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Martha Stewart Living Omnimedia Reports Second Quarter 2009 Results

Robust Digital Ad Sales Growth Contributes Positively to the Quarter's Results; Continued Consumer Engagement Underscores Brand Strength

NEW YORK, July 29 /PRNewswire-FirstCall/ -- Martha Stewart Living Omnimedia, Inc. (NYSE: MSO) today announced its results for the second quarter ended June 30, 2009. The Company reported revenue for the second quarter of $57.0 million, reflecting the challenging print advertising and retail sales environment. Results overall benefited from strong digital advertising growth, higher broadcasting profits and reduced corporate expenses.

Charles Koppelman, Executive Chairman and Principal Executive Officer, said, "MSLO is executing its business plan well in a tough economic environment. That is evidenced by 28% growth in Internet advertising revenue in the quarter compared to the same period last year as marketers respond to our popular online properties. Meanwhile, the operating efficiencies we have implemented over the past several quarters contributed to bottom line performance, as did higher profits from our Broadcasting segment. These factors helped to offset expected weakness in print advertising and lower merchandising revenue primarily due to the wind down of our Kmart relationship. Overall, we believe that MSLO is well-positioned with our core audiences. We look forward to demonstrating the growing power of our brands as the economy improves and as we position our Merchandising business for 2010 and beyond with new partners and new products."

Robin Marino, President and Chief Executive Officer of Merchandising, stated: "Although Merchandising is not immune to the challenging retail environment, we continue to execute on our diversification strategy. Earlier this week, we announced an agreement to create branded destination weddings as well as crafts classes and crafts camps at Sandals and Beaches resorts throughout the Caribbean. This initiative further extends our well-established and growing presence in the Weddings category. We've finalized the development of our Martha Stewart Clean products with The Hain Celestial Group and look forward to introducing these all-natural cleaning solutions in early 2010. Other than the expected lower revenue from Kmart, sales at Macy's and other merchandising partnerships remained relatively resilient in a difficult economy."

Second Quarter 2009 Summary

Revenues were $57.0 million in the second quarter of 2009, compared to $77.1 million in the second quarter of 2008. Lower revenues primarily reflect declines in magazine advertising revenue during a challenging period for the publishing industry, as well as lower merchandising revenues compared with the same period last year largely due to the winding down of our Kmart relationship. The Company's Internet and Broadcasting segments witnessed solid performance during the quarter.

Operating loss for the second quarter of 2009 was $(6.1) million, compared to operating income of $1.7 million for the second quarter of 2008. Included in the results is an impairment charge of $(5.5) million related to an equity investment. When the impairment charge recorded in the quarter is excluded, operating loss was $(0.6) million for the quarter.

Adjusted EBITDA for the second quarter of 2009 was $2.8 million, compared to $5.3 million in the prior year period. Cost savings initiatives implemented in prior periods helped offset lower revenue levels in the quarter.

Net loss per share was $(0.12) for the second quarter of 2009, compared to net income per share of $0.01 for the second quarter of 2008. Included in the results is an impairment charge of $(5.5) million or $(0.10) per share for the quarter related to an equity investment. When excluding the impairment charge recorded in the quarter, net loss per share was $(0.02) for the quarter.

    Second Quarter 2009 Results by Segment



                                              Three Months Ended, June 30
                                               (unaudited, in thousands)

                                                   2009          2008
                                                   ----          ----
    REVENUES
       Publishing                                 $33,524       $46,265
       Broadcasting                                10,309        11,355
       Internet                                     4,160         3,241
       Merchandising                                9,003        16,249
                                                  -------       -------
       Total Revenues                             $56,996       $77,110
                                                  =======       =======

    ADJUSTED EBITDA
       Publishing                                  $2,869        $8,043
       Broadcasting                                 1,882         1,377
       Internet                                        75        (1,385)
       Merchandising                                5,079         8,818
       Corporate                                   (7,131)      (11,561)
                                                  -------       -------
       Total Adjusted EBITDA                       $2,774        $5,292
                                                  =======       =======

    OPERATING (LOSS)/INCOME
       Publishing                                  $2,995        $7,177
       Broadcasting                                 1,678           855
       Internet                                      (470)       (1,968)
       Merchandising                                 (691)        8,418
       Corporate                                   (9,614)      (12,759)
                                                  -------       -------
       Total Operating (Loss)/Income              $(6,102)       $1,723
                                                  =======       =======

    Publishing

Revenues in the second quarter of 2009 were $33.5 million, compared to $46.3 million in the prior year's second quarter, due to a decline in advertising pages, timing of special issues and lower newsstand revenue.

Operating income was $3.0 million for the second quarter of 2009, compared to operating income of $7.2 million in the second quarter of 2008.

Adjusted EBITDA was $2.9 million in the second quarter of 2009, compared to adjusted EBITDA of $8.0 million in the prior year's quarter.

Highlights

  • Martha Stewart's Cupcakes debuted in the No. 2 spot on The New York Times Best Seller List within days of publication; it also appeared on The Washington Post and Publishers Weekly Best Seller Lists.
  • Emeril at the Grill: A Cookbook for All Seasons appeared on best-seller lists in The New York Times and The Washington Post.

Broadcasting

Revenues in the second quarter of 2009 were $10.3 million, compared to $11.4 million in the second quarter of 2008.

Operating income was $1.7 million for the second quarter of 2009, compared to operating income of $0.9 million in the second quarter of 2008.

Adjusted EBITDA was $1.9 million for the second quarter of 2009, up from $1.4 million in the prior year's second quarter, due to lower production and staffing expenses in the quarter.

Highlights

  • The Martha Stewart Show was nominated for four daytime Emmy Awards. The show's fifth season gets underway on September 14.
  • Production for the second season of Whatever, Martha! on Fine Living Network is nearly complete; the new season will premiere on September 23.
  • Emeril Green began its second season on Discovery's Planet Green network on April 20.

Internet

Revenues were $4.2 million in the second quarter of 2009, up from $3.2 million in the second quarter of 2008.

Operating loss was $(0.5) million in the second quarter of 2009, compared to $(2.0) million in the second quarter of 2008.

Adjusted EBITDA was $0.1 million in the second quarter of 2009, up from a loss of $(1.4) million in the second quarter of 2008, due to increased ad revenue coupled with continued expense management.

Highlights

  • Digital advertising revenue increased 28% compared to the prior year's quarter.
  • Page views increased 59% over the prior year's quarter.
  • The recent launch of the "DIY Weddings Crafts Contest" in collaboration with Etsy.com generated the highest traffic day ever to our Weddings site and the highest level of engagement with 40 page views per visitor.

Merchandising

Revenues were $9.0 million for the second quarter of 2009, as compared to $16.2 million in the prior year's second quarter. As expected, the 2009 second quarter results include lower royalty revenue from Kmart as the relationship continues to wind down. In addition, prior-year period results benefitted from revenue related to an Emeril Lagasse endorsement program as well as initial shipments of Martha Stewart Crafts products to support entry into Wal-Mart stores nationwide.

Operating loss was $(0.7) million for the second quarter of 2009, compared to operating income of $8.4 million in the second quarter of 2008. The decline reflects an impairment charge of $(5.5) million related to an equity investment.

Adjusted EBITDA was $5.1 million for the second quarter of 2009, compared to $8.8 million in the prior year's second quarter.

Highlights

  • The Martha Stewart Collection exclusively at Macy's continues to demonstrate solid performance. Some of our top-selling categories in the quarter included cookware, enameled cast iron, bakeware, bath towels and moderate bedding.
  • Development for Martha Stewart Clean, a 10-SKU line of all-natural cleaning products with The Hain Celestial Group was completed. The line is scheduled to launch in early 2010.
  • Chef Emeril Lagasse's updated collection of top-quality stainless steel cookware with All-Clad relaunched at Macy's this month.

Corporate

Total Corporate expenses were $(9.6) million in the second quarter of 2009 down from $(12.8) million in the prior year's quarter. Adjusted EBITDA loss was $(7.1) million in the second quarter of 2009, an improvement of 38% from $(11.6) million in the prior year's quarter, reflecting the positive impact of the Company's expense management actions. The second quarter of 2008 included $1.5 million in certain non-recurring costs.

The Company will host a conference call with analysts and investors on July 29th at 10:00 a.m. EDT that will be broadcast live over the Internet at www.marthastewart.com/ir.

Use of Non-GAAP Financial Information

In addition to using net income to assess the organization's overall financial health, Company management uses net income before interest, taxes, depreciation, amortization, non-cash equity compensation and impairment charges ("adjusted EBITDA"), a non-GAAP financial measure, to evaluate the performance of our businesses on a real-time basis. Adjusted EBITDA is considered an important indicator of operational strength, is a direct component of the Company's annual compensation program, and is a significant factor in helping our management determine how to allocate resources and capital. Adjusted EBITDA is used in addition to and in conjunction with results presented in accordance with GAAP. Management considers adjusted EBITDA to be a critical measure of operational health because it captures all of the revenue and ongoing operating expenses of our businesses without the influence of (i) interest charges, which result from our capital structure, not our ongoing business efforts, (ii) taxes, which relate to the overall organizational financial return, not that of any one business, (iii) the capital expenditure costs associated with depreciation and amortization, which are a function of historical decisions on infrastructure and capacity, (iv) the cost of non-cash equity compensation which, as a function of our stock price, can be highly variable, is not necessarily an indicator of current operating performance for any individual business unit, and is amortized over the appropriate period, and (v) non-cash impairment charges, which are impacted by macro-economic conditions and do not necessarily reflect operating performance.

Adjusted EBITDA provides a means to directly evaluate the ability of our business operations to generate returns on a real-time basis. We provide disclosure of adjusted EBITDA because we believe it is useful for investors to have means to assess our performance as we do. While adjusted EBITDA is a customized non-GAAP measure, it also provides a means to analyze value and compare our operating capabilities to those of companies with which we compete, many of which have different compensation plans, depreciation and amortization costs, capital structures and tax burdens. But please note that our non-GAAP results may differ from similar measures used by other companies, even if similar terms are used to identify such measures.

A limitation of adjusted EBITDA is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues for our overall organization. Management evaluates the costs of such tangible and intangible assets through other financial measures such as capital expenditures. Management also evaluates the cost of capitalized tangible and intangible assets by analyzing returns provided on the capital dollars deployed. A further limitation of adjusted EBITDA is that it does not include stock compensation expense related to our workforce. Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income or other measures of financial performance reported in accordance with GAAP.

About Martha Stewart Living Omnimedia, Inc.

Martha Stewart Living Omnimedia, Inc. (MSLO) is a leading provider of original "how-to" information, inspiring and engaging consumers with unique lifestyle content and high-quality products. MSLO is organized into four business segments: Publishing, Broadcasting, Internet, and Merchandising. MSLO is listed on the New York Stock Exchange under the ticker symbol MSO.

Forward-Looking Statements

We have included in this press release 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 current beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. These statements include estimates of future financial performance, potential opportunities, expected product line expansions and additions, future acceptability of our content and our businesses and other statements that 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. The Company's actual results may differ materially from those projected in these statements, and factors that could cause such differences include: adverse reactions to publicity relating to Martha Stewart or Emeril Lagasse by consumers, advertisers and business partners; further downturns in national and/or local economies; shifts in our business strategies; a loss of the services of Ms. Stewart or Mr. Lagasse; a loss of the services of other key personnel; a further softening of the domestic advertising market; changes in consumer reading, purchasing and/or television viewing patterns; unanticipated increases in paper, postage or printing costs; operational or financial problems at any of our contractual business partners; the receptivity of consumers to our new product introductions; and changes in government regulations affecting the Company's businesses.

Certain of these and other factors are discussed in more detail in the Company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission, especially under the heading "Risk Factors," which may be accessed through the SEC's World Wide Web site at http://www.sec.gov. The Company is under no obligation to update any forward-looking statements after the date of this release.



                         Martha Stewart Living Omnimedia, Inc.
                         Consolidated Statements of Operations
                            Three Months Ended June 30,
                   (unaudited, in thousands, except per share amounts)

                                                     2009              2008
                                                     ----              ----
      REVENUES
        Publishing                                $33,524           $46,265
        Broadcasting                               10,309            11,355
        Internet                                    4,160             3,241
        Merchandising                               9,003            16,249
                                                   ------            ------
            Total revenues                         56,996            77,110
                                                   ------            ------

      OPERATING COSTS AND EXPENSES
        Production, distribution and editorial     29,311            36,720
        Selling and promotion                      13,556            18,051
        General and administrative                 12,584            19,093
        Depreciation and amortization               2,147             1,523
        Impairment charge                           5,500                 -
                                                   ------            ------
            Total operating costs and expenses     63,098            75,387
                                                   ------            ------
      OPERATING (LOSS) / INCOME                    (6,102)            1,723

      OTHER INCOME / (EXPENSE)
        Interest (expense) / income, net              (81)               56
        Income / (loss) on equity securities          209            (1,131)
        Loss in equity interest                         -              (214)
                                                   ------            ------
            Total other income / (expense)            128            (1,289)

      (LOSS) / INCOME BEFORE INCOME TAXES          (5,974)              434

        Income tax provision                         (400)             (106)


      NET (LOSS) / INCOME                         $(6,374)             $328
                                                  =======           =======

      (LOSS) / EARNINGS PER SHARE - BASIC AND DILUTED
        Net (loss) / income                        $(0.12)            $0.01
                                                  =======           =======

      WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
        Basic                                      53,820            53,476
        Diluted                                    53,820            55,588



                       Martha Stewart Living Omnimedia, Inc.
                       Consolidated Statements of Operations
                            Six Months Ended June 30,
                (unaudited, in thousands, except per share amounts)

                                                     2009              2008
                                                     ----              ----
      REVENUES
        Publishing                                $61,885           $87,057
        Broadcasting                               20,823            21,916
        Internet                                    6,782             6,655
        Merchandising                              17,936            29,315
                                                  -------           -------
            Total revenues                        107,426           144,943
                                                  -------           -------

      OPERATING COSTS AND EXPENSES
        Production, distribution and editorial     57,480            72,756
        Selling and promotion                      28,337            36,765
        General and administrative                 26,698            35,355
        Depreciation and amortization               3,899             2,879
        Impairment charge                          12,600                 -
                                                  -------           -------
            Total operating costs and expenses    129,014           147,755
                                                  -------           -------
      OPERATING LOSS                              (21,588)           (2,812)

      OTHER (EXPENSE) / INCOME
        Interest (expense) / income, net              (89)              539
        Loss on equity securities                    (547)           (1,131)
        Loss in equity interest                      (236)             (214)
                                                  -------           -------
            Total other expense                      (872)             (806)

      LOSS BEFORE INCOME TAXES                    (22,460)           (3,618)

            Income tax provision                     (758)             (288)


      NET LOSS                                   $(23,218)          $(3,906)
                                                 ========           =======

      LOSS PER SHARE - BASIC AND DILUTED
        Net Loss                                   $(0.43)           $(0.07)
                                                 ========           =======

      WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
        Basic and diluted                          53,793            53,087



                               Martha Stewart Living Omnimedia, Inc.
                                  Consolidated Balance Sheets
                              (in thousands, except per share amounts)

                                                June 30,
                                                 2009           December 31,
                                              (unaudited)          2008
                                              -----------       -----------
      ASSETS
      CURRENT ASSETS
        Cash and cash equivalents                $44,947            $50,204
        Short-term investments                     8,851              9,915
        Accounts receivable, net                  37,163             52,500
        Inventory                                  4,838              6,053
        Deferred television production costs       4,351              4,076
        Income taxes receivable                       40                 40
        Other current assets                       6,781              3,712
                                                 -------            -------
            Total current assets                 106,971            126,500
                                                 -------            -------

      PROPERTY, PLANT AND EQUIPMENT, net          11,825             14,422
      GOODWILL AND OTHER INTANGIBLE ASSETS, net   93,306             93,312

      OTHER NONCURRENT ASSETS, net                13,931             27,051
                                                --------           --------
            Total assets                        $226,033           $261,285
                                                ========           ========

      LIABILITIES AND SHAREHOLDERS' EQUITY
      CURRENT LIABILITIES
        Accounts payable and accrued
         liabilities                             $18,441            $27,877
        Accrued payroll and related costs          4,735              7,525
        Income taxes payable                          75                142
        Current portion of deferred
         subscription income                      19,451             22,597
        Current portion of other deferred
         revenue                                  19,644              7,582
        Current portion loan payable               1,000                  -
                                                  ------             ------
            Total current liabilities             63,346             65,723
                                                  ------             ------

      DEFERRED SUBSCRIPTION REVENUE                5,844              6,874
      OTHER DEFERRED REVENUE                       4,421             13,334
      LOAN PAYABLE                                16,500             19,500
      DEFERRED INCOME TAX LIABILITY                2,509              1,854
      OTHER NONCURRENT LIABILITIES                 3,067              3,005
                                                  ------            -------
            Total liabilities                     95,687            110,290
                                                  ------            -------

      COMMITMENTS AND CONTINGENCIES

      SHAREHOLDERS' EQUITY
        Class A common stock, $0.01 par value,
         350,000 shares authorized: 28,039 and
         28,204 shares outstanding in 2009 and
         2008, respectively                          280                282
        Class B common stock, $0.01 par value,
         150,000 shares authorized:  26,690
         shares outstanding in 2009 and 2008         267                267
        Capital in excess of par value           285,657            283,248
        Accumulated deficit                     (155,245)          (132,027)
        Accumulated other comprehensive income       162                  -
                                                 -------            -------
                                                 131,121            151,770
                                                 -------            -------
        Less class A treasury stock - 59 shares
         at cost                                    (775)              (775)
                                                 -------            -------
            Total shareholders' equity           130,346            150,995
                                                 -------            -------
            Total liabilities and
             shareholders' equity               $226,033           $261,285
                                                ========           ========

    Martha Stewart Living Omnimedia, Inc.
    Supplemental Disclosures Regarding Non-GAAP Financial Information
    Three Months Ended June 30,
    (unaudited, in thousands)

    The following table presents segment and consolidated financial
information, including a reconciliation of operating income/(loss), a GAAP
measure, and adjusted EBITDA, a non-GAAP measure.  In order to reconcile
adjusted EBITDA to operating income, depreciation and amortization, non-cash
equity compensation, and non-cash impairment charges are added back to
operating income/(loss).


                                                         2009          2008
                                                         ----          ----

        ADJUSTED EBITDA
          Publishing                                   $2,869        $8,043
          Broadcasting                                  1,882         1,377
          Internet                                         75        (1,385)
          Merchandising                                 5,079         8,818
          Corporate                                    (7,131)      (11,561)
                                                       ------       -------
        Adjusted EBITDA                                 2,774         5,292
                                                       ------       -------

        NON-CASH EQUITY COMPENSATION
          Publishing                                     (183)          773
          Broadcasting                                    136           222
          Internet                                         28            91
          Merchandising                                   253           375
          Corporate                                       995           585
                                                       ------       -------
             Total Non-Cash Equity Compensation         1,229         2,046
                                                       ------       -------

        DEPRECIATION AND AMORTIZATION
          Publishing                                       57            93
          Broadcasting                                     68           300
          Internet                                        517           492
          Merchandising                                    17            25
          Corporate                                     1,488           613
                                                       ------       -------
             Total Depreciation and Amortization        2,147         1,523
                                                       ------       -------

        IMPAIRMENT ON MERCHANDISING EQUITY
        INVESTMENT                                      5,500             -
                                                       ------       -------

        OPERATING (LOSS) / INCOME
          Publishing                                    2,995         7,177
          Broadcasting                                  1,678           855
          Internet                                       (470)       (1,968)
          Merchandising                                  (691)        8,418
          Corporate                                    (9,614)      (12,759)
                                                       ------       -------
             Total Operating (Loss) / Income           (6,102)        1,723
                                                       ------         -----

        OTHER INCOME / (EXPENSE)
          Interest (expense) / income, net                (81)           56
          Income / (loss) on equity securities            209        (1,131)
          Loss in equity interest                           -          (214)
                                                       ------       -------
          Total other income / (expense)                  128        (1,289)

        (LOSS) / INCOME BEFORE INCOME TAXES            (5,974)          434

          Income tax provision                           (400)         (106)
                                                       ------       -------

        NET (LOSS) / INCOME                           $(6,374)         $328
                                                      =======       =======


    Martha Stewart Living Omnimedia, Inc.
    Supplemental Disclosures Regarding Non-GAAP Financial Information
    Six Months Ended June 30,
    (unaudited, in thousands)

    The following table presents segment and consolidated financial
information, including a reconciliation of operating income/(loss), a GAAP
measure, and adjusted EBITDA, a non-GAAP measure.  In order to reconcile
adjusted EBITDA to operating income, depreciation and amortization, non-cash
equity compensation, and non-cash impairment charges are added back to
operating income/(loss).


                                                         2009          2008
                                                         ----          ----

        ADJUSTED EBITDA
          Publishing                                   $1,506       $10,450
          Broadcasting                                  2,913         1,899
          Internet                                     (1,464)       (3,195)
          Merchandising                                10,578        15,799
          Corporate                                   (15,761)      (20,905)
                                                      -------       -------
        Adjusted EBITDA                                (2,228)        4,048
                                                      -------       -------

        NON-CASH EQUITY COMPENSATION
          Publishing                                      253         1,423
          Broadcasting                                    264           460
          Internet                                         69           151
          Merchandising                                   409           736
          Corporate                                     1,866         1,211
                                                       ------       -------
            Total Non-Cash Equity Compensation          2,861         3,981
                                                       ------       -------

        DEPRECIATION AND AMORTIZATION
          Publishing                                      131           192
          Broadcasting                                    138           410
          Internet                                        969           870
          Merchandising                                    35            49
          Corporate                                     2,626         1,358
                                                      -------       -------
            Total Depreciation and Amortization         3,899         2,879
                                                      -------       -------

        IMPAIRMENT ON MERCHANDISING EQUITY
        INVESTMENT                                     12,600             -
                                                      -------       -------

        OPERATING (LOSS) / INCOME
          Publishing                                    1,122         8,835
          Broadcasting                                  2,511         1,029
          Internet                                     (2,502)       (4,216)
          Merchandising                                (2,466)       15,014
          Corporate                                   (20,253)      (23,474)
                                                      -------       -------
             Total Operating Loss                     (21,588)       (2,812)
                                                      -------       -------

        OTHER (EXPENSE) / INCOME
          Interest (expense) / income, net                (89)          539
          Loss on equity securities                      (547)       (1,131)
          Loss in equity interest                        (236)         (214)
                                                      -------       -------
          Total other expense                            (872)         (806)

        LOSS BEFORE INCOME TAXES                      (22,460)       (3,618)

          Income tax provision                           (758)         (288)
                                                      -------       -------

        NET LOSS                                     $(23,218)      $(3,906)
                                                     ========       =======


SOURCE Martha Stewart Living Omnimedia, Inc.

CONTACT: Media - Elizabeth Estroff, SVP, Corporate Communications, +1-212-827-8281; or
Investors - Katherine Nash, Director, Corporate Communications
and Investor Relations, +1-212-827-8722, both for
Martha Stewart Living Omnimedia, Inc./
Web Site: http://www.marthastewart.com /
(MSO)



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