<PAGE> 1
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 June 30, 2000
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.
<TABLE>
<CAPTION>
Outstanding at
Class August 9, 2000
<S> <C>
Class A, $0.01 par value 14,234,126
Class B, $0.01 par value 34,126,831
----------
Total 48,360,957
==========
</TABLE>
<PAGE> 2
Martha Stewart Living Omnimedia, Inc.
Index to Form 10-Q
Page
Part I. Financial information
Item 1. Financial Statements 2
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Index to Exhibits 18
1
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Martha Stewart Living Omnimedia, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
---------- --------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $115,862 $154,749
Accounts receivable, net 38,292 41,683
Inventories 7,778 6,163
Deferred television production costs 3,370 2,543
Other current assets 5,014 4,757
-------- --------
Total current assets 170,316 209,895
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net 21,962 18,709
-------- --------
INTANGIBLE ASSETS, net 48,682 50,157
-------- --------
OTHER ASSETS 17,285 3,010
-------- --------
Total assets $258,245 $281,771
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 37,173 $ 40,934
Current portion of deferred subscription income 27,820 26,938
-------- --------
Total current liabilities 64,993 67,872
-------- --------
DEFERRED SUBSCRIPTION INCOME 7,847 8,047
-------- --------
OTHER NONCURRENT LIABILITIES 6,910 6,450
-------- --------
Total liabilities 79,750 82,369
-------- --------
SHAREHOLDERS' EQUITY
Class A common stock, $.01 par value, 350,000 shares
authorized; 14,176 and 15,484 shares outstanding in 2000
and 1999, respectively 141 155
Class B common stock, $.01 par value, 150,000 shares
authorized; 34,127 outstanding in 2000 and 1999 341 341
Capital in excess of par value 160,655 193,081
Retained earnings 17,358 5,825
-------- --------
Total shareholders' equity 178,495 199,402
-------- --------
Total liabilities and shareholders' equity $258,245 $281,771
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE> 4
Martha Stewart Living Omnimedia, Inc.
Condensed Consolidated Income Statements
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Publishing $ 43,132 $ 37,778 $ 88,101 $ 73,314
Television 6,990 6,178 14,333 12,787
Merchandising 5,968 5,830 12,158 11,509
Internet/Direct Commerce 13,103 8,337 23,747 13,892
-------- -------- -------- --------
Total revenues 69,193 58,123 138,339 111,502
-------- -------- -------- --------
Operating costs and expenses
Production, distribution and editorial 36,511 28,398 72,644 54,710
Selling and promotion 11,334 10,138 22,537 19,994
General and administrative 10,481 10,152 20,832 18,601
Depreciation and amortization 2,324 1,390 4,436 2,732
-------- -------- -------- --------
Total operating costs and expenses 60,650 50,078 120,449 96,037
-------- -------- -------- --------
Income from operations 8,543 8,045 17,890 15,465
Interest income (expense), net 1,313 (140) 2,698 (597)
-------- -------- -------- --------
Income before income taxes 9,856 7,905 20,588 14,868
Income tax provision 3,904 358 9,055 702
-------- -------- -------- --------
Net income $ 5,952 $ 7,547 $ 11,533 $ 14,166
======== ======== ======== ========
Earnings per share
Basic $ 0.12 $ 0.24
======== ========
Diluted $ 0.12 (See Note) $ 0.23 (See Note)
======== ========
</TABLE>
Note
Reference is made to Note 3 to the Condensed Consolidated Financial Statements
and Management's Discussion and Analysis of Financial Condition and Results of
Operations for information about earnings per share data. On a basis comparative
to the three and six months ended June 30, 2000, basic and diluted earnings per
share for the three and six month periods ended June 30, 1999 would have been
$0.08 and $ 0.15, respectively.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE> 5
Martha Stewart Living Omnimedia, Inc.
Consolidated Statement of Shareholders' Equity
For the Six Months Ended June 30, 2000
(unaudited, in thousands)
<TABLE>
<CAPTION>
Class A Class B
common stock common stock
-------------------- ---------------------
Capital
in Retained
Shares Amount Shares Amount excess earnings Total
of par
value
------- ------ ------- ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 15,484 $155 34,127 $341 $193,081 $5,825 $199,402
Net income for the period - - - - - 11,533 11,533
Repurchase of shares (1,366) (14) - - (32,492) - (32,506)
Issuance of shares for stock option
Exercises 58 - - - 66 - 66
------ ---- ------ ---- -------- ------- --------
Balance at June 30, 2000 14,176 $141 34,127 $341 $160,655 $17,358 $178,495
====== ==== ====== ==== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 6
Martha Stewart Living Omnimedia, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------------
2000 1999
------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 11,533 $ 14,166
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 4,436 2,732
Changes in operating assets and liabilities (2,890) (3,856)
------- -------
Net cash provided by (used in) operating activities 13,079 13,042
------- -------
Cash flows from investing activities
Equity investment (13,297) -
Capital expenditures (6,181) (1,279)
------- -------
Net cash used in investing activities (19,478) (1,279)
------- -------
Cash flows from financing activities
Repurchase of common stock (32,488) -
Principal repayment of long term debt - (27,650)
Distributions to members (1,422)
Long term debt borrowings - 15,000
------- -------
Net cash used in financing activities (32,488) (14,072)
------- -------
Net decrease in cash (38,887) (2,309)
Cash and cash equivalents, beginning of period 154,749 24,578
------- -------
Cash and cash equivalents, end of period $115,862 $ 22,269
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 7
Martha Stewart Living Omnimedia, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited, in thousands, except
per share data)
Martha Stewart Living Omnimedia, Inc. (together with its subsidiary, the
"Company") includes the operations, assets and liabilities of Martha Stewart
Living Omnimedia LLC ("MSLO"), a predecessor to the Company and its former
parent, which was merged with and into the Company on October 22, 1999. This
merger was accounted for as a combination of companies under common control and
accordingly, the financial statements for prior periods have been retroactively
restated.
1. Accounting policies
a. General
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 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 ending December 31, 1999.
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
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases.
Prior to the Company's conversion to a C corporation as a result of its
merger with MSLO on October 22, 1999, no provision had been made in the
accompanying condensed consolidated financial statements for federal income
taxes since, pursuant to provisions of the Internal Revenue Code, the
results of operations of MSLO during the relevant time periods were
reportable by the members of MSLO on their individual tax returns. However,
MSLO was subject to certain foreign, state and city income taxes.
6
<PAGE> 8
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:
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------ -------
<S> <C> <C>
Paper $3,055 $ 3,465
Catalog merchandise 4,723 2,698
------ -------
$7,778 $ 6,163
====== =======
</TABLE>
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 and six months ended June 30, 2000 are set forth below:
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Numerator for basic and diluted earnings per share-
net income available to common shareholders $ 5,952 $ 11,533
------- --------
Denominator for basic earnings per share- weighted
average number of common shares outstanding 48,277 48,946
Effect of dilutive securities- dilutive potential
common shares 427 1,144
------- --------
Denominator for diluted earnings per share-
weighted average number of common shares and
dilutive potential common shares 48,704 50,090
------- --------
Basic earnings per share $ 0.12 $ 0.24
------- --------
Diluted earnings per share $ 0.12 $ 0.23
------- --------
</TABLE>
7
<PAGE> 9
Martha Stewart Living Omnimedia, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited, in thousands, except
per share data)
The Company became a "C" corporation on October 22, 1999. Prior thereto, it
operated as a limited liability company. Historical earnings per share have
not been presented for the three and six month periods ended June 30, 1999,
since prior to becoming a "C" corporation the Company had LLC interests
outstanding and no common shares outstanding. Furthermore, historical
earnings do not reflect income taxes that would have been charged had the
Company been a "C" corporation. The pro forma adjustment to income tax
provision below reflects the income taxes that would have been recorded had
the Company been a "C" corporation at January 1, 1999. Pro forma weighted
average common shares outstanding reflects the average shares that would
have been outstanding had the conversion to a "C" corporation been done as
of January 1, 1999.
Adjusted pro forma basic and diluted earnings per share for the three
months ended June 30, 1999 are calculated based upon the number of common
shares outstanding as if all common shares issued in connection with the
Company's initial public offering and the July 27, 1999 investment by
Kleiner Perkins Caufield & Byers in the Company were outstanding as of
January 1, 1999 in order to better reflect comparability between periods.
Proceeds received from these transactions have not been included in the
calculation of earnings per share. There was no dilution from common stock
equivalents outstanding during such periods.
The computations of pro forma and adjusted pro forma basic and diluted
earnings per share for the three months and six months ended June 30, 1999
are set forth below:
<TABLE>
<CAPTION>
Three months Six months
ended ended
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
Net income $ 7,547 $ 14,166
Pro forma adjustment to income tax provision (3,582) (6,753)
------- --------
Pro forma net income $ 3,965 $ 7,413
======= ========
Pro forma earnings per share- basic and diluted $ 0.10 $ 0.19
------- --------
Pro forma weighted average common shares
Outstanding 39,176 39,176
------- --------
Adjusted pro forma earnings per share- basic and
Diluted $ 0.08 $0.15
------- --------
Adjusted pro forma weighted average common
shares outstanding 49,583 49,583
------- --------
</TABLE>
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 and
newspaper businesses. The Television segment consists of the Company's
television production operations and produces a daily television program
that airs in syndication in the United States and on cable in the United
States, Canada and Brazil, 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 and the website
marthastewart.com.
8
<PAGE> 10
Martha Stewart Living Omnimedia, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited, in thousands, except
per share data)
Revenues for each segment are presented in the condensed consolidated
income statements. Income from operations for each segment were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- --------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Publishing $ 16,331 $ 12,590 $ 33,770 $ 24,090
Television 1,341 1,305 2,648 1,758
Merchandising 5,923 5,803 12,052 11,430
Internet/Direct Commerce (5,440) (2,382) (11,410) (4,011)
-------- -------- -------- -------
Total before corporate charges 18,155 17,316 37,060 33,267
Corporate charges (9,612) (9,271) (19,170) (17,802)
-------- -------- -------- -------
Income from operations $ 8,543 $ 8,045 $ 17,890 $ 15,465
======= ======= ======== ========
</TABLE>
5. Equity Transactions
In March 2000, the Company repurchased 1.366 million shares of Class A
common stock from Time Publishing Ventures, Inc. at a purchase price of
$23.79 per share for a total consideration of $32.5 million. Concurrently,
Time's put and call rights relating to its remaining equity terminated. The
shares were retired upon repurchase.
6. Other Assets
Included in other assets at June 30, 2000 is a minority equity investment
of $13.3 million in BlueLight.com, an e-commerce company. The investment is
carried at cost.
7. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ----------------------
2000 1999 2000 1999
------ ----- ------ -------
<S> <C> <C> <C> <C>
Cash paid for interest $ 158 $ 0 $ 363 $ 2,197
Cash paid for income taxes 6,546 296 6,889 650
</TABLE>
9
<PAGE> 11
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, unless the context requires otherwise, Martha
Stewart Living Omnimedia LLC ("MSLO"), the legal entity that prior to October
22, 1999 operated the business we now operate.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2000 TO THREE MONTHS ENDED JUNE 30,
1999
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------------
2000 1999
------ ------
(in thousands, except per share
amounts)
<S> <C> <C>
Revenues
Publishing $ 43,132 $ 37,778
Television 6,990 6,178
Merchandising 5,968 5,830
Internet/Direct Commerce 13,103 8,337
-------- --------
Total revenues 69,193 58,123
-------- --------
Operating costs and expenses
Production, distribution and editorial 36,511 28,398
Selling and promotion 11,334 10,138
General and administrative 10,481 10,152
Depreciation and amortization 2,324 1,390
-------- --------
Total operating costs and expenses 60,650 50,078
-------- --------
Income from operations 8,543 8,045
-------- --------
Interest income (expense), net 1,313 (140)
-------- --------
Income before income taxes 9,856 7,905
-------- --------
Income tax provision 3,904 358
-------- --------
Net income 5,952 7,547
-------- --------
Pro forma adjustment to income tax provision - (3,582)
-------- --------
Pro forma net income $ 5,952 $ 3,965
======== ========
Earnings per share- diluted $ 0.12 $ 0.08
======== ========
</TABLE>
Revenues. Total revenues increased $11.1 million, or 19.0%, to $69.2 million for
the three months ended June 30, 2000, from $58.1 million for the three months
ended June 30, 1999. Publishing revenues increased $5.4 million, or 14.2%, to
$43.1 million for the three months ended June 30, 2000, from $37.8 million for
the three months ended June 30, 1999. This increase was primarily due to an
increase in advertising revenues as a result of an increase in advertising pages
sold and increased newsstand revenues of Martha Stewart Living magazine.
Television revenues increased $0.8 million, or 13.1%, to $7.0 million for the
three months ended June 30, 2000, from $6.2 million for the three months ended
June 30, 1999. The increase is due primarily to additional revenues associated
with higher distribution of the second half hour of our daily program and
revenues received from our cable program from Martha's Kitchen, partially offset
by reduced advertising revenues from lower ratings during the three months ended
June 30, 2000. Merchandising revenues increased $0.1 million, or 2.4%, to $6.0
million for the three months ended June 30, 2000, from $5.8 million for the
three months ended June 30, 1999, primarily as a result of additional revenues
received from our Martha Stewart Everyday Garden and Home product lines.
Merchandising revenues increased 45.3% excluding $1.7 million in revenues
received during the three months ended June 30, 1999 from an adjustment to
revenues earned in prior years. Internet/Direct Commerce revenues increased $4.8
million, or 57.2%, to $13.1 million for the three months ended June 30, 2000,
from $8.3 million for the three months ended June 30, 1999, due to increased
merchandise sales resulting from higher catalog circulation, increased Internet
traffic and increased advertising revenues.
10
<PAGE> 12
Production, distribution and editorial. Production, distribution and editorial
expenses increased $8.1 million, or 28.6%, to $36.5 million for the three months
ended June 30, 2000, from $28.4 million for the three months ended June 30,
1999. Internet/Direct Commerce costs increased $5.9 million due to an increase
in cost of goods sold and fulfillment costs, each as a result of higher
revenues, as well as increased catalog production and distribution costs
resulting from higher catalog circulation. In addition, costs increased due to
increased investment in developing and maintaining our Internet site. Publishing
segment costs increased $1.5 million reflecting increased costs for Martha
Stewart Living magazine due primarily to an increase in the number of pages
printed per issue. Television costs increased $0.7 million, primarily as a
result of higher distribution costs associated with revenues received from the
second half-hour of our syndicated daily program during the three months ended
June 30, 2000, and the effect of the contract relating to from Martha's Kitchen
on amortization of production costs during the three months ended June 30, 1999.
Selling and promotion. Selling and promotion expenses increased $1.2 million, or
11.8% to $11.3 million for the three months ended June 30, 2000, from $10.1
million for the three months ended June 30, 1999. Publishing segment costs
increased $0.3 million resulting from higher advertising and circulation costs
incurred to support higher publishing segment revenues. Internet/Direct Commerce
segment costs increased $0.9 million resulting from higher costs associated with
higher revenues.
General and administrative. General and administrative expenses increased $0.3
million, or 3.2%, to $10.5 million for the three months ended June 30, 2000,
from $10.2 million for the three months ended June 30, 1999. The higher expenses
have been incurred as a result of higher occupancy costs needed to support
growth in headcount.
Depreciation and amortization. Depreciation and amortization increased $0.9
million, or 67.2% to $2.3 million for the three months ended June 30, 2000, from
$1.4 million for the three months ended June 30, 1999. The increase is
attributable to higher levels of property and equipment.
Interest income (expenses), net. Interest income (expenses), net was $1.3
million for the three months ended June 30, 2000, compared to interest expense
of $0.1 million for the three months ended June 30, 1999. Interest income for
the three months ended June 30, 2000 resulted from higher cash balances
primarily related to the proceeds received from our initial public offering in
October 1999. During the three months ended June 30, 1999, we had outstanding
long term debt which resulted in interest expense in that period. Such long term
debt was fully repaid in July 1999.
Income tax provision. Income tax provision for the three months ended June 30,
2000 was $3.9 million, representing a 40% effective income tax rate. Income tax
provision for the three months ended June 30, 1999 was $0.4 million. During the
three months ended June 30, 1999, we operated as a limited liability company and
were therefore not subject to Federal income tax on our earnings. In connection
with our initial public offering in October 1999, we became a "C" corporation
and accordingly our earnings became subject to income taxes from that date
forward. The pro forma adjustment to income tax provision of $3.6 million
reflects the additional taxes that would have been provided had we been a "C"
corporation during that time. The effective income tax rate during the three
months ended June 30, 2000 was lower than the pro forma effective income tax
rate for the three months ended June 30, 1999 due primarily to tax exempt
interest earned during the 2000 quarter.
Net income. Net income was $6.0 million for the three months ended June 30,
2000, compared to pro forma net income of $4.0 million for the three months
ended June 30, 1999, as a result of the above mentioned factors.
Earnings per share. Earnings per share- diluted was $0.12 per share for the
three months ended June 30, 2000. Earnings per share for the three months ended
June 30, 1999 of $ 0.08 has been computed on a pro forma basis assuming we had
been a "C" corporation at January 1, 1999, and the shares issued in connection
with our initial public offering and the July 27, 1999 investment by Kleiner
Perkins Caufield & Byers in MSO were outstanding as of January 1, 1999, in order
to better reflect comparability between periods.
11
<PAGE> 13
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 TO SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------
2000 1999
------ ------
(in thousands, except per share
amounts)
<S> <C> <C>
Revenues
Publishing $ 88,101 $ 73,314
Television 14,333 12,787
Merchandising 12,158 11,509
Internet/Direct Commerce 23,747 13,892
-------- --------
Total revenues 138,339 111,502
-------- --------
Operating costs and expenses
Production, distribution and editorial 72,644 54,710
Selling and promotion 22,537 19,994
General and administrative 20,832 18,601
Depreciation and amortization 4,436 2,732
-------- --------
Total operating costs and expenses 120,449 96,037
-------- --------
Income from operations 17,890 15,465
-------- --------
Interest income (expense), net 2,698 (597)
-------- --------
Income before income taxes 20,588 14,868
-------- --------
Income tax provision 9,055 702
-------- --------
Net income 11,533 14,166
-------- --------
Pro forma adjustment to income tax provision - (6,753)
======== ========
Pro forma net income $ 11,533 $ 7,413
======== ========
Earnings per share- diluted $ 0.23 $ 0.15
======== ========
</TABLE>
Revenues. Total revenues increased $26.8 million, or 24.1%, to $138.3 million
for the six months ended June 30, 2000, from $111.5 million for the six months
ended June 30, 1999. Publishing revenues increased $14.8 million, or 20.2%, to
$88.1 million for the six months ended June 30, 2000, from $73.3 million for the
six months ended June 30, 1999. This increase was primarily due to an increase
in advertising revenues as a result of an increase in advertising pages sold in
Martha Stewart Living magazine, higher newsstand sales, as well as the
publication of Martha Stewart Baby in March 2000. Television revenues increased
$1.5 million, or 12.1%, to $14.3 million for the six months ended June 30, 2000
from $12.8 million for the six months ended June 30, 1999. The increase is due
primarily to additional revenues associated with higher distribution of the
second half hour of our daily program and revenues received from our cable
program from Martha's Kitchen, partially offset by reduced advertising revenues
from lower ratings during the six months ended June 30, 2000. Merchandising
revenues increased $0.6 million, or 5.6%, to $12.2 million for the six months
ended June 30, 2000, from $11.5 million for the six months ended June 30, 1999,
primarily as a result of additional revenues received from our Martha Stewart
Everyday Garden product line. Merchandising revenues increased 24.3% excluding
$1.7 million in revenues received during the six months ended June 30, 1999 from
an adjustment to revenues earned in prior years. Internet/Direct Commerce
revenues increased $9.9 million, or 70.9%, to $23.7 million for the six months
ended June 30, 2000, from $13.9 million for the three months ended June 30,
1999, due to increased merchandise sales resulting from higher catalog
circulation, increased Internet traffic and increased advertising revenues.
Production, distribution and editorial. Production, distribution and editorial
expenses increased $17.9 million, or 32.8%, to $72.6 million for the six months
ended June 30, 2000, from $54.7 million for the six months ended June 30, 1999.
Internet/Direct Commerce costs increased $13.6 million due to an increase in
cost of goods sold and fulfillment costs, each as a result of higher revenues,
as well as increased catalog production and distribution costs resulting from
higher catalog circulation. In addition, costs increased due to increased
investment in developing and maintaining our Internet site. Publishing segment
costs increased $3.8 million reflecting increased costs for Martha Stewart
Living magazine due primarily to an increase in the number of pages printed per
issue and additional costs associated with the publication of Martha
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Stewart Baby. Television costs increased $0.5 million, primarily as a result of
higher distribution costs associated with revenues received from the second
half-hour of our syndicated daily program and the effect of the contract
relating to from Martha's Kitchen on amortization of production costs during the
three months ended June 30, 1999.
Selling and promotion. Selling and promotion expenses increased $2.5 million, or
12.7%, to $22.5 million for the six months ended June 30, 2000, from $20.0
million for the six months ended June 30, 1999. Publishing segment costs
increased $1.2 million resulting from higher advertising and circulation costs
incurred to support higher publishing segment revenues. Internet/Direct Commerce
segment costs increased $1.3 million resulting from higher costs associated with
higher revenues.
General and administrative. General and administrative expenses increased $2.2
million, or 12.0%, to $20.8 million for the six months ended June 30, 2000, from
$18.6 million for the six months ended June 30, 1999. The higher expenses have
been incurred as a result of higher occupancy costs needed to support growth in
headcount.
Depreciation and amortization. Depreciation and amortization increased $1.7
million, or 62.4% to $4.4 million for the six months ended June 30, 2000, from
$2.7 million for the six months ended June 30, 1999. The increase is
attributable to higher levels of property and equipment.
Interest income (expenses), net. Interest income (expenses), net was $2.7
million for the six months ended June 30, 2000, compared to interest expense of
$0.6 million for the six months ended June 30, 1999. Interest income for the
three months ended June 30, 2000 resulted from higher cash balances primarily
related to the proceeds received from our initial public offering in October
1999. During the six months ended June 30, 1999, we had outstanding long term
debt which resulted in interest expense in that period. Such long term debt was
fully repaid in July 1999.
Income tax provision. Income tax provision for the six months ended June 30,
2000 was $9.1 million, representing a 44% effective income tax rate. Income tax
provision during the six months ended June 30, 1999 was $0.7 million. During the
six months ended June 30, 1999, we operated as a limited liability company and
were therefore not subject to Federal income tax on our earnings. In connection
with our initial public offering in October 1999, we became a "C" corporation
and accordingly our earnings are subject to income taxes from that date forward.
The pro forma adjustment to income tax provision of $6.8 million reflects the
additional taxes that would have been provided had we been a "C" corporation
during that time. The effective income tax rate during the six months ended June
30, 2000 was lower than the pro forma effective income tax rate for the six
months ended June 30, 1999 due primarily to tax exempt interest earned during
the 2000 period.
Net income. Net income was $11.5 million for the six months ended June 30, 2000,
compared to pro forma net income of $7.4 million for the six months ended June
30, 1999, as a result of the above mentioned factors.
Earnings per share. Earnings per share- diluted were $0.23 per share for the six
months ended June 30, 2000. Earnings per share-diluted for the six months ended
June 30, 1999 of $ 0.15 has been computed on a pro forma basis assuming we had
been a "C" corporation at January 1, 1999 and the shares issued in connection
with our initial public offering and the July 27, 1999 investment by Kleiner
Perkins Caufield & Byers in MSO were outstanding as of January 1, 1999, in order
to better reflect comparability between periods.
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<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $115.9 million at June 30, 2000, compared to
$154.7 million at December 31, 1999.
Cash flows from operating activities were $13.1 million during the six months
ended June 30, 2000 compared to $13.0 during the six months ended June 30, 1999,
resulting primarily from net income for the period.
Cash flows used in investing activities were $19.5 million for the six months
ended June 30, 2000, reflecting a $13.3 million equity investment in
BlueLight.com, an e-commerce company, and $6.2 million in capital expenditures
for property and equipment. Cash flows used in investing activities were $1.3
million during the six months ended June 30, 1999, representing capital
expenditures for property and equipment. We expect capital expenditures to
approximate $25 million in 2000, as we expand our facilities to provide for
future growth and continue to invest in our technology infrastructure.
Cash flows used in financing activities for the six months ended June 30, 2000
were $32.5 million. In March 2000, we repurchased 1.366 million shares of our
Class A common stock for $32.5 million from Time Publishing Ventures, Inc. Cash
used in financing activities was $14.1 million during the six months ended June
30, 1999, representing the repayment of $27.7 million of outstanding long term
debt payable to Time Publishing Ventures, Inc. with the proceeds received from a
$15 million term loan from Bank of America and existing cash balances.
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 June 30, 2000, we had no 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 will be published eleven times in
2000: three issues in each of the first, second and fourth quarters and two
issues in the third quarter. 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. 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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) We held our 2000 Annual Meeting of Stockholders on May 11, 2000.
(c) The following matters were acted upon at the meeting with the following
results:
(1) Election of directors to hold office until our next annual meeting.
The vote on this matter was as follows:
<TABLE>
<CAPTION>
BROKER
FOR VOTE WITHHELD NON-VOTES
-------------- ---------------- --------------
<S> <C> <C> <C>
Charlotte L. Beers 353,984,212 68,363 0
L. John Doerr 353,982,993 69,582 0
Sharon Patrick 353,982,093 70,482 0
Naomi O. Seligman 353,982,798 69,777 0
Martha Stewart 353,984,714 67,861 0
</TABLE>
(2) The Second Amendment to the Martha Stewart Living Omnimedia, Inc.
1999 Stock Incentive Plan to increase the shares authorized for
grant under the plan from 7,300,000 to 10,000,000. The vote on this
matter was as follows:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES
------------ ---------------- -------------- -------------
<S> <C> <C> <C>
348,855,416 1,189,881 49,781 3,957,497
</TABLE>
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,
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<PAGE> 17
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report:
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.2.2 Second Amendment to the Martha Stewart Living Omnimedia,
Inc. 1999 Stock Incentive Plan, dated as of May 11, 2000
27.1 Financial Data Schedule for the Six Months Ended June
30, 2000.
(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: August 10, 2000 By: /s/ Helen Murphy
---------------------------
Name: Helen Murphy
Title: Chief Financial and Administrative Officer
(Duly Authorized Officer and Principal
Financial Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
10.2.2 Second Amendment to the Martha Stewart Living Omnimedia,
Inc. 1999 Stock Incentive Plan, dated as of May 11, 2000
27.1 Financial Data Schedule for the Six Months Ended June
30, 2000.
18
