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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
COMMISSION FILE NUMBER 001-15395
Martha Stewart Living Omnimedia, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 52-2187059
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11 West 42nd Street 10036
New York, NY (Zip Code)
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (212) 827-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class May 10, 2001
Class A, $0.01 par value 14,693,503
Class B, $0.01 par value 33,888,375
---------------
Total 48,581,878
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Martha Stewart Living Omnimedia, Inc.
Index to Form 10-Q
Page
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Part I. Financial information
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Part II. Other Information
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Martha Stewart Living Omnimedia, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
March 31, 2001 December 31,
(unaudited) 2000
-------------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $113,956 $127,425
Accounts receivable, net 51,100 48,993
Inventories 10,421 9,433
Deferred television production costs 4,207 3,949
Other current assets 6,889 6,013
-------------- ------------
Total current assets 186,573 195,813
-------------- ------------
PROPERTY, PLANT AND EQUIPMENT, net 39,572 37,349
-------------- ------------
INTANGIBLE ASSETS, net 50,106 47,207
-------------- ------------
OTHER ASSETS 18,652 17,045
-------------- ------------
Total assets $294,903 $297,414
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 34,956 $ 48,340
Accrued payroll and related costs 3,626 7,190
Income taxes payable 4,855 2,590
Current portion of deferred subscription income 32,825 28,782
-------------- ------------
Total current liabilities 76,262 86,902
-------------- ------------
DEFERRED SUBSCRIPTION INCOME 9,805 8,614
-------------- ------------
OTHER NONCURRENT LIABILITIES 5,291 5,782
-------------- ------------
Total liabilities 91,358 101,298
-------------- ------------
SHAREHOLDERS' EQUITY
Class A common stock, $.01 par value, 350,000 shares
authorized; 14,687 and 14,559 shares outstanding in
2001 and 2000, respectively 147 146
Class B common stock, $.01 par value, 150,000 shares
authorized; 33,888 outstanding in 2001 and 2000 339 339
Capital in excess of par value 169,748 168,528
Retained earnings 33,311 27,103
-------------- ------------
Total shareholders' equity 203,545 196,116
-------------- ------------
Total liabilities and shareholders' equity $294,903 $297,414
============== ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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Martha Stewart Living Omnimedia, Inc.
Condensed Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
Three Months Ended
March 31,
--------------------
2001 2000
-------- --------
Revenues
Publishing $47,473 $44,969
Television 6,443 7,343
Merchandising 7,828 6,190
Internet/Direct Commerce 9,501 10,644
-------- --------
Total revenues 71,245 69,146
-------- --------
Operating costs and expenses
Production, distribution and editorial 35,755 36,133
Selling and promotion 12,434 11,203
General and administrative 10,932 10,351
Depreciation and amortization 2,716 2,112
-------- --------
Total operating costs and expenses 61,837 59,799
-------- --------
Income from operations 9,408 9,347
Interest income, net 1,295 1,385
-------- --------
Income before income taxes 10,703 10,732
Income tax provision 4,495 5,151
-------- --------
Net income $ 6,208 $ 5,581
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Basic earnings per share $ 0.13 $ 0.11
-------- --------
Basic average shares outstanding 48,516 49,616
-------- --------
Diluted earnings per share $ 0.13 $ 0.11
-------- --------
Diluted average shares outstanding 49,176 51,164
-------- --------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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Martha Stewart Living Omnimedia, Inc.
Consolidated Statement of Shareholders' Equity
For the Three Months Ended March 31, 2001
(unaudited, in thousands)
Class A Class B
common stock common stock Capital in
------------------ ------------------- excess of Retained
Shares Amount Shares Amount par value earnings Total
------ ------ ------ ------ ---------- -------- --------
Balance at January 1, 2001 14,559 $146 33,888 $339 $168,528 $27,103 $196,116
Net income for the period - - - - - 6,208 6,208
Issuance of shares for stock option
exercises 128 1 - - 1,220 - 1,221
------ ------ ------ ------ ---------- -------- --------
Balance at March 31, 2001 14,687 $147 33,888 $339 $169,748 $33,311 $203,545
====== ====== ====== ====== ========== ======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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Martha Stewart Living Omnimedia, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
Three Months Ended
March 31,
-------------------------
2001 2000
--------- ---------
Cash flows from operating activities
Net income $ 6,208 $ 5,581
Adjustments to reconcile net income to net
cash used in operating activities
Depreciation and amortization 2,716 2,112
Changes in operating assets and liabilities (17,985) (9,184)
--------- ---------
Net cash used in operating activities, net of assets acquired (9,061) (1,491)
--------- ---------
Cash flows from investing activities
Equity investment -- (13,297)
Acquisition of business (3,824) --
Capital expenditures (3,805) (2,353)
--------- ---------
Net cash used in investing activities (7,629) (15,650)
--------- ---------
Cash flows from financing activities
Repurchase of common stock -- (32,492)
Issuance of note payable 2,000 --
Proceeds received from stock option exercises 1,221 --
--------- ---------
Net cash provided by (used) in financing activities 3,221 (32,492)
--------- ---------
Net decrease in cash (13,469) (49,633)
Cash and cash equivalents, beginning of period 127,425 154,749
--------- ---------
Cash and cash equivalents, end of period $ 113,956 $ 105,116
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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Martha Stewart Living Omnimedia, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited, in thousands, except
per share data)
1. Accounting policies
a. General
Martha Stewart Living Omnimedia, Inc., together with its subsidiaries, is
herein referred to as the "Company."
The information included in the foregoing interim condensed consolidated
financial statements is unaudited. In the opinion of management, all
adjustments which are of a normal recurring nature and necessary for a
fair presentation of the results of operations for the interim periods
presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be
expected for the entire year. These condensed consolidated financial
statements are unaudited and should be read in conjunction with the
audited financial statements included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission with respect
to its fiscal year ended December 31, 2000.
b. Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
c. Intangible assets
Intangible assets, representing the excess of purchase price over net
assets acquired, include the value assigned to subscriber lists, trade
names and goodwill, and are being amortized over twenty years. Management
reassesses quarterly the appropriateness of both the carrying value and
remaining life of intangible assets, principally based on forecasts of
future undiscounted cash flows.
d. Income taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under the asset and liability method of
SFAS 109, deferred assets and liabilities are recognized for the future
costs and benefits attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
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Martha Stewart Living Omnimedia, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited, in thousands, except
per share data)
2. Inventories
The components of inventories are as follows:
March 31, December 31,
2001 2000
-------- -----------
Paper $ 4,120 $ 4,151
Product merchandise 6,301 5,282
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$10,421 $ 9,433
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3. Earnings per share
Earnings per share are computed in accordance with SFAS No. 128, "Earnings
Per Share". Basic earnings per share are calculated by dividing net income
by the weighted-average number of common shares outstanding during each
period. Diluted earnings per share include the determinants of basic
earnings per share and, in addition, give effect to dilutive potential
common shares.
The computations of basic and diluted earnings per share for the three
months ended March 31, 2001 and 2000 are set forth below:
Three months ended
March 31,
-------------------
2001 2000
------- -------
Numerator for basic and diluted earnings per share-
net income available to common shareholders $ 6,208 $ 5,581
------- -------
Denominator for basic earnings per share- weighted
average number of common shares outstanding 48,516 49,616
Effect of dilutive securities- dilutive potential
common shares 660 1,548
------- -------
Denominator for diluted earnings per share-
weighted average number of common shares and
dilutive potential common shares 49,176 51,164
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Earnings per share- basic $ 0.13 $ 0.11
------- -------
Earnings per share- diluted $ 0.13 $ 0.11
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Martha Stewart Living Omnimedia, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited, in thousands, except
per share data)
4. Industry segments
The Company is a leading creator of original "how to" content and related
products for homemakers and other consumers. The Company's business
segments are Publishing, Television, Merchandising and Internet/Direct
Commerce. The Publishing segment primarily consists of the Company's
magazine operations, and also those related to its book, radio, newspaper
and music operations. The Television segment consists of the Company's
television production operations that produce television programming that
airs in syndication in the United States and on cable in the United
States, Canada and certain other international markets, weekly segments on
CBS's The Early Show broadcast, as well as periodic prime time specials.
The Merchandising segment consists of the Company's operations related to
the design of merchandise and related promotional and packaging materials
that are distributed by its retail and manufacturing partners in exchange
for royalty income. The Internet/Direct Commerce segment comprises the
Company's operations relating to the Martha by Mail catalog, a wedding
registry and gift business, and the website marthastewart.com
Revenues for each segment are presented in the condensed consolidated
income statements. Income from operations for each segment were as
follows:
Three Months Ended
March 31,
----------------------
2001 2000
-------- --------
Publishing $ 17,349 $ 17,439
Television 299 1,307
Merchandising 7,560 6,129
Internet/Direct Commerce (5,963) (5,971)
-------- --------
Total before corporate charges 19,245 18,904
Corporate (9,837) (9,557)
-------- --------
Income from operations $ 9,408 $ 9,347
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5. Acquisition of The Wedding List
In March 2001, the Company acquired certain assets and liabilities of The
Wedding List, a wedding registry and gift business. The purchase price was
approximately $3.9 million, consisting of cash of $1.9 million and a
short-term note payable of $2.0 million, payable within 90 days of
closing. Goodwill of approximately $3.6 million was recognized from the
transaction based upon a preliminary estimate of the purchase price.
Goodwill will be amortized over twenty years.
6. Supplemental Cash Flow Information
Three Months Ended
March 31,
---------------------
2001 2000
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Cash paid for interest $ 122 $ 194
Cash paid for income taxes 2,230 344
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this report, the terms "we," "us," "our" and "MSO" refer to Martha Stewart
Living Omnimedia, Inc. and its subsidiaries.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2001 TO THREE MONTHS ENDED
MARCH 31, 2000
Three Months Ended
March 31,
---------------------
2001 2000
-------- --------
(in thousands, except
per share amounts)
Revenues
Publishing $ 47,473 $ 44,969
Television 6,443 7,343
Merchandising 7,828 6,190
Internet/Direct Commerce 9,501 10,644
-------- --------
Total revenues 71,245 69,146
-------- --------
Operating costs and expenses
Production, distribution and editorial 35,755 36,133
Selling and promotion 12,434 11,203
General and administrative 10,932 10,351
Depreciation and amortization 2,716 2,112
-------- --------
Total operating costs and expenses 61,837 59,799
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Income from operations 9,408 9,347
-------- --------
Interest income , net 1,295 1,385
-------- --------
Income before income taxes 10,703 10,732
-------- --------
Income tax provision 4,495 5,151
-------- --------
Net income 6,208 5,581
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Earnings per share- basic $ 0.13 $ 0.11
======== ========
Earnings per share- diluted $ 0.13 $ 0.11
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Revenues. Total revenues increased $2.1 million, or 3.0%, to $71.2 million for
the three months ended March 31, 2001, from $69.1 million for the three months
ended March 31, 2000. Publishing revenues increased $2.5 million, or 5.5%, to
$47.5 million for the three months ended March 31, 2001, from $45.0 million for
the three months ended March 31, 2000. This increase was primarily due to
revenues from the publication of a custom published magazine, Martha Stewart
Everyday Garden, as well as increased newsstand sales of Martha Stewart Living
magazine, partially offset by lower advertising revenues in Martha Stewart
Living magazine due to lower advertising pages sold. Television revenues
decreased $0.9 million, or 12.3%, to $6.4 million for the three months ended
March 31, 2001, from $7.3 million for the three months ended March 31, 2000. The
decrease is due primarily to lower syndication advertising revenues on the
Martha Stewart Living program due to lower ratings and lower cable television
advertising revenues due primarily to market conditions. Merchandising revenues
increased $1.6 million, or 26.5%, to $7.8 million for the three months ended
March 31, 2001, from $6.2 million for the three months ended March 31, 2000,
primarily as a result of increased revenues earned on our Martha Stewart
Everyday products sold at Kmart. Internet/Direct Commerce revenues decreased
$1.1 million, or 10.7%, to $9.5 million for the three months ended March 31,
2001, from $10.6 million for the three months ended March 31, 2000, due to lower
advertising revenues of $0.7 million and lower product sales of $0.4 million.
Production, distribution and editorial. Production, distribution and editorial
expenses decreased $0.4 million, or 1.0%, to $35.8 million for the three months
ended March 31, 2001, from $36.1 million for the three months ended March 31,
2000. Publishing segment costs increased $1.8 million primarily from the
publication of Martha Stewart Everyday Garden. Internet/Direct Commerce segment
costs decreased $2.2 million due to a decrease in cost of goods sold and
fulfillment costs, each as a result of lower product
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revenues, and lower catalog production and distribution costs due to lower
catalog circulation.
Selling and promotion. Selling and promotion expenses increased $1.2 million, or
11.0%, to $12.4 million for the three months ended March 31, 2001, from $11.2
million for the three months ended March 31, 2000. Publishing segment costs
increased $0.6 million resulting primarily from higher newsstand circulation
costs associated with higher newsstand sales. Internet/Direct Commerce segment
costs increased $0.4 million resulting from higher costs associated with
increased promotional spending. Television segment costs were $0.2 million
higher resulting from the collection in March 2000 of certain previously
reserved accounts receivable.
General and administrative. General and administrative expenses increased $0.6
million, or 5.6%, to $10.9 million for the three months ended March 31, 2001,
from $10.3 million for the three months ended March 31, 2000. The higher
expenses were incurred primarily as a result of higher occupancy costs related
to our new office facility, which we began occupying in December 2000.
Depreciation and amortization. Depreciation and amortization increased $0.6
million, or 28.6%, to $2.7 million for the three months ended March 31, 2001,
from $2.1 million for the three months ended March 31, 2000. The increase is
primarily due to depreciation of capital expenditures incurred for our new
office facility, which we began occupying in December 2000.
Interest income, net. Interest income , net was $1.3 million for the three
months ended March 31, 2001, compared to $1.4 million for the three months ended
March 31, 2000, due to lower average cash balances and lower interest rates
during the 2001 quarter.
Income tax provision. Income tax provision for the three months ended March 31,
2001 was $4.5 million, representing a 42% effective income tax rate. Income tax
provision for the three months ended March 31, 2000 was $5.2 million,
representing a 48% effective income tax rate. The lower rate in 2001 is due to
the effect of tax-free interest income earned on invested cash.
Net income. Net income was $6.2 million for the three months ended March 31,
2001, compared to net income of $5.6 million for the three months ended March
31, 2000, as a result of the above mentioned factors.
Earnings per share. Basic and diluted earnings per share were $0.13 per share
for the three months ended March 31, 2001, compared to $0.11 for the three
months ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $114.0 million at March 31, 2001, compared to
$127.4 million at December 31, 2000.
Cash flows used in operating activities were $9.1 million during the three
months ended March 31, 2001, resulting primarily from lower accounts payable and
accrued liabilities due to timing of payments. Cash flows used in operating
activities were $1.2 million during the three months ended March 31, 2000.
Cash flows used in investing activities were $7.6 million for the three months
ended March 31, 2001, reflecting a $3.8 million net asset purchase of The
Wedding List, and $3.8 million of capital expenditures, primarily for our
internet technology upgrade project. Cash flows used in investing activities
were $15.7 million during the three months ended March 31, 2000, reflecting a
$13.3 million investment in BlueLight.com and capital expenditures of $2.4
million.
Cash flows provided by financing activities for the three months ended March 31,
2001 were $3.2 million, representing the issuance of a $2.0 million short term
note payable in connection with The Wedding List acquisition and $1.2 million of
proceeds received from the exercise of employee stock options. Cash used in
financing activities was $32.5 million during the three months ended March 31,
2000, resulting from the repurchase of 1.366 million shares of our Class A
common stock for $32.5 million from Time Publishing Ventures, Inc.
We have a line of credit with Bank of America in the amount of $10.0 million,
which is available to us for seasonal working capital requirements and general
corporate purposes. As of March 31, 2001, we had no
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outstanding borrowings under this facility.
We believe that our available cash balances, together with any cash generated
from operations and any funds available under existing credit facilities will be
sufficient to meet our operating and recurring cash needs for foreseeable
periods.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Several of our businesses can experience fluctuations in quarterly performance.
For example, Martha Stewart Living magazine was published eleven times in 2000:
three issues in each of the first, second and fourth quarters and two issues in
the third quarter. In 2001, Martha Stewart Living magazine will be published
twelve times. Martha Stewart Weddings is published four times annually: one
issue in each of the second and third quarters and two issues in the fourth
quarter. In addition, we periodically publish special interest publications,
such as Martha Stewart Baby and Martha Stewart Holiday. Furthermore, the number
of advertising pages per issue tends to be higher in issues published in the
fourth quarter. Revenue and income from operations for the Television segment
tend to be higher in the fourth quarter due to generally higher ratings and the
broadcast of prime time television specials. Internet/Direct Commerce segment
revenues also tend to be higher in the fourth quarter due to increased consumer
spending during that period. Revenues from the Merchandising segment can vary
significantly from quarter to quarter due to new product launches and the
seasonal nature of certain products.
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PART II: OTHER INFORMATION
ITEM 5: OTHER INFORMATION
Cautionary Statement Pursuant to The Private Securities Litigation Reform Act of
1995
We have included in this Quarterly Report certain "forward looking statements"
as that term is defined in The Private Securities Litigation Reform Act of 1995.
These forward-looking statements are not historical facts but instead represent
only our belief regarding future events, many of which, by their nature, are
inherently uncertain and outside of our control. It is possible that our actual
results may differ, possibly materially, from the anticipated results indicated
in these forward-looking statements. These statements can be identified by
terminology such as "may," "will," "should," "could," "expects," "intends,"
"plans," "anticipates," "believes," "estimates," "potential" or "continue" or
the negative of these terms or other comparable terminology. Our actual results
may differ materially from those projected in these statements, and factors that
could cause such differences include, but are not limited to, downturns in
national and/or local economies; a softening of the domestic advertising market;
increased consolidation among major advertisers or other events depressing the
level of advertising spending; changes in consumer reading, purchasing and/or
television viewing patterns; increases in paper, postage or printing costs;
technological developments affecting products or methods of distribution such as
the Internet or e-commerce; the resolution of issues concerning commercial
activities via the Internet, including security, privacy, reliability, cost,
ease of use and access and sales taxes; changes in government regulations
affecting our industries; and unexpected changes in interest rates. Additional
information regarding some of these and other important factors that could
cause actual results to differ from those in our forward-looking statements is
contained in the prospectus forming part of our registration statement on Form
S-1 (File No. 333-84001) under the caption "Risk Factors."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No exhibits are filed as part of this report
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Company during the period
covered by this report.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARTHA STEWART LIVING OMNIMEDIA, INC.
Date: May 15, 2001 By: /s/ James Follo
--------------------------------------------------------
Name: James Follo
Title: Executive Vice President, Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
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