UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
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 (I.R.S. Employer Identification No.)
Incorporation or Organization)
11 West 42nd Street, New York, NY 10036
(Address of Principal Executive Offices) (Zip Code)
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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.
Class Outstanding at May 04, 2005
Class A, $0.01 par value 22,474,335
Class B, $0.01 par value 29,122,860
----------
Total 51,597,195
==========
MARTHA STEWART LIVING OMNIMEDIA, INC.
Index to Form 10-Q
PAGE
-----
Part I. Financial Information
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 13
Item 4. Controls and Procedures 20
Part II. Other Information
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 21
Signatures
Certifications
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARTHA STEWART LIVING OMNIMEDIA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31, December 31,
2005 2004
--------- -----------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 85,071 $104,647
Short-term investments 61,930 35,309
Accounts receivable, net 13,840 31,332
Inventories, net 3,864 5,229
Income taxes receivable 5,107 6,321
Other current assets 2,867 3,573
--------- ---------
TOTAL CURRENT ASSETS 172,679 186,411
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, net 15,966 17,175
INTANGIBLE ASSETS, net 54,130 54,264
OTHER NONCURRENT ASSETS 6,816 6,828
--------- ---------
TOTAL ASSETS $ 249,591 $ 264,678
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 20,337 $ 25,604
Accrued payroll and related costs 5,985 9,407
Income taxes payable 403 412
Current portion of deferred subscription income 29,844 27,160
--------- ---------
TOTAL CURRENT LIABILITIES 56,569 62,583
--------- ---------
DEFERRED SUBSCRIPTION INCOME 7,797 7,668
DEFERRED ROYALTY REVENUE 3,750 3,438
OTHER NONCURRENT LIABILITIES 3,273 3,361
--------- ---------
TOTAL LIABILITIES 71,389 77,050
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Class A common stock, $.01 par value, 350,000 shares authorized; 22,493
and 21,660 shares outstanding in 2005
and 2004, respectively 225 217
Class B common stock, $.01 par value, 150,000 shares
authorized; 29,123 outstanding in 2005 and 2004 291 291
Capital in excess of par value 214,694 196,781
Unamortized restricted stock (10,972) (2,793)
Accumulated deficit (25,261) (6,093)
--------- ---------
178,977 188,403
Less: Class A treasury stock - 59 shares at cost (775) (775)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 178,202 187,628
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 249,591 $ 264,678
========= =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
MARTHA STEWART LIVING OMNIMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited, in thousands, except per share data)
Three Months Ended
March 31,
2005 2004
---------- ----------
REVENUES
Publishing $ 25,355 $ 23,922
Television 797 4,177
Merchandising 9,392 10,789
Internet/Direct Commerce 3,122 5,613
---------- ----------
TOTAL REVENUES 38,666 44,501
---------- ----------
OPERATING COSTS AND EXPENSES
Production, distribution and editorial 23,565 28,940
Selling and promotion 16,579 13,448
General and administrative 13,398 15,523
Amortization of non-cash equity compensation 3,219 1,455
Depreciation and amortization 1,687 1,674
---------- ----------
TOTAL OPERATING COSTS AND EXPENSES 58,448 61,040
---------- ----------
OPERATING LOSS (19,782) (16,539)
Interest income, net 769 362
---------- ----------
LOSS BEFORE INCOME TAXES (19,013) (16,177)
Income tax provision (23) (3,143)
---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE LOSS FROM
DISCONTINUED OPERATIONS (19,036) (19,320)
Loss from discontinued operations (132) (161)
---------- ----------
NET LOSS $ (19,168) $ (19,481)
========== ==========
LOSS PER SHARE - BASIC AND DILUTED
Loss from continuing operations $ (0.37) $ (0.39)
Loss from discontinued operations (0.00) 0.00
---------- ----------
Net loss $ (0.38) $ (0.39)
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 50,863 49,464
---------- ----------
Diluted 50,863 49,464
---------- ----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
MARTHA STEWART LIVING OMNIMEDIA, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2005
(unaudited, in thousands)
Class A
Class A Class B Retained Treasury
common stock common stock Capital in Unamortized Earnings Stock
--------------- ----------------- excess of Restricted (Accumulated --------------
Shares Amount Shares Amount par value Stock deficit) Shares Amount Total
------ ------ ------ ------ ---------- ----------- ------------ ------ ------ --------
Balance at
January 1, 2005 21,660 $ 217 29,123 $ 291 $ 196,781 $ (2,793) $ (6,093) (59) $(775) $187,628
Net loss
for the period - - - - - - (19,168) - - (19,168)
Issuance of
shares in
conjunction
with stock
option exercises
and restricted
stock plans,
net of tax
withholdings 839 8 - - 16,569 (10,054) - - - 6,523
Return of
restricted stock (6) - - - (177) 177 - - - -
Amortization of
non-cash equity
compensation - - - - 1,521 1,698 - - - 3,219
------ ------ ------- ------- ---------- ---------- ------------ ----- ----- --------
Balance at
March 31, 2005 22,493 $ 225 29,123 $ 291 $ 214,694 $ (10,972) $ (25,261) (59) $(775) $178,202
====== ====== ======= ======= ========== ========== ============ ===== ===== ========
The accompanying notes are an integral part of these
consolidated financial statements.
5
MARTHA STEWART LIVING OMNIMEDIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
For The Three Months Ended
March 31,
----------------------------------
2005 2004
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (19,168) $ (19,481)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 1,687 1,674
Amortization of non-cash equity compensation 3,219 1,455
Deferred income tax expense - 3,143
Changes in operating assets and liabilities 15,112 14,448
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 850 1,239
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (328) (298)
Purchase of short-term investments (41,441) -
Sales of short-term investments 14,820 -
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (26,949) (298)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds received from stock option exercises 6,523 194
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,523 194
---------- ---------
NET INCREASE (DECREASE) IN CASH (19,576) 1,135
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 104,647 165,566
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 85,071 $ 166,701
========== =========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
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, 2004.
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
Commencing January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible
Assets." Under SFAS 142, goodwill is no longer subject to amortization over its
estimated useful life. Rather, goodwill is subject to annual assessment for
impairment by applying a fair-value based test. In August 2004, the Company
acquired certain intangible assets in connection with business acquisitions
discussed in note 5.
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. The Company
periodically reviews the requirements for a valuation allowance and makes
adjustments to such allowances when changes in circumstances result in changes
in management's judgment about the future realization of deferred tax assets.
SFAS No. 109 places more emphasis on historical information, such as the
Company's cumulative operating results and its current year taxable income/loss
than it places on estimates of future taxable income. Therefore, the Company has
established a valuation allowance of $6,740 in the first three months of 2005,
and a cumulative balance of $38,693 as of March 31, 2005. The Company intends to
maintain a valuation allowance until evidence would support the conclusion that
it is more likely than not that the deferred tax asset could be realized. The
Company currently has recorded an accrual of $601 for income tax liabilities
related to ongoing federal, state, and local audits. Management believes the
ultimate outcome of these audits will not have a material effect on the
financial position of the Company. The Company's books reflect a receivable in
the amount of $5,107, which represents refundable federal and state income
taxes.
7
e. Reclassifications
Certain prior year financial information has been reclassified to conform to
fiscal 2005 financial statement presentation.
f. Stock Compensation
As permitted by Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation," the Company has elected to continue
accounting for employee stock compensation under the APB 25 rules, but disclose
pro forma results using SFAS No. 123's alternative accounting treatment, which
calculates the total compensation expense to be recognized as the fair value of
the award at the date of grant. No employee options were granted during the
three month period ended March 31, 2005 and 2004.
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options over the relevant vesting periods. The pro
forma effects on net loss for the three months ended March 31, 2005 and 2004
were as follows:
2005 2004
---------- --------------
Net loss, as reported $ (19,168) $ (19,481)
Deduct: Total stock-based employee compensation
expense determined under fair value based method for
all awards 335 (181)
---------- --------------
Proforma net loss (19,503) $ (19,300)
========== ==============
Loss per share:
Basic and diluted - as reported $ (0.38) $ (0.39)
Basic and diluted - pro forma (0.38) $ (0.39)
During the three months ended March 31, 2005, the Company granted 200,000
options to a board member of the Company in connection with a consulting
agreement. The aggregate value of the options at the grant date, based upon the
Black-Scholes option pricing model, was $3,313 ($16.56 per option) and will be
expensed over the two year vesting period. The amount recognized as expense for
the three months ended March 31, 2005 for these options was $276.
The following assumptions were used in valuing the options under the Black-
Scholes option pricing model; risk- free interest- rate 4.7%; dividend yield-
zero; expected option life- 10 years.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of
FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees,
and
8
amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach
in Statement 123(R) is similar to the approach described in Statement 123.
However, Statement 123(R) requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative.
Statement 123(R) must be adopted no later than January 1, 2006. Early adoption
will be permitted in periods in which financial statements have not yet been
issued. We expect to adopt Statement 123(R) on January 1, 2006.
Statement 123(R) permits public companies to adopt its requirements using one of
two methods:
1. The "modified prospective" method in which compensation cost is recognized
beginning with the effective date (a) based on the requirements of Statement
123(R) for all share-based payments granted after the effective date and (b)
based on the requirements of Statement 123 for all awards granted to employees
prior to the effective date of Statement 123(R) that remain unvested on the
effective date.
2. The "modified retrospective" method which includes the requirements of the
modified prospective method described above, but also permits entities to
restate based on the amounts previously recognized under Statement 123 for
purposes of pro forma disclosures either (a) all prior periods presented or (b)
prior interim periods of the year of adoption.
The Company is currently evaluating the methodology it will apply in the
adoption of Statement 123(R).
As permitted by Statement 123, the Company currently accounts for share-based
payments to employees using Opinion 25's intrinsic value method and, as such,
generally recognizes no compensation cost for employee stock options.
Accordingly, the adoption of Statement 123(R)'s fair value method will have a
significant impact on our result of operations, although it will have no impact
on our overall financial position. The impact of adoption of Statement 123(R)
cannot be predicted at this time because it will depend on levels of share-based
payments granted in the future. However, had we adopted Statement 123(R) in
prior periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and Note 1f
to our consolidated financial statements. Statement 123(R) also requires the
benefits of tax deductions in excess of recognized compensation cost to be
reported as a financing cash flow, rather than as an operating cash flow as
required under current literature. This requirement will reduce net operating
cash flows and increase net financing cash flows in periods after adoption.
2. Inventories
The components of inventories are as follows:
March 31, December 31,
2005 2004
------------ ------------
Paper $ 3,864 $ 4,279
Product merchandise - 1,236
------------ ---------
3,864 5,515
Less: reserve for obsolete and excess
inventory - 286
------------ ---------
$ 3,864 $ 5,229
============ =========
3. Loss per share
Loss per share is computed in accordance with SFAS No. 128, "Earnings Per
Share". Basic loss per share is calculated by dividing net loss by the
weighted-average number of common shares outstanding during each period. Diluted
loss per share reflects the potential dilution that would occur from the
exercise of stock options and warrants and the vesting of restricted stock. As
the Company was in a loss position, for the three months ended March 31, 2005
and 2004, the antidilutive options, warrants, and restricted stock excluded from
the computation of diluted earnings per share totaled 2,429,200 and 334,100
respectively.
9
Stock options that were excluded from the calculation of diluted earnings per
share as their exercise price exceeded the average share price of the common
shares for the three month period ended March 31, 2005 and 2004 were 9,300 and
1,119,400 respectively.
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 operations. The Television segment consists of
the Company's television production operations that produce television
programming that airs in syndication, on public television and on cable. 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 its direct-to-consumer
floral business and the website marthastewart.com. Historically, this segment
included the Company's operations relating to its catalog, Martha Stewart: The
Catalog For Living, which was discontinued in 2004.
The Company believes operating income before depreciation and amortization,
including the amortization of non-cash stock compensation, ("OIDA") is an
appropriate measure when evaluating the operating performance of its business
segments and the Company on a consolidated basis. OIDA is among the primary
metrics used by management for planning and forecasting of future periods, and
is considered an important indicator of the operational strength of the
Company's businesses. OIDA is also used externally by the Company's investors,
analysts, and industry peers. The Company believes the presentation of this
measure is relevant and useful for investors because it allows investors to view
performance in a manner similar to the method used by the Company's management
and makes it easier to compare the Company's results with other companies that
have different capital structures or tax rates. The Company believes OIDA should
be considered in addition to, not as a substitute for, operating income (loss),
net income (loss), cash flows, and other measures of financial performance
prepared in accordance with generally accepted accounting principles ("GAAP").
As OIDA is not a measure of performance calculated in accordance with GAAP, this
measure may not be comparable to similarly titled measures employed by other
companies.
Revenues for each segment are presented in the condensed consolidated statements
of income. Income (loss) from operations for each segment were as follows:
Three Months Ended
March 31,
(unaudited)
----------------------
2005 2004
------- --------
OPERATING INCOME (LOSS)
Publishing $(8,718) $ (3,848)
Television (2,272) (1,947)
Merchandising 5,815 6,489
Internet/Direct Commerce (1,509) (2,679)
------- --------
Operating Loss before Corporate Expenses (6,684) (1,985)
Corporate Expenses (13,098) (14,554)
------- --------
TOTAL OPERATING LOSS (19,782) (16,539)
------- --------
DEPRECIATION AND AMORTIZATION
Publishing 247 62
Television 46 57
Merchandising 209 190
Internet/Direct Commerce 252 243
Corporate Expenses 933 1,122
------- --------
TOTAL DEPRECIATION AND AMORTIZATION 1,687 1,674
------- --------
10
Three Months Ended
March 31,
(unaudited)
-----------------------------------
2005 2004
--------- ----------
AMORTIZATION OF NON-CASH EQUITY COMPENSATION
Publishing 779 51
Television 64 -
Merchandising 77 13
Internet/Direct Commerce 9 -
Corporate Expenses 2,290 1,391
--------- ----------
TOTAL AMORTIZATION OF NON-CASH EQUITY COMPENSATION 3,219 1,455
--------- ----------
OPERATING INCOME (LOSS) BEFORE DEPRECIATION AND AMORTIZATION AND
AMORTIZATION OF NON-CASH EQUITY COMPENSATION
Publishing (7,692) (3,735)
Television (2,162) (1,890)
Merchandising 6,101 6,692
Internet/Direct Commerce (1,248) (2,436)
--------- ----------
Operating Loss before Depreciation and Amortization and Amortization of
Non-Cash Equity Compensation and before Corporate Expenses (5,001) (1,369)
Corporate Expense (9,875) (12,041)
--------- ----------
TOTAL OPERATING LOSS BEFORE DEPRECIATION AND AMORTIZATION AND AMORTIZATION OF
NON-CASH EQUITY COMPENSATION $ (14,876) $ (13,410)
========= ==========
5. Business Acquisitions
In August 2004, the Company acquired certain assets and liabilities of Body +
Soul magazine and Dr. Andrew Weil's Self Healing newsletter, which are
publications featuring "natural living" content. The primary purpose of the
acquisition was to enter a new market and to launch "natural living " as a new
"omni" lifestyle category and brand for the Company. Consistent with SFAS No.
141, "Business Combinations," the acquisitions were accounted for under purchase
accounting.
In connection with the acquisition of the net assets of Body + Soul net assets,
the Company recorded tangible assets of $612, an intangible trademark asset of
$300, and assumed liabilities of $2,669 based upon receipt of an asset appraisal
performed by an external valuation services firm. Goodwill of $6,613 was
recognized as the excess of the purchase price over the fair value of the assets
acquired.
In connection with the acquisition of the net assets of Dr. Andrew Weil's Self
Healing newsletter, the Company recorded tangible assets of $428, an intangible
subscriber list asset of $900, an intangible trademark asset of $200 and assumed
liabilities of $1,902 based upon receipt of an asset appraisal performed by an
external valuation services firm. Goodwill of $2,219 was recognized as the
excess of the purchase price over the fair value of the assets acquired.
The intangible subscriber lists are subject to an eighteen month amortization
period. For the three month period ended March 31, 2005 approximately $150 was
charged to amortization expense and accumulated amortization.
11
6. Related Party Transaction
Martha Stewart has submitted a claim, pursuant to the Company's By-laws, for
approximately $3,700, for reimbursement of certain expenses relating to her
defense of the count of the federal criminal complaint against her alleging she
made false and misleading statements intended to influence the price of the
Corporation's stock. Ms. Stewart's defense of this count was successful and a
judgment of acquittal was entered in her favor. The Corporation and Ms. Stewart
submitted the question of whether or not she is entitled to indemnification to
an independent expert on Delaware law. On March 15, 2005 the independent expert
determined that Ms. Stewart is entitled to indemnification. The Corporation
believes that substantially all amounts reimbursed to Ms. Stewart will be
reimbursable to the Corporation under its Directors & Officers insurance policy
and, accordingly, does not believe that any payments will result in a
significant expense to the Corporation.
7. Discontinued Operations
In June 2002, the Company decided to exit The Wedding List, a wedding registry
and gift business that was reported within the Internet/Direct Commerce business
segment. The loss from operations for the three months ended March 31, 2005 and
2004 was $132 and $161, respectively.
12
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.
EXECUTIVE SUMMARY
TRENDS, RISKS AND UNCERTAINTIES
Since June 2002, as a result of the negative publicity and criminal and civil
proceedings surrounding Martha Stewart's sale of non-Company stock we
experienced substantial negative effects on our business. However, although we
cannot provide any assurances regarding future trends, based on our current view
of the market, we are cautiously optimistic about the Company's prospects in
2005, including prospects for an increase in advertising pages and revenue in
certain of the Company's magazines, as well as the potential benefit from the
launch of a new syndicated television program in the Fall of 2005. Additionally,
as part of an agreement with Mark Burnett, a well regarded producer of
prime-time programming, the Company will participate in the production of a
primetime network television series titled, The Apprentice: Martha Stewart. This
new program will feature Martha Stewart as the host and will be broadcast by
NBC. While MSO will not have a direct financial interest in the prime-time
program, MSO expects to benefit from promotion of the Company's brands, products
and its business. We expect that this program will expose the brand to a wider
audience of viewers, consumers and business partners. Additionally, under a four
year agreement, the Company expects to launch a Martha Stewart-branded satellite
radio channel on SIRIUS satellite radio.
In August 2004, we decided to discontinue the Catalog for Living and its online
product offerings, which are included in the Internet/Direct Commerce segment.
The operations of the Catalog for Living and the online component of this
business were not profitable. Currently, the Internet/ Direct Commerce segment
principally consist of our online flowers program, marthasflowers.com, as well
as the online content portion of our business. As a result of the changes to the
business, we expect to see a further reduction in revenue, operating costs and a
reduced operating loss in this segment in the near term.
The operations of our television segment were significantly reduced in 2004.
Pending the launch of our new syndicated television program in September 2005,
the segment primarily consists of a cable television distribution agreement with
The Style Network, a weekly syndicated program - Petkeeping with Marc Morrone
and a weekly show airing on PBS stations nationwide - Everyday Food. Previously,
the segment included our nationally syndicated daily show, Martha Stewart
Living, as well as several other cable television shows.
The Company's current agreement with Kmart provides for certain minimum
guaranteed royalty payments. We expect the minimum guarantees will exceed actual
royalties earned from retail sales through 2007 primarily due to trends at
Kmart, which include past store closings and lower same-store sales. For the
contract years ending January 31, 2009 and 2010 (the extension years), the
minimum guarantees will be substantially lower than in prior years. The specific
computation is discussed in the paragraph below. The following table schedules
out the future minimum guaranteed royalty payments.
1/31/02 1/31/03 1/31/04 1/31/05 1/31/06 1/31/07 1/31/08
------- ------- ------- ------- ------- ------- -------
Minimum Royalty Amounts $ 15.3 $ 40.4 $ 47.5 $ 49.0 $ 54.0 $ 59.0 $ 65.0
For the year ending January 31, 2009 the minimum royalty amount is the greater
of $20 million or 50% of the earned royalty for the year ending January 31,
2008. For the year ending January 31, 2010 the minimum royalty amount is the
greater of $15 million or 50% of the earned royalty for the year ending January
31, 2009. Furthermore, $3.8 million of the January 31, 2005 and January 31, 2006
minimum royalty payments and $2.5 million of the January 31, 2007 and January
31, 2008 minimum royalty payments, but not more than $10.0 in the aggregate over
the term of the agreement, will be deferred and subject to recoupment in the
periods ending January 31, 2009 and January 31, 2010.
13
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2005 TO THREE MONTHS ENDED MARCH 31,
2004
PUBLISHING SEGMENT
2005 2004
(unaudited) (unaudited) Variance
----------- ----------- --------
PUBLISHING REVENUE
Advertising $ 8,680 $ 8,135 $ 545
Circulation 16,161 15,434 727
Other 514 353 161
----------- ----------- --------
TOTAL PUBLISHING SEGMENT REVENUE 25,355 23,922 1,433
----------- ----------- --------
PUBLISHING OPERATING COSTS AND EXPENSES
Production, distribution and editorial 16,265 15,018 (1,247)
Selling and promotion 16,165 12,285 (3,880)
General and administrative 617 354 (263)
Amortization of non-cash equity compensation 779 51 (728)
Depreciation and amortization 247 62 (185)
----------- ----------- --------
TOTAL PUBLISHING OPERATING COSTS AND EXPENSES 34,073 27,770 (6,303)
----------- ----------- --------
OPERATING LOSS $ (8,718) $ (3,848) $ (4,870)
----------- ----------- --------
Publishing revenues increased $1.4 million, or 6.0%, to $25.4 million for the
three months ended March 30, 2005, from $23.9 million for the three months ended
March 30, 2004. This increase was primarily due to the acquisition of the Body
and Soul group (which includes both Body + Soul magazine as well as Dr. Andrew
Weil's Self Healing newsletter) in August of 2004 which contributed $2.1 million
to revenue in the current quarter, as well as an increase in revenue from
Everyday Food of $1.0 million. The increase was partially offset by lower
revenue from certain other magazines discussed more fully below. Circulation
revenue increased $0.7 million primarily due to the addition of the Body and
Soul group which contributed $0.9 million in the quarter and an increase in
revenue from Everyday Food of $0.5 million related to an increase in the number
of subscription copies served, partially offset by lower circulation revenue
from our Kids: Fun Stuff To Do Together magazine of $0.5 million related to a
decrease in frequency. Advertising revenue increased $0.5 million, due in part
to the addition of Body & Soul, which accounted for $0.9 million of the
increase, an increase in Everyday Food revenue of $0.4 million due principally
to an increase in advertising rate per page. The increases were partially offset
by lower advertising revenue of $0.5 million from Martha Stewart Living as a
result of fewer advertising pages as well as lower revenue from the Kids: Fun
Stuff To Do Together magazine principally as a result of publishing one less
issue in the period.
Magazine Publication Schedule 2005 2004
- ----------------------------- ------------ ------------
Martha Stewart Living Three Issues Three Issues
Everyday Food Three Issues Three Issues
Special Interest Publications Two Issues Three Issues
Body + Soul (a) Two Issues n/a
(a) Acquired in August 2004 and therefore was not included in prior periods.
14
Production, distribution and editorial expenses increased $1.2 million primarily
reflecting the additional costs associated with the Body & Soul group and higher
distribution, paper, and printing costs of Everyday Food, due primarily to an
increase in circulation, partially offset by lower paper, printing and
distribution costs of Kids: Fun Stuff To Do Together magazine, due to the
reduced frequency. Selling and promotion expenses increased $3.9 million
primarily due to costs associated with the Body & Soul group acquisition, higher
circulation costs for Martha Stewart Living due to higher volume of subscription
acquisition mailings, due in part to timing of mail campaigns, as well as the
costs associated with employee severance. The increase was partially offset by
lower circulation costs for Everyday Food as the prior year period included
costs associated with the magazines rapid growth, as well as a reduction in
marketing efforts for the Kids: Fun Stuff To Do Together magazine. The increase
in the amortization of non-cash equity compensation includes employee severance
costs, as well as costs associated with the company's annual equity grant.
TELEVISION SEGMENT
2005 2004
(unaudited) (unaudited) Variance
----------- ----------- --------
TELEVISION REVENUE
Syndication $ 170 $ 3,489 $ (3,319)
Licensing and other 627 688 (61)
----------- ----------- --------
TOTAL TELEVISION SEGMENT REVENUE 797 4,177 (3,380)
----------- ----------- --------
TELEVISION OPERATING COSTS AND EXPENSES
Production, distribution and editorial 1,269 4,603 3,334
Selling and promotion 234 569 335
General and administrative 1,456 895 (561)
Amortization of non-cash equity compensation 64 - (64)
Depreciation and amortization 46 57 11
----------- ----------- --------
TOTAL TELEVISION OPERATING COSTS AND EXPENSES 3,069 6,124 3,055
----------- ----------- --------
OPERATING LOSS $ (2,272) $ (1,947) $ (325)
----------- ----------- --------
Television revenues decreased $3.4 million, or 80.9%, to $0.8 million for the
quarter ended March 31, 2005, from $4.2 million for the quarter ended March 31,
2004. The decrease was primarily due to lower revenue from our syndicated daily
program which ceased airing in mid September 2004. Our revenue in the television
segment will continue to be negatively impacted, until the expected launch of
our new syndicated show in September of 2005.
Production, distribution and editorial expenses as well as selling and promotion
expenses decreased in the period due to the cessation of production of the
syndicated daily show. General and administrative expense increased primarily
due to higher professional fees incurred in the quarter related to future
productions.
15
MERCHANDISING SEGMENT
2005 2004
(unaudited) (unaudited) Variance
----------- ----------- --------
MERCHANDISING REVENUE
Kmart earned royalty $ 6,132 $ 6,486 $ (354)
Kmart minimum true-up 2,078 2,412 (334)
Other 1,182 1,891 (709)
----------- ----------- --------
TOTAL MERCHANDISING SEGMENT REVENUE 9,392 10,789 (1,397)
----------- ----------- --------
MERCHANDISING OPERATING COSTS AND EXPENSES
Production, distribution and editorial 2,139 2,616 477
Selling and promotion (86) 108 194
General and administrative 1,238 1,373 135
Amortization of non-cash equity compensation 77 13 (64)
Depreciation and amortization 209 190 (19)
----------- ----------- --------
TOTAL MERCHANDISING OPERATING COSTS AND EXPENSES 3,577 4,300 723
----------- ----------- --------
OPERATING INCOME $ 5,815 $ 6,489 $ (674)
----------- ----------- --------
Merchandising revenues decreased $1.4 million, or 12.9%, to $9.4 million for the
quarter ended March 31, 2005, from $10.8 million for the quarter ended March 31,
2004, primarily due to lower sales of our Martha Stewart Everyday product at
Kmart due to lower same-store-sales. The revenue decline was partially offset by
an increase in the royalty rate on a year-over-year basis. The royalty rate
under our agreement with Kmart increased approximately 3% on February 1, 2005.
Listed separately above, is the pro-rata portion of revenue related to the
contractual minimum amounts covering the current period, net of amounts subject
to recoupment. We expect the minimum guarantees will exceed actual royalties
earned from retail sales through 2007 primarily due to store closings and lower
same-store sales trends. For the contract years ending January 31, 2009 and
2010, the minimum guarantees will be substantially lower than prior years. Other
revenue in the segment declined in the quarter principally due to a decline in
royalty revenue from the Martha Stewart Everyday paint program, due to lower
sales and a lower royalty rate and the absence of revenue related to our
Signature flooring program which terminated in late 2004.
Production, distribution and editorial expenses decreased $0.5 million in the
period due to lower compensation related expense.
16
INTERNET/DIRECT COMMERCE SEGMENT
2005 2004
(unaudited) (unaudited) Variance
----------- ----------- --------
INTERNET/DIRECT COMMERCE REVENUE
Product $ 2,904 $ 5,472 $ (2,568)
Other 218 141 77
----------- ----------- --------
TOTAL INTERNET/DIRECT COMMERCE SEGMENT REVENUE 3,122 5,613 (2,491)
----------- ----------- --------
INTERNET/DIRECT COMMERCE OPERATING COSTS AND
EXPENSES
Production, distribution and editorial 3,799 6,611 2,812
Selling and promotion 244 460 216
General and administrative 327 978 651
Amortization of non-cash equity compensation 9 - (9)
Depreciation and amortization 252 243 (9)
----------- ----------- --------
TOTAL INTERNET/DIRECT COMMERCE OPERATING COSTS AND
EXPENSES 4,631 8,292 3,661
----------- ----------- --------
OPERATING LOSS $ (1,509) $ (2,679) $ 1,170
----------- ----------- --------
Internet/Direct Commerce revenues decreased $2.5 million, to $3.1 million for
the three months ended March 31, 2005, from $5.6 million for the three months
ended March 31, 2004. The decrease was primarily due to lower commerce sales
related to our catalog offerings, partially offset by increased revenue from our
direct-to-consumer floral business. The decline in commerce sales related to our
catalog offerings was largely attributable to the discontinuance of the Catalog
for Living. As a result of this action, we expect to see a continued reduction
in revenue, operating costs and a reduced operating loss in this segment in
2005.
Production, distribution and editorial costs decreased $2.8 million due to lower
product sales, which resulted in lower cost of goods sold as well as lower
fulfillment expenses. Catalog production and distribution costs also decreased
in the quarter as we discontinued mailing the catalog. The segment also
benefited from lower staffing levels. General and administrative expenses
decreased $0.7 million due to lower facility related costs.
CORPORATE
2005 2004
(unaudited) (unaudited) Variance
----------- ----------- --------
CORPORATE OPERATING COSTS AND EXPENSES
Production, distribution and editorial $ 93 $ 92 $ (1)
Selling and promotion 22 26 4
General and administrative 9,760 11,923 2,163
Amortization of non-cash equity compensation 2,290 1,391 (899)
Depreciation and amortization 933 1,122 189
----------- ----------- --------
TOTAL CORPORATE OPERATING COSTS AND EXPENSES 13,098 14,554 1,456
----------- ----------- --------
OPERATING LOSS $ (13,098) $ (14,554) $ 1,456
----------- ----------- --------
Corporate operating costs and expenses decreased $1.5 million, or 10.0%, to
$13.1 million for the three months ended March 31, 2005, from $14.6 million for
the three months ended March 31, 2004. General and administrative
17
expenses decreased $2.2 million principally resulting from lower professional
fees due to revised estimates regarding the recoverability of certain legal
fees, as well as the expiration of certain employee retention programs and lower
location fees. The decrease was partially offset by higher facility related
costs, as facility related costs previously allocated to the Internet/Direct
Commerce segment are now included in this segment. The increase in the
amortization of non-cash compensation expense is principally related to costs
associated with certain employee and director equity grants.
OTHER ITEMS
Income tax provision for the quarter ended March 31, 2005 was nominal, compared
to an income tax provision of $3.1 million for the quarter ended March 31, 2004.
The current period provision includes a valuation allowance of $6.7 million
taken against certain deferred tax assets since the amounts and extent of the
Company's future earnings are not determinable with a sufficient degree of
probability. The prior year amount included a valuation allowance of $9.3
million.
Net Loss. Net loss was $19.2 million for the quarter ended March 30, 2005,
compared to a net loss of $19.5 million for the quarter ended March 30, 2004, as
a result of the above mentioned factors.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $85.1 million and $104.6 million and short-term
investments were $61.9 million and $35.3 million at March 30, 2005 and December
31, 2004, respectively.
Cash flows provided by operating activities were $0.9 million and $1.2 million
during the three months ended March 31, 2005 and 2004, respectively. Cash
provided by operating activities during the three months ended March 31, 2005
were primarily due to changes in operating assets and liabilities of $15.1
million, the amortization of non-cash equity compensation of $3.2 million and
depreciation and amortization of $1.7 million, partially offset by a net loss
for the period of $19.2 million. The changes in operating assets and liabilities
reflect a decrease in accounts receivable due principally to the collection of a
receivable from Kmart, partially offset by a decrease in certain accounts
payable. Cash provided by operating activities during the three months ended
March 31, 2004 were primarily due to a changes in operating assets and
liabilities of $14.4 million, an increase in the deferred income tax expense of
$3.1 million, and by depreciation and amortization of $1.7 million as well as
the amortization of non-cash equity compensation of $1.5 million, partially
offset by a net loss for the period of $19.5 million.
Cash flows used in investing activities were $27.0 million and $0.3 million
during the three months ended March 31, 2005 and 2004, respectively. Cash flows
used in investing activities in 2005 resulted from the net purchase of
short-term investments of $26.6 million and capital expenditures $0.3 million.
Cash flows used in investing activities in 2004 resulted from capital
expenditures.
Cash flows provided by financing activities for the three month periods ended
March 31, 2005 and 2004 were $6.5 and $0.2 million, respectively, representing
proceeds received from the exercise of employee stock options.
We have a line of credit with Bank of America in the amount of $5.0 million,
which is used as security for outstanding letters of credit. As of March 31,
2005, we had no outstanding borrowings under this facility.
We believe that our available cash balances and short-term investments together
with any funds available under existing credit facilities will be sufficient to
meet our operating and recurring cash needs for foreseeable periods. We have not
paid dividends on our common stock and have no intention to pay any dividends in
the foreseeable future.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Several of our businesses can experience fluctuations in quarterly performance.
For example, in our Publishing segment, the publication schedule of Special
Interest Publications can vary from quarter to quarter. Internet/Direct Commerce
revenues have tended to be higher in the fourth quarter due to increased catalog
circulation and consumer spending during that period, although due to the
changes in the business we now expect revenue to be tied to certain key
holidays. Revenues from the Merchandising segment can vary significantly from
quarter to quarter due to new product launches and the seasonality of certain
product lines. In addition, we recognize a substantial portion of the revenue
resulting from the difference between the minimum royalty amount under the Kmart
contract and royalties
18
paid on actual sales in the fourth quarter of each year, when the amount can be
determined.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with US generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to bad debts, inventories,
long-lived assets and accrued losses. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe that, of our significant accounting policies, the following may
involve the highest degree of judgment and complexity.
Revenue Recognition
Revenues are recognized when realized or realizable and earned. Revenues and
associated accounts receivable are recorded net of provisions for estimated
future returns, doubtful accounts and other allowances. Newsstand revenues in
our Publishing segment and product sales in our Internet/Direct Commerce segment
are recognized based upon assumptions with respect to future returns. The
Company bases its estimates on historical experience and current market
conditions. Reserves are adjusted regularly based upon actual results. We
maintain allowance for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. If the financial condition
of our customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required. Revenues for
royalties in our merchandising business are accrued on a monthly basis based on
sales volume data provided to us by our partners and payment is generally made
by our partners on a quarterly basis. In addition, we recognize a substantial
portion of the revenue resulting from the difference between the minimum royalty
amount under the Kmart contract and royalties paid on actual sales in the fourth
quarter of each year, when the amount can be determined. Certain other of our
other merchandising agreements also contain minimum guarantee provisions. These
minimum guarantees will be recorded when such amounts are both determinable and
deemed collectible.
Intangible assets
A substantial portion of the Company's intangible assets is goodwill. Goodwill
is recorded when the purchase price paid for an acquisition exceeds the
estimated fair value of the net identified tangible and intangible assets
acquired. All of the Company's goodwill is attributable to certain magazines in
its publishing segment. We perform an annual review in the fourth quarter of
each year, or more frequently if indicators of potential impairment exist, to
determine if the carrying value of the recorded goodwill is impaired. Our
impairment review process compares the fair value of the reporting unit
(magazines) in which the goodwill resides to its carrying value.
In 2004, the Company engaged an external valuation services firm to report on
the fair value of the Company's goodwill. In 2003, the Company estimated future
cash flows based upon individual magazine historical results, current trends and
operating cash flows to access the fair value. No impairment charges were
recorded in 2004 and 2003.
Long-Lived Assets
We review the carrying values of our long-lived assets whenever events or
changes in circumstances indicate that such carrying values may not be
recoverable. Unforeseen events and changes in circumstances and market
conditions and material differences in the value of long-lived assets due to
changes in estimates of future cash flows could negatively affect the fair value
of our assets and result in an impairment charge.
19
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was carried out under the supervision and with the participation
of our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-14 (c) under the Securities
Exchange Act of 1934) as of March 31, 2005. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the design
and operation of these disclosure controls and procedures were effective. No
significant changes were made in our internal controls or in other factors that
could significantly affect these controls subsequent to the date of their
evaluation. In addition, no change in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of
1934) occurred during our most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 3, 2003, the Company was named as a defendant in a Consolidated and
Amended Class Action Complaint (the "Consolidated Class Action Complaint"),
filed in the United States District Court for the Southern District of New York,
by plaintiffs purporting to represent a class of persons who purchased common
stock in the Company between January 8, 2002 and October 2, 2002. In re Martha
Stewart Living Omnimedia, Inc. Securities Litigation, 02-CV-6273 (JES). The
Consolidated Class Action Complaint also names Martha Stewart and seven of the
Company's other present or former officers (Gregory R. Blatt, Sharon L. Patrick,
and five other Company officers (collectively, the "Individual Defendants")) as
defendants. The action consolidates seven class actions previously filed in the
Southern District of New York: Semon v. Martha Stewart Living Omnimedia, Inc.
(filed August 6, 2002), Rosen v. Martha Stewart Living Omnimedia, Inc. (filed
August 21, 2002), MacKinnon v. Martha Stewart Living Omnimedia, Inc. (filed
August 30, 2002), Crnkovich v. Martha Stewart Living Omnimedia, Inc. (filed
September 4, 2002), Rahilly v. Martha Stewart Living Omnimedia, Inc. (filed
September 6, 2002), Steele v. Martha Stewart Living Omnimedia, Inc. (filed
September 13, 2002), and Hackbarth v Martha Stewart Living Omnimedia, Inc.
(filed September 18, 2002). The claims in the Consolidated Class Action
Complaint arise out of Ms. Stewart's sale of 3,928 shares of ImClone Systems
stock on December 27, 2001. The plaintiffs assert violations of Sections 10(b)
(and rules promulgated thereunder), 20(a) and 20A of the Securities Exchange Act
of 1934. The plaintiffs allege that MSO, Ms. Stewart and the Individual
Defendants made statements about Ms. Stewart's sale that were materially false
and misleading. The plaintiffs allege that, as a result of these false and
misleading statements, the market price of the Company's stock was inflated
during the putative class periods and dropped after the alleged falsity of the
statements became public. The plaintiffs further allege that the Individual
Defendants traded MSO stock while in possession of material non-public
information. The Consolidated Class Action Complaint seeks certification as a
class action, damages, attorneys' fees and costs, and further relief as
determined by the court.
On May 19, 2003, the Company's motion to dismiss the Consolidated Class Action
Complaint was denied, and discovery in that action is ongoing. By stipulation of
the parties, and an order of the court entered November 10, 2003, all claims
asserted in the Consolidated Class Action Complaint pursuant to Section 20A
(Insider Trading) of the Securities Exchange Act against the Individual
Defendants, and all remaining claims against the Individual Defendants, other
than Mr. Blatt and Ms. Patrick, have been dismissed without prejudice.
The Company has also been named as a nominal defendant in four derivative
actions, all of which name Ms. Stewart, and certain other officers and directors
of the Company as defendants: In re Martha Stewart Living Omnimedia, Inc.
Shareholder Derivative Litigation (the "Shareholder Derivative Litigation"),
filed on December 19, 2002 in New York State Supreme Court; Beam v. Stewart,
initially filed on August 15, 2002 and amended on September 6, 2002, in Delaware
Chancery Court; Richards v. Stewart, filed on November 1, 2002 in Connecticut
Superior Court; and Sargent v. Martinez, filed on September 29, 2003 in the U.S.
District Court for the Southern District of New York. In re Martha Stewart
Living Omnimedia, Inc. Shareholder Derivative Litigation consolidates three
previous derivative complaints filed in New York State Supreme Court and
Delaware Chancery Court: Beck v. Stewart, filed on August 13, 2002 in New York
State Supreme Court, Kramer v. Stewart, filed on August 20, 2002 in New York
State Supreme Court, and Alexis v. Stewart, filed on October 3, 2002 in Delaware
Chancery Court. Sargent consolidates two derivative complaints previously filed
in the U.S. District Court for the Southern District Court of New York: Acosta
v. Stewart, filed on October 10, 2002, and Sargent v. Martinez, filed on May 30,
2003.
20
On September 30, 2003, the Company's motion to dismiss the Beam complaint was
granted in its entirety. The plaintiffs in Beam appealed the dismissal of the
complaint to the Delaware Supreme Court. On March 31, 2004, the Delaware Supreme
Court, sitting en banc, unanimously affirmed the dismissal of the Beam
complaint. The Sargent action had previously been stayed by order of the court
pending resolution of the Beam appeal by the Delaware Supreme Court. On April
22, 2004, the court lifted that stay and ordered the plaintiffs to respond to
MSO's and the MSO directors' previously filed motions to dismiss. By order dated
August 4, 2004, the Company's motion to dismiss the Sargent complaint was
granted in its entirety, and as to the issue of plaintiffs' failure to make
pre-suit demand, with prejudice. The Sargent plaintiffs' time to appeal that
dismissal has expired. The Richards action had been stayed by agreement of the
parties pending resolution of the Beam appeal by the Delaware Supreme Court. By
motion filed June 4, 2004, the plaintiff in the Richards action voluntarily
sought an order dismissing the Richards action with prejudice, and that
dismissal with prejudice was ordered by the court on June 9, 2004. By
stipulation and order entered September 24, 2004, the parties to the Shareholder
Derivative Litigation agreed to the dismissal of that action on the same terms
as ordered by the Sargent Court in dismissing the Sargent Action.
While still in its early stages, we believe the Company has substantial defenses
to the remaining Consolidated Class Action Complaint. The Company is unable to
predict the outcome of that action or reasonably estimate a range of possible
loss at this time.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed as part of this report:
Exhibit
Number Exhibit Title
- -------- -------------
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.
1350)
21
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 10, 2005
/s/ James Follo
-------------------------------
Name: James Follo
Title: Executive Vice President, Chief Financial
and Administrative Officer
22