For the previous 3 quarters of this year, MSO recognized the following 'Kmart Earned Royalty' for a total of 21.7Million dollars:
Q1 $6.1M Q2 $9.0M Q3 $6.6M
I think I recall that the minimum royalty for 2005, per the Kmart contract, is $51.0M. Would this not mean that the 4thQ earnings report will show revenue of around $29.3M (a radical improvement quarter-over-quarter of 22.7M, thanks to this accounting quirk)?
CFO Follo (the guy who recently jumped ship) said in November's conf call: "Merchandising revenues in the quarter are expected to be approximately $28 million, while OIDA will be approximately $23.5 million. Revenues in the quarter will include a true-up payment related to our minimum royal guarantees with K-Mart of approximately $16 million."
In my mind, this accounting quirk (a 1-time phenomena) is the only possible way MSO could improve its 3rdQ numbers enough to reflect the breakeven point or profit that CEO Lyne has been forcasting.
More regarding forcasting MSO's 4th quarter results:
Q3's Total Operating Loss was $26.8M
MERCHANDISING: As outlined in my previous post on this thread, Merchadising OIDA is likely to jump from $4.3M to $23.5M (per Folla), being a net improvement of $19.2M quarter-over-quarter.
PUBLISHING: CEO Lyne has been bragging that advertising pages are up 100% (year-over-year). Subscription rates have been increased. No doubt publication costs will also be up. If Lyne's forcast is true or partially true, this could mean a net improvement for Pub OIDA by, say, $3M to $5M, quarter-over-quarter.
TELEVISION: 3Q only contained 2 weeks of Martha's new tv show's revenue. Thus Q4 will also reflect a substantial improvement in rev. Folla said in the Nov. conf call: "Television revenues are expected to be approximately $11 million, as we benefit from a full quarter with the new syndicated show and the launch of our DVDs. OIDA loss for the third quarter will approximate $1 million." If Folla is correct, the television OIDA loss of just $1.0M will reflect a $2.0M improvement quarter-over-quarter.
INTERNET and DIRECT MARKETING: (Forget this, too small of a segment to be consequential.)
CORPORATE EXPENSES: For Q3 this item was a devastating -$23.8M, partly because it included a $10.8M charge for the Apprentice warrants. For Q4 that charge will only be $5.5M, which means roughly $5.3M less will be deducted from OIDA.
Summary: Merchandising ($19.2), Pub ($3M), TV ($2M), and CorpEx ($5.3) adds up to $29.5M of improvements quarter-over-quarter. Given Q3's loss was $26.8, you might prepare yourself for a lot of ballyhoo about how MSO is now in the black! --- temporarily.
My Conclusion: These numbers are as good as it gets (especially for Merchandising). Strong Sell