​ 68.45 ​ - ​ ​ - Outstanding at end of the period 61 ​ $ 48.19 ​ 97 ​ $ 52.53 Exercisable at end of the period 44 ​ $ 39.98 ​ 52 ​ $ 40.96 ​ As of December 31, 2020, the weighted-average remaining contractual life was 5.7 years with an aggregate intrinsic value of $ 9.2 million for outstanding stock options and the weighted-average remaining contractual life was 5.2 years with an aggregate intrinsic value of $ 6.9 million for exercisable options. The unrecognized compensation expense calculated under the fair value method for shares expected to vest as of December 31, 2020 was $ 0.2 million and is expected to be recognized over a weighted average period of 2.1 years. The Company received $ 1.6 million, $ 0.3 million and $ 0.5 million in cash proceeds from the exercise of stock options during the years ended December 31, 2020, 2019 and 2018, respectively. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $ 1.5 million, $ 1.0 million and $ 4.1 million, respectively. Restricted Stock: The Company has issued restricted stock to employees and nonemployee directors generally with vesting terms up to five years after the date of grant. The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. A summary of outstanding restricted stock activity as of December 31, 2020 and 2019 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ Shares ​ Weighted-Average Grant Date Fair Value ​ Shares ​ Weighted-Average Grant Date Fair Value (shares in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding at beginning of period 46 ​ $ 98.28 ​ 57 ​ $ 50.55 Granted 43 ​ ​ 113.87 ​ 29 ​ ​ 130.89 Vested ( 32 ) ​ ​ 88.71 ​ ( 37 ) ​ ​ 45.83 Forfeited ( 7 ) ​ ​ 108.86 ​ ( 3 ) ​ ​ 167.48 Outstanding at end of the period 50 ​ $ 116.06 ​ 46 ​ $ 98.28 ​ The Company withheld 0.0 million, 0.1 million and 0.0 million shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the years ended December 31, 2020, 2019 and 2018. The total fair value of restricted stock awards vested during the years ended December 31, 2020, 2019 and 2018 was $ 3.7 million, $ 4.7 million and $ 8.6 million, respectively. Share-based compensation expense is recorded in selling, general, and administrative expense in the accompanying Consolidated Statements of Income. The total costs during the years ended December 31, 2020, 2019 and 2018 was $ 6.8 million, $ 4.5 million, and $ 3.1 million, respectively. The total costs of the options and restricted stock awards was $ 3.5 million, $ 2.9 million and $ 2.2 million during the years ended December 31, 2020, 2019 and 2018, respectively. Included for the years ended December 31, 2020 and 2019 was $ 1.6 million and $ 0.7 million, respectively, for 16,637 and 17,780 performance-based share awards for certain other key executives granted in 2019. Also included for the year ended December 31, 2020 was $ 1.7 million for 27,525 performance-based share awards for certain key executives granted in 2020. Additionally, included in the years ended December 31, 2019 and 2018 was $ 0.3 million, respectively, for 63,300 performance-based share awards for certain key executives, and $ 0.6 million, respectively for 210,000 performance- 55 ​ Table of Contents based share awards granted to our Chief Executive Officer. These 273,300 performance-based shares were fully vested on December 31, 2019. The total income tax benefit recognized in the accompanying Consolidated Statements of Income for restricted stock awards was $ 1.4 million, $ 7.5 million and $ 2.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. There was $ 3.7 million of total unrecognized compensation cost related to restricted stock awards as of December 31, 2020, which is expected to be recognized over a weighted-average period of 1. 6 years. There was $ 5.4 million of unrecognized compensation cost related to the 44,162 performance-based shares discussed above as of December 31, 2020, which is expected to be recognized over 1.8 years. 9. ACCUMULATED OTHER COMPREHENSIVE INCOME The following table sets forth the components of accumulated other comprehensive income, net of tax where applicable (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ Foreign currency translation ​ $ ( 22 ) ​ $ ( 1 ) Unrealized gains on investment securities ​ ​ 63 ​ ​ 26 Accumulated other comprehensive income ​ $ 41 ​ $ 25 ​ ​ 10. FINANCIAL INSTRUMENTS Certain financial assets and liabilities are accounted for at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs used to measure fair value: Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant. 56 ​ Table of Contents The following tables present the Company’s cash and financial assets that are measured at fair value on a recurring basis for each of the hierarchy levels (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ Cost ​ ​ Unrealized Gains ​ ​ Accrued Interest ​ ​ Estimated Fair Value ​ ​ Cash & Cash Equivalents ​ ​ Investment Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash ​ $ 159,754 ​ $ - ​ $ - ​ $ 159,754 ​ $ 159,754 ​ $ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 1: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Money market accounts ​ ​ 3,969 ​ ​ - ​ ​ - ​ ​ 3,969 ​ ​ 3,969 ​ ​ - Government & agency securities ​ ​ 2,829 ​ ​ 45 ​ ​ - ​ ​ 2,874 ​ ​ - ​ ​ 2,874 ​ ​ ​ 6,798 ​ ​ 45 ​ ​ - ​ ​ 6,843 ​ ​ 3,969 ​ ​ 2,874 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 2: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Municipal bonds ​ ​ 7,689 ​ ​ 42 ​ ​ 147 ​ ​ 7,878 ​ ​ - ​ ​ 7,878 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 174,241 ​ $ 87 ​ $ 147 ​ $ 174,475 ​ $ 163,723 ​ $ 10,752 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ Cost ​ ​ Unrealized Gains ​ ​ Accrued Interest ​ ​ Estimated Fair Value ​ ​ Cash & Cash Equivalents ​ ​ Investment Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash ​ $ 36,593 ​ $ - ​ $ - ​ $ 36,593 ​ $ 36,593 ​ $ - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 1: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Certificate of deposit ​ ​ 35,000 ​ ​ - ​ ​ - ​ ​ 35,000 ​ ​ 35,000 ​ ​ - Money market accounts ​ ​ 5,381 ​ ​ - ​ ​ - ​ ​ 5,381 ​ ​ 5,381 ​ ​ - Government & agency securities ​ ​ 2,832 ​ ​ 2 ​ ​ - ​ ​ 2,834 ​ ​ - ​ ​ 2,834 ​ ​ ​ 43,213 ​ ​ 2 ​ ​ - ​ ​ 43,215 ​ ​ 40,381 ​ ​ 2,834 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 2: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Municipal bonds ​ ​ 12,610 ​ ​ 34 ​ ​ 226 ​ ​ 12,870 ​ ​ - ​ ​ 12,870 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 92,416 ​ $ 36 ​ $ 226 ​ $ 92,678 ​ $ 76,974 ​ $ 15,704 ​ The Company had no realized losses or gains for the years ended December 31, 2020, 2019 and 2018, respectively. The maturities of the Company’s investment securities generally range up to 3 years for municipal bonds and for government and agency securities. 57 ​ Table of Contents 11. INCOME TAXES Income tax expense for the years ended December 31, 2020, 2019 and 2018 consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 Current ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ $ 28,520 ​ $ 11,024 ​ $ 16,398 State ​ ​ 2,285 ​ ​ 1,825 ​ ​ 1,048 Total current ​ ​ 30,805 ​ ​ 12,849 ​ ​ 17,446 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred ​ ​ ​ ​ ​ ​ ​ ​ ​ Federal ​ ​ 477 ​ ​ 2,323 ​ ​ ( 2,393 ) State ​ ​ ( 77 ) ​ ​ ( 729 ) ​ ​ ( 89 ) Foreign ​ ​ 201 ​ ​ 4 ​ ​ ( 205 ) Total deferred ​ ​ 601 ​ ​ 1,598 ​ ​ ( 2,687 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision for income taxes ​ $ 31,406 ​ $ 14,447 ​ $ 14,759 ​ The total provision for income taxes for the years ended December 31, 2020, 2019 and 2018 was $ 31.4 million, $ 14.5 million and $ 14.8 million, respectively. Those amounts have been allocated to the following financial statement items: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from operations ​ $ 31,406 ​ $ 14,447 ​ $ 14,759 Stockholders' equity, unrealized gains on ​ ​ ​ ​ ​ ​ ​ ​ ​ investment securities & foreign currency ​ ​ 14 ​ ​ 75 ​ ​ 43 Total provision for income taxes ​ $ 31,420 ​ $ 14,522 ​ $ 14,802 ​ Significant components of the Company’s deferred tax assets (liabilities) consisted of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ Reserves on inventory and sales ​ $ 753 ​ $ 745 Credit and loss carryforwards ​ ​ 2,546 ​ ​ 1,269 Stock compensation ​ ​ 1,015 ​ ​ 756 Accrued expenses and deferred costs ​ ​ 3,274 ​ ​ 2,465 Inventory capitalization ​ ​ 120 ​ ​ 307 Lease obligations ​ ​ 2,178 ​ ​ 3,288 Valuation allowance ​ ​ ( 1,436 ) ​ ​ - Total deferred tax assets ​ ​ 8,450 ​ ​ 8,830 ​ ​ ​ ​ ​ ​ ​ Right-of-use assets ​ ​ ( 2,032 ) ​ ​ ( 3,114 ) Unrealized loss on investment securities ​ ​ ( 24 ) ​ ​ ( 10 ) Prepaid expenses ​ ​ ( 1,022 ) ​ ​ ( 1,034 ) Depreciation ​ ​ ( 4,680 ) ​ ​ ( 3,365 ) Total deferred tax liabilities ​ ​ ( 7,758 ) ​ ​ ( 7,523 ) ​ ​ ​ ​ ​ ​ ​ Net deferred tax assets ​ $ 692 ​ $ 1,307 ​ 58 ​ Table of Contents The reconciliation of the United States federal statutory tax provision to the Company’s provision for income taxes for the years ended December 31, 2020, 2019 and 2018 (in thousands, except percentages): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ 2018 Statutory federal tax ​ $ 28,196 ​ 21.0 % ​ $ 19,396 ​ 21.0 % ​ $ 14,815 ​ 21.0 % State income taxes, net of federal benefit ​ ​ 1,470 ​ 1.1 % ​ ​ 864 ​ 0.9 % ​ ​ 769 ​ 1.1 % Foreign taxes ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Hong Kong ​ ​ 94 ​ 0.1 % ​ ​ 1 ​ 0.0 % ​ ​ 81 ​ 0.1 % Singapore ​ ​ 107 ​ 0.1 % ​ ​ 3 ​ 0.0 % ​ ​ 93 ​ 0.2 % Share-based compensation - windfall ​ ​ ( 415 ) ​ ( 0.3 )% ​ ​ ( 6,424 ) ​ ( 7.0 )% ​ ​ ( 1,852 ) ​ ( 2.6 )% Other permanent differences ​ ​ 1,218 ​ 0.9 % ​ ​ 1,004 ​ 1.1 % ​ ​ 615 ​ 0.8 % Research and development and jobs credits ​ ​ ( 370 ) ​ ( 0.3 )% ​ ​ ( 579 ) ​ ( 0.6 )% ​ ​ ( 85 ) ​ ( 0.1 )% Valuation allowance ​ ​ 1,342 ​ 1.0 % ​ ​ - ​ 0.0 % ​ ​ - ​ 0.0 % Other ​ ​ ( 236 ) ​ ( 0.2 )% ​ ​ 182 ​ 0.2 % ​ ​ 323 ​ 0.4 % Provision for income taxes ​ $ 31,406 ​ 23.4 % ​ $ 14,447 ​ 15.6 % ​ $ 14,759 ​ 20.9 % ​ On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security Act (the “ CARES Act”). It amends the Internal Revenue Code to provide relief and supportive measures for taxpayers impacted by the outbreak of COVID-19 virus. The key components of the Act are as follows: eliminating taxable income limitation for certain net operating losses (“NOL”) and permitting carry back NOLs arising in 2018 , 2019 and 2020 to five prior tax years; accelerating refunds of previously generated Alternative Minimum Tax credit; increase business interest limitation from 30 percent to 50 percent of adjusted taxable income; amending depreciation for qualified improvement property (“QIP”) to 15- year property for QIP placed in service after December 31, 2017. The Company’s income tax provision provided under the CARES Act did not have a material impact on the year ended December 31, 2020. The Company has not placed into service material amount of QIP during tax years 2018 and 2019 but did place some amount of QIP into service these years. The impact to the Company’s 2020 earnings per common share was immaterial. ​ The Company has separate state and foreign net operating loss carry forwards totaling $ 25.6 million that start expiring in 2029 . The company continues to utilize the net operating loss carry forwards in 2021. As of December 31, 2020, the Company has established a valuation allowance for the portion of the net operating loss carry forwards which is not expected to be realized. 12. LEASES AND COMMITMENTS Operating Leases: The Company has operating leases for office and warehouse space and certain equipment. In certain of the Company’s lease agreements, the rental payments are adjusted periodically based on defined terms within the lease. The Company did not have any finance leases as of December 31, 2020 and 2019, respectively, or for the years then ended. Our leases relating to office and warehouse space have terms of 19 months to 122 months . Our leases relating to equipment have lease terms of 24 to 203 months , with certain of them having clauses relating to automatic renewal. The Company’s warehouse agreements also contain non-lease components, in the form of payments towards variable logistics services and labor charges, which the Company is obligated to pay based on the services consumed by it. Such amounts are not included in the measurement of the lease liability but will be recognized as expense when they are incurred. The operating lease expense was $ 3.6 million and $ 3.1 million for the years ended December 31, 2020 and 2019, respectively. ​ 59 ​ Table of Contents Supplemental cash flow information related to the Company’s operating leases were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ 2019 ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurements of lease liabilities ​ ​ ​ ​ ​ ​ Operating cash flow used in operating leases ​ $ 3,775 ​ $ 3,025 ​ ​ ​ ​ ​ ​ ​ Right-of-use assets obtained in exchange for lease obligations ​ ​ ​ ​ ​ ​ Operating leases ​ $ 887 ​ $ 3,489 ​ As of December 31, 2020, the weighted average remaining lease term was 3.7 years and the weighted average discount rate was 3.5 %. The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2020 (in thousands): ​ ​ ​ ​ ​ 2021 ​ $ 3,991 2022 ​ ​ 3,397 2023 ​ ​ 1,851 2024 ​ ​ 1,234 2025 ​ ​ 1,248 Thereafter ​ ​ 203 Total lease payments ​ $ 11,924 Less: imputed interest ​ ​ ( 763 ) Total ​ $ 11,161 ​ Unconditional purchase obligations: At December 31, 2020, the Company had $ 41.6 million in unconditional purchase obligations primarily for inventories, outsourced information technology and Coach events. ​ 60 ​ Table of Contents ​ 13. SELECTED QUARTERLY FINANCIAL DATA (unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quarter (in thousands, except per share amounts) ​ First ​ Second ​ Third ​ Fourth ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue ​ $ 178,461 ​ $ 219,999 ​ $ 271,470 ​ $ 264,912 Gross profit ​ ​ 135,240 ​ ​ 159,300 ​ ​ 204,036 ​ ​ 199,239 Income from operations before income taxes ​ ​ 23,624 ​ ​ 28,158 ​ ​ 44,633 ​ ​ 37,850 Net income ​ ​ 18,477 ​ ​ 21,935 ​ ​ 34,453 ​ ​ 27,994 Basic earnings per share ​ ​ 1.57 ​ ​ 1.86 ​ ​ 2.93 ​ ​ 2.38 Diluted earnings per share ​ ​ 1.56 ​ ​ 1.86 ​ ​ 2.91 ​ ​ 2.36 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue ​ $ 165,876 ​ $ 187,103 ​ $ 190,061 ​ $ 170,632 Gross profit ​ ​ 125,147 ​ ​ 140,710 ​ ​ 142,933 ​ ​ 128,068 Income from operations before income taxes ​ ​ 25,021 ​ ​ 27,778 ​ ​ 20,583 ​ ​ 18,981 Net income ​ ​ 20,750 ​ ​ 21,383 ​ ​ 15,902 ​ ​ 19,881 Basic earnings per share ​ ​ 1.75 ​ ​ 1.80 ​ ​ 1.36 ​ ​ 1.71 Diluted earnings per share ​ ​ 1.70 ​ ​ 1.75 ​ ​ 1.32 ​ ​ 1.66 ​ EPS is computed independently for each of the quarters presented; accordingly, the sum of the quarterly earnings per share may not equal the total computed for the year. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES There were no disagreements with the Company’s independent auditors, regarding accounting and financial disclosures for the fiscal year ended December 31, 2020.