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I'm looking at the S-1 filing of Shutterstock: http://www.sec.gov/Archives/edgar/data/1549346/000104746912005905/a2209364zs-1.htm It says that $20.5mil, $25.9mil and $28.6mil of dividends were paid in 2009, 2010 and 2011, respectively. However, the net income were $18.8mil, $18.9mil and $21.9mil in 2009, 2010 and 2011, respectively. How come the dividends paid were higher than the profit each of those 3 years? Is it legal? Thanks |
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Many reasons can contribute to this phenomenon actually. It depends on the dividend policy specified at that time and what qualified as dividend. Looks like this is a very special case, as highlighted in the filing there's no current dividend but there was historical ones and that was before & during times of transition - reorganization of the company. "Pursuant to the operating agreement, the LLC has historically made monthly cash distributions to its members, including those affiliated with our directors, executive officers or beneficial holders of more than 5% of our capital stock. The members of the LLC affiliated with Jonathan Oringer, Insight Venture Partners and Adam Riggs received aggregate distributions of $49.9 million, $18.7 million and $6.4 million, respectively, for the three years ended December 31, 2011. From January 1, 2012 to April 30, 2012, such members of the LLC have received aggregate distributions of $7.4 million, $2.8 million and $0.9 million, respectively. The LLC intends to continue making monthly cash distributions to its members, up until the time of the Reorganization." As a part of the operating agreement, the LLC had cash distributions to members and holders of the capital stock and those affiliated other qualifying organizations. These were prior cash distributions prior to going public. They could technically do whatever they want with revenues or profits that they retained in the past as private company. "Dividend Yield. Prior to this offering, while we were structured as a limited liability company, we historically paid cash dividends or distributions to our members. Once we complete this offering, we do not intend to pay cash dividends or distributions in the foreseeable future. Consequently, we used an expected dividend yield of zero." |
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It's legal. Basically, they're doing two things: First, recognize that they have pre-paid subscriptions, so they get a lot of cash in one year that they can't really book as revenue until the following year. So, they sell a subscription in, say, July of year 2010. For accounting purposes, only 1/2 of that gets counted as revenue in 2010; the rest is counted in 2011. But, at the end of 2010, they have the full amount in cash, and they distribute a big chunk of it to their owners. Second, they're actually increasing their debt every year, probably by increasing the time they have to pay their creditors and by waiting longer to pay royalties to contributors. Both of those things generate free cash which they can pay out to their owners. The easiest way to see this is to look at page F-6 of the S-1 -- in 2011, the "Cash Flow From Operating Activities" yielded $8M of deferred income. Look at "Deferred Revenue," "Accounts payable and other liabilities" and "Contributors payable." |
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