Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2014

In May 2014, the Financial Accounting Standards Board ("FASB") issued an update on "Revenue from Contracts with Customers" (Topic 606), which completes the joint effort by the FASB and the International Accounting Standards Board to improve financial reporting by creating common revenue recognition guidance for GAAP and international financial reporting standards ("IFRS"). The joint project clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and IFRS. Specifically, it removes inconsistencies and weaknesses in revenue requirements, provides a more robust framework for addressing revenue issues, improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets, provides more useful information to users of financial statements through improved disclosure requirements and simplifies the preparation of financial statements by reducing the number of requirements to which an entity must refer. For the Company, this update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. The update may be applied using one of two methods: retrospective application to each prior reporting period presented, or retrospective application with the cumulative effect of initially applying the update recognized at the date of initial application. The Company is currently evaluating the transition method that will be elected and the impact of the update on its financial statements and disclosures.

Principles of consolidation

The consolidated financial statements include the accounts of all wholly owned subsidiaries. All intercompany transactions have been eliminated.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Management does not expect such differences to have a material effect on the Company’s consolidated financial statements.

Cash and cash equivalents

Cash and cash equivalents include cash equivalents that mature within three months of the date of purchase.

Short-term investments

Short-term investments include investments that have maturity dates in excess of three months, but generally less than one year, from the date of acquisition. See Note 3, Fair Value Measurements, and Note 4, Short Term Investments, for further discussion.

Inventories

Inventory consisting of paper is stated at the lower of cost or market. Cost is determined using the first-in, first-out method.

Property, plant, and equipment

Property and equipment

Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the lease term or, if shorter, the estimated useful lives of the related assets.

The useful lives of the Company’s assets are as follows:



Building	5 years
Furniture, fixtures and equipment	3 – 5 years
Computer hardware and software	3 – 5 years
Leasehold improvements	life of lease

Goodwill and intangible assets

Goodwill and other intangible assets

Intangible assets

The Company has an indefinite-lived intangible asset that is comprised of trademarks that were purchased on April 2, 2008 as part of the acquisition of the businesses owned and operated by Emeril Lagasse and certain affiliated parties, except for Emeril Lagasse’s restaurant-related business and foundation. This intangible asset, reported within the Merchandising segment, had carrying amounts as of December 31, 2014, 2013 and 2012 as set forth in the schedule below:



	Trademarks			Other intangibles		Accumulated amortization — other intangibles			Total
Balance at December 31, 2012	$	45,200		$	6,160	$	(6,157	)	$	45,203
Amortization expense	—			—		(3		)	(3		)
Balance at December 31, 2013	$	45,200		$	6,160	$	(6,160	)	$	45,200
Impairment charge	(10,500		)	—		—			(10,500		)
Balance at December 31, 2014	$	34,700		$	6,160	$	(6,160	)	$	34,700

The Company's trademarks, which are classified as intangible assets with indefinite useful lives, are reviewed annually on October 1^st, or more frequently if circumstances warrant, for impairment by applying a fair-value based test in accordance with Accounting Standards Codification ("ASC") 350, "Intangibles - Goodwill and Other" ("ASC 350"). The Company performs the impairment test by comparing the fair value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment charge for the excess value must be recorded. The Company estimates fair value using the discounted cash flow ("DCF") valuation methodology, in which future after-tax cash flows are discounted based on a market comparable weighted average cost of capital rate, adjusted for market and other risks where appropriate. The Company’s estimates, which are Level 3 unobservable inputs, are based on historical results and current economic and market trends, which drive key assumptions of revenue growth rates and operating margins, and therefore, are subject to uncertainty.

During 2014, the financial results of the Emeril Lagasse business were lower than expected, largely as a result of lower wholesale royalties in the housewares category that were impacted by a slower than expected start of certain new initiatives. In September 2014, in connection with the Company's 2015 budgeting process, the Company determined that: (1) an expected increase in wholesale royalties in the housewares category would be further delayed; (2) the distribution of housewares products to wider retail outlets became less certain; and (3) new food licensing partnerships that were expected to generate long-term growth were not yet meeting expectations. Accordingly, the Company reduced its long-term projections with respect to both the housewares and new food licensing businesses. As a result of lower-than-expected financial results and lower long-term projections, and in conjunction with the overall evaluation of the business, the Company determined that a triggering event had occurred during the three months ended September 30, 2014.

The Company completed an evaluation of the fair value of its indefinite-lived trademarks as of September 30, 2014 using a DCF analysis, which included the lower future growth assumptions discussed above. Other significant assumptions used in this DCF analysis included expected future margins, the discount rate and the perpetual growth rate. These assumptions are considered Level 3 unobservable inputs under the fair value hierarchy established by ASC 820, "Fair Value Measurements and Disclosures." As of September 30, 2014, the DCF analysis provided for a fair value of $34.7 million, which was below the carrying value of $45.2 million. This difference resulted in a non-cash intangible asset impairment charge of $10.5 million for the three months ended September 30, 2014. The impairment charge is included in "Impairment of trademark and goodwill" in the Consolidated Statements of Operations for the year ended December 31, 2014.

Although the Company considered all current information in calculating the amount of the impairment charge, future changes in events or circumstances could result in further decreases in the fair value of its indefinite-lived intangible asset. If actual results differ from the Company’s estimate of future cash flows, revenues, earnings and other factors, the Company may record additional impairment charges in the future.

With respect to the Company's annual test of its trademarks on October 1, 2014, the Company determined that the fair value of $34.7 million of its trademarks established as of September 30, 2014 was also the fair value as of October 1, 2014. In addition, the financial results of the Emeril Lagasse business for the three months ended December 31, 2014 were in line with the Company's expectations. Accordingly, the Company concluded that no further impairment charges were deemed necessary as of October 1, 2014 and through December 31, 2014.

Goodwill

The Company had goodwill that was generated upon the April 2, 2008 acquisition of certain businesses owned and operated by Emeril Lagasse and certain affiliated parties. This goodwill, reported within the Merchandising segment, had carrying amounts as of December 31, 2014 and 2013 as set forth in the schedule below:



	Goodwill
Balance at December 31, 2013	$	850
Impairment charge	(850		)
Balance at December 31, 2014	$	—

The Company reviews goodwill for impairment by applying a fair-value based test annually on October 1^st, or more frequently if circumstances warrant, in accordance with ASC 350. Goodwill impairment is measured based upon a two-step process. In the first step, the Company compares the fair value of a reporting unit with its carrying amount, including goodwill, using a discounted cash flow ("DCF") valuation method. Future after-tax cash flows are discounted based on a market comparable weighted average cost of capital rate, adjusted for market and other risks where appropriate. The Company’s estimates, which are Level 3 unobservable inputs, are based on historical results and current economic and market trends, which drive key assumptions of revenue growth rates and operating margins, and therefore, are subject to uncertainty. If the fair value of a reporting unit exceeds its carrying value, the goodwill of the reporting unit is considered not impaired, thus rendering the second step in impairment testing unnecessary. If the fair value of the reporting unit is less than the carrying value, a second step is performed in which the implied fair value of the reporting unit's goodwill is compared to the carrying value of the goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. The estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the estimated fair value of the reporting unit was the purchase price paid. The implied fair value of the reporting unit’s goodwill is compared with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment charge for the excess value must be recorded.

As a result of the intangible asset impairment charge associated with the Emeril Lagasse trademarks described above, the Company determined that a triggering event had also occurred with respect to the goodwill associated with the Emeril Lagasse business during the three months ended September 30, 2014. The Company considers all business related to Emeril Lagasse to be aggregated into a single reporting unit, which is a component of the Merchandising segment. The Company calculated the fair value of the reporting unit using a DCF analysis based upon updated long-term projections as of September 30, 2014, which included lowered expectations for both the housewares and new food categories and lower future growth assumptions. Other significant assumptions used in this DCF analysis included expected future margins, the discount rate and the perpetual growth rate. All these assumptions are considered Level 3 unobservable inputs under the fair value hierarchy established by ASC 820, "Fair Value Measurements and Disclosures."

The step one impairment test as of September 30, 2014 resulted in a fair value of the reporting unit that was less than its carrying value. Therefore, the Company performed the second step of the goodwill impairment test in which the implied fair value of the reporting unit’s goodwill was compared to the carrying value of its goodwill. The implied fair value of the reporting unit’s goodwill was determined based on the difference between the fair value of the reporting unit and the net fair value of its identifiable assets and liabilities, which included minimal accounts receivable, accounts payable and deferred revenue. The reporting unit’s identifiable assets also included the revalued indefinite-lived intangible asset described above. As a result of performing this goodwill impairment test as of September 30, 2014, the Company determined that the implied fair value of the Emeril Lagasse reporting unit’s goodwill was zero. Therefore, the Company also recorded a non-recurring, non-cash goodwill impairment charge of $0.9 million for the three-month period ended September 30, 2014. The impairment charge is included in "Impairment of trademark and goodwill" in the Consolidated Statements of Operations for the year ended December 31, 2014.

Revenue recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection is probable. Revenues and associated accounts receivable are recorded net of provisions for estimated future returns, doubtful accounts and other allowances. Allowances for uncollectible receivables are estimated based upon a combination of write-off history, aging analysis, and any specific, known troubled accounts.

The Company participates in certain revenue arrangements containing multiple deliverables. These arrangements generally consist of custom-created advertising programs delivered on multiple media platforms, as well as licensing programs which may also be supported by various promotional plans. Examples of significant program deliverables include print advertising pages in the Company’s publications, custom-created video content and integration on the Company's websites as well as advertising impressions delivered on the Company’s and partner websites.

ASC Topic 605, Revenue Recognition ("ASC 605") and Accounting Standards Update ("ASU") 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force) ("ASU 09-13") require that the Company examine separate contracts with the same entity or related parties that are entered into simultaneously or near the same time to determine if the arrangements should be considered a single arrangement in the determination of units of accounting. While both ASC 605 and ASU 09-13 require that units delivered have standalone value to the customer, ASU 09-13 modified the separation criteria in determining units of accounting by eliminating the requirement to obtain objective and reliable evidence of the fair value of undelivered items. As a result of the elimination of this requirement, the Company’s significant program deliverables generally meet the separation criteria under ASU 09-13, whereas under ASC 605 they did not qualify as separate units of accounting.

For those arrangements accounted for prior to the adoption of ASU 09-13, if the Company was unable to put forth objective and reliable evidence of the fair value of each deliverable, then the Company accounted for the deliverables as a combined unit of accounting rather than separate units of accounting. In this case, revenue is recognized as the earnings process is completed, generally over the fulfillment term of the last deliverable.

For those arrangements accounted for after the adoption of ASU 09-13, the Company is required to allocate fixed and determinable revenue based on the relative selling price of each deliverable which qualifies as a unit of accounting, even if such deliverables are not sold separately by either the Company itself or by other vendors. Determination of selling price is a judgmental process that requires numerous assumptions. The consideration is allocated at the inception of the arrangement to all deliverables based upon their relative selling prices. Selling prices for deliverables that qualify as separate units of accounting are determined using a hierarchy of: (1) vendor-specific objective evidence (“VSOE”), (2) third-party evidence and (3) best estimate of selling price. The Company has generally allocated consideration based upon its best estimate of selling price. The Company’s deliverables are generally priced with a wide range of discounts or premiums as the result of a variety of factors including the size of the advertiser and the volume and placement of advertising sold to the advertiser. The Company’s best estimate of selling price is intended to represent the price at which it would sell the deliverable if the Company were to sell the item regularly on a standalone basis. The Company considers market conditions, such as competitor pricing pressures, as well as entity-specific factors that are consistent with normal pricing practices, such as the recent history of the selling prices of similar products when sold on a standalone basis, the impact of the cost of customization, the size of the transaction, and other factors contemplated in negotiating the arrangement with the customer, when determining the best estimate of selling price. The fixed and determinable arrangement consideration is recognized as revenue as the earnings process is completed, generally at the time each unit of accounting is fulfilled (i.e., when magazine advertisements appear in an issue or when the digital impressions are served).

The Company follows certain segment-specific revenue recognition policies that are discussed below.

Publishing Segment

The Company's Publishing segment includes five major categories of revenues, which are recognized as follows:


•	Magazine advertising revenue: Revenue generated by the sales of advertising in Martha Stewart Living, Martha Stewart Weddings and related special interest publications is recorded based on the on-sale dates of magazines when the advertisement appears in the magazine and are stated net of agency commissions and cash and sales discounts.


•	Subscription revenue: Revenue from subscription contracts for Martha Stewart Living and Martha Stewart Weddings results from advance payments for subscriptions received from customers and is recognized on a straight-line basis over the life of the subscription contract as issues are delivered.


•	Newsstand revenue: Revenue generated by single copy sales of Martha Stewart Living and Martha Stewart Weddings is recognized based on the on-sale dates of magazines and is initially recorded based upon estimates of sales, net of returns, brokerage and estimates of newsstand-related fees. Estimated returns are recorded based upon historical experience.

•

Digital advertising revenue: Revenue generated from the Company’s websites and partner sites, prior to November 1, 2014, was generally based upon sales of impression-based and sponsorship advertisements. Revenue generated from partner sites were recorded gross or net of the partners' commissions, in accordance with the terms of the specific contracts. Digital advertising revenues were recorded in the period in which the advertisements were served.


•	Books revenue: Revenue associated with the delivery of editorial content for books results from advance payments received from the Company’s publishers and is recognized as manuscripts are delivered to and accepted by the publishers. Revenue is also earned from book publishing as sales on a unit basis exceed the advanced royalty.

Effective November 1, 2014, the Company discontinued publication of Martha Stewart Living and the Company's digital operations, and Meredith assumed responsibility for advertising sales, circulation and production in the United States and Canada of Martha Stewart Living, Martha Stewart Weddings and related special interest publications. Meredith also now hosts, operates, maintains, and provides advertising sales and related functions for marthastewart.com, marthastewartweddings.com and the Company's related digital assets. The Company will continue to own its underlying intellectual property, and create and provide all editorial content for these magazines and digital properties. See Note 1, The Company, for further discussion of the agreements that the Company entered into with Meredith.

As a result of the MS Living Agreement, the Company expects a significant impact on certain Publishing segment revenues and expenses. Specifically, with the elimination of Martha Stewart Living advertising and circulation revenues that began with the February 2015 issue and the digital advertising revenue share arrangement that began November 1, 2014, the Company expects total advertising and circulation revenues to decline. These revenue declines will be partially offset by the recognition of licensing revenue for print and digital editorial content that the Company provides to Meredith, which began November 1, 2014. The Company also expects its Publishing segment expenses to significantly decline due to the elimination of almost all of the Company's non-editorial related expenses for Martha Stewart Living and the Company's digital assets, including its websites. With respect to the MS Weddings Agreement, the Company will continue to record advertising and circulation revenue generated by Meredith on the Company's behalf for Martha Stewart Weddings and related special interest publications, as well as all costs associated with these magazines, including the Company's editorial expenses and Meredith's expenses for production, selling and distribution services that are provided to the Company on a cost-plus basis.

With respect to revenue recognition subsequent to November 1, 2014, the Company concluded that the MS Living Agreement and the MS Weddings Agreement are considered separate arrangements in accordance with ASU 09-13. The MS Weddings Agreement is not a revenue arrangement and does not contain any elements that are essential to any elements in the MS Living Agreement. Under the MS Weddings Agreement, Meredith will provide, on a cost-plus basis, publishing operation services, while the Company solely bears all financial risks and rewards of Martha Stewart Weddings and related special interest publications. Accordingly, revenues earned pursuant to the MS Weddings Agreement are recognized in accordance with the Company's historical policies surrounding magazine advertising, subscription and newsstand revenues, as described above. These revenues are presented on a gross basis on the Company's consolidated statements of operations, offset by related expenses also presented gross in the same statements.

The MS Living Agreement is a multiple-deliverable revenue arrangement that contains three separate units of accounting: 1) delivery of paid subscribers of Martha Stewart Living; 2) delivery of print editorial content for Martha Stewart Living; and 3) delivery of digital editorial content for inclusion on the websites, primarily marthastewart.com. The Company allocated the fixed and determinable arrangement consideration to these three units of accounting based on their relative selling prices, using the Company's best estimate of selling price as provided for under ASU 09-13. The fixed and determinable arrangement consideration, as of November 1, 2014, included deferred subscription revenue of approximately $8 million, which represented outstanding Martha Stewart Living subscription contracts that the Company was no longer obligated to fulfill.

Revenues generated under the MS Living Agreement are recognized as follows:


•	Delivery of paid subscribers: The Martha Stewart Living subscriber list was delivered to Meredith on November 1, 2014, with no further obligations of the Company. Accordingly, the Company recognized approximately $2 million in revenue on November 1, 2014, based on the relative selling price allocation of the total arrangement consideration.


•	Delivery of print editorial content: Revenue associated with the delivery of editorial pages for Martha Stewart Living are recognized when the pages are delivered and accepted, at a rate based on the relative selling price of the total arrangement consideration.


•	Delivery of digital editorial content: Revenue associated with the delivery of digital content for the websites are recognized upon delivery, which occurs at the same rate each month. Therefore, the Company recognizes a portion of the total arrangement consideration, based on the relative selling price, ratably each month.


•	Digital advertising revenues: Revenue generated by Meredith's sales of advertising on the website and other digital properties are recognized in the period that the advertisements are served. Only the Company's share of digital advertising revenue is recorded, net of commissions and certain third-party expenses, in accordance with the MS Living Agreement.

•

Magazine royalty: To the extent that the Martha Stewart Living magazine generates future operating profits, as defined in the MS Living Agreement, the Company's share of those profits will be included in the total arrangement consideration at the point those amounts are fixed and determinable. The increase to the total arrangement consideration will then prospectively be allocated based on the relative selling prices first established on November 1, 2014. The Company is only entitled to receive a portion of the operating profit, if any, at the end of each contractual fiscal year, with the first contractual fiscal year ending on June 30, 2016.

The Company's results for 2014 included revenues that were generated prior to the effective date of the Company's partnership with Meredith, as well as certain revenues that were generated under this partnership. The following is a summary of 2014 Publishing segment revenues:

•

Magazine advertising, subscription and newsstand revenues from Martha Stewart Living (10 issues) were recognized in 2014, similar to the 10 issues recorded in 2013. Although the effective date of the MS Living Agreement was November 1, 2014, Meredith began publishing Martha Stewart Living with the February 2015 issue, which had an on-sale date of January 2015. Accordingly, effective January 2015, magazine advertising, subscription and newsstand revenues related to Martha Stewart Living will no longer be recorded by the Company.


•	Magazine advertising, subscription and newsstand revenues from Martha Stewart Weddings (four issues) and related special interest publications (two issues) were recognized in 2014, with the same frequency recorded in 2013. The Company expects to continue to record revenues in 2015 related to Martha Stewart Weddings in accordance with the accounting policies first listed above.

•

Digital advertising revenue from the Company’s websites and on partner sites, through October 31, 2014, was recognized generally on a gross basis in accordance with the accounting policies first listed above. From November 1, 2014 through December 31, 2014, digital advertising revenue was recorded in accordance with the MS Living Agreement, which resulted in the recognition of only the Company's share of digital advertising revenue, net of commissions and certain third-party expenses. The Company expects to continue to record digital advertising revenue in 2015 in accordance with the policies pursuant to the MS Living Agreement.


•	Books revenue was recognized in 2014 in accordance with the accounting policies first listed above.


•	Revenue associated with the delivery of paid subscribers to Meredith of approximately $2 million was recognized on November 1, 2014, as described above.


•	Revenue associated with the delivery of print editorial content to Meredith was recognized in December 2014, when content for future issues of Martha Stewart Living were delivered to and accepted by Meredith.


•	Revenue associated with the delivery of digital editorial content to Meredith was recognized in November and December 2014, as described above.


•	Total revenues recognized pursuant to the MS Living Agreement with Meredith were $6.3 million in 2014.

Merchandising Segment

Royalties from product designs and other Merchandising segment revenues are recognized on a monthly basis based on the specific mechanisms within each contract. Payments are typically made by the Company’s partners on a quarterly basis. Generally, revenues are recognized based on actual net sales, while any minimum guarantees are earned proportionately over the fiscal year.

Revenues related to television talent services for programming produced by or on behalf of third parties are generally recognized when services are performed, regardless of when the episodes air, within the Merchandising segment.

Broadcasting Segment

Television sponsorship revenues are generally recorded over the initial airing of new episodes. Licensing revenues from the Company’s radio programming are recorded on a straight-line basis over the term of the agreement.

Historically, the Company's Broadcasting segment included significant television production operations. In connection with those historical operations during 2012 and prior, the Company recognized television spot advertising, integration and licensing revenues. Television licensing revenues for content produced by the Company were recorded as earned in accordance with the specific terms of each agreement and were generally recognized upon delivery of the episodes to the licensee, provided that the license period began.

Advertising costs

Advertising costs, consisting primarily of direct-response advertising, are expensed in the period in which the related advertising campaign occurs.

Earnings per share

Basic earnings per share is computed using the weighted average number of actual common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur from the exercise of stock options and the vesting of restricted stock and restricted stock units.

Equity compensation

The Company has issued stock-based compensation to certain of its employees. In accordance with the fair-value recognition provisions of ASC Topic 718, Share-Based Payments (“ASC Topic 718”) and SEC Staff Accounting Bulletin No. 107, compensation cost associated with employee grants recognized in the 2014, 2013 and 2012 was based on the grant date fair value. Employee stock option, restricted stock, and restricted stock unit ("RSU") awards with service period-based vesting triggers (“service period-based” awards) are amortized as non-cash equity compensation expense on a straight-line basis over the expected vesting period. The Company values service period-based option awards using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires numerous assumptions, including volatility of the Company’s Class A Common Stock and expected life of the option. Service period-based restricted stock and RSU awards are valued at the market value of traded shares on the date of grant. Options and RSUs with Class A Common Stock price-based vesting triggers (“price-based” awards) are valued using the Monte Carlo Simulation method which takes into account assumptions such as volatility of the Company’s Class A Common Stock, the risk-free interest rate based on the contractual term of the award, the expected dividend yield, the vesting schedule, and the probability that the market conditions of the award will be achieved.