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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______to ______
Commission file number 000-25469
iVillage Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3845162
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
500-512 Seventh Avenue, New York, New York 10018
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 600-6000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the closing sale price of the Common Stock on
March 22, 2002 as reported on the Nasdaq National Market, was approximately
$80.9 million. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of March 22, 2002, the registrant had outstanding 52,713,902 shares
of Common Stock.
Documents Incorporated by Reference
Portions of the registrant's definitive Proxy Statement for the Annual
Meeting of Stockholders to be held on May 23, 2002 are incorporated by reference
in Part III of this Form 10-K. Other documents incorporated by reference in this
Form 10-K are listed in the Exhibit Index.
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iVillage Inc.
Form 10-K
Table of Contents
Page No.
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PART I
Item 1. Business.......................................................................................1
Item 2. Properties....................................................................................18
Item 3. Legal Proceedings.............................................................................19
Item 4. Submission of Matters to a Vote of Security Holders...........................................20
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.........................21
Item 6. Selected Consolidated Financial Data..........................................................22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.........23
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...................................56
Item 8. Consolidated Financial Statements and Supplementary Data......................................56
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..........56
PART III
Item 10. Directors and Executive Officers of the Registrant...........................................56
Item 11. Executive Compensation.......................................................................58
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters........................................................................58
Item 13. Certain Relationships and Related Transactions...............................................58
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................59
SIGNATURES......................................................................................................64
Index of Consolidated Financial Statements and Financial Statement Schedule............................F-1
PART I
Certain statements in this Annual Report on Form 10-K, including
certain statements contained in "Item 1. Business" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The words
or phrases "can be", "expects", "may affect", "may depend", "believes",
"estimate", "project", and similar words and phrases are intended to identify
such forward-looking statements. Such forward-looking statements are subject to
various known and unknown risks and uncertainties and iVillage cautions you that
any forward-looking information provided by or on behalf of iVillage is not a
guarantee of future performance. Actual results could differ materially from
those anticipated in such forward-looking statements due to a number of factors,
some of which are beyond iVillage's control, in addition to those risks
discussed below and in iVillage's other public filings, press releases and
statements by iVillage's management, including (i) the volatile and competitive
nature of the media industry, (ii) changes in domestic and foreign economic,
political and market conditions, (iii) the effect of federal, state and foreign
regulation on iVillage's business, (iv) the impact of recent and future
acquisitions and joint ventures on iVillage's business and financial condition,
(v) iVillage's ability to establish and maintain relationships with advertisers,
sponsors and other third-party providers and partners, (vi) the impact of
pending litigation on iVillage's business and financial condition, and (vii)
iVillage's ability to successfully consummate, integrate and manage its proposed
acquisition of Promotions.com, Inc. All such forward-looking statements are
current only as of the date on which such statements were made. iVillage does
not undertake any obligation to publicly update any forward-looking statement to
reflect events or circumstances after the date on which any such statement is
made or to reflect the occurrence of unanticipated events.
Item 1. Business.
Overview
iVillage is a media company that operates iVillage.com, Women.com,
Business Women's Network, iVillage Solutions, Lamaze Publishing, The Newborn
Channel and Astrology.com. iVillage.com and Women.com are leading women's online
destinations providing practical solutions and everyday support for women 18 and
over. Lamaze Publishing produces advertising supported educational materials for
expectant and new parents. The Newborn Channel is a satellite television network
broadcast in over 1,100 hospitals nationwide. Business Women's Network offers
one of the most extensive databases of women's organizations and Web sites in
the nation to subscribing companies and members.
iVillage.com is organized into communities across multiple topics of
high importance to women and offers interactive services, peer support, content
and online access to experts and tailored shopping opportunities. The content
areas include Babies, Beauty, Diet & Fitness, Entertainment, Food, Health, Home
& Garden, Horoscopes, Money, Parenting, Pets, Pregnancy, Quizzes, Relationships
and Work. iVillage facilitates use across content areas by providing the same
look and feel within each area and across the network, resulting in a consistent
and strongly branded Web site.
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iVillage is recognized as an industry leader in developing innovative
sponsorship and commerce relationships that match the desire of marketers to
reach women with the needs of iVillage.com members for relevant information and
services. Membership to iVillage.com is free and provides features such as
e-mail, personal homepages and other community tools.
iVillage.com's page views have grown to a monthly average of 343.3
million for the quarter ended December 31, 2001 up from 214.3 million average
monthly page views in the fourth quarter of 2000. According to Jupiter Media
Metrix, in December 2001, iVillage ranked 25th out of the top 50 Web and Digital
Media properties with more than 11.5 million unique users and had an average
reach of 10.8% of the online population. Also according to Jupiter Media Metrix,
visitors spend an average of 27.7 minutes on the iVillage site and return an
average of 2.3 times per month.
iVillage Content Areas
iVillage.com is organized around content specific areas that focus on
issues of most importance to women and provide interactive services, peer
support and online access to experts and tailored shopping opportunities.
iVillage.com is updated daily to promote content and community, including
highlights. The following table provides a brief description of the features of
each content area as of December 31, 2001:
Area Description
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Babies A parenting community center site that caters to women who
are trying to conceive, are expecting or are new parents and
includes bulletin boards and weekly chats.
Beauty A site offering users beauty advice, product reviews and
access to hair, makeup and skincare experts. The beauty
channel, Substance.com, is operated by a joint venture
between a subsidiary of Unilever United States, Inc.
("Unilever") and iVillage.
Diet & Fitness A diet and fitness site which includes body calculators,
nutrition experts, message boards, quizzes and community
challenges to improve one's fitness level.
Entertainment An area which includes iVillage Radio, celebrity interviews,
jokes and entertainment-related tools and quizzes.
Food A food site providing information on meal planning,
nutrition and recipes which includes food experts and
cooking basics.
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Area Description
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Health One of the leading consumer health sites on the Internet,
Health assists users in becoming better health care decision
makers through bulletin boards and weekly chats.
Home & Garden A home and garden site offering users information and
tools on gardening issues.
Horoscopes A site providing users with horoscopes, celebrity profiles,
romance charts, monthly guidance and the ability to purchase
astrology reports.
Money A financial planning site providing users with information
on savings and investment strategies focusing on key life
stages of women.
Parenting A parenting site providing users with a branded online
community where parents share parenting solutions, talk with
experts and find answers and support.
Pets A site that provides information on caring for your pet,
selecting a breed, adopting a pet and choosing a
veterinarian.
Pregnancy An area for expectant parents providing information on
fertility and pregnancy, including Lamaze.com.
Quizzes An area offering interactive quizzes on a variety of
subjects.
Relationships A site offering users information and conversation on
love, marriage, sex and family.
Work A site providing women who work from home with tools and
resources such as home office basics, a tax guide and a
software library. The site also provides women with tools
and resources relating to professional development and
career-related issues.
iVillage believes that user support is critical in order to attract and
retain users. iVillage provides user support primarily through e-mail-based
correspondence. Help and feedback buttons are prominently displayed throughout
iVlllage.com, and iVillage.com's user support staff attempts to respond to all
e-mail queries within 24 hours. In addition, community leaders provide e-mail
support for broad-ranging issues. iVillage does not charge for these services.
Sponsorship and Advertising Revenues
iVillage has derived a significant amount of its revenues to date from
the sale of sponsorships and advertisements. For the years ended December 31,
2001 and 2000, sponsorship and advertising revenues represented 80% and 92%,
respectively, of iVillage's total revenues.
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iVillage's strategy is focused in part on generating a majority of its
advertising revenues from sponsors and merchants who seek a cost-effective means
to reach women online. iVillage is aggressively working to build its leadership
position as the preeminent women's brand to the advertising community.
iVillage's sponsorship arrangements typically differ from traditional banner
advertising in that they are designed to achieve broad marketing objectives such
as brand promotion, awareness, product introductions and online research.
Sponsorships allow iVillage to cater to the specific goals of advertisers in the
areas of impressions, product research, market research, new product launches,
list development, product information, repositioning, new account openings, lead
generation and transactions. Sponsors also have the opportunity to develop a
dialogue with their key consumer prospects through iVillage's message boards,
chats, polls and special events, which allows sponsors the opportunity to gain
insights into their customers. iVillage's sponsorship arrangements generally
have longer terms than typical banner advertising placements, provide for higher
cost per thousand impressions per advertiser and independence from page-views as
the sole measure of value. Recently, however, the length of the typical
sponsorship agreement has been shorter than iVillage's historical experience. In
addition, iVillage occasionally develops extensive content to support the
marketing initiatives of advertisers. iVillage's sponsorship agreements can be
exclusive.
iVillage also derives a portion of its sponsorship and advertising
revenues from banner advertisements that are prominently displayed throughout
iVillage.com and Women.com. From each banner advertisement, viewers can
hyperlink directly to the advertiser's own Web site, thus providing the
advertiser the opportunity to directly interact with an interested customer.
During the first quarter of 2001, iVillage began to offer research to
its sponsors, advertisers and other customers for a fee. Through third-party
vendors and internal staff, iVillage provides customers with research designed
to measure the ability of online advertising to create brand awareness and
impact purchase decisions. This research is conducted primarily through live
online campaigns during which visitors to iVillage Web sites are invited at
random to take a brief survey designed to measure their product and brand
awareness levels and their purchase intents. This allows iVillage's sponsors and
advertisers to help make their online marketing campaigns more effective in
connection with wide scale initiatives and provides them with important
aggregated demographic information such as age, sex and income. To date,
iVillage has not received a significant portion of revenues from paid research.
For the years ended December 31, 2001 and 2000, revenues from
iVillage's five largest advertisers accounted for approximately 37% and 23% of
total revenues, respectively. One advertiser, Unilever, accounted for 12% of
iVillage's total revenues for the year ended December 31, 2001, and no one
advertiser accounted for greater than 10% of total revenues for the year ended
December 31, 2000. At December 31, 2001, Hearst Communications, Inc. ("Hearst")
and Unilever accounted for approximately 14% and 10% of the net accounts
receivable, respectively, and at December 31, 2000, Ford Motor Media accounted
for approximately 11% of the net accounts receivable. iVillage anticipates that
its results of operations in any given period will continue to depend to a
significant extent upon revenues from a small number of advertisers. In
addition, iVillage's largest advertisers have in the past varied over time, and
iVillage anticipates that they will continue to do so in the future.
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Membership
iVillage believes a large and active membership base is critical to its
success. Some features of iVillage's Web sites are restricted to members.
Membership is free and available to iVillage.com visitors who disclose their
name, address, e-mail address, age and gender and choose a member name and
password to be used throughout member-only areas. Members form iVillage.com's
core audience and are its most valuable users. E-mail, community challenges,
message boards and chats are examples of members-only benefits.
iVillage recognizes the importance of maintaining the confidentiality
of member information and has a privacy policy to protect this information. In
addition, iVillage Health is a founding member of the Health Internet Ethics, or
Hi-Ethics, organization. iVillage's current privacy policy is accessible through
a link from the iVillage.com home page as well as every Web page on
iVillage.com, including the page where a person initially registers for
membership. iVillage's current policy is to never sell or disclose to any
third-party any member's personal identifying information such as his or her
name or address, unless the member has provided consent in the form of an
"opt-in" or in certain limited situations as described in iVillage's privacy
policy. For example, in some situations, iVillage does allow a third-party
partner access to database information if it is necessary for the delivery of a
member service, such as e-mail. In these instances, the partner has generally
agreed to be bound by iVillage's current policy. iVillage does share aggregated
member information with third parties, such as average age or geographic
dispersion. iVillage also reserves the right to offer products and services to
members who opt-in to receive such offers. iVillage may use information revealed
by members and information built from user behavior to target advertising,
content and e-mail. For instance, iVillage may, on behalf of an advertiser, send
e-mail offers to all opt-in members from a particular region or target
advertisements to all users who frequent a specific area of the site.
iVillage periodically offers its members the opportunity to purchase
certain for-pay premium services, such as newsletters, quizzes, tools and
education courses. iVillage plans to continue to offer these premium services as
well as new for-pay services to its members in the future. To date, iVillage has
not received a significant amount of revenues from these services.
Women.com
iVillage acquired Women.com Networks, Inc. ("Women.com") in June 2001
and relaunched the Women.com Web site in October 2001 as a place for women
looking for information and entertainment to come for diversion and downtime.
Women.com features lighthearted entertainment content in five departments: Sex &
Dating, Entertainment, Style (including shopping), Horoscopes and Games. The
site provides message boards for women who want to talk about entertainment,
sex, dating, friendships, fashion trends and celebrity gossip, among other
topics. Women.com is also a source of daily gossip and entertainment news, music
news and videos, movie and television reviews and soap opera news.
Business Women's Network
On July 16, 2001, iVillage acquired control of Public Affairs Group,
Inc. ("PAG"), operator of Business Women's Network ("BWN"), a privately-held,
Washington, D.C. based company. PAG is one of the most comprehensive sources of
information and program linkage to the women's market around the world and
offers one of the most extensive databases of women's organizations and Web
sites in the nation. PAG offers several fee-based benefits and services to
subscribing companies and members including:
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Service Description
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Diversity Best Practices A specialized service through which member
companies and government entities share and
exchange best practices around key diversity
issues through conference calls, seminars,
special reports and an online resource
center.
Best Practices in Corporate A member-based business resource for
Communications corporate communications that facilitates
the development of innovative solutions and
strong relationships within the corporate
world and helps boost corporate efficiency
by providing conference calls, white papers
and reports, seminars and an informative
online resource center.
Women's Best Practices A member-based service that acts as a
strategic partner to consult with companies
and government agencies on attracting and
retaining the women's market in their sales
and diversity initiatives through
conferences, forums and other events.
Business Women's Network Resources include: the BWN Directory of
Information Resources Business and Professional Women's
Organizations which lists over 5,000
organizations and Web sites; the BWN
Calendar of Women's Events; and Women and
Diversity WOW! Facts, an annual compendium
of more than 10,000 salient facts, figures
and statistics on and about the women's
marketplace compiled from more than 9,800
research reports.
Business Women's Network An online subscription service offering
Interactive resources and business opportunities for
women and offering companies and government
agencies the opportunity to target and reach
professional women.
Business Women's Network BWN assists government agencies and
Government departments in meeting the 5%
government-wide women and minority-owned
small business procurement goal.
iVillage Parenting Network
The iVillage Parenting Network was formed in 2001 as an umbrella
organization for the parenting divisions of iVillage including: Lamaze
Publishing, The Newborn Channel and the iVillage parenting Web sites
(Lamaze.com, ParentsPlace.com, and ParentSoup.com). The iVillage Parenting
Network is a leading source of information for parents estimated to reach more
than 90% of all families with newborns.
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Lamaze Publishing is used to solidify iVillage's leading position in
the parenting category. Lamaze Publishing produces advertising-supported
educational materials for expectant and new parents and is the exclusive
licensee of the LAMAZE mark for use in connection with consumer publications and
other communications, which include print, audio, visual and other consumer
oriented media that are commercial in nature. Lamaze Publishing is also the
exclusive marketing agent for Lamaze International, Inc., the owner of the
LAMAZE family of marks. iVillage also operates the Lamaze.com Web site.
Lamaze is a method of childbirth preparation based on the Lamaze
philosophy of birth. The Lamaze philosophy of birth states that birth is
"normal, natural and healthy," and "childbirth education empowers women to make
informed choices in healthcare, to assume responsibility for their health and
trust their inner wisdom."
Lamaze International was founded by interested parents, childbirth
educators and healthcare providers in 1960 to promulgate these ideas. Lamaze
Publishing was established as a for-profit company in 1990 to provide childbirth
and infant care educational materials.
During a pregnancy and immediately after the birth of a child, new
parents spend substantial amounts of time with childbirth educators and
maternity nurses seeking information on healthcare issues, the birth process and
infant care. These busy healthcare professionals typically have neither the time
nor the resources to create the consumer publications or communications that
would assist this process and allow parents to absorb this material at home.
The Lamaze Publishing business strategy is to provide superior
editorial products that target the expectant/new parent market. These
informational, instructional, "how to" magazines and videos speak to the issues
and concerns of expectant parents and are hand-delivered through Lamaze
Publishing's vast network of health care professionals and child birth
educators. These consumer publications or communications are given to the
childbirth educators and maternity nurses free of charge, and Lamaze Publishing
offsets the expense incurred by selling print advertising and commercial
messages to advertisers who target the young family market.
Lamaze Publishing publications include:
o Lamaze Parents Magazine, a leading prenatal publication used in
childbirth education. Editorial covers such relevant topics as
prenatal nutrition, the role of the childbirth partner, and the
physical and emotional challenges of pregnancy. Childbirth educators
distribute Lamaze Parents to expectant parents on the first night of
class. Lamaze Parents had an annual circulation of approximately 2.5
million for 2001.
o Lamaze para Padres Magazine, a leading Spanish-language pre- and
post-natal publication that reaches more than 95% of all Hispanic
births in the United States. Spanish-speaking childbirth educators
and healthcare professionals distribute Lamaze para Padres Magazine
to expectant parents on the first night of class. Annual circulation
of Lamaze para Padres Magazine reached approximately 625,000 in
2001.
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o "Lamaze You and Your Baby," a 60-minute video textbook, has been a
leading choice of childbirth educators for the past 10 years. In
2001, more than 12,000 childbirth educators distributed this video
to expectant parents. Its educational how-to content on infant care
is viewed at home by expectant parents and later returned to the
childbirth educator. In 2001, Lamaze You and Your Baby enjoyed an
annual circulation of approximately 2.0 million.
o "Lo Mejor para Su Bebe," a 45-minute Spanish-language video
textbook, provides expectant and new parents with important
instruction on infant care. This video, which is modeled after
"Lamaze You and Your Baby," is distributed annually to childbirth
educators, typically during the first four months of the year. In
2001, more than 4,500 childbirth educators distributed the video
reaching approximately 475,000 new parents.
o Lamaze Special Delivery, a sampling/promotional program, offers
advertisers the ability to distribute coupons, samples and
promotional literature via polybagged magazines to expectant and new
parents.
Lamaze.com was launched on iVillage.com in 2000. This Web site combines
the latest interactive tools with trusted expert advice on pregnancy, childbirth
and early parenting.
Through iVillage Integrated Properties, iVillage also owns The Newborn
Channel and Baby Steps Magazine. The Newborn Channel is a satellite television
network that offers exclusive programming to new mothers in their hospital rooms
following birth 24 hours a day, 7 days a week. During 2001, The Newborn Channel
continued to expand its programming lineup by introducing a new show, "Begin
With Love," which is hosted by Oprah Winfrey. In 2001, more than 1,100 hospitals
nationwide aired this channel reaching an annual circulation of approximately
2.4 million mothers.
Baby Steps Magazine is a leading source of post-natal information and
the only magazine endorsed by the National Association of Pediatric Nurse
Practitioners (NAPNAP), a professional organization with 6,000 members across
the country. Handed out to new mothers and fathers by the maternity nurse at the
hospital bedside, Baby Steps, which debuted in November 2001, currently has a
circulation of approximately 3.0 million.
Complementing the very targeted offline parenting media vehicles are
the popular, highly trafficked iVillage Web sites ParentsPlace.com and
ParentSoup.com. Research shows that 75% of iVillage female users research baby
products online and iVillage's popular communities and message boards are a key
feature of both parenting areas, presenting sponsors with a variety of
advertising opportunities.
ParentsPlace.com is a community where new and expecting parents can
connect, communicate and share in the joy of starting a family. On average, a
visitor spends 22 minutes and views approximately 42 pages. Additionally, 37% of
iVillage female users rely on ParentsPlace.com for reliable information and
advice on parenting. Key features are the Baby Name Finder, Pregnancy Calendar,
First Year of Life Newsletter, Expecting Clubs, Playgroups and certified
healthcare experts offering professional wisdom and advice.
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ParentSoup.com acts as a headquarters for parents committed to raising
happy and healthy kids from toddlers to teens. More than 52% of iVillage female
users turn to ParentSoup.com for information and advice on parenting. Key
features include the Toddlers Department, Preschool Department, Name Finder,
Development Tracker, Mothers Circles, Thirty-Something Parents and certified
healthcare experts offering professional wisdom and advice.
Astrology.com
Astrology.com is a leading destination for women seeking daily
horoscopes, astrology content and personalized forecasts online. Through
iVillage's network of sites organized by topics of interest to women such as
family, love, money and career, Astrology.com provides a timely, personalized
experience for the user, stimulates commerce sales of monthly and annual
forecasts by subject and creates an advertising environment that is appealing to
advertisers due to targeting possibilities within the site and through e-mail
communication.
Astrology.com brings iVillage a content and commerce site that is
appealing to iVillage's core demographic of women and a vehicle to drive repeat
visits to iVillage.com through the use of daily horoscopes. Astrology.com
accounts for a substantial portion of iVillage's traffic. iVillage attempts to
leverage the popularity of Astrology.com by using internal promotion and links
to attract Astrology.com users to other areas of iVillage's Web sites, resulting
in higher average page views and time spent per visit. Astrology.com has also
created an interactive commerce system that provides instantaneous, digital
astrology reports. The system consists of software which operates the Web site
and is capable of generating customized astrology reports based on input from
users.
iVillage Solutions
iVillage Solutions is an interactive offering which helps companies
create and develop their Web sites, digital commerce platforms and other aspects
of their technology infrastructures. Previously offered only to iVillage's joint
venture partners, during the first quarter of 2001 iVillage began to offer
iVillage Solutions to other third parties. Through iVillage Solutions, iVillage
provides third parties with production; Web consulting; Web site design,
development and hosting; Web site traffic reporting and analysis; content
publishing; Web community building; project management; and e-marketing
initiatives.
Magazine Web Sites
Pursuant to an agreement with Hearst, the iVillage Web site includes
links to eight Hearst magazine Web sites to which iVillage has online
distribution rights. Please see "Item 13. Certain Relationships and Related
Transactions" for a description of this agreement. iVillage Solutions produces,
maintains and hosts these branded sites. iVillage also has an agreement with
Prevention Magazine to produce, maintain and host the Prevention.com Web site.
The content from these sites links to various areas within iVillage's network.
The following table describes each magazine site:
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Magazine Related Web Site Description
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Cosmopolitan Features fashion and relationship advice aimed at
the "fun, fearless female."
Country Living Provides lifestyle and home design ideas.
Good Housekeeping Features topics relating to food and recipes,
home, family and consumer reports.
House Beautiful Features topics relating to designing, improving
or remodeling one's home.
Marie Claire Features fashion and beauty trends.
Prevention Offers articles, resources, guidance and expertise
on a variety of health-related topics.
Redbook Focuses on family, health and marriage.
Town & Country Focuses on living, arts, travel and weddings.
Victoria Offers support and advice for women entrepreneurs,
including stories and lifestyle tips.
Alliances
iVillage pursues strategic relationships to increase its access to
online customers, build brand recognition and expand its online presence.
Historically, iVillage has pursued strategic alliances to reach online and
offline customers. iVillage's principal strategic alliances and relationships
include the following:
Media Arrangements
In November 1998, as amended in March 1999, iVillage entered into an
advertising and promotional agreement with National Broadcasting Company, Inc.
("NBC") pursuant to which NBC promotes iVillage.com on television, primarily
during prime-time programs, as well as through its Web sites. In February 2001,
iVillage further amended its November 1998 agreement with NBC to provide for an
extension of time during which iVillage was to purchase its advertising or
promotional spots on the NBC network. The revised terms required iVillage to
purchase approximately $11.6 million of advertising or promotional spots between
January 30, 2001 and December 31, 2002, with $3.0 million of such spots being
telecast during 2001 and the remaining approximately $8.6 million during 2002.
iVillage purchased approximately $1.6 million and $1.3 million of advertising or
promotional spots from NBC during 2001 and 2002, respectively. In February 2002,
iVillage and NBC terminated the advertising and promotional agreement. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations-Recent Events."
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Please also see "Item 13. Certain Relationships and Related
Transactions" for a summary of iVillage's agreements with America Online, Inc.
("AOL") and Hearst.
Sponsorship Arrangements
iVillage has a number of sponsorship arrangements with leading
advertisers and sponsors, including:
o Clairol - premier sponsor of hair care products on the iVillage
network, including content integration within iVillage's Beauty
channel.
o Kimberly-Clark - exclusive sponsor on certain parenting areas of
diapers, wipes, training pants and similar products.
o Pepperidge Farm - online promotion of Milano brand cookies, combined
with offline promotion of iVillage.com on Pepperidge Farm packaging.
o Procter & Gamble - promotion of various Procter & Gamble brands in
several consumer product categories.
o Unilever - promotion of various Unilever brands in several consumer
product categories.
Joint Venture and International License Arrangements
iVillage has entered into the following material joint venture and
international license arrangements:
o Cooperative Beauty Ventures, L.L.C. - iVillage and Unilever have
formed, through a joint venture arrangement, Cooperative Beauty
Ventures, L.L.C. d/b/a Substance.com, to provide women with a
focused community, an array of interactive, customized online
services, beauty and personal care products and personalized product
recommendations. iVillage presently owns 80.1% of the venture and
Unilever owns the remaining 19.9%. iVillage, over the twenty-year
term of the venture, is obligated to fund the ongoing business and
operations of the venture, subject to a maximum funding obligation
of $7.0 million. As of December 31, 2001, iVillage had contributed
approximately $1.9 million to Cooperative Beauty Ventures, L.L.C.
Unilever can exercise a "put" option to require iVillage to
purchase Unilever's remaining ownership interest in the venture for
fair market value at any time after September 30, 2002, or at any
earlier time if the venture permits any person to use the
"Substance" mark other than in connection with the venture's
business or the venture fails to use the "Substance" mark in
connection with its business from and after May 1, 2001. At any time
on or after September 30, 2002, iVillage can exercise a "call"
option to require Unilever to sell its remaining interest in the
venture to iVillage for fair market value; provided, however, that
Unilever can exercise a "call" option superior to iVillage's "call"
option to purchase a portion of iVillage's interest in the venture
for fair market value, up to a limit of 50% of the venture's
ownership. In addition, at any time on or after September 30, 2002,
Unilever can exercise a "call" option to purchase a portion of
iVillage's interest in the venture for fair market value, up to a
limit of 50% of the venture's ownership.
-11-
o iVillage UK Limited - In July 2000, iVillage, through a foreign
subsidiary, entered into a business arrangement with Tesco PLC
("Tesco"), a leading United Kingdom ("U.K.") supermarket chain, to
form iVillage UK Limited, a U.K. company. iVillage, through its
foreign subsidiary, holds approximately a 50% interest in iVillage
UK Limited. Through a women's Web site (located at
www.iVillage.co.uk) launched in December 2000, iVillage UK Limited
serves the women's online market in the United Kingdom and the
Republic of Ireland through a focused community and an array of
interactive, customized online solutions and services. iVillage,
through its foreign subsidiary, provides marketing, branding, an
immaterial amount of cash, intellectual property, and other
resources through online and offline activities in support of
iVillage UK Limited and the U.K. and Ireland Web sites. Tesco is
obligated to provide $18.0 million in cash over the three-year
period following the establishment of the relationship, and online
and offline promotional considerations. The iVillage.co.uk Web site
also promotes Tesco's retail business. Revenue is derived primarily
from advertising and sponsorship.
Sales, Marketing and Public Relations
Sales
As of February 28, 2002, iVillage had a direct sales organization
consisting of 18 sales professionals and 20 sales operations staff. iVillage's
sales organization: (i) consults regularly with advertisers and agencies on
design and placement of its Web-based advertising and the production and
management of co-branded Web sites which provide information about advertisers
and/or their products and services, (ii) provides customers with advertising
management analysis, and (iii) focuses on providing a high level of customer
satisfaction. iVillage also offers paid research and cross-platform sales
opportunities across its various media properties. Six professionals concentrate
primarily on advertising sales for The Newborn Channel and Lamaze Publishing
video products and print advertising sales. Twelve professionals are involved in
sales of publications, seminars, subscriptions and other products and services
offered by PAG. iVillage generally seeks to hire individuals with significant
experience in selling advertising and pre-existing relationships with
advertisers in a variety of media.
Marketing and Public Relations
iVillage employs a variety of methods to promote the iVillage.com brand
and to attract traffic and new members, including advertising on other Internet
sites, targeted publications, radio stations and national television,
cross-promotional arrangements to secure advertising and other promotional
considerations. To extend the iVillage.com brand, iVillage has also entered into
several strategic alliances with offline partners. See "Item 1. Business -
Alliances." In addition, iVillage leverages other audience-building strategies,
including working closely with search engine submissions, news group postings
and cross-promotion to properly index materials. iVillage's marketing department
consisted of five marketing professionals as of February 28, 2002.
-12-
iVillage's internal public relations department oversees a
comprehensive public relations program that iVillage believes is a key component
of its marketing and brand recognition strategy. Organized into two primary
components that promote iVillage and the iVillage.com brand, the program targets
a trade/business and consumer audience, respectively.
To maximize distribution of iVillage's publications and The Newborn
Channel, and gain the endorsement of the professional community for these
products, iVillage focuses on marketing efforts targeted to childbirth
educators, maternity nurses and hospitals. A staff of two marketing
professionals contacts hospitals for distribution of The Newborn Channel and
works with the professional community to maintain distribution levels of
iVillage's publications and demonstrate how they can be used as teaching tools
for expectant and new parents. iVillage's representatives maintain contact with
the professional community through trade shows, professional conferences,
consumer publication updates and personal sales calls.
Operating Infrastructure
iVillage's Internet operating infrastructure has been designed and
implemented to support the delivery of millions of page views a day. If
necessary, iVillage can increase its capacity by adding additional servers or
entering into agreements with third parties under which iVillage would receive
credit for page views on third-party Web sites. Web pages are generated and
delivered, in response to end-users' requests, by any one of more than 100
servers. Key attributes of this infrastructure include the ability to support
growth, performance and service availability.
iVillage's servers run on the Sun Solaris, Microsoft NT and Linux
operating systems and use Netscape Enterprise, Apache and Microsoft
Corporation's IIS Web server software.
iVillage maintains all of its production servers at Exodus
Communication, Inc.'s ("Exodus Communications") facilities in New Jersey and
Verio, Inc.'s ("Verio") facilities in California. iVillage's operations depend
upon these companies' ability to protect their respective systems against damage
from fire, hurricanes, power loss, telecommunications failure, break-ins and
other events.
Exodus Communications provides comprehensive facilities management
services, including human and technical monitoring of all production servers 24
hours per day, seven days per week. The servers located at Verio are monitored
by iVillage's California operations staff. Exodus Communications and Verio
provide the means of connectivity for iVillage's servers to end-users via the
Internet through multiple connections. Each facility is powered by multiple
uninterruptible power supplies and backup generators. Exodus Communications
recently filed for bankruptcy protection and iVillage can make no assurance that
Exodus Communications will be able to continue to provide sufficient services
for iVillage or that iVillage will be able to engage a satisfactory alternative
service provider.
-13-
All of iVillage's production data, except Astrology.com, are copied to
backup tapes each night and stored at a third-party, off-site storage facility.
Astrology.com's production data is backed up on a daily basis to local storage.
iVillage is in the process of developing a comprehensive disaster recovery plan
to respond to system failures. iVillage keeps all of its production servers
behind firewalls for security purposes and does not allow outside access, at the
operating systems level, except via special secure channels. Strict password
management and physical security measures are followed. Computer emergency
response team alerts are read, and, where appropriate, recommended action is
taken to address security risks and vulnerabilities.
iVillage's Web sites must accommodate a high volume of traffic and
deliver frequently updated information. Components or features of iVillage's Web
sites have in the past suffered outages or experienced slower response times
because of hardware or software downtime. This has not had a material effect on
iVillage's business.
Broadcasting of The Newborn Channel to hospitals originates from a
laser disc system operated by Group W Network Services, from Group W's facility
in Stamford, Connecticut. The system provides an uplink signal to a satellite
operated by PanAmSat. The signal is received through a satellite dish at each
hospital and distributed to patients' rooms. Group W handles installation and
service of all hospital receiving equipment. iVillage maintains business
interruption insurance in the event programming is interrupted over the
designated satellite.
Competition
Competition for members, visitors and advertisers is intense and is
expected to increase significantly in the future. iVillage believes that the
primary competitive factors in creating a content- and community-based business
on the Internet are:
o functionality;
o brand recognition;
o member affinity and loyalty;
o demographic focus;
o variety of value-added services;
o ease-of-use;
o quality of service; and
o reliability and critical mass.
-14-
Other companies or Web sites which are primarily focused on targeting
women online include Oxygen.com and condenet.com, as well as Web sites targeted
to categories such as health. iVillage has faced and likely also will face
competition in the future from:
o developers of Web directories;
o search engine providers;
o shareware archives;
o content sites;
o commercial online services;
o sites maintained by Internet service providers; and
o other entities that attempt to or establish communities on the
Internet by developing their own or purchasing one of iVillage's
competitors.
In addition, iVillage could face competition in the future from
traditional media companies, a number of which, including Columbia Broadcasting
System, Inc. and NBC, have made significant acquisitions of or investments in
Internet companies. Further, iVillage can make no assurance that iVillage's
competitors and potential competitors will not develop communities that are
equal or superior to iVillage's or that achieve greater market acceptance than
iVillage's community.
iVillage also competes with traditional forms of media, such as
newspapers, magazines, radio and television, for advertisers and advertising
revenues. iVillage believes that the principal competitive factors in attracting
advertisers are:
o the amount of traffic on iVillage's Web sites;
o brand recognition;
o the demographics of iVillage's members and visitors;
o iVillage's ability to offer targeted audiences; and
o the overall cost-effectiveness of the advertising medium offered by
iVillage.
iVillage believes that the number of Internet companies relying on
Web-based advertising revenues may increase in the future. Accordingly, iVillage
may face increased competition, which could in turn have a material adverse
effect on its business, financial condition and results of operations.
Many of iVillage's current and potential competitors, including
developers of Web directories and search engines and traditional media
companies, have:
o longer operating histories;
o significantly greater financial, technical and marketing resources;
o greater name recognition; and
o larger existing customer bases.
-15-
These competitors are able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies and make more attractive offers to potential employees,
distribution partners, commerce companies, advertisers and third-party content
providers. iVillage can make no assurance that Internet content providers and
Internet service providers, including developers of Web directories, search
engines, sites that offer professional editorial content and commercial online
services, will not be perceived by advertisers as having more desirable Web
sites for placement of advertisements. In addition, many of iVillage's current
advertising customers and strategic partners also have established collaborative
relationships with certain of iVillage's competitors or potential competitors,
and other high traffic Web sites. Accordingly, iVillage can make no assurance
that:
o iVillage will be able to grow its membership, traffic levels and
advertiser customer base at historical levels;
o iVillage will be able to retain its current members, traffic levels
or advertiser customers;
o competitors will not experience greater growth in traffic as a
result of these relationships, which could have the effect of making
their Web sites more attractive to advertisers; or
o iVillage's strategic partners will not sever or will elect not to
renew their agreements with iVillage.
Several major publishing companies produce products that directly
compete with iVillage's magazines. AOL Time Warner Inc., Gruner and Jahr, and
Primedia all publish various pre- and post-natal publications. Disney Publishing
and Children's Television Workshop also publish general parenting magazines. All
of these publishers have substantially greater marketing, research and financial
resources than iVillage. iVillage competes by emphasizing the highly targeted
nature of its audience, product quality and the fact that its publications are
used as teaching tools by professionals, and the credibility and trust parents
place in the Lamaze brand name.
While iVillage's Lamaze Publishing instructional videos and The Newborn
Channel currently have no direct competitors, advertisers in this marketplace
are heavy users of daytime network television and cable television networks
targeted to young parents. The broadcasting companies that provide these
opportunities have invested substantial amounts in programming, sales and
marketing, and are much better known to advertisers than Lamaze Publishing and
The Newborn Channel. To compete, Lamaze Publishing and The Newborn Channel must
convince advertisers that advertising recall and effectiveness obtained in an
educational or hospital setting is superior to that of traditional broadcasting.
iVillage can make no assurance that it will be able to compete
successfully against iVillage's current or future competitors or that
competitive pressures faced by iVillage will not have a material adverse effect
on iVillage's business, financial condition and results of operations.
-16-
Intellectual Property, Proprietary Rights and Domain Names
iVillage regards its copyrights, service marks, trademarks, trade
names, trade dress, trade secrets, proprietary technology and similar
intellectual property as critical to its success, and relies on trademark and
copyright law, trade secret protection and confidentiality and/or license
agreements with its employees, customers, independent contractors, partners and
others to protect iVillage's proprietary rights. iVillage pursues the
registration of its trademarks and service marks in the United States, and has
applied for and obtained registration in the United States and certain foreign
jurisdictions for certain of its trademarks and service marks, including
"iVillage". Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which iVillage's products
and services are made available online.
iVillage has licensed in the past, and expects that it may license in
the future, certain of iVillage's proprietary rights, such as trademarks or
copyrighted material, to third parties. While iVillage attempts to ensure that
the quality of its brand is maintained by these licensees, it can make no
assurance that the licensees will not take actions that might materially
adversely affect the value of iVillage's proprietary rights or reputation, which
could have a material adverse effect on iVillage's business, financial condition
and results of operations. iVillage can make no assurance that the steps taken
by iVillage to protect its proprietary rights will be adequate or that third
parties will not infringe or misappropriate its copyrights, trademarks, trade
dress and similar proprietary rights. In addition, there can be no assurance
that other parties will not assert claims of infringement of intellectual
property or alter proprietary rights against iVillage.
iVillage has been subject to claims and expects to be subject to legal
proceedings and claims from time to time in the ordinary course of its business,
including claims of alleged infringement of patents, trademarks and other
intellectual property rights of third parties by iVillage and its licensees.
These claims, even if not meritorious, could result in the expenditure of
significant financial and managerial resources. Further, if these claims are
successful, iVillage may be required to change its trademarks, alter its
content, alter its site format and pay financial damages. iVillage can make no
assurance that these changes of trademarks, alteration of content or format or
payment of financial damages will not adversely affect iVillage's business,
financial condition and results of operations.
iVillage may be required to obtain licenses from others to refine,
develop, market and deliver new services. There can be no assurance that
iVillage will be able to obtain any license on commercially reasonable terms, or
at all, or that rights granted pursuant to any licenses will be valid and
enforceable.
Employees
As of February 28, 2002, iVillage employed 262 full-time employees, of
whom 82 were in sales and marketing, 73 were in editorial and community, 46 were
in administration and customer service, and 61 were in technology, operations
and support. None of iVillage's current employees are represented by a labor
union or is the subject of a collective bargaining agreement. iVillage believes
that relations with its employees are satisfactory.
-17-
Proposed Merger with Promotions.com, Inc.
On February 11, 2002, iVillage, Virgil Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of iVillage ("Merger Sub"), and
Promotions.com, Inc. ("Promotions.com") entered in an Agreement and Plan of
Merger (as amended as of March 13, 2002, the "Merger Agreement"). The Merger
Agreement provides for an exchange offer (the "Offer") followed by a taxable
merger of Merger Sub with and into Promotions.com (the "Merger"), with
Promotions.com continuing as the surviving corporation. Following the Merger,
Promotions.com will become a wholly-owned subsidiary of iVillage.
Pursuant to the Offer, iVillage is offering through Merger Sub to
exchange a fraction of a share of iVillage common stock designed to have a value
of $0.23 and $0.64 in cash for each outstanding share of Promotions.com common
stock together with associated preferred share purchase rights. The shares of
iVillage to be issued as part of the Offer shall be valued according to the
average of the closing sale prices of iVillage common stock on the Nasdaq
National Market for the five trading days immediately preceding the second
trading day prior to the expiration of the Offer. After completion of the Offer,
and at the effective time of the Merger, each share of Promotions.com issued and
outstanding immediately prior to such time (other than shares held by
Promotions.com, iVillage or Merger Sub or shares as to which appraisal rights
have been demanded, exercised or perfected in accordance with Section 262 of the
Delaware General Corporation Law) will be converted into the same consideration
as offered in the Offer.
As an inducement to iVillage and Merger Sub to enter into the Merger
Agreement, certain of the directors, officers and stockholders of Promotions.com
entered into several agreements, pursuant to which, among other things, they
each agreed (i) to tender all of their shares in the Offer, (ii) to vote such
shares in favor of the Merger, and (iii) not to initiate or participate in any
transaction that may compete with the Offer. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations-Recent
Events."
Item 2. Properties.
iVillage is headquartered in New York, New York. In March 2000,
iVillage entered into a fifteen-year lease for approximately 105,000 square feet
at 500-512 Seventh Avenue in which iVillage has consolidated its New York City
operations. In October 2001, iVillage amended this lease to terminate its
obligations regarding 21,111 square feet of the leased premises. Additionally,
in December 2001, iVillage entered into a five-year sublease agreement pursuant
to which iVillage subleased 14,630 square feet of the New York leased premises
to an unrelated third party.
-18-
iVillage also leases a sales office located at 645 North Michigan
Avenue, Chicago, Illinois. The lease is on a month-to-month basis.
Women.com leases approximately 46,000 square feet of space in San
Mateo, California. The lease expires on December 31, 2002 as to approximately
29,000 square feet with the remainder expiring on August 31, 2003. In March
2001, Women.com subleased approximately 9,326 square feet of the leased premises
to an unrelated third party through December 31, 2002, the expiration date of
such subleased premises. In January 2002, Women.com amended its lease to
terminate its obligations regarding 1,526 square feet of the leased premises
originally scheduled to expire on August 31, 2003. In February 2002, Women.com
subleased 9,541 square feet of the leased premises to an unrelated third party
through December 31, 2002, the expiration date of such subleased premises.
Lamaze Publishing subleases approximately 10,300 square feet of space
at 9 Old Kings Highway, Darien, Connecticut. In September 2001, iVillage amended
this sublease to terminate its obligations regarding 3,319 square feet of the
subleased premises. The sublease expires on June 30, 2005.
Astrology.com leases approximately 7,400 square feet of space in San
Francisco, California. The lease expires in November 2002.
PAG leases approximately 6,800 square feet of space in Washington, D.C.
The lease expires in December 2006.
For additional information regarding iVillage's properties, see "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
Item 3. Legal Proceedings.
Several plaintiffs have filed class action lawsuits in federal court
against iVillage, several of its present and former executives, and iVillage's
underwriters in connection with its March 1999 initial public offering. A
similar class action lawsuit was filed against Women.com, several of its former
executives, and Women.com's underwriters in connection with Women.com's October
1999 initial public offering. The complaints generally assert claims under the
Securities Act, the Exchange Act and rules promulgated by the Securities and
Exchange Commission ("SEC"). The complaints seek class action certification,
unspecified damages in an amount to be determined at trial, and costs associated
with the litigation, including attorneys' fees.
-19-
iVillage believes that the lawsuits and claims asserted against it and
its subsidiary pursuant to these class action complaints are without merit and
intends to vigorously defend against these claims. iVillage does not believe
that any of these legal proceedings will have a material adverse effect on its
results of operations.
iVillage is not currently subject to any other material legal
proceedings. iVillage may from time to time become a party to various legal
proceedings arising in the ordinary course of its business.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
-20-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
iVillage's common stock is listed and traded on the Nasdaq National
Market and trades under the symbol "IVIL". The following table sets forth, for
the periods indicated, the high and low sale prices per share of common
stock as reported on the Nasdaq National Market.
High Low
---- ---
2000
----
First Quarter $ 27.31 $13.44
Second Quarter 16.00 6.06
Third Quarter 9.06 2.75
Fourth Quarter 4.13 0.63
2001
----
First Quarter 2.50 0.38
Second Quarter 1.99 0.50
Third Quarter 1.55 0.57
Fourth Quarter 1.99 0.86
On March 22, 2002, the closing sales price of iVillage's common stock
was $2.65 per share. iVillage had 862 holders of record of its common stock as
of March 22, 2002.
iVillage has never declared or paid any cash dividends on its capital
stock. iVillage presently intends to retain future earnings, if any, to finance
the expansion of its business and does not expect to pay any cash dividends in
the foreseeable future.
-21-
Item 6. Selected Consolidated Financial Data.
The iVillage selected consolidated financial data should be read in
conjunction with "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and iVillage's consolidated financial
statements and notes to those statements and other financial information
included elsewhere in this Form 10-K. The consolidated statement of operations
data for the years ended December 31, 2001, 2000 and 1999 and the consolidated
balance sheet data as of December 31, 2001 and 2000 are derived from the audited
consolidated financial statements of iVillage included in this Form 10-K. The
consolidated balance sheet data as of December 31, 1999, 1998 and 1997 and the
consolidated statement of operations data for the years ended December 31, 1998
and 1997 are derived from iVillage's audited consolidated financial statements
that are not included in this Form 10-K. The historical annual results presented
here are not necessarily indicative of future results. iVillage acquired Health
ResponseAbility Systems, Inc. in May 1997, Astrology.Net in February 1999,
OnLine Psychological Services, Inc. and Code Stone Technologies, Inc. in June
1999, Lamaze Publishing and Family Point Inc. in August 1999, an additional
30.1% interest in Cooperative Beauty Ventures, L.L.C. in March 2001 to increase
iVillage's ownership to 80.1%, Women.com in June 2001 and a controlling interest
in Public Affairs Group, Inc. in July 2001. All of these acquisitions have been
accounted for under the purchase method of accounting. The financial data
reflect the results of operations of these subsidiaries since their dates of
acquisition. In April 1998, iVillage acquired a majority interest in iBaby,
Inc.; the remaining minority interest in iBaby, Inc. was acquired by iVillage in
March 1999. In June 2000, iVillage decided to discontinue the operations of
iBaby, Inc. and, as such, all discussion and analysis below represents solely
the continuing operations of iVillage.
Year Ended December 31,
-------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues ................................................ $ 60,041 $ 76,352 $ 36,576 $ 12,451 $ 6,019
Operating Expenses:
Editorial, product development and technology ........... 33,500 35,327 20,652 11,742 7,606
Sales and marketing ..................................... 36,178 54,098 63,526 28,177 8,771
General and administrative .............................. 17,702 22,634 13,164 9,546 7,841
Depreciation and amortization ........................... 23,529 37,681 25,720 5,500 2,886
Impairment of goodwill .................................. -- 98,056 -- -- --
--------- --------- --------- --------- ---------
Total operating expenses ....................... 110,909 247,796 123,062 54,965 27,104
--------- --------- --------- --------- ---------
Loss from operations .................................... (50,868) (171,444) (86,486) (42,514) (21,085)
Interest income (expense), net .......................... 2,285 5,261 4,085 571 (216)
Other (expense) income, net ............................. (43) 595 271 -- --
Gain (loss) on sale of assets ........................... 385 -- -- (504) --
Minority interest ....................................... 7 -- -- 587 --
Write-down of note receivable and investments ........... (104) (13,496) -- -- --
Loss from unconsolidated joint venture .................. (127) (422) -- -- --
--------- --------- --------- --------- ---------
Net loss from continuing operations ..................... (48,465) (179,506) (82,130) (41,860) (21,301)
Preferred stock deemed dividend ......................... -- -- (23,612) -- --
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders from
continuing operations ................................... $ (48,465) $(179,506) $(105,742) $ (41,860) $ (21,301)
========= ========= ========= ========= =========
Basic and diluted net loss per share attributable to
common stockholders from continuing operations .......... $ (1.13) $ (6.05) $ (5.06) $ (20.24) $ (13.65)
========= ========= ========= ========= =========
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share ....... 42,807 29,683 20,901 2,068 1,561
========= ========= ========= ========= =========
-22-
December 31,
----------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Consolidated Balance
Sheet Data: (in thousands)
Cash and cash equivalents $ 29,831 $ 48,963 $106,010 $ 30,825 $ 4,335
Working capital ......... 30,966 40,252 90,752 19,919 1,114
Total assets ............ 132,387 132,459 312,748 45,721 16,236
Long-term liabilities ... 4,273 4,818 -- -- 139
Stockholders' equity .... 108,757 101,366 283,850 32,022 10,522
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with iVillage's
consolidated financial statements and notes to those statements and the other
financial information appearing elsewhere in this Form 10-K. In addition to
historical information, the following discussion and other parts of this Form
10-K contain forward-looking information that involves risks and uncertainties.
Overview
iVillage is a leading women's media company and the number one brand
serving women online. iVillage includes iVillage.com, Women.com, Business
Women's Network, iVillage Solutions, Lamaze Publishing, The Newborn Channel and
Astrology.com. iVillage.com and Women.com are leading online women's
destinations providing practical solutions and everyday support for women 18 and
over. Lamaze Publishing produces advertising supported educational materials for
expectant and new parents. The Newborn Channel is a satellite television network
broadcast in over 1,100 hospitals nationwide. Business Women's Network offers
one of the most extensive databases of women's organizations and Web sites in
the nation to subscribing companies and members.
In June 2000, iVillage decided to discontinue the operations of its
iBaby, Inc. subsidiary. As such, all discussion and analysis below represents
solely iVillage's continuing operations.
In addition, the discussion and analysis below includes the results of
operations of Cooperative Beauty Ventures, L.L.C. for the period March 1, 2001
through December 31, 2001, Women.com from June 18, 2001 through December 31,
2001, and PAG for the period from July 16, 2001 through December 31, 2001.
Cooperative Beauty Ventures, L.L.C. was accounted for under the equity method of
accounting prior to March 1, 2001.
Financial Reporting Release No. 60, which was recently released by the
SEC, requires all companies to include a discussion of critical accounting
policies or methods used in the preparation of financial statements. Note 2 of
iVillage's Notes to Consolidated Financial Statements includes a summary of the
significant accounting policies and methods used in the preparation of
iVillage's consolidated financial statements. The following is a brief
discussion of the more significant accounting policies and methods used by
iVillage.
-23-
Revenue Recognition
To date, iVillage's revenues have been derived primarily from the sale
of sponsorship and advertising contracts. Sponsorship revenues are derived
principally from contracts ranging from one to three years. Sponsorships are
designed to support the customer's broad marketing objectives, including brand
promotion, awareness, product introductions and online research. Sponsorship
agreements typically include the delivery of impressions on iVillage's Web sites
and occasionally the design and development of customized sites that enhance the
promotional objectives of the sponsor. An impression is the viewing of
promotional material on a Web page, which may include banner advertisements,
links, buttons or other text or images. As part of certain sponsorship
agreements, sponsors who also sell products may provide iVillage with a
commission on sales of their products generated through iVillage's Web sites. To
date, these amounts have not been significant.
Advertising revenues are derived principally from short-term
advertising contracts in which iVillage typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Sponsorship and advertising revenues are recognized ratably in
the period in which the advertisement is displayed, provided that iVillage has
no continuing obligations and the collection of the receivable is reasonably
assured, at the lesser of the ratio of impressions delivered over total
guaranteed impressions or the straight-line basis over the term of the contract.
To the extent that minimum guaranteed impressions are not met, iVillage defers
recognition of the corresponding revenues until the guaranteed impressions are
achieved.
Included in sponsorship and advertising revenues are revenues from
advertising placements in Lamaze Publishing's publications, videos and Web
sites, and satellite broadcasts on The Newborn Channel. In addition, revenues
are generated through a sampling and coupon program, which offers advertisers
the ability to distribute samples, coupons and promotional literature to new and
expectant parents.
Sponsorship and advertising revenues also include barter revenues,
which generally represent exchanges by iVillage of advertising space on its Web
sites for reciprocal advertising space or traffic on other Web sites. Revenues
and expenses from these barter transactions are recorded based upon the fair
value of the advertisements delivered. Fair value of advertisements delivered is
based upon iVillage's recent practice of receiving cash from similar
advertisers. Barter revenues are recognized when the advertisements are
displayed on iVillage.com and its affiliated properties. Barter expenses are
recognized when iVillage's advertisements are displayed on the reciprocal Web
sites or properties, which is typically in the same period as when
advertisements are displayed on iVillage.com and its affiliated properties, and
are included as part of sales and marketing expenses. Revenues from barter
transactions were approximately $2.8 million and $3.6 million for the years
ended December 31, 2001 and 2000, respectively.
iVillage Solutions is a business unit within iVillage that provides
production and back-end provisioning for customers in need of these services.
iVillage recognizes revenues from production services based upon actual hours
worked at iVillage's negotiated hourly rates and/or fixed fees stipulated in
contracts.
-24-
Business Women's Network is one of the most comprehensive sources of
information and program linkage to the women's market around the world and
offers one of the most extensive databases of women's organizations and Web
sites in the nation to subscribing companies and members. Revenues from Business
Women's Network are generated primarily through subscription-based programs that
convey current best practices for women and diversity issues in the workplace.
iVillage recognizes revenue from these subscriptions ratably over the term of
the contract.
Revenues from the e-commerce portion of Astrology.com consist of the
sale of astrological charts and other related products to visitors to the
Astrology.com Web site. iVillage recognizes revenues from Astrology.com product
sales, net of any discounts, when products are shipped to customers and the
collection of the receivable is reasonably assured.
iVillage received fees from licensing portions of its content in
connection with its agreement with PlanetRx.com, Inc. These fees are recognized
on a straight-line basis over the life of the contract, which ends in the first
quarter of 2002.
iVillage has and expects to continue to receive revenues from new
initiatives involving subscription-based properties and the sale of research.
While iVillage believes that one or both of these new initiatives will develop
into a new source of significant revenues, iVillage can make no assurance that
it will be successful in any of these endeavors since none of them have
generated any significant revenues to date.
Goodwill and Intangible Assets
iVillage assesses the recoverability of its goodwill and intangible
assets by determining whether the unamortized balance over its remaining life
can be recovered through forecasted cash flows. If undiscounted forecasted cash
flows indicate that the unamortized amounts will not be recovered, an adjustment
is made to reduce the net amounts to an amount consistent with forecasted future
cash flows discounted at a rate commensurate with the risk associated when
estimating future discounted cash flows. Future cash flows are based on trends
of historical performance and management's estimate of future performance,
giving consideration to existing and anticipated competitive and economic
conditions.
-25-
Results of Operations
The following table sets forth iVillage's results of operations
expressed as a percentage of total revenues:
Year Ended December 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Revenues 100% 100% 100%
---- ---- ----
Operating Expenses:
Editorial, product development and
technology................................... 56 46 56
Sales and marketing.......................... 60 71 174
General and administrative................... 29 30 36
Depreciation and amortization................ 39 49 70
Impairment of goodwill....................... -- 128 --
---- ---- ----
Total operating expenses............ 185 324 336
---- ---- ----
Loss from operations.................................. (85) (225) (236)
==== ==== ====
Net loss from continuing operations................... (81)% (235)% (225)%
==== ==== ====
Comparison of Years Ended December 31, 2001 and December 31, 2000
Revenues
Revenues were approximately $60.0 million for the year ended December
31, 2001, which represents a decline of 21% when compared with 2000. The
decrease in revenues was primarily due to an overall downturn in the online
advertising sector which contributed to significantly lower sponsorship and
advertising revenues, offset by revenues from the Women.com and PAG acquisitions
of approximately $8.6 million and $1.9 million, respectively. Sponsorship and
advertising revenues were approximately $47.8 million for the year ended
December 31, 2001, compared to approximately $69.9 million for 2000. Sponsorship
and advertising revenues accounted for approximately 80% and 92% of total
revenues for the years ended December 31, 2001 and 2000, respectively. Revenues
from Lamaze Publishing and The Newborn Channel accounted for approximately 26%
and 20% of sponsorship and advertising revenues for the years ended December 31,
2001 and 2000, respectively.
Included in sponsorship and advertising revenues are barter
transactions, which accounted for approximately 6% and 5% of sponsorship and
advertising revenues for the years ended December 31, 2001 and 2000,
respectively.
Included in revenues are production fees received from work performed
(primarily for Hearst, a related party) by the iVillage Solutions unit, which
accounted for approximately 6% of total revenues for the year ended December 31,
2001. Since iVillage Solutions was a new unit formed in 2001, there are no
comparative numbers for the corresponding period in 2000.
Included in revenues are subscription-based fees derived from the
services provided by PAG which accounted for approximately 3% of total revenues
for the year ended December 31, 2001. PAG was acquired in the third quarter of
2001. There are no comparative numbers for the corresponding period in 2000.
-26-
Included in revenues are fees received from licensing portions of
iVillage's content, and fees from chart sales through Astrology.com, which
accounted for approximately 11% and 8% of total revenues for the years ended
December 31, 2001 and 2000, respectively.
For the years ended December 31, 2001 and 2000, revenues from
iVillage's five largest customers accounted for approximately 37% and 23% of
total revenues, respectively. One customer, Unilever, accounted for 12% of
iVillage's total revenues for the year ended December 31, 2001. No one customer
accounted for greater than 10% of total revenues for the year ended December 31,
2000. At December 31, 2001, Hearst, a related party, and Unilever accounted for
approximately 14% and 10% of the net accounts receivable, respectively, and at
December 31, 2000, Ford Motor Media accounted for approximately 11% of the net
accounts receivable.
Operating Expenses
Editorial, Product Development and Technology
Editorial, product development and technology expenses consist
primarily of payroll and related expenses for the editorial, technology, Web
site design and production staffs, severance costs for terminated employees, the
cost of communications, related expenditures necessary to support iVillage's Web
sites, software development, technology and support operations, and an
allocation of facility expenses, which is based on the number of personnel.
Editorial, product development and technology expenses for the year ended
December 31, 2001 were approximately $33.5 million, or 56% of total revenues.
Editorial, product development and technology expenses were approximately $35.3
million, or 46% of total revenues, for the corresponding period in 2000. The
decrease between the comparable twelve-month periods was primarily attributable
to the decrease of salaries and related benefits, consultant fees and licensing
fees of approximately $2.6 million, $1.3 million and $0.4 million, respectively,
offset by the acquisitions of Women.com and an additional 30.1% interest in
Cooperative Beauty Ventures, L.L.C., to increase iVillage's ownership to 80.1%,
which resulted in incremental costs of approximately $2.2 million and $0.5
million, respectively, and severance costs for terminated employees of
approximately $0.6 million. Editorial, product development and technology
expenses increased as a percentage of total revenues for the twelve months ended
December 31, 2001, as compared to the comparable period in 2000, as a result of
a larger percent decline in revenues as compared to the decline in editorial,
product development and technology expenses.
Sales and Marketing
Sales and marketing expenses consist primarily of costs related to
distribution agreements, payroll and expenses for sales and marketing personnel,
severance costs for terminated employees, commissions, advertising and other
marketing-related expenses, and an allocation of facility expenses, which is
based on the number of personnel. Sales and marketing expenses for the year
ended December 31, 2001 were approximately $36.2 million, or 60% of total
revenues. Sales and marketing expenses were approximately $54.1 million, or 71%
of total revenues, for 2000. The dollar decrease in sales and marketing expenses
for the twelve-month period ended December 31, 2001, as compared to 2000, was
primarily attributable to iVillage's continued cost reduction initiatives, which
resulted in an approximately $14.1 million decrease in advertising expenses, and
a decrease in salaries, commissions and related benefits of approximately $5.0
million, offset by severance for terminated employees of approximately $0.8
million and the acquisitions of Women.com, PAG, and an additional 30.1% interest
in Cooperative Beauty Ventures, L.L.C. to increase iVillage's ownership to
80.1%, which resulted in incremental costs of approximately $5.0 million, which
includes approximately $1.8 million of non-cash print advertising expenses from
Hearst publications assumed in the Women.com acquisition. Sales and marketing
expenses decreased as a percentage of total revenues for the twelve months ended
December 31, 2001, compared to the comparable period in 2000, as a result of a
larger percent decline in sales and marketing expenses as compared to the
decline in revenues.
-27-
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 8% of sales and marketing costs during the twelve
months ended December 31, 2001, compared to approximately 7% of sales and
marketing costs for the comparable period in 2000.
General and Administrative
General and administrative expenses consist primarily of payroll and
related expenses and benefits and related costs for general corporate overhead,
including executive management, finance, allocated facilities, human resources
and legal, severance costs for terminated employees, non-capitalizable costs
associated with the acquisition of Women.com, lease restructuring costs and
other professional fees. General and administrative expenses for the year ended
December 31, 2001 were approximately $17.7 million, or 29% of total revenues.
For the comparable period in 2000, general and administrative expenses were
approximately $22.6 million, or 30% of total revenues. The decrease in general
and administrative expenses for the comparable twelve-month period was primarily
due to a decrease in salaries and related benefits of approximately $0.9
million, consultant and professional fees of approximately $3.0 million,
recruiting fees of approximately $1.0 million, expenses incurred for
international endeavors of approximately $0.9 million, costs associated with
iVillage's New York office space of approximately $0.4 million, offset by a
lump-sum payout to the former Chief Executive Officer of approximately $1.3
million, increased severance costs of approximately $0.3 million and lease
termination costs of approximately $1.5 million. General and administrative
expenses decreased slightly as a percentage of total revenues for the twelve
months ended December 31, 2001, compared to the comparable period in 2000, as a
result of a larger percent decline in general and administrative expenses as
compared to the decline in revenues.
Depreciation and Amortization
Depreciation and amortization expenses for the year ended December 31,
2001 were approximately $23.5 million, or 39% of total revenues. For 2000,
depreciation and amortization expenses were approximately $37.7 million, or 49%
of total revenues. The dollar decrease between 2000 and 2001 was primarily due
to a reduction in amortization expense resulting from the impairment of goodwill
recorded in the third quarter of 2000, relating to the acquisitions of OnLine
Psychological Services, Inc. and Code Stone Technologies, Inc., Lamaze
Publishing and Family Point Inc., offset partially by goodwill amortization
associated with the acquisition of an additional 30.1% interest in Cooperative
Beauty Ventures, L.L.C. in the first quarter of 2001 and Women.com in the second
quarter of 2001.
-28-
Interest Income, Net
Interest income, net includes primarily interest income from iVillage's
cash balances. Interest income, net for the twelve months ended December 31,
2001 was approximately $2.3 million, or 4% of total revenues. For 2000, interest
income, net was approximately $5.3 million, or 7% of total revenues. The
decrease between 2000 and 2001 was due to lower average net cash and cash
equivalents balances and lower interest rates in 2001 than in 2000.
Income Taxes
As of December 31, 2001, iVillage had approximately $205.3 million of
net operating loss carryforwards for federal tax reporting purposes available to
offset future taxable income. iVillage's federal net operating loss
carryforwards expire beginning in 2010. Certain future changes in the share
ownership of iVillage, as defined in the Tax Reform Act of 1986, may restrict
the utilization of carryforwards. A valuation allowance has been recorded for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset due to the lack of iVillage's earnings history.
Net Loss
iVillage recorded a net loss of approximately $48.5 million, or $1.13
per share, for the year ended December 31, 2001. For 2000, iVillage recorded a
net loss of approximately $191.4 million, or $6.45 per share. The improvement in
net losses from 2000 to 2001 resulted primarily from a charge for the impairment
of goodwill of approximately $98.1 million in the third quarter of 2000, the
write-down of marketable and non-marketable investments of approximately $8.4
million ($0.3 million in the fourth quarter of 2000 and $8.1 million in the
second quarter of 2000), the decline of which was considered other than
temporary, the write-down of a note receivable of approximately $5.1 million in
the third quarter of 2000, an estimated loss on the sale of iBaby assets of
approximately $7.1 million, and a reduction in the operating expenses in 2001 of
approximately $38.8 million, offset by a decrease in revenues of approximately
$16.3 million.
Comparison of Years Ended December 31, 2000 and December 31, 1999
Revenues
Revenues were approximately $76.4 million for the year ended December
31, 2000, which represents an increase of 109% when compared with 1999. The
increase in revenues was primarily due to iVillage's ability to generate
significantly higher sponsorship and advertising revenues during 2000 and the
benefit of receiving revenues from Lamaze Publishing and The Newborn Channel for
the entire 2000 period. Sponsorship, advertising and other revenues were
approximately $69.9 million for the year ended December 31, 2000, compared to
approximately $35.0 million for 1999. The increase in sponsorship, advertising
and other revenues was primarily due to an increase in the number of impressions
sold, an increase in the number of sponsors advertising on iVillage's Web sites
during 2000, and from operating Lamaze Publishing and The Newborn Channel for
the entire 2000 period. Sponsorship, advertising and other revenues accounted
for approximately 92% and 95% of total revenues for the years ended December 31,
2000 and 1999, respectively. Revenues from Lamaze Publishing and The Newborn
Channel accounted for approximately 20% and 10% of sponsorship, advertising and
other revenues for the years ended December 31, 2000 and 1999, respectively.
-29-
Included in sponsorship and advertising revenues are barter
transactions, which accounted for approximately 5% of sponsorship and
advertising revenues for the year ended December 31, 2000, compared to 10% for
1999.
Included in total revenues are fees received from the licensing of
portions of iVillage's content and fees from chart sales through Astrology.com,
which accounted for approximately 8% of total revenues for the year ended
December 31, 2000, compared to 5% for 1999.
Although no one advertiser accounted for greater than 10% of iVillage's
total revenues for the years ended December 31, 2000 and 1999, iVillage's five
largest advertisers accounted for 23% and 20% of total revenues, respectively.
Operating Expenses
Editorial, Product Development and Technology
Editorial, product development and technology expenses consist
primarily of payroll and related expenses for the editorial, technology, Web
site design and production staffs, the cost of communications, related
expenditures necessary to support iVillage's Web sites, software development,
technology and support operations, and an allocation of facility expenses, which
is based on the number of personnel. Editorial, product development and
technology expenses for the year ended December 31, 2000 were approximately
$35.3 million, or 46% of total revenues. Editorial, product development and
technology expenses were approximately $20.7 million, or 56% of total revenues,
for 1999. The increase was primarily due to additional personnel costs related
to creating and testing new concepts and tools used throughout iVillage's
network of Web sites of approximately $5.0 million and the acquisition of Lamaze
Publishing in August 1999, which resulted in an incremental cost of
approximately $6.9 million in 2000. Editorial, product development and
technology expenses decreased as a percentage of total revenues as a result of
the growth in revenues for the year ended December 31, 2000 compared to 1999.
Sales and Marketing
Sales and marketing expenses consist primarily of costs related to
distribution agreements, payroll and related expenses for sales and marketing
personnel, commissions, advertising and other marketing-related expenses, and an
allocation of facility expenses, which is based on the number of personnel.
Sales and marketing expenses for the year ended December 31, 2000 were
approximately $54.1 million, or 71% of total revenues. Sales and marketing
expenses were approximately $63.5 million, or 174% of total revenues, for 1999.
The dollar decrease in sales and marketing expenses in 2000 was primarily due to
the launch of a national advertising campaign in the third quarter of 1999,
which was substantially completed by early 2000, coupled with cost reduction
initiatives instituted in the second quarter of 2000 and continued throughout
the year, which resulted in a decrease of approximately $21.3 million in
advertising expenses, offset primarily by an increase in personnel costs,
incremental costs from the acquisition of Lamaze Publishing, allocation of costs
associated with iVillage's office space and an increase in consultant costs for
corporate communications and sales marketing research of approximately $4.1
million, $2.4 million, $1.7 million and $1.0 million, respectively. Sales and
marketing expenses decreased as a percentage of total revenues as a result of
the growth in revenues for the year ended December 31, 2000 compared to 1999.
-30-
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 7% of total sales and marketing costs during the year
ended December 31, 2000, compared to 5% of total sales and marketing costs
during 1999.
General and Administrative
General and administrative expenses consist primarily of payroll and
related expenses and related costs for general corporate overhead, including
executive management, finance, allocated facilities, and legal and other
professional fees. General and administrative expenses for the year ended
December 31, 2000 were approximately $22.6 million, approximately or 30% of
total revenues. For 1999, general and administrative expenses were approximately
$13.2 million, or 36% of total revenues. The increase in general and
administrative expenses was primarily due to an increase in salaries and
benefits of approximately $3.6 million, expenses incurred for international
endeavors of approximately $1.2 million, allocation of costs associated with
iVillage's office space of approximately $0.4 million, and the acquisition of
Lamaze Publishing in August 1999, which resulted in an incremental cost of
approximately $1.4 million in 2000. General and administrative expenses
decreased as a percentage of total revenues as a result of the growth in
revenues for the year ended December 31, 2000 compared to 1999.
Depreciation and Amortization
Depreciation and amortization expenses for the year ended December 31,
2000 were approximately $37.7 million, or 49% of total revenues. For 1999,
depreciation and amortization expenses were approximately $25.7 million, or 70%
of total revenues. The dollar increase between 1999 and 2000 was primarily due
to a full year of amortization expense resulting from iVillage's acquisitions of
Astrology.Net, OnLine Psychological Services, Inc. and Code Stone Technologies,
Inc., Lamaze Publishing and Family Point Inc. in 1999. In the third quarter of
2000, iVillage recorded a charge of approximately $98.1 million, or $3.30 per
share, for the impairment of goodwill relating to certain 1999 acquisitions. The
approximately $98.1 million charge consists of the following: OnLine
Psychological Services, Inc. and Code Stone Technologies, Inc. - $17.7 million,
Lamaze Publishing - $62.0 million, and Family Point Inc. - $18.4 million. The
remaining goodwill from the acquisitions of Astrology.Net and Lamaze Publishing
will be fully amortized in February 2002 and August 2009, respectively.
-31-
This non-cash charge represents the difference between the historical
book value of the goodwill and the discounted estimated future cash flows
expected from the related operations. The discounted future cash flows were
determined using the best available estimates. iVillage estimated future cash
flows based upon historical results, current projections and internal earnings
targets, as well as business trends, prospects and market and economic
conditions. The projected future cash flows were then discounted at a rate of
20% corresponding to iVillage's estimated cost of capital. Considerable
management judgment is necessary to estimate discounted future cash flows.
Accordingly, actual results could vary from management's estimates. Yearly
amortization of impaired goodwill was approximately $26.6 million.
Interest Income, Net
Interest income, net primarily includes interest income from iVillage's
cash balances. Interest income, net for the year ended December 31, 2000 was
approximately $5.3 million, or 7% of total revenues. For 1999, interest income,
net was approximately $4.1 million, or 11% of total revenues. The increase
between 1999 and 2000 was due to higher interest rates in 2000 despite slightly
lower average net cash and cash equivalents balances in 2000 resulting primarily
from the cash received from iVillage's initial public offering of common stock
in March 1999, and secondary offering of common stock in October 1999.
Net Loss
iVillage recorded a net loss of approximately $191.4 million, or $6.45
per share, for the year ended December 31, 2000. For 1999, iVillage recorded a
net loss of approximately $116.6 million, or $5.58 per share. The net loss for
the year ended December 31, 2000 includes one-time expenses totaling
approximately $118.7 million. These one-time expenses consisted of a charge for
the impairment of goodwill of approximately $98.1 million in the third quarter
of 2000, the write-down of marketable and non-marketable investments of
approximately $8.4 million ($0.3 million in the fourth quarter of 2000 and $8.1
million in the second quarter of 2000), the decline of which was considered
other than temporary, the write-down of a note receivable of approximately $5.1
million in the third quarter of 2000, and an estimated loss on the sale of iBaby
assets of approximately $7.1 million. The net loss for the year ended December
31, 1999 includes a deemed dividend of approximately $23.6 million incurred as a
result of the difference between the purchase price of the Series E Convertible
Preferred Stock sold to NBC during the first quarter of 1999, and the fair
market value on the date of issuance.
Recent Events
Hearst
In January 2002, iVillage signed contracts to provide production and
certain hosting rights for two additional Hearst magazine sites, as well as The
Hearst Corporation's corporate Web site. The contracts for the magazine sites
have an initial term of six months, and The Hearst Corporation's corporate Web
site has an initial term of one year, with automatic renewals unless terminated.
The minimum amount of production fees for the initial term of the contracts is
approximately $0.3 million.
-32-
Promotions.com, Inc.
On February 11, 2002, iVillage agreed to acquire Promotions.com through
an exchange offer and merger transaction. The overall transaction has an
approximate aggregate value of $13.3 million. Under the terms of the merger
agreement, iVillage will issue an aggregate of approximately $3.5 million in
shares of iVillage common stock, as well as approximately $9.8 million in cash,
which represents a distribution of all cash less accrued liabilities and other
reserves of Promotions.com.
NBC
On February 22, 2002, iVillage further amended its advertising and
promotional agreement with NBC, pursuant to which NBC released iVillage from its
obligation to make the remaining $4.6 million in cash payments and to place any
additional advertising on NBC, in exchange for the purchase of approximately
$1.3 million in telecast spots in February 2002 by iVillage and the forfeiture
of iVillage's right to the remaining approximately $4.1 million of prepaid
advertising.
Allen & Company
In March 2002, iVillage entered into a new one-year financial advisory
agreement with Allen & Company Incorporated ("Allen & Company") pursuant to
which Allen & Company has agreed to act as iVillage's financial advisor with
respect to various matters from time to time. iVillage is obligated to pay Allen
& Company an initial non-refundable fee of $505,000 in April 2002, which fee
shall be credited towards any additional fees payable to Allen & Company for
services rendered pursuant to this agreement.
Liquidity and Capital Resources
Financial Reporting Release No. 61, which was recently released by the
SEC, requires all companies to include a discussion to address, among other
things, liquidity, off-balance sheet arrangements, contractual obligations and
commercial commitments. iVillage currently does not maintain any off-balance
sheet arrangements.
As of December 31, 2001, iVillage had approximately $29.8 million in
cash and cash equivalents and approximately $8.5 million of restricted cash.
Cash equivalents include money market accounts. The restricted cash includes
money held for a letter of credit collateralizing a real estate lease for
iVillage's office space. iVillage maintains its cash and cash equivalents in
highly rated financial institutions.
iVillage has sustained net losses and negative cash flows from
operations since its inception. iVillage's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to achieve
profitable operations and/or raise additional financing through public or
private equity financings, collaborative or other arrangements with corporate
sources, or other sources of financing to fund operations. However, iVillage can
make no assurance that it will achieve profitable operations or that it will be
able to raise adequate financing from other sources. Management believes that
iVillage's current funds will be sufficient to enable iVillage to meet its
planned expenditures through the next twelve months. If anticipated operating
results are not achieved, management has the intent and believes it has the
ability to delay or reduce expenditures so as not to require additional
financial resources, if those resources were not available on terms acceptable
to iVillage.
-33-
iVillage has and expects to continue to reduce its costs through
increased managerial efficiencies and several expense reduction initiatives
targeted at certain expenses, including without limitation, reduced advertising,
targeted staff reductions and reduced company employee benefit plan costs, as
well as other initiatives. In 2001, iVillage paid approximately $9.3 million for
severance and related costs for staff reduction and merger-related layoffs.
Net cash used in operating activities from continuing operations
increased to approximately $45.6 million for the year ended December 31, 2001,
from approximately $39.4 million for the year ended 2000. The overall increase
in net cash used in operating activities from continuing operations resulted
primarily from an increase in moneys spent for accounts payable and accrued
expenses of approximately $30.4 million, primarily due to liabilities incurred
and/or assumed in the Women.com acquisition, offset by a decrease in losses from
continuing operations, less adjustments, of approximately $5.0 million and an
increase in restricted cash and other assets and accounts receivable of
approximately $12.9 million and $5.8 million, respectively. The decreased loss
from continuing operations was primarily due to the decrease in sales and
marketing and general and administrative expenses resulting from iVillage's
expense reduction initiatives and a reduction in amortization expense resulting
from the impairment charge recorded in the third quarter of 2000, offset by
lower revenues in 2001.
Net cash provided by investing activities from continuing operations
was approximately $4.0 million for the year ended December 31, 2001, and cash
used in investing activities from continuing operations was approximately $17.7
million for the year ended December 31, 2000. The overall increase in cash
provided by investing activities from continuing operations for the year ended
December 31, 2001 to the comparable period in 2000 was primarily from the
acquisition of Women.com in the second quarter of 2001, resulting in net cash
acquired of approximately $11.0 million and lower fixed asset purchases of
approximately $11.5 million.
Net cash provided by financing activities from continuing operations
amounted to approximately $23.1 million for the year ended December 31, 2001,
compared to approximately $5.5 million for the year ended December 31, 2000. The
overall increase in cash provided by financing activities for the year ended
December 31, 2001 to the comparable period in 2000 was primarily due to the
purchase of shares of common stock and warrants for $20.0 million by Hearst and
other former Women.com stockholders, offset slightly by the costs associated
with the issuance of stock and warrants for the Women.com acquisition and rights
offering of approximately $1.1 million, and the repurchase of 1,203,446 shares
of common stock for approximately $0.5 million.
As of September 28, 1999, iVillage entered into a financial advisory
agreement with Allen & Company pursuant to which Allen & Company acted as
iVillage's financial advisor with respect to various matters from time to time.
In February 2000, iVillage executed an amendment to the agreement that extended
its term to September 28, 2000 and set forth additional fees payable to Allen &
Company for up to twelve months after expiration of the agreement upon the
occurrence of certain events. During July 2001, iVillage paid Allen & Company a
fee of approximately $2.0 million in connection with their services related to
the Women.com acquisition. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations-Recent Events."
-34-
In March 2000, iVillage entered into a fifteen-year lease for
approximately 105,000 square feet at 500-512 Seventh Avenue in which it has
consolidated its New York City operations. Pursuant to the terms of the lease,
iVillage received approximately $3.8 million in January 2001 and approximately
$0.5 million in April 2001, and anticipates receiving an additional
approximately $1.0 million for reimbursement of certain construction expenses in
2002. On October 17, 2001, iVillage amended this lease by terminating
obligations under the lease regarding 21,111 square feet of the leased premises.
The amended lease reduces iVillage's yearly financial commitment by
approximately $0.9 million and approximately $13.5 million over the remaining
life of the lease. The financial commitment for rent at this facility is
approximately $3.7 million for the next twelve months. Additionally, the lease
amendment reduces the amount to be reimbursed by the landlord for certain
construction expenses from approximately $5.3 million to $5.1 million. In
consideration of the early termination of part of the leased space, iVillage
incurred fees of approximately $1.3 million. Concurrently, with the signing of
this lease amendment, the letter of credit securing the real estate lease, which
is classified as "Restricted cash" on the consolidated balance sheet, was
reduced to approximately $8.5 million. In December 2001, iVillage entered into a
five-year sublease agreement pursuant to which iVillage subleased to an
unrelated third party 14,630 square feet of the leased premises located at
500-512 Seventh Avenue for approximately $0.6 million annually. iVillage
incurred fees of approximately $0.2 million in connection with the sublease.
In February 2001, iVillage amended its advertising and promotional
agreement with NBC to provide for an extension of time during which iVillage
must purchase its advertising or promotional spots on the NBC network. The
revised terms required iVillage to purchase approximately $11.6 million of
advertising or promotional spots between January 30, 2001 and December 31, 2002,
with $3.0 million of such spots being telecast during 2001 and the remaining
approximately $8.6 million during 2002. During 2001, iVillage purchased
approximately $1.6 million of advertising or promotional spots. As of December
31, 2001, included in the caption "Other current assets" in the consolidated
balance sheet is approximately $5.4 million for advertising or promotional spots
to be broadcast during 2002. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations-Recent Events."
In March 2001, iVillage purchased an additional 30.1% of Cooperative
Beauty Ventures, L.L.C. from Unilever for $1.5 million, thereby increasing its
ownership to 80.1%. The agreement revised iVillage's funding obligation and
provides that iVillage will fund the ongoing business and operations of this
venture, not to exceed $7.0 million, and terminates Unilever's funding
obligation. As of December 31, 2001, iVillage has contributed approximately $1.9
million to the venture.
Unilever can exercise a "put" option to require iVillage to purchase
Unilever's remaining ownership interest in the venture for fair market value at
any time after September 30, 2002, or at any earlier time if the venture permits
any person to use the "Substance" mark other than in connection with the
venture's business or the venture fails to use the "Substance" mark in
connection with its business from and after May 1, 2001. At any time on or after
September 30, 2002, iVillage can exercise a "call" option to require Unilever to
sell its remaining interest in the venture to iVillage for fair market value;
provided, however, that Unilever can exercise a "call" option superior to
iVillage's "call" option to purchase a portion of iVillage's interest in the
venture for fair market value, up to a limit of 50% of the venture's ownership.
In addition, at any time on or after September 30, 2002, Unilever can exercise a
"call" option to purchase a portion of iVillage's membership interest in the
venture for fair market value, up to a limit of 50% of the venture's ownership.
As a result of the purchase transaction described above, iVillage gained
operational control of the venture and the venture was consolidated within
iVillage's financial statements beginning in March 2001.
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In addition, iVillage amended its February 2000 advertising agreement
with Unilever. The amendment increased Unilever's advertising purchase
commitment to $14.5 million from $12.0 million. Through December 31, 2001,
iVillage earned approximately $8.5 million under the advertising agreement and
approximately $6.0 million of the advertising purchase commitment remains from
January 1, 2002 through March 31, 2003.
In April 2001, iVillage amended its previous agreement with Candice
Carpenter, iVillage's former chief executive officer, to provide that Ms.
Carpenter would resign as a member of iVillage's Board of Directors but would
remain an iVillage employee available for special projects at the request of
iVillage's Chief Executive Officer and Board of Directors through December 31,
2002. Ms. Carpenter received a one-time lump sum cash payment of $1,327,900
(less an interest payment of $27,900 on her promissory note to iVillage) in lieu
of the salary, bonus and other payments set forth in her October 2000 agreement
with iVillage, and will receive a monthly salary of approximately $3,758 in 2001
and $3,190 in 2002 (each less set-offs for future interest payments on her
promissory note). The amendment also provided that Ms. Carpenter would surrender
333,334 iVillage stock options with an exercise price of $24.00 per share and
75,000 iVillage stock options with an exercise price of $17.17 per share.
On June 18, 2001, iVillage acquired all of the outstanding stock of
Women.com, the operator of a leading women's online destination. The aggregate
purchase price was approximately $33.1 million consisting of approximately $3.2
million in cash (inclusive of closing costs) and 15,519,838 shares of iVillage
common stock. The difference between the purchase price and the fair value of
the acquired net assets of Women.com of approximately $21.0 million has been
recorded as goodwill and is being amortized over the period of expected benefit,
which is estimated to be three years.
On June 18, 2001, Hearst purchased 9,171,343 shares of iVillage common
stock and a warrant to purchase 2,065,695 shares of iVillage common stock for an
aggregate purchase price of approximately $19.7 million pursuant to an amended
and restated securities purchase agreement.
Pursuant to a rights offering to each former Women.com stockholder as
of April 16, 2001, other than Hearst, subsequent to June 15, 2001, the day the
rights offering was completed, iVillage issued 152,657 shares of iVillage common
stock and warrants to purchase an additional 34,305 shares of iVillage common
stock for an aggregate purchase price of approximately $0.3 million.
-36-
Pursuant to an amended and restated magazine content license and
hosting agreement with Hearst, Hearst has committed to purchase from iVillage
between $15.0 million and $21.0 million of production and advertising services
over a three-year period. This agreement also provides for revenue sharing
between Hearst and iVillage with respect to advertising revenues obtained by
iVillage from the Hearst magazine Web sites and iVillage's other Web sites
containing substantial Hearst content. This revenue-sharing arrangement requires
that iVillage pay Hearst a royalty payment, based on net advertising revenues,
of at least $3.9 million during the three-year term of the agreement. This
amount would be reduced on a pro rata basis if Hearst fails to expend a minimum
of $5.0 million in production fees in the second and third years of the
agreement. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Recent Events".
On July 16, 2001, iVillage acquired control of PAG, operator of BWN,
for a purchase price of approximately $0.6 million. The difference between the
purchase price and the fair value of the acquired net assets of PAG and BWN of
approximately $1.9 million has been recorded as goodwill.
In September 2001, iVillage surrendered the New York office space
assumed in the Women.com acquisition back to the landlord. The lease had a
remaining financial commitment of $11.1 million and expired in December 2009. In
consideration of the termination of the lease, iVillage forfeited its right to
the security deposit securing the lease, approximately $1.4 million, to the
landlord, which is reflected in the purchase accounting.
On September 15, 2001, iVillage's Lamaze Publishing subsidiary amended
its sublease located at 9 Old Kings Highway, Darien, Connecticut, by terminating
obligations regarding 3,319 square feet of its subleased premises. The amended
sublease reduces iVillage's yearly financial commitment by approximately $0.1
million and approximately $0.4 million over the remaining life of the sublease.
In consideration of the early termination of part of the subleased space,
iVillage incurred fees of approximately $0.1 million.
On September 20, 2001, iVillage announced its intention to acquire, in
open market transactions, up to 2,000,000 shares of its common stock, subject to
and in compliance with the provisions and limitations of Rule 10b-18 of the
Exchange Act. During September 2001, iVillage repurchased an aggregate of
167,859 shares of its common stock, using general corporate funds, at prevailing
market prices for a cumulative cost of approximately $0.1 million. All
repurchased shares are currently held as treasury stock.
On October 1, 2001, in a privately-negotiated transaction, iVillage
purchased approximately one million shares of its common stock from Capital
Guardian Trust Company, and iVillage's Chairman and Chief Executive Officer and
certain other officers and directors purchased in aggregate approximately
750,000 additional shares from Capital Guardian, all at a market discount. The
cost of the buyback to iVillage was approximately $0.4 million.
On December 14, 2001, Women.com terminated its interactive services
agreement with AOL, which had a remaining financial commitment of approximately
$2.1 million. In consideration of the early termination of the agreement,
Women.com incurred fees of $0.7 million.
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Concurrent with the termination of Women.com's agreement with AOL, in
December 2001, iVillage entered into an advertising agreement with AOL pursuant
to which AOL delivered a guaranteed amount of impressions during the period from
December 2001 through January 2002. In consideration of these services, iVillage
paid AOL $0.7 million.
iVillage leases office space and equipment under non-cancelable
operating leases expiring at various dates through April 2015. The following is
a schedule of future minimum lease payments under noncancelable operating leases
as of December 31, 2001 for the next five years:
Year Ending December 31, (in thousands)
------------------------ --------------
2002 $ 6,188
2003 4,607
2004 4,158
2005 4,067
2006 3,977
-------
$22,997
=======
iVillage's capital requirements depend on numerous factors, including:
o market acceptance of its services;
o the amount of resources iVillage devotes to investments in the
iVillage network, including entering into joint ventures with and/or
the acquisition of other entities;
o the resources iVillage devotes to marketing; and
o the resources iVillage devotes to selling its services and brand
promotions.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or SFAS, No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets ".
SFAS 141 establishes accounting and reporting for business combinations
by requiring that all business combinations be accounted for under the purchase
method. Use of the pooling-of-interests method is no longer permitted. SFAS 141
also provides guidance on purchase accounting related to the recognition of
intangible assets and accounting for negative goodwill. SFAS 141 requires that
the purchase method be used for business combinations initiated after June 30,
2001. SFAS 142 changes the accounting for goodwill from an amortization method
to an impairment-only approach. Effective January 1, 2002, amortization of
goodwill recorded for business combinations consummated prior to July 1, 2001
will cease, and intangible assets acquired prior to July 1, 2001 that do not
meet the criteria for recognition under SFAS 141 will be reclassified to
goodwill. Goodwill will be subject to an annual impairment test, including a
transitional impairment test required upon adoption, which must be performed in
the year ending December 31, 2002.
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iVillage is still in the process of reallocating previously
identifiable intangible assets that do not meet the criteria of SFAS 141 into
goodwill and evaluating the useful lives of its remaining identifiable
intangible assets. However, iVillage currently estimates that unaudited pro
forma net loss attributable to common stockholders and the respective basic and
diluted net loss per share would have been approximately $37.4 million and
$0.87, respectively, for the year ended December 31, 2001 had the provisions of
the new standards been applied this year. iVillage is in the process of
completing the transitional impairment assessment of goodwill.
In August 2001, the FASB issued SFAS No. 143, "Accounting for
Obligations Associated with the Retirement of Long-Lived Assets". The objective
of SFAS 143 is to provide accounting guidance for legal obligations associated
with the retirement of long-lived assets. The retirement obligations included
within the scope of this project are those that an entity cannot avoid as a
result of either the acquisition, construction or normal operation of a
long-lived asset. Components of larger systems also fall under this project, as
well as tangible long-lived assets with indeterminable lives. The provisions of
SFAS 143 are effective for financial statements issued for fiscal years
beginning after June 15, 2002. iVillage has not yet evaluated the expected
impact of the adoption of SFAS 143 on its financial condition, cash flows and
results of operations and will adopt SFAS 143 in fiscal 2003.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". The objectives of SFAS 144 are to
address significant issues relating to the implementation of SFAS 121 and to
develop a single accounting model, based on the framework established in SFAS
121, for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired. The provisions of SFAS 144 are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
iVillage does not expect the adoption of SFAS 144 to have a material impact on
iVillage's results of operations or financial position.
Risk Factors That May Affect Results of Operations and Financial Condition
Risks Relating to the Offer and Proposed Merger with Promotions.com
The market price of iVillage common stock may decline after completion of the
Offer and the Merger.
The market price of iVillage common stock may decline after completion
of the Offer and the Merger if:
o the integration of the business and operations of Promotions.com is
unsuccessful or takes longer than anticipated;
o the effect of the Merger on iVillage's financial results is not
consistent with the expectations of securities analysts or
investors;
o iVillage does not achieve the perceived benefits of the Merger as
rapidly as, or to the extent, anticipated by securities analysts or
investors; or
-39-
o following the Merger, significant stockholders of iVillage decide to
dispose of their shares because the results of the Merger are not
consistent with their expectations.
iVillage's stock price has been volatile and you should expect it to
continue to fluctuate.
In attempting to integrate the business and technology of Promotions.com,
iVillage will incur significant costs which may harm its business.
iVillage expects to incur costs and commit significant management time
integrating Promotions.com's operations, technology, Web sites, products,
customers and personnel. These costs may be substantial and may include costs
for:
o integration of operations, including combining teams and processes
in various functional areas;
o reorganization or closure of operations and/or facilities;
o integration of technology, Web sites and products;
o fees and expenses of professionals and consultants involved in
completing the integration process; and
o potential existing liabilities of Promotions.com.
Successful integration of Promotions.com's operations, technology, Web
sites, products, customers and personnel will place a significant burden on the
management and internal resources of iVillage. The diversion of the attention of
management and any difficulties encountered in the transition and integration
process could have a material adverse effect on the iVillage's future business,
financial condition and results of operations.
If iVillage does not successfully integrate the business and operations of
Promotions.com, iVillage's financial results and its ability to achieve
profitability will be adversely affected.
Upon the consummation of the Merger, iVillage will commence the
integration of Promotions.com's operations, technology, Web sites, products,
customers and personnel. iVillage will strive to maintain the companies'
relationships with key customers. Integration efforts may be difficult and
unpredictable because of possible cultural conflicts and different opinions on
strategic plans, personnel and other decisions. iVillage does not know whether
it will be successful in these integration efforts and it cannot assure you that
it will be able to integrate the business and operations of Promotions.com in a
timely and efficient manner. If iVillage cannot successfully integrate
Promotions.com's operations, technology, Web sites, products, customers and
personnel and maintain its and Promotions.com's relationships with key
customers, the business, financial condition and results of operations of
iVillage may be seriously harmed.
-40-
Failure to complete the Merger could negatively affect the business of iVillage
and the market price of iVillage common stock.
If the Merger is not completed for any reason, iVillage will be subject
to a number of risks that may affect its business and common stock price,
including:
o iVillage could be required to pay Promotions.com a $250,000
termination fee;
o the market price of shares of iVillage common stock may decline to
the extent that the current market price of those shares reflects
a market assumption that the Merger will be completed;
o costs related to the Merger, such as legal and accounting fees, must
be paid even if the Merger is not completed;
o the benefits that iVillage expects to realize from the Merger would
not be realized; and
o the diversion of management attention from the day-to-day business
of iVillage and the unavoidable disruption to its employees and its
relationships with customers and joint venturers during the period
before consummation of the Merger, may make it difficult for
iVillage to regain its market position if the Merger does not
occur.
iVillage may incur liability under lawsuits currently pending against
Promotions.com.
Promotions.com is currently engaged in a number of civil litigation
matters, including a lawsuit brought by E.piphany, Inc. ("E.piphany"). E.piphany
is a software company that was engaged by Promotions.com in February 2000 to
provide an e-mail management software solution. The lawsuit brought by E.piphany
alleges, among other claims, breach of contract as a result of nonpayment by
Promotions.com. The lawsuit seeks approximately $689,000 in damages. If the
Merger is completed, iVillage may incur liability arising from this and other
lawsuits pending against Promotions.com. iVillage intends to vigorously defend
against these lawsuits, and believes that Promotions.com has several meritorious
defenses and, in some instances, counterclaims. Litigation is, however, never
certain. If the defenses are not successful, iVillage may be forced to make
material payments to these plaintiffs and these payments, if not fully covered
by insurance carriers or Promotions.com's existing litigation reserves, could
harm iVillage's business, financial condition and results of operations. Even if
these claims are not successful, the litigation could result in material costs
to iVillage and could divert management's time and attention away from business
operations.
-41-
Risks Relating to Current and Future Operations
iVillage may face difficulties encountered in the new and rapidly evolving
markets in which it operates.
iVillage faces many of the risks and difficulties frequently
encountered in new and rapidly evolving markets, including the Internet
advertising market. These risks and difficulties include iVillage's ability to:
o attract a larger audience to the iVillage network of Web sites;
o increase awareness of the iVillage brand;
o strengthen user loyalty;
o offer compelling content;
o maintain current, and develop new, strategic relationships;
o attract a large number of advertisers from a variety of industries;
o respond effectively to competitive pressures;
o continue to develop and upgrade iVillage's technology; and
o attract, retain and motivate qualified personnel.
iVillage has not achieved profitability and has recent and anticipated
continuing losses.
iVillage has not achieved profitability and iVillage expects to
continue to incur operating losses for the foreseeable future. iVillage incurred
net losses attributable to common stockholders of $48.5 million for the year
ended December 31, 2001, $191.4 million for the year ended December 31, 2000 and
$116.6 million for the year ended December 31, 1999. As of December 31, 2001,
iVillage's accumulated deficit was $432.8 million.
iVillage will need to generate significant revenues to achieve and
maintain profitability. iVillage cannot make any assurances that it will
achieve sufficient revenues for profitability. Even if iVillage does achieve
profitability, iVillage cannot make any assurances that it will be able to
sustain or increase profitability on a quarterly or annual basis. If revenues
grow slower than iVillage anticipates, or if operating expenses exceed
iVillage's expectations or cannot be adjusted accordingly, its business,
financial condition and results of operations will be materially adversely
affected. Because iVillage's strategy includes acquisitions of, and joint
ventures with, other businesses, acquisition and joint venture expenses and any
cash used to make these acquisitions and joint ventures will reduce its
available cash.
iVillage's quarterly revenues and operating results are not indicative of future
performance, are difficult to forecast and have been and are likely to continue
to fluctuate.
iVillage does not believe that period-to-period comparisons of its
operating results are necessarily meaningful nor should they be relied upon as
reliable indicators of future performance, thus making it difficult to forecast
quarterly revenues and results of operations. In addition, iVillage's operating
results are likely to fluctuate significantly from quarter to quarter as a
result of several factors, many of which are outside iVillage's control, and any
of which could materially harm iVillage's business. These factors include:
-42-
o fluctuations in the demand for Internet advertising or electronic
commerce;
o bankruptcies or other payment defaults of Internet or other
companies that are a source of advertising revenues;
o volatility in the Internet market and the high number of Internet
companies decreasing their marketing budgets;
o changes in the level of traffic on its network; and
o fluctuations in marketing expenses and technology infrastructure
costs.
iVillage's revenues for the foreseeable future will remain dependent on
user traffic levels and advertising activity on its Web sites. Future revenues
are difficult to forecast. iVillage may be unable to adjust spending quickly
enough to offset any unexpected reduction in revenues in a particular quarter,
which may materially and adversely affect its business, financial condition and
results of operations.
In one or more future quarters, iVillage's results of operations may
fall below the expectations of securities analysts and investors. If iVillage's
results of operations fall below expectations, the trading price of its common
stock would likely be materially adversely affected. In addition, if the
revenues of iVillage in any particular quarter are lower than anticipated,
iVillage may be unable to reduce spending in that quarter. If iVillage has a
shortfall in revenues in relation to its expenses, then iVillage's business,
financial condition and results of operations would be materially adversely
affected.
iVillage may need to raise additional capital and its prospects for obtaining
additional financing are uncertain.
iVillage currently anticipates that its existing cash and cash
equivalents will be sufficient to meet its anticipated capital expenditures and
working capital requirements for at least the next 12 months. The amount of cash
and cash equivalents that will be available to iVillage on consummation of the
Merger cannot be accurately predicted, however, and depends on many factors,
including the amount of revenues received and expenses incurred by each company
during the period prior to the date on which the Merger is completed.
Accordingly, iVillage may need to raise additional funds in the future to fund
its operations. iVillage can make no assurances that additional financing will
be available to iVillage on acceptable terms, or at all. In particular, unless
the market price of iVillage's common stock increases dramatically, it is
unlikely that iVillage will be able to raise funds through a public offering of
its common stock. If adequate funds are not available or are not available on
acceptable terms, iVillage would have to scale back its business and its
business and financial condition would be harmed, or it may be forced to cease
its operations entirely.
-43-
The downturn in the economy has raised uncertainties concerning iVillage's
business prospects.
The national economy has recently experienced a slowdown. As a result,
many of iVillage's customers have experienced difficulty in maintaining their
current operations and implementing their business plans. Many of these
customers have reduced their spending on iVillage's products and services,
and/or may not be able to discharge their current payables and other obligations
to iVillage. The non-payment or late payment of amounts due to iVillage from a
significant customer, or the non-payment or late payment by multiple customers
which, in the aggregate, are substantial would materially adversely affect
iVillage's business, financial condition and results of operations.
As of December 31, 2001, Hearst owned approximately 30.2% of the outstanding
shares of iVillage common stock and had three representatives on the iVillage
Board of Directors; therefore, Hearst is able to significantly influence
iVillage's corporate direction and policies.
As of December 31, 2001, Hearst owned approximately 30.2% of the
outstanding shares of iVillage's common stock, assuming that all of the shares
of Women.com Networks, Inc. held by former Women.com stockholders had been
exchanged for shares of iVillage common stock, in which case there would have
been 53,352,208 shares of iVillage common stock outstanding. In addition, Hearst
holds a warrant entitling it to purchase 2,065,695 shares of iVillage's common
stock.
Pursuant to an amended and restated stockholder agreement entered into
between Hearst and iVillage on June 20, 2001, iVillage appointed three
representatives of Hearst to its board of directors, with one Hearst designee
appointed to each class of director. The amended and restated stockholder
agreement provides that the number of Hearst representatives is subject to
reduction if Hearst's ownership of iVillage common stock falls below certain
threshold levels. There is also a Hearst representative on each of iVillage's
nominating and compensation committees.
Hearst's board representation and stock ownership allows Hearst to
significantly influence iVillage's corporate direction and policies, including
any mergers, acquisitions, consolidations, strategic relationships or sales of
assets. This board representation and stock ownership may also discourage or
prevent transactions involving an actual or potential change of control,
including transactions in which iVillage stockholders would otherwise receive a
premium for their shares. In addition, the interests of Hearst, which owns or
has significant investments in other businesses, including cable television
networks, newspapers, magazines and electronic media, may from time to time be
competitive with, or otherwise diverge from, iVillage's interests, particularly
with respect to new business opportunities and future acquisitions.
Although Hearst is required to vote all shares that it holds in excess
of 25% (subject to adjustment) of iVillage's outstanding voting securities in
accordance with the recommendation of iVillage's Board of Directors, Hearst may
effectively control certain stockholder actions, including approving changes to
iVillage's Certificate of Incorporation or Bylaws and adopting or changing
equity incentive plans. Hearst's effective control over stockholder actions may
also determine the outcome of any merger, consolidation, sale of all or
substantially all of iVillage's assets or other form of change of control that
iVillage might consider.
-44-
iVillage's business will be harmed if Internet usage does not continue to grow.
iVillage's market is new and rapidly evolving. iVillage's business
would be adversely affected if Internet usage does not continue to grow,
particularly usage by women. A number of factors may inhibit Internet usage,
including:
o inadequate network infrastructure;
o security concerns;
o inconsistent quality of service;
o lack of availability of cost-effective, high-speed service;
o consumers returning to traditional or alternative sources for
information, shopping and services; and
o privacy concerns, including those related to the ability of Web
sites to gather information about users without their knowledge or
consent.
If Internet usage continues to grow significantly, Internet
infrastructure may not be able to support the demands placed on it by this
growth and its performance and reliability may decline. In addition, Internet
service providers and Web sites have experienced interruptions in their services
as a result of the bankruptcies of Internet service and infrastructure
providers, outages and other delays occurring throughout the Internet network
infrastructure. If these service interruptions frequently occur in the future,
Internet usage, including the usage of iVillage's Web sites, could grow more
slowly or decline.
The market for Internet advertising is still developing. If the Internet fails
to gain further acceptance as a medium for advertising, iVillage would have
slower revenue growth than expected and would incur greater than expected
losses.
iVillage expects to continue to derive a substantial portion of its
revenues from sponsorships and advertising for the foreseeable future, as demand
and market acceptance for Internet advertising continues to develop.
Accordingly, iVillage's business depends on market acceptance of the Internet as
a medium for advertising. Although iVillage derives a portion of its revenues
from fees for Internet content and services, consumer reluctance to subscribe to
or pay for Internet content and services may limit iVillage's ability to
supplement Internet advertising as a substantial source of revenue in the
foreseeable future.
Although there are currently several standards to measure the
effectiveness of Internet advertising, the industry has had difficulty
convincing potential advertisers that Internet advertising is a significant
advertising medium. Advertisers and advertising agencies that have historically
relied on traditional forms of advertising may be reluctant or slow to adopt
online advertising. In addition, advertisers and advertising agencies that use
the Internet as an advertising medium may find online advertising to be less
effective for promoting their products and services than traditional advertising
media, including television, radio and print. Advertisers and advertising
agencies that have invested substantial resources in traditional methods of
advertising may also be reluctant to reallocate their resources to online
advertising. Moreover, software programs that limit or prevent advertising from
being delivered to an Internet user's computer are available. Widespread
adoption of this software could adversely affect the commercial viability of
Internet advertising. The market for online advertising also depends on the
overall growth and acceptance of electronic commerce. If the markets for online
advertising and electronic commerce fail to develop or develop more slowly than
iVillage expects, or if it is unable to adapt to new forms of Internet
advertising, iVillage would have slower than expected revenue growth and would
incur greater than expected losses, and its business and financial condition
would be harmed.
-45-
Furthermore, different pricing models are used to sell advertising on
the Internet and it is difficult to predict which, if any, of the models will
emerge as the industry standard. This makes it difficult to project iVillage's
future advertising rates and revenues.
iVillage has a small number of customers and the loss of a number of these
customers could adversely affect its business, financial condition and results
of operations.
iVillage depends on a limited number of customers for a significant
portion of its revenues. For the years ended December 31, 2001 and 2000,
revenues from iVillage's five largest customers accounted for approximately 37%
and 23% of its total revenues, respectively. Unilever accounted for
approximately 12% of iVillage's total revenues for the year ended December 31,
2001 and no one customer accounted for greater than 10% of iVillage's total
revenues for the year ended December 31, 2000. At December 31, 2001, Hearst, a
related party, and Unilever accounted for approximately 14% and 10% of
iVillage's net accounts receivable, respectively, and, at December 31, 2000,
Ford Motor Media accounted for approximately 11% of iVillage's net accounts
receivable. iVillage anticipates that its results of operations in any given
period will continue to depend to a significant extent on revenues from a small
number of customers. In addition, iVillage's largest customers have in the
past varied over time, and iVillage anticipates that they will continue to do so
in the future. Consequently, the loss of even a small number of iVillage's
largest customers at any one time may adversely affect iVillage's business,
financial condition and results of operations, unless iVillage is able to enter
into a sufficient number of new comparable contracts.
iVillage may be unable to respond to the rapid technological change in its
industry.
iVillage's market is characterized by rapidly changing technologies,
frequent new product and service introductions and evolving industry standards.
The recent growth of the Internet and intense competition in iVillage's industry
exacerbates these market characteristics. To achieve its goals, iVillage needs
to effectively integrate the various software programs and tools required to
enhance and improve its product offerings and manage its business. For example,
iVillage's failure to promptly or adequately implement the World Wide Web
Consortium's Platform for Privacy Preferences, or P3P, standards could result in
reduced user traffic to iVillage's Web sites or regulatory and/or legal claims
if iVillage's P3P policy does not conform to iVillage's written privacy policy
posted on its Web sites. iVillage's future success will depend on its ability to
adapt to rapidly changing technologies by continually improving the performance
features and reliability of its services. iVillage may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of new products and services. In addition, iVillage's new enhancements
must meet the requirements of iVillage's current and prospective users and must
achieve significant market acceptance. iVillage also could incur substantial
costs if it needs to modify its services or infrastructures to adapt to these
changes.
-46-
Seasonal and cyclical patterns may adversely affect iVillage's business.
iVillage believes that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third calendar
quarters of each year. If iVillage's market makes the transition from an
emerging to a more developed market, seasonal and cyclical patterns may develop
also in its market, which, if similar to those in traditional media, may result
in lower advertising revenues in the first and third calendar quarters of each
year. In addition, traffic levels on iVillage's Web sites typically fluctuate
during the summer and year-end vacation and holiday periods. These seasonal and
cyclical patterns may adversely affect iVillage's business, financial condition
and results of operations.
iVillage's uncertain sales cycles could adversely affect its business.
The time between the date of initial contact with a potential
advertiser or sponsor and the execution of a contract with the advertiser or
sponsor is often lengthy, typically six weeks for smaller agreements and longer
for larger agreements, and is subject to delays over which iVillage has little
or no control, including:
o advertisers' and sponsors' budgetary constraints;
o advertisers' and sponsors' internal acceptance reviews;
o the success and continued internal support of advertisers' and
sponsors' own development efforts; and
o the possibility of cancellation or delay of projects by advertisers
or sponsors.
During the sales cycle, iVillage may expend funds and management
resources and yet not obtain sponsorship or advertising revenues. Accordingly,
iVillage's results of operations for a particular period may be adversely
affected if sales to advertisers or sponsors forecasted in a particular period
are delayed or do not otherwise occur.
-47-
iVillage relies on third parties to adequately measure the demographics of its
user base and delivery of advertisements on iVillage's Web sites. iVillage's
business would be harmed if these third parties fail to provide these services
to iVillage.
It is important to iVillage's advertisers that iVillage accurately
measure the demographics of its user base and the delivery of advertisements on
iVillage's Web sites. iVillage depends on third parties to provide many of these
measurement services. If these third parties are unable or unwilling to provide
these services to iVillage in the future, iVillage would need to perform them or
obtain them from another provider. This could cause iVillage to incur additional
costs or cause interruptions in its business until these services are replaced.
Companies may choose to not advertise on iVillage's Web sites or may pay less
for advertising if they perceive iVillage's demographic measurements are not
reliable. Either of these events could adversely affect iVillage's business.
iVillage has historically relied on third parties to drive traffic to iVillage's
Web sites and generate page views, and iVillage's business, financial condition
and results of operations could be harmed by the recent expiration or
termination of certain agreements.
Historically, AOL has accounted for a significant portion of iVillage's
online traffic based on the delivery to iVillage of a guaranteed number of
impressions. iVillage's primary agreement with AOL expired on December 31, 2001,
Women.com terminated its agreement with AOL in December 2001 and iVillage's
agreement with AOL related to Astrology content expires in June 2002. Although
iVillage is currently negotiating an extension of its primary agreement with AOL
or, alternatively, a new AOL agreement, there is no assurance that iVillage will
be able to enter into an acceptable agreement with AOL or that AOL will not
discontinue carrying iVillage's content. AOL is not prohibited from carrying
online sites or developing and providing content that competes with iVillage's
Web sites, and AOL currently carries competing Web sites. As a result of the
expiration or termination of iVillage's agreements with AOL, or if AOL decides
to discontinue carrying iVillage content, traffic to iVillage's Web sites may
decline and iVillage's business, financial condition and results of operations
could be materially adversely affected.
-48-
iVillage may not be able to deliver various services if third parties fail to
provide reliable software, systems and related services to iVillage.
iVillage depends on various third parties for software, systems and
related services. For example, iVillage relies on Doubleclick Inc.'s software
for the placement of advertisements, Trellix Corporation for personal space home
pages and Mail2World, Inc. for e-mail. Several of the third parties which
provide software and services to iVillage have a limited operating history, have
relatively immature technology and are themselves dependent on reliable delivery
of services from others. As a result, iVillage's ability to deliver various
services to its users may be adversely affected by the failure of these third
parties to provide reliable software, systems and related services to iVillage.
If iVillage is unable to deliver the services that its users expect, its
business, financial condition and results of operations could be materially
adversely affected.
iVillage's principal investors' investments in its competitors may result in
conflicts of interest that could be adverse to iVillage.
iVillage's principal investors, such as AOL Time Warner, Rho Capital
Partners, Inc. and Hearst, may have conflicts of interests by virtue of
investments in other companies that may compete with iVillage. These investments
may result in a conflict of interest for iVillage's principal investors or
result in the diversion of attractive business opportunities from iVillage's
principal investors to another company. iVillage is unable to determine all of
the competing investments held by these principal investors. In addition,
iVillage does not have the ability to constrain the investment activity of any
of its principal investors and therefore cannot predict the extent of any future
investments in businesses that are competitive with iVillage.
Restrictions on iVillage's ability to enter into sponsorship, advertising or
other business relationships with Hearst's competitors may adversely affect
iVillage's business.
In connection with iVillage's merger with Women.com in June 2001,
iVillage entered into a magazine content license and hosting agreement with
Hearst. That agreement restricts iVillage's ability to enter into relationships
with competitors of Hearst and those restrictions may prevent iVillage from
expanding its network and enhancing its content and the visibility of iVillage's
brand, and may cause iVillage to forego potential advertising revenues from
competitors of Hearst. Specifically, the agreement provides that iVillage may
not, without Hearst's consent:
o enter into any agreement to include in iVillage's network any Web
sites for magazines that compete with Hearst magazines;
o display on the magazine Web sites any advertising or other
promotional materials from magazines that compete with Hearst
magazines; or
o display on an iVillage Web page the brands, logos, trademarks or
proprietary content of both Hearst and a Hearst competitor.
iVillage's business could be affected by future terrorist attacks.
Although neither the terrorist attacks on the World Trade Center in
September 2001 nor the late 2001 bio-terrorist attacks on various organizations
have had a material adverse effect on iVillage's business, operations or
financial condition, iVillage cannot assure you that future terrorist attacks in
the United States, and particularly in New York City where iVillage's
headquarters are located, or the response of the U.S. government to the recent
or any future terrorist actions, would not negatively affect iVillage through
further disruption of the economy or financial markets, or otherwise. The
proximity of iVillage's headquarters to certain possible terrorist targets in
New York City could also, in the event of future terrorist attacks, result in
damage to or destruction of iVillage's headquarters as well as the permanent or
temporary loss of key personnel. iVillage has not yet fully developed a disaster
recovery plan and iVillage cannot guarantee that iVillage's insurance coverage
would adequately reimburse iVillage for any damages suffered as a result of a
terrorist attack.
-49-
iVillage may not be able to expand its business through acquisitions and joint
ventures if iVillage is unable to compete successfully for acquisition
candidates and/or joint venture partners and, even if iVillage is successful in
this regard, iVillage's operations may be adversely affected as a result of an
acquisition or joint venture.
iVillage's business strategy includes growth through business
combinations, acquisitions and joint ventures. iVillage's business could be
harmed if it is unable to implement this business strategy. iVillage's ability
to implement this business strategy depends in large part on iVillage's ability
to compete successfully with other entities for acquisition candidates and joint
venture partners. Factors affecting iVillage's ability to compete successfully
in this regard include:
o iVillage's financial condition relative to the financial condition
of its competitors; and
o the attractiveness of iVillage's common stock as potential
consideration for entering into these types of transactions as
compared to the common stock of other entities competing for these
opportunities.
Many of the entities with which iVillage competes for acquisition
candidates and joint venture partners have greater financial resources than
those of iVillage. In addition, iVillage's acquisition program has been
materially adversely affected by the substantial decline in the market price of
iVillage's common stock. If, despite these factors, iVillage is successful in
entering into additional business combinations, acquisitions and joint ventures,
iVillage's business, financial condition and results of operations could be
materially and adversely affected if iVillage is unable to integrate the
operations of the acquired companies or joint ventures. iVillage's ability to
integrate the operation of the acquired companies or joint ventures will depend,
in part, on iVillage's ability to overcome or address:
o the difficulties of assimilating the operations and personnel of the
acquired companies and the potential disruption of iVillage's
ongoing business as a result of these assimilation efforts;
o the difficulties of establishing a new joint venture, including the
need to attract and retain qualified personnel and the need to
attract customers and advertisers;
o the need to incorporate successfully the acquired or shared
technology or content and rights into iVillage's products and media
properties;
o the difficulties of maintaining uniform standards, controls,
procedures and policies; and
o the potential impairment of relationships with employees and
customers as a result of any integration of new management personnel
or reduction of personnel.
In addition, effecting acquisitions could require use of a significant
amount of iVillage's available cash. Furthermore, iVillage may have to issue
equity or equity-linked securities to pay for future acquisitions, and any of
these issuances could be dilutive to existing and future stockholders. In
addition, acquisitions and investments may have negative effects on iVillage's
reported results of operations due to acquisition-related charges, amortization
of acquired technology and other intangibles, and/or potential liabilities
associated with the acquired businesses or joint ventures. Any of these
acquisition-related risks or costs could harm iVillage's business, financial
condition and results of operations.
-50-
There is intense competition among Internet-based businesses and publishing
companies focused on women, and this competition could result in price
reductions, reduced margins or loss of market share.
There are a large number of Web sites competing for the attention and
spending of members, users and advertisers. iVillage's Web sites compete for
members, users and advertisers with the following types of companies:
o online services or Web sites targeted at women, such as Oxygen.com
and condenet.com;
o cable networks targeting women, such as Oxygen Media, Inc. and
Lifetime Television;
o Web search and retrieval and other online service companies,
commonly referred to as portals, such as AOL, Terra Networks, S.A.
and Yahoo! Inc.;
o e-commerce companies such as Amazon.com, Inc.; and
o publishers and distributors of traditional media, such as
television, radio and print.
Increased competition could result in price reductions, reduced margins
or loss of market share, any of which could adversely affect iVillage's
business, financial condition and results of operations.
Lamaze Publishing's magazines directly compete with publishers of pre-
and post-natal publications such as Gruner and Jahr, Primedia and AOL Time
Warner. These publishers have substantially greater marketing, research and
financial resources than Lamaze Publishing. Increased competition may result in
less advertising in Lamaze Publishing's magazines and a decline in Lamaze
Publishing's advertising rates, which could adversely affect its business,
financial condition and results of operations.
iVillage's business would be harmed if iVillage's systems fail or experience a
slowdown.
Substantially all of iVillage's communications hardware and some of its
other computer hardware operations are located at Exodus Communications'
facilities in New Jersey and Verio's facilities in California. Fire, floods,
earthquakes, power loss, telecommunications failures, break-ins and similar
events could damage these systems. System failures may adversely affect
iVillage's user traffic, which could adversely affect its revenues and operating
results and harm its reputation with users, advertisers and commerce partners.
Computer viruses, electronic break-ins or other similar disruptive problems,
such as those historically experienced by several leading Web sites, could also
adversely affect iVillage's Web sites.
iVillage's insurance policies may not adequately compensate it for any
losses that may occur due to any failures or interruptions in its systems.
iVillage does not presently have any secondary "off-site" systems or a formal
disaster recovery plan. In addition, Exodus Communications recently filed for
bankruptcy protection and iVillage cannot assure you that Exodus Communications
will be able to continue to provide sufficient services for iVillage or that
iVillage will be able to engage a satisfactory alternative service provider.
-51-
iVillage's Web sites must accommodate a high volume of traffic and
deliver frequently updated information. iVillage's Web sites have in the past
experienced slower response times or decreased traffic for a variety of reasons.
These occurrences have not had a material effect on iVillage's business. These
types of occurrences in the future could cause users to perceive iVillage's Web
sites as not functioning properly and therefore cause them to use another Web
site or other methods to obtain information.
In addition, iVillage's users depend on Internet service providers,
online service providers and other Web site operators for access to iVillage's
Web sites. Many of them have experienced significant outages in the past, and
could experience outages, delays and other difficulties due to system failures
unrelated to iVillage's systems.
iVillage may incur liability for the information iVillage publishes or the
products and services iVillage has sold.
iVillage's business, financial condition and results of operations
could be materially and adversely affected if iVillage were to become liable for
damage claims based on information published by it or products and services sold
by it. For example, iVillage has been in the past, and may be in the future,
subject to claims for defamation, negligence, copyright or trademark
infringement, personal injury or other legal theories relating to the
information iVillage publishes on its Web sites. These types of claims have been
brought, sometimes successfully, against providers of Internet services in the
past. In addition, iVillage could be subjected to claims based upon the content
that is accessible from iVillage's Web sites through links to other Web sites or
through content and materials that may be posted by members in chat rooms or
bulletin boards.
In addition, through iVillage.com, Women.com, Lamaze Publishing and
iVillage Integrated Properties, Inc., iVillage distributes publications and
broadcasts over its Web sites and The Newborn Channel information and advice
regarding healthcare, childbirth, infant care and financial and tax issues.
iVillage may be exposed to liability claims in connection with this information.
iVillage also offers e-mail services through a third-party vendor,
which may subject iVillage to potential risks, such as liabilities or claims
resulting from unsolicited e-mail, lost or misdirected messages, illegal or
fraudulent use of e-mail or interruptions or delays in e-mail service.
Consumers may also sue iVillage if any of the products or services that
it sells are found to be defective, fail to perform properly or injure the user.
iVillage may also face potential liability in connection with the sale of
products and services by its e-commerce and other partners.
iVillage's insurance, which covers commercial general liability, may
not adequately protect iVillage against these claims. Liability claims could
require iVillage to spend significant time and money in litigation and to pay
significant damages. As a result, liability claims, whether or not successful,
could seriously damage iVillage's reputation and iVillage's business. iVillage
may also be forced to implement expensive measures to alter the way iVillage's
services are provided to avoid potential liability.
-52-
Possible infringement by third parties of iVillage's intellectual property
rights, or claims of intellectual property infringement asserted against
iVillage, could harm iVillage's business.
iVillage cannot be certain that the steps it has taken to protect its
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate iVillage's proprietary rights. Enforcing iVillage's
intellectual property rights could entail significant expense and could prove
difficult or impossible. Any infringement or misappropriation by third parties
could have a material adverse effect on iVillage's future financial results.
Furthermore, iVillage has invested resources in acquiring domain names
for existing and potential future use. iVillage cannot guarantee that iVillage
will be entitled to use these domain names under applicable trademark and
similar laws or that other desired domain names will be available.
Although iVillage believes that its technologies do not infringe upon
the intellectual property rights of others, third parties have in the past
asserted, and could assert in the future, claims of patent, trademark or
copyright infringement or misappropriation of creative ideas or formats against
iVillage with respect to iVillage's use of domain names, iVillage's content, Web
page formats, Web business methods or any third-party content it carries.
iVillage expects that participants in iVillage's markets will continue to be
subject to infringement claims. Any such claims, with or without merit, could be
time consuming to defend, result in costly litigation, divert management's
attention, require iVillage to enter into costly royalty or licensing
arrangements or prevent iVillage from using important technologies, ideas or
formats, any of which could materially harm iVillage's business, financial
condition or results of operations.
iVillage may face potential liability for its privacy practices.
Growing public concern about privacy and the collection, distribution
and use of information about individuals may subject iVillage to increased
regulatory scrutiny and/or litigation. If iVillage is accused of violating the
stated terms of iVillage's privacy policy, iVillage may be forced to expend
significant amounts of monetary and human resources to defend against these
accusations. iVillage also may be required to make changes to its present and
planned products or services. These consequences, together with any resulting
liability for iVillage's privacy practices, could have a material adverse effect
on iVillage's business, financial condition and results of operations.
iVillage may be liable if third parties misappropriate iVillage's users'
personal information.
If third parties were able to penetrate iVillage's network security or
otherwise misappropriate its users' personal information or credit card
information, iVillage could be subject to liability arising from claims related
to, among other things, unauthorized purchases with credit card information,
impersonation or other similar fraud claims or other misuse of personal
information, such as for unauthorized marketing purposes. In addition, the
Federal Trade Commission and state agencies have been investigating various
Internet companies regarding their use of personal information. iVillage could
incur additional expenses if new regulations regarding the use of personal
information are introduced or if iVillage's privacy practices are investigated.
-53-
Consumer protection privacy regulations could impair iVillage's ability to
obtain information about its users, which could result in decreased advertising
revenues.
If iVillage becomes unable to collect personal data from a sufficient
number of the users of its network, iVillage may lose significant advertising
revenues. iVillage asks its members and users to "opt-in" to receive special
offers and other direct marketing opportunities from iVillage, its advertisers
and partners. iVillage's network also requests and obtains personal data from
users who register to become members of the network. Registration as a member is
required in order for users to have full access to the services offered by
iVillage's network. Personal data gathered from members is used to tailor
content to them and is provided, on an aggregate basis, to advertisers to assist
them in targeting their advertising campaigns to particular demographic groups.
The attractiveness of iVillage's network to current or prospective advertisers
depends in part on iVillage's ability to provide user data to support this
tailoring capability. Privacy concerns may cause users to resist providing this
personal data, however. Even the perception of security and privacy concerns,
whether or not valid, may indirectly inhibit market acceptance of iVillage's use
of personal data. In addition, legislative or regulatory requirements may
heighten these concerns if businesses must notify Internet users that the data
may be used by marketing entities to direct product promotion and advertising to
the user. Other countries and political entities, such as the European Economic
Community, have adopted legislation or regulations containing these notification
requirements.
iVillage's network also uses cookies to track user behavior and
preferences. A cookie is information keyed to a specific server, file pathway or
directory location that is stored on a user's hard drive, possibly without the
user's knowledge, but is generally removable by the user. Information gathered
from cookies are used by iVillage to tailor content to users of iVillage's
network and may also be provided to advertisers on an aggregate basis. In
addition, advertisers may themselves use cookies to track user behavior and
preferences. Germany has imposed laws limiting the use of cookies, and a number
of Internet commentators, advocates and governmental bodies in the United States
and other countries have urged the passage of laws limiting or abolishing the
use of cookies. If these laws are passed, it may become more difficult for
iVillage to tailor content to its users, making iVillage's network less
attractive to users. Similarly, the unavailability of cookies may restrict the
use of tailored advertising, making iVillage's network less attractive to
advertisers and causing iVillage to lose significant advertising revenues.
-54-
Government regulation and legal uncertainties could add additional costs to
doing business on the Internet.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet. Laws and regulations may be adopted
in the future that address issues such as user privacy, pricing and taxation,
content, copyrights, distribution, antitrust matters and the characteristics and
quality of products and services, however. Moreover, it may take years to
determine the extent to which existing laws relating to issues such as property
ownership, obscenity, libel and personal privacy are applicable to the Internet
or the application of laws and regulations from jurisdictions whose laws do not
currently apply to iVillage's business. Any new laws or regulations relating to
the Internet could adversely affect iVillage's business.
Due to the global nature of the Internet, it is possible that, although
iVillage's transmissions over the Internet originate primarily in New York, the
governments of other states and foreign countries might attempt to regulate
iVillage's business activities. In addition, because iVillage's service is
available over the Internet in multiple states and foreign countries, these
jurisdictions may require iVillage to qualify to do business as a foreign
corporation in each of these states or foreign countries, which could subject
iVillage to taxes and other regulations.
iVillage's operation of Lamaze Publishing and The Newborn Channel poses a number
of risks that could materially adversely affect iVillage's business strategy.
There are a number of risks in operating Lamaze Publishing and The
Newborn Channel, which are primarily non-Internet businesses, including:
o the competitiveness of the media and publishing industry;
o iVillage's limited experience in operating a multi-media publishing
company;
o iVillage's ability to identify and predict trends in a timely manner
that may impact consumer tastes in baby-related information in
Lamaze Publishing's publications and on The Newborn Channel;
o iVillage's ability to continue to sell advertising and sponsorships
on its Web sites and in Lamaze Publishing's magazines, videos and
Web site, and on The Newborn Channel;
o iVillage's ability to continue to commercialize and protect the
Lamaze mark; and
o iVillage's ability to maintain and market the Lamaze.com Web site.
iVillage's inability to perform the functions required for the
operation of Lamaze Publishing and The Newborn Channel in an efficient and
timely manner could result in a disruption of operations of Lamaze Publishing
and The Newborn Channel that could have a material adverse effect on iVillage's
business strategy.
Satellite transmissions over The Newborn Channel may be interrupted.
Through iVillage Integrated Properties, iVillage operates The Newborn
Channel, a satellite television network broadcast in over 1,100 hospitals in the
United States. There is a risk that the satellite from which the transmission is
sent may malfunction, interrupting The Newborn Channel's broadcasts. In the
event this occurs, there may be a period of time before The Newborn Channel can
transmit to and from another satellite. Any interruption in iVillage's ability
to transmit The Newborn Channel could have an adverse effect on its business. In
addition, extreme adverse weather or third parties could damage or disable
receivers and transmitters on the ground and hinder transmissions.
-55-
If iVillage fails to attract and retain key personnel, iVillage's business would
be materially adversely affected.
iVillage's future success depends to a significant extent on the
continued services of iVillage's senior management and other key personnel,
particularly Douglas W. McCormick, iVillage's Chairman of the Board and Chief
Executive Officer. The loss of the services of Mr. McCormick would likely harm
iVillage's business. iVillage currently does not maintain "key person" life
insurance for any of iVillage's senior management.
iVillage may be unable to retain its key employees or attract,
assimilate or retain other highly qualified employees in the future. iVillage
has from time to time experienced, and expects to continue to experience,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications as a result of its relatively low common stock price. As a
result, iVillage has in the past and may in the future incur increased salaries
and benefits. If iVillage does not succeed in attracting new personnel or
retaining and motivating its current personnel, iVillage's business will be
materially adversely affected.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
None.
Item 8. Consolidated Financial Statements and Supplementary Data.
The financial statements required by Item 8 are included in this Form
10-K beginning on Page F-2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
With the exception of the information included below regarding certain
of iVillage's executive officers, the information required herein will be
reported in iVillage's definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 23, 2002, which will be filed with the SEC on or
before April 30, 2002, and is incorporated herein by reference.
-56-
Executive Officers Who Are Not Directors
Nancy R. Alpert, age 48, has been Senior Vice President, Corporate
Development since October 2000. From 1994 to 2000, Ms. Alpert served as Senior
Vice President, Business and Legal Affairs at Lifetime Television, a joint
venture of The Hearst Corporation and The Walt Disney Company. From 1992 to
1994, Ms. Alpert was Deputy General Counsel at Liz Claiborne, Inc., and from
1987 to 1992, Ms. Alpert served as Vice President and Deputy General Counsel at
Telemundo Group, Inc., a U.S. Spanish-language broadcast television network. Ms.
Alpert received a J.D. from the UCLA School of Law and a B.A. from Brandeis
University.
Vanessa Benfield, age 34, has been Senior Vice President, Sales since
October 2001. From May 2001 to October 2001, Ms. Benfield served as Vice
President, National Sales at GetMusic, Universal Music Group's online music and
media network. Ms. Benfield was Vice President, Sales of Universal Music's
FarmClub.com unit, an online record label, from its inception in February 2000
to May 2001. From April 1996 to February 2000, Ms. Benfield was Manager, Eastern
Region Advertising Sales at Comedy Central and, from June 1993 to April 1996,
she was an Account Executive and then Manager, Eastern Region Advertising Sales
at E! Entertainment Television. Prior to June 1993, Ms. Benfield served as
Manager of National Sales, Northeast Region at the Cable Television Advertising
Bureau, a National Broadcast Buyer at Saatchi & Saatchi, and a Network
Negotiator at J. Walter Thompson, all located in New York. Ms. Benfield received
a B.A. from Clemson University.
Richard Caccappolo, age 36, has been Senior Vice President, iVillage
Solutions since November 2001. From September 2000 to November 2001, Mr.
Caccappolo served as Chief Technology Officer and Senior Vice President of
Product Development and, from March 1999 to September 2000, as Chief Technology
Officer. From January 1998 to March 1999, Mr. Caccappolo served as the Chief
Technology Officer of Kodak Polychrome Graphics, a supplier of products and
services to graphics arts industries. From October 1994 to December 1997, Mr.
Caccappolo served as Sun Chemicals' Director, Information Systems - Europe. Mr.
Caccappolo received an M.B.A. from New York University, Leonard N. Stern School
of Business and a B.S. from Cornell University.
Steven A. Elkes, age 40, has been Executive Vice President, Operations
and Business Affairs since July 2000 and Secretary since October 1999. From
April 1999 to July 2000, Mr. Elkes was Senior Vice President, Business Affairs.
From August 1996 to April 1999, Mr. Elkes was Vice President, Business Affairs.
From August 1993 to August 1996, Mr. Elkes was Vice President Credit/Structured
Finance at CNA Insurance Company. From August 1991 to August 1993, Mr. Elkes
served as Assistant Vice President at CNA Insurance Company. Mr. Elkes received
an M.B.A. from Baruch College and a B.A. from Grinnell College.
Scott Levine, age 37, has been Chief Financial Officer since January
2001. From September 2000 until January 2001, Mr. Levine was Senior Vice
President, Finance and interim Chief Financial Officer. From February 1999 to
September 2000, Mr. Levine was Vice President, Controller and Chief Accounting
Officer. From July 1998 to February 1999, Mr. Levine was Controller for FundTech
Ltd., a financial software company. From April 1997 to July 1998, Mr. Levine was
the Controller of AmeriCash, Inc., an operator of a network of automated teller
and electronic commerce machines. From 1993 to 1997, Mr. Levine was employed by
Coopers & Lybrand L.L.P. Mr. Levine is a Certified Public Accountant and
received an M.B.A. from Baruch College and a B.A. from State University of New
York, Buffalo.
-57-
Jane Tollinger, age 59, has been Senior Vice President, Operations and
Business Affairs since September 2000 and from June 2000 to September 2000
served as Vice President, Business Affairs. From June 1999 to June 2000, Ms.
Tollinger served on several advisory boards. From September 1993 through June
1999, Ms. Tollinger served as Executive Vice President of Lifetime Television
Network. Prior to September 1993, Ms. Tollinger held various management
positions at Lifetime Television Network. Prior to joining Lifetime Television
Network, Ms. Tollinger was an attorney with Columbia Pictures and previous to
that was an associate with the Coudert Brothers law firm. Ms. Tollinger received
a J.D. from Columbia Law School, an M.A. from Harvard University and a B.A. from
Beloit College.
Item 11. Executive Compensation.
The information required herein will be reported in iVillage's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 23, 2002, which will be filed with the SEC on or before April 30, 2002, and
is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The information required herein will be reported in iVillage's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 23, 2002, which will be filed with the SEC on or before April 30, 2002, and
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required herein will be reported in iVillage's
definitive proxy statement for the Annual Meeting of Stockholders to be held on
May 23, 2002, which will be filed with the SEC on or before April 30, 2002, and
is incorporated herein by reference.
-58-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as a part of this Report:
1. The following consolidated financial statements are included in Item 8
of this Report:
Page Number in
this Report
--------------
Report of Independent Accountants ...................................... F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000............ F-3
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999........................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999........................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999..................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
2. Financial Statement Schedules:
Page Number in
this Report
--------------
Schedule I - Valuation and Qualifying Accounts........................... S-1
All other schedules to the consolidated financial statements for which
provision is made in the accounting regulations of the SEC are not
required under the related instructions or are inapplicable and
therefore have been omitted.
-59-
3. Exhibits:
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Merger, dated as of February 11, 2002,
by and among the Registrant, Virgil Acquisition Corp. and
Promotions.com, Inc. (attached as Annex A-1 to the prospectus
filed as part of Registration Statement File No. 333-84532).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as of
March 13, 2002, by and among the Registrant, Virgil
Acquisition Corp. and Promotions.com, Inc. (attached as Annex
A-2 to the prospectus filed as part of Registration Statement
File No. 333-84532).
2.3 Berg Stockholder Agreement, dated as of February 11, 2002, by
and among the Registrant, Virgil Acquisition Corp. and Ian J.
Berg (incorporated by reference from Exhibit 3 to the
Registrant's Statement on Schedule 13D filed February 21,
2002).
2.4 Stockholder Agreement, dated as of February 11, 2002, by and
among the Registrant, Virgil Acquisition Corp. and The
Travelers Insurance Company (incorporated by reference from
Exhibit 4 to the Registrant's Statement on Schedule 13D filed
February 21, 2002).
2.5 Stockholder Agreement, dated as of February 11, 2002, by and
among the Registrant, Virgil Acquisition Corp. and Steven
Krein (incorporated by reference from Exhibit 5 to the
Registrant's Statement on Schedule 13D filed February 21,
2002).
2.6 Stockholder Agreement, dated as of February 11, 2002, by and
among the Registrant, Virgil Acquisition Corp. and Daniel J.
Feldman (incorporated by reference from Exhibit 6 to the
Registrant's Statement on Schedule 13D filed February 21,
2002).
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference from Exhibit 3.1 to the
Registrant's Form 10-Q Quarterly Report for the period ended
September 30, 2001, File No. 000-25469).
3.2 By-Laws of the Registrant (incorporated by reference from
Exhibit 3.2 to the Registrant's Form 10-Q Quarterly Report for
the period ended June 30, 2001, File No. 000-25469).
4.1 Form of Registrant's common stock certificate (incorporated by
reference from Exhibit 4.1 to Registration Statement File No.
333-68749).
10.1 Form of Indemnification Agreement between the Registrant and
its directors and officers (incorporated by reference from
Exhibit 10.1 to Registration Statement File No. 333-68749).
10.2 1995 Amended and Restated Employee Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 10.2 to
Registration Statement File No. 333-68749).
10.3 1997 Amended and Restated Acquisition Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 10.3 to
Registration Statement File No. 333-68749).
10.4 Amended and Restated 1999 Employee Stock Option Plan of the
Registrant (incorporated by reference from Exhibit 99.1 to
Registration Statement File No. 333-31988).
-60-
Exhibit
Number Description
------ -----------
10.5 1999 Director Option Plan of the Registrant (incorporated by
reference from Exhibit 10.5 to Registration Statement File No.
333-85437).
10.6 1999 Employee Stock Purchase Plan of the Registrant
(incorporated by reference from Exhibit 10.6 to Registration
Statement File No. 333-85437).
10.7 1999 Acquisition Stock Option Plan of the Registrant
(incorporated by reference from Exhibit 10.7 to Registration
Statement File No. 333-85437).
10.8 Amended and Restated 1999 Non-Qualified Stock Option Plan of
the Registrant, as amended by Amendment Number 2 (incorporated
by reference from Exhibit 10.8 to Registration Statement File
No. 333-84532).
10.9 2001 Non-Qualified Stock Option Plan of the Registrant
(incorporated by reference from Exhibit 10.1 to the
Registrant's Form 10-Q Quarterly Report for the period ended
September 30, 2001, File No. 000-25469).
10.10 Letter Agreement, dated November 11, 1998, between the
National Broadcasting Company, Inc. ( "NBC ") and the
Registrant (incorporated by reference from Exhibit 10.14 to
Registration Statement File No. 333-68749).
10.11 Amended Letter Agreement, dated as of March 9, 1999, between
the Registrant and NBC (incorporated by reference from Exhibit
10.27 to Registration Statement File No. 333-68749).
10.12 Amendment, dated February 1, 2001, to Letter Agreement dated
March 9, 1999 between NBC and the Registrant (incorporated by
reference from Exhibit 10.18 to Registration Statement File
No. 333-56150).
10.13 Amendment to Letter Agreement, dated February 22, 2002,
between NBC and the Registrant (incorporated by reference from
Exhibit 10.13 to Registration Statement File No. 333-84532).
10.14 Second Addendum to Interactive Services Agreement, dated
February 20, 2000, between the Registrant and America Online,
Inc. (incorporated by reference from Exhibit 10.10.1 to
Registration Statement File No. 333-56150).
10.15 Form of Non-Competition, Non-Disclosure and Assignment of
Inventions Agreement dated September 9, 1995, and Amendment
dated May 6, 1996, between the Registrant and Nancy Evans
(incorporated by reference from Exhibit 10.18 to Registration
Statement File No. 333-68749).
10.16 Note and Warrant Purchase Agreement dated as of February 27,
1997, as amended on April 29, 1997, among the Registrant,
America Online, Inc., Tribune Company, KPCB VII and KPCB
Zaibatsu II, including Form of Warrant (incorporated by
reference from Exhibit 10.22 to Registration Statement File
No. 333-68749).
-61-
Exhibit
Number Description
------ -----------
10.17 License Agreement, dated as of September 3, 1999, by and
between PlanetRx.com, Inc. and the Registrant (incorporated by
reference from Exhibit 10.39 to Registration Statement File
No. 333-85437).
10.18 Lease, dated March 14, 2000, between 500-512 Seventh Avenue
Limited Partnership and the Registrant (incorporated by
reference from Exhibit 10.1 to the Registrant's Form 10-Q
Quarterly Report for the period ended March 31, 2000, File No.
000-25469).
10.19 First Amendment to Lease, dated as of June 7, 2000, between
the Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference from Exhibit 10.3 to the
Registrant's Form 10-Q Quarterly Report for the period ended
September 30, 2000, File No. 000-25469).
10.20 Second Amendment to Lease, dated January 10, 2001, between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference from Exhibit 10.28 to Registration
Statement File No. 333-56150).
10.21 Third Amendment to Lease, dated October 17, 2001, between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference from Exhibit 10.2 to the
Registrant's Form 10-Q Quarterly Report for the period ended
September 30, 2001, File No. 000-25469).
10.22 Fourth Amendment to Lease, dated December 3, 2001, between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference from Exhibit 10.22 to Registration
Statement File No. 333-84532).
10.23 License Agreement, dated as of September 8, 2000, among Lamaze
International, Inc., Lamaze Publishing Company and the
Registrant (incorporated by reference from Exhibit 10.2 to the
Registrant's Form 10-Q Quarterly Report for the period ended
September 30, 2000, File No. 000-25469).
10.24 Employment Agreement, dated November 29, 2000, between Douglas
McCormick and the Registrant (incorporated by reference from
Exhibit 10.31 to Registration Statement File No. 333-56150).
10.25 Amended and Restated Securities Purchase Agreement, dated as
of February 22, 2001, between the Registrant and Hearst
Communications, Inc. (incorporated by reference from Exhibit
10.32 to Registration Statement File No. 333-56150).
10.26 Amended and Restated Stockholder Agreement, dated as of June
20, 2001, between the Registrant and Hearst Communications,
Inc. (incorporated by reference from Exhibit 10.26 to
Registration Statement File No. 333-84532).
10.27 Amended and Restated Magazine Content License and Hosting
Agreement, dated January 29, 2001, between Hearst.
Communications, Inc. and Women.com Networks, Inc.
(incorporated by reference from Exhibit 10.27 to Registration
Statement File No. 333-84532).
10.28 Amendment Number 2 to Amended and Restated Magazine Content
License and Hosting Agreement (incorporated by reference from
Exhibit 10.35 to Registration Statement File No. 333-56150).
-62-
Exhibit
Number Description
------ -----------
10.29 Promissory Note, dated June 5, 1998, in the amount of $500,000
between Candice Carpenter and the Registrant (incorporated by
reference from Exhibit 10.23 to Registration Statement File
No. 333-68749).
10.30 Amendment No. 1 to Promissory Note, dated as of April 1, 2001,
between Candice Carpenter and the Registrant (incorporated by
reference from Exhibit 10.22.1 to Registrant's Form 10-K
Annual Report for the period ended December 31, 2000, File No.
000-25469).
10.31 Letter Agreement, dated as of October 5, 2000, between the
Registrant and Candice Carpenter (incorporated by reference
from Exhibit 10.34 to Registration Statement File No.
333-56150).
10.32 Amendment to Letter Agreement, dated as of April 1, 2001,
between the Registrant and Candice Carpenter (incorporated by
reference from Exhibit 10.35.1 to Registrant's Form 10-K
Annual Report for the period ended December 31, 2000, File No.
000-25469).
10.33 Amendment No. 2 to Letter Agreement, dated as of April 6,
2001, between the Registrant and Candice Carpenter
(incorporated by reference from Exhibit 10.41.1 to
Registration Statement File No. 333-56150).
21 Subsidiaries of the Registrant (incorporated by reference from
Exhibit 21 to Registration Statement File No. 333-84532).
23.1 Consent of PricewaterhouseCoopers LLP.
(b) Reports on Form 8-K:
Reports on Form 8-K were filed on October 25, 2001, November 14,
2001, and December 7, 2001, each reporting under Item 5.
-63-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
iVillage Inc.
(Registrant)
Date: March 27, 2002 By: /s/ Douglas W. McCormick
-------------------------
Douglas W. McCormick
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
- --------- -------- ----
/s/ Douglas W. McCormick Chairman and Chief Executive Officer March 27, 2002
- --------------------------- (Principal Executive Officer)
Douglas W. McCormick
/s/ Scott Levine Chief Financial Officer March 27, 2002
- --------------------------- (Principal Financial and Accounting Officer)
Scott Levine
/s James Asher Director March 27, 2002
- ---------------------------
James Asher
/s/ Cathleen Black Director March 27, 2002
- ---------------------------
Cathleen Black
/s/ Nancy Evans Director March 27, 2002
- ---------------------------
Nancy Evans
/s/ John T. Healy Director March 27, 2002
- ---------------------------
John T. Healy
/s/ Habib Kairouz Director March 27, 2002
- ---------------------------
Habib Kairouz
/s Lennert J. Leader Director March 27, 2002
- ---------------------------
Lennert J. Leader
/s/ Edward T. Reilly Director March 27, 2002
- ---------------------------
Edward T. Reilly
/s/ Daniel Schulman Director March 27, 2002
- ---------------------------
Daniel Schulman
/s/ Alfred Sikes Director March 27, 2002
- ---------------------------
Alfred Sikes
-64-
iVILLAGE INC. AND SUBSIDIARIES
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following consolidated financial statements of iVillage Inc. are
included in Item 8:
Report of Independent Accountants ........................................ F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000 ............. F-3
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999.......................................... F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2001, 2000 and 1999.................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999.......................................... F-6
Notes to Consolidated Financial Statements ............................... F-7
Schedule I - Valuation and Qualifying Accounts ........................... S-1
All other schedules to the consolidated financial statements for which
provision is made in the accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable
and therefore have been omitted.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of iVillage Inc.:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 on page 59 present fairly, in all material respects, the
financial position of iVillage Inc. and its subsidiaries at December 31, 2001
and December 31, 2000, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2001 in conformity
with accounting principles generally accepted in the United States of America.
In addition, in our opinion, the financial statement schedule listed in the
index appearing under Item 14 on page 59 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
January 31, 2002
Except for Note 12 as to which the
date is February 22, 2002
F-2
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
---------------------
2001 2000
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents............................ $ 29,831 $ 48,963
Accounts receivable, less allowance for doubtful
accounts of $2,286 and $1,007, respectively......... 6,722 7,864
Other current assets................................. 13,668 9,700
--------- ---------
Total current assets .............................. 50,221 66,527
Restricted cash ....................................... 8,474 9,250
Fixed assets, net ..................................... 21,465 20,057
Goodwill and other intangible assets, net ............. 51,903 36,432
Other assets .......................................... 324 137
Non-current assets of discontinued operations ......... -- 56
--------- ---------
Total assets ...................................... $ 132,387 $ 132,459
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses................ $ 16,070 $ 18,695
Deferred revenue..................................... 2,734 6,337
Deferred rent........................................ 348 361
Net current liabilities of discontinued operations... 103 882
--------- ---------
Total current liabilities ......................... 19,255 26,275
Deferred rent, net of current portion ................. 4,273 4,818
--------- ---------
Total liabilities ................................. 23,528 31,093
Minority interest ..................................... 102 --
Commitments and contingencies
Stockholders' equity:
Preferred stock--par value $.01, 5,000,000 shares
authorized, no shares issued and outstanding at
December 31, 2001 and 2000, respectively............. -- --
Common stock--par value $.01, 200,000,000 and
65,000,000 shares authorized at December 31, 2001 and
2000, respectively; 53,812,285 and 29,706,770 shares
issued at December 31, 2001 and 2000, respectively;
52,608,839 and 29,706,770 shares outstanding at
December 31, 2001 and 2000, respectively............. 538 297
Additional paid-in capital ............................ 544,006 495,758
Accumulated deficit ................................... (432,781) (384,316)
Treasury stock at cost (1,203,446 shares) ............. (502) --
Stockholders' notes receivable ........................ (1,982) (7,148)
Unearned compensation and deferred advertising ........ (522) (3,225)
--------- ---------
Total stockholders' equity ........................ 108,757 101,366
--------- ---------
Total liabilities and stockholders' equity ........ $ 132,387 $ 132,459
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
---------------------------------
2001 2000 1999
-------- --------- ---------
Revenue....................................................................................... $ 60,041 $ 76,352 $ 36,576
Operating expenses:
Editorial, product development and technology............................................... 33,500 35,327 20,652
Sales and marketing......................................................................... 30,211 46,711 46,061
Sales and marketing--NBC/Hearst expenses.................................................... 5,967 7,387 17,465
General and administrative.................................................................. 17,702 22,634 13,164
Depreciation and amortization............................................................... 23,529 37,681 25,720
Impairment of goodwill...................................................................... -- 98,056 --
-------- --------- ---------
Total operating expenses.................................................................. 110,909 247,796 123,062
-------- --------- ---------
Loss from operations.......................................................................... (50,868) (171,444) (86,486)
Interest income, net........................................................................ 2,285 5,261 4,085
Other (expense) income, net................................................................. (43) 595 271
Write-down of note receivable and investments............................................... (104) (13,496) --
Loss from unconsolidated joint venture...................................................... (127) (422) --
Gain on sale of assets...................................................................... 385 -- --
-------- --------- ---------
Net loss before minority interest............................................................. (48,472) (179,506) (82,130)
Minority interest............................................................................. 7 -- --
-------- --------- ---------
Net loss from continuing operations........................................................... (48,465) (179,506) (82,130)
Discontinued operations -- (11,922) (10,871)
-------- --------- ---------
Net loss...................................................................................... $(48,465) $(191,428) $ (93,001)
-------- --------- ---------
Preferred stock deemed dividend............................................................... -- -- (23,612)
-------- --------- ---------
Net loss attributable to common stockholders.................................................. $(48,465) $(191,428) $(116,613)
======== ========= =========
Basic and diluted net loss per share from continuing operations............................... $ (1.13) $ (6.05) $ (3.93)
======== ========= =========
Basic and diluted net loss per share from discontinuing operations............................ $ -- $ (0.40) $ (0.52)
======== ========= =========
Basic and diluted net loss per share attributable to common stockholders...................... $ (1.13) $ (6.45) $ (5.58)
======== ========= =========
Weighted average shares of common stock outstanding used in computing basic and diluted net
loss per share.............................................................................. 42,807 29,683 20,901
======== ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Convertible
Preferred Stock
Series A-E Common Stock Additional Treasury Stockholders'
-------------------- ------------------- Paid in Stock at Notes
Shares Amount Shares Amount Capital Cost Receivable
------ ------ ------ ------ ------- ---- ----------
Balance at January 1, 1999 ........... 43,702,139 $ 22 2,113,385 $ 21 $112,849 $ -- $ (565)
Conversion of preferred stock ........ (43,702,139) (22) 14,785,205 148 (126)
Issuance of common stock in
connection with initial public
offering, net ...................... 4,197,500 42 91,347
Issuance of common stock in
connection with secondary public
offering, net ...................... 2,700,000 27 70,783
Issuance of common stock in
connection with business
acquisitions ....................... 3,883,649 39 172,886
Issuance of common stock and
warrants to NBC .................... 1,629,677 16 19,965 (15,498)
Issuance of common stock in
connection with the exercise of
stock options and warrants ......... 282,362 3 965
Issuance of stock options to
employees, consultants and
directors .......................... 2,618
Preferred stock deemed dividend ..... 23,612
Amortization of unearned
compensation and deferred
advertising costs ..................
Repayment of stockholder notes
receivable ......................... 3,875
Net loss ............................
----------- ---- ---------- ---- -------- ----- --------
Balance at December 31, 1999 ......... -- -- 29,591,778 296 494,899 -- (12,188)
Additional costs in connection with
secondary public offering .......... (451)
Issuance of common stock in
connection with the exercise of
stock options ...................... 114,992 1 897
Extension of stock option life ...... 413
Notes receivable due from
stockholders in connection with
exercise of options ................ (166)
Amortization of unearned
compensation and deferred
advertising costs ..................
Repayment of stockholders' notes
receivable ......................... 5,206
Net loss ............................
----------- ---- ---------- ---- -------- ----- --------
Balance at December 31, 2000 ......... -- -- 29,706,770 297 495,758 -- (7,148)
Issuance of common stock in
connection with business
acquisition, net ................... 14,776,469 148 28,339
Issuance of common stock in
connection with rights offering,
net ................................ 9,324,000 93 19,907
Issuance of common stock in
connection with the exercise of
stock options ...................... 5,046 2
Repurchase of common stock .......... (1,203,446) (502)
Amortization of unearned
compensation and deferred
advertising costs ..................
Repayment of stockholder notes
receivable ......................... 5,166
Net loss ............................
----------- ---- ---------- ---- -------- ----- --------
Balance at December 31, 2001 ......... -- $ -- 52,608,839 $538 $544,006 $(502) $ (1,982)
=========== ==== ========== ==== ======== ===== ========
Unearned
Compensation
and Deferred
Advertising Accumulated
Cost Deficit Total
---- ------- -----
Balance at January 1, 1999 ........... $(4,030) $ (76,275) $ 32,022
Conversion of preferred stock ........ --
Issuance of common stock in
connection with initial public
offering, net ...................... 91,389
Issuance of common stock in
connection with secondary public
offering, net ...................... 70,810
Issuance of common stock in
connection with business
acquisitions ....................... 172,925
Issuance of common stock and
warrants to NBC .................... (4,483) --
Issuance of common stock in
connection with the exercise of
stock options and warrants ......... 968
Issuance of stock options to
employees, consultants and
directors .......................... (2,618) --
Preferred stock deemed dividend ..... (23,612) --
Amortization of unearned
compensation and deferred
advertising costs .................. 4.862 4,862
Repayment of stockholder notes
receivable ......................... 3,875
Net loss ............................ (93,001) (93,001)
------- --------- ---------
Balance at December 31, 1999 ......... (6,269) (192,888) 283,850
Additional costs in connection with
secondary public offering .......... (451)
Issuance of common stock in
connection with the exercise of
stock options ...................... 898
Extension of stock option life ...... 413
Notes receivable due from
stockholders in connection with
exercise of options ................ (166)
Amortization of unearned
compensation and deferred
advertising costs .................. 3,044 3,044
Repayment of stockholders' notes
receivable ......................... 5,206
Net loss ............................ (191,428) (191,428)
------- --------- ---------
Balance at December 31, 2000 ......... (3,225) (384,316) 101,366
Issuance of common stock in
connection with business
acquisition, net ................... 28,487
Issuance of common stock in
connection with rights offering,
net ................................ 20,000
Issuance of common stock in
connection with the exercise of
stock options ...................... 2
Repurchase of common stock .......... (502)
Amortization of unearned
compensation and deferred
advertising costs .................. 2,703 2,703
Repayment of stockholder notes
receivable ......................... 5,166
Net loss ............................ (48,465) (48,465)
------- --------- ---------
Balance at December 31, 2001 ......... $ (522) $(432,781) $ 108,757
======= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
--------------------------------
2001 2000 1999
-------- --------- --------
Cash flows from operating activities:
Net loss..................................................................................... $(48,465) $(191,428) $(93,001)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense............................................................................. -- 277 500
Depreciation and amortization................................................................ 23,529 37,681 25,720
Expense recognized in connection with issuance of warrants and stock options................. 2,703 3,457 4,862
Write-down of note receivable and investments................................................ 104 13,496 --
Deferred rent................................................................................ (357) (170) --
Gain on sale of assets....................................................................... (385) -- --
Print advertising expense.................................................................... 1,765 -- --
Loss from unconsolidated joint venture....................................................... 127 422 --
Minority interest............................................................................ (7) -- --
Loss from discontinued operations............................................................ -- 11,922 10,871
Impairment of goodwill....................................................................... -- 98,056 --
Changes in operating assets and liabilities:
Accounts receivable.......................................................................... 3,921 (1,521) (3,393)
Restricted cash and other assets............................................................. 3,314 (9,633) (2,979)
Accounts payable and accrued expenses........................................................ (26,021) 4,396 (635)
Deferred revenue............................................................................. (5,788) (6,345) 9,583
Other liabilities............................................................................ -- -- (157)
-------- --------- --------
Net cash used in operating activities of continuing operations............................. (45,560) (39,390) (48,629)
-------- --------- --------
Cash flows from investing activities:
Purchase of fixed assets..................................................................... (5,254) (16,745) (3,922)
Acquisitions of businesses and Web sites, net of cash acquired............................... 9,578 -- (21,475)
Investment in Cooperative Beauty Ventures, L.L.C............................................. (300) -- --
Investment in marketable and non-marketable securities....................................... -- (1,000) (7,500)
-------- --------- --------
Net cash provided by (used in) investing activities of continuing operations .................. 4,024 (17,745) (32,897)
-------- --------- --------
Cash flows from financing activities:
Proceeds (payments) from issuance of common stock, net....................................... 18,910 (451) 162,199
Principal payments on stockholders' notes receivable......................................... 5,166 5,206 3,875
Proceeds from exercise of stock options...................................................... 2 730 968
Principal payments on long term debt and capital leases...................................... (449) -- (136)
Repurchase of common stock................................................................... (502) -- --
-------- --------- --------
Net cash provided by financing activities of continuing operations......................... 23,127 5,485 166,906
-------- --------- --------
Cash used in discontinued operations........................................................... (723) (5,397) (10,195)
Net (decrease) increase in cash for the period................................................. (19,132) (57,047) 75,185
Cash and cash equivalents, beginning of period................................................. 48,963 106,010 30,825
-------- --------- --------
Cash and cash equivalents, end of period....................................................... $ 29,831 $ 48,963 $106,010
======== ========= ========
Cash paid during the period for interest....................................................... $ 32 $ 78 $ 25
======== ========= ========
Cash paid during the period for taxes.......................................................... $ 572 $ 295 $ 110
======== ========= ========
Supplemental disclosure of non-cash investing and financing activities:
During 1999, in connection with the Company's IPO, all preferred stock was
converted into common stock (see Notes 1 and 10).
During 1999, iVillage acquired several companies and a Web site domain name
through the issuance of stock (see Note 6).
During 2001, iVillage acquired Women.com Networks, Inc. through the issuance
of stock (see Note 6).
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Organization and Basis of Presentation
iVillage Inc. ("iVillage" or the "Company") was incorporated in the State of
Delaware on June 8, 1995 and commenced operations on July 1, 1995. iVillage is
a leading women's media company and the number one source for women's
information online. iVillage includes iVillage.com, Women.com, Business
Women's Network ("BWN"), Lamaze Publishing, The Newborn Channel, iVillage
Solutions and Astrology.com. iVillage.com is a leading online women's
destination providing practical solutions and everyday support for women 18
and over. Lamaze Publishing produces advertising-supported educational
materials for expectant and new parents. The Newborn Channel is a satellite
television network in over 1,100 hospitals nationwide. BWN offers one of the
most extensive databases of women's organizations and Web sites in the nation
to subscribing companies and members.
In March 1999, the Company completed an initial public offering ("IPO") of
4,197,500 shares of the Company's common stock resulting in net proceeds of
approximately $91.4 million. Upon closing of the IPO, all classes of
outstanding convertible preferred stock converted into common stock on a one
for one ratio.
In November 1999, the Company completed a secondary public offering of
2,700,000 shares of the Company's common stock resulting in net proceeds of
approximately $70.8 million.
The Company has sustained net losses and negative cash flows from operations
since its inception. The Company's ability to meet its obligations in the
ordinary course of business is dependent upon its ability to achieve
profitable operations and/or raise additional financing through public or
private equity financings, collaborative or other arrangements with corporate
sources, or other sources of financing to fund operations. However, there is
no assurance that the Company will achieve profitable operations or that it
will be able to raise adequate financing from other sources. Management
believes that its current funds will be sufficient to enable the Company to
meet its planned expenditures through the next twelve months. If anticipated
operating results are not achieved, management has the intent and believes it
has the ability to delay or reduce expenditures so as not to require
additional financial resources, if such resources were not available on terms
acceptable to the Company.
The Company is subject to the risks, expenses and uncertainties frequently
encountered by companies in the new and rapidly evolving markets for Internet
products and services. These risks include the failure to develop and extend
the Company's online service brands, the nonacceptance or rejection of the
Company's services by Web consumers, vendors, sponsors and/or advertisers and
the inability of the Company to maintain and increase the levels of traffic on
its online services, as well as other risks and uncertainties. In the event
the Company does not successfully implement its business plan, certain assets
may not be recoverable.
Note 2 -- Significant Accounting Policies and Procedures
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Intercompany balances and transactions have been
eliminated.
Revenue Recognition
To date, the Company's revenues have been derived primarily from the sale of
sponsorship and advertising contracts.
Sponsorship revenues are derived principally from contracts ranging from one
to three years. Sponsorships are designed to support the customer's broad
marketing objectives, including brand promotion, awareness, product
introductions and online research. Sponsorship agreements typically include
the delivery of impressions on iVillage's Web sites and occasionally the
design and development of customized sites that enhance the promotional
objectives of the sponsor. An impression is the viewing of promotional
material on a
F-7
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Significant Accounting Policies and Procedures -- (Continued)
Web page, which may include banner advertisements, links, buttons, or other
text or images. As part of certain sponsorship agreements, sponsors who also
sell products may provide the Company with a commission on sales of their
products generated through iVillage's Web sites. To date, these amounts have
not been significant.
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Sponsorship and advertising revenues are recognized ratably
over the period in which the advertisement is displayed, provided that the
Company has no continuing obligations and collection of the receivable is
reasonably assured, at the lesser of the ratio of impressions delivered over
total guaranteed impressions or the straight-line basis over the term of the
contract. To the extent that minimum guaranteed impressions are not met,
iVillage defers recognition of the corresponding revenues until the guaranteed
impressions are achieved. Sponsorship and advertising revenues were
approximately 80%, 92% and 95% of total revenues for the years ended December
31, 2001, 2000 and 1999, respectively.
Included in sponsorship and advertising revenues are revenues from
advertising placements in Lamaze Publishing's publications, videos and Web
site and satellite broadcasts on The Newborn Channel. In addition, revenues
are generated through a sampling and coupon program, which offers advertisers
the ability to distribute samples, coupons and promotional literature to new
and expectant mothers. Revenues from Lamaze Publishing and The Newborn Channel
accounted for approximately 26%, 20% and 10% of sponsorship and advertising
revenues for the years ended December 31, 2001, 2000 and 1999 respectively.
Sponsorship and advertising revenues also include barter revenues, which
represent exchanges by the Company of advertising space on the Company's Web
sites for reciprocal advertising space or traffic on other Web sites. Revenues
and expenses from these barter transactions are recorded based upon the fair
value of the advertisements delivered. Fair value of advertisements delivered
is based upon the Company's recent practice of receiving cash from similar
advertisers. Barter revenues are recognized when the advertisements are
displayed on iVillage.com and its affiliated properties. Barter expenses are
recognized at the value of advertisements received when the Company's
advertisements are displayed on the reciprocal Web sites or properties, which
is typically in the same period as when advertisements are displayed on
iVillage.com and its affiliated properties, and are included as part of sales
and marketing expenses. Revenues from barter transactions were approximately
$2.8 million, $3.6 million and $3.3 million for the years ended December 31,
2001, 2000 and 1999, respectively.
iVillage Solutions is a business unit within iVillage that provides
production and back-end provisioning for customers in need of these services.
The Company recognizes revenues from production services based upon actual
hours worked at its negotiated hourly rates and/or fixed fees stipulated in
contracts.
BWN is one of the most comprehensive sources of information and program
linkage to the women's market around the world and offers one of the most
extensive databases of women's organizations and Web sites in the nation to
subscribing companies and members. Revenues from BWN are generated primarily
through subscription-based programs that convey current best practices for
women and diversity issues in the workplace. The Company recognizes revenue
from these subscriptions ratably over the term of the contract.
Revenues from the e-commerce portion of Astrology.com consist of the sale of
astrological charts and other related products to visitors to the
Astrology.com Web site. The Company recognizes revenues from Astrology.com
product sales, net of any discounts, when products are shipped to customers
and the collection of the receivable is reasonably assured.
The Company received fees from the licensing of portions of its content in
connection with the PlanetRx.com, Inc. ("PlanetRx.com") relationship. These
fees are recognized on a straight-line basis over the life of the contract,
which ends in the first quarter of 2002.
F-8
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Significant Accounting Policies and Procedures -- (Continued)
In 2001, 2000 and 1999, revenues from the Company's five largest customers
accounted for approximately 37%, 23% and 20% of total revenues, respectively.
In 2001, one customer, Unilever PLC (including its affiliates, "Unilever"),
accounted for 12% of total revenues, and in 2000 and 1999, no one customer
accounted for more than 10% of total revenues. At December 31, 2001, Hearst
Communications, Inc. (including its affiliates, "Hearst"), a related party,
and Unilever accounted for 14% and 10% of the net accounts receivable,
respectively. At December 31, 2000, Ford Motor Media accounted for 11% of the
net accounts receivable.
Cash and Cash Equivalents
Cash and cash equivalents include money market accounts. The Company
maintains its cash and cash equivalents in highly rated financial
institutions.
Restricted Cash
Restricted cash includes money held for a letter of credit collateralizing a
real estate lease for the Company's New York office space.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, approximate fair value because of their short maturities.
Fixed Assets
Depreciation of equipment, furniture, 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. The Company
continually evaluates whether current events or circumstances warrant
adjustments to the carrying value or estimated useful lives of fixed assets
and intangible assets in accordance with the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets" ("SFAS 121").
Goodwill and Intangible Assets
Goodwill and intangible assets consist primarily of an advertiser list,
customer contracts and the excess of the purchase price paid over the
identified intangible and tangible net assets of acquired companies. Goodwill
and intangible assets are amortized using the straight-line method over the
period of expected benefit ranging from three to ten years. The Company
assesses the recoverability of its goodwill and intangible assets by
determining whether the unamortized balance over its remaining life can be
recovered through forecasted cash flows. If undiscounted forecasted cash flows
indicate that the unamortized amounts will not be recovered, an adjustment is
made to reduce the net amounts to an amount consistent with forecasted future
cash flows discounted at a rate commensurate with the risk associated when
estimating future discounted cash flows. Future cash flows are based on trends
of historical performance and management's estimate of future performance,
giving consideration to existing and anticipated competitive and economic
conditions. (See Note 2--Significant Accounting Policies and Procedures--
Recent Accounting Pronouncements and Note 4--Goodwill and Intangible Assets)
F-9
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Significant Accounting Policies and Procedures -- (Continued)
Investments
The Company enters into certain equity investments for the promotion of
business and strategic purposes. Management determines the appropriate
classification of its investments in marketable securities at the time of
purchase and evaluates such investments at each balance sheet date.
The Company's marketable investments are classified as available-for-sale as
of the balance sheet date and are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of
stockholders' equity until realized. Non-marketable investments are recorded
at the lower of cost or fair value. For all investment securities, unrealized
losses that are determined to be other than temporary are recognized in
calculating net income or loss.
Included in the caption "Write-down of note receivable and investments" in
the consolidated statements of operations are approximately $0.1 million and
$8.4 million of losses recognized for the write-down of the Company's
marketable and non-marketable investments whose decline in value was
determined to be other than temporary for 2001 and 2000, respectively. (See
Note 2-Significant Accounting Policies and Procedures--PlanetRx.com)
PlanetRx.com
In September 1999, iVillage paid approximately $7.5 million to PlanetRx.com
for 371,103 shares of series D preferred stock of PlanetRx.com, which was
converted into the same number of shares of PlanetRx.com common stock upon the
closing of PlanetRx.com's initial public offering in October 1999. During
2000, the investment in PlanetRx.com was written down approximately $7.4
million, and in March 2001 the remaining $0.1 million investment was written
off due to a decline in value deemed to be other than temporary.
Advertising Costs
Advertising costs are expensed as incurred and are included in the sales and
marketing lines in the accompanying consolidated statements of operations.
Advertising costs, including barter expense, included in sales and marketing
were approximately $11.0 million, $19.1 million and $40.4 million for the
years ended December 31, 2001, 2000 and 1999, respectively. At December 31,
2001 and 2000, approximately $8.8 million and $0.3 million of advertising
costs were prepaid, respectively.
Barter expense was approximately $2.8 million, $3.6 million and $3.3 million
for the years ended December 31, 2001, 2000 and 1999, respectively.
Web Site Development Costs
During 2000, the Company adopted the consensus in the Financial Accounting
Standards Board ("FASB") Emerging Issues Task Force (EITF) Issue No. 00-2,
Accounting for Web Site Development Costs, which requires that certain costs
to develop Web sites be capitalized or expensed, depending on the nature of
the costs. During 2001 and 2000, no development expenses were capitalized,
however capitalized development costs were acquired with the acquisition of an
additional 30.1% of Cooperative Beauty Ventures, L.L.C, which increased
iVillage's ownership to 80.1%. (See Note 6-Business Acquisitions and
Dispositions--Cooperative Beauty Ventures, L.L.C.)
Income Taxes
The Company recognizes deferred taxes by the asset and liability method of
accounting for income taxes. Under the asset and liability method, deferred
income taxes are recognized for differences between the financial statement
and tax bases of assets and liabilities at enacted statutory tax rates in
effect for the years
F-10
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Significant Accounting Policies and Procedures -- (Continued)
in which the differences are expected to reverse. The effect on deferred taxes
of a change in tax rates is recognized in income in the period that includes
the enactment date. In addition, valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be
realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 the Company include those
related to the useful lives of fixed assets and the recoverability of fixed
assets, goodwill and deferred tax assets.
Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of
common shares outstanding during the period. Diluted net loss per share is
computed using the weighted-average number of common and common stock
equivalent shares outstanding during the period. Common stock equivalent
shares are excluded from the computation if their effect is anti-dilutive.
Included in the calculation of weighted average number of shares of common
stock outstanding are 743,369 shares which have not been issued as of December
31, 2001. These shares are being held for former Women.com stockholders that
have not yet exchanged their Women.com shares for shares of the Company as of
the balance sheet date.
Stock options and warrants in the amount of 14,299,697, 7,365,760 and
5,901,637 shares for the years ended December 31, 2001, 2000 and 1999,
respectively, were not included in the computation of diluted earnings per
share as they are anti-dilutive as a result of net losses during the periods
presented.
Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). This statement requires companies to classify items of other
comprehensive income by their nature in the financial statements and display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement
of financial position. The Company has had no other comprehensive income items
to report.
Recent Accounting Pronouncements
In July 2001, the FASB issued Statement of Financial Accounting Standard No.
141, "Business Combinations" ("SFAS 141") and Statement of Financial
Accounting Standard No. 142, "Goodwill and Other Intangible Assets" ("SFAS
142").
SFAS 141 establishes accounting and reporting for business combinations by
requiring that all business combinations be accounted for under the purchase
method. Use of the pooling-of-interests method is no longer permitted. SFAS
141 also provides guidance on purchase accounting related to the recognition
of intangible assets and accounting for negative goodwill. SFAS 141 requires
that the purchase method be used for business combinations initiated after
June 30, 2001. SFAS 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Effective January 1, 2002,
amortization of goodwill recorded for business combinations consummated prior
to July 1, 2001 will cease, and intangible assets acquired prior to July 1,
2001 that do not meet the criteria for recognition under SFAS 141 will be
reclassified to goodwill. Goodwill will be subject to an annual impairment
test, including a transitional impairment test required upon adoption, which
must be completed by December 31, 2002.
F-11
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Significant Accounting Policies and Procedures -- (Continued)
iVillage is still in the process of reallocating previously identifiable
intangible assets that do not meet the criteria of SFAS 141 into goodwill and
evaluating the useful lives of its remaining identifiable intangible assets.
However, the Company currently estimates that the unaudited pro forma net loss
attributable to common stockholders and the respective basic and diluted net
loss per share would have been approximately $37.4 million and $0.87,
respectively, for the year ended December 31, 2001 had the provisions of the
new standards been applied in 2001. The Company is in the process of
completing the transitional impairment assessment of goodwill.
In August 2001, the FASB issued Statement of Financial Accounting Standard
No.143, "Accounting for Obligations Associated with the Retirement of Long-
Lived Assets" ("SFAS 143"). The objective of SFAS 143 is to provide accounting
guidance for legal obligations associated with the retirement of long-lived
assets. The retirement obligations included within the scope of this project
are those that an entity cannot avoid as a result of either the acquisition,
construction or normal operation of a long-lived asset. Components of larger
systems also fall under this project, as well as tangible long-lived assets
with indeterminable lives. The provisions of SFAS 143 are effective for
financial statements issued for fiscal years beginning after June 15, 2002.
iVillage has not yet evaluated the expected impact of the adoption of SFAS 143
on its financial condition, cash flows and results of operations and will
adopt SFAS 143 in fiscal 2003.
In October 2001, the FASB issued Statement of Financial Accounting Standard
No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144"). The objectives of SFAS 144 are to address significant issues
relating to the implementation of SFAS 121 and to develop a single accounting
model, based on the framework established in SFAS 121, for long-lived assets
to be disposed of by sale, whether previously held and used or newly acquired.
The provisions of SFAS 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001. The Company does not expect
the adoption of this statement to have a material impact on the Company's
results of operations or financial position.
Note 3 -- Fixed Assets
Fixed assets consist of the following:
December 31,
-------------------
2001 2000
-------- --------
(in thousands)
Computer equipment ...................................... $ 15,559 $ 13,367
Capitalized software .................................... 3,682 3,707
Hospital video equipment ................................ 3,074 2,678
Leasehold improvements .................................. 14,820 11,598
Furniture and fixtures .................................. 3,558 3,506
Capitalized development costs ........................... 2,640 --
-------- --------
43,333 34,856
Less, accumulated depreciation and amortization ......... (21,868) (14,799)
-------- --------
$ 21,465 $ 20,057
======== ========
Depreciation and amortization of fixed assets from continuing operations was
approximately $7.1 million, $5.5 million and $4.7 million for the years ended
December 31, 2001, 2000 and 1999, respectively.
F-12
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4 -- Goodwill and Intangible Assets
Goodwill and intangible assets at December 31, 2001 and 2000 consisted of
the following:
Lives 2001 2000
---------- -------- --------
(in thousands)
Advertiser list and customer contracts............................................... 3-10 years $ 19,610 $ 14,700
Trademarks and domain names.......................................................... 3 years 2,927 927
Licensing agreement.................................................................. 10 years 2,900 2,900
Workforce............................................................................ 3-5 years 880 800
Non-competition agreements........................................................... 1 year 810 --
Content.............................................................................. 3 years 600 600
Goodwill............................................................................. 3-10 years 98,175 73,954
-------- --------
125,902 93,881
Less accumulated amortization........................................................ (73,999) (57,449)
-------- --------
$ 51,903 $ 36,432
======== ========
The increase in goodwill during 2001 was due to the acquisition of Women.com
Networks Inc. ("Women.com") and Public Affairs Group, Inc. ("PAG"), and the
purchase of an additional 30.1% of Cooperative Beauty Ventures, L.L.C. (See
Note 6--Business Acquisitions and Dispositions)
During 2000, the Company recorded a charge of approximately $98.1 million
for the impairment of goodwill relating to certain 1999 acquisitions. (See
Note 6--Business Acquisitions and Dispositions) This non-cash charge
represents the difference between the historical book value of the goodwill
and the discounted estimated future cash flows expected from the related
operations. iVillage estimated future cash flows based upon historical
results, sales backlog and sales targets and detailed expense projections. In
addition, when developing these future projections iVillage considers business
trends, prospects and market and economic conditions. Yearly amortization of
the impaired goodwill was approximately $26.6 million.
Amortization expense for goodwill and intangible assets from continuing
operations for the years ended December 31, 2001, 2000 and 1999 was
approximately $16.6 million, $32.2 million and $21.0 million, respectively.
(See Note 2--Significant Accounting Policies and Procedures--Recent Accounting
Pronouncements)
Note 5 -- Related-Party Transactions
AOL
In July 1997, the Company entered into an interactive services agreement
(the "1997 AOL Agreement") with America Online, Inc. ("AOL") whereby the
Company received anchor tenant distribution within the AOL service. This
agreement superseded any prior agreements between the Company and AOL. The AOL
Agreement, which was due to expire on February 28, 1999, provided both parties
with the right to extend the agreement. In consideration for AOL carrying
certain channels of the Company, the Company receiving guaranteed impressions
and other services, the Company was obligated to pay AOL monthly payments of
approximately $229,000 until September 1, 1998 and approximately $201,000
thereafter until February 28, 1999, make certain additional payments based on
revenues and provide in-kind commitments to AOL which primarily consisted of
the mentioning of "AOL Keyword: iVillage" within iVillage advertisements and
other promotions. These in-kind commitments were not valued as part of the
obligation to AOL as no incremental costs were incurred and fair value could
not be reasonably determined.
In January 1998, iVillage entered into a shopping channel promotional
agreement with AOL (the "Shopping Channel Agreement") whereby AOL agreed to
promote iVillage and its services on the AOL shopping channel and provide
access to iVillage's online sites. The Shopping Channel Agreement provided for
monthly installments of $10,417 paid to AOL through December 31, 1998. The
Shopping Channel
F-13
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 -- Related-Party Transactions -- (Continued)
Agreement was amended in October 1998, at which time the monthly payment
increased to approximately $10,833 and the agreement was extended to October
1999.
On December 31, 1998, the Company entered into an interactive services
agreement with AOL (the "1998 AOL Agreement") which superseded the 1997 AOL
Agreement. The 1998 AOL Agreement provided for the Company to receive anchor
tenant distribution on certain AOL channels, guaranteed impressions and other
services. In consideration for such services, the Company was obligated to (i)
pay AOL minimum quarterly payments of approximately $921,000 until March 31,
1999, approximately $611,000 from April 1, 1999 through December 31, 1999 and
approximately $807,000 from January 1, 2000 through December 31, 2000, and
(ii) provide up to $2 million of advertising to AOL, as defined in the 1998
AOL Agreement. The 1998 AOL Agreement expired on December 31, 2000 and was
extended until December 31, 2001 for a monthly fee of $268,908. At December
31, 2001 and 2000, $268,908 and no amounts were owed to AOL in connection with
the 1998 AOL Agreement. The Company is currently in negotiations with AOL to
either amend the 1998 AOL Agreement or enter into a new agreement.
On February 20, 2000, the Company entered into an interactive services
agreement with AOL (the "Astrology AOL Agreement") under which AOL is
obligated to distribute through the AOL network a customized version of the
Company's Astrology.com Web site and content, and provide guaranteed
impressions and other services. In consideration for such services, the
Company is obligated to pay AOL monthly installments of $22,500 until June 6,
2000, an up-front payment of $700,000 in June 2000, and six quarterly
installments of $350,000 commencing on September 6, 2000. The Astrology AOL
Agreement expires on June 5, 2002. At December 31, 2001 and 2000, no amounts
were owed to AOL in connection with the Astrology AOL Agreement, however, the
Company recorded a prepaid expense of approximately $233,000 and $583,000,
respectively, as a result of advance payments.
Women.com, a subsidiary of iVillage acquired in June 2001, was party to an
interactive services agreement with AOL (the "Women.com AOL Agreement"). The
Women.com AOL Agreement was set to expire in March 2002 unless mutually
extended; provided, however, that AOL had the option for a two-year period to
use one or more of the Women.com trademarks or trade names as keywords or
text-based links from the AOL network to the Women.com Web site. In
consideration for AOL carrying certain content of Women.com, Women.com
received guaranteed impressions and other services. Women.com was obligated to
pay AOL approximately $5.7 million in carriage fees during the term of the
Women.com AOL Agreement. In addition, under the Women.com AOL Agreement, AOL
had the exclusive right to sell or license advertisements through Women.com's
Astronet online area residing on the AOL network and was entitled to a revenue
share on such advertising.
In addition, Women.com had entered into two amendments to the Women.com AOL
Agreement pursuant to which Women.com agreed to pay AOL an additional carriage
fee of approximately $3.5 million in consideration of AOL providing Women.com
with guaranteed placements for Astronet content in the horoscopes area of the
AOL network and the right to be the exclusive provider of horoscopes content
on ICQ.com. As a result of these amendments, the Women.com AOL Agreement was
scheduled to expire in June 2002.
On December 14, 2001, Women.com terminated the Women.com AOL Agreement which
had a remaining financial commitment of approximately $2.1 million. In
consideration of the early termination of the Women.com AOL Agreement,
Women.com incurred fees of $0.7 million.
In December 2001, iVillage entered into an advertising agreement with AOL
pursuant to which AOL is obligated to deliver a guaranteed amount of
impressions during the period of December 2001 through January 2002. In
consideration of these services, iVillage is obligated to pay AOL $0.7
million.
F-14
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 -- Related-Party Transactions -- (Continued)
The Company estimates that a significant portion of its user traffic was
derived from AOL and there is no guarantee that the Company will not be
adversely affected by the expiration of the 1998 AOL Agreement and the
termination of the Women.com AOL Agreement.
NBC
During 1998, as amended in March 1999, the Company entered into a stock
purchase agreement with the National Broadcasting Company, Inc. ("NBC")
pursuant to which iVillage issued shares of Series E Convertible Preferred
Stock ("Series E") and warrants to purchase 970,874 shares of Series E and
813,003 shares of Series E during 2000 and 2001, respectively, in exchange for
a promissory note of approximately $15.5 million. The note, which bears
interest at the rate of 5% per annum, is payable in twelve installments of
approximately $1.4 million, payable quarterly, beginning April 1, 1999. In
connection with the IPO and a March 1999 reverse stock split, the shares of
Series E and Series E warrants were converted into 1,629,676 shares of common
stock and warrants to purchase 323,625 shares of common stock at $15.45 per
share and 271,003 shares of common stock at $18.45 per share, respectively.
In addition, iVillage agreed to purchase, for cash, $13.5 million of
advertising and promotional spots during 1999 and $8.5 million per annum
during 2000 and 2001, respectively. iVillage also agreed to pay $1.1 million
during 1999 for prominent placement on the NBC.com Web site. In February 2001,
iVillage further amended its November 1998 agreement with NBC to provide for
an extension of time during which iVillage must purchase its advertising or
promotional spots on the NBC network. The revised terms require iVillage to
purchase approximately $11.6 million of advertising or promotional spots
between January 30, 2001 and December 31, 2002, with $3.0 million of such
spots being telecast during the year 2001 and the remaining approximately $8.6
million during the year 2002. During 2001, iVillage purchased approximately
$1.6 million of advertising or promotional spots and the parties have orally
agreed to defer the remaining advertising commitment for 2001 until a mutually
agreed upon period in the future. During 2000, iVillage purchased
approximately $4.8 million of advertising or promotional spots. During 2001
and 2000, approximately $7.0 million and $4.8 million was paid to NBC,
respectively. As of December 31, 2001, included in the caption "Other current
assets" in the consolidated balance sheet is $5.4 million for advertising or
promotional spots to be broadcast during 2002. (See Note 12--Subsequent
Events--NBC)
Under the revised agreement and in accordance with EITF D-60, "Accounting
for the Issuance of Convertible Preferred Stock and Debt Securities with a
Non-detachable Conversion Feature," the $23.6 million difference between the
purchase price of the Series E and the fair market value on the date of
issuance has been accounted for as a deemed dividend and amortized using the
effective interest method from the date of issuance through the date the
Company completed its IPO (the date of conversion into common stock). In
addition, the fair value of the warrants of approximately $8.4 million was
recorded in stockholders' equity as deferred advertising costs and is being
amortized over the three-year advertising agreement. The fair value of the
warrants was determined using the Black-Scholes option pricing model.
Hearst Communications, Inc.
On February 5, 2001, the Company entered into a securities purchase
agreement with Hearst and amended and restated such agreement on February 22,
2001. Pursuant to the terms of the amended and restated securities purchase
agreement, Hearst agreed to purchase from the Company 9,324,000 shares of the
Company's common stock and a warrant exercisable for 2,100,000 shares of the
Company's common stock at an exercise price of $0.01 per share less the
amounts of common stock and warrants purchased by the other former Women.com
stockholders pursuant to a rights offering. In addition, under the amended and
restated securities purchase agreement, Hearst agreed to purchase, or was
required to purchase, additional shares of the Company's common stock in the
event of any shortfall in the amount of Women.com's cash and working capital
on March 31, 2001. Finally, Hearst was required to purchase from the Company
additional shares of
F-15
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 -- Related-Party Transactions -- (Continued)
the Company's common stock in the event that in excess of 2% of the Women.com
stockholders exercised appraisal rights.
Accordingly, on June 18, 2001, Hearst purchased 9,171,343 shares of the
Company's common stock and a warrant to purchase 2,065,695 shares of the
Company's common stock for an aggregate purchase price of approximately $19.7
million. Hearst did not purchase any shares of the Company's common stock
pursuant to the shortfall provisions and the appraisal rights provisions of
the amended and restated securities purchase agreement described above.
As a condition to Hearst's obligation to purchase shares of the Company's
common stock and a warrant for common stock pursuant to the amended and
restated securities purchase agreement, the Company agreed to conduct a rights
offering under which each former Women.com stockholder as of April 16, 2001,
other than Hearst, would have the opportunity to purchase their pro rata
portion of the 9,324,000 shares of the Company's common stock and the warrant
exercisable for 2,100,000 shares of the Company's common stock offered to
Hearst. On June 15, 2001, the rights offering was completed and, shortly
thereafter, the Company issued to certain former Women.com stockholders, other
than Hearst, 152,657 shares of the Company's common stock and warrants to
purchase an additional 34,305 shares of the Company's common stock for an
aggregate purchase price of approximately $0.3 million.
The warrants for common stock are not exercisable unless at the time of
exercise the average closing price of the Company's common stock exceeds $3.75
for 15 consecutive trading days.
On June 18, 2001, and as amended and restated on June 20, 2001, the Company
entered into a stockholder agreement with Hearst pursuant to which the Company
is required to appoint a maximum of three representatives of Hearst to
separate classes of the Company's Board of Directors. The number of
representatives from Hearst is determined by the amount of shares of the
Company's common stock held by Hearst or its affiliates. Currently, Hearst has
three designees on the Company's Board of Directors.
The amended and restated stockholder agreement terminates on June 20, 2006
unless earlier terminated by the Company and Hearst. Upon any early
termination, any Hearst designees serving on the Company's Board of Directors
must immediately resign.
As part of the merger with Women.com, the Company assumed an amended and
restated magazine content license and hosting agreement with Hearst. Under
this agreement, and as further amended by the Company and Hearst on June 18,
2001, the Company is obligated to provide production and hosting services for
certain Web sites affiliated with selected Hearst magazines. In consideration
for these services, Hearst agreed to:
o purchase from the Company at least $5.0 million per year for production
services during the three-year term of the agreement, for a total of at
least $15.0 million;
o place at least $2.0 million of Hearst advertising per year (total of $6
million) on the iVillage network, which amount may be increased in the
second and third years of the agreement if Hearst fails to pay the
Company the required fees for production services as described above. If
such a shortfall in production fees occurs in the second and third years
of the agreement, Hearst must place additional advertising in an amount
equal to 40% of the production fee shortfall; and
o grant to the Company a right of first offer on any new Internet-based
development projects initiated by Hearst that are appropriate for
inclusion on the network.
The agreement also provides for revenue sharing between the Company and
Hearst with respect to advertising revenues obtained by the Company from the
Hearst magazine Web sites and other Web sites of the Company containing
substantial Hearst content. This revenue sharing arrangement requires that the
Company pay Hearst a royalty payment, based on net advertising revenues, of at
least $3.9 million during the
F-16
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 5 -- Related-Party Transactions -- (Continued)
three-year term of the agreement. This amount would be reduced on a pro rata
basis if Hearst failed to expend the $5.0 million in production fees in the
second and third years of the agreement.
Additionally, iVillage is entitled to a commission derived from the sale of
Hearst magazine subscriptions made through the Company's network of Web sites.
This commission is equal to thirty percent of gross revenues.
The magazine content license and hosting agreement, as amended, expires on
June 18, 2004. However, the agreement may be terminated by either party
immediately upon written notice to the other party in the event of a
bankruptcy, insolvency or a change of control of the other party.
As part of the merger with Women.com, the Company acquired approximately
$4.9 million of prepaid print advertising in certain Hearst magazines. These
ads are currently scheduled to appear through December 2002. The Company
recognized approximately $1.8 million of expense for the year ended December
31, 2001 from this advertising. As of December 31, 2001, included in the
caption "Other current assets" in the consolidated balance sheet is
approximately $3.1 million of prepaid Hearst print advertising.
Revenues, net of the royalty payment, from Hearst for the year ended
December 31, 2001 were approximately $4.3 million. As of December 31, 2001,
the Company was owed, net of a royalty payment, approximately $0.7 million
from this stockholder. (See Note 12--Subsequent Events--Hearst)
Other Related Parties
During 1999, the Company had sponsorship and advertising agreements with
Intel Corp., a stockholder, which generated revenues of approximately
$268,000. As of December 31, 1999, the Company was owed approximately $38,000
from this stockholder.
Officer Loan Receivable
In June 1998, the Company accepted a non-recourse promissory note in the
principal amount of $500,000 (the "Note") from its then chief executive
officer ("Former CEO"). The Note is partially collateralized by 20,000 shares
of the Company's common stock which is held by the Company. Interest is
payable annually on December 31 of each year, commencing December 31, 1998, at
the rate of 5.58%. During 2000, the maturity date of the outstanding principal
balance on the Note was extended to December 31, 2002 from the initial
maturity date of June 5, 2001. As of December 31, 2001 and 2000, the Former
CEO has borrowed $500,000 under the note, which is recorded as a stockholder
note receivable and classified as a reduction of equity. Payments received in
2001 for interest totaled $83,700. No payments were received in 2000 for
interest.
In October 2000, as amended in April 2001, iVillage entered into an
agreement with the Former CEO to provide that she would resign as a member of
iVillage's Board of Directors but would remain an iVillage employee available
for special projects at the request of iVillage's current Chief Executive
Officer and Board of Directors through December 31, 2002. In consideration,
the Former CEO received a one-time lump sum cash payment of $1,327,900 (less
an interest payment of $27,900 on the Note) in lieu of the salary, bonus and
other payments set forth in her October 2000 agreement with iVillage and will
receive a monthly salary of $3,758 in 2001 and $3,190 in 2002 (each less set-
offs for future interest payments on the Note). iVillage's obligation to pay
the Former CEO's salary terminates on December 31, 2002. The amendment also
provided that the Former CEO would surrender to the Company 333,334 iVillage
stock options with an exercise price of $24.00 and 75,000 iVillage stock
options with an exercise price of $17.17.
F-17
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Business Acquisitions and Dispositions
iBaby
In April 1998, the Company entered into a joint venture agreement (the
"iBaby Agreement") with Ourbaby, LLC, a California limited liability company,
to form iBaby, Inc., a Delaware corporation ("iBaby"). The Company purchased
1,000,000 shares of iBaby for approximately $1.35 million and for the delivery
of certain promotional rights, including impressions on the iVillage Web site.
In connection with the acquisition, the Company recorded approximately $0.5
million of goodwill to be amortized over a period of three years.
In March 1999, the Company purchased the remaining outstanding shares of
iBaby pursuant to a Rights Agreement dated as of April 8, 1998 and as
subsequently amended on February 10, 1999. The aggregate purchase price of
$10.8 million consisted of (i) $8 million in cash, of which $1.5 million was
paid on February 12, 1999 and $6.5 million was paid on March 25, 1999 and (ii)
125,448 shares of the Company's common stock. The difference between the
purchase price and the fair value of the acquired minority interest in iBaby
was recorded as goodwill and was amortized over the period of expected
benefit, which was estimated at three years.
The cost of this acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows:
Working capital.................................................. $ (452,752)
Fixed assets..................................................... 399,181
Goodwill......................................................... 11,064,324
-----------
$11,010,753
===========
In June 2000, the Company decided to discontinue the operations of iBaby.
The company recorded a loss on disposal of approximately $7.1 million, which
includes a loss on sale of assets of approximately $3.6 million and an
estimated loss from operations during the phase-out period of approximately
$3.4 million. Results of these operations have been classified as discontinued
operations and all prior period results have been reclassified.
In July 2000, the Company sold certain assets of iBaby to Babygear.com, Inc.
Under the Asset Purchase Agreement dated July 6, 2000, the Company received a
convertible promissory note of approximately $9.7 million. Pursuant to the
terms of the Asset Purchase Agreement, in October 2000 the note was converted
into 890,198 shares of Babygear.com Series C Convertible Preferred Stock.
Subsequent to the conversion of the note, Babygear.com filed for bankruptcy.
In calculating the loss on sale of assets, the Company valued the note at
$5.1 million as of June 30, 2000, due to uncertainties surrounding the
recoverability of the convertible note. At September 30, 2000, the convertible
note was fully reserved due to uncertainties surrounding Babygear.com's
ability to sustain their operations, and is included in the caption "Write-
down of note receivable and investments" in the consolidated statements of
operations.
The loss on sale of assets was calculated as follows (in thousands):
Estimated value of convertible promissory note....................... $ 5,100
Inventory............................................................ (1,707)
Fixed assets, net.................................................... (780)
Goodwill, net........................................................ (6,231)
-------
Loss on sale of iBaby assets......................................... $(3,618)
=======
F-18
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Business Acquisitions and Dispositions -- (Continued)
Net revenue and loss from discontinued operations for 2001, 2000 and 1999
were as follows (in thousands):
2001 2000 1999
------- -------- --------
Net revenue ........................... $ -- $ 4,891 $ 7,986
------- -------- --------
Loss from discontinued operations ..... $ -- $(11,922) $(10,871)
======= ======== ========
Net current liabilities of discontinued operations as of December 31, 2001
and 2000 were as follows (in thousands):
2001 2000
----- -----
Other current assets ................................. $ 6 $ 6
Accounts payable and accrued expenses ................ (109) (888)
----- -----
Net current liabilities of discontinued operations ... $(103) $(882)
===== =====
Non-current assets of discontinued operations as of December 31, 2000 were
as follows (in thousands):
Other assets ................................................ $ 56
-----
Non-current assets of discontinued operations ............... $ 56
=====
Astrology.net
On February 18, 1999, iVillage acquired all of the outstanding stock of
KnowledgeWeb, Inc. d/b/a Astrology.net, an Internet content provider, in
exchange for 802,125 shares of iVillage common stock and approximately $1.2
million in cash. The acquisition was accounted for using the purchase method
of accounting, with a purchase price of approximately $21.0 million based on
the $24.00 initial public offering price of iVillage's common stock and an
estimate for the value of Astrology.net options assumed by iVillage. The
difference between the purchase price and the fair value of the acquired net
assets of Astrology.net was recorded as goodwill and is being amortized over
the period of expected benefit, which is estimated to be three years.
Of the 802,125 shares of common stock, (i) 326,331 shares were issued at the
closing, (ii) 75,000 shares were issued into escrow for 18 months to cover
possible indemnification claims, and (iii) the remaining 400,794 shares were
issued subject to earnout restrictions over five years.
As of December 31, 2001, all earnout and escrowed shares had been released.
In addition, all outstanding options to purchase Astrology.net common stock
were converted into options to purchase 31,208 shares of iVillage common
stock. The agreement provides for employment, non-compete and stock option
agreements for the founding stockholders of Astrology.net.
iVillage also issued to the founding stockholders of Astrology.net options
to purchase 150,000 shares of iVillage common stock at an exercise price equal
to $24.00 per share. These options are contingent on continued employment with
Astrology.net and vest over a period of seven years, with accelerated vesting
dependent on Astrology.net meeting certain revenue targets.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital...................................... $ (158)
Fixed assets......................................... 145
Goodwill............................................. 21,042
-------
$21,029
=======
F-19
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Business Acquisitions and Dispositions -- (Continued)
OnLine Psych and Code Stone
On June 30, 1999, iVillage acquired OnLine Psychological Services, Inc.
("OnLine Psych") and Code Stone Technologies, Inc. ("Code Stone"). OnLine
Psych operated a Web site focusing on mental health issues while Code Stone
provided much of the interactive technology used on Online Psych's Web site.
The aggregate purchase price was approximately $30.0 million, consisting of
$1.5 million cash and approximately 577,000 shares of iVillage common stock,
valued under the purchase method of accounting. The difference between the
purchase price and the fair value of the acquired net assets was recorded as
goodwill and amortized over the period of expected benefit, which was
estimated to be three years. During 2000, the Company determined, based upon
discounted estimated future cash flows, the remaining goodwill of
approximately $17.7 million was fully impaired and as such was written off.
(See Note 4--Goodwill and Intangible Assets)
Lamaze Publishing Company
On August 20, 1999, iVillage acquired all the outstanding stock of Lamaze
Publishing Company, a multimedia provider of education information to
expectant and new mothers. The aggregate purchase price consisted of
approximately 1,750,000 shares of the Company's common stock, subject to
certain adjustments, and approximately $5.0 million to repay outstanding debt.
The difference between the aggregate purchase price of approximately $102.0
million and the fair value of the acquired net assets of Lamaze Publishing
Company has been recorded as goodwill and is being amortized over the period
of expected benefit, which is estimated to be ten years. During 2000, the
Company determined, based upon discounted estimated future cash flows, the
remaining goodwill was impaired and as such wrote down the goodwill by
approximately $62.0 million to its estimated net recoverable value. (See Note
4--Goodwill and Intangible Assets)
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital..................................................... $ (2,377)
Fixed assets........................................................ 1,975
Advertiser list..................................................... 14,700
Licensing agreement................................................. 2,900
Workforce........................................................... 800
Content............................................................. 600
Goodwill............................................................ 83,451
--------
$102,049
========
Family Point Inc.
On August 31, 1999, iVillage acquired all of the outstanding stock of Family
Point Inc., which operated an online meeting place for families, friends and
groups. The aggregate purchase price paid was approximately $24.4 million and
consisted of $3.75 million cash and approximately 511,000 shares of the
Company's common stock. The difference between the purchase price and the fair
value of the acquired net assets of Family Point Inc. was recorded as goodwill
and amortized over the period of expected benefit, which was estimated to be
three years. During 2000, the Company determined, based upon discounted
estimated future cash flows, the remaining goodwill of approximately $18.4
million was fully impaired, and as such was written off. (See Note 4--Goodwill
and Intangible Assets)
In October 1999, iVillage paid $4.5 million, consisting of approximately
$750,000 cash and approximately 101,000 shares of iVillage common stock, to
the former stockholders of Family Point as a
F-20
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Business Acquisitions and Dispositions -- (Continued)
purchase price adjustment pursuant to the acquisition agreement based on
Family Point's satisfaction of certain performance thresholds.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital..................................... $ (470)
Fixed assets........................................ 485
Goodwill............................................ 28,894
-------
$28,909
=======
The accompanying unaudited pro forma summary presents consolidated results
of operations for all of the acquisitions of the Company during 1999 discussed
above as if they had occurred on January 1, 1999. The pro forma information
does not necessarily reflect the actual results that would have been achieved,
nor is it necessarily indicative of future consolidated results of the
Company.
1999
----------------------
(in thousands,
except per share data)
Revenues................................ $ 53,409
=========
Net loss................................ $(137,685)
=========
Net loss per share...................... $ (5.72)
=========
Cooperative Beauty Ventures, L.L.C.
On February 15, 2000, iVillage and Unilever announced the formation of an
independently managed company to provide women within a highly focused
community with an array of interactive, customized online services, beauty and
personal care products and personalized product recommendations. Unilever and
iVillage planned to provide cash, intellectual property, marketing and other
resources. Unilever provided capital as well as sponsorship and promotional
initiatives. iVillage provided its Beauty channel, capital, intellectual
property, services and promotion. iVillage's funding obligations were not to
exceed in the aggregate $1.5 million in calendar year 2000 and $2.0 million in
calendar year 2001, however any unused funding for calendar year 2000 or 2001
may be carried over and used in calendar year 2001 or 2002, respectively.
In March 2001, the Company purchased 30.1% of Cooperative Beauty Ventures,
L.L.C. d/b/a Substance.com (the "venture") from Unilever for $1.5 million,
thereby increasing its ownership to 80.1%. The difference between the purchase
price and the fair value of the 30.1% acquired of approximately $1.5 million
has been recorded as goodwill and is being amortized over the period of
expected benefit, which is estimated at three years. The agreement provides
that the Company will fund the ongoing business and operations of the venture,
but not to exceed $7.0 million, and terminates Unilever's funding obligation.
As of December 31, 2001, the Company has contributed approximately $1.9
million to the venture.
Unilever can exercise a "put" option to require the Company to purchase
Unilever's remaining ownership interest for fair market value in the venture
at any time after September 30, 2002, or at any time earlier if the venture
permits any person to use the "Substance" mark other than in connection with
the venture's business or the venture fails to use the "Substance" mark in
connection with its business from and after May 1, 2001. At any time on or
after September 30, 2002, the Company can exercise a "call" option to require
Unilever to sell its remaining interest in the venture to the Company for fair
market value; provided that Unilever can exercise a "call" option superior to
the Company's "call" option to purchase a portion of the Company's membership
interest in the venture for fair market value, up to a limit of 50% of the
ownership of the venture. In addition, at any time on or after September 30,
2002, Unilever can exercise a
F-21
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Business Acquisitions and Dispositions -- (Continued)
"call" option to purchase a portion of the Company's membership interest in
the venture for fair market value, up to a limit of 50% of the ownership of
the venture. As a result of the purchase transaction described above, the
Company gained operational control of the venture and the venture has been
consolidated within the Company's financial statements beginning in March
2001. Prior to consolidation, the venture was accounted for under the equity
method of accounting and the Company recognized losses of approximately $0.1
million and $0.4 million for 2001 and 2000, respectively.
Women.com Networks, Inc.
On June 18, 2001, the Company acquired all of the outstanding stock of
Women.com, the operator of a leading women's online destination. The aggregate
purchase price paid was approximately $33.1 million, consisting of
approximately $3.2 million in cash (inclusive of closing costs) and 15,519,838
shares of the Company's common stock. The difference between the purchase
price and the fair value of the acquired net assets of Women.com of
approximately $21.0 million has been recorded as goodwill and is being
amortized over the period of expected benefit, which is estimated to be three
years.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital...................................................... $ 2,790
Fixed assets......................................................... 1,456
Customer contracts and related customer relationships................ 4,910
Trademarks and domain names.......................................... 2,000
Non-competition agreements........................................... 810
Workforce............................................................ 80
Goodwill............................................................. 21,039
-------
$33,085
=======
Business Women's Network
On July 16, 2001, the Company acquired control of PAG, operator of BWN, a
privately-held, Washington, D.C. based company. BWN connects over 5,000
national and international women's businesses, professional organizations, and
Web sites that represent approximately 39 million executive and
entrepreneurial women across the United States and in many countries. The
purchase price was approximately $0.6 million. The difference between the
purchase price and the fair value of the acquired net assets of PAG and BWN of
approximately $1.9 million has been allocated to goodwill.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital...................................................... $(1,302)
Goodwill............................................................. 1,938
-------
$ 636
=======
F-22
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Business Acquisitions and Dispositions -- (Continued)
The accompanying unaudited pro forma summary presents consolidated results
of operations for the Company as if the acquisition of Women.com had been
consummated on January 1, 2000. The acquisition of PAG and the additional
30.1% interest in Cooperative Beauty Ventures, L.L.C. would not have had a
significant impact on the pro forma information. The pro forma information
does not necessarily reflect the actual results that would have been achieved,
nor is it necessarily indicative of future consolidated results of the
Company.
2001 2000
-------- ---------
(in thousands,
except per share
data)
Revenues ............................................... $ 70,239 $ 119,999
Net loss from operations ............................... $(75,369) $(303,874)
Net loss ............................................... $(73,346) $(325,024)
Net loss per share ..................................... $ (1.35) $ (5.96)
Note 7 -- Detail of Certain Balance Sheet Accounts
2001 2000
------- -------
(in thousands)
Other current assets:
Prepaid advertising..................................... $ 8,748 $ 250
Prepaid expenses other.................................. 3,286 3,179
Reimbursement of certain construction costs............. 847 5,349
Due from affiliate...................................... 185 565
Other................................................... 602 357
------- -------
$13,668 $ 9,700
======= =======
Accounts payable and accrued expenses:
Accounts payable........................................ $ 2,504 $ 4,754
Sales commissions, payroll and related benefits......... 5,125 7,305
Accrued rent and other facility costs................... 1,856 43
Third party service providers........................... 1,091 414
Advertising expenses.................................... 1,001 1,362
Professional fees....................................... 629 1,144
Due to affiliates....................................... -- 899
Other................................................... 3,864 2,774
------- -------
$16,070 $18,695
======= =======
Note 8 -- Stock Option Plans
1995 Amended And Restated Employee Stock Option Plan
In 1995, iVillage's Board of Directors and stockholders adopted the
Company's 1995 Amended and Restated Employee Stock Option Plan (as amended,
the "ESOP"). The ESOP provides for the granting, at the discretion of the
Stock Option Committee of the Board of Directors (the "SOC"), of: (i) options
that are intended to qualify as incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code of 1986 (the "Code"), as amended, to
employees and (ii) options not intended to so qualify to employees, officers,
consultants and directors. The total number of shares of common stock for
which options may be granted under the ESOP is 1,802,549.
The exercise price of all stock options granted under the ESOP is determined
by the SOC at the time of grant. The maximum term of each option granted under
the ESOP is 10 years from the date of grant. Options
F-23
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Stock Option Plans -- (Continued)
shall become exercisable at such times and in such installments as the SOC
shall provide in the terms of each individual option.
The exercise price of all of the options under the ESOP ranges from $0.56-
$72.94, and is determined based upon the fair market value of iVillage's
common stock on the date of grant. Generally, the options vest 25% after one
year, 0.0625% quarterly thereafter, unless the employee has over one year of
continuing service with iVillage, in which case, the options will vest 0.0625%
every quarter, and expire 5-10 years from the date of grant.
As of December 31, 2001, there were 568 shares available for future grants
under the ESOP.
1997 Amended and Restated Acquisition Stock Option Plan
In May 1997, the Company's Board of Directors and stockholders adopted the
Company's 1997 Amended and Restated Acquisition Stock Option Plan (as amended,
the "ASOP"). The ASOP provides for the granting, at the discretion of the SOC
of: (i) options that are intended to qualify as incentive stock options,
within the meaning of Section 422 of the Code, as amended, to directors who
are employees of the Company or any of its subsidiaries, or as part of one or
more of such acquisitions and (ii) options not intended to so qualify to
employees, officers, consultants and directors of the Company, or as part of
one or more of such acquisitions. The total number of shares of common stock
for which options may be granted under the ASOP is 360,726.
The exercise price of all stock options granted under the ASOP is determined
by the SOC at the time of grant. The maximum term of each option granted under
the ASOP is 10 years from the date of grant. Options shall become exercisable
at such times and in such installments as the SOC shall provide in the terms
of each individual option.
Generally, the options vest 25% after one year, 0.0625% quarterly
thereafter, unless the employee has over one year of continuing service with
iVillage, in which case, the options will vest 0.0625% every quarter, and
expire 7-10 years from the date of grant. The exercise price of all of the
options under the ASOP ranges from $1.76 to $6.00, and is determined based
upon the fair market value of the Company's common stock on the date of grant.
As of December 31, 2001, no shares were available for future grants under
the ASOP.
1999 Employee Stock Option Plan
In 1999, iVillage's Board of Directors and stockholders adopted the
Company's Amended and Restated 1999 Employee Stock Option Plan (as amended,
the "1999 ESOP"). The 1999 ESOP provides for the granting, at the discretion
of the SOC, of: (i) options that are intended to qualify as incentive stock
options, within the meaning of Section 422 of the Code, as amended, to
employees and (ii) options not intended to so qualify to employees, officers,
consultants, and directors. The total number of shares of common stock for
which options may be granted under ESOP is 2,840,163.
The exercise price of all stock options granted under the 1999 ESOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the 1999 ESOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
The exercise price of all of the options under the 1999 ESOP ranges from
$1.24-$113.75, and is determined based upon the fair market value of
iVillage's common stock on the date of grant. Generally, the options vest 25%
after one year, 0.0625% quarterly thereafter, unless the employee has over one
year of continuing service with iVillage, in which case, the options will vest
0.0625% every quarter, and expire 5-10 years from the date of grant.
F-24
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Stock Option Plans -- (Continued)
As of December 31, 2001, there were 16,506 shares available for future
grants under the 1999 ESOP.
1999 Acquisition Stock Option Plan
In 1999, the Company's Board of Directors and stockholders adopted the
Company's 1999 Acquisition Stock Option Plan (as amended, the "1999 ASOP").
The 1999 ASOP provides for the granting, at the discretion of the SOC, of: (i)
options that are intended to qualify as incentive stock options, within the
meaning of Section 422 of the Code, as amended, to employees of the Company or
any of its subsidiaries, or as part of one or more of such acquisitions and
(ii) options not intended to so qualify to employees, officers, consultants,
and directors of the Company, or as part of one or more of such acquisitions.
The total number of shares of common stock for which options may be granted
under the 1999 ASOP is 333,333.
The exercise price of all stock options granted under the 1999 ASOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the 1999 ASOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
Generally, the options vest 25% after one year, 0.0625% quarterly
thereafter, unless the employee has over one year of continuing service with
iVillage, in which case, the options will vest 0.0625% every quarter, and
expire 7-10 years from the date of grant. The exercise price of all of the
options under the 1999 ASOP ranges from $1.24-$50.25, and is determined based
upon the fair market value of iVillage's common stock on the date of grant.
As of December 31, 2001, there were 586 shares available for future grants
under the 1999 ASOP.
1999 Non-Qualified Stock Option Plan
In 1999, iVillage's Board of Directors adopted the Company's 1999 Non-
Qualified Stock Option Plan (as amended, the "NQSOP"). The NQSOP provides for
the granting, at the discretion of the SOC of the Board of Directors, of
options to employees. The total number of shares of common stock for which
options may be granted under the NQSOP is 5,682,000.
The exercise price of all stock options granted under the NQSOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the NQSOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
The exercise price of all of the options under the NQSOP ranges from $0.50-
$25.38, and is determined based upon the fair market value of iVillage's
common stock on the date of grant. The options vest 25% after one year, and
then 0.0625% quarterly thereafter, unless the employee has over one year of
continuing service with iVillage, in which case, the options will vest 0.0625%
every quarter, and expire 10 years from the date of grant.
As of December 31, 2001, there were 114,754 shares available for future
grants under the NQSOP.
Director Option Plan
In 1999, the Company's Board of Directors and stockholders adopted the
Company's 1999 Director Option Plan ("DOP"). The DOP provides for the
automatic grant of 1,666 non-qualified stock options to non-employee members
of the Company's Board of Directors on the date of each annual stockholders'
meeting. The total number of shares of common stock for which options may be
granted under the DOP is 133,333.
The exercise price of all stock options granted under the DOP is the fair
market value at the time of grant. The maximum term of each option under the
DOP is 10 years from the date of grant.
F-25
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Stock Option Plans -- (Continued)
The exercise price of all of the options under the DOP ranges from $1.07 to
$25.38, and is determined based upon the fair market value of the Company's
common stock on the date of grant. Generally, the options vest 25% on each
anniversary of the grant date.
As of December 31, 2001, 108,343 shares were available for future grants
under the DOP.
2001 Non-Qualified Stock Option Plan
In 2001, iVillage's Board of Directors adopted the Company's 2001 Non-
Qualified Stock Option Plan (the "2001 NQSOP"). The 2001 NQSOP provides for
the granting, at the discretion of the SOC of the Board of Directors, of
options to employees. The total number of shares of common stock for which
options may be granted under the 2001 NQSOP is 1,500,000.
The exercise price of all stock options granted under the 2001 NQSOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the 2001 NQSOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
The exercise price of all of the options under the 2001 NQSOP ranges from
$1.24 to $1.39, and is determined based upon the fair market value of
iVillage's common stock on the date of grant. 863,356 options currently
granted under the 2001 NQSOP were issued to Women.com employees on the date of
acquisition of Women.com. These options replace the Women.com options granted
under the Women.com stock option plans, and are fully vested. These options
will expire the earlier of (i) when the corresponding Women.com option would
have expired, or (ii) one year. The other option grants under the 2001 NQSOP
will vest 25% after one year, and then 0.0625% quarterly thereafter, unless
the employee has over one year of continuing service with iVillage, in which
case, the options will vest 0.0625% every quarter, and expire 10 years from
the date of grant.
As of December 31, 2001, there were 436,644 shares available for future
grants under the 2001 NQSOP.
A summary of the status and activity of all of the Company's stock option
plans is as follows:
Weighted
Average Exercise
Options Price Per Share
---------- ----------------
Outstanding, January 1, 1999 .................. 2,264,265 $ 5.95
Granted ....................................... 3,229,605 $27.38
Exercised ..................................... (235,703) $ 5.37
Expired/Canceled .............................. (346,964) $17.28
---------- ------
Outstanding, December 31, 1999 ................ 4,911,203 $19.27
Granted ....................................... 4,199,112 $ 7.90
Exercised ..................................... (114,992) $ 5.18
Expired/Canceled .............................. (2,575,099) $18.07
---------- ------
Outstanding, December 31, 2000 ................ 6,420,224 $12.53
Granted ....................................... 7,274,270 $ 1.26
Exercised ..................................... (5,046) $ 0.57
Canceled ...................................... (2,111,662) $11.03
---------- ------
Outstanding, December 31, 2001 ................ 11,577,786 $ 5.34
========== ======
Options exercisable at December 31, 2001 ...... 4,254,014 $ 7.67
========== ======
Options exercisable at December 31, 2000 ...... 1,851,947 $14.76
========== ======
Options exercisable at December 31, 1999 ...... 1,400,967 $10.57
========== ======
F-26
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Stock Option Plans -- (Continued)
Information about stock options outstanding as of December 31, 2001 is as
follows:
Options Outstanding Options Exercisable
------------------------------------------ ----------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
at Remaining Exercise at Exercise
Actual Range of Exercise Prices 12/31/01 Contractual Life Price 12/31/01 Price
--------------------------------------------- ----------- ---------------- -------- ----------- --------
$ 0.50 - $ 0.72 ............................ 161,500 7.20 $ 0.57 44,375 $ 0.53
$ 0.85 - $ 1.25 ............................ 4,941,361 7.50 $ 1.23 847,469 $ 1.22
$ 1.31 - $ 1.88 ............................ 2,751,812 5.80 $ 1.41 1,071,884 $ 1.34
$ 2.48 - $ 3.50 ............................ 257,213 8.10 $ 3.33 136,027 $ 3.19
$ 3.94 - $ 5.10 ............................ 771,251 5.00 $ 5.07 651,251 $ 5.09
$ 6.00 - $ 8.31 ............................ 1,167,841 4.90 $ 6.97 645,761 $ 6.68
$ 9.45 - $ 13.56 ............................ 87,727 4.80 $ 11.44 59,448 $ 11.22
$ 15.25 - $ 22.19 ............................ 298,115 4.80 $ 17.59 157,095 $ 17.52
$ 23.44 - $ 33.56 ............................ 917,222 6.00 $ 24.98 505,742 $ 25.20
$ 35.94 - $ 50.25 ............................ 213,547 4.30 $ 41.90 128,401 $ 42.27
$ 55.25 - $ 72.94 ............................ 7,359 4.10 $ 65.12 4,716 $ 65.75
$ 96.75 - $113.75 ............................ 2,838 4.00 $101.77 1,845 $102.23
---------- ---- ------- --------- -------
$ 0.50 - $113.75 ............................ 11,577,786 6.40 $ 5.34 4,254,014 $ 7.67
========== ==== ======= ========= =======
Stock-Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
its stock option issuances. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123 ("SFAS
123"), "Accounting for Stock-Based Compensation." Had compensation cost for
the Company's stock options been determined based on the fair value of the
stock options at the grant date for awards in 2001, 2000 and 1999 consistent
with the provisions of SFAS No. 123, the Company's net loss would have been
adjusted to the pro forma amounts indicated below:
December 31,
---------------------------------
2001 2000 1999
-------- --------- ---------
($ in thousands, except per share
data)
Net loss - as reported .................................................................. $(48,465) $(191,428) $(116,613)
======== ========= =========
Net loss - pro forma .................................................................... $(57,413) $(199,140) $(123,771)
======== ========= =========
Net loss per share - as reported ........................................................ $ (1.13) $ (6.45) $ (5.58)
======== ========= =========
Net loss per share - pro forma .......................................................... $ (1.34) $ (6.71) $ (5.92)
======== ========= =========
Because options vest over several years and additional option grants are
expected to be made in future years, the above pro forma results are not
representative of the pro forma results for future years.
F-27
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Stock Option Plans -- (Continued)
Prior to the Company's initial public offering, the fair value of each
option grant was estimated using the minimum value method of the Black-Scholes
option pricing model which assumes no volatility. The weighted average
assumptions used for grants made in 2001, 2000 and 1999 are as follows:
Options Granted During the
Year Ended December 31,
---------------------------------------
2001 2000 1999 1998
------- ------- -------- -------
Post-IPO Pre-IPO
-------- -------
Risk-free interest rate........................................................... 4.38% 6.04% 5.87% 4.86%
Expected option life.............................................................. 4 years 4 years 4 years 5 years
Dividend yield.................................................................... 0.00% 0.00% 0.00% 0.00%
Volatility........................................................................ 120.00% 110.00% 100.00% 0.00%
Note 9 -- Commitments and Contingencies
Leases
The Company leases office and equipment under non-cancelable operating
leases expiring at various dates through April 2015. The following is a
schedule of future minimum lease payments under non-cancelable operating
leases as of December 31, 2001 for the next five years:
Year Ending December 31: (in thousands)
------------------------------------ --------------
2002.......................................................... $ 6,188
2003.......................................................... 4,607
2004.......................................................... 4,158
2005.......................................................... 4,067
2006.......................................................... 3,977
-------
$22,997
=======
In March 2000, iVillage entered into a fifteen-year lease for approximately
105,000 square feet at 500-512 Seventh Avenue in which the Company has
consolidated its New York City operations. Pursuant to the terms of the lease,
iVillage anticipates receiving approximately $5.3 million for reimbursement of
certain construction expenses. The benefit of the reimbursement has been
deferred and will be recognized ratably over the life of the lease. iVillage
received approximately $3.8 million in January 2001 and approximately $0.5
million in April 2001 as partial reimbursement of construction costs.
In October 2001, the Company amended its lease located at 500-512 Seventh
Avenue, terminating obligations under the lease regarding 21,111 square feet
of the leased premises. The amended lease reduces the Company's yearly
financial commitment by approximately $0.9 million and approximately $13.5
million over the remaining life of the lease. Additionally, the lease
amendment reduces the amount to be reimbursed by the landlord for certain
construction expenses from approximately $5.3 million to $5.1 million. In
consideration of the early termination of part of the leased space, the
Company incurred fees of approximately $1.3 million. Concurrently with the
signing of this lease amendment, the letter of credit securing the real estate
lease, which is classified as "Restricted cash" on the consolidated balance
sheet, was reduced to approximately $8.5 million.
In December 2001, the Company entered into a five-year sublease agreement in
which it subleased 14,630 square feet of its leased premises at 500-512
Seventh Avenue. The annual basic rent to be received by the Company is
approximately $0.6 million. iVillage incurred fees of approximately $0.2
million in connection with the sublease.
F-28
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Commitments and Contingencies -- (Continued)
In September 2001, the Company surrendered the New York office space assumed
in the Women.com acquisition back to the landlord. The lease had a remaining
financial commitment of $11.1 million and expired in December 2009. In
consideration of the early termination of the lease, the Company forfeited its
right to the security deposit securing the lease, approximately $1.4 million,
to the landlord.
On September 15, 2001, Lamaze Publishing Company, a subsidiary of the
Company ("Lamaze Publishing"), amended their lease located at 9 Old Kings
Highway, Connecticut, terminating obligations under the lease regarding 3,319
square feet of its leased premises. The amended lease reduces the Company's
yearly financial commitment by approximately $0.1 million and approximately
$0.4 million over the remaining life of the lease. In consideration of the
early termination of part of the leased space, the Company incurred fees of
approximately $0.1 million.
Rent expense from continuing operations was approximately $5.2 million, $4.4
million and $1.3 million for the years ended December 31, 2001, 2000 and 1999,
respectively.
NBC
In February 2001, iVillage further amended its November 1998 agreement with
NBC to provide for an extension of time during which iVillage must purchase
its advertising or promotional spots on the NBC network. The revised terms
require iVillage to purchase approximately $11.6 million of advertising or
promotional spots between January 30, 2001 and December 31, 2002, with $3.0
million of such spots being telecast during the year 2001 and the remaining
approximately $8.6 million during the year 2002. During 2001, iVillage
purchased approximately $1.6 million of advertising or promotional spots and
the parties have orally agreed to defer the remaining advertising commitment
for 2001 until a mutually agreed upon period in the future. (See Note 5--
Related-Party Transactions-NBC and Note 12--Subsequent Events-NBC)
Joint Ventures
In July 2000, iVillage, Tesco PLC and Tesco.com formed an international
joint venture, iVillage UK Limited, to serve the women's online market in the
United Kingdom and the Republic of Ireland. iVillage UK Limited functions as
an independently managed entity and provides women in the UK and the Republic
of Ireland with a highly focused community and an array of interactive,
customized online solutions and services including content channels, tools,
planners, quizzes, message boards, chats and newsletters. Tesco provides
capital and promotional initiatives, and iVillage provides its brand,
intellectual property, content and consulting services.
The Company is obligated to fund the ongoing business and operations of
Cooperative Beauty Ventures, L.L.C., a consolidated entity, but not to exceed
$7.0 million. As of December 31, 2001, the Company has contributed
approximately $1.9 million. (See Note 6--Business Acquisitions and
Dispositions--Cooperative Beauty Ventures, L.L.C.)
Litigation
Several plaintiffs have filed class action lawsuits in federal court against
the Company, several of its present and former executives and its underwriters
in connection with its March 1999 initial public offering. A similar class
action lawsuit was filed against the Company's Women.com subsidiary, several
of its former executives and its underwriters in connection with Women.com's
October 1999 initial public offering. The complaints generally assert claims
under the Securities Act, the Exchange Act and rules promulgated by the
Securities and Exchange Commission. The complaints seek class action
certification, unspecified damages in an amount to be determined at trial, and
costs associated with the litigation, including attorneys' fees.
The Company believes that the lawsuits and claims asserted against iVillage
and Women.com pursuant to these class action complaints are without merit and
intends to vigorously defend against these claims. The
F-29
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Commitments and Contingencies -- (Continued)
Company does not believe that any of these legal proceedings will have a
material adverse effect on the Company's results of operations.
Note 10 -- Capital Stock
Convertible Preferred Stock
The holders of convertible preferred stock were entitled to receive
noncumulative dividends when and if declared by the Board. These dividends
were in preference to any declaration or payment of any dividend on the common
stock of the Company.
All classes of convertible preferred stock were convertible into common
stock at prices and at times, subject to the provisions set forth in the
Company's Certificate of Incorporation, on a one for one basis. In the event
of a public offering of the Company's shares with gross proceeds and an
offering price as defined, the outstanding shares of convertible preferred
stock were to be automatically converted into common stock on a one for one
basis (on a pre-split basis). The holders of Series B and B-1 shares received
an additional 217,825 shares of common stock as a result of the anti-dilution
provisions contained in the Series B and Series B-1 agreements.
As discussed in Note 1, in March 1999, upon the closing of the IPO, all
classes of outstanding convertible preferred stock converted into common stock
on a one for one ratio.
Warrants
As of December 31, 2001, 2000 and 1999, the Company had 2,721,911, 945,536
and 990,434 warrants outstanding with a weighted average exercise price of
$2.77, $13.24 and $12.49 per share, respectively. On January 1, 2002 and 2001,
respectively, 271,003 and 323,625 warrants with an exercise price of $18.45
and $15.45 expired.
Reverse Stock Split
On March 11, 1999, the Board of Directors effected a one-for-three reverse
common stock split. The Board also approved the adjustment of the common stock
par value to $.01 per share. The share and per share information in the
accompanying consolidated financial statements reflect the effect of this
reverse stock split for all periods presented.
Treasury Stock
On September 20, 2001, the Company announced its intention to acquire, in
open market transactions, up to 2,000,000 shares of its Common Stock, par
value $.01 per share (the "Common Stock"), subject to and in compliance with
the provisions and limitations of Rule 10b-18 of the Securities Exchange Act
of 1934. Purchases were made several times during September 2001 at prevailing
market prices. The source of funds for the purchase of the shares was the
Company's general corporate funds, and all shares purchased are held in
treasury. During 2001, the Company repurchased 167,859 shares at a cumulative
cost of $129,313.
On October 1, 2001, the Company announced a buyback of its common stock from
Capital Guardian Trust Company, a major stockholder of the Company, and the
Company purchased, off market, approximately 1,000,000 shares and the
Company's Chairman and Chief Executive Officer and certain Company officers
and directors purchased in aggregate approximately 750,000 additional shares,
all at a market discount. The cost of the buyback for the Company was
approximately $0.4 million.
F-30
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 11 -- Income Taxes
The components of the net deferred tax asset as of December 31, 2001 and
2000 consisted of the following:
2001 2000
-------- --------
(in thousands)
Operating loss carryforward ............................. $ 84,171 $ 80,380
Unearned compensation ................................... 4,348 --
Bad debt allowance and reserves ......................... 1,003 413
Depreciation and amortization ........................... 965 2,734
Other ................................................... 70 --
-------- --------
Net deferred tax asset ................................. 90,557 83,527
Less, valuation allowance ............................... (90,557) (83,527)
-------- --------
Deferred tax asset ..................................... $ -- $ --
======== ========
The difference between the Company's U.S. federal statutory rate of 35%, as
well as its state and local rate, net of a federal benefit, of 10%, when
compared to the effective rate is principally comprised of the valuation
allowance.
As of December 31, 2001, the Company has a net operating loss carryforward
for federal income tax purposes of approximately $205.3 million, which begin
to expire in 2010. The net deferred tax asset has been fully reserved due to
the uncertainty of the Company's ability to realize this asset in the future.
The Company is subject to various state and local taxes. State and local tax
expense was approximately $0.5 million, $0.3 million and $0.1 million for the
years ended December 31, 2001, 2000 and 1999, respectively.
Note 12 -- Subsequent Events
Hearst
In January 2002, the Company signed contracts to provide production and
certain hosting services for two additional magazine sites, as well as The
Hearst Corporation Corporate Web site. The contracts for the magazine sites
have an initial term of six months, and the contract for The Hearst
Corporation Corporate Web site has an initial term of one year, with automatic
renewals unless terminated. The minimum amount of production fees for the
initial term of the contracts is approximately $0.3 million.
Promotions.com
On February 11, 2002, the Company agreed to acquire Promotions.com through
an exchange offer and merger transaction. The overall transaction has an
approximate aggregate value of $13.3 million. Under terms of the merger
agreement, iVillage will issue an aggregate of approximately $3.5 million in
shares of iVillage Common Stock, as well as approximately $9.8 million in
cash, which represents a distribution of all cash less accrued liabilities and
other reserves of Promotions.com.
NBC
On February 22, 2002, the Company further amended its agreement with NBC
(see Note 5--Related Party Transactions--NBC), pursuant to which NBC released
the Company from its obligation to make the remaining $4.6 million in cash
payments and to place any additional advertising on NBC, in exchange for the
purchase of approximately $1.3 million in telecast spots in February 2002 by
the Company and the forfeiture of its right to the remaining approximately
$4.1 million of prepaid advertising.
F-31
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 13 -- Quarterly Results of Operations (unaudited)
In June 2000, the Company decided to discontinue the operations of its iBaby
subsidiary. Results of these operations have been classified as discontinued
operations and all prior period results have been restated. The following is a
summary of the quarterly results of operations for the years ended December
31, 2001 and 2000:
March 31 June 30 September 30 December 31
-------- -------- ------------ -----------
(in thousands, except per share data)
2001
Revenues ..................................................................... $ 12,573 $ 11,449 $ 18,066 $ 17,953
======== ======== ========= ========
Net loss from continuing operations .......................................... $(12,175) $(18,485) $ (8,041) $ (9,764)
======== ======== ========= ========
Net loss from discontinued operations ........................................ $ -- $ -- $ -- $ --
======== ======== ========= ========
Net loss ..................................................................... $(12,175) $(18,485) $ (8,041) $ (9,764)
======== ======== ========= ========
Basic and diluted net loss per share from continuing operations .............. $ (0.41) $ (0.56) $ (0.15) $ (0.18)
======== ======== ========= ========
Basic and diluted net loss per share from discontinued operations ............ $ -- $ -- $ -- $ --
======== ======== ========= ========
Basic and diluted net loss per share ......................................... $ (0.41) $ (0.56) $ (0.15) $ (0.18)
======== ======== ========= ========
2000
Revenues ..................................................................... $ 18,104 $ 19,392 $ 20,191 $ 18,665
======== ======== ========= ========
Net loss from continuing operations .......................................... $(22,282) $(28,007) $(119,371) $ (9,845)
======== ======== ========= ========
Net loss from discontinued operations ........................................ $ (2,885) $ (9,251) $ 409 $ (195)
======== ======== ========= ========
Net loss ..................................................................... $(25,167) $(37,258) $(118,962) $(10,040)
======== ======== ========= ========
Basic and diluted net loss per share from continuing operations .............. $ (0.75) $ (0.94) $ (4.02) $ (0.33)
======== ======== ========= ========
Basic and diluted net loss per share from discontinued operations ............ $ (0.10) $ (0.31) $ 0.02 $ (0.01)
======== ======== ========= ========
Basic and diluted net loss per share ......................................... $ (0.85) $ (1.25) $ (4.00) $ (0.34)
======== ======== ========= ========
F-32
SCHEDULE I
iVILLAGE INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
---------- ---------- -------------- ---------- ----------
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other End
of Period Expenses Accounts Deductions of Period
---------- ---------- -------------- ---------- ----------
(in thousands)
For the year ended December 31, 1999:
Provision for doubtful accounts......................... $ 746 $500 $ -- $546(2) $ 700
====== ==== ====== ==== ======
For the year ended December 31, 2000:
Provision for doubtful accounts......................... $ 700 $277 $ 73(1) $ 43(2) $1,007
====== ==== ====== ==== ======
For the year ended December 31, 2001:
Provision for doubtful accounts......................... $1,007 $ -- $1,630(3) $351(2) $2,286
====== ==== ====== ==== ======
- ---------------
(1) Doubtful accounts written off against revenue.
(2) Doubtful accounts written off, net of cash received.
(3) Increase in allowance for doubtful accounts in connection with valuation of
receivables from the acquisitions of Women.com and PAG.
All other schedules have been omitted because they are not applicable or not
required or because the information is included elsewhere in the consolidated
financial statements or the notes thereto.
S-1