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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 Seventh Avenue
New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 600-6000
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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 June 30, 2003, as reported on The Nasdaq National Market,
was approximately $59,932,902. 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 25, 2004, the registrant had outstanding 58,869,898
shares of Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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iVillage Inc.
FORM 10-K
TABLE OF CONTENTS
Page No.
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PART I
Item 1. Business........................................................................................................... 1
Item 2. Properties......................................................................................................... 16
Item 3. Legal Proceedings.................................................................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders................................................................ 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................................. 18
Item 6. Selected Financial Data............................................................................................ 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......................................................... 49
Item 8. Financial Statements and Supplementary Data........................................................................ 49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................... 49
Item 9A Controls and Procedures............................................................................................ 49
PART III
Item 10. Directors and Executive Officers of the Registrant................................................................. 50
Item 11. Executive Compensation............................................................................................. 55
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters................................................................................................ 59
Item 13. Certain Relationships and Related Transactions..................................................................... 62
Item 14. Principal Accountant Fees and Services ............................................................................ 63
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................... 64
SIGNATURES. ..................................................................................................................... 68
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE.................................................................................................F-1
TRADEMARKS
iVillage(R), iVillage.com(R), gURL.com(R), Deal With It(R), Newborn
Channel(R), Parent Soup(R), ParentsPlace.com(R), WebStakes.com(R), iVillage
Consulting(R), iVillage Solutions(R), and iVillageAccess(R) are registered
trademarks of iVillage Inc. The stylized iVillage logo, "the Internet for
Women", Astrology.com, Substance.com, Baby Steps, Public Affairs Group, Inc.,
Business Women's Network, Business Women's Network Government, Diversity Best
Practices, Best Practices In Corporate Communications, and Promotions.com are
trademarks of iVillage Inc. All other brand names, trademarks or service marks
referred to in this report are the property of their owners.
PART I
Statements in this Annual Report on Form 10-K, including 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, or Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or Exchange Act. The words or phrases "can
be", "expects", "may affect", "may depend", "anticipates", "believes",
"estimates", "plans", "projects", and similar words and phrases are intended to
identify such forward-looking statements. These forward-looking statements are
subject to various known and unknown risks and uncertainties and we caution you
that any forward-looking information provided by or on behalf of us is not a
guarantee of future results, performance or achievements. Actual results could
differ materially from those anticipated in these forward-looking statements due
to a number of factors, some of which are beyond our control. In addition to the
risks discussed below in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in our other public filings,
press releases and statements by our management, factors that may cause our
actual results, performance or achievements to differ materially from any future
results, performance or achievements expressed or implied in such forward
looking statements include:
o the volatile and competitive nature of the media industry, in
particular on the Internet;
o changes in domestic and foreign economic, political and market
conditions;
o the effect of federal, state and foreign regulation on our business;
o the impact of recent and future acquisitions and joint ventures on
our business and financial condition;
o our ability to establish and maintain relationships with
advertisers, sponsors, and other third-party providers and partners;
and
o the impact of pending litigation on our business and financial
condition.
All forward-looking statements in this report are current only as of
the date on which the statements were made. We do not undertake any obligation
to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any statement is made or to reflect the
occurrence of unanticipated events.
When used in this Annual Report on Form 10-K and unless otherwise
specified, "iVillage," "we," "our" and "us" refer to iVillage Inc. and its
consolidated subsidiaries.
Item 1. Business.
Overview
iVillage is "the Internet for women" and consists of several online and
offline media-based properties including the iVillage.com Web site, or
iVillage.com, Women.com Networks, Inc., operator of the Women.com Web site, or
Women.com, the gURL.com Web site, or gURL.com, Knowledgeweb, Inc., operator of
the Astrology.com Web site, or Astrology.com, Cooperative Beauty Ventures, LLC,
operator of the Substance.com Web site, or Substance.com, iVillage Parenting
Network, Inc., or IVPN, Public Affairs Group, Inc., or PAG, Promotions.com,
Inc., or Promotions.com, iVillage Consulting and iVillageSolutions. Following is
a synopsis of our operational activities and those of our subsidiaries and
divisions:
Subsidiary or Division Operational Activity
- ---------------------- --------------------
iVillage.com An online destination providing practical solutions
on a range of topics and everyday support for women
18 years of age and over.
Women.com An online destination providing content focused on
fun, games, entertainment and style for women 18
years of age and over.
1
gURL.com An online destination catering to teenage girls that
offers advice, games and interactive content
to girls 13 years of age and older.
Astrology.com An online destination for individuals seeking daily
horoscopes, astrological content and personalized
forecasts online.
Substance.com An online destination offering interactive beauty
content and personal care products information.
IVPN A holding company for iVillage Integrated Properties,
Inc., or IVIP, the operator of The Newborn Channel
and Lamaze Publishing Company, or Lamaze Publishing,
publisher of Lamaze Parents, which collectively
provide informational and instructional magazines,
custom publications, television programming, videos
and online properties of interest to expectant and
new parents.
PAG Comprised of three divisions: Business Women's
Network, Diversity Best Practices and Best
Practices in Corporate Communications, each offering
an extensive database of pertinent information and
events to subscribing companies and members, and
relevant publications.
Promotions.com Comprised of two divisions: Promotions.com and
Webstakes.com, which offer online and offline
promotions and direct marketing programs that are
integrated with customers' marketing initiatives.
iVillage Consulting Assists companies in the creation and development
of Web sites, digital commerce platforms and
other aspects of technological infrastructures,
primarily for Hearst Communications, Inc., and its
affiliates, or Hearst, a related party.
iVillageSolutions Our consumer products offerings including an
iVillage-branded book series and vitamin and
nutraceutical supplement line.
We organize our online network to address multiple topics of high
importance to females at different age levels, and we seek to enrich their lives
through our offerings of unique content, community applications, tools and
interactive features. We facilitate use across our content areas by providing a
similar look and feel within each area and across our network in general,
resulting in consistent and strongly branded Web sites. Membership to
iVillage.com is free and provides features such as message boards and other
community tools.
We believe we are an industry leader in developing innovative
sponsorships that match the desire of marketers to reach women and parents with
the needs of iVillage.com users to obtain relevant information, products and
services. We leverage our online brand awareness by offering books, videos, and
other consumer products and services under the iVillage, gURL.com, Lamaze and
Business Women's Network brands.
Our Web sites are consistently recognized as leading online offerings.
According to comScore Media Metrics' December 2003 results:
o We had approximately 14.6 million unique users to iVillage.com and
our affiliate Web sites in the month of December, reaching
approximately 10% of the total US online population;
o iVillage.com was the 31st most visited Web site on the Internet in
the United States;
o iVillage.com continues to be ranked the #1 Community-Women Site and
the #6 overall Community Site on the Internet;
o gURL.com was ranked in the top ten in the Community-Teens Site
category;
o iVillage's astrological Web sites, including Astrology.com, were
ranked #5 in the Hobbies/Lifestyle category;
o Substance.com remained the #1 content destination online in the
Retail-Fragrances/Cosmetics category; and
o iVillage Parenting, the combined online properties of iVillage.com
and IVPN, was ranked the #12 site in the Community-Family category.
2
iVillage.com
Content Areas
iVillage.com is organized around content specific areas that focus on
issues of importance to females and provides interactive services, peer support,
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 of our content areas as of December
31, 2003:
Area Description
- ---- -----------
Babies 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 Offers users beauty advice, product reviews and access
to hair, makeup and skincare experts, primarily through
Substance.com.
Diet & Fitness Includes body calculators, nutrition and fitness
experts, message boards, quizzes and community
challenges to improve one's weight and fitness level.
Entertainment Contains celebrity interviews, jokes and
entertainment-related tools and quizzes.
Food Provides information on meal planning, nutrition and
recipes which includes food experts and cooking basics.
Games Provides favorite single player online games such as
blackjack, mahjong, solitaire and diamond mines.
Health Assists users in becoming better health care decision
makers through relevant articles, expert advice, message
boards and weekly chats.
Home & Garden Offers information, expert advice and tools on home and
gardening issues.
Horoscopes Provides horoscopes, celebrity profiles, romance charts,
monthly guidance and the ability to purchase astrology
reports, primarily through Astrology.com.
Money Provides information on personal finance and saving
strategies focusing on key life stage needs of women.
Parenting Offers parenting solutions, access to experts and
support, primarily through ParentSoup.com.
Pets Provides information on caring for your pet, selecting a
breed, adopting a pet and choosing a veterinarian.
Pregnancy Provides expectant parents with information and support
on fertility and pregnancy, including ParentsPlace.com
and Lamaze.com.
Quizzes Offers interactive quizzes and games on a variety of
subjects.
Relationships Offers information and conversation on love, marriage,
sex and family.
3
Work Provides women who work from home with tools and
resources such as home office basics and professional
women with tools and resources relating to career
development and office-related issues.
We believe that user support is critical in order to attract and retain
users. We provide user support primarily through e-mail-based correspondence.
Help and feedback buttons are prominently displayed throughout our network of
Web sites, and our user support staff attempts to respond to all e-mail queries
within two business days. In addition, community leaders provide e-mail support
for broad-ranging issues. We do not charge for these services.
Sponsorship and Advertising Revenues
Our online sponsorship arrangements are designed to support our
sponsors' broad marketing objectives, including brand promotion, awareness,
product introductions and online research. Sponsorship agreements typically
include the delivery of impressions on our Web sites and occasionally the design
and development of customized sites that enhance the promotional objectives of
the sponsor. An impression is the viewing of promotional material on a Web page,
which may include rich media, such as commercials originally created for a
television format viewed on a Web page, and display or banner advertisements,
links or other text or images. As part of a few of our sponsorship agreements,
sponsors selling products may provide us with a commission on sales of their
products generated through our Web sites. Advertising revenues are derived
principally from short-term advertising contracts in which we typically
guarantee 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 also derived from sponsored links, currently supplied by Google, Inc. or
Google, appearing on our Web pages that are based upon relevant content or a
World Wide Web search query result. These revenues are earned on a cost per
thousand page views and/or a percentage of net advertising revenue earned by
Google from advertisers.
Our sponsorship and advertising revenues are derived principally from
promotional agreements, in which either full-screen arrival advertisements or
display or banner advertisements are prominently displayed. A full-screen
arrival advertisement appears upon entering one of our Web sites and includes a
dramatic message that covers the screen and fades in up to 10 seconds leaving a
smaller "arrival ad related message" embedded on the appearing Web site page. A
display or banner advertisement consists of promotional content that can appear
at the top or bottom of the pages on iVillage's Web sites. From each "arrival ad
related message" or display advertisement, viewers can hyperlink directly to the
sponsor's or advertiser's Web site, thus providing the sponsor or advertiser the
opportunity to directly interact with an interested customer. In recent years,
we have experienced a shift from larger higher rate long-term sponsorship
agreements to smaller, lower rate short-term advertising contracts.
We also offer research services to our sponsors, advertisers and other
customers. Through third party vendors and internal staff, we provide research
measuring brand awareness and the attributes related to purchase decisions. This
research is primarily conducted through live online campaigns where users to our
Web sites are randomly invited to participate in a brief survey designed to
elicit information. This research can provide our sponsors and advertisers with
important demographic information, marketing information and assistance with
online promotional campaigns.
We have a number of sponsorship and advertising arrangements with
leading advertisers and sponsors across several industries including:
Pharmaceutical Entertainment Retail
- ------------------------------------------ ------------------------------------------ ---------------------------------
Bayer AG The Walt Disney Company Amazon.com, Inc.
Bristol-Meyers Squibb Company DreamWorks SKG Best Buy Co., Inc.
Eli Lilly and Company Paramount Pictures Corporation Circuit City Stores, Inc.
GlaxoSmithKline Showtime Networks Inc. The Home Depot
Merck & Co., Inc. Sony Pictures Entertainment J.C. Penney Company, Inc.
Novartis AG Warner Bros. Entertainment Inc. Kinko's, Inc.
Pfizer Inc. The Hearst Corporation Sears, Roebuck and Co.
Schering-Plough Corporation Staples, Inc.
Consumer Products Automotive Financial Services
- ------------------------------------------ ------------------------------------------ ---------------------------------
Kraft Foods Inc. AUDI AG Advanta Corp.
Mars/Masterfoods USA Nissan USA Charles Schwab & Co.
The Procter & Gamble Company Mercedes-Benz USA, LLC Wells Fargo & Company
Unilever PLC Saab Cars USA, Inc.
Toyota Motor Sales, USA, Inc
4
Customer Concentration
Hearst has been one of our largest customers for each of the last three
years. Pursuant to an amended and restated magazine content license and hosting
agreement with Hearst, we received the online distribution rights to seven
Hearst magazine Web sites. Under this agreement, we provide production,
maintenance and hosting services, for which in 2003 we received approximately
$2.9 million in fees, and advertising services, for which in 2003 we received
approximately $3.0 million in fees. In addition, we are entitled to a commission
derived from the sale of Hearst magazines, which in 2003 totaled approximately
$0.6 million. As part of this magazine content license agreement we pay Hearst a
royalty fee, which in 2003 totaled approximately $0.8 million. Our magazine
content license and hosting agreement with Hearst expires in June 2004, but
continues on a month-to-month basis afterwards unless terminated by either party
with 90 days prior notice.
Our five largest customers accounted for approximately 27% of total
revenues in 2003, 38% of total revenues in 2002 and 37% of total revenues in
2001. In 2003, Hearst accounted for approximately 11% of total revenues. No
other single customer accounted for more than 10% of our total revenues in 2003.
In 2002, The Procter and Gamble Company, or Procter and Gamble, accounted for
approximately 11% of total revenues, Hearst for approximately 11%, and Unilever,
PLC and its affiliates, or Unilever, for approximately 10%. In 2001, Unilever
accounted for approximately 12% of total revenues. At December 31, 2003, Hearst
accounted for approximately 20% of the net accounts receivable, and at December
31, 2002, Procter and Gamble accounted for approximately 26% of the net accounts
receivable.
We anticipate that our results of operations in any given period will
continue to depend to a significant extent on revenues from a small number of
customers. Our contract with Procter & Gamble expired in June 2003, our contract
with Hearst expires in June 2004, and our contract with Unilever, signed in
October 2003, expires in December 2004. Although our contract with Procter &
Gamble expired last year, Procter & Gamble continues to advertise on our Web
sites using shorter-term agreements. We recently began discussions regarding the
renewal of our agreement with Hearst, however we cannot assure whether this
contract will be renewed and, if renewed, whether the renewal terms will be as
favorable as the current agreement with Hearst. Because our largest customers
have varied over time in the past, we anticipate that they will continue to do
so in the future. Consequently, the loss of even a small number of our largest
customers at any one time could result in a significant loss of revenue which
would adversely affect our business, financial condition and results of
operations.
Content Targeting and Search Arrangements
In August 2003, we entered into agreements with Google to provide
content-targeted advertising and paid search engine functionality on our network
of Web sites. A user of our network of Web sites can use Google's proprietary
technology to search billions of pages on the World Wide Web. The ensuing search
results page includes targeted advertising that provides an additional source of
relevant information related to the user's specific search query. Through
Google's AdSense technology, a user of our Web sites also receives
advertisements targeted to the unique content contained on each individual page
of the site. We earn revenue by serving targeted search advertisements in the
form of sponsored links on these content and search result pages through
Google's worldwide network of over 100,000 advertisers. Our agreement with
Google related to content targeted advertising expires in August 2005, unless
either party provides the other with a notice of non-renewal prior to 45 days
from the first anniversary of the effective date of such agreement. Further, our
agreement with Google related to paid search expires in August 2005,with a
mutual option to renew for one additional year.
In February 2004, we expanded our relationship with Google by entering
into an agreement related to the Google Search Appliance. The Google Search
Appliance provides Google's proprietary search capabilities to the internal
search function of our Web sites. As a result, a user of one of our Web sites
can search for information using Google's advanced methods to return results
that are limited to information on our network of Web sites. Our agreement with
Google related to the search appliance expires in February 2006.
Content Licensing Agreements
iVillage UK
In March 2003, we restructured the terms of our joint venture with
Tesco, PLC, or Tesco, which had resulted in the formation of iVillage UK
Limited, a United Kingdom company, or iVillage UK, in July 2000. Through a Web
site located at www.iVillage.co.uk, iVillage UK was to serve 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.
The restructured terms resulted in Tesco's purchase of our entire ownership
interest in iVillage UK. Contemporaneously with the purchase, we entered into a
license agreement with Tesco, whereby we license to iVillage UK our 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. Our license agreement with Tesco
expires in March 2023 and automatically renews unless one party provides notice
to the other one year prior to the termination of the then current renewal term.
Either party may terminate the agreement during the initial term of this
agreement with 90 days prior notice if iVillage UK is deemed not to be a
profitable entity.
5
MSN Network
In September 2003, we entered into a content license arrangement with
MSN network. Under the agreement, MSN presents select iVillage content on its
women's channel, MSN Women, including editorially relevant content in the
categories of Beauty, Fashion & Style, Relationships, Home & Food, and Career &
Money. In exchange for the content, our logo, as well as hyperlinks to
additional relevant content located at iVillage.com, appears throughout the MSN
Women channel and anywhere our content appears on MSN. The links contained on
MSN drive additional traffic to our Web sites. We also have the opportunity to
offer and promote our for-pay products and services to MSN users. Our agreement
with MSN expires in February 2005.
Yahoo! Astrology
In March 2004, we entered into a content license and distribution
agreement with Yahoo! Inc, or Yahoo!. Under this agreement, we will be the
exclusive provider of astrological content to Yahoo!'s online astrology area.
iVillage astrological content is also expected to be available in other areas of
Yahoo!'s Web site. We will provide Yahoo! with daily horoscopes and astrological
reports. Links to additional content located on our Web sites will appear
throughout the Yahoo! astrology area. Yahoo! will receive the greater of a fee
for each registration for a gratuitous iVillage astrological chart or a revenue
share for each iVillage astrological chart purchased by a Yahoo! user. Our
agreement with Yahoo! expires in March 2006 and provides for our right to
terminate with 30 days prior notice in the event defined content posting
thresholds are not met.
Media Arrangements
In addition to our relationship with Hearst, we will from time to time
enter into agreements by which third parties will allow us to monetize their
users and advertising inventory and incorporate their Web site traffic within
our network of Web sites. Most Internet audience management companies include
the traffic from these non-proprietary Web sites in the information they report
about us.
Membership and Privacy
We believe a large and active membership base is important to our
success, and as of December 31, 2003 we had approximately 12 million members.
Some features of our Web sites are restricted to members. Membership is free and
available to iVillage.com users 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
our most valuable users. Community challenges, message boards and chats are
examples of iVillage.com members-only benefits.
We recognize the importance of maintaining the confidentiality of
member information and have a privacy policy to protect this information. Our
current privacy policy is accessible through a link on each iVillage.com Web
page, including the member registration page. Our current policy prohibits the
sale or disclosure to any third party of 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". In limited situations that are described in
our privacy policy, access to personally identifying information may be provided
to a third-party partner if it is necessary for the delivery of a member
service, such as a message board log-in. In these instances, the partner has
agreed to be bound by our current privacy policy. In some instances, we may use
information based on a member's activities on the site to offer relevant
products and services on behalf of an advertiser.
6
We offer our users the opportunity to purchase for-pay premium
services, such as newsletters, quizzes, tools and education courses. We plan to
continue to offer these premium services as well as new for-pay services in the
future.
Women.com
On June 21, 2001, we completed our acquisition of Women.com Networks,
Inc. Women.com was relaunched on iVillage.com and features content and
communities in six departments including Sex & Dating, Entertainment, Style &
Beauty, Celebrities, Girl Talk and Fun & Games, and also provides message boards
for women who want to converse about such topics.
gURL.com
On August 5, 2003, we acquired the gURL.com Web site and related
assets. gURL.com is a leading online community for teenage girls offering
articles, advice, resources, games and interactive content. We also acquired the
gURL.com book series including the following titles:
o Deal With It: A Whole Approach To Your Body, Brain and Life as a
Gurl, a holistic approach to perennial teen concerns: changing
bodies, emotions, desires and lives in a frank, sometimes humorous
nonjudgmental tone;
o Where Do I Go From Here: Getting a Life After High School, a fun and
informative resource that takes a look at the human side of college
life by offering inside advice and inspiration to girls on the
threshold of one of life's most important crossroads; and
o The Looks Book: A Whole New Approach to Beauty, Body Image, and
Style, real-life examples of a range of beauty archetypes that help
young women to re-define their concepts of beauty, while emphasizing
self-expression, self-invention, and a healthy irreverence toward
traditional ideals.
gURL.com provides us with the opportunity to increase our demographic reach to
include girls that are thirteen years of age and older. gURL.com allows us to
target an expanded list of advertisers as well as the additional brands of
current advertisers.
Astrology.com
On February 18, 1999, we acquired Knowledgeweb, Inc. and its primary
asset, Astrology.net, which eventually became Astrology.com. Astrology.com is a
content and commerce Web site providing daily horoscopes, astrology content and
personalized forecasts that appeal to our core demographic of women.
Astrology.com serves as a vehicle to drive repeat visits to iVillage.com through
the use of daily horoscopes and accounts for a substantial portion of our
traffic. We attempt to leverage the popularity of Astrology.com by using
internal promotion and links to attract Astrology.com users to our other 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.
Substance.com
On November 3, 2003, we exercised our call option to purchase
Unilever's remaining ownership interest in Cooperative Beauty Ventures, L.L.C.,
or CBV, resulting in CBV becoming a wholly owned subsidiary of iVillage. The
principal asset of CBV, Substance.com, is a Web site that offers an array of
personalized online services, beauty and personal care products and interactive
product recommendations. In March 2001, we purchased 30.1% of CBV's membership
interests from Unilever increasing our ownership to 80.1%. At such time, we
gained operational control and CBV was consolidated within our financial
statements. We formed CBV as a joint venture with Unilever in February 2000,
with both parties agreeing to provide cash, intellectual property, marketing and
other resources to the venture. In addition, Unilever committed to sponsorship
and promotional initiatives.
7
iVillage Parenting Network
IVPN is a holding company for Lamaze Publishing and IVIP which
collectively provide informational and instructional magazines, television
programming, videos and online properties of interest to expectant and new
parents, including The Newborn Channel.
Lamaze Publishing
On August 20, 1999, we acquired Lamaze Publishing, Inc, the assets of
which eventually formed Lamaze Publishing. 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(R) family of marks, owned by Lamaze International, Inc., for use in
connection with consumer publications including print, audio, visual and other
media. Lamaze Publishing also operates the Lamaze.com Web site primarily with
our assistance. Our agreement with Lamaze Publishing grants these exclusive
rights through July 2015 and we have an option to renew for an additional five
years, unless either party provides the other with 12 months advance notice of
termination.
Lamaze Publishing's business strategy is to provide superior editorial
products that target expectant and new parents who seek information related to
pregnancy, the birth process and infant care that may not be readily available
from busy healthcare professionals. Lamaze Publishing's materials are
distributed through its vast network of healthcare professionals and childbirth
educators as an alternative source for such information. Lamaze Publishing
gratuitously provides its materials, but offsets its expenses by selling print
advertising and commercial messages to advertisers targeting 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, which had an annual circulation
of approximately 2.7 million for 2003;
o Lamaze para Padres, a leading Hispanic pre- and post-natal magazine
used and distributed by Spanish-speaking childbirth educators, which
had an annual circulation of approximately 750,000 for 2003;
o Lamaze You and Your Baby, a video textbook used by childbirth
educators that is available in both the English and Spanish
language, and is often viewed at home by expectant parents and later
returned to the childbirth educator which had an annual circulation
of approximately 2.7 million in 2003;
o Lamaze Magazine Onserts, a sampling/promotion publication that
targets expectant and new parents with coupons, samples and
promotional literature that is bundled in a poly-bag with a magazine
and distributed by Lamaze Publishing's network of healthcare
professionals and childbirth educators; and
o Lamaze.com, the online extension of the Lamaze media franchise on
iVillage.com that combines interactive tools with trusted expert
advice on pregnancy, childbirth and early parenting.
As a complement to the offline parenting media vehicles of IVPN, we
also offer two Web sites that target parents on iVillage.com: ParentsPlace.com
and ParentSoup.com, or Parent Soup. 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. Parent Soup is designed for parents committed to
raising happy and healthy kids from toddlers to teens and includes a toddlers
department, preschool department, development tracker, mothers circles,
Thirty-Something Parents and information from certified healthcare experts.
IVIP
IVIP is the owner and operator of The Newborn Channel, The Newborn
Channel-Spanish which is currently offered as an audio overlay to The Newborn
Channel, and The Wellness Channel, all three of which we refer to as the
Channels. The Newborn Channel is a 24 hours a day, 7 days a week, satellite
television network offering exclusive programming to new mothers in their
hospital rooms. In 2003, approximately 1,100 hospitals nationwide aired The
Newborn Channel and, according to a study conducted by Roper ASW, The Newborn
Channel is viewed by greater than 75% of all mothers giving birth in these
hospitals, reaching an annual circulation of approximately 2.6 million mothers.
IVIP also transmits The Wellness Channel to hospitals offering general health
and wellness-based programming covering topics such as patient's rights,
alternative pain cures and breast cancer awareness. As of December 31, 2003, the
number of hospitals airing The Wellness Channel was nominal.
8
IVIP derives revenue from the sale of advertising messages and
sponsorships on the Channels to third parties desiring to target pertinent
markets. During 2003, IVIP began collecting a fee for receiving the Channels
and, as of February 29, 2004, had converted approximately 40% of its viewing
hospitals to an annual fee agreement. IVIP's for-pay initiative was in
anticipation of upgrades in the technology that delivers the Channels to the
hospitals and may correlate with the expiration of existing non-paying
agreements with the hospitals. IVIP began installation of this delivery system
in the hospitals in the first quarter of 2004. Once installed, the new
technology will allow IVIP to customize the programming and advertising viewed
at each individual hospital site and decrease operating costs due to a reduction
in required satellite time.
IVIP also owns and publishes Baby Steps magazine, a leading source of
post-natal information and the only magazine endorsed by the National
Association of Pediatric Nurse Practitioners, or NAPNAP, a professional
organization with 6,000 members nationwide. Baby Steps is often augmented 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. Baby Steps had an annual
circulation of approximately 3.0 million for the year ended December 31, 2003.
In recent years, IVIP has also leveraged its experience of producing
promotional materials to create several custom publications for sponsors of both
IVPN and iVillage. In each instance, IVIP works with sponsors to create tailored
magazines, catalogs or other marketing materials that range from product
information and coupon compilations directed to new parents to financial
services booklets focused on the needs of entrepreneurial women.
Promotions.com
On May 24, 2002, we completed our acquisition of Promotions.com.
Promotions.com is comprised of two divisions: Promotions.com and Webstakes.com.
The Promotions.com division provides custom 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 2003 include Kraft Foods North America,
Inc., Nabisco Inc., and The Marketing Store Worldwide. During 2003, we
outsourced most of the operations of Promotions.com to an existing service
provider in order to create economies of scale.
The Webstakes.com division provides direct marketing services for
third-party promoters and advertisers via the Internet and e-mail. During 2003,
Webstakes.com modified its business model in anticipation of the state
commercial email legislation that ultimately lead to the federal CAN-SPAM Act of
2003, or CAN-SPAM, which took effect in the United States on January 1, 2004.
CAN-SPAM, and the related state legislation that preceded its effectiveness,
impose requirements in connection with the sending of commercial email.
Webstakes.com mailings are compliant with the requirements of CAN-SPAM and
applicable state law and Webstakes.com requires all third parties to be CAN-SPAM
compliant in accordance with the provisions of Webstakes.com's standard
contract. Revenues from Webstakes.com services are primarily based upon either a
"cost-per-click" or a "cost-per-action" pricing model.
9
Public Affairs Group
On July 16, 2001, we acquired control of PAG, a privately held company,
which is comprised of Business Women's Network, Diversity Best Practices, and
Best Practices In Corporate Communications. PAG offers several fee-based
benefits and services to subscribing companies and members including:
Service Description
- ------- -----------
Business Women's Network An information network of women
providing resources, publications,
and benchmarking services for businesses
of all sizes and in all sectors.
Diversity Best Practices A specialized service through which
member companies and government entities
share and exchange best practices around
key diversity issues through conference
calls, seminars, special reports and an
online resource center.
Best Practices in A member-based business resource that
Corporate Communications facilitates efficient communication
programs and the exchange of
information, provides conference
calls, white papers and reports,
seminars and an online resource center.
Business Women's Network Assists government agencies in meeting
Government the U.S. federal government's 5% women
and minority-owned small business
procurement goal.
PAG produces several books and publications through its divisions,
including:
o The BWN Directory of Business and Professional Women's Organizations
- lists over 5,000 organizations and Web sites;
o The BWN Calendar of Women's Events; Best of the Best: Corporate
Awards for Diversity and Women - reviews over 45 of the best lists
in America for saluting corporations for their achievements related
to diversity and women;
o Women and Diversity Enrollment Report - provides a guide to the
enrollment statistics of U.S. undergraduate and graduate schools for
women and minorities; and
o Women and Diversity WOW! Facts - includes an annual compendium of
salient facts, figures and statistics on and about the women's
marketplace compiled from close to 10,000 research reports.
PAG also hosts several events including an annual Diversity and Women
Leadership Summit & Gala which in 2003 was attended by over 1,000 participants
from 50 major corporations, 15 U.S. government agencies and 25 nations, and
honored twelve senior officers of Fortune 500 companies and government agencies
as advocates of diverse business cultures.
iVillage Consulting
iVillage Consulting is our business unit that provides production and
back-end provisioning services for third parties, including the creation and
development of Web sites, digital commerce platforms and other aspects of their
technology infrastructures. We recognize revenues from these services based upon
a number of factors including actual hours worked at negotiated hourly rates,
fixed fees stipulated in contracts or straight-line over the life of the
contract. In 2003, iVillage Consulting provided services to Hearst, Unilever,
About, Inc., an online destination owned by Primedia Inc., N. V. Perricone,
M.D., Limited, a provider of skin care products, and Tesco.
10
Hearst Magazine Web Sites
iVillage Consulting produces, maintains and hosts several online
properties of Hearst. Pursuant to an amended and restated magazine content
license and hosting agreement with Hearst, we received the online distribution
rights to seven Hearst magazine Web sites. Various areas within our network of
Web sites link to the content of these magazine sites. We receive a revenue
share for each magazine sold through our network of Web 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.
We also provide production, maintenance and hosting services related to
other Hearst magazine Web sites not featured on our Web sites and Hearst's
corporate Web site.
iVillageSolutions
In July 2002, we announced our collaboration with Rutledge Hill Press
to publish an iVillageSolutions branded book series. Our strategy in providing
these books is to provide a logical offline extension of iVillage.com's content.
We receive a share of the royalties from the sale of each book. We released the
following seven books during 2003:
o Best Advice on Finding Mr. Right - provides advice for the woman
looking to find love or to make a relationship work;
o Best Advice on Life After Baby Arrives - provides information,
comfort and inspiration to women facing the demanding first months
after a baby arrives;
o Best Advice on Starting A Happy Marriage - provides insights and
solutions for engaged and newlywed couples for making their marriage
an adventure that will last;
o 6 Weeks to Losing It For Good - includes a six-week weight loss
program for the common woman and an eating and exercise strategy
tailored to a woman's personality and lifestyle;
o The Frugal Woman's Guide to a Rich Life - contains guidance and
anecdotes of successful secrets that avoid wasting time, money and
energy;
o Quiz Therapy - features fun, insightful self-assessments in such
categories as personality, love, dating, couples, weddings, home and
beauty; and
o Heirloom Recipes - brings together the family recipes of the women
of iVillage and reflects the spirit in which these recipes were
originally shared.
The iVillageSolutions books can be purchased in the book departments of
major online and offline outlets and on the iVillage Market, which resides on
our network and allows customers to make online purchases of iVillageSolutions
products and the goods and services of third parties.
Other Operational Activities
In the second half of 2002, we also launched an
iVillageSolutions-branded vitamin and nutraceutical supplement line and
iVillageAccess, a dial-up Internet Service Provider offering. Each is supplied
through a collaborative venture with a third party with whom we share a portion
of the profits from sales or subscriptions. To date the revenues from both
activities have not been significant.
11
Long Lived Assets
We have long lived assets which include fixed assets, goodwill,
intangible assets and prepaid rent. As of December 31, 2003, our remaining net
fixed assets were approximately $7.3 million, net goodwill was approximately
$22.6 million and net intangible assets was approximately $12.0 million.
In July 2003, we entered into a lease amendment with the landlord of
our New York headquarters that became effective on August 15, 2003. The lease
amendment provides for a reduction in leased space, as well as a reduction in
rent per square foot. In connection with the lease amendment, we surrendered
approximately $8.5 million classified as restricted cash to the landlord,
resulting in a lease restructuring charge of approximately $4.7 million and
prepaid rent of $3.7 million, which will be amortized over the remaining life of
the lease which expires in 2015. Our prepaid rent, net of the current portion,
is reflected as a long-lived asset in our financial statements.
Sales, Marketing and Public Relations
Sales
As of December 31, 2003, we had a direct sales organization consisting
of 18 sales professionals, which as of March 25, 2004, had been augmented to
include three additional sales professionals. In addition to typical sales
activities, our sales professionals regularly consult with agencies and
advertisers on design and placement of Web-based advertising and provide clients
with measurements and analyses of advertising effectiveness. Several of our
subsidiaries also have their own dedicated sales team, including:
o seven professionals who concentrate primarily on advertising sales
and annuals fees for IVPN's Channels, video products and print
advertising;
o 13 professionals involved in sales of the memberships, events and
publications offered by PAG; and
o three professionals who sell Promotions.com's direct marketing
services.
Marketing and Public Relations
We employ a variety of methods designed to promote our brands and to
attract traffic and new members, including advertising on other Internet sites
primarily through barter agreements, targeted publications, cross promotional
arrangements to secure advertising and other promotional considerations. To
extend the iVillage brand, we have also entered into several strategic alliances
with offline partners. In addition, we leverage other audience building
strategies, including working closely with search engine submissions, news group
postings and cross-promotions to properly index materials. Our marketing and
research department consisted of 30 professionals as of December 31, 2003.
Our internal public relations department oversees a public relations
program which we believe is an important component of our marketing and brand
recognition strategy. The program targets either a trade or business or a
consumer audience to promote us and our brands.
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 healthcare 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 healthcare professional community through trade shows, professional
conferences, consumer publication updates and personal sales calls.
Operating Infrastructure
iVillage Web Sites
Our Web site operating infrastructure must accommodate a high volume of
traffic and deliver frequently updated information and consists of approximately
100 servers. These 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. Our Web sites have in the past suffered
outages or experienced slower response times because of hardware or software
malfunctions. To date, this has not had a material effect on our business,
however, if necessary we may increase our capacity by adding additional servers.
We intend to add additional servers in 2004.
12
We maintain all of our production servers at the New Jersey Data Center
of SAVVIS Communications Corporation, or SAAVIS, and the California facilities
of Verio, Inc., or Verio. Our 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.
SAAVIS 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 our California
operations staff. Each facility is powered by multiple uninterruptible power
supplies and backup generators.
In February 2004, SAAVIS became our service provider after it acquired
the assets of Cable and Wireless PLC, or Cable and Wireless, in a subordinated
debt financing related to a bankruptcy declaration of December 2003. Cable and
Wireless had originally become our service provider in February 2002 after
obtaining the assets of Exodus Communications, Inc., or Exodus Communications,
who had filed for bankruptcy protection. We cannot assure that SAAVIS and Verio
will be able to provide sufficient services to us. If necessary, we believe we
will be able to engage satisfactory alternative service providers on
commercially reasonable terms.
All of our production data, except Astrology.com, is 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 at our facilities.
We keep all of our production servers behind firewalls for security purposes and
do not allow outside access except via 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. We do not presently have a
comprehensive disaster recovery plan to respond to system failures.
Advertisement Serving Solutions
For several years we have used the services of DoubleClick, Inc., or
DoubleClick, including DoubleClick's scalable tools for targeting, serving and
analyzing online campaigns, as well as assisting in the effective monetization
of advertising inventory. In particular we employ a product known as DART, which
has become an online industry standard and is familiar to many of our
advertisers and sponsors. We have several agreements with DoubleClick, one of
which expires in March 2004 and another that expires in December 2004. We have
commenced discussions with DoubleClick regarding the renewal of these expiring
agreements.
Audience Management System
In August 2003, we entered into a software license and services
agreement with Tacoda Systems, Inc., or Tacoda. Tacoda provides an audience
management system, or AMS, that is designed to assist in the growth of
advertising and transactional revenues by profiling and targeting the most
valuable segments of a Web site's audiences. Tacoda's AMS collects audience data
from data sources, such as ad servers, content servers, email databases,
e-commerce servers, applications, and data analytic programs, and merges this
information with our subscription, contest and registration data to provide us
with a composite view of our audience. These audience profiles can contain
demographic data and audience site behavior, such as frequency of visits or the
propensity to click on display advertisements. The analytics and business
intelligence that is integrated in the AMS is designed to allow us to prioritize
our monetization of our Web sites and maintain a persistent relationship with
the desires of our users, as well as provide our sponsors and advertisers with
more valuable data points. Our agreement with Tacoda is perpetual by function of
an auto-renewal clause, and we may terminate the agreement immediately at any
time and for any reason by providing notice to Tacoda.
Message Board Utilities
In January 2003, we entered into an application service provider
agreement with Prospero Technologies LLC, or Prospero, under which Prospero
provides application software, hosting and technical support for our message
boards. The Prospero system provides enhanced functionality to our message
boards, making them more useful to, and consequently more likely to be
frequented by, our users and members. The features of the Prospero system
include the ability of a user to receive an email when someone responds to a
specific message board post and to search the vast number of topics posted on
our message boards. We also offer premium message board utilities for an
additional charge, however, revenues to date from the premium Prospero utilities
have not been significant. Our agreement with Prospero expired in January 2004,
but will continue on a month-to-month basis unless terminated by either party
with 60 days prior notice. We can terminate the agreement immediately at any
time if Prospero violates our privacy policy.
13
The Channels
IVIP's broadcast of the Channels originates from a laser disc system,
operated by Ascent Media, or Ascent, that provides a constant uplink signal to a
satellite operated by PanAmSat. The signal is redirected to a satellite dish at
each hospital and distributed to a patient's room for airing in real-time.
Ascent is responsible for the installation and service of IVIP's equipment
located at each hospital. We maintain business interruption insurance in the
event programming is interrupted over the designated satellite.
In 2004, IVIP, through Ascent, began to install and convert existing
hospital sites to a new technology that allows for customization of programming
at each site, allows for multi-channel audio and video capabilities and
eliminates the need for a constant satellite feed. The programming and
advertising of each individual hospital site may be updated on an as needed
basis from Ascent's facility via a satellite signal to the existing satellite
dish at each hospital site. The new technology will then receive and store the
updated content for airing at a specific time or date in the future. IVIP
intends to complete the conversion of all hospital sites within the next few
years.
Competition
We compete intensely for members, users, advertisers and commerce, and
believe the primary competitive factors in creating and maintaining a successful
Internet-based business include:
o functionality o ease of use
o brand recognition o pricing
o member affinity and loyalty o quality of products and services
o demographic focus o reliability and critical mass
o variety of value-added services
We compete with other companies or Web sites which are primarily
focused on targeting women online, including Lifetime.com and Oxygen.com, as
well as Web sites targeted at the specific categories contained on our Web
sites. We also anticipate competition from:
o search engine providers o commercial online services
o shareware archives o direct marketing companies
o content sites o internet service providers
o other entities that may
attempt to establish communities
on the Internet by their own
creation or purchasing one of
our competitors
We also compete with traditional forms of media, such as newspapers,
magazines, radio and television, for advertisers and advertising revenues. We
believe that the principal competitive factors in attracting advertisers
include:
o the demographics of our o our ability to offer targeted
users audiences
o brand recognition o the amount of traffic on our
Web sites
o the overall cost-effectiveness
of the advertising medium
offered by iVillage
Many of our current and potential competitors, including developers of
Web directories and search engines and traditional media companies, have:
o longer operating histories o greater name recognition
o significantly greater financial, o larger existing customer bases
technical and marketing resources
14
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. Internet content providers and Internet service providers, including
developers of search engines, sites that offer professional editorial content
and commercial online services, may not be perceived by advertisers as having
more desirable Web sites for placement of advertisements.
Several of our current advertisers, sponsors and strategic partners
also have established collaborative relationships with our competitors or
potential competitors, and other high-traffic Web sites, accordingly:
o we may be unable to grow our o competitor's growth in traffic
membership, traffic levels and from these relationships
advertiser customer base could make their Web sites more
at historical levels attractive to advertisers
o we may be unable to retain o our strategic partners may
our current members, traffic sever or elect not to renew
levels or advertiser customers their agreements with us
o we may be unable to attract a
significant number of paying
customers for our products and
services
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, as well as the
credibility and trust parents place in the LAMAZE(R) 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 its competitors.
The iVillageSolutions Book Series, the iVillageSolutions supplement and
nutraceutical line, and iVillageAccess all compete with similar product and
service offerings many of which are from companies with greater brand
recognition and superior resources. In order to compete we must attract the
customers of competitors by differentiating these products and leveraging our
brand name and internal advertising capabilities.
We may not be able to compete successfully against our current or
future competitors and competitive pressures that we face could have a material
adverse effect on our business, financial condition and results of operations.
Intellectual Property, Proprietary Rights and Domain Names
We regard our copyrights, service marks, trademarks, trade names, trade
dress, trade secrets, proprietary technology and similar intellectual property
as critical to our success, and rely on trademark and copyright law, trade
secret protections of the countries in which we conduct business and
confidentiality and/or license agreements with our employees, customers,
independent contractors, affiliates and others to protect our proprietary
rights.
15
We have licensed in the past, and expect that we may license in the
future, certain of our proprietary rights to third parties. Although we attempt
to ensure that these licensees maintain the quality of our brand, the steps we
have taken to protect our proprietary rights may not be adequate and third
parties may infringe or misappropriate our proprietary rights. In addition,
other parties may assert claims of infringement of intellectual property
against, or challenge our proprietary rights.
As of December 31, 2003, we owned approximately 140 domestic and
foreign trademark registrations or applications related to our business.
Trademark registrations typically have a duration of ten years and can be
renewed at our option prior to their expiration dates.
Employees
As of December 31, 2003, we employed 200 full-time employees, of whom
71 were in sales and marketing, 49 were in editorial and community, 41 were in
administration and customer service, and 39 were in technology, operations and
support. Our current employees are not represented by a labor union and are not
the subject of a collective bargaining agreement. We believe that relations with
our employees are satisfactory.
Available Information
We were incorporated in the state of Delaware on June 8, 1995. The
Internet address of our corporate Web site is www.ivillage.com. We make our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to these reports available free of charge through the
"investor info" section of this Web site. We also make available financial
information, news releases and other information on this Web site. Our reports
filed with, or furnished to, the SEC are also available at the SEC's web site at
www.sec.gov or at the Public Reference Room of the SEC at 450 Fifth Street, NW,
Washington, DC 20549. Information about the Public Reference Room is available
at 1-800-SEC-0330.
Item 2. Properties.
We are headquartered in New York, New York, and currently lease
approximately 42,000 square feet at 500-512 Seventh Avenue. During the third
quarter of 2003, we entered into an amendment to our lease that provides for a
reduction in leased space, as well as a reduction in rent per square foot. In
connection with the amendment, we surrendered the approximately $8.5 million
classified as restricted cash and transferred net fixed assets of approximately
$1.5 million to the landlord of these premises. The lease, as amended, runs
through April 2015.
We also lease sales offices located in Chicago, Illinois, Santa Monica,
California and San Francisco, California. These leases are on a month-to-month
basis.
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.
We believe that these facilities will be adequate to meet our needs for
the foreseeable future.
Item 3. Legal Proceedings.
Several plaintiffs have filed class action lawsuits in federal court
against us, several of our former executives, and our underwriters in connection
with our 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, or
SEC. The complaints sought unspecified damages in an amount to be determined at
trial, and costs associated with the litigation, including attorneys' fees.
16
In February 2003, the defendants' motion to dismiss certain of the
class action plaintiffs' claims was granted in part, but was primarily denied
and the lawsuits entered the discovery phase. In June 2003, the parties agreed
in principle to settle the matter, along with similar lawsuits against more than
300 other issuers. The proposed settlement generally provides for, among other
things, that the issuer defendants and related individual defendants will be
released from the litigation without any liability other than certain expenses
incurred to date in connection with the litigation, the issuer defendants'
insurers will guarantee $1.0 billion in recoveries by the plaintiffs, the issuer
defendants will assign certain claims against the underwriter defendants to the
plaintiffs, and the issuer defendants will have the opportunity to recover
certain litigation-related expenses if the plaintiffs recover more than $5.0
billion from the underwriter defendants. In July 2003, each of the boards of
directors of iVillage and Women.com approved the proposed settlement. The
proposed settlement is currently subject to approval by the other involved
parties as well as to the final approval of the court. We do not expect this
proposed settlement, if approved, to have a material impact on our financial
condition or results of operations. However, the proposed settlement may not be
approved or implemented in its current form, or at all.
In June 2001, Euregio.net commenced an action in Belgium against
Women.com claiming damages in excess of 1 million Euros in connection with
alleged copyright infringements. Despite Women.com's arguments challenging the
jurisdiction of the Belgian court, the alleged infringements and the amount of
damages, in January 2003 a Belgian court issued a judgment against Women.com in
the amount of approximately 850,000 Euros, or approximately $1.1 million based
on the Euro exchange rate as of December 31, 2003. Each of the parties filed
court briefs and appeared before the Brussels Court of Appeals on February 24,
2004. A decision from the Brussels Court of Appeals regarding Women.com's
further challenge of the jurisdiction, alleged infringements and amount of
damages is still pending. 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. If necessary, Women.com fully intends to appeal to a
higher Belgium court and oppose any effort by the plaintiffs to enforce a
judgment from the Belgian court in the United States.
We believe, based upon the advice of outside legal counsel, that the
aforementioned lawsuits and claims asserted against us and our subsidiary
pursuant to these complaints are without merit and we intend to vigorously
defend against these claims. We believe that it is not probable that either of
these legal proceedings will have a material adverse effect on our business,
financial condition, results of operations and liquidity.
We are not currently subject to any other material legal proceedings.
We 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.
Our 2003 annual meeting of stockholders was held on October 9, 2003 to
elect three Class II directors to the board of directors and to ratify the
appointment of PricewaterhouseCoopers LLP as our independent auditors for the
fiscal year ending December 31, 2003.
In the election of directors, the three director nominees were elected with the
following votes:
Number of Votes
-----------------------------------------
Nominee For Withheld
- ------- ---------- --------
Cathleen P. Black 49,945,868 2,210,929
Edward D. Horowitz 51,947,893 208,904
Douglas W. McCormick 49,895,631 2,261,166
Directors whose terms of office continued after the meeting included Kenneth A.
Bronfin, John T. (Jack) Healy, Habib Kairouz, Lennert J. Leader, Edward T.
Reilly and Alfred Sikes.
The stockholders voted in favor of the ratification of the appointment
of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year
ended December 31, 2003, as follows:
Number of Votes
--------------------------------------------
For Withheld Abstain
---------- -------- -------
Ratification of appointment of
auditors 51,978,832 166,832 11,131
17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
During the fiscal year ended December 31, 2003, our common stock traded
on both The Nasdaq National Market and The Nasdaq SmallCap Market. Our common
stock was traded on The Nasdaq National Market prior to its transfer to The
Nasdaq SmallCap Market on December 20, 2002. Our common stock remained on the
Nasdaq SmallCap Market until it was transferred back to The Nasdaq National
Market on August 19, 2003. On both The Nasdaq National Market and The Nasdaq
SmallCap Market, our 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 our common stock as reported on The Nasdaq National Market
or The Nasdaq SmallCap Market, as applicable:
2003 2002
------------------------------------------------ -----------------------------------------------
High Low High Low
--------------------- ------------------------- --------------------- ------------------------
First Quarter $1.10(1) $0.56(1) $2.85(3) $1.63(3)
Second Quarter $1.62(1) $0.50(1) $2.70(3) $1.17(3)
Third Quarter $2.95(2) $1.40(2) $1.41(3) $0.55(3)
Fourth Quarter $3.97(3) $2.09(3) $1.00(4) $0.52(4)
- --------------------------
(1) As reported on The Nasdaq SmallCap Market.
(2) As reported on The Nasdaq SmallCap Market from July 1, 2003 to August 18,
2003 and The Nasdaq National Market from August 19, 2003 through September
30, 2003.
(3) As reported on the Nasdaq National Market.
(4) 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 25, 2004, the closing sales price of our common stock was $6.12 per
share.
Holders
As of March 25, 2004 and there were 920 holders of record of our
outstanding common stock. This figure does not include the number of
stockholders whose shares are held of record by a broker or clearing agency, but
does include each such brokerage house or clearing agency as a single holder of
record.
Dividends
We have never declared or paid any cash dividends on our capital stock.
We presently intend to retain future earnings, if any, to finance the expansion
of our business and do not expect to pay any cash dividends in the foreseeable
future.
Recent Sales of Unregistered Securities
During February 2004, an aggregate of 29,449 shares of common stock
were issued to certain of our existing security holders in exchange for warrants
they had acquired in connection with a securities purchase agreement related to
our acquisition of Women.com. In each case, we relied on the exemption provided
by Section 3(a)(9) of the Securities Act.
On January 14, 2004, Hearst Communications, Inc. exercised a warrant it
received in connection with a securities purchase agreement related to our
acquisition of Women.com and purchased 2,065,695 shares of common stock for
$0.01 per share. Pursuant to its terms, the warrant became exercisable when the
average closing price of our common stock had exceeded $3.75 for 15 consecutive
trading days prior to January 14, 2003. We relied on the exemption from
registration under Section 4(2) of the Securities Act for the sale of the
securities issued in connection with the exercise of this warrant.
In October 2003, we exercised our call option and purchased the
remaining 19.9% ownership interest of Cooperative Beauty Ventures, L.L.C. from
Unilever, resulting in it becoming our wholly owned subsidiary. The aggregate
purchase price consisted of approximately $0.2 million in cash and 200,000
shares of our common stock which were held as treasury stock. We relied on the
exemption from registration under Section 4(2) of the Securities Act for the
sale of securities issued in connection with this transaction.
18
Item 6. Selected Financial Data.
Our 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 our consolidated financial statements and notes to
those statements and other financial information included elsewhere in this
report. The consolidated statements of operations data for the years ended
December 31, 2003, 2002 and 2001 and the consolidated balance sheet data as of
December 31, 2003 and 2002 are derived from our audited consolidated financial
statements included in this report. The consolidated balance sheet data as of
December 31, 2001, 2000 and 1999 and the consolidated statements of operations
data for the years ended December 31, 2000 and 1999 are derived from our audited
consolidated financial statements that are not included in this report. The
historical annual results presented here are not necessarily indicative of
future results. We 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 increasing our
ownership to 80.1%, with the remaining 19.9% interest acquired in October 2003,
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 March 1999, we acquired the remaining minority interest in IVN,
Inc, formerly known as iBaby, Inc. In June 2000, we decided to discontinue the
operations of our IVN, Inc. subsidiary. As such, all discussion and analysis
below does not include IVN, Inc. operations.
Years Ended December 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues ................................................ $ 55,221 $ 59,423 $ 60,041 $ 76,352 $ 36,576
--------- --------- --------- --------- ---------
Operating Expenses:
Editorial, product development and technology ........... 28,842 27,973 33,500 35,327 20,652
Sales and marketing ..................................... 19,963 30,237 36,178 54,098 63,526
General and administrative .............................. 13,314 13,474 17,702 22,634 13,164
Lease restructuring charge and related
impairment of fixed assets(1) ...................... 9,126 -- -- -- --
Depreciation and amortization(1) ........................ 8,595 11,900 23,529 37,681 25,720
Impairment of goodwill, intangible assets
and fixed assets(1) ................................ 4,029 971 -- 98,056 --
--------- --------- --------- --------- ---------
Total operating expenses ........................... 83,869 84,555 110,909 247,796 123,062
--------- --------- --------- --------- ---------
Loss from operations .................................... (28,648) (25,132) (50,868) (171,444) (86,486)
Interest income, net .................................... 218 485 2,285 5,261 4,085
Other income (expense), net ............................. 727 (34) (43) 595 271
Gain on sale of joint venture interest and other
assets ............................................. 625 -- 385 -- --
Minority interest ....................................... (51) (74) 7 -- --
Write-down of investments ............................... -- -- (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 ..................... (27,129) (33,936) (48,465) (179,506) (82,130)
Preferred stock deemed dividend ......................... -- -- -- -- (23,612)
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders
from continuing operations ......................... $ (27,129) $ (33,936) $ (48,465) $(179,506) $(105,742)
========= ========= ========= ========= =========
19
Years Ended December 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
Basic and diluted net loss per share
attributable to common stockholders from continuing
operations ......................................... $ (0.49) $ (0.62) $ (1.13) $ (6.05) $ (5.06)
========= ========= ========= ========= =========
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share ......................... 55,772 54,841 42,807 29,683 20,901
========= ========= ========= ========= =========
- ----------
(1) Please see Note 3, Note 4, Note 5 and Note 12 of iVillage's Notes to
Consolidated Financial Statements.
Years Ended December 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents ............................... $ 15,823 $ 21,386 $ 29,831 $ 48,963 $ 106,010
Working capital ......................................... 13,080 18,403 30,966 40,252 90,752
Total assets ............................................ 72,528 100,586 132,387 132,459 312,748
Long-term liabilities ................................... 1,483 3,926 4,273 4,818 --
Stockholders' equity .................................... 56,947 82,200 108,757 101,366 283,850
20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with our
consolidated financial statements and notes to those statements and the other
financial information appearing elsewhere in this report. In addition to
historical information, the following discussion and other parts of this report
contain forward-looking information that involves risks and uncertainties.
Overview
The following management's discussion and analysis is intended to
provide information necessary to understand our consolidated financial
statements and highlight certain other information which, in the opinion of
management, will enhance a reader's understanding of our financial condition,
changes in financial condition and results of operations. It is organized as
follows:
o The section entitled "iVillage Background," briefly describes the
organization of our business by subsidiary or division.
o "Critical Accounting Policies" discusses each of our most critical
accounting policies including revenue recognition, fixed assets and
intangibles, goodwill, income taxes, allowance for doubtful
accounts, and management estimates and assumptions.
o "Results of Operations" discusses the primary factors that are
likely to contribute to significant variability of our results of
operations from period to period and then provides detailed
narrative regarding significant changes in our results of operations
for 2003 compared to 2002, and 2002 compared to 2001.
o "Liquidity and Capital Resources" discusses our 2003 year-end
liquidity, cash flows for the year ended December 31, 2003 compared
to those for the year ended December 31, 2002, factors that may
influence our future cash requirements and the status of certain
contractual obligations as of December 31, 2003.
o "Recent Accounting Pronouncements" discusses the significance of
various recent accounting pronouncements to our financial reporting.
o "Legal Proceedings" discusses the status of litigation relating to
our initial public offering as well as that of Women.com, and of an
intellectual property litigation involving Women.com.
iVillage Background
iVillage is "the Internet for women" and consists of several online and
offline media-based properties including the iVillage.com Web site, or
iVillage.com, Women.com Networks, Inc., operator of the Women.com Web site, or
Women.com, the gURL.com Web site, or gURL.com, Knowledgeweb, Inc., operator of
the Astrology.com Web site, or Astrology.com, Cooperative Beauty Ventures, LLC,
operator of the Substance.com Web site, or Substance.com, iVillage Parenting
Network, Inc., or IVPN, Public Affairs Group, Inc., or PAG, Promotions.com,
Inc., or Promotions.com, iVillage Consulting and iVillageSolutions. Following is
a synopsis of our operational activities and those of our subsidiaries and
divisions:
Subsidiary or Division Operational Activity
- ---------------------- --------------------
iVillage.com An online destination providing practical solutions
on a range of topics and everyday support for women
18 years of age and over.
Women.com An online destination providing content focused on
fun, games, entertainment and style for women 18
years of age and over.
gURL.com An online destination catering to teenage girls that
offers advice, games and interactive content to girls
13 years of age and older.
21
Astrology.com An online destination for individuals seeking daily
horoscopes, astrological content and personalized
forecasts online.
Substance.com An online destination offering interactive beauty
content and personal care products information.
IVPN A holding company for IVIP, the operator of The
Newborn Channel and Lamaze Publishing, publisher of
Lamaze Parents, which collectively provide
informational and instructional magazines, custom
publications, television programming, videos and
online properties of interest to expectant and new
parents.
PAG Comprised of three divisions: Business Women's
Network, Diversity Best Practices and Best Practices
in Corporate Communications, each offering an
extensive database of pertinent information and
events to subscribing companies and members, and
relevant publications.
Promotions.com Comprised of two divisions: Promotions.com and
Webstakes.com, which offer online and offline
promotions and direct marketing programs that are
integrated with customers' marketing initiatives.
iVillage Consulting Assists companies in the creation and development
of Web sites, digital commerce platforms
and other aspects of technological infrastructures,
primarily for Hearst, a related party.
iVillageSolutions Our consumer products offerings including an
iVillage-branded book series and vitamin and
nutraceutical supplement line.
The discussion and analysis below includes the results of operations of
CBV since March 1, 2001, Women.com since June 18, 2001, PAG since July 16, 2001
and Promotions.com since April 19, 2002. CBV was accounted for under the equity
method of accounting prior to March 1, 2001.
Critical Accounting Policies
Revenue Recognition
iVillage
Our revenues are derived primarily from the sale of sponsorship and
advertising contracts. Sponsorship revenues are derived principally from
contracts designed to support a customer's broad marketing objectives, including
brand promotion, awareness, product introductions and online research.
Sponsorship agreements typically include the delivery of impressions on our Web
sites and occasionally the design and development of customized sites that
enhance the promotional objectives of the sponsor. An impression is the viewing
of promotional material on a Web page, which may include rich media and display
or banner advertisements, links, or other text or images. As part of a few
sponsorship agreements, sponsors selling products may provide us with a
commission on sales of their products generated through our Web sites. To date,
amounts received from the sale of sponsor's products have not been significant.
Advertising revenues are derived principally from short-term
advertising contracts in which we typically guarantee 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 we have 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, we defer
recognition of the corresponding revenues until the guaranteed impressions are
achieved.
22
We also derive sponsorship and advertising revenues from sponsored
links appearing on an iVillage Web page that is based upon relevant content or a
World Wide Web search query result. These revenues are earned on a cost per
thousand impressions and/or a percentage of the advertiser's net revenue and are
recognized upon notification from the search engine provider.
For contracts with multiple elements, namely those that include
delivered and undelivered products, or advertising and production revenue, we
allocate revenue to each element based on evidence of its fair value under the
Financial Accounting Standards Board, or FASB, Emerging Issues Task Force Issue,
or EITF, No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables," or EITF 00-21. Evidence of fair value is the price of a
deliverable when it is regularly sold on a stand-alone basis. We recognize
revenue allocated to each element when the criteria for revenue set forth above
are met.
Barter revenues generally represent exchanges by us of advertising
space on our 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 our recent practice of receiving cash for
similar advertisements. Barter revenues are recognized when the advertisements
are displayed on iVillage.com and its affiliated properties. Barter expenses are
generally recognized when our advertisements are displayed on the reciprocal Web
sites or properties, which is typically in the same period as when
advertisements are displayed on iVillage.com and its affiliated properties, and
are included as part of sales and marketing expenses.
We recognize revenues from iVillage Consulting's services based upon a
number of factors including actual hours worked at negotiated hourly rates,
completed contract or straight-line over the life of the contract.
We have received revenues from initiatives involving subscription-based
properties, the sale of iVillage-branded products and services, the sale of
third-party products, the licensing of portions of our content and services, and
the sale of research. We recognize revenues from these initiatives when products
are shipped and/or provided to the customer, or straight-line over the life of
the agreement and when the collection of the receivable is reasonably assured
and no further obligation remains.
Astrology.com
Revenues from Astrology.com consist primarily of the sale of
astrological charts and other related products to users of the Astrology.com Web
site. We recognize 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 obligations remain.
iVillage Parenting Network, Inc.
IVPN's revenues have been derived primarily from advertising placements
in IVPN's publications, videos and Web site, and broadcasts of The Newborn
Channel, The Newborn Channel-Spanish, currently offered as an audio overlay to
The Newborn Channel, and The Wellness Channel. In addition, sponsorship and
advertising revenues are generated through a sampling and coupon program, which
offers advertisers the ability to distribute samples, coupons and promotional
literature to new and expectant parents. Sponsorship and advertising revenues
are recognized on a straight-line basis over the term of the contract, provided
that IVPN has no continuing obligations and the collection of the receivable is
reasonably assured.
In recent years, IVPN has developed two new revenue streams. IVPN began
creating and distributing custom publications and mailings primarily on behalf
of one advertiser. Revenues from the sale of custom publications and mailings
are recognized when IVPN fulfills all obligations under the terms of the
contract and the collection of the receivable is reasonably assured. IVPN has
also commenced the collection of an annual fee to hospitals for The Newborn
Channel. Contracts related to this fee typically range from three to five years.
IVPN recognizes revenues from these fees ratably over the term of the agreement
provided the collection of the receivable is reasonably assured.
Public Affairs Group, Inc.
Revenues from PAG are generated primarily through subscription-based
programs that convey current best practices for both diversity issues in the
workplace and corporate communications and the hosting of an annual two-day
summit and gala event that focuses on diversity and women. We recognize revenue
from subscriptions ratably over the term of the subscription agreement and from
the events when the events are held, provided the collection of the receivable
is reasonably assured.
23
Promotions.com, Inc.
Promotions.com, Inc. generates revenues through Promotions.com, an
online and offline full service promotions services group and Webstakes.com, a
division dedicated to Internet sweepstakes and promotions.
Promotions.com revenues are derived principally from contracts in which
Promotions.com typically provides custom 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 of the
promotion, provided that no significant obligations remain and collection of the
resulting receivable is reasonably assured.
Webstakes.com revenues are derived primarily from service contracts
whereby Webstakes.com recognizes revenues based on either a "cost-per-click" or
a "cost-per-action" pricing model. Webstakes.com recognizes revenue related to
its cost-per-click pricing model when a user has been delivered to the
customer's Web site, the customer has reported such activity to us, 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 user to a customer's Web
site, but also a specific user action such as purchasing a product or
registering for more information 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, the customer has reported such activity to us, and the
collection of the corresponding receivable is reasonably assured.
Fixed Assets and Intangibles
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.
Amortization of intangible assets are over the expected life of the related
asset and range from one to ten in years. Effective January 1, 2002, we adopted
Statement of Financial Accounting Standard, or SFAS, No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" or SFAS 144, regarding the
recognition and measurement of the impairment of long-lived assets to be held
and used.
We assess the recoverability of our fixed assets and intangible assets
by determining whether the unamortized balance over the assets remaining life
can be recovered through undiscounted forecasted cash flows. If undiscounted
forecasted cash flows indicate that the unamortized amounts will not be
recovered, an adjustment will be made to reduce the net amounts to an amount
consistent with forecasted future cash flows discounted at a rate commensurate
with the risk associated when estimating future discounted cash flows. Future
cash flows are based on trends of historical performance and our estimate of
future performances, giving consideration to existing and anticipated
competitive and economic conditions.
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 in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets," or SFAS 142. 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 will be recognized in an
amount equal to that excess. Fair value is typically based upon future cash
flows discounted at a rate commensurate with the risk involved. After an
impairment loss is recognized, the adjusted carrying amount of goodwill is its
new accounting basis.
24
Income Taxes
We recognize deferred taxes by the asset and liability method of
accounting for income taxes in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes". 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 assessing the realizability of deferred tax assets, we consider whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income or reversal of deferred
tax liabilities during the periods in which those temporary differences become
deductible. We consider the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based on this consideration, we believe it is more likely than not
that the net deferred tax assets will not be realized.
Allowance for Doubtful Accounts
We assess the required amount of allowance for doubtful accounts based
on past experience, the review of the agings and analysis of specific customer
accounts.
Management Estimates and Assumptions
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates. Significant estimates and assumptions made by us include those
related to the useful lives of fixed assets and intangible assets, the
recoverability of fixed assets, goodwill, intangible assets and deferred tax
assets, the allowance for doubtful accounts and the assessment of expected
probable losses (if any) of claims and potential claims.
Results of Operations
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," or SFAS 131, segment information is being
reported consistent with our method of internal reporting. In accordance with
SFAS 131, operating segments are defined as components of an enterprise for
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. We are organized primarily by subsidiaries and divisions.
Our subsidiaries and divisions have no operating managers that report to the
chief operating decision maker and the chief operating decision maker reviews
results of operations at the highest level of aggregate data in making
decisions. The chief operating decision maker does review revenue results of
subsidiaries and divisions. Our discussion of revenue has been organized into
separate subsidiaries and divisions, however operating expenses and results of
operations are discussed on a combined basis.
We believe the following factors may contribute to the variability of
our results of operations from period to period:
o the loss of a contract from a major customer;
o the timing of our recognition of revenue;
o the volatility of the online advertising market;
o an interruption or malfunction in service from our primary third
party service providers;
o the date of commencement of a sponsorship and advertising campaign;
and
o the date of completion of printing and/or distribution of a custom
publication or magazine.
25
Revenues
The following table sets forth revenues by property (dollars in
thousands):
Years Ended December 31,
---------------------------------------------------------------------------------------------
2003 (1) 2002 (1) 2001 (1)
-------------- -------------