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Executives

Dan Weinstein - Investor Relations

Charles A. Koppelman - Chairman of the Board

Robin Marino - Co-Chief Executive Officer

Kelli Turner - Chief Financial Officer, Executive Vice President

Analysts

Michael Meltz - J.P. Morgan

Michael Kupinski - Noble Financial

David Bank - RBC Capital Markets

David Kestenbaum - Morgan Joseph

Martha Stewart Living Omnimedia, Inc. (MSO) Q3 2009 Earnings Call November 4, 2009 11:00 AM ET

Operator

Good morning and welcome to the Martha Stewart Living Omnimedia third quarter 2009 earnings conference call and webcast. (Operator Instructions) At this time, it is my pleasure to introduce Dan Weinstein, Director of Financial Reporting and Planning of Martha Stewart Living Omnimedia. Dan, you may begin when ready.

Dan Weinstein

Thank you and good morning, everyone. Welcome to Martha Stewart Living Omnimedia’s 2009 third quarter earnings conference call.

Before we begin, let me remind you that our discussions will contain forward-looking statements which are made pursuant to the Private Securities Litigation Reform Act of 1995 as amended. These statements are not guarantees of future performance and involve certain risks and uncertainties which are difficult to predict. Actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, many of which are described in our SEC filings.

Also, non-GAAP numbers are reconciled to GAAP in an attachment to our press release which appears on our website, www.marthastewart.com.

Thank you and now I will turn the call over to Charles.

Charles A. Koppelman

Thank you all for joining us this morning. While the economic environment continued to define the tone of the advertising marketplace, the third quarter was nonetheless a landmark one for Martha Stewart Living Omnimedia. When our first products hit the Home Depot store shelves early in 2010, we will be on our way to completing our transition to a stronger, more diversified merchandising business. An important part of this transition is that we will be partnered with the best retailers across the categories where the Martha Stewart brand carries tremendous weight with consumers.

In addition to the Home Depot, this includes our successful partnership with Macy’s, our robust crafts business at Michael’s, our forthcoming pet accessory line at Petsmart, weddings at Sandals and Beaches Resort, and 1-800-FLOWERS. We believe the company is well-positioned for long-term growth.

During this transition, we continue to see challenges but we believe we are holding our own reasonably well. It is no surprise that the print advertising market continued to be difficult in the third quarter. To counteract this impact on our business, our publishing segment continues to be disciplined about managing costs and realized those benefits in the quarter. Looking ahead, the December issue of Martha Stewart Living arrives on newsstands this month with three covers. It is not only the biggest issue of this year -- ad pages were up in the low double-digits from last year.

Subscribers remain engaged with our magazines and traffic to our website continues to soar as we look to a strong fourth quarter in our Internet business. These developments underscore the enduring appeal of our properties. In publishing, the consolidation among magazines most recently in the weddings category has been well-documented. Despite the market contractions, we’ve been able to build on our Martha Stewart Weddings franchise. We are celebrating the 15th anniversary of Martha Stewart Weddings magazine this year, adding a special destination weddings issue. And our first ever ad-supported national digital luxury wedding expo, all while remaining the best-selling bridal magazine on newsstands.

When a better spending environment develops, we believe category leading brands like Martha Stewart Weddings will be best-positioned to lead a magazine advertising recovery.

Books remain a strong and successful business for us as consumers are eating out less frequently, they are looking for new options for affordable, interesting dishes when cooking at home. We think Martha Stewart's dinner at home, which was published on October 13th, meets that need perfectly. The book hit the New York Times bestseller list within days of its publication and thousands of people have turned out for Martha’s book signings across the country. In fact, she signed a record 1,080 copies of dinner at home during a single signing at Costco in Carlsbad, California in the first week of publication.

We are also very excited about Emeril’s new book, 20-40-60, fresh food fast, which launched last week and is off to a strong start.

Within our Internet business, consumer engagement continues to grow as we deliver richer content and programming that is making marthastewart.com a regular destination for our customers. User metrics again demonstrated impressive gains. Page views were up 73% and unique visitors were up 39% in the third quarter, with social media serving as a key driver of traffic for our site.

We continue to benefit from Martha’s activity on Twitter, where she has more than 1.6 million followers whom she frequently directs to our sites, services, and products.

Consumers always look to our website for Halloween ideas and inspiration and this year was a high watermark for us. October was our highest traffic month ever for marthastewart.com, with 131.4 million page views and 5.6 million unique visitors.

Our pets channel featuring Martha’s French bulldogs blog, the daily wag, has also gained significant traction in the quarter with page views up 36% as we rolled out new features, including pet adoption search and a pet photos package.

And now on to broadcasting -- a few weeks before the quarter’s end and on the heels of a daytime Emmy win for art direction, set direction, scenic design, the fifth season of the Martha Stewart show got underway. The show’s theme is hands-on television, which engages a very loyal do-it-yourself audience that marketers want to reach. In addition, the second season of Whatever Martha premiered on Fine Living Network where it remains one of the network’s top-rated original shows.

We are looking forward to the upcoming Thanksgiving hotline on Martha Stewart Living Radio. Over the course of three days leading up to Thanksgiving, we’ll be offering tips, techniques, and guidance from Martha and 30 of the world’s top chefs and other experts, including Emeril, Mario Batelli, and more.

We are also excited by the interest we are receiving for potential new broadcasting initiatives with Emeril and are in active discussions about them. We hope to have updates for you by the time of our next earnings call.

No discussion of our media business is complete without a mention of our cross platform omni marketing programs. We continue to be a leader in providing marketers with creative integrated marketing solutions that reach across all of our media businesses. Media industry newsletter recognized our strength in this area with an award for excellence at the magazine’s integrated marketing awards in September.

MSLO recently launched an omni-marketing program with Dove chocolate. The program includes special edition Dove promises chocolate featuring messages from Martha Stewart under the signature foil wrapper and is supported by integrations on the Martha Stewart show, advertisements in Martha Stewart Living and Everyday Food magazines, online tips on marthastewart.com and dovechocolate.com, and in-store promotions.

I will turn the call over to Robin Marino in a moment to discuss our merchandising business. Let me summarize by saying that while this revenue challenged environment is difficult, we are optimistic about the direction our business is heading. Consumers continue to embrace our media offerings and we expect to benefit from a healthier advertising market in coming months. We believe our merchandising business is now positioned with the best retailers across multiple categories and we look forward to further expanding our roster of great media partners.

We see tremendous opportunity to build for the future and look forward to seeing the benefits of these and other initiatives in the months ahead. Robin.

Robin Marino

Thank you, Charles and good morning, everyone. This is a very exciting time in our company for our merchandising business. With the addition of new partnerships such as the Home Depot, Sandals, Age Group, with which we will develop pet accessories at Petsmart stores, and our expanded relationship with the Hanes Celestial group, we believe we are taking the right steps toward transforming our business for diversified long-term sustainable growth.

We have a vision for our vibrant robust brands and are focused on continued expansion and solid execution in the quarters and years ahead. While revenues were down in aggregate, excluding K-mart and Sears Canada in both periods, our adjusted EBITDA increased 27% from the prior year’s third quarter.

Now I would like to provide a quick update on a few of our partnerships.

Sales of our Martha Stewart Collection exclusively at Macy’s were up compared to a year ago. We expanded our assortment of food preparation items and refined our textile products with excellent results. Top categories included enamel cast iron, bakeware, luxury bedding, moderate bedding, and towels. In addition, sales of Emeril wall clad cookware at Macy’s were positively impacted by his participation on Macy’s culinary council and his appearance on HSN.

Sales of our Martha Stewart Crafts line in over 1,000 Michael’s stores have been strong, driven by new and innovative products, seasonal Halloween items, and a more focused assortment overall. In addition, our marketing initiatives through our television, print, and digital properties have proven extremely effective in driving retail sales.

In October, QVC U.K. dedicated two one-hour segments to Martha Stewart Crafts and performance exceeded expectations. As a result, QVC U.K. has requested more shows in 2010.

As a company, we remain focused on growing in areas where we have strong brand equity. A great example of this is our Weddings franchise, which Charles already mentioned. This includes Martha Stewart Weddings magazine, the Martha Stewart Collection at Macy’s which is the number one brand on their bridal registry, our Weddings crafts products at Michael’s, our stationary products with Crane, and our Wedding Wire and Ping investments.

As we discussed on our last call, we are expanding our footprint in the category by offering customizable Martha Stewart Weddings to brides and grooms, celebrating a destination wedding at Sandals Resorts and Beaches resorts across the Caribbean. Reservations are now being accepted and we feel positive about the early response. We are looking forward to sharing the results with you down the road.

In our newest franchise extension, we recently announced a multi-year relationship with Age Group to manufacture, market, and sell pet care products which will be sold through Petsmart, the largest specialty retailer of services and solutions for pets with over 1,100 doors.

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 roll out in the second quarter of 2010. We see real potential for our brand in the pet space and by launching at Petsmart, we are positioning Martha Stewart with a leading retailer in the category.

On our last call, we mentioned having food partnerships in the pipeline and just last month, we announced plans with Hanes Celestial Group and Hanes Pure Protein to introduce poultry from Plainville Farms as well as baking mixes from Arrowhead Mills and dry pasta from Duboles, using all natural healthy ingredients.

The product line will launch with limited distribution of fresh, frozen, vegetarian fed and anti-biotic free turkeys for this Thanksgiving. The natural baking mixes will follow in 2010.

This new program extends MSLO’s relationship with Hanes Celestial, which is producing Martha Stewart Clean, a branded line of all natural cleaning solutions that is expected to launch nationally in early 2010.

And last but certainly not least, our new partnership with the Home Depot, which includes over 2,100 stores in the United States and Canada. Together we are developing an exclusive Martha Stewart Living brand of home improvement products in many categories, including outdoor living, home storage and organization, and home décor. First to launch will be outdoor living in January 2010 followed by storage and organization in February 2010.

Through this relationship, we expect MSLO will be able to further leverage our talent for design and innovation and move into new categories where we have brand equity and expertise but no retail presence. We are working closely with the Home Depot team and are in the process of developing additional product offerings that will be available in 2010. More details will be announced as we move forward, so stay tuned.

Before turning the call over to Kelli, I want to update you briefly on our international business. Currently our Martha Stewart Crafts line is sold in Australia, the U.K., Canada, Japan to name a few. We are having ongoing discussions with potential partners in other countries and we continue to explore opportunities for additional product categories. We look forward to updating you with more information as these plans develop.

Now Kelli will take you through the financials.

Kelli Turner

Thank you, Robin and thank you all for joining us this morning. Total revenues were $49.8 million in the third quarter of 2009, compared to $66.5 million in the prior year. The year-over-year decrease was largely due to lower advertising and merchandising revenue, as discussed. The adjusted EBITDA loss was $5.6 million compared to adjusted EBITDA of $600,000 in the prior year period. Third quarter results include a catch-up accrual for bonuses resulting from the company’s recent decision to pay employee’s some level of bonuses this year. We expect to pay these bonuses with a mix of cash and common stock in December.

Net loss per share was $0.22 in the third quarter versus a loss of $0.07 a year ago.

Now for our results on a segment basis -- overall publishing revenue was down 22% versus the prior year’s quarter. Print ad revenue decreased by 24% due to lower ad pages. Circulation declined 15%. Publishing adjusted EBITDA loss was $1.5 million compared to adjusted EBITDA of $3 million in the third quarter of 2008.

Our Internet business had revenue of $2.8 million, down from $3 million in the prior year third quarter. As mentioned on our last call, we expected the third quarter to be not as strong as the other quarters this year due to the timing of advertiser spending and lower advertising rates.

Internet adjusted EBITDA loss was $1.4 million compared to a loss of $1.1 million in the prior year. Broadcasting revenue came in at $11 million, down from $14.3 million in the 2008 quarter due to one-time payments recorded in the third quarter of 2008 related to Emeril programming as well as lower advertising and integration revenue from the Martha Stewart show.

The decline in revenue was partially offset by the payment related to the conclusion of the Turbo Chef relationship as discussed on our last call. Adjusted EBITDA was $1.9 million compared to $3 million last year.

Merchandising revenue was $8.9 million, down from $14.6 million a year ago. As expected, the largest contributors to the decline was a true-up revenue from Sears Canada recorded in the 2008 third quarter and lower royalty revenue from K-Mart as the relationship winds down.

In addition, there was a decline in creative services revenue, which carries little to no margin. Merchandising adjusted EBITDA was $4.3 million in the quarter compared to $8.8 million the prior year.

Excluding K-Mart and Sears Canada in both periods, adjusted EBITDA increased 27% from the prior year’s quarter. Adjusted EBITDA loss at corporate was $8.9 million compared to $13.1 million last year. As a reminder, the 2008 quarter included $3.2 million of charges related to staff reductions and other non-recurring corporate costs. We continue to see the benefit of our expense savings initiatives demonstrated by lower facility related expenses and travel costs and professional fee savings.

Our balance sheet remains healthy with cash, cash equivalents, and short-term investments of $34.4 million at the end of the third quarter. In addition, we restricted $15 million of cash in the quarter as a long-term asset, and we had $15 million in long-term debt. We continue to manage expenses carefully and with a focus on preserving cash while making strategic investments in growth. After the quarter closed, we received a $3 million cash make-hold payment as part of the Wilton restructuring and we received approximately $1 million worth of Hanes stock as part of our new food partnership.

Visibility for 2010 remains limited but in looking at the fourth quarter, we expect a substantial improvement in performance across our businesses. Print advertising revenue should be essentially flat compared to the prior year versus the previous three quarters, which were down over 20%. Internet advertising is expected to have its strongest quarter this year with healthy double-digit growth. In fact, we’ve actually already booked more revenue so far for this year’s fourth quarter than we did in the same period last year and it’s only early November.

Our broadcasting business is expected to be up significantly in the quarter. As we’ve mentioned on previous calls, merchandising will see the benefit from the $10 million non-cash K-Mart reserve reversal. The fourth quarter is also where we recognize the majority of the K-Mart minimum true-up for each year. In addition, we will record the make-hold payment from Wilton.

Keep in mind that our adjusted EBITDA for the fourth quarter last year benefited significantly from the reduced funding to our bonus pool.

To sum up, we expect a solid close to an otherwise challenging economic year and the company has taken important steps to generate growth opportunities in the future.

Thank you for joining us on our call today and we will now turn it back to the Operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question will come from the line of Michael Meltz with J.P. Morgan.

Michael Meltz - J.P. Morgan

Thanks. I think I have three questions for you. Thanks for the color there, Kelli, on fourth quarter expectations. On publishing print ad revenues flat, it’s definitely a nice improvement from where you have been trending but if you had pages down 4% to 5% in October, you are saying up low double-digits in November --

Kelli Turner

That was December where we said up.

Michael Meltz - J.P. Morgan

Well, December -- the issue but for the month, so -- it’s for the January issue, is that looking down or why wouldn’t you be better than flat in the fourth quarter? Are you just trying to be conservative?

Kelli Turner

The January issue is not down. However, we do have more than one magazine and so Weddings continues to be down. I mean, that’s just been a very tough space in this environment. We are doing better than we thought we would be doing but it’s still impacting the overall results, so I think it’s the mix that is leading to flat and you are right -- I mean, at MSL alone, we would be up.

Michael Meltz - J.P. Morgan

Okay, and just remind us, Weddings on an annualized basis, what’s the revenue contribution there?

Kelli Turner

The revenue contribution from Weddings on an annualized basis -- I’m not sure if we’ve broken that out in the past but it’s not all that large but it is still impacting the results.

Michael Meltz - J.P. Morgan

Okay. On merchandising, just with all the moving pieces in the fourth quarter, in terms of your earned royalty and your true-up and the recoupment, what is a rough target for merchandising revenues in the fourth quarter, please?

Kelli Turner

Rough target for merchandising revenues in the fourth quarter -- you know, I think it’s fair to say I think pretty much everybody has most of the numbers but I think it is fair to say that the overall revenue is going to be significantly up in the fourth quarter with all of that, so assume that it’s up a lot. I don’t know if I want to give the exact number but assume it’s in the 20s, probably the low to mid 20s.

Michael Meltz - J.P. Morgan

Okay, that’s helpful. And then last question for me, on the bonus, just explain to me on the third quarter, it was 8, 9 of corporate costs, $4 million of non cash comp, what -- how much of that was kind of reload of bonuses and then for the fourth quarter, what should we be expecting out of corporate and non-cash, please?

Kelli Turner

A couple of things -- we are not able to give you sort of the exact number for our bonus pool. That’s not something that we give out. But I would say that you should assume three quarters of our annual bonuses hit this third quarter and one quarter will hit the fourth quarter because we made the decision to pay bonuses around actually right after this quarter, so we had to catch up for the first three quarters of the year. So I hope that is helpful but we are not -- it’s not going to be paying people their full bonuses but we do believe, and Charles can comment on this, that given all that people have done and given where we were last year on bonuses, that it does make sense to have a level of bonuses and that is reflected in here.

Michael Meltz - J.P. Morgan

I’m not trying to argue it -- I’m just trying to get a sense as to a run-rate, given all the costs you’ve taken out, what’s a good run-rate -- is $8 million or so kind of how we should be thinking about a run-rate, or is it going to be higher?

Kelli Turner

The thing I would keep in mind there and so for this year, I don’t know but going forward in 2010 and then even more so in 2011 when we benefit from the full year of moving out of 42nd Street, so we will save a couple million dollars from being all [inaudible] and we are sort of officially moved out but we still have one quarter of that rent next year and then none of it in 2011. So that will help. I think that brings down your run-rate a little bit and then we do continue to seriously focus on where we can be more efficient from a cost perspective.

Michael Meltz - J.P. Morgan

Thanks for your time.

Operator

Your next question comes from the line of Michael Kupinski with Noble Financial.

Michael Kupinski - Noble Financial

Just a couple of questions here -- do you have the number of FTEs that you had in the quarter? And if you can give me a comparable from year earlier levels?

Kelli Turner

We have around the low 600 of total employees and a year ago, I’m not entirely sure of the number but it was higher.

Michael Kupinski - Noble Financial

Okay, and capital expenditures for the quarter were what?

Kelli Turner

CapEx for the quarter was 4.5-ish -- yes, 4.5.

Michael Kupinski - Noble Financial

And any updates for the year, I mean, what the fourth quarter is looking like and thoughts about 2010?

Kelli Turner

I think it’s fair to say, just so you know, the project, the building out there will end this year so there is some more in the fourth quarter but post that, we should go back to a normal level next year of what we have said before, around $2.5 million. So in the fourth quarter of this year, I would expect CapEx to be probably another $2.5 million to $2.75 million.

Michael Kupinski - Noble Financial

Okay, and then just kind of going over the expenses a little bit, just kind of backing out the production and distribution expenses, can you just talk a little bit about the lift that we saw there and what was included in that number that may not be ongoing and what your thoughts were about the run-rate going into the fourth quarter for that line item?

Kelli Turner

I’m confused -- so are you talking about corporate?

Michael Kupinski - Noble Financial

-- production and distribution -- yeah.

Kelli Turner

Sorry, you’re talking about like print production and distribution?

Michael Kupinski - Noble Financial

Yes, correct.

Kelli Turner

So on that front, I think it’s fair to say we have seen nice savings in paper prices throughout this year and I think that we are hoping that we at least stay at kind of where we are now or better next year, so we do expect an overall year-over-year benefit from paper pricing.

A lot of this is, as the magazine gets bigger obviously overall costs on the variable basis go up but we are managing costs as well as we can, so I’m not sure on the staffing side, I think we’ve looked at that closely and I think we are still benefiting from some of the decisions we made last year and things that continue. So I’m not sure if that’s exact enough but hopefully that gives you some color.

Michael Kupinski - Noble Financial

And the cash that -- I know that Charles in the past had indicated that cash preservation and maintaining a flexible balance sheet is a key component to how you plan to manage the business. In the last quarter, obviously that dropped nearly $20 million from the previous quarter. Can you talk about your comfort level on the cash balance and certainly you had some bonuses and costs that hit this quarter but what measures might you take that the company’s fundamentals may not improve in the near-term, and what your thoughts are about maintaining that cash balance?

Kelli Turner

Well, I would just be clear -- in terms of the cash dropping, a lot of it is just presentation on the balance sheet, so we restricted $15 million of cash in the quarter, so you will see that not in the cash balance but as a long-term asset as restricted cash, but it’s still cash. So it’s offsetting the $15 million of the debt --

Charles A. Koppelman

Well, it didn’t drop 20 -- it really was the 5.

Kelli Turner

Was the 5 from the CapEx.

Michael Kupinski - Noble Financial

Okay, perfect. Okay, great, that’s all I got. Thanks.

Operator

Your next question comes from the line of David Bank with RBC Capital Markets.

David Bank - RBC Capital Markets

A couple of questions -- I guess the first one is historically this was a little bit easier in that you had one kind of giant customers and a fairly defineable guaranteed payment stream and you are displacing that one big partner with several others and I think historically, you’ve probably been reluctant to talk about what the specific arrangements are with each one as they have rolled out, but can you give us a sense of your visibility in your aggregate for your partners ex K-Mart in terms of guaranteed payments? And sorry to make the question longer but do you think the time is over when we should be asking about guaranteed payments? Like are these deals for the most part not involving a guaranteed component.

Charles A. Koppelman

Let me answer that in a coupe of ways. First, we are transitioning from around 1,400 K-Mart stores to about 5,000 of the best of class retailers, which would include Michael’s, where we do our craft business, the new rollout at Petsmart, world class pet business, and Macy’s and of course Home Depot. So you are trading 1,400 for 5,000 which enables our customer to buy the products they want from Martha Stewart in the places that they want to shop. So we look forward to expanding that business in that manner.

We don’t comment on the specifics of our agreements with different players but it’s a mix. You know, some deals have some guarantees, some deals don’t have guarantees. But at the end of the day, it’s all about selling our product to our customers in the places that they want to buy it, those customers are extremely robust and we expect to have a building and growing business in a much improved environment going forward.

David Bank - RBC Capital Markets

Okay. Any more visibility that you can give us is always helpful but I appreciate the comments. And just a --

Charles A. Koppelman

At this time next year, we’ll be able to give you great visibility going forward but since we are first rolling out into Home Depot, we are first rolling out in Petsmart, we have a terrific business at Macy’s, so Robin can give you some color on that performance and if history is a foreteller of the future, that may tell you something.

Kelli Turner

Exactly and David, I think that that really is -- I mean, it’s just -- when you roll out new relationships, it just takes a little time for them to ramp up.

Robin Marino

But also, you know, our business at Macy’s now, we have seen very, very strong performance in the last two months. We have seen increases in the double-digits and over the course of time, these businesses as Charles said, they just get better and better with time, so we are very excited about our Home Depot announcement and we feel very optimistic about the potential that that has for our brand.

Charles A. Koppelman

And when you realize that after January, if one wants to buy Martha Stewart as I call it soft home, Robin will probably describe it a little bit differently, they are going to be going to K-Mart -- they are going to be going to Macy’s and that will continue to grow our business and continue to grow their business.

David Bank - RBC Capital Markets

And I guess as a bit of a follow-up on Home Depot maybe specifically but as a general thought, where do the price points of these new products, where are they coming in relative to -- if you are looking at patio furniture in Home Depot, right, is the Martha Stewart product a materially more -- is it sort of middle of the road, is it very expensive, is it on the less expensive side? Where does it fall in?

Robin Marino

Martha started the migration to mass for a designer name and she was always very, very sensitive to providing wonderful design innovation, great quality, and wonderful value and that is exactly how we will move into the Home Depot arena with our product and we will probably be -- we won't be their opening price point but we will be very, very accessible right around there, so we are really optimistic about the potential that we have across their categories to provide their consumer with innovation, quality, and great value.

David Bank - RBC Capital Markets

Okay. Well, thank you very much.

Operator

(Operator Instructions) Our next question is a follow-up question from Michael Kupinski with Noble Financial.

Michael Kupinski - Noble Financial

Robin, I was just wondering, kind of skirting around the edges on the Home Depot relationship, when do you think that you will be able to provide some insight on the number of SKUs that you might have for Home Depot, or maybe just in terms of additional color on the product ramp? I mean, I know that you are deep in the thought process with the products and that sort of thing but do you have any idea when you might be able to have some clarity on that?

Robin Marino

Michael, what we have decided to do, you know we’ve announced that we are moving into the outdoor living in January, storage and organization in February, and then as the months progress, we’ll be announcing more and more categories. It’s our goal to represent Martha in many, many areas of the store because we believe that between Home Depot and Macy’s, we’ll be able to provide consumers with everything they need to build out, furnish, and decorate their homes.

So to give you more guidance on the SKU counts at Home Depot, as we move into 2010 we will be able to provide you with much more guidance on that. I hope that’s helpful.

Michael Kupinski - Noble Financial

I appreciate that, and I imagine that you are currently in negotiations with the home décor component and you kind of rolled out the strategy in terms of the outdoor furniture and that sort of thing in the first quarter and then in the second quarter, with the storage and so forth -- when are your thoughts to roll out the home décor component? Would it be more like --

Robin Marino

Well, we are working very closely with Home Depot's team and home décor will -- it will roll through the course of 2010.

Michael Kupinski - Noble Financial

Okay, so would you have to get in the second quarter do you think or is it just in the beginning of third quarter?

Robin Marino

You know, as we’ve stated in our last call when we announced this, we didn’t want to give out any specifics. I can just tell you that it will roll through 2010.

Michael Kupinski - Noble Financial

All right. Thanks very much.

Operator

Our final question will come from the line of David Kestenbaum with Morgan Joseph.

David Kestenbaum - Morgan Joseph

-- give us color on why you restricted the $15 million in cash? I think you said it has to do with the bank facility.

Kelli Turner

Sure. So I thought maybe we had talked about this last quarter -- basically we were coming up on some covenants with our loan and we restricted the cash in order to raise those covenants. We can unrestrict the cash when we are back in compliance with the covenant but as we restricted the cash, we also are paying a lower interest rate, so we had the cash, we were comfortable with it, we wanted to maintain the flexibility of having the loan because we could have just paid down the loan, obviously, but that was the reason for restricting it.

David Kestenbaum - Morgan Joseph

Thanks.

Operator

Ladies and gentlemen, this does conclude today’s Martha Stewart Living Omnimedia third quarter 2009 earnings conference call and webcast. Thank you for your participation. You may all disconnect.

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