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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
or
[ ] 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 000-25469
iVillage Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3845162
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
500-512 Seventh Avenue, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 600-6000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
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 [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of the Common Stock on
March 22, 2002 as reported on the Nasdaq National Market, was approximately
$80.9 million. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 22, 2002, the registrant had outstanding 52,713,902 shares
of Common Stock.
Documents Incorporated by Reference
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 23, 2002 are incorporated by reference
in Part III of this Form 10-K. Other documents incorporated by reference in this
Form 10-K are listed in the Exhibit Index.
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iVillage Inc.
Form 10-K
Table of Contents
Page No.
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PART I
Item 1. Business.......................................................................................1
Item 2. Properties....................................................................................18
Item 3. Legal Proceedings.............................................................................19
Item 4. Submission of Matters to a Vote of Security Holders...........................................20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.........................21
Item 6. Selected Consolidated Financial Data..........................................................22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...................................56
Item 8. Consolidated Financial Statements and Supplementary Data......................................56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........56
PART III
Item 10. Directors and Executive Officers of the Registrant...........................................56
Item 11. Executive Compensation.......................................................................58
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters........................................................................58
Item 13. Certain Relationships and Related Transactions...............................................58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................59
SIGNATURES......................................................................................................64
Index of Consolidated Financial Statements and Financial Statement Schedule............................F-1
PART I
Certain statements in this Annual Report on Form 10-K, including
certain statements contained in "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The words
or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project", and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and iVillage cautions you that
any forward-looking information provided by or on behalf of iVillage is not a
guarantee of future performance. Actual results could differ materially from
those anticipated in such forward-looking statements due to a number of factors,
some of which are beyond iVillage's control, in addition to those risks
discussed below and in iVillage's other public filings, press releases and
statements by iVillage's management, including (i) the volatile and competitive
nature of the media industry, (ii) changes in domestic and foreign economic,
political and market conditions, (iii) the effect of federal, state and foreign
regulation on iVillage's business, (iv) the impact of recent and future
acquisitions and joint ventures on iVillage's business and financial condition,
(v) iVillage's ability to establish and maintain relationships with advertisers,
sponsors and other third-party providers and partners, (vi) the impact of
pending litigation on iVillage's business and financial condition, and (vii)
iVillage's ability to successfully consummate, integrate and manage its proposed
acquisition of Promotions.com, Inc. All such forward-looking statements are
current only as of the date on which such statements were made. iVillage does
not undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any such statement is
made or to reflect the occurrence of unanticipated events.
Item 1. Business.
Overview
iVillage is a media company that operates iVillage.com, Women.com,
Business Women's Network, iVillage Solutions, Lamaze Publishing, The Newborn
Channel and Astrology.com. iVillage.com and Women.com are leading women's online
destinations providing practical solutions and everyday support for women 18 and
over. Lamaze Publishing produces advertising supported educational materials for
expectant and new parents. The Newborn Channel is a satellite television network
broadcast in over 1,100 hospitals nationwide. Business Women's Network offers
one of the most extensive databases of women's organizations and Web sites in
the nation to subscribing companies and members.
iVillage.com is organized into communities across multiple topics of
high importance to women and offers interactive services, peer support, content
and online access to experts and tailored shopping opportunities. The content
areas include Babies, Beauty, Diet & Fitness, Entertainment, Food, Health, Home
& Garden, Horoscopes, Money, Parenting, Pets, Pregnancy, Quizzes, Relationships
and Work. iVillage facilitates use across content areas by providing the same
look and feel within each area and across the network, resulting in a consistent
and strongly branded Web site.
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iVillage is recognized as an industry leader in developing innovative
sponsorship and commerce relationships that match the desire of marketers to
reach women with the needs of iVillage.com members for relevant information and
services. Membership to iVillage.com is free and provides features such as
e-mail, personal homepages and other community tools.
iVillage.com's page views have grown to a monthly average of 343.3
million for the quarter ended December 31, 2001 up from 214.3 million average
monthly page views in the fourth quarter of 2000. According to Jupiter Media
Metrix, in December 2001, iVillage ranked 25th out of the top 50 Web and Digital
Media properties with more than 11.5 million unique users and had an average
reach of 10.8% of the online population. Also according to Jupiter Media Metrix,
visitors spend an average of 27.7 minutes on the iVillage site and return an
average of 2.3 times per month.
iVillage Content Areas
iVillage.com is organized around content specific areas that focus on
issues of most importance to women and provide interactive services, peer
support and online access to experts and tailored shopping opportunities.
iVillage.com is updated daily to promote content and community, including
highlights. The following table provides a brief description of the features of
each content area as of December 31, 2001:
Area Description
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Babies A parenting community center site that caters to women who
are trying to conceive, are expecting or are new parents and
includes bulletin boards and weekly chats.
Beauty A site offering users beauty advice, product reviews and
access to hair, makeup and skincare experts. The beauty
channel, Substance.com, is operated by a joint venture
between a subsidiary of Unilever United States, Inc.
("Unilever") and iVillage.
Diet & Fitness A diet and fitness site which includes body calculators,
nutrition experts, message boards, quizzes and community
challenges to improve one's fitness level.
Entertainment An area which includes iVillage Radio, celebrity interviews,
jokes and entertainment-related tools and quizzes.
Food A food site providing information on meal planning,
nutrition and recipes which includes food experts and
cooking basics.
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Area Description
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Health One of the leading consumer health sites on the Internet,
Health assists users in becoming better health care decision
makers through bulletin boards and weekly chats.
Home & Garden A home and garden site offering users information and
tools on gardening issues.
Horoscopes A site providing users with horoscopes, celebrity profiles,
romance charts, monthly guidance and the ability to purchase
astrology reports.
Money A financial planning site providing users with information
on savings and investment strategies focusing on key life
stages of women.
Parenting A parenting site providing users with a branded online
community where parents share parenting solutions, talk with
experts and find answers and support.
Pets A site that provides information on caring for your pet,
selecting a breed, adopting a pet and choosing a
veterinarian.
Pregnancy An area for expectant parents providing information on
fertility and pregnancy, including Lamaze.com.
Quizzes An area offering interactive quizzes on a variety of
subjects.
Relationships A site offering users information and conversation on
love, marriage, sex and family.
Work A site providing women who work from home with tools and
resources such as home office basics, a tax guide and a
software library. The site also provides women with tools
and resources relating to professional development and
career-related issues.
iVillage believes that user support is critical in order to attract and
retain users. iVillage provides user support primarily through e-mail-based
correspondence. Help and feedback buttons are prominently displayed throughout
iVlllage.com, and iVillage.com's user support staff attempts to respond to all
e-mail queries within 24 hours. In addition, community leaders provide e-mail
support for broad-ranging issues. iVillage does not charge for these services.
Sponsorship and Advertising Revenues
iVillage has derived a significant amount of its revenues to date from
the sale of sponsorships and advertisements. For the years ended December 31,
2001 and 2000, sponsorship and advertising revenues represented 80% and 92%,
respectively, of iVillage's total revenues.
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iVillage's strategy is focused in part on generating a majority of its
advertising revenues from sponsors and merchants who seek a cost-effective means
to reach women online. iVillage is aggressively working to build its leadership
position as the preeminent women's brand to the advertising community.
iVillage's sponsorship arrangements typically differ from traditional banner
advertising in that they are designed to achieve broad marketing objectives such
as brand promotion, awareness, product introductions and online research.
Sponsorships allow iVillage to cater to the specific goals of advertisers in the
areas of impressions, product research, market research, new product launches,
list development, product information, repositioning, new account openings, lead
generation and transactions. Sponsors also have the opportunity to develop a
dialogue with their key consumer prospects through iVillage's message boards,
chats, polls and special events, which allows sponsors the opportunity to gain
insights into their customers. iVillage's sponsorship arrangements generally
have longer terms than typical banner advertising placements, provide for higher
cost per thousand impressions per advertiser and independence from page-views as
the sole measure of value. Recently, however, the length of the typical
sponsorship agreement has been shorter than iVillage's historical experience. In
addition, iVillage occasionally develops extensive content to support the
marketing initiatives of advertisers. iVillage's sponsorship agreements can be
exclusive.
iVillage also derives a portion of its sponsorship and advertising
revenues from banner advertisements that are prominently displayed throughout
iVillage.com and Women.com. From each banner advertisement, viewers can
hyperlink directly to the advertiser's own Web site, thus providing the
advertiser the opportunity to directly interact with an interested customer.
During the first quarter of 2001, iVillage began to offer research to
its sponsors, advertisers and other customers for a fee. Through third-party
vendors and internal staff, iVillage provides customers with research designed
to measure the ability of online advertising to create brand awareness and
impact purchase decisions. This research is conducted primarily through live
online campaigns during which visitors to iVillage Web sites are invited at
random to take a brief survey designed to measure their product and brand
awareness levels and their purchase intents. This allows iVillage's sponsors and
advertisers to help make their online marketing campaigns more effective in
connection with wide scale initiatives and provides them with important
aggregated demographic information such as age, sex and income. To date,
iVillage has not received a significant portion of revenues from paid research.
For the years ended December 31, 2001 and 2000, revenues from
iVillage's five largest advertisers accounted for approximately 37% and 23% of
total revenues, respectively. One advertiser, Unilever, accounted for 12% of
iVillage's total revenues for the year ended December 31, 2001, and no one
advertiser accounted for greater than 10% of total revenues for the year ended
December 31, 2000. At December 31, 2001, Hearst Communications, Inc. ("Hearst")
and Unilever accounted for approximately 14% and 10% of the net accounts
receivable, respectively, and at December 31, 2000, Ford Motor Media accounted
for approximately 11% of the net accounts receivable. iVillage anticipates that
its results of operations in any given period will continue to depend to a
significant extent upon revenues from a small number of advertisers. In
addition, iVillage's largest advertisers have in the past varied over time, and
iVillage anticipates that they will continue to do so in the future.
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Membership
iVillage believes a large and active membership base is critical to its
success. Some features of iVillage's Web sites are restricted to members.
Membership is free and available to iVillage.com visitors who disclose their
name, address, e-mail address, age and gender and choose a member name and
password to be used throughout member-only areas. Members form iVillage.com's
core audience and are its most valuable users. E-mail, community challenges,
message boards and chats are examples of members-only benefits.
iVillage recognizes the importance of maintaining the confidentiality
of member information and has a privacy policy to protect this information. In
addition, iVillage Health is a founding member of the Health Internet Ethics, or
Hi-Ethics, organization. iVillage's current privacy policy is accessible through
a link from the iVillage.com home page as well as every Web page on
iVillage.com, including the page where a person initially registers for
membership. iVillage's current policy is to never sell or disclose to any
third-party any member's personal identifying information such as his or her
name or address, unless the member has provided consent in the form of an
"opt-in" or in certain limited situations as described in iVillage's privacy
policy. For example, in some situations, iVillage does allow a third-party
partner access to database information if it is necessary for the delivery of a
member service, such as e-mail. In these instances, the partner has generally
agreed to be bound by iVillage's current policy. iVillage does share aggregated
member information with third parties, such as average age or geographic
dispersion. iVillage also reserves the right to offer products and services to
members who opt-in to receive such offers. iVillage may use information revealed
by members and information built from user behavior to target advertising,
content and e-mail. For instance, iVillage may, on behalf of an advertiser, send
e-mail offers to all opt-in members from a particular region or target
advertisements to all users who frequent a specific area of the site.
iVillage periodically offers its members the opportunity to purchase
certain for-pay premium services, such as newsletters, quizzes, tools and
education courses. iVillage plans to continue to offer these premium services as
well as new for-pay services to its members in the future. To date, iVillage has
not received a significant amount of revenues from these services.
Women.com
iVillage acquired Women.com Networks, Inc. ("Women.com") in June 2001
and relaunched the Women.com Web site in October 2001 as a place for women
looking for information and entertainment to come for diversion and downtime.
Women.com features lighthearted entertainment content in five departments: Sex &
Dating, Entertainment, Style (including shopping), Horoscopes and Games. The
site provides message boards for women who want to talk about entertainment,
sex, dating, friendships, fashion trends and celebrity gossip, among other
topics. Women.com is also a source of daily gossip and entertainment news, music
news and videos, movie and television reviews and soap opera news.
Business Women's Network
On July 16, 2001, iVillage acquired control of Public Affairs Group,
Inc. ("PAG"), operator of Business Women's Network ("BWN"), a privately-held,
Washington, D.C. based company. PAG is one of the most comprehensive sources of
information and program linkage to the women's market around the world and
offers one of the most extensive databases of women's organizations and Web
sites in the nation. PAG offers several fee-based benefits and services to
subscribing companies and members including:
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Service Description
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Diversity Best Practices A specialized service through which member
companies and government entities share and
exchange best practices around key diversity
issues through conference calls, seminars,
special reports and an online resource
center.
Best Practices in Corporate A member-based business resource for
Communications corporate communications that facilitates
the development of innovative solutions and
strong relationships within the corporate
world and helps boost corporate efficiency
by providing conference calls, white papers
and reports, seminars and an informative
online resource center.
Women's Best Practices A member-based service that acts as a
strategic partner to consult with companies
and government agencies on attracting and
retaining the women's market in their sales
and diversity initiatives through
conferences, forums and other events.
Business Women's Network Resources include: the BWN Directory of
Information Resources Business and Professional Women's
Organizations which lists over 5,000
organizations and Web sites; the BWN
Calendar of Women's Events; and Women and
Diversity WOW! Facts, an annual compendium
of more than 10,000 salient facts, figures
and statistics on and about the women's
marketplace compiled from more than 9,800
research reports.
Business Women's Network An online subscription service offering
Interactive resources and business opportunities for
women and offering companies and government
agencies the opportunity to target and reach
professional women.
Business Women's Network BWN assists government agencies and
Government departments in meeting the 5%
government-wide women and minority-owned
small business procurement goal.
iVillage Parenting Network
The iVillage Parenting Network was formed in 2001 as an umbrella
organization for the parenting divisions of iVillage including: Lamaze
Publishing, The Newborn Channel and the iVillage parenting Web sites
(Lamaze.com, ParentsPlace.com, and ParentSoup.com). The iVillage Parenting
Network is a leading source of information for parents estimated to reach more
than 90% of all families with newborns.
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Lamaze Publishing is used to solidify iVillage's leading position in
the parenting category. Lamaze Publishing produces advertising-supported
educational materials for expectant and new parents and is the exclusive
licensee of the LAMAZE mark for use in connection with consumer publications and
other communications, which include print, audio, visual and other consumer
oriented media that are commercial in nature. Lamaze Publishing is also the
exclusive marketing agent for Lamaze International, Inc., the owner of the
LAMAZE family of marks. iVillage also operates the Lamaze.com Web site.
Lamaze is a method of childbirth preparation based on the Lamaze
philosophy of birth. The Lamaze philosophy of birth states that birth is
"normal, natural and healthy," and "childbirth education empowers women to make
informed choices in healthcare, to assume responsibility for their health and
trust their inner wisdom."
Lamaze International was founded by interested parents, childbirth
educators and healthcare providers in 1960 to promulgate these ideas. Lamaze
Publishing was established as a for-profit company in 1990 to provide childbirth
and infant care educational materials.
During a pregnancy and immediately after the birth of a child, new
parents spend substantial amounts of time with childbirth educators and
maternity nurses seeking information on healthcare issues, the birth process and
infant care. These busy healthcare professionals typically have neither the time
nor the resources to create the consumer publications or communications that
would assist this process and allow parents to absorb this material at home.
The Lamaze Publishing business strategy is to provide superior
editorial products that target the expectant/new parent market. These
informational, instructional, "how to" magazines and videos speak to the issues
and concerns of expectant parents and are hand-delivered through Lamaze
Publishing's vast network of health care professionals and child birth
educators. These consumer publications or communications are given to the
childbirth educators and maternity nurses free of charge, and Lamaze Publishing
offsets the expense incurred by selling print advertising and commercial
messages to advertisers who target the young family market.
Lamaze Publishing publications include:
o Lamaze Parents Magazine, a leading prenatal publication used in
childbirth education. Editorial covers such relevant topics as
prenatal nutrition, the role of the childbirth partner, and the
physical and emotional challenges of pregnancy. Childbirth educators
distribute Lamaze Parents to expectant parents on the first night of
class. Lamaze Parents had an annual circulation of approximately 2.5
million for 2001.
o Lamaze para Padres Magazine, a leading Spanish-language pre- and
post-natal publication that reaches more than 95% of all Hispanic
births in the United States. Spanish-speaking childbirth educators
and healthcare professionals distribute Lamaze para Padres Magazine
to expectant parents on the first night of class. Annual circulation
of Lamaze para Padres Magazine reached approximately 625,000 in
2001.
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o "Lamaze You and Your Baby," a 60-minute video textbook, has been a
leading choice of childbirth educators for the past 10 years. In
2001, more than 12,000 childbirth educators distributed this video
to expectant parents. Its educational how-to content on infant care
is viewed at home by expectant parents and later returned to the
childbirth educator. In 2001, Lamaze You and Your Baby enjoyed an
annual circulation of approximately 2.0 million.
o "Lo Mejor para Su Bebe," a 45-minute Spanish-language video
textbook, provides expectant and new parents with important
instruction on infant care. This video, which is modeled after
"Lamaze You and Your Baby," is distributed annually to childbirth
educators, typically during the first four months of the year. In
2001, more than 4,500 childbirth educators distributed the video
reaching approximately 475,000 new parents.
o Lamaze Special Delivery, a sampling/promotional program, offers
advertisers the ability to distribute coupons, samples and
promotional literature via polybagged magazines to expectant and new
parents.
Lamaze.com was launched on iVillage.com in 2000. This Web site combines
the latest interactive tools with trusted expert advice on pregnancy, childbirth
and early parenting.
Through iVillage Integrated Properties, iVillage also owns The Newborn
Channel and Baby Steps Magazine. The Newborn Channel is a satellite television
network that offers exclusive programming to new mothers in their hospital rooms
following birth 24 hours a day, 7 days a week. During 2001, The Newborn Channel
continued to expand its programming lineup by introducing a new show, "Begin
With Love," which is hosted by Oprah Winfrey. In 2001, more than 1,100 hospitals
nationwide aired this channel reaching an annual circulation of approximately
2.4 million mothers.
Baby Steps Magazine is a leading source of post-natal information and
the only magazine endorsed by the National Association of Pediatric Nurse
Practitioners (NAPNAP), a professional organization with 6,000 members across
the country. Handed out to new mothers and fathers by the maternity nurse at the
hospital bedside, Baby Steps, which debuted in November 2001, currently has a
circulation of approximately 3.0 million.
Complementing the very targeted offline parenting media vehicles are
the popular, highly trafficked iVillage Web sites ParentsPlace.com and
ParentSoup.com. Research shows that 75% of iVillage female users research baby
products online and iVillage's popular communities and message boards are a key
feature of both parenting areas, presenting sponsors with a variety of
advertising opportunities.
ParentsPlace.com is a community where new and expecting parents can
connect, communicate and share in the joy of starting a family. On average, a
visitor spends 22 minutes and views approximately 42 pages. Additionally, 37% of
iVillage female users rely on ParentsPlace.com for reliable information and
advice on parenting. Key features are the Baby Name Finder, Pregnancy Calendar,
First Year of Life Newsletter, Expecting Clubs, Playgroups and certified
healthcare experts offering professional wisdom and advice.
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ParentSoup.com acts as a headquarters for parents committed to raising
happy and healthy kids from toddlers to teens. More than 52% of iVillage female
users turn to ParentSoup.com for information and advice on parenting. Key
features include the Toddlers Department, Preschool Department, Name Finder,
Development Tracker, Mothers Circles, Thirty-Something Parents and certified
healthcare experts offering professional wisdom and advice.
Astrology.com
Astrology.com is a leading destination for women seeking daily
horoscopes, astrology content and personalized forecasts online. Through
iVillage's network of sites organized by topics of interest to women such as
family, love, money and career, Astrology.com provides a timely, personalized
experience for the user, stimulates commerce sales of monthly and annual
forecasts by subject and creates an advertising environment that is appealing to
advertisers due to targeting possibilities within the site and through e-mail
communication.
Astrology.com brings iVillage a content and commerce site that is
appealing to iVillage's core demographic of women and a vehicle to drive repeat
visits to iVillage.com through the use of daily horoscopes. Astrology.com
accounts for a substantial portion of iVillage's traffic. iVillage attempts to
leverage the popularity of Astrology.com by using internal promotion and links
to attract Astrology.com users to other areas of iVillage's Web sites, resulting
in higher average page views and time spent per visit. Astrology.com has also
created an interactive commerce system that provides instantaneous, digital
astrology reports. The system consists of software which operates the Web site
and is capable of generating customized astrology reports based on input from
users.
iVillage Solutions
iVillage Solutions is an interactive offering which helps companies
create and develop their Web sites, digital commerce platforms and other aspects
of their technology infrastructures. Previously offered only to iVillage's joint
venture partners, during the first quarter of 2001 iVillage began to offer
iVillage Solutions to other third parties. Through iVillage Solutions, iVillage
provides third parties with production; Web consulting; Web site design,
development and hosting; Web site traffic reporting and analysis; content
publishing; Web community building; project management; and e-marketing
initiatives.
Magazine Web Sites
Pursuant to an agreement with Hearst, the iVillage Web site includes
links to eight Hearst magazine Web sites to which iVillage has online
distribution rights. Please see "Item 13. Certain Relationships and Related
Transactions" for a description of this agreement. iVillage Solutions produces,
maintains and hosts these branded sites. iVillage also has an agreement with
Prevention Magazine to produce, maintain and host the Prevention.com Web site.
The content from these sites links to various areas within iVillage's network.
The following table describes each magazine site:
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Magazine Related Web Site Description
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Cosmopolitan Features fashion and relationship advice aimed at
the "fun, fearless female."
Country Living Provides lifestyle and home design ideas.
Good Housekeeping Features topics relating to food and recipes,
home, family and consumer reports.
House Beautiful Features topics relating to designing, improving
or remodeling one's home.
Marie Claire Features fashion and beauty trends.
Prevention Offers articles, resources, guidance and expertise
on a variety of health-related topics.
Redbook Focuses on family, health and marriage.
Town & Country Focuses on living, arts, travel and weddings.
Victoria Offers support and advice for women entrepreneurs,
including stories and lifestyle tips.
Alliances
iVillage pursues strategic relationships to increase its access to
online customers, build brand recognition and expand its online presence.
Historically, iVillage has pursued strategic alliances to reach online and
offline customers. iVillage's principal strategic alliances and relationships
include the following:
Media Arrangements
In November 1998, as amended in March 1999, iVillage entered into an
advertising and promotional agreement with National Broadcasting Company, Inc.
("NBC") pursuant to which NBC promotes iVillage.com on television, primarily
during prime-time programs, as well as through its Web sites. In February 2001,
iVillage further amended its November 1998 agreement with NBC to provide for an
extension of time during which iVillage was to purchase its advertising or
promotional spots on the NBC network. The revised terms required iVillage to
purchase approximately $11.6 million of advertising or promotional spots between
January 30, 2001 and December 31, 2002, with $3.0 million of such spots being
telecast during 2001 and the remaining approximately $8.6 million during 2002.
iVillage purchased approximately $1.6 million and $1.3 million of advertising or
promotional spots from NBC during 2001 and 2002, respectively. In February 2002,
iVillage and NBC terminated the advertising and promotional agreement. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations-Recent Events."
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Please also see "Item 13. Certain Relationships and Related
Transactions" for a summary of iVillage's agreements with America Online, Inc.
("AOL") and Hearst.
Sponsorship Arrangements
iVillage has a number of sponsorship arrangements with leading
advertisers and sponsors, including:
o Clairol - premier sponsor of hair care products on the iVillage
network, including content integration within iVillage's Beauty
channel.
o Kimberly-Clark - exclusive sponsor on certain parenting areas of
diapers, wipes, training pants and similar products.
o Pepperidge Farm - online promotion of Milano brand cookies, combined
with offline promotion of iVillage.com on Pepperidge Farm packaging.
o Procter & Gamble - promotion of various Procter & Gamble brands in
several consumer product categories.
o Unilever - promotion of various Unilever brands in several consumer
product categories.
Joint Venture and International License Arrangements
iVillage has entered into the following material joint venture and
international license arrangements:
o Cooperative Beauty Ventures, L.L.C. - iVillage and Unilever have
formed, through a joint venture arrangement, Cooperative Beauty
Ventures, L.L.C. d/b/a Substance.com, to provide women with a
focused community, an array of interactive, customized online
services, beauty and personal care products and personalized product
recommendations. iVillage presently owns 80.1% of the venture and
Unilever owns the remaining 19.9%. iVillage, over the twenty-year
term of the venture, is obligated to fund the ongoing business and
operations of the venture, subject to a maximum funding obligation
of $7.0 million. As of December 31, 2001, iVillage had contributed
approximately $1.9 million to Cooperative Beauty Ventures, L.L.C.
Unilever can exercise a "put" option to require iVillage to
purchase Unilever's remaining ownership interest in the venture for
fair market value at any time after September 30, 2002, or at any
earlier time if the venture permits any person to use the
"Substance" mark other than in connection with the venture's
business or the venture fails to use the "Substance" mark in
connection with its business from and after May 1, 2001. At any time
on or after September 30, 2002, iVillage can exercise a "call"
option to require Unilever to sell its remaining interest in the
venture to iVillage for fair market value; provided, however, that
Unilever can exercise a "call" option superior to iVillage's "call"
option to purchase a portion of iVillage's interest in the venture
for fair market value, up to a limit of 50% of the venture's
ownership. In addition, at any time on or after September 30, 2002,
Unilever can exercise a "call" option to purchase a portion of
iVillage's interest in the venture for fair market value, up to a
limit of 50% of the venture's ownership.
-11-
o iVillage UK Limited - In July 2000, iVillage, through a foreign
subsidiary, entered into a business arrangement with Tesco PLC
("Tesco"), a leading United Kingdom ("U.K.") supermarket chain, to
form iVillage UK Limited, a U.K. company. iVillage, through its
foreign subsidiary, holds approximately a 50% interest in iVillage
UK Limited. Through a women's Web site (located at
www.iVillage.co.uk) launched in December 2000, iVillage UK Limited
serves the women's online market in the United Kingdom and the
Republic of Ireland through a focused community and an array of
interactive, customized online solutions and services. iVillage,
through its foreign subsidiary, provides marketing, branding, an
immaterial amount of cash, intellectual property, and other
resources through online and offline activities in support of
iVillage UK Limited and the U.K. and Ireland Web sites. Tesco is
obligated to provide $18.0 million in cash over the three-year
period following the establishment of the relationship, and online
and offline promotional considerations. The iVillage.co.uk Web site
also promotes Tesco's retail business. Revenue is derived primarily
from advertising and sponsorship.
Sales, Marketing and Public Relations
Sales
As of February 28, 2002, iVillage had a direct sales organization
consisting of 18 sales professionals and 20 sales operations staff. iVillage's
sales organization: (i) consults regularly with advertisers and agencies on
design and placement of its Web-based advertising and the production and
management of co-branded Web sites which provide information about advertisers
and/or their products and services, (ii) provides customers with advertising
management analysis, and (iii) focuses on providing a high level of customer
satisfaction. iVillage also offers paid research and cross-platform sales
opportunities across its various media properties. Six professionals concentrate
primarily on advertising sales for The Newborn Channel and Lamaze Publishing
video products and print advertising sales. Twelve professionals are involved in
sales of publications, seminars, subscriptions and other products and services
offered by PAG. iVillage generally seeks to hire individuals with significant
experience in selling advertising and pre-existing relationships with
advertisers in a variety of media.
Marketing and Public Relations
iVillage employs a variety of methods to promote the iVillage.com brand
and to attract traffic and new members, including advertising on other Internet
sites, targeted publications, radio stations and national television,
cross-promotional arrangements to secure advertising and other promotional
considerations. To extend the iVillage.com brand, iVillage has also entered into
several strategic alliances with offline partners. See "Item 1. Business -
Alliances." In addition, iVillage leverages other audience-building strategies,
including working closely with search engine submissions, news group postings
and cross-promotion to properly index materials. iVillage's marketing department
consisted of five marketing professionals as of February 28, 2002.
-12-
iVillage's internal public relations department oversees a
comprehensive public relations program that iVillage believes is a key component
of its marketing and brand recognition strategy. Organized into two primary
components that promote iVillage and the iVillage.com brand, the program targets
a trade/business and consumer audience, respectively.
To maximize distribution of iVillage's publications and The Newborn
Channel, and gain the endorsement of the professional community for these
products, iVillage focuses on marketing efforts targeted to childbirth
educators, maternity nurses and hospitals. A staff of two marketing
professionals contacts hospitals for distribution of The Newborn Channel and
works with the professional community to maintain distribution levels of
iVillage's publications and demonstrate how they can be used as teaching tools
for expectant and new parents. iVillage's representatives maintain contact with
the professional community through trade shows, professional conferences,
consumer publication updates and personal sales calls.
Operating Infrastructure
iVillage's Internet operating infrastructure has been designed and
implemented to support the delivery of millions of page views a day. If
necessary, iVillage can increase its capacity by adding additional servers or
entering into agreements with third parties under which iVillage would receive
credit for page views on third-party Web sites. Web pages are generated and
delivered, in response to end-users' requests, by any one of more than 100
servers. Key attributes of this infrastructure include the ability to support
growth, performance and service availability.
iVillage's servers run on the Sun Solaris, Microsoft NT and Linux
operating systems and use Netscape Enterprise, Apache and Microsoft
Corporation's IIS Web server software.
iVillage maintains all of its production servers at Exodus
Communication, Inc.'s ("Exodus Communications") facilities in New Jersey and
Verio, Inc.'s ("Verio") facilities in California. iVillage's operations depend
upon these companies' ability to protect their respective systems against damage
from fire, hurricanes, power loss, telecommunications failure, break-ins and
other events.
Exodus Communications provides comprehensive facilities management
services, including human and technical monitoring of all production servers 24
hours per day, seven days per week. The servers located at Verio are monitored
by iVillage's California operations staff. Exodus Communications and Verio
provide the means of connectivity for iVillage's servers to end-users via the
Internet through multiple connections. Each facility is powered by multiple
uninterruptible power supplies and backup generators. Exodus Communications
recently filed for bankruptcy protection and iVillage can make no assurance that
Exodus Communications will be able to continue to provide sufficient services
for iVillage or that iVillage will be able to engage a satisfactory alternative
service provider.
-13-
All of iVillage's production data, except Astrology.com, are copied to
backup tapes each night and stored at a third-party, off-site storage facility.
Astrology.com's production data is backed up on a daily basis to local storage.
iVillage is in the process of developing a comprehensive disaster recovery plan
to respond to system failures. iVillage keeps all of its production servers
behind firewalls for security purposes and does not allow outside access, at the
operating systems level, except via special secure channels. Strict password
management and physical security measures are followed. Computer emergency
response team alerts are read, and, where appropriate, recommended action is
taken to address security risks and vulnerabilities.
iVillage's Web sites must accommodate a high volume of traffic and
deliver frequently updated information. Components or features of iVillage's Web
sites have in the past suffered outages or experienced slower response times
because of hardware or software downtime. This has not had a material effect on
iVillage's business.
Broadcasting of The Newborn Channel to hospitals originates from a
laser disc system operated by Group W Network Services, from Group W's facility
in Stamford, Connecticut. The system provides an uplink signal to a satellite
operated by PanAmSat. The signal is received through a satellite dish at each
hospital and distributed to patients' rooms. Group W handles installation and
service of all hospital receiving equipment. iVillage maintains business
interruption insurance in the event programming is interrupted over the
designated satellite.
Competition
Competition for members, visitors and advertisers is intense and is
expected to increase significantly in the future. iVillage believes that the
primary competitive factors in creating a content- and community-based business
on the Internet are:
o functionality;
o brand recognition;
o member affinity and loyalty;
o demographic focus;
o variety of value-added services;
o ease-of-use;
o quality of service; and
o reliability and critical mass.
-14-
Other companies or Web sites which are primarily focused on targeting
women online include Oxygen.com and condenet.com, as well as Web sites targeted
to categories such as health. iVillage has faced and likely also will face
competition in the future from:
o developers of Web directories;
o search engine providers;
o shareware archives;
o content sites;
o commercial online services;
o sites maintained by Internet service providers; and
o other entities that attempt to or establish communities on the
Internet by developing their own or purchasing one of iVillage's
competitors.
In addition, iVillage could face competition in the future from
traditional media companies, a number of which, including Columbia Broadcasting
System, Inc. and NBC, have made significant acquisitions of or investments in
Internet companies. Further, iVillage can make no assurance that iVillage's
competitors and potential competitors will not develop communities that are
equal or superior to iVillage's or that achieve greater market acceptance than
iVillage's community.
iVillage also competes with traditional forms of media, such as
newspapers, magazines, radio and television, for advertisers and advertising
revenues. iVillage believes that the principal competitive factors in attracting
advertisers are:
o the amount of traffic on iVillage's Web sites;
o brand recognition;
o the demographics of iVillage's members and visitors;
o iVillage's ability to offer targeted audiences; and
o the overall cost-effectiveness of the advertising medium offered by
iVillage.
iVillage believes that the number of Internet companies relying on
Web-based advertising revenues may increase in the future. Accordingly, iVillage
may face increased competition, which could in turn have a material adverse
effect on its business, financial condition and results of operations.
Many of iVillage's current and potential competitors, including
developers of Web directories and search engines and traditional media
companies, have:
o longer operating histories;
o significantly greater financial, technical and marketing resources;
o greater name recognition; and
o larger existing customer bases.
-15-
These competitors are able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential employees,
distribution partners, commerce companies, advertisers and third-party content
providers. iVillage can make no assurance that Internet content providers and
Internet service providers, including developers of Web directories, search
engines, sites that offer professional editorial content and commercial online
services, will not be perceived by advertisers as having more desirable Web
sites for placement of advertisements. In addition, many of iVillage's current
advertising customers and strategic partners also have established collaborative
relationships with certain of iVillage's competitors or potential competitors,
and other high traffic Web sites. Accordingly, iVillage can make no assurance
that:
o iVillage will be able to grow its membership, traffic levels and
advertiser customer base at historical levels;
o iVillage will be able to retain its current members, traffic levels
or advertiser customers;
o competitors will not experience greater growth in traffic as a
result of these relationships, which could have the effect of making
their Web sites more attractive to advertisers; or
o iVillage's strategic partners will not sever or will elect not to
renew their agreements with iVillage.
Several major publishing companies produce products that directly
compete with iVillage's magazines. AOL Time Warner Inc., Gruner and Jahr, and
Primedia all publish various pre- and post-natal publications. Disney Publishing
and Children's Television Workshop also publish general parenting magazines. All
of these publishers have substantially greater marketing, research and financial
resources than iVillage. iVillage competes by emphasizing the highly targeted
nature of its audience, product quality and the fact that its publications are
used as teaching tools by professionals, and the credibility and trust parents
place in the Lamaze brand name.
While iVillage's Lamaze Publishing instructional videos and The Newborn
Channel currently have no direct competitors, advertisers in this marketplace
are heavy users of daytime network television and cable television networks
targeted to young parents. The broadcasting companies that provide these
opportunities have invested substantial amounts in programming, sales and
marketing, and are much better known to advertisers than Lamaze Publishing and
The Newborn Channel. To compete, Lamaze Publishing and The Newborn Channel must
convince advertisers that advertising recall and effectiveness obtained in an
educational or hospital setting is superior to that of traditional broadcasting.
iVillage can make no assurance that it will be able to compete
successfully against iVillage's current or future competitors or that
competitive pressures faced by iVillage will not have a material adverse effect
on iVillage's business, financial condition and results of operations.
-16-
Intellectual Property, Proprietary Rights and Domain Names
iVillage regards its copyrights, service marks, trademarks, trade
names, trade dress, trade secrets, proprietary technology and similar
intellectual property as critical to its success, and relies on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with its employees, customers, independent contractors, partners and
others to protect iVillage's proprietary rights. iVillage pursues the
registration of its trademarks and service marks in the United States, and has
applied for and obtained registration in the United States and certain foreign
jurisdictions for certain of its trademarks and service marks, including
"iVillage". Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which iVillage's products
and services are made available online.
iVillage has licensed in the past, and expects that it may license in
the future, certain of iVillage's proprietary rights, such as trademarks or
copyrighted material, to third parties. While iVillage attempts to ensure that
the quality of its brand is maintained by these licensees, it can make no
assurance that the licensees will not take actions that might materially
adversely affect the value of iVillage's proprietary rights or reputation, which
could have a material adverse effect on iVillage's business, financial condition
and results of operations. iVillage can make no assurance that the steps taken
by iVillage to protect its proprietary rights will be adequate or that third
parties will not infringe or misappropriate its copyrights, trademarks, trade
dress and similar proprietary rights. In addition, there can be no assurance
that other parties will not assert claims of infringement of intellectual
property or alter proprietary rights against iVillage.
iVillage has been subject to claims and expects to be subject to legal
proceedings and claims from time to time in the ordinary course of its business,
including claims of alleged infringement of patents, trademarks and other
intellectual property rights of third parties by iVillage and its licensees.
These claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. Further, if these claims are
successful, iVillage may be required to change its trademarks, alter its
content, alter its site format and pay financial damages. iVillage can make no
assurance that these changes of trademarks, alteration of content or format or
payment of financial damages will not adversely affect iVillage's business,
financial condition and results of operations.
iVillage may be required to obtain licenses from others to refine,
develop, market and deliver new services. There can be no assurance that
iVillage will be able to obtain any license on commercially reasonable terms, or
at all, or that rights granted pursuant to any licenses will be valid and
enforceable.
Employees
As of February 28, 2002, iVillage employed 262 full-time employees, of
whom 82 were in sales and marketing, 73 were in editorial and community, 46 were
in administration and customer service, and 61 were in technology, operations
and support. None of iVillage's current employees are represented by a labor
union or is the subject of a collective bargaining agreement. iVillage believes
that relations with its employees are satisfactory.
-17-
Proposed Merger with Promotions.com, Inc.
On February 11, 2002, iVillage, Virgil Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of iVillage ("Merger Sub"), and
Promotions.com, Inc. ("Promotions.com") entered in an Agreement and Plan of
Merger (as amended as of March 13, 2002, the "Merger Agreement"). The Merger
Agreement provides for an exchange offer (the "Offer") followed by a taxable
merger of Merger Sub with and into Promotions.com (the "Merger"), with
Promotions.com continuing as the surviving corporation. Following the Merger,
Promotions.com will become a wholly-owned subsidiary of iVillage.
Pursuant to the Offer, iVillage is offering through Merger Sub to
exchange a fraction of a share of iVillage common stock designed to have a value
of $0.23 and $0.64 in cash for each outstanding share of Promotions.com common
stock together with associated preferred share purchase rights. The shares of
iVillage to be issued as part of the Offer shall be valued according to the
average of the closing sale prices of iVillage common stock on the Nasdaq
National Market for the five trading days immediately preceding the second
trading day prior to the expiration of the Offer. After completion of the Offer,
and at the effective time of the Merger, each share of Promotions.com issued and
outstanding immediately prior to such time (other than shares held by
Promotions.com, iVillage or Merger Sub or shares as to which appraisal rights
have been demanded, exercised or perfected in accordance with Section 262 of the
Delaware General Corporation Law) will be converted into the same consideration
as offered in the Offer.
As an inducement to iVillage and Merger Sub to enter into the Merger
Agreement, certain of the directors, officers and stockholders of Promotions.com
entered into several agreements, pursuant to which, among other things, they
each agreed (i) to tender all of their shares in the Offer, (ii) to vote such
shares in favor of the Merger, and (iii) not to initiate or participate in any
transaction that may compete with the Offer. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations-Recent
Events."
Item 2. Properties.
iVillage is headquartered in New York, New York. In March 2000,
iVillage entered into a fifteen-year lease for approximately 105,000 square feet
at 500-512 Seventh Avenue in which iVillage has consolidated its New York City
operations. In October 2001, iVillage amended this lease to terminate its
obligations regarding 21,111 square feet of the leased premises. Additionally,
in December 2001, iVillage entered into a five-year sublease agreement pursuant
to which iVillage subleased 14,630 square feet of the New York leased premises
to an unrelated third party.
-18-
iVillage also leases a sales office located at 645 North Michigan
Avenue, Chicago, Illinois. The lease is on a month-to-month basis.
Women.com leases approximately 46,000 square feet of space in San
Mateo, California. The lease expires on December 31, 2002 as to approximately
29,000 square feet with the remainder expiring on August 31, 2003. In March
2001, Women.com subleased approximately 9,326 square feet of the leased premises
to an unrelated third party through December 31, 2002, the expiration date of
such subleased premises. In January 2002, Women.com amended its lease to
terminate its obligations regarding 1,526 square feet of the leased premises
originally scheduled to expire on August 31, 2003. In February 2002, Women.com
subleased 9,541 square feet of the leased premises to an unrelated third party
through December 31, 2002, the expiration date of such subleased premises.
Lamaze Publishing subleases approximately 10,300 square feet of space
at 9 Old Kings Highway, Darien, Connecticut. In September 2001, iVillage amended
this sublease to terminate its obligations regarding 3,319 square feet of the
subleased premises. The sublease expires on June 30, 2005.
Astrology.com leases approximately 7,400 square feet of space in San
Francisco, California. The lease expires in November 2002.
PAG leases approximately 6,800 square feet of space in Washington, D.C.
The lease expires in December 2006.
For additional information regarding iVillage's properties, see "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Item 3. Legal Proceedings.
Several plaintiffs have filed class action lawsuits in federal court
against iVillage, several of its present and former executives, and iVillage's
underwriters in connection with its March 1999 initial public offering. A
similar class action lawsuit was filed against Women.com, several of its former
executives, and Women.com's underwriters in connection with Women.com's October
1999 initial public offering. The complaints generally assert claims under the
Securities Act, the Exchange Act and rules promulgated by the Securities and
Exchange Commission ("SEC"). The complaints seek class action certification,
unspecified damages in an amount to be determined at trial, and costs associated
with the litigation, including attorneys' fees.
-19-
iVillage believes that the lawsuits and claims asserted against it and
its subsidiary pursuant to these class action complaints are without merit and
intends to vigorously defend against these claims. iVillage does not believe
that any of these legal proceedings will have a material adverse effect on its
results of operations.
iVillage is not currently subject to any other material legal
proceedings. iVillage may from time to time become a party to various legal
proceedings arising in the ordinary course of its business.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
-20-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
iVillage's common stock is listed and traded on the Nasdaq National
Market and trades under the symbol "IVIL". The following table sets forth, for
the periods indicated, the high and low sale prices per share of common
stock as reported on the Nasdaq National Market.
High Low
---- ---
2000
----
First Quarter $ 27.31 $13.44
Second Quarter 16.00 6.06
Third Quarter 9.06 2.75
Fourth Quarter 4.13 0.63
2001
----
First Quarter 2.50 0.38
Second Quarter 1.99 0.50
Third Quarter 1.55 0.57
Fourth Quarter 1.99 0.86
On March 22, 2002, the closing sales price of iVillage's common stock
was $2.65 per share. iVillage had 862 holders of record of its common stock as
of March 22, 2002.
iVillage has never declared or paid any cash dividends on its capital
stock. iVillage presently intends to retain future earnings, if any, to finance
the expansion of its business and does not expect to pay any cash dividends in
the foreseeable future.
-21-
Item 6. Selected Consolidated Financial Data.
The iVillage selected consolidated financial data should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and iVillage's consolidated financial
statements and notes to those statements and other financial information
included elsewhere in this Form 10-K. The consolidated statement of operations
data for the years ended December 31, 2001, 2000 and 1999 and the consolidated
balance sheet data as of December 31, 2001 and 2000 are derived from the audited
consolidated financial statements of iVillage included in this Form 10-K. The
consolidated balance sheet data as of December 31, 1999, 1998 and 1997 and the
consolidated statement of operations data for the years ended December 31, 1998
and 1997 are derived from iVillage's audited consolidated financial statements
that are not included in this Form 10-K. The historical annual results presented
here are not necessarily indicative of future results. iVillage acquired Health
ResponseAbility Systems, Inc. in May 1997, Astrology.Net in February 1999,
OnLine Psychological Services, Inc. and Code Stone Technologies, Inc. in June
1999, Lamaze Publishing and Family Point Inc. in August 1999, an additional
30.1% interest in Cooperative Beauty Ventures, L.L.C. in March 2001 to increase
iVillage's ownership to 80.1%, Women.com in June 2001 and a controlling interest
in Public Affairs Group, Inc. in July 2001. All of these acquisitions have been
accounted for under the purchase method of accounting. The financial data
reflect the results of operations of these subsidiaries since their dates of
acquisition. In April 1998, iVillage acquired a majority interest in iBaby,
Inc.; the remaining minority interest in iBaby, Inc. was acquired by iVillage in
March 1999. In June 2000, iVillage decided to discontinue the operations of
iBaby, Inc. and, as such, all discussion and analysis below represents solely
the continuing operations of iVillage.
Year Ended December 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues ................................................ $ 60,041 $ 76,352 $ 36,576 $ 12,451 $ 6,019
Operating Expenses:
Editorial, product development and technology ........... 33,500 35,327 20,652 11,742 7,606
Sales and marketing ..................................... 36,178 54,098 63,526 28,177 8,771
General and administrative .............................. 17,702 22,634 13,164 9,546 7,841
Depreciation and amortization ........................... 23,529 37,681 25,720 5,500 2,886
Impairment of goodwill .................................. -- 98,056 -- -- --
--------- --------- --------- --------- ---------
Total operating expenses ....................... 110,909 247,796 123,062 54,965 27,104
--------- --------- --------- --------- ---------
Loss from operations .................................... (50,868) (171,444) (86,486) (42,514) (21,085)
Interest income (expense), net .......................... 2,285 5,261 4,085 571 (216)
Other (expense) income, net ............................. (43) 595 271 -- --
Gain (loss) on sale of assets ........................... 385 -- -- (504) --
Minority interest ....................................... 7 -- -- 587 --
Write-down of note receivable and investments ........... (104) (13,496) -- -- --
Loss from unconsolidated joint venture .................. (127) (422) -- -- --
--------- --------- --------- --------- ---------
Net loss from continuing operations ..................... (48,465) (179,506) (82,130) (41,860) (21,301)
Preferred stock deemed dividend ......................... -- -- (23,612) -- --
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders from
continuing operations ................................... $ (48,465) $(179,506) $(105,742) $ (41,860) $ (21,301)
========= ========= ========= ========= =========
Basic and diluted net loss per share attributable to
common stockholders from continuing operations .......... $ (1.13) $ (6.05) $ (5.06) $ (20.24) $ (13.65)
========= ========= ========= ========= =========
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share ....... 42,807 29,683 20,901 2,068 1,561
========= ========= ========= ========= =========
-22-
December 31,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Consolidated Balance
Sheet Data: (in thousands)
Cash and cash equivalents $ 29,831 $ 48,963 $106,010 $ 30,825 $ 4,335
Working capital ......... 30,966 40,252 90,752 19,919 1,114
Total assets ............ 132,387 132,459 312,748 45,721 16,236
Long-term liabilities ... 4,273 4,818 -- -- 139
Stockholders' equity .... 108,757 101,366 283,850 32,022 10,522
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with iVillage's
consolidated financial statements and notes to those statements and the other
financial information appearing elsewhere in this Form 10-K. In addition to
historical information, the following discussion and other parts of this Form
10-K contain forward-looking information that involves risks and uncertainties.
Overview
iVillage is a leading women's media company and the number one brand
serving women online. iVillage includes iVillage.com, Women.com, Business
Women's Network, iVillage Solutions, Lamaze Publishing, The Newborn Channel and
Astrology.com. iVillage.com and Women.com are leading online women's
destinations providing practical solutions and everyday support for women 18 and
over. Lamaze Publishing produces advertising supported educational materials for
expectant and new parents. The Newborn Channel is a satellite television network
broadcast in over 1,100 hospitals nationwide. Business Women's Network offers
one of the most extensive databases of women's organizations and Web sites in
the nation to subscribing companies and members.
In June 2000, iVillage decided to discontinue the operations of its
iBaby, Inc. subsidiary. As such, all discussion and analysis below represents
solely iVillage's continuing operations.
In addition, the discussion and analysis below includes the results of
operations of Cooperative Beauty Ventures, L.L.C. for the period March 1, 2001
through December 31, 2001, Women.com from June 18, 2001 through December 31,
2001, and PAG for the period from July 16, 2001 through December 31, 2001.
Cooperative Beauty Ventures, L.L.C. was accounted for under the equity method of
accounting prior to March 1, 2001.
Financial Reporting Release No. 60, which was recently released by the
SEC, requires all companies to include a discussion of critical accounting
policies or methods used in the preparation of financial statements. Note 2 of
iVillage's Notes to Consolidated Financial Statements includes a summary of the
significant accounting policies and methods used in the preparation of
iVillage's consolidated financial statements. The following is a brief
discussion of the more significant accounting policies and methods used by
iVillage.
-23-
Revenue Recognition
To date, iVillage's revenues have been derived primarily from the sale
of sponsorship and advertising contracts. Sponsorship revenues are derived
principally from contracts ranging from one to three years. Sponsorships are
designed to support the customer's broad marketing objectives, including brand
promotion, awareness, product introductions and online research. Sponsorship
agreements typically include the delivery of impressions on iVillage's Web sites
and occasionally the design and development of customized sites that enhance the
promotional objectives of the sponsor. An impression is the viewing of
promotional material on a Web page, which may include banner advertisements,
links, buttons or other text or images. As part of certain sponsorship
agreements, sponsors who also sell products may provide iVillage with a
commission on sales of their products generated through iVillage's Web sites. To
date, these amounts have not been significant.
Advertising revenues are derived principally from short-term
advertising contracts in which iVillage typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Sponsorship and advertising revenues are recognized ratably in
the period in which the advertisement is displayed, provided that iVillage has
no continuing obligations and the collection of the receivable is reasonably
assured, at the lesser of the ratio of impressions delivered over total
guaranteed impressions or the straight-line basis over the term of the contract.
To the extent that minimum guaranteed impressions are not met, iVillage defers
recognition of the corresponding revenues until the guaranteed impressions are
achieved.
Included in sponsorship and advertising revenues are revenues from
advertising placements in Lamaze Publishing's publications, videos and Web
sites, and satellite broadcasts on The Newborn Channel. In addition, revenues
are generated through a sampling and coupon program, which offers advertisers
the ability to distribute samples, coupons and promotional literature to new and
expectant parents.
Sponsorship and advertising revenues also include barter revenues,
which generally represent exchanges by iVillage of advertising space on its Web
sites for reciprocal advertising space or traffic on other Web sites. Revenues
and expenses from these barter transactions are recorded based upon the fair
value of the advertisements delivered. Fair value of advertisements delivered is
based upon iVillage's recent practice of receiving cash from similar
advertisers. Barter revenues are recognized when the advertisements are
displayed on iVillage.com and its affiliated properties. Barter expenses are
recognized when iVillage's advertisements are displayed on the reciprocal Web
sites or properties, which is typically in the same period as when
advertisements are displayed on iVillage.com and its affiliated properties, and
are included as part of sales and marketing expenses. Revenues from barter
transactions were approximately $2.8 million and $3.6 million for the years
ended December 31, 2001 and 2000, respectively.
iVillage Solutions is a business unit within iVillage that provides
production and back-end provisioning for customers in need of these services.
iVillage recognizes revenues from production services based upon actual hours
worked at iVillage's negotiated hourly rates and/or fixed fees stipulated in
contracts.
-24-
Business Women's Network is one of the most comprehensive sources of
information and program linkage to the women's market around the world and
offers one of the most extensive databases of women's organizations and Web
sites in the nation to subscribing companies and members. Revenues from Business
Women's Network are generated primarily through subscription-based programs that
convey current best practices for women and diversity issues in the workplace.
iVillage recognizes revenue from these subscriptions ratably over the term of
the contract.
Revenues from the e-commerce portion of Astrology.com consist of the
sale of astrological charts and other related products to visitors to the
Astrology.com Web site. iVillage recognizes revenues from Astrology.com product
sales, net of any discounts, when products are shipped to customers and the
collection of the receivable is reasonably assured.
iVillage received fees from licensing portions of its content in
connection with its agreement with PlanetRx.com, Inc. These fees are recognized
on a straight-line basis over the life of the contract, which ends in the first
quarter of 2002.
iVillage has and expects to continue to receive revenues from new
initiatives involving subscription-based properties and the sale of research.
While iVillage believes that one or both of these new initiatives will develop
into a new source of significant revenues, iVillage can make no assurance that
it will be successful in any of these endeavors since none of them have
generated any significant revenues to date.
Goodwill and Intangible Assets
iVillage assesses the recoverability of its goodwill and intangible
assets by determining whether the unamortized balance over its remaining life
can be recovered through forecasted cash flows. If undiscounted forecasted cash
flows indicate that the unamortized amounts will not be recovered, an adjustment
is made to reduce the net amounts to an amount consistent with forecasted future
cash flows discounted at a rate commensurate with the risk associated when
estimating future discounted cash flows. Future cash flows are based on trends
of historical performance and management's estimate of future performance,
giving consideration to existing and anticipated competitive and economic
conditions.
-25-
Results of Operations
The following table sets forth iVillage's results of operations
expressed as a percentage of total revenues:
Year Ended December 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Revenues 100% 100% 100%
---- ---- ----
Operating Expenses:
Editorial, product development and
technology................................... 56 46 56
Sales and marketing.......................... 60 71 174
General and administrative................... 29 30 36
Depreciation and amortization................ 39 49 70
Impairment of goodwill....................... -- 128 --
---- ---- ----
Total operating expenses............ 185 324 336
---- ---- ----
Loss from operations.................................. (85) (225) (236)
==== ==== ====
Net loss from continuing operations................... (81)% (235)% (225)%
==== ==== ====
Comparison of Years Ended December 31, 2001 and December 31, 2000
Revenues
Revenues were approximately $60.0 million for the year ended December
31, 2001, which represents a decline of 21% when compared with 2000. The
decrease in revenues was primarily due to an overall downturn in the online
advertising sector which contributed to significantly lower sponsorship and
advertising revenues, offset by revenues from the Women.com and PAG acquisitions
of approximately $8.6 million and $1.9 million, respectively. Sponsorship and
advertising revenues were approximately $47.8 million for the year ended
December 31, 2001, compared to approximately $69.9 million for 2000. Sponsorship
and advertising revenues accounted for approximately 80% and 92% of total
revenues for the years ended December 31, 2001 and 2000, respectively. Revenues
from Lamaze Publishing and The Newborn Channel accounted for approximately 26%
and 20% of sponsorship and advertising revenues for the years ended December 31,
2001 and 2000, respectively.
Included in sponsorship and advertising revenues are barter
transactions, which accounted for approximately 6% and 5% of sponsorship and
advertising revenues for the years ended December 31, 2001 and 2000,
respectively.
Included in revenues are production fees received from work performed
(primarily for Hearst, a related party) by the iVillage Solutions unit, which
accounted for approximately 6% of total revenues for the year ended December 31,
2001. Since iVillage Solutions was a new unit formed in 2001, there are no
comparative numbers for the corresponding period in 2000.
Included in revenues are subscription-based fees derived from the
services provided by PAG which accounted for approximately 3% of total revenues
for the year ended December 31, 2001. PAG was acquired in the third quarter of
2001. There are no comparative numbers for the corresponding period in 2000.
-26-
Included in revenues are fees received from licensing portions of
iVillage's content, and fees from chart sales through Astrology.com, which
accounted for approximately 11% and 8% of total revenues for the years ended
December 31, 2001 and 2000, respectively.
For the years ended December 31, 2001 and 2000, revenues from
iVillage's five largest customers accounted for approximately 37% and 23% of
total revenues, respectively. One customer, Unilever, accounted for 12% of
iVillage's total revenues for the year ended December 31, 2001. No one customer
accounted for greater than 10% of total revenues for the year ended December 31,
2000. At December 31, 2001, Hearst, a related party, and Unilever accounted for
approximately 14% and 10% of the net accounts receivable, respectively, and at
December 31, 2000, Ford Motor Media accounted for approximately 11% of the net
accounts receivable.
Operating Expenses
Editorial, Product Development and Technology
Editorial, product development and technology expenses consist
primarily of payroll and related expenses for the editorial, technology, Web
site design and production staffs, severance costs for terminated employees, the
cost of communications, related expenditures necessary to support iVillage's Web
sites, software development, technology and support operations, and an
allocation of facility expenses, which is based on the number of personnel.
Editorial, product development and technology expenses for the year ended
December 31, 2001 were approximately $33.5 million, or 56% of total revenues.
Editorial, product development and technology expenses were approximately $35.3
million, or 46% of total revenues, for the corresponding period in 2000. The
decrease between the comparable twelve-month periods was primarily attributable
to the decrease of salaries and related benefits, consultant fees and licensing
fees of approximately $2.6 million, $1.3 million and $0.4 million, respectively,
offset by the acquisitions of Women.com and an additional 30.1% interest in
Cooperative Beauty Ventures, L.L.C., to increase iVillage's ownership to 80.1%,
which resulted in incremental costs of approximately $2.2 million and $0.5
million, respectively, and severance costs for terminated employees of
approximately $0.6 million. Editorial, product development and technology
expenses increased as a percentage of total revenues for the twelve months ended
December 31, 2001, as compared to the comparable period in 2000, as a result of
a larger percent decline in revenues as compared to the decline in editorial,
product development and technology expenses.
Sales and Marketing
Sales and marketing expenses consist primarily of costs related to
distribution agreements, payroll and expenses for sales and marketing personnel,
severance costs for terminated employees, commissions, advertising and other
marketing-related expenses, and an allocation of facility expenses, which is
based on the number of personnel. Sales and marketing expenses for the year
ended December 31, 2001 were approximately $36.2 million, or 60% of total
revenues. Sales and marketing expenses were approximately $54.1 million, or 71%
of total revenues, for 2000. The dollar decrease in sales and marketing expenses
for the twelve-month period ended December 31, 2001, as compared to 2000, was
primarily attributable to iVillage's continued cost reduction initiatives, which
resulted in an approximately $14.1 million decrease in advertising expenses, and
a decrease in salaries, commissions and related benefits of approximately $5.0
million, offset by severance for terminated employees of approximately $0.8
million and the acquisitions of Women.com, PAG, and an additional 30.1% interest
in Cooperative Beauty Ventures, L.L.C. to increase iVillage's ownership to
80.1%, which resulted in incremental costs of approximately $5.0 million, which
includes approximately $1.8 million of non-cash print advertising expenses from
Hearst publications assumed in the Women.com acquisition. Sales and marketing
expenses decreased as a percentage of total revenues for the twelve months ended
December 31, 2001, compared to the comparable period in 2000, as a result of a
larger percent decline in sales and marketing expenses as compared to the
decline in revenues.
-27-
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 8% of sales and marketing costs during the twelve
months ended December 31, 2001, compared to approximately 7% of sales and
marketing costs for the comparable period in 2000.
General and Administrative
General and administrative expenses consist primarily of payroll and
related expenses and benefits and related costs for general corporate overhead,
including executive management, finance, allocated facilities, human resources
and legal, severance costs for terminated employees, non-capitalizable costs
associated with the acquisition of Women.com, lease restructuring costs and
other professional fees. General and administrative expenses for the year ended
December 31, 2001 were approximately $17.7 million, or 29% of total revenues.
For the comparable period in 2000, general and administrative expenses were
approximately $22.6 million, or 30% of total revenues. The decrease in general
and administrative expenses for the comparable twelve-month period was primarily
due to a decrease in salaries and related benefits of approximately $0.9
million, consultant and professional fees of approximately $3.0 million,
recruiting fees of approximately $1.0 million, expenses incurred for
international endeavors of approximately $0.9 million, costs associated with
iVillage's New York office space of approximately $0.4 million, offset by a
lump-sum payout to the former Chief Executive Officer of approximately $1.3
million, increased severance costs of approximately $0.3 million and lease
termination costs of approximately $1.5 million. General and administrative
expenses decreased slightly as a percentage of total revenues for the twelve
months ended December 31, 2001, compared to the comparable period in 2000, as a
result of a larger percent decline in general and administrative expenses as
compared to the decline in revenues.
Depreciation and Amortization
Depreciation and amortization expenses for the year ended December 31,
2001 were approximately $23.5 million, or 39% of total revenues. For 2000,
depreciation and amortization expenses were approximately $37.7 million, or 49%
of total revenues. The dollar decrease between 2000 and 2001 was primarily due
to a reduction in amortization expense resulting from the impairment of goodwill
recorded in the third quarter of 2000, relating to the acquisitions of OnLine
Psychological Services, Inc. and Code Stone Technologies, Inc., Lamaze
Publishing and Family Point Inc., offset partially by goodwill amortization
associated with the acquisition of an additional 30.1% interest in Cooperative
Beauty Ventures, L.L.C. in the first quarter of 2001 and Women.com in the second
quarter of 2001.
-28-
Interest Income, Net
Interest income, net includes primarily interest income from iVillage's
cash balances. Interest income, net for the twelve months ended December 31,
2001 was approximately $2.3 million, or 4% of total revenues. For 2000, interest
income, net was approximately $5.3 million, or 7% of total revenues. The
decrease between 2000 and 2001 was due to lower average net cash and cash
equivalents balances and lower interest rates in 2001 than in 2000.
Income Taxes
As of December 31, 2001, iVillage had approximately $205.3 million of
net operating loss carryforwards for federal tax reporting purposes available to
offset future taxable income. iVillage's federal net operating loss
carryforwards expire beginning in 2010. Certain future changes in the share
ownership of iVillage, as defined in the Tax Reform Act of 1986, may restrict
the utilization of carryforwards. A valuation allowance has been recorded for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset due to the lack of iVillage's earnings history.
Net Loss
iVillage recorded a net loss of approximately $48.5 million, or $1.13
per share, for the year ended December 31, 2001. For 2000, iVillage recorded a
net loss of approximately $191.4 million, or $6.45 per share. The improvement in
net losses from 2000 to 2001 resulted primarily from a charge for the impairment
of goodwill of approximately $98.1 million in the third quarter of 2000, the
write-down of marketable and non-marketable investments of approximately $8.4
million ($0.3 million in the fourth quarter of 2000 and $8.1 million in the
second quarter of 2000), the decline of which was considered other than
temporary, the write-down of a note receivable of approximately $5.1 million in
the third quarter of 2000, an estimated loss on the sale of iBaby assets of
approximately $7.1 million, and a reduction in the operating expenses in 2001 of
approximately $38.8 million, offset by a decrease in revenues of approximately
$16.3 million.
Comparison of Years Ended December 31, 2000 and December 31, 1999
Revenues
Revenues were approximately $76.4 million for the year ended December
31, 2000, which represents an increase of 109% when compared with 1999. The
increase in revenues was primarily due to iVillage's ability to generate
significantly higher sponsorship and advertising revenues during 2000 and the
benefit of receiving revenues from Lamaze Publishing and The Newborn Channel for
the entire 2000 period. Sponsorship, advertising and other revenues were
approximately $69.9 million for the year ended December 31, 2000, compared to
approximately $35.0 million for 1999. The increase in sponsorship, advertising
and other revenues was primarily due to an increase in the number of impressions
sold, an increase in the number of sponsors advertising on iVillage's Web sites
during 2000, and from operating Lamaze Publishing and The Newborn Channel for
the entire 2000 period. Sponsorship, advertising and other revenues accounted
for approximately 92% and 95% of total revenues for the years ended December 31,
2000 and 1999, respectively. Revenues from Lamaze Publishing and The Newborn
Channel accounted for approximately 20% and 10% of sponsorship, advertising and
other revenues for the years ended December 31, 2000 and 1999, respectively.
-29-
Included in sponsorship and advertising revenues are barter
transactions, which accounted for approximately 5% of sponsorship and
advertising revenues for the year ended December 31, 2000, compared to 10% for
1999.
Included in total revenues are fees received from the licensing of
portions of iVillage's content and fees from chart sales through Astrology.com,
which accounted for approximately 8% of total revenues for the year ended
December 31, 2000, compared to 5% for 1999.
Although no one advertiser accounted for greater than 10% of iVillage's
total revenues for the years ended December 31, 2000 and 1999, iVillage's five
largest advertisers accounted for 23% and 20% of total revenues, respectively.
Operating Expenses
Editorial, Product Development and Technology
Editorial, product development and technology expenses consist
primarily of payroll and related expenses for the editorial, technology, Web
site design and production staffs, the cost of communications, related
expenditures necessary to support iVillage's Web sites, software development,
technology and support operations, and an allocation of facility expenses, which
is based on the number of personnel. Editorial, product development and
technology expenses for the year ended December 31, 2000 were approximately
$35.3 million, or 46% of total revenues. Editorial, product development and
technology expenses were approximately $20.7 million, or 56% of total revenues,
for 1999. The increase was primarily due to additional personnel costs related
to creating and testing new concepts and tools used throughout iVillage's
network of Web sites of approximately $5.0 million and the acquisition of Lamaze
Publishing in August 1999, which resulted in an incremental cost of
approximately $6.9 million in 2000. Editorial, product development and
technology expenses decreased as a percentage of total revenues as a result of
the growth in revenues for the year ended December 31, 2000 compared to 1999.
Sales and Marketing
Sales and marketing expenses consist primarily of costs related to
distribution agreements, payroll and related expenses for sales and marketing
personnel, commissions, advertising and other marketing-related expenses, and an
allocation of facility expenses, which is based on the number of personnel.
Sales and marketing expenses for the year ended December 31, 2000 were
approximately $54.1 million, or 71% of total revenues. Sales and marketing
expenses were approximately $63.5 million, or 174% of total revenues, for 1999.
The dollar decrease in sales and marketing expenses in 2000 was primarily due to
the launch of a national advertising campaign in the third quarter of 1999,
which was substantially completed by early 2000, coupled with cost reduction
initiatives instituted in the second quarter of 2000 and continued throughout
the year, which resulted in a decrease of approximately $21.3 million in
advertising expenses, offset primarily by an increase in personnel costs,
incremental costs from the acquisition of Lamaze Publishing, allocation of costs
associated with iVillage's office space and an increase in consultant costs for
corporate communications and sales marketing research of approximately $4.1
million, $2.4 million, $1.7 million and $1.0 million, respectively. Sales and
marketing expenses decreased as a percentage of total revenues as a result of
the growth in revenues for the year ended December 31, 2000 compared to 1999.
-30-
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 7% of total sales and marketing costs during the year
ended December 31, 2000, compared to 5% of total sales and marketing costs
during 1999.
General and Administrative
General and administrative expenses consist primarily of payroll and
related expenses and related costs for general corporate overhead, including
executive management, finance, allocated facilities, and legal and other
professional fees. General and administrative expenses for the year ended
December 31, 2000 were approximately $22.6 million, approximately or 30% of
total revenues. For 1999, general and administrative expenses were approximately
$13.2 million, or 36% of total revenues. The increase in general and
administrative expenses was primarily due to an increase in salaries and
benefits of approximately $3.6 million, expenses incurred for international
endeavors of approximately $1.2 million, allocation of costs associated with
iVillage's office space of approximately $0.4 million, and the acquisition of
Lamaze Publishing in August 1999, which resulted in an incremental cost of
approximately $1.4 million in 2000. General and administrative expenses
decreased as a percentage of total revenues as a result of the growth in
revenues for the year ended December 31, 2000 compared to 1999.
Depreciation and Amortization
Depreciation and amortization expenses for the year ended December 31,
2000 were approximately $37.7 million, or 49% of total revenues. For 1999,
depreciation and amortization expenses were approximately $25.7 million, or 70%
of total revenues. The dollar increase between 1999 and 2000 was primarily due
to a full year of amortization expense resulting from iVillage's acquisitions of
Astrology.Net, OnLine Psychological Services, Inc. and Code Stone Technologies,
Inc., Lamaze Publishing and Family Point Inc. in 1999. In the third quarter of
2000, iVillage recorded a charge of approximately $98.1 million, or $3.30 per
share, for the impairment of goodwill relating to certain 1999 acquisitions. The
approximately $98.1 million charge consists of the following: OnLine
Psychological Services, Inc. and Code Stone Technologies, Inc. - $17.7 million,
Lamaze Publishing - $62.0 million, and Family Point Inc. - $18.4 million. The
remaining goodwill from the acquisitions of Astrology.Net and Lamaze Publishing
will be fully amortized in February 2002 and August 2009, respectively.
-31-
This non-cash charge represents the difference between the historical
book value of the goodwill and the discounted estimated future cash flows
expected from the related operations. The discounted future cash flows were
determined using the best available estimates. iVillage estimated future cash
flows based upon historical results, current projections and internal earnings
targets, as well as business trends, prospects and market and economic
conditions. The projected future cash flows were then discounted at a rate of
20% corresponding to iVillage's estimated cost of capital. Considerable
management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary from management's estimates. Yearly
amortization of impaired goodwill was approximately $26.6 million.
Interest Income, Net
Interest income, net primarily includes interest income from iVillage's
cash balances. Interest income, net for the year ended December 31, 2000 was
approximately $5.3 million, or 7% of total revenues. For 1999, interest income,
net was approximately $4.1 million, or 11% of total revenues. The increase
between 1999 and 2000 was due to higher interest rates in 2000 despite slightly
lower average net cash and cash equivalents balances in 2000 resulting primarily
from the cash received from iVillage's initial public offering of common stock
in March 1999, and secondary offering of common stock in October 1999.
Net Loss
iVillage recorded a net loss of approximately $191.4 million, or $6.45
per share, for the year ended December 31, 2000. For 1999, iVillage recorded a
net loss of approximately $116.6 million, or $5.58 per share. The net loss for
the year ended December 31, 2000 includes one-time expenses totaling
approximately $118.7 million. These one-time expenses consisted of a charge for
the impairment of goodwill of approximately $98.1 million in the third quarter
of 2000, the write-down of marketable and non-marketable investments of
approximately $8.4 million ($0.3 million in the fourth quarter of 2000 and $8.1
million in the second quarter of 2000), the decline of which was considered
other than temporary, the write-down of a note receivable of approximately $5.1
million in the third quarter of 2000, and an estimated loss on the sale of iBaby
assets of approximately $7.1 million. The net loss for the year ended December
31, 1999 includes a deemed dividend of approximately $23.6 million incurred as a
result of the difference between the purchase price of the Series E Convertible
Preferred Stock sold to NBC during the first quarter of 1999, and the fair
market value on the date of issuance.
Recent Events
Hearst
In January 2002, iVillage signed contracts to provide production and
certain hosting rights for two additional Hearst magazine sites, as well as The
Hearst Corporation's corporate Web site. The contracts for the magazine sites
have an initial term of six months, and The Hearst Corporation's corporate Web
site has an initial term of one year, with automatic renewals unless terminated.
The minimum amount of production fees for the initial term of the contracts is
approximately $0.3 million.
-32-
Promotions.com, Inc.
On February 11, 2002, iVillage agreed to acquire Promotions.com through
an exchange offer and merger transaction. The overall transaction has an
approximate aggregate value of $13.3 million. Under the terms of the merger
agreement, iVillage will issue an aggregate of approximately $3.5 million in
shares of iVillage common stock, as well as approximately $9.8 million in cash,
which represents a distribution of all cash less accrued liabilities and other
reserves of Promotions.com.
NBC
On February 22, 2002, iVillage further amended its advertising and
promotional agreement with NBC, pursuant to which NBC released iVillage from its
obligation to make the remaining $4.6 million in cash payments and to place any
additional advertising on NBC, in exchange for the purchase of approximately
$1.3 million in telecast spots in February 2002 by iVillage and the forfeiture
of iVillage's right to the remaining approximately $4.1 million of prepaid
advertising.
Allen & Company
In March 2002, iVillage entered into a new one-year financial advisory
agreement with Allen & Company Incorporated ("Allen & Company") pursuant to
which Allen & Company has agreed to act as iVillage's financial advisor with
respect to various matters from time to time. iVillage is obligated to pay Allen
& Company an initial non-refundable fee of $505,000 in April 2002, which fee
shall be credited towards any additional fees payable to Allen & Company for
services rendered pursuant to this agreement.
Liquidity and Capital Resources
Financial Reporting Release No. 61, which was recently released by the
SEC, requires all companies to include a discussion to address, among other
things, liquidity, off-balance sheet arrangements, contractual obligations and
commercial commitments. iVillage currently does not maintain any off-balance
sheet arrangements.
As of December 31, 2001, iVillage had approximately $29.8 million in
cash and cash equivalents and approximately $8.5 million of restricted cash.
Cash equivalents include money market accounts. The restricted cash includes
money held for a letter of credit collateralizing a real estate lease for
iVillage's office space. iVillage maintains its cash and cash equivalents in
highly rated financial institutions.
iVillage has sustained net losses and negative cash flows from
operations since its inception. iVillage's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to achieve
profitable operations and/or raise additional financing through public or
private equity financings, collaborative or other arrangements with corporate
sources, or other sources of financing to fund operations. However, iVillage can
make no assurance that it will achieve profitable operations or that it will be
able to raise adequate financing from other sources. Management believes that
iVillage's current funds will be sufficient to enable iVillage to meet its
planned expenditures through the next twelve months. If anticipated operating
results are not achieved, management has the intent and believes it has the
ability to delay or reduce expenditures so as not to require additional
financial resources, if those resources were not available on terms acceptable
to iVillage.
-33-
iVillage has and expects to continue to reduce its costs through
increased managerial efficiencies and several expense reduction initiatives
targeted at certain expenses, including without limitation, reduced advertising,
targeted staff reductions and reduced company employee benefit plan costs, as
well as other initiatives. In 2001, iVillage paid approximately $9.3 million for
severance and related costs for staff reduction and merger-related layoffs.
Net cash used in operating activities from continuing operations
increased to approximately $45.6 million for the year ended December 31, 2001,
from approximately $39.4 million for the year ended 2000. The overall increase
in net cash used in operating activities from continuing operations resulted
primarily from an increase in moneys spent for accounts payable and accrued
expenses of approximately $30.4 million, primarily due to liabilities incurred
and/or assumed in the Women.com acquisition, offset by a decrease in losses from
continuing operations, less adjustments, of approximately $5.0 million and an
increase in restricted cash and other assets and accounts receivable of
approximately $12.9 million and $5.8 million, respectively. The decreased loss
from continuing operations was primarily due to the decrease in sales and
marketing and general and administrative expenses resulting from iVillage's
expense reduction initiatives and a reduction in amortization expense resulting
from the impairment charge recorded in the third quarter of 2000, offset by
lower revenues in 2001.
Net cash provided by investing activities from continuing operations
was approximately $4.0 million for the year ended December 31, 2001, and cash
used in investing activities from continuing operations was approximately $17.7
million for the year ended December 31, 2000. The overall increase in cash
provided by investing activities from continuing operations for the year ended
December 31, 2001 to the comparable period in 2000 was primarily from the
acquisition of Women.com in the second quarter of 2001, resulting in net cash
acquired of approximately $11.0 million and lower fixed asset purchases of
approximately $11.5 million.
Net cash provided by financing activities from continuing operations
amounted to approximately $23.1 million for the year ended December 31, 2001,
compared to approximately $5.5 million for the year ended December 31, 2000. The
overall increase in cash provided by financing activities for the year ended
December 31, 2001 to the comparable period in 2000 was primarily due to the
purchase of shares of common stock and warrants for $20.0 million by Hearst and
other former Women.com stockholders, offset slightly by the costs associated
with the issuance of stock and warrants for the Women.com acquisition and rights
offering of approximately $1.1 million, and the repurchase of 1,203,446 shares
of common stock for approximately $0.5 million.
As of September 28, 1999, iVillage entered into a financial advisory
agreement with Allen & Company pursuant to which Allen & Company acted as
iVillage's financial advisor with respect to various matters from time to time.
In February 2000, iVillage executed an amendment to the agreement that extended
its term to September 28, 2000 and set forth additional fees payable to Allen &
Company for up to twelve months after expiration of the agreement upon the
occurrence of certain events. During July 2001, iVillage paid Allen & Company a
fee of approximately $2.0 million in connection with their services related to
the Women.com acquisition. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Recent Events."
-34-
In March 2000, iVillage entered into a fifteen-year lease for
approximately 105,000 square feet at 500-512 Seventh Avenue in which it has
consolidated its New York City operations. Pursuant to the terms of the lease,
iVillage received approximately $3.8 million in January 2001 and approximately
$0.5 million in April 2001, and anticipates receiving an additional
approximately $1.0 million for reimbursement of certain construction expenses in
2002. On October 17, 2001, iVillage amended this lease by terminating
obligations under the lease regarding 21,111 square feet of the leased premises.
The amended lease reduces iVillage's yearly financial commitment by
approximately $0.9 million and approximately $13.5 million over the remaining
life of the lease. The financial commitment for rent at this facility is
approximately $3.7 million for the next twelve months. Additionally, the lease
amendment reduces the amount to be reimbursed by the landlord for certain
construction expenses from approximately $5.3 million to $5.1 million. In
consideration of the early termination of part of the leased space, iVillage
incurred fees of approximately $1.3 million. Concurrently, with the signing of
this lease amendment, the letter of credit securing the real estate lease, which
is classified as "Restricted cash" on the consolidated balance sheet, was
reduced to approximately $8.5 million. In December 2001, iVillage entered into a
five-year sublease agreement pursuant to which iVillage subleased to an
unrelated third party 14,630 square feet of the leased premises located at
500-512 Seventh Avenue for approximately $0.6 million annually. iVillage
incurred fees of approximately $0.2 million in connection with the sublease.
In February 2001, iVillage amended its advertising and promotional
agreement with NBC to provide for an extension of time during which iVillage
must purchase its advertising or promotional spots on the NBC network. The
revised terms required iVillage to purchase approximately $11.6 million of
advertising or promotional spots between January 30, 2001 and December 31, 2002,
with $3.0 million of such spots being telecast during 2001 and the remaining
approximately $8.6 million during 2002. During 2001, iVillage purchased
approximately $1.6 million of advertising or promotional spots. As of December
31, 2001, included in the caption "Other current assets" in the consolidated
balance sheet is approximately $5.4 million for advertising or promotional spots
to be broadcast during 2002. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations-Recent Events."
In March 2001, iVillage purchased an additional 30.1% of Cooperative
Beauty Ventures, L.L.C. from Unilever for $1.5 million, thereby increasing its
ownership to 80.1%. The agreement revised iVillage's funding obligation and
provides that iVillage will fund the ongoing business and operations of this
venture, not to exceed $7.0 million, and terminates Unilever's funding
obligation. As of December 31, 2001, iVillage has contributed approximately $1.9
million to the venture.
Unilever can exercise a "put" option to require iVillage to purchase
Unilever's remaining ownership interest in the venture for