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MEDIFAST INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD LOOKING STATEMENTS(Edgar Glimpses Via Acquire Media NewsEdge) Special Note Regarding Forward-Looking Statements This report contains information that may constitute "forward-looking statements." Generally, the words "believe," "expect," "intend," "estimate," "anticipate," "project," "will," and similar expressions identify forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future - including statements relating to future operating results- are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those in our Annual Report on Form 10-K for the year ended December 31, 2013 (the "Form 10-K"), and those described from time to time in our future reports filed with the Securitiesand Exchange Commission. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes appearing elsewhere herein. Overview Medifast, Inc. ("Medifast," the "Company," "we," "us," or "our") is engaged in the production, distribution, and sale of weight management products and services and other consumable health and diet products. The Company's product lines include meal replacements and supplements and conducts its business through two segments; Medifast, and MWCC and Wholesale. Our products and services are sold to weight loss program participants primarily via the internet, telephone, and brick and mortar clinics. Customers of our independent contractor health coaches ("Health Coaches") in the Take Shape For Life person-to-person direct sales channel are directed to order our products through either the internet or through the Company's in-house call center. Our product sales accounted for 97% of our revenues in the first six months of 2014 and 96% of our revenues in the first six months of 2013. Program sales in our Medifast Weight Control Center channel accounted for 1% of revenues in the first six months of 2014 and 2% in the first six months of 2013. Shipping revenue and other accounted for 2% in the first six months of 2014 and 2013. Revenue consists primarily of meal replacement food sales. In the first six months of 2014, total revenue decreased to $167.4 million compared to $193.1 million in the first six months of 2013, a decrease of $25.7 million or 13.3%. The decline was due to a decrease in revenue in all channels of the Company as detailed below in the "Overview of Results of Operations" section. The Take Shape For Life sales channel accounted for 66.3% of total revenue, Medifast Direct 19.3%, and Medifast Weight Control Centers and Medifast Wholesale Physicians 14.4%. See Note 10, "Business Segments" of the notes to the financial statements for a detailed breakout of revenues, profit or loss, and total assets of each ofthe Company's business segments. We review and analyze a number of key operating and financial metrics to manage our business, including revenue to advertising spend, number of active Health Coaches and average monthly revenue generated per health coach in the Take Shape For Life channel, and average same store sales improvement for the Medifast Weight Control Center channel. In December 2013, the Company closed eight corporate centers and incurred $2.1 million of clinic closure costs included in selling, general and administration expenses. Clinic closure costs are expensed and recognized as a liability at their fair value when incurred. One-time employee severance costs are expensed and recognized as a liability when the plan is finalized by management, approved and committed to by management, and communicated to the employee. Contractual costs that will continue to be incurred (operating leases) are recognized at the cease use date. The fair value of operating lease contracts is determined based on the present value of the remaining lease payments. Other costs associated with closing the clinic or relocating employees are expensed as incurred. As of December 31, 2013, $1.3 million of clinic closure costs are included in accrued expenses. The roll-forward of severance charges and lease payments as of June 30, 2014 is below. 14 MWCC & Wholesales Accrued severance charges as of December 31, 2013 $ 80,000 Payments during the period (80,000 ) Ending balance accrued as of June 30, 2014 $ - Accrued net lease liability as of December 31, 2013 $ 1,131,000 Payment and settlements during the period (495,000 ) Ending balance as of June 30, 2014 $ 636,000 Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with GAAP. Our significant accounting policies are described in Note 2 of the consolidated financial statements included in the Form 10-K. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management develops, and changes periodically, these estimates and assumptions based on historical experience and on various other factors that it believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The accounting estimates we consider critical include revenue recognition, impairment of fixed assets and intangible assets, income taxes, reserves for returns, operating leases and clinic closure costs. During the three months ended June 30, 2014, we did not make any material changes to our critical accounting policies. Medifast Segment Medifast Direct - In the direct-to-consumer channel ("Medifast Direct"), customers order Medifast product directly through the Company's website, www.medifastnow.com or our in-house call center. This business is driven by a multi-media customer acquisition strategy that includes both national and regional print, radio, web advertising, direct mail, and television as well as public relations, word of mouth referrals, and social media initiatives. The Medifast Direct division focuses on targeted marketing initiatives and provides customer support through its in-house call center and nutrition support team of registered dietitians to better serve its customers. Take Shape For Life™ - Take Shape For Life, a member of the Direct Selling Association, is the personal coaching division of Medifast. This physician-led coaching network consists of Health Coaches, who are trained to provide coaching and support to clients on Medifast weight-loss products and programs. The role of the Health Coach is to give clients the encouragement and mentoring to assist them to successfully reach a healthy weight and adopt a healthy lifestyle. The Take Shape For Life program provides a road map to empower the individual to take control of their health through adopting better long-term habits. Take Shape For Life moves beyond the scope of weight loss to teach clients how to achieve optimal health through the balance of body, mind, and finances. The program uses the high-quality, medically validated products of Medifast that have been proven safe and effective in clinical studies. In addition to the encouragement and support provided by Health Coaches, clients of Take Shape For Life are offered a bio-network of support including product and program information on our website, weekly medical and general support calls, and access to our registered dietitians. MWCC and Wholesale Segment Medifast Weight Control Centers - Medifast Weight Control Centers is the brick and mortar clinic channel of Medifast with affiliate-owned locations in Pennsylvania, New Jersey, Delaware, Texas, Florida, Maryland, North Carolina and Virginia. Jason Properties, LLC, a subsidiary of Medifast had a total of 51 Medifast Weight Control Centers in operation at June 30, 2014, excluding 24 centers which were sold and transitioned to the franchise model as of June 30, 2014. Medifast Weight Control Centers offer a high-touch model including comprehensive Medifast programs for weight loss and maintenance, customized client counseling, an InBodyTM body composition analysis, and monitoring with a BodyGemTM indirect calorimeter that determines resting metabolic rates. Medifast Weight Control Centers conduct local advertising including radio, print, television and web initiatives. The Centers also benefit from the enterprise brand advertising which encourages walk-ins and referrals from their customers and other Medifast business channels. 15 In 2008, Medifast Franchise Systems, Inc. ("MFSI"), a subsidiary of Medifast, began offering the center model as a franchise opportunity. MFSI currently has franchised centers located in Alabama, Arizona, California, Florida, Louisiana, Minnesota, Wisconsin, Maryland, Pennsylvania, Texas and Virginia. As of June 30, 2014, 73 franchise centers were in operation. Medifast Wholesale- Since 1980, over 20,000 doctors have recommended Medifast products and programs to their patients as a medically-proven solution to control their weight and improve their health. Medifast provider practices carry an inventory of wholesale products and resell them to patients while providing appropriate medical monitoring, testing, and support to ensure healthy weight loss. The Company offers extensive resources to assist the providers, their staff and their patients in achieving success with their programs. Medifast Medical Providers have access to marketing assets and training modules to help the practice grow their program and enable patients to achieve their weight loss and associated health goals. Medifast's nutrition support team includes registered dietitians and a behavioral specialist who provide program support and advice via phone and email. In 2012, the Company entered into a 3-year strategic partnership with Medix, a leader in pharmaceutical obesity products in Mexico. The agreement granted Medix an exclusive license for the distribution of Medifast products and programs through physicians and weight control centers in Mexico under the Medifast brand. Inventory is shipped to Medix within the United States and the resulting revenues are classified as domestic sales for the Company. In January 2013, the Company and Medix, amended their partnership agreement to provide an exclusive 5-year licensing agreement to increase distribution of Medifast meal replacement products and programs beyond Mexico and into Argentina, Bolivia, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Peru, Venezuela, and Uruguay. In September 2013, Medix held the grand opening of the first international Medifast Weight Control Center in Mexico City. Medix now has three Medifast Weight Control Centers open in Mexico with plans to expand. In December 2013, Medix opened the first Medifast Weight Control Center in Bogota, Colombia. In March 2014, Medix acquired 13 Slim Center locations across Mexico City and Guadalajara. This acquisition gives them 12 locations in Mexico City, creating a strong geographic footprint and allows them to integrate complementary weight management brands including Medifast, Slim Center and Medix nutraceuticals. The Slim Center locations are currently selling Medifast products with plans to deploy the Medifast weight loss and maintenance programs by the end of the year. Including the 4 Medifast Weight Control Centers and the 13 Slim Centers, Medix now has 17 locations in operation in Mexico and Columbia that offer Medifast products. The Company expects this relationship to continue to grow throughout 2014 with the focus on expanding into additional countries and further penetrating the market in established regions. The Company also expanded its international presence into Canada in March 2014, opening new channels of distribution. Its current sales are through the Medifast Direct and Medical Provider channels, with the long-term goal of expanding other Medifast channels into Canada. 16 Overview of Results of Operations Three Months ended June 30, 2014 2013 $ Change % Change Revenue $ 80,883,000 $ 97,072,000 $ (16,189,000 ) -17 % Cost of sales 20,523,000 24,142,000 (3,619,000 ) -15 % Gross Profit 60,360,000 72,930,000 (12,570,000 ) -17 % Selling, general, and administrative costs 52,948,000 62,289,000 (9,341,000 ) -15 % Income from operations 7,412,000 10,641,000 (3,229,000 ) -30 % Other income Interest income, net 170,000 98,000 72,000 73 % Other expense 1,103,000 139,000 964,000 694 % 1,273,000 237,000 1,036,000 437 % Income before provision for income taxes 8,685,000 10,878,000 (2,193,000 ) -20 % Provision for income tax expense 2,965,000 3,805,000 (840,000 ) -22 % Net income $ 5,720,000 $ 7,073,000 $ (1,353,000 ) -19 % % of revenue Gross Profit 74.6 % 75.1 % Selling, general, and administrative costs 65.5 % 64.2 % Income from Operations 9.2 % 11.0 % 17 Six Months ended June 30, 2014 2013 $ Change % Change Revenue $ 167,412,000 $ 193,115,000 $ (25,703,000 ) -13 % Cost of sales 43,118,000 47,776,000 (4,658,000 ) -10 % Gross Profit 124,294,000 145,339,000 (21,045,000 ) -14 % Selling, general, and administrative costs 108,186,000 126,120,000 (17,934,000 ) -14 % Income from operations 16,108,000 19,219,000 (3,111,000 ) -16 % Other income Interest income, net 296,000 150,000 146,000 97 % Other expense 1,287,000 219,000 1,068,000 488 % 1,583,000 369,000 1,214,000 329 % Income before provision for income taxes 17,691,000 19,588,000 (1,897,000 ) -10 % Provision for income tax expense 6,004,000 6,582,000 (578,000 ) -9 % Net income $ 11,687,000 $ 13,006,000 $ (1,319,000 ) -10 % % of revenue Gross Profit 74.2 % 75.3 % Selling, general, and administrative costs 64.6 % 65.3 % Income from Operations 9.6 % 10.0 % Revenue: Revenue decreased approximately 16.7% and 13.3% to $80.9 million and $167.4 million for the three and six months ended June 30, 2014, respectively, as compared to $97.1 million and $193.1 million for the three and six months ended June 30, 2013. For the three months ended June 30, 2014, the Take Shape For Life sales channel accounted for 66.8% of total revenue, Medifast Direct 18.8%, and Medifast Weight Control Centers and Medifast Wholesale Physicians 14.4%. For the six months ended June 30, 2014, the Take Shape For Life sales channel accounted for 66.3% of total revenue, Medifast Direct 19.3%, and Medifast Weight Control Centers and Medifast Wholesale Physicians 14.4%. In the second quarter of 2014, the Company's revenue to spend ratio was 12.2-to-1 versus 12.1-to-1 in the second quarter of 2013. Total advertising spend was $6.7 million in the second quarter of 2014 versus $8.0 million in the second quarter of 2013, a decrease of $1.3 million or 16.3%. The year to date revenue to spend ratio for 2014 was 12.3-to-1 compared to 10.7-to-1 for 2013. Total advertising spend year to date in 2014 was $13.6 million compared to $18.0 million forthe same period in 2013. For the three months ended June 30, 2014, Take Shape For Life revenue decreased 12% to $54.1 million compared to $61.4 million in 2013. Revenue declined $9.8 million, 8%, to $111.0 million for the six months ended June 30, 2014 compared to the prior year. The decline in revenue for Take Shape For Life was driven by a decrease in the number of Health Coaches and revenue per Health Coach. The number of active Health Coaches at the end of the second quarter of 2014 decreased to 10,800 compared with 11,800 during the period a year ago, a decrease of 8.0%. Active Health Coaches are defined as Health Coaches receiving income from a product sale in the last month of the quarter. The average revenue per health coach per month decreased from $1,710 for the six months ended June 30, 2013 to $1,596 for the six months ended June 30, 2014. Medifast Direct revenue decreased 29% to $15.2 million and 27% to $32.3 million for the three and six months ended June 30, 2014, respectively, compared to the same period for 2013. Revenues in this channel are driven primarily by targeted customer advertising on-line, across local radio, via email and direct mail campaigns, and by highlighting customer successes in large national publications and on television. New customer acquisition has been challenging as the Company works to balance marketing investment and media mix to effectively drive customer conversion. Spending efficiency in the quarter was strong and the Company expects to begin to invest additional dollars into marketing, as compared to the second half of 2013, while continuing to focus on efficient management of those investments. The MWCC and Medifast Wholesale segment experienced revenue decline of 18% and 13% in the three and six months ended June 30, 2014 compared to the same periods in 2013. The Company closed 11 centers since the first quarter of 2013 and sold a total of 24 centers to franchise partners as of the end of the second quarter of 2014, leaving 51 corporate locations in operation. Including the 24 sold centers and eight new franchise centers that were opened during the first quarter, the number of franchise centers in place as of June 30, 2014 was 73. Excluding the 24 centers sold during the quarter, same store sales for centers open greater than one year decreased by 13% for the six months ended June 30, 2014 compared to 2013. The closure of the 11 corporate centers, the accrued impact from the creation of a loyalty program and the Company's continued focus to improve profitability by creating operational efficiencies, optimizing staffing, and managing expenses contributed to the decrease in same store sales and overall revenues. There were 51 centers in the comparative same-store-sales base at June 30, 2014. 18 Costs of Sales: Cost of sales decreased approximately $3.6 million to $20.5 million and $4.7 million to $43.1 million for the three and six months ended June 30, 2014 compared to the same periods in 2013. As a percentage of sales, gross margin decreased to 74.6% from 75.1% in the second quarter of 2014 and 74.2% from 75.3% for the first six months of 2014 versus the prior year. The decrease in gross margin for the periods was primarily due to decreased manufacturing volume and the shift in sales channel revenue mix. Selling, General and Administrative Costs: Selling, general and administrative expenses were $52.9 million and $108.2 million for the three and six months ended June 30, 2014 compared to $62.3 million and $126.1 in the same periods of 2013. As a percentage of sales, selling, general and administrative expenses increased to 65.5% versus 64.2% in the second quarter of 2014. For the six months ended June 30, 2014, selling, general and administrative expenses decreased as a percentage of sales to 64.6% from 65.3% for the same period in 2013. Take Shape For Life commission expense, which is variable based upon product sales, decreased by approximately $5.0 million and $7.9 million for the three and six months ended June 30, 2014 as TSFL sales declined 12% and 8% compared to the prior year. Salaries and benefits decreased by approximately $1.8 million in the second quarter of 2014 compared to the same period in 2013 and $3.0 million for the six months ended June 30, 2014 compared to last year. The decrease for both periods was driven by a decrease in bonuses, salaries and medical insurance expense. These decreases were partially due to the closure of 11 Medifast Weight Control Centers corporate centers over the twelve month period. Sales and marketing expense decreased by $1.3 million in the second quarter of 2014 compared to same period in 2013 and $4.4 million for the six months ended June 30, 2014 compared to the prior period. The decrease is the result of lower advertising spending in both the quarter and the year to date compared to the prior year. The Company continues to focus on efficiency improvements and balancing sales and marketing expense in an effort to drive profitability. General expenses decreased $0.9 million and $1.5 million for the three and six months ended June 30, 2014 in comparison to the same periods in 2013. The quarterly decrease was driven by a decrease in consulting fees year-over-year. The year to date decrease was driven by a decrease in consulting and accounting expenses compared to the prior year and a benefit from rent expense settlements with landlords for four of the eight Medifast Weight Control Centers that were closed during the fourth quarter of 2013. Other expenses consisting primarily of depreciation, credit card processing fees, and licenses and fees decreased by $0.2 million and $0.8 million for the three and six months ended June 30, 2014. The decrease in expense for the periods was caused by the Company's intangible assets becoming fully amortized in the fourth quarter of 2013, a decrease in the sales taxes paid for by the Company on behalf of the customer, and decreasein credit card fees. Income taxes: In the second quarter of 2014, the Company recorded $3.0 million in income tax expense, an effective rate of 34.1%, compared to $3.8 million in income tax expense, an effective rate of 35.0% in the second quarter of 2013. For the six months ended June 30, 2014, the Company recorded $6.0 million in income tax expense, an effective tax rate of 33.9%, compared to $6.6 million in income tax expense, an effective tax rate of 33.6% for the six months ended June 30, 2013. The decrease in the effective tax rate for the second quarter of 2014 in comparison to 2013 was primarily due to the reduction of the state effective tax rate that was offset by the decrease in the permanent difference of the manufacturer domestic deduction. The minimal increase in the effective tax rate for the six months ended June 30, 2014 in comparison to 2013 was mainly due to the impact of the research and development credits that were in effect in 2013, coupled with the reduction in the state effective tax rate. The Company anticipates a full year tax rate of approximately 33-34% in 2014. Net income: Net income was $5.7 million in the second quarter of 2014 compared to $7.1 million in the second quarter of 2013, a decrease of $1.4 million. For the six months ended June 30, 2014, net income was $11.7 million compared to $13.0 million in the prior year. Pre-tax profit as a percent of sales decreased to 10.7% in the second quarter of 2014 compared to 11.2% in the second quarter of 2014. Pre-tax profit as a percent of sales increased to 10.6% for the six months ended June 30, 2014 compared to 10.1% for the prior year. The decline in income for the quarter was driven by the decrease in sales which was partially offset by the decrease in selling general and administrative expenses and the gain on the sale of the centers. The year to date improvement in profit despite a 13.3% decrease in revenue year-over-year is a result of the Company's continued efforts to closely monitor spending as demonstrated in its decrease in selling, general and administrative expenses outlined above and the gain onthe sale of the centers. Liquidity and Capital Resources The Company had stockholders' equity of $97.5 million and working capital of $66.2 million on June 30, 2014 compared with $98.4 million and $64.9 million at December 31, 2013. The $0.9 million net decrease in stockholder's equity reflects $11.7 million in 2014 profits, significantly offset by the $14.2 million used to purchase shares of the Company's common stock as well as the other equity transactions outlined in the "Consolidated Statement of Changes in Stockholders' Equity". The Company's cash and cash equivalents position decreased from $36.4 million at December 31, 2013 to $32.0 million at June30, 2014. In the six months ended June 30, 2014 the Company generated cash flow of $16.3 million from operations, partially attributable to $11.7 million in net operating income. Sources of cash of $8.0 million include an increase of income taxes payable of $0.5 million, depreciation and amortization of $5.1 million, share-based compensation of $1.4 million, and a $0.5 million decrease in inventory and a $0.5 million decrease in prepaid expenses and other current assets. This was offset by a total use of $3.4 million which includes a $0.2 million realized gain on investment securities, a deferred income tax benefit of $1.0 million, a $0.4 million increase in accounts receivable and a $1.6 million decrease in accounts payable and accrued expenses. 19 In the six months ended June 30, 2014, net cash used in investing activities was $6.4 million, which was primarily due to $11.0 million for the purchase of investment securities offset by $6.4 million of cash generated by the sale of investment securities and $3.0 million for the purchase of property and equipment offset by $1.2 million of cash generated by the sale of propertyand equipment. In the six months ended June 30, 2014, financing activities used $14.3 million in cash including $0.1 million for the repayment of capital leases and $14.2 million for the repurchase of shares of the Company's common stock. 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 has an undrawn, unsecured, revolving $5 million line of credit with Bank of America. The line of credit will expire on August 1, 2015, at which point the Company expects to extend the term or pursue other financing opportunities. The Company evaluates acquisitions from time to time as presented. SEGMENT RESULTS OF OPERATIONS Net Sales by Segmentfor the three months ended June 30, 2014 2013 Segments Sales % of Total Sales % of Total Medifast $ 69,254,000 86 % $ 82,907,000 85 %MWCC and Wholesale 11,629,000 14 % 14,165,000 15 % Total Sales $ 80,883,000 100 % $ 97,072,000 100 % Net Sales by Segmentfor the six months ended June 30, 2014 2013 Segments Sales % of Total Sales % of Total Medifast $ 143,363,000 86 % $ 165,301,000 86 %MWCC and Wholesale 24,049,000 14 % 27,814,000 14 % Total Sales $ 167,412,000 100 % $ 193,115,000 100 % Medifast Segment: The Medifast segment consists of the sales from Medifast Direct and Take Shape For Life. As this represents the majority of our business, this is discussed in the Overview of Financial Results above. The MWCC and Wholesale Segment: The MWCC and Wholesale segment consists of the sales of Medifast Corporate and Franchise Weight Control Centers as well as Medifast Wholesale Physicians. Sales decreased $2.5 million, or 18% and $3.8 million or 14% for the three and six months ended June 30, 2014 as compared to 2013. The decrease in sales for both of the periods was driven by the closure of 11 corporate centers over the prior twelve months, the accrued impact from the creation of a loyalty program, and the Company's focus to improve profitability by creating operational efficiencies, optimizing staffing, and managing expenses. The Company had 51 corporate centers and 73 franchise centers in operation as of June 30, 2014 compared to 86 and 36, respectively in 2013. As previously discussed, the 2014 center counts exclude 24 corporate centers that were sold and transitioned to the franchise model on June 30, 2014. 20 Income Before Income Taxes bySegment for the three months ended June 30, 2014 2013 Segments Profit % of Total Profit % of Total Medifast $ 10,219,000 118 % $ 11,383,000 105 % MWCC and Wholesale (12,000 ) 0 % 986,000 9 % All Other (1,522,000 ) -18 % (1,491,000 ) -14 %Income before income taxes $ 8,685,000 100% $ 10,878,000 100 % Income Before Income Taxes bySegment for the six months ended June 30, 2014 2013 Segments Profit % of Total Profit % of Total Medifast $ 20,405,000 115 % $ 20,851,000 106 % MWCC and Wholesale 46,000 0 % 1,630,000 8 % All Other (2,760,000 ) -15 % (2,893,000 ) -14 % Income before income taxes $ 17,691,000 100 % $ 19,588,000 100 % Medifast Segment: The Medifast reporting segment consists of the activity of Medifast Direct and Take Shape For Life. This represents the majority of our business and is discussed in the Overview of the Financial Results section above. Also see Note 10, "Business Segments" of the financial statements for a detailed breakout of expenses. The MWCC and Wholesale Segment: Profitability of this segment decreased $1.0 million and $1.6 million for the three and six months ended June 30, 2014 compared to 2013. The decline for the periods was caused by the decrease in revenue compounded by the accrued impact from the creation of a loyalty program and reduced program sales in comparison to the prior year, the opening of 17 franchise centers over the prior twelve months, and the Company's continued focus to optimize spending as a percentage of sales for each corporate center. The Company had 51 corporate centers and 73 franchise centers in operation as of June 30, 2014 compared to 86 and 36, respectively in 2013. As previously discussed, the 2014 center counts exclude 24 corporate centers that were sold and transitioned to the franchise model on June 30, 2014. Other: Other segment consists of income on investments and corporate expenses related to the Company's operations that are unrelated to a particular operating segment. Company expenses were consistent quarter over quarter for the three months ended June 30, 2014 compared to the prior year and the pre-tax loss decreased by $0.1 million for the six months ended June 30, 2014 compared to 2013. Corporate expenses include items such as auditors' fees, attorney's fees, stock compensation expense and corporate governance expenses related to compliance with NYSE, Sarbanes Oxley, and SEC regulations. footnote 10, "Business Segments", for additional detail. |