-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gi0ofOoBYEewHKUEZPUp26jNx9TtrWij6wTezuSYZxdS+Zy4nWyqyjZB52kYfPER EzUBBp5xZKIm7K5f9e+uIw== /in/edgar/work/20000811/0000950123-00-007493/0000950123-00-007493.txt : 20000921 0000950123-00-007493.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950123-00-007493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MARTHA STEWART LIVING OMNIMEDIA INC CENTRAL INDEX KEY: 0001091801 STANDARD INDUSTRIAL CLASSIFICATION: [2721 ] IRS NUMBER: 522187059 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15395 FILM NUMBER: 694704 BUSINESS ADDRESS: STREET 1: 20 WEST 43RD STREET CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 2128278000 MAIL ADDRESS: STREET 1: 20 WEST 43RD STREET CITY: NEW YORK STATE: NY ZIP: 10036 10-Q 1 e10-q.txt MARTHA STEWART LIVING OMNIMEDIA 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.
Outstanding at Class August 9, 2000 Class A, $0.01 par value 14,234,126 Class B, $0.01 par value 34,126,831 ---------- Total 48,360,957 ==========
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 3 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Martha Stewart Living Omnimedia, Inc. Condensed Consolidated Balance Sheets (in thousands, except per share amounts)
June 30, December 31, 2000 1999 ---------- -------- ASSETS (unaudited) 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 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 4 Martha Stewart Living Omnimedia, Inc. Condensed Consolidated Income Statements (unaudited, in thousands, except per share amounts)
Three Months Ended Six Months Ended June 30, June 30, --------------------------- -------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- 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) ======== ========
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 5 Martha Stewart Living Omnimedia, Inc. Consolidated Statement of Shareholders' Equity For the Six Months Ended June 30, 2000 (unaudited, in thousands)
Class A Class B common stock common stock -------------------- --------------------- Capital in Retained Shares Amount Shares Amount excess earnings Total of par value ------- ------ ------- ------ ------- --------- ----- 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 ====== ==== ====== ==== ======== ======= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 6 Martha Stewart Living Omnimedia, Inc. Condensed Consolidated Statements of Cash Flows (unaudited, in thousands)
Six Months Ended June 30, --------------------------- 2000 1999 ------- -------- 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 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 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 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:
June 30, December 31, 2000 1999 ------ ------- Paper $3,055 $ 3,465 Catalog merchandise 4,723 2,698 ------ ------- $7,778 $ 6,163 ====== =======
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:
Three months Six months ended ended June 30, 2000 June 30, 2000 ------------- ------------- 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 ------- --------
7 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:
Three months Six months ended ended June 30, 1999 June 30, 1999 ------------- ------------- 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 ------- --------
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 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:
Three Months Ended Six Months Ended June 30, June 30, --------------------------- -------------------------- 2000 1999 2000 1999 -------- -------- -------- -------- 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 ======= ======= ======== ========
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
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ---------------------- 2000 1999 2000 1999 ------ ----- ------ ------- Cash paid for interest $ 158 $ 0 $ 363 $ 2,197 Cash paid for income taxes 6,546 296 6,889 650
9 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
Three Months Ended June 30, -------------------------- 2000 1999 ------ ------ (in thousands, except per share amounts) 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 ======== ========
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 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 13 COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 TO SIX MONTHS ENDED JUNE 30, 1999
Six Months Ended June 30, ------------------------- 2000 1999 ------ ------ (in thousands, except per share amounts) 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 ======== ========
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 12 14 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. 13 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. 14 16 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:
BROKER FOR VOTE WITHHELD NON-VOTES -------------- ---------------- -------------- 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
(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:
BROKER FOR AGAINST ABSTAIN NON-VOTES ------------ ---------------- -------------- ------------- 348,855,416 1,189,881 49,781 3,957,497
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, 15 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. 16 18 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) 17 19 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 EX-10.2.2 2 ex10-2_2.txt 2ND AMENDMENT TO THE STOCK INCENTIVE PLAN 1 Exhibit 10.2.2 Second Amendment to the Martha Stewart Living Omnimedia, Inc. 1999 Stock Incentive Plan The Martha Stewart Living Omnimedia, Inc. 1999 Stock Incentive Plan (the "Plan") is hereby amended, effective upon receipt of approval by the stockholders of Martha Stewart Living Omnimedia, Inc. (the "Effective Date"), as set forth below. 1. In the second line of Section 3 of the Plan, "7,300,000" shall be deleted and replaced with "10,000,000." 19 EX-27.1 3 ex27-1.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 2000 AND THE CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 2000 OF MARTHA STEWART LIVING OMNIMEDIA, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIANACIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JUN-30-2000 115,862 0 38,292 0 7,778 170,316 21,962 0 258,245 64,993 0 0 0 482 178,013 258,245 0 138,339 72,644 72,644 47,805 0 (2,698) 20,588 9,055 11,533 0 0 0 11,533 0.24 0.23
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