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Martha Stewart Living Omnimedia Inc. Reports Operating Results (10-Q)

May 07, 2010 | About:
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10qk

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Martha Stewart Living Omnimedia Inc. (MSO) filed Quarterly Report for the period ended 2010-03-31.

Martha Stewart Living Omnimedia Inc. has a market cap of $327.1 million; its shares were traded at around $5.95 with a P/E ratio of 66.2 and P/S ratio of 1.3. MSO is in the portfolios of Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Production, distribution and editorial expenses increased $0.6 million due to the timing of the 2010 spring issue of Martha Stewart Weddings and higher art and editorial compensation and story costs, partially offset by lower paper costs. Selling and promotion expenses decreased $0.8 million due to lower subscriber acquisitions and newsstand-related costs, lower advertising and consumer marketing staff costs, the discontinuation of Dr. Andrew Weils Self Healing newsletter and timing of other circulation expenses. These decreased selling and promotion expenses were partially offset by the timing of marketing promotional costs and higher direct mail investment for Martha Stewart Living. General and administrative expenses decreased $0.6 million largely due to lower headcount and lower non-cash compensation.

Broadcasting revenues increased 15% for the three months ended March 31, 2010 from the prior-year period. Advertising revenue decreased $1.3 million primarily due to the decline in household ratings for The Martha Stewart Show, although this was partially offset by higher television spot advertising rates. The decrease in advertising revenue was also partially offset by an increase in the quantity of integrations at higher rates. Radio licensing revenue decreased $1.0 million as a result of our new agreement with Sirius XM, which provides for lower licensing fees and an opportunity to replace a portion of such lower licensing fees through advertising sales. Television licensing and other revenue increased $3.8 million due to the recognition of substantially all of the exclusive license fee which represents approximately $5.0 million from Hallmark Channel for a significant portion of our library of programming. The benefit of the Hallmark license fee was partially offset by the absence of our TurboChef relationship and the conclusion of certain Emeril Lagasse television programming, both of which contributed to licensing and other revenues for the three months ended March 31, 2009.

Merchandising revenues increased 10% for the three months ended March 31, 2010 from the prior-year period. Royalty and other revenue increased $3.1 million partially due to the contribution from our new merchandising relationships, a one-time $1.0 million payment received from a manufacturing partner and higher rates and sales from certain of our existing partners. The increase in royalty and other revenue is partially offset by the decrease of $2.2 million related to our agreement with Kmart, which ended in January 2010. The pro-rata portion of revenues related to the contractual minimum amounts from Kmart covering the three months ended March 31, 2010 and 2009 is listed separately above as Kmart minimum true-up.

Production, distribution and editorial expenses decreased $0.5 million due primarily to lower allocated facilities costs, as compared to the prior-year period. The allocation policy for facilities expenses changed in 2010 for the Merchandising segment only. All allocated rent and facilities charges will now be reflected in the Merchandising segment as overhead costs in the general and administrative expense category. This allocation change does not impact any of our other business segments. Selling and promotion expenses increased $0.5 million primarily as a result of services that we provide to our partners for reimbursable creative services projects. General and administrative costs increased $0.9 million due to higher compensation expenses, higher allocated facilities costs due to the change in policy described above and higher professional fees. In the first quarter of 2009, we recorded non-cash impairment charges of $7.1 million related to our cost-based equity investment in United Craft MS Brands, LLC.

During the first quarter of 2010, our overall cash, cash equivalents and short-term investments increased $7.2 million from December 31, 2009. The increase was due to the satisfaction of our 2009 year-end receivable due from Kmart and other advertising receivables, as well as net sales of short-term investments, partially offset by capital expenditures and a principal pre-payment of our loan with Bank of America. Cash, cash equivalents and short-term investments were $45.7 million and $38.5 million at March 31, 2010 and December 31, 2009, respectively.

Cash provided by operating activities was $10.5 million and $2.5 million for the three months ended March 31, 2010 and 2009, respectively. In the first quarter of 2010, cash from operations increased primarily due to the satisfaction of the 2009 year-end receivable due from Kmart and other advertising receivables. The increase in cash from operations was partially offset by our operating loss, as discussed earlier, net of non-cash factors including the receivable related to the recognition of substantially all of the exclusive license fee which represents approximately $5.0 million from Hallmark Channel for a significant portion of our library of programming.

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