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Martha Stewart Living Omnimedia Reports Third Quarter 2010 Results

Quarterly Results Reflect Strong Merchandising Performance
Robust Gains in Internet Advertising Revenue; Continued Stabilization in Print Advertising Sales

NEW YORK, Oct 27, 2010 /PRNewswire via COMTEX/ -- Martha Stewart Living Omnimedia, Inc. (NYSE: MSO) today announced its results for the third quarter ended September 30, 2010. The Company reported revenue for the third quarter of $49.7 million.

Charles Koppelman, Executive Chairman and Principal Executive Officer, said, "For the past five years, we have been focused on diversifying and expanding our Merchandising business for long-term growth and we are seeing our efforts bear fruit in this quarter's results. We are applying the same aggressive mindset to our Broadcasting business with our slate of new programming on Hallmark Channel. Broadcasting has been challenging due largely to the remaining run-off results from syndication in the quarter. Our Internet business continues to perform very well and our Publishing business had a solid quarter."

Robin Marino, President and Chief Executive Officer of Merchandising, stated: "Merchandising delivered a strong performance in the quarter. Our two newest product lines -- Martha Stewart Living at The Home Depot and Martha Stewart Pets at PetSmart -- were important contributors and we continue to expand on our offerings with these retailers. Our Martha Stewart Collection at Macy's and our Martha Stewart Crafts line also registered solid results in the quarter. We feel very positive about our Merchandising business as we look to the fourth quarter and beyond."

Third Quarter 2010 Summary

Revenues were $49.7 million in the third quarter of 2010, compared to $49.8 million in the third quarter of 2009.

Adjusted EBITDA for the third quarter of 2010 was a loss of $(5.6) million, flat with the prior year period. This year's third quarter included the positive financial impact of a smaller cash bonus accrual in the quarter compared to last year's quarter.

Operating loss for the third quarter of 2010 was $(7.9) million, compared to operating loss of $(11.7) million for the third quarter of 2009. This year's third quarter benefited from both the smaller cash accrual and the absence of any non-cash bonus accrual, which was included in last year's third quarter.

Net loss per share was $(0.16) for the third quarter of 2010, compared to net loss per share of $(0.22) for the third quarter of 2009.

Third Quarter 2010 Results by Segment


Three Months Ended, September 30

(unaudited, in thousands)


2010


2009

REVENUES




Publishing

$ 30,038


$ 27,053

Broadcasting

5,795


11,036

Internet

4,280


2,761

Merchandising

9,575


8,931

Total Revenues

$ 49,688


$ 49,781


ADJUSTED EBITDA




Publishing

$ (266)


$ (1,457)

Broadcasting

(3,459)


1,893

Internet

(576)


(1,415)

Merchandising

5,464


4,252

Corporate

(6,739)


(8,850)

Total Adjusted EBITDA

$ (5,576)


$ (5,577)


OPERATING (LOSS)/INCOME




Publishing

$ (368)


$ (2,480)

Broadcasting

(4,074)


757

Internet

(745)


(2,070)

Merchandising

5,501


3,524

Corporate

(8,222)


(11,412)

Total Operating Loss

$ (7,908)


$ (11,681)





Publishing

Revenues in the third quarter of 2010 were $30.0 million, compared to $27.1 million in the prior year's third quarter. The increase is primarily due to timing of the Fall issue of Martha Stewart Weddings, which was recognized in the third quarter of 2010 compared to the fourth quarter of 2009.

Adjusted EBITDA was a loss of $(0.3) million in the third quarter of 2010, compared to a loss of $(1.5) million in the prior year's quarter.

Operating loss was $(0.4) million for the third quarter of 2010, compared to operating loss of $(2.5) million in the third quarter of 2009.

Highlights

  • Martha Stewart Living advertising revenue was up 9% versus the prior year quarter.
  • MSLO's first digital magazine for the iPad--a special issue of Martha Stewart Living--will launch in mid-November.
  • The Company increased the rate bases for Martha Stewart Living, Everyday Food and Whole Living magazines, effective with the January 2011 issues.

Broadcasting

Revenues in the third quarter of 2010 were $5.8 million, compared to $11.0 million in the third quarter of 2009 due to the absence of TurboChef in this year's third quarter, lower revenue from the remaining runs of "The Martha Stewart Show" in syndication, lower revenue associated with "Whatever, Martha!," which was delivered in the third quarter of last year and will be delivered in the fourth quarter of this year, and lower guaranteed radio revenue.

Adjusted EBITDA was a loss of $(3.5) million for the third quarter of 2010 compared to adjusted EBITDA of $1.9 million in the prior year's third quarter.

Operating loss was $(4.1) million for the third quarter of 2010, compared to operating income of $0.8 million in the third quarter of 2009.

Highlights

  • MSLO launched a slate of programming on Hallmark Channel on September 13, including the sixth season of "The Martha Stewart Show," and two new series featuring MSLO experts and personalities, "Whatever with Alexis & Jennifer" and "Mad Hungry with Lucinda Scala Quinn."
  • On September 19, Martha Stewart hosted "Martha Stewart Presents: The Women Who Dress America," the first in a series of hour-long, primetime interview specials on Hallmark Channel.
  • Martha is also hosting a series of holiday specials on Hallmark Channel; "Tricking and Treating with Martha Stewart" aired on October 10, and "Martha Stewart's Holiday Open House" is expected to air in December.
  • Chef Emeril Lagasse's "Fresh Food Fast" has been well received on Food Network's Cooking Channel; the show premiered on July 10.

Internet

Revenues were $4.3 million in the third quarter of 2010, compared to $2.8 million in the third quarter of 2009, due to strong advertising growth.

Adjusted EBITDA was a loss of $(0.6) million in the third quarter of 2010 compared to a loss of $(1.4) million in the prior year's quarter.

Operating loss was $(0.7) million in the third quarter of 2010, compared to $(2.1) million in the third quarter of 2009.

Highlights

  • Advertising revenue was up over 50% in the third quarter compared to the prior year's quarter.
  • According to comScore panel data, unique visitors across MSLO's websites increased 31% compared to the prior year's quarter, with page views up 37% over the prior year's period.
  • "Martha Stewart's Everyday Food" app for the iPhone and iPod Touch has been downloaded nearly 200,000 times since its mid-February launch; a version of the app launched on HP's new line of Photosmart wi-fi printers in September.
  • The new "Martha Stewart Makes Cookies" iPad app is expected to launch on November 1, coinciding with the publication of "Holiday Cookies," a special magazine issue available on newsstands beginning November 1.

Merchandising

Revenues were $9.6 million for the third quarter of 2010, as compared to $8.9 million in the prior year's third quarter.

Adjusted EBITDA was $5.5 million for the third quarter of 2010, compared to $4.3 million in the prior year's third quarter.

Operating income was $5.5 million for the third quarter of 2010, compared to operating income of $3.5 million in the third quarter of 2009.

Highlights

  • The Martha Stewart Living line at The Home Depot is performing very well, driven by sales of the new carpet program. The cabinets, countertops and hardware program launched in the quarter and a holiday décor assortment began rolling out in early October.
  • The Martha Stewart Collection at Macy's demonstrated continued strength led by sales in the soft home category; the lower price point Martha Stewart Essentials program launched successfully in the quarter.
  • Martha Stewart Crafts performed well in the quarter due to expanded distribution, including shipments of seasonal Halloween products into Jo-Ann Fabrics & Crafts, and Martha's HSN appearance in July.
  • Martha Stewart Pets at PetSmart had a robust debut, led by solid sales of toys, feeding bowls and accessories, and grooming tools; the line is expected to expand in Spring 2011.
  • Chef Emeril Lagasse's core partnerships, including his All-Clad cookware, his coffee with Timothy's and his line of appliances with T-Fal, registered strong double-digit growth in wholesale sales in the quarter.

Corporate

Adjusted EBITDA was a loss of $(6.7) million in the third quarter of 2010 compared to a loss of $(8.9) million in the prior year's quarter. Total Corporate expenses were $(8.2) million in the third quarter of 2010 down from $(11.4) million in the prior year's quarter.

The Company will host a conference call with analysts and investors on October 27, 2010 at 11:00 a.m. EDT that will be broadcast live over the Internet at www.marthastewart.com/ir, and an archived version will be available through November 11, 2010.

Use of Non-GAAP Financial Information

In addition to using net income to assess the organization's overall financial health, Company management uses consolidated net income/(loss) before interest income or expense, taxes, depreciation and amortization, impairment, non-cash equity compensation expense and other expense ("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, (v) non-cash impairment charges, which are impacted by macro-economic conditions and do not necessarily reflect operating performance, and (vi) other expense which may include non-operational items.

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, anticipated growth, and other statements that can be identified by terminology such as "may," "will," "should," "could," "position," "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 renewed softening of the domestic advertising market; changes in consumer reading, purchasing and/or television viewing patterns; failure to achieve results from Hallmark Channel broadcasting comparable to our expectations; 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; the inability to add to our partnerships or capitalize on existing partnerships; and changes in government regulations affecting the Company's industries.

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 Reports on Form 10-Q filed with the Securities and Exchange Commission, especially under the heading "Risk Factors." These reports 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 September 30,

(unaudited, in thousands, except per share amounts)



2010


2009



REVENUES






Publishing

$ 30,038


$ 27,053




Broadcasting

5,795


11,036




Internet

4,280


2,761




Merchandising

9,575


8,931





Total revenues

49,688


49,781




OPERATING COSTS AND EXPENSES







Production, distribution and editorial

29,184


29,732




Selling and promotion

14,803


13,232




General and administrative

11,982


16,402




Depreciation and amortization

1,627


2,096





Total operating costs and expenses

57,596


61,462



OPERATING LOSS

(7,908)


(11,681)




OTHER (EXPENSE) / INCOME







Interest income/(expense), net

46


(1)




Loss on sale of fixed asset

(647)


-




Gain on sale of short-term investments

403


-




Other

(5)


-





Total other expense

(203)


(1)



LOSS BEFORE INCOME TAXES

(8,111)


(11,682)










Income tax provision

(475)


(432)










NET LOSS

$ (8,586)


$ (12,114)









LOSS PER SHARE - BASIC AND DILUTED







Net loss

$ (0.16)


$ (0.22)









WEIGHTED AVERAGE COMMON SHARES OUTSTANDING







Basic and Diluted

54,487


53,865




Martha Stewart Living Omnimedia, Inc.

Consolidated Statements of Operations

Nine Months Ended September 30,

(unaudited, in thousands, except per share amounts)



2010


2009



REVENUES






Publishing

$ 88,901


$ 88,938



Broadcasting

26,076


31,859



Internet

12,044


9,543



Merchandising

31,200


26,867



Total revenues

158,221


157,207









OPERATING COSTS AND EXPENSES






Production, distribution and editorial

85,837


87,212



Selling and promotion

42,889


41,569



General and administrative

37,887


43,100



Depreciation and amortization

3,689


5,994



Impairment charge

-


12,600



Total operating costs and expenses

170,302


190,475









OPERATING LOSS

(12,081)


(33,268)




OTHER EXPENSE






Interest expense, net

(62)


(91)



Loss on sale of fixed asset

(647)


-



Gain on sale of short-term investments

403


-



Loss on equity securities

-


(547)



Other

(24)


(236)



Total other expense

(330)


(874)









LOSS BEFORE INCOME TAXES

(12,411)


(34,142)









Income tax provision

(1,289)


(1,190)









NET LOSS

$ (13,700)


$ (35,332)









LOSS PER SHARE - BASIC AND DILUTED






Net Loss

$ (0.25)


$ (0.66)









WEIGHTED AVERAGE COMMON SHARES OUTSTANDING






Basic and diluted

54,416


53,817









Martha Stewart Living Omnimedia, Inc.

Consolidated Balance Sheets

(in thousands, except per share amounts)



September 30,

2010

(unaudited)


December 31,

2009


ASSETS




CURRENT ASSETS




Cash and cash equivalents

$ 27,238


$ 25,384

Short-term investments

14,167


13,085

Receivable - Sale of short-term investment

1,001


-

Accounts receivable, net

39,705


56,364

Inventory

5,285


5,166

Deferred television production costs

6,162


3,788

Other current assets

5,066


5,709

Total current assets

98,624


109,496





PROPERTY, PLANT AND EQUIPMENT, net

14,767


17,268

GOODWILL, net

45,107


45,107

OTHER INTANGIBLE ASSETS, net

46,550


47,070

OTHER NONCURRENT ASSETS, net

11,847


10,850

Total assets

$ 216,895


$ 229,791

LIABILITIES AND SHAREHOLDERS' EQUITY




CURRENT LIABILITIES




Accounts payable and accrued liabilities

$ 26,728


$ 26,752

Accrued payroll and related costs

8,538


7,495

Current portion of deferred subscription income

15,935


18,587

Current portion of other deferred revenue

6,132


4,716

Current portion loan payable

1,500


-

Total current liabilities

58,833


57,550

DEFERRED SUBSCRIPTION INCOME

4,626


5,672

OTHER DEFERRED REVENUE

1,803


2,759

LOAN PAYABLE

9,000


13,500

DEFERRED INCOME TAX LIABILITY

4,208


3,200

OTHER NONCURRENT LIABILITIES

3,638


3,290

Total liabilities

82,108


85,971

COMMITMENTS AND CONTINGENCIES




SHAREHOLDERS' EQUITY




Class A common stock, $0.01 par value, 350,000 shares authorized:

28,433 and 28,313 shares outstanding in 2010 and 2009,

respectively.

284


283

Class B common stock, $0.01 par value, 150,000 shares authorized:

26,568and 26,690 shares outstanding in 2010 and 2009,

respectively.

266


267

Capital in excess of par value

294,304


290,387

Accumulated deficit

(160,305)


(146,605)

Accumulated other comprehensive income

1,013


263



135,562


144,595

Less class A treasury stock - 59 shares at cost

(775)


(775)

Total shareholders' equity

134,787


143,820

Total liabilities and shareholders' equity

$ 216,895


$ 229,791


Martha Stewart Living Omnimedia, Inc.

Supplemental Disclosures Regarding Non-GAAP Financial Information

Three Months Ended September 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/(loss), depreciation and amortization, and non-cash equity compensation are added back to operating income/(loss).


2010


2009



ADJUSTED EBITDA






Publishing

$ (266)


$ (1,457)



Broadcasting

(3,459)


1,893



Internet

(576)


(1,415)



Merchandising

5,464


4,252



Corporate

(6,739)


(8,850)



Adjusted EBITDA

(5,576)


(5,577)



NON-CASH EQUITY COMPENSATION






Publishing

33


967



Broadcasting

3


437



Internet

(15)


163



Merchandising

(50)


714



Corporate

734


1,727



Total Non-Cash Equity Compensation

705


4,008









DEPRECIATION AND AMORTIZATION






Publishing

69


56



Broadcasting

612


699



Internet

184


492



Merchandising

13


14



Corporate

749


835



Total Depreciation and Amortization

1,627


2,096









OPERATING (LOSS) / INCOME






Publishing

(368)


(2,480)



Broadcasting

(4,074)


757



Internet

(745)


(2,070)



Merchandising

5,501


3,524



Corporate

(8,222)


(11,412)



Total Operating Loss

(7,908)


(11,681)









OTHER INCOME / (EXPENSE)







Interest income/(expense), net

46


(1)




Loss on sale of fixed asset

(647)


-




Gain on sale of short-term investments

403


-




Other

(5)


-




Total other expense

(203)


(1)









LOSS BEFORE INCOME TAXES

(8,111)


(11,682)











Income tax provision

(475)


(432)










NET LOSS

$ (8,586)


$ (12,114)




Martha Stewart Living Omnimedia, Inc.

Supplemental Disclosures Regarding Non-GAAP Financial Information

Nine Months Ended September 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/(loss), depreciation and amortization, non-cash equity compensation, and non-cash impairment charges are added back to operating income/(loss).


2010


2009




ADJUSTED EBITDA

Publishing

$ 1,265


$ 49



Broadcasting

(1,389)


4,806



Internet

(1,650)


(2,879)



Merchandising

18,824


14,830



Corporate

(21,267)


(24,611)



Adjusted EBITDA

(4,217)


(7,805)



NON-CASH EQUITY COMPENSATION






Publishing

465


1,219



Broadcasting

217


700



Internet

17


234



Merchandising

635


1,123



Corporate

2,841


3,593



Total Non-Cash Equity Compensation

4,175


6,869



DEPRECIATION AND AMORTIZATION

Publishing

169


186



Broadcasting

748


837



Internet

753


1,461



Merchandising

35


49



Corporate

1,984


3,461



Total Depreciation and Amortization

3,689


5,994









IMPAIRMENT ON MERCHANDISING EQUITY INVESTMENTS

-


12,600



OPERATING (LOSS) / INCOME

Publishing

631


(1,356)



Broadcasting

(2,354)


3,269



Internet

(2,420)


(4,574)



Merchandising

18,154


1,058



Corporate

(26,092)


(31,665)



Total Operating Loss

(12,081)


(33,268)









OTHER INCOME / (EXPENSE)







Interest expense, net

(62)


(91)




Loss on sale of fixed asset

(647)


-




Gain on sale of short-term investments

403


-




Loss on equity securities

-


(547)




Other

(24)


(236)




Total other expense

(330)


(874)




LOSS BEFORE INCOME TAXES

(12,411)


(34,142)











Income tax provision

(1,289)


(1,190)










NET LOSS

$ (13,700)


$ (35,332)




SOURCE Martha Stewart Living Omnimedia, Inc.



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