UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-15395
MARTHA STEWART LIVING OMNIMEDIA, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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52-2187059 |
(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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601 West 26th Street, New York, New York
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10001 |
(Address of Principal Executive Offices)
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(Zip Code) |
Registrants telephone number, including area code: (212) 827-8000
Securities Registered Pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered |
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Class A Common Stock, Par Value $0.01 Per Share
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New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of
Section 15(d) of the Act. Yes o No þ
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 whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o 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 registrants 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer,
accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes o No þ
The aggregate market value of the voting stock held by non-affiliates of the registrant, computed
by reference to the number of shares outstanding and using the price at which the stock was last
sold on June 30, 2009, was $79,080,458.*
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Excludes 2,194,423 shares of our Class A Common Stock, and 26,690,125 shares of our Class B Common
Stock, held by directors, officers and our founder, as of June 30, 2009. Exclusion of shares held
by any person should not be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the Company, or that
such person controls, is controlled by or under common control with the Company. |
Number of Shares Outstanding As of March 2, 2010
28,277,599 shares of Class A Common Stock
26,690,125 shares of Class B Common Stock
Documents Incorporated by Reference.
Portions of Martha Stewart Living Omnimedia, Inc.s Proxy Statement for
Its 2010 Annual Meeting of Stockholders are Incorporated
by Reference into Part III of This Report.
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
All statements in this Annual Report on Form 10-K, except to the extent describing historical
facts, are forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements represent our current beliefs
regarding future events, many of which, by their nature, are inherently uncertain and outside of
our control. These statements often 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 those factors discussed in Risk Factors in Item 1A of this
Annual Report on Form 10-K and those discussed in the Managements Discussion and Analysis of
Financial Condition and Results of Operations in Item 7, as well as other factors. Forward-looking
statements herein speak only as of the date of filing of this Annual Report on Form 10-K. We
undertake no obligation to publicly update any forward-looking statements, whether as a result of
new information, future events or otherwise. You are advised, however, to consult any further
disclosures we make on related subjects in our reports to the Securities and Exchange Commission
(the SEC).
PART I
Item 1. Business.
OVERVIEW
We are an integrated media and merchandising company providing consumers with inspiring
lifestyle content and well-designed, high-quality products. Our Company is organized into four
business segments with Publishing, Broadcasting and Internet representing our media segments that
are complemented by our Merchandising segment, a combination that enables us to cross-promote our
content and products.
Our growth strategy is three-pronged:
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Strengthen and expand our media business by building new brands, exploring new
distribution opportunities for our assets, and further capitalizing on our ability to offer
cross-platform programs to advertisers |
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Grow our merchandising business by leveraging our brand equity to expand established
businesses and by diversifying into new categories and distribution channels; and |
The media and merchandise we create generally encompasses eight core areas:
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Cooking and Entertaining (recipes, techniques, and indoor and outdoor entertaining) |
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Holidays (celebrating special days and special occasions) |
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Crafts (how-to projects) |
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Home (decorating, collecting and renovating) |
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Whole Living (healthy living and sustainable practices) |
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Weddings (all aspects of planning, celebrating and commemorating a wedding) |
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Organizing (homekeeping, petkeeping, clotheskeeping, restoring and other types of
domestic maintenance) |
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Gardening (planting, landscape design and outdoor living) |
As of March 1, 2010, we had approximately 620 employees. Our revenues from foreign sources
were $10.8 million, $13.4 million and $12.3 million in 2009, 2008 and 2007, respectively.
Substantially all of our assets are located within the United States.
3
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 on a variety of our
core content areas. In 1991, Time Publishing Ventures, Inc. (TPV), a subsidiary of Time Inc.,
launched Martha Stewart Living magazine with Ms. Stewart serving as its editor-in-chief. In 1993,
TPV began producing a weekly television program, Living, 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 late 1996 and early 1997, a
series of transactions occurred resulting in MSLO LLC acquiring substantially all Martha
Stewart-related businesses. Ms. Stewart was the majority owner of MSLO LLC; TPV retained a small
equity interest in the business. On October 22, 1999, MSLO LLC merged into MSO, then a wholly owned
subsidiary of MSLO LLC. Immediately following the merger, we consummated an initial public
offering.
BUSINESS SEGMENTS
Our four business segments are described below. Additional financial information relating to
these segments may be found in Note 16 to our Consolidated Financial Statements.
PUBLISHING
In 2009, our Publishing segment accounted for 53% of our total revenues, consisting of
operations related to magazine and book publishing. Revenues from magazine advertising and
circulation represented approximately 58% and 39%, respectively, of the segments revenues in 2009.
Magazines
Martha Stewart Living. Our flagship magazine, Martha Stewart Living, is the foundation of our
publishing business. Launched in 1991 as a quarterly publication with a circulation of 250,000, we
currently publish Martha Stewart Living on a monthly basis with a rate base of 2.025 million,
effective with the January 2009 issue. The magazine appeals primarily to the college-educated woman
between the ages of 25 and 54 who owns her principal residence. Martha Stewart Living offers
lifestyle ideas and original how-to information in a highly visual, upscale editorial environment.
The magazine has won numerous prestigious industry awards and generates a substantial majority of
our magazine revenues, primarily from advertising revenue.
Martha Stewart Weddings. We launched Martha Stewart Weddings in 1994, originally as an annual
publication. In 1997, it went to semi-annual publication and became a quarterly in 1999. Martha
Stewart Weddings targets the upscale bride and serves as an important vehicle for introducing young
women to our brands. Martha Stewart Weddings is distributed primarily through newsstands. In
addition to quarterly publications, we have issued special publications including, most recently,
Martha Stewarts Destination Weddings & Dream Honeymoons, which was on sale in the fourth quarter
of 2009.
Everyday Food. We launched Everyday Food in September 2003 after publishing four test issues.
This digest-sized magazine featuring quick, easy recipes was created for the supermarket shopper
and the everyday cook. Everyday Food targets women ages 25 to 49, and is intended to broaden our
consumer audience while developing a new brand and diversifying our revenue.
Body + Soul. In August 2004, we acquired certain assets and liabilities of Body + Soul
magazine and Dr. Andrew Weils Self Healing newsletter (Body & Soul Group), which are
publications featuring natural living content. The magazine generates both advertising and
circulation revenue, while the newsletter generates substantially all of its revenue from
subscriptions. Body & Soul Group also sells a limited line of merchandise related to natural
living, which we record as publishing revenue attributed to Body + Soul. In 2008, we increased the
frequency of Body + Soul to 10 issues from 8 issues in 2007. We have recently discontinued our
relationship with Dr. Andrew Weil and in 2010 will no longer publish Dr. Andrew Weils Self Healing
newsletter or any Dr. Weil special interest publications. There will be some residual sales from
merchandising products that are still in inventory, but no new inventory will be added. Effective
with the June 2010 issue, we plan to change the name of Body + Soul/Whole Living magazine to Whole
Living in an attempt to more effectively integrate with our corresponding website, wholeliving.com,
and to broaden the editorial coverage of the magazine, which we believe may provide opportunities
to increase consumer and advertising demand.
Blueprint: Design Your Life. In 2006, we began testing a new magazine called Blueprint:
Design Your Life. Geared to women ages 25-39, Blueprint targeted a different demographic than our
core consumer, while maintaining our distinctive how-to approach, covering home, fashion, and
beauty. After two test issues in 2006 and six in 2007, we decided to discontinue publishing the
title on a
stand-alone basis after the January/February 2008 issue.
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Magazine Summary
Certain information related to our subscription magazines is as follows:
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2008 |
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2008 |
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2009 |
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2010 |
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Title |
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Frequency |
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Rate Base * |
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Frequency |
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Rate Base * |
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Rate Base * |
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Martha Stewart Living |
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12 |
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2,000,000 |
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12 |
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2,025,000 |
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2,025,000 |
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Martha Stewart Weddings |
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5 |
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N/A |
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5 |
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N/A |
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N/A |
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Everyday Food |
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10 |
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900,000 |
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10 |
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1,000,000 |
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1,000,000 |
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Body + Soul |
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10 |
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550,000 |
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10 |
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600,000 |
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650,000 |
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Rate base increases are effective with the January issues which
typically are on sale in December of the prior fiscal year. |
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Includes one special issue of Martha Stewart Weddings |
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Does not have a stated rate base. |
Special Interest Publications. In addition to our periodic magazines, we occasionally publish
special interest magazine editions. Our special interest publications provide in-depth advice and
ideas around a particular topic in one of our core content areas, allowing us to leverage our
distribution network to generate additional revenues. Our special interest publications are
generally sponsored by multiple advertisers and are sold at newsstands. In 2009, we published
Halloween and Holiday Sweets, and three Body + Soul special interest publications. The Body + Soul
specials were published under the Dr. Weil brand and, at this time, we have no plans to continue
producing Body + Soul special interest publications.
Magazine Production, Distribution and Fulfillment. We print most of our domestic magazines
under agreements with R. R. Donnelly and currently purchase paper through an agreement with Time
Inc. While paper used in our magazines is widely available, volatility in the paper market resulted
in decreased paper manufacturing capacity during 2008 and 2009. During 2009, we realized the first
decreases in paper prices in 18 months because of decreasing market demand. We expect paper market
pricing to stabilize in 2010 after experiencing declines throughout 2009. Increased fuel costs in
2009 impacted our costs for magazine distribution and ink. We use no other significant raw
materials in our businesses. Newsstand distribution of the magazines is handled by Time Warner
Retail Sales and Marketing (TWRSM), an affiliate of Time Inc., under an agreement that expires
with the December 2010 issue of Martha Stewart Living. In early 2009, two of the four major
logistics providers (wholesalers) used for newsstand distribution announced price increases.
TWRSM ceased using one of these companies for distribution and was subsequently able to reach an
agreement with the other to retain its earlier pricing structure. It is possible that the other
wholesalers may also seek price increases. Subscription fulfillment services for our magazines are
provided by Time Customer Service, another affiliate of Time Inc., under an agreement that expires
in June 2014.
Books
In the second quarter of 2007, we announced a multi-year agreement with Clarkson
Potter/Publishers to publish 10 Martha Stewart branded books. Subsequent amendments ultimately
increased the number of books to be delivered to 16. In 2009, three books were published under this
agreement Martha Stewarts Cupcakes, Martha Stewarts Encyclopedia of Crafts and Martha Stewarts
Dinner at Home all of which were on The New York Times bestseller list.
In August 2008, we announced a multi-year agreement with Harper Studio to publish 10 Emeril
Lagasse branded books. Two books, Emeril at the Grill and Emeril 20-40-60 were published under this
agreement in 2009 and were both on The New York Times bestseller list.
Through our efforts in the books business and the rights we acquired related to Emerils book
backlist, we now have a library of approximately 80 books.
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. Competition
for advertising dollars in magazine operations is primarily based on advertising rates, as well as
editorial and aesthetic quality, the desirability of the magazines demographic, reader response to
advertisers products and services and the effectiveness of the advertising sales staff. Martha
Stewart Living competes for readers and
advertising dollars with womens service, decorating, cooking and lifestyle magazines and
websites. Everyday Food competes for readers and advertising dollars with womens service and
cooking magazines and websites. Martha Stewart Weddings competes for readers and advertising
dollars primarily with wedding service magazines and websites. Body + Soul competes for readers and
advertising dollars primarily with womens lifestyle, health, fitness, and natural living magazines
and websites. Our special interest publications can compete with a variety of magazines depending
on the focus of the particular issue. Please also look to our risk factors in Item 1A for further
information on competitive pressures in our Publishing segment.
5
Seasonality
Our Publishing segment can experience fluctuations in quarterly performance due principally to
publication schedule variations from year to year, timing of direct mail expenses, delivery
schedule of our long-term book contracts, and other seasonal factors. Not all of our magazines are
published on a regularly scheduled basis throughout the year. For example, Martha Stewart Weddings
was published 5 times in 2009: 2 issues in the second quarter and 3 issues in the fourth quarter.
Additionally, the publication schedule for our special interest publications can vary and lead to
quarterly fluctuations in the Publishing segments results.
BROADCASTING
Our Broadcasting business segment accounted for 19% of our total revenues in 2009. The segment
consists of operations relating to the production of television programming, the domestic and
international distribution of our library of programming in existing and repurposed formats,
revenue derived from the provision of talent services, and the operations of our satellite radio
channel. We generally own the copyrights in the programs we produce for television and radio
distribution.
We recently announced that in September 2010, season 6 of The Martha Stewart Show will air on
cable on the Hallmark Channel. Alongside The Martha Stewart Show will be an additional hour and
one-half of daily original programming specifically produced for the Hallmark Channel as companion
programs. Additionally, we will produce periodic holiday and interview specials that will air in
prime time on the channel. The Martha Stewart Show launched in September 2005 as a syndicated daily
lifestyle series hosted by Martha Stewart and it generates the majority of the Broadcasting
segments revenue. Filmed in front of a studio audience, the show consists of several segments,
each featuring inspiring ideas and new projects from one or several of our core content areas. NBC
Universal Domestic Television Distribution currently distributes the program domestically. The
Broadcasting segment previously produced the Living show, which ceased airing in September 2004.
Revenues for The Martha Stewart Show currently are mostly comprised of advertising, licensing and
product integrations.
We began to offer, in October 2007, access to segments from our library of programming through
an advertising-supported, free video-on-demand service. Martha Stewart On Demand is currently
available to Comcast, Cablevision, Direct TV and Cox digital cable customers. We provide a total of
3.5 hours of content which is updated monthly with 50% refreshed content.
In 2008, the Whatever Girls, a popular duo on the Martha Stewart Living Radio channel on
Sirius XM Satellite Radio, debuted a new show called Whatever Martha! The program currently airs on
the Fine Living cable channel and includes original commentary on classic clips of Living.
Everyday Food, a half-hour original series inspired by the magazine of the same name, airs
weekly on PBS stations nationwide. Unlike revenues for The Martha Stewart Show, revenues for the
Everyday Food series are provided by underwriters. In 2008, we added a spin-off companion show,
Everyday Baking from Everyday Food, which also aired weekly on PBS stations. In 2009, we decided
not to produce an additional season of Everyday Baking from Everyday Food and have no plans, at
this time, to resume production.
We recently announced a new television series, The Emeril Lagasse Show, which will be
broadcast on ION Television. The hour-long weekly primetime program will star Emeril Lagasse as
host and will feature interviews with celebrity and non-celebrity guests, music performances and
cooking segments. Scheduled to launch in the second quarter of 2010, The Emeril Lagasse Show will
be co-financed by us and ION Media, ION Televisions parent company, with revenues from advertising
and integrations, as well as production expenses, to be split.
During 2008, we entered into an agreement with Discovery Talent Services LLC pursuant to which
Emeril Lagasse provides talent services for the television series Emeril Green currently airing
daily on Discoverys Planet Green channel. Additionally, we acquired certain television agreements
in connection with our April 2008 acquisition of specific Emeril Lagasse assets and entered into
additional agreements related thereto. Pursuant to these agreements, we receive talent fees for
Emeril Lagasses services provided for
the Television Food Network (TVFN) series Essence of Emeril and license fees for the
exploitation of the series Emeril Live, as well as fees for ongoing consulting services to TVFN.
6
In November 2009, we renewed our agreement with Sirius XM Satellite Radio for an additional
two years. The Martha Stewart Living Radio channel launched on Sirius Satellite Radio, now known as
Sirius XM Satellite Radio, in November 2005 providing programming 24 hours a day, seven days a
week. Under the terms of the new agreement, Emeril Lagasse is creating a twice weekly show adding
to the complement of MSLO experts that create 65 hours of original programming each week. We
receive licensing and advertising revenues from this arrangement.
Competition
Broadcasting is a highly competitive business. Our television programs compete directly for
viewers, distribution and/or advertising dollars with other lifestyle and how-to television
programs, as well as with general programming on other television stations and all other competing
forms of media. Overall competitive factors in this segment include programming content, quality
and distribution as well as the demographic appeal of the programming. As in our other media,
competition for television and radio advertising dollars is based primarily on advertising rates,
audience size and demographic composition, viewer response to advertisers products and services
and effectiveness of the advertising sales staff. Our radio programs compete for listeners with
similarly themed programming on both satellite and terrestrial radio. Please also look to our risk
factors in Item 1A for further information on competitive pressures in our Broadcasting segment.
Seasonality
Our Broadcasting segment can experience fluctuations in quarterly performance due to, among
other things, seasonal advertising patterns and seasonal influences on peoples viewing habits.
Because seasons run 12 months beginning and ending in the middle of September, the 2009 results
include a large portion of season 4 and the first 16 weeks of season 5, currently still airing in
syndication. Original episodes typically run September to May with repeat episodes airing over the
summer. Original episodes command higher ratings and consequently higher revenues.
INTERNET
In 2009, revenues from the Internet segment accounted for 7% of our total revenues.
Advertising is the primary source of revenue for our Internet segment, principally advertising
sales on our website, marthastewart.com.
marthastewart.com
The marthastewart.com website offers recipes, articles and video, integrated across the Martha
Stewart brands in the following categories: food, entertaining, holidays, home and garden, crafts,
weddings, pets and whole living. In 2007, we relaunched the site as a content-focused media site.
The site relaunch and subsequent releases included the development of a community platform and blog
network. In 2008, we spun off two channels of marthastewart.com into standalone websites,
marthastewartweddings.com and wholeliving.com.
marthastewartweddings.com
In 2008, we launched marthastewartweddings.com to guide brides-to-be through the planning and
designing of their weddings, with a strong emphasis on identifying and developing each brides
personalized wedding style.
wholeliving.com
In 2008, we also launched wholeliving.com, a website designed to help women achieve their
goals for living better lives, with a focus on wellness and beauty, healthy recipes, green living,
fitness, and personal happiness.
WeddingWire
In the first quarter of 2008, we entered into a series of transactions with WeddingWire, a
localized wedding platform that combines an online marketplace with planning tools and a social
community. In exchange for a cash payment of $5.0 million, we acquired approximately 43% of the
equity in WeddingWire. We also entered into a commercial agreement related to software and content
licensing, and media sales. The addition of WeddingWires planning tool set to our site
expands our weddings franchise and further builds our interactive community by adapting
WeddingWires technology for other digital content areas.
7
pingg
In the fourth quarter of 2008, we entered into an agreement with pingg, an online invitation
and event management site. In exchange for a cash payment of $2.2 million, we acquired
approximately 21% of the equity in pingg. We also entered into a commercial agreement related to
software, design licensing and media sales. Some of the most popular searches on marthastewart.com
relate to entertaining, including baby and bridal showers, birthday parties and graduation parties.
Visitors to the pingg site can conveniently create online invitations for their events by
incorporating the beautiful imagery and photography for which the Martha Stewart brand is known.
Ziplist
In May 2009 we entered into an agreement with Ziplist, which provided us with the technology
to power our new Marthas Everyday Food App for the iPhone and Ipod touch. This application
became available in the first quarter of 2010. Ziplist is a customizable, multiplatform digital
grocery planning and shopping list service in which MSLO has taken a minority equity stake
(approximately 10%) for a cash payment of under $1.0 million. Ziplist allows our customers to add any
recipes ingredients to their grocery lists with one click and those lists can then be synced and
shared online.
Martha Stewart Flowers
Originally launched in 1999 as marthasflowers.com, the website marthastewartflowers.com
operated under the business model of providing fresh floral products shipped directly from farms to
consumers. This business model enabled customers to ship floral gifts overnight, delivering Martha
Stewartinspired designs with superior freshness. In 2007, we decided to end our direct-to-consumer
flowers business and instead chose to partner with 1-800-Flowers to create an exclusive co-branded
floral, plant and gift-basket program beginning in 2008. This new, higher-margin licensing
agreement provides an opportunity to participate in the same-day delivery of the fresh flowers
market. Martha Stewart Flowers, under this agreement, is managed by and reported in the
Merchandising segment as of the second quarter of 2008 as a licensed retail partnership.
Competition
The online advertising sales business is highly competitive. marthastewart.com competes with
other how-to, food and lifestyle websites. Our challenge is to attract and retain users through an
easy-to-use and content-relevant website. Competition for advertising rates is based on the number
of unique users we attract each month, the demographic profile of that audience and the number of
pages they view on our site. Please also look to our risk factors in Item 1A for further
information on competitive pressures in our Internet segment.
Seasonality
Revenues from our Internet segment can vary significantly from quarter to quarter. Advertising
revenue on marthastewart.com is tied to audience and traffic, among other key factors, and is
typically highest in the fourth quarter of the year due to higher consumer demand in our holiday
content areas, and corresponding higher advertiser demand to reach our audience demographic with
their marketing messages.
MERCHANDISING
Our Merchandising segment contributed 21% of our total revenues in 2009. The segment consists
of operations related to the design of merchandise and related packaging, promotional and
advertising materials, and the licensing of various proprietary trademarks, in connection with
retail programs conducted through a number of retailers and manufacturers. Pursuant to agreements
with our retail and manufacturing partners, we are typically responsible for the design of all
merchandise and/or related packaging, signage, advertising and promotional materials. Our retail
partners source the products through a manufacturer base and are mostly responsible for the
promotion of the product. Our manufacturing partners source and/or produce the branded products
together with other lines they make or sell. Our licensing agreements do not require us to maintain
any inventory nor incur any meaningful expenses other than employee compensation. We own all
trademarks for each of our branded merchandising programs and generally retain all intellectual
property rights related to the designs of the merchandise, packaging, signage and collateral
materials developed for the various programs.
8
Select Licensed Retail Partnerships
Martha Stewart Living at Home Depot
In September 2009, we announced a partnership with The Home Depot and our plans to launch
multiple categories of products under the Martha Stewart Living brand name in both the United
States and Canada. The Martha Stewart Living program at The Home Depot will encompass a broad range
of home décor, seasonal and outdoor living products, including paint, storage and organization, and
outdoor furniture. Certain products under this program began rolling into stores in early 2010.
Martha Stewart Collection at Macys
In September 2007, we launched the Martha Stewart Collection exclusively at Macys. The Martha
Stewart Collection line encompasses a broad range of home goods, including bed and bath textiles,
housewares, casual dinnerware, flatware and glassware, cookware, holiday decorating and trim-a-tree
items. In the spring of 2010, we will be expanding our offerings to include a line of branded
mattresses.
Martha Stewart Flowers with 1-800-Flowers
In 2007, we announced our partnership with 1-800-Flowers to create an exclusive, new,
co-branded floral, plant and gift baskets program. This licensing agreement allows us to
participate in the same-day delivery of the flowers market. The co-branded floral and plant program
launched in April 2008 and the co-branded gift baskets program launched in October 2008.
Sandals® Weddings by Martha Stewart
In September 2009, we announced a partnership with Sandals Resorts International to create an
exclusive line of Martha Stewart themed destination weddings available at any of the 18 Luxury
Included® Sandals Resorts and Beaches Resorts across the Caribbean. Sales of the Sandals® Weddings
by Martha Stewart program began in October 2009 with the first traveled bookings in January 2010.
Martha Stewart Everyday at Kmart and Sears Canada
In the United States, we had an exclusive license agreement with Kmart Corporation in the
mass-market channel that ended in January 2010. In 2009, Kmart represented 47% of total revenues in
our Merchandising segment and 10% of total Company revenues. Kmarts contribution to both total
Merchandising revenues and total Company revenues decreased materially from 2007 to 2008 mostly as
the result of a decrease in the annual minimum royalties due from Kmart and the continued
diversification of our business. (See Managements Discussion and Analysis Executive Summary
for details regarding our contract with Kmart). In Canada, we had an exclusive license agreement
with Sears Canada for Martha Stewart Everyday from September 2003 to August 2008.
Digital Photography Products
The financial results from the sales of digital photography products were reported in the
Internet segment through December 31, 2007. Beginning in 2008, the digital photography product
business was managed by and reported in the Merchandising segment as a licensed retail partnership.
Select Licensed Martha Stewart Manufacturing Partnerships
Martha Stewart Crafts
In May 2007, we launched Martha Stewart Crafts products at over 900 Michaels stores, and in
August 2007, we began distributing product to certain independent craft stores across the United
States. Our crafts partnerships are through a licensing agreement with EK Success, LTD (EK
Success), as well as a licensing agreement with Wilton Industries. In addition to these
agreements, we hold a small interest in the entity that owns Wilton Industries, Inc., Dimensions
Holding, LLC and EK Success.
Martha Stewart Clean with The Hain Celestial Group
In November 2009, we launched a line of natural, fragrance-free home cleaning liquids under
the Martha Stewart Clean brand in partnership with The Hain Celestial Group. This program,
comprised of dish and hand soaps, all-purpose cleaners, window and floor
cleaners, as well as laundry detergent, is currently available at The Home Depot and select
grocery chains nationwide, as well as online.
9
Martha Stewart Food Programs with The Hain Celestial Group
In October 2009 we announced an expanded partnership with The Hain Celestial Group, Inc. and
its affiliate Hain Pure Protein Corporation to introduce new Martha Stewart-branded food lines at
retail, including whole turkeys, baking mixes, and dried pastas using all natural, healthy
ingredients. The new Martha Stewart branded products launched with a limited distribution of fresh
and frozen vegetarian-fed and antibiotic-free turkeys from Hain Pure Proteins Plainville Farms for
Thanksgiving 2009. The product lines are expected to be distributed in supermarkets, mass-market
retailers and warehouse clubs starting in the second half of 2010.
Martha Stewart Pets with Age Group
In October 2009, we announced a multi-year relationship with Age Group Ltd. to manufacture, market
and sell pet-care products, which will be sold initially through PetSmart, Inc. The line will
include a wide range of pet accessories, including apparel, collars, leashes, bedding, grooming
supplies, toys and more. The first products are expected to be introduced in the second quarter of
2010.
Martha Stewart Furniture with Bernhardt
We have had a Martha Stewart furniture program with the Bernhardt Furniture Company since 2003
and renewed that relationship at the end of 2007. Currently, merchandise produced under this
relationship includes furniture for the living room, bedroom, and dining room that is sold at
furniture and department stores nationwide, including certain Macys stores.
KB Home / Martha Stewart Homes
We have had a relationship with KB Home for the development of a Martha Stewart Homes program
since 2005 for the design and style of interior and exterior components of homes at KB communities.
The Martha Stewart Homes program is now available at multiple communities in California, Colorado,
Texas, North Carolina and Florida. We also offer a range of design options, featured exclusively at
KB Studios nationwide.
Select Licensed Emeril Lagasse Manufacturing Partnerships
We acquired certain licensing agreements in connection with our April 2008 acquisition of
specific Emeril Lagasse assets. These licensing agreements are primarily associated with
partnerships with various food and kitchen preparation manufacturers that produce products under
the Emeril Lagasse brand.
Emerilware by All-Clad
Launched in August 2000, Emerilware by All-Clad consists of lines of high-quality, gourmet
cookware and barbeque tools available at department stores and specialty retail outlets across the
United States, as well as through the Home Shopping Network.
Emerilware by T-Fal
Launched in November 2006, Emerilware by T-FAL is a line of small kitchen appliances available
at department stores and specialty retail outlets across the United States, as well as through the
Home Shopping Network.
Emerils Original with B&G Foods
In September 2000, Emeril Lagasse introduced with B&G Foods, Emerils Original, a signature
line of seasonings, salad dressings, basting sauces and marinades, mustards, salsas, pasta sauces,
pepper sauces, spice rubs, cooking sprays and stocks available at supermarkets and specialty
markets across the United States, as well as through the Home Shopping Network.
Emerils Gourmet Coffee with Timothys World Coffee
Launched in September 2007, Emerils Gourmet Coffee with Timothys World Coffee is a
single-cup coffee program comprised of flavored coffees inspired by Emeril Lagasse. The program is
available in department and specialty stores nationwide, as well as certain national hotel chains.
10
Competition
The retail business is highly competitive and the principal competition for all of our
merchandising lines consists of mass-market and department stores that compete with the mass-market
and department stores in which our Merchandising segment products are sold, including Bed Bath &
Beyond, BJs, JC Penney, Kmart, Kohls, Lowes, Sams Club Target, and Wal-Mart. Our merchandising
lines also compete within the mass-market and department stores that carry our product lines with
other products offered by these stores in the respective product categories. Competitive factors
include numbers and locations of stores, brand awareness and price. We also compete with the
internet businesses of these stores and other websites that sell similar retail goods. Competition
in our flower business includes other online sellers as well as traditional floral retailers.
Please also look to our risk factors in Item 1A for further information on competitive pressures in
our Merchandising segment.
Seasonality
Revenues from the Merchandising segment can vary significantly from quarter to quarter due to
new product launches and the seasonality of many product lines. In addition, we historically
recognized a substantial portion of the revenue resulting from the difference between the minimum
royalty amount under the Kmart contract and royalties paid on actual sales in the fourth quarter of
each year, when the amount could be determined.
INTELLECTUAL PROPERTY
We use multiple trademarks to distinguish our brands, including Martha Stewart Living, Martha
Stewart Everyday, Martha Stewart Collection, Everyday Food, Martha Stewart Weddings,
marthastewart.com, Martha Stewart Flowers, Body + Soul, wholeliving.com, Emerils and Bam! These
and numerous other trademarks are the subject of registrations and pending applications filed by us
for use with a variety of products and other content, both domestically and internationally, 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, the
description of which is incorporated by reference into Item 13 of this Annual Report on Form 10-K.
AVAILABLE INFORMATION
Our website can be found on the Internet at www.marthastewart.com. Our proxy statements,
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and any
amendments to these documents, as well as certain other forms we file with or furnish to the SEC
and can be viewed and downloaded free of charge as soon as reasonably practicable after they have
been filed with the SEC by accessing www.marthastewart.com and clicking on Investor Relations and
SEC Filings. Please note that information on, or that can be accessed through, our website is not
deemed filed with the SEC and is not incorporated by reference into any of our filings under the
Securities Act of 1933, as amended (the Securities Act), or the Securities Exchange Act of 1934,
as amended (the Exchange Act), irrespective of any general incorporation language contained in
such filing.
Item 1A. Risk Factors
A wide range of factors could materially affect our performance. Like other companies, we are
susceptible to macroeconomic downturns that may affect the general economic climate and our
performance, the performance of those with whom we do business, and the appetite of consumers for
products and publications. Similarly, the price of our stock is impacted by general equity market
conditions, the relative attractiveness of our market sector, differences in results of operations
from estimates and projections, and other factors beyond our control. In addition to the factors
affecting specific business operations identified in connection with the description of those
operations and the financial results of those operations elsewhere in this report, the factors
listed below could adversely affect our operations. Although the risk factors listed below are the
risk factors that Company management considers significant, additional risk factors that are not
presently known to Company management or that Company management presently considers insignificant
may also adversely affect our operations.
11
Our success depends in part on the popularity of our brands and the reputation and popularity
of Martha Stewart, our founder, and Emeril Lagasse. Any adverse reactions to publicity relating to
Ms. Stewart or Mr. Lagasse, or the loss of either of their services, could adversely affect our
revenues, results of operations and our ability to maintain or generate a consumer base.
While we believe there has been significant consumer acceptance for our products as
stand-alone brands, the image, reputation, popularity and talent of Martha Stewart and Emeril
Lagasse remain important factors.
Ms. Stewarts efforts, personality and leadership have been, and continue to be, critical to
our success. While we have managed our business without her daily participation at times in the
past, the repeated diminution or loss of her services due to disability, death or some other cause,
or any repeated or sustained shifts in public or industry perceptions of her, would have a material
adverse effect on our business.
In addition, in 2008 we acquired the assets relating to Emeril Lagasses businesses other than
his restaurants and foundation. The value of these assets is largely related to the ongoing
popularity and participation of Mr. Lagasse in the activities related to exploiting these assets.
Therefore, the continued value of these assets could be materially adversely affected if Mr. Lagasse
were to lose popularity with the public or be unable to participate in our business, forcing us
potentially to write-down a significant amount of the value we paid for these assets.
The difficulty in the financial markets and sustained weakness in the economy could
significantly impact our business, financial condition, results of operations and cash flows, and
could adversely affect the value of our assets, hamper our ability to refinance our existing debt
or our ability to raise additional funds.
The economy experienced extreme disruption in 2008 and 2009, including extreme volatility in
securities prices, severely diminished liquidity and a drastic reduction in credit availability.
These events have led to increased unemployment, declines in consumer confidence and declines in
personal income and consumer spending, particularly discretionary income and spending. This
economic downturn has also resulted in extraordinary and unprecedented uncertainty and instability
for many companies, across all industries, and has severely impacted and could still in the future
impact many of the companies with which we do business. We cannot predict the future health and
viability of the companies with which we do business and upon which we depend for royalty revenues,
advertising dollars and credit.
These economic conditions and market instability also make it difficult for us to forecast
consumer and product demand trends and companies willingness to spend money to advertise in our
media properties. We have experienced a decline in advertising revenues. An extended period of
reduced cash flows could increase our need for credit at a time when such credit may not be
available due to the conditions in the financial markets. A reduction in cash flows and the
inability to collateralize our term loan with cash also could cause us to be in violation of
certain debt covenants. We are not able to predict the likely duration and severity of the current
disruption in the financial markets and the economic recession. If these economic conditions worsen
or persist for an extended period of time, it is likely that our results of operations and cash
flows will be negatively impacted leading to deterioration in our financial condition.
In addition, we have significant goodwill, intangible and other assets recorded on our balance
sheet. We have already incurred impairment charges with respect to goodwill and certain intangible
assets, and with respect to our investments. We will continue to evaluate the recoverability of the
carrying amount of our goodwill, intangible and other assets on an ongoing basis, and we may in the
future incur additional, and possibly substantial, impairment charges, which would adversely affect
our financial results. Impairment assessment inherently involves the exercise of judgment in
determining assumptions about expected future cash flows and the impact of market conditions on
those assumptions. Although we believe the assumptions we have used in testing for impairment are
reasonable, significant changes in any one of our assumptions could produce a significantly
different result. Future events and changing market conditions may prove assumptions to be wrong
with respect to prices, costs, holding periods or other factors. Differing results may amplify
impairment charges in the future.
The effects of the current financial crisis are difficult to forecast and mitigate. As a
consequence, our operating results will be difficult to predict and prior results will not likely
be indicative of results to be expected in future periods. Any of the foregoing effects could have
a material adverse effect on our business, results of operations, and financial condition and could
adversely affect our stock price.
Our Merchandising business and licensing programs may suffer from the continued downturns in
the health and stability of the general economy and housing market.
Reduction in the availability of credit, a downturn in the housing market, and other negative
economic developments, including increased unemployment, have occurred and may continue, recur or
become more pronounced in the future. Each of these developments has and could further limit
consumers discretionary spending or further affect their confidence. These and other
adverse consumer trends have led to reduced spending on general merchandise, homes and home
improvement projects categories in which we license our brands. Further, downturns in consumer
spending adversely impact consumer sales overall, resulting in weaker revenues from our licensed
products. These trends also may affect the viability and financial health of companies with which
we conduct business. Continued slowdown in consumer spending, or going-concern problems for
companies with which we do business could materially adversely impact our business, financial
condition and prospects.
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Our business is largely dependent on advertising revenues in our publications, broadcasts, and
online operations. The market for advertising has been adversely affected by the economic downturn.
Our failure to attract or retain advertisers would have a material adverse effect on our business.
We depend on advertising revenue in our Publishing, Broadcasting, and Internet businesses. We
cannot control how much or where companies choose to advertise. We have seen a significant downturn
in advertising dollars generally in the marketplace, and more competition for the reduced dollars,
which has hurt our publications and advertising revenues. As a result, fewer advertisers represent
a greater proportion of our advertising revenue. We cannot assure how or whether this trend might
improve. If advertisers continue to spend less money, or if they advertise elsewhere in lieu of our
publications, broadcasts or website, our business and revenues will be materially adversely
affected.
We face significant competition for advertising and consumer demand.
We face significant competition from a number of print and website publishers, some of which
have greater financial and other resources than we have, which may enhance their ability to compete
in the markets we serve. As advertising dollars have diminished, the competition for advertising
dollars has intensified. Competition for advertising revenue in publications is primarily based on
advertising rates, the nature and scope of readership, reader response to the promotions for
advertisers products and services and the effectiveness of sales teams. Other competitive factors
in publishing include product positioning, editorial quality, circulation, price and customer
service, which impact readership audience, circulation revenues and, ultimately, advertising
revenues. Because some forms of media have relatively low barriers to entry, we anticipate that
additional competitors, some of which have greater resources than we do, may enter these markets
and intensify competition.
Acquiring or developing additional brands or businesses, and integrating acquired assets,
poses inherent financial and other risks and challenges.
In 2008, we acquired certain assets of Chef Emeril Lagasse. Failure to manage or integrate
those assets, or exploit the Emeril brand, could adversely affect our results of operations and our
ability to acquire other brands.
The process of consolidating and integrating acquired operations and assets takes a
significant period of time, places a significant strain on resources and could prove to be more
expensive and time consuming than we predicted. We may increase expenditures to accelerate the
integration process with the goal of achieving longer-term cost savings and improved profitability.
We also may be required to manage multiple relationships with third parties as we expand our
product offerings and brand portfolio. These developments may increase expenses if we hire
additional personnel to manage our growth. These investments require significant time commitments
from our senior management and place a strain on their ability to manage our existing businesses.
We continue to evaluate the acquisition of other businesses. These transactions involve
challenges and risks in negotiation, execution, valuation, and integration. Moreover, competition
for certain types of acquisitions is significant, particularly in the field of interactive media.
Even if successfully negotiated, closed, and integrated, certain acquisitions may not advance our
business strategy and may fall short of expected return on investment targets.
Our Merchandising business has relied heavily on revenue from a single source, the reduction
of revenue from which has hurt and continues to hurt our profitability.
Our agreement with Kmart ended in January 2010. For the twelve months ended January 31, 2010,
the minimum guaranteed royalty payment from Kmart was $14.0 million, plus we recognized an
additional $10.0 million in previously deferred royalties as non-cash revenue. For the twelve
months ended January 31, 2009 and 2008, the minimum guaranteed royalty payments from Kmart totaled
$20.0 million and $65.0 million, respectively. We have not yet earned royalties from other sources
in sufficient scope to recoup the loss in guaranteed payments from Kmart. While we continue to
diversify our merchandise offerings in an effort to build up alternative royalty streams, we may
not be able to earn revenue that will compensate for this shortfall, which has and may continue to
adversely affect our operating results and business.
13
We are expanding our merchandising and licensing programs into new areas and products, the
failure of any of which could diminish the perceived value of our brand, impair our ability to grow
and adversely affect our prospects.
Our growth depends to a significant degree upon our ability to develop new or expand existing
retail merchandising programs. We have entered into several new merchandising and licensing
agreements in the past few years and have acquired new agreements through our acquisition of the
Emeril Lagasse assets. Some of these agreements are exclusive and have a duration of many years.
While we require that our licensees maintain the quality of our respective brands through specific
contractual provisions, we cannot be certain that our licensees, or their manufacturers and
distributors, will honor their contractual obligations or that they will not take other actions
that will diminish the value of our brands. Furthermore, we cannot be certain that our licensees
are not adversely impacted by general economic or market conditions, including decreased consumer
spending and reduced availability of credit. If these companies experience financial hardship, they
may be unwilling or unable to pay us royalties or continue selling our products, regardless of
their contractual obligations.
There is also a risk that our extension into new business areas will meet with disapproval
from consumers. We have limited experience in merchandising in some of these business areas. We
cannot guarantee that these programs will be fully implemented, or if implemented, that they will
be successful. If the licensing or merchandising programs do not succeed, we may be prohibited from
seeking different channels for our products due to the exclusive nature and multi-year terms of
these agreements. Disputes with new or existing licensees may arise which could hinder our ability
to grow or expand our product lines. Disputes also could prevent or delay our ability to collect
the licensing revenue that we expect in connection with these products. If such developments occur
or our merchandising programs are otherwise not successful, the value and recognition of our
brands, as well as our business, financial condition and prospects, could be materially adversely
affected.
If The Martha Stewart Show fails to maintain a sufficient audience, if adverse trends continue
or develop in the television production business generally, or if Martha Stewart were to cease to
be able to devote substantial time to our television business, that business could be adversely
affected. We also derive value from Emeril Lagasses television shows, the popularity of which
cannot be assured.
Our television production business is subject to a number of uncertainties. Our business and
financial condition could be materially adversely affected by:
Failure of our television programming to maintain a sufficient audience
Television production is a speculative business because revenues derived from television
depend primarily upon the continued acceptance of that programming by the public, which is
difficult to predict. Public acceptance of particular programming depends upon, among other things,
the quality of that programming, the strength of stations on which that programming is broadcast or
the strength of the cable channels on which that programming is carried, promotion of that
programming and the quality and acceptance of competing television programming and other sources of
entertainment and information. The Martha Stewart Show television program has experienced a decline
in ratings that reflects both the general decline in daytime broadcast television viewers discussed
below, as well as the decision by some major market stations to shift the airing of the show. These
developments have negatively impacted our television advertising revenues. In addition, moving the
show from syndication to the Hallmark Channel could result in lower ratings as cable channels
typically have a smaller household universe of viewers from which to draw, and The Martha Stewart
Show will no longer be able to be seen in broadcast- only homes whose residents might be a portion
of the shows current audience. If ratings for the show were to further decline, it would adversely
affect the advertising revenues we derive from television. A ratings decline further than we
anticipate could also make it economically inefficient to continue production of the show.
If production of the show were to cease, we would lose a
significant marketing platform for us and our products, and it would cause us to write down our
capitalized programming costs. Additionally, a decline in ratings or cessation of The Martha
Stewart Show would negatively impact our website, marthastewart.com, since the show is an important
driver of audience to our website. The amount of any write down would vary depending on a number of
factors, including when production ceased and the extent to which we continued to generate revenues
from the use of our existing program library.
While we have not historically produced television shows featuring Emeril Lagasse, Emerils
failure to maintain or build popularity could result in the loss of a significant marketing
platform for us and our products, as well as the loss of anticipated revenue and profits from his
television shows.
14
Adverse trends in the television business generally
Television revenues may also be affected by a number of other factors, most of which are not
within our control. These factors include a general decline in daytime television viewers, pricing
pressure in the television advertising industry, the strength of the stations on which our programming
is broadcast or the strength of the cable channel on which our programming is carried, general
economic conditions, increases in production costs, availability of other forms of entertainment
and leisure time activities and other factors. Any or all of these factors may quickly change, and
these changes cannot be predicted with certainty. There has been a reduction in advertising dollars
generally available and more competition for the reduced dollars across more media platforms. While
we currently benefit from our ability to sell advertising on our television programs, if adverse
changes occur, we cannot be certain that we will continue to be able to sell this advertising or
that our advertising rates can be maintained. Accordingly, if any of these adverse changes were to
occur, the revenues we generate from television programming could decline.
We have placed emphasis on building an advertising-revenue-based website, dependent on a large
consumer audience and resulting page views. Failure to fulfill these undertakings could adversely
affect our brand and business prospects.
Our growth depends to a significant degree upon the continued development and growth of our
Internet business. We have had failures with direct commerce in the past, and only limited
experience in building an advertising-revenue-based website. When initial results from the relaunch
of the marthastewart.com site in the second quarter of 2007 were below expectations, we made
changes to the site. We cannot be certain that those changes will enable us to sustain growth for
our website in the long term. In addition, the competition for advertising dollars has intensified.
In order for our Internet business to succeed, we must, among other things:
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significantly increase our online audience and advertising revenue; |
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attract and retain a base of frequent visitors to our website; |
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expand the content, products and interactive experiences we offer on our website; |
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respond to competitive developments while maintaining a distinct brand identity; |
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attract and retain talent for critical positions; |
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maintain and form relationships with strategic partners to attract more consumers; |
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continue to develop and upgrade our technologies; and |
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bring innovative product features to market in a timely manner. |
We cannot be certain that we will be successful in achieving these and other necessary
objectives or that our Internet business will become profitable. If we are not successful in
achieving these objectives, our business, financial condition and prospects could be materially
adversely affected.
If we are unable to predict, respond to and influence trends in what the public finds
appealing, our business will be adversely affected.
Our continued success depends on our ability to provide creative, useful and attractive ideas,
information, concepts, programming, content and products that strongly appeal to a large number of
consumers. In order to accomplish this, we must be able to respond quickly and effectively to
changes in consumer tastes for ideas, information, concepts, programming, content and products. The
strength of our brands and our business units depends in part on our ability to influence tastes
through broadcasting, publishing, merchandising and the Internet. We cannot be sure that our new
ideas and content will have the appeal and garner the acceptance that they have in the past, or
that we will be able to respond quickly to changes in the tastes of homemakers and other consumers.
New product launches may reduce our earnings or generate losses.
Our future success will depend in part on our ability to continue offering new products and
services that successfully gain market acceptance by addressing the needs of our current and future
customers. Our efforts to introduce new products or integrate acquired products may not be
successful or profitable. The process of internally researching and developing, launching, gaining
acceptance and
establishing profitability for a new product, or assimilating and marketing an acquired
product, is both risky and costly. New products generally incur initial operating losses. Costs
related to the development of new products and services are generally expensed as incurred and,
accordingly, our profitability from year to year may be adversely affected by the number and timing
of new product launches. For example, we had a cumulative loss of $15.7 million in connection with
Blueprint, which we ceased publishing in 2007. Other businesses and brands that we may develop also
may prove not to be successful.
15
Our principal Publishing vendors are consolidating and this may adversely affect our business
and operations.
We rely on certain principal vendors in our Publishing business, and their ability or
willingness to sell goods and services to us at favorable prices and other terms. Many factors
outside our control may harm these relationships and the ability and willingness of these vendors
to sell these goods and services to us on favorable terms. Our principal vendors include paper
suppliers, printers, subscription fulfillment houses and national newsstand wholesalers,
distributors and retailers. Each of these industries in recent years has experienced consolidation
among its principal participants. Further consolidation may result in all or any of the following,
which could adversely affect our results of operations:
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decreased competition, which may lead to greater dependence on certain vendors and increased prices; and |
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interruptions and delays in services provided by such vendors |
We may be adversely affected by fluctuations in paper and postage costs.
In our Publishing business, our principal raw material is paper. Paper prices have fluctuated
over the past several years. We generally purchase paper from major paper suppliers who adjust the
price periodically. We have not entered, and do not currently plan to enter, into long-term forward
price or option contracts for paper. Accordingly, significant increases in paper prices could
adversely affect our future results of operations.
Postage for magazine distribution is also one of our significant expenses. We primarily use
the U.S. Postal Service to distribute magazine subscriptions. In recent years, postage rates have
increased, and a significant increase in postage prices could adversely affect our future results
of operations. We may not be able to recover, in whole or in part, paper or postage cost increases.
We may face increased costs for distribution of our magazines to newsstands and bookstores.
Distribution of magazines to newsstands and bookstores is conducted primarily through
companies known as wholesalers. Wholesalers have in the past advised us that they intended to
increase the price of their services. We have not experienced any material increase to date;
however some wholesalers have experienced credit and on-going concern risks. It is possible that
other wholesalers likewise may seek to increase the price of their services or discontinue
operations. An increase in the price of our wholesalers services could have a material adverse
effect on our results of operations. The need to change wholesalers could cause a disruption or
delay in deliveries, which could adversely impact our results of operations.
We may be adversely affected by a continued weakening of newsstand sales.
The magazine industry has seen a weakening of newsstand sales during the past few years. A
continuation of this decline could adversely affect our financial condition and results of
operations by further reducing our circulation revenue and causing us to either incur higher
circulation expense to maintain our rate bases, or to reduce our rate bases which could negatively
impact our revenue.
We may be adversely affected by rebranding our Body + Soul publication.
Effective with the June 2010 issue, we will change the name of Body + Soul magazine to Whole
Living in an attempt to more effectively integrate it with our corresponding website,
wholeliving.com, and to broaden the editorial coverage of the magazine. Changing the product name
and editorial coverage may diminish brand awareness that could adversely impact newsstand sales,
and could affect the satisfaction of current subscribers, which could reduce our subscription
renewal rates.
16
Our websites and networks may be vulnerable to unauthorized persons accessing our systems,
which could disrupt our operations and result in the theft of our and our users proprietary or
personal information.
Our Internet activities involve the storage and transmission of proprietary information and
personal information of our users, which we endeavor to protect from third party access. However,
it is possible that unauthorized persons may be able to circumvent our protections and
misappropriate proprietary or personal information or cause interruptions or malfunctions in our
Internet operations. We may be required to expend significant capital and other resources to
protect against or remedy any such security breaches. Accordingly, security breaches could expose
us to a risk of loss, or litigation and possible liability. Our security measures and contractual
provisions attempting to limit our liability in these areas may not be successful or enforceable.
Martha Stewart controls our Company through her stock ownership, enabling her to elect our
board of directors, and potentially to block matters requiring stockholder approval, including any
potential changes of control.
Ms. Stewart controls all of our outstanding shares of Class B Common Stock, representing over
90% of our voting power. The Class B Common Stock has ten votes per share, while Class A Common
Stock, which is the stock available to the public, has one vote per share. Because of this
dual-class structure, Ms. Stewart has a disproportionately influential vote. As a result, Ms.
Stewart has the ability to control unilaterally the outcome of all matters requiring stockholder
approval, including the election and removal of our entire board of directors and any merger,
consolidation or sale of all or substantially all of our assets, and the ability to control our
management and affairs. While her 2006 settlement with the SEC bars Ms. Stewart for the five-year
period ending in August 2011 from serving at the Company as a director, or as an officer with
financial responsibilities, her concentrated control could, among other things, discourage others
from initiating any potential merger, takeover or other change of control transaction that may
otherwise be beneficial to our businesses and stockholders.
Our intellectual property may be infringed upon or others may accuse us of infringing on their
intellectual property, either of which could adversely affect our business and result in costly
litigation.
Our business is highly dependent upon our creativity and resulting intellectual property. We
are also susceptible to others imitating our products and infringing our intellectual property
rights. We may not be able to successfully protect our intellectual property rights, upon which we
depend. In addition, the laws of many foreign countries do not protect intellectual property rights
to the same extent as do the laws of the United States. Imitation of our products or infringement
of our intellectual property rights could diminish the value of our brands or otherwise adversely
affect our revenues. If we are alleged to have infringed the intellectual property rights of
another party, any resulting litigation could be costly, affecting our finances and our reputation.
Litigation also diverts the time and resources of management, regardless of the merits of the
claim. There can be no assurance that we would prevail in any litigation relating to our
intellectual property. If we were to lose such a case, and be required to cease the sale of certain
products or the use of certain technology or were forced to pay monetary damages, the results could
adversely affect our financial condition and our results of operations.
A loss of the services of other key personnel could have a material adverse effect on our
business.
Our continued success depends to a large degree upon our ability to attract and retain key
management executives, as well as upon a number of key members of our creative staff. The loss of
some of our senior executives or key members of our creative staff, or an inability to attract or
retain other key individuals, could materially adversely affect us.
We operate in four highly competitive businesses: Publishing, Broadcasting, Internet, and
Merchandising, each of which subjects us to competitive pressures and other uncertainties.
We face intense competitive pressures and uncertainties in each of our four businesses.
Our magazines, books and related publishing products compete not only with other magazines,
books and publishing products, but also with other mass media, websites, and many other types of
leisure-time activities. Competition for advertising dollars in magazine operations is primarily
based on advertising rates, as well as editorial and aesthetic quality, the desirability of the
magazines demographic, reader response to advertisers products and services and the effectiveness
of the advertising sales staff.
Our Merchandising segment competitors consist of mass-market and department stores that
compete with the mass-market and department stores in which our Merchandising segment products are
sold, including Bed Bath & Beyond, BJs, JC Penney, Kmart, Kohls, Lowes, Sams Club Target, and
Wal-Mart. Our merchandising lines also compete within the mass-market and department stores that
carry our product lines with other products offered by these stores in the respective product
categories. We also compete with the internet businesses of these stores and other websites that
sell similar retail goods. Competition in our flower business includes other online sellers as well
as traditional floral retailers.
17
Our websites compete with other how-to, food and lifestyle websites. Our challenge is to
attract and retain users through an easy-to-use and content-relevant website. Competition for
adverting is based on the number of unique users we attract each month, the demographic profile of
that audience and the number of pages they view on our site.
Our television programs compete directly for viewers, distribution and/or advertising dollars
with other lifestyle and how-to television programs, as well as with general programming and all
other competing forms of media. Overall competitive factors in Broadcasting include programming
content, quality and distribution, as well as the demographic appeal of the programming.
Competition for television and advertising dollars is based primarily on advertising rates,
audience size and demographic composition, viewer response to advertisers products and services
and the effectiveness of the advertising sales staff. Our radio programs compete for listeners with
similarly themed programming on both satellite and terrestrial radio.
Our failure to meet the competitive pressures in any of these segments could negatively impact
our results of operations and financial condition.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Information concerning the location, use and approximate square footage of our principal
facilities as of December 31, 2009, all of which are leased, is set forth below:
|
|
|
|
|
|
|
|
|
|
|
Approximate Area |
|
Location |
|
Use |
|
in Square Feet |
|
601 West 26th Street
New York, NY
|
|
Product design facilities, photography studio, Merchandising
and Internet offices, test kitchens, and prop storage
|
|
|
203,560 |
|
|
|
|
|
|
|
|
|
|
Principal executive and administrative offices; publishing
offices; and sales offices |
|
|
|
|
|
|
|
|
|
|
|
226 West 26th Street
New York, NY
|
|
Executive and administrative office for television production
|
|
|
22,050 |
|
|
|
|
|
|
|
|
221 West 26th Street
New York, NY
|
|
Television production facilities
|
|
|
25,800 |
|
|
|
|
|
|
|
|
Satellite Sales Offices in MI, IL & CA
|
|
Advertising sales offices
|
|
|
7,904 |
|
The leases for these offices and facilities expire between January 2010 and January 2018, and
some of these leases are subject to our renewal. The lease for our television production facility
at 221 West 26th Street will expire in June 2010 and is currently in the process of
being negotiated for renewal. In 2009, we consolidated certain of our offices by relocating our
principal executive and administrative offices, as well as our publishing offices at 11 West
42nd Street, to 601 West 26th Street. We entered into a sublease agreement in
2008 for a portion of our office space at 11 West 42nd Street; we vacated that office
space in March 2009.
We also have an intangible asset agreement for 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, help generate ideas for new
content available to all of our media outlets and serve as locations for photo spreads and
television segments. The description of this intangible asset agreement is incorporated by
reference into Item 13 and disclosed in the related party transaction disclosure in Note 12 in
Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.
We believe that our existing facilities are well maintained and in good operating condition.
Item 3. Legal Proceedings
The Company is party to legal proceedings in the ordinary course of business, including
product liability claims for which we are indemnified by our licensees. None of these proceedings
is deemed material.
Item 4. Reserved
18
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for the Common Stock
Our Class A Common Stock is listed and traded on The New York Stock Exchange (the NYSE). 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. The following table sets forth
the high and low sales price of our Class A Common Stock as reported by the NYSE for each of the
periods listed.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
Q1 |
|
|
Q2 |
|
|
Q3 |
|
|
Q4 |
|
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
High Sales Price |
|
$ |
9.43 |
|
|
$ |
9.49 |
|
|
$ |
9.99 |
|
|
$ |
8.70 |
|
|
$ |
3.71 |
|
|
$ |
4.08 |
|
|
$ |
8.84 |
|
|
$ |
6.38 |
|
Low Sales Price |
|
$ |
5.22 |
|
|
$ |
7.13 |
|
|
$ |
5.63 |
|
|
$ |
2.51 |
|
|
$ |
1.60 |
|
|
$ |
2.37 |
|
|
$ |
2.70 |
|
|
$ |
4.40 |
|
As
of March 2, 2010, there were 8,582 record holders of our Class A Common Stock and one
record holder of our Class B Common Stock. This does not include the number of persons whose stock
is in nominee or street name accounts through brokers.
Dividends
We do not pay regular quarterly dividends.
Our term loan agreement with Bank of America contains certain covenants that limit our ability
to pay dividends to an amount (combined with repurchases) no greater than $30 million during the
term of the loan agreement, provided no event of default exists or would result and we would be in
pro forma compliance with our financial covenants. See Note 7 in the Notes to the Consolidated
Financial Statements in this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities and Use of Proceeds
None.
Issuer Purchases of Equity Securities
The following table provides information about our purchases of our Class A Common Stock
during each month of the quarter ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or |
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
Shares (or Units) |
|
Value) of Shares (or |
|
|
Total Number of |
|
|
|
|
|
|
Purchased as Part of |
|
Units) that May Yet Be |
|
|
Shares (or Units) |
|
|
Average Price Paid |
|
|
Publicly Announced |
|
Purchased under the |
Period (1) |
|
Purchased |
|
|
per Share (or Unit) |
|
|
Plans or Programs |
|
Plans or Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2009 |
|
|
44,683 |
|
|
$ |
5.81 |
|
|
Not applicable |
|
Not applicable |
November 2009 |
|
|
2,530 |
|
|
$ |
5.25 |
|
|
Not applicable |
|
Not applicable |
December 2009 |
|
|
217 |
|
|
$ |
4.59 |
|
|
Not applicable |
|
Not applicable |
Total for the quarter ended December 31, 2009 |
|
|
47,430 |
|
|
$ |
5.44 |
|
|
|
|
|
|
|
|
(1) |
|
Represents shares withheld by, or delivered to us pursuant to provisions in agreements
with recipients of restricted stock granted under our stock incentive plans allowing us to
withhold, or the recipient to deliver to us, the number of shares having the fair value
equal to tax withholding due. |
19
Notwithstanding anything to the contrary set forth in any of our filings under the Securities
Act or the Exchange Act, the following performance graph shall not be deemed to be incorporated by
reference into any such filings.
PERFORMANCE GRAPH
The following graph compares the performance of our Class A Common Stock with that of the
Standard & Poors 500 Stock Index (S&P Composite Index) and the stocks included in the Media
General Financial Services database under the Standard Industry Code 2721 (Publishing-Periodicals)
(the Publishing Index*) during the period commencing on January 1, 2005 and ending on
December 31, 2009. The graph assumes that $100 was invested in each of our Class A Common Stock,
the S&P Composite Index and the Publishing Index at the beginning of the relevant period, is
calculated as of the end of each calendar month and assumes reinvestment of dividends. The
performance shown in the graph represents past performance and should not be considered an
indication of future performance.
|
|
|
* |
|
The Publishing Index consists of companies that are primarily publishers of periodicals, although
many also conduct other businesses, including owning and operating television stations and cable
networks, and is weighted according to market capitalization of the companies in the index. The
hypothetical investment assumes investment in a portfolio of equity securities that mirror the
composition of the Publishing Index. |
20
Item 6. Selected Financial Data.
The information set forth below for the five years ended December 31, 2009 is not necessarily
indicative of results of future operations, and should be read in conjunction with Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and related notes thereto incorporated by reference
into Item 8 of this Form 10-K. The Notes to Selected Financial Data below include certain
factors that may affect the comparability of the information presented below (in thousands,
except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
INCOME STATEMENT DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
$ |
128,981 |
|
|
$ |
163,540 |
|
|
$ |
183,727 |
|
|
$ |
156,559 |
|
|
$ |
125,765 |
|
Broadcasting |
|
|
46,111 |
|
|
|
47,328 |
|
|
|
40,263 |
|
|
|
46,503 |
|
|
|
16,591 |
|
Internet |
|
|
17,119 |
|
|
|
15,576 |
|
|
|
19,189 |
|
|
|
15,775 |
|
|
|
11,258 |
|
Merchandising |
|
|
52,566 |
|
|
|
57,866 |
|
|
|
84,711 |
|
|
|
69,504 |
|
|
|
58,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
244,777 |
|
|
|
284,310 |
|
|
|
327,890 |
|
|
|
288,341 |
|
|
|
212,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(11,968 |
) |
|
|
(10,857 |
) |
|
|
7,714 |
|
|
|
(2,833 |
) |
|
|
(78,311 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(14,578 |
) |
|
|
(15,665 |
) |
|
|
10,289 |
|
|
|
(16,250 |
) |
|
|
(75,295 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(745 |
) |
|
|
(494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(14,578 |
) |
|
$ |
(15,665 |
) |
|
$ |
10,289 |
|
|
$ |
(16,995 |
) |
|
$ |
(75,789 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted (Loss) income from continuing operations |
|
$ |
(0.27 |
) |
|
$ |
(0.29 |
) |
|
$ |
0.20 |
|
|
$ |
(0.32 |
) |
|
$ |
(1.48 |
) |
Basic and diluted Loss from discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted Net (loss) income |
|
$ |
(0.27 |
) |
|
$ |
(0.29 |
) |
|
$ |
0.20 |
|
|
$ |
(0.33 |
) |
|
$ |
(1.49 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
53,880 |
|
|
|
53,360 |
|
|
|
52,449 |
|
|
|
51,312 |
|
|
|
50,991 |
|
Diluted |
|
|
53,880 |
|
|
|
53,360 |
|
|
|
52,696 |
|
|
|
51,312 |
|
|
|
50,991 |
|
Dividends per common share |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.50 |
|
|
$ |
|
|
FINANCIAL POSITION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
25,384 |
|
|
$ |
50,204 |
|
|
$ |
30,536 |
|
|
$ |
28,528 |
|
|
$ |
20,249 |
|
Short-term investments |
|
|
13,085 |
|
|
|
9,915 |
|
|
|
26,745 |
|
|
|
35,321 |
|
|
|
83,788 |
|
Total assets |
|
|
229,791 |
|
|
|
261,285 |
|
|
|
255,267 |
|
|
|
228,047 |
|
|
|
253,828 |
|
Long-term obligations |
|
|
13,500 |
|
|
|
19,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
143,820 |
|
|
|
150,995 |
|
|
|
155,529 |
|
|
|
130,957 |
|
|
|
160,631 |
|
OTHER FINANCIAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow (used in) provided by operating activities |
|
$ |
(9,273 |
) |
|
$ |
39,699 |
|
|
$ |
8,306 |
|
|
$ |
(6,495 |
) |
|
$ |
(34,058 |
) |
Cash flow (used in) provided by investing activities |
|
|
(9,617 |
) |
|
|
(38,856 |
) |
|
|
(6,606 |
) |
|
|
40,125 |
|
|
|
(58,300 |
) |
Cash flow (used in) provided by financing activities |
|
|
(5,930 |
) |
|
|
18,825 |
|
|
|
308 |
|
|
|
(25,351 |
) |
|
|
7,960 |
|
NOTES TO SELECTED FINANCIAL DATA
(Loss) / income from continuing operations
2009
results include a net benefit to
operating loss of approximately $20 million from certain items including
the pro rata portion of the minimum guaranteed royalty payment from Kmart
of $14.0 million due for the February 1, 2009 to January 31, 2010 period, the recognition of
previously deferred royalties of $10.0 million as non-cash revenue,
an incremental $3.9 million from the conclusion of our
relationship with TurboChef, a $3.0 million cash receipt related to a make-whole payment and a
non-cash impairment charge of $11.4 million related to a cost-based equity investment in United Craft MS Brands LLC recorded in
the Merchandising segment.
2008 results include the pro
rata portion of the significantly reduced minimum guaranteed royalty payment from Kmart of $20.0 million, as well as a $9.3
million non-cash goodwill impairment charge recorded in the Publishing segment.
2007 results include the pro rata portion of the minimum guaranteed royalty payment from Kmart
of $65.0 million, as well as non-cash equity compensation expense of $6.0 million due to the
vesting of the final warrant granted to Mark Burnett in connection with the production of The
Martha Stewart Show.
2006 results include a net benefit to operating income of approximately $48 million from certain items including the pro rata portion of the minimum guaranteed royalty payment from Kmart
of $59.0 million, a one-time newsstand expense reduction adjustment of $3.2 million related to the
settlement of certain newsstand-related fees recorded in our Publishing segment, a favorable
dispute resolution with a former merchandising licensee of $2.5 million in income, royalty income
of $2.8 million related to the successful termination of a home video distribution agreement
recorded in our Broadcasting segment, non-cash equity compensation expense of $2.3 million
resulting from the vesting of shares underlying a warrant granted to Mark Burnett in connection
with his participation in The Martha Stewart Show and a one-time litigation reserve of
$17.1 million in connection with the In re Martha Stewart Living Omnimedia Securities Litigation
matter, which included incurred and anticipated professional fees, net of insurance reimbursement.
2005 results include the pro rata portion of the minimum guaranteed royalty payment from Kmart
of $54.0 million and non-cash equity compensation charges of $31.8 million resulting from the
vesting of shares underlying a warrant granted to Mark Burnett in connection with his participation
in The Martha Stewart Show.
21
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
EXECUTIVE SUMMARY
We are an integrated media and merchandising company providing consumers with inspiring
lifestyle content and programming, and well-designed, high-quality products. Our Company is
organized into four business segments with Publishing, Broadcasting and Internet representing our
media platforms that are complemented by our Merchandising segment. In 2009, total revenues
decreased approximately 14% from the prior year due primarily to the declines in print and
television advertising revenue as well as a decline in our magazine subscription and newsstand
revenues.
Our operating costs and expenses were lower in 2009 compared to 2008 primarily due to lower
production, distribution and editorial costs in Publishing and our other media segments, as well as
lower selling and promotion expenses in our Publishing segment. General and administrative costs
were lower due to a combination of Company-wide expense reduction initiatives and certain 2008
one-time items. 2008 includes a Company-wide reorganization that resulted in severance and other
one-time compensation-related expenses. 2009 includes the benefit to general and administrative
expenses from a cash make-whole payment that we received in October 2009 from our crafts
manufacturing partner. Cost savings throughout the segments are partially due to the continued
reduction of headcount which was lower by approximately 8% as compared to the beginning of the
year.
We ended the year with $38.5 million in cash, cash equivalents and short-term investments. Our
overall liquidity decreased from December 31, 2008 due to net operating cash expenses, capital
expenditures related to our office relocation and cash used to partially prepay the outstanding
principal of our term loan.
Media Update. In 2009, revenues from our media platforms declined from the prior year mostly due to
decreased revenues in our Publishing segment as the result of lower advertising revenue, lower
circulation revenue and the timing of books revenue. Revenues declined from the prior year in our
Broadcasting segment as the result of lower advertising revenue from lower ratings, partially
offset by higher integration revenue. The Broadcasting segment also benefited from revenue related
to the conclusion of our TurboChef relationship, a marketing and promotional agreement we entered
into in 2008. Revenues increased from the prior year in our Internet segment due to higher
advertising revenue, partially offset by the inclusion of revenue from Martha Stewart Flowers in
the first quarter of 2008, which subsequently transitioned to the Merchandising segment.
Publishing
Advertising revenues declined in 2009 from the prior year mostly due to a decrease in pages.
Circulation revenues also declined as subscription revenues decreased due to lower effective rates
and higher agent commission expense, partially offset by higher volume of copies served.
Additionally, circulation revenues decreased from lower volume of newsstand sales. The decline in
revenues was partially offset by decreases in production, editorial, circulation marketing, and
advertising costs. These cost savings included savings from lower page volume, lower paper costs
and from reduced discretionary spending, as well as lower compensation costs from staff reductions.
As we enter the first quarter of 2010, print advertising revenue is expected to stabilize as
compared to the prior-year period.
Broadcasting
Broadcasting segment revenues were lower in 2009 as compared to the prior year due to lower
ratings and certain one-time payments in the prior-year period related to Emeril Lagasses
television programming partially offset by revenue related to the conclusion of our TurboChef
relationship and higher integration revenue. The Martha Stewart Show continues to maintain its core
audience.
Internet
In 2009, advertising revenue increased 19% largely due to an increase in our audience, despite
lower effective rates. Our page views increased, on average, approximately 50% from the prior year.
While visibility is extremely limited, we expect continued growth in our audience and online
advertising revenue for 2010.
Merchandising Update. In 2009, Merchandising segment revenues declined from the prior year
mostly due to a decrease in services that we provide to our partners for reimbursable zero-margin
creative services projects, as well as the prior-year contribution from Sears Canada, a
relationship that expired in 2008. Our Merchandising segment operating income did, however, benefit
from a $3.0 million cash make-whole payment that we received in October 2009 from our crafts
manufacturing partner in connection with our investment as the result of capital restructuring
within their business. Our agreement with Kmart ended in January 2010. In 2009, we recognized the
pro rata portion of the $14.0 million minimum guaranteed royalty amount payable for the February 1,
2009 to January 31, 2010 period. In the fourth quarter of 2009, we also recognized $10.0 million in
previously deferred royalties related to Kmart recoupment as non-cash revenue.
22
RESULTS OF OPERATIONS
Comparison for the Year Ended December 31, 2009 to the Year Ended December 31, 2008.
PUBLISHING SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
Variance |
|
Publishing Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
$ |
74,815 |
|
|
$ |
94,871 |
|
|
$ |
(20,056 |
) |
Circulation |
|
|
50,506 |
|
|
|
62,634 |
|
|
|
(12,128 |
) |
Books |
|
|
2,779 |
|
|
|
4,676 |
|
|
|
(1,897 |
) |
Other |
|
|
881 |
|
|
|
1,359 |
|
|
|
(478 |
) |
|
|
|
|
|
|
|
|
|
|
Total Publishing Segment Revenues |
|
|
128,981 |
|
|
|
163,540 |
|
|
|
(34,559 |
) |
|
|
|
|
|
|
|
|
|
|
Publishing Segment Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
74,431 |
|
|
|
86,018 |
|
|
|
11,587 |
|
Selling and promotion |
|
|
45,520 |
|
|
|
55,419 |
|
|
|
9,899 |
|
General and administrative |
|
|
6,566 |
|
|
|
5,951 |
|
|
|
(615 |
) |
Depreciation and amortization |
|
|
241 |
|
|
|
379 |
|
|
|
138 |
|
Impairment charge goodwill and other asset |
|
|
|
|
|
|
9,349 |
|
|
|
9,349 |
|
|
|
|
|
|
|
|
|
|
|
Total Publishing Segment Operating Costs and Expenses |
|
|
126,758 |
|
|
|
157,116 |
|
|
|
30,358 |
|
|
|
|
|
|
|
|
|
|
|
Publishing Segment Operating Income |
|
$ |
2,223 |
|
|
$ |
6,424 |
|
|
$ |
(4,201 |
) |
|
|
|
|
|
|
|
|
|
|
Publishing revenues decreased 21% for the year ended December 31, 2009 from the prior year.
Advertising revenue decreased $20.1 million due to the decrease in pages in Martha Stewart Living,
Martha Stewart Weddings, Everyday Food and Body + Soul. The decrease in advertising pages was
accompanied by a decrease in advertising rates at Martha Stewart Living and Martha Stewart Weddings
partially offset by slightly higher advertising rates in Everyday Food and Body + Soul driven in
part by a higher circulation rate base. Circulation revenue decreased $12.1 million due to higher
agency commissions and lower effective subscription rate per copy for Martha Stewart Living,
Everyday Food and Body + Soul, offset in part by a higher subscriber volume. Circulation revenue
also decreased as a result of lower newsstand unit volume across all of our titles, as well as the
prior year contribution of eight special interest publications as compared to five special interest
publications in 2009. Revenue related to our books business decreased $1.9 million primarily due to
the timing of delivery and acceptance of manuscripts related to our multi-book agreements with
Clarkson Potter/Publishers for Martha Stewart books and Harper Studios for Emeril Lagasse books.
|
|
|
|
|
Magazine Publication Schedule |
|
|
|
|
Year ended December 31, |
|
2009 |
|
2008 |
Martha Stewart Living |
|
12 Issues |
|
12 Issues |
Martha Stewart Weddings (a) |
|
5 Issues |
|
5 Issues |
Everyday Food |
|
10 Issues |
|
10 Issues |
Body + Soul |
|
10 Issues |
|
10 Issues |
Special Interest Publications |
|
5 Issues |
|
8 Issues |
|
|
|
(a) |
|
In 2009 and 2008, we published one special Martha Stewart Weddings
issue. |
Production, distribution and editorial expenses decreased $11.6 million, primarily due to
savings related to lower volume of pages and lower paper costs. Additionally, art and editorial
story and staff costs decreased partly due to lower headcount. Selling and promotion expenses
decreased $9.9 million due to lower fulfillment rates associated with Martha Stewart Living and
Everyday Food, lower marketing program and advertising staff costs and lower circulation marketing
costs. These decreases were partially offset by higher newsstand placement expenses for Martha
Stewart Living and Everyday Food. General and administrative expenses increased $0.6 million
primarily due to higher facilities-related expenses from the reallocation of rent charges to
reflect current utilization of office space. The increase in our Publishing segment rent allocation
has offsetting decreases in our Merchandising and Corporate segments. The increase in general and
administrative expenses was partially offset by lower headcount and related costs. In the fourth
quarter of 2008, we recorded a non-cash impairment charge related primarily to the goodwill
associated with our 2004 acquisition of the Body + Soul publication group. This charge was the
result of our annual impairment testing in connection with the preparation of the 2008 Annual
Report on Form 10-K.
23
BROADCASTING SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
Variance |
|
Broadcasting Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
$ |
24,454 |
|
|
$ |
26,666 |
|
|
$ |
(2,212 |
) |
Radio |
|
|
7,000 |
|
|
|
7,500 |
|
|
|
(500 |
) |
Licensing and other |
|
|
14,657 |
|
|
|
13,162 |
|
|
|
1,495 |
|
|
|
|
|
|
|
|
|
|
|
Total Broadcasting Segment Revenues |
|
|
46,111 |
|
|
|
47,328 |
|
|
|
(1,217 |
) |
|
|
|
|
|
|
|
|
|
|
Broadcasting Segment Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
29,669 |
|
|
|
31,291 |
|
|
|
1,622 |
|
Selling and promotion |
|
|
3,028 |
|
|
|
3,392 |
|
|
|
364 |
|
General and administrative |
|
|
5,885 |
|
|
|
7,287 |
|
|
|
1,402 |
|
Depreciation and amortization |
|
|
1,389 |
|
|
|
2,578 |
|
|
|
1,189 |
|
|
|
|
|
|
|
|
|
|
|
Total Broadcasting Segment Operating Costs and Expenses |
|
|
39,971 |
|
|
|
44,548 |
|
|
|
4,577 |
|
|
|
|
|
|
|
|
|
|
|
Broadcasting Segment Operating Income |
|
$ |
6,140 |
|
|
$ |
2,780 |
|
|
$ |
3,360 |
|
|
|
|
|
|
|
|
|
|
|
Broadcasting revenues decreased 3% for the year ended December 31, 2009 from the prior year.
Advertising revenue decreased $2.2 million primarily due to the decline in household ratings for
The Martha Stewart Show and lower Everyday Food PBS sponsorship revenue of $0.5 million as the
result of the decision not to produce an additional season of Everyday Baking from Everyday Food in
2009. This decrease was partially offset by an increase in the quantity of integrations at higher
rates, as well as higher advertising rates overall. Radio revenue decreased $0.5 million related to
our new agreement with Sirius XM which has the potential to provide for greater advertising
opportunity to replace lower licensing fees. Licensing and other revenue increased $1.5 million due
to the revenue related to the conclusion of our TurboChef relationship and historical cable
retransmission partially offset by lower revenue from Emeril Lagasses television programming and
lower international distribution of The Martha Stewart Show.
Production, distribution and editorial expenses decreased $1.6 million due to production cost
savings related to season 4 of The Martha Stewart Show which ended in September 2009 as compared to
the prior years season 3, as well as lower distribution fees. Production costs for season 5 are
expected to be flat compared to season 4. Selling and promotion expenses decreased $0.4 million
primarily due to lower headcount and reduced spending related to the season 5 launch as compared to
the prior years season 4 launch. General and administrative expenses decreased $1.4 million due to
lower headcount and related costs. Depreciation and amortization expenses decreased $1.2 million
primarily due to the timing of amortization in connection with the revenue recognition of the
content library for Emeril.
24
INTERNET SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
Variance |
|
Internet Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and other |
|
$ |
17,119 |
|
|
$ |
14,472 |
|
|
$ |
2,647 |
|
Product |
|
|
|
|
|
|
1,104 |
|
|
|
(1,104 |
) |
|
|
|
|
|
|
|
|
|
|
Total Internet Segment Revenues |
|
|
17,119 |
|
|
|
15,576 |
|
|
|
1,543 |
|
|
|
|
|
|
|
|
|
|
|
Internet Segment Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
7,873 |
|
|
|
8,984 |
|
|
|
1,111 |
|
Selling and promotion |
|
|
7,835 |
|
|
|
6,164 |
|
|
|
(1,671 |
) |
General and administrative |
|
|
1,853 |
|
|
|
3,487 |
|
|
|
1,634 |
|
Depreciation and amortization |
|
|
1,950 |
|
|
|
1,737 |
|
|
|
(213 |
) |
|
|
|
|
|
|
|
|
|
|
Total Internet Segment Operating Costs and Expenses |
|
|
19,511 |
|
|
|
20,372 |
|
|
|
861 |
|
|
|
|
|
|
|
|
|
|
|
Internet Segment Operating Loss |
|
$ |
(2,392 |
) |
|
$ |
(4,796 |
) |
|
$ |
2,404 |
|
|
|
|
|
|
|
|
|
|
|
Internet revenues increased 10% for the year ended December 31, 2009 from the prior year.
Advertising and other revenue increased $2.6 million, or 18%, due to an increase in audience and
sold advertising volume, despite lower effective rates. Product revenue decreased $1.1 million due
to the inclusion of revenue from Martha Stewart Flowers in the first quarter of 2008. Beginning in
the second quarter of 2008, we transitioned to a co-branded agreement with 1-800-Flowers.com.
Revenue and related earnings for this business are now reported in our Merchandising segment.
Production, distribution and editorial costs decreased $1.1 million due primarily to the prior
year transition of our flowers business to 1-800-Flowers.com, which eliminated inventory and
shipping expenses, as well as lower compensation costs as compared to the prior year. Beginning in
the second quarter of 2008, costs related to our higher-margin 1-800-Flowers.com program are
reported in the Merchandising segment. Selling and promotion expenses increased $1.7 million due to
higher compensation expenses from increased headcount and higher commissions. General and
administrative expenses decreased $1.6 million due to reduced headcount as compared to the prior
year as well as lower allocated payroll and benefits and lower non-cash compensation costs.
25
MERCHANDISING SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
Variance |
|
Merchandising Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Kmart earned royalty |
|
$ |
7,793 |
|
|
$ |
18,772 |
|
|
$ |
(10,979 |
) |
Kmart minimum guarantee true-up |
|
|
6,707 |
|
|
|
4,978 |
|
|
|
1,729 |
|
Recognition of previously deferred royalties |
|
|
10,000 |
|
|
|
|
|
|
|
10,000 |
|
Other |
|
|
28,066 |
|
|
|
34,116 |
|
|
|
(6,050 |
) |
|
|
|
|
|
|
|
|
|
|
Total Merchandising Segment Revenues |
|
|
52,566 |
|
|
|
57,866 |
|
|
|
(5,300 |
) |
|
|
|
|
|
|
|
|
|
|
Merchandising Segment Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
9,549 |
|
|
|
10,409 |
|
|
|
860 |
|
Selling and promotion |
|
|
2,950 |
|
|
|
6,529 |
|
|
|
3,579 |
|
General and administrative |
|
|
2,922 |
|
|
|
7,980 |
|
|
|
5,058 |
|
Depreciation and amortization |
|
|
62 |
|
|
|
90 |
|
|
|
28 |
|
Impairment charge other asset |
|
|
11,432 |
|
|
|
0 |
|
|
|
(11,432 |
) |
|
|
|
|
|
|
|
|
|
|
Total Merchandising Segment Operating Costs and Expenses |
|
|
26,915 |
|
|
|
25,008 |
|
|
|
(1,907 |
) |
|
|
|
|
|
|
|
|
|
|
Merchandising Segment Operating Income |
|
$ |
25,651 |
|
|
$ |
32,858 |
|
|
$ |
(7,207 |
) |
|
|
|
|
|
|
|
|
|
|
Merchandising revenues decreased 9% for the year ended December 31, 2009 from the prior year.
Our agreement with Kmart ended in January 2010. The pro-rata portion of revenues related to the
contractual minimum amounts from Kmart covering the specified periods is listed separately above as
Kmart minimum guarantee true-up. In 2009, we also recognized royalties that were previously
received and deferred and were subject to recoupment. No royalties were recouped throughout the
Kmart relationship and therefore, we recognized $10.0 million as non-cash revenue in the fourth
quarter of 2009. The decrease in other revenues was mostly due to a decrease in services that we
provide to our partners for reimbursable zero-margin creative services projects and the prior year
revenue true-up from Sears Canada, a relationship that expired in the third quarter of 2008.
Production, distribution and editorial expenses decreased $0.9 million due primarily to lower
compensation costs as compared to the prior year due to reduced staffing. Selling and promotion
expenses decreased $3.6 million primarily as a result of the corresponding revenue decrease in
services that we provide to our partners for reimbursable creative services projects. General and
administrative costs decreased $5.0 million primarily due to a $3.0 million cash make-whole payment
that we received in October 2009 from our crafts manufacturing partner in connection with our
investment as the result of capital restructuring within its business. In addition, general and
administrative expenses decreased due to lower facilities-related expenses primarily due to
reallocating rent charges among the segments to reflect current utilization. The decrease in our
Merchandising segment rent allocation has offsetting increases in our Publishing segment. For the
year ended December 31, 2009, we recorded non-cash impairment charges of $11.4 million related to
our cost-based equity investment in United Craft MS Brands, LLC.
26
CORPORATE
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
Variance |
|
Corporate Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
39,358 |
|
|
$ |
44,934 |
|
|
$ |
5,576 |
|
Depreciation and amortization |
|
|
4,232 |
|
|
|
3,189 |
|
|
|
(1,043 |
) |
|
|
|
|
|
|
|
|
|
|
Total Corporate Operating Costs and Expenses |
|
|
43,590 |
|
|
|
48,123 |
|
|
|
4,533 |
|
|
|
|
|
|
|
|
|
|
|
Corporate Operating Loss |
|
$ |
(43,590 |
) |
|
$ |
(48,123 |
) |
|
$ |
4,533 |
|
|
|
|
|
|
|
|
|
|
|
Corporate operating costs and expenses decreased 9% for the year ended December 31, 2009 from
the prior year. General and administrative expenses decreased largely due to a company-wide
reorganization in 2008 that resulted in severance and other one-time expenses as well as charges
related to facility expenses in 2008. Expenses also decreased due to reallocating rent charges to
reflect current utilization. The decrease in our Corporate segment has an offsetting increase in
our Publishing segment. Partially offsetting the decrease in general and administrative expenses
was higher bonus expense in 2009 compared to 2008. Depreciation and amortization expenses increased
$1.0 million due to accelerated depreciation charges related to the relocation of our office space.
OTHER ITEMS
INTEREST (EXPENSE) / INCOME, NET. Interest expense, net, was $0.1 million for the year ended
December 31, 2009, compared to interest income, net, of $0.5 million for the prior year ended
December 31, 2008. The decrease in interest income was primarily attributable to lower interest
rates on our money market funds and short-term investments, as well as lower average cash balances.
The decrease was partially offset by a decline in interest expense in connection with our term loan
related to the acquisition of certain assets of Emeril Lagasse due to a lower average outstanding
principal balance in 2009 and lower interest rates.
OTHER (LOSS)/INCOME. Other loss was $0.2 million for the year ended December 31, 2009 compared to
$0.8 million in the prior year. Certain investments in equity securities, previously accounted for
under the equity method, were accounted for under the cost method beginning in the second quarter
of 2009.
LOSS ON EQUITY SECURITIES: Loss on equity securities was $0.5 million for the year ended December
31, 2009 compared to a loss of $2.2 million in the prior year. The loss was the result of marking
certain assets to fair value in accordance with accounting principles governing derivative
instruments. The losses were partially offset by our gain from the sale of certain equity
securities.
INCOME TAX EXPENSE. Income tax expense was $1.7 million for the year ended December 31, 2009,
compared to a $2.3 million expense in the prior year. The difference is primarily due to the
establishment of deferred tax liabilities in 2008 on indefinite lived intangibles with no tax basis.
NET LOSS. Net loss was ($14.6) million for the year ended December 31, 2009, compared to a net loss
of ($15.7) million for the year ended December 31, 2008, as a result of the factors described
above.
27
RESULTS OF OPERATIONS
Comparison for the Year Ended December 31, 2008 to the Year Ended December 31, 2007.
PUBLISHING SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
Variance |
|
Publishing Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
$ |
94,871 |
|
|
$ |
106,691 |
|
|
$ |
(11,820 |
) |
Circulation |
|
|
62,634 |
|
|
|
71,707 |
|
|
|
(9,073 |
) |
Books |
|
|
4,676 |
|
|
|
3,373 |
|
|
|
1,303 |
|
Other |
|
|
1,359 |
|
|
|
1,956 |
|
|
|
(597 |
) |
|
|
|
|
|
|
|
|
|
|
Total Publishing Segment Revenues |
|
|
163,540 |
|
|
|
183,727 |
|
|
|
(20,187 |
) |
|
|
|
|
|
|
|
|
|
|
Publishing Segment Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
86,018 |
|
|
|
93,312 |
|
|
|
7,294 |
|
Selling and promotion |
|
|
55,419 |
|
|
|
72,655 |
|
|
|
17,236 |
|
General and administrative |
|
|
5,951 |
|
|
|
5,034 |
|
|
|
(917 |
) |
Depreciation and amortization |
|
|
379 |
|
|
|
1,188 |
|
|
|
809 |
|
Impairment goodwill and other intangibles |
|
|
9,349 |
|
|
|
|
|
|
|
(9,349 |
) |
|
|
|
|
|
|
|
|
|
|
Total Publishing Segment Operating Costs and Expenses |
|
|
157,116 |
|
|
|
172,189 |
|
|
|
15,073 |
|
|
|
|
|
|
|
|
|
|
|
Publishing Segment Operating Income |
|
$ |
6,424 |
|
|
$ |
11,538 |
|
|
$ |
(5,114 |
) |
|
|
|
|
|
|
|
|
|
|
Publishing revenues decreased 11% for the year ended December 31, 2008 from the prior year.
Advertising revenue decreased $11.8 million due to the decrease in pages in Martha Stewart Living,
Everyday Food and Martha Stewart Weddings, as well as the inclusion in 2007 of revenue from
Blueprint, a publication that we discontinued at the end of 2007. The decrease in advertising pages
was partially offset by slightly higher advertising rates across all titles, as well as two extra
issues of Body + Soul. Circulation revenue decreased $9.1 million due to lower newsstand unit
volume, lower subscription rate per copy and higher agency commissions in 2008 for Martha Stewart
Living and Everyday Food. Circulation revenue was negatively impacted by the 2007 contribution of
Blueprint. These decreases were partially offset by higher volume of subscription sales for Martha
Stewart Living, Body + Soul and Everyday Food as well as the positive impact of the frequency
increase in Body + Soul. Revenue related to our books business increased $1.3 million primarily due
to the timing of delivery and acceptance of manuscripts related to our multi-book agreement with
Clarkson Potter/Publishers. Other revenue decreased due to lower ancillary sales of products
related to Body + Soul.
|
|
|
|
|
Magazine Publication Schedule |
|
|
|
|
Year ended December 31, |
|
2008 |
|
2007 |
Martha Stewart Living |
|
12 Issues |
|
12 Issues |
Martha Stewart Weddings (a) |
|
5 Issues |
|
5 Issues |
Everyday Food |
|
10 Issues |
|
10 Issues |
Body + Soul(b) |
|
10 Issues |
|
8 Issues |
Special Interest Publications |
|
8 Issues |
|
9 Issues |
Blueprint (c) |
|
N/A |
|
6 Issues |
|
|
|
(a) |
|
In 2008 and 2007, we published one special Martha Stewart Weddings issue. |
|
(b) |
|
Frequency switched to 10 issues a year in 2008 |
|
(c) |
|
Launched in May 2006 and discontinued after the January/February 2008
issue which was accounted for in the year ended December 31, 2007. |
Production, distribution and editorial expenses decreased $7.3 million in 2008, primarily due
to savings related to the discontinuation of Blueprint as well as lower volume of pages and lower
art and editorial staff costs, partially offset by higher print order of Body + Soul and higher
paper and postage costs. Selling and promotion expenses decreased $17.2 million due to the absence
of costs of Blueprint, lower circulation marketing costs, lower fulfillment rates associated with
Martha Stewart Living and Everyday Food and lower advertising staff and marketing program costs.
Prior year selling and promotion expenses also included non-recurring employee-related separation
charges. General and administrative expenses increased $0.8 million primarily due to higher
allocation of facilities and administrative costs as well as slightly higher compensation costs. In
the fourth quarter of 2008, we recorded a non-cash impairment charge related primarily to the
goodwill associated with our 2004 acquisition of the Body + Soul publication group. This
charge was the result of our annual impairment testing under generally accepted accounting
principles. Depreciation and amortization expenses decreased $0.8 million due to a change in
allocation policy. In 2008, we ceased allocating depreciation and amortization to the various
business segments for certain general leasehold improvements. This decrease in depreciation and
amortization in the Publishing segment was offset by an increase in depreciation and amortization
in the Corporate segment.
28
BROADCASTING SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
Variance |
|
Broadcasting Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising |
|
$ |
26,666 |
|
|
$ |
21,078 |
|
|
|
5,588 |
|
Radio |
|
|
7,500 |
|
|
|
7,500 |
|
|
|
|
|
Licensing and other |
|
|
13,162 |
|
|
|
11,685 |
|
|
|
1,477 |
|
|
|
|
|
|
|
|
|
|
|
Total Broadcasting Segment Revenues |
|
|
47,328 |
|
|
|
40,263 |
|
|
|
7,065 |
|
|
|
|
|
|
|
|
|
|
|
Broadcasting Segment Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
31,291 |
|
|
|
34,099 |
|
|
|
2,808 |
|
Selling and promotion |
|
|
3,392 |
|
|
|
4,026 |
|
|
|
634 |
|
General and administrative |
|
|
7,287 |
|
|
|
7,456 |
|
|
|
169 |
|
Depreciation and amortization |
|
|
2,578 |
|
|
|
2,201 |
|
|
|
(377 |
) |
|
|
|
|
|
|
|
|
|
|
Total Broadcasting Segment Operating Costs and Expenses |
|
|
44,548 |
|
|
|
47,782 |
|
|
|
3,234 |
|
|
|
|
|
|
|
|
|
|
|
Broadcasting Segment Operating Income / (Loss) |
|
$ |
2,780 |
|
|
$ |
(7,519 |
) |
|
$ |
10,299 |
|
|
|
|
|
|
|
|
|
|
|
Broadcasting revenues increased 18% for the year ended December 31, 2008 from the prior year.
Advertising revenue increased $5.6 million primarily due to the increase in advertising inventory
(related to our revised season 3 distribution agreement for The Martha Stewart Show), partially
offset lower revenue due to the timing of integrations as well as a decline in household ratings.
Licensing revenue increased $1.5 million primarily due to Chef Emeril Lagasses television
programming including the new original series on Planet Green featuring Emeril Lagasse as well as
from the Essence of Emeril on the Food Network and the rebroadcast of Emeril Live! on the Fine
Living Network. Licensing and other revenue also increased due to a domestic distribution agreement
with the Fine Living Network on cable to air The Martha Stewart Show, increased international
distribution of The Martha Stewart Show, a new marketing agreement with TurboChef and the new
series Whatever Martha! These increases were partially offset by the exchange of season 3 license
fees for additional advertising inventory related to The Martha Stewart Show.
Production, distribution and editorial expenses decreased $2.8 million due principally to a
2007 non-cash charge associated with the vesting of a portion of a warrant granted in connection
with the production of The Martha Stewart Show, as well as lower production costs for season 3 of
The Martha Stewart Show as compared to season 2. These decreases are partially offset by 2008
distribution costs which were reported net of licensing revenues in 2007 as well as costs related
to the new series Whatever Martha! and costs associated with Emeril Lagasses television
programming. Selling and promotion expenses decreased $0.6 million primarily due to lower marketing
costs associated with the launch of season 4 of The Martha Stewart Show as compared to the costs of
the season 3 launch and the timing of promotional expenses. Depreciation and amortization increased
$0.4 million due to the amortization of the content library for Emeril, which was partially offset
by the full depreciation of the set for The Martha Stewart Show in the second quarter of 2007.
29
INTERNET SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
Variance |
|
Internet Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Advertising and other |
|
$ |
14,472 |
|
|
$ |
11,779 |
|
|
$ |
2,693 |
|
Product |
|
|
1,104 |
|
|
|
7,410 |
|
|
|
(6,306 |
) |
|
|
|
|
|
|
|
|
|
|
Total Internet Segment Revenues |
|
|
15,576 |
|
|
|
19,189 |
|
|
|
(3,613 |
) |
|
|
|
|
|
|
|
|
|
|
Internet Segment Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
8,984 |
|
|
|
14,092 |
|
|
|
5,108 |
|
Selling and promotion |
|
|
6,164 |
|
|
|
6,023 |
|
|
|
(141 |
) |
General and administrative |
|
|
3,487 |
|
|
|
3,969 |
|
|
|
482 |
|
Depreciation and amortization |
|
|
1,737 |
|
|
|
1,242 |
|
|
|
(495 |
) |
|
|
|
|
|
|
|
|
|
|
Total Internet Segment Operating Costs and Expenses |
|
|
20,372 |
|
|
|
25,326 |
|
|
|
4,954 |
|
|
|
|
|
|
|
|
|
|
|
Internet Segment Operating Loss |
|
$ |
(4,796 |
) |
|
$ |
(6,137 |
) |
|
$ |
1,341 |
|
|
|
|
|
|
|
|
|
|
|
Internet revenues decreased 19% for the year ended December 31, 2008 from the prior year.
Advertising and other revenue increased $2.7 million due to an increase in page views and sold
advertising volume. Product revenue decreased $6.3 million due to the transition of our flowers
program from Martha Stewart Flowers, which generated sales through Valentines Day 2008, to our
new, co-branded agreement with 1-800-Flowers.com which began generating revenue in the second
quarter of 2008 and reported in the Merchandising segment.
Production, distribution and editorial expenses decreased $5.1 million in 2008 from the prior
year due primarily to the transition of our flowers business, which eliminated inventory and
shipping expenses, and due to the prior year use of freelancers and consultants as well as
technology costs related to the 2007 re-design of marthastewart.com. These savings were partially
offset by an increase in headcount and related compensation costs. All costs related to
1-800-Flowers.com are reported in the Merchandising segment. General and administrative expenses
decreased $0.5 million due to the transition of our flowers business as described above.
Depreciation and amortization expenses increased $0.5 million primarily due to the 2007 launch of
the redesigned website and the related depreciation costs.
30
MERCHANDISING SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
Variance |
|
Merchandising Segment Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Kmart earned royalty |
|
$ |
18,772 |
|
|
$ |
25,190 |
|
|
|
(6,418 |
) |
Kmart minimum guarantee true-up |
|
|
4,978 |
|
|
|
39,102 |
|
|
|
(34,124 |
) |
Other |
|
|
34,116 |
|
|
|
20,419 |
|
|
|
13,697 |
|
|
|
|
|
|
|
|
|
|
|
Total Merchandising Segment Revenues |
|
|
57,866 |
|
|
|
84,711 |
|
|
|
(26,845 |
) |
|
|
|
|
|
|
|
|
|
|
Merchandising Segment Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
10,409 |
|
|
|
13,418 |
|
|
|
3,009 |
|
Selling and promotion |
|
|
6,529 |
|
|
|
6,475 |
|
|
|
(54 |
) |
General and administrative |
|
|
7,980 |
|
|
|
7,214 |
|
|
|
(766 |
) |
Depreciation and amortization |
|
|
90 |
|
|
|
375 |
|
|
|
285 |
|
|
|
|
|
|
|
|
|
|
|
Total Merchandising Segment Operating Costs and Expenses |
|
|
25,008 |
|
|
|
27,482 |
|
|
|
2,474 |
|
|
|
|
|
|
|
|
|
|
|
Merchandising Segment Operating Income |
|
$ |
32,858 |
|
|
$ |
57,229 |
|
|
$ |
(24,371 |
) |
|
|
|
|
|
|
|
|
|
|
Merchandising revenues decreased 32% for the year ended December 31, 2008 from the prior year.
The decrease in segment revenues was due primarily to the reduction of our contractual minimum
guarantee from Kmart. Actual retail sales of our products at Kmart declined 25% on a comparable
store and total store basis. The pro-rata portion of revenues related to the contractual minimum
amounts covering the specified periods, net of amounts subject to recoupment, is listed separately
above. Other revenues increased primarily due to contributions from Emeril Lagasses brand and our
annualized agreement with Macys for our Martha Stewart Collection products. The increase in other
revenues was also due to our partnership with 1-800-Flowers.com for our newly-launched flowers
program and from the expansion of our crafts line with EK Success into Wal-Mart. The increases from
these new initiatives were partially offset by the inclusion in 2007 of revenues from an
endorsement and promotional agreement with U.S. affiliates of SVP Worldwide, makers of Singer,
Husqvarna Viking and Pfaff sewing machines, with no comparable revenue in 2008.
Production, distribution and editorial expenses decreased $3.0 million primarily due to lower
compensation costs. General and administrative costs increased $0.8 million reflecting the
additional Merchandising segment expenses of our Emeril Lagasse brand, as well as higher allocated
facilities costs.
31
CORPORATE
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2008 |
|
|
2007 |
|
|
Variance |
|
Corporate Operating Costs and Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
$ |
44,934 |
|
|
$ |
44,841 |
|
|
$ |
(93 |
) |
Depreciation and amortization |
|
|
3,189 |
|
|
|
2,556 |
|
|
|
(633 |
) |
|
|
|
|
|
|
|
|
|
|
Total Corporate Operating Costs and Expenses |
|
|
48,123 |
|
|
|
47,397 |
|
|
|
726 |
|
|
|
|
|
|
|
|
|
|
|
Corporate Operating Loss |
|
$ |
(48,123 |
) |
|
$ |
(47,397 |
) |
|
$ |
(726 |
) |
|
|
|
|
|
|
|
|
|
|
Corporate operating costs and expenses increased 2% for the year ended December 31, 2008 from
the prior year. General and administrative expenses increased $0.1 million due to cash and non-cash
charges of $3.5 million related to a Company-wide reorganization that resulted in severance and
other one-time compensation-related expenses and increased costs associated with a new intangible
asset agreement. These increases were fully offset by lower non-cash compensation and the reduction
of our annual bonus pool. Depreciation and amortization increased $0.6 million due to a change in
allocation policy. In 2008, we ceased allocating depreciation and amortization to the various
business segments for certain general leasehold improvements. This increase in depreciation and
amortization in the Corporate segment was offset by a decrease in depreciation and amortization in
the Publishing segment.
OTHER ITEMS
INTEREST INCOME, NET. Interest income, net, was $0.5 million for the year ended December 31, 2008,
compared to $2.8 million for the prior year ended December 31, 2007. The decrease was attributable
primarily to our 2008 interest expense from our $30 million term loan related to the acquisition of
certain assets of Emeril Lagasse. Interest income also decreased due to lower interest rates.
OTHER (EXPENSE) / INCOME. Other expense was $0.8 million for the year ended December 31, 2008
related to our equity investment in WeddingWire. We record our proportionate share of the results
of WeddingWire one quarter in arrears. Therefore, this loss represents our portion of prorated
results of WeddingWire through September 30, 2008. Other income for the year ended December 31,
2007 was $0.4 million. The prior year income is related to the final legal settlement of the class
action lawsuit known as In re Martha Stewart Living Omnimedia, Inc. Securities Litigation.
LOSS ON EQUITY SECURITIES: Loss on equity securities was $2.2 million for the year ended December
31, 2008. The loss is the result of marking certain assets to fair value in accordance with
accounting principles governing derivative instruments as well as recognizing an
other-than-temporary loss on our shares of TurboChef stock.
INCOME TAX EXPENSE. Income tax expense was $2.3 million for the year ended December 31, 2008,
compared to a $0.6 million expense in the prior year. The current year provision includes $1.8
million which is attributable to differences between the financial statement carrying amounts of
current and prior-year acquisitions of certain indefinite-lived intangible assets and their
respective tax bases.
NET LOSS. Net loss was ($15.7) million for the year ended December 31, 2008, compared to a net
income of $10.3 million for the year ended December 31, 2007, as a result of the factors described
above.
32
LIQUIDITY AND CAPITAL RESOURCES
Overview
Our primary source of liquidity has generally been from cash generated by operating
activities. Specifically, in 2007, the majority of our cash generation was provided by the
collection of Kmart contractual minimums. In 2008, cash from operations was provided by Kmart and
from the Emeril Lagasse assets acquired in 2008. In 2009, we used cash for operations due to the
significant reduction in cash received related to the Kmart contractual minimums as compared to
2008, as well as the increase in working capital. The increase to working capital was due to the
increase in certain receivables and the decrease in deferred subscription revenue. Operating
results and cash flows may change due to a variety of factors, including changes in demand for the
product, changes in our cost structure and changes in macroeconomic factors. Any such changes in
our business can have a significant effect on cash flows.
We believe, as described further below, that our available cash balances and short-term
investments will be sufficient to meet our recurring cash needs for working capital and capital
expenditures for 2010 including continued prepayments of our debt service obligations.
Sources and Uses of Cash
During 2009, our overall cash, cash equivalents and short-term investments decreased $21.7
million from December 31, 2008 due to net operating cash expenses, capital expenditures related to
our office relocation and principal pre-payments of the term loan. Cash, cash equivalents and
short-term investments were $38.5 million and $60.1 million at December 31, 2009 and December 31,
2008, respectively.
Operating Activities
Our cash inflows from operating activities are generated by our business segments from
revenues, as described above, which include cash from advertising customers, licensing partners and
magazine circulation sales. Operating cash outflows generally include employee and related costs,
the physical costs associated with producing magazines, including related direct mail expenses, and
the cash costs of facilities.
Cash (used in) and provided by operating activities was $(9.3) million, $39.7 million
and $8.3 million for the years ended December 31, 2009, 2008 and 2007, respectively.
In 2009, cash used in operations reflected our operating loss, as discussed earlier, net of
non-cash factors such as the recognition of previously deferred royalties related to Kmart.
In addition, cash declined due to lower cash received from Kmart related to lower contractual
minimum guaranteed payments and lower 2009 earned royalties. The decline in Kmart earned
royalties in 2009 led to an increase in the minimum guaranteed true-up amount which resulted
in a higher receivable balance at December 31, 2009. In 2010, we received cash from
Kmart which satisfied our December 31, 2009 receivable related to earned royalties
and the guaranteed minimum royalty from Kmart. Cash used in operating activities also
declined due to lower cash received for new subscriptions during 2009 as the result of
higher agency commissions and lower effective subscription rates per copy.
Investing Activities
Our cash inflows from investing activities generally include proceeds from the sale of
short-term investments. Investing cash outflows generally include payments for the acquisition of
new businesses; short- and long-term investments; and additions to property, plant, and equipment.
Cash used in investing activities was $(9.6) million, $(38.9) million and $(6.6) million for
the years ended December 31, 2009, 2008, and 2007, respectively. In 2009, cash flow used in
investing activities reflected $8.6 million paid for capital improvements primarily in conjunction
with our relocation and consolidation of certain offices. Additionally, we invested $0.8 million
predominantly for a non-controlling interest in Ziplist and we had net purchases of short-term
investments of $0.2 million.
Financing Activities
Our cash inflows from financing activities generally include proceeds from the exercise of
stock options for our Class A Common Stock issued under our equity incentive plans, as well as
proceeds from debt financing. Cash outflows from financing activities generally include principal
repayment of outstanding debt and debt issuance costs.
Cash flows (used in) and provided by financing activities were $(5.9) million, $18.8 million
and $0.3 million for the years ended
December 31, 2009, 2008 and 2007, respectively. In 2009, we made $6.0 million in principal
pre-payments on our term loan with Bank of America related to the acquisition of certain assets of
Emeril Lagasse.
33
Debt
We have a line of credit with Bank of America in the amount of $5.0 million, which is
generally used to secure outstanding letters of credit. The line was renewed as of June 30, 2009
for a one-year period. The renewal included certain substantive changes from the prior years
terms, including a covenant to maintain $5.0 million in liquidity, as that term is defined in the
credit agreement, and the reduction of the current ratio requirement from 1.5:1.0 to 1.25:1.0. We
were compliant with the debt covenants as of December 31, 2009. We had no outstanding borrowings
under this facility as of December 31, 2009 and had letters of credit of $2.8 million.
In April 2008, we entered into a loan agreement with Bank of America in the amount of $30
million related to the acquisition of certain assets of Emeril Lagasse. The loan was originally
secured by cash collateral of $28.5 million. In the third quarter of 2008, the cash collateral was
replaced by collateral consisting of substantially all of the assets of the Emeril business that
were acquired by the Company. During the third quarter of 2009, we amended and restated the loan
agreement. As amended and restated, the loan was secured by substantially all of the assets of the
Emeril business that we acquired, as well as cash collateral in an amount equal to the outstanding
principal balance of the loan. While the loan was secured by the cash collateral, the interest rate
was a floating rate of 1-month LIBOR plus 1.50%. Pursuant to a waiver and amendment executed in
December 2009, Bank of America released its lien on the cash collateral at our request after we
demonstrated that we would have been in compliance with the financial covenants outlined below for
the fiscal quarter immediately preceding the requested release date had such financial covenants
been applicable for that fiscal quarter. Subsequent to the December 2009 waiver and amendment, the
interest rate is equal to a floating rate of 1-month LIBOR plus 2.85%.
Martha Stewart Living Omnimedia, Inc. and most of its domestic subsidiaries are guarantors of
the loan. The loan agreement requires equal principal payments and related interest to be paid by
the Company quarterly for the duration of the loan term, approximately 5 years. During the year
ended December 31, 2009, we prepaid $6.0 million in principal representing the amounts due on March
31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010. Accordingly, the loan payable is
characterized as a non-current liability as of December 31, 2009. We expect to pay the principal
installments and interest expense with cash from operations.
The loan terms include financial covenants, failure with which to comply would result in an
event of default and would permit Bank of America to accelerate and demand repayment of the loan in
full. As of December 31, 2009, we were compliant with all the financial covenants. A summary of the
most significant financial covenants is as follows:
A summary of the most significant financial covenants is as follows:
|
|
|
Financial Covenant |
|
|
Tangible Net Worth
|
|
At least $40.0 million |
Funded Debt to EBITDA (a)
|
|
Equal to or less than 2.0 |
Parent Guarantor (the Company) Basic Fixed
Charge Coverage Ratio (b)
|
|
Equal to or greater than 2.75 |
Quick Ratio
|
|
Equal to or greater than 1.0 |
|
|
|
(a) |
|
EBITDA is net income before interest, taxes, depreciation, amortization, non-cash equity
compensation and impairment charges as defined in the loan agreement and subsequent waiver and
amendment. |
|
(b) |
|
Basic Fixed Charge Coverage is the ratio of EBITDA for the trailing four quarters to the
sum of interest expense for the trailing four quarters and the current portion of long-term debt at
the covenant testing date. |
The loan agreement also contains a variety of other customary affirmative and negative
covenants that, among other things, limit the Companys and its subsidiaries ability to incur
additional debt, suffer the creation of liens on their assets, pay dividends or repurchase stock,
make investments or loans, sell assets, enter into transactions with affiliates other than on arms
length terms in the ordinary course of business, make capital expenditures, merge into or acquire
other entities or liquidate. The negative covenants expressly permit the Company to, among other
things: incur an additional $15 million of debt to finance permitted investments or acquisitions;
incur an additional $15 million of earnout liabilities in connection with permitted acquisitions;
spend up to $30 million repurchasing the Companys stock or paying dividends thereon (so long as no
default or event of default existed at the time of or would result from such repurchase or dividend
payment and the Company would be in pro forma compliance with the above-described financial
covenants assuming such repurchase or dividend payment had occurred at the beginning of the most
recently-ended four-quarter period); make investments and acquisitions (so long as no default or
event of default existed at the time of or would result from such
investment or acquisition and the Company would be in pro forma compliance with the
above-described financial covenants assuming the acquisition or investment had occurred at the
beginning of the most recently-ended four-quarter period); make up to $15 million in capital
expenditures in fiscal year 2008 and $7.5 million in each subsequent fiscal year, provided that the
Company can carry over any unspent amount to any subsequent fiscal year (but in no event may the
Company make more than $15 million in capital expenditures in any fiscal year); sell one of the
Companys investments (or any asset the Company might receive in conversion or exchange for such
investment); and sell assets during the term of the loan comprising, in the aggregate, up to 10% of
the Companys consolidated shareholders equity, provided the Company receives at least 75% of the
consideration in cash.
34
Cash Requirements
Our commitments consist primarily of leases for office facilities under operating lease
agreements and principal repayments of our loan. Future minimum payments under our operating leases
are included in Note 13 to our Consolidated Financial Statements and are summarized in the table
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More |
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
than |
|
|
|
|
Contractual Obligations |
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LongTerm Debt Obligations * |
|
$ |
13,500 |
|
|
$ |
|
|
|
$ |
12,000 |
|
|
$ |
1,500 |
|
|
$ |
|
|
|
$ |
|
|
Operating Lease Obligations ** |
|
$ |
68,011 |
|
|
|
11,456 |
|
|
|
16,892 |
|
|
|
14,969 |
|
|
|
24,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized Tax Benefits *** |
|
$ |
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
189 |
|
Total |
|
$ |
81,700 |
|
|
$ |
11,456 |
|
|
$ |
28,892 |
|
|
$ |
16,469 |
|
|
$ |
24,694 |
|
|
$ |
189 |
|
|
|
|
* |
|
Long-term debt obligations exclude interest payments. The interest rate on the outstanding
principal balance is equal to a floating rate of 1-month LIBOR plus 2.85%. |
|
** |
|
Operating lease obligations include the lease for our television production facility which
will expire in June 2010 and is currently in the process of being negotiated for renewal. Any
potential future obligations related to television production facilities are not included in this
table as they are not contractual at this time.
Operating lease obligations are shown net of sublease income in this table.
See Note 13, Commitments and Contingencies, for further discussion of operating leases.
|
|
*** |
|
These amounts represent expected payments with interest for uncertain tax positions as of
December 31, 2009. We are not able to reasonably estimate the timing of future cash flows related
to $0.2 million of this liability, and therefore have presented this amount as Other in the table
above. See Note 10, Income Taxes, in the Notes to Consolidated Financial Statements, for further
discussion. |
In addition to our contractual obligations, in 2010, we expect to use approximately $3.0 million
in cash for 2010 capital expenditures due to the continued leasehold improvements related to the consolidation
of office space as well as continued upgrades to our corporate information technology. Also in 2010, we expect
to use approximately $2.0 million in cash for 2009 capital expenditures.
OFF-BALANCE SHEET ARRANGEMENTS
Our bylaws may require us to indemnify our directors and officers against liabilities that may
arise by reason of their status as such and to advance their expenses incurred as a result of any
legal proceedings against them as to which they could be indemnified.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
General
Our discussion and analysis of our financial condition and results of operations are based
upon our consolidated financial statements, which have been prepared in accordance with United
States generally accepted accounting principles (GAAP). The preparation of these financial
statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On
an on-going basis, we evaluate our estimates, including those related to bad debts, inventories,
deferred production costs, long-lived assets and accrued losses. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
35
We believe that, of our significant accounting policies disclosed in this Annual Report on
Form 10-K, the following may involve the highest degree of judgment and complexity.
Revenue Recognition
We recognize revenues when realized or realizable and earned. Revenues and associated accounts
receivable are recorded net of provisions for estimated future returns, doubtful accounts and other
allowances.
In an arrangement with multiple deliverables, Accounting Standards Codification (ASC) Topic
605, Revenue Recognition (ASC 605) provides guidance to determine a) how the arrangement
consideration should be measured, b) whether the arrangement should be divided into separate units
of accounting, and c) how the arrangement consideration should be allocated among the separate
units of accounting. We have applied the guidance included in ASC 605 in establishing revenue
recognition policies for our arrangements with multiple deliverables. For agreements with multiple
deliverables, including our merchandising licensing contracts and our
advertising contracts that cross our media platforms, if we are unable to put forth vendor specific objective evidence required under ASC
605 to determine the fair value of each deliverable, then we will account for the deliverables as a
combined unit of accounting rather than separate units of accounting.
In this case, revenue is
recognized as the earnings process is completed, generally based on
the revenue recognition policy applicable to the last deliverable.
This policy has historically resulted in straight-line revenue
recognition over the service period of that last deliverable.
Advertising revenues in the Publishing segment are generally recorded upon the on-sale dates
of the magazines and are stated net of agency commissions and cash and sales discounts.
Subscription revenues are recognized on a straight-line basis over the life of the subscription as
issues are delivered. Newsstand revenues are recognized based on estimates with respect to future
returns and net of brokerage and newsstand-related fees. We base our estimates on our historical
experience and current market conditions. Revenues earned from book publishing are recorded as
manuscripts are delivered to and/or accepted by our publisher. Additional revenue is recorded as
sales on a unit basis exceed the advanced royalty for the individual title or in certain cases,
advances on cross-collateralized titles.
Television advertising revenues are generally recorded when the related commercials are aired
and are recorded net of agency commission and estimated reserves for television audience
underdelivery. Television integration revenues are recognized when the segment featuring the
related product/brand immersion is initially aired. Television revenue related to Emeril Lagasse is
generally recognized when services are performed. Radio advertising revenues are general recorded
when the related commercials are aired and are recorded net of agency commissions. Revenue from our
radio licensing operations is recognized evenly over the life of the contract.
Internet advertising revenues are generally based on the sale of impression-based
advertisements, which are recorded in the period in which the advertisements are served.
Licensing-based revenues, most of which are in our Merchandising segment, are accrued on a
monthly basis based on the specific mechanisms of each contract. Payments are generally made by our
partners on a quarterly basis. Generally, revenues are accrued based on actual sales, while any
minimum guarantees are earned evenly over the fiscal year. Revenues related to our agreement with
Kmart have been recorded on a monthly basis based on actual retail sales, until the last period of
the year, when we recognized a substantial majority of the true-up between the minimum royalty
amount and royalties paid on actual sales. Not recognizing revenue until the fourth quarter was
originally driven in large part by concern about whether the collectability of the minimums was
reasonably assured in the wake of the Kmart Chapter 11 filing. Concern about the collectability
persisted in subsequent years due to difficulties in the relationship with Kmart and numerous store
closings that caused royalties to fall short of the minimums. Accordingly, the true-up payment was
recorded in the fourth quarter at the time the true-up amounts were known and subsequently
collected.
We maintain reserves for all segment receivables, as appropriate. These reserves are adjusted
regularly based upon actual results. We maintain allowance for doubtful accounts for estimated
losses resulting from the inability of our customers to make required payments. If the financial
condition of our customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances might be required.
Television Production Costs
Television production costs are capitalized and amortized based upon estimates of future
revenues to be received and future costs to be incurred for the applicable television product. We
base our estimates primarily on existing contracts for programs, historical advertising rates and
ratings, as well as market conditions. Estimated future revenues and costs are adjusted regularly
based upon actual results and changes in market and other conditions.
36
Goodwill and Indefinite-Lived Intangible Assets
We are required to analyze our goodwill and other intangible assets on an annual basis as well
as when events and circumstances indicate impairment may have occurred. Unforeseen events and
changes in circumstances and market conditions and material differences in the value of long-lived
assets due to changes in estimates could negatively affect the fair value of our assets and result
in an impairment charge. In estimating fair value, we must make assumptions and projections
regarding items such as future cash flows, future revenues, future earnings and other factors. The
assumptions used in the estimate of fair value are generally consistent with the past performance
of each reporting unit and are also consistent with the projections and assumptions that are used
in current operating plans. Such assumptions are subject to change as a result of changing economic
and competitive conditions. If these estimates or their related assumptions change in the future,
we may be required to record an impairment loss for any of our intangible assets. Had the estimated
fair values of each of these reporting units been hypothetically lower by 10% as of our annual
testing date, the fair values of the reporting units would have exceeded their respective carrying
values. Had the estimated fair values of each of these reporting units been hypothetically lower by
20% as of our annual testing date, the fair value of one of our reporting units would not have
exceeded its respective carrying value which could result in an
impairment charge of less than $1.0 million. The recording of any resulting impairment loss could have
a material adverse effect on our financial statements.
Long-Lived and Definite-Lived Intangible Assets
We review the carrying values of our long-lived assets whenever events or changes in
circumstances indicate that such carrying values may not be recoverable. Unforeseen events and
changes in circumstances and market conditions and material differences in the value of long-lived
assets due to changes in estimates of future cash flows could negatively affect the fair value of
our assets and result in an impairment charge, which could have a material adverse effect on our
financial statements.
Deferred Income Tax Asset Valuation Allowance
We record a valuation allowance to reduce our deferred income tax assets to the amount that is
more likely than not to be realized. In evaluating our ability to recover our deferred income tax
assets, we consider all available positive and negative evidence, including our operating results,
ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction
basis. Our cumulative pre-tax loss in recent years represents sufficient negative evidence for us
to determine that the establishment of a full valuation allowance against the deferred tax asset is
appropriate. This valuation allowance offsets net deferred tax assets associated with future tax
deductions as well as carryforward items. In the event we were to determine that we would be able
to realize our deferred income tax assets in the future in excess of their net recorded amount, we
would make an adjustment to the valuation allowance which would reduce the provision for income
taxes. See Note 10 of the Notes to the consolidated financial statements for
additional information.
Non-Cash Equity Compensation
We currently have a stock incentive plan that permits us to grant various types of share-based
incentives to key employees, directors and consultants. The primary types of incentives that have
been granted under the plan are restricted shares of common stock and stock options. Restricted
shares are valued at the market value of traded shares on the date of grant, while stock options
are valued using a Black-Scholes option pricing model. The Black-Scholes option pricing model
requires numerous assumptions, including expected volatility of our stock price and expected life
of the option.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
We are exposed to certain market risks as the result of our use of financial instruments, in
particular the potential market value loss arising from adverse changes in interest rates as well
as from adverse changes in our publicly traded investment. We do not utilize financial instruments
for trading purposes.
Interest Rates
We are exposed to market rate risk due to changes in interest rates on our loan agreement with
Bank of America that we entered into on April 2, 2008 under which we borrowed $30.0 million to fund
a portion of the acquisition of certain assets of Emeril Lagasse. Interest rates applicable to
amounts outstanding under this facility are at variable rates based on the 1-month LIBOR rate plus
2.85%. During the portion of 2009 in which the loan was collateralized by cash, the interest rate
was lowered to 1-month LIBOR rate plus 1.50%. A change in interest rates on this variable rate debt
impacts the interest incurred and cash flows but does not impact the fair
value of the instrument. We had outstanding borrowings of $13.5 million on the term loan at
December 31, 2009 at an average rate of 2.95% for the year. A one percentage point increase in the
interest rate would have increased interest expense by $0.2 million for 2009.
37
We also have exposure to market rate risk for changes in interest rates as those rates relate
to our investment portfolio. The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without significantly increasing risk. We
attempt to protect and preserve our invested funds by limiting default, market and reinvestment
risk. To achieve this objective, we invest our excess cash in debt instruments of the United States
Government and its agencies and in high-quality corporate issuers (including bank instruments and
money market funds) and, by internal policy, limit both the term and amount of credit exposure to
any one issuer. As of December 31, 2009, net unrealized gains and losses on these investments were
not material. However, in 2009, we recorded approximately $0.7 million in interest income. Our
future investment income may fluctuate due to changes in interest rates, or we may suffer losses in
principal if forced to sell securities that have declined in market value due to changes in
interest rates. A one percentage point decrease in average interest rates would have decreased
interest income by $0.6 million for 2009.
Stock Prices
We have a common stock investment in a publicly traded company that is subject to market price
volatility. This investment had an aggregate fair value of approximately $3.0 million as of
December 31, 2009. A hypothetical decrease in the market price of this investment of 10% would
result in a fair value of approximately $2.7 million. The hypothetical decrease in fair value of
$0.3 million would be recorded in shareholders equity as other comprehensive loss, as any change
in fair value of our publicly-traded equity securities are not recognized on our statement of
operations, unless the loss is deemed other-than-temporary.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is set forth on pages F-1 through F-28 of this Annual
Report on Form 10-K and is incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal
Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure
controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Exchange Act
required by Exchange Act Rules 13a-15(b) or 15d-15(e)), as of the end of the period covered by this
report. Based upon that evaluation, our Principal Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of that date to provide
reasonable assurance that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms, and include controls and procedures designed to ensure that
information required to be disclosed by us in such reports is accumulated and communicated to our
management, including the Principal Executive Officer and Chief Financial Officer, as appropriate
to allow timely decisions regarding required disclosure.
38
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Under the supervision and with the participation of our management, including
our Principal Executive Officer and Chief Financial Officer, we assessed the effectiveness of our
internal control over financial reporting as of the end of the period covered by this report based
on the framework in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on that assessment, our Principal Executive Officer
and Principal Financial Officer concluded that our internal control over financial reporting was
effective to provide reasonable assurance regarding the reliability of our financial reporting and
the preparation of our financial statements for external purposes in accordance with United States
generally accepted accounting principles.
Our independent registered public accounting firm, Ernst & Young LLP, has issued an
attestation report on our internal control over financial reporting. The attestation report is
included herein.
Evaluation of Changes in Internal Control Over Financial Reporting
Under the supervision and with the participation of our management, including our Principal
Executive Officer and Chief Financial Officer, we have determined that, during the fourth quarter
of fiscal 2009, there were no changes in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
39
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Martha Stewart Living Omnimedia, Inc.
We have audited Martha Stewart Living Omnimedia, Inc.s internal control over financial reporting
as of December 31, 2009, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
The Companys management is responsible for maintaining effective internal control over financial
reporting, and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Martha Stewart Living Omnimedia, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Martha Stewart Living Omnimedia, Inc. as
of December 31, 2009 and 2008, and the related consolidated statements of operations, shareholders
equity and comprehensive loss, and cash flows for each of the three years in the period ended
December 31, 2009 and our report dated March 5, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young
New York, New York
March 5, 2010
40
Item 9B.
Other Information.
On March 1, 2010, our Board of Directors appointed Martha Stewart as our Chief Editorial,
Media and Content Officer, a role in which she will assume more significant oversight for these
areas. Also effective March 1, 2010, Gael Towey will no longer be a
named executive officer but will continue to be involved with all creative aspects of our publishing
business.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance.
The information required by this Item is set forth in our Proxy Statement for our 2010 annual
meeting of stockholders (our Proxy Statement) under the captions ELECTION OF DIRECTORS
Information Concerning Nominees, INFORMATION CONCERNING EXECUTIVE OFFICERS AND OUR FOUNDER,
MEETINGS AND COMMITTEES OF THE BOARD Code of Ethics and Audit Committee, 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
MEETINGS AND COMMITTEES OF THE BOARD Compensation Committee Interlocks and Insider
Participation, COMPENSATION OF OUTSIDE DIRECTORS, DIRECTOR COMPENSATION TABLE, COMPENSATION
COMMITTEE REPORT, COMPENSATION DISCUSSION AND ANALYSIS, SUMMARY COMPENSATION TABLE, GRANTS OF
PLAN-BASED AWARDS IN 2009, EXECUTIVE COMPENSATION AGREEMENTS, OUTSTANDING EQUITY AWARDS AT
FISCAL YEAR-END 2009, OPTION EXERCISES AND STOCK VESTED DURING 2009, and POTENTIAL PAYMENTS
UPON TERMINATION OR CHANGE IN CONTROL and is hereby incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Equity Compensation Plan Information
The following table sets forth certain information regarding our equity compensation plans as of
December 31, 2009.
EQUITY COMPENSATION PLAN INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Remaining |
|
|
|
Number of Securities to be Issued |
|
|
Weighted-Exercise Price of |
|
|
Available for Future Issuance Under |
|
|
|
upon Exercise of Outstanding |
|
|
Outstanding Options, |
|
|
Equity Compensation Plans (Excluding |
|
|
|
Options, Warrants and Rights |
|
|
Warrants and Rights |
|
|
Securities Reflected in Column (a) |
|
Plan Category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation plans approved by security holders: |
|
|
7,487,491 |
(1) |
|
$ |
7.70 |
|
|
|
4,579,495 |
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation plans not approved by security
holders: |
|
|
416,667 |
(3) |
|
$ |
12.59 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,904,158 |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes 454,125 performance-based restricted stock units and shares. The weighted
average exercise price reported in column (b) does not take these awards into account. |
|
(2) |
|
Represents shares available for grant under the Martha Stewart Living Omnimedia
Omnibus Stock and Option Compensation Plan. |
|
(3) |
|
Represents the remainder of a warrant to purchase 833,333 shares issued in
connection with a consulting agreement in August 2006, which was exercised in part in
January 2007. The 416,666 shares became fully vested in July 2007. See Note 9 to our
consolidated financial statements. |
41
The information required by this Item regarding beneficial ownership of our equity
securities 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, and Director Independence.
The information required by this Item is set forth in our Proxy Statement under the caption
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS and MEETING AND COMMITTEES OF THE BOARD
Corporate Governance and is hereby incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services.
The information required by this Item is set forth in our Proxy Statement under the caption
INDEPENDENT PUBLIC ACCOUNTANTS and is hereby incorporated herein by reference.
42
PART IV
Item 15.
Exhibits and Financial Statement Schedules.
(a) (1) and (2) Financial Statements and Schedules: See page F-1 of this Annual Report on Form
10-K.
(3) Exhibits:
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Exhibit Title |
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
Asset Purchase Agreement dated as of February 19, 2008 among Emerils Food of Love Productions,
L.L.C., emerils.com, LLC and Emeril J. Lagasse, III, as the Sellers, and Martha Stewart Living
Omnimedia, Inc. and MSLO Shared IP Sub LLC, as the Buyers (incorporated by reference to Exhibit 99.1
to our Current Report on Form 8-K (file number 001-15395) filed on February 19, 2008). |
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc.s Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to our Registration Statement on Form S-1, as amended, File Number 333-84001 (the
Registration Statement)). |
|
|
|
|
|
|
|
|
3.2 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc.s By-Laws (incorporated by reference to Exhibit 3.2 to our
Quarterly Report on Form 10-Q (file number 001-15395) for the quarter ended June 30, 2008 (June 2008
10-Q)). |
|
|
|
|
|
|
|
|
4.1 |
|
|
|
|
Warrant to purchase shares of Class A Common Stock, dated August 11, 2006 (incorporated by reference
to Exhibit 4.2 to our Quarterly Report on Form 10-Q (file number 001-15395) for the quarter ended
September 30, 2006 (September, 2006 10-Q)). |
|
|
|
|
|
|
|
|
10.1 |
|
|
|
|
1999 Stock Incentive Plan (incorporated by reference to the Registration Statement), as amended by
Exhibits 10.1.1, 10.1.2 and 10.1.3. |
|
|
|
|
|
|
|
|
10.1.1 |
|
|
|
|
Amendment No. 1 to the 1999 Stock Incentive Plan, dated as of March 9, 2000 (incorporated by reference
to our Annual Report on Form 10-K for the year ended December 31, 1999, File Number 001-15395 (the
1999 10-K)). |
|
|
|
|
|
|
|
|
10.1.2 |
|
|
|
|
Amendment No. 2 to the Amended and Restated 1999 Stock Incentive Plan, dated as of May 11, 2000
(incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000
(the June 2000 10-Q)). |
|
|
|
|
|
|
|
|
10.1.3 |
|
|
|
|
Amendment No. 3 to the Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to
our Current Report on Form 8-K filed on May 17, 2005 (the May 17, 2005 8-K)). |
|
|
|
|
|
|
|
|
10.2 |
|
|
|
|
1999 Non-Employee Director Stock and Option Compensation Plan (incorporated by reference to the
Registration Statement) as amended by Exhibit 10.2.1. |
|
|
|
|
|
|
|
|
10.2.1 |
|
|
|
|
Amendment No. 1 to the Martha Stewart Living Omnimedia, Inc. Non-Employee Director Stock and Option
Compensation Plan (incorporated by reference to the May 17, 2005 8-K). |
|
|
|
|
|
|
|
|
10.3 |
|
|
|
|
Form of Intellectual Property License and Preservation Agreement, dated as of October 22, 1999, by and
between Martha Stewart Living Omnimedia, Inc. and Martha Stewart (incorporated by reference to Exhibit
10.8 to the Registration Statement). |
|
|
|
|
|
|
|
|
10.4 |
|
|
|
|
Lease, dated as of September 24, 1992, between Tishman Speyer Silverstein Partnership and Time
Publishing Ventures, Inc., as amended by First Amendment of Lease dated as of September 24, 1994
between 11 West 42 Limited Partnership and Time Publishing Ventures, Inc. (incorporated by reference
to Exhibit 10.10 to the Registration Statement). |
|
|
|
|
|
|
|
|
10.5 |
|
|
|
|
Lease, dated as of March 31, 1998, between 11 West 42 Limited Partnership and Martha Stewart Living
Omnimedia LLC (incorporated by reference to Exhibit 10.11 to the Registration Statement). |
|
|
|
|
|
|
|
|
10.6 |
|
|
|
|
Lease, dated August 20, 1999, between 601 West Associates LLC and Martha Stewart Living Omnimedia LLC
(incorporated by reference to Exhibit 10.12 to the Registration Statement) as amended by Exhibits
10.6.1 and 10.6.2. |
|
|
|
|
|
|
|
|
10.6.1 |
|
|
|
|
First Lease Modification Agreement, dated December 24, 1999, between 601 West Associates LLC and
Martha Stewart Living Omnimedia, Inc. (incorporated by reference to Exhibit 10.12.1 to our Annual
Report on Form 10-K (file number 001-15395) for the year ended December 31, 1999). |
|
|
|
|
|
|
|
|
10.6.2 |
|
|
|
|
Sixth Lease Modification Agreement, dated as of June 14, 2007, between 601 West Associates LLC and
Martha Stewart Living Omnimedia, Inc (incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q (file number 001-15395) for the quarter ended March 31, 2008 (March 2008 10-Q)). |
43
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Exhibit Title |
|
|
|
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|
|
|
|
10.7 |
|
|
|
|
Lease, dated as of October 1, 2000, between Newtown Group Properties Limited Partnership and Martha
Stewart Living Omnimedia, Inc. (incorporated by reference to Exhibit 10.1 our Quarterly Report on Form
10-Q (file number 001-15395) for the quarter ended June 30, 2001 (the June 2001 10-Q)). |
|
|
|
|
|
|
|
|
10.8 |
|
|
|
|
License Agreement, dated June 21, 2001 by and between Kmart Corporation and MSO IP Holdings, Inc.
(incorporated by reference to Exhibit 10.3 to the June 2001
10-Q) as amended by Exhibit 10.8.1 and 10.8.2.
|
|
|
|
|
|
|
|
|
10.8.1 |
|
|
|
|
Amendment, dated as of April 22, 2004 to the License Agreement, by and between MSO IP Holdings, Inc.
and Kmart Corporation, dated June 21, 2001 (incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q (file number 001-15395) for the quarter ended June 30, 2004). |
|
|
|
|
|
|
|
|
10.8.2 |
* |
|
|
|
Amendment,
dated as of July 7, 2009, to the License Agreement, by and between
MSO IP Holdings, Inc. and Kmart Corporation, dated June 21, 2001, as
amended. |
|
|
|
|
|
|
|
|
10.9 |
|
|
|
|
Split-Dollar Life Insurance Agreement, dated February 28, 2001, by and among Martha Stewart Living
Omnimedia, Inc., Martha Stewart and The Martha Stewart Family Limited Partnership (incorporated by
reference to Exhibit 10.17 to our Annual Report on Form 10-K (file number 001-15395) for the year
ended December 31, 2000) as amended by Exhibits 10.9.1 and 10.9.2 and terminated by Exhibit 10.9.3. |
|
|
|
|
|
|
|
|
10.9.1 |
|
|
|
|
Amendment, dated January 28, 2002, to Split-Dollar Life Insurance Agreement, dated February 28, 2001,
by and between Martha Stewart Living Omnimedia, Inc., Martha Stewart and The Martha Stewart Family
Limited Partnership (incorporated by reference to Exhibit 10.14.2 to our Annual Report on Form 10-K
(file number 001-15395) for the year ended December 31, 2001). |
|
|
|
|
|
|
|
|
10.9.2 |
|
|
|
|
Amendment, dated as of January 1, 2003, to Split-Dollar Life Insurance Agreement, dated February 28,
2001, as amended, by and among Martha Stewart Living Omnimedia, Inc., Martha Stewart and The Martha
Stewart Family Limited Partnership (incorporated by reference to Exhibit 10.14.3 to our Annual Report
on Form 10-K (file number 001-15395) for the year ended December 31, 2002). |
|
|
|
|
|
|
|
|
10.9.3 |
* |
|
|
|
Agreement,
dated November 9, 2009, terminating the Split-Dollar Life Insurance Agreement dated February
28, 2001 by and among Martha Stewart Living Omnimedia, Inc., Martha Stewart and the Martha Stewart
Family Limited Partnership, as amended. |
|
|
|
|
|
|
|
|
10.10 |
|
|
|
|
Amended
and Restated Employment Agreement, dated as of April 1, 2009, between
Martha Stewart Living Omnimedia, Inc. and Martha Stewart (incorporated
by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q (file
number 001-15395) for the Quarter ended March 31, 2009 (March 2009
10-Q). |
|
|
|
|
|
|
|
|
10.11 |
|
|
|
|
Intangible
Asset License Agreement, dated as of June 13, 2008, between Martha Stewart Living Omnimedia,
Inc. and MS Real Estate Management Company (incorporated by reference to Exhibit 10.9 to our June 2008
10-Q), as amended by Exhibits 10.11.1 and 10.11.2. |
|
|
|
|
|
|
|
|
10.11.1 |
* |
|
|
|
First
Amendment, dated as of December, 2008, to the Intangible Asset License Agreement between MS Real
Estate Management Company and Martha Stewart Living Omnimedia, Inc. dated as of June 13, 2008. |
|
|
|
|
|
|
|
|
10.11.2 |
* |
|
|
|
Second
Amendment, dated as of February 8, 2010, to the Intangible Asset License Agreement between MS
Real Estate Management Company and Martha Stewart Living Omnimedia,
Inc. dated as of June 13, 2008, as
amended. |
|
|
|
|
|
|
|
|
10.12 |
|
|
|
|
Employment
Agreement, dated as of March 24, 2009, between Martha Stewart Living Omnimedia, Inc. and
Kelli Turner (incorporated by reference to Exhibit 10.1 to our
March 2009 10-Q). |
|
|
|
|
|
|
|
|
10.13 |
|
|
|
|
2005 Executive Severance Pay Plan (incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K (file number 001-15395) filed on January 6, 2005). |
|
|
|
|
|
|
|
|
10.14 |
|
|
|
|
Form of Restricted Stock Award Agreement for use under the Martha Stewart Living Omnimedia, Inc.
Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K (file number 001-15395) filed on January 14, 2005). |
|
|
|
|
|
|
|
|
10.15 |
|
|
|
|
Registration Rights Agreement between Charles A. Koppelman and Martha Stewart Living Omnimedia, Inc.
dated January 24, 2005 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K
(file number 001-15395) filed on October 21, 2005). |
|
|
|
|
|
|
|
|
10.16 |
|
|
|
|
Separation
Agreement, dated as of April 20, 2009, between Martha Stewart Living Omnimedia, Inc. and
Wenda Harris Millard (incorporated by reference to Exhibit 10.3 to our March 2009 10-Q). |
|
|
|
|
|
|
|
|
10.17 |
|
|
|
|
Warrant Registration Rights Agreement, dated as of August 11, 2006, between Martha Stewart Living
Omnimedia, Inc. and Mark Burnett (incorporated by reference to Exhibit 10.3 to our September, 2006
10-Q). |
|
|
|
|
|
|
|
|
10.18 |
|
|
|
|
Form of Restricted Stock Unit Award Agreement under the Amended and Restated 1999 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (file number 001-15395)
filed on February 27, 2007). |
|
|
|
|
|
|
|
|
10.19 |
|
|
|
|
2008 Executive Severance Pay Plan (incorporated by reference to Exhibit 10.4 to our Quarterly Report
on Form 10-Q (file number 001-15395) for the quarter ended September 30, 2007 (September 2007
10-Q)). |
44
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Exhibit Title |
|
|
|
|
|
|
|
|
10.20 |
|
|
|
|
Publicity
Rights Agreement, dated as of April 2, 2008, by and among Martha Stewart Living Omnimedia,
Inc., MSLO Shared IP Sub LLC and Emeril J. Lagasse, III (incorporated by reference to Exhibit 10.4 to
our March 2008 10-Q). |
|
|
|
|
|
|
|
|
10.21 |
|
|
|
|
Amended
and Restated Loan Agreement, dated as of August 7, 2009, by and among Bank of America, N.A.,
MSLO Emeril Acquisition Sub LLC and Martha Stewart Living Omnimedia, Inc. (incorporated by reference
to Exhibit 10.1 to our Quarterly Report on Form 10-Q (file number 001-15395) for the quarter ended
September 30, 2009 (September 2009 10-Q)), as
amended by Exhibit 10.22. |
|
|
|
|
|
|
|
|
10.22 |
* |
|
|
|
Waiver
and Amendment to Loan Documents, dated as of December 18, 2009, to Amended and Restated Loan
Agreement dated as of August 7, 2009 among Bank of America, N.A., MSLO Emeril Acquisition Sub LLC and
Martha Stewart Living Omnimedia, Inc. |
|
|
|
|
|
|
|
|
10.23 |
|
|
|
|
Security
Agreement, dated as of July 31, 2008, among Martha Stewart Living Omnimedia, Inc., MSLO Emeril
Acquisition Sub LLC, and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q (file number 001-15395) for the quarter ended September 30, 2008
(September 2008 10-Q)) as amended by Exhibits 10.23.1, 10.23.2, and 10.22. |
|
|
|
|
|
|
|
|
10.23.1 |
|
|
|
|
Waiver
and Omnibus Amendment No. 1, dated as of June 18, 2009, to Loan Agreement dated as of April 4,
2008 by and among Bank of America, N.A., MSLO Emeril Acquisition Sub LLC and Martha Stewart Living
Omnimedia, Inc. (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (file
number 001-15395) for the quarter ended June 30, 2009). |
|
|
|
|
|
|
|
|
10.23.2 |
|
|
|
|
Amendment
No. 2, dated as of August 7, 2009, to Security Agreement dated as of July 31, 2008 among
Martha Stewart Living Omnimedia, Inc., Emeril Acquisition Sub LLC and Bank of America, (incorporated
by reference to Exhibit 10.2 to our September 2009 10-Q). |
|
|
|
|
|
|
|
|
10.24 |
|
|
|
|
Continuing and Unconditional Guaranty dated as of April 4, 2008 executed by Martha Stewart Living
Omnimedia, Inc., MSO IP Holdings, Inc., Martha Stewart, Inc., Body and Soul Omnimedia, Inc., MSLO
Productions, Inc., MSLO Productions Home, Inc., MSLO Productions EDF, Inc. and Flour
Productions, Inc. (incorporated by reference to Exhibit 10.8 to our March 2008 10-Q), as reaffirmed by
Exhibit 10.24.1. |
|
|
|
|
|
|
|
|
10.24.1 |
|
|
|
|
Reaffirmation
of Guaranty, dated as of August 7, 2009, executed by Martha Stewart Living Omnimedia,
Inc., MSO IP Holdings, Inc., Martha Stewart, Inc., Body and Soul Omnimedia, Inc., MSLO Productions,
Inc. MSLO Productions Home, Inc. MSLO Productions EDF, Inc and Flour Productions, Inc.
(incorporated by reference to Exhibit 10.3 to our September 2009 10-Q). |
|
|
|
|
|
|
|
|
10.25 |
|
|
|
|
Registration
Rights Agreement, dated as of April 2, 2008, by and among Martha Stewart Living Omnimedia,
Inc., Emerils Food of Love Productions, L.L.C., emerils.com, LLC and Emeril J. Lagasse, III
(incorporated by reference to Exhibit 10.9 to our March 2008 10-Q). |
|
|
|
|
|
|
|
|
10.26 |
* |
|
|
|
Director Compensation Program. |
|
|
|
|
|
|
|
|
10.27 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan (incorporated by
reference to Exhibit 99.1 to our Current Report on Form 8-K (file number 001-15395) filed on May 20,
2008 (May 20, 2008 8-K)). |
|
|
|
|
|
|
|
|
10.28 |
|
|
|
|
Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Option
Agreement and forms of related Notices (incorporated by reference to Exhibit 99.2 to our May 20, 2008
8-K). |
|
|
|
|
|
|
|
|
10.29 |
|
|
|
|
Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted
Stock Unit Agreement (incorporated by reference to Exhibit 99.3 to our May 20, 2008 8-K). |
|
|
|
|
|
|
|
|
10.30 |
|
|
|
|
Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted
Stock Grant Agreement (incorporated by reference to Exhibit 99.4 to our May 20, 2008 8-K). |
|
|
|
|
|
|
|
|
10.31 |
|
|
|
|
Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock
Appreciation Right Agreement and form of related Notice (incorporated by reference to Exhibit 99.5 to
our May 20, 2008 8-K). |
|
|
|
|
|
|
|
|
10.32 |
|
|
|
|
Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Grant
Agreement and form of related Acknowledgement (incorporated by reference to Exhibit 99.6 to our May
20, 2008 8-K). |
|
|
|
|
|
|
|
|
10.33 |
|
|
|
|
Form of Performance-Based Restricted Stock Unit Agreement pursuant to the Martha Stewart Living
Omnimedia, Inc. Omnibus Stock and Option Compensation Plan (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K (file number 001-15395) filed on February 12, 2009). |
|
|
|
|
|
|
|
|
10.34 |
|
|
|
|
Employment
Agreement, dated as of September 17, 2008, between Martha Stewart Living Omnimedia, Inc. and
Charles A. Koppelman (incorporated by reference to Exhibit 10.2 to our September 2008
10-Q). |
45
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Exhibit Title |
|
|
|
|
|
|
|
|
10.35 |
|
|
|
|
Employment
Agreement, dated as of September 17, 2008, between Martha Stewart Living Omnimedia, Inc. and
Wenda Harris Millard (incorporated by reference to Exhibit 10.3 to our September 2008 10-Q). |
|
|
|
|
|
|
|
|
10.36 |
|
|
|
|
Employment
Agreement, dated as of September 17, 2008, between Martha Stewart Living Omnimedia, Inc. and
Robin Marino (incorporated by reference to Exhibit 10.4 to our September 2008 10-Q). |
|
|
|
|
|
|
|
|
10.37 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted Stock
Grant Agreement dated October 1, 2008 between Martha Stewart Living Omnimedia, Inc. and Charles
Koppelman (incorporated by reference to Exhibit 10.5 to our September 2008 10-Q). |
|
|
|
|
|
|
|
|
10.38 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Option Grant
Agreement and form of related Notice dated October 1, 2008 between Martha Stewart Living Omnimedia,
Inc. and Charles Koppelman (incorporated by reference to Exhibit 10.6 to our September 2008 10-Q). |
|
|
|
|
|
|
|
|
10.39 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted Stock
Grant Agreement dated October 1, 2008 between Martha Stewart Living Omnimedia, Inc. and Wenda Harris
Millard (incorporated by reference to Exhibit 10.7 to our September 2008 10-Q). |
|
|
|
|
|
|
|
|
10.40 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Option Grant
Agreement and form of related Notice dated October 1, 2008 between Martha Stewart Living Omnimedia,
Inc. and Wenda Harris Millard (incorporated by reference to Exhibit 10.8 to our September 2008 10-Q). |
|
|
|
|
|
|
|
|
10.41 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted Stock
Grant Agreement dated October 1, 2008 between Martha Stewart Living Omnimedia, Inc. and Robin Marino
(incorporated by reference to Exhibit 10.9 to our September 2008 10-Q). |
|
|
|
|
|
|
|
|
10.42 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Option Grant
Agreement and form of related Notice dated October 1, 2008 between Martha Stewart Living Omnimedia,
Inc. and Robin Marino (incorporated by reference to Exhibit 10.10 to our September 2008 10-Q). |
|
|
|
|
|
|
|
|
10.43 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Director Deferral Plan (incorporated by reference to Exhibit
10.46 to our Annual Report on Form 10-K (file number 001-15395) for the year ended December 31, 2008
(the 2008 10-K)). |
|
|
|
|
|
|
|
|
10.44 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Non-Employee Director Stock and Option Compensation Plan
Deferral Election Form dated July 1, 2004 and Clarification dated December 23, 2008 between Martha
Stewart Living Omnimedia, Inc. and Michael Goldstein (incorporated by reference to Exhibit 10.47 to
the 2008 Form 10-K). |
|
|
|
|
|
|
|
|
10.45 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Annual Incentive Plan (incorporated by reference to the
Companys proxy statement filed in respect of its 2005 annual meeting of shareholders, dated as of
April 7, 2005). |
|
|
|
|
|
|
|
|
21 |
* |
|
|
|
List of Subsidiaries. |
|
|
|
|
|
|
|
|
23.1 |
* |
|
|
|
Consent of Independent Registered Public Accounting Firm. |
|
|
|
|
|
|
|
|
31.1 |
* |
|
|
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
31.2 |
* |
|
|
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
|
32 |
* |
|
|
|
Certification of Principal Executive Officer and Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
indicates management contracts and compensatory plans |
|
* |
|
indicates filed herewith |
|
** |
|
Schedules and exhibits to this Agreement have been omitted. The
Company agrees to furnish a supplemental copy of any omitted schedule
or exhibit to the Securities and Exchange Commission upon request. |
46
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/ Charles Koppelman
|
|
|
|
Name: |
Charles Koppelman |
|
|
|
Title: |
Principal 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.
|
|
|
Signature |
|
Title |
|
|
|
|
|
Principal Executive Officer & Executive Chairman of the Board |
Charles Koppelman |
|
|
|
|
|
|
|
Principal Financial and Accounting Officer |
Kelli Turner |
|
|
|
|
|
|
|
Director |
Charlotte Beers |
|
|
|
|
|
|
|
Director |
Michael Goldstein |
|
|
|
|
|
|
|
Director |
Arlen Kantarian |
|
|
|
|
|
|
|
Director |
William Roskin |
|
|
|
|
|
|
|
Director |
Todd Slotkin |
|
|
|
|
|
|
|
Director |
Frederic Fekkai |
|
|
Each of the above signatures is affixed as of March 5, 2010.
47
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS,
FINANCIAL STATEMENT SCHEDULES AND OTHER
FINANCIAL INFORMATION
|
|
|
|
|
Consolidated Financial Statements: |
|
|
|
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
|
|
|
F-28 |
|
All other schedules are omitted because they are not applicable or the required information is
shown in the Consolidated Financial Statements or Notes thereto.
F-1
Report of Independent Registered Public Accounting Firm
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. as of December 31, 2009 and 2008, and the related consolidated statements of operations,
shareholders equity and comprehensive loss, and cash flows for each of the three years in the
period ended December 31, 2009. Our audits also included the financial statement schedule listed in
the Index at Item 15(a). These financial statements and schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (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 consolidated financial position of Martha Stewart Living Omnimedia, Inc. at December
31, 2009 and 2008, and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 2009, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Martha Stewart Living Omnimedia Inc.s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated March 5, 2010 expressed an unqualified opinion thereon.
/s/ Ernst & Young
New York, New York
March 5, 2010
F-2
MARTHA STEWART LIVING OMNIMEDIA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2009, 2008 and 2007
(in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
REVENUES |
|
|
|
|
|
|
|
|
|
|
|
|
Publishing |
|
$ |
128,981 |
|
|
$ |
163,540 |
|
|
$ |
183,727 |
|
Broadcasting |
|
|
46,111 |
|
|
|
47,328 |
|
|
|
40,263 |
|
Internet |
|
|
17,119 |
|
|
|
15,576 |
|
|
|
19,189 |
|
Merchandising |
|
|
52,566 |
|
|
|
57,866 |
|
|
|
84,711 |
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
244,777 |
|
|
|
284,310 |
|
|
|
327,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING COSTS AND EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Production, distribution and editorial |
|
|
121,522 |
|
|
|
136,709 |
|
|
|
154,921 |
|
Selling and promotion |
|
|
59,333 |
|
|
|
71,504 |
|
|
|
89,179 |
|
General and administrative |
|
|
56,584 |
|
|
|
69,632 |
|
|
|
68,514 |
|
Depreciation and amortization |
|
|
7,874 |
|
|
|
7,973 |
|
|
|
7,562 |
|
Impairment charge goodwill |
|
|
|
|
|
|
8,849 |
|
|
|
|
|
Impairment
charge other asset |
|
|
11,432 |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses |
|
|
256,745 |
|
|
|
295,167 |
|
|
|
320,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING (LOSS) / INCOME |
|
|
(11,968 |
) |
|
|
(10,857 |
) |
|
|
7,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER (EXPENSE)/INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (expense)/income, net |
|
|
(101 |
) |
|
|
490 |
|
|
|
2,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (loss)/income |
|
|
(236 |
) |
|
|
(763 |
) |
|
|
432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on equity securities |
|
|
(547 |
) |
|
|
(2,221 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expense) / income |
|
|
(884 |
) |
|
|
(2,494 |
) |
|
|
3,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS)/INCOME BEFORE INCOME TAXES |
|
|
(12,852 |
) |
|
|
(13,351 |
) |
|
|
10,917 |
|
Income tax provision |
|
|
(1,726 |
) |
|
|
(2,314 |
) |
|
|
(628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET (LOSS) / INCOME |
|
$ |
(14,578 |
) |
|
$ |
(15,665 |
) |
|
$ |
10,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) / INCOME PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.27 |
) |
|
$ |
(0.29 |
) |
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
53,880 |
|
|
|
53,360 |
|
|
|
52,449 |
|
Diluted |
|
|
53,880 |
|
|
|
53,360 |
|
|
|
52,696 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
MARTHA STEWART LIVING OMNIMEDIA, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
(in thousands except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
25,384 |
|
|
$ |
50,204 |
|
Short-term investments |
|
|
13,085 |
|
|
|
9,915 |
|
Accounts receivable, net |
|
|
56,364 |
|
|
|
52,500 |
|
Inventory |
|
|
5,166 |
|
|
|
6,053 |
|
Deferred television production costs |
|
|
3,788 |
|
|
|
4,076 |
|
Other current assets |
|
|
5,709 |
|
|
|
3,752 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
109,496 |
|
|
|
126,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT, net |
|
|
17,268 |
|
|
|
14,422 |
|
GOODWILL, net |
|
|
45,107 |
|
|
|
45,107 |
|
OTHER INTANGIBLE ASSETS, net |
|
|
47,070 |
|
|
|
48,205 |
|
OTHER NONCURRENT ASSETS, net |
|
|
10,850 |
|
|
|
27,051 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
229,791 |
|
|
$ |
261,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
26,752 |
|
|
$ |
28,019 |
|
Accrued payroll and related costs |
|
|
7,495 |
|
|
|
7,525 |
|
Current portion of deferred subscription revenue |
|
|
18,587 |
|
|
|
22,597 |
|
Current portion of other deferred revenue |
|
|
4,716 |
|
|
|
7,582 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
57,550 |
|
|
|
65,723 |
|
|
|
|
|
|
|
|
DEFERRED SUBSCRIPTION REVENUE |
|
|
5,672 |
|
|
|
6,874 |
|
OTHER DEFERRED REVENUE |
|
|
2,759 |
|
|
|
13,334 |
|
LOAN PAYABLE |
|
|
13,500 |
|
|
|
19,500 |
|
DEFERRED INCOME TAX LIABILITY |
|
|
3,200 |
|
|
|
1,854 |
|
OTHER NONCURRENT LIABILITIES |
|
|
3,290 |
|
|
|
3,005 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
85,971 |
|
|
|
110,290 |
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Class A Common Stock, $.01 par value, 350,000 shares authorized; 28,313 and
28,204 shares outstanding in 2009 and 2008, respectively |
|
|
283 |
|
|
|
282 |
|
Class B Common Stock, $.01 par value, 150,000 shares authorized; 26,690 shares
outstanding in 2009 and 2008 |
|
|
267 |
|
|
|
267 |
|
Capital in excess of par value |
|
|
290,387 |
|
|
|
283,248 |
|
Accumulated deficit |
|
|
(146,605 |
) |
|
|
(132,027 |
) |
Accumulated other comprehensive income |
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144,595 |
|
|
|
151,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Class A treasury stock 59 shares at cost |
|
|
(775 |
) |
|
|
(775 |
) |
|
|
|
|
|
|
|
Total shareholders equity |
|
|
143,820 |
|
|
|
150,995 |
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
229,791 |
|
|
$ |
261,285 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
MARTHA STEWART LIVING OMNIMEDIA, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2009, 2008 and 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
Class A |
|
|
Class B |
|
|
Capital in |
|
|
|
|
|
|
Other |
|
|
Class A |
|
|
|
|
|
|
Common Stock |
|
|
Common Stock |
|
|
excess of |
|
|
Accumulated |
|
|
Comprehensive |
|
|
Treasury Stock |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
par value |
|
|
Deficit |
|
|
Income/(Loss) |
|
|
Shares |
|
|
Amount |
|
|
Total |
|
Balance at January 1, 2007 |
|
|
26,109 |
|
|
$ |
261 |
|
|
|
26,791 |
|
|
$ |
268 |
|
|
$ |
257,014 |
|
|
$ |
(125,811 |
) |
|
$ |
|
|
|
|
(59 |
) |
|
$ |
(775 |
) |
|
$ |
130,957 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,289 |
|
Cumulative effect of adoption of ASC 740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(840 |
) |
Shares returned on net treasury basis |
|
|
|
|
|
|
|
|
|
|
(69 |
) |
|
|
(1 |
) |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares in conjunction with stock options exercises |
|
|
91 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
307 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308 |
|
Issuance of shares of stock and restricted stock, net of
cancellations and tax withholdings |
|
|
384 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
(3,434 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,430 |
) |
Issuance of shares in conjunction with warrant exercises |
|
|
154 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Equity charge associated with common stock warrant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,530 |
|
Non-cash equity compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
26,738 |
|
|
|
267 |
|
|
|
26,722 |
|
|
|
267 |
|
|
|
272,132 |
|
|
|
(116,362 |
) |
|
|
|
|
|
|
(59 |
) |
|
|
(775 |
) |
|
|
155,529 |
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,665 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,665 |
) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,129 |
) |
|
|
|
|
|
|
|
|
|
|
(1,129 |
) |
Realized loss on investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,129 |
|
|
|
|
|
|
|
|
|
|
|
1,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,665 |
) |
Shares returned on a net treasury basis |
|
|
|
|
|
|
|
|
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares in conjunction with stock options exercises |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44 |
|
Issuance of shares of stock and restricted stock, net of
cancellations and tax withholdings |
|
|
1,460 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
3,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,128 |
|
Non-cash equity compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
|
28,204 |
|
|
|
282 |
|
|
|
26,690 |
|
|
|
267 |
|
|
|
283,248 |
|
|
|
(132,027 |
) |
|
|
|
|
|
|
(59 |
) |
|
|
(775 |
) |
|
|
150,995 |
|
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,578 |
) |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,315 |
) |
Issuance of shares in conjunction with stock options exercises |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70 |
|
Issuance of shares of stock and restricted stock, net of
cancellations and tax withholdings |
|
|
99 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
(558 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(557 |
) |
Non-cash equity compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
28,313 |
|
|
$ |
283 |
|
|
|
26,690 |
|
|
$ |
267 |
|
|
$ |
290,387 |
|
|
$ |
(146,605 |
) |
|
$ |
263 |
|
|
|
(59 |
) |
|
$ |
(775 |
) |
|
$ |
143,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
MARTHA STEWART LIVING OMNIMEDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2009, 2008 and 2007
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) / income |
|
$ |
(14,578 |
) |
|
$ |
(15,665 |
) |
|
$ |
10,289 |
|
Adjustments to reconcile net (loss) / income to net
cash (used in)/provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash revenue |
|
|
(13,446 |
) |
|
|
(2,502 |
) |
|
|
|
|
Depreciation and amortization |
|
|
7,874 |
|
|
|
7,973 |
|
|
|
7,562 |
|
Amortization of deferred television production costs |
|
|
20,651 |
|
|
|
21,478 |
|
|
|
21,029 |
|
Impairment charge |
|
|
11,432 |
|
|
|
9,349 |
|
|
|
|
|
Non-cash equity compensation |
|
|
7,947 |
|
|
|
8,526 |
|
|
|
19,118 |
|
Deferred income tax expense |
|
|
1,347 |
|
|
|
1,854 |
|
|
|
|
|
Loss on equity securities |
|
|
547 |
|
|
|
2,221 |
|
|
|
|
|
Other non-cash charges, net |
|
|
760 |
|
|
|
1,578 |
|
|
|
|
|
Changes in operating assets and liabilities |
|
|
(31,807 |
) |
|
|
4,887 |
|
|
|
(49,692 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) /provided by operating activities |
|
|
(9,273 |
) |
|
|
39,699 |
|
|
|
8,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business |
|
|
|
|
|
|
(46,310 |
) |
|
|
|
|
Investment in other non-current assets |
|
|
(828 |
) |
|
|
(6,512 |
) |
|
|
(10,150 |
) |
Capital expenditures |
|
|
(8,609 |
) |
|
|
(2,864 |
) |
|
|
(5,032 |
) |
Purchases of short-term investments |
|
|
(25,010 |
) |
|
|
(9,915 |
) |
|
|
(186,210 |
) |
Sales of short-term investments |
|
|
24,830 |
|
|
|
26,745 |
|
|
|
194,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(9,617 |
) |
|
|
(38,856 |
) |
|
|
(6,606 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs |
|
|
|
|
|
|
(719 |
) |
|
|
|
|
Proceeds from long-term debt |
|
|
|
|
|
|
30,000 |
|
|
|
|
|
Repayment of long-term debt |
|
|
(6,000 |
) |
|
|
(10,500 |
) |
|
|
|
|
Proceeds from exercise of stock options |
|
|
70 |
|
|
|
44 |
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided by financing activities |
|
|
(5,930 |
) |
|
|
18,825 |
|
|
|
308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)/increase in cash |
|
|
(24,820 |
) |
|
|
19,668 |
|
|
|
2,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR |
|
|
50,204 |
|
|
|
30,536 |
|
|
|
28,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF YEAR |
|
$ |
25,384 |
|
|
$ |
50,204 |
|
|
$ |
30,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business financed by stock issuance |
|
|
|
|
|
$ |
5,000 |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions except share data and where noted)
1. THE COMPANY
Martha Stewart Living Omnimedia, Inc. (together with its wholly owned subsidiaries, the
Company) is a leading provider of original how to content and products for homemakers and other
consumers. The Companys business segments are Publishing, Broadcasting, Internet, and
Merchandising. The Publishing segment primarily consists of the Companys operations related to its
magazines and books. The Broadcasting segment primarily consists of the Companys television
production operations which produce television programming and other licensing revenue from
programs that air in syndication and on cable, and also those related to its satellite radio
operations. The Internet segment primarily consists of the content-driven website marthastewart.com
which is primarily supported by advertising revenues. The Merchandising segment consists of the
Companys operations related to the design of merchandise and related promotional and packaging
materials that are distributed by its retail and manufacturing partners in exchange for royalty
income.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Recent accounting standards
In the third quarter of 2009, the Company adopted the Financial Accounting Standards Board
(FASB) Accounting Standards Codification (each an ASC and collectively, the Codification),
which establishes the Codification as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of financial statements in
conformity with GAAP. The historical GAAP hierarchy was eliminated and the Codification became the
only level of authoritative GAAP, other than guidance issued by the Securities and Exchange
Commission (SEC). The FASB will not issue new standards in the form of Statements, FASB Staff
Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standard
Updates (ASUs). ASUs will serve to update the Codification, provide background information about
the guidance and provide the bases for conclusions on change(s) in the Codification. The
Codification is effective for all financial statements issued for interim and annual periods ending
after September 15, 2009. The adoption of the Codification did not have an impact on the Companys
consolidated financial statements. However, references to specific accounting standards in the
notes to the Companys consolidated financial statements have been changed to refer to the
appropriate section of the Codification.
In May 2009, the FASB issued ASC Topic 855, Subsequent Events (ASC 855). ASC 855 establishes
general standards of accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued or are available to be issued. ASC 855 incorporates
into GAAP certain guidance that previously existed under generally accepted auditing standards. The
Company adopted ASC 855 in the second quarter of 2009. The adoption of ASC 855 did not have an
impact on the Companys consolidated financial statements.
In December 2007, the FASB issued ASC Topic 805, Business Combinations (ASC 805). ASC 805
requires an entity to measure a business acquired at fair value and to recognize goodwill
attributable to any noncontrolling interests (previously referred to as minority interests) rather
than just the portion attributable to the acquirer. ASC 805 also results in fewer exceptions to the
principle of measuring assets acquired and liabilities assumed in a business combination at fair
value. In addition, ASC 805 requires payments to third parties for consulting, legal, audit, and
similar services associated with an acquisition to be recognized as expenses when incurred rather
than capitalized as part of the business combination. Also in December 2007, the FASB issued ASC
Topic 810, Consolidation (ASC 810). ASC 810 requires that accounting and reporting for minority
interests be recharacterized as noncontrolling interests and classified as a component of equity.
The Company simultaneously adopted ASC 805 and ASC 810 as of January 1, 2009, as required. These
standards will have no impact on the previous acquisitions recorded by the Company in the Companys
consolidated financial statements.
In September 2006, the FASB issued ASC Topic 820, Fair Value Measurements and Disclosures
(ASC 820), which clarifies the definition of fair value, establishes a framework for measuring
fair value in GAAP, and expands disclosures about fair value measurement. ASC 820 does not require
any new fair value measurements and eliminates inconsistencies in guidance found in various prior
accounting pronouncements. ASC 820 is effective for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. On February 12, 2008, the FASB delayed the effective
date of ASC 820 for all nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually). This partially deferred the effective date of ASC 820 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items within the scope of this
standard. The Company adopted ASC 820 as of January 1, 2008 for
financial assets and liabilities, and January 1, 2009 for nonfinancial assets and nonfinancial
liabilities. The adoption of ASC 820 for financial assets and liabilities and for nonfinancial
assets and nonfinancial liabilities did not have a material impact on the Companys consolidated
financial statements.
F-7
In October 2009, the FASB issued FASB ASU No. 09-13, Revenue Recognition (Topic 605):
Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force)
(FASB ASU 09-13). FASB ASU 09-13 updates the existing multiple-element arrangement guidance
currently in FASB ASC 605-25 (Revenue Recognition-Multiple-Element-Arrangements). This new
guidance eliminates the requirement that all undelivered elements have objective and reliable
evidence of fair value before a company can recognize the portion of the overall arrangement fee
that is attributable to the items that have already been delivered. Further, companies will be
required to allocate revenue in arrangements involving multiple deliverables based on estimated
selling price of each deliverable, even though such deliverables are not sold separately by either
the company itself or other vendors. This new guidance also significantly expands the disclosures
required for multiple-element revenue arrangements. The revised guidance will be effective for the
fiscal year ending December 31, 2011, with early adoption permitted. The Company expects to adopt
the standard in the first quarter of 2010. The Company does not expect the adoption of this
standard to have a material impact on the Companys consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly owned subsidiaries.
Investments in which the Company does not exercise significant influence over the investee are
accounted for using the cost method of accounting. All significant intercompany transactions have
been eliminated.
Acquisitions
The Company accounts for acquisitions using the purchase method. Under this method, the
acquiring company allocates the purchase price to the assets acquired based upon their estimated
fair values at the date of acquisition, including intangible assets that can be identified. The
purchase price in excess of the fair value of the net assets acquired is recorded as goodwill.
Investment in equity securities
The Company has certain investments in equity securities which have readily determinable
fair values. These securities are accounted for as available-for-sale securities and are reported at
fair value, with unrealized gains and losses excluded from earnings and reported as accumulated
other comprehensive income/(loss) within shareholders equity. If a decline in fair value is judged
to be other than temporary, the cost basis of the security will be written down to fair value and
the amount of the write down will be accounted for as a realized loss, included in earnings.
The balance of available-for-sale marketable equity securities at December 31, 2009, includes
the Companys investment in the Hain Celestial Group, Inc. of $2.1 million which was classified as short-term investments (See Note 3) and $0.9 million which was
classified as other current assets. The balance of available-for-sale marketable equity securities
at December 31, 2008, included the Companys investment in TurboChef Technologies, Inc.
(TurboChef) stock, now known as The Middleby Corporation, which was classified as other non-current assets.
The gross unrealized gain on marketable equity securities was $0.3 million at December 31,
2009, which is included in accumulated other comprehensive income in the accompanying consolidated
balance sheet. During 2008, the Company recorded a $1.1 million impairment charge related to the
write-down of its investment in TurboChef stock. This loss was determined to be
other-than-temporary due to the significant decline in and the duration of the decline in the price
of this stock. The impairment charge is included in loss on equity securities in the accompanying
consolidated statement of operations.
In January 2009, the Company received $2.0 million, which represented
$1.4 million in cash and 18,518 shares of Middleby common stock worth $0.5 million as consideration
for its shares of TurboChef stock. During the second quarter of 2009, the Company sold its 18,518
shares of Middleby common stock for $0.9 million representing a gain on sale of equity securities
of $0.3 million. This gain is included in loss on equity securities in the accompanying
consolidated statement of operations.
Cash and Cash Equivalents
Cash and cash equivalents include cash equivalents that mature within three months of the date
of purchase (see Note 3).
F-8
Short-term Investments
Short-term investments include investments that have maturity dates in excess of three months
on the date of acquisition (see Note 3).
Revenue Recognition
We recognize revenues when realized or realizable and earned. Revenues and associated accounts
receivable are recorded net of provisions for estimated future returns, doubtful accounts and other
allowances.
In an arrangement with multiple deliverables, ASC Topic 605, Revenue Recognition (ASC 605)
provides guidance to determine a) how the arrangement consideration should be measured, b) whether
the arrangement should be divided into separate units of accounting, and c) how the arrangement
consideration should be allocated among the separate units of accounting.
The Company has applied the
guidance included in ASC 605 in establishing revenue recognition policies for its arrangements with
multiple deliverables. For agreements with multiple deliverables, including merchandising
licensing contracts and advertising contracts that cross media
platforms, if the Company is unable to put
forth vendor specific objective evidence required under ASC 605 to determine the fair value of each
deliverable, then the Company will account for the deliverables as a combined unit of accounting rather than
separate units of accounting. In this case, revenue is recognized as the earnings process is
completed, generally based
on the revenue recognition policy applicable to the last deliverable. This policy has historically resulted
in straight-line revenue recognition over the service period of that last deliverable.
Magazine advertising revenues are recorded based on the on-sale dates of magazines and are
stated net of agency commissions and cash and sales discounts. Allowances for estimated bad debts
are provided based upon historical experience.
Deferred subscription revenue results from advance payments for subscriptions received from
subscribers and is recognized on a straight-line basis over the life of the subscription as issues
are delivered.
Newsstand revenues are recognized based on the on-sale dates of magazines and are recorded
based upon estimates of sales, net of brokerage and newsstand related fees. Estimated returns are
recorded based upon historical experience.
Deferred book revenue results from advance payments received from the Companys publishers and
is recognized as manuscripts are delivered to and accepted by the publishers. Revenue is also
earned from book publishing as sales on a unit basis exceed the advanced royalty.
Television advertising revenues on The Martha Stewart Show are recognized when the related
commercial is aired and are recorded net of agency commission and estimated reserves for television
audience underdelivery. Television integration revenues are recognized when the segment featuring
the related product/brand immersion is initially aired. Television revenue related to Emeril
Lagasse is generally recognized when services are performed. Licensing revenues are recorded as
earned in accordance with the specific terms of each agreement. Radio advertising revenues are
generally recorded when the related commercials are aired and are recorded net of agency
commissions. Licensing revenues from the Companys radio programming are recorded on a
straight-line basis over the term of the agreement.
Internet advertising revenues are generally based on the sale of impression-based
advertisements, which are recorded in the period in which the advertisements are served.
Licensing-based revenues, most of which are in the Merchandising segment, are accrued on a
monthly basis based on the specific mechanisms of each contract. Payments are generally made by the
Companys partners on a quarterly basis. Generally, revenues are accrued based on actual sales,
while any minimum guarantees are earned evenly over the fiscal year. Revenues related to the
Companys agreement with Kmart have been recorded on a monthly basis based on actual retail sales,
until the last period of the year, when the Company recognized a substantial majority of the
true-up between the minimum royalty amount and royalties paid on actual sales. Not recognizing
revenue until the fourth quarter was originally driven in large part by concern about whether the
collectability of the minimums was reasonably assured in the wake of the Kmart Chapter 11 filing.
Concern about the collectability persisted in subsequent years due to difficulties in the
relationship with Kmart and numerous store closings that caused royalties to fall short of the
minimums. Accordingly, the true-up payment has been recorded in the fourth quarter at the time the
true-up amounts were known and subsequently collected.
F-9
Inventories
Inventory consisting of paper is stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
Television Production Costs
Television production costs are capitalized and amortized based upon estimates of future
revenues to be received and future costs to be incurred for the applicable television product. The
Company bases its estimates primarily on existing contracts for programs, historical advertising
rates and ratings, as well as market conditions. Estimated future revenues and costs are adjusted
regularly based upon actual results and changes in market and other conditions.
Property, Plant and Equipment
Property, plant and equipment is stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are amortized using the
straight-line method over the lease term or, if shorter, the estimated useful lives of the related
assets.
The useful lives of the Companys assets are as follows:
|
|
|
|
|
Studio sets |
|
2 years |
Furniture, fixtures and equipment |
|
3 5 years |
Computer hardware and software |
|
3 5 years |
Leasehold improvements |
|
life of lease |
Goodwill and Intangible Assets
Goodwill
The components of goodwill as of December 31, 2009 and 2008 are set forth in the schedule
below, and are reported within the Publishing and Merchandising segments:
|
|
|
|
|
(In thousands) |
|
|
|
|
Publishing |
|
$ |
44,257 |
|
Merchandising |
|
|
850 |
|
|
|
|
|
Total |
|
$ |
45,107 |
|
|
|
|
|
The Company reviews goodwill for impairment by applying a fair-value based test annually, or
more frequently if events or changes in circumstances warrant, in accordance with ASC Topic 350,
Goodwill (and Indefinite-Lived Intangible Assets). Potential goodwill impairment is measured
based upon a two-step process. In the first step, the Company compares the fair value of a
reporting unit with its carrying amount using a discounted cash flow valuation method, including
goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered not impaired, thus making the second step in impairment testing
unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of
the goodwill impairment test is performed to measure the amount of the impairment loss. The Company
estimates fair values based on the future expected cash flows, revenues, earnings and other
factors. The Company estimates future cash flows, revenues, earnings and other factors based upon
segment level historical results, current trends, and operating and cash flow projections. The
Companys estimates are subject to uncertainty, and may be affected by a number of factors outside
its control, including general economic conditions, the competitive market, and regulatory changes.
If actual results differ from the Companys estimate of future cash flows, revenues, earnings and
other factors, it may record additional impairment charges in the future.
For the years ended December 31, 2009 and 2007, no impairment charges were deemed necessary.
For the year ended December 31, 2008, the Company determined that the carrying amount of the Body +
Soul properties reporting unit exceeded its fair value and recorded a non-cash goodwill impairment
charge of approximately $8.8 million. The fair value of the Body + Soul reporting unit was
calculated using the income approach, which requires estimates of future operating results and cash
flows discounted using an estimated discount rate. The estimates resulted from updated financial
forecasts which reflected the Companys updated market view, business model revisions, and lower
spending levels. The Company evaluated the impact of these revised forecasts on its view of the
Body + Soul reporting unit and determined that a write-off of the goodwill was appropriate.
F-10
Intangible assets
The components of intangible assets as of December 31, 2009 are set forth in the schedule
below, and are reported within the Publishing, Merchandising and Broadcasting segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
|
Balance at |
|
|
|
December 31, |
|
|
Acquisition |
|
|
Amortization |
|
|
Impairment |
|
|
December 31, |
|
|
Amortization |
|
|
December 31, |
|
(In thousands) |
|
2007 |
|
|
of business |
|
|
expense |
|
|
Charge |
|
|
2008 |
|
|
expense |
|
|
2009 |
|
Trademarks |
|
$ |
500 |
|
|
$ |
45,200 |
|
|
$ |
|
|
|
$ |
(500 |
) |
|
$ |
45,200 |
|
|
$ |
|
|
|
$ |
45,200 |
|
Other intangibles |
|
|
900 |
|
|
|
5,260 |
|
|
|
|
|
|
|
|
|
|
|
6,160 |
|
|
|
|
|
|
|
6,160 |
|
Accumulated
amortization
other intangibles |
|
|
(900 |
) |
|
|
|
|
|
|
(2,255 |
) |
|
|
|
|
|
|
(3,155 |
) |
|
|
(1,135 |
) |
|
|
(4,290 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
500 |
|
|
$ |
50,460 |
|
|
$ |
(2,255 |
) |
|
$ |
(500 |
) |
|
$ |
48,205 |
|
|
$ |
(1,135 |
) |
|
$ |
47,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to the other intangibles as of December 31, 2009 is expected to be
$1.9 million between January 1, 2010 and December 31, 2014.
The Company reviews long-lived tangible assets and intangible assets with finite useful lives
for impairment whenever events or changes in circumstances indicate that their carrying values may
not be recoverable, in accordance with ASC Topic 360-10, Impairment or Disposal of Long-lived
Assets. Using the Companys best estimates based on reasonable assumptions and projections, the
Company records an impairment loss to write down the assets to their estimated fair values if
carrying values of such assets exceed their related undiscounted expected future cash flows. The
impairment loss is measured as the amount by which the carrying amount exceeds the fair value. The
Company evaluates intangible assets with finite useful lives by individual magazine title or other
applicable property, which is the lowest level at which independent cash flows can be identified.
The Company evaluates corporate assets or other long-lived assets that are not specific to certain
magazine titles or properties at a consolidated entity or segment reporting unit level, as
appropriate.
For the years ended December 31, 2009 and 2007, no impairment charges were deemed necessary.
In the fourth quarter of 2008, the Company recorded a non-cash impairment charge of $0.5 million
for the write down of an intangible asset in the Publishing business segment related to the 2004
acquisition of the Body + Soul properties.
Investment in Other Non-Current Assets
During the second quarter of 2008, the Company entered into a three-year agreement with
TurboChef Technologies, Inc. (TurboChef) to provide intellectual property and promotional
services in exchange for $10.0 million. In lieu of cash consideration, TurboChef provided
consideration in the form of 381,049 shares of TurboChef stock and a warrant to purchase 454,000
shares of TurboChef stock for an aggregate fair value of approximately $5.0 million in the first
agreement year (2008), and was to provide another $2.5 million in each of years two and three of
the agreement in the form of stock or cash, at its option, for a total contract value of $10.0
million.
On January 5, 2009, the Middleby Corporation (Middleby) completed its acquisition of
TurboChef in a cash and stock transaction. Under the terms of the merger agreement, holders of
TurboChefs common shares received a combination of $3.67 in cash and 0.0486 shares of Middleby
common stock per TurboChef share. In addition, the warrant was converted to a new warrant to
purchase 22,064 shares of Middleby. The consideration upon the merger equated to $2.0 million,
which represented $1.4 million in cash and 18,518 shares of Middleby common stock worth $0.5
million on January 5, 2009, as well as $0.1 million related to the warrant. In the first quarter of
2009, Middleby paid the Company $2.5 million in cash, fulfilling the second year obligation under
the agreement. During the second quarter of 2009, the Company sold its 18,518 shares of Middleby
common stock for $0.9 million representing a gain on sale of equity securities of $0.3 million. In
July 2009, the Company and Middleby agreed to terminate the intellectual property and promotional
services agreement and to cancel the related warrant. In connection with the termination agreement,
Middleby paid the Company $2.0 million in cash. This cash payment plus the remaining deferred
revenue of $3.6 million for a total of $5.6 million was recognized during the third and fourth
quarters of 2009 as the Company fulfilled certain remaining deliverables.
Prior to the cancellation of the warrant, any changes to the market value of the Middleby
common stock required an adjustment to the warrant. The warrant met the definition of a derivative
in accordance with ASC Topic 815, Derivatives and Hedging, and was marked to market each quarter
with the adjustment recorded in other income or other expense. In the first quarter of 2009, the
Company recorded $0.8 million of losses on equity securities to reflect the market fluctuations of
the warrant. In the second quarter of 2009, the Company recorded $0.1 million of losses on equity
securities to reflect the cancellation of the warrant.
F-11
Non-cash amounts related to these agreements have been appropriately adjusted in the cash
flows from operating activities in the statement of cash flows.
In the twelve-month period ended December 31, 2009, the Company recorded a non-cash impairment
charge in the Merchandising segment of $11.4 million to reduce the carrying value of its cost-based
equity investment in United Craft MS Brands, LLC (United Craft).
On October 9, 2009, Wilton Brands, Inc. and Wilton Holdings, Inc. (Wilton Holdings) reached
an agreement to restructure the capital structure of the affiliates of United Craft. Wilton
Holdings, a subsidiary of United Craft, issued new shares of its common stock, constituting a
majority of its total shares, to the new debt holders of Wilton Holdings. The Company currently has
merchandise agreements with Wilton Properties, Inc., a subsidiary of United Craft, for various
crafts products sold under the Martha Stewart Crafts name. These agreements contain change of
control provisions which stipulate that in the event of a sale of United Craft with no
distributions issued to unitholders, the Company is due a make-whole payment. As a result of the
restructuring transaction, the Company received a $3.0 million cash make-whole payment in October
2009 which was recorded as a reduction to general and administrative expenses within the
Merchandising segment.
While the Company has recognized all declines in the value of investments that are believed to
be other-than-temporary as of December 31, 2009, it is reasonably possible that individual
investments in the Companys portfolio may experience an other-than-temporary decline in value in
the future if the underlying issuer experiences poor operating results or the U.S. or certain
foreign equity markets experience further declines in value.
As of December 31, 2009, the Companys aggregate carrying value of its cost-based investments
was $5.7 million. This amount includes the Companys investments in Wedding Wire, pingg and
Ziplist, which represent investments in preferred stock.
Advertising Costs
Advertising costs, consisting primarily of direct-response advertising, are expensed in the
period in which the related advertising campaign occurs.
Earnings Per Share
Basic earnings per share is computed using the weighted average number of actual common shares
outstanding during the period. Diluted earnings per share reflects the potential dilution that
would occur from the exercise of stock options and shares covered under a warrant and the vesting
of restricted stock. For the years ended December 31, 2009, 2008, and 2007, the shares subject to
options, the warrant, and restricted stock awards that were excluded from the computation of
diluted earnings per share because their effect would have been antidilutive were 5,696,344,
5,858,784 and 2,276,622.
The reconciliation of basic to diluted average number of common shares outstanding at December
31, 2007 is as follows:
|
|
|
|
|
(in thousands) |
|
Shares |
|
Weighted average common shares outstanding for basic earnings
per share |
|
|
52,449 |
|
Effect of stock options and other dilutive securities |
|
|
247 |
|
|
|
|
|
Adjusted weighted average common shares outstanding for
diluted earnings per share |
|
|
52,696 |
|
|
|
|
|
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those
estimates. Management does not expect such differences to have a material effect on the Companys
consolidated financial position or results of operations.
F-12
Equity Compensation
See Note 9, Employee and Non-Employee Benefit and Compensation Plans, for discussion of
equity compensation.
Other
Certain prior year
financial information has been reclassified to conform with fiscal 2009 financial statement presentation.
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of highly liquid investments with maturities of three months
or less at date of purchase. Cash equivalents are carried at cost, which approximates their fair
market value. Cash and cash equivalents at December 31, 2009 and 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Cash |
|
$ |
25,052 |
|
|
$ |
22,790 |
|
Money market funds |
|
|
332 |
|
|
|
27,414 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
$ |
25,384 |
|
|
$ |
50,204 |
|
|
|
|
|
|
|
|
Short-term investments at December 31, 2009 and 2008 consisted of the following:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Four month certificate of deposit (1) |
|
$ |
10,948 |
|
|
$ |
|
|
Available-for-sale equity securities (2) |
|
|
2,137 |
|
|
|
|
|
U.S. government and agency securities (1) |
|
|
|
|
|
|
9,915 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments |
|
$ |
13,085 |
|
|
$ |
9,915 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These investments are recorded at cost, which approximates fair market value; therefore the
Company has no unrealized gains or losses from those investments. Income generated from these
investments is recorded as interest income. |
|
(2) |
|
These investments are recorded at market value; therefore the Company has recognized $0.3
million in unrealized gains through other comprehensive income. No other income has been
recorded related to these investments. |
4. ACCOUNTS RECEIVABLE, NET
The components of accounts receivable at December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Advertising |
|
$ |
38,735 |
|
|
$ |
38,656 |
|
Licensing |
|
|
17,498 |
|
|
|
13,390 |
|
Other |
|
|
4,339 |
|
|
|
3,825 |
|
|
|
|
|
|
|
|
|
|
|
60,572 |
|
|
|
55,871 |
|
Less: reserve for credits and uncollectible accounts |
|
|
4,208 |
|
|
|
3,371 |
|
|
|
|
|
|
|
|
|
|
$ |
56,364 |
|
|
$ |
52,500 |
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, accounts receivable from Kmart were approximately
$7.7 million and $5.9 million, respectively, primarily related to the true-up payment due to the
minimum guaranteed royalty for the applicable year. Payment of such respective receivables was
received by the Company in the first quarter of the following year, prior to the respective filings
of the Annual Report on Form 10-K for the applicable period.
5. INVENTORIES
Inventory is comprised of paper, and was valued at $5.2 million and $6.1 million at
December 31, 2009 and 2008, respectively. Cost is determined using the first in, first out (FIFO)
method.
F-13
6. PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment at December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Studios and equipment |
|
$ |
4,202 |
|
|
$ |
4,202 |
|
Furniture, fixtures and equipment |
|
|
10,207 |
|
|
|
10,845 |
|
Computer hardware and software |
|
|
28,187 |
|
|
|
27,090 |
|
Leasehold improvements |
|
|
35,612 |
|
|
|
28,672 |
|
|
|
|
|
|
|
|
Total Property, Plant and Equipment |
|
|
78,208 |
|
|
|
70,809 |
|
Less: accumulated depreciation and amortization |
|
|
60,940 |
|
|
|
56,387 |
|
|
|
|
|
|
|
|
Net Property, Plant and Equipment |
|
$ |
17,268 |
|
|
$ |
14,422 |
|
|
|
|
|
|
|
|
Depreciation and amortization expenses related to property, plant and equipment were
$6.4 million, $5.5 million and $7.6 million, for the years ended December 31, 2009, 2008 and 2007,
respectively.
7. CREDIT FACILITIES
The Company has a line of credit with Bank of America in the amount of $5.0 million, which is
generally used to secure outstanding letters of credit. The line was renewed as of June 30, 2009
for a one-year period. The renewal included certain substantive changes from the prior years
terms, including a covenant to maintain $5.0 million in liquidity, as defined in the credit
agreement and the reduction of the current ratio requirement from 1.5:1.0 to 1.25:1.0. The Company
was compliant with the debt covenants as of December 31, 2009. The Company had no outstanding
borrowings under this facility as of December 31, 2009 and had letters of credit of $2.8 million.
In April 2008, the Company entered into a loan agreement with Bank of America in the amount of
$30.0 million related to the acquisition of certain assets of Emeril Lagasse. The loan agreement
requires equal principal payments of $1.5 million and accrued interest to be paid by the Company
quarterly for the duration of the loan term, approximately 5 years. During 2009, the Company
prepaid $6.0 million in principal representing all amounts due through December 31, 2010. Through
that date, there are no principal payments due.
On August 7, 2009, the Company amended and restated the loan agreement. As amended and
restated, the loan was secured by substantially all of the assets of the Emeril business that the
Company acquired, as well as cash collateral in an amount equal to the outstanding principal
balance of the loan. Accordingly, the $15.0 million of cash collateralizing the $15.0 million
outstanding principal balance of the term loan at September 30, 2009 was characterized as
restricted cash on the condensed consolidated balance sheet as of that date.
Pursuant to a waiver and amendment executed in December 2009, Bank of America released its
lien on the cash collateral at the Companys request after the Company demonstrated that it would
have been in compliance with the financial covenants outlined below for the fiscal quarter
immediately preceding the requested release date had such financial covenants been applicable for
that fiscal quarter. Accordingly, there is no longer a restricted cash asset separately stated on
the consolidated balance sheet as of December 31, 2009. Subsequent to the release of the cash
collateral, the loan terms require the Company to be in compliance with certain financial
covenants, failure with which to comply would result in an event of default and would permit Bank
of America to accelerate and demand repayment of the loan in full. The Company was compliant with
the debt covenants as of December 31, 2009.
A summary of the most significant financial covenants is as follows:
|
|
|
Financial Covenant |
|
|
Tangible Net Worth |
|
At least $40.0 million |
Funded Debt to EBITDA (a) |
|
Equal to or less than 2.0 |
Parent Guarantor (the Company) Basic Fixed
Charge Coverage Ratio (b) |
|
Equal to or greater than 2.75 |
Quick Ratio |
|
Equal to or greater than 1.0 |
|
|
|
(a) |
|
EBITDA is net income before interest, taxes, depreciation, amortization, non-cash equity
compensation and impairment charges as defined in the loan agreement and subsequent waiver and
amendment. |
|
(b) |
|
Basic Fixed Charge Coverage is the ratio of EBITDA for the trailing four quarters to the
sum of interest expense for the trailing four quarters and the current portion of long-term debt at
the covenant testing date. |
F-14
While the loan was secured by the cash collateral, the interest rate was a floating rate of
1-month LIBOR plus 1.50%. Upon release of the cash collateral, the interest rate is equal to a
floating rate of 1-month LIBOR plus 2.85%.
The loan agreement also contains a variety of other customary affirmative and negative
covenants that, among other things, limit the Companys and its subsidiaries ability to incur
additional debt, suffer the creation of liens on their assets, pay dividends or repurchase stock,
make investments or loans, sell assets, enter into transactions with affiliates other than on arms
length terms in the ordinary course of business, make capital expenditures, merge into or acquire
other entities or liquidate. The negative covenants expressly permit the Company to, among other
things: incur an additional $15 million of debt to finance permitted investments or acquisitions;
incur an additional $15 million of earnout liabilities in connection with permitted acquisitions;
spend up to $30 million repurchasing the Companys stock or paying dividends thereon (so long as no
default or event of default existed at the time of or would result from such repurchase or dividend
payment and the Company would be in pro forma compliance with the above-described financial
covenants assuming such repurchase or dividend payment had occurred at the beginning of the most
recently-ended four-quarter period); make investments and acquisitions (so long as no default or
event of default existed at the time of or would result from such investment or acquisition and the
Company would be in pro forma compliance with the above-described financial covenants assuming the
acquisition or investment had occurred at the beginning of the most recently-ended four-quarter
period); make up to $15 million in capital expenditures in fiscal year 2008 and $7.5 million in
each subsequent fiscal year, provided that the Company can carry over any unspent amount to any
subsequent fiscal year (but in no event may the Company make more than $15 million in capital
expenditures in any fiscal year); sell one of the Companys investments (or any asset the Company
might receive in conversion or exchange for such investment); and sell assets during the term of
the loan comprising, in the aggregate, up to 10% of the Companys consolidated shareholders
equity, provided the Company receives at least 75% of the consideration in cash.
8. SHAREHOLDERS EQUITY
The Company has two classes of common stock outstanding. The Class B Common Stock is identical
in all respects to Class A Common Stock, except with respect to voting and conversion rights. Each
share of Class B Common Stock entitles its holder to ten votes and is convertible on a one-for-one
basis to Class A Common Stock at the option of the holder and automatically upon most transfers.
9. EMPLOYEE AND NON-EMPLOYEE BENEFIT AND COMPENSATION PLANS
Retirement Plans
The Company established a 401(k) retirement plan effective July 1, 1997, available to
substantially all employees. An employee can contribute up to a maximum of 25% of compensation to
the plan, or the maximum allowable contribution by the Internal Revenue Code ($0.02 million in
2009, 2008 and 2007), whichever is less. The Company matches 50% of the first 6% of compensation
contributed. Employees vest ratably in employer-matching contributions over a period of four years
of service. The employer-matching contributions totaled approximately $1.0 million, $1.1 million
and $1.2 million for the years ended December 31, 2009, 2008 and 2007, respectively.
The Company does not sponsor any post-retirement and/or post-employment benefit plan.
Stock Incentive Plans
Prior to May 2008, the Company had several stock incentive plans that permitted the Company to
grant various types of share-based incentives to key employees, directors and consultants. The
primary types of incentives granted under these plans were stock options and restricted shares of
common stock. The Compensation Committee of the Board of Directors was authorized to grant up to a
maximum of 10,000,000 underlying shares of Class A Common Stock under the Martha Stewart Living
Omnimedia, Inc. Amended and Restated 1999 Stock Incentive Plan (the 1999 Option Plan), and up to
a maximum of 600,000 underlying shares of Class A Common Stock under the Companys Non-Employee
Director Stock and Option Compensation Plan (the Non-Employee Director Plan).
F-15
In April 2008, the Companys Board of Directors adopted the Martha Stewart Living Omnimedia,
Inc. Omnibus Stock and Option Compensation Plan (the New Stock Plan), which was approved by the
Companys stockholders at the Companys 2008 annual meeting in May 2008. The New Stock Plan has
10,000,000 shares of Class A Common Stock available for issuance. The New Stock Plan replaced the
1999 Option Plan and Non-Employee Director Plan (together, the Prior Plans), which together had
an aggregate of approximately 1,850,000 shares still available for issuance. Therefore, the total
net effect of the replacement of the Prior Plans and adoption of the New Stock Plan was an increase
of approximately 8,150,000 shares of Class A Common Stock available for issuance
under the Companys stock plans.
In November 1997, the Company established the Martha Stewart Living Omnimedia LLC Nonqualified
Class A LLC Unit/Stock Option Plan (the 1997 Option Plan). The Company had an agreement with
Martha Stewart whereby she periodically returned to the Company shares of Class B Common Stock
owned by her or her affiliates in amounts corresponding on a net treasury basis to the number of
options exercised under the 1997 Option Plan during the relevant period. As of the first quarter of
2008, all shares of Class B Common Stock due to the Company pursuant to this agreement have been
returned. No options remain outstanding under the 1997 Option Plan and no further awards will be
made from the 1997 Option Plan.
Effective January 1, 2006, the Company adopted the fair-value recognition provisions of ASC
Topic 718, Share-Based Payments and Securities and Exchange Commission Staff Accounting
Bulletin No. 107 using the modified prospective transition method. Compensation cost recognized in
the years ended December 31, 2009, 2008, and 2007 is based on the grant date fair value estimated
in accordance with the provisions of ASC Topic 718. Restricted shares are valued at the market
value of traded shares on the date of grant, while stock options are valued using a Black-Scholes
option pricing model. Recognition of compensation cost for an award with a performance condition is
based on the probable outcome of the performance condition. Compensation cost is accrued if it is
probable that the performance condition will be achieved and is not accrued if it is not probable
that the performance condition will be achieved.
Compensation expense is recognized in the production, distribution and editorial, the selling
and promotion, and the general and administrative expense lines of the Companys consolidated
statements of operations. For the years ended December 31, 2009, 2008, and 2007, the Company
recorded non-cash equity compensation expense of $7.9 million, $8.5 million, and $19.1 million,
respectively. In 2006 and 2005, the Company capitalized $0.2 million and $1.3 million,
respectively, of non-cash equity compensation which was issued in connection with the execution of
certain licensing agreements. Accordingly, the value of the shares is amortized to non-cash equity
compensation expense as revenues are recognized. As of December 31, 2009, capitalized non-cash
equity compensation was $0.1 million.
Black-Scholes Assumptions
The Company uses the Black-Scholes option pricing model to value options and warrants issued.
The model requires numerous assumptions, including expected volatility of the Companys Class A
Common Stock price, expected life of the option and expected cancellations. These assumptions are
reviewed and used to value grants when they are issued. Further, certain grants are subject to
revaluation at reporting period end dates or when vesting provisions lapse. In the fourth quarter
of 2006, the Company re-examined its volatility calculation that had previously included all
historical closing prices since the Companys initial public offering in 1999. The Company believes
that the historical closing prices throughout 2006 and forward represent a more accurate volatility
of the Companys stock and is generally consistent with the implied market volatility of its
publicly traded options and in-line with its industry peer group. Therefore, the Company determined
its current volatility calculation using historical closing prices starting January 1, 2006. For
presentation purposes, the Companys Black-Scholes model represents a blend of assumptions
including the Companys 2006 updated volatility for those options that are priced when vesting
provisions lapse.
Stock Options
Options which were issued under the 1999 Option Plan were granted with an exercise price equal
to the closing price of Class A Common Stock on the most recent prior date for which a closing
price is available, without regard for after-hours trading. Options granted under the New Stock
Plan are granted with an exercise price equal to the closing price of the Class A Common Stock on
the date of grant. Stock options have an exercise term not to exceed 10 years. The Compensation
Committee determines the vesting period for the Companys stock options. Generally, employee stock
options vest ratably on each of either the first three or four anniversaries of the grant date.
Non-employee director options are subject to various vesting schedules ranging from one to three
years from the grant date. The vesting of certain option awards to non-employees is generally
contingent upon the satisfaction of various milestones. Employee option awards usually do not
provide for accelerated vesting upon retirement, death, or disability unless otherwise provided in
the applicable award agreement. Severance of a participant covered by the Martha Stewart Living
Omnimedia, Inc. 2008 Executive Severance Plan also triggers accelerated vesting of that
participants equity awards unless otherwise provided in the applicable award agreement.
F-16
As of December 31, 2009 and 2008, there was $5.7 million and $5.4 million, respectively, of
total unrecognized compensation cost related to nonvested stock options to be recognized over a
weighted average period of 2.0 and 2.5 years, respectively.
The intrinsic values of options exercised during the years ended December 31, 2009 and 2008
were not significant. The total cash
received from the exercise of stock options was $0.1 million and $0.05 million for the years
ended December 31, 2009 and 2008, respectively, and is classified as financing cash flows.
During 2009, the Company issued 3,805,765 options to employees from the New Stock Plan. During
2008, the Company issued 786,376, 2,700,000, and 50,000 options to employees from the New Stock
Plan, the 1999 Option Plan, and the Non-Employee Director Plan, respectively.
The fair value of employee option awards was estimated on the grant date using the
Black-Scholes option-pricing model on the basis of the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
2009 |
|
2008 |
|
2007 |
Risk-free interest rates |
|
0.9% 2.33% |
|
1.2% 2.5% |
|
3.6% 4.9% |
Dividend yields |
|
Zero |
|
Zero |
|
Zero |
Expected volatility |
|
45.1% 64.3% |
|
45.1% 50.3% |
|
33.97% 70.25% |
Expected option life |
|
2.5 3.7 years |
|
2.5 3.7 years |
|
2.5 6.0 years |
Average fair market value per option granted |
|
$0.71 $3.29 |
|
$1.69 $3.27 |
|
$4.37 $11.60 |
|
|
|
Note: |
|
This table represents a blend of assumptions including the Companys 2006 updated
volatility. |
During 2009, no options were granted to non-employees. During 2008, the Company issued
100,858 options to non-employees under the New Stock Plan. The fair value of non-employee
contingent awards where vesting restrictions lapsed in 2008 was estimated on the date when vesting
provisions lapsed, using the Black-Scholes option-pricing model on the basis of the following
weighted average assumptions:
|
|
|
|
|
|
|
2008 |
|
2007 |
Risk-free interest rates |
|
3.3% 3.7% |
|
3.5% 5.1% |
Dividend yields |
|
Zero |
|
Zero |
Expected volatility |
|
45.5% 47.8% |
|
32.9% 41.5% |
Expected option life |
|
7.1 7.5 years |
|
4.6 8.4 years |
Average fair market value per option granted |
|
$2.00 $2.55 |
|
$2.89 $13.32 |
|
|
|
Note: |
|
This table represents a blend of assumptions including the Companys 2006 updated
volatility. See Black-Scholes Assumptions above for discussion of volatility. |
Changes in outstanding options under the 1999 Option Plan and the Non-Employee Director
Plan during the years ended December 31, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
shares |
|
|
Weighted |
|
|
|
subject to |
|
|
average |
|
|
|
options |
|
|
exercise price |
|
Outstanding as of December 31, 2007 |
|
|
1,723,200 |
|
|
$ |
19.01 |
|
Granted |
|
|
2,750,000 |
|
|
|
7.05 |
|
Exercised |
|
|
(6,425 |
) |
|
|
6.78 |
|
Cancelled |
|
|
(935,384 |
) |
|
|
7.71 |
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2008 |
|
|
3,531,391 |
|
|
$ |
12.71 |
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
(9,900 |
) |
|
|
7.04 |
|
Cancelled |
|
|
(688,624 |
) |
|
|
10.08 |
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009 |
|
|
2,832,867 |
|
|
$ |
13.37 |
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2009 |
|
|
1,895,033 |
|
|
$ |
16.50 |
|
Equity available for grant at December 31, 2009 |
|
|
|
|
|
|
|
|
F-17
Changes in outstanding options under the New Stock Plan during the years ended December 31,
2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
shares |
|
|
Weighted |
|
|
|
subject to |
|
|
average |
|
|
|
options |
|
|
exercise price |
|
Outstanding as of December 31, 2007 |
|
|
|
|
|
|
|
|
Granted |
|
|
887,234 |
|
|
$ |
8.48 |
|
Exercised |
|
|
|
|
|
|
|
|
Cancelled |
|
|
(7,500 |
) |
|
|
9.09 |
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2008 |
|
|
879,734 |
|
|
$ |
8.47 |
|
Granted |
|
|
3,805,765 |
|
|
|
2.78 |
|
Exercised |
|
|
|
|
|
|
|
|
Cancelled |
|
|
(485,000 |
) |
|
|
3.70 |
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009 |
|
|
4,200,499 |
|
|
$ |
3.87 |
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2009 |
|
|
283,234 |
|
|
$ |
8.33 |
|
Equity available for grant at December 31, 2009 |
|
|
4,579,495 |
|
|
|
|
|
The following table summarizes information about the shares subject to stock options
outstanding under the Companys option plans as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Shares Subject to |
|
|
Shares Subject to |
|
|
|
Average |
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
Remaining |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Contractual |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
Range of Exercise Price |
|
Life in |
|
|
Number |
|
|
Exercise |
|
|
Number |
|
|
Exercise |
|
Per Share |
|
Years |
|
|
Outstanding |
|
|
Price |
|
|
Exercisable |
|
|
Price |
|
$1.96-$10.61 |
|
|
2.2 |
|
|
|
5,776,641 |
|
|
|
4.78 |
|
|
|
921,542 |
|
|
|
7.70 |
|
$14.90-$15.75 |
|
|
1.1 |
|
|
|
12,425 |
|
|
|
15.35 |
|
|
|
12,425 |
|
|
|
15.35 |
|
$15.90 |
|
|
2.1 |
|
|
|
150,000 |
|
|
|
15.90 |
|
|
|
150,000 |
|
|
|
15.90 |
|
$16.45-$18.90 |
|
|
4.5 |
|
|
|
520,500 |
|
|
|
18.44 |
|
|
|
520,500 |
|
|
|
18.44 |
|
$19.92-$26.25 |
|
|
5.2 |
|
|
|
223,800 |
|
|
|
20.80 |
|
|
|
223,800 |
|
|
|
20.80 |
|
$26.56-$33.75 |
|
|
3.0 |
|
|
|
350,000 |
|
|
|
27.70 |
|
|
|
350,000 |
|
|
|
27.70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.96-$33.75 |
|
|
2.5 |
|
|
|
7,033,366 |
|
|
$ |
7.70 |
|
|
|
2,178,267 |
|
|
$ |
15.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock and Restricted Stock Units
Restricted stock represents shares of common stock that are subject to restrictions on
transfer and risk of forfeiture until the fulfillment of specified conditions. Restricted stock is
generally expensed ratably over the restriction period, typically ranging from three to four years.
Restricted stock expense for the years ended December 31, 2009 and 2008 was $2.8 million and
$6.8 million, respectively.
A summary of the Companys 1999 Option Plan nonvested restricted stock shares as of
December 31, 2009 and changes during the year ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Grant |
|
(in thousands, except share data) |
|
Shares |
|
|
Date Value |
|
Nonvested at December 31, 2008 |
|
|
604,681 |
|
|
$ |
7,412 |
|
Granted |
|
|
|
|
|
|
|
|
Vested(1) |
|
|
(233,302 |
) |
|
|
(3,196 |
) |
Forfeitures |
|
|
(152,176 |
) |
|
|
(1,896 |
) |
|
|
|
|
|
|
|
Nonvested at December 31, 2009 |
|
|
219,203 |
|
|
|
2,320 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in the gross shares vested during the year ended December 31,
2009 are 101,965 shares of Class A Common Stock which were surrendered
by recipients in order to fulfill their tax withholding obligations. |
The fair value of nonvested shares is determined based on the closing price of the Companys
Class A Common Stock on the day preceding grant date. The weighted-average grant date fair values
of nonvested shares granted during the years ended December 31, 2009 and 2008 were $1.5 million and
$4.1 million, respectively. As of December 31, 2009, there was $0.9 million of total unrecognized
compensation cost related to nonvested restricted stock arrangements to be recognized over a
weighted-average period of approximately one year.
F-18
A summary of the Companys New Stock Plan nonvested restricted stock shares as of December 31,
2009 and changes during the year ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Grant |
|
(in thousands, except share data) |
|
Shares |
|
|
Date Value |
|
Nonvested at December 31, 2008 |
|
|
590,352 |
|
|
$ |
4,948 |
|
Granted |
|
|
461,753 |
|
|
|
2,122 |
|
Vested(1) |
|
|
(498,556 |
) |
|
|
(2,927 |
) |
Forfeitures |
|
|
(62,428 |
) |
|
|
(525 |
) |
|
|
|
|
|
|
|
Nonvested at December 31, 2009 |
|
|
491,121 |
|
|
$ |
3,618 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Included in the gross shares vested during the period ended
December 31, 2009 are 48,605 shares of Class A Common Stock which were
surrendered by recipients in order to fulfill their tax withholding
obligations. |
The fair value of nonvested shares is determined based on the closing price of the Companys
Class A Common Stock on the grant date. The weighted-average grant date fair values of nonvested
shares granted during the twelve-months ended December 31, 2009 were $2.8 million. As of
December 31, 2009, there was $2.7 million of total unrecognized compensation cost related to
nonvested restricted stock arrangements to be recognized over a weighted-average period of 1.3
years.
During 2009, the Company granted 351,625 performance-based restricted stock units, each of
which represented the right to a share of the Companys Class A Common Stock if the Company
achieved certain earnings targets over a performance period. Consistent with requirements of ASC
718, accruals of compensation cost for an award with a performance condition are based on the
probable outcome of that performance condition. The Company determined it was not probable that the
performance condition would be achieved. Accordingly, non-cash compensation expense was not
recognized in 2009 related to these grants. During 2009, 91,250 units were cancelled. In March
2010, the performance conditions associated with the remaining grants were modified. See Note 18
for further discussion.
A summary of the Companys New Stock Plan nonvested performance-based restricted
stock units as of December 31, 2009 and changes during the year ended
December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average Grant |
|
(in thousands, except share data) |
|
Shares |
|
|
Date Value |
|
Nonvested at December 31, 2008 |
|
|
|
|
|
$ |
|
|
Granted |
|
|
351,625 |
|
|
|
717 |
|
Forfeitures |
|
|
(91,250 |
) |
|
|
(179 |
) |
|
|
|
|
|
|
|
Nonvested at December 31, 2009 |
|
|
260,375 |
|
|
$ |
538 |
|
|
|
|
|
|
|
|
Non-Employee Equity Compensation
In consideration of the execution in September 2004 of a consulting agreement under which Mark
Burnett agreed to act as an advisor and consultant to the Company with respect to various
television matters, the Company issued to Mr. Burnett a warrant to purchase 2,500,000 shares of the
Companys Class A Common Stock at an exercise price of $12.59 per share. Under the initial
agreement, the shares covered by the warrant would have vested and become exercisable in three
tranches, subject to the achievement of various milestones with respect to certain television
programs. The first two tranches representing a total of 1,666,666 shares vested in 2005 and the
warrant with respect to such shares was exercised in 2006. However, under the terms of this
warrant, the third tranche (i.e., 833,333 shares) did not vest. No shares remain eligible for
issuance under this warrant.
On August 11, 2006, in connection with Mr. Burnetts continued services as executive producer
of the syndicated daytime television show, The Martha Stewart Show, the Company issued an
additional warrant to Mr. Burnett to purchase up to 833,333 shares of Class A Common Stock at an
exercise price of $12.59 per share, subject to vesting pursuant to certain performance criteria.
During the first quarter of 2007, the portion of the warrant related to the clearance of season 3
of The Martha Stewart Show vested and was subsequently exercised. Mr. Burnett exercised this
portion of the warrant on a cashless basis, pursuant to which he acquired 154,112 shares and
forfeited 262,555 shares based on the closing price of the Class A Common Stock of $19.98 the day
prior to exercise. The remaining half of this warrant vested in July 2007 when the applicable
milestones relating to the production of The Martha Stewart Show were achieved. For the year ended
December 31, 2007, the Company recognized an approximate $6.0 million increase to non-cash equity
compensation related to this warrant.
Both of Mr. Burnetts warrants were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended. The warrants issued to
Mr. Burnett are not covered by the Companys existing equity plans. In connection with the 2006
warrant, the Company also entered into a registration rights agreement with Mr. Burnett.
Mr. Burnett has exercised his right to obligate the Company to effect a shelf registration under
the Securities Act of 1933, as amended, covering the resale of the shares of Class A Common Stock
issuable upon the exercise of either warrant. The Company registered the shares covered under the
warrant agreement, in addition to certain other shares, pursuant to a registration statement on
Form S-3 filed with the SEC.
F-19
In March 2006, the Company entered into an agreement with an agency which provided the Company
with marketing,
communications and consulting services. In September 2006, the Company entered into a new
agreement with this agency which superseded in its entirety the March agreement. Pursuant to the
new agreement, the Company granted the agency an option to purchase 60,000 shares of the Companys
Class A Common Stock under the Companys 1999 Option Plan with an exercise price equal to $18.31
per share, which was the closing price on the date of the agreement. Of the shares subject to the
option, 30,000 vested immediately. During the first quarter of 2007, the performance criteria were
achieved, and the remaining 30,000 shares subject to the option vested. For the year ended
December 31, 2007, the Company recorded non-cash equity compensation expense of $0.3 million
related to the shares which vested upon receipt of specified deliverables. The shares which vested
in 2007 were valued using the Black-Scholes option pricing model using the following assumptions:
risk free interest rate 5.06%; dividend yield zero; expected volatility 35.53%; contractual
life 5 years; average fair market value per option granted $9.76.
10. INCOME TAXES
The Company follows ASC Topic 740, Income Taxes (ASC 740). Under the asset and liability
method of ASC 740, deferred assets and liabilities are recognized for the future costs and benefits
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. The Company periodically reviews the requirements for a
valuation allowance and makes adjustments to such allowances when changes in circumstances result
in changes in managements judgment about the future realization of deferred tax assets. ASC 740
places more emphasis on historical information, such as the Companys cumulative operating results
and its current year results than it places on estimates of future taxable income. Therefore the
Company has established a valuation allowance of $73.3 million against certain deferred tax assets
for 2009. In addition, the Company has recorded a net deferred tax liability of $3.2 million which
is attributable to differences between the financial statement carrying amounts of current and
prior year acquisitions of certain indefinite-lived intangible assets and their respective tax
bases. The Company intends to maintain a valuation allowance until evidence would support the
conclusion that it is more likely than not that the deferred tax asset could be realized.
The provision for income taxes consists of the following for the years ended
December 31, 2009, 2008, and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Current Income Tax (Expense)/Benefit |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
(40 |
) |
|
$ |
175 |
|
|
$ |
64 |
|
State and local |
|
|
(207 |
) |
|
|
(80 |
) |
|
|
(165 |
) |
Foreign |
|
|
(132 |
) |
|
|
(555 |
) |
|
|
(527 |
) |
|
|
|
|
|
|
|
|
|
|
Total current income tax (expense)/benefit |
|
|
(379 |
) |
|
|
(460 |
) |
|
|
(628 |
) |
|
|
|
|
|
|
|
|
|
|
Deferred Income Tax Expense |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(1,112 |
) |
|
|
(1,582 |
) |
|
|
|
|
State and local |
|
|
(235 |
) |
|
|
(272 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax expense |
|
|
(1,347 |
) |
|
|
(1,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision from continuing
operations |
|
$ |
(1,726 |
) |
|
$ |
(2,314 |
) |
|
$ |
(628 |
) |
|
|
|
|
|
|
|
|
|
|
F-20
A reconciliation of the federal income tax provision from continuing operations at
the statutory rate to the effective rate for the years ended December 31, 2009, 2008, and 2007 is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2007 |
|
Computed tax at the federal statutory rate of 35% |
|
$ |
4,499 |
|
|
$ |
4,673 |
|
|
$ |
(3,821 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit |
|
|
(99 |
) |
|
|
(51 |
) |
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible compensation |
|
|
(1,414 |
) |
|
|
(1,756 |
) |
|
|
(1,347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-deductible expense |
|
|
(153 |
) |
|
|
(170 |
) |
|
|
(264 |
) |
Non-deductible litigation reserve |
|
|
|
|
|
|
|
|
|
|
|
|
Non-taxable foreign income |
|
|
|
|
|
|
|
|
|
|
|
|
Tax on foreign income |
|
|
(132 |
) |
|
|
(555 |
) |
|
|
(527 |
) |
Valuation allowance |
|
|
(4,332 |
) |
|
|
(4,629 |
) |
|
|
5,438 |
|
Other |
|
|
(95 |
) |
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
$ |
(1,726 |
) |
|
$ |
(2,314 |
) |
|
$ |
(628 |
) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
13.4 |
% |
|
|
17.3 |
% |
|
|
5.8 |
% |
|
|
|
|
|
|
|
|
|
|
Significant components of the Companys deferred tax assets and liabilities as of December 31,
2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Deferred Tax Assets |
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
$ |
781 |
|
|
$ |
949 |
|
Accrued rent |
|
|
1,344 |
|
|
|
1,131 |
|
Reserve for newsstand returns |
|
|
590 |
|
|
|
308 |
|
Accrued compensation |
|
|
7,637 |
|
|
|
7,067 |
|
Deferred royalty revenue |
|
|
624 |
|
|
|
5,094 |
|
NOL/credit carryforwards |
|
|
49,722 |
|
|
|
44,349 |
|
Depreciation |
|
|
5,015 |
|
|
|
4,113 |
|
Amortization of intangible assets |
|
|
7,938 |
|
|
|
3,149 |
|
Other |
|
|
1,014 |
|
|
|
1,804 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
74,665 |
|
|
|
67,964 |
|
|
|
|
|
|
|
|
Deferred Tax Liabilities |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
(1,358 |
) |
|
|
39 |
|
Amortization of intangible assets |
|
|
(3,225 |
) |
|
|
(1,854 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(4,583 |
) |
|
|
(1,815 |
) |
Valuation allowance |
|
|
(73,282 |
) |
|
|
(68,003 |
) |
|
|
|
|
|
|
|
Net Deferred Tax Asset/(Liability) |
|
$ |
(3,200 |
) |
|
$ |
(1,854 |
) |
|
|
|
|
|
|
|
At December 31, 2009, the Company had aggregate federal net operating loss carryforwards of
$100.2 million (before-tax), which will be available to reduce future taxable income through 2029,
with the majority expiring in years 2024 and 2025. The Company has federal and state tax credit
carryforwards of $2.5 million which begin to expire in 2014. To the extent that the Company
achieves positive net income in the future, the net operating loss and credits carryforwards may be
utilized and the Companys valuation allowance will be adjusted accordingly.
ASC 740 further establishes guidance on the accounting for uncertain tax positions. As of
December 31, 2009, the Company had an ASC 740 liability balance of $0.19 million. Of this amount,
$0.13 million represented unrecognized tax benefits, which if recognized at some point in the
future would favorably impact the effective tax rate, and $0.06 million is interest. The Company
continues to treat interest and penalties due to a taxing authority on unrecognized tax positions
as interest and penalty expense. As of December 31, 2008 and December 31, 2009, the Company
recorded $0.08 million and $0.06 million, respectively, of accrued interest and penalties in the
statement of financial position. Following is a reconciliation of the Companys total gross
unrecognized tax benefits for the year-to-date period ended December 31, 2009.
F-21
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Gross balance at January 1 |
|
$ |
151 |
|
|
$ |
1,038 |
|
Additions based on tax positions related to the current
year |
|
|
|
|
|
|
|
|
Additions for tax positions of prior years |
|
|
|
|
|
|
|
|
Reductions for tax positions of prior years |
|
|
|
|
|
|
(128 |
) |
Settlements |
|
|
(20 |
) |
|
|
(759 |
) |
Reductions due to lapse of applicable statute of
limitations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross balance at December 31 |
|
|
131 |
|
|
|
151 |
|
Interest and penalties |
|
|
58 |
|
|
|
75 |
|
|
|
|
|
|
|
|
Balance including interest and penalties at December 31 |
|
$ |
189 |
|
|
$ |
226 |
|
|
|
|
|
|
|
|
The Company settled various Federal, International and state income tax audits and matters
consistent with the amounts previously reserved for under ASC 740. The Company is no longer subject
to U.S. federal income tax examinations by tax authorities for the years before 2005 and state
examinations for the years before 2003. The Company does not anticipate any material changes to the
liability over the next 12 months.
11. COMPREHENSIVE LOSS
Comprehensive loss is defined as the change in equity of a business enterprise during a period
from transactions and other events and circumstances from non-owner sources. The Companys
comprehensive loss includes net loss and unrealized gains and losses on available-for-sale
securities. Total comprehensive loss for the years ended December 31, 2009 and 2008, was $14.3
million and $15.7 million, respectively.
12. RELATED PARTY TRANSACTIONS
On June 13, 2008, the Company entered into an intangible asset license agreement (the
Intangible Asset License Agreement) with MS Real Estate Management Company (MSRE), an entity
owned by Martha Stewart. The Intangible Asset License Agreement replaced the Location Rental
Agreement dated as of September 17, 2004, which expired on September 17, 2007, but which was
extended by letter agreement dated as of September 12, 2007 pending negotiation of the Intangible
Asset License Agreement. The Intangible Asset License Agreement is retroactive to September 18,
2007 and has a five-year term.
Pursuant to the Intangible Asset License Agreement, the Company pays an annual fee of $2.0
million to MSRE over the 5-year term for the perpetual, exclusive right to use Ms. Stewarts
lifestyle intangible asset in connection with Company products and services and during the term of
the agreement to access various real properties owned by Ms. Stewart. On February 8, 2010, the
Company executed an amendment to the Intangible Asset License Agreement which is more fully
described in Note 18, Subsequent Events. MSRE is responsible, at its expense, to maintain,
landscape and garden the properties in a manner consistent with past practices; provided, however
that the Company is responsible for approved business expenses associated with security and
telecommunications systems and security personnel related to Ms. Stewart at the properties, and
will reimburse MSRE for up to $0.1 million of approved and documented household expenses.
The Company also provides to, and receives from, certain personnel services associated with
MSRE. For the year ended December 31, 2009 and 2008, the Company reimbursed MSRE $0.1 million and
$0.3 million, respectively. As of December 31, 2007, the Company was owed $0.1 million by MSRE,
which was reimbursed to the Company in 2008.
On February 28, 2001, the Company entered into a Split-Dollar Agreement with Martha Stewart
and The Martha Stewart Family Limited Partnership (the MS Partnership), under which the Company
agreed to pay a significant portion of the premiums on whole life policies insuring Ms. Stewart.
The policies were owned by and benefit the MS Partnership. Because of uncertainty whether such
arrangements constituted prohibited loans to executive officers and directors after the enactment
of the Sarbanes-Oxley Act in 2002, the Split-Dollar Agreement was amended so that the Company would
not be obligated to make further premium payments after 2002.
Because the intent of the agreement was frustrated by the enactment of Sarbanes-Oxley and so
that the parties could realize the existing cash surrender value of the policies rather than
risking depleting the future surrender value, the Company, Ms. Stewart and the MS Partnership
terminated the Split-Dollar Agreement, as amended, effective November 9, 2009. In connection with
the termination, the MS Partnership has agreed to surrender and cancel the policies subject to the
Split-Dollar Agreement for their cash surrender value as of such date. As part of the arrangement
the Company reimbursed the MS Partnership approximately $300,000 for the premiums paid towards the
policies (which amount, if determined to be taxable, would be subject to a tax gross-up).
F-22
In April 2009, the Company entered into an amended and restated employment agreement with
Martha Stewart which replaced the existing agreement between the Company and Ms. Stewart that was
scheduled to expire in September 2009. The new agreement extends until March 31, 2012. During the
term of the agreement, Ms. Stewart continues to serve as the Founder, and is entitled to talent
compensation of $2.0 million per year. In addition, she is entitled to an annual bonus in an amount
determined by the
Compensation Committee, with a target bonus equal to $1.0 million and a maximum annual bonus
of 150% of the target amount. In 2009, Ms. Stewart received $0.7 million as her annual bonus.
Ms. Stewart received a $3.0 million make whole/retention payment in
connection with the execution of the agreement, which amount is subject to pro-rata forfeiture in
the event Ms. Stewart terminates the agreement without good reason or the Company terminates the
agreement with cause.
The Company previously had a consulting agreement with CAK Entertainment, Inc. (CAK
Entertainment), an entity for which Mr. Charles Koppelman serves as Chairman and Chief Executive
Officer. Mr. Koppelman had been Chairman of the Board and a Director of the Company since the
execution of the agreement.
In July 2008, the Board of Directors of the Company appointed Mr. Koppelman as Executive
Chairman and the principal executive officer of the Company. An employment agreement was executed
with Mr. Koppelman in September 2008. In accordance with the employment agreement, the consulting
agreement with CAK Entertainment was terminated. The balance of cash fees due to CAK Entertainment
were paid and the outstanding equity awards made under the consulting agreement became fully
vested, which resulted in a cash charge of $1.0 million and a non-cash charge of $0.5 million in
the third quarter of 2008.
As part of his services as Chairman of the Board, Mr. Koppelman received an annual retainer of
$0.1 million in 2008. In each of June 2007 and 2006, Mr. Koppelman was granted 25,000 shares of the
Companys Class A Common Stock for continuing to serve as Chairman of the Board.
Related party compensation expense includes
salary, bonus and non-cash equity compensation as determined under ASC Topic 718. Alexis Stewart, the daughter
of Martha Stewart, and Jennifer Koppelman Hutt, daughter of Charles Koppelman, Executive Chairman of the
Company, have been employed by the Company and have served as co-hosts of a Company television show under
agreements dated April 14, 2008 (which agreements, as amended on June 1, 2009, have now expired) and
co-hosts of a Company radio show under agreements dated June 1, 2009. The talent services agreement provides
for guaranteed salaries of $0.3 million each for a period of 12 months in exchange for radio services
and certain other development services and rights. Pursuant to these and prior arrangements, the Company
paid Alexis Stewart aggregate compensation of $0.4 million, $0.2 million and $0.3 million in 2009, 2008 and 2007,
respectively; and paid Jennifer Koppelman Hutt aggregate annual compensation of $0.3 million, $0.1 million and $0.1
million in 2009, 2008 and 2007, respectively. The Company employed Martha Stewart's sister-in-law in 2009, 2008 and
2007 for aggregate compensation of $0.2 million, $0.2 million and $0.3 million, respectively. The Company also
employed Ms. Stewarts sister in 2009 and 2008 for aggregate compensation of $0.1 million in each year.
The Company has investments in several companies from which the Company derives revenues. For
the year ended December 31, 2009, total revenues and expenses from these parties were $5.2 million
and $0.3 million, respectively. Receivables and payables as of December 31, 2009 were $1.3 million
and $0.1 million, respectively.
13. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office facilities, filming locations, and equipment for terms extending
through 2018 under operating lease agreements. Total rent expense charged to operations for all
such leases was approximately $15.2 million, $15.6 million, and $11.5 million for the years ended
December 31, 2009, 2008, and 2007, respectively. Rent expense for operating leases, which may
include free rent or fixed escalation amounts in addition to minimum lease payments, is recognized
on a straight-line basis over the duration of each lease term.
F-23
The following is a schedule of future minimum payments under operating leases at December 31,
2009. The table includes total minimum lease payment commitments which include rent and other charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Sublease |
|
|
Net Operating |
|
(in thousands) |
|
Lease Payments |
|
|
Income |
|
|
Lease Payments |
|
|
2010 |
|
$ |
13,105 |
|
|
$ |
1,649 |
|
|
$ |
11,456 |
|
2011 |
|
|
10,337 |
|
|
|
1,698 |
|
|
|
8,639 |
|
2012 |
|
|
9,318 |
|
|
|
1,065 |
|
|
|
8,253 |
|
2013 |
|
|
7,778 |
|
|
|
402 |
|
|
|
7,376 |
|
2014 |
|
|
8,007 |
|
|
|
414 |
|
|
|
7,593 |
|
Thereafter |
|
|
25,559 |
|
|
|
865 |
|
|
|
24,694 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
74,104 |
|
|
$ |
6,093 |
|
|
$ |
68,011 |
|
|
|
|
|
|
|
|
|
|
|
Legal Matters
The Company is party to legal proceedings in the ordinary course of business, including
product liability claims for which we are indemnified by our licensees. None of these proceedings
is deemed material.
Other
The Company has a line of credit with Bank of America in the amount of $5.0 million, which is
generally used to secure outstanding letters of credit. The line was renewed as of June 30, 2009
for a one-year period. The renewal included certain substantive changes from the prior years
terms, including a covenant to maintain $5.0 million in liquidity, as that term is defined in the
credit agreement, and the reduction of the current ratio requirement from 1.5:1.0 to 1.25:1.0. The
Company was compliant with the debt covenants as of December 31, 2009. The Company had no
outstanding borrowings under this facility as of December 31, 2009 and had letters of credit of
$2.8 million as security for certain leases.
The Company entered into a loan agreement with Bank of America in the amount of $30.0 million
related to the acquisition of certain assets of Emeril Lagasse. The loan balance was $13.5 million
as of December 31, 2009. See Note 7, Credit Facilities, for further information.
14. ACQUISITION OF BUSINESS
On April 2, 2008, the Company acquired all of the assets related to the business of Chef
Emeril Lagasse other than his restaurant business and Foundation for consideration of approximately
$45.0 million in cash and 674,852 in shares of the Companys Class A Common Stock which equaled a
value of $5.0 million at closing. The shares issued in connection with this acquisition were not
covered by the Companys existing equity plans. The acquisition agreement also includes a potential
additional payment of up to $20 million, in 2013, based upon the achievement of certain operating
metrics in 2011 and 2012, a portion of which may be payable, at the Companys election, in shares
of the Companys Class A Common Stock.
The Company acquired the assets related to chef Emeril Lagasse to further the Companys
diversification strategy and help grow the Companys operating results. Consistent with ASC Topic
805 Business Combinations, this acquisition was accounted for under purchase accounting. While
the primary assets purchased in the transaction were certain trade names valued at $45.2 million,
as well as a television content library valued at $5.2 million, $0.9 million of the value,
representing the excess purchase price over the fair market value of the assets acquired, was
apportioned to goodwill. To the extent that the certain operating metrics are achieved in 2011 and
2012, the potential additional payment will be allocated to the acquisition and will be recognized
as goodwill.
Of the intangible assets acquired, only the television content library is subject to
amortization over a six-year period, which will be expensed based upon future estimated cash flows.
For the year ended December 31, 2009, $1.1 million was charged to amortization expense and
accumulated amortization related to this asset.
F-24
The results of operations for the acquisition have been included in the Companys consolidated
financial statements of operations since April 2, 2008, and are recorded in the Merchandising and
Broadcasting segments in accordance with the nature of the underlying contracts. The following
unaudited pro forma financial information presents a summary of the results of operations assuming
the acquisition occurred at the beginning of each period presented:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended |
|
|
|
December 31, |
|
(unaudited, in thousands, except per share amounts) |
|
2008 |
|
|
2007 |
|
Net revenues |
|
$ |
287,528 |
|
|
$ |
340,599 |
|
Net (loss) / income |
|
|
(13,050 |
) |
|
|
13,336 |
|
Net (loss) / income per share basic and diluted |
|
$ |
(0.24 |
) |
|
$ |
0.25 |
|
Pro forma adjustments have been made to reflect amortization using asset values recognized
after applying purchase accounting adjustments, to record incremental compensation costs and to
record amortization of deferred financing costs and interest expense related to the long-term debt
incurred to fund a part of the acquisition. No tax adjustment was necessary due to the benefit of
the Companys net operating loss carryforwards. The pro forma earnings/(loss) per share amounts are
based on the pro forma number of shares outstanding as of the end of each period presented which
include the shares issued by the Company as a portion of the total consideration for the
acquisition.
The pro forma condensed consolidated financial information is presented for information
purposes only. The pro forma condensed consolidated financial information should not be construed
to be indicative of the combined results of operations that might have been achieved had the
acquisition been consummated at the beginning of each period presented, nor is it necessarily
indicative of the future results of the combined company.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
|
Year ended December 31, 2009 |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Total |
|
Revenues |
|
$ |
50,430 |
|
|
$ |
56,996 |
|
|
$ |
49,780 |
|
|
$ |
87,571 |
|
|
$ |
244,777 |
|
Operating (loss) / income |
|
|
(15,486 |
) |
|
|
(6,102 |
) |
|
|
(11,681 |
) |
|
|
21,301 |
|
|
|
(11,968 |
) |
Net (loss) / income |
|
$ |
(16,844 |
) |
|
$ |
(6,374 |
) |
|
$ |
(12,113 |
) |
|
$ |
20,753 |
|
|
$ |
(14,578 |
) |
(Loss)/earnings per share basic |
|
$ |
(0.31 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.22 |
) |
|
$ |
0.38 |
|
|
$ |
(0.27 |
) |
(Loss)/earnings per share diluted |
|
$ |
(0.31 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.22 |
) |
|
$ |
0.37 |
|
|
$ |
(0.27 |
) |
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
53,766 |
|
|
|
53,820 |
|
|
|
53,865 |
|
|
|
54,065 |
|
|
|
53,880 |
|
Diluted |
|
|
53,766 |
|
|
|
53,820 |
|
|
|
53,865 |
|
|
|
55,620 |
|
|
|
53,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
|
|
|
Year ended December 31, 2008 |
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Quarter |
|
|
Total |
|
Revenues |
|
$ |
67,834 |
|
|
$ |
77,110 |
|
|
$ |
66,512 |
|
|
$ |
72,854 |
|
|
$ |
284,310 |
|
Operating (loss)/income |
|
|
(4,535 |
) |
|
|
1,723 |
|
|
|
(3,532 |
) |
|
|
(4,513 |
) |
|
|
(10,857 |
) |
Net (loss)/income |
|
$ |
(4,234 |
) |
|
$ |
328 |
|
|
$ |
(3,747 |
) |
|
$ |
(8,012 |
) |
|
$ |
(15,665 |
) |
(Loss)/earnings per share basic and diluted |
|
$ |
(0.08 |
) |
|
$ |
0.01 |
|
|
$ |
(0.07 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.29 |
) |
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
52,722 |
|
|
|
53,476 |
|
|
|
53,590 |
|
|
|
53,668 |
|
|
|
53,360 |
|
Diluted |
|
|
52,722 |
|
|
|
55,588 |
|
|
|
53,590 |
|
|
|
53,668 |
|
|
|
53,360 |
|
Fourth Quarter 2009 Items:
Results include the $10.0 million recognition of previously deferred royalties associated with
Kmart. Additionally, results include revenue from the conclusion of our relationship with TurboChef
and a $3.0 million make-whole payment received by the Company.
Fourth Quarter 2008 Items:
Results include the $35.0 million reduction of the Companys contractual minimum guarantee
with Kmart as well as a $9.3 million non-cash goodwill impairment charge recorded in the Publishing
segment.
F-25
16. BUSINESS SEGMENTS
The Companys business segments are discussed in Note 1. The accounting policies for the
Companys business segments are the same as those described in Note 2. Segment information for the
years ended December 31, 2009, 2008, and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Publishing |
|
|
Broadcasting |
|
|
Internet |
|
|
Merchandising |
|
|
Corporate |
|
|
Consolidated |
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
128,981 |
|
|
$ |
46,111 |
|
|
$ |
17,119 |
|
|
$ |
52,566 |
|
|
$ |
|
|
|
$ |
244,777 |
|
Non-cash equity compensation |
|
|
1,083 |
|
|
|
889 |
|
|
|
150 |
|
|
|
1,468 |
|
|
|
4,357 |
|
|
|
7,947 |
|
Depreciation and amortization |
|
|
241 |
|
|
|
1,389 |
|
|
|
1,950 |
|
|
|
62 |
|
|
|
4,232 |
|
|
|
7,874 |
|
Impairment charge other asset |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,432 |
|
|
|
|
|
|
|
11,432 |
|
Operating income/(loss) |
|
|
2,223 |
|
|
|
6,140 |
|
|
|
(2,392 |
) |
|
|
25,651 |
|
|
|
(43,590 |
) |
|
|
(11,968 |
) |
Total assets |
|
|
76,563 |
|
|
|
27,458 |
|
|
|
15,830 |
|
|
|
75,711 |
|
|
|
34,229 |
|
|
|
229,791 |
|
Capital expenditures |
|
|
66 |
|
|
|
23 |
|
|
|
271 |
|
|
|
99 |
|
|
|
8,150 |
|
|
|
8,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
163,540 |
|
|
$ |
47,328 |
|
|
$ |
15,576 |
|
|
$ |
57,866 |
|
|
$ |
|
|
|
$ |
284,310 |
|
Non-cash equity compensation |
|
|
2,855 |
|
|
|
807 |
|
|
|
230 |
|
|
|
1,038 |
|
|
|
3,596 |
|
|
|
8,526 |
|
Depreciation and amortization |
|
|
379 |
|
|
|
2,578 |
|
|
|
1,737 |
|
|
|
90 |
|
|
|
3,189 |
|
|
|
7,973 |
|
Impairment charge goodwill and other asset |
|
|
9,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,349 |
|
Operating income/(loss) |
|
|
6,424 |
|
|
|
2,780 |
|
|
|
(4,796 |
) |
|
|
32,858 |
|
|
|
(48,123 |
) |
|
|
(10,857 |
) |
Total assets |
|
|
79,512 |
|
|
|
25,608 |
|
|
|
15,730 |
|
|
|
83,307 |
|
|
|
57,128 |
|
|
|
261,285 |
|
Capital expenditures |
|
|
146 |
|
|
|
199 |
|
|
|
319 |
|
|
|
37 |
|
|
|
2,163 |
|
|
|
2,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
183,727 |
|
|
$ |
40,263 |
|
|
$ |
19,189 |
|
|
$ |
84,711 |
|
|
$ |
|
|
|
$ |
327,890 |
|
Non-cash equity compensation |
|
|
4,297 |
|
|
|
6,866 |
|
|
|
501 |
|
|
|
1,555 |
|
|
|
5,899 |
|
|
|
19,118 |
|
Depreciation and amortization |
|
|
1,188 |
|
|
|
2,201 |
|
|
|
1,242 |
|
|
|
375 |
|
|
|
2,556 |
|
|
|
7,562 |
|
Operating income/(loss) |
|
|
11,538 |
|
|
|
(7,519 |
) |
|
|
(6,137 |
) |
|
|
57,229 |
|
|
|
(47,397 |
) |
|
|
7,714 |
|
Total assets |
|
|
92,931 |
|
|
|
19,960 |
|
|
|
9,937 |
|
|
|
61,784 |
|
|
|
70,655 |
|
|
|
255,267 |
|
Capital expenditures |
|
|
266 |
|
|
|
183 |
|
|
|
1,344 |
|
|
|
64 |
|
|
|
3,175 |
|
|
|
5,032 |
|
17. OTHER INFORMATION
The Companys financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivable, accounts payable and accrued expenses. The carrying amount of
these accounts approximates fair value.
The Companys revenues from foreign sources were $10.8 million, $13.4 million and
$12.3 million in 2009, 2008 and 2007, respectively.
The Companys revenues from Kmart Corporation which predominately are included in the
Merchandising segment relative to the Companys total revenues were approximately 11% for 2009,
10% for 2008 and 21% for year ended December 31, 2007.
Advertising expense, including subscription acquisition costs, was $14.8 million,
$19.2 million, and $23.3 million for the years ended December 31, 2009, 2008, and 2007,
respectively.
Production, distribution and editorial expenses; selling and promotion expenses; and general
and administrative expenses are all presented exclusive of depreciation and amortization and
impairment charges, which are shown separately within Operating Costs and Expenses.
Interest paid in 2009 was $0.5 million related to the Companys loan with Bank of America.
Interest paid in 2008 was $0.9 million related to the Companys loan with Bank of America. Interest
paid in 2007 was $0.4 million related to the settlement of the 2000 IRS audit.
Income taxes paid were $0.3 million for the year ended December 31, 2009 and $1.1 million for
the years ended December 31, 2008 and 2007.
F-26
18. SUBSEQUENT EVENTS
On February 8, 2010, the Company executed an amendment to the Intangible Asset License
Agreement discussed in Note 12, Related Party Transactions. Pursuant to the amendment, for 2010
only, the annual fee of $2.0 million that would otherwise be payable on or about September 15, 2010
will be reduced to $1.95 million and paid in two installments, the first of which was $0.95 million
and was paid on February 9, 2010. The remainder of the payment will be made on or about September
15, 2010 as originally scheduled.
On
March 1, 2010, in recognition of changing economic conditions and
to ensure the continued retention and motivation of key employees,
our Compensation Committee approved
a modification to the performance conditions associated with the March 2, 2009 performance-based
restricted stock units discussed in Note 9. As a result,
these awards are now considered probable of vesting. Accordingly, the Company will measure the
fair value of these awards as of the date of modification and will recognize the fair value over
the remaining service period of the awards.
On March 1, 2010 the Company made equity awards to certain employees pursuant to the New Stock
Plan. The awards consisted, in the aggregate, of options to purchase 700,000 shares at an exercise price of $5.48 per share (the
closing price on the date of grant), which options vest over a four-year period, and 550,000
performance-based restricted stock units, each of which represents the right to a share of the
Companys Class A Common Stock if the Company achieves targets over a performance period. The
performance-based restricted stock unit awards are considered probable of vesting. Accordingly, the Company
will measure the grant date fair value of these awards as of the date of issuance and will
recognize the fair value over the remaining service period of the awards.
F-27
MARTHA STEWART LIVING OMNIMEDIA, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions/ |
|
|
(Deductions) |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
(Deductions) |
|
|
Charged to |
|
|
|
|
|
|
Balance, |
|
|
Charged to Revenues, |
|
|
Charged to |
|
|
Revenues, |
|
|
|
|
|
|
Beginning of |
|
|
Costs and |
|
|
Balance Sheet |
|
|
Costs and |
|
|
Balance, |
|
Description |
|
Year |
|
|
Expenses |
|
|
Accounts |
|
|
Expenses |
|
|
End of Year |
|
Allowance for doubtful accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
1,502 |
|
|
$ |
563 |
|
|
$ |
(714 |
) |
|
$ |
|
|
|
$ |
1,351 |
|
2008 |
|
|
1,247 |
|
|
|
399 |
|
|
|
(144 |
) |
|
|
|
|
|
|
1,502 |
|
2007 |
|
|
1,207 |
|
|
|
332 |
|
|
|
(292 |
) |
|
|
|
|
|
|
1,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for audience underdelivery: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
1,869 |
|
|
$ |
2,434 |
|
|
$ |
(336 |
) |
|
$ |
(1,110 |
) |
|
$ |
2,857 |
|
2008 |
|
|
3,542 |
|
|
|
1,563 |
|
|
|
(125 |
) |
|
|
(3,111 |
) |
|
|
1,869 |
|
2007 |
|
|
2,554 |
|
|
|
2,706 |
|
|
|
(423 |
) |
|
|
(1,295 |
) |
|
|
3,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for valuation allowance on the deferred tax asset: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
$ |
68,003 |
|
|
$ |
4,332 |
|
|
$ |
947 |
|
|
$ |
|
|
|
$ |
73,282 |
|
2008 |
|
|
63,277 |
|
|
|
4,629 |
|
|
|
97 |
|
|
|
|
|
|
|
68,003 |
|
2007 |
|
|
62,141 |
|
|
|
|
|
|
|
6,575 |
|
|
|
(5,439 |
) |
|
|
63,277 |
|
F-28
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Exhibit Title |
|
|
|
|
|
|
|
|
2.1 |
|
|
|
|
Asset Purchase Agreement dated as of February 19, 2008 among Emerils Food of Love Productions,
L.L.C., emerils.com, LLC and Emeril J. Lagasse, III, as the Sellers, and Martha Stewart Living
Omnimedia, Inc. and MSLO Shared IP Sub LLC, as the Buyers (incorporated by reference to Exhibit 99.1
to our Current Report on Form 8-K (file number 001-15395) filed on February 19, 2008). |
|
|
|
|
|
|
|
|
3.1 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc.s Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to our Registration Statement on Form S-1, as amended, File Number 333-84001 (the
Registration Statement)). |
|
|
|
|
|
|
|
|
3.2 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc.s By-Laws (incorporated by reference to Exhibit 3.2 to our
Quarterly Report on Form 10-Q (file number 001-15395) for the quarter ended June 30, 2008 (June 2008
10-Q)). |
|
|
|
|
|
|
|
|
4.1 |
|
|
|
|
Warrant to purchase shares of Class A Common Stock, dated August 11, 2006 (incorporated by reference
to Exhibit 4.2 to our Quarterly Report on Form 10-Q (file number 001-15395) for the quarter ended
September 30, 2006 (September, 2006 10-Q)). |
|
|
|
|
|
|
|
|
10.1 |
|
|
|
|
1999 Stock Incentive Plan (incorporated by reference to the Registration Statement), as amended by
Exhibits 10.1.1, 10.1.2 and 10.1.3. |
|
|
|
|
|
|
|
|
10.1.1 |
|
|
|
|
Amendment No. 1 to the 1999 Stock Incentive Plan, dated as of March 9, 2000 (incorporated by reference
to our Annual Report on Form 10-K for the year ended December 31, 1999, File Number 001-15395 (the
1999 10-K)). |
|
|
|
|
|
|
|
|
10.1.2 |
|
|
|
|
Amendment No. 2 to the Amended and Restated 1999 Stock Incentive Plan, dated as of May 11, 2000
(incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2000
(the June 2000 10-Q)). |
|
|
|
|
|
|
|
|
10.1.3 |
|
|
|
|
Amendment No. 3 to the Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to
our Current Report on Form 8-K filed on May 17, 2005 (the May 17, 2005 8-K)). |
|
|
|
|
|
|
|
|
10.2 |
|
|
|
|
1999 Non-Employee Director Stock and Option Compensation Plan (incorporated by reference to the
Registration Statement) as amended by Exhibit 10.2.1. |
|
|
|
|
|
|
|
|
10.2.1 |
|
|
|
|
Amendment No. 1 to the Martha Stewart Living Omnimedia, Inc. Non-Employee Director Stock and Option
Compensation Plan (incorporated by reference to the May 17, 2005 8-K). |
|
|
|
|
|
|
|
|
10.3 |
|
|
|
|
Form of Intellectual Property License and Preservation Agreement, dated as of October 22, 1999, by and
between Martha Stewart Living Omnimedia, Inc. and Martha Stewart (incorporated by reference to Exhibit
10.8 to the Registration Statement). |
|
|
|
|
|
|
|
|
10.4 |
|
|
|
|
Lease, dated as of September 24, 1992, between Tishman Speyer Silverstein Partnership and Time
Publishing Ventures, Inc., as amended by First Amendment of Lease dated as of September 24, 1994
between 11 West 42 Limited Partnership and Time Publishing Ventures, Inc. (incorporated by reference
to Exhibit 10.10 to the Registration Statement). |
|
|
|
|
|
|
|
|
10.5 |
|
|
|
|
Lease, dated as of March 31, 1998, between 11 West 42 Limited Partnership and Martha Stewart Living
Omnimedia LLC (incorporated by reference to Exhibit 10.11 to the Registration Statement). |
|
|
|
|
|
|
|
|
10.6 |
|
|
|
|
Lease, dated August 20, 1999, between 601 West Associates LLC and Martha Stewart Living Omnimedia LLC
(incorporated by reference to Exhibit 10.12 to the Registration Statement) as amended by Exhibits
10.6.1 and 10.6.2. |
|
|
|
|
|
|
|
|
10.6.1 |
|
|
|
|
First Lease Modification Agreement, dated December 24, 1999, between 601 West Associates LLC and
Martha Stewart Living Omnimedia, Inc. (incorporated by reference to Exhibit 10.12.1 to our Annual
Report on Form 10-K (file number 001-15395) for the year ended December 31, 1999). |
|
|
|
|
|
|
|
|
10.6.2 |
|
|
|
|
Sixth Lease Modification Agreement, dated as of June 14, 2007, between 601 West Associates LLC and
Martha Stewart Living Omnimedia, Inc (incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q (file number 001-15395) for the quarter ended March 31, 2008 (March 2008 10-Q)). |
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Exhibit Title |
|
|
|
|
|
|
|
|
10.7 |
|
|
|
|
Lease, dated as of October 1, 2000, between Newtown Group Properties Limited Partnership and Martha
Stewart Living Omnimedia, Inc. (incorporated by reference to Exhibit 10.1 our Quarterly Report on Form
10-Q (file number 001-15395) for the quarter ended June 30, 2001 (the June 2001 10-Q)). |
|
|
|
|
|
|
|
|
10.8 |
|
|
|
|
License Agreement, dated June 21, 2001 by and between Kmart Corporation and MSO IP Holdings, Inc.
(incorporated by reference to Exhibit 10.3 to the June 2001
10-Q) as amended by Exhibit 10.8.1 and 10.8.2.
|
|
|
|
|
|
|
|
|
10.8.1 |
|
|
|
|
Amendment, dated as of April 22, 2004 to the License Agreement, by and between MSO IP Holdings, Inc.
and Kmart Corporation, dated June 21, 2001 (incorporated by reference to Exhibit 10.1 to our Quarterly
Report on Form 10-Q (file number 001-15395) for the quarter ended June 30, 2004). |
|
|
|
|
|
|
|
|
10.8.2 |
* |
|
|
|
Amendment,
dated as of July 7, 2009, to the License Agreement, by and between
MSO IP Holdings, Inc. and Kmart Corporation, dated June 21, 2001, as
amended. |
|
|
|
|
|
|
|
|
10.9 |
|
|
|
|
Split-Dollar Life Insurance Agreement, dated February 28, 2001, by and among Martha Stewart Living
Omnimedia, Inc., Martha Stewart and The Martha Stewart Family Limited Partnership (incorporated by
reference to Exhibit 10.17 to our Annual Report on Form 10-K (file number 001-15395) for the year
ended December 31, 2000) as amended by Exhibits 10.9.1 and 10.9.2 and terminated by Exhibit 10.9.3. |
|
|
|
|
|
|
|
|
10.9.1 |
|
|
|
|
Amendment, dated January 28, 2002, to Split-Dollar Life Insurance Agreement, dated February 28, 2001,
by and between Martha Stewart Living Omnimedia, Inc., Martha Stewart and The Martha Stewart Family
Limited Partnership (incorporated by reference to Exhibit 10.14.2 to our Annual Report on Form 10-K
(file number 001-15395) for the year ended December 31, 2001). |
|
|
|
|
|
|
|
|
10.9.2 |
|
|
|
|
Amendment, dated as of January 1, 2003, to Split-Dollar Life Insurance Agreement, dated February 28,
2001, as amended, by and among Martha Stewart Living Omnimedia, Inc., Martha Stewart and The Martha
Stewart Family Limited Partnership (incorporated by reference to Exhibit 10.14.3 to our Annual Report
on Form 10-K (file number 001-15395) for the year ended December 31, 2002). |
|
|
|
|
|
|
|
|
10.9.3 |
* |
|
|
|
Agreement,
dated November 9, 2009, terminating the Split-Dollar Life Insurance Agreement dated February
28, 2001 by and among Martha Stewart Living Omnimedia, Inc., Martha Stewart and the Martha Stewart
Family Limited Partnership, as amended. |
|
|
|
|
|
|
|
|
10.10 |
|
|
|
|
Amended
and Restated Employment Agreement, dated as of April 1, 2009, between
Martha Stewart Living Omnimedia, Inc. and Martha Stewart (incorporated
by reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q (file
number 001-15395) for the Quarter ended March 31, 2009 (March 2009
10-Q). |
|
|
|
|
|
|
|
|
10.11 |
|
|
|
|
Intangible
Asset License Agreement, dated as of June 13, 2008, between Martha Stewart Living Omnimedia,
Inc. and MS Real Estate Management Company (incorporated by reference to Exhibit 10.9 to our June 2008
10-Q), as amended by Exhibits 10.11.1 and 10.11.2. |
|
|
|
|
|
|
|
|
10.11.1 |
* |
|
|
|
First
Amendment, dated as of December, 2008, to the Intangible Asset License Agreement between MS Real
Estate Management Company and Martha Stewart Living Omnimedia, Inc. dated as of June 13, 2008. |
|
|
|
|
|
|
|
|
10.11.2 |
* |
|
|
|
Second
Amendment, dated as of February 8, 2010, to the Intangible Asset License Agreement between MS
Real Estate Management Company and Martha Stewart Living Omnimedia,
Inc. dated as of June 13, 2008, as
amended. |
|
|
|
|
|
|
|
|
10.12 |
|
|
|
|
Employment
Agreement, dated as of March 24, 2009, between Martha Stewart Living Omnimedia, Inc. and
Kelli Turner (incorporated by reference to Exhibit 10.1 to our
March 2009 10-Q). |
|
|
|
|
|
|
|
|
10.13 |
|
|
|
|
2005 Executive Severance Pay Plan (incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K (file number 001-15395) filed on January 6, 2005). |
|
|
|
|
|
|
|
|
10.14 |
|
|
|
|
Form of Restricted Stock Award Agreement for use under the Martha Stewart Living Omnimedia, Inc.
Amended and Restated 1999 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to our
Current Report on Form 8-K (file number 001-15395) filed on January 14, 2005). |
|
|
|
|
|
|
|
|
10.15 |
|
|
|
|
Registration Rights Agreement between Charles A. Koppelman and Martha Stewart Living Omnimedia, Inc.
dated January 24, 2005 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K
(file number 001-15395) filed on October 21, 2005). |
|
|
|
|
|
|
|
|
10.16 |
|
|
|
|
Separation
Agreement, dated as of April 20, 2009, between Martha Stewart Living Omnimedia, Inc. and
Wenda Harris Millard (incorporated by reference to Exhibit 10.3 to our March 2009 10-Q). |
|
|
|
|
|
|
|
|
10.17 |
|
|
|
|
Warrant Registration Rights Agreement, dated as of August 11, 2006, between Martha Stewart Living
Omnimedia, Inc. and Mark Burnett (incorporated by reference to Exhibit 10.3 to our September, 2006
10-Q). |
|
|
|
|
|
|
|
|
10.18 |
|
|
|
|
Form of Restricted Stock Unit Award Agreement under the Amended and Restated 1999 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K (file number 001-15395)
filed on February 27, 2007). |
|
|
|
|
|
|
|
|
10.19 |
|
|
|
|
2008 Executive Severance Pay Plan (incorporated by reference to Exhibit 10.4 to our Quarterly Report
on Form 10-Q (file number 001-15395) for the quarter ended September 30, 2007 (September 2007
10-Q)). |
|
|
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Exhibit Title |
|
|
|
|
|
|
|
|
10.20 |
|
|
|
|
Publicity
Rights Agreement, dated as of April 2, 2008, by and among Martha Stewart Living Omnimedia,
Inc., MSLO Shared IP Sub LLC and Emeril J. Lagasse, III (incorporated by reference to Exhibit 10.4 to
our March 2008 10-Q). |
|
|
|
|
|
|
|
|
10.21 |
|
|
|
|
Amended
and Restated Loan Agreement, dated as of August 7, 2009, by and among Bank of America, N.A.,
MSLO Emeril Acquisition Sub LLC and Martha Stewart Living Omnimedia, Inc. (incorporated by reference
to Exhibit 10.1 to our Quarterly Report on Form 10-Q (file number 001-15395) for the quarter ended
September 30, 2009 (September 2009 10-Q)), as
amended by Exhibit 10.22. |
|
|
|
|
|
|
|
|
10.22 |
* |
|
|
|
Waiver
and Amendment to Loan Documents, dated as of December 18, 2009, to Amended and Restated Loan
Agreement dated as of August 7, 2009 among Bank of America, N.A., MSLO Emeril Acquisition Sub LLC and
Martha Stewart Living Omnimedia, Inc. |
|
|
|
|
|
|
|
|
10.23 |
|
|
|
|
Security
Agreement, dated as of July 31, 2008, among Martha Stewart Living Omnimedia, Inc., MSLO Emeril
Acquisition Sub LLC, and Bank of America, N.A. (incorporated by reference to Exhibit 10.1 to our
Quarterly Report on Form 10-Q (file number 001-15395) for the quarter ended September 30, 2008
(September 2008 10-Q)) as amended by Exhibits 10.23.1, 10.23.2, and 10.22. |
|
|
|
|
|
|
|
|
10.23.1 |
|
|
|
|
Waiver
and Omnibus Amendment No. 1, dated as of June 18, 2009, to Loan Agreement dated as of April 4,
2008 by and among Bank of America, N.A., MSLO Emeril Acquisition Sub LLC and Martha Stewart Living
Omnimedia, Inc. (incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q (file
number 001-15395) for the quarter ended June 30, 2009). |
|
|
|
|
|
|
|
|
10.23.2 |
|
|
|
|
Amendment
No. 2, dated as of August 7, 2009, to Security Agreement dated as of July 31, 2008 among
Martha Stewart Living Omnimedia, Inc., Emeril Acquisition Sub LLC and Bank of America, (incorporated
by reference to Exhibit 10.2 to our September 2009 10-Q). |
|
|
|
|
|
|
|
|
10.24 |
|
|
|
|
Continuing and Unconditional Guaranty dated as of April 4, 2008 executed by Martha Stewart Living
Omnimedia, Inc., MSO IP Holdings, Inc., Martha Stewart, Inc., Body and Soul Omnimedia, Inc., MSLO
Productions, Inc., MSLO Productions Home, Inc., MSLO Productions EDF, Inc. and Flour
Productions, Inc. (incorporated by reference to Exhibit 10.8 to our March 2008 10-Q), as reaffirmed by
Exhibit 10.24.1. |
|
|
|
|
|
|
|
|
10.24.1 |
|
|
|
|
Reaffirmation
of Guaranty, dated as of August 7, 2009, executed by Martha Stewart Living Omnimedia,
Inc., MSO IP Holdings, Inc., Martha Stewart, Inc., Body and Soul Omnimedia, Inc., MSLO Productions,
Inc. MSLO Productions Home, Inc. MSLO Productions EDF, Inc and Flour Productions, Inc.
(incorporated by reference to Exhibit 10.3 to our September 2009 10-Q). |
|
|
|
|
|
|
|
|
10.25 |
|
|
|
|
Registration
Rights Agreement, dated as of April 2, 2008, by and among Martha Stewart Living Omnimedia,
Inc., Emerils Food of Love Productions, L.L.C., emerils.com, LLC and Emeril J. Lagasse, III
(incorporated by reference to Exhibit 10.9 to our March 2008 10-Q). |
|
|
|
|
|
|
|
|
10.26 |
* |
|
|
|
Director Compensation Program. |
|
|
|
|
|
|
|
|
10.27 |
|
|
|
|
Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan (incorporated by
reference to Exhibit 99.1 to our Current Report on Form 8-K (file number 001-15395) filed on May 20,
2008 (May 20, 2008 8-K)). |
|
|
|
|
|
|
|
|
10.28 |
|
|
|
|
Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Option
Agreement and forms of related Notices (incorporated by reference to Exhibit 99.2 to our May 20, 2008
8-K). |
|
|
|
|
|
|
|
|
10.29 |
|
|
|
|
Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted
Stock Unit Agreement (incorporated by reference to Exhibit 99.3 to our May 20, 2008 8-K). |
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10.30 |
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Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted
Stock Grant Agreement (incorporated by reference to Exhibit 99.4 to our May 20, 2008 8-K). |
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10.31 |
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Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock
Appreciation Right Agreement and form of related Notice (incorporated by reference to Exhibit 99.5 to
our May 20, 2008 8-K). |
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10.32 |
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Form of Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Grant
Agreement and form of related Acknowledgement (incorporated by reference to Exhibit 99.6 to our May
20, 2008 8-K). |
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10.33 |
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Form of Performance-Based Restricted Stock Unit Agreement pursuant to the Martha Stewart Living
Omnimedia, Inc. Omnibus Stock and Option Compensation Plan (incorporated by reference to Exhibit 10.1
to our Current Report on Form 8-K (file number 001-15395) filed on February 12, 2009). |
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10.34 |
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Employment
Agreement, dated as of September 17, 2008, between Martha Stewart Living Omnimedia, Inc. and
Charles A. Koppelman (incorporated by reference to Exhibit 10.2 to our September 2008
10-Q). |
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Exhibit |
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Number |
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Exhibit Title |
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10.35 |
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Employment
Agreement, dated as of September 17, 2008, between Martha Stewart Living Omnimedia, Inc. and
Wenda Harris Millard (incorporated by reference to Exhibit 10.3 to our September 2008 10-Q). |
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10.36 |
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Employment
Agreement, dated as of September 17, 2008, between Martha Stewart Living Omnimedia, Inc. and
Robin Marino (incorporated by reference to Exhibit 10.4 to our September 2008 10-Q). |
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10.37 |
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Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted Stock
Grant Agreement dated October 1, 2008 between Martha Stewart Living Omnimedia, Inc. and Charles
Koppelman (incorporated by reference to Exhibit 10.5 to our September 2008 10-Q). |
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10.38 |
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Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Option Grant
Agreement and form of related Notice dated October 1, 2008 between Martha Stewart Living Omnimedia,
Inc. and Charles Koppelman (incorporated by reference to Exhibit 10.6 to our September 2008 10-Q). |
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10.39 |
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Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted Stock
Grant Agreement dated October 1, 2008 between Martha Stewart Living Omnimedia, Inc. and Wenda Harris
Millard (incorporated by reference to Exhibit 10.7 to our September 2008 10-Q). |
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10.40 |
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Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Option Grant
Agreement and form of related Notice dated October 1, 2008 between Martha Stewart Living Omnimedia,
Inc. and Wenda Harris Millard (incorporated by reference to Exhibit 10.8 to our September 2008 10-Q). |
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10.41 |
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Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Restricted Stock
Grant Agreement dated October 1, 2008 between Martha Stewart Living Omnimedia, Inc. and Robin Marino
(incorporated by reference to Exhibit 10.9 to our September 2008 10-Q). |
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10.42 |
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Martha Stewart Living Omnimedia, Inc. Omnibus Stock and Option Compensation Plan Stock Option Grant
Agreement and form of related Notice dated October 1, 2008 between Martha Stewart Living Omnimedia,
Inc. and Robin Marino (incorporated by reference to Exhibit 10.10 to our September 2008 10-Q). |
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10.43 |
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Martha Stewart Living Omnimedia, Inc. Director Deferral Plan (incorporated by reference to Exhibit
10.46 to our Annual Report on Form 10-K (file number 001-15395) for the year ended December 31, 2008
(the 2008 10-K)). |
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10.44 |
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Martha Stewart Living Omnimedia, Inc. Non-Employee Director Stock and Option Compensation Plan
Deferral Election Form dated July 1, 2004 and Clarification dated December 23, 2008 between Martha
Stewart Living Omnimedia, Inc. and Michael Goldstein (incorporated by reference to Exhibit 10.47 to
the 2008 Form 10-K). |
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10.45 |
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Martha Stewart Living Omnimedia, Inc. Annual Incentive Plan (incorporated by reference to the
Companys proxy statement filed in respect of its 2005 annual meeting of shareholders, dated as of
April 7, 2005). |
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21 |
* |
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List of Subsidiaries. |
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23.1 |
* |
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Consent of Independent Registered Public Accounting Firm. |
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31.1 |
* |
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Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
* |
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32 |
* |
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Certification of Principal Executive Officer and Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. |
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indicates management contracts and compensatory plans |
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* |
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indicates filed herewith |
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** |
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Schedules and exhibits to this Agreement have been omitted. The
Company agrees to furnish a supplemental copy of any omitted schedule
or exhibit to the Securities and Exchange Commission upon request. |