Back to GetFilings.com
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, 2002
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
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500-512 Seventh Avenue, New York, New York 10018
- ------------------------------------------ ------------------------------------
(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
(Title of Class)
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. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [ ] No [x]
The aggregate market value of the issued and outstanding voting stock
held by non-affiliates of the registrant, based upon the closing sale price of
the Common Stock on March 26, 2003 as reported on The Nasdaq SmallCap Market,
was approximately $23.95 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 (without reference to Exchange Act Regulation 13D-G's definition of
"beneficial ownership") 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 26, 2003, the registrant had outstanding 55,330,877 shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The documents incorporated by reference in this Form 10-K are listed in
the Exhibit Index.
iVillage Inc.
Form 10-K
Table of Contents
Page No.
--------
PART I
Item 1. Business.......................................................................................1
Item 2. Properties....................................................................................20
Item 3. Legal Proceedings.............................................................................21
Item 4. Submission of Matters to a Vote of Security Holders...........................................21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.........................22
Item 6. Selected Consolidated Financial Data..........................................................24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk....................................60
Item 8. Consolidated Financial Statements and Supplementary Data......................................61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........61
PART III
Item 10. Directors and Executive Officers of the Registrant............................................62
Item 11. Executive Compensation........................................................................67
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters...............................................................72
Item 13. Certain Relationships and Related Transactions................................................76
Item 14. Controls and Procedures.......................................................................78
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..............................79
SIGNATURES.................................................................................................83
CERTIFICATIONS..................................................................................................85
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", "anticipates",
"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 Inc.
("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, and (vi) the impact of pending litigation on iVillage's
business and financial condition. 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 the iVillage.com Web site,
Women.com Networks, Inc. (operator of the Women.com Web site) ("Women.com"),
iVillage Parenting Network, Inc.("IVPN"), Public Affairs Group, Inc.("PAG"),
Promotions.com, Inc. ("Promotions.com"), iVillage Consulting (formerly known as
iVillage Solutions), and Knowledgeweb, Inc. (operator of the Astrology.com Web
site) ("Astrology.com"). iVillage.com and Women.com are leading women's online
destinations providing practical solutions and everyday support for women 18 and
over. IVPN is a holding company for Lamaze Publishing Company ("Lamaze
Publishing"), a publisher of advertiser supported educational materials for
expectant and new parents, and iVillage Integrated Properties, Inc. ("IVIP"),
the operator of The Newborn Channel, a satellite television network broadcast in
over 1,050 hospitals nationwide, and the publisher of Baby Steps magazine. PAG
is comprised of three divisions: Business Women's Network, Diversity Best
Practices and Best Practices in Corporate Communications, each offering
extensive databases of pertinent information to subscribing companies and
members. Promotions.com provides promotions and direct marketing programs that
are integrated with customers' offline marketing initiatives.
-1-
iVillage.com is organized into channels and 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 major 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 a similar look and feel within each area and across
the network, resulting in a consistent and strongly branded Web site.
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
personal homepages, message boards and other community tools.
Page views for the iVillage network of Web sites have grown to a
monthly average of 410.0 million for the quarter ended December 31, 2002, up
from 343.3 million average monthly page views in the fourth quarter of 2001. In
February 2003, according to comScore Media Metrix, iVillage ranked 24th among
the top 100 Web and Digital Media properties with more than 18.5 million unique
visitors in the United States and had an average reach of approximately 12% of
the total online population. Also according to comScore Media Metrix, during
this period visitors spent an average of 21.2 minutes on the iVillage network
and returned an average of 2.6 times per month.
iVillage Content Areas
iVillage.com is organized around content specific areas that focus on
issues of most importance to women and provides interactive services, peer
support and online access to experts and tailored shopping opportunities.
iVillage.com is updated daily to promote content and community. The following
table provides a brief description of the features of each content area as of
December 31, 2002:
Area Description
- ---- -----------
Babies A parenting area that caters to women who are trying to
conceive, are expecting or are new parents, and includes
content, experts, message boards and weekly chats, primarily
through ParentsPlace.com.
Beauty An area 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 area which includes body
calculators, nutrition and fitness experts, message boards,
quizzes and community challenges to improve one's weight and
fitness level.
Entertainment An area which includes celebrity interviews, jokes and
entertainment-related tools and quizzes.
Food A food area providing information on meal planning, nutrition
and recipes which includes food experts and cooking basics.
-2-
Area Description
- ---- -----------
Health One of the leading consumer health Web sites on the Internet,
this area assists users in becoming better health care decision
makers through relevant articles, expert advice, message boards
and weekly chats.
Home & Garden A home and garden area offering users information, expert advice
and tools on home and gardening issues.
Horoscopes An area providing users with horoscopes, celebrity profiles,
romance charts, monthly guidance and the ability to purchase
astrology reports, primarily through Astrology.com.
Money A financial planning area providing users with information on
savings and investment strategies focusing on key life stages of
women.
Parenting A parenting area providing users with a branded online community
where parents share parenting solutions, talk with experts and
find answers and support, primarily through ParentSoup.com.
Pets An area 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 ParentsPlace.com and Lamaze.com.
Quizzes An area offering interactive quizzes on a variety of subjects.
Relationships An area offering users information and conversation on love,
marriage, sex and family.
Work An area providing women who work from home with tools and
resources such as home office basics. 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
iVillage.com, and iVillage.com's user support staff attempts to respond to all
e-mail queries within 48 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,
2002 and 2001, sponsorship and advertising revenues represented 78% and 81%,
respectively, of iVillage's revenues.
-3-
iVillage's strategy is focused in part on generating a majority of its
sponsorship and 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 online sponsorship arrangements typically differ from
traditional banner advertising in that they are designed to achieve broad
marketing objectives such as brand promotion and 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, e-mail newsletters, polls
and special events, which allows sponsors the opportunity to gain insight into
their customers. iVillage's online 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. In addition, iVillage occasionally develops extensive
content to support the marketing initiatives of advertisers. iVillage's
sponsorship agreements can be exclusive.
iVillage advertising revenues are derived principally from long-term
and short-term advertising contracts, in which banner advertisements are
prominently displayed at the top and bottom of pages throughout iVillage's Web
sites. 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. In recent years, iVillage has
experienced a shift from larger, higher rate, long-term sponsorship agreements
to smaller, lower rate, short-term advertising contracts.
In response to feedback from iVillage.com visitors, iVillage began
eliminating substantially all pop-up advertisements, an advertising format which
was a source of sponsorship and advertising revenue, on iVillage.com in July
2002. iVillage has replaced pop-up advertisements with advertising formats that
it believes elicit a more favorable and efficacious response from consumers.
iVillage also offers 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's 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 sponsorship and advertising revenues from paid research.
-4-
For the years ended December 31, 2002 and 2001, revenues from
iVillage's five largest customers accounted for approximately 38% and 37% of
total revenues, respectively. In 2002, three advertisers, Procter and Gamble
Company ("Procter and Gamble"), Hearst Communications, Inc. (including its
affiliates, "Hearst"), a related party, and Unilever and its affiliates,
accounted for approximately 11%, 11% and 10% of total revenues. In 2001, one
advertiser, Unilever and its affiliates, accounted for approximately 12% of
total revenues. At December 31, 2002, Procter and Gamble accounted for
approximately 26% of the net accounts receivable, and at December 31, 2001,
Hearst and Unilever and its affiliates accounted for approximately 14% and 10%
of the net accounts receivable, respectively. 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.
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, e-mail address, zip code, country, 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. Community
challenges, message boards and chats are examples of iVillage 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 a personal home page. 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 members products and
services. 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 members from
a particular region or target advertisements to all users who frequent a
specific area of the site.
iVillage periodically offers its users 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 customers in the future. In addition,
iVillage may charge users for access to its Web sites in the future. To date,
iVillage has not received a significant amount of revenues from these services,
however, iVillage is currently undertaking several initiatives to attempt to
leverage and monetize its membership base.
Women.com
Women.com is a place for women looking for information and
entertainment. Women.com features content and/or community in six departments:
Sex & Dating, Entertainment, Style & Beauty, Horoscopes, Girl Talk and Fun &
Games. The Web site provides message boards for women who want to converse about
entertainment, sex, dating, friendship, fashion trends and celebrities, among
other topics. Women.com is also a source of daily gossip and entertainment
news.
-5-
iVillage Parenting Network
IVPN publishes informational, instructional, "how to" magazines and
videos that relate to the issues and concerns of expectant parents through
Lamaze Publishing, and operates The Newborn Channel, The Newborn Channel-Spanish
(currently offered as an audio overlay to The Newborn Channel) and The Wellness
Channel (the "Channels") and publishes Baby Steps magazine through IVIP.
Lamaze Publishing offers Lamaze-related products and services. Lamaze
is a method of childbirth preparation based on the Lamaze philosophy of birth
which 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 Publishing
is the exclusive licensee of the LAMAZE mark for use in connection with consumer
publications and other communications including print, audio, visual and other
consumer oriented media. In addition, Lamaze Publishing is the exclusive
marketing agent for the LAMAZE family of marks owned by Lamaze International,
Inc. ("Lamaze International"), and operates the Lamaze.com Web site in
connection with iVillage.
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 media that assist this process and allow
parents to absorb this material at their leisure.
The Lamaze Publishing business strategy is to provide superior
editorial products that target the expectant/new parent market. Lamaze
Publishing's materials are distributed through its vast network of healthcare
professionals and educators. These consumer publications are provided to the
childbirth educators and maternity nurses at no cost, and Lamaze Publishing
offsets the expenses incurred by selling print advertising and commercial
messages to advertisers who target the young family market.
Lamaze Publishing's product offerings include:
o Lamaze Parents, a leading prenatal magazine used in childbirth
education classes covering 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 2.6 million for 2002.
o Lamaze para Padres, a leading Hispanic pre- and post-natal
magazine that reaches more than 95% of all Hispanic births in
the United States. Spanish-speaking childbirth educators and
healthcare professionals distribute Lamaze para Padres to
expectant parents on the first night of class. Lamaze para
Padres had an annual circulation of approximately 750,000 for
2002.
-6-
o Lamaze You and Your Baby, a 60-minute video textbook, has been
a leading choice of childbirth educators for the past 10
years. Its educational, how-to content on infant care is
viewed at home by expectant parents and later returned to the
childbirth educator. Lamaze You and Your Baby had an annual
circulation of approximately 2.0 million in 2002.
o Lo Mejor para Su Bebe, a 45-minute Spanish-language video
textbook, provides expectant and new parents with instruction
on infant care. This video, which is modeled after Lamaze You
and Your Baby, has been produced for the fifth year at the
direct request of Spanish-speaking childbirth educators. Lo
Mejor para Su Bebe had an annual circulation of approximately
550,000 in 2002.
o Lamaze Magazine Onserts, a leading sampling/promotion vehicle
among expectant/new parents. Lamaze Publishing provides
coupons, samples and promotional literature that are bundled
in a poly-bag with a magazine and distributed by Lamaze
Publishing's network of healthcare professionals and
childbirth educators.
o Lamaze.com, the online extension of the Lamaze media
franchise. Launched on iVillage.com in 2000, Lamaze.com
combines interactive tools with trusted expert advice on
pregnancy, childbirth and early parenting.
IVIP is the owner and operator of the Channels and Baby Steps magazine.
The Newborn Channel is a 24 hours a day, 7 days a week, satellite television
network that offers exclusive programming to new mothers in their hospital
rooms. In 2002, more than 1,050 hospitals nationwide aired The Newborn Channel
reaching an annual circulation of approximately 2.4 million mothers. Debuting in
late 2002, The Wellness Channel offers general health and wellness-based
programs covering topics such as patient's rights, alternative pain cures and
breast cancer awareness.
IVIP derives its revenue from the sale of advertising messages and
sponsorships on the Channels to third parties desiring to target pertinent
markets. In addition, in the fourth quarter of 2002, IVIP commenced a new
initiative whereby hospitals are charged an installation fee and an annual
programming fee for receiving the Channels. This initiative correlates with
anticipated upgrades in technology that will ultimately allow IVIP to customize
programming in each individual hospital site. While iVillage believes that this
new initiative will develop into a recurring source of revenues, iVillage can
make no assurance that it will be successful in this endeavor.
Baby Steps 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 nationwide. Baby Steps
debuted in November 2001, and is distributed to new mothers and fathers by
maternity nurses at hospital bedside. In 2002, Baby Steps had an annual
circulation of approximately 3.0 million.
-7-
IVIP augments Baby Steps with a promotional program that includes
coupons, samples and literature of third-party advertisers that are bundled in a
poly-bag with the magazine and distributed primarily to new parents at hospital
bedside. Advertisers view this promotional program as a vehicle to solicit, in a
highly targeted manner, the parents of newborns.
As a complement to the offline parenting media vehicles of IVPN,
iVillage also offers two Web sites that target parents on iVillage.com:
ParentsPlace.com and ParentSoup.com. ParentsPlace.com is a community where new
and expecting parents can connect, communicate and share in the joy of starting
a family, with key features such as the Baby Name Finder, Pregnancy Calendar,
First Year of Life Newsletter, Expecting Clubs, Playgroups and information from
certified healthcare experts. ParentSoup.com is designed for parents committed
to raising happy and healthy kids from toddlers to teens and includes the
Toddlers Department, Preschool Department, Development Tracker, Mothers Circles,
Thirty-Something Parents and information from certified healthcare experts. In
January 2003, the iVillage parenting-related Web sites, including
ParentsPlace.com, ParentSoup.com and Lamaze.com, were ranked 9th in the "family"
category, among the top 50 Web and Digital Media properties according to
comScore Media Metrix.
Promotions.com
On May 24, 2002, iVillage completed its acquisition of Promotions.com.
Promotions.com is comprised of two divisions: Promotions.com and Webstakes.com.
The Promotions.com division provides custom turnkey solutions to create and
manage promotions on a customer's Web site. The Promotions.com division's
revenues are derived from providing services related to the creation,
administration and implementation of online and offline promotions. Companies
that utilized the Promotions.com division's services in 2002 include Kraft Foods
North America, Inc., Nabisco Inc., Colgate-Palmolive Company, Coors Brewing
Company and Citicorp.
The Webstakes.com division provides direct marketing services for
third-party promoters and advertisers via the Internet and e-mail. Revenues from
Webstakes.com services are primarily based upon either a "cost-per-click" or a
"cost-per-action" pricing model. For a further discussion regarding
Webstakes.com's revenues, please see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview - Revenue
Recognition".
Public Affairs Group
On July 16, 2001, iVillage acquired control of PAG, a privately-held,
Washington, D.C.-based company, and is comprised of Business Women's Network
("BWN"), Diversity Best Practices ("DBP"), and Best Practices In Corporate
Communications ("BPCC"). 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:
-8-
Service Description
- ------- -----------
Diversity A specialized service through which member companies and
Best Practices government entities share and exchange best practices around
key diversity issues through conference calls, seminars,
special reports and an online resource center.
Best Practices A member-based business resource for corporate communications
in Corporate that facilitates the development of innovative solutions and
Communications 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.
Business Women's Resources include: the BWN Directory of Business and
Network Resources Professional Women's Organizations which lists over 5,000
Information 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 BWN assists government agencies and departments in meeting the
Women's Network 5% government-wide women and minority-owned small business
Government procurement goal.
iVillage Consulting
iVillage Consulting is an interactive offering which assists companies
in the creation and development of their Web sites, digital commerce platforms
and other aspects of their technology infrastructures. Through iVillage
Consulting, iVillage provides third parties, primarily Hearst, with 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.
Astrology.com
Astrology.com is a leading destination for women seeking daily
horoscopes, astrology content and personalized forecasts online. As part of
iVillage's network of Web sites, Astrology.com provides a timely, personalized
experience for the user, stimulates commerce sales of monthly and annual
astrological forecasts by subject, and creates an environment that appeals to
advertisers because of its targeting possibilities within the Web site and
through e-mail communication.
-9-
Astrology.com is a content and commerce Web site that appeals to
iVillage's core demographic of women and serves as 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 iVillage 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. This system consists of software which operates the Web site and is
capable of generating customized astrology reports based on input from users.
Magazine Web Sites
Pursuant to an agreement with Hearst, iVillage's Web sites include
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 further description of this agreement. iVillage Consulting
produces, maintains and hosts these Hearst-branded Web sites. Various areas
within iVillage's network of Web sites link to the content from these magazine
sites. The following table describes each magazine site:
Magazine Related Web Site Description
- -------- ----------------------------
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.
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.
iVillage also provides production, maintenance and hosting services
related to the Web sites of other Hearst magazines not featured on iVillage Web
sites and The Hearst Corporation's corporate Web site.
-10-
iVillageSolutions Vitamins and Supplements
In August 2002, iVillage launched its iVillageSolutions-branded vitamin
and nutraceutical supplement line (the "Supplement Line"). In connection with
the Supplement Line, iVillage developed, with the assistance of top physicians
and nutritionists, an online interactive supplement finder that recommends to
participants a list of vitamins and nutraceutical supplements based upon their
responses to questions regarding their personal health history, concerns and
goals. The Supplement Line is designed to address the changing needs of women in
all stages of life and consists of 34 nutritional supplements with
benefit-focused labels such as Mommy Must Have, Beauty Queen and Stand Tall,
which are designed to simplify vitamin selection. The Supplement Line is
currently available for purchase on the iVillage Market and is expected to soon
be available in certain offline outlets. The iVillage Market, launched in
2002 as iVillage's online marketplace, resides on the iVillage network and
allows customers to purchase iVillageSolutions products and the goods and
services of third parties online. The Supplement Line is manufactured and
distributed by a third party with which iVillage shares a portion of the profits
from each sale.
iVillageAccess Internet Service Provider
In October 2002, iVillage launched iVillageAccess, its Internet Service
Provider ("ISP") offering, that provides subscribers with unlimited Internet
access via local access numbers in over 90% of the continental United States. To
offer iVillageAccess, iVillage partnered with IP Applications, a Vancouver,
British Columbia-based provider of design, development and deployment technology
that assists in the delivery and management of private-labeled Internet
services.
iVillageAccess provides its subscribers with substantially the same
features as other major ISP offerings, including personal home pages, SPAM
e-mail filters and e-mail virus utilities, for a fee that is generally lower
when compared to such other providers. iVillageAccess subscribers pay a monthly
or annual subscription fee for Internet access and subscriptions may be
purchased on iVillage's network of Web sites.
iVillageSolutions Book Series
In July 2002, iVillage announced its collaboration with Rutledge Hill
Press to publish an iVillageSolutions branded book series. iVillage views the
iVillageSolutions books as a logical offline extension of iVillage's
award-winning and trusted content which leverages the information and advice
shared in iVillage's community areas. iVillage receives a share of the royalties
from the sale of the books and anticipates publishing approximately 6 - 12 books
per year. The topics of the books will reflect the offerings on iVillage.com and
draw on anecdotes from iVillage visitors and editors. The initial four (4) books
scheduled for release in 2003 include:
o Best Advice on Finding Mr. Right - this book provides advice
for the woman looking to find love and make her relationship
work;
o Best Advice on Life After Baby Arrives - this book addresses a
range of a new mother's needs and issues and provides comfort,
reassurance and inspiration to women facing the demanding
first months after the baby arrives;
o Quiz Therapy - this book will feature fun, insightful
self-assessments in such categories as Personality, Love,
Dating, Couples, Weddings, Home and Beauty; and
-11-
o Heirloom Recipes - this book brings together the family
recipes of the women of iVillage, and reflects the spirit in
which these recipes were originally shared.
In the first quarter of 2003, Best Advice on Finding Mr. Right and Best
Advice on Life After Baby Arrives were made available for purchase on the
iVillage Market and in major online and offline outlets including bookstores.
Alliances
iVillage pursues strategic relationships to increase its access to
customers, build brand recognition and expand its online and offline 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
For a discussion regarding iVillage's agreements with Hearst, please
see "Item 13. Certain Relationships and Related Transactions". In addition to
the Hearst magazine Web sites, iVillage has entered into agreements with third
parties who have agreed to have traffic from their Web sites incorporated within
the iVillage network. Although iVillage is permitted to include user traffic
from these non-proprietary Web sites in the reported information regarding the
iVillage network, iVillage may not always have the ability to sell advertising
on or otherwise generate revenue from these third-party Web sites and in certain
instances iVillage pays a fee to the third party.
Sponsorship Arrangements
iVillage has a number of sponsorship arrangements with leading
advertisers and sponsors, including:
o Bristol-Myers Squibb Company o Paramount Pictures Corporation
o General Electric Company o The Procter & Gamble Company
o Kraft Foods Inc. o Revlon Consumer Products Corporation
o Aventis Pharmaceuticals Inc. o The Unilever Group
o Nabisco Inc. o Weight Watchers International, Inc.
-12-
Joint Venture and International License Arrangements
iVillage has entered into the following joint venture and international
license arrangements:
o Cooperative Beauty Ventures, L.L.C. - iVillage and Unilever
have formed, through a joint venture arrangement, an
independently managed company, 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. During 2002,
iVillage was not required to fund the operations of the
venture, and as of December 31, 2002, iVillage has 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. Additionally, at
any time 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
ownership of the venture. In addition, at any time 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. iVillage
anticipates exercising its "call" option during 2003.
o iVillage UK Limited - In July 2000, iVillage, through a
foreign subsidiary, entered into a business arrangement with
Tesco PLC, a leading United Kingdom ("U.K.") supermarket chain
("Tesco"), to form iVillage UK Limited, a U.K. company
("iVillage UK"). iVillage, through its foreign subsidiary,
held a 50% interest in iVillage UK Limited. Through a women's
Web site (located at www.iVillage.co.uk), 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, provided marketing,
branding, an immaterial amount of cash, intellectual property,
and other resources through online and offline activities in
support of iVillage UK Limited and its U.K. and Ireland Web
sites. Tesco agreed to provide $18.0 million in cash over the
three-year period following the establishment of the
relationship, as well as online and offline promotional
considerations. Revenues were derived primarily from
advertising and sponsorships.
In March 2003, iVillage and Tesco restructured the terms of
their joint venture so that Tesco purchased iVillage's entire
ownership interest in iVillage UK. iVillage and Tesco also
entered into a 20-year agreement, subject to earlier
termination upon the occurrence of certain events, whereby
iVillage will license to iVillage UK certain of its content
and intellectual property, including trademarks and
copyrights, for use in the U.K. and Ireland, in exchange for
the greater of a minimum monthly license fee or a percentage
of iVillage UK's gross revenues.
-13-
Sales, Marketing and Public Relations
Sales
As of March 28, 2003, iVillage had a direct sales organization
consisting of nine sales professionals and 19 sales operations staff. iVillage's
sales organization 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, provides customers with advertising management analysis,
and focuses on providing a high level of customer satisfaction. iVillage also
offers paid research and cross-platform sales opportunities across its various
media properties. Five professionals concentrate primarily on advertising sales
for IVPN's Channels, video products, and print advertising sales. Eight
professionals are involved in sales of publications, seminars, subscriptions and
other products and services offered by PAG. Six professionals are involved in
sales of Promotions.com online and offline promotion services, while three
professionals are involved in sales of Webstakes.com's direct marketing
offerings.
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 its brands and to
attract traffic and new members, including advertising on other Internet sites,
targeted publications, radio stations, 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. Please 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 four marketing professionals as of March 28, 2003.
iVillage's internal public relations staff oversees a comprehensive
public relations program which 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 IVPN publications and the Channels, and to
gain the endorsement of the professional community for these products, IVPN
gives particular attention to marketing efforts targeted to childbirth
educators, maternity nurses and hospitals. A staff of three marketing
professionals contacts hospitals for distribution of the Channels and works with
the professional community to maintain distribution levels of IVPN's
publications and demonstrate how they can be used as teaching tools for
expectant parents and new mothers. IVPN representatives maintain contact with
the professional community through trade shows, professional conferences,
consumer publication updates and personal sales calls.
-14-
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 the New Jersey Data
Center of Exodus Communications, Inc. ("Exodus Communications") and Verio,
Inc.'s ("Verio") facilities in California. iVillage's operations are dependent
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 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. In 2001, Exodus Communications filed for
bankruptcy protection and certain of its assets were subsequently purchased by
Cable and Wireless plc ("Cable and Wireless") in February 2002. iVillage can
make no assurance that Exodus Communications/Cable and Wireless and Verio will
be able to provide sufficient services for iVillage or that, if necessary,
iVillage will be able to engage satisfactory alternative service providers.
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 does not presently have 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. To date, this has not had a material
effect on iVillage's business.
Except in certain cases where an in-hospital digital delivery system is
used, IVIP's broadcasting of the Channels originates from a laser disc system
operated by Ascent Media ("Ascent"), formerly known as Group W Network Services,
from Ascent'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. Ascent
handles installation and service of all the hospital receiving equipment.
iVillage maintains business interruption insurance in the event programming is
interrupted over the designated satellite.
-15-
Competition
Competition for members, visitors, advertising and commerce is intense
and is expected to increase significantly in the future. iVillage believes that
the primary competitive factors in creating a primarily Internet-based business
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 pricing;
o quality of products and services; and
o reliability and critical mass.
Other companies or 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 will likely also 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 direct marketing companies;
o Internet service providers; and
-16-
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 have made significant
acquisitions of or investments in Internet companies. Further, there can be no
assurance that iVillage's competitors and potential competitors will not develop
communities that are equal or superior to iVillage 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 and/or subscription 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.
These competitors are able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising and
subscription pricing policies and make more attractive offers to potential
employees, distribution partners, commerce companies, advertisers and
third-party content providers. There can be 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, there
can be no assurance that:
-17-
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 iVillage will be able to attract a significant number of
paying customers for its products and services;
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 are directly
competitive with IVPN's magazines. Time Inc., G&J USA Publishing, and Meredith
Corporation 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 IVPN. IVPN 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 Lamaze Publishing's instructional videos and IVIP's 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 IVPN, Lamaze Publishing
and IVIP. To compete, Lamaze Publishing and IVIP must convince advertisers that
advertising recall and effectiveness obtained in an educational or hospital
setting is superior to that of traditional broadcasting.
The Wellness Channel currently contends with a few direct competitors,
such as General Electric Company's the "Patient Channel", in addition to the
competition experienced by the other Channels. Although few in number, such
direct competitors possess significant financial resources, have
well-established brand names, and large existing customer bases when compared
with IVIP. To compete, IVIP must up-sell the current subscribers to, and
advertisers on, its other Channels and continue to offer superior programming to
differentiate itself from other competitors.
The iVillageSolutions Supplement Line must effectively market to and
attract the customers of competitors such as mass merchandisers, other
vitamin/supplement manufacturers, drug store chains, independent drug stores,
supermarkets and health food stores, many of which possess longer operating
histories, greater brand recognition and superior resources than iVillage.. To
compete, iVillage is leveraging its brand name, utilizing recurrent advertising
on its Web sites, and exploring distribution opportunities in addition to the
iVillage Market.
-18-
iVillageAccess competes with all other ISPs including such major
providers as AOL and MSN Network. Furthermore, iVillageAccess must also compete
with evolving technologies that provide Internet access at higher speeds than
iVillageAccess' dial-up offering, such as DSL and cable, and utilities such as
anti-spamming components and computer "virus" protections. To compete,
iVillageAccess must continue to offer its services in the dial-up market at a
competitive subscription fee, consider higher-speed access connections and
continue to offer features and utilities comparable or superior to those offered
by its competitors.
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 its business, financial condition and results of operations.
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 for certain of
iVillage's 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.
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, there can be no
assurance that the licensees will not take actions that might materially
adversely affect the value of its proprietary rights or reputation, which could
have a material adverse effect on its business, financial condition and results
of operations. There can be 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. There can be no
assurance that these changes of trademarks, alteration of content or format or
payment of financial damages will not adversely affect its business, financial
condition and results of operations.
-19-
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, 2003, iVillage employed 237 full-time employees, of
whom 88 were in sales and marketing, 53 were in editorial and community, 42 were
in administration and customer service, and 54 were in technology, operations
and support. None of iVillage's current employees are represented by a labor
union or are the subject of a collective bargaining agreement. iVillage believes
that relations with its employees are satisfactory.
Item 2. Properties.
iVillage is headquartered in New York, New York, and leases
approximately 84,000 square feet at 500-512 Seventh Avenue. This lease expires
on April 30, 2015. Additionally, iVillage has entered into a five-year sublease
agreement pursuant to which iVillage has subleased approximately 14,600 square
feet of the leased premises to an unrelated party, which expires in December
2006. iVillage is currently attempting to sublease an additional portion of
these leased premises.
iVillage also leases sales offices located in Chicago, Illinois, Santa
Monica, California and San Francisco, California. These leases are on a
month-to-month basis.
Women.com currently leases approximately 17,000 square feet of space in
San Mateo, California. This lease expires on August 31, 2003.
IVPN subleases approximately 7,000 square feet of space at 9 Old Kings
Highway, Darien, Connecticut. This sublease expires on June 30, 2005.
Astrology.com leases approximately 7,400 square feet of space in San
Francisco, California. This lease expires on November 30, 2005.
PAG leases approximately 6,800 square feet of space in Washington, D.C.
This 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".
-20-
Item 3. Legal Proceedings.
Several plaintiffs have filed class action lawsuits in federal court
against iVillage and 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 (the "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.
In February 2003, the defendants' motion to dismiss certain of the
plaintiffs' claims was granted in part, but, for the most part, denied and the
lawsuits are now entering the discovery phase.
In June 2001, Euregio.net commenced an action in Belgium against
Women.com claiming damages in excess of 1 million Euros in connection with
certain alleged copyright infringements. Despite Women.com's arguments
challenging the jurisdiction of the Belgian court, the alleged infringements and
the amount of damages, a Belgian court issued a judgment against Women.com in
the amount of approximately 850,000 Euros (approximately $892,000 based on the
Euro exchange rate as of December 31, 2002) in January 2003. Women.com has been
advised by outside legal counsel that Euregio.net would have to commence legal
proceedings in the United States to enforce this judgment. Women.com has
appealed this judgment in the Belgian courts and will also oppose any effort by
the plaintiffs to enforce this judgment in the United States court system.
iVillage believes, with the advice of outside legal counsel, that the
lawsuits and claims asserted against it and its subsidiary pursuant to these
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 business, financial condition, results of
operations and liquidity.
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 business.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
-21-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
iVillage's common stock traded on The Nasdaq National Market from March
19, 1999 to December 19, 2002 and has traded on The Nasdaq SmallCap Market since
December 20, 2002. On both The Nasdaq National Market and The Nasdaq SmallCap
Market, iVillage's common stock has traded under the symbol "IVIL". The
following table sets forth, for the periods indicated, the high and low bid
prices per share of the common stock as reported on The Nasdaq National Market
or The Nasdaq SmallCap Market, as applicable:
2002 High Low
- ---- ---- ---
First Quarter*..................................... $ 2.85 $ 1.63
Second Quarter*.................................... $ 2.70 $ 1.17
Third Quarter*..................................... $ 1.41 $ 0.55
Fourth Quarter**................................... $ 1.00 $ 0.52
2001 High Low
- ---- ---- ---
First Quarter*..................................... $ 2.50 $ 0.38
Second Quarter*.................................... $ 1.99 $ 0.50
Third Quarter*..................................... $ 1.55 $ 0.57
Fourth Quarter*.................................... $ 1.99 $ 0.86
* As reported on The Nasdaq National Market.
** As reported on The Nasdaq National Market from October 1, 2002 to December
19, 2002, and The Nasdaq SmallCap Market from December 20, 2002 through December
31, 2002.
On March 26, 2003, the closing sales price of iVillage's common stock
was $0.63 per share. There were 778 holders of record of iVillage's outstanding
common stock as of March 26, 2003.
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.
-22-
Recent Sales of Unregistered Securities
On July 18, 2002, iVillage granted options under its Amended 2001
Non-Qualified Stock Option Plan to Douglas W. McCormick, Chief Executive Officer
of iVillage, to purchase 500,000 shares of iVillage common stock at an exercise
price of $1.11 per share.
In connection with its acquisition of Promotions.com in May 2002,
iVillage was obligated to issue Leasing Technologies International, Inc. ("LTI")
a warrant, expiring on June 19, 2007, to purchase 5,282 shares of iVillage's
common stock at an exercise price of $14.35. The shares underlying the warrant
and its exercise price reflect the application of the conversion ratio utilized
by iVillage in the acquisition to an outstanding warrant obligation of
Promotions.com to issue its common stock to LTI.
This grant of options and warrant issuance were exempt from
registration under the Securities Act, pursuant to Section 4(2) thereof, on the
basis that the transactions did not involve a public offering by iVillage.
Equity Compensation Plan Information
For further information regarding iVillage's equity compensation plans,
please see "Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters - Equity Compensation Plan
Information".
-23-
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, 2002, 2001 and 2000 and the consolidated
balance sheet data as of December 31, 2002 and 2001 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, 2000, 1999 and 1998 and the
consolidated statement of operations data for the years ended December 31, 1999
and 1998 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
Knowledgeweb, Inc. 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 Networks, Inc. in June 2001, a controlling interest in Public Affairs
Group, Inc. in July 2001 and an 82.3% interest in Promotions.com, Inc. in April
2002 with the remaining 17.7% interest acquired in May 2002. The financial data
reflect the results of operations of these subsidiaries since their dates of
acquisition. In April 1998 and March 1999, iVillage acquired the majority
interest and remaining minority interest in IVN, Inc (formerly known as iBaby,
Inc.). In June 2000, iVillage decided to discontinue the operations of its IVN,
Inc. subsidiary. As such, all discussion and analysis below represents solely
the continuing operations of iVillage.
Year Ended December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- --------- --------- --------- --------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues...................................... $ 59,423 $ 60,041 $ 76,352 $ 36,576 $ 12,451
--------- --------- --------- --------- ----------
Operating Expenses:
Editorial, product development and technology. 27,973 33,500 35,327 20,652 11,742
Sales and marketing........................... 30,237 36,178 54,098 63,526 28,177
General and administrative.................... 13,474 17,702 22,634 13,164 9,546
Depreciation and amortization(1).............. 11,900 23,529 37,681 25,720 5,500
Impairment of goodwill (1).................... 971 -- 98,056 -- --
---------- --------- -------- --------- ---------
Total operating expenses................. 84,555 110,909 247,796 123,062 54,965
---------- --------- -------- --------- ---------
Loss from operations.......................... (25,132) (50,868) (171,444) (86,486) (42,514)
Interest income, net ......................... 485 2,285 5,261 4,085 571
Other (expense) income, net................... (34) (43) 595 271 --
Gain (Loss) on sale of assets ................ -- 385 -- -- (504)
Minority interest............................. (74) 7 -- -- 587
Write-down of investments (2)................. -- (104) (13,496) -- --
Loss from unconsolidated joint venture........ -- (127) (422) -- --
Cumulative effect of change in accounting
principle (1)................................. (9,181) -- -- -- --
---------- --------- -------- --------- ---------
Net loss from continuing operations........... (33,936) (48,465) (179,506) (82,130) (41,860)
Preferred stock deemed dividend .............. -- -- -- (23,612) --
---------- --------- -------- --------- ----------
Net loss attributable to common stockholders
from continuing operations................ $ (33,936) $ (48,465) $(179,506) $(105,742) $ (41,860)
========== ========= ========= ========= ==========
-24-
Year Ended December 31,
--------------------------------------------------------------
2002 2001 2000 1999 1998
---------- --------- --------- --------- --------
(in thousands, except per share data)
Basic and diluted net loss per share
attributable to common stockholders from
continuing operations..................... $ (0.62) $ (1.13) $ (6.05) $ (5.06) $ (20.24)
========== ========= ========= ========= =========
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share............... 54,841 42,807 29,683 20,901 2,068
========== ========= ========= ========= =========
(1) Please see Note 4 of iVillage's Notes to Consolidated Financial Statements.
(2) Please see Note 2 and Note 6 of iVillage's Notes to Consolidated Financial
Statements.
December 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
---------- --------- --------- --------- --------
Consolidated Balance Sheet Data: (in thousands)
Cash and cash equivalents..................... $ 21,386 $ 29,831 $ 48,963 $106,010 $ 30,825
Working capital .............................. 18,403 30,966 40,252 90,752 19,919
Total assets ................................. 100,586 132,387 132,459 312,748 45,721
Long-term liabilities......................... 3,926 4,273 4,818 -- --
Stockholders' equity.......................... 82,200 108,757 101,366 283,850 32,022
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 media company that operates iVillage.com, Women.com,
IVPN, PAG, Promotions.com, iVillage Consulting 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. IVPN is a holding company
for Lamaze Publishing, a publisher of advertiser supported educational materials
for expectant and new parents, and IVIP, the operator of The Newborn Channel, a
satellite television network broadcast in over 1,050 hospitals nationwide, and
the publisher of Baby Steps magazine. PAG is comprised of three divisions:
Business Women's Network, Diversity Best Practices and Best Practices in
Corporate Communications, each offering extensive databases of pertinent
information to subscribing companies and members. Promotions.com provides
promotions and direct marketing programs that are integrated with customers'
offline marketing initiatives.
The discussion and analysis below includes the results of operations of
Cooperative Beauty Ventures, L.L.C. since March 1, 2001, Women.com since June
18, 2001, PAG since July 16, 2001 and Promotions.com since April 19, 2002.
Cooperative Beauty Ventures, L.L.C. was accounted for under the equity method of
accounting prior to March 1, 2001.
-25-
Financial Reporting Release No. 60 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.
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 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. Sponsorship and advertising revenues were approximately 78%, 81% and
92% of total revenues for the years ended December 31, 2002, 2001 and 2000,
respectively.
For contracts with multiple elements (e.g., deliverable and
undeliverable products, advertising and production revenue), iVillage allocates
revenue to each element based on evidence of its fair value. Evidence of fair
value is the price of a deliverable when it is regularly sold on a stand-alone
basis. iVillage recognizes revenue allocated to each element when the criteria
for revenue set forth above are met.
Included in sponsorship and advertising revenues are revenues from
advertising placements in IVPN's publications, videos and Web site, and
satellite broadcasts on the Channels. In addition, revenues are generated
through a promotional program that offers advertisers the ability to distribute
samples, coupons and promotional literature to new and expectant parents.
Revenues from IVPN accounted for approximately 27%, 25% and 20% of sponsorship
and advertising revenues for the years ended December 31, 2002, 2001 and 2000,
respectively.
-26-
Sponsorship and advertising revenues also include revenues from
Promotions.com which generates revenues through Webstakes.com, a Web site
dedicated to Internet sweepstakes and promotions, and Promotions.com, a full
service integrated promotions services group.
Webstakes.com revenues are derived principally from service contracts
whereby Webstakes.com recognizes revenues based on either a "cost-per-click" or
a "cost-per-action" pricing model. The contracts typically include cancellation
clauses ranging from 30 to 60 days. With a cost-per-click pricing model,
Webstakes.com generally guarantees a minimum number of times that
Webstakes.com's visitors are delivered to its customer's Web site. Webstakes.com
recognizes revenue related to its cost-per-click pricing model when a visitor
has been delivered to the customer's Web site and the collection of the
corresponding receivable is reasonably assured. Revenue is recognized
differently in a cost-per-action pricing model, which requires Webstakes.com to
not only deliver the aforementioned minimums, but also a specific user action
such as purchasing a product or registering as a member of the customer's Web
site in order for Webstakes.com to earn revenue. Webstakes.com recognizes
revenue related to the cost-per-action pricing model when the specific action
has been performed on its customer's Web site and the collection of the
corresponding receivable is reasonably assured.
Promotions.com revenues are derived principally from contracts in which
Promotions.com typically provides custom turnkey services for the creation,
administration and implementation of a promotion on a customer's Web site.
Promotions.com's revenue recognition policy related to its services is to
recognize revenues as deliverables are met and/or ratably over the period during
which Promotions.com provides promotions services, provided that no significant
obligations remain in a contract and collection of the resulting receivable is
reasonably assured.
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 on or traffic from 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's Web sites. Barter expenses are generally recognized when
iVillage's advertisements are displayed on the reciprocal Web sites or
properties, which typically is the same period as when advertisements are
displayed on iVillage's Web sites, and are included as part of sales and
marketing expenses. Revenues from barter transactions were approximately $3.6
million, $2.8 million and $3.6 million for the years ended December 31, 2002,
2001 and 2000, respectively.
iVillage Consulting 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 its negotiated hourly rates and/or fixed fees stipulated in contracts.
PAG is a comprehensive source of information and program linkage that
serves as an international platform for diversity and women offering to
subscribing companies and members an extensive database of women's
organizations, best practices and guidance in the areas of workplace diversity,
women and corporate communications. Revenues from PAG are generated primarily
through subscription-based programs that convey current best practices for women
and diversity issues in the workplace and the hosting of an annual two-day event
that focuses on women and diversity. iVillage recognizes revenue from PAG
subscriptions ratably over the term of the subscription agreement or when the
events are held.
-27-
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, the
collection of the receivable is reasonably assured and no further obligation
remains.
iVillage received fees from licensing portions of its content in
connection with its agreement with PlanetRx.com, Inc. These fees were recognized
on a straight-line basis over the life of the contract, which ended in the first
quarter of 2002.
iVillage has received revenues from new initiatives involving
subscription-based properties, the sale of iVillage-branded products and
services, the sale of third-party products and services and the sale of
research. During the third quarter of 2002, iVillage began selling
iVillageSolutions-branded consumer products through the iVillage Market located
on iVillage.com. Through an agreement with a third party, iVillage receives a
revenue share on each sale of such products and bears no fulfillment risks.
During the fourth quarter of 2002, iVillage launched iVillageAccess, iVillage's
ISP offering. iVillageAccess' Internet access is provided through an agreement
with a third party and iVillage receives a revenue share on each subscriber. In
the first quarter of 2003, iVillage released two iVillageSolutions-branded
books, through an agreement with a publisher, and expects to release others
throughout 2003. iVillage receives a royalty on each book purchased. iVillage
recognizes revenues from these new initiatives when products are shipped and/or
provided to the customer, the collection of the receivable is reasonably assured
and no further obligation remains. While iVillage believes that one or more of
these new initiatives will develop into a recurring source of revenues, iVillage
can make no assurance that it will be successful in any of these endeavors.
Goodwill
Goodwill is not subject to amortization and is tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset may be impaired. The impairment test consists of a comparison of the
fair value of goodwill with its carrying amount. If the carrying amount of
goodwill exceeds its fair value, an impairment loss is recognized in an amount
equal to that excess. After an impairment loss is recognized, the adjusted
carrying amount of goodwill is its new accounting basis.
-28-
Intangible Assets
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets" ("SFAS 144"). SFAS 144 addresses financial accounting and
reporting for the disposal of long-lived assets. The objectives of SFAS 144 are
to address significant issues relating to the implementation of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121") and to develop a single accounting model, based on
the framework established in SFAS 121, for the long-lived assets to be disposed
of by sale, whether previously held and used or newly acquired. SFAS 144 retains
the fundamental provisions of SFAS 121 regarding the recognition and measurement
of the impairment of long-lived assets to be held and used. The Company reviews
for impairment of long-lived assets and certain identifiable intangibles
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In general, the Company will recognize an
impairment when the sum of undiscounted future cash flows is less than the
carrying amount of such assets. The measurement for such impairment loss is
based on the fair value of the asset.
Fixed Assets
Depreciation of equipment, furniture and fixtures, and computer
software is provided for by the straight-line method over their estimated useful
lives ranging from three to five years. Amortization of leasehold improvements
is provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions, and
expenditures which extend the useful lives of existing assets, are capitalized,
and repairs and maintenance costs are charged to operations as incurred.
iVillage continually evaluates whether current events or circumstances warrant
adjustments to the carrying value or estimated useful lives of fixed assets in
accordance with the provisions of SFAS 144.
Income Taxes
iVillage recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement and
tax bases of assets and liabilities at enacted statutory tax rates in effect for
the years in which the differences are expected to reverse. The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.
-29-
Results of Operations
The following table sets forth iVillage's results of operations
expressed as a percentage of total revenues:
Year Ended December 31,
----------------------------
2002 2001 2000
-------- -------- -------
Revenues.................................... 100% 100% 100%
---- ---- ----
Operating expenses:
Editorial, product development and
technology............................. 47 56 46
Sales and marketing...................... 51 60 71
General and administrative............... 22 29 30
Depreciation and amortization............ 20 39 49
Impairment of goodwill................... 2 -- 128
----- ----- -----
Total operating expenses.............. 142 185 324
----- ----- -----
Loss from operations........................ (42) (85) (225)
===== ===== =====
Net loss from continuing operations......... (57)% (81)% (235)%
===== ====== =====
Comparison of Years Ended December 31, 2002 and December 31, 2001
Revenues
Revenues were approximately $59.4 million for the year ended December
31, 2002, which represents a decline of 1% when compared with 2001. The decline
in revenues was primarily due to a decrease in year over year sponsorship and
advertising revenues of approximately $5.0 million and licensing fees of
approximately $2.5 million, offset by: the acquisitions of PAG and
Promotions.com resulting in identifiable incremental revenues of approximately
$1.8 million and $2.6 million, respectively; an increase in iVillage Consulting
revenue of approximately $1.3 million; and identifiable revenues from new
initiatives involving online subscription-based properties and research
resulting in identifiable revenues of approximately $0.6 million and $1.1
million, respectively. Sponsorship and advertising revenues were $46.1 million
for the year ended December 31, 2002, compared to $48.6 million for the
corresponding period in 2001. Sponsorship and advertising revenues accounted for
approximately 78% and 81% of total revenues for the years ended December 31,
2002 and 2001, respectively. Revenues from IVPN accounted for approximately 27%
and 25% of sponsorship and advertising revenues for the years ended December 31,
2002 and 2001, respectively. Revenues from Promotions.com accounted for
approximately 6% of sponsorship revenues for the year ended December 31, 2002.
Since Promotions.com was acquired in 2002, there are no comparative numbers for
the corresponding period in 2001.
In recent years, iVillage has experienced a shift from the larger,
higher-rate, long-term sponsorship agreements that were prevalent a few years
ago to smaller, lower-rate, short-term advertising agreements. This trend has
made it more difficult for iVillage to both achieve period-to-period revenue
growth and accurately project future quarterly revenues.
Included in sponsorship and advertising revenues are barter
transactions, which accounted for approximately 8% and 6% of sponsorship and
advertising revenues for the years ended December 31, 2002 and 2001,
respectively.
Included in revenues are production fees received from work performed
(primarily for Hearst, a related party) by iVillage Consulting, which accounted
for approximately 7% and 5% of total revenues for the years ended December 31,
2002 and 2001, respectively.
-30-
Included in revenues are subscription-based fees derived from the
services provided by PAG, which accounted for approximately 6% and 3% of total
revenues for the years ended December 31, 2002 and 2001, respectively.
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 6% and 11% of total revenues for the years ended
December 31, 2002 and 2001, respectively. Total revenues from this revenue
stream decreased by approximately $2.5 million year over year due to the
expiration of a licensing agreement in the first quarter of 2002.
Included in revenues are fees from new initiatives involving online
subscription-based properties and the sale of research, which accounted for
approximately 3% and less than 1% of total revenues for the years ended December
31, 2002 and 2001, respectively. These new initiatives were commenced in the
later part of 2001.
For the years ended December 31, 2002 and 2001, respectively, revenues
from iVillage's five largest customers accounted for approximately 38% and 37%
of total revenues. In 2002, three advertisers, Procter and Gamble, Hearst, a
related party, and Unilever and its affiliates, accounted for approximately 11%,
11% and 10% of total revenues. In 2001, one advertiser, Unilever and its
affiliates, accounted for approximately 12% of total revenues. At December 31,
2002, Procter and Gamble accounted for approximately 26% of the net accounts
receivable, and at December 31, 2001, Hearst and Unilever and its affiliates
accounted for approximately 14% and 10% of the net accounts receivable,
respectively.
iVillage anticipates that its results of operations in any given period
will continue to depend to a significant extent on revenues from a small number
of customers, including Procter and Gamble, Unilever and Hearst. iVillage's
contracts with Procter and Gamble and Unilever expire in June 2003 and
iVillage's contract with Hearst expires in June 2004. iVillage can make no
assurances as to whether these expiring contracts will be renewed, or if so
renewed, that they will be on similar terms as the expiring agreements. Because
iVillage's largest customers have varied over time in the past, iVillage
anticipates that they will continue to do so in the future. Consequently, the
loss of even a small number of iVillage's largest customers at any one time may
adversely affect iVillage's business, financial condition and results of
operations, unless iVillage is able to enter into a sufficient number of new
comparable contracts.
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, 2002 were approximately
$28.0 million, or 47% of total revenues. Editorial, product development and
technology expenses were approximately $33.5 million, or 56% of total revenues,
for the corresponding period in 2001. The decrease between the comparable
twelve-month periods was primarily attributable to decreases in: salaries,
severance and related benefits of approximately $3.8 million; renegotiation of
agreements which provide support, content and serving of impressions to
iVillage's Web sites of approximately $1.3 million; and lower facility costs
resulting in a decreased facilities allocation of approximately $1.1 million.
The aforementioned reductions were offset slightly by incremental costs
associated with the acquisition of Promotions.com of approximately $0.8 million.
Editorial, product development and technology expenses decreased as a percentage
of total revenues for the twelve months ended December 31, 2002, when compared
to the same period in 2001, as a result of the significant benefits recognized
from cost reduction initiatives beginning in 2001 and into 2002, as compared to
the slight decline in revenues.
-31-
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, 2002 were approximately $30.2 million,
or 51% of total revenues. Sales and marketing expenses were approximately $36.2
million, or 60% of total revenues, for 2001. The decrease in sales and marketing
expenses for the twelve-month period ended December 31, 2002, as compared to
2001, was primarily attributable to: the benefits of cost reduction initiatives
implemented beginning in 2001 and into 2002 which resulted in an approximately
$8.5 million decrease in advertising expenses; a decrease in payroll, severance,
commission and related benefits of approximately $3.6 million; and lower
facility costs resulting in a decreased facilities allocation of approximately
$0.8 million, partially offset by: the negotiated advertising spend and
termination of an advertising agreement with NBC resulting in charges of
approximately $1.3 million and $4.1 million, respectively, as well as
incremental sales and marketing expenses related to the PAG and Promotions.com
acquisitions of approximately $0.6 million and $1.9 million, respectively. Sales
and marketing expenses decreased as a percentage of total revenues for the
twelve months ended December 31, 2002, as compared to the same period in 2001,
due to the significant benefits recognized from these cost reduction initiatives
as compared to the slight decline in revenue.
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 11% of total sales and marketing costs during the year
ended December 31, 2002, compared to 8% of total sales and marketing costs
during 2001.
General and Administrative. General and administrative expenses consist
primarily of payroll, related expenses and benefits for the executive
management, finance, allocated facilities, human resources and legal employees,
severance costs for terminated employees, general corporate overhead, and other
professional fees. General and administrative expenses for the year ended
December 31, 2002 were $13.5 million, or 22% of total revenues. For the
comparable period in 2001, general and administrative expenses were $17.7
million, or 29% of total revenues. The decrease in general and administrative
expenses for the comparable twelve-month periods was primarily due to: a
decrease in salaries, severance and related benefits of approximately $2.9
million; a decrease in professional fees and facilities allocation of
approximately $0.2 million and $0.3 million, respectively; and a payment to the
former Chief Executive Officer and lease termination costs in 2001 of
approximately $1.3 million and $1.5 million, respectively, partially offset by:
the acquisitions of PAG and Promotions.com resulting in incremental costs of
approximately $0.7 million and $0.5 million, respectively; higher insurance
costs of approximately $0.5 million; and the reserve for stockholder notes
receivable of approximately $0.4 million. General and administrative expenses
decreased as a percentage of total revenues for the twelve months ended December
31, 2002, when compared to the comparable period in 2001, as a result of the
significant benefits recognized from cost reduction initiatives as compared to
the slight decline in revenue.
-32-
In the ordinary course of business, iVillage utilizes estimates to
determine the accrual of certain operating expenses. These estimates are
reviewed on an ongoing basis to determine the adequacy of these accruals. For
the year ended December 31, 2002, iVillage reversed approximately $1.5 million
of accruals included in operating expenses due to a change in estimate on
services previously provided. This amount was offset by additional accruals for
various operating expenses.
Depreciation and Amortization. Depreciation and amortization expenses
for the year ended December 31, 2002 were approximately $11.9 million, or 20% of
total revenues. For the comparable period in 2001, depreciation and amortization
expenses were $23.5 million, or 39% of total revenues, respectively. The dollar
decrease in depreciation and amortization for the comparable twelve-month
periods was primarily due to the adoption of the provisions of SFAS No. 142.
"Goodwill and Other Intangible Assets" ("SFAS 142") which, among other things,
provides that goodwill will no longer be amortized.
Interest Income, Net
Interest income, net includes primarily interest income from iVillage's
cash balances and interest earned on stockholders' notes receivable. Interest
income, net for the twelve months ended December 31, 2002 was approximately $0.5
million, or 1% of total revenues. For the comparable period in 2001, interest
income, net was $2.3 million, or 4% of total revenues. The decrease between 2002
and 2001 was due to lower average net cash and cash equivalents balances, lower
interest rates in 2002 as compared to 2001 and the repayment of a National
Broadcasting Company, Inc. ("NBC") loan in the first quarter of 2002 compared to
a full year of interest payments received on this note in 2001.
Income Taxes
As of December 31, 2002, iVillage had approximately $239.7 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.
-33-
Net Loss
iVillage recorded a net loss of approximately $33.9 million, or $0.62
per share, for the year ended December 31, 2002. For 2001, iVillage recorded a
net loss of approximately $48.5 million, or $1.13 per share. The decrease in net
loss for the twelve months ended December 31, 2002 compared to the same period
in 2001 was primarily due to a decrease in operating expenses (excluding the
impairment of goodwill) of approximately $27.3 million, partially offset by the
adoption of SFAS 142 which resulted in a change of accounting principle charge
of approximately $9.2 million in the first quarter of 2002 in connection with
the transitional impairment test and an approximately $1.0 million goodwill
impairment charge in the fourth quarter of 2002 associated with the annual
impairment test. Please see Note 4 of iVillage's Notes to Consolidated Financial
Statements for further details regarding these charges.
Comparison of Years Ended December 31, 2001 and December 31, 2000
In June 2000, iVillage discontinued the operations of its IVN, Inc.
subsidiary (formerly known as iBaby, Inc.). Therefore, all discussion and
analysis below represents solely iVillage's continuing operations.
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 $48.6 million for the year ended
December 31, 2001, compared to approximately $69.9 million for 2000. Sponsorship
and advertising revenues accounted for approximately 81% 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 25%
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 Consulting unit, which
accounted for approximately 5% of total revenues for the year ended December 31,
2001. Since iVillage Consulting 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 and consequently there are no comparative numbers for the corresponding
period in 2000.
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.
-34-
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
approximately 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 and 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 a