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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 000-25469
iVillage Inc.
-------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-3845162
-------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
500 Seventh Avenue, New York, New York 10018
-------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(212) 600-6000
--------------
(Registrant's Telephone Number, Including Area Code)
----------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed since Last Report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
56,151,130 shares of common stock as of November 12, 2003.
iVillage Inc.
Form 10-Q
For the Quarter ended September 30, 2003
Index
PART I. FINANCIAL INFORMATION Page
----
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002.......1
Condensed Consolidated Statements of Operations for the three and nine months ended
September 30, 2003 and 2002................................................................2
Condensed Consolidated Statements of Cash Flows for the three and nine months ended
September 30, 2003 and 2002................................................................3
Notes to Condensed Consolidated Financial Statements.......................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................................................15
Item 3. Quantitative and Qualitative Disclosures About
Market Risk..................................................................................47
Item 4. Controls and Procedures......................................................................47
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................49
Item 4. Submission of Matters to a Vote of Security Holders..........................................49
Item 6. Exhibits and Reports on Form 8-K.............................................................50
Signatures....................................................................................................51
Exhibit Index.................................................................................................52
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
iVillage Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
September 30, December 31,
2003 2002
------------- ------------
Assets
Current assets:
Cash and cash equivalents...................................... $ 15,448 $ 21,386
Accounts receivable, less allowance for doubtful accounts of
$1,131 and $1,310, respectively........................... 5,601 5,336
Prepaid rent................................................... 318 --
Other current assets........................................... 5,040 5,960
--------- ---------
Total current assets 26,407 32,682
Restricted cash................................................ -- 8,474
Fixed assets, net.............................................. 7,472 17,157
Goodwill, net.................................................. 22,266 24,617
Intangible assets, net......................................... 12,942 17,367
Prepaid rent, net of current portion........................... 3,392 --
Other assets................................................... 165 289
--------- ---------
Total assets.......................................... $ 72,644 $ 100,586
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses.......................... $ 10,329 $ 10,319
Deferred revenue............................................... 4,372 3,514
Deferred rent.................................................. 144 348
Deferred gain on sale of joint venture interest................ 217 --
Current liabilities of discontinued operations, net............ 98 98
--------- ---------
Total current liabilities............................. 15,160 14,279
Deferred rent, net of current portion.......................... 1,519 3,926
--------- ---------
Total liabilities..................................... 16,679 18,205
Minority interest............................................ 288 181
Commitments and contingencies
Stockholders' equity:
Preferred stock - par value $.01, 5,000,000
shares authorized; no shares issued
and outstanding as of September 30, 2003
and December 31, 2002, respectively....................... -- --
Common stock - par value $.01, 200,000,000 shares authorized;
56,964,031 and 56,531,785 shares issued at
September 30, 2003 and December 31, 2002, respectively;
55,760,585 and 55,328,339 shares outstanding as of
September 30, 2003 and December 31, 2002, respectively.... 570 565
Additional paid-in capital................................... 550,028 549,203
Accumulated deficit.......................................... (494,178) (466,717)
Treasury stock at cost (1,203,446 shares).................... (502) (502)
Stockholders' notes receivable............................... (241) (262)
Unearned compensation and deferred advertising............... -- (87)
--------- ---------
Total stockholders' equity.......................... 55,677 82,200
--------- ---------
Total liabilities and stockholders' equity.......... $ 72,644 $ 100,586
========= =========
The accompanying notes are an integral part of these condensed consolidated
financial statements
1
iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------
Revenues ......................................................... $ 13,562 $ 14,629 $ 39,358 $ 45,768
Operating expenses:
Editorial, product development and technology ............... 7,551 7,472 22,180 21,455
Sales and marketing ......................................... 4,341 5,346 14,816 16,018
Sales and marketing - NBC/Hearst expenses ................... 135 568 218 3,435
Termination of NBC advertising contract ..................... -- -- -- 4,084
General and administrative .................................. 4,198 3,238 10,295 9,360
Lease restructuring charge and related impairment
of fixed assets.......................................... 5,101 -- 9,126 --
Depreciation and amortization ............................... 1,856 3,153 6,804 9,087
Impairment of goodwill, intangible assets and
fixed assets............................................... -- -- 4,029 --
-------- -------- -------- --------
Total operating expenses ................................ 23,182 19,777 67,468 63,439
-------- -------- -------- --------
Loss from operations ............................................. (9,620) (5,148) (28,110) (17,671)
Interest income, net ............................................. 62 146 192 431
Other income, net ................................................ 139 16 139 16
Gain on sale of joint venture interest ........................... 200 -- 425 --
-------- -------- -------- --------
Net loss before minority interest and cumulative effect of
change in accounting principle .............................. (9,219) (4,986) (27,354) (17,224)
Minority interest ................................................ (47) 18 (107) (63)
-------- -------- -------- --------
Net loss before cumulative effect of change in accounting
principle ................................................... (9,266) (4,968) (27,461) (17,287)
Cumulative effect of change in accounting principle .............. -- -- -- (9,181)
-------- -------- -------- --------
Net loss ......................................................... $ (9,266) $ (4,968) $(27,461) $(26,468)
======== ======== ======== ========
Per share data:
Net loss before cumulative effect of change in accounting
principle per share ......................................... $ (0.17) $ (0.09) $ (0.49) $ (0.32)
Cumulative effect of change in accounting principle per share .... -- -- -- (0.17)
-------- -------- -------- --------
Basic and diluted net loss per share ............................. $ (0.17) $ (0.09) $ (0.49) $ (0.48)
======== ======== ======== ========
Weighted average shares of common stock outstanding used
in computing basic and diluted net loss per share ........... 55,753 55,535 55,613 54,607
======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements
2
iVillage Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------- --------------------
2003 2002 2003 2002
--------- -------- -------- --------
Cash flows from operating activities:
Net loss ........................................................ $ (9,266) $ (4,968) $(27,461) $(26,468)
Adjustments to reconcile net loss to net cash used in
operating activities:
Impairment of goodwill, intangibles and fixed
assets (including change in accounting principle) .............. -- -- 4,029 9,181
Depreciation and amortization ................................... 1,856 3,153 6,804 9,087
Non-cash print advertising expense .............................. 315 568 398 1,733
Expense recognized in connection with issuance of
warrants and stock options ..................................... 320 175 395 693
Minority interest ............................................... 47 (18) 107 63
Provision for bad debt expense .................................. 20 102 208 145
Deferred rent amortization ...................................... (42) (87) (210) (260)
Lease restructuring charge and related impairment
of fixed assets ................................................ 350 -- 4,375 --
Amortization of gain on sale of joint venture interest .......... (200) -- (425) --
Changes in operating assets and liabilities:
Accounts receivable ............................................. (239) 1,441 (473) 1,348
Prepaid rent .................................................... (3,710) -- (3,710) --
Restricted cash and other assets ................................ 8,592 339 9,120 5,387
Accounts payable and accrued expenses ........................... 712 (1,839) 10 (7,590)
Lease restructuring ............................................. (59) -- (90) --
Deferred revenue ................................................ (392) (101) 858 857
--------- -------- -------- --------
Net cash used in operating activities............................... (1,696) (1,235) (6,065) (5,824)
--------- -------- -------- --------
Cash flows from investing activities:
Purchase of fixed assets ........................................ (209) (448) (899) (804)
Purchase of intangible assets ................................... (150) -- (150) --
Cash paid less cash acquired for acquisition of
Promotions.com, Inc. .......................................... -- (631) (9) (865)
Deferred gain on sale of joint venture interest ................. 75 -- 642 --
--------- -------- -------- --------
Net cash used in investing activities............................... (284) (1,079) (416) (1,669)
--------- -------- -------- --------
Cash flows from financing activities:
Proceeds from exercise of stock options ......................... 455 -- 522 748
Principal payments on stockholders' note receivable.............. 7 -- 21 1,291
--------- -------- -------- --------
Cash provided by financing activities............................... 462 -- 543 2,039
--------- -------- -------- --------
Cash used in discontinued operations................................ -- -- -- (10)
--------- -------- -------- --------
Net decrease in cash for the period ................................ (1,518) (2,314) (5,938) (5,464)
Cash and cash equivalents, beginning of period...................... 16,966 26,681 21,386 29,831
--------- -------- -------- --------
Cash and cash equivalents, end of period ........................... $ 15,448 $ 24,367 $ 15,448 $ 24,367
========= ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements
3
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1 - Organization and Basis of Presentation
iVillage Inc. ("iVillage"), The Internet for Women(TM), is a women's
media company that operates online and offline properties including
iVillage.com, iVillage Parenting Network, Inc. ("IVPN"), Public Affairs Group,
Inc. ("PAG"), Promotions.com, Inc. ("Promotions.com"), iVillage Consulting, and
Knowledgeweb, Inc. (operator of the Astrology.com Web site) ("Astrology.com").
iVillage.com is a leading women's online destination offering interactive
services, peer support, content and online access to experts. IVPN is a holding
company for Lamaze Publishing Company ("Lamaze Publishing"), an offline
publisher of educational materials for expectant and new parents, and iVillage
Integrated Properties, Inc. ("IVIP"), the operator of The Newborn Channel, a
satellite television network broadcast in approximately 1,100 hospitals
nationwide, and the publisher of Baby Steps magazine. PAG is comprised of three
divisions: Business Women's Network, Diversity Best Practices and Best Practices
in Corporate Communications, each offering extensive databases of pertinent
information to subscribing companies and members. Promotions.com provides
promotions and direct marketing programs that are integrated with customers'
marketing initiatives.
iVillage has sustained net losses and negative cash flows from
operations since its inception and expects to continue to incur additional net
losses in the near future. 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, through
the launch of new subscription or other revenue-generating initiatives or other
sources of financing to fund operations. 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 securities, however, management
believes that it could raise funds through a private placement of its
securities. iVillage can make no assurances that it will achieve profitable
operations or that iVillage will be able to obtain adequate financing from other
sources. Due primarily to iVillage's lack of profitability, it is unlikely that
iVillage will be able to obtain bank financing. 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, although there can be no assurances in this regard.
iVillage is subject to the risks 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
iVillage's brands, the non-acceptance or rejection of iVillage's services by
consumers, vendors, sponsors and/or advertisers and the inability of iVillage to
maintain and increase the levels of traffic on its online services, as well as
other risks and uncertainties. In the event iVillage does not successfully
implement its business plan, certain assets may not be recoverable.
4
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Unaudited Interim Financial Information
The unaudited interim condensed consolidated financial statements of
iVillage as of September 30, 2003 and for the three and nine months ended
September 30, 2003 and 2002, respectively, included herein, have been prepared
in accordance with the instructions for Form 10-Q under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Article 10 of Regulation S-X
under the Securities Act of 1933, as amended (the "Securities Act"). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements. These financial statements should be read in conjunction
with iVillage's Annual Report on Form 10-K for the fiscal year ended December
31, 2002.
In the opinion of management, the accompanying unaudited interim
condensed consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments and appropriate inter-company elimination
adjustments, necessary to present fairly the financial position of iVillage at
September 30, 2003, and the results of its operations and its cash flows for the
three and nine months ended September 30, 2003 and 2002, respectively. The
results for the three and nine months ended September 30, 2003 are not
necessarily indicative of the expected results for the full fiscal year or any
future period.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of
iVillage and its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
Revenue and Receivables
Two customers, Wal-Mart Stores, Inc. (including its affiliates,
"Wal-Mart") and Hearst Communications, Inc. (including its affiliates,
"Hearst"), a related party, accounted for approximately 12% and 11% of total
revenues for the three months ended September 30, 2003, respectively. One
customer, Hearst, accounted for approximately 12% of total revenues for the nine
months ended September 30, 2003. iVillage's five largest customers accounted for
approximately 32% and 28% of total revenues for the three and nine months ended
September 30, 2003, respectively. Two customers, Procter and Gamble Company
("Procter and Gamble"), and Hearst, accounted for approximately 17% and 11% of
total revenues for the three months ended September 30, 2002, respectively.
Three customers, Procter and Gamble, Hearst and Unilever PLC (including its
affiliates, "Unilever") accounted for approximately 13%, 11% and 11%, of total
revenues for the nine months ended September 30, 2002, respectively. iVillage's
five largest customers accounted for approximately 41% of total revenues for the
three and nine months ended September 30, 2002, respectively. At September 30,
2003, Hearst accounted for approximately 30% of the net accounts receivable. At
December 31, 2002, Procter and Gamble accounted for approximately 26% of the net
accounts receivable.
5
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Included in sponsorship and advertising revenues are barter
transactions, which totaled approximately $1.1 million and $3.0 million, or 9%
of sponsorship and advertising revenues for the three and nine months ended
September 30, 2003, respectively, and approximately $0.8 million and $2.6
million, or 6% and 7%, for the comparable periods in 2002.
Reclassifications
Certain reclassifications have been made in the prior period condensed
consolidated financial statements to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates. Significant estimates and assumptions made by iVillage include those
related to the useful lives of fixed assets and intangible assets, the
recoverability of fixed assets, goodwill, intangible assets and deferred tax
assets, the allowance for doubtful accounts and the accrual of certain operating
expenses.
Accrued Expenses
In the ordinary course of business, iVillage utilizes estimates to
determine the accrual of certain operating expenses. These estimates are
reviewed on an ongoing basis to determine the adequacy of these accruals. For
the three and nine months ended September 30, 2003, iVillage reversed
approximately $0.1 million and $0.2 million, respectively, of accruals included
in operating expenses due to a change in estimate on services previously
provided for, and approximately $0.5 million and $1.1 million for the comparable
periods in 2002. These amounts were offset by additional accruals for various
operating expenses.
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 shares and common stock
equivalents outstanding during the period. Common stock equivalent shares are
excluded from the computation if their effect is anti-dilutive.
Included in the September 30, 2003 and 2002 calculation of weighted
average number of shares of common stock outstanding are 189,478 and 207,724
shares, respectively, which have not been issued. These shares are being held
for former Women.com Networks, Inc. ("Women.com") and Promotions.com
stockholders that have not yet exchanged their respective shares for shares of
iVillage as of the balance sheet date.
Stock options and warrants in the amount of 11,353,254 shares and
13,028,398 shares for the nine months ended September 30, 2003 and 2002,
respectively, were not included in the computation of diluted net loss per share
as they were anti-dilutive as a result of net losses during the period
presented.
6
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Stock-Based Compensation
iVillage applies Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its stock option issuances, and has adopted
the disclosure-only provisions of Statement of Financial Accounting Standard
("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). No
compensation cost related to grants of stock options was reflected in iVillage's
net loss, as all options granted under the plans had an exercise price at least
equal to the market value of the underlying common stock on the date of grant.
Compensation cost related to the modification of stock option terms is measured
at the quoted market price of iVillage's common stock at the measurement date
and is amortized to expense over the vesting period. If compensation cost for
iVillage's stock options had been determined based on the fair value of the
stock options at the grant date for awards in the three and nine months ended
September 30, 2003 and 2002 consistent with the provisions of SFAS 123,
iVillage's net loss would have been adjusted to the pro forma amounts indicated
below:
Three months ended Nine months ended
September 30, September 30,
------------------------ -------------------------
2003 2002 2003 2002
--------- -------- ---------- ----------
($ in thousands except per share data)
Net loss - as reported ........................... $ (9,266) $ (4,968) $ (27,461) $ (26,468)
Stock-based compensation expense
determined under SFAS 123 ........................ (1,563) (2,624) (6,244) (8,053)
--------- -------- ---------- ----------
Net loss - pro forma.............................. $ (10,829) $ (7,592) $ (33,705) $ (34,521)
========= ======== ========== ==========
Net loss per share - as reported.................. $ (0.17) $ (0.09) $ (0.49) $ (0.48)
========= ======== ========== ==========
Net loss per share - pro forma.................... $ (0.19) $ (0.14) $ (0.61) $ (0.63)
========= ======== ========== ==========
Because options vest over several years and additional option grants
are expected to be made in future years, the aforementioned pro forma results
are not necessarily indicative of the pro forma results for the full fiscal year
or any future period.
The weighted average assumptions used for grants made in 2003 and 2002
are as follows:
Options granted during the Options granted during the
three months ended nine months ended
September 30, September 30,
--------------------------- --------------------------
2003 2002 2003 2002
------------- ------------ ------------ ------------
Risk-free interest rate............. 2.60% 3.71% 2.56% 3.71%
Expected option life................ 4 years 4 years 4 years 4 years
Dividend yield...................... 0.00% 0.00% 0.00% 0.00%
Volatility.......................... 108.00% 108.00% 108.00% 108.00%
7
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Recent Accounting Pronouncements
In November 2002, the Financial Accounting Standards Board ("FASB")
reached a consensus on Emerging Issues Task Force ("EITF") Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF No.
00-21"). The guidance in EITF No. 00-21 is effective for revenue arrangements
entered into for fiscal years beginning after June 15, 2003. EITF No. 00-21
addresses certain aspects of the accounting by a company for arrangements under
which it will perform multiple revenue-generating activities. Specifically, EITF
No. 00-21 addresses how to determine whether an arrangement involving multiple
deliverables contains more than one earnings process and if it does, how to
divide the arrangement into separate units of accounting consistent with the
identified earnings processes for revenue recognition purposes. EITF No. 00-21
also addresses how arrangement consideration should be measured and allocated to
the separate units of accounting in the arrangement. iVillage has determined
that EITF No. 00-21 will not have a material impact on its financial position,
cash flows or results of operations.
In January 2003, the FASB issue FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 requires a
company to consolidate a variable interest entity if it is designated as the
primary beneficiary of that entity even if the company does not have a majority
voting interest. A variable interest entity is generally defined as an entity
where its equity is unable to finance its activities or where the owners of the
entity lack the risks and rewards of ownership. The provisions of FIN 46 apply
immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after that
date. Based on iVillage's review of FIN 46, it does not believe it has any
interests qualifying as variable interest entities and does not anticipate that
the provisions of FIN 46 will have any near term impact on its financial
position, cash flows or results of operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" ("SFAS 149"), which amends
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities",
for certain decisions made by the FASB Derivatives Implementation Group. In
particular, SFAS 149: clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative, clarifies when
a derivative contains a financing component, amends the definition of an
underlying to conform it to language used in FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," and amends certain other
existing pronouncements. This Statement is effective for contracts entered into
or modified after September 30, 2003, and for hedging relationships designated
after September 30, 2003. In addition, most provisions of SFAS 149 are to be
applied prospectively. iVillage does not expect the adoption of SFAS 149 to have
a material impact on its financial position, cash flows or results of
operations.
Note 2 - Fixed Assets
In the second quarter of 2003, iVillage abandoned a portion of its New
York leased real estate. In connection with the abandonment, iVillage incurred
an impairment of fixed assets related to the leasehold improvements, net of
accumulated amortization, of approximately $4.9 million and furniture and
fixtures, net of accumulated depreciation, of approximately $0.3 million. In the
third quarter of 2003, iVillage completed its renegotiation of its lease
agreement with the landlord of its New York leased real estate in which iVillage
abandoned fixed assets related to leasehold improvements, net of accumulated
amortization, of approximately $1.4 million and transferred to the landlord
furniture and fixtures, net of accumulated depreciation, of approximately $0.1
million. These amounts are included in the condensed consolidated statements of
operations in the caption, "Lease restructuring charge and related impairment of
fixed assets." (See Note 8 - Lease Restructuring Charge and Related Impairment
of Fixed Assets).
8
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
During the second quarter of 2003, iVillage restructured the business
operations of Promotions.com (See Note 3 - Goodwill) resulting in an impairment
of computer equipment, net of accumulated depreciation, of approximately $0.8
million. This amount is included in the condensed consolidated statements of
operations in the caption, "Impairment of goodwill, intangible assets and fixed
assets."
Note 3 - Goodwill
Effective January 1, 2002, iVillage adopted SFAS No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142"). SFAS 142 addresses the recognition and
measurement of goodwill and other intangible assets subsequent to their
acquisition. SFAS 142 also addresses the initial recognition and measurement of
intangible assets acquired outside of a business combination whether acquired
individually or with a group of other assets. This statement provides that
intangible assets with indefinite lives and goodwill will not be amortized, but
will be tested at least annually for impairment, or if circumstances change that
will more likely than not reduce the fair value of the reporting unit below its
carrying amount. Upon completion of the transitional impairment test, the fair
value for Reporting unit - 2 did not exceed the reporting unit's carrying value
and an impairment was recorded of approximately $9.2 million in the first
quarter of 2002. In the second quarter of 2003, iVillage restructured the
business operations of Reporting unit - 4 by outsourcing most of the operations
of the Promotions.com business unit and by changing the Webstakes.com business
model, and as a result, the fair value of Reporting unit - 4 did not exceed the
reporting unit's carrying value and an impairment was recorded of approximately
$2.6 million. This amount is included in the condensed consolidated statements
of operations in the caption, "Impairment of goodwill, intangible assets and
fixed assets."
The following table sets forth the components of goodwill, net as of
September 30, 2003 and December 31, 2002 (in thousands):
Adjustment to Impairment
December 31, 2002 Acquisition purchase accounting losses September 30, 2003
----------------- ------------ ------------------- ---------- ------------------
Reporting unit - 1 $ 18,770 $ -- $ -- $ -- $ 18,770
Reporting unit - 2 1,693 -- -- -- 1,693
Reporting unit - 3 1,803 -- -- -- 1,803
Reporting unit - 4 2,351 -- 295 (2,646) --
-------- ---- -------- -------- --------
$ 24,617 $ -- $ 295 $ (2,646) $ 22,266
======== ==== ======== ======== ========
Reporting unit - 1 includes the iVillage, Women.com, Astrology.com and
Cooperative Beauty Ventures, L.L.C. entities; Reporting unit - 2 includes IVPN,
Lamaze Publishing and IVIP; Reporting unit - 3 includes PAG; Reporting unit - 4
includes Promotions.com consisting of the Promotions.com and Webstakes.com
business units.
9
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 4 - Intangible Assets
Effective January 1, 2002, iVillage adopted SFAS No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
addresses financial accounting and reporting for the disposal of long-lived
assets. The objectives of SFAS 144 are to address significant issues relating to
the implementation of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of" ("SFAS 121") and to develop
a single accounting model, based on the framework established in SFAS 121, for
the long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired. SFAS 144 retains the fundamental provisions of SFAS 121
regarding the recognition and measurement of the impairment of long-lived assets
to be held and used. iVillage reviews for the impairment of long-lived assets
and certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
general, iVillage will recognize an impairment when the sum of undiscounted
future cash flows is less than the carrying amount of such assets. The
measurement for such impairment loss is based on the fair value of the asset,
typically based upon the future cash flows discounted at a rate commensurate
with the risk involved. During the second quarter of 2003, iVillage restructured
the business operations of Reporting unit - 4 (See Note 3 - Goodwill), and as a
result, the fair value was less than the carrying amount of certain intangible
assets and an impairment was recorded of approximately $0.7 million. This amount
is included in the condensed consolidated statements of operations in the
caption, "Impairment of goodwill, intangible assets and fixed assets."
In July 2003, iVillage acquired the Web site, trademarks, key contracts
and other related assets of gURL.com for an immaterial amount of cash.
Identifiable intangible assets are amortized under the straight-line
method over the period of expected benefit ranging from two to ten years. The
following table sets forth the components of the intangible assets subject to
amortization as of September 30, 2003 and December 31, 2002 (in thousands):
September 30, 2003 December 31, 2002
------------------------------------------------------------------- ---------------------------------
Range
of Gross Adjustment Gross
useful carrying to purchase Impairment Accumulated carrying Accumulated
life amount Acquisition accounting losses amortization Net amount amortization Net
------ -------- ----------- ----------- ---------- ------------ ------ -------- ------------ ----------
Advertiser and
member list and
customer 2-10
contracts years $ 21,150 $ 150 $ -- $ (718) $(10,447) $10,135 $21,150 $ (7,803) $ 13,347
Trademarks and
domain names 3 years 3,424 -- (197) -- (2,585) 642 3,424 (2,009) 1,415
Licensing
agreement 10 years 2,900 -- -- -- (1,192) 1,708 2,900 (975) 1,925
Technology 3 years 890 -- -- -- (433) 457 890 (210) 680
Non competition
agreements 1 year 810 -- -- -- (810) -- 81 (810) --
Content 3 years 600 -- -- -- (600) -- 600 (600) --
-------- ------ ------ ------ -------- ------- ------- -------- --------
$ 29,774 $ 150 $ (197) $ (718) $(16,067) $12,942 $29,774 $(12,407) $ 17,367
======== ====== ====== ====== ======== ======= ======= ======== ========
10
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Amortization expense for the three and nine months ended September 30,
2003 was approximately $1.1 million and $3.7 million, respectively. For the
three and nine months ended September 30, 2002, amortization expense was
approximately $1.5 million and $4.2 million, respectively.
Estimated amortization expense for the twelve months ending September
30 are as follows (in thousands):
2004............................ $ 3,997
2005............................ 2,059
2006............................ 1,802
2007............................ 1,760
2008............................ 1,760
-------
$11,378
=======
Note 5 - Deferred Gain on Sale of Joint Venture Interest
In March 2003, iVillage and Tesco.com Limited, a division of Tesco PLC
("Tesco"), restructured the terms of their joint venture so that Tesco purchased
iVillage's entire ownership interest in iVillage UK. iVillage and Tesco also
entered into a twenty-year agreement, subject to earlier termination upon the
occurrence of certain events, whereby iVillage will license to iVillage UK
certain of its content and intellectual property, including trademarks and
copyrights, for use in the United Kingdom ("U.K.") and Ireland in exchange for
the greater of a minimum monthly license fee or a percentage of iVillage UK's
gross revenues. As part of the agreement, the entity continues to operate under
the iVillage UK domain name and provides users with the same content and
offerings.
All monies received by iVillage under the license agreement will be
classified as other income and will be included in the condensed consolidated
statements of operations as a gain on sale of joint venture interest. iVillage
will receive a minimum of $0.8 million in year one of the license agreement,
which will be earned monthly as services are provided. As of September 30, 2003,
iVillage has received approximately $0.6 million.
Note 6 - Discontinued Operations
Net current liabilities of discontinued operations as of September 30,
2003 were as follows (in thousands):
Accounts payable and accrued expenses....................... $(98)
====
Net current liabilities of discontinued operations.......... $(98)
====
11
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 7 - Related Party Transactions
Hearst Communications, Inc.
As part of the acquisition of Women.com, iVillage acquired
approximately $4.9 million of prepaid print advertising in certain Hearst
magazines. During the third quarter of 2003, iVillage recognized approximately
$0.1 million of non-cash print advertising expense, and included in the caption
"Other income, net" in the condensed consolidated statements of operations,
iVillage wrote off approximately $0.2 million for expired prepaid print
advertising credits. For the nine months ended September 30, 2003, iVillage
recognized approximately $0.4 million of non-cash print advertising expense and
expired credits from this advertising. For the three and nine months ended
September 30, 2002, iVillage recognized approximately $0.6 million and $1.7
million of non-cash print advertising expense. As of September 30, 2003,
included in the caption "Other current assets" in the condensed consolidated
balance sheet is $20,860 of prepaid Hearst print advertising.
Revenues, net of royalty payments, from Hearst for the three and nine
months ended September 30, 2003 were approximately $1.5 million and $4.8
million, respectively. For the three and nine months ended September 30, 2002,
revenues, net of royalty payments, from Hearst were approximately $1.5 million
and $5.0 million, respectively.
Time Warner Inc.
In the second and third quarters of 2003, iVillage signed contracts
with the America Online ("AOL") division of Time Warner Inc. to promote various
AOL products. Revenues from Time Warner Inc. for the three and nine months ended
September 30, 2003 were approximately $0.3 million, respectively. No revenues
were recognized from Time Warner Inc. for the comparable periods in 2002.
Note 8 - Lease Restructuring Charge and Related Impairment of Fixed Assets
In the second quarter of 2003, iVillage abandoned a significant portion
of its New York leased real estate. As a result, iVillage incurred a lease
restructuring charge of approximately $0.6 million. In addition, iVillage wrote
off fixed assets of approximately $5.2 million that were impaired with the
abandonment of the leased space (See Note 2- Fixed Assets) and reduced the
liability for deferred rent, associated with the abandoned leased space, by
approximately $1.8 million.
In July 2003, iVillage entered into a lease amendment with the landlord
of its New York headquarters that became effective on August 15, 2003. The lease
amendment provides for a reduction in leased space, as well as a reduction in
rent per square foot. In connection with the lease amendment, iVillage
surrendered the approximately $8.5 million classified as restricted cash to the
landlord, resulting in a lease restructuring charge of approximately $4.7
million and prepaid rent of $3.7 million, which will be amortized over the
remaining life of the lease. In addition, iVillage wrote off fixed assets of
approximately $1.5 million that were transferred to the landlord (See Note 2 -
Fixed Assets), reduced the liability for deferred rent, associated with the
reduction in leased space, by approximately $0.6 million and reversed the
remaining lease restructuring liability of approximately $0.6 million.
These amounts are included in the condensed consolidated statements of
operations in the caption, "Lease restructuring charge and related impairment of
fixed assets".
12
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 9 - Commitments and Contingencies
Leases
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 non-cancelable operating
leases as of September 30, 2003:
Twelve months ending September 30: (in thousands)
--------------------------------------------------------------
2004..................................... $ 2,127
2005..................................... 2,076
2006..................................... 1,783
2007..................................... 1,553
2008..................................... 1,470
-------
$ 9,009
=======
Joint Ventures
Pursuant to an agreement with Unilever, iVillage was obligated to fund
the ongoing business and operations of Cooperative Beauty Ventures, L.L.C., a
joint venture between iVillage and Unilever, up to a maximum of $7.0 million. As
of September 30, 2003, iVillage had not been required to fund the operations of
the venture during 2002 and 2003 and has contributed, in total, approximately
$1.9 million to the venture. Subsequent to the balance sheet date, iVillage
purchased Unilever's ownership interest in the venture and the entity became
wholly-owned by iVillage (See Note 10 - Subsequent Events).
Litigation
In the normal course of business, iVillage is subject to proceedings,
lawsuits and other claims. Such matters are subject to many uncertainties, and
outcomes are not predictable with assurance. Consequently, the ultimate
aggregate amount of monetary liability or financial impact with respect to these
matters at September 30, 2003 cannot be ascertained. While these matters could
affect the operating results of any one quarter when resolved in future periods
and while there can be no assurance with respect thereto, management believes,
with the advice of outside legal counsel, that after final disposition, any
monetary liability or financial impact to iVillage from matters described would
not be material to the condensed consolidated financial statements.
Several plaintiffs have filed class action lawsuits in federal court
against iVillage, 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 Women.com, 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 ("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.
13
iVillage Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
In February 2003, the defendants' motion to dismiss certain of the
plaintiffs' claims was granted in part, but, for the most part, denied.
In June 2003, a proposed settlement of this litigation was structured
between the plaintiffs, the issuer defendants, the issuer officers and directors
named as defendants, and the issuers' insurance companies. The proposed
settlement generally provides that the issuer defendants and related individual
defendants will be released from the litigation without any liability other than
certain expenses incurred to date in connection with the litigation, the issuer
defendants' insurers will guarantee $1.0 billion in recoveries by plaintiff
class members, the issuer defendants will assign certain claims against the
underwriter defendants to the plaintiff class members, and the issuer defendants
will have the opportunity to recover certain litigation-related expenses if the
plaintiffs recover more than $5.0 billion from the underwriter defendants. The
respective boards of directors of iVillage and Women.com each approved the
proposed settlement in July 2003. The proposed settlement is now subject to
approval by the other involved parties as well as to the final approval of the
court. There can be no assurance that this proposed settlement will be approved
and implemented in its current form, or at all.
In June 2001, Euregio.net commenced an action in Belgium against
Women.com claiming damages in excess of 1 million Euros in connection with
certain alleged copyright infringements. Despite Women.com's arguments
challenging the jurisdiction of the Belgian court, the alleged infringements and
the amount of damages, in January 2003 a Belgian court issued a judgment against
Women.com in the amount of approximately 850,000 Euros (approximately $990,250
based on the Euro exchange rate as of September 30, 2003). Women.com has been
advised by outside legal counsel that Euregio.net would have to commence legal
proceedings in the United States to enforce this judgment. Women.com has
appealed this judgment in the Belgian courts and will also oppose any effort by
the plaintiffs to enforce this judgment in the United States court system.
iVillage, with the advice of outside legal counsel, believes that the
lawsuits and claims asserted against iVillage and Women.com pursuant to these
complaints are without merit and intends to vigorously defend against these
claims. iVillage does not believe that any of these legal proceedings will have
a material adverse effect on iVillage's business, financial condition, results
of operations and liquidity.
Note 10 - Subsequent Events
In October 2003, iVillage purchased the remaining 19.9% ownership
interest of Cooperative Beauty Ventures, L.L.C. from Unilever for approximately
$0.7 million, resulting in such entity becoming wholly-owned by iVillage. The
aggregate purchase price consisted of approximately $0.2 million in cash and
200,000 shares of iVillage's common stock.
14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain statements in this Quarterly Report on Form 10-Q, including
certain statements contained in this Item 2 constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of 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
we caution you that any forward-looking information provided by or on behalf of
iVillage is not a guarantee of future performance. Actual results could differ
materially from those anticipated in such forward-looking statements due to a
number of factors, some of which are beyond iVillage's control, in addition to
those risks discussed below and in iVillage's other public filings, press
releases and statements by iVillage's management, including (i) the volatile and
competitive nature of the media industry, (ii) changes in domestic and foreign
economic, political and market conditions, (iii) the effect of federal, state
and foreign regulation on iVillage's business, (iv) the impact of recent and
future acquisitions and joint ventures on iVillage's business and financial
condition, (v) iVillage's ability to establish and maintain relationships with
advertisers, sponsors, and other third party providers and partners, and (vi)
the impact of pending litigation on iVillage's business and financial condition.
All such forward-looking statements are current only as of the date on which
such statements were made. We do 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.
Overview
iVillage, The Internet for Women(TM), is a women's media company that
operates online and offline properties including iVillage.com, IVPN, PAG,
Promotions.com, iVillage Consulting, and Astrology.com. iVillage.com is a
leading women's online destination offering interactive services, peer support,
content and online access to experts. IVPN is a holding company for Lamaze
Publishing, an offline publisher of educational materials for expectant and new
parents, and IVIP, the operator of The Newborn Channel, a satellite television
network broadcast in approximately 1,100 hospitals nationwide, and the publisher
of Baby Steps magazine. PAG is comprised of three divisions: Business Women's
Network, Diversity Best Practices and Best Practices in Corporate
Communications, each offering extensive databases of pertinent information to
subscribing companies and members. Promotions.com provides promotions and direct
marketing programs that are integrated with customers' marketing initiatives.
The discussion and analysis below includes the results of operations of
Promotions.com since April 19, 2002.
Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. The following is a brief discussion of the more
significant accounting policies and methods used by iVillage.
15
Revenue Recognition
To date, iVillage's revenues have been derived primarily from the sale
of sponsorship and advertising contracts. Sponsorship revenues are derived
principally from contracts ranging from one to three years. Sponsorships are
designed to support the customer's broad marketing objectives, including brand
promotion, awareness, product introductions and online research. Sponsorship
agreements typically include the delivery of impressions on iVillage's Web sites
and the design and development of customized sites that enhance the promotional
objectives of the sponsor. An impression is the viewing of promotional material
on a Web page, which may include banner advertisements, links, buttons or other
text or images. As part of certain sponsorship agreements, sponsors who also
sell products may provide iVillage with a commission on sales of their products
generated through iVillage's Web sites.
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.
Advertising revenues also include revenues from targeted advertising
appearing on an iVillage Web site that is based upon relevant content or a world
wide web search query result. These revenues are earned on a cost per thousand
impressions and/or a percentage of net advertising revenue.
For contracts with multiple elements (e.g., deliverable and
undeliverable products, advertising and production revenue), iVillage allocates
revenue to each element based on evidence of its fair value. Evidence of fair
value is the price of a deliverable when it is regularly sold on a stand-alone
basis. iVillage recognizes revenue allocated to each element when the criteria
for revenue set forth above are met.
Included in sponsorship and advertising revenues are revenues from
advertising placements in IVPN's publications, videos and Web site, and
broadcasts of The Newborn Channel and The Newborn Channel-Spanish (currently
offered as an audio overlay to The Newborn Channel). In addition, sponsorship
and advertising revenues from IVPN include promotional programs that offer
advertisers the ability to distribute samples, coupons and promotional
literature to new and expectant parents, as well as custom publications and
mailings created and distributed on behalf of advertisers.
Sponsorship and advertising revenues also include revenues from
Promotions.com which generates revenues through Webstakes.com, a Web site
dedicated to Internet sweepstakes and promotions, and Promotions.com, a full
service integrated promotions services group.
16
Webstakes.com revenues are derived principally from service contracts
whereby Webstakes.com recognizes revenues based on either a "cost-per-click" or
a "cost-per-action" pricing model. With a cost-per-click pricing model,
Webstakes.com generally earns revenues by delivering its visitors to its
customer's Web site. Webstakes.com recognizes revenue related to its
cost-per-click pricing model when a visitor has been delivered to the customer's
Web site and the collection of the corresponding receivable is reasonably
assured. Revenue is recognized differently in a cost-per-action pricing model,
which requires Webstakes.com to not only deliver the aforementioned visitor, but
also a specific user action such as purchasing a product or registering for more
information or as a member of the customer's Web site in order for Webstakes.com
to earn revenue. Webstakes.com recognizes revenue related to the cost-per-action
pricing model when the specific action has been performed on its customer's Web
site and the collection of the corresponding receivable is reasonably assured.
Promotions.com revenues are derived principally from contracts in which
Promotions.com typically provides custom turnkey services for the creation,
administration and implementation of a promotion. Promotions.com's revenue
recognition policy related to its services is to recognize revenues ratably over
the period of the promotion, provided that no significant obligations remain in
a contract and collection of the resulting receivable is reasonably assured.
Sponsorship and advertising revenues also include barter revenues,
which generally represent exchanges by iVillage of advertising space on its Web
sites for reciprocal advertising space on or traffic from other Web sites and/or
other advertising mediums. Revenues and expenses from these barter transactions
are recorded based upon the fair value of the advertisements delivered. Fair
value of advertisements delivered is based upon iVillage's recent practice of
receiving cash from similar advertisers. Barter revenues are recognized when the
advertisements are displayed on iVillage's Web sites. Barter expenses are
generally recognized when iVillage's advertisements are displayed on the
reciprocal Web sites or properties, which typically is the same period as when
advertisements are displayed on iVillage's Web sites, and are included as part
of sales and marketing expenses. Revenues from barter transactions were
approximately $1.1 million and $3.0 million for the three and nine months ended
September 30, 2003, respectively, and approximately $0.8 million and $2.6
million, for the comparable periods in 2002.
iVillage Consulting is a business unit within iVillage that provides
production and back-end provisioning for customers in need of these services.
iVillage recognizes revenues from production services based upon actual hours
worked at its negotiated hourly rates and/or fixed fees stipulated in contracts.
PAG is a comprehensive source of information and program linkage that
serves as an international platform for diversity and women offering to
subscribing companies and members an extensive database of women's
organizations, best practices and guidance in the areas of workplace diversity,
women and corporate communications. Revenues from PAG are generated primarily
through subscription-based programs that convey current best practices for women
and diversity issues in the workplace and the hosting of an annual two-day event
that focuses on women and diversity. iVillage recognizes revenue from PAG
subscriptions ratably over the term of the subscription agreement and revenues
associated with events are recognized when the events are held.
17
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 or e-mailed to customers,
the collection of the receivable is reasonably assured and no further obligation
remains.
iVillage received fees from licensing portions of its content in
connection with its agreement with PlanetRx.com, Inc. These fees were recognized
on a straight-line basis over the life of the contract, which ended in the first
quarter of 2002.
iVillage has received revenues from new initiatives involving
subscription-based properties, the sale of iVillage-branded products and
services, the sale of third-party products and services and the sale of
research. During 2002, iVillage began selling iVillageSolutions-branded consumer
products through the iVillage Market located on iVillage.com. During 2003,
iVillage has released seven iVillageSolutions-branded books, through an
agreement with a publisher. iVillage receives a revenue share or royalty on each
of the above products when purchased. iVillage recognizes revenues from these
new initiatives when products are shipped and/or provided to the customer, the
collection of the receivable is reasonably assured and no further obligation
remains. Additionally, in the first quarter of 2003, IVPN began to charge
hospitals a carriage fee for The Newborn Channel. IVPN recognizes revenues from
these carriage fees ratably over the term of the agreement provided the
collection of the receivable is reasonably assured. While iVillage believes that
one or more of these new initiatives will develop into a recurring source of
revenues, iVillage can make no assurance that it will be successful in any of
these endeavors.
Goodwill
Goodwill is not subject to amortization and is tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset may be impaired. The impairment test consists of a comparison of the
fair value of goodwill with its carrying amount. If the carrying amount of
goodwill exceeds its fair value, an impairment loss is recognized in an amount
equal to that excess. Fair value is typically based upon the future cash flows
discounted at a rate commensurate with the risk involved. After an impairment
loss is recognized, the adjusted carrying amount of goodwill is its new
accounting basis.
Intangible Assets
iVillage reviews for impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In general,
iVillage will recognize an impairment when the fair value is less than the
carrying amount of such assets. The measurement for such impairment loss is
based on the fair value of the asset, typically based upon the future cash flows
discounted at a rate commensurate with the risk involved.
18
Fixed Assets
Depreciation of equipment, furniture and fixtures, and computer
software is provided for by the straight-line method over their estimated useful
lives ranging from three to five years. Amortization of leasehold improvements
is provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions, and
expenditures which extend the useful lives of existing assets, are capitalized,
and repairs and maintenance costs are charged to operations as incurred.
iVillage continually evaluates whether current events or circumstances warrant
adjustments to the carrying value or estimated useful lives of fixed assets in
accordance with the provisions of SFAS 144.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates. Significant estimates and assumptions made by iVillage include those
related to the useful lives of fixed assets and intangible assets, the
recoverability of fixed assets, goodwill, intangible assets and deferred tax
assets, the allowance for doubtful accounts and the accrual of certain operating
expenses.
Results of Operations
Revenues
Revenues were approximately $13.6 million and $39.4 million for the
three and nine months ended September 30, 2003, respectively, which represents a
decline of 7% and 14% when compared with approximately $14.6 million and $45.8
million of revenues for the three and nine months ended September 30, 2002,
respectively. The decline in revenues for the three months ended September 30,
2003, as compared to 2002, was primarily due to a decrease in sponsorship and
advertising revenues of approximately $0.6 million, principally due to the
expiration of some long term contracts. The decline in revenues for the nine
months ended September 30, 2003, as compared to the same period in 2002, was
primarily due to a decrease in production fees billed by iVillage Consulting of
approximately $0.7 million, a decrease of revenues from research initiatives of
approximately $1.1 million, a decrease in licensing fees of approximately $0.5
million and a decrease in sponsorship and advertising revenues (excluding
Promotions.com) of approximately $4.7 million primarily resulting from the
expiration of some long term contracts. This decrease was partially offset by
the acquisition of Promotions.com resulting in identifiable incremental revenues
of approximately $1.0 million. Sponsorship and advertising revenues were
approximately $11.3 million and $31.8 million for the three and nine months
ended September 30, 2003, respectively, compared to approximately $11.9 million
and $35.4 million for the corresponding periods in 2002. Sponsorship and
advertising revenues accounted for approximately 83% and 81% of total revenues
for the three and nine months ended September 30, 2003, respectively, compared
to approximately 81% and 77% of total revenues for the corresponding periods in
2002. Revenues from IVPN accounted for approximately 44% and 39% of sponsorship
and advertising revenues for the three and nine months ended September 30, 2003,
respectively, compared to approximately 31% and 27% for the corresponding
periods in 2002. The increase in 2003 is primarily from larger custom
publications created in 2003, as compared to the custom publications created in
2002, on behalf of an advertiser, and increased revenues from IVPN's magazines
and promotional programs coupled with an overall decline in sponsorship and
advertising revenues. Revenues from Promotions.com accounted for approximately
7% and 8% of sponsorship revenues for the three and nine months ended September
30, 2003, respectively, compared to approximately 7% and 4% for the
corresponding periods in 2002.
19
In recent years, iVillage has experienced a shift from the larger,
higher-rate, long-term sponsorship agreements that were prevalent a few years
ago to smaller, lower-rate, short-term advertising agreements. This trend has
made it more difficult for iVillage to both achieve period-to-period revenue
growth and accurately project future quarterly revenues.
Included in sponsorship and advertising revenues are barter
transactions, which accounted for approximately 9% of sponsorship and
advertising revenues for each of the three and nine months ended September 30,
2003, respectively, and approximately 6% and 7% of sponsorship and advertising
revenues for the corresponding periods in 2002.
Included in revenues are production fees received from work performed
(primarily for Hearst, a related party) by iVillage Consulting, which accounted
for approximately 5% and 6% of total revenues for the three and nine months
ended September 30, 2003, respectively, compared to approximately 6% and 7% for
the corresponding periods in 2002.
Included in revenues are subscription-based and event fees derived from
the services provided by PAG, which accounted for approximately 4% and 6% of
total revenues for the three and nine months ended September 30, 2003,
respectively, compared to approximately 7% and 6% for the corresponding periods
in 2002.
Included in revenues are fees from chart sales through Astrology.com,
fees received from licensing portions of iVillage's content, and fees from new
initiatives involving online subscription-based properties, the sale of
iVillage-branded products and services, the sale of third-party products, the
sale of research and The Newborn Channel's carriage fee, which in the aggregate
accounted for approximately 8% and 7% of total revenues for the three and nine
months ended September 30, 2003, compared to approximately 6% and 10% for the
corresponding periods in 2002.
For the three and nine months ended September 30, 2003, revenues from
iVillage's five largest customers accounted for approximately 32% and 28% of
total revenues, respectively. Two customers, Wal-Mart and Hearst, accounted for
approximately 12% and 11% of total revenues for the three months ended September
30, 2003, respectively. One customer, Hearst, accounted for approximately 12% of
total revenues for the nine months ended September 30, 2003. Two customers,
Procter and Gamble and Hearst accounted for approximately 17% and 11% of total
revenues for the three months ended September 30, 2002, respectively. Three
customers, Hearst, Procter and Gamble, and Unilever accounted for approximately
13%, 11% and 11% of total revenues for the nine months ended September 30, 2002,
respectively. iVillage's five largest customers accounted for approximately 41%
of total revenues for the three and nine months ended September 30, 2002,
respectively.
20
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. iVillage's contract with Procter & Gamble expired in June 2003,
iVillage's contract with Hearst expires in June 2004, and iVillage's contract
with Unilever, signed in October 2003, expires in December 2004. iVillage can
make no assurances as to whether these expiring contracts will be renewed, or if
so renewed, that they will be on similar terms as the expiring agreements.
Because iVillage's largest customers have varied over time in the past, iVillage
anticipates that they will continue to do so in the future. Consequently, the
loss of even a small number of iVillage's largest customers at any one time may
adversely affect iVillage's business, financial condition and results of
operations, unless iVillage is able to enter into a sufficient number of new
comparable contracts.
Operating Expenses
Editorial, Product Development and Technology
Editorial, product development and technology expenses consist
primarily of payroll and related expenses for the editorial, technology, Web
site design and production staffs, severance costs for terminated employees, the
cost of communications, related expenditures necessary to support iVillage's Web
sites, software development, technology and support operations, and an
allocation of facility expenses, which is based on the number of personnel.
Editorial, product development and technology expenses for the three and nine
months ended September 30, 2003 were approximately $7.6 million and $22.2
million, or 56% of total revenues, respectively. Editorial, product development
and technology expenses were approximately $7.5 million and $21.5 million, or
51% and 47% of total revenues, respectively, for the corresponding periods in
2002. The increase between the comparable nine month periods was primarily
attributable to the increased revenues from IVPN. Associated with these revenues
were higher costs involved with larger custom publications created in 2003, as
compared to the custom publications created in 2002, by IVPN on behalf of an
advertiser of approximately $0.8 million and increased circulation and
production costs associated with IVPN's magazines, videos and promotional
programs of approximately $0.6 million. Additionally, the acquisition of
Promotions.com resulted in incremental expenses of approximately $0.5 million.
These amounts were partially offset by a decrease in salaries, severance and
related expenses of approximately $1.4 million. Editorial, product development
and technology expenses increased as a percentage of total revenues for the nine
months ended September 30, 2003, when compared to the same period in 2002, as a
result of the increase in expenses coupled with a decline in revenues.
Sales and Marketing
Sales and marketing expenses consist primarily of payroll and related
expenses for sales and marketing personnel, severance costs for terminated
employees, commissions, advertising and other marketing-related expenses,
distribution agreements which expired in 2002 and an allocation of facility
expenses, which is based on the number of personnel. Sales and marketing
expenses for the three and nine months ended September 30, 2003 were
approximately $4.5 million and $15.0 million, or 33% and 38% of total revenues,
respectively. Sales and marketing expenses were approximately $5.9 million and
$23.5 million, or 40% and 51% of total revenues, respectively, for the
comparable periods in 2002. The decrease in sales and marketing expenses for the
nine month period ended September 30, 2003 as compared to 2002 was primarily
attributable to the negotiated advertising spend and termination of an
advertising agreement with National Broadcasting Company, Inc. ("NBC") in the
first quarter of 2002 resulting in charges of approximately $1.3 million and
$4.1 million, respectively, and in 2003 a decrease in online media expenses,
Hearst print expenses and salaries, commissions, severance and related expenses
of approximately $0.7 million, $1.5 million and $0.8 million, respectively,
partially offset by incremental sales and marketing expenses related to the
Promotions.com acquisition of approximately $0.9 million. Sales and marketing
expenses decreased as a percentage of total revenues for the nine months ended
September 30, 2003, as compared to the same period in 2002, due to a larger
percentage decrease in sales and marketing expenses, as compared to the decline
in revenues.
21
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 23% and 21% of total sales and marketing costs during
the three and nine months ended September 30, 2003, compared to 13% and 10% of
total sales and marketing costs for the comparable periods in 2002. Barter
transactions increased as a percentage of sales and marketing expenses for the
nine months ended September 30, 2003, as compared to the same period in 2002,
due to the decrease in sales and marketing expenses coupled with an increase in
barter expense.
General and Administrative
General and administrative expenses consist primarily of payroll,
severance and related expenses for the executive management, finance, allocated
facilities, human resources and legal employees, general corporate overhead,
lease restructuring charges and related impairment of fixed assets and other
professional fees. General and administrative expenses for the three and nine
months ended September 30, 2003 were approximately $9.3 million and $19.4
million, or 69% and 49% of total revenues, respectively. For the comparable
period in 2002, general and administrative expenses were approximately $3.2
million and $9.4 million, or 22% and 20% of total revenues, respectively. The
increase in general and administrative expenses for the comparable three and
nine month periods was primarily due to the lease restructuring charges and
related impairment of fixed assets of approximately $5.1 million and $9.1
million, respectively, and an increase in payroll, severance and related
expenses of approximately $1.0 million and $0.9 million, respectively. General
and administrative expenses increased as a percentage of total revenues for the
nine months ended September 30, 2003, compared to the corresponding period in
2002, as a result of the increase in expenses coupled with a decline in
revenues.
In the ordinary course of business, iVillage utilizes estimates to
determine the accrual of certain operating expenses. These estimates are
reviewed on an ongoing basis to determine the adequacy of these accruals. For
the three and nine months ended September 30, 2003, iVillage reversed
approximately $0.1 million and $0.2 million, respectively, of accruals included
in operating expenses due to a change in estimate on services previously
provided for, and approximately $0.5 million and $1.1 million for the comparable
periods in 2002. These amounts were offset by additional accruals for various
operating expenses.
22
Depreciation and Amortization
Depreciation and amortization expenses for the three and nine months
ended September 30, 2003 were approximately $1.9 million and $6.8 million, or
14% and 17% of total revenues, respectively. For the comparable periods in 2002,
depreciation and amortization expenses were approximately $3.2 million and $9.1
million, or 22% and 20% of total revenues, respectively. The dollar decrease in
depreciation and amortization for the comparable three and nine month periods
was primarily due to several intangible assets being fully amortized in 2002 and
the impairments of intangible assets and fixed assets in the second and third
quarters of 2003, reducing the cost basis on which depreciation and amortization
is calculated, partially offset by amortization expense on intangible assets
acquired with the Promotions.com acquisition in April 2002.
Interest Income, Net
Interest income, net includes primarily interest income from iVillage's
cash balances and interest earned on stockholders' notes receivable. Interest
income, net for the three and nine months ended September 30, 2003 was
approximately $0.1 and $0.2 million, or less than 1% of total revenues,
respectively. For the comparable periods in 2002, interest income, net was $0.1
million and $0.4 million, or 1% of total revenues, respectively. The decrease
between 2003 and 2002 was primarily due to the repayment of the NBC loan in the
first quarter of 2002 and lower cash balances in 2003.
Net Loss
iVillage recorded a net loss of approximately $9.3 million and $27.5
million, or $0.17 per share and $0.49 per share, for the three and nine months
ended September 30, 2003, respectively. For the comparable periods in 2002,
iVillage recorded a net loss of approximately $5.0 million and $26.5 million, or
$0.09 per share and $0.48 per share, respectively. The increase in net loss for
the nine months ended September 30, 2003 compared to the same period in 2002 was
primarily due to the following 2003 events: lower revenues of approximately $6.4
million, lease restructuring charges and related impairment of fixed assets due
to the abandonment and renegotiation of leased real estate of approximately $9.1
million and the restructuring of the Promotions.com business resulting in the
impairment of goodwill, intangible assets and fixed assets of approximately $4.0
million, offset by the following 2002 events: the adoption of SFAS 142 which
resulted in a change in accounting principle charge of approximately $9.2
million and the negotiated advertising spend and termination of an advertising
agreement with NBC of approximately $1.3 million and $4.1 million, respectively
and by the following 2003 events: lower online media and Hearst print expenses
of $2.2 million and lower depreciation and amortization of $2.3 million.
Recent Events
In October 2003, iVillage purchased the remaining 19.9% ownership
interest of Cooperative Beauty Ventures, L.L.C. from Unilever for approximately
$0.7 million, resulting in such entity becoming wholly-owned by iVillage. The
aggregate purchase price consisted of approximately $0.2 million in cash and
200,000 shares of iVillage's common stock.
23
Liquidity and Capital Resources
Financial Reporting Release No. 61, 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 September 30, 2003, iVillage had approximately $15.4 million in
cash and cash equivalents. Cash equivalents include money market accounts.
iVillage maintains its cash and cash equivalents in highly rated financial
institutions and at times these balances exceed insurable amounts.
iVillage has sustained net losses and negative cash flows from
operations since its inception and expects to continue to incur additional net
losses in the near future. 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
financing, collaborative or other arrangements with corporate sources, through
the launch of new subscription or other revenue-generating initiatives or other
sources of financing to fund operations. 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 securities, however, management
does believe that it may be possible to raise funds through a private placement
of its securities. iVillage can make no assurance that it will achieve
profitable operations, or that iVillage will be able to obtain adequate
financing from other sources in the event it becomes necessary. Due primarily to
iVillage's lack of profitability, it is unlikely that iVillage would be able to
obtain bank financing. Management believes that iVillage's current funds will be
sufficient to enable it to meet iVillage's planned expenditures through the next
twelve months. If anticipated operating results are not achieved, management
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 iVillage, although there can be no assurances in this
regard.
In the past, iVillage has achieved cost reductions through increased
managerial efficiencies and several expense reduction initiatives targeted at
certain expenses, including without limitation, reduced advertising, reduced
lease commitments, targeted staff reductions and reduced company employee
benefit plan costs.
In February 2003, iVillage announced an expense reduction initiative
with the goal of reducing annualized costs by up to $10.0 million. To date,
iVillage has recognized and/or achieved approximately $8.5 million of these
savings, primarily through the renegotiation of iVillage's New York real estate
lease and contracts with third-party vendors, as well as employee staff
reductions.
24
Based on current internal projections, iVillage no longer expects to be
able to maintain a cash balance at December 31, 2003 comparable to its cash
balance at December 31, 2002, primarily due to previously incurred or
anticipated cash expenditures relating to the renegotiation of iVillage's New
York real estate lease, certain investments in iVillage's infrastructure,
research initiatives, and other restructuring costs. Despite the short-term
negative impact of these expenditures on iVillage's cash balance, iVillage
believes that these costs improve iVillage's long-term liquidity outlook by
contributing to revenue growth opportunities and significantly reducing
annualized operating expenses.
Additionally, IVPN currently broadcasts The Newborn Channel and The
Newborn Channel-Spanish to most participating hospitals via satellite. This
satellite is scheduled to go offline at the end of 2004. IVPN is currently
exploring the conversion of participating hospitals from the satellite
television network broadcast to an in-hospital digital delivery system. iVillage
anticipates that the subscription fees to be received from the hospitals will
cover the cost of the new equipment required by the conversion.
Net cash used in operating activities increased to approximately $1.7
million for the three months ended September 30, 2003, from approximately $1.2
million for the comparable period in 2002. Net cash used in operating activities
increased to approximately $6.1 million for the nine months ended September 30,
2003, from approximately $5.8 million for the corresponding period in 2002. The
increase in net cash used in operating activities for the nine months ended
September 30, 2003, compared to the comparable period in 2002, was primarily due
to an increase in net loss less adjustments, an increase in prepaid rent and a
lower inflow of cash from accounts receivable of approximately $6.0 million,
$3.7 million and $1.8 million, respectively. These amounts were offset by a
larger decrease in accounts payable and accrued expenses in 2002 of
approximately $7.6 million and a larger utilization of restricted cash and other
assets in 2003 of approximately $3.7 million, primarily due to the surrender of
restricted cash to the landlord in consideration of iVillage's lease
renegotiation.
Net cash used in investing activities was approximately $0.3 million
and $0.4 million for the three and nine months ended September 30, 2003,
respectively. This compares to net cash used in investing activities of
approximately $1.1 million and $1.7 million for the three and nine months ended
September 30, 2002, respectively. The overall decrease in net cash used in
investing activities for the nine months ended September 30, 2003 compared to
the comparable period in 2002 resulted from cash received in connection with the
revised license agreement with Tesco of approximately $0.6 million in 2003 and
cash paid for the acquisition of Promotions.com in 2002 of $0.9 million, offset
by higher fixed asset and intangible asset purchases in 2003 of approximately
$0.1 million and $0.2 million, respectively.
Cash provided by financing activities was approximately $0.5 million
for the three and nine months ended September 30, 2003, respectively. This
compares to cash provided by financing activities of no amount and $2.0 million
for the three and nine months ended September 30, 2002, respectively. The
overall decrease in cash provided by financing activities for the nine months
ended September 30, 2003 compared to the comparable period in 2002 was primarily
due to a decrease in principal payments received for stockholders' notes
receivable of approximately $1.3 million in 2003 coupled with a decrease in
proceeds from the exercise of stock options of approximately $0.2 million.
25
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 with Unilever revised iVillage's funding
obligation and provided that iVillage will fund the ongoing business and
operations of this venture, not to exceed $7.0 million, and terminated
Unilever's funding obligation. As of September 30, 2003, iVillage had not been
required to fund the operations of the venture during 2003 and had contributed,
in total, approximately $1.9 million to the venture.
Pursuant to the March 2001 agreement, Unilever could exercise a "put"
option to require iVillage to purchase Unilever's remaining ownership interest
in the venture for fair market value at any time. iVillage could also 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 could also
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 October 2003, iVillage exercised its call option and purchased
Unilever's remaining 19.9% ownership interest in Cooperative Beauty Ventures,
L.L.C. in exchange for approximately $0.2 million of cash and 200,000 shares of
common stock in iVillage Inc.
iVillage's February 2000 advertising agreement with Unilever, as
amended, provided for a Unilever advertising purchase commitment of $14.5
million. This agreement expired in June 2003. In October 2003, iVillage and
Unilever entered into a new agreement that terminates the February 2000
advertising agreement and provides for Unilever's purchase of an additional $0.1
million in advertising and receipt of the remaining advertising not received
under the previous agreement. The new agreement expires in December 2004.
Pursuant to an amended and restated magazine content license and
hosting agreement with Hearst, Hearst committed to purchase from iVillage
between approximately $16.4 million and $18.2 million of production and
advertising services over a three-year period beginning in June 2001. 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 approximately $2.6
million during the three-year term of the agreement. This amount would be
reduced on a pro rata basis if Hearst fails to expend its stated annual minimum
in production fees in any year of the agreement. In addition, if a shortfall in
production fees occurs in any year of the agreement, then Hearst must place
additional advertising in an amount equal to 40% of the production fee
shortfall.
Women.com was party to a multi-year advertising agreement with Procter
and Gamble from July 2000 through June 2003. During the third quarter of 2002,
this agreement was amended to eliminate the provision for an early termination
fee and to lower the minimum guaranteed fee to Women.com to approximately $9.6
million. Women.com has fully earned the guaranteed fee under this advertising
agreement as of September 30, 2003.
26
In January 2003, iVillage received a notice of determination from the
City of New York Department of Finance regarding outstanding commercial rent
taxes and applicable interest and penalties. iVillage paid approximately $0.5
million in the second quarter 2003 and believes that it has fully paid and
satisfied this obligation.
In March 2003, iVillage and Tesco restructured the terms of their joint
venture so that Tesco purchased iVillage's entire ownership interest in iVillage
UK. iVillage and Tesco also entered into a twenty-year agreement, subject to
earlier termination upon the occurrence of certain events, whereby iVillage will
license to iVillage UK certain of its content and intellectual property,
including trademarks and copyrights, for use in the U.K. and Ireland in exchange
for the greater of a minimum monthly license fee or a percentage of iVillage
UK's gross revenues. iVillage will receive a minimum of $0.8 million in year one
of the license agreement, which will be earned monthly as services are provided.
As of September 30, 2003, iVillage has received $0.6 million.
In July 2003, iVillage acquired the Web site, trademarks, key contracts
and other related assets of gURL.com for an immaterial amount of cash.
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 non-cancelable operating
leases as of September 30, 2003 for the next five years:
Twelve months ending September 30: (in thousands)
---------------------------------- --------------
2004................................ $ 2,127
2005................................ 2,076
2006................................ 1,783
2007................................ 1,553
2008................................ 1,470
-------
$ 9,009
=======
In January 2003, iVillage received from the landlord of its New York
headquarters $0.3 million for reimbursement of certain construction expenses.
In July 2003, iVillage entered into a lease amendment with the landlord
of its New York headquarters that became effective on August 15, 2003. The lease
amendment provides for a reduction in leased space, as well as a reduction in
rent per square foot, resulting in anticipated cash savings in excess of $17.0
million over the remaining term of the lease. In connection with the lease
amendment, iVillage surrendered the approximately $8.5 million classified as
restricted cash to the landlord, and the landlord paid iVillage $0.5 million for
certain other construction expenses that remained due from the landlord.
In May 2003, Promotions.com received from its former New York landlord
approximately $0.4 million for reimbursement of certain construction expenses.
27
In the normal course of business, iVillage enters into contracts that
contain a variety of representations, warranties and minimum spend guarantees
and which provide general indemnifications. iVillage's maximum exposure under
these arrangements is unknown. However, based on experience, iVillage expects
the risk of loss to be remote.
iVillage's capital requirements depend on numerous factors,
including:
o market acceptance of iVillage's services;
o the amount of resources iVillage devotes to investments in its
business, including entering into joint ventures with and/or
the acquisition of other entities;
o the resources iVillage devotes to marketing;
o the resources iVillage devotes to building the infrastructure
necessary to enable iVillage to sell subscription-based
products and services; and
o the resources iVillage devotes to selling iVillage's products
and services.
Recent Accounting Pronouncements
In November 2002, the FASB reached a consensus on EITF No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables". The guidance
in EITF No. 00-21 is effective for revenue arrangements entered into for fiscal
years beginning after June 15, 2003. EITF No. 00-21 addresses certain aspects of
the accounting by a company for arrangements under which it will perform
multiple revenue-generating activities. Specifically, EITF No. 00-21 addresses
how to determine whether an arrangement involving multiple deliverables contains
more than one earnings process and if it does, how to divide the arrangement
into separate units of accounting consistent with the identified earnings
processes for revenue recognition purposes. EITF No. 00-21 also addresses how
arrangement consideration should be measured and allocated to the separate units
of accounting in the arrangement. iVillage has determined that EITF No. 00-21
will not have a material impact on its financial position, cash flows or results
of operations.
In January 2003, the FASB issue FIN 46. FIN 46 requires a company to
consolidate a variable interest entity if it is designated as the primary
beneficiary of that entity even if the company does not have a majority voting
interest. A variable interest entity is generally defined as an entity where its
equity is unable to finance its activities or where the owners of the entity
lack the risks and rewards of ownership. The provisions of FIN 46 apply
immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after that
date. Based on iVillage's review of FIN 46, it does not believe it has any
interests qualifying as variable interest entities and does not anticipate that
the provisions of FIN 46 will have any near term impact on its financial
position, cash flows or results of operations.
28
In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which amends SFAS 133 for
certain decisions made by the FASB Derivatives Implementation Group. In
particular, SFAS 149: clarifies under what circumstances a contract with an
initial net investment meets the characteristic of a derivative, clarifies when
a derivative contains a financing component, amends the definition of an
underlying to conform it to language used in FASB Interpretation No. 45
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others," and amends certain other
existing pronouncements. This Statement is effective for contracts entered into
or modified after September 30, 2003, and for hedging relationships designated
after September 30, 2003. In addition, most provisions of SFAS 149 are to be
applied prospectively. iVillage does not expect the adoption of SFAS 149 to have
a material impact on its financial position, cash flows or results of
operations.
Risk Factors That May Affect Results of Operations and Financial Condition
The risks and uncertainties described below are not the only ones faced
by iVillage. Additional risks and uncertainties not presently known to iVillage
or that are currently deemed immaterial may also affect iVillage's business,
financial condition and results of operations. These risks should be read in
conjunction with the other information set forth in this Form 10-Q and with
iVillage's Annual Report on Form 10-K for the fiscal year ended December 31,
2002.
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 and consumer products and services markets. 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 and iVillage-branded
products and services;
o strengthen user loyalty;
o offer compelling content and desirable consumer products and
services;
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.
29
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 of approximately $27.5 million for the nine months ended September
30, 2003, $33.9 million for the year ended December 31, 2002, and $48.5 million
for the year ended December 31, 2001. As of September 30, 2003, iVillage's
accumulated deficit was approximately $494.2 million.
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 decline or 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 has a small number of major customers and the loss of a number of these
customers could adversely affect its business, financial condition and results
of operations.
For the three and nine months ended September 30, 2003, revenues from
iVillage's five largest customers accounted for approximately 32% and 28% of
total revenues, respectively. Two customers, Wal-Mart and Hearst accounted for
approximately 12% and 11% of total revenues for the three months ended September
30, 2003, respectively. One customer, Hearst, accounted for approximately 12% of
total revenues for the nine months ended September 30, 2003. Two customers,
Procter and Gamble and Hearst accounted for approximately 17% and 11% of total
revenues for the three months ended September 30, 2002, respectively. Three
customers, Hearst, Procter and Gamble, and Unilever accounted for approximately
13%, 11% and 11% of total revenues for the nine months ended September 30, 2002,
respectively. iVillage's five largest customers accounted for approximately 41%
of total revenues for the three and nine months ended September 30, 2002,
respectively. At September 30, 2003, Hearst accounted for approximately 30% of
the net accounts receivable. At December 31, 2002, Procter and Gamble accounted
for approximately 26% of the 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. iVillage's contract with Procter & Gamble expired in June 2003,
iVillage's contract with Hearst expires in June 2004, and iVillage's contract
with Unilever, signed in October 2003, expires in December 2004. iVillage can
make no assurances as to whether these expiring contracts will be renewed, or if
so renewed, that they will be on similar terms as the expiring agreements.
Because iVillage's largest customers have varied over time in the past, iVillage
anticipates that they will continue to do so in the future. Consequently, the
loss of even a small number of iVillage's largest customers at any one time may
adversely affect iVillage's business, financial condition and results of
operations, unless iVillage is able to enter into a sufficient number of new
comparable contracts.
30
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 and annual revenues and results of operations. In addition, iVillage's
operating results are likely to fluctuate significantly from fiscal quarter to
quarter, and year to year, 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:
o fluctuations in the demand for advertising or electronic
commerce;
o the unpredictability of iVillage's success in its new revenue
and cost reduction initiatives;
o bankruptcies or other payment defaults of companies that are a
source of revenues;
o volatility in the media market and the high number of
companies decreasing their marketing budgets;
o changes in the level of traffic on its network of Web sites;
and
o fluctuations in marketing expenses and technology
infrastructure costs.
iVillage's revenues for the foreseeable future will remain primarily
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 fiscal quarter or year, which may materially and adversely affect its
business, financial condition and results of operations.
In one or more future fiscal quarters or years, 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 fiscal period are lower than
anticipated, iVillage may be unable to reduce spending in that fiscal period. 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.
31
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 twelve months. However, the
amount of cash and cash equivalents that iVillage will need in the future cannot
be accurately predicted and depends on many factors, including the amount of
revenues received and expenses incurred in connection with the operation of its
business. 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. Due to iVillage's lack of profitability, it
is also unlikely that iVillage would be able to obtain any bank financing. If
anticipated operating results are not achieved, management of iVillage 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, although iVillage can make no assurances in
this regard.
Hearst is able to significantly influence iVillage's corporate direction and
policies.
As of September 30, 2003, Hearst owned approximately 28.8% of the
outstanding shares of iVillage's common stock. 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. Currently, 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, especially
in relation to 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 By-Laws 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.
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iVillage's business will be harmed if Internet usage does not continue to grow.
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 market saturation;
o lack of availability of cost-effective, high-speed service;
o consumers returning to traditional or alternative sources for
information, shopping and services;
o privacy concerns, including those related to the ability of
Web sites to gather information about users without their
knowledge or consent; and
o the increase in unrequested "spamming" e-mail solicitations.
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, computer "viruses" 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, and iVillage fails to
develop significant alternative sources of revenue, 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 sales and/or licensing of content, products and services, consumer
reluctance to subscribe to or pay for such content, products and services may
limit iVillage's ability to supplement Internet advertising as a substantial
source of revenue in the foreseeable future.
33
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.
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. For example, in recent years iVillage has
experienced a shift from the larger, higher-rate, long-term sponsorship
agreements that were prevalent a few years ago to smaller, lower-rate,
short-term advertising agreements. This makes it difficult to project iVillage's
future advertising rates and revenues and also allows advertisers to renegotiate
such agreements more frequently.
iVillage's business would be harmed by a decline in user traffic.
iVillage's business is inherently dependent upon high user traffic
levels. The rates charged to advertisers and sponsors and the number of products
and services sold by iVillage are directly related to the number of visitors to
iVillage's Web sites. User traffic from certain Web sites that are
non-proprietary to iVillage are sometimes included in the reported information
regarding iVillage's network of Web sites. These properties include certain of
the Hearst magazines and other parties who have agreed to have traffic from
their Web sites incorporated within the iVillage network. There is no guarantee
that the number of visitors to iVillage's Web sites will not decline or that
Hearst or other third parties will continue to permit inclusion of their Web
sites as part of the iVillage network for traffic reporting purposes. Any
decline in user traffic levels could have a material adverse effect on
iVillage's business, financial condition and results of operations.
iVillage may not be able to expand its business through acquisitions and joint
ventures 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:
34
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 over the last several years.
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
operations 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.
Acquisitions and investments may also 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.
35
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 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, regulatory and/or legal claims if
iVillage's P3P policy does not conform to iVillage's written privacy policy
posted on its Web sites and/or the loss of potential customers. 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 infrastructure to adapt to these changes. Due to
expense reduction initiatives over the last several years, iVillage has not
upgraded certain aspects of its technology infrastructure.
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 financial condition and 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.
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;
36
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 forecast in a particular period are
delayed or do not otherwise occur.
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, and do so accurately and reliably. 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 not to
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 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, IP Applications for ISP services and
Trellix Corporation for personal home pages. 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 Hearst, Rho Capital Partners,
Inc. and AOL Time Warner Inc., 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.
37
Restrictions on iVillage's ability to enter into sponsorship, advertising or
other business relationships with Hearst's competitors may adversely affect
iVillage's business.
iVillage's magazine content license and hosting agreement with Hearst
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 Hearst 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 or acts of
war.
Although none of the terrorist attacks in the United States in recent
years have had a direct material adverse effect on iVillage's business,
financial condition or results of operations, iVillage cannot assure you that
future terrorist attacks in the United States, and particularly in New York City
where iVillage's headquarters are located, acts of war involving the United
States, or any response of the United States Government to any future terrorist
actions or acts of war, would not negatively affect iVillage through further
disruption of the economy, financial markets or otherwise. The proximity of
iVillage's headquarters to certain possible targets in New York City could also,
in the event of war or 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 or act of war.
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;
38
o cable networks targeting women, such as Oxygen Media, Inc.,
Women's Entertainment Network and Lifetime Television;
o Web search and retrieval and other online service companies,
commonly referred to as portals, such as America Online, Inc.,
Microsoft Corporation's MSN service 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.
IVPN's magazines directly compete with publishers of pre- and
post-natal publications such as Gruner and Jahr, Primedia and Time Inc. These
publishers have substantially greater marketing, research and financial
resources than IVPN. Increased competition may result in less advertising in
IVPN's magazines and a decline in IVPN'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 the respective facilities of
Cable and Wireless Internet Services, Inc. ("Cable and Wireless") in New Jersey
and Verio, Inc. ("Verio") 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, iVillage cannot assure you that Cable and
Wireless and Verio will be able to provide sufficient services for iVillage or
that iVillage will be able to, if so desired, engage satisfactory alternative
service providers.
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.
39
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 sells.
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 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 and IVPN, iVillage
distributes publications and broadcasts, over its Web sites and The Newborn
Channel, The Newborn Channel-Spanish and The Wellness Channel (the "Channels"),
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.
Consumers and/or government regulators 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. Although iVillage's agreements with its partners typically contain
provisions intended to limit iVillage's liability, these limitations may not
prevent or protect against all possible claims.
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.
40
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 content and 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, the iVillageSolutions book series, Web page formats, Web business
methods or any third-party content it publishes or broadcasts. 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.
Consumer protection privacy regulations could impair iVillage's ability to
obtain information about its users, which could result in decreased advertising
revenues.
iVillage generally 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. If iVillage becomes unable to collect
personal data from a sufficient number of the users of its network, iVillage may
lose significant advertising revenues.
41
Changes in public acceptance of email marketing, and the perception of
security and privacy concerns, whether or not valid, may indirectly inhibit
market acceptance of iVillage's use of personal data. iVillage's failure to
implement P3P standards could discourage users from using iVillage's Web sites,
products and services and from providing their personal data to iVillage. In
addition, pending and recently enacted legislative or regulatory requirements
that businesses notify Internet users that the data may be used by marketing
entities to direct product promotion and advertising to the user may heighten
these concerns.
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 is 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. 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.
New privacy and data security laws may require changes in iVillage's practices,
and there is a potential for enforcement actions due to noncompliance.
There are many laws pending in national, state and local jurisdictions
regarding privacy and data security, and it is not possible to predict if or
when such laws may be enacted. There is a trend among such laws toward more
burdensome regulations and stiffer penalties, all of which could negatively
impact iVillage's business. There is also a trend toward giving consumers
greater information regarding and control over how their personal data is used,
and requiring notification where unauthorized access to such data occurs.
Recently, several jurisdictions, including foreign countries, have also
proposed/and or adopted privacy-related laws that prohibit unsolicited e-mail
solicitations (commonly known as "spamming"), and that contain significant
monetary and other penalties for violations. California has enacted one such
law, which, if it takes effect in January 2004 as currently drafted, may
increase concern on the part of advertisers regarding advertising in iVillage's
email newsletters.
In addition to impacting iVillage's business through decreased
collection and use of user data, the enactment of laws regarding privacy and
data security may increase the cost to iVillage of compliance. While iVillage
believes that it complies with currently applicable laws, as such laws
proliferate there may be uncertainty regarding their application or
interpretation, and there is increased risk of noncompliance. Even if a claim of
noncompliance does not ultimately result in liability, investigating a claim may
present a significant cost to iVillage. Future legislation may also require
changes in iVillage's data collection practices, which may be expensive to
implement, and may further increase the risk of noncompliance.
42
Data security laws are becoming more stringent in the United States and
abroad. Third parties are engaging in increased cyberattacks against companies
doing business on the Internet, and individuals are increasingly subjected to
identity and credit card theft on the Internet. Although iVillage uses what it
considers to be industry standard security measures, there is a risk that
iVillage may fail to prevent such activities and that users or others may assert
claims stemming from such failure. In addition, the Federal Trade Commission and
state consumer protection authorities have brought a number of enforcement
actions against U.S. companies for alleged deficiencies in those companies' data
security practices, and they may continue to bring such actions. Such
enforcement actions, which may or may not be based upon actual cyberattacks or
other breaches in such companies' data security, present an ongoing risk of
liability.
iVillage is subject to legal proceedings that could result in liability and
damage to its business.
From time to time, iVillage has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
as well as two securities class action lawsuits. iVillage is unable to determine
the amount for which it potentially could be liable since a number of these
lawsuits do not specify an amount for damages sought, and iVillage maintains
insurance, or believes it is entitled to indemnification from third parties,
which may cover some or all of the claims, should they be successful. Such
proceedings and claims, even if not meritorious, could require the expenditure
of significant financial and managerial resources, which could harm iVillage's
business. iVillage believes it has meritorious defenses to all the claims
currently made against iVillage. Litigation, however, is inherently uncertain
and iVillage may not prevail in these suits. iVillage cannot predict whether
future claims will be made or the ultimate resolution of any existing or future
claim.
iVillage's operation of IVPN poses a number of risks that could materially
adversely affect iVillage's business strategy.
There are a number of risks in operating IVPN related to Lamaze
Publishing, Baby Steps magazine and the Channels, which are all primarily
non-Internet businesses, including:
o the competitiveness of the media, television and publishing
industries;
o iVillage's limited experience in operating a multi-media
publishing and television 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 and IVIP's publications,
and on The Newborn Channel and The Newborn Channel-Spanish,
and health-related information on The Wellness Channel;
o iVillage's ability to continue to sell advertising and
sponsorships on its Web sites and IVPN's magazines, videos and
the Channels;
o iVillage's ability to continue to commercialize and protect
the Lamaze mark; and
43
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 IVPN in an efficient and timely manner could result in a disruption
of operations of IVPN that could have a material adverse effect on iVillage's
business strategy.
iVillage's business would be harmed if transmission of the Channels were
interrupted.
The Channels are broadcasted to participating hospitals via either a
satellite television network broadcast or an in-hospital digital delivery
system. There is a risk that the satellite or the in-hospital delivery system
from which the transmissions are sent may malfunction, interrupting broadcasts
of the Channels. Furthermore, extreme adverse weather conditions or third
parties could damage or disable receivers and transmitters on the ground
hindering transmission of the Channels' signal. In the event this occurs, there
may be a period of time before transmission of all or some of the Channels could
resume. Any interruption in iVillage's ability to transmit the Channels could
have an adverse effect on its business.
In addition, the satellite that provides the transmission of the
Channels is scheduled to go offline at the end of 2004. IVPN is currently
exploring the conversion of participating hospitals from the satellite
television network broadcast to an in-hospital digital delivery system. Although
iVillage anticipates that the subscription fees received from the hospitals will
cover the cost of the equipment required for the conversion, any delay or
inability to successfully convert the hospitals, or a failure to collect
sufficient subscription fees from the hospitals, could have an adverse effect on
its business.
iVillage's operation of the iVillageAccess ISP poses a number of risks that
could materially adversely affect iVillage's business, financial condition and
results of operations.
There are a number of risks involved in the operation of the
iVillageAccess ISP, including:
o the competitiveness of the ISP industry;
o iVillage's limited experience in operating an ISP;
o iVillage's ability to identify and predict trends in a timely
manner that may impact consumers' tastes for subscription to
an ISP;
o patterns of subscriber acquisition and retention, and seasonal
trends relating to subscriber usage of iVillageAccess;
o the competence of the third parties that iVillage relies on
for technical and customer service support and the overall
operation of iVillageAccess;
o the effectiveness of iVillage's revenue sharing arrangements
and other strategic alliances in connection with the operation
of iVillageAccess;
44
o changes in operating expenses due to marketing and other
subscriber acquisition costs, and/or telecommunications
expenses;
o changes in government regulation of ISPs could negatively
impact iVillage by decreasing revenues and increasing costs;
and
o iVillage's ability to protect its systems from any
telecommunications failures, security breaches, power loss, or
software-related system failures.
iVillageAccess may not be able to compete with other companies offering faster,
more advanced, Internet connection technologies.
Currently, iVillageAccess only provides for a dial-up connection to the
Internet. Due to the increased speeds of alternative Internet services
connections, such as broadband services like digital subscriber lines, or DSL,
and cable technologies, the demand for such alternatives has rapidly increased.
iVillage cannot provide any assurances as to the demand for dial-up Internet
connections in the future. Although iVillage is considering whether to provide
broadband services, it cannot guarantee that in the event it chose to do so that
iVillage (i) would have adequate access to such technologies at favorable rates,
(ii) would be able to partner with providers of broadband services, or (iii)
would have adequate capital to take advantage of any existing or future
opportunities to provide broadband services. iVillage competes in the market for
Internet connections with many ISP companies that possess significant financial
resources, have well-established brand names, and large existing customer bases.
In many markets, these ISP companies already offer, or are expected to offer,
broadband Internet access. iVillage's inability to compete with other dial-up
Internet service providers, those ISP companies offering broadband services, or
other competitors offering advanced Internet connection technologies, could have
a material adverse effect on iVillage's business, financial condition and
results of operations.
iVillage's sale of iVillageSolutions products, its line of vitamins, minerals
and supplements, poses a number of risks that could materially adversely affect
iVillage's business, financial condition and results of operations.
There are a number of risks involved in the sale of
iVillageSolutions-branded vitamins, minerals and supplements, including:
o the competitiveness of the vitamin, mineral and supplement
industry;
o iVillage's limited experience in operating as a retailer of
vitamins, minerals and supplements;
o iVillage's ability to identify and predict trends in a timely
manner that may impact consumers' tastes for vitamins,
minerals and supplements;
o iVillage's ability to effectively market to and attract
customers of competitors such as mass merchandisers, drug
store chains, independent drug stores, supermarkets and health
food stores;
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o the competence of the third parties that iVillage relies on
for the development, manufacture and distribution of the
iVillageSolutions products;
o the reluctance of consumers to purchase vitamins, minerals and
supplements online;
o the effectiveness of iVillage's revenue sharing arrangements
and other strategic alliances in connection with the sale of
iVillageSolutions products;
o changes in operating expenses due to customer acquisition
costs including manufacturing, marketing and distribution
expenses; and
o changes in government regulation of vitamins, minerals and
supplements could negatively impact iVillage by decreasing
revenues and increasing costs.
iVillage may face potential products liability based upon its iVillageSolutions
products.
As with other retailers, distributors and manufacturers of products
that are ingested, iVillage faces an inherent risk of exposure to product
liability claims in the event that the use of its products results in injury or
death. iVillage may be subjected to various product liability claims, including,
among others, that its products contain contaminants or include inadequate
instructions as to use or inadequate warnings concerning side effects and
interactions with other substances. iVillage carries insurance in the types and
amounts that management considers reasonably adequate to cover the risks
associated with the operations of this business. There can be no assurance,
however, that such insurance will continue to be available at a reasonable cost
or, if available, will be adequate to cover liabilities.
Government regulation could add additional costs to doing business in the
vitamin, mineral and supplement industry.
The manufacturing, processing, formulating, packaging, labeling and
advertising of the iVillageSolutions products are subject to regulation by
federal agencies, including the Federal Drug Administration, the Federal Trade
Commission, the United States Department of Agriculture and the Environmental
Protection Agency. These activities may also be regulated by various agencies of
the states, localities and foreign countries to which iVillageSolutions products
may be distributed.
iVillage cannot (i) guarantee that existing laws and regulations have
been properly interpreted and applied to the iVillageSolutions products, (ii)
predict the nature of any future laws, regulations, interpretations or
applications, or (iii) determine what effect additional governmental regulations
or administrative orders, when and if promulgated, would have on the
manufacture, sale and distribution of iVillageSolutions products. Such changes
may require the reformulation of certain products to meet new standards, the
recall or discontinuance of certain products not capable of reformulation,
expanded documentation of the properties of certain products, expanded or
different labeling, or scientific substantiation. Any or all of such
requirements could ultimately have a material adverse effect upon iVillage's
business, financial condition and results of operations.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures.
iVillage's management maintains disclosure controls and procedures (as
defined in Exchange Act Rule 13a-15(e), which have been designed to ensure that
material information related to iVillage, including its consolidated
subsidiaries, is made known to iVillage's disclosure committee, which consists
of certain members of iVillage's management, on a regular basis.
iVillage's disclosure committee has carried out an evaluation, under
the supervision and with the participation of iVillage's management, including
its Chief Executive Officer, Douglas W. McCormick, and Chief Financial Officer,
Scott Levine, of the effectiveness of the design and operation of iVillage's
disclosure controls and procedures as of September 30, 2003. Based upon that
evaluation, Messrs. McCormick and Levine concluded that iVillage's disclosure
controls and procedures are effective in ensuring that information required to
be disclosed by iVillage in the reports that it files or submits under the
Exchange Act is (i) recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and (ii) accumulated and
communicated to iVillage's management, including its Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.
iVillage's management, including its Chief Executive Officer and Chief
Financial Officer, does not expect that its disclosure controls or internal
controls will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within a company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management, despite the existence of the controls. The
design of any system of controls is also based, in part, upon certain
assumptions about the likelihood of future events and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. As time goes by, controls may become inadequate because of
changes in conditions, or the degree of compliance with such policies or
procedures may deteriorate. Because of the inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
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(b) Changes in Internal Controls over Financial Reporting.
There was no change in iVillage's internal controls over financial
reporting (as defined in Exchange Act Rules 13a-15(f) during the fiscal quarter
ended September 30, 2003 that has materially affected, or is reasonably likely
to materially affect, iVillage's internal controls over financial reporting.
48
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to "Item 3. Legal Proceedings." in iVillage's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002 for a
description of certain class action securities lawsuits pending against iVillage
and Women.com in connection with their respective initial public offerings.
In June 2003, a proposed settlement of this litigation was structured
between the plaintiffs, the issuer defendants, the issuer officers and directors
named as defendants, and the issuers' insurance companies. The proposed
settlement generally provides that the issuer defendants and related individual
defendants will be released from the litigation without any liability other than
certain expenses incurred to date in connection with the litigation, the issuer
defendants' insurers will guarantee $1.0 billion in recoveries by plaintiff
class members, the issuer defendants will assign certain claims against the
underwriter defendants to the plaintiff class members, and the issuer defendants
will have the opportunity to recover certain litigation-related expenses if the
plaintiffs recover more than $5.0 billion from the underwriter defendants, among
other things. The respective boards of directors of iVillage and Women.com each
approved the proposed settlement in July 2003. The proposed settlement is now
subject to approval by the other involved parties as well as to the final
approval of the court. iVillage does not expect this proposed settlement, if
approved, to have a material impact on iVillage's financial condition or results
of operations. There can be no assurance that this proposed settlement will be
approved and implemented in its current form, or at all.
Item 4. Submission of Matters to a Vote of Security Holders.
iVillage's 2003 Annual Meeting of Stockholders was held on October 9,
2003. In the election of directors, the three director nominees were elected
with the following votes:
Number of Votes
---------------------------
Nominee For Withheld Broker Non-Votes
------- ---------- --------- ----------------
Cathleen P. Black........ 49,945,868 2,210,929 --
Edward D. Horowitz....... 51,947,893 208,904 --
Douglas W. McCormick..... 49,895,631 2,261,166 --
The following are the other directors whose terms of office were to continue
after this meeting: Kenneth Bronfin, John T. Healey, Lennert J. Leader, Habib
Kairouz, Edward T. Reilly and Alfred Sikes.
49
The stockholders voted in favor of the ratification of the appointment
of PricewaterhouseCoopers LLP as iVillage's independent auditors for the fiscal
year ended December 31, 2003 as follows:
Number of Votes
------------------------------
For Against Abstain Broker Non-Votes
---------- ------- ------- ----------------
Ratification of Appointment of
Auditors...................... 51,978,832 166,834 11,131 --
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as a part of this report and such Exhibit Index is
incorporated herein by reference.
(b) Reports on Form 8-K.
Item # Description Date
- ------ ------------------------------------------------------------ ---------------
(i) 9, 12 Furnishing, among other things, iVillage's July 18, 2003
reaffirmation of Q2 revenue projections (Items 7, 9, 12).
(The information furnished under Items 7, 9 and 12 and
Exhibit 99.1 is not incorporated by reference into
existing or future registration statements).
(ii) 5, 7, 12 Reporting the date of iVillage's 2003 annual meeting of August 6, 2003
stockholders (Item 5). Reporting iVillage's financial
results for the quarter ended June 30, 2003 (Items 7 and
12). (The information furnished under Items 7 and 12 and
Exhibit 99.1 is not incorporated by reference into
existing or future registration statements).
(iii) 5, 7 Reporting the transfer of the listing of iVillage's August 18, 2003
common stock to The Nasdaq National Market (Items 5, 7).
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SIGNATURES
Pursuant to the requirements 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)
Dated: November 14, 2003 By: /s/ Douglas W. McCormick
---------------------------
Douglas W. McCormick
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: November 14, 2003 By: /s/ Scott Levine
----------------
Scott Levine
Chief Financial Officer (Principal
Financial Officer)
51
EXHIBIT INDEX
Number Description
- ------ -----------
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 September 30, 2001, File No. 000-25469).
11 Statement re: computation of earnings per share.
31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14
under thE Securities Exchange Act of 1934.
31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14
under the Securities Exchange Act of 1934.
32 Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350.
52