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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

Commission file number 001-15395

MARTHA STEWART LIVING OMNIMEDIA, INC.

11 West 42nd Street

(212) 827-8000

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:

      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 þ          No o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

The Aggregate Market Value of Voting Stock Held by Non-Affiliates of the

Number of Shares Outstanding As of March 18, 2002:

Documents Incorporated by Reference

Portions of the Registrant’s Proxy Statement for Its Annual Meeting

Table of Contents

TABLE OF CONTENTS

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      In this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “MSO” and the “Company” refer to Martha Stewart Living Omnimedia, Inc. and, unless the context requires otherwise, Martha Stewart Living Omnimedia LLC (“MSLO LLC”), the legal entity that prior to October 22, 1999, operated many of the businesses we now operate, and their respective subsidiaries.

Forward-Looking Statements

      We have included in this Annual 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 current 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 downturns in national and/or local economies; shifts in our own business strategies; 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, purchasing and/or television viewing patterns; unanticipated increases in paper, postage or printing costs; technological developments affecting products or methods of distribution such as the Internet or e-commerce; operational or financial problems at any of our contractual business partners; the receptivity of consumers to our new product introductions; unexpected transitional difficulties at our new direct commerce fulfillment partner; unexpected developments in Kmart Corporation’s Chapter 11 proceedings; and changes in government regulations affecting our industries.

PART I

Item 1.     Business

Overview

      We are an integrated content and commerce company that creates “how-to” content and domestic merchandise for homemakers and other consumers. Our products bear the well-known “Martha Stewart” brand name, which we leverage across a broad range of media and retail outlets. We primarily focus on the domestic arts, providing consumers with the how-to ideas, information, merchandise and other resources they need to raise the quality of living in and around their homes. The content and merchandise we create generally span eight core areas:

	•	Home: decorating, collecting, and renovating.
	•	Cooking & Entertaining: recipes, techniques, and indoor and outdoor entertaining.
	•	Gardening: planting, landscape design, and outdoor living.
	•	Crafts: how-to projects and similar family activities and an appreciation of the natural world.
	•	Holidays: celebrating special days and special occasions.
	•	Keeping: homekeeping, organizing, petkeeping, clotheskeeping, restoring, and other types of domestic maintenance.
	•	Weddings: all aspects of planning and celebrating a wedding.
	•	Baby & Kids: cooking, decorating, crafts, and other projects and celebrations surrounding infants and children.

      Our company comprises four business segments — Publishing, Television, Merchandising and Internet/ Direct Commerce — through which content and merchandise relating to our eight core content areas are

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History

      Martha Stewart published her first book, Entertaining, in 1982. Over the next eight years she became a well-known authority on the domestic arts, authoring eight more books relating to a variety of our core content areas. In 1991, Time Publishing Ventures, Inc., a subsidiary of Time Inc. (“TPV”), launched Martha Stewart Living magazine with Ms. Stewart serving as its editor-in-chief. In 1993, TPV began producing a Martha Stewart Living weekly television program hosted by Ms. Stewart. In 1995, TPV launched a mail-order catalog, Martha by Mail, which made available products featured in, or developed in connection with, the magazine and television program. In December 1996, Ms. Stewart contributed all her businesses which were not conducted through TPV to MSLO LLC, a newly formed entity, and certain minority investors contributed cash to MSLO LLC, each in exchange for MSLO LLC equity. In February 1997, MSLO LLC purchased all TPV’s assets primarily relating to its Martha Stewart-related businesses in exchange for a $30 million note (the “TPV Note”), a 6.27% equity interest in MSLO LLC, and certain contractual management and other rights incident to that interest (the “TPV Rights”). Additionally, affiliates of TPV entered into various agreements with MSLO LLC pursuant to which such affiliates would provide newsstand distribution services for our magazines, provide fulfillment services for our magazines and direct commerce business, publish certain books containing content originally featured in our magazines, and provide various corporate services to us. On March 30, 1999, we satisfied all our obligations under the TPV Note with cash on hand and borrowings under a term loan.

      On October 22, 1999, MSLO LLC merged into MSO, then a wholly-owned subsidiary of MSLO LLC. In the merger, Ms. Stewart received 34,126,831 shares of our Class B Common Stock, and MSLO LLC’s other members received, in the aggregate, 6,176,561 shares of our Class A Common Stock. Each share of Class A Common Stock entitles its holder to one vote and each share of Class B Common Stock entitles its holder to ten votes. Each share of Class B Common Stock is convertible at the owner’s option one-for-one into shares of Class A Common Stock. Immediately following the merger, we consummated an initial public offering of 8,280,000 shares of our Class A Common Stock at an offering price of $18 per share, receiving aggregate proceeds, net of underwriting discounts, commissions and expenses, of $132.3 million.

      On October 19, 1999, we offered to call TPV’s entire equity interest in us pursuant to the terms of MSLO LLC’s operating agreement for approximately $42 million. Under the operating agreement, upon our purchase of TPV’s interest or TPV’s rejection of our offer, the TPV Rights would terminate. On February 18, 2000, we entered into an agreement pursuant to which we purchased 1,366,000 shares of our Class A Common Stock from TPV (approximately 52% of TPV’s total equity interest in us), for $23.79 per share, or an aggregate $32.5 million. Upon our entering into this agreement, the TPV Rights terminated. As part of this agreement, TPV agreed to extend certain of the agreements we had with TPV’s affiliates described above, to continue, subject to certain limited exceptions, to hold shares of our Class A Common Stock until 2003, and to allow us to place advertisements in Time Inc. magazines and websites through 2004 at discounted rates, subject to annual limitations. Our purchase of TPV’s 1,366,000 shares of Class A Common Stock was completed on March 31, 2000. The shares were retired upon repurchase.

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Business Segments

      Our four business segments are described below. Additional financial information relating to these segments may be found in Note 13 to our Consolidated Financial Statements on page F-24 of this Report.

Publishing

      Our Publishing segment currently consists of our operations relating to magazines, books, radio, newspapers, and music. In 2001, revenues from magazine advertising and circulation represented 60% and 38% of the segment’s revenues, respectively.

     Magazines

      Martha Stewart Living. Martha Stewart Living, our flagship magazine, is the foundation of our publishing business. It was launched in 1991 as a quarterly publication with a circulation of 250,000. In 2001 we increased the frequency from eleven to twelve times per year. Starting with the February 2001 issue, we have guaranteed our advertisers a minimum circulation of 2.15 million, up from 2.1 million in 2000. In the event actual circulation for an issue were to fall below the guaranteed circulation, advertisers in that issue would be entitled to a credit for the proportionate share of the circulation shortfall. However, since the launch of the magazine, no shortfall in guaranteed circulation has occurred. Advertising pages, as reported to Publisher’s Information Bureau, were 1,790 pages in 2001.

      Martha Stewart Living appeals primarily to the college-educated woman between the ages of 25 and 54 who owns her principal residence. Martha Stewart Living seeks to offer its readers reference-quality and original how-to information for the homemaker and other consumers in a unique upscale editorial and aesthetic environment. Martha Stewart Living has won numerous prestigious industry awards. While providing quality editorial content requires significant investment, these costs are supported by premium subscription rates and cover prices for the magazine and premium advertising rates from advertisers that seek association with our brands and the ability to target our audience. The Martha Stewart Living subscriber lists, as well as our catalog and other mailing lists, are important assets, permitting us to target our desired audience with various cross-selling and promotional activities, such as upcoming book releases, new product announcements and promotional appearances by Martha Stewart and our other creative and editorial professionals. Revenues generated by Martha Stewart Living magazine constituted the substantial majority of our magazine revenues.

      Martha Stewart Weddings. We launched Martha Stewart Weddings in 1994 as an annual publication, and extended it to a semi-annual publication in 1997. In 1999, Martha Stewart Weddings became a quarterly publication. Martha Stewart Weddings targets the upscale bride and serves as an important vehicle for introducing young women to our brands. Martha Stewart Weddings is sold primarily through newsstand distribution.

      Special Interest Publications. Over the past few years we have published special interest magazine editions, beginning with one in 1998, growing to seven publications in 2001. Our special issue schedule in 2001 consisted of two issues of Martha Stewart Baby, two issues of Martha Stewart Kids, Martha Stewart Holiday Cookies, At Home with Technology, and Martha Stewart Everyday Garden magazine which was custom published for Kmart Corporation. We are scheduled to publish seven special issue editions in 2002. The purpose of these issues is to provide in-depth advice and ideas around a particular topic contained in our core content areas, allowing us to draw upon our brand name to further promote our expertise in our core content areas. Additionally, we use this format to explore additional content areas, and explore potential for new standalone titles. For instance, Martha Stewart Kids is scheduled to be published four times in 2002. Our special interest publications can be either sponsored by a single advertiser or multiple advertisers and are sometimes sold at newsstands and sometimes distributed to subscribers with issues of Martha Stewart Living.

      International. Beginning in December 2001, Martha Stewart Japan, Inc., a Japanese publishing company in which we own a minority interest, began publication of a Japanese language magazine entitled Martha Stewart Martha. In exchange for royalties based on advertising and circulation sales of the magazine,

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      Magazine Production, Distribution and Fulfillment. We print our domestic magazines under long-term printing agreements with R. R. Donnelly. We currently purchase paper through an agreement with Time Inc. Paper for use in our domestic magazines is widely available. We use no other significant raw materials in our businesses. Newsstand distribution of the magazines is conducted by an affiliate of TPV under a long-term agreement that expires with the December 2007 issue of Martha Stewart Living, but which we have the right to cancel effective after the December 2004 issue. Our subscription fulfillment services are provided by another affiliate of TPV under a long-term agreement that expires in 2002, and is renewable for two additional three-year periods at our option. Printing and distribution for the Japanese edition of our magazine is handled by third parties through our Japanese licensee.

     Books

      We create two different types of books: Martha Stewart Living books and Martha Stewart-authored books. Our current book library comprises 38 titles. Of these books, 24 are Martha Stewart Living books, and 14 are Martha Stewart-authored books. We own the copyrights to all these books.

      Martha Stewart Living Books. We have typically created three Martha Stewart Living books each year and plan to create 4 such books in 2002. These books consist of a mixture of content previously published in our magazines and original material. The hardcover versions of each of these titles are sold through direct marketing methods to consumers, including Martha Stewart Living readers and regular craft and cookbook buyers, and paperback editions are sold at retail book stores. In conjunction with the Martha Stewart Living book program, we also market a continuity card program, Good Things, which consists of periodic card mailings of individual crafts and homekeeping ideas that our subscribers compile in loose-leaf binders. The publication of these books and the continuity cards are done by Oxmoor House, Inc., an affiliate of TPV, which also handles their distribution through direct marketing and some retail channels. The Martha Stewart Living books have been distributed through other retail channels by Clarkson N. Potter, a division of Random House, a subsidiary of Bertelsmann AG, under various agreements.

      Martha Stewart Books. Under an agreement with Clarkson N. Potter, we create completely original Martha Stewart-authored books, and are obligated to deliver one more such book. Most recently, we released Martha Stewart’s Hors d’Oeuvres Handbook, which was co-authored by our Cooking and Entertaining Editor, Susan Spungen, in 1999. These books are generally sold by Clarkson N. Potter through retail distribution channels. Following expiration of our agreement with Clarkson N. Potter, we intend to continue to publish such books through a new agreement with Clarkson N. Potter or through another publisher.

     The askMartha Newspaper Column and Radio Program

      Our askMartha syndicated newspaper columns appear weekly in over 220 newspapers in North America. Our askMartha syndicated radio program airs for ninety seconds five days a week on over 360 radio stations in North America, covering over 91% of United States markets. In general, both the column and the radio program provide informative how-to content in response to particular questions posed by Martha Stewart consumers. The newspaper columns are syndicated by The New York Times Syndication Sales Corporation which pays us a percentage of the syndication revenues they receive. The radio program is syndicated by Westwood One Radio, Inc. with which we share advertising revenues generated by sales of advertising for the program generated by Westwood One and our advertising sales force. While the revenues contributed by these businesses are not as significant as those contributed by most of our other media activities, we reach a broader audience and demographic through these two vehicles than through any of our other media enterprises. They therefore provide valuable no-cost brand promotion outside our core audience.

     Compilation Albums

      In July 2000, we entered into an agreement with Rhino Entertainment Company to jointly produce and distribute a series of music and sound compilation albums related to our editorial content. To date, we have

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     Competition

      Publishing is a highly competitive business. Our magazines, books and related publishing products compete with other mass media and many other types of leisure-time activities. Overall competitive factors in this segment include price, editorial content and editorial and aesthetic quality. Competition for advertising dollars in magazine operations is primarily based on advertising rates, editorial and aesthetic quality, the desirability of the magazine’s demographic, reader response to advertisers’ products and services and effectiveness of the advertising sales staff. Martha Stewart Living competes for advertising dollars in the women’s service magazine category, including Ladies’ Home Journal, Rosie and Redbook. Martha Stewart Living competes for readers and advertising with decorating, cooking and lifestyle magazines, such as Architectural Digest, Metropolitan Home, Bon Appetit, Food & Wine, Gourmet, O: The Oprah Magazine, Real Simple, Country Living, Better Homes & Gardens, Southern Living, and others. Martha Stewart Weddings competes for readers and advertising dollars primarily in the wedding service magazine category, which includes Bride’s Magazine, Modern Bride, Bridal Guide and Elegant Bride. Our special interest issues can compete with a variety of magazines depending on the focus of the particular issue.

     Seasonality

      Our Publishing segment can experience fluctuations in quarterly performance. For example, our newsstand sales and advertising dollars tend to be highest in the fourth 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. Additionally, the publication schedule for our special interest issues can vary and lead to quarterly fluctuations in the segment’s results.

Television

      Our Television business segment consists of our operations relating to the production of new television programming and to the domestic and international distribution of that programming in existing and repurposed formats through a variety of distribution channels, including syndication, network broadcast and cable broadcast. We generally own the copyrights in the television programming we produce.

     Martha Stewart Living

      The Martha Stewart Living program is the cornerstone of our television production operations. The program is a syndicated how-to daytime program hosted by Martha Stewart consisting of several segments, each of which generally ties into one of our eight core content areas. Originally launched as a half-hour weekend program in 1993, we added a daily half-hour program in 1997 which expanded to a daily one-hour program in 1999. We produce Martha Stewart Living primarily at our studio facility in Westport, Connecticut, and segments are filmed both in the studio and at various other locations. The program has won numerous Emmy awards in various categories.

      King World Productions, Inc. syndicates the program domestically under a distribution agreement that expires after the 2004 — 2005 broadcast season. Under the agreement, we are compensated partially in cash and partially in airtime. We then sell that airtime to advertisers, subject to a distribution fee payable to King World. The airtime we receive from the King World agreement provides us with a substantial degree of control over our national advertising base and allows us to include television advertising in multimedia sales packages offered to advertisers. The program can currently be seen in approximately 90% of all U.S. television households. The average U.S. rating of the weekday program during calendar year 2001 was 1.5.

      The program is also broadcast in Canada by Alliance Atlantis Broadcasting, Inc. over its Life Network cable channel and HGTV Canada for which we are compensated with a license fee. This agreement expires in August 2002, but contains a one-year extension at our election. The program is also dubbed in Japanese and broadcast over the LaLa cable channel in exchange for a license fee.

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     The Early Show

      Martha Stewart is a regular lifestyle correspondent for, and generally appears each Wednesday on, CBS’ The Early Show. In exchange for this appearance, we receive airtime in the form of one 30-second spot adjacent to the segment. Our advertising sales staff sells this advertising time.

     Repurposed Programming

      We also produce three half hour programs entitled from Martha’s Kitchen, from Martha’s Home and from Martha’s Garden. Each of these programs are produced from category-specific segments that originally aired in the Martha Stewart Living program. During 2001, from Martha’s Kitchen aired daily on The Food Network in the United States and Canada. Our advertising sales force sells most of the advertising for the program’s United States airings and we received a license fee in exchange for the Canadian broadcasts. Our domestic distribution agreement expires in September 2002 and our Canadian agreement expires in August 2002, subject to a one-year extension at our option. from Martha’s Home and from Martha’s Garden began airing in fourth quarter 2001 in the United States on the Home and Garden Television cable network. We receive a license fee for these programs pursuant to an agreement that expires in December 2003.

     Prime Time Specials

      We have periodically produced prime time holiday specials which have aired on the CBS network. Martha Stewart’s Home for the Holidays, our 2001 Christmas special, achieved a 7.0 U.S. household rating. We have purchased the relevant airtime for our specials from CBS and then our advertising sales staff has sold the advertising to air during the special.

     Competition

      Series television is a highly competitive business. Our television programs compete directly for viewers and advertising dollars with other how-to television programs, as well as with general programming on other channels. Overall competitive factors in this segment include programming content, quality and distribution and demographics of the programming. Similar to publishing, competition for advertising dollars is primarily based on advertising rates, the demographics of the audience, viewer response to advertisers’ products and services and effectiveness of the advertising sales staff.

     Seasonality

      Revenue and operating results from our Television segment tend to be higher in the fourth quarter due to generally higher ratings and the broadcast of our prime-time television special.

Merchandising

      Our Merchandising segment consists of our operations relating to the design of merchandise and related packaging, promotional and advertising materials, and the licensing of various trademarks owned by us, in connection with retail programs conducted through third party retailers and manufacturers.

     Martha Stewart Everyday Collections

      Martha Stewart Everyday is the brand label under which our merchandise is sold in the mass-market and national chain channels of distribution. Currently, the label is associated with products that generally fall into the following categories: Home (which includes sheets, towels, pillows, bath accessories, window treatments and kitchen textiles), Garden (which includes outdoor furniture, garden tools, fertilizers, planting pots, bulbs, seeds and live plants), Kitchen (which includes cookware, bakeware, dinnerware, flatware, and beverageware), Keeping (which includes organizational products relating to the pantry, closet and laundry), Decorating (which includes mirrors, picture frames, candles and lamps), and Colors (which consists of a line of interior paints available in 256 colors). Additionally, we are scheduled to launch a Holiday line consisting of Christmas decorating products and ornaments in Winter 2002.

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      In the United States and Canada, these products, other than the paint products, are sold pursuant to exclusive agreements with Kmart Corporation and The Hudson’s Bay Company (through its Zellers stores), although Zellers does not carry the full assortment of products. Pursuant to these agreements, we are primarily responsible for the design of all merchandise and related packaging, signage and advertising and promotional materials, while our retail partners source the products through a large manufacturer base. The paint products are manufactured pursuant to an agreement between us and The Sherwin-Williams Company and are then distributed by Sherwin-Williams to Kmart and Sears in the United States and Canadian Tire in Canada. Additionally, merchandise is sold under the Martha Stewart Everyday brand label by The Seiyu, Ltd. in Japan. Pursuant to our agreement with Seiyu, Seiyu offers products from our domestic assortment as well as products modified from our domestic assortment for the Japanese market and original product designed by Seiyu, subject to our brand direction and approval, for the Japanese market.

      We own the Martha Stewart Everyday trademark and generally retain all intellectual property rights related to the designs of the merchandise, packaging, signage and collateral materials developed for the various programs. We are also generally assured sufficient in-store presence and volume to establish and protect our brands through guaranteed minimum royalties and through dedicated store-within-a-store selling formats.

      Martha Stewart Everyday products are now offered at over 2,100 Kmart stores and 1,000 Sears stores in the United States, 300 Zellers stores and 300 Canadian Tire stores in Canada, and 226 stores owned by Seiyu in Japan.

      In 2001 we entered into a new agreement with Kmart that expires in January 2008, with an automatic five-year renewal in the event certain performance targets are met. Under our previous agreements with Kmart, we were paid a royalty on wholesale purchases of our products by Kmart, and we were reimbursed for all our design and related expenses. Under the new agreement, we are paid a royalty on sales of Martha Stewart Everyday products to consumers, and we no longer receive reimbursement of most expenses, instead receiving a higher royalty that compensates us for the loss of reimbursement. In January 2002 Kmart filed for bankruptcy under Chapter 11. As of March 12, 2002, our agreement has been neither rejected nor assumed, although Kmart has commenced proceedings to assume the contract. We are monitoring the situation closely to evaluate its impact on our business. While the loss of Kmart as a business partner would be significant, we are confident that we would be able to realize significant value over the long term from our Martha Stewart Everyday brand label in that eventuality. Revenues from Kmart constituted approximately 13% of our total revenues in 2001. Our agreements with Zellers and Seiyu provide for the payment to us of royalties on wholesale purchases of our products and expire in February 2003 and August 2006, respectively. Our agreement with Sherwin-Williams expires in December 2005 and provides for royalties payable on sales by Sherwin-Williams of our Martha Stewart Everyday paints.

     Martha Stewart Signature

      Martha Stewart Signature is the brand label under which our products are offered in the specialty channel of distribution. Through agreements with various retailers and manufacturing partners, we are developing a national network of retailers offering coordinated categories of home decorating products. We own the trademark Martha Stewart Signature and generally retain all intellectual property rights related to the designs of the merchandise, packaging, signage and collateral materials developed for the various programs.

      Fabrics. Through an agreement with P/ Kaufmann, Inc. which expires in December 2003, a wide variety of decorative fabrics designed by us are offered at various retail specialty stores. We are paid a royalty on sales by P/ Kaufmann to retailers.

      Paint. Beginning in Spring 2002, our Martha Stewart Signature Color Palette, consisting of 416 colors, will be available at over 1500 Sherwin-Williams stores. Consumers will be able to have any of the colors mixed in a wide variety of quality Sherwin-Williams paints. We will receive royalties on the sale of all paints mixed in a Martha Stewart Signature color. Our agreement with Sherwin-Williams expires in December 2005.

      Floor Coverings. Beginning in Fall 2002, floor covering products, including area rugs, hardwood flooring, and broadloom carpeting, will be available at retailers nationwide. These products will be designed by

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      Furniture. Beginning in early 2003, furniture products for the living room, bedroom, and dining room will be available at fine furniture stores and department stores nationwide. Through an agreement with Bernhardt Furniture Company, Inc., these products will be designed by us and the Bernhardt design staff and manufactured and distributed by Bernhardt. Our agreement provides for royalty payments to us on sales of our products by Bernhardt and expires in early 2008.

     Competition

      The retail merchandising business is highly competitive. Our principal competitors are the competitors of the retail stores in which our products are sold. These stores currently include Target stores, Wal-Mart Stores, Inc. and other mass market discount stores, and will include others when our Martha Stewart Signature line is launched in full. Competitive factors include numbers and locations of stores, brand awareness and price. Additionally, our Martha Stewart Signature products will compete with other products in their categories and available at the participating stores, including branded and non-branded merchandise.

     Seasonality

      Revenues from the Merchandising segment can vary significantly from quarter to quarter due to new product launches and the seasonality of certain product lines.

Internet/ Direct Commerce

      Our Internet/ Direct Commerce segment consists of our operations relating to our internet and catalog businesses.

     Commerce

      We develop and source merchandise that we sell through our catalog, Martha by Mail, and our internet site, marthastewart.com. The merchandise we sell consists of both exclusive and non-exclusive products that fall into a wide variety of home-related categories, including kitchenware, garden products, tabletop products, crafts products, bedding, and fresh cut flowers. A given catalog will contain from 400 to 600 different product offerings, while our e-commerce site offers approximately 2,000 product offerings. In 2001, we mailed 16.6 million copies of the catalog in 12 editions. Our catalog mailing list includes customers identified through our media activities, such as current and past subscribers, gift subscription recipients, continuity card program subscribers and our website registrants, as well as third-party customer lists. In 2001 we completed a re-architecture of our website at a cost of approximately $14 million. Completed in October, the site offers considerably better traffic and transaction capacity, merchandising capabilities and efficient checkout and customer experience. We believe that the new site will dramatically enhance our e-commerce capabilities and lead to improved results. In 2001, approximately 55% of our commerce sales were placed online.

      In March 2001, we acquired the assets of Wedding List Holdings, Inc., a wedding gift registry service and retailer, including the internet operations of theweddinglist.com and the retail showroom assets located in New York, Boston and London.

      We source and purchase all our Martha by Mail product and manage our merchandise inventory. During 2001, our merchandise fulfillment was conducted by Time Customer Service, an affiliate of TPV. In February 2002, however, we transitioned that fulfillment service to Innotrac Corporation, pursuant to a three-year agreement terminable by us on 180 days notice. We believe that this arrangement addresses our current needs and provides for continued growth in this area for the foreseeable future.

      In 2001, the substantial majority of the Internet/ Direct Commerce segment’s revenues came from the sale of merchandise.

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     Content

      In addition to our e-commerce capability, marthastewart.com offers eight linked content channels, each dedicated to one of our core content areas, as well as our online television and radio program guides and various other features. Our content channels include recipes featured on our television programs, an interactive question and answer service, community bulletin boards and chats, and information and photographs repurposed from our books, magazines and television program. Our advertising sales force sells advertisements for our website individually and as part of multi-media packages. Additionally, we use the content portions of our website to attract visitors and then convert them into buyers for our direct commerce business. Our redesigned website more seamlessly integrates content and commerce and should increase the conversion of content users to buyers. We believe the content portion of our website is popular with our consumers and is an important ingredient in sustaining brand loyalty and cross-promoting our various activities. Total unique visitors in December 2001, as measured by Media Metrix, was approximately 1.9 million. Approximately 9% of this segment’s revenues were from advertising.

     Competition

      Competitors of our Internet/ Direct Commerce segment include Plow & Hearth, Chef’s Catalog, Eddie Bauer Home, Garnet Hill Company, Crate and Barrel, Pottery Barn (and other catalogs owned by Williams Sonoma, Inc.), and many others. We compete on the basis of our content, the quality, uniqueness, price and assortment of our merchandise, our brand name, our service to customers and our proprietary customer lists.

     Seasonality

      Internet/ Direct Commerce segment revenues tend to be higher in the fourth quarter due to increased consumer and advertiser spending during the holiday period.

Intellectual Property

      We use multiple trademarks to distinguish our brands, including Martha Stewart Living, Martha Stewart Everyday, Martha Stewart Signature, Martha Stewart Weddings, askMartha, Martha by Mail, marthastewart.com and marthasflowers. These and numerous other trademarks are the subject of registrations and pending applications, both domestically and internationally, filed by us for use with a variety of products and other content, and we continue to expand our worldwide usage and registration of related trademarks. We file copyrights regarding our proprietary designs and editorial content on a regular basis. We regard our rights in and to our trademarks and materials as valuable assets in the marketing of our products and vigorously seek to protect them against infringement and denigration by third parties. We own and license the rights to many of these marks pursuant to an agreement between us and Ms. Stewart, which is described under Item 13 of this Report.

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Item 2.     Properties

      Information concerning the location, use and approximate square footage of our principal facilities, all of which are leased, is set forth below:

      The leases for these offices and facilities expire between June 2006 and June 2012, and some of these leases are subject to our renewal. We anticipate that we will be able to extend these leases on terms satisfactory to us or, if necessary, locate substitute facilities on acceptable terms.

      We also lease the right to use various properties owned by Martha Stewart for our editorial, creative and product development processes. These living laboratories allow us to experiment with new designs and new products, such as garden layouts, and help generate ideas for new content available to all of our media outlets. The terms of this location rental agreement are described in Item 13 of this Report.

      We believe that our existing facilities are well maintained and in good operating condition.

Item 3.     Legal Proceedings

      We are, from time to time, involved in various legal proceedings in the ordinary course of our business. We believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will not have a material adverse effect on our business, financial condition or results of operations.

Item 4.     Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of our security holders during the fourth quarter of our fiscal year ending December 31, 2001.

PART II

Item 5.     Markets for Registrant’s Common Equity and Related Stockholder Matters

Securities Matters

      Our Class A Common Stock is listed and traded on The New York Stock Exchange. Our Class B Common Stock is not listed or traded on any exchange, but is convertible into Class A Common Stock at the option of its owner on a share-for-share basis.

      As of March 8, 2002, there were 4,929 record holders of our Class A Common Stock and one record holder of our Class B Common Stock.

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      We have not paid any dividends on our common stock. We have no intention of paying dividends on our common stock in the foreseeable future.

Item 6.     Selected Financial Data

      The information required by this Item is set forth on page F-2 of this Report.

Item 7.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

      The information required by this Item is set forth on pages F-3 through F-6 of this Report.

Item 7A.     Quantitative and Qualitative Disclosure about Market Risk

      None

Item 8.     Financial Statements and Supplementary Data

      The information required by this Item is set forth on pages F-8 through F-26 of this Report.

Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

      None

PART III

Item 10.     Directors and Executive Officers of the Registrant

      The information required by this Item is set forth in our Proxy Statement for our annual meeting of stockholders scheduled to be held on May 9, 2002 (our “Proxy Statement”) under the captions “ELECTION OF DIRECTORS — Information Concerning Nominees,” “INFORMATION CONCERNING EXECUTIVE OFFICERS,” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” and is hereby incorporated herein by reference.

Item 11.     Executive Compensation

      The information required by this Item is set forth in our Proxy Statement under the captions “COMPENSATION OF OUTSIDE DIRECTORS,” “EXECUTIVE COMPENSATION” and “EMPLOYMENT ARRANGEMENTS” and is hereby incorporated herein by reference.

Item 12.     Security Ownership of Certain Beneficial Owners and Management

      The information required by this Item is set forth in our Proxy Statement under the caption “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” and is hereby incorporated herein by reference.

Item 13.     Certain Relationships and Related Transactions

      The information required by this Item is set forth in our Proxy Statement under the caption “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS” and is hereby incorporated herein by reference.

Item 14.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)	1.     See page F-1 of this Report.

          2.     See page F-1 of this Report.

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3.

*	Incorporated by reference to our Registration Statement on Form S-1, File Number 333-84001.
**	Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 1999, File Number 001-15395.

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***	Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File Number 001-15395.
****	Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, File Number 001-15395.
*****	Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2000, File Number 001-15395.
†	Indicates management contracts and compensatory plans.

(b) None.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

	By:	/s/ MARTHA STEWART

	Name: Martha Stewart
	Title: Chairman of the Board and
	Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Each of the above signatures is affixed as of March 27, 2002.

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EXHIBIT INDEX

*	Incorporated by reference to our Registration Statement on Form S-1, File Number 333-84001.
**	Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 1999, File Number 001-15395.

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***	Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, File Number 001-15395.
****	Incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, File Number 001-15395.
*****	Incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2000, File Number 001-15395.

	† Indicates management contracts and compensatory plans.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL

All other schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto.

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SELECTED FINANCIAL DATA

(1)	Pro forma net income reflects the income taxes that would have been recorded had the Company been a “C” Corporation for the years 1997 through 1999.
(2)	EBITDA represents earnings before interest, taxes, depreciation and amortization. EBITDA is not intended to represent cash flow from operations and should not be considered as an alternative to net income as an indicator of the Company’s operating performance or to cash flows as a measure of liquidity. The Company believes EBITDA is a standard measure commonly reported and widely used by analysts, investors and other interested parties in the media industry. Accordingly, this information has been disclosed herein to permit a more complete comparative analysis of the Company’s operating performance relative to other companies in its industry. This measure may not be comparable to similarly titled measures used by other companies.
(3)	See note 1 to the consolidated financial statements regarding the acquisition of certain assets and liabilities from Time Publishing Ventures, Inc. on February 3, 1997.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

Results of Operations

      Revenues Total revenues increased $9.9 million, or 3.5%, to $295.7 million for the year ended December 31, 2001, from $285.8 million for the year ended December 31, 2000. Publishing revenues increased $2.5 million, or 1.4%, to $181.7 million for the year ended December 31, 2001, from $179.2 million for the year ended December 31, 2000. Circulation revenues increased $4.1 million, slightly offset by advertising revenue decreases of $1.5 million for the year ended December 31, 2001. Circulation increases primarily resulted from the increased frequency of Martha Stewart Living magazine, as well as increased circulation revenues from special issue publications. Martha Stewart Living magazine was published 12 times in 2001, compared with eleven times in 2000. In 2001, the Company published seven special interest magazines compared with three special interest magazines in 2000. Advertising revenues decreased primarily as a result of a lower number of advertising pages sold in Martha Stewart Living magazine, partially offset by increases from the special interest publications. Television revenues decreased $2.9 million, or 9%, to $29.5 million for the year ended December 31, 2001, from $32.5 million for the year ended December 31, 2000. The decrease is due primarily to reduced advertising revenues resulting from lower industry-wide advertising rates and lower ratings from our syndicated daily program. We expect these lower industry-wide advertising rates to continue throughout 2002. Merchandising revenues increased $11.3 million, or 46%, to $35.6 million for the year ended December 31, 2001, from $24.3 million for the year ended December 31, 2000, primarily as a result of revenues received from new product introductions in 2001 and an increase in royalty rate under our new agreement with Kmart Corporation, effective August 1, 2001. On January 22, 2002, Kmart filed for bankruptcy under Chapter 11. Kmart has indicated that they intend to close a number of stores as part of their reorganization in 2002. The revenues we receive from Kmart are based upon retail sales of our products. Accordingly, our revenues will be impacted in the future by the actual number of store closings. Internet/ Direct Commerce revenues decreased $0.9 million, or 1.8%, to $48.8 million for the year ended December 31, 2001, from $49.7 million for the year ended December 31, 2000, due primarily to decreased advertising revenues of $2.7 million, partially offset by increased merchandise sales of $1.7 million.

      Production, Distribution and Editorial Production, distribution and editorial expenses increased $2.6 million, or 1.6%, to $160.0 million for the year ended December 31, 2001, from $157.4 million for the year ended December 31, 2000. Publishing segment costs increased $3.6 million, reflecting the increased number of issues produced in 2001. Merchandising costs increased $3.2 million due to the elimination of cost reimbursements from Kmart Corporation as part of our new agreement, which commenced in August. Internet/ Direct Commerce costs decreased $3.6 million primarily due to a reduction in catalog production and distribution costs of approximately $4.5 million due to lower catalog circulation and reductions in outside consulting fees of approximately $2.3 million, partially offset by $3.8 million in Wedding List costs.

      Selling and Promotion Selling and promotion expenses increased $.6 million, or 1%, to $46.7 million for the year ended December 31, 2001, from $46.1 million for the year ended December 31, 2000. Publishing segment costs decreased $1.4 million, resulting primarily from reduced circulation costs. Internet/ Direct Commerce segment costs increased $1.4 million, resulting primarily from costs associated with the acquired Wedding List business.

      General and Administrative General and administrative expenses increased $.7 million, or 2%, to $42.1 million for the year ended December 31, 2001, from $41.5 million for the year ended December 31, 2000. The higher expenses have been incurred primarily as a result of higher occupancy costs related to our new office facility, which we began occupying in December 2000.

      Depreciation and Amortization Depreciation and amortization increased $3.7 million, or 40%, to $12.8 million for the year ended December 31, 2001, from $9.1 million for the year ended December 31, 2000. The increase is primarily attributable to depreciation from our higher levels of property and equipment associated with the new facility.

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      Interest Income, Net Interest income, net, was $3.9 million for the year ended December 31, 2001, compared with $5.6 million for the year ended December 31, 2000. Interest income for the year ended December 31, 2001, resulted from lower interest rates applied to slightly higher average cash balances.

      Income Tax Provision Income tax provision for the year ended December 31, 2001, was $16.1 million, representing a 42.3% effective income tax rate as compared with $16.0 million and an effective rate of 42.9% for the year ended December 31, 2000. The reduced rate during 2001 was attributable primarily to lower state income taxes.

      Net Income Net income was $21.9 million for the year ended December 31, 2001, compared with net income of $21.3 million for the year ended December 31, 2000, as a result of the above mentioned factors.

      Revenues Total revenues increased $53.5 million, or 23%, to $285.8 million for the year ended December 31, 2000, from $232.3 million for the year ended December 31, 1999. Publishing revenues increased $33.7 million, or 23%, to $179.2 million for the year ended December 31, 2000, from $145.5 million for the year ended December 31, 1999. This increase reflects an increase in advertising revenues of $25.1 million, primarily due to an increase in advertising pages sold in Martha Stewart Living magazine and Martha Stewart Weddings, as well as the increased frequency of special interest publications. Martha Stewart Living magazine was published eleven times in 2000, compared with ten times in 1999. In 2000, the Company published two issues of Martha Stewart Baby and one issue of Martha Stewart Holiday-Halloween 2000, compared with 1999, when one special issue was published. Circulation revenues increased $8.8 million for the year ended December 31, 2000, primarily as a result of the increased frequency of Martha Stewart Living magazine, higher average circulation from issues published in 2000 as well as increased circulation revenues from special publications. Television revenues increased $1.9 million, or 6%, to $32.5 million for the year ended December 31, 2000, from $30.6 million for the year ended December 31, 1999. The increase is due primarily to additional revenues of $2.2 million associated with higher distribution of the second half hour of our Martha Stewart Living program and additional revenues of $1.3 million earned from our cable program From Martha’s Kitchen, which began broadcasting in September 1999, partially offset by reduced advertising revenues of $1.4 million on the Martha Stewart Living program due primarily to lower ratings during the year ended December 31, 2000. Merchandising revenues increased $4.1 million, or 20%, to $24.3 million, for the year ended December 31, 2000, from $20.2 million for the year ended December 31, 1999, primarily as a result of increased revenues earned on our Martha Stewart Everyday products sold at Kmart. Internet/ Direct Commerce revenues increased $13.7 million, or 38%, to $49.7 million for the year ended December 31, 2000, from $36.0 million for the year ended December 31, 1999, due primarily to increased merchandise sales of $10.9 million and increased advertising revenues of $2.8 million.

      Production, Distribution and Editorial Production, distribution and editorial expenses increased $31.4 million, or 25%, to $157.4 million for the year ended December 31, 2000, from $126.0 million for the year ended December 31, 1999. Internet/ Direct Commerce costs increased $20.2 million due to increase in cost of goods sold and fulfillment costs of $8.7 million, resulting from higher revenues, as well as increased catalog production and distribution costs of $3.0 million, resulting primarily from higher catalog circulation. In addition, costs increased $6.7 million due to our continued investment in developing and maintaining our Internet site. Publishing segment costs increased $11.1 million, reflecting the increased number of issues published in 2000, as well as the increased number of pages printed resulting from a higher number advertising pages sold per issue.

      Selling and Promotion Selling and promotion expenses increased $6.6 million, or 17%, to $46.1 million for the year ended December 31, 2000, from $39.4 million for the year ended December 31, 1999. Publishing segment costs increased $5.0 million, resulting primarily from increased circulation costs incurred to support higher circulation revenues, including revenues from the publication of Martha Stewart Holiday-Halloween 2000 and two Martha Stewart Baby issues. Internet/ Direct Commerce segment costs increased $1.5 million, resulting primarily from higher costs associated with higher advertising revenues.

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      General and Administrative General and administrative expenses increased $3.5 million, or 9%, to $41.5 million for the year ended December 31, 2000, from $37.9 million for the year ended December 31, 1999. The higher expenses were incurred primarily as a result of higher occupancy costs of $5.5 million needed to support growth in headcount, as well as increased compensation costs of $1.8 million, offset by lower professional fees of $1.9 million. Furthermore, 1999 included a contribution to an employee benefit plan of $1.2 million associated with our becoming a public company in October 1999.

      Depreciation and Amortization Depreciation and amortization increased $2.5 million, or 39%, to $9.1 million for the year ended December 31, 2000, from $6.6 million for the year ended December 31, 1999. The increase is attributable to higher levels of property and equipment.

      Interest Income (Expense), Net Interest income, net was $5.6 million for the year ended December 31, 2000, compared with interest expense, net, of $0.5 million for the year ended December 31, 1999. Interest income for the year ended December 31, 2000, resulted from higher average cash balances primarily related to the proceeds received from our initial public offering in October 1999. During the year ended December 31, 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 (Benefit) Income tax provision for the year ended December 31, 2000, was $16.0 million, representing a 42.9% effective income tax rate. Income tax benefit during the year ended December 31, 1999, was $2.7 million. This benefit arose in connection with our conversion to a “C” Corporation in October 1999. At that time, the Company recognized a deferred tax benefit of $4.8 million primarily related to the recognition of net deferred tax assets recorded in accordance with the provisions of SFAS No. 109. During that period prior to the “C” Corporation conversion, 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.

      Net Income Net income was $21.3 million for the year ended December 31, 2000, compared with pro forma net income of $11.7 million for the year ended December 31, 1999, as a result of the above mentioned factors. Pro forma net income reflects the income taxes that would have been recorded had the Company been a “C” Corporation for the entire period.

      Cash and cash equivalents were $141.2 million, $127.4 million and $154.7 million at December 31, 2001, 2000 and 1999, respectively.

      Cash flows from operating activities were $19.4 million, $39.5 million and $28.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. Cash flows from operating activities in 2001 resulted primarily from net income of $21.9 million, depreciation and amortization of $12.8 million, tax benefit from stock option exercises of $1.8 million, partially offset by reductions of $12.0 million in accounts payable and accrued liabilities. Reductions in accounts payable and accrued liabilities were primarily attributable to the timing of payments associated with our new office facility, our Internet technology upgrade project and other vendor payments for product purchases. Accounts receivable decreased $3.4 million from the prior year due to the timing of revenues in the fourth quarter. Cash flows from operating activities in 2000 resulted primarily from net income of $21.3 million, depreciation and amortization of $9.1 million, tax benefits from stock option exercises of $4.2 million, increased accounts payable and accrued liabilities of $14.9 million, partially offset by increased accounts receivable of $7.3 million. Increased accounts receivable resulted primarily from higher revenues, including revenues earned from the publication of the January 2001 issue of Martha Stewart Living magazine, published in December 2000. Increased accounts payable and accrued liabilities is primarily due to liabilities resulting from increased capital expenditures in 2000, and generally higher levels of liabilities resulting from increased business volume. Cash flows from operating activities in 1999 resulted primarily from net income of $25.6 million, depreciation and amortization of $6.6 million, partially offset by deferred income tax benefit of $3.8 million. The deferred tax benefit resulted from the conversion to a “C” Corporation in 1999 in connection with our initial public offering.

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      Cash flows used in investing activities were $8.1 million, $38.1 million and $6.3 million for the years ended December 31, 2001, 2000 and 1999, respectively. Cash flows used in investing activities in 2001 reflect capital expenditures of $17.3 million, primarily for our website technology upgrade project, $3.9 million used to acquire The Wedding List, partially offset by net investment proceeds of $13.1 million, primarily received from the sale of our equity investment in BlueLight.com. Cash flows used in investing activities in 2000 reflect a $13.3 million equity investment in BlueLight.com and $24.8 million in capital expenditures for property and equipment. Cash flows used in investing activities in 1999 represent capital expenditures for property and equipment. We expect capital expenditures to decline to within a range of $8 million to $10 million in 2002.

      Cash flows provided from financing activities for the year ended December 31, 2001, were $2.4 million, resulting from the exercise of stock options, partially offset by purchases under a stock repurchase program. Cash flows used in financing activities for the year ended December 31, 2000, were $28.8 million, resulting from the repurchase of 1.366 million shares of our Class A common stock for $32.5 million from Time Publishing Ventures, Inc., partially offset by $3.7 million received from the exercise of stock options in 2000. Cash provided by financing activities during the year ended December 31, 1999, was $108.2 million. In March 1999, we repaid our outstanding long-term debt to Time Publishing Ventures, totaling $27.7 million, with the proceeds received from a $15 million term loan from Bank of America and existing cash balances. The amount outstanding under the loan was repaid in July 1999 with the net proceeds of $25.0 million received from Kleiner Perkins Caufield & Byers, a venture capital firm, for a 5% equity investment in Martha Stewart Living Omnimedia, LLC (MSLO), predecessor to the Company. In October 1999, we completed an initial public offering of 8.3 million shares of Class A common stock, raising net proceeds of $132.3 million. Distributions to members of MSLO were $21.4 million in 1999.

      We have a line of credit with Bank of America in the amount of $10 million, which is available to us for seasonal working capital requirements and general corporate purposes. As of December 31, 2001, we had no outstanding borrowings under this facility.

      During the year ended 2001, revenues from Kmart Corporation were approximately 13% of the Company’s total revenues. As of December 31, 2001, accounts receivable from Kmart were approximately $10.7 million and approximately $13.0 million at the date of Kmart’s bankruptcy filing. In March 2002, Kmart assumed its contract with the Company. Accordingly, the Company expects to receive payment for all amounts due under the contract as of the bankruptcy filing date.

      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. We have not paid dividends on our common stock and do not intend to pay any dividends in the foreseeable future.

Seasonality and Quarterly Fluctuations

      Several of our businesses can experience fluctuations in quarterly performance. For example, 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. Additionally, the publication schedule of special issue magazines can vary from quarter to quarter. Revenue and income from operations for the Television segment tend to be higher in the fourth quarter due to the broadcast of a holiday prime-time television special. 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 seasonality of certain product lines.

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of Martha Stewart Living Omnimedia, Inc.

      We have audited the accompanying consolidated balance sheets of Martha Stewart Living Omnimedia, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements and the schedule referred to below included on pages F-8 through F-26, are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Martha Stewart Living Omnimedia, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

      Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to consolidated financial statements, financial statement schedules and other financial information is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

	ARTHUR ANDERSEN LLP

New York, New York

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MARTHA STEWART LIVING OMNIMEDIA, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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MARTHA STEWART LIVING OMNIMEDIA, INC.

The accompanying notes are an integral part of these consolidated financial statements.

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MARTHA STEWART LIVING OMNIMEDIA, INC.