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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 000-25469
iVillage Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3845162
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Seventh Avenue
New York, New York 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 600-6000
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [ ] No [x]
The aggregate market value of the issued and outstanding voting stock
held by non-affiliates of the registrant, based upon the closing sale price of
the Common Stock on June 30, 2003, as reported on The Nasdaq National Market,
was approximately $59,932,902. Shares of Common Stock held by each officer
and director and by each person who owns 5% or more of the outstanding Common
Stock (without reference to Exchange Act Regulation 13D-G's definition of
"beneficial ownership") have been excluded in that such persons may be deemed to
be affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 25, 2004, the registrant had outstanding 58,869,898
shares of Common Stock.
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DOCUMENTS INCORPORATED BY REFERENCE
None.
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iVillage Inc.
FORM 10-K
TABLE OF CONTENTS
Page No.
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PART I
Item 1. Business........................................................................................................... 1
Item 2. Properties......................................................................................................... 16
Item 3. Legal Proceedings.................................................................................................. 16
Item 4. Submission of Matters to a Vote of Security Holders................................................................ 17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................................. 18
Item 6. Selected Financial Data............................................................................................ 19
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......................................................... 49
Item 8. Financial Statements and Supplementary Data........................................................................ 49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................... 49
Item 9A Controls and Procedures............................................................................................ 49
PART III
Item 10. Directors and Executive Officers of the Registrant................................................................. 50
Item 11. Executive Compensation............................................................................................. 55
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters................................................................................................ 59
Item 13. Certain Relationships and Related Transactions..................................................................... 62
Item 14. Principal Accountant Fees and Services ............................................................................ 63
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................................... 64
SIGNATURES. ..................................................................................................................... 68
INDEX OF CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE.................................................................................................F-1
TRADEMARKS
iVillage(R), iVillage.com(R), gURL.com(R), Deal With It(R), Newborn
Channel(R), Parent Soup(R), ParentsPlace.com(R), WebStakes.com(R), iVillage
Consulting(R), iVillage Solutions(R), and iVillageAccess(R) are registered
trademarks of iVillage Inc. The stylized iVillage logo, "the Internet for
Women", Astrology.com, Substance.com, Baby Steps, Public Affairs Group, Inc.,
Business Women's Network, Business Women's Network Government, Diversity Best
Practices, Best Practices In Corporate Communications, and Promotions.com are
trademarks of iVillage Inc. All other brand names, trademarks or service marks
referred to in this report are the property of their owners.
PART I
Statements in this Annual Report on Form 10-K, including statements
contained in "Item 1. Business" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations", constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, or Securities Act, and Section 21E of the Securities
Exchange Act of 1934, as amended, or Exchange Act. The words or phrases "can
be", "expects", "may affect", "may depend", "anticipates", "believes",
"estimates", "plans", "projects", and similar words and phrases are intended to
identify such forward-looking statements. These forward-looking statements are
subject to various known and unknown risks and uncertainties and we caution you
that any forward-looking information provided by or on behalf of us is not a
guarantee of future results, performance or achievements. Actual results could
differ materially from those anticipated in these forward-looking statements due
to a number of factors, some of which are beyond our control. In addition to the
risks discussed below in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in our other public filings,
press releases and statements by our management, factors that may cause our
actual results, performance or achievements to differ materially from any future
results, performance or achievements expressed or implied in such forward
looking statements include:
o the volatile and competitive nature of the media industry, in
particular on the Internet;
o changes in domestic and foreign economic, political and market
conditions;
o the effect of federal, state and foreign regulation on our business;
o the impact of recent and future acquisitions and joint ventures on
our business and financial condition;
o our ability to establish and maintain relationships with
advertisers, sponsors, and other third-party providers and partners;
and
o the impact of pending litigation on our business and financial
condition.
All forward-looking statements in this report are current only as of
the date on which the statements were made. We do not undertake any obligation
to publicly update any forward-looking statement to reflect events or
circumstances after the date on which any statement is made or to reflect the
occurrence of unanticipated events.
When used in this Annual Report on Form 10-K and unless otherwise
specified, "iVillage," "we," "our" and "us" refer to iVillage Inc. and its
consolidated subsidiaries.
Item 1. Business.
Overview
iVillage is "the Internet for women" and consists of several online and
offline media-based properties including the iVillage.com Web site, or
iVillage.com, Women.com Networks, Inc., operator of the Women.com Web site, or
Women.com, the gURL.com Web site, or gURL.com, Knowledgeweb, Inc., operator of
the Astrology.com Web site, or Astrology.com, Cooperative Beauty Ventures, LLC,
operator of the Substance.com Web site, or Substance.com, iVillage Parenting
Network, Inc., or IVPN, Public Affairs Group, Inc., or PAG, Promotions.com,
Inc., or Promotions.com, iVillage Consulting and iVillageSolutions. Following is
a synopsis of our operational activities and those of our subsidiaries and
divisions:
Subsidiary or Division Operational Activity
- ---------------------- --------------------
iVillage.com An online destination providing practical solutions
on a range of topics and everyday support for women
18 years of age and over.
Women.com An online destination providing content focused on
fun, games, entertainment and style for women 18
years of age and over.
1
gURL.com An online destination catering to teenage girls that
offers advice, games and interactive content
to girls 13 years of age and older.
Astrology.com An online destination for individuals seeking daily
horoscopes, astrological content and personalized
forecasts online.
Substance.com An online destination offering interactive beauty
content and personal care products information.
IVPN A holding company for iVillage Integrated Properties,
Inc., or IVIP, the operator of The Newborn Channel
and Lamaze Publishing Company, or Lamaze Publishing,
publisher of Lamaze Parents, which collectively
provide informational and instructional magazines,
custom publications, television programming, videos
and online properties of interest to expectant and
new parents.
PAG Comprised of three divisions: Business Women's
Network, Diversity Best Practices and Best
Practices in Corporate Communications, each offering
an extensive database of pertinent information and
events to subscribing companies and members, and
relevant publications.
Promotions.com Comprised of two divisions: Promotions.com and
Webstakes.com, which offer online and offline
promotions and direct marketing programs that are
integrated with customers' marketing initiatives.
iVillage Consulting Assists companies in the creation and development
of Web sites, digital commerce platforms and
other aspects of technological infrastructures,
primarily for Hearst Communications, Inc., and its
affiliates, or Hearst, a related party.
iVillageSolutions Our consumer products offerings including an
iVillage-branded book series and vitamin and
nutraceutical supplement line.
We organize our online network to address multiple topics of high
importance to females at different age levels, and we seek to enrich their lives
through our offerings of unique content, community applications, tools and
interactive features. We facilitate use across our content areas by providing a
similar look and feel within each area and across our network in general,
resulting in consistent and strongly branded Web sites. Membership to
iVillage.com is free and provides features such as message boards and other
community tools.
We believe we are an industry leader in developing innovative
sponsorships that match the desire of marketers to reach women and parents with
the needs of iVillage.com users to obtain relevant information, products and
services. We leverage our online brand awareness by offering books, videos, and
other consumer products and services under the iVillage, gURL.com, Lamaze and
Business Women's Network brands.
Our Web sites are consistently recognized as leading online offerings.
According to comScore Media Metrics' December 2003 results:
o We had approximately 14.6 million unique users to iVillage.com and
our affiliate Web sites in the month of December, reaching
approximately 10% of the total US online population;
o iVillage.com was the 31st most visited Web site on the Internet in
the United States;
o iVillage.com continues to be ranked the #1 Community-Women Site and
the #6 overall Community Site on the Internet;
o gURL.com was ranked in the top ten in the Community-Teens Site
category;
o iVillage's astrological Web sites, including Astrology.com, were
ranked #5 in the Hobbies/Lifestyle category;
o Substance.com remained the #1 content destination online in the
Retail-Fragrances/Cosmetics category; and
o iVillage Parenting, the combined online properties of iVillage.com
and IVPN, was ranked the #12 site in the Community-Family category.
2
iVillage.com
Content Areas
iVillage.com is organized around content specific areas that focus on
issues of importance to females and provides interactive services, peer support,
online access to experts and tailored shopping opportunities. iVillage.com is
updated daily to promote content and community. The following table provides a
brief description of the features of each of our content areas as of December
31, 2003:
Area Description
- ---- -----------
Babies Caters to women who are trying to conceive, are
expecting or are new parents, and includes content,
experts, message boards and weekly chats, primarily
through ParentsPlace.com.
Beauty Offers users beauty advice, product reviews and access
to hair, makeup and skincare experts, primarily through
Substance.com.
Diet & Fitness Includes body calculators, nutrition and fitness
experts, message boards, quizzes and community
challenges to improve one's weight and fitness level.
Entertainment Contains celebrity interviews, jokes and
entertainment-related tools and quizzes.
Food Provides information on meal planning, nutrition and
recipes which includes food experts and cooking basics.
Games Provides favorite single player online games such as
blackjack, mahjong, solitaire and diamond mines.
Health Assists users in becoming better health care decision
makers through relevant articles, expert advice, message
boards and weekly chats.
Home & Garden Offers information, expert advice and tools on home and
gardening issues.
Horoscopes Provides horoscopes, celebrity profiles, romance charts,
monthly guidance and the ability to purchase astrology
reports, primarily through Astrology.com.
Money Provides information on personal finance and saving
strategies focusing on key life stage needs of women.
Parenting Offers parenting solutions, access to experts and
support, primarily through ParentSoup.com.
Pets Provides information on caring for your pet, selecting a
breed, adopting a pet and choosing a veterinarian.
Pregnancy Provides expectant parents with information and support
on fertility and pregnancy, including ParentsPlace.com
and Lamaze.com.
Quizzes Offers interactive quizzes and games on a variety of
subjects.
Relationships Offers information and conversation on love, marriage,
sex and family.
3
Work Provides women who work from home with tools and
resources such as home office basics and professional
women with tools and resources relating to career
development and office-related issues.
We believe that user support is critical in order to attract and retain
users. We provide user support primarily through e-mail-based correspondence.
Help and feedback buttons are prominently displayed throughout our network of
Web sites, and our user support staff attempts to respond to all e-mail queries
within two business days. In addition, community leaders provide e-mail support
for broad-ranging issues. We do not charge for these services.
Sponsorship and Advertising Revenues
Our online sponsorship arrangements are designed to support our
sponsors' broad marketing objectives, including brand promotion, awareness,
product introductions and online research. Sponsorship agreements typically
include the delivery of impressions on our Web sites and occasionally the design
and development of customized sites that enhance the promotional objectives of
the sponsor. An impression is the viewing of promotional material on a Web page,
which may include rich media, such as commercials originally created for a
television format viewed on a Web page, and display or banner advertisements,
links or other text or images. As part of a few of our sponsorship agreements,
sponsors selling products may provide us with a commission on sales of their
products generated through our Web sites. Advertising revenues are derived
principally from short-term advertising contracts in which we typically
guarantee a minimum number of impressions or pages to be delivered to users over
a specified period of time for a fixed fee. Sponsorship and advertising revenues
are also derived from sponsored links, currently supplied by Google, Inc. or
Google, appearing on our Web pages that are based upon relevant content or a
World Wide Web search query result. These revenues are earned on a cost per
thousand page views and/or a percentage of net advertising revenue earned by
Google from advertisers.
Our sponsorship and advertising revenues are derived principally from
promotional agreements, in which either full-screen arrival advertisements or
display or banner advertisements are prominently displayed. A full-screen
arrival advertisement appears upon entering one of our Web sites and includes a
dramatic message that covers the screen and fades in up to 10 seconds leaving a
smaller "arrival ad related message" embedded on the appearing Web site page. A
display or banner advertisement consists of promotional content that can appear
at the top or bottom of the pages on iVillage's Web sites. From each "arrival ad
related message" or display advertisement, viewers can hyperlink directly to the
sponsor's or advertiser's Web site, thus providing the sponsor or advertiser the
opportunity to directly interact with an interested customer. In recent years,
we have experienced a shift from larger higher rate long-term sponsorship
agreements to smaller, lower rate short-term advertising contracts.
We also offer research services to our sponsors, advertisers and other
customers. Through third party vendors and internal staff, we provide research
measuring brand awareness and the attributes related to purchase decisions. This
research is primarily conducted through live online campaigns where users to our
Web sites are randomly invited to participate in a brief survey designed to
elicit information. This research can provide our sponsors and advertisers with
important demographic information, marketing information and assistance with
online promotional campaigns.
We have a number of sponsorship and advertising arrangements with
leading advertisers and sponsors across several industries including:
Pharmaceutical Entertainment Retail
- ------------------------------------------ ------------------------------------------ ---------------------------------
Bayer AG The Walt Disney Company Amazon.com, Inc.
Bristol-Meyers Squibb Company DreamWorks SKG Best Buy Co., Inc.
Eli Lilly and Company Paramount Pictures Corporation Circuit City Stores, Inc.
GlaxoSmithKline Showtime Networks Inc. The Home Depot
Merck & Co., Inc. Sony Pictures Entertainment J.C. Penney Company, Inc.
Novartis AG Warner Bros. Entertainment Inc. Kinko's, Inc.
Pfizer Inc. The Hearst Corporation Sears, Roebuck and Co.
Schering-Plough Corporation Staples, Inc.
Consumer Products Automotive Financial Services
- ------------------------------------------ ------------------------------------------ ---------------------------------
Kraft Foods Inc. AUDI AG Advanta Corp.
Mars/Masterfoods USA Nissan USA Charles Schwab & Co.
The Procter & Gamble Company Mercedes-Benz USA, LLC Wells Fargo & Company
Unilever PLC Saab Cars USA, Inc.
Toyota Motor Sales, USA, Inc
4
Customer Concentration
Hearst has been one of our largest customers for each of the last three
years. Pursuant to an amended and restated magazine content license and hosting
agreement with Hearst, we received the online distribution rights to seven
Hearst magazine Web sites. Under this agreement, we provide production,
maintenance and hosting services, for which in 2003 we received approximately
$2.9 million in fees, and advertising services, for which in 2003 we received
approximately $3.0 million in fees. In addition, we are entitled to a commission
derived from the sale of Hearst magazines, which in 2003 totaled approximately
$0.6 million. As part of this magazine content license agreement we pay Hearst a
royalty fee, which in 2003 totaled approximately $0.8 million. Our magazine
content license and hosting agreement with Hearst expires in June 2004, but
continues on a month-to-month basis afterwards unless terminated by either party
with 90 days prior notice.
Our five largest customers accounted for approximately 27% of total
revenues in 2003, 38% of total revenues in 2002 and 37% of total revenues in
2001. In 2003, Hearst accounted for approximately 11% of total revenues. No
other single customer accounted for more than 10% of our total revenues in 2003.
In 2002, The Procter and Gamble Company, or Procter and Gamble, accounted for
approximately 11% of total revenues, Hearst for approximately 11%, and Unilever,
PLC and its affiliates, or Unilever, for approximately 10%. In 2001, Unilever
accounted for approximately 12% of total revenues. At December 31, 2003, Hearst
accounted for approximately 20% of the net accounts receivable, and at December
31, 2002, Procter and Gamble accounted for approximately 26% of the net accounts
receivable.
We anticipate that our results of operations in any given period will
continue to depend to a significant extent on revenues from a small number of
customers. Our contract with Procter & Gamble expired in June 2003, our contract
with Hearst expires in June 2004, and our contract with Unilever, signed in
October 2003, expires in December 2004. Although our contract with Procter &
Gamble expired last year, Procter & Gamble continues to advertise on our Web
sites using shorter-term agreements. We recently began discussions regarding the
renewal of our agreement with Hearst, however we cannot assure whether this
contract will be renewed and, if renewed, whether the renewal terms will be as
favorable as the current agreement with Hearst. Because our largest customers
have varied over time in the past, we anticipate that they will continue to do
so in the future. Consequently, the loss of even a small number of our largest
customers at any one time could result in a significant loss of revenue which
would adversely affect our business, financial condition and results of
operations.
Content Targeting and Search Arrangements
In August 2003, we entered into agreements with Google to provide
content-targeted advertising and paid search engine functionality on our network
of Web sites. A user of our network of Web sites can use Google's proprietary
technology to search billions of pages on the World Wide Web. The ensuing search
results page includes targeted advertising that provides an additional source of
relevant information related to the user's specific search query. Through
Google's AdSense technology, a user of our Web sites also receives
advertisements targeted to the unique content contained on each individual page
of the site. We earn revenue by serving targeted search advertisements in the
form of sponsored links on these content and search result pages through
Google's worldwide network of over 100,000 advertisers. Our agreement with
Google related to content targeted advertising expires in August 2005, unless
either party provides the other with a notice of non-renewal prior to 45 days
from the first anniversary of the effective date of such agreement. Further, our
agreement with Google related to paid search expires in August 2005,with a
mutual option to renew for one additional year.
In February 2004, we expanded our relationship with Google by entering
into an agreement related to the Google Search Appliance. The Google Search
Appliance provides Google's proprietary search capabilities to the internal
search function of our Web sites. As a result, a user of one of our Web sites
can search for information using Google's advanced methods to return results
that are limited to information on our network of Web sites. Our agreement with
Google related to the search appliance expires in February 2006.
Content Licensing Agreements
iVillage UK
In March 2003, we restructured the terms of our joint venture with
Tesco, PLC, or Tesco, which had resulted in the formation of iVillage UK
Limited, a United Kingdom company, or iVillage UK, in July 2000. Through a Web
site located at www.iVillage.co.uk, iVillage UK was to serve the women's online
market in the United Kingdom and the Republic of Ireland through a focused
community and an array of interactive, customized online solutions and services.
The restructured terms resulted in Tesco's purchase of our entire ownership
interest in iVillage UK. Contemporaneously with the purchase, we entered into a
license agreement with Tesco, whereby we license to iVillage UK our content and
intellectual property, including trademarks and copyrights, for use in the U.K.
and Ireland, in exchange for the greater of a minimum monthly license fee or a
percentage of iVillage UK's gross revenues. Our license agreement with Tesco
expires in March 2023 and automatically renews unless one party provides notice
to the other one year prior to the termination of the then current renewal term.
Either party may terminate the agreement during the initial term of this
agreement with 90 days prior notice if iVillage UK is deemed not to be a
profitable entity.
5
MSN Network
In September 2003, we entered into a content license arrangement with
MSN network. Under the agreement, MSN presents select iVillage content on its
women's channel, MSN Women, including editorially relevant content in the
categories of Beauty, Fashion & Style, Relationships, Home & Food, and Career &
Money. In exchange for the content, our logo, as well as hyperlinks to
additional relevant content located at iVillage.com, appears throughout the MSN
Women channel and anywhere our content appears on MSN. The links contained on
MSN drive additional traffic to our Web sites. We also have the opportunity to
offer and promote our for-pay products and services to MSN users. Our agreement
with MSN expires in February 2005.
Yahoo! Astrology
In March 2004, we entered into a content license and distribution
agreement with Yahoo! Inc, or Yahoo!. Under this agreement, we will be the
exclusive provider of astrological content to Yahoo!'s online astrology area.
iVillage astrological content is also expected to be available in other areas of
Yahoo!'s Web site. We will provide Yahoo! with daily horoscopes and astrological
reports. Links to additional content located on our Web sites will appear
throughout the Yahoo! astrology area. Yahoo! will receive the greater of a fee
for each registration for a gratuitous iVillage astrological chart or a revenue
share for each iVillage astrological chart purchased by a Yahoo! user. Our
agreement with Yahoo! expires in March 2006 and provides for our right to
terminate with 30 days prior notice in the event defined content posting
thresholds are not met.
Media Arrangements
In addition to our relationship with Hearst, we will from time to time
enter into agreements by which third parties will allow us to monetize their
users and advertising inventory and incorporate their Web site traffic within
our network of Web sites. Most Internet audience management companies include
the traffic from these non-proprietary Web sites in the information they report
about us.
Membership and Privacy
We believe a large and active membership base is important to our
success, and as of December 31, 2003 we had approximately 12 million members.
Some features of our Web sites are restricted to members. Membership is free and
available to iVillage.com users who disclose their name, e-mail address, zip
code, country, age and gender and choose a member name and password to be used
throughout member-only areas. Members form iVillage.com's core audience and are
our most valuable users. Community challenges, message boards and chats are
examples of iVillage.com members-only benefits.
We recognize the importance of maintaining the confidentiality of
member information and have a privacy policy to protect this information. Our
current privacy policy is accessible through a link on each iVillage.com Web
page, including the member registration page. Our current policy prohibits the
sale or disclosure to any third party of any member's personal identifying
information, such as his or her name or address, unless the member has provided
consent in the form of an "opt-in". In limited situations that are described in
our privacy policy, access to personally identifying information may be provided
to a third-party partner if it is necessary for the delivery of a member
service, such as a message board log-in. In these instances, the partner has
agreed to be bound by our current privacy policy. In some instances, we may use
information based on a member's activities on the site to offer relevant
products and services on behalf of an advertiser.
6
We offer our users the opportunity to purchase for-pay premium
services, such as newsletters, quizzes, tools and education courses. We plan to
continue to offer these premium services as well as new for-pay services in the
future.
Women.com
On June 21, 2001, we completed our acquisition of Women.com Networks,
Inc. Women.com was relaunched on iVillage.com and features content and
communities in six departments including Sex & Dating, Entertainment, Style &
Beauty, Celebrities, Girl Talk and Fun & Games, and also provides message boards
for women who want to converse about such topics.
gURL.com
On August 5, 2003, we acquired the gURL.com Web site and related
assets. gURL.com is a leading online community for teenage girls offering
articles, advice, resources, games and interactive content. We also acquired the
gURL.com book series including the following titles:
o Deal With It: A Whole Approach To Your Body, Brain and Life as a
Gurl, a holistic approach to perennial teen concerns: changing
bodies, emotions, desires and lives in a frank, sometimes humorous
nonjudgmental tone;
o Where Do I Go From Here: Getting a Life After High School, a fun and
informative resource that takes a look at the human side of college
life by offering inside advice and inspiration to girls on the
threshold of one of life's most important crossroads; and
o The Looks Book: A Whole New Approach to Beauty, Body Image, and
Style, real-life examples of a range of beauty archetypes that help
young women to re-define their concepts of beauty, while emphasizing
self-expression, self-invention, and a healthy irreverence toward
traditional ideals.
gURL.com provides us with the opportunity to increase our demographic reach to
include girls that are thirteen years of age and older. gURL.com allows us to
target an expanded list of advertisers as well as the additional brands of
current advertisers.
Astrology.com
On February 18, 1999, we acquired Knowledgeweb, Inc. and its primary
asset, Astrology.net, which eventually became Astrology.com. Astrology.com is a
content and commerce Web site providing daily horoscopes, astrology content and
personalized forecasts that appeal to our core demographic of women.
Astrology.com serves as a vehicle to drive repeat visits to iVillage.com through
the use of daily horoscopes and accounts for a substantial portion of our
traffic. We attempt to leverage the popularity of Astrology.com by using
internal promotion and links to attract Astrology.com users to our other Web
sites, resulting in higher average page views and time spent per visit.
Astrology.com has also created an interactive commerce system that provides
instantaneous, digital astrology reports. This system consists of software which
operates the Web site and is capable of generating customized astrology reports
based on input from users.
Substance.com
On November 3, 2003, we exercised our call option to purchase
Unilever's remaining ownership interest in Cooperative Beauty Ventures, L.L.C.,
or CBV, resulting in CBV becoming a wholly owned subsidiary of iVillage. The
principal asset of CBV, Substance.com, is a Web site that offers an array of
personalized online services, beauty and personal care products and interactive
product recommendations. In March 2001, we purchased 30.1% of CBV's membership
interests from Unilever increasing our ownership to 80.1%. At such time, we
gained operational control and CBV was consolidated within our financial
statements. We formed CBV as a joint venture with Unilever in February 2000,
with both parties agreeing to provide cash, intellectual property, marketing and
other resources to the venture. In addition, Unilever committed to sponsorship
and promotional initiatives.
7
iVillage Parenting Network
IVPN is a holding company for Lamaze Publishing and IVIP which
collectively provide informational and instructional magazines, television
programming, videos and online properties of interest to expectant and new
parents, including The Newborn Channel.
Lamaze Publishing
On August 20, 1999, we acquired Lamaze Publishing, Inc, the assets of
which eventually formed Lamaze Publishing. Lamaze Publishing offers
Lamaze-related products and services. Lamaze is a method of childbirth
preparation based on the Lamaze philosophy of birth, which states that birth is
"normal, natural and healthy" and "childbirth education empowers women to make
informed choices in healthcare, to assume responsibility for their health and
trust their inner wisdom." Lamaze Publishing is the exclusive licensee of the
LAMAZE(R) family of marks, owned by Lamaze International, Inc., for use in
connection with consumer publications including print, audio, visual and other
media. Lamaze Publishing also operates the Lamaze.com Web site primarily with
our assistance. Our agreement with Lamaze Publishing grants these exclusive
rights through July 2015 and we have an option to renew for an additional five
years, unless either party provides the other with 12 months advance notice of
termination.
Lamaze Publishing's business strategy is to provide superior editorial
products that target expectant and new parents who seek information related to
pregnancy, the birth process and infant care that may not be readily available
from busy healthcare professionals. Lamaze Publishing's materials are
distributed through its vast network of healthcare professionals and childbirth
educators as an alternative source for such information. Lamaze Publishing
gratuitously provides its materials, but offsets its expenses by selling print
advertising and commercial messages to advertisers targeting the young family
market. Lamaze Publishing's product offerings include:
o Lamaze Parents, a leading prenatal magazine used in childbirth
education classes covering such relevant topics as prenatal
nutrition, the role of the childbirth partner and the physical and
emotional challenges of pregnancy, which had an annual circulation
of approximately 2.7 million for 2003;
o Lamaze para Padres, a leading Hispanic pre- and post-natal magazine
used and distributed by Spanish-speaking childbirth educators, which
had an annual circulation of approximately 750,000 for 2003;
o Lamaze You and Your Baby, a video textbook used by childbirth
educators that is available in both the English and Spanish
language, and is often viewed at home by expectant parents and later
returned to the childbirth educator which had an annual circulation
of approximately 2.7 million in 2003;
o Lamaze Magazine Onserts, a sampling/promotion publication that
targets expectant and new parents with coupons, samples and
promotional literature that is bundled in a poly-bag with a magazine
and distributed by Lamaze Publishing's network of healthcare
professionals and childbirth educators; and
o Lamaze.com, the online extension of the Lamaze media franchise on
iVillage.com that combines interactive tools with trusted expert
advice on pregnancy, childbirth and early parenting.
As a complement to the offline parenting media vehicles of IVPN, we
also offer two Web sites that target parents on iVillage.com: ParentsPlace.com
and ParentSoup.com, or Parent Soup. ParentsPlace.com is a community where new
and expecting parents can connect, communicate and share in the joy of starting
a family, with key features such as the Baby Name Finder, Pregnancy Calendar,
First Year of Life Newsletter, Expecting Clubs, Playgroups and information from
certified healthcare experts. Parent Soup is designed for parents committed to
raising happy and healthy kids from toddlers to teens and includes a toddlers
department, preschool department, development tracker, mothers circles,
Thirty-Something Parents and information from certified healthcare experts.
IVIP
IVIP is the owner and operator of The Newborn Channel, The Newborn
Channel-Spanish which is currently offered as an audio overlay to The Newborn
Channel, and The Wellness Channel, all three of which we refer to as the
Channels. The Newborn Channel is a 24 hours a day, 7 days a week, satellite
television network offering exclusive programming to new mothers in their
hospital rooms. In 2003, approximately 1,100 hospitals nationwide aired The
Newborn Channel and, according to a study conducted by Roper ASW, The Newborn
Channel is viewed by greater than 75% of all mothers giving birth in these
hospitals, reaching an annual circulation of approximately 2.6 million mothers.
IVIP also transmits The Wellness Channel to hospitals offering general health
and wellness-based programming covering topics such as patient's rights,
alternative pain cures and breast cancer awareness. As of December 31, 2003, the
number of hospitals airing The Wellness Channel was nominal.
8
IVIP derives revenue from the sale of advertising messages and
sponsorships on the Channels to third parties desiring to target pertinent
markets. During 2003, IVIP began collecting a fee for receiving the Channels
and, as of February 29, 2004, had converted approximately 40% of its viewing
hospitals to an annual fee agreement. IVIP's for-pay initiative was in
anticipation of upgrades in the technology that delivers the Channels to the
hospitals and may correlate with the expiration of existing non-paying
agreements with the hospitals. IVIP began installation of this delivery system
in the hospitals in the first quarter of 2004. Once installed, the new
technology will allow IVIP to customize the programming and advertising viewed
at each individual hospital site and decrease operating costs due to a reduction
in required satellite time.
IVIP also owns and publishes Baby Steps magazine, a leading source of
post-natal information and the only magazine endorsed by the National
Association of Pediatric Nurse Practitioners, or NAPNAP, a professional
organization with 6,000 members nationwide. Baby Steps is often augmented with a
promotional program that includes coupons, samples and literature of third-party
advertisers that are bundled in a poly-bag with the magazine and distributed
primarily to new parents at hospital bedside. Baby Steps had an annual
circulation of approximately 3.0 million for the year ended December 31, 2003.
In recent years, IVIP has also leveraged its experience of producing
promotional materials to create several custom publications for sponsors of both
IVPN and iVillage. In each instance, IVIP works with sponsors to create tailored
magazines, catalogs or other marketing materials that range from product
information and coupon compilations directed to new parents to financial
services booklets focused on the needs of entrepreneurial women.
Promotions.com
On May 24, 2002, we completed our acquisition of Promotions.com.
Promotions.com is comprised of two divisions: Promotions.com and Webstakes.com.
The Promotions.com division provides custom solutions to create and manage
promotions on a customer's Web site. The Promotions.com division's revenues are
derived from providing services related to the creation, administration and
implementation of online and offline promotions. Companies that utilized the
Promotions.com division's services in 2003 include Kraft Foods North America,
Inc., Nabisco Inc., and The Marketing Store Worldwide. During 2003, we
outsourced most of the operations of Promotions.com to an existing service
provider in order to create economies of scale.
The Webstakes.com division provides direct marketing services for
third-party promoters and advertisers via the Internet and e-mail. During 2003,
Webstakes.com modified its business model in anticipation of the state
commercial email legislation that ultimately lead to the federal CAN-SPAM Act of
2003, or CAN-SPAM, which took effect in the United States on January 1, 2004.
CAN-SPAM, and the related state legislation that preceded its effectiveness,
impose requirements in connection with the sending of commercial email.
Webstakes.com mailings are compliant with the requirements of CAN-SPAM and
applicable state law and Webstakes.com requires all third parties to be CAN-SPAM
compliant in accordance with the provisions of Webstakes.com's standard
contract. Revenues from Webstakes.com services are primarily based upon either a
"cost-per-click" or a "cost-per-action" pricing model.
9
Public Affairs Group
On July 16, 2001, we acquired control of PAG, a privately held company,
which is comprised of Business Women's Network, Diversity Best Practices, and
Best Practices In Corporate Communications. PAG offers several fee-based
benefits and services to subscribing companies and members including:
Service Description
- ------- -----------
Business Women's Network An information network of women
providing resources, publications,
and benchmarking services for businesses
of all sizes and in all sectors.
Diversity Best Practices A specialized service through which
member companies and government entities
share and exchange best practices around
key diversity issues through conference
calls, seminars, special reports and an
online resource center.
Best Practices in A member-based business resource that
Corporate Communications facilitates efficient communication
programs and the exchange of
information, provides conference
calls, white papers and reports,
seminars and an online resource center.
Business Women's Network Assists government agencies in meeting
Government the U.S. federal government's 5% women
and minority-owned small business
procurement goal.
PAG produces several books and publications through its divisions,
including:
o The BWN Directory of Business and Professional Women's Organizations
- lists over 5,000 organizations and Web sites;
o The BWN Calendar of Women's Events; Best of the Best: Corporate
Awards for Diversity and Women - reviews over 45 of the best lists
in America for saluting corporations for their achievements related
to diversity and women;
o Women and Diversity Enrollment Report - provides a guide to the
enrollment statistics of U.S. undergraduate and graduate schools for
women and minorities; and
o Women and Diversity WOW! Facts - includes an annual compendium of
salient facts, figures and statistics on and about the women's
marketplace compiled from close to 10,000 research reports.
PAG also hosts several events including an annual Diversity and Women
Leadership Summit & Gala which in 2003 was attended by over 1,000 participants
from 50 major corporations, 15 U.S. government agencies and 25 nations, and
honored twelve senior officers of Fortune 500 companies and government agencies
as advocates of diverse business cultures.
iVillage Consulting
iVillage Consulting is our business unit that provides production and
back-end provisioning services for third parties, including the creation and
development of Web sites, digital commerce platforms and other aspects of their
technology infrastructures. We recognize revenues from these services based upon
a number of factors including actual hours worked at negotiated hourly rates,
fixed fees stipulated in contracts or straight-line over the life of the
contract. In 2003, iVillage Consulting provided services to Hearst, Unilever,
About, Inc., an online destination owned by Primedia Inc., N. V. Perricone,
M.D., Limited, a provider of skin care products, and Tesco.
10
Hearst Magazine Web Sites
iVillage Consulting produces, maintains and hosts several online
properties of Hearst. Pursuant to an amended and restated magazine content
license and hosting agreement with Hearst, we received the online distribution
rights to seven Hearst magazine Web sites. Various areas within our network of
Web sites link to the content of these magazine sites. We receive a revenue
share for each magazine sold through our network of Web sites. The following
table describes each magazine site:
Magazine Related Web Site Description
- -------- ----------------------------
Cosmopolitan Features fashion and relationship
advice aimed at the "fun, fearless,
female."
Country Living Provides lifestyle and home
design ideas.
Good Housekeeping Features topics relating to food and
recipes, home, family and consumer
reports.
House Beautiful Features topics relating to designing,
improving or remodeling one's home.
Marie Claire Features fashion and beauty trends.
Redbook Focuses on family, health and marriage.
Town & Country Focuses on living, arts, travel and
weddings.
We also provide production, maintenance and hosting services related to
other Hearst magazine Web sites not featured on our Web sites and Hearst's
corporate Web site.
iVillageSolutions
In July 2002, we announced our collaboration with Rutledge Hill Press
to publish an iVillageSolutions branded book series. Our strategy in providing
these books is to provide a logical offline extension of iVillage.com's content.
We receive a share of the royalties from the sale of each book. We released the
following seven books during 2003:
o Best Advice on Finding Mr. Right - provides advice for the woman
looking to find love or to make a relationship work;
o Best Advice on Life After Baby Arrives - provides information,
comfort and inspiration to women facing the demanding first months
after a baby arrives;
o Best Advice on Starting A Happy Marriage - provides insights and
solutions for engaged and newlywed couples for making their marriage
an adventure that will last;
o 6 Weeks to Losing It For Good - includes a six-week weight loss
program for the common woman and an eating and exercise strategy
tailored to a woman's personality and lifestyle;
o The Frugal Woman's Guide to a Rich Life - contains guidance and
anecdotes of successful secrets that avoid wasting time, money and
energy;
o Quiz Therapy - features fun, insightful self-assessments in such
categories as personality, love, dating, couples, weddings, home and
beauty; and
o Heirloom Recipes - brings together the family recipes of the women
of iVillage and reflects the spirit in which these recipes were
originally shared.
The iVillageSolutions books can be purchased in the book departments of
major online and offline outlets and on the iVillage Market, which resides on
our network and allows customers to make online purchases of iVillageSolutions
products and the goods and services of third parties.
Other Operational Activities
In the second half of 2002, we also launched an
iVillageSolutions-branded vitamin and nutraceutical supplement line and
iVillageAccess, a dial-up Internet Service Provider offering. Each is supplied
through a collaborative venture with a third party with whom we share a portion
of the profits from sales or subscriptions. To date the revenues from both
activities have not been significant.
11
Long Lived Assets
We have long lived assets which include fixed assets, goodwill,
intangible assets and prepaid rent. As of December 31, 2003, our remaining net
fixed assets were approximately $7.3 million, net goodwill was approximately
$22.6 million and net intangible assets was approximately $12.0 million.
In July 2003, we entered into a lease amendment with the landlord of
our New York headquarters that became effective on August 15, 2003. The lease
amendment provides for a reduction in leased space, as well as a reduction in
rent per square foot. In connection with the lease amendment, we surrendered
approximately $8.5 million classified as restricted cash to the landlord,
resulting in a lease restructuring charge of approximately $4.7 million and
prepaid rent of $3.7 million, which will be amortized over the remaining life of
the lease which expires in 2015. Our prepaid rent, net of the current portion,
is reflected as a long-lived asset in our financial statements.
Sales, Marketing and Public Relations
Sales
As of December 31, 2003, we had a direct sales organization consisting
of 18 sales professionals, which as of March 25, 2004, had been augmented to
include three additional sales professionals. In addition to typical sales
activities, our sales professionals regularly consult with agencies and
advertisers on design and placement of Web-based advertising and provide clients
with measurements and analyses of advertising effectiveness. Several of our
subsidiaries also have their own dedicated sales team, including:
o seven professionals who concentrate primarily on advertising sales
and annuals fees for IVPN's Channels, video products and print
advertising;
o 13 professionals involved in sales of the memberships, events and
publications offered by PAG; and
o three professionals who sell Promotions.com's direct marketing
services.
Marketing and Public Relations
We employ a variety of methods designed to promote our brands and to
attract traffic and new members, including advertising on other Internet sites
primarily through barter agreements, targeted publications, cross promotional
arrangements to secure advertising and other promotional considerations. To
extend the iVillage brand, we have also entered into several strategic alliances
with offline partners. In addition, we leverage other audience building
strategies, including working closely with search engine submissions, news group
postings and cross-promotions to properly index materials. Our marketing and
research department consisted of 30 professionals as of December 31, 2003.
Our internal public relations department oversees a public relations
program which we believe is an important component of our marketing and brand
recognition strategy. The program targets either a trade or business or a
consumer audience to promote us and our brands.
To maximize distribution of IVPN publications and the Channels, and to
gain the endorsement of the professional community for these products, IVPN
gives particular attention to marketing efforts targeted to childbirth
educators, maternity nurses and hospitals. A staff of three marketing
professionals contacts hospitals for distribution of the Channels and works with
the healthcare professional community to maintain distribution levels of IVPN's
publications and demonstrate how they can be used as teaching tools for
expectant parents and new mothers. IVPN representatives maintain contact with
the healthcare professional community through trade shows, professional
conferences, consumer publication updates and personal sales calls.
Operating Infrastructure
iVillage Web Sites
Our Web site operating infrastructure must accommodate a high volume of
traffic and deliver frequently updated information and consists of approximately
100 servers. These servers run on the Sun Solaris, Microsoft NT and Linux
operating systems and use Netscape Enterprise, Apache and Microsoft
Corporation's IIS Web server software. Our Web sites have in the past suffered
outages or experienced slower response times because of hardware or software
malfunctions. To date, this has not had a material effect on our business,
however, if necessary we may increase our capacity by adding additional servers.
We intend to add additional servers in 2004.
12
We maintain all of our production servers at the New Jersey Data Center
of SAVVIS Communications Corporation, or SAAVIS, and the California facilities
of Verio, Inc., or Verio. Our operations are dependent upon these companies'
ability to protect their respective systems against damage from fire,
hurricanes, power loss, telecommunications failure, break-ins and other events.
SAAVIS provides comprehensive facilities management services, including human
and technical monitoring of all production servers 24 hours per day, seven days
per week. The servers located at Verio are monitored by our California
operations staff. Each facility is powered by multiple uninterruptible power
supplies and backup generators.
In February 2004, SAAVIS became our service provider after it acquired
the assets of Cable and Wireless PLC, or Cable and Wireless, in a subordinated
debt financing related to a bankruptcy declaration of December 2003. Cable and
Wireless had originally become our service provider in February 2002 after
obtaining the assets of Exodus Communications, Inc., or Exodus Communications,
who had filed for bankruptcy protection. We cannot assure that SAAVIS and Verio
will be able to provide sufficient services to us. If necessary, we believe we
will be able to engage satisfactory alternative service providers on
commercially reasonable terms.
All of our production data, except Astrology.com, is copied to backup
tapes each night and stored at a third-party, off-site storage facility.
Astrology.com's production data is backed up on a daily basis at our facilities.
We keep all of our production servers behind firewalls for security purposes and
do not allow outside access except via secure channels. Strict password
management and physical security measures are followed. Computer emergency
response team alerts are read, and, where appropriate, recommended action is
taken to address security risks and vulnerabilities. We do not presently have a
comprehensive disaster recovery plan to respond to system failures.
Advertisement Serving Solutions
For several years we have used the services of DoubleClick, Inc., or
DoubleClick, including DoubleClick's scalable tools for targeting, serving and
analyzing online campaigns, as well as assisting in the effective monetization
of advertising inventory. In particular we employ a product known as DART, which
has become an online industry standard and is familiar to many of our
advertisers and sponsors. We have several agreements with DoubleClick, one of
which expires in March 2004 and another that expires in December 2004. We have
commenced discussions with DoubleClick regarding the renewal of these expiring
agreements.
Audience Management System
In August 2003, we entered into a software license and services
agreement with Tacoda Systems, Inc., or Tacoda. Tacoda provides an audience
management system, or AMS, that is designed to assist in the growth of
advertising and transactional revenues by profiling and targeting the most
valuable segments of a Web site's audiences. Tacoda's AMS collects audience data
from data sources, such as ad servers, content servers, email databases,
e-commerce servers, applications, and data analytic programs, and merges this
information with our subscription, contest and registration data to provide us
with a composite view of our audience. These audience profiles can contain
demographic data and audience site behavior, such as frequency of visits or the
propensity to click on display advertisements. The analytics and business
intelligence that is integrated in the AMS is designed to allow us to prioritize
our monetization of our Web sites and maintain a persistent relationship with
the desires of our users, as well as provide our sponsors and advertisers with
more valuable data points. Our agreement with Tacoda is perpetual by function of
an auto-renewal clause, and we may terminate the agreement immediately at any
time and for any reason by providing notice to Tacoda.
Message Board Utilities
In January 2003, we entered into an application service provider
agreement with Prospero Technologies LLC, or Prospero, under which Prospero
provides application software, hosting and technical support for our message
boards. The Prospero system provides enhanced functionality to our message
boards, making them more useful to, and consequently more likely to be
frequented by, our users and members. The features of the Prospero system
include the ability of a user to receive an email when someone responds to a
specific message board post and to search the vast number of topics posted on
our message boards. We also offer premium message board utilities for an
additional charge, however, revenues to date from the premium Prospero utilities
have not been significant. Our agreement with Prospero expired in January 2004,
but will continue on a month-to-month basis unless terminated by either party
with 60 days prior notice. We can terminate the agreement immediately at any
time if Prospero violates our privacy policy.
13
The Channels
IVIP's broadcast of the Channels originates from a laser disc system,
operated by Ascent Media, or Ascent, that provides a constant uplink signal to a
satellite operated by PanAmSat. The signal is redirected to a satellite dish at
each hospital and distributed to a patient's room for airing in real-time.
Ascent is responsible for the installation and service of IVIP's equipment
located at each hospital. We maintain business interruption insurance in the
event programming is interrupted over the designated satellite.
In 2004, IVIP, through Ascent, began to install and convert existing
hospital sites to a new technology that allows for customization of programming
at each site, allows for multi-channel audio and video capabilities and
eliminates the need for a constant satellite feed. The programming and
advertising of each individual hospital site may be updated on an as needed
basis from Ascent's facility via a satellite signal to the existing satellite
dish at each hospital site. The new technology will then receive and store the
updated content for airing at a specific time or date in the future. IVIP
intends to complete the conversion of all hospital sites within the next few
years.
Competition
We compete intensely for members, users, advertisers and commerce, and
believe the primary competitive factors in creating and maintaining a successful
Internet-based business include:
o functionality o ease of use
o brand recognition o pricing
o member affinity and loyalty o quality of products and services
o demographic focus o reliability and critical mass
o variety of value-added services
We compete with other companies or Web sites which are primarily
focused on targeting women online, including Lifetime.com and Oxygen.com, as
well as Web sites targeted at the specific categories contained on our Web
sites. We also anticipate competition from:
o search engine providers o commercial online services
o shareware archives o direct marketing companies
o content sites o internet service providers
o other entities that may
attempt to establish communities
on the Internet by their own
creation or purchasing one of
our competitors
We also compete with traditional forms of media, such as newspapers,
magazines, radio and television, for advertisers and advertising revenues. We
believe that the principal competitive factors in attracting advertisers
include:
o the demographics of our o our ability to offer targeted
users audiences
o brand recognition o the amount of traffic on our
Web sites
o the overall cost-effectiveness
of the advertising medium
offered by iVillage
Many of our current and potential competitors, including developers of
Web directories and search engines and traditional media companies, have:
o longer operating histories o greater name recognition
o significantly greater financial, o larger existing customer bases
technical and marketing resources
14
These competitors are able to undertake more extensive marketing campaigns for
their brands and services, adopt more aggressive advertising and subscription
pricing policies and make more attractive offers to potential employees,
distribution partners, commerce companies, advertisers and third-party content
providers. Internet content providers and Internet service providers, including
developers of search engines, sites that offer professional editorial content
and commercial online services, may not be perceived by advertisers as having
more desirable Web sites for placement of advertisements.
Several of our current advertisers, sponsors and strategic partners
also have established collaborative relationships with our competitors or
potential competitors, and other high-traffic Web sites, accordingly:
o we may be unable to grow our o competitor's growth in traffic
membership, traffic levels and from these relationships
advertiser customer base could make their Web sites more
at historical levels attractive to advertisers
o we may be unable to retain o our strategic partners may
our current members, traffic sever or elect not to renew
levels or advertiser customers their agreements with us
o we may be unable to attract a
significant number of paying
customers for our products and
services
Several major publishing companies produce products that are directly
competitive with IVPN's magazines. Time Inc., G&J USA Publishing, and Meredith
Corporation all publish various pre- and post-natal publications. Disney
Publishing and Children's Television Workshop also publish general parenting
magazines. All of these publishers have substantially greater marketing,
research and financial resources than IVPN. IVPN competes by emphasizing the
highly targeted nature of its audience, product quality and the fact that its
publications are used as teaching tools by professionals, as well as the
credibility and trust parents place in the LAMAZE(R) brand name.
While Lamaze Publishing's instructional videos and IVIP's The Newborn
Channel currently have no direct competitors, advertisers in this marketplace
are heavy users of daytime network television and cable television networks
targeted to young parents. The broadcasting companies that provide these
opportunities have invested substantial amounts in programming, sales and
marketing and are much better known to advertisers than IVPN, Lamaze Publishing
and IVIP. To compete, Lamaze Publishing and IVIP must convince advertisers that
advertising recall and effectiveness obtained in an educational or hospital
setting is superior to that of traditional broadcasting.
The Wellness Channel currently contends with a few direct competitors,
such as General Electric Company's the "Patient Channel," in addition to the
competition experienced by the other channels. Although few in number, such
direct competitors possess significant financial resources, have
well-established brand names, and large existing customer bases when compared
with IVIP. To compete, IVIP must up-sell the current subscribers to, and
advertisers on, its other Channels and continue to offer superior programming to
differentiate itself from its competitors.
The iVillageSolutions Book Series, the iVillageSolutions supplement and
nutraceutical line, and iVillageAccess all compete with similar product and
service offerings many of which are from companies with greater brand
recognition and superior resources. In order to compete we must attract the
customers of competitors by differentiating these products and leveraging our
brand name and internal advertising capabilities.
We may not be able to compete successfully against our current or
future competitors and competitive pressures that we face could have a material
adverse effect on our business, financial condition and results of operations.
Intellectual Property, Proprietary Rights and Domain Names
We regard our copyrights, service marks, trademarks, trade names, trade
dress, trade secrets, proprietary technology and similar intellectual property
as critical to our success, and rely on trademark and copyright law, trade
secret protections of the countries in which we conduct business and
confidentiality and/or license agreements with our employees, customers,
independent contractors, affiliates and others to protect our proprietary
rights.
15
We have licensed in the past, and expect that we may license in the
future, certain of our proprietary rights to third parties. Although we attempt
to ensure that these licensees maintain the quality of our brand, the steps we
have taken to protect our proprietary rights may not be adequate and third
parties may infringe or misappropriate our proprietary rights. In addition,
other parties may assert claims of infringement of intellectual property
against, or challenge our proprietary rights.
As of December 31, 2003, we owned approximately 140 domestic and
foreign trademark registrations or applications related to our business.
Trademark registrations typically have a duration of ten years and can be
renewed at our option prior to their expiration dates.
Employees
As of December 31, 2003, we employed 200 full-time employees, of whom
71 were in sales and marketing, 49 were in editorial and community, 41 were in
administration and customer service, and 39 were in technology, operations and
support. Our current employees are not represented by a labor union and are not
the subject of a collective bargaining agreement. We believe that relations with
our employees are satisfactory.
Available Information
We were incorporated in the state of Delaware on June 8, 1995. The
Internet address of our corporate Web site is www.ivillage.com. We make our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K and amendments to these reports available free of charge through the
"investor info" section of this Web site. We also make available financial
information, news releases and other information on this Web site. Our reports
filed with, or furnished to, the SEC are also available at the SEC's web site at
www.sec.gov or at the Public Reference Room of the SEC at 450 Fifth Street, NW,
Washington, DC 20549. Information about the Public Reference Room is available
at 1-800-SEC-0330.
Item 2. Properties.
We are headquartered in New York, New York, and currently lease
approximately 42,000 square feet at 500-512 Seventh Avenue. During the third
quarter of 2003, we entered into an amendment to our lease that provides for a
reduction in leased space, as well as a reduction in rent per square foot. In
connection with the amendment, we surrendered the approximately $8.5 million
classified as restricted cash and transferred net fixed assets of approximately
$1.5 million to the landlord of these premises. The lease, as amended, runs
through April 2015.
We also lease sales offices located in Chicago, Illinois, Santa Monica,
California and San Francisco, California. These leases are on a month-to-month
basis.
IVPN subleases approximately 7,000 square feet of space at 9 Old Kings
Highway, Darien, Connecticut. This sublease expires on June 30, 2005.
Astrology.com leases approximately 7,400 square feet of space in San
Francisco, California. This lease expires on November 30, 2005.
PAG leases approximately 6,800 square feet of space in Washington, D.C.
This lease expires in December 2006.
We believe that these facilities will be adequate to meet our needs for
the foreseeable future.
Item 3. Legal Proceedings.
Several plaintiffs have filed class action lawsuits in federal court
against us, several of our former executives, and our underwriters in connection
with our March 1999 initial public offering. A similar class action lawsuit was
filed against Women.com, several of its former executives and Women.com's
underwriters in connection with Women.com's October 1999 initial public
offering. The complaints generally assert claims under the Securities Act, the
Exchange Act and rules promulgated by the Securities and Exchange Commission, or
SEC. The complaints sought unspecified damages in an amount to be determined at
trial, and costs associated with the litigation, including attorneys' fees.
16
In February 2003, the defendants' motion to dismiss certain of the
class action plaintiffs' claims was granted in part, but was primarily denied
and the lawsuits entered the discovery phase. In June 2003, the parties agreed
in principle to settle the matter, along with similar lawsuits against more than
300 other issuers. The proposed settlement generally provides for, among other
things, that the issuer defendants and related individual defendants will be
released from the litigation without any liability other than certain expenses
incurred to date in connection with the litigation, the issuer defendants'
insurers will guarantee $1.0 billion in recoveries by the plaintiffs, the issuer
defendants will assign certain claims against the underwriter defendants to the
plaintiffs, and the issuer defendants will have the opportunity to recover
certain litigation-related expenses if the plaintiffs recover more than $5.0
billion from the underwriter defendants. In July 2003, each of the boards of
directors of iVillage and Women.com approved the proposed settlement. The
proposed settlement is currently subject to approval by the other involved
parties as well as to the final approval of the court. We do not expect this
proposed settlement, if approved, to have a material impact on our financial
condition or results of operations. However, the proposed settlement may not be
approved or implemented in its current form, or at all.
In June 2001, Euregio.net commenced an action in Belgium against
Women.com claiming damages in excess of 1 million Euros in connection with
alleged copyright infringements. Despite Women.com's arguments challenging the
jurisdiction of the Belgian court, the alleged infringements and the amount of
damages, in January 2003 a Belgian court issued a judgment against Women.com in
the amount of approximately 850,000 Euros, or approximately $1.1 million based
on the Euro exchange rate as of December 31, 2003. Each of the parties filed
court briefs and appeared before the Brussels Court of Appeals on February 24,
2004. A decision from the Brussels Court of Appeals regarding Women.com's
further challenge of the jurisdiction, alleged infringements and amount of
damages is still pending. Women.com has been advised by outside legal counsel
that Euregio.net would have to commence legal proceedings in the United States
to enforce this judgment. If necessary, Women.com fully intends to appeal to a
higher Belgium court and oppose any effort by the plaintiffs to enforce a
judgment from the Belgian court in the United States.
We believe, based upon the advice of outside legal counsel, that the
aforementioned lawsuits and claims asserted against us and our subsidiary
pursuant to these complaints are without merit and we intend to vigorously
defend against these claims. We believe that it is not probable that either of
these legal proceedings will have a material adverse effect on our business,
financial condition, results of operations and liquidity.
We are not currently subject to any other material legal proceedings.
We may from time to time become a party to various legal proceedings arising in
the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders.
Our 2003 annual meeting of stockholders was held on October 9, 2003 to
elect three Class II directors to the board of directors and to ratify the
appointment of PricewaterhouseCoopers LLP as our independent auditors for the
fiscal year ending December 31, 2003.
In the election of directors, the three director nominees were elected with the
following votes:
Number of Votes
-----------------------------------------
Nominee For Withheld
- ------- ---------- --------
Cathleen P. Black 49,945,868 2,210,929
Edward D. Horowitz 51,947,893 208,904
Douglas W. McCormick 49,895,631 2,261,166
Directors whose terms of office continued after the meeting included Kenneth A.
Bronfin, John T. (Jack) Healy, Habib Kairouz, Lennert J. Leader, Edward T.
Reilly and Alfred Sikes.
The stockholders voted in favor of the ratification of the appointment
of PricewaterhouseCoopers LLP as our independent auditors for the fiscal year
ended December 31, 2003, as follows:
Number of Votes
--------------------------------------------
For Withheld Abstain
---------- -------- -------
Ratification of appointment of
auditors 51,978,832 166,832 11,131
17
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information
During the fiscal year ended December 31, 2003, our common stock traded
on both The Nasdaq National Market and The Nasdaq SmallCap Market. Our common
stock was traded on The Nasdaq National Market prior to its transfer to The
Nasdaq SmallCap Market on December 20, 2002. Our common stock remained on the
Nasdaq SmallCap Market until it was transferred back to The Nasdaq National
Market on August 19, 2003. On both The Nasdaq National Market and The Nasdaq
SmallCap Market, our common stock has traded under the symbol "IVIL". The
following table sets forth, for the periods indicated, the high and low bid
prices per share of our common stock as reported on The Nasdaq National Market
or The Nasdaq SmallCap Market, as applicable:
2003 2002
------------------------------------------------ -----------------------------------------------
High Low High Low
--------------------- ------------------------- --------------------- ------------------------
First Quarter $1.10(1) $0.56(1) $2.85(3) $1.63(3)
Second Quarter $1.62(1) $0.50(1) $2.70(3) $1.17(3)
Third Quarter $2.95(2) $1.40(2) $1.41(3) $0.55(3)
Fourth Quarter $3.97(3) $2.09(3) $1.00(4) $0.52(4)
- --------------------------
(1) As reported on The Nasdaq SmallCap Market.
(2) As reported on The Nasdaq SmallCap Market from July 1, 2003 to August 18,
2003 and The Nasdaq National Market from August 19, 2003 through September
30, 2003.
(3) As reported on the Nasdaq National Market.
(4) As reported on The Nasdaq National Market from October 1, 2002 to December
19, 2002, and The Nasdaq SmallCap Market from December 20, 2002 through
December 31, 2002.
On March 25, 2004, the closing sales price of our common stock was $6.12 per
share.
Holders
As of March 25, 2004 and there were 920 holders of record of our
outstanding common stock. This figure does not include the number of
stockholders whose shares are held of record by a broker or clearing agency, but
does include each such brokerage house or clearing agency as a single holder of
record.
Dividends
We have never declared or paid any cash dividends on our capital stock.
We presently intend to retain future earnings, if any, to finance the expansion
of our business and do not expect to pay any cash dividends in the foreseeable
future.
Recent Sales of Unregistered Securities
During February 2004, an aggregate of 29,449 shares of common stock
were issued to certain of our existing security holders in exchange for warrants
they had acquired in connection with a securities purchase agreement related to
our acquisition of Women.com. In each case, we relied on the exemption provided
by Section 3(a)(9) of the Securities Act.
On January 14, 2004, Hearst Communications, Inc. exercised a warrant it
received in connection with a securities purchase agreement related to our
acquisition of Women.com and purchased 2,065,695 shares of common stock for
$0.01 per share. Pursuant to its terms, the warrant became exercisable when the
average closing price of our common stock had exceeded $3.75 for 15 consecutive
trading days prior to January 14, 2003. We relied on the exemption from
registration under Section 4(2) of the Securities Act for the sale of the
securities issued in connection with the exercise of this warrant.
In October 2003, we exercised our call option and purchased the
remaining 19.9% ownership interest of Cooperative Beauty Ventures, L.L.C. from
Unilever, resulting in it becoming our wholly owned subsidiary. The aggregate
purchase price consisted of approximately $0.2 million in cash and 200,000
shares of our common stock which were held as treasury stock. We relied on the
exemption from registration under Section 4(2) of the Securities Act for the
sale of securities issued in connection with this transaction.
18
Item 6. Selected Financial Data.
Our selected consolidated financial data should be read in conjunction
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and notes to
those statements and other financial information included elsewhere in this
report. The consolidated statements of operations data for the years ended
December 31, 2003, 2002 and 2001 and the consolidated balance sheet data as of
December 31, 2003 and 2002 are derived from our audited consolidated financial
statements included in this report. The consolidated balance sheet data as of
December 31, 2001, 2000 and 1999 and the consolidated statements of operations
data for the years ended December 31, 2000 and 1999 are derived from our audited
consolidated financial statements that are not included in this report. The
historical annual results presented here are not necessarily indicative of
future results. We acquired Knowledgeweb, Inc. in February 1999, OnLine
Psychological Services, Inc. and Code Stone Technologies, Inc. in June 1999,
Lamaze Publishing and Family Point Inc. in August 1999, an additional 30.1%
interest in Cooperative Beauty Ventures, L.L.C. in March 2001 increasing our
ownership to 80.1%, with the remaining 19.9% interest acquired in October 2003,
Women.com Networks, Inc. in June 2001, a controlling interest in Public Affairs
Group, Inc. in July 2001 and an 82.3% interest in Promotions.com, Inc. in April
2002 with the remaining 17.7% interest acquired in May 2002. The financial data
reflect the results of operations of these subsidiaries since their dates of
acquisition. In March 1999, we acquired the remaining minority interest in IVN,
Inc, formerly known as iBaby, Inc. In June 2000, we decided to discontinue the
operations of our IVN, Inc. subsidiary. As such, all discussion and analysis
below does not include IVN, Inc. operations.
Years Ended December 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
Consolidated Statements of Operations Data:
Revenues ................................................ $ 55,221 $ 59,423 $ 60,041 $ 76,352 $ 36,576
--------- --------- --------- --------- ---------
Operating Expenses:
Editorial, product development and technology ........... 28,842 27,973 33,500 35,327 20,652
Sales and marketing ..................................... 19,963 30,237 36,178 54,098 63,526
General and administrative .............................. 13,314 13,474 17,702 22,634 13,164
Lease restructuring charge and related
impairment of fixed assets(1) ...................... 9,126 -- -- -- --
Depreciation and amortization(1) ........................ 8,595 11,900 23,529 37,681 25,720
Impairment of goodwill, intangible assets
and fixed assets(1) ................................ 4,029 971 -- 98,056 --
--------- --------- --------- --------- ---------
Total operating expenses ........................... 83,869 84,555 110,909 247,796 123,062
--------- --------- --------- --------- ---------
Loss from operations .................................... (28,648) (25,132) (50,868) (171,444) (86,486)
Interest income, net .................................... 218 485 2,285 5,261 4,085
Other income (expense), net ............................. 727 (34) (43) 595 271
Gain on sale of joint venture interest and other
assets ............................................. 625 -- 385 -- --
Minority interest ....................................... (51) (74) 7 -- --
Write-down of investments ............................... -- -- (104) (13,496) --
Loss from unconsolidated joint venture .................. -- -- (127) (422) --
Cumulative effect of change in accounting
principle(1) ....................................... -- (9,181) -- -- --
--------- --------- --------- --------- ---------
Net loss from continuing operations ..................... (27,129) (33,936) (48,465) (179,506) (82,130)
Preferred stock deemed dividend ......................... -- -- -- -- (23,612)
--------- --------- --------- --------- ---------
Net loss attributable to common stockholders
from continuing operations ......................... $ (27,129) $ (33,936) $ (48,465) $(179,506) $(105,742)
========= ========= ========= ========= =========
19
Years Ended December 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands, except per share data)
Basic and diluted net loss per share
attributable to common stockholders from continuing
operations ......................................... $ (0.49) $ (0.62) $ (1.13) $ (6.05) $ (5.06)
========= ========= ========= ========= =========
Weighted average shares of common stock
outstanding used in computing basic and
diluted net loss per share ......................... 55,772 54,841 42,807 29,683 20,901
========= ========= ========= ========= =========
- ----------
(1) Please see Note 3, Note 4, Note 5 and Note 12 of iVillage's Notes to
Consolidated Financial Statements.
Years Ended December 31,
----------------------------------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents ............................... $ 15,823 $ 21,386 $ 29,831 $ 48,963 $ 106,010
Working capital ......................................... 13,080 18,403 30,966 40,252 90,752
Total assets ............................................ 72,528 100,586 132,387 132,459 312,748
Long-term liabilities ................................... 1,483 3,926 4,273 4,818 --
Stockholders' equity .................................... 56,947 82,200 108,757 101,366 283,850
20
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with our
consolidated financial statements and notes to those statements and the other
financial information appearing elsewhere in this report. In addition to
historical information, the following discussion and other parts of this report
contain forward-looking information that involves risks and uncertainties.
Overview
The following management's discussion and analysis is intended to
provide information necessary to understand our consolidated financial
statements and highlight certain other information which, in the opinion of
management, will enhance a reader's understanding of our financial condition,
changes in financial condition and results of operations. It is organized as
follows:
o The section entitled "iVillage Background," briefly describes the
organization of our business by subsidiary or division.
o "Critical Accounting Policies" discusses each of our most critical
accounting policies including revenue recognition, fixed assets and
intangibles, goodwill, income taxes, allowance for doubtful
accounts, and management estimates and assumptions.
o "Results of Operations" discusses the primary factors that are
likely to contribute to significant variability of our results of
operations from period to period and then provides detailed
narrative regarding significant changes in our results of operations
for 2003 compared to 2002, and 2002 compared to 2001.
o "Liquidity and Capital Resources" discusses our 2003 year-end
liquidity, cash flows for the year ended December 31, 2003 compared
to those for the year ended December 31, 2002, factors that may
influence our future cash requirements and the status of certain
contractual obligations as of December 31, 2003.
o "Recent Accounting Pronouncements" discusses the significance of
various recent accounting pronouncements to our financial reporting.
o "Legal Proceedings" discusses the status of litigation relating to
our initial public offering as well as that of Women.com, and of an
intellectual property litigation involving Women.com.
iVillage Background
iVillage is "the Internet for women" and consists of several online and
offline media-based properties including the iVillage.com Web site, or
iVillage.com, Women.com Networks, Inc., operator of the Women.com Web site, or
Women.com, the gURL.com Web site, or gURL.com, Knowledgeweb, Inc., operator of
the Astrology.com Web site, or Astrology.com, Cooperative Beauty Ventures, LLC,
operator of the Substance.com Web site, or Substance.com, iVillage Parenting
Network, Inc., or IVPN, Public Affairs Group, Inc., or PAG, Promotions.com,
Inc., or Promotions.com, iVillage Consulting and iVillageSolutions. Following is
a synopsis of our operational activities and those of our subsidiaries and
divisions:
Subsidiary or Division Operational Activity
- ---------------------- --------------------
iVillage.com An online destination providing practical solutions
on a range of topics and everyday support for women
18 years of age and over.
Women.com An online destination providing content focused on
fun, games, entertainment and style for women 18
years of age and over.
gURL.com An online destination catering to teenage girls that
offers advice, games and interactive content to girls
13 years of age and older.
21
Astrology.com An online destination for individuals seeking daily
horoscopes, astrological content and personalized
forecasts online.
Substance.com An online destination offering interactive beauty
content and personal care products information.
IVPN A holding company for IVIP, the operator of The
Newborn Channel and Lamaze Publishing, publisher of
Lamaze Parents, which collectively provide
informational and instructional magazines, custom
publications, television programming, videos and
online properties of interest to expectant and new
parents.
PAG Comprised of three divisions: Business Women's
Network, Diversity Best Practices and Best Practices
in Corporate Communications, each offering an
extensive database of pertinent information and
events to subscribing companies and members, and
relevant publications.
Promotions.com Comprised of two divisions: Promotions.com and
Webstakes.com, which offer online and offline
promotions and direct marketing programs that are
integrated with customers' marketing initiatives.
iVillage Consulting Assists companies in the creation and development
of Web sites, digital commerce platforms
and other aspects of technological infrastructures,
primarily for Hearst, a related party.
iVillageSolutions Our consumer products offerings including an
iVillage-branded book series and vitamin and
nutraceutical supplement line.
The discussion and analysis below includes the results of operations of
CBV since March 1, 2001, Women.com since June 18, 2001, PAG since July 16, 2001
and Promotions.com since April 19, 2002. CBV was accounted for under the equity
method of accounting prior to March 1, 2001.
Critical Accounting Policies
Revenue Recognition
iVillage
Our revenues are derived primarily from the sale of sponsorship and
advertising contracts. Sponsorship revenues are derived principally from
contracts designed to support a customer's broad marketing objectives, including
brand promotion, awareness, product introductions and online research.
Sponsorship agreements typically include the delivery of impressions on our Web
sites and occasionally the design and development of customized sites that
enhance the promotional objectives of the sponsor. An impression is the viewing
of promotional material on a Web page, which may include rich media and display
or banner advertisements, links, or other text or images. As part of a few
sponsorship agreements, sponsors selling products may provide us with a
commission on sales of their products generated through our Web sites. To date,
amounts received from the sale of sponsor's products have not been significant.
Advertising revenues are derived principally from short-term
advertising contracts in which we typically guarantee a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Sponsorship and advertising revenues are recognized ratably in
the period in which the advertisement is displayed, provided that we have no
continuing obligations and the collection of the receivable is reasonably
assured, at the lesser of the ratio of impressions delivered over total
guaranteed impressions or the straight-line basis over the term of the contract.
To the extent that minimum guaranteed impressions are not met, we defer
recognition of the corresponding revenues until the guaranteed impressions are
achieved.
22
We also derive sponsorship and advertising revenues from sponsored
links appearing on an iVillage Web page that is based upon relevant content or a
World Wide Web search query result. These revenues are earned on a cost per
thousand impressions and/or a percentage of the advertiser's net revenue and are
recognized upon notification from the search engine provider.
For contracts with multiple elements, namely those that include
delivered and undelivered products, or advertising and production revenue, we
allocate revenue to each element based on evidence of its fair value under the
Financial Accounting Standards Board, or FASB, Emerging Issues Task Force Issue,
or EITF, No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables," or EITF 00-21. Evidence of fair value is the price of a
deliverable when it is regularly sold on a stand-alone basis. We recognize
revenue allocated to each element when the criteria for revenue set forth above
are met.
Barter revenues generally represent exchanges by us of advertising
space on our Web sites for reciprocal advertising space on or traffic from other
Web sites. Revenues and expenses from these barter transactions are recorded
based upon the fair value of the advertisements delivered. Fair value of
advertisements delivered is based upon our recent practice of receiving cash for
similar advertisements. Barter revenues are recognized when the advertisements
are displayed on iVillage.com and its affiliated properties. Barter expenses are
generally recognized when our advertisements are displayed on the reciprocal Web
sites or properties, which is typically in the same period as when
advertisements are displayed on iVillage.com and its affiliated properties, and
are included as part of sales and marketing expenses.
We recognize revenues from iVillage Consulting's services based upon a
number of factors including actual hours worked at negotiated hourly rates,
completed contract or straight-line over the life of the contract.
We have received revenues from initiatives involving subscription-based
properties, the sale of iVillage-branded products and services, the sale of
third-party products, the licensing of portions of our content and services, and
the sale of research. We recognize revenues from these initiatives when products
are shipped and/or provided to the customer, or straight-line over the life of
the agreement and when the collection of the receivable is reasonably assured
and no further obligation remains.
Astrology.com
Revenues from Astrology.com consist primarily of the sale of
astrological charts and other related products to users of the Astrology.com Web
site. We recognize revenues from Astrology.com product sales, net of any
discounts, when products are shipped to customers, the collection of the
receivable is reasonably assured and no further obligations remain.
iVillage Parenting Network, Inc.
IVPN's revenues have been derived primarily from advertising placements
in IVPN's publications, videos and Web site, and broadcasts of The Newborn
Channel, The Newborn Channel-Spanish, currently offered as an audio overlay to
The Newborn Channel, and The Wellness Channel. In addition, sponsorship and
advertising revenues are generated through a sampling and coupon program, which
offers advertisers the ability to distribute samples, coupons and promotional
literature to new and expectant parents. Sponsorship and advertising revenues
are recognized on a straight-line basis over the term of the contract, provided
that IVPN has no continuing obligations and the collection of the receivable is
reasonably assured.
In recent years, IVPN has developed two new revenue streams. IVPN began
creating and distributing custom publications and mailings primarily on behalf
of one advertiser. Revenues from the sale of custom publications and mailings
are recognized when IVPN fulfills all obligations under the terms of the
contract and the collection of the receivable is reasonably assured. IVPN has
also commenced the collection of an annual fee to hospitals for The Newborn
Channel. Contracts related to this fee typically range from three to five years.
IVPN recognizes revenues from these fees ratably over the term of the agreement
provided the collection of the receivable is reasonably assured.
Public Affairs Group, Inc.
Revenues from PAG are generated primarily through subscription-based
programs that convey current best practices for both diversity issues in the
workplace and corporate communications and the hosting of an annual two-day
summit and gala event that focuses on diversity and women. We recognize revenue
from subscriptions ratably over the term of the subscription agreement and from
the events when the events are held, provided the collection of the receivable
is reasonably assured.
23
Promotions.com, Inc.
Promotions.com, Inc. generates revenues through Promotions.com, an
online and offline full service promotions services group and Webstakes.com, a
division dedicated to Internet sweepstakes and promotions.
Promotions.com revenues are derived principally from contracts in which
Promotions.com typically provides custom services for the creation,
administration and implementation of a promotion on a customer's Web site.
Promotions.com's revenue recognition policy related to its services is to
recognize revenues as deliverables are met and/or ratably over the period of the
promotion, provided that no significant obligations remain and collection of the
resulting receivable is reasonably assured.
Webstakes.com revenues are derived primarily from service contracts
whereby Webstakes.com recognizes revenues based on either a "cost-per-click" or
a "cost-per-action" pricing model. Webstakes.com recognizes revenue related to
its cost-per-click pricing model when a user has been delivered to the
customer's Web site, the customer has reported such activity to us, and the
collection of the corresponding receivable is reasonably assured. Revenue is
recognized differently in a cost-per-action pricing model, which requires
Webstakes.com to not only deliver the aforementioned user to a customer's Web
site, but also a specific user action such as purchasing a product or
registering for more information as a member of the customer's Web site in order
for Webstakes.com to earn revenue. Webstakes.com recognizes revenue related to
the cost-per-action pricing model when the specific action has been performed on
its customer's Web site, the customer has reported such activity to us, and the
collection of the corresponding receivable is reasonably assured.
Fixed Assets and Intangibles
Depreciation of equipment, furniture and fixtures, and computer
software is provided for by the straight-line method over their estimated useful
lives ranging from three to five years. Amortization of leasehold improvements
is provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions, and
expenditures which extend the useful lives of existing assets, are capitalized,
and repairs and maintenance costs are charged to operations as incurred.
Amortization of intangible assets are over the expected life of the related
asset and range from one to ten in years. Effective January 1, 2002, we adopted
Statement of Financial Accounting Standard, or SFAS, No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" or SFAS 144, regarding the
recognition and measurement of the impairment of long-lived assets to be held
and used.
We assess the recoverability of our fixed assets and intangible assets
by determining whether the unamortized balance over the assets remaining life
can be recovered through undiscounted forecasted cash flows. If undiscounted
forecasted cash flows indicate that the unamortized amounts will not be
recovered, an adjustment will be made to reduce the net amounts to an amount
consistent with forecasted future cash flows discounted at a rate commensurate
with the risk associated when estimating future discounted cash flows. Future
cash flows are based on trends of historical performance and our estimate of
future performances, giving consideration to existing and anticipated
competitive and economic conditions.
Goodwill
Goodwill is not subject to amortization and is tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset may be impaired in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets," or SFAS 142. The impairment test consists of a comparison of
the fair value of goodwill with its carrying amount. If the carrying amount of
goodwill exceeds its fair value, an impairment loss will be recognized in an
amount equal to that excess. Fair value is typically based upon future cash
flows discounted at a rate commensurate with the risk involved. After an
impairment loss is recognized, the adjusted carrying amount of goodwill is its
new accounting basis.
24
Income Taxes
We recognize deferred taxes by the asset and liability method of
accounting for income taxes in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes". Deferred income taxes are recognized for
differences between the financial statement and tax bases of assets and
liabilities at enacted statutory tax rates in effect for the years in which the
differences are expected to reverse. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date. In assessing the realizability of deferred tax assets, we consider whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income or reversal of deferred
tax liabilities during the periods in which those temporary differences become
deductible. We consider the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. Based on this consideration, we believe it is more likely than not
that the net deferred tax assets will not be realized.
Allowance for Doubtful Accounts
We assess the required amount of allowance for doubtful accounts based
on past experience, the review of the agings and analysis of specific customer
accounts.
Management Estimates and Assumptions
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates. Significant estimates and assumptions made by us include those
related to the useful lives of fixed assets and intangible assets, the
recoverability of fixed assets, goodwill, intangible assets and deferred tax
assets, the allowance for doubtful accounts and the assessment of expected
probable losses (if any) of claims and potential claims.
Results of Operations
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," or SFAS 131, segment information is being
reported consistent with our method of internal reporting. In accordance with
SFAS 131, operating segments are defined as components of an enterprise for
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. We are organized primarily by subsidiaries and divisions.
Our subsidiaries and divisions have no operating managers that report to the
chief operating decision maker and the chief operating decision maker reviews
results of operations at the highest level of aggregate data in making
decisions. The chief operating decision maker does review revenue results of
subsidiaries and divisions. Our discussion of revenue has been organized into
separate subsidiaries and divisions, however operating expenses and results of
operations are discussed on a combined basis.
We believe the following factors may contribute to the variability of
our results of operations from period to period:
o the loss of a contract from a major customer;
o the timing of our recognition of revenue;
o the volatility of the online advertising market;
o an interruption or malfunction in service from our primary third
party service providers;
o the date of commencement of a sponsorship and advertising campaign;
and
o the date of completion of printing and/or distribution of a custom
publication or magazine.
25
Revenues
The following table sets forth revenues by property (dollars in
thousands):
Years Ended December 31,
---------------------------------------------------------------------------------------------
2003 (1) 2002 (1) 2001 (1)
-------------- -------------- --------------
iVillage.com (2) $27,744 50% $37,290 63% $42,868 71%
Astrology.com 2,925 5% 3,346 6% 3,027 5%
Promotions.com, Inc. 3,546 7% 2,514 4% -- --
IVPN 16,606 30% 12,609 21% 12,294 21%
PAG 4,400 8% 3,664 6% 1,852 3%
---------------------------------------------------------------------------------------------
Total revenues $55,221 100% $59,423 100% $60,041 100%
---------------------------------------------------------------------------------------------
- ----------
(1) Percent of total revenues.
(2) Included in iVillage.com revenues are iVillage.com, Substance.com and
Women.com properties and gURL.com, iVillage Consulting and iVillageSolutions
divisions.
iVillage.com
Years Ended December 31,
---------------------------------------------------------------------------------------------
2003 (1) 2002 (1) 2001 (1)
-------------- -------------- --------------
Sponsorship and advertising $19,994 72% $27,394 74% $33,498 78%
Barter 3,737 13% 3,525 9% 2,814 7%
iVillage Consulting 3,206 12% 3,994 11% 2,926 7%
Online services/other 807 3% 2,377 6% 3,630 8%
---------------------------------------------------------------------------------------------
$27,744 100% $37,290 100% $42,868 100%
---------------------------------------------------------------------------------------------
- ----------
(1) Percent of iVillage.com revenues.
Revenues from iVillage.com accounted for approximately 50% of total
revenues in 2003, 63% of total revenues in 2002 and 71% of total revenues in
2001. Revenues from iVillage.com decreased by approximately $9.5 million, or
26%, for the year ended December 31, 2003 as compared to the year ended December
31, 2002. The decline in revenues for the year ended December 31, 2003, as
compared to 2002, was primarily due to a decrease in year over year sponsorship
and advertising revenues of approximately $7.4 million and online services/other
of approximately $1.6 million. The primary driver behind the decrease in
sponsorship and advertising revenues was the expiration of the Unilever and
Procter & Gamble long-term contracts, which provided approximately $9.7 million
of additional revenues in 2002 from these customers as compared to 2003, offset
by additional advertisers. Unilever and Procter & Gamble are still customers,
however. The decrease in online services/other resulted from the expiration of a
licensing agreement in the first quarter of 2002 of approximately $0.5 million
and the sale of research in 2002 of approximately $1.1 million, with no
identifiable amounts in 2003.
Revenues from iVillage.com decreased by approximately $5.6 million, or
13%, for the year ended December 31, 2002 as compared to the year ended
December 31, 2001. The decline in revenues for the year ended December 31, 2002,
as compared to 2001, was primarily due to a decrease in year over year
sponsorship and advertising revenues of approximately $6.1 million and online
services/other of approximately $1.3 million, offset by an increase in iVillage
Consulting revenue of approximately $1.1 million. Online services/other
decreased year over year by approximately $2.5 million due to the expiration of
a licensing agreement in the first quarter of 2002, and was offset by the sale
of research in 2002 of approximately $1.1 million.
Astrology.com
Revenues from Astrology.com accounted for approximately 5% of total
revenues in 2003, 6% of total revenues in 2002 and 5% of total revenues in 2001.
Revenues from Astrology.com decreased by approximately $0.4 million, or 13%, for
the year ended December 31, 2003 as compared to 2002, and increased
approximately $0.3 million, or 11%, for the year ended December 31, 2002, as
compared to 2001. Revenues from the sale of astrological charts and content has
remained relatively unchanged over the three-year period.
26
Promotions.com, Inc.
Years Ended December 31,
---------------------------------------------------------------------------------------------
2003 (1) 2002 (1) 2001 (1)
-------------- -------------- --------------
Webstakes.com $ 2,091 59% $ 1,793 71% $ --
Promotions.com 1,455 41% 721 29% -- --
---------------------------------------------------------------------------------------------
$ 3,546 100% $ 2,514 100% $ -- --
---------------------------------------------------------------------------------------------
- ----------
(1) Percent of Promotions.com Inc.'s revenues.
Revenues from Promotions.com, Inc. accounted for approximately 7% of
total revenues in 2003 and 4% of total revenues in 2002. Revenues from
Promotions.com, Inc. increased approximately $1.0 million, or 41%, for the year
ended December 31, 2003 as compared to 2002, primarily due to the benefit of
revenues recognized for the full year of 2003 as compared to revenues being
recognized for a partial year in 2002.
During 2003, Webstakes.com modified its business model in anticipation
of CAN-SPAM, and this coupled with a deteriorating environment for e-mail direct
marketers, has led to sequentially lower quarterly revenues by the end of 2003.
If the revenue continues to decline, management believes it has the ability to
delay or reduce expenditures associated with this property.
Since we acquired Promotions.com, Inc. in April 2002, there are no
comparative amounts for the corresponding period in 2001.
iVillage Parenting Network, Inc.
Years Ended December 31,
---------------------------------------------------------------------------------------------
2003 (1) 2002 (1) 2001 (1)
-------------- -------------- --------------
Sponsorship and advertising $12,248 74% $11,069 88% $12,099 98%
Custom publications 3,901 23% 1,540 12% 195 2%
Licensing fees 292 2% -- -- -- --
Barter 165 1% -- -- -- --
---------------------------------------------------------------------------------------------
$16,606 100% $12,609 100% $12,294 100%
---------------------------------------------------------------------------------------------
- ----------
(1) Percent of iVillage Parenting Network, Inc.'s revenues.
Revenues from IVPN accounted for approximately 30% of total revenues in
2003, 21% of total revenues in 2002 and 21% of total revenues in 2001. IVPN's
revenues increased by approximately $4.0 million, or 32%, for the year ended
December 31, 2003, as compared to 2002 primarily due to a $2.4 million increase
in revenue from custom publications and a $1.2 million increase in revenue from
sponsorship and advertising. Additionally, IVPN began to charge an annual fee to
hospitals for The Newborn Channel in 2003. Revenue generated from these fees was
approximately $0.3 million for the year ended December 31, 2003. As of December
31, 2003, 386 hospitals have agreed to pay a fee for The Newborn Channel. Custom
publications revenue increased 153% year over year due to an increase in the
size of the publications and increased copies distributed.
Total revenues of IVPN for the year ended December 31, 2002 increased
approximately $0.3 million, or 3%, as compared to 2001. The increase in IVPN
revenues year over year was from the sale of custom publications of
approximately $1.3 million, offset by a decrease in sponsorship and advertising
revenues of approximately $1.0 million when compared to 2001.
27
Public Affairs Group, Inc.
Years Ended December 31,
---------------------------------------------------------------------------------------------
2003 (1) 2002 (1) 2001 (1)
-------------- -------------- --------------
Subscription-based programs $ 2,253 51% $ 1,972 54% $ 1,586 86%
Events 2,061 47% 1,679 46% 266 14%
Barter 86 2% 13 0% -- --
---------------------------------------------------------------------------------------------
$ 4,400 100% $ 3,664 100% $ 1,852 100%
---------------------------------------------------------------------------------------------
- ----------
(1) Percent of Public Affairs Group Inc.'s revenues.
Revenues from PAG accounted for approximately 8% of total revenues in
2003, 6% of total revenues in 2002 and 3% of total revenues in 2001. PAG's
revenues increased by approximately $0.7 million, or 20%, for the year ended
December 31, 2003, as compared to 2002, primarily due to an increase in
subscription-based programs revenue resulting from increased members of
approximately $0.3 million in addition to an increase of approximately $0.4
million from various annual events held by PAG, due to increased sponsorship
dollars and higher attendance.
Revenues from PAG for the year ended December 31, 2002 increased
approximately $1.8 million, or 98%, as compared to the year ended December 31,
2001 primarily due to the benefit of revenues recognized for the full year of
2002 as compared to revenues being recognized for a partial year in 2001. PAG
was acquired in July 2001.
Customer Concentration
Hearst has been one of our largest customers for each of the last three
years. Pursuant to an amended and restated magazine content license and hosting
agreement with Hearst, we received the online distribution rights to seven
Hearst magazine Web sites. Under this agreement, we provide production,
maintenance and hosting services, for which in 2003 we received approximately
$2.9 million in fees, and advertising services, for which in 2003 we received
approximately $3.0 million in fees. In addition, we are entitled to a commission
derived from the sale of Hearst magazines, which in 2003 totaled approximately
$0.6 million. As part of this magazine content license agreement we pay Hearst a
royalty fee, which in 2003 totaled approximately $0.8 million. Our magazine
content license and hosting agreement with Hearst expires in June 2004, but
continues on a month-to-month basis afterwards unless terminated by either party
with 90 days prior notice.
Our five largest customers accounted for approximately 27% of total
revenues in 2003, 38% of total revenues in 2002 and 37% of total revenues in
2001. In 2003, one advertiser, Hearst, a related party, accounted for
approximately 11% of total revenues. No other single customer accounted for more
than 10% of our total revenues in 2003. In 2002, Procter and Gamble accounted
for approximately 11% of total revenues, Hearst accounted for approximately 11%
and Unilever accounted for approximately 10%. In 2001, one advertiser, Unilever,
accounted for approximately 12% of total revenues. At December 31, 2003, Hearst
accounted for approximately 20% of our net accounts receivable, and at December
31, 2002, Procter and Gamble accounted for approximately 26% of our net accounts
receivable.
We anticipate that our results of operations in any given period will
continue to depend to a significant extent on revenues from a small number of
customers. Our contract with Procter & Gamble expired in June 2003, our contract
with Hearst expires in June 2004, and our contract with Unilever, signed in
October 2003, expires in December 2004. Although our contract with Procter and
Gamble expired last year, Procter & Gamble continues to advertise on our Web
sites using shorter term agreements. We recently commenced discussions regarding
the renewal of our agreement with Hearst, however we cannot assure whether this
contract will be renewed and, if renewed, whether the renewal terms will be as
favorable as the current agreement with Hearst, or at all. Because our largest
customers have varied over time in the past, we anticipate that they will
continue to do so in the future. Consequently, the loss of even a small number
of our largest customers at any one time may adversely affect our business,
financial condition and results of operations, unless we are able to enter into
contracts to replace lost revenue.
Operating Expenses
The following table sets forth our operating expenses by type (dollars
in thousands):
Years Ended December 31,
---------------------------------------------------------------------------------------------
2003 (1) 2002 (1) 2001 (1)
-------------- -------------- --------------
Editorial, product development
and technology $28,842 52% $27,973 47% $33,500 56%
Sales and marketing 19,963 36% 30,237 51% 36,178 60%
General and administrative 13,314 24% 13,474 23% 17,702 29%
Lease restructuring charge
and impairment of fixed assets 9,126 17% -- -- -- --
Depreciation and amortization 8,595 16% 11,900 20% 23,529 39%
Impairment of goodwill, intangibles
assets, and fixed assets 4,029 7% 971 2% -- --
---------------------------------------------------------------------------------------------
Total operating expenses $83,869 152% $84,555 142% $110,909 185%
---------------------------------------------------------------------------------------------
(1) Percent of total revenues.
28
Operating Expense Reductions
In the past, we have achieved cost reductions through increased
managerial efficiencies and several expense reduction initiatives targeted at
certain expenses, including reduced advertising, reduced lease commitments,
targeted staff reductions and reduced employee benefit plan costs.
In February 2003, we announced an expense reduction initiative with the
goal of reducing annualized costs by up to $10.0 million. During 2003, we
recognized and/or achieved approximately $8.5 million of these savings,
primarily through the renegotiation of our New York real estate lease and
contracts with third-party vendors, as well as staff reductions.
Editorial, Product Development and Technology
Editorial, product development and technology expenses consist
primarily of the following:
o payroll and related expenses for the editorial, technology, Web site
design and production staffs;
o severance costs for terminated employees;
o the cost of communications;
o related expenditures necessary to support iVillage's Web sites,
software development, technology and support operations;
o costs associated with IVPN's magazines, onsert program, which
bundles samples and promotional literature in a poly-bag with a
magazine, and the Channels; and
o an allocation of facility expenses, which is based on the number of
personnel in editorial, product development and technology roles.
Editorial, product development and technology expenses for the year
ended December 31, 2003 were approximately $28.8 million, or 52% of total
revenues. Editorial, product development and technology expenses were
approximately $28.0 million, or 47% of total revenues, for the corresponding
period in 2002. The increase between the comparable periods was primarily
attributable to 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 $1.2 million and increased circulation and
production costs associated with IVPN's magazines, videos and promotional
programs of approximately $0.7 million. Additionally, the acquisition of
Promotions.com resulted in incremental expenses of approximately $0.7 million.
These amounts were partially offset by a decrease in salaries, severance and
related expenses of approximately $1.9 million. Editorial, product development
and technology expenses increased as a percentage of total revenues for the year
ended December 31, 2003, when compared to the same period in 2002, primarily as
a result of the increase in expenses from the higher revenue, but lower margin,
custom publication sales, coupled with an overall decline in total revenues.
Editorial, product development and technology expenses for the year
ended December 31, 2001 were approximately $33.5 million, or 56% of total
revenues. The decrease in editorial, product development and technology expenses
between the comparable periods of 2002 and 2001 was primarily attributable to
decreases in salaries, severance and related benefits of approximately $3.8
million, renegotiation of agreements which provide support, content and serving
of impressions to our Web sites of approximately $1.3 million and lower facility
costs resulting in a decreased facilities allocation of approximately $1.1
million. These reductions were offset slightly by incremental costs associated
with the acquisition of Promotions.com, Inc. of approximately $0.8 million.
Editorial, product development and technology expenses decreased as a percentage
of total revenues for the year ended December 31, 2002, when compared to the
same period in 2001, as a result of the significant benefits recognized from
cost reduction initiatives beginning in 2001 and into 2002, as compared to the
slight decline in revenues.
29
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 year ended December 31, 2003 were approximately $20.0 million,
or 36% of total revenues. Sales and marketing expenses were approximately $30.2
million, or 51% of total revenues, for 2002. The decrease in sales and marketing
expenses for the year ended December 31, 2003, as compared to 2002, was
primarily attributable to the following:
2003 Events
o a decrease in online media expenses of approximately $0.4 million;
o a decrease in Hearst print expenses of approximately $2.5 million;
and
o a decrease in salaries, commissions, severance and related expenses
of approximately $1.0 million;
2002 Event
o our negotiated termination of an advertising agreement with the
National Broadcasting Company, Inc., or NBC, that required us to
purchase television advertising of approximately $1.3 million, and
pay a termination fee of approximately $4.1 million in the first
quarter of 2002.
These decreases were partially offset by incremental sales and marketing expense
related to the Promotions.com, Inc. acquisition of approximately $0.4 million.
Sales and marketing expenses decreased as a percentage of total revenues for the
year ended December 31, 2003, as compared to the same period in 2002, due to a
larger percentage decrease in sales and marketing expenses, as a result of our
overall effort to manage costs, as compared to the decline in revenues.
Sales and marketing expenses for the year ended December 31, 2001 were
approximately $36.2 million, or 60%, of total revenues. The decrease in sales
and marketing expenses between the comparable years of 2002 and 2001 was
primarily attributable to the following:
o benefits of cost reduction initiatives implemented beginning in 2001
and into 2002 which resulted in an approximately $8.5 million
decrease in advertising expenses;
o a decrease in payroll, severance, commission and related benefits of
approximately $3.6 million; and
o lower facility costs resulting in a decreased facilities allocation
of approximately $0.8 million.
These decreases were partially offset by our negotiated termination of an
advertising agreement with NBC that required us to purchase television
advertising of approximately $1.3 million and pay a termination fee of
approximately $4.1 million, as well as incremental sales and marketing expenses
related to the PAG acquisition of approximately $0.6 million and the
Promotions.com acquisition of approximately $1.9 million. Sales and marketing
expenses decreased as a percentage of total revenues for the year ended December
31, 2002, as compared to the same period in 2001, due to the significant
benefits recognized from these cost reduction initiatives as compared to the
slight decline in revenue.
Included in sales and marketing expenses are barter transactions, which
amounted to approximately 21% of total sales and marketing costs in 2003, 11% in
2002, and 8% in 2001. Barter transactions increased as a percentage of sales and
marketing expenses for each subsequent year due to the decrease in sales and
marketing expenses coupled with an increase in barter expense.
30
General and Administrative
General and administrative expenses consist primarily of payroll,
severance and related expenses for executive management, finance, human
resources and in-house legal counsel, general corporate overhead, professional
fees and an allocation of facility expenses, which is based on the number of
personnel. General and administrative expenses for the year ended December 31,
2003 were $13.3 million, or 24% of total revenues. For the comparable period in
2002, general and administrative expenses were $13.5 million, or 23% of total
revenues. The decrease in general and administrative expenses for the year
period ended December 31, 2003, as compared to 2002, was primarily due to lower
bad debt expense of approximately $0.3 million in 2003, and the reserve for
stockholder notes receivable of approximately $0.4 million in 2002, offset by an
increase in severance and related expenses of approximately $0.9 million.
General and administrative expenses were relatively consistent year over year,
however these expenses increased as a percentage of total revenues for the year
ended December 31, 2003, when compared to the comparable period in 2002,
primarily due to the decline in revenues in 2003 compared to 2002.
General and administrative expenses for the year ended December 31,
2001 were $17.7 million, or 29% of total revenues. The decrease in general and
administrative expenses for the comparable years for 2002 and 2001 was primarily
due to:
2002 Events
o a decrease in salaries, severance and related benefits of
approximately $2.9 million;
o a $0.2 million decrease in professional fees; and
o a $0.3 million decrease in facilities allocation;
2001 Events
o an approximate $1.3 million payment to the former Chief Executive
Officer; and
o lease termination costs in 2001 of approximately $1.5 million;
partially offset by the following 2002 events:
o incremental costs of approximately $0.7 million from the acquisition
of PAG and approximately $0.5 million from acquisition of
Promotions.com, Inc.;
o higher insurance costs of approximately $0.5 million; and
o a reserve for stockholder notes receivable of approximately $0.4
million.
General and administrative expenses decreased as a percentage of total revenues
for the fiscal year ended December 31, 2002, when compared to the comparable
period in 2001, as a result of the significant benefits recognized from cost
reduction initiatives as compared to the slight decline in revenue.
In the ordinary course of business, we utilize estimates to determine
the accrual of certain operating expenses. These estimates are reviewed on an
ongoing basis to determine the adequacy of these accruals. We reversed
approximately $0.7 million in 2003 and $1.5 million of accruals in 2002 included
in operating expenses due to a change in estimate on services previously
provided. These amounts were offset by additional accruals for various operating
expenses.
Lease Restructuring Charge and Impairment of Fixed Assets
Lease restructuring charge and impairment of fixed assets relates to
the abandonment of a significant portion of our New York leased real estate and
the write-off of fixed assets impaired with the abandonment of our space in the
second quarter of 2003 resulting in a charge of approximately $4.0 million. In
the third quarter of 2003, we entered into a lease amendment with the landlord
of our New York leased space whereby we received a reduction in our leased
space, as well as a reduction in our rent space per square foot. In exchange, we
surrendered our restricted cash and transferred fixed assets to the landlord,
resulting in a charge of approximately $5.1 million. In total, these events
resulted in a charge of approximately $9.1 million, or 17% of total revenues.
There were no restructuring charges in 2002 and 2001.
31
Depreciation and Amortization
Depreciation and amortization expenses for the year ended December 31,
2003 were approximately $8.6 million, or 16% of total revenues. For the
comparable period in 2002, depreciation and amortization expenses were
approximately $11.9 million, or 20% of total revenues. The decrease in
depreciation and amortization for the comparable years 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.
Depreciation and amortization expenses for the year ended December 31,
2001 were approximately $23.5 million, or 39% of total revenues. The dollar
decrease in depreciation and amortization for the comparable years for 2002 and
2001 was primarily due to the adoption of the provisions of SFAS 142 which,
among other things, provides that goodwill will no longer be amortized.
Impairment of Goodwill, Intangible Assets and Fixed Assets
Impairment of goodwill, intangible assets and fixed assets for the year
ended December 31, 2003 was approximately $4.0 million, or 7% of total revenues.
For the comparable period in 2002, impairment of goodwill, intangible assets and
fixed assets was approximately $1.0 million, or 2% of total revenues. The $4.0
million impairment recorded for the year ended December 31, 2003, was
attributable to the restructuring of the business operations of the
Promotions.com business unit and by changing the Webstakes.com business model in
the second quarter of 2003. The $1.0 million impairment recorded for the year
ended December 31, 2002, resulted from the annual impairment test performed in
accordance with SFAS 142. Upon completion of this test, the fair value of the
Promotions.com reporting unit did not exceed the reporting unit's carrying
amount and an impairment was recorded in the fourth quarter of 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 year ended December 31, 2003, was approximately
$0.2 million, or less than 1% of total revenues. For the comparable period in
2002, interest income, net was approximately $0.5 million, or 1% of total
revenues. 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 and cash equivalents
balances in 2003.
Interest income, net for the year ended December 31, 2001, was
approximately $2.3 million, or 4% of total revenues. The decrease between 2002
and 2001 was due to lower average net cash and cash equivalents balances and
lower interest rates in 2002 as compared to 2001 and the repayment of the NBC
loan in the first quarter of 2002 compared to a full year of interest payments
received on this note in 2001.
Other Income (Expense), Net
Other income, net for the year ended December 31, 2003, was
approximately $0.7 million, or 1% of total revenues. For the year ended December
31, 2002, other expense was approximately $34,000, or less than 1% of total
revenues. The increase between 2003 and 2002 was primarily from a negotiated
settlement concerning disputed amounts between us and the owners of a prior
business acquisition of $0.5 million.
Other expense, net for the year ended December 31, 2001, was
approximately $43,000, or less than 1% of total revenues.
Gain on Sale of Joint Venture Interest and Other Assets
Gain on sale of joint venture interest and other assets for the year
ended December 31, 2003, was approximately $0.6 million, or 1% of total
revenues. There was no amount for the comparable period in 2002. The
approximately $0.6 million gain recognized in 2003 resulted from the
restructuring of the Tesco relationship.
Gain on sale of joint venture interest and other assets for the year
ended December 31, 2001, was approximately $0.4 million, or 1% of total
revenues. The approximately $0.4 million gain recognized in 2001 resulted from
the sale of some assets acquired in the acquisition of Women.com which were not
in line with our business model.
32
Income Taxes
As of December 31, 2003, we have net operating loss carryforwards for
federal income tax purposes of approximately $305.9 million, which begin to
expire in 2010. Substantial changes in our ownership have occurred which may
result in annual limitations on the amount of carryforwards which we can realize
in future periods. The net deferred tax asset has been fully reserved due to the
uncertainty of our ability to realize this asset in the future. To the extent
that deferred tax assets created as a result of our acquisitions reverse in
future periods, the benefit of the reversal will be recorded as goodwill.
Net Loss
We recorded a net loss of approximately $27.1 million, or $0.49 per
share, for the year ended December 31, 2003. For 2002, we recorded a net loss of
approximately $33.9 million, or $0.62 per share. The decrease in net loss for
the year ended December 31, 2003, compared to the same period in 2002 was
primarily due to the following:
o In 2002:
o the adoption of SFAS 142 which resulted in a change in accounting
principle charge of approximately $9.2 million; and
o our negotiated termination of an advertising agreement with NBC
that required us to purchase television advertising of
approximately $1.3 million, and pay a termination fee of
approximately $4.1 million in the first quarter of 2002;
o In 2003:
o lower online media and Hearst print expense of approximately $2.9
million; and
o lower depreciation and amortization of approximately $3.3
million.
The decrease in net loss for 2003 was offset by the following:
o lower revenues of approximately $4.2 million;
o lease restructuring charges and related impairment of fixed assets
due to the abandonment renegotiation of leased real estate of
approximately $9.1 million; and
o the restructuring of the Promotions.com business resulting in a
larger impairment of goodwill, intangible assets and fixed assets of
approximately $3.0 million.
We recorded a net loss of approximately $48.5 million, or $1.13 per
share, for the year ended December 31, 2001. The decrease in net loss for the
year ended December 31, 2002 compared to the same period in 2001 was primarily
due to a decrease in operating expenses of approximately $27.3 million,
partially offset by the adoption of SFAS 142 which resulted in a change of
accounting principle charge of approximately $9.2 million in the first quarter
of 2002 in connection with the transitional impairment test and an approximately
$1.0 million goodwill impairment charge in the fourth quarter of 2002 associated
with the annual impairment test. Operating expenses decreased in 2002 from 2001
primarily from the benefit of cost reduction initiatives implemented beginning
in 2001 and into 2002 which resulted in lower advertising expenses, facility
cost and payroll and related expenses.
Recent Events
On January 14, 2004, Hearst exercised a warrant it received in
connection with a securities purchase agreement related to our acquisition of
Women.com and purchased 2,065,695 shares of common stock for $0.01 per share.
Pursuant to its terms, the warrant became exercisable when the average closing
price of our common stock had exceeded $3.75 for 15 consecutive trading days
prior to January 14, 2004, entitling Hearst to purchase each share for $0.01.
(See Note 6 -- Related Party Transactions -- Hearst.)
During February 2004, an aggregate of 29,449 shares of common stock
were issued to certain of our existing security holders in exchange for warrants
they had acquired in connection with our acquisition of Women.com. The remaining
4,856 warrants issued in connection with a securities purchase agreement related
to our acquisition of Women.com went unexercised and expired on February 18,
2004.
33
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. Other than agreements that contingently require us to indemnify
counter parties against third party claims, we currently do not maintain any
off-balance sheet arrangements.
As of December 31, 2003, we had approximately $15.8 million in cash and
cash equivalents. Cash equivalents include money market accounts. We maintain
our cash and cash equivalents in highly rated financial institutions and at
times these balances exceed insurable amounts.
Net cash used in operating activities decreased to approximately $5.5
million for the year ended December 31, 2003, from approximately $8.7 million
for the year ended 2002. The overall decrease in net cash used in operating
activities for the year ended December 31, 2003 compared to the comparable
period in 2002 was primarily from:
o a larger utilization of restricted cash and other assets in 2003 of
approximately $4.9 million, primarily due to the surrender of
restricted cash to the landlord in consideration of our lease
renegotiation; and
o a decrease in accounts payable and accrued expenses in 2002 of
approximately $9.4 million compared to an increase of $0.1 million
in 2003, primarily from liabilities paid in 2002 resulting from the
Women.com and Promotions.com, Inc. acquisitions;
offset by:
o an increase in net loss, less adjustments, of approximately $2.2
million;
o an increase in prepaid rent of approximately $3.7 million, which is
associated with the restricted cash surrendered to the landlord; and
o a lower inflow of cash from accounts receivable of approximately
$4.5 million primarily from receivables collected in 2002 acquired
with the Women.com acquisition and timing of receipt of payments in
2003.
Net cash used in investing activities decreased to approximately $0.9
million for the year ended December 31, 2003, from approximately $1.8 million
for the year ended 2002. The overall decrease in net cash used in investing
activities for the year ended December 31, 2003 compared to the comparable
period in 2002 was primarily from cash received in connection with the revised
license agreement with Tesco of approximately $0.7 million in 2003 coupled with
net cash paid for the acquisition of Promotions.com in 2002 of $0.9 million,
offset by an increase of approximately $0.5 million in fixed asset purchases and
an increase of approximately $0.2 million in intangible asset purchases in 2003,
as well as the acquisition of the remaining 19.9% interest in CBV of
approximately $0.2 million in October 2003.
Net cash provided by financing activities amounted to approximately
$0.9 million for the year ended December 31, 2003, compared to approximately
$2.0 million for the year ended December 31, 2002. The overall decrease in cash
provided by financing activities for the year ended December 31, 2003 compared
to the comparable period in 2002 was primarily due to the following events that
occurred in 2003: a decrease in principal payments received for stockholders'
notes receivable of approximately $1.3 million offset by an increase in proceeds
from the exercise of stock options of approximately $0.1 million.
We have sustained net losses and negative cash flows from operations
since our inception. Our ability to meet our obligations in the ordinary
course of business is dependent upon our 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.
Due primarily to our lack of historical profitability, it is unlikely
that we would be able to obtain bank financing. Management believes that our
current funds will be sufficient to enable us to meet our 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, although
there can be no assurances in this regard. If we need to raise funds through a
public offering or private placement of our securities, funds may not be
available on acceptable terms, if at all.
34
Management believes that we will be able to achieve profitability on a
fiscal year basis in 2004 and achieve net income by growing revenues 20% in 2004
as compared to 2003, while holding expenses relatively unchanged year over year.
We may not achieve profitable operations. Factors that could affect our ability
to achieve profitable operations on a fiscal year basis include the loss of any
of our major customers, including Hearst, or a significant downturn in the
advertising market or economy, in general, as well as our ability to report
increased revenues on a year over year basis. We have recently commenced
discussions regarding the renewal of the amended and restated magazine content
license and hosting agreement with Hearst that expires in June 2004 but will
continue afterwards on a month-to-month basis unless terminated by either party
with 90 days prior notice. However, we cannot assure whether this contract will
be renewed and, if renewed, whether the renewal terms will be as favorable as
the current agreement with Hearst.
IVPN currently broadcasts the Channels to its hospitals via a 24-hour,
7 days a week satellite broadcast. This satellite is scheduled to go offline in
2005. Upon the expiration of the contract or in the event of an unforeseen
earlier interruption of service, we would need to either renegotiate a new
contract, find another satellite provider, and/or invest in alternative
technology to distribute the service. IVPN is in the process of converting many
of its hospitals from the satellite broadcast to a new system that eliminates
the need for a constant satellite feed. This new technology will only require a
limited amount of satellite time each month resulting in reduced operating costs
in 2005. In 2003, IVPN initiated the collection of an annual fee to receive the
Channels. These fees result from agreements between IVPN and the hospitals that,
on average, have a life between three to five years. As of February 29, 2004,
approximately 40% of participating hospitals have agreed to pay this fee,
however, we can make no assurance that all of the hospitals will agree to pay a
fee. IVPN estimates that it will cost approximately $3.0 million to $4.0 million
to convert to the new technology. We expect that the fees to be received from
the hospitals will cover the cost of the conversion to the new technology.
Our 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, we entered into a new agreement
with Unilever 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 of approximately $0.9 million. The new agreement expires in December
2004 and approximately $0.8 million remains to be earned.
Pursuant to the amended and restated magazine content license and
hosting agreement with Hearst, Hearst committed to purchase from us 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 us with respect to advertising
revenues obtained by us from the Hearst magazine Web sites and our other Web
sites containing substantial Hearst content. This revenue-sharing arrangement
requires that we 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.
In March 2003, we restructured the terms of our joint venture so that
Tesco purchased our entire ownership interest in iVillage UK. We also entered
into a twenty-year agreement with Tesco, subject to earlier termination upon the
occurrence of certain events, whereby we will license to iVillage UK certain of
our content and intellectual property, including trademarks and copyrights, for
use in the U.K. and Ireland in exchange for the greater of a minimum monthly
license fee or a percentage of iVillage UK's gross revenues. We 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 December 31, 2003, we have
received approximately $0.7 million.
In July 2003, we acquired the Web site, trademarks, key contracts and
other related assets of gURL.com for an immaterial amount of cash.
In October 2003, we exercised our call option and purchased Unilever's
remaining 19.9% ownership interest in CBV in exchange for approximately $0.2
million of cash and 200,000 shares of common stock in iVillage Inc.
In December 2003, we signed a Web site services agreement in which
Hearst will pay approximately $1.9 million for maintenance and hosting services
for three teen sites: Seventeen.com, CosmoGirl.com and Teen.com. The agreement
terminates in December 2005.
35
We lease office space and equipment under non-cancelable operating
leases expiring at various dates through April 2015. In addition, in the
ordinary course of business we enter into agreements with various service
providers for ad serving, satellite transmissions and license/content
arrangements. The following is a schedule of future minimum non-cancelable
contractual obligations and the affect such obligations are expected to have on
our liquidity and cash flows in future periods as of December 31, 2003 (in
thousands):
Total Less than 1 year 1-3 years 3-5 years Thereafter
--------- ---------------- ------------- ----------- --------------
Non-cancelable operating leases $ 16,129 $ 2,107 $ 3,727 $ 2,945 $ 7,350
Purchase obligations 4,133 1,450 459 471 1,753
Total contractual obligations $ 20,262 $ 3,557 $ 4,186 $ 3,416 $ 9,103
In July 2003, we entered into a lease amendment with the landlord of
our New York headquarters that became effective on August 15, 2003. The lease
amendment provides for a reduction in leased space, as well as a reduction in
rent per square foot, resulting in anticipated cash savings in excess of $17.0
million over the remaining term of the lease. In connection with the lease
amendment, we surrendered the approximately $8.5 million classified as
restricted cash to the landlord, and the landlord paid us $0.5 million for
certain other construction expenses that remained due from the landlord.
Our capital requirements depend on numerous factors, including:
o market acceptance of our services;
o the amount of resources we devote to investments in our business,
including entering into joint ventures with and/or the acquisition
of other entities;
o the resources we devote to marketing;
o the resources we devote to building the infrastructure necessary to
enable us to sell subscription-based products and services; and
o the resources we devote to selling our products and services.
Off-Balance Sheet Arrangements
In the ordinary course of business, we enter into agreements that
contingently require us to indemnify counterparties against third-party claims.
These may include: agreements with advertisers and sponsors, under which we may
indemnify them against claims arising from their use of our products or
services; agreements with customers, under which we may indemnify them against
claims arising from their use of our products or services; real estate and
equipment leases, under which we may indemnify lessors against third-party
claims relating to use of their property; agreements with licensees or
licensors, under which we may indemnify the licensee or licensor against claims
arising from their use of our intellectual property or our use of their
intellectual property; and agreements with initial purchasers and underwriters
of our securities, under which we indemnify them against claims relating to
their participation in the transactions.
The nature and terms of these indemnifications vary from contract to
contract, and generally a maximum obligation is not stated. Because we are
unable to estimate our potential obligation, and because management does not
expect these indemnifications to have a material adverse effect on our
consolidated financial position, results of operations or cash flows, no related
liabilities are recorded as of December 31, 2003. We hold insurance policies
that mitigate potential losses arising from certain indemnifications and,
historically, we have not incurred significant costs related to performance
under these obligations.
Recent Accounting Pronouncements
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities," or FIN 46, which 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
review of FIN 46, we do not believe we have any interests qualifying as variable
interest entities and do not anticipate that the provisions of FIN 46 will have
any near term impact on our financial position, cash flows or results of
operations.
36
In December 2003, the FASB issued Interpretation No. 46R,
"Consolidation of Variable Entities, or FIN 46R. FIN 46R replaces the same
titled FIN 46 that was issued in January 2003. FIN 46R requires the
consolidation of a variable interest entity by a company that bears the majority
of risk of loss from the variable entity's activities, is entitled to receive a
majority of the variable interest entity's residual returns or both. The
provisions of this interpretation are effective for us beginning in the first
quarter of fiscal 2004. The adoption of this interpretation is not expected to
have a material impact on our 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," or SFAS 149, 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 FIN 45, and amends
certain other existing pronouncements. SFAS 149 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. Our adoption of SFAS 149 did not have a
material impact on our financial position, cash flows or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity," or
SFAS 150, which requires that certain financial instruments, which under
previous guidance were accounted for as equity, must now be accounted for as
liabilities. The financial instruments affected include mandatory redeemable
stock, certain financial instruments that require or may require the issuer to
buy back some of its shares in exchange for cash or other assets and certain
obligations that can be settled with shares of stock. SFAS 150 is effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. Our adoption of SFAS 150 did not have a material impact on
our financial position, cash flows or results of operations.
In December 2003, the SEC issued Securities Accounting Bulletin, or
SAB, No. 104, "Revenue Recognition", or SAB 104, which supercedes SAB No. 101,
"Revenue Recognition in Financial Statements", or SAB 101. SAB 104's primary
purpose is to rescind accounting guidance contained in SAB 101 related to
multiple element revenue arrangements, superceded as a result of the issuance of
EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables", or
EITF 00-21. Additionally, SAB 104 rescinds the SEC's "Revenue Recognition in
Financial Statements Frequently Asked Questions and Answers", or FAQ, issues
with SAB 101 that had been codified in SEC Topic 13, "Revenue Recognition".
Selected portions of the FAQ have been incorporated into SAB 104. While the
wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the
revenue recognition principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. Adoption of SAB 104 was required immediately and did not
have a material impact on our financial position, cash flows or results of
operations.
Legal Proceedings
In January 2003 a Belgian court issued a judgment against Women.com in
the amount of approximately 850,000 Euros, or approximately $1.1 million based
on the Euro exchange rate as of December 31, 2003, relating to a claim by
Euregio.net of copyright infringement. We are appealing the judgment in the
Belgian court system, and we have been advised by outside counsel that
Euregio.net would have to commence legal proceedings in the United States in
order to enforce any judgment by a Belgian court. iVillage and Women.com are
also defendants in class action lawsuits in federal court relating to each
company's initial public offering. In June 2003, parties agreed in principle to
settle the matter, along with similar lawsuits against more than 300 other
issuers.
We believe, based upon the advice of outside legal counsel, that the
aforementioned lawsuits and claims asserted against us and our subsidiary
pursuant to these complaints are without merit and we intend to vigorously
defend against these claims. If we lose our appeal of the judgment in the
Belgian case or if the proposed settlement in the initial public offering
"laddering" cases is ultimately not approved by the courts, defending against
these claims could require the expenditure of significant financial and
managerial resources, which could harm our business.
We are not currently subject to any other material legal proceedings.
We may from time to time, however, become a party to various legal proceedings
arising in the ordinary course of business.
37
Risk Factors
We operate in an environment that involves a number of risks and
uncertainties. The risks and uncertainties described below are not the only ones
we face. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also impair our business. If any of the following
risks actually occur, our business, operating results and financial position
could be harmed. These risks should be read in conjunction with the other
information set forth in this report.
Risks Related to Our Business
We have an extremely limited history of net income on a quarterly basis and a
history of losses on an annual basis, and may have further continuing losses.
We have incurred significant operating losses on an annual basis in
each year of our operations and may continue to incur operating losses for the
foreseeable future. We incurred net losses of approximately $27.1 million in
2003, $33.9 million in 2002 and $48.5 million in 2001. As of December 31, 2003,
we had an accumulated deficit of approximately $493.8 million.
Although we achieved net income for the first time in the fourth
quarter of 2003, we cannot assure you that we will be able to sustain or
increase net income on a quarterly or annual basis. If our revenues grow slower
than we anticipate, or if our operating expenses exceed expectations or cannot
be adjusted accordingly, we will continue to suffer substantial losses.
Our quarterly and annual revenues and operating results are not indicative of
future performance, are difficult to forecast and have been and are likely to
continue to fluctuate.
We do not believe that period-to-period comparisons of our operating
results are necessarily meaningful nor should they be relied upon as reliable
indicators of future performance. This makes it difficult to forecast with
certainty quarterly and annual revenues and results of operations. In addition,
our 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 our control, and any of which could materially harm our business. Some
of these factors include:
o fluctuations in the demand o fluctuations in marketing
for advertising or electronic expenses and technology
commerce infrastructure costs
o the unpredictability of our o changes in the level of
success in new revenue traffic on our network of
and cost reduction initiatives Web sites
o bankruptcies or other payment o volatility in the media
defaults of companies that are market
a source of revenues
Our revenues for the foreseeable future will remain primarily dependent
on user traffic levels and advertising activity on our Web sites and, as a
result, are difficult to forecast. In addition, 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 may be lengthy, especially for larger,
higher rate contracts, and is subject to delays over which we have little or no
control, including:
o advertisers' and sponsors' o advertisers' and sponsors'
budgetary constraints internal reviews
o the possibility of cancellation o the success and continued
or delay of projects by advertisers internal support of
or sponsors advertisers' and sponsors'
own development efforts
We 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 our results of operations.
38
We have a small number of major customers and the loss of any number of these
customers could adversely affect our business, financial condition and results
of operations.
We anticipate that our results of operations in any given period will
continue to depend to a significant extent on revenues from a small number of
customers. As a result, the loss of even a small number of our largest customers
at any one time would significantly reduce our revenue, which would adversely
affect our business, financial condition and results of operations.
Our five largest customers accounted for approximately 27% of total
revenues in 2003, 38% of total revenues in 2002 and 37% of total revenues in
2001, and:
o in 2003, Hearst, a related party, accounted for approximately 11% of
total revenues;
o in 2002, Procter and Gamble accounted for approximately 11%, of
total revenues, Hearst for approximately 11% and Unilever for
approximately 10%; and
o in 2001, Unilever accounted for approximately 12% of total revenues.
At December 31, 2003, Hearst accounted for approximately 20% of the net
accounts receivable, and at December 31, 2002, Procter and Gamble accounted for
approximately 26% of the net accounts receivable.
Our contract with Procter & Gamble expired in June 2003, our contract
with Hearst expires in June 2004, and our contract with Unilever, signed in
October 2003, expires in December 2004. Although Procter & Gamble continues to
advertise with us and we have recently commenced discussions with Hearst, we
cannot, however, assure whether our contracts with our major customers will be
renewed upon terms at least as favorable as existing agreements, or at all.
Because our largest customers have varied over time in the past, we anticipate
that they will continue to do so in the future.
Our business is highly dependent upon user traffic.
Our business is inherently dependent upon high user traffic levels. The
rates we charge to advertisers and sponsors and the number of products and
services we sell are directly related to the number of users 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 our network of Web
sites. These properties include the Hearst magazine Web sites and other parties
who have agreed by contract to have traffic from their Web sites incorporated
within our network. The number of users to our Web sites may decline. In
addition, Hearst or other third parties may discontinue allowing us to include
their Web sites as part of our network for traffic reporting purposes. Any
decline in user traffic levels may cause our revenues to decrease and could have
a material adverse affect on our business, financial condition and results of
operations.
If we cannot maintain the popularity of our Web site offerings among Internet
users, our business will fail.
We will be successful only if a critical mass of Internet users,
especially among women, continue to view our Web sites as popular destinations
on the Internet. It is difficult to predict the rate at which users will sample
our offerings and the extent to which they will become members and/or return
users. Even in the case of repeat users, it is difficult to know whether they
return to our Web sites because they are satisfied with our offerings or because
they are dissatisfied with the alternatives. At any time, users of our services
might revert to other offerings. We cannot assure you that widespread use and
acceptance of our offerings will occur. If we cannot maintain the popularity of
our offerings among Internet users, our current business plan will fail.
We rely on third parties to provide reliable software, systems and related
services.
We depend on various third parties for software, systems and related
services, including SAAVIS, Verio, Google, DoubleClick, Tacoda and Prospero. If
for any reason one or more of these service providers becomes unable or
unwilling to continue to provide services of acceptable quality, at acceptable
costs and in a timely manner, our ability to deliver our product and service
offerings to our advertisers, sponsors and users could be severely impaired. We
would have to identify and qualify substitute service providers, which could be
time consuming and difficult and could result in unforeseen operational
difficulties. Although we are confident that alternative service providers are
available we cannot assure that we will be able to obtain such services on as
favorable terms or in a timely manner.
39
We rely on third parties to adequately measure the demographics of our user
base.
It is important to our advertisers that we accurately measure the
demographics of our user base and the delivery of advertisements on our Web
sites. We depend on third parties to provide many of these measurement services,
and to do so accurately and reliably. If these third parties are unable or
unwilling to provide these services to us in the future, we would need to
perform them ourselves or obtain them from another provider. This could cause us
to incur additional costs or cause interruptions in our business until these
services are replaced. Companies may choose not to advertise on our Web sites or
may pay us less for our sponsorship or advertising if they perceive our
demographic measurements as not reliable.
Our operation of IVPN poses a number of risks that could materially adversely
affect our 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 o our ability to continue to
media, television and commercialize and protect the
publishing industries Lamaze mark
o our ability to maintain and o our ability to sell advertising
market the LAMAZE.COM Web and sponsorships on our
site Web sites
o our ability to sell advertising o our ability to identify and
and sponsorships on IVPN's predict trends in a timely
magazines, videos and the manner that may impact consumer
Channels tastes in baby-related
information IVPN's and
parenting-related Channels, and
health-related information on
The Wellness Channel
Our failure to perform the functions required for the operation of IVPN in an
efficient and timely manner could result in a disruption of IVPN's operations
that could result is a loss of revenues and have a material adverse effect on
our business strategy.
Our business would be harmed if transmission of the Channels were interrupted.
There is a risk that the satellite or the in-hospital delivery system
which transmit the Channels may malfunction, which would result in an
interruption of broadcasts. Extreme adverse weather conditions or third parties
could damage or disable receivers and transmitters on the ground hindering
transmission of the Channels' signal. In either of these events occur, there may
be a period of time before transmission of all or some of the Channels could
resume. Any interruption in our ability to transmit the Channels could
jeopardize our viewer base which could negatively impact our revenues related to
the Channels.
Our principal investors' investments in our competitors may result in conflicts
of interest that could harm our business.
Our principal investors, such as Hearst, Rho Capital Partners, Inc. and
AOL Time Warner Inc., may have conflicts of interests by virtue of their own
businesses, as in the case of AOL and Hearst, or investments in other companies
that may compete with us. These investments may result in a conflict of interest
for our principal investors or result in the diversion of attractive business
opportunities from our principal investors to other companies. We are unable to
determine all of the competing investments held by these principal investors. In
addition, we do not have the ability to constrain the investment activity of any
of our principal investors and therefore cannot predict the extent of any future
investments in businesses that are competitive with us.
Restrictions on our ability to enter into sponsorship, advertising or other
business relationships with Hearst's competitors may adversely affect our
business.
Our amended and restated magazine content license and hosting agreement
with Hearst restricts our ability to enter into relationships with competitors
of Hearst and those restrictions may prevent us from expanding our network and
enhancing our content and the visibility of our brand, and may cause us to
forego potential advertising revenues from competitors of Hearst. Specifically,
the agreement provides that we may not, without Hearst's consent:
o enter into any agreement to o display on an our Web page the
include in our network any Web brands, logos, trademarks or
sites for magazines that proprietary content of both
compete with Hearst magazines Hearst and a Hearst competitor
40
o display on the Hearst magazine
Web sites any advertising or other
promotional materials from
magazines that compete with Hearst
magazines
We may not be able to expand our business through acquisitions and joint
ventures and, even if we are successful, our operations may be adversely
affected as a result of an acquisition or joint venture.
Our business strategy includes growth through business combinations,
acquisitions and joint ventures. Our business could be harmed if we are unable
to implement this business strategy. Our ability to implement this business
strategy depends in large part on our ability to compete successfully with other
entities for acquisition candidates and joint venture partners. Factors
affecting our ability to compete successfully in this regard include:
o our financial condition o our ability to obtain additional
relative to the financial financing from investors
condition of our competitors
o the attractiveness of our 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 we compete for acquisition candidates
and joint venture partners have greater financial resources than we do. In
addition, our ability to fund acquisitions has been materially adversely
affected by the overall decline in the market price of our common stock over the
last several years.
If, despite these factors, we are successful in entering into
additional business combinations, acquisitions and joint ventures, our business,
financial condition and results of operations could be materially and adversely
affected if we are unable to integrate the operations of the acquired companies
or joint ventures. Our ability to integrate the operations of the acquired
companies or joint ventures will depend, in part, on our ability to overcome or
address:
o the difficulties of o the need to incorporate
assimilating the operations successfully the acquired or
and personnel of the shared technology or content
acquired companies and the and rights into our
potential disruption of our products, services and media
ongoing business properties
o the difficulties of o the potential impairment of
establishing a new joint relationships with employees
venture, including the need and customers as a result of
to attract and retain any integration of new
qualified personnel and the management personnel or
need to attract customers reduction of personnel
and advertisers
o the difficulties of
maintaining uniform
standards, controls,
procedures and policies
In addition, completing acquisitions could require use of a significant
amount of our available cash. Furthermore, we 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 our 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 our business, financial condition and results of
operations.
If we fail to maintain effective internal financial and managerial systems,
controls and procedures, our results of operations may be harmed.
In the past, we have sought cost reductions through increased
managerial efficiencies and expense reduction initiatives, including targeted
staff reductions. These reductions in workforce placed a significant strain on
our managerial staff, financial controls and operational resources as our
employees have assumed greater responsibilities and learned to manage their
increased workload with reduced resources. We continue to evaluate our
operational and financial systems and our managerial controls and procedures to
determine what additional changes, if any, might help us to manage our current
operations better. We face the risk that our systems, procedures and controls
might not be adequate to support our operations or to maintain accountability
for our assets. Any such failure could harm our business, financial condition
and results of operations.
41
Risks Related to Our Industry
The operating performance of computer systems and Web servers is critical to our
business and reputation.
Any system failure, including network, software or hardware failure,
due to a computer virus or otherwise, that causes an interruption in our
Internet offerings could result in reduced traffic on our Web sites and reduced
revenues for our business. Substantially all of our communications hardware and
some of our other computer hardware operations are located at SAAVIS' facilities
in New Jersey and Verio's facilities in California. Fire, floods, earthquakes,
power loss, telecommunications failures, break-ins and similar events could
damage these systems. We do not presently have any secondary "off-site" systems
or a formal disaster recovery plan.
In addition, our Web sites could also be affected by computer viruses,
electronic break-ins or other similar disruptive problems, such as those
historically experienced by several leading Web sites. If we experience outages
or degraded service, user satisfaction would decrease, we would likely lose
advertising revenue and our reputation and brands could be permanently harmed.
Our insurance policies may not adequately compensate us for any losses
that may occur due to any failures or interruptions in our systems. In addition,
we cannot assure you that SAAVIS, which purchased the assets of Cable and
Wireless and Exodus Communications, both of which had filed for bankruptcy
protection, and Verio, will be able to provide sufficient services for us or
that we would be able to engage satisfactory alternative service providers.
In addition, our users depend on Internet service providers, online
service providers and other Web site operators for access to our 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 our
systems.
There is intense competition among media companies focused on women, and this
competition could result in price reductions, reduced margins or loss of market
share.
Increased competition could result in price reductions, reduced margins
or loss of market share, any of which could adversely affect our business,
financial condition and results of operations. There are a large number of Web
sites competing for the attention and spending of members, users and
advertisers. Our Web sites compete for members, users and advertisers with the
following types of companies:
o online services or Web sites o publishers and distributors
targeted at women, such as of traditional media, such
oxygen.com and lifetime.com as television, radio and
print
o cable networks targeting
women, such as Oxygen Media, o e-commerce and companies
Inc., Women's Entertainment such as Amazon.com, Inc.
Network and Lifetime
Television
o Web search and retrieval and
other online service
companies, commonly referred
to as portals, such as AOL,
Microsoft Corporation's MSN
service and Yahoo! Inc.
Lamaze Publishing'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 Lamaze Publishing. Increased competition may result in less
advertising in Lamaze Publishing's magazines and a decline in Lamaze
Publishing's advertising rates, which could adversely affect our business,
financial condition and results of operations.
If the Internet fails to gain further acceptance as a medium for advertising, we
would have slower revenue growth than expected and would incur greater than
expected losses.
42
We compete with traditional advertising media, including television,
radio and print, along with other high-traffic Web sites, for sponsorships and
advertising expenditures. 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. 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. If the
markets for online advertising fails to develop or develop more slowly than we
expects, or if we are unable to adapt to new forms of Internet advertising, we
would have slower than expected revenue growth and would incur greater than
expected losses, and our business and financial condition would be harmed.
Web-based business models are still evolving.
A decrease in revenues relating to changes in Internet advertising
pricing models or inability to convert users to purchasers of our products and
services, could materially and adversely affect our business, results of
operations and financial condition. Different pricing models are used to sell
advertising on the Internet, including models based on the number of impressions
delivered, numbers of click-throughs by users or number of key words to which an
advertisement is linked. It is difficult to predict which, if any, of the models
will emerge as the industry standard. This uncertainty makes it difficult to
project our long-term advertising rates and revenues.
Furthermore, consumer reluctance to subscribe to or pay for Internet
content may limit our ability to supplement Internet advertising as our most
significant source of revenue in the foreseeable future. Inability to supplement
our advertising revenues could limit our growth and harm our business.
We may be unable to respond to the rapid technological change in our industry.
Our product and service offerings compete in a market characterized by
rapidly changing technologies, frequent innovations and evolving industry
standards. For example:
o Due to the increased speeds of alternative Internet services
connections, such as broadband services like DSL and cable
technologies, the demand for such alternatives and the associated
streaming and rich-media content has rapidly increased. As a
result, the demand for dial-up Internet connections, like those
offered by iVillageAccess, has decreased; and
o A growing number of individuals access the Internet through
devices other than personal computers, such as cell phones,
personal digital assistants, or television set-top devices. The
low resolution, functionality and memory currently associated
with some of these alternative devices might prevent or impede
users from accessing our graphics-rich Web sites.
Our future success will depend on our ability to adapt to rapidly changing
technologies by continually improving the performance features and reliability
of our offerings. We could incur substantial costs to modify our services or
infrastructure to adapt to the changing technology environment. Notably, we
continue to offer iVillage Access as a dial-up internet service offering, while
the current industry and consumer trend is to migrate to a broadband service.
Our failure to react to such technological change could contribute to a failure
to obtain market share or the migration of current users to alternate service
providers.
If we fail to attract and retain key personnel, our business would be materially
adversely affected.
Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly Douglas
W. McCormick, our Chairman of the Board and Chief Executive Officer. Mr.
McCormick's current employment agreement expires in May 2005. The loss of the
services of Mr. McCormick would likely harm our business. We currently do not
maintain "key person" life insurance for any of our senior management.
43
We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future. We have from time to time
experienced, and expect to continue to experience, difficulty in hiring and
retaining highly skilled employees with appropriate qualifications as a result
of our financial condition and relatively low common stock price. As a result,
we have in the past and may in the future incur increased salary and benefit
costs. If we do not succeed in attracting new personnel or retaining and
motivating our current personnel, our business, and our ability to develop and
execute on our business strategies, will be materially harmed.
We are subject to legal proceedings that could result in liability and damage to
our business.
From time to time, we have been, and expect to continue to be, subject
to legal proceedings that individually, or in the aggregate, could harm our
business.
o A Belgian court issued a judgment against Women.com, relating to
alleged copyright infringements, in the amount of approximately
850,000 Euros (approximately $1.1 million based on the Euro
exchange rate as of December 31, 2003) in January 2003. The
continuing defense of this action could involve significant legal
expense, diversion of management attention and, ultimately, we
may be required to pay the judgment awarded by the Belgian court.
o Several plaintiffs have filed class action lawsuits in federal
court against us, several of our former executives, and our
underwriters in connection with our March 1999 initial public
offering. A similar class action lawsuit was filed against
Women.com, several of our former executives and Women.com's
underwriters in connection with Women.com's October 1999 initial
public offering. In June 2003, the parties agreed in principle to
settle the matter, along with similar lawsuits against more than
300 other issuers. If the proposed settlement is ultimately not
approved by the courts, even if these claims are not meritorious,
defending against them could require the expenditure of
significant financial and managerial resources, which could harm
our business.
Possible infringement by third parties of our intellectual property rights,
could harm our business.
We cannot be certain that the steps we have taken to protect our
intellectual property rights will be adequate or that third parties will not
infringe or misappropriate our proprietary rights. Enforcing our 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 our future financial results. Furthermore, we has
invested resources in acquiring domain names for existing and potential future
use. We cannot guarantee that we will be entitled to use these domain names
under applicable trademark and similar laws or that other desired domain names
will be available.
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. We cannot:
o assure that existing laws and regulations have been properly
interpreted and applied to the iVillageSolutions products;
o predict the nature of any future laws, regulations,
interpretations or applications; or
o determine what effect additional governmental regulations or
administrative orders, when and if promulgated, would have on the
manufacture, sale and distribution of iVillageSolutions products.
Changes in current laws or regulations 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. Regulatory compliance could
limit the market for iVillageSolutions products, resulting in potential
reductions in revenues or, if we fail to properly comply, potential legal
liability.
44
We may face potential products liability based upon our iVillageSolutions
products.
As with other retailers, distributors and manufacturers of products
that are ingested, we face an inherent risk of exposure to product liability
claims in the event that the use of our products results in injury or death. We
may be subjected to various product liability claims, including, among others,
that our products contain contaminants or include inadequate instructions as to
use or inadequate warnings concerning side effects and interactions with other
substances. Insurance may not be adequate to cover any liabilities and may not
continue to be available at a reasonable cost or, if available, will be adequate
to cover liabilities.
New privacy and data security laws may require changes in our practices, and
there is a potential for enforcement actions due to noncompliance.
Any new law or regulation pertaining to the Internet, or the
application or interpretation of existing laws, could decrease the demand for
our services, increase our cost of doing business or otherwise seriously harm
our business. There is, and will likely continue to be, an increasing number of
laws and regulations pertaining to the Internet. These laws or regulations may
relate to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and the quality of
products and services. There is a trend toward more burdensome regulations and
stiffer penalties, all of which could negatively impact our 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.
In particular, several jurisdictions, including foreign countries, have
recently proposed and/or adopted privacy-related laws that restrict or prohibit
unsolicited e-mail solicitations, commonly known as "spamming," and that impose
significant monetary and other penalties for violations. These laws may increase
concern on the part of advertisers regarding advertising in our email
newsletters, and advertisers may seek to impose indemnity obligations on us in
an attempt to mitigate any liability under these laws. Moreover, Internet
service providers may increasingly block legitimate marketing emails in an
effort to comply with these laws.
One such law, the CAN-SPAM Act of 2003, or CAN-SPAM, became effective
in the United States on January 1, 2004. CAN-SPAM imposes complex and often
burdensome requirements in connection with the sending of commercial email. The
language of CAN-SPAM contains ambiguities, and Can-SPAM has yet to be
interpreted by the courts. Depending on how it is interpreted, CAN-SPAM may
impose burdens on our email marketing practices, on joint marketing initiatives
that we undertake with our business partners, and on features of our services.
CAN-SPAM also requires the Federal Trade Commission to report to Congress
regarding the advisability of a federal "Do-Not-E-Mail Registry." If the
registry is created, it could have a detrimental affect our ability to continue
our email marketing practices as well as advertisers' willingness to
participate in email marketing.
In addition to impacting our business through decreased collection and
use of user data, the enactment of privacy and data security laws may increase
our legal compliance costs. While we believe that we comply 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 against us does not ultimately
result in liability, investigating a claim may present a significant cost.
Future legislation may also require changes in our data collection practices,
which may be expensive to implement, and may further increase the risk of
noncompliance.
Data security laws are becoming more stringent in the United States and
abroad. Third parties are engaging in increased cyber-attacks against companies
doing business on the Internet, and individuals are increasingly subjected to
identity and credit card theft on the Internet. Although we use what we
consider to be industry standard security measures, there is a risk that we may
fail to prevent such activities and that users or others may assert claims
against us. 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. Enforcement actions, which may or
may not be based upon actual cyber attacks or other breaches in such companies'
data security, present an ongoing risk of liability to us, could result in a
loss of users and could damage our reputation.
We may face potential liability, loss of users and damage to our reputation for
violation of privacy practices.
Our privacy policy prohibits the sale or disclosure to any third party
of any member's personal identifying information. Growing public concern about
privacy and the collection, distribution and use of information about
individuals may subject us to increased regulatory scrutiny and/or litigation.
In the past, the Federal Trade Commission has investigated companies that have
used personally identifiable information without permission or in violation of a
stated privacy policy. If we are accused of violating the stated terms of our
privacy policy, we may be forced to expend significant amounts financial and
managerial resources to defend against these accusations and we may face
potential liability.
45
We may be liable if third parties misappropriate our users' personal
information.
Third parties may be able to hack into or otherwise compromise our
network security or otherwise misappropriate our users' personal information or
credit card information. If our network security is compromised, we could be
subject to liability arising from claims related to, among other things,
unauthorized purchases with credit card information, impersonation or other
similar fraud claims or other misuse of personal information, such as for
unauthorized marketing purposes.
Consumer protection privacy regulations could impair our ability to obtain
information about our users, which could result in decreased advertising
revenues.
We generally ask our members and users to "opt-in" to receive special
offers and other direct marketing opportunities from us, our advertisers and
partners. Our 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 our network.
Personal data gathered from members is used to personalize or 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. Current
or prospective advertisers evaluate our ability to provide user data to support
targeted advertising. Privacy concerns may cause users to resist providing
personal data, however. If we become unable to collect personal data from a
sufficient number of our users, we may lose significant advertising revenues.
Changes in public acceptance of email marketing, and the perception of
security and privacy concerns, may indirectly inhibit market acceptance of our
use of personal data. Our failure to implement industry-standard Platform for
Privacy Preferences, or P3P, protocols could discourage users from using our Web
sites, products and services and from providing their personal data to us. 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.
Our 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 us to tailor content to users of our 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 us to
tailor content to our users, making our network less attractive to users.
Similarly, the unavailability of cookies may restrict the use of targeted
advertising, making our network less attractive to advertisers and causing us to
lose significant advertising revenues.
Our business could be affected by future terrorist attacks or acts of war.
The terrorist attacks in the United States in recent years disrupted
global commerce. The continued threat of future terrorist attacks in the United
States, and particularly in New York City where our 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, may cause future
significant disruptions in commerce throughout the world. The proximity of our
headquarters to certain possible targets in New York City could, in the event of
war or future terrorist attacks, result in damage to or destruction of our
headquarters as well as the permanent or temporary loss of key personnel. We
have not yet fully developed a disaster recovery plan and we cannot assure that
our insurance coverage would adequately reimburse us for any damages suffered as
a result of a terrorist attack or act of war.
Risks Related to Our Common Stock
As of March 25, 2004, Hearst owned approximately 31% of our outstanding common
stock and had three representatives on our board of directors. Hearst is able to
significantly influence our corporate direction and policies.
46
Hearst's board representation and stock ownership allows Hearst to
significantly influence our corporate direction and policies, including any
mergers, acquisitions, consolidations, strategic relationships or sales of
assets. Hearst's board representation and stock ownership may also discourage or
prevent transactions involving an actual or potential change of control,
including transactions in which our stockholders would otherwise receive a
premium for their shares.
As of March 25, 2004, Hearst owned approximately 31% of our outstanding
common stock. Pursuant to an amended and restated stockholder agreement we
entered into with Hearst on June 20, 2001, we appointed three Hearst
representatives to our 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 our common stock falls below certain threshold levels. There is
also a Hearst representative on our nominating and compensation committees.
Although Hearst is required to vote all shares that it holds in excess
of 25% (subject to adjustment) of our outstanding voting securities in
accordance with the recommendation of our board of directors, Hearst may
effectively control certain stockholder actions, including approving changes to
our 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 our assets or other form of change of control that we might consider. 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 compete with, or otherwise diverge from,
our interests, particularly with respect to new business opportunities and
future acquisitions.
Market fluctuations or volatility could cause the market price of our common
stock to decline and limit our ability to raise capital.
The stock market in general and the market for Internet-based companies
in particular have experienced extreme price and volume fluctuations, often
unrelated to the operating performance of the affected companies. The market
price of the securities of Internet companies has been highly volatile and is
likely to remain so in the future. We believe that in the past, similar levels
of volatility have contributed to the decline in the market price of our common
stock, and may do so again in the future. Trading volumes of our common stock
can increase dramatically, resulting in a volatile market price for our common
stock. In addition, the trading price of our common stock could decline
significantly as a result of sales of a substantial number of shares of our
common stock, or the perception that significant sales could occur. In the past,
securities class action litigation has been brought against companies that
experience volatility in the market price of their securities. Market
fluctuations in the price of our common stock could also adversely affect our
ability to sell equity securities at a price we deem appropriate.
If we fail to meet the expectations of public market analysts and investors, the
market price of our common stock may decrease significantly.
Public market analysts and investors have not been able to develop
consistent financial models for the Internet market because of the unpredictable
rate of growth of Internet use, the rapidly changing models of doing business on
the Internet and the Internet's relatively low barriers to entry. Our sales
cycle is also unpredictable and sales to advertisers or sponsors forecast in a
particular period may be delayed or may not otherwise occur. As a result, and
because of the other risks noted in this discussion, our actual results might
not meet the expectations of public market analysts and investors in future
periods. If this occurs, the price of our common stock will likely decrease.
Our future capital-raising activities could involve the issuance of equity
securities, which would dilute your investment and could result in a decline in
the trading price of our common stock.
We may sell securities in the public or private equity markets if and
when conditions are favorable, even if we do not have an immediate need for
additional capital at that time. Raising funds through the issuance of equity
securities will dilute the ownership of our existing stockholders. Furthermore,
we may enter into financing transactions at prices that represent a substantial
discount to the market price of our common stock. A negative reaction by
investors and securities analysts to any discounted sale of our equity
securities could result in a decline in the trading price of our common stock.
47
Future sales of our stock could affect our stock's market price.
If our stockholders sell substantial amounts of our common stock,
including shares sold by directors or officers and shares issued upon the
exercise of outstanding options or in connection with acquisitions, the market
price of our common stock could fall. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate.
48
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
At December 31, 2003 and 2002, our financial instruments include cash
and cash equivalents. Cash equivalents include interest bearing accounts. We do
not use derivative financial instruments in our investment portfolio. Our
exposure to market risk for changes in interest rates relates primarily to our
interest bearing accounts. We do not expect interest rate fluctuations to
materially affect the aggregate value of our financial assets. While we maintain
our cash and cash equivalents in highly rated financial institutions, at times
these balances exceed insurable amounts.
Item 8. Financial Statements and Supplementary Data.
The financial statements required by Item 8 are included in this Form
10-K beginning on Page F-2.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our chief executive officer and our chief financial officer, after
evaluating the effectiveness of our "disclosure controls and procedures" (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end
of the period covered by this annual report, have concluded that, as of that
date, our disclosure controls and procedures were effective in ensuring that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms.
Changes in Internal Controls
There were no changes in our internal control over financial reporting
during the fourth quarter of 2003 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
49
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors and Executive Officers
The following table sets forth the our directors and executive
officers, their ages and the positions held by them with us as of March 19,
2004.
Name Age Position
- ---- --- --------
Douglas W. McCormick .................... 54 Chief Executive Officer and Chairman of the Board
Steven A. Elkes.......................... 42 Executive Vice President, Operations and Business Affairs
Jane Tollinger........................... 61 Executive Vice President, Operations and Strategy
Scott Levine............................. 39 Chief Financial Officer
Richard J. Kolberg....................... 32 Chief Accounting Officer
Richard Caccappolo....................... 38 Senior Vice President, iVillage Consulting
Kellie Gould ............................ 34 Senior Vice President and Editor-in-Chief
Peter R. Naylor.......................... 38 Senior Vice President, Sales
Barry S. Kresch.......................... 51 Senior Vice President, Research
Cathleen P. Black ....................... 59 Director
Kenneth A. Bronfin ...................... 44 Director
John T. (Jack) Healy .................... 64 Director
Edward D. Horowitz ...................... 56 Director
Habib Kairouz ........................... 37 Director
Lennert J. Leader ....................... 49 Director
Edward T. Reilly ........................ 57 Director
Alfred Sikes ............................ 64 Director
Douglas W. McCormick, age 54, has been a director of iVillage since
February 1999 and Chairman of the Board since April 2001. From April 2000
through July 2000, he served as our President and has been our Chief Executive
Officer since July 2000. From 1998 to April 2000, Mr. McCormick was President of
McCormick Media, a media consulting firm. From 1993 to 1998, Mr. McCormick was
President and Chief Executive Officer of Lifetime Television Network, a joint
venture of The Hearst Corporation and The Walt Disney Company. Mr. McCormick
held various other positions at Lifetime from 1984 to 1993 in the sales,
marketing and research areas. Mr. McCormick also serves on the boards of
directors of MarketWatch.com. Inc. and Waterfront Media Inc. (formerly known as
Agora Media Inc.) and the compensation committee of both companies. Mr.
McCormick received an M.B.A. from the Columbia University School of Business and
a B.A. from the University of Dayton.
Steven A. Elkes, age 42, has been our Executive Vice President,
Operations and Business Affairs since July 2000 and Secretary since October
1999. From April 1999 to July 2000, Mr. Elkes was our Senior Vice President,
Business Affairs. From August 1996 to April 1999, Mr. Elkes held various
management positions with us, including Vice President, Business Affairs. From
August 1993 to August 1996, Mr. Elkes was Vice President Credit/ Structured
Finance at CNA Insurance Company. From August 1991 to August 1993, Mr. Elkes
served as Assistant Vice President at CNA Insurance Company. Mr. Elkes received
an M.B.A. from Baruch College and a B.A. from Grinnell College.
Jane Tollinger, age 61, has been our Executive Vice President,
Operations and Strategy since August 2003. From September 2000 to August 2003,
Ms. Tollinger was our Senior Vice President, Operations & Business Affairs. From
June 2000 to September 2000, Ms. Tollinger served as our Vice President,
Business Affairs. From June 1999 to June 2000, Ms. Tollinger served on several
advisory boards. From September 1993 through June 1999, Ms. Tollinger served as
Executive Vice President of Lifetime Television Network. Prior to September
1993, Ms. Tollinger held various management positions at Lifetime Television
Network. Prior to joining Lifetime Television Network, Ms. Tollinger was an
attorney with Columbia Pictures and an associate with the Coudert Brothers law
firm. Ms. Tollinger received a J.D. from Columbia Law School, an M.A. from
Harvard University and a B.A. from Beloit College.
Scott Levine, age 39, has been our Chief Financial Officer since
January 2001. From September 2000 until January 2001, Mr. Levine was our Senior
Vice President, Finance and interim Chief Financial Officer. From February 1999
to September 2000, Mr. Levine was our Vice President, Controller and Chief
Accounting Officer. Mr. Levine was also the Chief Operating Officer of PAG from
March 2003 until January 2004. From July 1998 to February 1999, Mr. Levine was
Controller for FundTech Ltd., a financial software company. From April 1997 to
July 1998, Mr. Levine was the Controller of AmeriCash, Inc., an operator of a
network of automated teller and electronic commerce machines. From 1993 to 1997,
Mr. Levine was employed by Coopers & Lybrand L.L.P. Mr. Levine is a Certified
Public Accountant and received his M.B.A. from Baruch College and his B.A. from
State University of New York, Buffalo.
50
Richard J. Kolberg, age 32, has been our Vice President, Chief
Accounting Officer and Controller since September 2003. From September 2000
until September 2003, Mr. Kolberg was our Vice President and Controller. From
August 1999 to September 2000, Mr. Kolberg was our Director and Assistant
Controller. From October 1996 to August 1999 was employed by Goldstein Golub
Kessler LLP as an Audit Manager. Mr. Kolberg is a Certified Public Accountant
and received his B.S. from State University of New York, Albany.
Richard Caccappolo, age 38, has been our Senior Vice President,
iVillage Consulting since November 2001. From September 2000 until November
2001, Mr. Caccappolo was our Chief Technology Officer and Senior Vice President
of Product Development. From March 1999 to September 2000, Mr. Caccappolo served
as our Chief Technology Officer. From January 1998 to March 1999, Mr. Caccappolo
served as the Chief Information Officer of Kodak Polychrome Graphics, a supplier
of products and services to graphics arts industries. From October 1994 to
December 1997, Mr. Caccappolo served as Sun Chemicals' Director, Information
Systems - Europe. Mr. Caccappolo received his M.B.A. from New York University,
Leonard N. Stern School of Business and his B.S. from Cornell University.
Kellie Gould, age 34, has been our Senior Vice President and
Editor-in-Chief since July 2003. From October 2001 to July 2003, Ms. Gould was
our Senior Vice President, Programming. Ms. Gould has also held the following
positions with us: Senior Vice President, Programming from October 2001 to July
2003, Vice President, Programming from August 1999 to October 2001, Editorial
Director from October 1998 to August 1999, Managing Editor - Parent Soup from
December 1997 to October 1998, and Associate Producer - Parent Soup from
December 1996 to December 1997. Prior to joining us, Ms. Gould was a Features
Associate at Vogue Magazine and a reporter for AdWeek Magazines. Ms. Gould
received a B.A. from the University of Wisconsin-Madison.
Peter R. Naylor, age 38, has been our Senior Vice President, Sales
since January 2004. From January 2003 to December 2003, Mr. Naylor was the our
Vice President & General Manager, Sales. From April 2002 until December 2002,
Mr. Naylor was our Vice President, Sales. Prior to joining us in April 2002, he
served as Vice President of Sales, Eastern Region/National Agency Relations, for
Terra Lycos, an Internet portal. From 1996 to 1999, he served as Eastern Sales
Director for Wired Digital Interactive, an online commercial publisher. Mr.
Naylor has also held advertising sales positions with Vanity Fair and Spin
magazines. Mr. Naylor is a member of the Board of Directors of the Interactive
Advertising Bureau, an association dedicated to helping online, interactive
broadcasting, email, wireless and Interactive television media companies
increase their revenues, 212, Inc., a networking forum for ad agencies and
publishers located in the New York City area, and Goodwill of New York City. Mr.
Naylor received a B.A. from Denison University.
Barry S. Kresch, age 51, has been our Senior Vice President, Research
since June 2003. From August 2002 to June 2003, Mr. Kresch was our Vice
President, Research. Prior to August 2002, Mr. Kresch was a consultant to us, as
well to other media companies. From September 1993 to June 1999, Mr. Kresch was
the Senior Vice President of Research and Marketing Services for Lifetime
Television. From September 1984 to September 1993, Mr. Kresch held other
management positions at Lifetime. Prior to joining Lifetime Mr. Kresch was a
Research Manager for Nielsen Media Research. Mr. Kresch received an M.B.A. from
Fairleigh Dickinson University and a B.A. from Dickinson College.
Cathleen P. Black, age 59, has been a director of iVillage since June
2001. Since January 1996, Ms. Black has served as the President, Hearst
Magazines, a division of The Hearst Corporation, a diversified communications
company specializing in print media, television and internet businesses. Ms.
Black is also a Senior Vice President of The Hearst Corporation. From 1991 to
December 1995, Ms. Black served as the President and Chief Executive Officer of
the Newspaper Association of America. From 1983 to 1991, Ms. Black was the
President and Publisher of USA Today. Ms. Black also serves as a director of The
Coca-Cola Company, International Business Machines Corporation and The Hearst
Corporation. Ms. Black received a B.A. from Trinity College.
Kenneth A. Bronfin, age 44, has been a director of iVillage since May
2002. Mr. Bronfin is President of Hearst Interactive Media, a unit of The Hearst
Corporation, a diversified communications company specializing in print media,
television and internet businesses. Mr. Bronfin has been with The Hearst
Corporation since 1996. Prior to joining The Hearst Corporation, Mr. Bronfin was
with the National Broadcasting Company, Inc., or NBC, as a founder of the
Interactive Media Group as well as General Manager of NBC's digital television
group and Vice President of NBC Cable and Business Development. Mr. Bronfin was
also Director of Business Development for NBC Technology and was Director of
NBC's Broadcast Engineering Group. Mr. Bronfin serves as a director of Circle
Company Associates, E Ink Corporation and Scene7, Inc. Mr. Bronfin also serves
as a member of the audit committee of Circle Company Associates and the
compensation committee of E Ink Corporation. Mr. Bronfin received an M.B.A. from
the Wharton School of the University of Pennsylvania and a B.S. from the
University of Virginia.
51
John T. (Jack) Healy, age 64, has been a director of iVillage since
November 2000. Since January 1997, Mr. Healy has been a Principal of H.A.M.
Media Group, L.L.C., an international investment and advisory firm specializing
in the entertainment and communications industries. From July 1996 to July 1998,
Mr. Healy served as a consultant to The Walt Disney Company and ABC
International Television. From August 1970 to July 1996, Mr. Healy held various
positions, most recently as President, ABC International Operations and
Executive Vice President, ABC Cable & International, at Capital Cities/ABC Inc.
Mr. Healy also serves as a director of StoryFirst Communications, Inc. Mr. Healy
received a Masters of Economics and a B.A. from Brooklyn College.
Edward D. Horowitz, age 56, has been a director of iVillage since April
2003. Mr. Horowitz is Founder and Chairman of EdsLink LLC, a New York City based
venture capital firm providing financial, advisory and technology consulting
services. From January 1997 to July 2000, Mr. Horowitz was Executive Vice
President for Advanced Development of Citigroup Inc., a financial services
company ("Citigroup"), and Founder and Chairman of Citigroup's e-Citi division.
In addition, Mr. Horowitz served as senior advisor on the Internet to the Office
of the Chairman and as a member of the Management and Investment Committees of
Citigroup. From July 2000 to July 2002, Mr. Horowitz served as a consultant to
Citigroup. From April 1989 to January 1997, Mr. Horowitz held such positions as
Senior Vice President, Viacom Inc., Chairman and Chief Executive Officer of
Viacom Interactive Media and a member of the Viacom Executive Committee. Mr.
Horowitz also serves as a director of MusicNet, an online music delivery
company, and as a member of its strategy committee. Mr. Horowitz received an
M.B.A. from the Columbia University School of Business and a B.S. in Physics
from the City College of New York.
Habib Kairouz, age 37, has been a director of iVillage since March
1998. Since 1993, Mr. Kairouz has been a Managing Partner of Rho Capital
Partners, Inc., an investment and venture capital management company. Mr.
Kairouz also serves on a number of private companies. Mr. Kairouz received a
B.S. in Engineering and a B.A. in Economics from Cornell University and an
M.B.A. in Finance from Columbia University.
Lennert J. Leader, age 49, has been a director of iVillage since July
1998. Mr. Leader became President of the Venture Group of AOL Time Warner
Investments, the investment unit of an Internet-powered media and communications
company upon the merger of AOL and Time Warner Inc. in January 2001. Prior to
the merger, Mr. Leader served as President of AOL Investments, a division of
AOL, beginning in February 1998. Mr. Leader served as Senior Vice President,
Chief Financial Officer and Treasurer of AOL from September 1989 until July
1998. Prior to joining AOL, Mr. Leader was Vice President-Finance of LEGENT
Corporation, a computer software and services company, from March 1989 to
September 1989, and Chief Financial Officer of Morino, Inc., a computer software
and services company, from 1986 to March 1989 and Director of Finance from 1984
to 1986. Prior to joining Morino, Inc. in 1984, he was an audit manager at Price
Waterhouse. Mr. Leader received a B.S. in Accounting from the University of
Baltimore.
Edward T. Reilly, age 57, has been a director of iVillage since April
2001. Since June 2001, Mr. Reilly has been President and Chief Executive Officer
of the American Management Association, a not-for-profit membership-based
association providing management development and educational services. Mr.
Reilly is also a former Chairman of the Board of the Advertising Council, a
private nonprofit organization. From June 2000 to May 2001, Mr. Reilly focused
his activities on serving on several boards, including the Board for the
National Council of La Raza and as Trustee of Lynchburg College. From May 1997
to June 2000, Mr. Reilly was President and Chief Executive Officer of Big Flower
Holdings, Inc., an integrated marketing and advertising services company. From
April 1996 to May 1997, Mr. Reilly was President and Chief Operating Officer of
Big Flower Holdings, Inc. Prior to April 1996, Mr. Reilly held various
management positions at McGraw-Hill Companies and McGraw-Hill Broadcasting, most
recently as President of McGraw-Hill Broadcasting. Mr. Reilly received a B.B.A.
from St. Francis College.
Alfred Sikes, age 64, has been a director of iVillage since June 2001.
Mr. Sikes has been a consultant to The Hearst Corporation, a diversified
communications company. Specializing in print media, television and Internet
businesses, since January 2002. From March 1993 to December 2001, Mr. Sikes
served as both Vice President of The Hearst Corporation and President of Hearst
Interactive Media, a unit of The Hearst Corporation. From August 1989 to January
1993, Mr. Sikes served as Chairman of the Federal Communications Commission. Mr.
Sikes also serves as a director of Hughes Electronics Corporation, a satellite
television and communications provider, and Cymfony Inc., a research and
information service technology provider. Mr. Sikes also serves as a director of
the New York School Choice Scholarships Foundation and the American Refugee
Committee. Mr. Sikes received a B.A. from Westminster College and a J.D. from
the University of Missouri Law School.
52
Classified Board of Directors
Our board of directors is divided into three classes, designated Class
I, Class II and Class III, the terms of which expire successively over a
three-year period. Currently, the term of the Class III directors expires in
2004, the term of the Class I directors expires in 2005, and the term of the
Class II directors expires in 2006. One class of directors is elected to
three-year terms at each annual meeting of stockholders. The current director
designations are as follows:
Class I Class II Class III
------- -------- ---------
Kenneth A. Bronfin Douglas W. McCormick Habib Kairouz
John T. (Jack) Healy Cathleen P. Black Edward T. Reilly
Lennert J. Leader Edward D. Horowitz Alfred Sikes
Hearst Board Representation
We have entered into an amended and restated stockholder agreement with
Hearst, dated June 20, 2001. Pursuant to the amended and restated stockholder
agreement, we are required to appoint three representatives of Hearst to
separate classes of our board of directors. We must appoint one of these
representatives to our nominating committee and one to our compensation
committee. In addition, the amended and restated stockholder agreement requires
that we appoint five independent directors to our board of directors. An
independent director is defined as any person who is not and has not been for
the past three years affiliated with Hearst or its affiliates or an employee of
iVillage or any of its subsidiaries. Pursuant to the amended and restated
stockholder agreement, Messrs. Bronfin and Sikes and Ms. Black are members of
our board of directors as designees of Hearst. Mr. Sikes is a member of our
compensation committee and Ms. Black is a member of our nominating committee.
Under the amended and restated stockholder agreement, so long as Hearst
or its affiliates holds at least 10% of the our outstanding voting securities,
Hearst may recommend and our nominating committee must recommend to our board of
directors that number of nominees of Hearst or its affiliates as follows:
o so long as Hearst holds at least 14,547,723 shares of our common
stock, Hearst may designate three nominees;
o so long as Hearst holds at least 12,001,871 shares of our common
stock, but less than 14,547,723 shares of our common stock,
Hearst may designate two nominees; and
o so long as Hearst holds at least 1,818,466 shares of our common
stock, but less than 12,001,871 shares of our common stock,
Hearst may designate one nominee.
If, after the election of directors pursuant to the above requirements,
the number of voting securities held by Hearst decreases below the stated
thresholds, any Hearst designees serving on our board of directors must
immediately resign. If the number of voting securities held by Hearst falls
below 1,818,466 shares of our common stock, all Hearst designated directors must
immediately resign. However, if the number of voting securities held by Hearst
returns to 1,818,466 shares or more of our common stock, all rights and
obligations under the amended and restated stockholder agreement revive for the
duration of the term of the amended and restated stockholder agreement. The
amended and restated stockholder agreement terminates on June 20, 2006 unless
earlier terminated by either party. Upon any early termination, any Hearst
designees serving on our board of directors must immediately resign.
Section 16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act and related rules, our
executive officers and directors and persons who own more than 10% of a
registered class of our equity securities are required to file with the SEC and
Nasdaq reports of their ownership of, and transactions in, our common stock.
Based solely on a review of copies of such reports furnished to us, or written
representations that no reports were required to be filed, we believe that
during the fiscal year ended December 31, 2003, its executive officers and
directors complied with the Section 16(a) requirements except that:
o Ms. Black failed to timely file a Form 4, Statement of Changes in
Beneficial Ownership, upon purchasing 10,000 shares of our common
stock in July 2001, which omission was corrected by promptly
filing a Form 4 after the oversight was discovered in April 2003;
and
53
o A Form 3, Initial Statement of Beneficial Ownership, was not
timely filed by each of Mr. Naylor, Kolberg, and Kresch and Ms.
Gould. These reports did not involve a transaction in our common
stock, but were rather related to our review of our Section 16
reporting persons following changes in the hierarchy and
reporting structure of the company.
Code of Ethics and other Corporate Governance Disclosures
Our Code of Business Conduct and Ethics, or Code of Ethics, was
originally adopted by our board of directors on January 13, 2000, to apply to
all of our employees and directors, including specific provisions related to
senior officers and directors. On March 23, 2004, our board of directors revised
the Code of Ethics and supplemented it with our Code of Ethics for Senior
Executive Officers, or Senior Executive Code, which applies to our Chief
Executive Officer, Chief Financial Officer, Chief Accounting Officer and
Controller. The Code of Ethics and Senior Executive Code have been included as
exhibits to this report and are also available on the "investor info" and
"Corporate and Investor Information" sections of our Web site located at
www.ivillage.com.
Audit Committee and Audit Committee Financial Expert
We have an audit committee consisting of three independent directors,
Messrs. Healy, Leader and Reilly. The audit committee is governed by an audit
committee charter that may be amended by the board of directors at any time. The
most current version of the audit committee charter will be available on the
"investor info" and "Corporate and Investor Information" sections of our Web
site at www.ivillage.com.
The audit committee assists the board of directors in fulfilling its
oversight responsibilities relating to the integrity of our consolidated
financial statements, our compliance with legal and regulatory requirements, the
independent auditor's qualifications and independence, and the performance of
our independent auditors. Among the responsibilities outlined in its charter,
the audit committee appoints, compensates, retains and oversees the work of the
firm of independent auditors employed by us to conduct the annual audit
examination of our consolidated financial statements. The members of the audit
committee meet with the independent auditors and management to review: the scope
of proposed audits for the year; audit fees; and, at the conclusion of the
audits, the audit reports. In addition, the audit committee reviews the
financial statements, the related footnotes and the independent auditors' report
thereon and makes related recommendations to the board of directors as the audit
committee deems appropriate. The audit committee met 10 times during the year
ended December 31, 2003.
The board of directors has determined that Lennert J. Leader is an
"audit committee financial expert" as such term is defined in Item 401(h) of
Regulation S-K promulgated by the SEC. The determination of the board of
director's was premised, in part, upon Mr. Leader's employment as Senior Vice
President, Chief Financial Officer and Treasurer of AOL and his other relevant
experience described further in his biography included above under the heading
Item 10--Directors and Executive Officers of the Registrant. The board of
directors also has determined that Mr. Leader is an "independent director" as
such term is defined in SEC rules and Marketplace Rule 4200(a)(15) of the
National Association of Securities Dealers, or NASD, and under the independence
requirements applicable to the audit committee prescribed by the NASD and SEC.
54
Item 11. Executive Compensation.
Summary Compensation Table
The following table sets forth the compensation earned for services
rendered to us in all capacities for the fiscal years ended December 31, 2003,
2002, and 2001 by our Chief Executive Officer, and our four next most highly
compensated executive officers who earned more than $100,000 during the fiscal
year ended December 31, 2003, which we refer to as our Named Executive Officers.
Long-Term
Compensation
Awards
Annual Compensation Securities
-------------------------------------------------- Underlying All Other
Bonus Other Annual Options/SARs Compensation
Name and Principal Position Year Salary ($) ($) Compensation ($) (#) (1) ($) (2)
- --------------------------- ---- --------- --------- ---------------- ------- -------
Douglas W. McCormick ......... 2003 500,000 600,000 -- 500,000 96
Chairman and Chief 2002 499,993 -- -- 500,000 96
Executive Officer 2001 499,992 200,000 -- 1,500,000 96
Steven A. Elkes................. 2003 309,000 45,000 -- 40,000 96
Executive Vice President, 2002 309,000 -- -- -- 96
Operations and Business 2001 293,808 123,600 -- 226,250 96
Affairs
Peter Naylor (3)................ 2003 200,000 -- 83,391 90,000 96
Senior Vice President, Sales 2002 124,629 -- 63,496 30,000 45
2001 -- -- -- -- --
Scott Levine.................... 2003 262,000 45,000 40,000 96
Chief Financial Officer 2002 262,000 -- -- -- 96
2001 249,244 104,800 -- 150,000 96
Jane Tollinger ................. 2003 260,000 45,000 -- 40,000 96
Executive Vice President, 2002 260,000 -- -- -- --
Strategy and Business 2001 233,750 104,000 -- 175,000 --
Affairs
- ----------
(1) Options were granted under our 1995 Amended and Restated Employee Stock
Option Plan, Amended and Restated 1999 Employee Stock Option Plan, Amended
and Restated 1999 Non-Qualified Stock Option Plan or 2001 Non-Qualified
Stock Option Plan, as amended, and generally vest to the extent of 25%
after the first anniversary date of employment and the remainder in equal
quarterly installments over the next three years, unless the Named
Executive Officer has already been our employee for one year or more, in
which case stock option grants immediately begin to vest in equal quarterly
installments over a four year period, except for:
o 500,000 options granted in 2003 to Mr. McCormick which vest quarterly
over three years;
o 500,000 options granted in 2002 to Mr. McCormick which vest quarterly
over three years;
o 1,500,000 options granted in 2001 to Mr. McCormick which vest 1/3 on
the date of grant and thereafter in equal annual installments over two
years;
(2) Represents the value of premiums paid by us on behalf of the Named
Executive Officers for term life and accidental death and dismemberment
insurance policies.
55
(3) Mr. Naylor joined iVillage in April 2002 as Vice President, Sales, and his
2002 compensation reflects a partial year of service.
Employment Arrangements
We entered into a two-year employment agreement with Douglas W.
McCormick as of May 30, 2003 that provides for an annual base salary of $500,000
and eligibility to receive a bonus pursuant to our bonus plan of up to eighty
percent (80%) of his base salary in fiscal year 2003 and one hundred ten percent
(110%) of his base salary in fiscal year 2004, each bonus being payable upon
satisfaction of objectives determined by the board of directors or the
compensation committee. In August 2003, we paid Mr. McCormick a retention bonus
of $200,000 related to the execution of this employment agreement.
Pursuant to the employment agreement, we are required to pay Mr.
McCormick only his base compensation and benefits through the effective date of
his termination if any of the following events occur:
o Mr. McCormick voluntarily terminates his employment without "good
reason", as defined in the agreement, which includes voluntary
termination upon a "change in control", as defined in the
agreement, of iVillage;
o if we do not renew Mr. McCormick's employment agreement on
substantially the same or better terms (or offer to do so) prior
to November 30, 2004; or
o if Mr. McCormick is terminated "for cause", as defined in the
agreement, prior to the expiration of the employment agreement.
If Mr. McCormick is terminated without cause or resigns for good reason prior to
the expiration of the term of the employment agreement, then Mr. McCormick will
be entitled to severance, including:
o base compensation and benefits through the effective date of
termination;
o a cash payment equal to Mr. McCormick's base salary for the
remainder of the term of the employment agreement, to be paid
semi-monthly;
o a cash payment equal to any bonus Mr. McCormick would have earned
had he remained employed through the end of the term at his full
target bonus, paid at the time such bonuses are generally
distributed by us;
o continued insurance coverage for the remainder of the term of the
employment agreement;
o immediate acceleration and vesting of any unvested stock options
held by Mr. McCormick; and
o extension of the exercise period for Mr. McCormick's stock
options to three (3) years after his termination of employment.
The employment agreement also provides that in no event shall the amounts of
salary and bonus described above that are payable to Mr. McCormick as severance
be less than $700,000.
Separately, in July 2003, Mr. McCormick was granted options to purchase
500,000 shares of our common stock at an exercise price equal to $1.82 per
share, which was the fair market value of the common stock on the date of grant.
This grant of options vests in equal quarterly installments over three years.
We have also entered into agreements with Messrs. Elkes and Levine and
Ms. Tollinger as well as other non-senior executive level officers. These
agreements provide that if the such officer's employment is terminated "without
cause", as defined in the agreements, or the officer resigns for "good reason",
as defined in the agreements, we will pay that officer his or her base
compensation and benefits for up to twelve months plus the maximum bonus or
incentive the executive officer would have earned under any of our bonus or
incentive plans. Any unvested stock options held by those officers will continue
to vest for this twelve-month period and the period during which the officer
must exercise his or her options will extend for up to an additional two years
after termination. In addition, these agreements provide that any unvested stock
options under our stock option plans held by the officer will immediately vest
upon a "change of control", as defined in such agreements, of iVillage.
56
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to
stock options granted to each of the Named Executive Officers during the fiscal
year ended December 31, 2003. We have never granted any stock appreciation
rights. The exercise price per share of each option is generally equal to the
fair market value of the common stock on the date of grant as determined by the
board of directors. The potential realizable value is calculated based on the
term of the option at its time of grant. It is calculated assuming that the fair
market value of common stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the appreciated
stock price. These numbers are calculated based on the requirements of the SEC
and do not reflect our estimate of future stock price growth.
Percent of Potential Realizable
Number of Total Options Value at Assumed
Securities Granted to Exercise Annual Rates of Stock
Underlying Employees in Price Per Price Appreciation for
Option Grand Fiscal Year Share Expiration Option Term
Name (#) (%) ($/Share) Date 5% ($) 10% ($)
- ---- ---------- ------------ --------- ---------- ------------------------
Douglas W. McCormick (1)...... 500,000 24% 1.82 7/27/10 1,280,461 1,773,333
Steven A. Elkes (2)........... 40,000 2% 2.74 12/15/13 178,527 213,579
Scott Levine (2).............. 40,000 2% 2.74 12/15/13 178,527 213,579
Peter Naylor (3).............. 90,000 4% (3) (3) 186,159 244,762
Jane Tollinger (2)............ 40,000 2% 2.74 12/15/13 178,527 213,579
- -------------
(1) The 500,000 options granted in 2003 to Mr. McCormick vest quarterly over
three years.
(2) The options granted to Messrs. Elkes and Levine and Ms. Tollinger vest in
equal quarterly installments commencing three (3) months from the date of
grant and continue to vest quarterly over a remaining period of 45 months.
(3) Mr. Naylor was granted an option to purchase 50,000 shares of common stock
on April 29, 2003 at an exercise price of $0.65 and an expiration date of
April 28, 2010, and 40,000 shares of common stock on December 17, 2003 at an
exercise price of $2.74 and an expiration date of December 16, 2010. Mr.
Naylor's options vest in equal quarterly installments commencing three (3)
months from the date of grant and continue to vest quarterly over a
remaining period of 45 months.
Fiscal Year-End Option Values
The following table sets forth information with respect to the Named
Executive Officers concerning stock options held during the fiscal year ended
December 31, 2003 and exercisable and unexercisable options held as of December
31, 2003. No options were exercised during fiscal 2003 by any of the Named
Executive Officers. The value of unexercised in-the-money options at fiscal
year-end is based on $3.58 per share, the assumed fair market value of the
common stock at December 31, 2003, less the exercise price per share.
Number of Securities Underlying Value of Unexercised
Unexercised Options at Fiscal In-The-Money Options at Fiscal
Year-End (#) Year-End($)
----------------------------------- -------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
Douglas W. McCormick........................... 2,794,999 750,000 5,271,916 1,527,084
Steven A. Elkes................................ 298,766 147,475 312,616 255,472
Scott Levine................................... 175,938 129,062 318,392 242,208
Peter Naylor................................... 11,250 108,750 15,525 205,975
Jane Tollinger................................. 200,625 139,375 307,044 243,406
57
Director Compensation
Directors do not currently receive any cash compensation from us for
their service as a member of the board of directors, although they are
reimbursed for expenses in connection with attendance at board and committee
meetings. From time to time, some of our directors have received grants of
options to purchase shares of our common stock pursuant to the 1995 Amended and
Restated Employee Stock Option Plan, the 1999 Acquisition Stock Option Plan and
the Amended and Restated 1999 Employee Stock Option Plan. Under our 1999
Director Option Plan, non-employee directors are eligible to receive
non-discretionary, automatic stock option grants.
On December 17, 2003, Messrs. Healy, Horowitz, Kairouz, and Reilly were
each granted an option to purchase 37,500 shares of our common stock at an
exercise price of $2.74 per share.
On April 5, 2001, our board of directors adopted a policy regarding the
initial grant of stock options to purchase our common stock for our new
non-employee directors who do not beneficially own, and are not affiliated with
any entity that beneficially owns, greater than one percent (1%) of the then
outstanding shares of our common stock. Under this policy, upon initial election
or appointment to the board of directors, each non-employee director is granted
options to purchase 30,000 shares of our common stock on the following terms:
o an exercise price equal to the fair market value of our common
stock on the date of grant;
o an option term of seven years from the date of grant;
o vesting twenty-five percent (25%) per year over four years
commencing on the one-year anniversary of the date of grant; and
o such other terms as are provided in the applicable stock option
plan under which such options are granted, with the exception of
an acceleration of vesting upon a change in control of iVillage.
Members of our board of directors who are designees of Hearst have
waived participation in all of our Director Compensation Plans.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2003, John T. Healy, Alfred
Sikes, Daniel H. Schulman and Edward T. Reilly served on our compensation
committee. Mr. Schulman resigned from the compensation committee and the board
of directors effective March 31, 2003. Mr. Reilly was appointed to the
compensation committee in April 2003 to fill this vacancy. None of these
individuals either during or prior to their tenure on the compensation committee
was an officer or employee of iVillage or any of its subsidiaries and no
"compensation committee interlocks" existed during fiscal year 2003. Please see
"Item 13. Certain Relationships and Related Transactions" for a description of
our transactions with Hearst. Mr. Sikes is currently a consultant to, and was
formerly an officer of, The Hearst Corporation, an affiliate of Hearst.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 25, 2004 for:
o each person known by us to beneficially own more than 5% of the
common stock;
o each of our directors or director nominees;
o each Named Executive Officer; and
o all of our directors, director nominees, and executive officers
as a group.
58
Number of Shares
Name of Beneficial Owner Beneficially Held (1) Percent of Class(%) (1)
- ------------------------ --------------------- ------------------------
Hearst Communications, Inc. (2)................................. 18,184,653 30.9
959 Eighth Avenue
New York, NY 10019
Douglas W. McCormick (3)........................................ 3,254,668 5.3
Lennert J. Leader(4)............................................ 2,176,275 3.7
Habib Kairouz (5)............................................... 1,917,924 3.3
Steven A. Elkes (6)............................................. 347,457 *
Jane Tollinger (7).............................................. 325,000 *
Scott Levine (8)................................................ 207,167 *
Edward T. Reilly (9)............................................ 84,011 *
John T. Healy (10).............................................. 59,845 *
Peter Naylor (11)............................................... 30,000 *
Edward D. Horowitz(12).......................................... 12,500 *
Alfred Sikes (13)............................................... 11,161 *
Cathleen P. Black............................................... 11,160 *
Kenneth A. Bronfin.............................................. 161 *
All directors and executive officers as a group (13
persons) (14)................................................ 8,437,329 24.0
- ---------------
*Less than one percent of the outstanding common stock.
(1) Unless otherwise indicated, the address for each listed director or officer
is c/o iVillage Inc., 500 Seventh Avenue, New York, New York 10018. As used
in this table, "beneficial ownership" means the sole or shared power to
vote or direct the voting or to dispose or direct the disposition of any
security. For purposes of this table, a person is deemed to be the
beneficial owner of securities that can be acquired within 60 days from
March 25, 2004 through the exercise of any option or warrant. Shares of
common stock subject to options or warrants that are currently exercisable
or exercisable within 60 days are deemed outstanding for computing the
ownership percentage of the person holding such options or warrants, but
are not deemed outstanding for computing the ownership percentage of any
other person. The amounts and percentages are based upon 58,869,898
shares of common stock outstanding as of March 25, 2004. This number does
not include:
o 1,003,446 shares of stock classified as treasury stock;
o 60,514 shares of common stock reserved for issuance to former
stockholders of Women.com in exchange for cancellation of their
Women.com stock certificates; and
o 1,953 shares of common stock reserved for issuance to former
stockholders of Promotions.com in exchange for cancellation of their
Promotions.com stock certificates.
(2) According to an Amended Schedule 13D filed on January 16, 2004, each of
Hearst Communications, Inc., or Hearst Communications, Hearst Magazines
Property, Inc., or Hearst Magazines, Communications Data Services, Inc., or
CDS, Hearst Holdings, Inc., or Hearst Holdings, The Hearst Corporation and
The Hearst Family Trust, or the Trust, may be deemed to beneficially own
the 18,184,653 shares registered in the name of Hearst. Hearst Magazines
has the power to direct the voting and disposition of the 18,184, 653
shares as the controlling stockholder of Hearst. CDS has the power to
direct the voting and disposition of the 18,184,653 shares as the sole
stockholder of Hearst Magazines. Hearst Holdings has the power to direct
the voting and disposition of the 18,184,653 shares as the sole stockholder
of CDS. The Trust and The Hearst Corporation have the power to direct the
voting and disposition of the 18,184,653 shares as the direct or indirect
sole stockholders of The Hearst Corporation and Hearst Holdings.
Accordingly, Hearst shares the power to direct the voting and disposition
of the 18,184,653 shares beneficially owned by it, and Hearst Magazines,
CDS, Hearst Holdings, The Hearst Corporation and the Trust share the power
to direct the voting and disposition of the 18,184,653 shares beneficially
owned by Hearst. The 18,184,653 shares include the 2,065,695 shares of
common stock issued pursuant to the January 2004 exercise of a warrant by
Hearst Communications.
(3) Includes (a) options to purchase 2,961,668 shares of common stock
exercisable within 60 days from March 25, 2004 and (b) 3,000 shares of
common stock beneficially owned by Mr. McCormick's wife. Mr. McCormick
disclaims beneficial ownership of the shares of common stock held by his
wife.
(4) Consists of 2,161,075 shares of common stock beneficially owned by AOL Time
Warner Inc. Mr. Leader is the President of the Venture Group of AOL Time
Warner Investments. As such, Mr. Leader may be deemed to have voting power
or investment power over the securities beneficially owned by AOL Time
Warner Inc. Mr. Leader disclaims beneficial ownership of the shares of
common stock beneficially owned by AOL Time Warner Inc. Includes (a) 200
shares owned by a family trust of which Mr. Leader is the trustee, and (b)
options to purchase 15,000 shares of common stock exercisable within 60
days from March 25, 2004. We have been informed by AOL Time Warner that Mr.
Leader is obligated to transfer such options or the benefit of such options
to AOL or AOL Time Warner.
59
(5) Includes 1,672,319 shares beneficially owned by Rho Capital Partners. Based
on information provided by Rho Capital Partners, Rho Capital Partners may
be deemed to be the beneficial owner of 1,672,319 shares pursuant to an
investment advisory relationship by which Rho Capital Partners exercises
voting and investment control over the 1,672,319 shares registered in the
name of a number of investment vehicles. Mr. Kairouz is a stockholder of
Rho Capital Partners. In such capacity, Mr. Kairouz may be deemed to share
voting and investment control of the 1,672,319 shares beneficially owned by
Rho Capital Partners. Mr. Kairouz disclaims beneficial ownership of these
shares other than an insignificant number of shares in which Mr. Kairouz
has a pecuniary interest. Includes options to purchase 50,677 shares of
common stock exercisable within 60 days from March 25, 2004.
(6) Includes options to purchase 329,765 shares of common stock exercisable
within 60 days from March 25, 2004.
(7) Includes options to purchase 225,000 shares of common stock exercisable
within 60 days from March 25, 2004.
(8) Includes options to purchase 194,063 shares of common stock exercisable
within 60 days from March 25, 2004.
(9) Includes options to purchase 59,011 shares of common stock exercisable
within 60 days from March 25, 2004.
(10) Consists of options to purchase 59,845 shares of common stock exercisable
within 60 days from March 25, 2004.
(11) Includes options to purchase 30,000 shares of common stock exercisable
within 60 days from March 25, 2004.
(12) Includes options to purchase 12,500 shares of common stock exercisable
within 60 days from March 25, 2004.
(13) Includes (a) 161 shares of common stock beneficially owned by Mr. Sikes'
wife and (b) 1,000 shares of common stock held by the Whitestone
Foundation. The Whitestone Foundation is a family owned trust of which Mr.
Sikes is a trustee.
(14) Includes options to purchase 3,886,852 shares of common stock exercisable
within 60 days from March 25, 2004.
Equity Compensation Plan Information
The following table provides information as of December 31, 2003, with
respect to shares of our common stock that may be issued under our existing
equity compensation plans which consist of the following:
o 1995 Amended and Restated Employee Stock Option Plan, or 1995
ESOP;
o 1997 Amended and Restated Acquisition Stock Option Plan, or 1997
ASOP;
o Amended and Restated 1999 Employee Stock Option Plan, or 1999
ESOP;
o 1999 Acquisition Stock Option Plan, or 1999 ASOP;
o 1999 Director Option Plan;
o Amended and Restated 1999 Non-Qualified Stock Option Plan, or
1999 NQSOP;
o 1999 Employee Stock Purchase Plan, or 1999 ESPP; and
o Amended 2001 Non-Qualified Stock Option Plan, or 2001 NQSP.
60
A number of our equity compensation plans were approved by our
stockholders, but were subsequently amended without stockholder approval. Our
1995 ESOP, 1999 ESOP and 2001 NQSP were amended to increase the number of
securities underlying the 1995 ESOP by 289,049 shares, the 1999 ESOP by
1,812,545 shares, and the 2001 NQSP by 500,000 shares. In addition, we re-priced
certain outstanding options under each of the 1995 ESOP and 1997 ASOP in
September 1997 without stockholder approval. Consequently, we have characterized
all shares underlying the 1995 ESOP, 1997 ASOP and 1999 ESOP as "not approved by
security holders" in the table below, notwithstanding the fact that each of
these plans initially were approved by our stockholders.
The table does not include information with respect to equity
compensation plans of companies acquired by us that were terminated as part of,
or subsequent to, such acquisitions.
Number of securities
Weighted-average remaining available for
Number of securities to exercise price of future issuance under
be issued upon exercise outstanding equity compensation plans
of outstanding options, options, warrants (excluding securities
Plan Category warrants and rights and rights reflected in column (a))
- ------------- ------------------- ---------- ------------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders (1).............. 124,335 $ 4.87 244,229 (2)
Equity compensation
plans not approved by
security holders (3).............. 10,216,825 $ 4.20 985,696 (4)
---------- -------- ------------
Total (5)..................... 10,341,160 $ 4.21 1,229,925 (4)
- -----------
(1) Consists of the 1999 ASOP, 1999 Director Option Plan and 1999 ESPP.
(2) Includes shares available for future issuance under the 1999 ESPP. As of
December 31, 2003, none of the 83,333 shares reserved for issuance under
this plan had been issued.
(3) Consists of the 1995 ESOP, 1997 ASOP, 1999 ESOP, 1999 NQSOP and the 2001
NQSOP and a warrant to purchase 5,282 shares of our common stock held by
Leasing Technologies International, Inc., that is exercisable through June
9, 2007, at an exercise price of $14.35, assumed by iVillage in connection
with its acquisition of Promotions.com.
(4) Includes 74,964 shares of common stock available for future issuance under
the 1999 ESOP that could be issued as restricted stock.
(5) The table does not include information for an equity compensation plan
assumed by us in connection with our acquisition of Family Point Inc. No
additional options may be granted under this plan and no options are
currently outstanding or exercisable.
1999 Employee Stock Purchase Plan
We adopted the 1999 ESPP in December 1998, and reserved 83,333 shares
of our common stock for issuance the 1999 ESPP. To date, however, no shares have
been issued under the 1999 ESPP. The 1999 ESPP, which is intended to qualify
under Section 423 of the Internal Revenue Code of 1986, as amended, or the Code,
is administered by our board of directors or by our compensation committee.
Under the 1999 ESPP, we may withhold a specified percentage (not to exceed 15%)
of each salary payment to participating employees over certain offering periods.
Any employee who is employed for at least 20 hours per week for at least five
consecutive months in a calendar year, with or by us or by one of our
majority-owned subsidiaries, is eligible to participate in the 1999 ESPP. Unless
the board of directors or the compensation committee determines otherwise, each
offering period runs for 24 months and is divided into four consecutive purchase
periods of approximately six months.
61
The price at which our common stock may be purchased under the 1999
ESPP is equal to 85% of the fair market value of our common stock on the first
day of the applicable offering period or the last day of the applicable purchase
period, whichever is lower. Participants may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment. The maximum number of shares that a
participant may purchase on the last day of any offering period is determined by
dividing the payroll deductions accumulated during the purchase period by the
purchase price. However, no person may purchase shares under the 1999 ESPP to
the extent such person would own 5% or more of the total combined value or
voting power of all classes of our capital stock or of any of our subsidiaries,
or to the extent that such person's rights to purchase stock under all employee
stock purchase plans would accrue at a rate that exceeds $25,000 worth of stock
for any calendar year. The board of directors may amend the 1999 ESPP at any
time. The 1999 ESPP will terminate in December 2009, unless terminated earlier
in accordance with its provisions.
Item 13. Certain Relationships and Related Transactions.
Hearst
We are a party to an amended and restated stockholder agreement with
Hearst. For a discussion of the terms of this agreement, please see "Item 10.
Directors and Executive Officers of the Registrant - Hearst Board
Representation".
We are a party to an amended and restated magazine content license and
hosting agreement with Hearst. Under this agreement, we are obligated to provide
production and hosting services for certain Web sites affiliated with selected
Hearst magazines, including Good Housekeeping, Redbook, Cosmopolitan, and
Country Living. These Web sites are part of the our network. The magazine sites
are on URLs owned by Hearst.
Pursuant to the magazine content license and hosting agreement, we
agreed to provide Hearst with Web site production and hosting services,
including the creation of original site content which will be owned by Hearst.
In consideration for these services, Hearst agreed to:
o pay us approximately $10.2 million for production services during
the three-year term of the agreement (approximately $4.5 million
in year one, $2.8 million in year two and $2.9 million in year
three);
o place approximately $8.0 million of Hearst advertising during the
three-year term of the agreement (approximately $2.2 million in
year one and $2.9 million in each of years two and three) on our
Web sites, which amount may be increased in any year of the
agreement if Hearst fails to pay us the required fees for
production services as described above. If such a shortfall in
production fees occurs in any year of the agreement, Hearst must
place additional advertising in an amount equal to 40% of the
production fee shortfall; and
o grant to us a right of first offer on any new Internet-based
development projects initiated by Hearst that are appropriate for
inclusion on our network of Web sites.
The agreement also provides for revenue sharing between us and Hearst
with respect to advertising revenues obtained by us from the Hearst magazine Web
sites and our other Web sites containing substantial Hearst content. This
revenue sharing arrangement requires that we pay Hearst a royalty payment based
on net advertising revenues of at least $3.9 million during the three-year term
of the agreement. This amount is reducible pro rata if Hearst fails to expend at
least $5 million in production fees in any year of the agreement.
Additionally, we are entitled to a commission derived from the sale of
Hearst magazine subscriptions made through our network of Web sites. This
commission is equal to thirty percent of gross revenues from such sales.
The Magazine Content License and Hosting Agreement with Hearst expires
on June 18, 2004. However, the agreement may be terminated by either party
immediately upon written notice to the other party in the event of bankruptcy,
insolvency or a change of control of the other party.
Pursuant to the Magazine Content License and Hosting Agreement and
other agreements, we recognized revenues of approximately $7.1 million from
Hearst, offset partially by royalty payments to Hearst of approximately $0.8
million, in 2003. See Note 6 of our Notes to Consolidated Financial Statements.
62
In December 2003, we signed a Web site services agreement in which
Hearst will pay approximately $1.9 million for maintenance and hosting services
for three teen sites: Seventeen.com, CosmoGirl.com and Teen.com. The agreement
terminates in December 2005. Additionally, we have provided, from time to time,
other production services outside the scope of the Magazine Content License and
Hosting Agreement at negotiated rates.
As of March 25, 2004, Hearst owned approximately 31% of the outstanding
our common stock, and had three designees, Messrs. Bronfin and Sikes and Ms.
Black, serve on our board of directors.
Indemnification Agreements
We have entered into indemnification agreements with our executive
officers and directors containing provisions which may require us, among other
things, to indemnify our officers and directors against any and all expenses
(including attorney's fees and all other costs, expenses and obligations
incurred in connection with investigating, defending, being a witness in or
participating in or preparing to defend, being a witness in or participating in
any action, suit, proceeding, alternative dispute resolution mechanism, hearing,
inquiry or investigation), judgments, fines, penalties, and amounts paid in
settlement of any pending, threatened or completed action, suit, claim, hearing,
proceeding or alternative dispute resolution mechanism, whether civil, criminal,
administrative, investigative or other including all taxes imposed on such
payment that may arise by reason of their status or service as officers or
directors, other than liabilities arising from willful misconduct of a culpable
nature, and to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified.
Item 14. Principal Accountant Fees and Services.
The aggregate fees and expenses billed for professional services
rendered by PricewaterhouseCoopers LLP for the years ended December 31, 2003 and
December 31, 2002 were as follows:
2003 2002
----------------------- -----------------------
Audit $ 236,500(1) $ 236,200(1)
Audit-related 29,800(2) 42,900(2)
Tax 110,000(3) 110,000(3)
All Other 0 0
----------------------- -----------------------
Total $ 376,300 $ 389,100
======================= =======================
- ----------
(1) Relates to the audit of annual financial statements for the fiscal year
ended and review of the financial statements
included in our Quarterly Reports on Form 10-Q during such fiscal year.
(2) Relates to the audit of our 401(k) Plan, for 2002 it also includes due
diligence reviews of several potential acquisitions, for 2003 it also
includes compliance activities for the Sarbanes-Oxley Act of 2002.
(3) Relates to tax compliance, tax advice and tax planning, including the
preparation of our tax returns.
The audit committee has considered whether the services listed above are
compatible with maintaining the auditors' independence. The audit committee, in
accordance with the SEC's requirements regarding auditor independence, approved
all services rendered by PricewaterhouseCoopers LLP. The audit committee's
current policy is to pre-approve all of PricewaterhouseCoopers LLP's services.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as a part of this Report:
63
1. The following consolidated financial statements are included in Item
8 of this Report:
Page Number in
this Report
--------------
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002................ F-3
Consolidated Statements of Operations for the Years Ended December 31,
2003, 2002 and 2001......................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2003, 2002 and 2001............................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002 and 2001......................................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
2. Financial Statement Schedule:
Page Number in
this Report
--------------
Schedule I - Valuation and Qualifying Accounts....................................... S-1
All other schedules to the consolidated financial statements
for which provision is made in the accounting regulations of the SEC
are not required under the related instructions or are inapplicable and
therefore have been omitted.
3. Exhibits:
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-Q Quarterly Report for the period
ended September 30, 2001, File No. 000-25469, filed on
November 14, 2001).
3.2 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Form 10-Q Quarterly Report
for the period ended June 30, 2001, File No. 000-25469,
filed on August 14, 2001).
4.1 Form of Registrant's common stock certificate (incorporated
by reference from Exhibit 4.1 to Registration Statement
File No. 333-68749, filed on March 12, 1999).
10.1 Form of Indemnification Agreement between the Registrant
and its directors and officers (incorporated by reference
to Exhibit 10.1 to the Registrant's Registration Statement
on Form S-1, File No. 333-68749, filed on February 24,
1999).
10.2 1995 Amended and Restated Employee Stock Option Plan, as
amended, of the Registrant (incorporated by reference to
Exhibit 99.1 to the Registrant's Registration Statement on
Form S-8, File No. 333-86999, filed on September 13, 1998).
10.3 1997 Amended and Restated Acquisition Stock Option Plan of
the Registrant (incorporated by reference to Exhibit 10.3
to the Registrant's Registration Statement on Form S-1,
File No. 333-68749, filed on December 11, 1998).
10.4 Amended and Restated 1999 Employee Stock Option Plan of the
Registrant (incorporated by reference to Exhibit 99.1 to
the Registrant's Registration Statement on Form S-8, File
No. 333-31988, filed on March 8, 2000).
10.5 1999 Director Option Plan of the Registrant (incorporated
by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1, File No. 333-85437,
filed on August 17, 1999).
64
10.6 1999 Employee Stock Purchase Plan of the Registrant
(incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1, File No.
333-85437, filed on August 17, 1999).
10.7 1999 Acquisition Stock Option Plan, as amended, of the
Registrant (incorporated by reference to Exhibit 99.3 to
the Registrant's Registration Statement on Form S-8 File
No. 333-86999, filed on September 13, 1999).
10.8 Amended and Restated 1999 Non-Qualified Stock Option Plan,
as amended by Amendment Number 2 (incorporated by reference
to Exhibit 10.8 to the Registrant's Registration Statement
on Form S-4, File No. 333-84532, filed on March 19, 2002).
10.9 Amended 2001 Non-Qualified Stock Option Plan of the
Registrant (incorporated by reference to Exhibit 10.1 to
the Registrant's Form 10-Q Quarterly Report for the period
ended June 30, 2002, File No. 000-25469, filed on August
14, 2002).
10.10 Form of Non-Competition, Non-Disclosure and Assignment of
Inventions Agreement dated September 9, 1995, and Amendment
dated May 6, 1996, between the Registrant and Nancy Evans
(incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1, File No.
333-68749, filed on December 11, 1998).
10.11 Lease, dated March 14, 2000, between 500-512 Seventh Avenue
Limited Partnership and the Registrant (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 10-Q
Quarterly Report for the period ended March 31, 2000, File
No. 000-25469, filed on May 15, 2000).
10.12 First Amendment to Lease, dated as of June 7, 2000, between
the Registrant and 500-512 Seventh Avenue Limited
Partnership (incorporated by reference to Exhibit 10.3 to
the Registrant's Form 10-Q Quarterly Report for the period
ended September 30, 2000, File No. 000-25469, filed on
November 14, 2000).
10.13 Second Amendment to Lease, dated January 10, 2001, between
the Registrant and 500-512 Seventh Avenue Limited
Partnership (incorporated by reference to Exhibit 10.28 to
the Registrant's Registration Statement on Form S-4, File
No. 333-56150, filed on February 23, 2001).
10.14 Third Amendment to Lease, dated October 17, 2001, between
the Registrant and 500-512 Seventh Avenue Limited
Partnership (incorporated by reference to Exhibit 10.2 to
the Registrant's Form 10-Q Quarterly Report for the period
ended September 30, 2001, File No. 000-25469, filed on
November 14, 2001).
10.15 Fourth Amendment to Lease, dated December 3, 2001, between
the Registrant and 500-512 Seventh Avenue Limited
Partnership (incorporated by reference to Exhibit 10.22 to
the Registrant's Registration Statement on Form S-4, File
No. 333-84532, filed on March 19, 2002).
10.16 Fifth Amendment to Lease, dated June 30, 2003, between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q Quarterly Report for the period
ended June 30, 2003, File No. 000-25469, filed on August
14, 2003).
10.17 Letter Agreement, dated December 23, 2002, between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference to the Registrant's Form 10-K
Annual Report for the year ended December 31, 2002, File
No. 000-25469, filed on March 31, 2003).
10.18 License Agreement, dated as of September 8, 2000, among
Lamaze International, Inc., Lamaze Publishing Company and
the Registrant (incorporated by reference to Exhibit 10.2
to the Registrant's Form 10-Q Quarterly Report for the
period ended September 30, 2000, File No. 000-25469, filed
on November 14, 2000).
10.19 Amendment to License Agreement, dated as of January 1,
2003, among Lamaze International, Inc., Lamaze Publishing
Company and the Registrant (incorporated by reference to
Exhibit 10.18 to the Registrant's Form 10-K Annual Report
for the year ended December 31, 2002, File No. 000-25469,
filed March 31, 2003).
65
10.20 Employment Agreement, dated May 30, 2003, between Douglas
W. McCormick and the Registrant (incorporated by reference
to Exhibit 10.1 to the Registrant's Form 10-Q Quarterly
Report for the period ended June 30, 2003, File No.
000-25469, filed on August 14, 2003).
10.21 Amended and Restated Securities Purchase Agreement, dated
as of February 22, 2001, between the Registrant and Hearst
Communications, Inc. (incorporated by reference to Exhibit
10.32 to the Registrant's Registration Statement on Form
S-4, File No. 333-56150, filed on February 23, 2001).
10.22 Amended and Restated Stockholder Agreement, dated as of
June 20, 2001, between the Registrant and Hearst
Communications, Inc. (incorporated by reference to Exhibit
10.26 to the Registrant's Registration Statement on Form
S-4, File No. 333-84532, filed on March 19, 2002).
10.23 Amended and Restated Magazine Content License and Hosting
Agreement, dated January 29, 2001, between Hearst
Communications, Inc. and Women.com Networks, Inc.
(incorporated by reference to Exhibit 10.27 to the
Registrant's Registration Statement on Form S-4, File No.
333-84532, filed on March 19, 2002).
10.24 Form of Amendment Number Two to Amended and Restated
Magazine Content License and Hosting Agreement
(incorporated by reference to Exhibit 10.35 to the
Registrant's Registration Statement on Form S-4, File No.
333-56150, filed on February 23, 2001).
10.25 Amendment Number Three to Amended and Restated Magazine
Content License and Hosting Agreement, dated as of April 5,
2002, between the Registrant and Hearst Communications,
Inc. (incorporated by reference to Exhibit 10.34 to the
Registrant's Registration Statement on Form S-4, File No.
333-84532, filed on April 8, 2002).
10.26 Website Services Agreement, dated as of December 19, 2003,
between the Registrant and Hearst Communications, Inc.
10.27 Promissory Note, dated June 5, 1998, in the amount of
$500,000 between Candice Carpenter and the Registrant
(incorporated by reference to Exhibit 10.23 to the
Registrant's Registration Statement on Form S-1, File No.
333-68749, filed on December 11, 1998).
10.28 Amendment No. 1 to Promissory Note, dated as of April 1,
2001, between Candice Carpenter and the Registrant
(incorporated by reference to Exhibit 10.22.1 to
Registrant's Form 10-K Annual Report for the year ended
December 31, 2000, File No. 000-25469, filed on April 2,
2001).
10.29 Amendment No. 2 to Promissory Note, dated as of December
19, 2002, between the Registrant and Candice Carpenter
(incorporated by reference to Exhibit 10.27 to the
Registrant's Form 10-K Annual Report for the year ended
December 31, 2002, File No. 000-25469, filed on March 31,
2003).
10.30 Form of Severance Agreement between the Registrant and
certain executive officers of the Registrant (incorporated
by reference to Exhibit 10.28 to the Registrant's Form 10-K
Annual Report for the year ended December 31, 2002, File
No. 000-25469, filed on March 31, 2003).
10.31 Separation Agreement, dated July 22, 2003, from the
Registrant to Nancy Evans (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-Q Quarterly
Report, File No. 000-25469, filed on August 14, 2003).
21 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
31.1 Certification of the Chief Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.
66
31.2 Certification of the Chief Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.
32.1 Certification of Principal Executive Officer and Principal
Financial Officer furnished pursuant to Rules 13a-14(b) and
15d-14(b) under the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 Code of Business Conduct and Ethics.
99.2 Code of Ethics for Senior Executive Officers.
(b) Reports on Form 8-K:
o On November 3, 2003, we furnished a Current Report on Form 8-K
to report our preliminary financial results for the fourth
quarter of 2003.
o On December 1, 2003, we furnished a Current Report on Form 8-K
to reaffirm our previously issued projections for our
financial results for the fourth quarter of 2003.
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
iVillage Inc.
(Registrant)
Date: March 30, 2004 By: /s/ Douglas W. McCormick
-------------------------
Douglas W. McCormick
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Douglas W. McCormick Chairman of the Board and
- ------------------------ Chief Executive Officer March 30, 2004
Douglas W. McCormick (Principal Executive Officer)
/s/ Scott Levine Chief Financial Officer March 30, 2004
- ---------------- (Principal Financial Officer)
Scott Levine
/s/ Richard J. Kolberg Chief Accounting Officer and Controller March 30, 2004
- ---------------------- (Principal Accounting Officer)
Richard J. Kolberg
/s/ Kenneth A. Bronfin
- ---------------------- Director March 30, 2004
Kenneth A. Bronfin
/s/ Cathleen P. Black Director March 30, 2004
- ---------------------
Cathleen P. Black
/s/ John T. Healy Director March 30, 2004
- -----------------
John T. Healy
/s/ Edward D. Horowitz Director March 30, 2004
- ---------------------
Edward D. Horowitz
/s/ Habib Kairouz Director March 30, 2004
- -----------------
Habib Kairouz
/s/ Lennert J. Leader
- ---------------------- Director March 30, 2004
Lennert J. Leader
/s/ Edward T. Reilly
- ---------------------- Director March 30, 2004
Edward T. Reilly
/s/ Alfred Sikes Director March 30, 2004
- ----------------
Alfred Sikes
68
iVILLAGE INC. AND SUBSIDIARIES
Index of Consolidated Financial Statements and
Financial Statement Schedule
The following consolidated financial statements of iVillage Inc. are included
in Item 8:
Report of Independent Auditors............................................................... F-2
Consolidated Balance Sheets as of December 31, 2003 and 2002................................. F-3
Consolidated Statements of Operations for the Years
Ended December 31, 2003, 2002 and 2001.................................................... F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2003, 2002 and 2001.................................................... F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2003, 2002 and 2001.................................................... F-6
Notes to Consolidated Financial Statements................................................... F-7 - F-31
Schedule I - Valuation and Qualifying Accounts............................................... S-1
All other schedules to the consolidated financial statements for which
provision is made in the accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or are inapplicable
and therefore have been omitted.
F-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of iVillage Inc.:
In our opinion, the consolidated financial statements listed in the
index appearing under Item 15 on page 64 present fairly, in all material
respects, the financial position of iVillage Inc. and its subsidiaries at
December 31, 2003 and December 31, 2002, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under Item 15 on page 64 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of iVillage's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 4 of the consolidated financial statements,
iVillage Inc. adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" effective
January 1, 2002.
PricewaterhouseCoopers LLP
New York, New York
January 29, 2004
Except for Note 16 as to which
the date is February 18, 2004.
F-2
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
-------------------------------
2003 2002
ASSETS --------- ---------
Current assets:
Cash and cash equivalents ......................................................... $ 15,823 $ 21,386
Accounts receivable, less allowance for doubtful accounts
of $1,134 and $1,310, respectively ........................................... 7,517 5,336
Prepaid rent ...................................................................... 318 --
Other current assets .............................................................. 3,520 5,960
--------- ---------
Total current assets ........................................................ 27,178 32,682
Restricted cash ................................................................... -- 8,474
Fixed assets, net ................................................................. 7,269 17,157
Goodwill, net ..................................................................... 22,580 24,617
Intangible assets, net ............................................................ 11,989 17,367
Prepaid rent, net of current portion .............................................. 3,354 --
Other assets ...................................................................... 158 289
--------- ---------
Total assets ................................................................. $ 72,528 $ 100,586
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses ............................................. $ 10,441 $ 10,319
Deferred revenue .................................................................. 3,323 3,514
Deferred rent ..................................................................... 144 348
Other current liabilities ......................................................... 190 98
--------- ---------
Total current liabilities ................................................... 14,098 14,279
Deferred rent, net of current portion ............................................. 1,483 3,926
--------- ---------
Total liabilities ........................................................... 15,581 18,205
Minority interest ...................................................................... -- 181
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock - par value $.01, 5,000,000 shares authorized, no shares
issued and outstanding at December 31, 2003 and
2002, respectively ......................................................... -- --
Common stock - par value $.01, 200,000,000 shares authorized;
57,233,470 and 56,531,785 shares issued at December 31,
2003 and 2002, respectively; 56,230,024 and 55,328,339
shares outstanding at December 31, 2003 and 2002,
respectively ............................................................... 572 565
Additional paid-in capital ........................................................ 550,892 549,203
Treasury stock at cost (1,003,446 and 1,203,446 shares at
December 31, 2003 and 2002, respectively) .................................. (430) (502)
Stockholders' notes receivable .................................................... (241) (262)
Unearned compensation ............................................................. -- (87)
Accumulated deficit ............................................................... (493,846) (466,717)
--------- ---------
Total stockholders' equity .................................................. 56,947 82,200
--------- ---------
Total liabilities and stockholders' equity .................................. $ 72,528 $ 100,586
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year ended December 31,
------------------------------------------------
2003 2002 2001
--------- --------- ---------
Revenue ................................................................... $ 55,221 $ 59,423 $ 60,041
Operating expenses:
Editorial, product development and technology .......................... 28,842 27,973 33,500
Sales and marketing .................................................... 19,724 21,731 30,211
Sales and marketing - NBC/Hearst expenses .............................. 239 4,422 5,967
Termination of NBC advertising contract ................................ -- 4,084 --
General and administrative ............................................. 13,314 13,474 17,702
Lease restructuring charge and related impairment of
fixed assets .................................................... 9,126 -- --
Depreciation and amortization .......................................... 8,595 11,900 23,529
Impairment of goodwill, intangible assets and fixed assets ............. 4,029 971 --
--------- --------- ---------
Total operating expenses ........................................ 83,869 84,555 110,909
--------- --------- ---------
Loss from operations ...................................................... (28,648) (25,132) (50,868)
Interest income, net ...................................................... 218 485 2,285
Other income (expense), net ............................................... 727 (34) (43)
Write-down of investments ................................................. -- -- (104)
Loss from unconsolidated joint venture .................................... -- -- (127)
Gain on sale of joint venture interest and other assets ................... 625 -- 385
--------- --------- ---------
Net loss before minority interest and cumulative effect of
change in accounting principle .................................... (27,078) (24,681) (48,472)
Minority interest ......................................................... (51) (74) 7
--------- --------- ---------
Net loss before cumulative effect of change in accounting
principle ......................................................... (27,129) (24,755) (48,465)
Cumulative effect of change in accounting principle ....................... -- (9,181) --
--------- --------- ---------
Net loss .................................................................. $ (27,129) $ (33,936) $ (48,465)
========= ========= =========
Per share data:
Net loss before cumulative effect of change in accounting
principle per share ............................................... $ (0.49) $ (0.45) $ (1.13)
Cumulative effect of change in accounting principle per share ............. -- (0.17) --
--------- --------- ---------
Net loss .................................................................. $ (0.49) $ (0.62) $ (1.13)
========= ========= =========
Basic and diluted net loss per share ...................................... $ (0.49) $ (0.62) $ (1.13)
========= ========= =========
Weighted average shares of common stock outstanding used in
computing basic and diluted net loss per share .................... 55,772 54,841 42,807
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Common Stock Additional Treasury Stock Stockholders'
------------------ Paid-In ---------------- Notes
Shares Amount Capital Shares Cost Receivable
------ ------ ------- ------ ---- ----------
Balance at January 1, 2001....... 29,706,770 $ 297 $ 495,758 - $ - $ (7,148)
Issuance of common stock
in connection with
business acquisition, net........ 14,776,469 148 28,339
Issuance of common stock
in connection with rights
offering, net.................... 9,324,000 93 19,907
Issuance of common stock
in connection with the
exercise of stock options........ 5,046 2
Repurchase of common
stock............................ (1,203,446) 1,203,446 (502)
Amortization of unearned
compensation and deferred
advertising costs................
Repayment of stockholder's note 5,166
receivable.......................
Net loss.........................
---------- -------- --------- --------- ------- --------
Balance at December 31, 2001..... 52,608,839 538 544,006 1,203,446 (502) (1,982)
Issuance of common stock
in connection with
business acquisition, net........ 2,131,971 21 4,119
Issuance of common stock
in connection with the
exercise of stock options........ 587,529 6 742
Issuance of stock options
to consultant.................... 51
Modification of stock
option terms..................... 285
Amortization of unearned
compensation and deferred
advertising costs................
Repayment of stockholder
note receivable.................. 1,291
Reserve of stockholder
note receivable.................. 429
---------- -------- --------- --------- ------- --------
Net loss.........................
Balance at December 31, 2002..... 55,328,339 565 549,203 1,203,446 (502) (262)
Issuance of common stock
in connection with
business acquisition............. 16,497
Issuance of common stock
in connection with the
exercise of stock options........ 685,188 7 867
Issuance of treasury
stock in connection with
business acquisition............. 200,000 514 (200,000) 72
Modification of stock
option terms..................... 308
Amortization of unearned
compensation and deferred
advertising costs................
Repayment of stockholder
notes receivable................. 21
Net loss.........................
---------- -------- --------- --------- ------- --------
Balance at December 31, 2003..... 56,230,024 $ 572 $ 550,892 1,003,446 $ (430) $ (241)
========== ======== ========= ========= ======= ========
Unearned
Compensation
and
Deferred
Advertising Accumulated
Cost Deficit Total
---- ------- -----
Balance at January 1, 2001....... $ (3,225) $(384,316) $ 101,366
Issuance of common stock
in connection with
business acquisition, net........ 28,487
Issuance of common stock
in connection with rights
offering, net.................... 20,000
Issuance of common stock
in connection with the
exercise of stock options........ 2
Repurchase of common
stock............................ (502)
Amortization of unearned
compensation and deferred
advertising costs................ 2,703 2,703
Repayment of stockholder's note
receivable....................... 5,166
Net loss......................... (48,465) (48,465)
------- --------- -----------
Balance at December 31, 2001..... (522) (432,781) 108,757
Issuance of common stock
in connection with
business acquisition, net........ 4,140
Issuance of common stock
in connection with the
exercise of stock options........ 748
Issuance of stock options
to consultant.................... (51)
Modification of stock
option terms..................... 285
Amortization of unearned
compensation and deferred
advertising costs................ 486 486
Repayment of stockholder
note receivable.................. 1,291
Reserve of stockholder
note receivable.................. 429
Net loss......................... (33,936) (33,936)
------- --------- -----------
Balance at December 31, 2002..... (87) (466,717) 82,200
Issuance of common stock
in connection with
business acquisition.............
Issuance of common stock
in connection with the
exercise of stock options........ 874
Issuance of treasury
stock in connection with
business acquisition............. 586
Modification of stock
option terms..................... 308
Amortization of unearned
compensation and deferred
advertising costs................ 87 87
Repayment of stockholder
notes receivable................. 21
Net loss......................... (27,129) (27,129)
------- --------- ---------
Balance at December 31, 2003..... $ - $(493,846) $ 56,947
======== ========== =========
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
iVILLAGE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
----------------------------------
2003 2002 2001
---- ---- ----
Cash flows from operating activities:
Net loss $(27,129) $(33,936) $(48,465)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 8,595 11,900 23,529
Expense recognized in connection with
issuance/modification of terms of
warrants and stock options 395 771 2,703
Deferred rent (246) (347) (357)
Non-cash print advertising expense 418 2,720 1,765
Impairment of goodwill (including change in
accounting principle) 4,029 10,152 --
Reserve for stockholder notes receivable -- 429 --
Minority interest 51 74 (7)
Bad debt expense 258 552 --
Loss from unconsolidated joint venture -- -- 127
Write-down of investments -- -- 104
Gain on sale of joint venture interest and other assets (625) -- (385)
Real estate restructuring 4,375 -- --
Changes in operating assets and liabilities:
Accounts receivable (2,439) 2,025 3,921
Prepaid rent (3,672) -- --
Restricted cash and other assets 10,626 5,761 3,314
Accounts payable and accrued expenses 32 (9,437) (26,021)
Deferred revenue (191) 639 (5,788)
-------- -------- --------
Net cash used in operating activities of operations (5,523) (8,697) (45,560)
-------- -------- --------
Cash flows from investing activities:
Purchase of fixed assets (1,343) (881) (5,254)
Purchase of intangible assets (150) -- --
Cash paid of $11,108 less cash acquired of
$10,198 for acquisition of Promotions.com, Inc. (9) (901) --
Purchase of 19.9% and 30.1% of Cooperative
Beauty Ventures, L.L.C. in 2003 (150) -- (1,142)
and 2001, respectively
Proceeds from the sale of joint venture interest 717 -- --
Cash paid of $3,210 less cash acquired of $14,198
for purchase of Women.com -- -- --
Networks, Inc. 10,988
Cash paid of $500 less cash acquired of $232 for
purchase of Public Affairs Group, Inc. -- -- (268)
Investment in Cooperative Beauty Ventures, L.L.C
-- -- (300)
-------- -------- --------
Net cash (used in) provided by investing activities of operations (935) (1,782) 4,024
-------- -------- --------
Cash flows from financing activities:
Principal payments on stockholders' notes receivable 21 1,291 5,166
Proceeds from exercise of stock options 874 748 2
Proceeds from issuance of common stock, net -- -- 18,910
Principal payments on long-term debt and capital leases -- -- (449)
Repurchase of common stock
-- -- (502)
-------- -------- --------
Net cash provided by financing activities 895 2,039 23,127
-------- -------- --------
Cash used in discontinued operations -- (5) (723)
Net decrease in cash for the period (5,563) (8,445) (19,132)
Cash and cash equivalents, beginning of period 21,386 29,831 48,963
-------- -------- --------
Cash and cash equivalents, end of period $ 15,823 $ 21,386 $ 29,831
-------- -------- --------
Cash paid during the period for interest $ 8 $ 52 $ 32
======== ======== ========
Cash paid during the period for taxes $ 210 $ 163 $ 572
======== ======== ========
Supplemental disclosure of non-cash investing and financing activities:
During 2001, iVillage acquired Women.com Networks, Inc. primarily through the
issuance of stock (see Note 7). During 2002, iVillage acquired
Promotions.com, Inc. partially through the issuance of stock (see Note 7).
During 2003, iVillage acquired Cooperative Beauty Ventures, L.L.C. partially
through the issuance of stock (see Note 7).
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 1 - Organization and Basis of Presentation
iVillage is "the Internet for women" and consists of several online and
offline media-based properties including the iVillage.com Web site, or
iVillage.com, Women.com Networks, Inc., operator of the Women.com Web site, or
Women.com, the gURL.com Web site, or gURL.com, Knowledgeweb, Inc., operator of
the Astrology.com Web site, or Astrology.com, Cooperative Beauty Ventures, LLC,
operator of the Substance.com Web site, or Substance.com, iVillage Parenting
Network, Inc., or IVPN, Public Affairs Group, Inc., or PAG, Promotions.com,
Inc., or Promotions.com, iVillage Consulting and iVillageSolutions. Following is
a synopsis of our operational activities and those of our subsidiaries and
divisions:
Subsidiary or Division Operational Activity
- ---------------------- --------------------
iVillage.com An online destination providing practical solutions
on a range of topics and everyday support for women
18 years of age and over.
Women.com An online destination providing content focused on
fun, games, entertainment and style for women 18
years of age and over.
gURL.com An online destination catering to teenage girls that
offers advice, games and interactive content to girls
13 years of age and older.
Astrology.com An online destination for individuals seeking daily
horoscopes, astrological content and personalized
forecasts online.
Substance.com An online destination offering interactive beauty
content and personal care products information.
IVPN A holding company for iVillage Integrated Properties,
Inc., or IVIP, the operator of The Newborn Channel
and Lamaze Publishing Company, or Lamaze Publishing,
publisher of Lamaze Parents, which collectively
provide informational and instructional magazines,
custom publications, television programming, videos
and online properties of interest to expectant and
new parents.
PAG Comprised of three divisions: Business Women's
Network, Diversity Best Practices and Best Practices
in Corporate Communications, each offering an
extensive database of pertinent information and
events to subscribing companies and members, and
relevant publications.
F-7
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Promotions.com Comprised of two divisions: Promotions.com and
Webstakes.com, which offer online and offline
promotions and direct marketing programs that are
integrated with customers' marketing initiatives.
iVillage Consulting Assists companies in the creation and
development of Web sites, digital commerce platforms
and other aspects of technological infrastructures,
primarily for Hearst Communications, Inc., and its
affiliates, or Hearst, a related party.
iVillageSolutions Our consumer products offerings including an
iVillage-branded book series and vitamin and
nutraceutical supplement line.
iVillage has sustained net losses and negative cash flows from
operations since its inception. iVillage's ability to meet its obligations in
the ordinary course of business is dependent upon its ability to achieve
profitable operations and/or raise additional financing through public or
private equity 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.
Due primarily to iVillage's lack of historical 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. If we need to raise funds
through a public offering or private placement of our securities, funds may not
be available on acceptable terms, if at all.
Factors that could affect iVillage's ability to achieve profitable
operations include the loss of any of iVillage's major customers, including
Hearst, or a significant downturn in the advertising market or economy, in
general, as well as iVillage's ability to report increased revenues on a year
over year basis. iVillage has recently commenced discussions regarding the
renewal of the amended and restated magazine content license and hosting
agreement with Hearst that expires in June 2004 but will continue afterwards on
a month-to-month basis unless terminated by either party with 90 days prior
notice. However, iVillage cannot assure whether this contract will be renewed
and, if renewed, whether the renewal terms will be as favorable as the current
agreement with Hearst.
iVillage is subject to the risks and uncertainties frequently
encountered by companies in the rapidly evolving markets for Internet and media
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 Web
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.
Note 2 - Significant Accounting Policies and Procedures
Principles of Consolidation
The consolidated financial statements include the accounts of iVillage
and its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," or SFAS 131, segment information is being
reported consistent with our method of internal reporting. In accordance with
SFAS 131, operating segments are defined as components of an enterprise for
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. iVillage is organized primarily by subsidiaries and
divisions. iVillage's subsidiaries and divisions have no operating managers that
report to the chief operating decision maker and the chief operating decision
maker reviews results of operations at the highest level of aggregated data in
making decisions. The chief operating decision maker does review revenue results
of subsidiaries and divisions. iVillage's discussion of revenue has been
organized into separate subsidiaries and divisions, however, operating expenses
and results of operations have been discussed on a combined basis.
Revenue Recognition
F-8
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2 - Significant Accounting Policies and Procedures (continued)
iVillage
iVillage's revenues are derived primarily from the sale of sponsorship
and advertising contracts. Sponsorship revenues are derived principally from
contracts designed to support the customer's broad marketing objectives,
including brand promotion, awareness, product introductions and online research.
Sponsorship agreements typically include the delivery of impressions on
iVillage's Web sites and occasionally the design and development of customized
sites that enhance the promotional objectives of the sponsor. An impression is
the viewing of promotional material on a Web page, which may include rich media
and display or banner advertisements, links, buttons or other text or images. As
part of a few sponsorship agreements, sponsors who sell products may provide
iVillage with a commission on sales of their products generated through
iVillage's Web sites. To date, amounts received from the sale of sponsor's
products have not been significant.
Advertising revenues are derived principally from short-term
advertising contracts in which iVillage typically guarantees a minimum number of
impressions or pages to be delivered to users over a specified period of time
for a fixed fee. Sponsorship and advertising revenues are recognized ratably in
the period in which the advertisement is displayed, provided that iVillage has
no continuing obligations and the collection of the receivable is reasonably
assured, at the lesser of the ratio of impressions delivered over total
guaranteed impressions or the straight-line basis over the term of the contract.
To the extent that minimum guaranteed impressions are not met, iVillage defers
recognition of the corresponding revenues until the guaranteed impressions are
achieved.
Sponsorship and advertising revenues are also derived from sponsored
links appearing on an iVillage Web page that is based upon relevant content or a
World Wide Web search query result. These revenues are earned on a cost per
thousand impressions and/or a percentage of net advertising revenue and are
recognized upon notification from the search engine provider. Sponsorship and
advertising revenues were approximately $20.0 million, $27.4 million and $33.5
million for the years ended December 31, 2003, 2002 and 2001, respectively.
For contracts with multiple elements (e.g., delivered and undelivered
products, advertising and production revenue), iVillage allocates revenue to
each element based on evidence of its fair value under the Financial Accounting
Standards Board ("FASB") Emerging Issues Task Force ("EITF") Issue No. 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" ("EITF 00-21").
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.
Barter revenues generally represent exchanges by iVillage of
advertising space on its Web sites for reciprocal advertising space on or
traffic from other Web sites. Revenues and expenses from these barter
transactions are recorded based upon the fair value of the advertisements
delivered. Fair value of advertisements delivered is based upon iVillage's
recent practice of receiving cash from similar advertisers. Barter revenues are
recognized when the advertisements are displayed on iVillage.com and its
affiliated properties. Barter expenses are generally recognized when iVillage's
advertisements are displayed on the reciprocal Web sites or properties, which is
typically in the same period as when advertisements are displayed on
iVillage.com and its affiliated properties, and are included as part of sales
and marketing expenses. Revenues from barter transactions were approximately
$3.7 million, $3.5 million and $2.8 million for the years ended December 31,
2003, 2002 and 2001, respectively.
iVillage Consulting is a business unit within iVillage that provides
production and back-end provisioning for customers, primarily Hearst
Communications, Inc. (including its affiliates, "Hearst"), a related party, in
need of these services. iVillage recognizes revenues from these services based
upon a number of factors including actual hours worked at its negotiated hourly
rates, completed contract or straight-line over the life of the contract.
Revenues from iVillage Consulting were approximately $3.2 million, $4.0 million
and $2.9 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
iVillage has received revenues from initiatives involving
subscription-based properties, the sale of iVillage-branded products and
services, the sale of third-party products, the licensing of portions of
iVillage content and services, and the sale of research. iVillage recognizes
revenues from these initiatives when products are shipped and/or provided to the
customer, or straight-line over the life of the agreement and when the
collection of the receivable is reasonably assured and no further obligation
remains. Revenues through these offerings were approximately $0.8 million, $2.4
million and $3.6 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
F-9
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2 - Significant Accounting Policies and Procedures (continued)
Astrology.com
Revenues from Astrology.com consist primarily of the sale of
astrological charts and other related products to users to the Astrology.com Web
site. iVillage recognizes revenues from Astrology.com product sales, net of any
discounts, when products are shipped to customers, the collection of the
receivable is reasonably assured and no further obligations remain.
Revenues recorded by Astrology.com were approximately $2.9 million, $3.3 million
and $3.0 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
iVillage Parenting Network
IVPN's revenues have been derived primarily 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 are
generated through a sampling and coupon program, which offers advertisers the
ability to distribute samples, coupons and promotional literature to new and
expectant parents. Sponsorship and advertising revenues are recognized on a
straight-line basis over the term of the contract provided that IVPN has no
continuing obligations and the collection of the receivable is reasonably
assured. IVPN recognized approximately $12.2 million, $11.1 million and $12.1
million in advertising sponsorship revenues for the years ended December 31,
2003, 2002 and 2001, respectively. IVPN also recognized revenues from barter of
approximately $0.2 million for the year ended December 31, 2003. There were no
comparable amounts recorded for the years ended December 31, 2002 and 2001,
respectively.
In recent years, IVPN has developed two new revenue streams. IVPN began
to create and distribute custom publications and mailings on behalf of
advertisers. Revenues from the sale of custom publications and mailings are
recognized when IVPN fulfills all obligations under the terms of the contract
and the collection of the receivable is reasonably assured. IVPN recognized
approximately $3.9 million, $1.5 million and $0.2 million in revenues, from
custom publications and mailings for the years ended December 31, 2003, 2002 and
2001, respectively. During 2003, IVPN initiated the collection of an annual fee
from hospitals broadcasting The Newborn Channel. Contracts related to this fee
typically range from three to five years. As of December 31, 2003, 386 hospitals
have agreed to pay a license fee for The Newborn Channel. IVPN recognizes
revenues from these license fees ratably over the term of the agreement provided
the collection of the receivable is reasonably assured. IVPN recognized
approximately $0.3 million in such fees for the year ended December 31, 2003.
Public Affairs Group
Revenues from PAG are generated primarily through subscription-based
programs that convey current best practices for both diversity issues in the
workplace and corporate communication and the hosting of an annual two-day gala
event that focuses on diversity and women. iVillage recognizes revenue from
subscriptions ratably over the term of the subscription agreement and from the
events when the events are held, provided the collection of the receivable is
reasonably assured.
Revenues from PAG were approximately $4.4 million, $3.7 million and
$1.9 million for the years ended December 31, 2003, 2002 and 2001, respectively.
F-10
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2 - Significant Accounting Policies and Procedures (continued)
Promotions.com, Inc.
Promotions.com, Inc. generates revenues through the Web sites
Webstakes.com, a Web site dedicated to Internet sweepstakes and promotions, and
Promotions.com, a full service integrated Internet promotions services group.
Promotions.com revenues are derived principally from contracts in which
Promotions.com typically provides custom services for the creation,
administration and implementation of a promotion on a customer's Web site.
Promotions.com's revenue recognition policy related to its services is to
recognize revenues as deliverables are met and/or ratably over the period of the
promotion, provided that no significant obligations remain and collection of the
resulting receivable is reasonably assured.
Webstakes.com revenues are derived primarily from service contracts
whereby Webstakes.com recognizes revenues based on either a "cost-per-click" or
a "cost-per-action" pricing model. Webstakes.com recognizes revenue related to
its cost-per-click pricing model when a user has been delivered to the
customer's Web site, the customer has reported such activity, and the collection
of the corresponding receivable is reasonably assured. Revenue is recognized
differently in a cost-per-action pricing model, which requires Webstakes.com to
not only deliver the aforementioned user to a customer's Web site, but also a
specific user action such as purchasing a product or registering for more
information as a member of the customer's Web site in order for Webstakes.com to
earn revenue. Webstakes.com recognizes revenue related to the cost-per-action
pricing model when the specific action has been performed on its customer's Web
site, the customer has reported such activity, and the collection of the
corresponding receivable is reasonably assured.
Revenues from Promotions.com, Inc. were approximately $3.5 million and
$2.5 million for the years ended December 31, 2003 and 2002, respectively. Since
iVillage acquired Promotions.com, Inc. in April 2002, there are no comparative
amounts for the corresponding period in 2001.
Customer Concentration
In 2003, 2002 and 2001, respectively, revenues from iVillage's five
largest customers accounted for approximately 27%, 38% and 37% of total
revenues. In 2003, one advertiser, Hearst, a related party, accounted for
approximately 11% of total revenues. In 2002, three advertisers, The Procter and
Gamble Company ("Procter and Gamble"), Hearst and Unilever PLC (including its
affiliates, "Unilever") accounted for approximately 11%, 11% and 10% of total
revenues. In 2001, one advertiser, Unilever, accounted for approximately 12% of
total revenues. At December 31, 2003, Hearst accounted for approximately 20% of
the net accounts receivable, and at December 31, 2002, Procter & Gamble
accounted for approximately 26% of the net accounts receivable.
Hearst has been one of our largest customers for each of the last three
years. Pursuant to an amended and restated magazine content license and hosting
agreement with Hearst, we received the online distribution rights to seven
Hearst magazine Web sites. Under this agreement, we provide production,
maintenance and hosting services, for which in 2003 we received approximately
$2.9 million in fees, and advertising services, for which in 2003 we received
approximately $3.0 million in fees. In addition, we are entitled to a commission
derived from the sale of Hearst magazines, which in 2003 totaled approximately
$0.6 million. As part of this magazine content license agreement we pay Hearst a
royalty fee, which in 2003 totaled approximately $0.8 million. Our magazine
content license and hosting agreement with Hearst expires in June 2004, but
continues on a month-to-month basis unless terminated by either party with 90
days prior notice.
Cash and Cash Equivalents
Cash and 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.
Restricted Cash
Restricted cash included money held for a letter of credit
collateralizing a real estate lease for iVillage's New York office space. (See
Note 12 - Lease Restructuring Charge and Related Impairment of Fixed Assets).
Fair Value of Financial Instruments
The carrying amounts of iVillage's financial instruments, including
cash and cash equivalents, accounts receivable, accounts payable and accrued
liabilities, approximate fair value because of their short maturities.
Fixed Assets and Intangibles
Depreciation of equipment, furniture and fixtures, and computer
software is provided for by the straight-line method over their estimated useful
lives ranging from three to five years. Amortization of leasehold improvements
is provided for over the lesser of the term of the related lease or the
estimated useful life of the improvement. The cost of additions, and
expenditures which extend the useful lives of existing assets, are capitalized,
and repairs and maintenance costs are charged to operations as incurred.
Amortization of intangible assets are over the expected life of the related
asset and range from one to ten years. Effective January 1, 2002, iVillage
adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144") regarding the recognition and measurement of the impairment
of long-lived assets to be held and used.
iVillage assesses the recoverability of its fixed assets and intangible
assets by determining whether the unamortized balance over the assets remaining
life can be recovered through undiscounted forecasted cash flows. If
undiscounted forecasted cash flows indicate that the unamortized amounts will
not be recovered, an adjustment will be made to reduce the net amounts to an
amount consistent with forecasted future cash flows discounted at a rate
commensurate with the risk associated when estimating future discounted cash
flows. Future cash flows are based on trends of historical performance and
iVillage's estimate of future performances, giving consideration to existing and
anticipated competitive and economic conditions. (See Note 3 - Fixed Assets,
Note 5 - Intangible Assets and Note 12 - Lease Restructuring Charge and Related
Impairment of Fixed Assets).
F-11
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2 - Significant Accounting Policies and Procedures (continued)
Goodwill
Goodwill is not subject to amortization and is tested for impairment
annually, or more frequently if events or changes in circumstances indicate that
the asset may be impaired in accordance with Statement of Financial Accounting
Standard ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142").
The impairment test consists of a comparison of the fair value of goodwill with
its carrying amount. If the carrying amount of goodwill exceeds its fair value,
an impairment loss is recognized in an amount equal to that excess. Fair value
is typically based upon future cash flows discounted at a rate commensurate with
the risk involved. After an impairment loss is recognized, the adjusted carrying
amount of goodwill is its new accounting basis. (See Note 4 - Goodwill).
Advertising Costs
Advertising costs are expensed as incurred and are included in the
sales and marketing lines in the accompanying consolidated statements of
operations. Advertising costs, including barter expense, included in sales and
marketing were approximately $5.2 million, $12.4 million and $11.0 million for
the years ended December 31, 2003, 2002 and 2001, respectively. At December 31,
2003 and 2002 approximately $0.2 million and $0.9 million of advertising costs
were prepaid, respectively.
Barter expense was approximately $4.2 million, $3.4 million and $2.8
million for the years ended December 31, 2003, 2002, and 2001, respectively.
Web Site Development Costs
iVillage accounts for Web site development costs in accordance with the
provisions of EITF Issue No. 00-2, "Accounting for Web Site Development Costs"
("EITF 00-2"), which requires that certain costs to develop Web sites be
capitalized or expensed, depending on the nature of the costs. Amortization of
Web site development costs is provided for by the straight-line method over the
estimated useful life of two years. During 2003 and 2002, approximately $0.1
million and no amount of development expenses were capitalized, respectively.
Amortization expense of Web site development costs was approximately $0.3
million, $1.2 million and $0.9 million for the years ended December 31, 2003,
2002 and 2001, respectively.
Income Taxes
iVillage recognizes deferred taxes by the asset and liability method of
accounting for income taxes in accordance with the provisions of SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Deferred income taxes are recognized
for differences between the financial statement and tax bases of assets and
liabilities at enacted statutory tax rates in effect for the years in which the
differences are expected to reverse. The effect on deferred taxes of a change in
tax rates is recognized in income in the period that includes the enactment
date. In assessing the realizability of deferred tax assets, iVillage considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income or reversal of deferred
tax liabilities during the periods in which those temporary differences become
deductible. iVillage considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based on this consideration, iVillage believes it is
more likely than not that the net deferred tax assets will not be realized.
F-12
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2 - Significant Accounting Policies and Procedures (continued)
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 assessment of expected
probable losses (if any) of claims and potential claims.
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 years ended December 31, 2003 and 2002, iVillage reversed approximately $0.7
million and $1.5 million, respectively, of accruals included in operating
expenses due to changes in estimates on services previously provided. 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 December 31, 2003, 2002 and 2001 calculation of
weighted average number of shares of common stock outstanding are 189,026
shares, 205,523 shares and 743,369 shares, respectively, which have not been
issued. These shares are being held for former Women.com and Promotions.com
stockholders that have not yet exchanged their respective shares for shares of
iVillage during the periods presented, but are entitled to do so.
Stock options and warrants in the amount of 12,441,160, 12,791,027, and
14,015,664 shares for the years ended December 31, 2003, 2002 and 2001,
respectively, were not included in the computation of diluted net loss per share
as they are anti-dilutive as a result of net losses during the periods
presented.
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 SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). No compensation cost related to grants of stock
options was reflected in net loss, as all options granted under the plans had an
exercise price 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.
Compensation costs related to the modification of stock option terms was
approximately $0.4 million, $0.1 million and no amount, for the years ended
December 31, 2003, 2002 and 2001, respectively. If compensation cost for
iVillage's stock options, utilizing the Black Scholes model, had been determined
based on the fair value of the stock options at the grant date for awards in
2003, 2002 and 2001 consistent with the provisions of SFAS 123, iVillage's net
loss would have been adjusted to the pro forma amounts indicated below:
F-13
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2 - Significant Accounting Policies and Procedures (continued)
December 31,
----------------------------------------------------
2003 2002 2001
---- ---- ----
($ in thousands, except per share data)
Net loss - as reported............................ $ (27,129) $ (33,936) $ (48,465)
========= ========= ===========
Net loss - pro forma.............................. $ (33,657) $ (42,901) $ (57,413)
========= ========= ===========
Net loss per share - as reported.................. $ (0.49) $ (0.62) $ (1.13)
========= ========= ===========
Net loss per share - proforma..................... $ (0.60) $ (0.78) $ (1.34)
========= ========= ===========
Because options vest over several years and additional option grants
are expected to be made in future years, the above pro forma results are not
representative of the pro forma results for future years.
The weighted average assumptions used for grants made in 2003, 2002 and
2001 are as follows:
Options granted during the
year ended December 31,
-------------------------------------------
2003 2002 2001
---- ---- ----
Risk-free interest rate..................... 2.74% 3.71% 4.38%
Expected option life........................ 4 years 4 years 4 years
Dividend yield.............................. 0.00% 0.00% 0.00%
Volatility.................................. 101.00% 108.00% 120.00%
Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" ("SFAS 130") requires
companies to classify items of other comprehensive income by their nature in the
financial statements and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. iVillage has had no other
comprehensive income items to report.
Recent Accounting Pronouncements
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities" ("FIN 46"), which 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 December 2003, the FASB issued Interpretation No. 46R,
"Consolidation of Variable Entities, or FIN 46R. FIN 46R replaces the same
titled FIN 46 that was issued in January 2003. FIN 46R requires the
consolidation of a variable interest entity by a company that bears the majority
of risk of loss from the variable entity's activities, is entitled to receive a
majority of the variable interest entity's residual returns or both. The
provisions of this interpretation are effective for iVillage beginning in the
first quarter of fiscal 2004. iVillage's adoption of this interpretation is not
expected to have a material 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 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 FIN 45, and amends
certain other existing pronouncements. SFAS 149 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's adoption of SFAS 149 did not have a
material impact on its financial position, cash flows or results of operations.
F-14
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 2 - Significant Accounting Policies and Procedures (continued)
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity"
("SFAS 150"), which requires that certain financial instruments, which under
previous guidance were accounted for as equity, must now be accounted for as
liabilities. The financial instruments affected include mandatory redeemable
stock, certain financial instruments that require or may require the issuer to
buy back some of its shares in exchange for cash or other assets and certain
obligations that can be settled with shares of stock. SFAS 150 is effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. iVillage's adoption of SFAS 150 did not have a material
impact on its financial position, cash flows or results of operations.
In December 2003, the SEC issued Securities Accounting Bulletin, or
SAB, No. 104, "Revenue Recognition", or SAB 104, which supercedes SAB No. 101,
"Revenue Recognition in Financial Statements", or SAB 101. SAB 104's primary
purpose is to rescind accounting guidance contained in SAB 101 related to
multiple element revenue arrangements, superceded as a result of the issuance of
EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables", or
EITF 00-21. Additionally, SAB 104 rescinds the SEC's "Revenue Recognition in
Financial Statements Frequently Asked Questions and Answers", or FAQ, issues
with SAB 101 that had been codified in SEC Topic 13, "Revenue Recognition".
Selected portions of the FAQ have been incorporated into SAB 104. While the
wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the
revenue recognition principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. iVillage's adoption of SAB 104 was required immediately and
did not have a material impact on its financial position, cash flows or results
of operations.
Note 3 - Fixed Assets
Fixed assets consist of the following:
December 31,
--------------------------
2003 2002
---- ----
(in thousands)
Computer equipment...................................................... $ 16,365 $ 16,971
Capitalized software.................................................... 4,392 3,936
Hospital video equipment................................................ 3,316 3,146
Leasehold improvements.................................................. 6,013 15,157
Furniture and fixtures.................................................. 2,594 3,560
Web site development costs.............................................. 2,726 2,640
--------- ---------
35,406 45,410
Less, accumulated depreciation and amortization......................... (28,137) (28,253)
--------- ---------
$ 7,269 $ 17,157
========== ==========
F-15
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 3 - Fixed Assets - (Continued)
Depreciation and amortization of fixed assets was approximately $3.8
million, $6.4 million and $7.1 million for the years ended December 31, 2003,
2002 and 2001, respectively.
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 under 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 were included in the consolidated
statements of operations in the caption, "Lease restructuring charge and related
impairment of fixed assets." (See Note 12 - Lease Restructuring Charge and
Related Impairment of Fixed Assets).
During the second quarter of 2003, iVillage restructured the business
operations of Promotions.com (See Note 4 - Goodwill) resulting in an impairment
of computer equipment, net of accumulated depreciation, of approximately $0.7
million. This amount is included in the consolidated statements of operations in
the caption, "Impairment of goodwill, intangible assets and fixed assets."
Note 4 - Goodwill
Effective January 1, 2002, iVillage adopted SFAS 142, which 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 in 2002, 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. Upon completion of the annual impairment test, the fair value
of Reporting unit - 4 did not exceed the reporting unit's carrying amount and an
impairment was recorded of approximately $1.0 million in the fourth 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 consolidated statements of
operations in the caption, "Impairment of goodwill, intangible assets and fixed
assets."
In 2003, iVillage recorded an adjustment to purchase accounting for
Reporting Unit 4 of approximately $0.3 million, primarily due to a change in
value allocated from trademarks and domain names of approximately $0.2 million.
(See Note 5 -Intangible Assets).
In October 2003, iVillage acquired the remaining 19.9% of CBV (See Note
7 -Business Acquisitions and Dispositions - Cooperative Beauty Ventures,
L.L.C.).
In December 2003, iVillage completed the annual impairment test and no
impairment was recognized.
The following table sets forth the components of goodwill, net as of
December 31, 2003 and December 31, 2002 (in thousands):
Adjustment to
December 31, Impairment purchase December 31,
2002 Acquisition losses accounting 2003
------------ ----------- ---------- ---------- ------------
Reporting unit - 1 $18,770 $ 314 $ -- $ -- $19,084
Reporting unit - 2 1,693 -- -- -- 1,693
Reporting unit - 3 1,803 -- -- -- 1,803
Reporting unit - 4 2,351 -- (2,646) 295 --
------- ------- ------- ------- -------
$24,617 $ 314 $(2,646) $ 295 $22,580
======= ======= ======= ======= =======
Reporting unit - 1 includes the iVillage, Women.com Networks, Inc.,
Astrology.com and CBV 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.
F-16
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 - Intangible Assets
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 accordance with
the provisions of SFAS 144. During the second quarter of 2003, iVillage
restructured the business operations of Reporting unit - 4 (See Note 4 -
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 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. The
purchase price was fully allocated to advertiser and members lists and customer
contracts.
In October 2003, iVillage acquired the remaining 19.9% of CBV (See Note
7 -Business Acquisitions and Dispositions - Cooperative Beauty Ventures,
L.L.C.). In connection with this purchase, iVillage acquired intangible assets
of advertiser and members lists and customer contracts and technology of
approximately $0.1 million and $45,000, respectively.
Identifiable intangible assets are amortized under the straight-line
method over the period of expected benefit ranging from one to ten years. The
following table sets forth the components of the intangible assets subject to
amortization for the years ended December 31, 2003 and December 31, 2002 (in
thousands):
December 31, 2003
---------------------------------------------------------------------------------------------------
Range
of Gross Adjustment
useful carrying to purchase Impairment Accumulated
life amount Acquisition accounting losses amortization Net
---- ------ ----------- ---------- ------ ------------ ---
Advertiser and member
lists and customer
contracts.................... 2-10 years $ 21,150 $ 295 $ - $ (718) $ (11,253) $ 9,474
Trademarks and
domain names................. 3 years 3,424 - (197) - (2,775) 452
Licensing agreement............. 10 years 2,900 - - - (1,265) 1,635
Technology...................... 3 years 890 45 - - (507) 428
Non-competition
Agreements................... 1 year 810 - - - (810) -
Content......................... 3 years 600 - - - (600) -
------- ----- ------ ------ --------- --------
$29,774 $ 340 $ (197) $ (718) $ (17,210) $ 11,989
======= ===== ====== ====== ========= ========
December 31, 2002
-------------------------------------------------
Gross
carrying Accumulated
amount amortization Net
------ ------------ ---
Advertiser and member
lists and customer
contracts.................... $ 21,150 $ (7,803) $ 13,347
Trademarks and
domain names.............. 3,424 (2,009) 1,415
Licensing agreement........ 2,900 (975) 1,925
Technology................... 890 (210) 680
Non-competition
Agreements................. 810 (810) -
Content......................... 600 (600) -
-------- --------- --------
$ 29,774 $(12,407) $ 17,367
======== ========= ========
Amortization expense for the years ended December 31, 2003, 2002 and
2001 was approximately $4.8 million, $5.5 million and $16.6 million,
respectively. Amortization expense related to goodwill was approximately $12.5
million for the year ended December 31, 2001. Excluding this amortization,
adjusted net loss for 2001 was approximately $36.0 million and the basic and
diluted net loss per share was $0.84.
Estimated amortization expense for the years ending December 31, are as
follows (in thousands):
2004.................................... $ 3,494
2005.................................... 2,007
2006.................................... 1,842
2007.................................... 1,760
2008.................................... 1,760
---------
$ 10,863
=========
F-17
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6 - Related-Party Transactions
America Online, Inc. (a division of Time Warner Inc. ("AOL"))
AOL is a shareholder of iVillage with board of director representation.
On December 31, 1998, iVillage entered into an interactive services agreement
with AOL (the "1998 AOL Agreement"), which superseded a prior agreement. The
1998 AOL Agreement expired on December 31, 2000 and was extended until December
31, 2001 for a monthly fee of approximately $0.3 million.
On February 20, 2000, iVillage entered into an interactive services
agreement with AOL (the "Astrology AOL Agreement"). iVillage was obligated to
pay AOL six quarterly installments of approximately $0.4 million commencing on
September 6, 2000. The Astrology AOL Agreement expired on June 5, 2002.
Women.com, a subsidiary of iVillage acquired in June 2001, was party to
an interactive services agreement with AOL (the "Women.com AOL Agreement"). On
December 14, 2001, Women.com terminated the Women.com AOL Agreement, which had a
remaining financial commitment of approximately $2.1 million. In consideration
of the early termination of the Women.com AOL Agreement, Women.com incurred fees
of $0.7 million.
In December 2001, iVillage entered into an advertising agreement with
AOL pursuant to which AOL was obligated to deliver a guaranteed amount of
impressions during the period from December 2001 through January 2002. In
consideration of these services, iVillage paid AOL $0.7 million.
In 2002, iVillage entered into a Web pointing agreement with AOL,
pursuant to which AOL provided a link to iVillage's Web site. The agreement
terminated on September 30, 2002, and in consideration of these services,
iVillage paid AOL approximately $0.2 million.
During 2003, iVillage signed six advertising agreements with AOL to
promote various AOL products. Of these six agreements, five were completed as of
December 31, 2003 and the remaining agreement is expected to be completed by
January 2004. In consideration of these services, AOL paid iVillage
approximately $0.4 million in 2003. At December 31, 2003 and 2002, approximately
$0.1 million and no amount was due from AOL, respectively, and no amounts were
owed to AOL, respectively.
Included in the caption "Revenues" in the consolidated statements of
operations is approximately $0.5 million from iVillage's AOL agreements for the
year ended December 31, 2003. No revenues were recognized from AOL for the
comparable periods in 2002 and 2001.
Included in the caption "Sales and marketing" in the consolidated
statements of operations is approximately $1.3 million and $4.6 million of
expense from iVillage's AOL agreements for the year ended December 31, 2002 and
2001, respectively. No expense was recognized from AOL for the year ended
December 31, 2003.
National Broadcasting Company, Inc.
National Broadcasting Company, Inc. ("NBC") was a shareholder of
iVillage. During 1998, as amended in March 1999, iVillage entered into a stock
purchase agreement with NBC pursuant to which iVillage issued shares of
Preferred Stock and warrants in exchange for a promissory note of approximately
$15.5 million. The note, which bore interest at the rate of 5% per annum, was
payable in twelve installments of approximately $1.4 million, payable quarterly,
beginning April 1, 1999.
The fair value of the warrants of approximately $8.4 million was
recorded in stockholders' equity as deferred advertising costs and was amortized
over the three-year advertising agreement. The fair value of the warrants was
determined using the Black-Scholes option pricing model.
In addition, among other things, iVillage agreed to purchase, for cash,
$8.5 million per year of advertising and promotional spots during 2000 and 2001,
respectively. In February 2001, iVillage further amended its November 1998
agreement with NBC to provide for an extension of time during which iVillage
must purchase its advertising or promotional spots on the NBC network. The
revised terms required iVillage to purchase approximately $11.6 million of
advertising or promotional spots between January 30, 2001 and December 31, 2002,
with $3.0 million of such spots being telecast during the year 2001 and the
remaining approximately $8.6 million during the year 2002. During 2001, iVillage
purchased approximately $1.6 million of advertising or promotional spots and the
parties orally agreed to defer the remaining advertising commitment for 2001
until a mutually agreed upon period in the future.
F-18
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6 - Related-Party Transactions (continued)
On February 22, 2002, iVillage amended its agreement with NBC, pursuant
to which NBC released iVillage from its obligation to make the remaining
approximately $4.6 million in cash payments and to place any additional
advertising on NBC, in exchange for the purchase of approximately $1.3 million
in telecast spots in February 2002 by iVillage and the forfeiture of its right
to the remaining approximately $4.1 million in advertising that iVillage had
prepaid. The approximately $4.1 million charge is included in the
caption "Termination of NBC advertising contract" in the consolidated statement
of operations for the year ended December 31, 2002.
Hearst Communications, Inc.
As of December 31, 2003, Hearst owned approximately 29% of iVillage's
outstanding common stock.
On February 5, 2001, iVillage entered into a securities purchase
agreement with Hearst and amended and restated such agreement on February 22,
2001. Pursuant to the terms of the amended and restated securities purchase
agreement, Hearst agreed to purchase from iVillage 9,324,000 shares of
iVillage's common stock and a warrant exercisable for 2,100,000 shares of
iVillage's common stock at $0.01 per share less the amounts of common stock and
warrants purchased by the other former Women.com stockholders pursuant to a
rights offering. In addition, under the amended and restated securities purchase
agreement, Hearst agreed to purchase, or was required to purchase, additional
shares of iVillage's common stock in the event of any shortfall in the amount of
Women.com's cash and working capital on March 31, 2001. Finally, Hearst was
required to purchase from iVillage additional shares of iVillage's common stock
in the event that in excess of 2% of the Women.com stockholders exercised
appraisal rights.
Accordingly, on June 18, 2001, Hearst purchased 9,171,343 shares of
iVillage's common stock and a warrant to purchase 2,065,695 shares of iVillage's
common stock for an aggregate purchase price of approximately $19.7 million.
Hearst did not purchase any shares of iVillage's common stock pursuant to the
shortfall provisions and the appraisal rights provisions of the amended and
restated securities purchase agreement described above.
As a condition to Hearst's obligation to purchase shares of iVillage's
common stock and warrant pursuant to the amended and restated securities
purchase agreement, iVillage agreed to conduct a rights offering under which
each former Women.com stockholder as of April 16, 2001, other than Hearst, would
have the opportunity to purchase their pro rata portion of the 9,324,000 shares
of iVillage's common stock and warrant exercisable for 2,100,000 shares of
iVillage's common stock offered to Hearst. On June 15, 2001, the rights offering
was completed and, shortly thereafter, iVillage issued to the former Women.com
stockholders, other than Hearst, 152,657 shares of iVillage's common stock and
warrants to purchase an additional 34,305 shares of iVillage's common stock for
an aggregate purchase price of approximately $0.3 million.
The warrants for common stock were not exercisable unless at the time
of exercise the average closing price of iVillage's common stock exceeds $3.75
for 15 consecutive trading days. (See Note 16 - Subsequent Events).
On June 18, 2001, and as amended and restated on June 20, 2001,
iVillage entered into a stockholder agreement with Hearst pursuant to which
iVillage is required to appoint a maximum of three representatives of Hearst to
separate classes of iVillage's board of directors. The number of representatives
from Hearst is determined by the amount of shares of iVillage's common stock
held by Hearst or its affiliates. Currently, Hearst has three designees on
iVillage's board of directors.
The amended and restated stockholder agreement terminates on June 20,
2006 unless earlier terminated by iVillage and Hearst. Upon any early
termination, any Hearst designees serving on iVillage's board of directors must
immediately resign.
As part of the acquisition of Women.com, iVillage assumed an amended
and restated magazine content license and hosting agreement with Hearst. Under
this agreement, and as further amended by iVillage and Hearst on June 18, 2001
and in April 2002, iVillage will provide production and hosting services for
certain Web sites affiliated with selected Hearst magazines. In consideration
for these services, Hearst agreed to:
o pay iVillage approximately $10.2 million for production services
during the three-year term of the agreement (approximately $4.5
million in year one, $2.8 million in year two and $2.9 million in
year three);
F-19
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6 - Related-Party Transactions (continued)
o place approximately $8.0 million of Hearst advertising during the
three-year term of the agreement (approximately $2.2 million in year
one and $2.9 million in each of years two and three) on the iVillage
network, which amount may be increased in any year of the agreement
if Hearst fails to pay iVillage the required fees for production
services as described above. If such a shortfall in production fees
occurs in any year of the agreement, Hearst must place additional
advertising in an amount equal to 40% of the production fee
shortfall; and
o grant to iVillage a right of first offer on any new Internet-based
development projects initiated by Hearst that are appropriate for
inclusion on the iVillage network.
The agreement also provides for revenue sharing between iVillage and
Hearst with respect to advertising revenues obtained by iVillage from the Hearst
magazine Web sites and other Web sites of iVillage containing substantial Hearst
content. This revenue sharing arrangement requires that iVillage pay Hearst a
royalty payment, based on net advertising revenues, of at least $3.9 million
during the three-year term of the agreement. This amount would be reduced on a
pro rata basis if Hearst failed to expend at least $5.0 million in production
fees in any year of the agreement.
Additionally, iVillage is entitled to a commission derived from the
sale of Hearst magazine subscriptions made through iVillage's network of Web
sites. This commission is equal to thirty percent of gross revenues.
The Magazine Content License and Hosting Agreement expires on June 18,
2004. However, the agreement may be terminated by either party immediately upon
written notice to the other party in the event of a bankruptcy, insolvency or a
change of control of the other party.
In 2002, iVillage signed contracts with Hearst to provide production
and certain hosting services for two additional magazine sites, as well as The
Hearst Corporation corporate Web site.
In December 2003, iVillage signed a Web site services agreement in
which Hearst will pay approximately $1.9 million for maintenance and hosting
services for three teen sites: Seventeen.com, CosmoGirl.com and Teen.com. The
agreement terminates in December 2005. Additionally, iVillage, from time to
time, has provided other production services outside the scope of the Magazine
Content License and Hosting Agreement at negotiated rates.
As part of the acquisition of Women.com, iVillage acquired
approximately $4.9 million of prepaid print advertising in certain Hearst
magazines. For the year ended December 31, 2003, iVillage recognized
approximately $0.4 million of non-cash print advertising expense and expired
credits from this advertising. For the comparable period in 2002, iVillage
recognized approximately $2.7 million of non-cash print advertising expenses. As
of December 31, 2003 and 2002, included in the caption "Other current assets" in
the consolidated balance sheets is no amount and approximately $0.4 million of
prepaid Hearst print advertising, respectively.
Revenues, net of royalty payments, from Hearst, for the years ended
December 31, 2003, 2002 and 2001 were approximately $6.3 million, $6.4 million
and $4.3 million, respectively. As of December 31, 2003, iVillage recorded a net
receivable of approximately $1.3 million from this stockholder. As of December
31, 2002, iVillage recorded a net payable of approximately $7,000 to this
stockholder.
Stockholder Note Receivable
In June 1998, iVillage accepted a non-recourse promissory note in the
principal amount of $0.5 million (the "Note") from its then chief executive
officer ("Former CEO"). The Note is collateralized by 20,000 shares of
iVillage's common stock owned by the Former CEO and are held by iVillage.
Interest was payable annually on December 31 of each year, commencing December
31, 1998, at the rate of 5.58%. During 2000, the maturity date of the
outstanding principal balance on the Note was extended to December 31, 2002,
from the initial maturity date of June 5, 2001.
In December 2002, the maturity date of the outstanding principal
balance of the Note was extended to December 31, 2004, from the previous amended
maturity date of December 31, 2002. In December 2002, iVillage provided for a
reserve against the Note of approximately $0.4 million to reflect its
approximate realizable value. The note is recorded as a stockholder note
receivable and classified as a reduction of equity. Payments received in 2003,
2002 and 2001 for interest totaled $21,000, $27,900 and approximately $0.1
million, respectively.
F-20
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 6 - Related-Party Transactions (continued)
In October 2000, as amended in April 2001, iVillage entered into an
agreement with the Former CEO, to provide that she would resign as a member of
iVillage's board of directors but would remain an iVillage employee available
for special projects at the request of iVillage's current Chief Executive
Officer and board of directors through December 31, 2002.
In Note 6 - Related-Party Transactions (continued)
consideration, the Former CEO received a one-time lump sum cash payment of
$1,327,900 (less an interest payment of $27,900 on the Note to iVillage) in lieu
of the salary, bonus and other payments set forth in her October 2000 agreement
with iVillage and received a monthly salary of $3,758 in 2001 and $3,190 in 2002
(each were less set-offs for interest payments on the Note). iVillage's
obligation to pay the Former CEO's salary terminated on December 31, 2002.
Note 7 - Business Acquisitions and Dispositions
Cooperative Beauty Ventures, L.L.C.
On February 15, 2000, iVillage and Unilever announced the formation of
an independently managed company to provide women within a highly focused
community with an array of interactive, customized online services, beauty and
personal care products and personalized product recommendations. Unilever and
iVillage planned to provide cash, intellectual property, marketing and other
resources. Unilever provided capital as well as sponsorship and promotional
initiatives. iVillage provided its Beauty channel, capital, intellectual
property, services and promotion.
In March 2001, iVillage purchased 30.1% of CBV d/b/a Substance.com (the
"venture") from Unilever for $1.5 million increasing its ownership to 80.1%. The
difference between the purchase price and the fair value of the 30.1% acquired
of approximately $1.5 million was recorded as goodwill.
As a result of the purchase transaction described above, iVillage
gained operational control of the venture and the venture has been consolidated
within iVillage's financial statements beginning in March 2001. Prior to
consolidation, the venture was accounted for under the equity method of
accounting and iVillage recognized losses from the joint venture of
approximately $0.1 million for 2001.
In October 2003, iVillage purchased the remaining 19.9% ownership
interest of CBV from Unilever for approximately $0.7 million, resulting in such
entity being 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. (See Note 14 - Capital Stock -Treasury Stock). The difference in the
purchase price of the 19.9% and the net assets acquired of approximately $0.5
million was allocated to goodwill and intangible assets of advertiser and member
lists and customer contracts and technology. (See Note 4 - Goodwill and Note 5 -
Intangible Assets).
Women.com Networks, Inc.
On June 18, 2001, iVillage acquired all of the outstanding stock of
Women.com, the operator of a leading women's online destination. The aggregate
purchase price paid was approximately $33.1 million consisting of approximately
$3.2 million in cash (inclusive of closing costs) and 15,519,838 shares of
iVillage's common stock. The difference between the purchase price and the fair
value of the acquired net assets of Women.com of approximately $20.7 million was
recorded as goodwill.
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital......................................................... $ 3,136
Fixed assets............................................................ 1,456
Customer contracts and related customer relationships................... 4,910
Trademarks and domain names............................................. 2,000
Non-competition agreements.............................................. 810
Goodwill................................................................ 20,773
--------
$ 33,085
========
F-21
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 7 - Business Acquisitions and Dispositions (continued)
Public Affairs Group, Inc.
On July 16, 2001, iVillage acquired control of PAG, a comprehensive
source of information and program linkage that serves as an international
platform for diversity and women offering an extensive database of women's
organizations, best practices and guidance in the areas of workplace diversity,
women and corporate communications to subscribing companies and members. The
purchase price was approximately $0.6 million. The difference between the
purchase price and the fair value of the acquired net assets of PAG of
approximately $1.8 million was recorded as goodwill. The cost of the acquisition
was allocated to the assets acquired and liabilities assumed based upon their
estimated fair values as follows (in thousands):
Working capital...................................................... $ (1,167)
Goodwill............................................................. 1,803
----------
$ 636
==========
Promotions.com, Inc.
On April 18, 2002, iVillage acquired 82.3% of the outstanding shares of
common stock of Promotions.com, a promotion and direct marketing company. On May
24, 2002, iVillage acquired the remaining outstanding shares of Promotions.com
common stock through a second-step merger. The aggregate purchase price paid was
approximately $15.2 million, consisting of approximately $11.1 million of cash
(inclusive of closing costs) and 1,587,191 shares of iVillage's common stock.
The $11.1 million of cash included approximately $10.2 million of cash, which
represented the net cash on the balance sheet of Promotions.com. The difference
between the purchase price and the fair value of the acquired net assets of
Promotions.com of approximately $3.0 million was recorded as goodwill. (See Note
4 - Goodwill and Note 5 - Intangible Assets).
The cost of the acquisition was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values as follows (in
thousands):
Working capital...................................................... $ 8,103
Fixed assets......................................................... 1,196
Customer contracts and member list................................... 1,540
Technology........................................................... 890
Trademarks and domain names.......................................... 477
Goodwill............................................................. 2,995
---------
$ 15,201
=========
The accompanying unaudited pro forma information for 2002 and 2001
represents consolidated results of operations for iVillage as if the
acquisitions of Women.com and Promotions.com had been consummated on January 1,
2001. The acquisition of PAG and the additional interest purchases in CBV would
not have had a material impact on the pro forma information. The pro forma
information does not necessarily reflect the actual results that would have been
achieved, nor is it necessarily indicative of future consolidated results of
iVillage.
2002 2001
----------------------------------
(in thousands, except per share data)
Revenues........................ $ 61,014 $ 81,453
Loss from operations............ $ (27,477) $ (89,423)
Net loss........................ $ (36,150) $ (86,807)
Net loss per share.............. $ (0.65) $ (1.55)
During the fourth quarter of 2003, iVillage received a negotiated
settlement concerning disputed amounts from the owners of a prior business
acquisition of approximately $0.5 million. This amount is included in the
consolidated financial statements of operations, in the caption, "Other income
(expense), net."
F-22
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 8 - Detail of Certain Balance Sheet Accounts
2003 2002
------- ----------
(in thousands)
Other current assets:
Prepaid expenses, other...................................... $ 1,762 $ 1,700
Prepaid publication costs.................................... 1,440 1,716
Prepaid advertising.......................................... 206 874
Due from affiliate........................................... 49 106
Reimbursement from landlord.................................. - 1,262
Other........................................................ 63 302
-------- --------
$ 3,520 $ 5,960
======== ========
Accounts payable and accrued expenses:
Accounts payable............................................. $ 2,927 $ 2,969
Sales commissions, payroll, bonus and related benefits....... 2,971 1,385
Professional fees............................................ 768 718
Third party service providers................................ 448 165
Advertising expenses......................................... 224 316
Corporate and real estate taxes.............................. 99 906
Accrued rent and other facility costs........................ 23 634
Other........................................................ 2,981 3,226
---------- ---------
$ 10,441 $ 10,319
======== ========
Note 9 - 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 is
classified as other income and is included in the 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 December 31, 2003, iVillage has
received approximately $0.7 million.
Note 10 - Discontinued Operations
As of December 31, 2003 and 2002, included in the caption "Other
current liabilities" in the consolidated balance sheets is approximately $0.1
million of current liabilities of discontinued operations.
Note 11 - Stock Option Plans
1995 Amended and Restated Employee Stock Option Plan
In 1995, iVillage's board of directors and stockholders adopted
iVillage's 1995 Amended and Restated Employee Stock Option Plan (as amended, the
"ESOP"). The ESOP provides for the granting, at the discretion of the stock
option committee of the board of directors (the "SOC"), of: (i) options that are
intended to qualify as incentive stock options, within the meaning of Section
422 of the Internal Revenue Code of 1986 (the "Code"), as amended, to employees
and (ii) options not intended to so qualify to employees, officers, consultants
and directors. The total number of shares of common stock for which options may
be granted under the ESOP is 1,802,549.
The exercise price of all stock options granted under the ESOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the ESOP is 10 years from the date of grant. Options shall become
exercisable at such times and in such installments as the SOC shall provide in
the terms of each individual option.
F-23
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 11 - Stock Option Plans (continued)
The exercise price of all of the options under the ESOP ranges from
$0.56-$40.38, and is determined based upon the fair market value of iVillage's
common stock on the date of grant. Generally, the options vest 25% after one
year, 0.0625% quarterly thereafter, unless the employee has over one year of
continuing service with iVillage, in which case, the options will vest 0.0625%
every quarter, and expire 5-10 years from the date of grant.
As of December 31, 2003, there were no shares available for future
grants under the ESOP.
1997 Amended and Restated Acquisition Stock Option Plan
In May 1997, iVillage's board of directors and stockholders adopted
iVillage's 1997 Amended and Restated Acquisition Stock Option Plan (as amended,
the "ASOP"). The ASOP provides for the granting, at the discretion of the SOC
of: (i) options that are intended to qualify as incentive stock options, within
the meaning of Section 422 of the Code, as amended, to directors who are
employees of iVillage or any of its subsidiaries, or as part of one or more of
such acquisitions and (ii) options not intended to so qualify to employees,
officers, consultants and directors of iVillage, or as part of one or more of
such acquisitions. The total number of shares of common stock for which options
may be granted under the ASOP is 360,726.
The exercise price of all stock options granted under the ASOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the ASOP is 10 years from the date of grant. Options shall become
exercisable at such times and in such installments as the SOC shall provide in
the terms of each individual option.
Generally, the options vest 25% after one year, 0.0625% quarterly
thereafter, unless the employee has over one year of continuing service with
iVillage, in which case, the options will vest 0.0625% every quarter, and expire
7-10 years from the date of grant. The exercise price of all of the options
under the ASOP ranges from $1.76 to $6.00, and is determined based upon the fair
market value of iVillage's common stock on the date of grant.
As of December 31, 2003, 10 shares were available for future grants
under the ASOP.
1999 Employee Stock Option Plan
In 1999, iVillage's board of directors and stockholders adopted
iVillage's Amended and Restated 1999 Employee Stock Option Plan (as amended, the
"1999 ESOP"). The 1999 ESOP provides for the granting, at the discretion of the
SOC, of: (i) options that are intended to qualify as incentive stock options,
within the meaning of Section 422 of the Code, as amended, to employees and (ii)
options not intended to so qualify to employees, officers, consultants, and
directors. The total number of shares of common stock for which options may be
granted under the 1999 ESOP is 2,840,163.
The exercise price of all stock options granted under the 1999 ESOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the 1999 ESOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
The exercise price of all of the options under the 1999 ESOP ranges
from $0.57-$96.75, and is determined based upon the fair market value of
iVillage's common stock on the date of grant. Generally, the options vest 25%
after one year, 0.0625% quarterly thereafter, unless the employee has over one
year of continuing service with iVillage, in which case, the options will vest
0.0625% every quarter, and expire 5-10 years from the date of grant.
As of December 31, 2003, there were 74,964 shares available for future
grants under the 1999 ESOP.
1999 Acquisition Stock Option Plan
In 1999, iVillage's board of directors and stockholders adopted
iVillage's 1999 Acquisition Stock Option Plan (as amended, the "1999 ASOP"). The
1999 ASOP provides for the granting, at the discretion of the SOC, of: (i)
options that are intended to qualify as incentive stock options, within the
meaning of Section 422 of the Code, as amended, to employees of iVillage or any
of its subsidiaries, or as part of one or more of such acquisitions and (ii)
options not intended to so qualify to employees, officers, consultants, and
directors of iVillage, or as part of one or more of such acquisitions. The total
number of shares of common stock for which options may be granted under the 1999
ASOP is 333,333.
F-24
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 11 - Stock Option Plans (continued)
The exercise price of all stock options granted under the 1999 ASOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the 1999 ASOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
Generally, the options vest 25% after one year, 0.0625% quarterly
thereafter, unless the employee has over one year of continuing service with
iVillage, in which case, the options will vest 0.0625% every quarter, and expire
7-10 years from the date of grant. The exercise price of all of the options
under the 1999 ASOP ranges from $1.24-$24.00, and is determined based upon the
fair market value of iVillage's common stock on the date of grant.
As of December 31, 2003, there were 47,971 shares available for future
grants under the 1999 ASOP.
1999 Non-Qualified Stock Option Plan
In 1999, iVillage's board of directors adopted iVillage's 1999
Non-Qualified Stock Option Plan (as amended, the "NQSOP"). The NQSOP provides
for the granting, at the discretion of the SOC, of options to employees. The
total number of shares of common stock for which options may be granted under
the NQSOP is 5,682,000.
The exercise price of all stock options granted under the NQSOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the NQSOP is 10 years from the date of grant. Options shall become
exercisable at such times and in such installments as the SOC shall provide in
the terms of each individual option.
The exercise price of all of the options under the NQSOP ranges from
$0.50-$25.38, and is determined based upon the fair market value of iVillage's
common stock on the date of grant. The options vest 25% after one year, and then
0.0625% quarterly thereafter, unless the employee has over one year of
continuing service with iVillage, in which case, the options will vest 0.0625%
every quarter, and expire 10 years from the date of grant.
As of December 31, 2003, there were 910,722 shares available for future grants
under the NQSOP.
F-25
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 11 - Stock Option Plans (continued)
Director Option Plan
In 1999, iVillage's board of directors and stockholders adopted
iVillage's 1999 Director Option Plan ("DOP"). The DOP provides for the automatic
grant of 1,666 non-qualified stock options to non-employee members of iVillage's
board of directors on the date of each annual stockholders' meeting. The total
number of shares of common stock for which options may be granted under the DOP
is 133,333.
The exercise price of all stock options granted under the DOP is the
fair market value at the time of grant. The maximum term of each option under
the DOP is 10 years from the date of grant.
The exercise price of all of the options under the DOP ranges from
$1.07 to $25.38, and is determined based upon the fair market value of
iVillage's common stock on the date of grant. Generally, the options vest 25% on
each anniversary of the grant date and expire 10 years from the date of grant.
As of December 31, 2003, 112,925 shares were available for future
grants under the DOP.
2001 Non-Qualified Stock Option Plan
In 2001, iVillage's board of directors adopted iVillage's 2001
Non-Qualified Stock Option Plan (as amended, the "2001 NQSOP"). The 2001 NQSOP
provides for the granting, at the discretion of the SOC, of options to
employees. The total number of shares of common stock for which options may be
granted under the 2001 NQSOP is 2,000,000.
The exercise price of all stock options granted under the 2001 NQSOP is
determined by the SOC at the time of grant. The maximum term of each option
granted under the 2001 NQSOP is 10 years from the date of grant. Options shall
become exercisable at such times and in such installments as the SOC shall
provide in the terms of each individual option.
The exercise price of all of the options under the 2001 NQSOP ranges
from $0.61 to $2.90, and is determined based upon the fair market value of
iVillage's common stock on the date of grant. The options vest 25% after one
year, and then 0.0625% quarterly thereafter, unless the employee has over one
year of continuing service with iVillage, in which case, the options will vest
0.0625% every quarter, and expire 10 years from the date of grant.
As of December 31, 2003, there were no shares available for future
grants under the 2001 NQSOP.
A summary of the status and activity of all of iVillage's stock option
plans is as follows:
Weighted
Average Exercise
Options Price Per Share
---------- ----------------
Outstanding, January 1, 2001.......................... 6,420,224 $ 12.53
Granted............................................... 7,274,270 $ 1.26
Exercised............................................. (5,046) $ 0.57
Expired/Canceled...................................... (2,111,662) $ 11.03
---------- --------
Outstanding, December 31, 2001........................ 11,577,786 $ 5.34
Granted............................................... 1,395,587 $ 1.55
Exercised............................................. (587,529) $ 1.26
Expired/Canceled...................................... (1,700,099) $ 7.38
---------- --------
Outstanding, December 31, 2002........................ 10,685,745 $ 4.74
Granted............................................... 2,110,300 $ 2.36
Exercised............................................. (685,188) $ 1.28
Expired/Canceled...................................... (1,774,979) $ 6.82
---------- --------
Outstanding, December 31, 2003........................ 10,335,878 $ 4.20
========== ========
Options exercisable at December 31, 2001.............. 4,254,014 $ 7.67
========== ========
Options exercisable at December 31, 2002.............. 5,588,353 $ 6.24
========== ========
Options exercisable at December 31, 2003.............. 6,481,486 $ 5.51
========== ========
F-26
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 11 - Stock Option Plans (continued)
Information about stock options outstanding as of December 31, 2003 is as
follows:
Options Outstanding Options Exercisable
--------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Actual Range of Exercise Prices at 12/31/03 Life Price at 12/31/03 Price
- ------------------------------- ----------- ----------- -------- ----------- --------
$0.50 - $0.75...................... 226,500 7.70 $ 0.62 53,374 $ 0.60
$0.78 - $1.16...................... 596,998 8.10 $ 1.08 244,672 $ 1.08
$1.19 - $1.78...................... 4,943,657 5.80 $ 1.29 3,734,823 $ 1.31
$1.81 - $2.70...................... 799,395 8.00 $ 1.94 147,150 $ 2.09
$2.74 - $3.50...................... 1,626,050 8.40 $ 2.84 228,750 $ 3.44
$5.00 - $7.50...................... 1,159,167 3.40 $ 5.96 1,113,317 $ 5.90
$7.69 - $9.45...................... 116,838 3.10 $ 8.20 105,879 $ 8.24
$15.41 - $22.19...................... 223,848 3.10 $ 17.68 210,096 $ 17.68
$23.69 - $33.56...................... 528,891 3.60 $ 25.17 528,891 $ 25.17
$35.94 - $44.25...................... 108,400 2.60 $ 41.29 108,400 $ 41.29
$55.25 - $72.94...................... 4,134 2.40 $ 67.16 4,134 $ 67.16
$96.75 - $96.75...................... 2,000 0.10 $ 96.75 2,000 $ 96.75
- ---------------- ---------- ---- --------- --------- ---------
$0.50 - $96.75...................... 10,335,878 6.00 $ 4.20 6,481,486 $ 5.51
========== ==== ========= ========= =========
1999 Employee Stock Purchase Plan
We adopted the 1999 ESPP in December 1998, and reserved 83,333 shares
of our common stock for issuance thereunder. As of December 31, 2003, however,
no shares have been issued under the 1999 ESPP. The 1999 ESPP, which is intended
to qualify under Section 423 of the Internal Revenue Code of 1986, as amended,
or the Code, is administered by our board of directors or by our compensation
committee. Under the 1999 ESPP, we may withhold a specified percentage (not to
exceed 15%) of each salary payment to participating employees over certain
offering periods. Any employee who is employed for at least 20 hours per week
for at least five consecutive months in a calendar year, with or by us or by one
of our majority-owned subsidiaries, is eligible to participate in the 1999 ESPP.
Unless the board of directors or the compensation committee determines
otherwise, each offering period runs for 24 months and is divided into four
consecutive purchase periods of approximately six months.
The price at which our common stock may be purchased under the 1999
ESPP is equal to 85% of the fair market value of our common stock on the first
day of the applicable offering period or the last day of the applicable purchase
period, whichever is lower. Participants may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment. The maximum number of shares that a
participant may purchase on the last day of any offering period is determined by
dividing the payroll deductions accumulated during the purchase period by the
purchase price. However, no person may purchase shares under the 1999 ESPP to
the extent such person would own 5% or more of the total combined value or
voting power of all classes of our capital stock or of any of our subsidiaries,
or to the extent that such person's rights to purchase stock under all employee
stock purchase plans would accrue at a rate that exceeds $25,000 worth of stock
for any calendar year. The board of directors may amend the 1999 ESPP at any
time. The 1999 ESPP will terminate in December 2009, unless terminated earlier
in accordance with its provisions.
401(k) Plan
iVillage offers its eligible employees the opportunity to participate
in a defined contribution retirement plan qualifying under the provisions of
Section 401(k) of the Internal Revenue Code. Each employee is eligible to
contribute, on a tax-deferred basis, a portion of annual earnings not to exceed
certain federal income tax limitations. iVillage may contribute at iVillage's
discretion, a percentage of the participant's pre-tax contribution.
Additionally, iVillage may elect to make a profit-sharing contribution, at its
discretion. No contributions were made by iVillage for the years ended December
31, 2003, 2002 and 2001, respectively.
Note 12 - 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 3 - 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 3 -
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 consolidated statements of operations in the
caption, "Lease restructuring charge and related impairment of fixed assets".
F-27
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 13 - Commitments and Contingencies
Leases
iVillage leases office and equipment, under non-cancelable operating
leases expiring at various dates through April 2015. The following is a schedule
of future minimum lease payments under non-cancelable operating leases as of
December 31, 2003 for the next five years:
Year ending December 31: (in thousands)
------------------------ --------------
2004............................................................ $ 2,107
2005............................................................ 1,994
2006............................................................ 1,733
2007............................................................ 1,475
2008............................................................ 1,470
Thereafter...................................................... 7,350
----------
$ 16,129
=========
Rent expense from operations was approximately $3.0 million, $3.3
million and $5.2 million for the years ended December 31, 2003, 2002 and 2001,
respectively. iVillage recognizes rent expense associated with its New York
office on a straight-line basis.
In addition, in the ordinary course of business, we enter into
agreements with various service providers for ad serving, satellite
transmissions and license/content arrangements.
Technology
Upon the expiration of the contract related to the satellite technology
used by iVillage Parenting Network, Inc. to transmit its television channels, or
in the event of an unforeseen earlier interruption of such technological
service, iVillage would need to either renegotiate a new contract, find another
satellite provider, and/or invest in alternative technology to distribute this
service.
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 December 31, 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 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 of 1933, as amended, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and rules promulgated by the Securities and
Exchange Commission (the "SEC"). The complaints seek class action certification,
unspecified damages in an amount to be determined at trial, and costs associated
with the litigation, including attorneys' fees.
In February 2003, the defendants' motion to dismiss certain of the
plaintiffs' claims was granted in part, but, for the most part, denied. 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 would 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 $1.1
million based on the Euro exchange rate as of December 31, 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.
Off-Balance Sheet Arrangements
In the ordinary course of business, iVillage enters into agreements
that contingently require it to indemnify counterparties against third-party
claims. These may include: agreements with advertisers and sponsors, under which
iVillage may indemnify them against claims arising from their use of iVillage's
products or services; agreements with customers, under which iVillage may
indemnify them against claims arising from their use of iVillage's products or
services; real estate and equipment leases, under which iVillage may indemnify
lessors against third-party claims relating to use of their property; agreements
with licensees or licensors, under which iVillage may indemnify the licensee or
licensor against claims arising from their use of iVillage's intellectual
property or iVilage's use of their intellectual property; and agreements with
initial purchasers and underwriters of our securities, under which iVillage
indemnifies them against claims relating to their participation in the
transactions.
The nature and terms of these indemnifications vary from contract to
contract, and generally a maximum obligation is not stated. Because iVillage is
unable to estimate its potential obligation, and because management does not
expect these indemnifications to have a material adverse effect on iVillage's
consolidated financial position, results of operations or cash flows, no related
liabilities are recorded as of December 31, 2003. iVillage holds insurance
policies that mitigate potential losses arising from certain indemnifications
and, historically, iVillage has not incurred significant costs related to
performance under these obligations.
F-28
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 14 - Capital Stock
Warrants
As of December 31, 2003, 2002 and 2001, there are outstanding warrants
to purchase shares of iVillage common stock of 2,105,282, 2,105,282 and
2,437,878, respectively, with a weighted average exercise price of $0.05, $0.05
and $2.22 per share, respectively. No warrants expired during 2003. During 2002
and 2001, respectively, 337,878 and 607,658 warrants with a weighted average
exercise price of $15.96 and $11.73 expired. (See Note 16 - Subsequent Events).
Treasury Stock
On September 20, 2001, iVillage announced its intention to acquire, in
open market transactions, up to 2,000,000 shares of its Common Stock, par value
$.01 per share (the "Common Stock"), subject to and in compliance with the
provisions and limitations of Rule 10b-18 of the Exchange Act. Purchases were
made several times during September 2001 at prevailing market prices. The source
of funds for the purchase of the shares was iVillage's general corporate funds,
and all shares purchased are held in treasury. During 2001, iVillage repurchased
167,859 shares at a cumulative cost of $129,313.
On October 1, 2001, iVillage announced a buyback of its common stock
from Capital Guardian Trust Company, a stockholder of iVillage, and iVillage
purchased, off market, approximately 1,000,000 shares and iVillage's Chairman
and Chief Executive Officer and certain Company officers and directors purchased
in aggregate approximately 750,000 additional shares, all at a market discount.
The cost of the buyback for iVillage was approximately $0.4 million.
In October 2003, 200,000 shares of iVillage's treasury stock were
issued for the purchase of the remaining 19.9% ownership interest of CBV. (See
Note 7 - Business Acquisitions and Dispositions - Cooperative Beauty Ventures,
L.L.C.).
Note 15 - Income Taxes
The components of the net deferred tax asset as of December 31, 2003
and 2002 consists of the following:
2003 2002
--------- ---------
(in thousands)
Operating loss carryforward.................................... $ 123,881 $ 98,262
Depreciation and amortization.................................. 5,233 4,485
Unearned compensation.......................................... 1,065 1,074
Bad debt allowance and reserves................................ 739 598
Other.......................................................... 840 685
--------- --------
Net deferred tax asset......................................... 131,758 105,104
Less, valuation allowance...................................... (131,758) (105,104)
--------- --------
Deferred tax asset.................................. $ - $ -
========= ========
The difference between iVillage's U.S. federal statutory rate of 34%,
as well as its state and local rate, net of a federal benefit, of 7%, when
compared to the effective rate is principally comprised of the valuation
allowance.
As of December 31, 2003, iVillage has a net operating loss carryforward
for federal income tax purposes of approximately $302.2 million, which begin to
expire in 2010. Substantial changes in iVillage's ownership have occurred which
may result in annual limitations on the amount of carryforwards which can be
realized in future periods. The net deferred tax asset has been fully reserved
due to the uncertainty of iVillage's ability to realize this asset in the
future. To the extent that deferred tax assets created as a result of iVillage
acquisitions reverse in future periods, the benefit of the reversal will be
recorded as goodwill.
F-29
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 15 - Income Taxes (Continued)
iVillage is subject to various state and local taxes. State and local
tax expense was approximately $0.4 million, $0.2 million and $0.5 million for
the years ended December 31, 2003, 2002 and 2001, respectively.
Note 16 - Subsequent Events
On January 14, 2004, Hearst exercised a warrant it received in
connection with a securities purchase agreement related to iVillage's
acquisition of Women.com and purchased 2,065,695 shares of common stock for
$0.01 per share. Pursuant to its terms, the warrant became exercisable when the
average closing price of our common stock had exceeded $3.75 for 15 consecutive
trading days prior to January 14, 2004, entitling Hearst to purchase each share
for $0.01. (See Note 6 -- Related Party Transactions -- Hearst.)
During February 2004, an aggregate of 29,449 shares of common stock
were issued to our existing investors in exchange for warrants they had acquired
in connection with a securities purchase agreement related to our acquisition of
Women.com. The remaining 4,856 warrants acquired in connection with our
acquisition of Women.com went unexercised and expired on February 18, 2004.
F-30
iVILLAGE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 17 -Quarterly Results of Operations (unaudited)
The following is a summary of the quarterly results of operations for
the years ended December 31, 2003 and 2002:
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(in thousands, except per share data)
2003
Revenue.............................................. $ 12,592 $ 13,204 $ 13,562 $15,863
========= ========= ======== =======
Net (loss) income.................................... $ (6,136) $ (12,059) $ (9,266) $ 332
========= ========= ======== =======
Basic and diluted net loss (income) per share....... $ (0.11) $ (0.22) $ (0.17) $ 0.01
========= ========= ======== =======
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(in thousands, except per share data)
2002
Revenue.............................................. $ 15,067 $ 16,072 $ 14,629 $13,655
========= ========= ======== =======
Net loss before cumulative effect of change in
accounting principle.............................. $ (8,715) $ (3,604) $ (4,968) $(7,468)
========= ========= ======== =======
Cumulative effect of change in accounting principle... $ (9,181) $ - $ - $ -
========= ========= ======== =======
Net loss............................................. $ (17,896) $ (3,604) $ (4,968) $(7,468)
========= ========= ======== =======
Basic and diluted net loss per share before
cumulative effect of change in accounting
principle......................................... $ (0.16) $ (0.07) $ (0.09) $ (0.13)
========= ========= ======== =======
Basic and diluted net loss per share from
cumulative effect of change in accounting
principle......................................... $ (0.18) $ - $ - $ -
========= ========= ======== =======
Basic and diluted net loss per share................. $ (0.34) $ (0.07) $ (0.09) $ (0.13)
========= ========= ======== =======
F-31
Schedule I
iVILLAGE INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions
---------------------------
Balance at Charged to Charged
Beginning Costs and to Other Balance at End
of Period Expenses Accounts Deductions of Period
--------- -------- -------- ---------- ---------
(in thousands)
For the year ended December 31, 2001:
Provision for doubtful accounts........ $ 1,007 $ - $ 1,630 (1) $ 351(2) $ 2,286
========= ====== ======== ======= =======
For the year ended December 31, 2002:
Provision for doubtful accounts........ $ 2,286 $ 552 $ (443)(1) $ 1,085(2) $ 1,310
========= ====== ======== ======= =======
For the year ended December 31, 2003:
Provision for doubtful accounts........ $ 1,310 $ 258 $ 78 (3) $ 512(2) $ 1,134
========= ====== ======== ======= =======
(1) Increase (decrease) in allowance for doubtful accounts in connection with
valuation of receivables from the acquisitions of Women.com and
Promotions.com.
(2) Doubtful accounts written off, net of cash received.
(3) Doubtful accounts written off against revenue.
All other schedules have been omitted because they are not applicable
or not required or because the information is included elsewhere in the
consolidated financial statements or the notes thereto.
S-1
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-Q Quarterly Report for the period
ended September 30, 2001, File No. 000-25469, filed on
November 14, 2001).
3.2 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Form 10-Q Quarterly Report
for the period ended June 30, 2001, File No. 000-25469,
filed on August 14, 2001).
4.1 Form of Registrant's common stock certificate (incorporated
by reference from Exhibit 4.1 to Registration Statement
File No. 333-68749, filed March 12, 1999).
10.1 Form of Indemnification Agreement between the Registrant
and its directors and officers (incorporated by reference
to Exhibit 10.1 to the Registrant's Registration Statement
on Form S-1, File No. 333-68749, filed on February 24,
1999).
10.2 1995 Amended and Restated Employee Stock Option Plan, as
amended, of the Registrant (incorporated by reference to
Exhibit 99.1 to the Registrant's Registration Statement on
Form S-8, File No. 333-86999, filed on September 13, 1999).
10.3 1997 Amended and Restated Acquisition Stock Option Plan of
the Registrant (incorporated by reference to Exhibit 10.3
to the Registrant's Registration Statement on Form S-1,
File No. 333-68749, filed on December 11, 1998).
10.4 Amended and Restated 1999 Employee Stock Option Plan of the
Registrant (incorporated by reference to Exhibit 99.1 to
the Registrant's Registration Statement on Form S-8, File
No. 333-31988, filed on March 8, 2000).
10.5 1999 Director Option Plan of the Registrant (incorporated
by reference to Exhibit 10.5 to the Registrant's
Registration Statement on Form S-1, File No. 333-85437,
filed on August 17, 1999).
10.6 1999 Employee Stock Purchase Plan of the Registrant
(incorporated by reference to Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1, File No.
333-85437, filed on August 17, 1999).
10.7 1999 Acquisition Stock Option Plan, as amended, of the
Registrant (incorporated by reference to Exhibit 99.3 to
the Registrant's Registration Statement on Form S-8 File
No. 333-86999, filed on September 13, 1999).
10.8 Amended and Restated 1999 Non-Qualified Stock Option Plan,
as amended by Amendment Number 2 (incorporated by reference
to Exhibit 10.8 to the Registrant's Registration Statement
on Form S-4, File No. 333-84532, filed on March 19, 2002).
10.9 Amended 2001 Non-Qualified Stock Option Plan of the
Registrant (incorporated by reference to Exhibit 10.1 to
the Registrant's Form 10-Q Quarterly Report for the period
ended June 30, 2002, File No. 000-25469, filed on August
14, 2002).
10.10 Form of Non-Competition, Non-Disclosure and Assignment of
Inventions Agreement dated September 9, 1995, and Amendment
dated May 6, 1996, between the Registrant and Nancy Evans
(incorporated by reference to Exhibit 10.15 to the
Registrant's Registration Statement on Form S-1, File No.
333-68749, filed on December 11, 1998).
1
10.11 Lease, dated March 14, 2000, between 500-512 Seventh Avenue
Limited Partnership and the Registrant (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 10-Q
Quarterly Report for the period ended March 31, 2000, File
No. 000-25469, filed on May 15, 2000).
10.12 First Amendment to Lease, dated as of June 7, 2000, between
the Registrant and 500-512 Seventh Avenue Limited
Partnership (incorporated by reference to Exhibit 10.3 to
the Registrant's Form 10-Q Quarterly Report for the period
ended September 30, 2000, File No. 000-25469, filed on
November 14, 2000).
10.13 Second Amendment to Lease, dated January 10, 2001, between
the Registrant and 500-512 Seventh Avenue Limited
Partnership (incorporated by reference to Exhibit 10.28 to
the Registrant's Registration Statement on Form S-4, File
No. 333-56150, filed on February 23, 2001).
10.14 Third Amendment to Lease, dated October 17, 2001, between
the Registrant and 500-512 Seventh Avenue Limited
Partnership (incorporated by reference to Exhibit 10.2 to
the Registrant's Form 10-Q Quarterly Report for the period
ended September 30, 2001, File No. 000-25469, filed on
November 14, 2001).
10.15 Fourth Amendment to Lease, dated December 3, 2001, between
the Registrant and 500-512 Seventh Avenue Limited
Partnership (incorporated by reference to Exhibit 10.22 to
the Registrant's Registration Statement on Form S-4, File
No. 333-84532, filed on March 19, 2002).
10.16 Fifth Amendment to Lease, dated June 30, 2003, between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q Quarterly Report for the period
ended June 30, 2003, File No. 000-25469, filed on August
14, 2003).
10.17 Letter Agreement, dated December 23, 2002, between the
Registrant and 500-512 Seventh Avenue Limited Partnership
(incorporated by reference to the Registrant's Form 10-K
Annual Report for the year ended December 31, 2002, File
No. 000-25469, filed on March 31, 2003).
10.18 License Agreement, dated as of September 8, 2000, among
Lamaze International, Inc., Lamaze Publishing Company and
the Registrant (incorporated by reference to Exhibit 10.2
to the Registrant's Form 10-Q Quarterly Report for the
period ended September 30, 2000, File No. 000-25469, filed
on November 14, 2000).
10.19 Amendment to License Agreement, dated as of January 1,
2003, among Lamaze International, Inc., Lamaze Publishing
Company and the Registrant (incorporated by reference to
Exhibit 10.18 to the Registrant's Form 10-K Annual Report
for the year ended December 31, 2002, File No. 000-25469,
filed March 31, 2003).
10.20 Employment Agreement, dated May 30, 2003, between Douglas
W. McCormick and the Registrant (incorporated by reference
to Exhibit 10.1 to the Registrant's Form 10-Q Quarterly
Report for the period ended June 30, 2003, File No.
000-25469, filed on August 14, 2003).
10.21 Amended and Restated Securities Purchase Agreement, dated
as of February 22, 2001, between the Registrant and Hearst
Communications, Inc. (incorporated by reference to Exhibit
10.32 to the Registrant's Registration Statement on Form
S-4, File No. 333-56150, filed on February 23, 2001).
10.22 Amended and Restated Stockholder Agreement, dated as of
June 20, 2001, between the Registrant and Hearst
Communications, Inc. (incorporated by reference to Exhibit
10.26 to the Registrant's Registration Statement on Form
S-4, File No. 333-84532, filed on March 19, 2002).
10.23 Amended and Restated Magazine Content License and Hosting
Agreement, dated January 29, 2001, between Hearst
Communications, Inc. and Women.com Networks, Inc.
(incorporated by reference to Exhibit 10.27 to the
Registrant's Registration Statement on Form S-4, File No.
333-84532, filed on March 19, 2002).
10.24 Form of Amendment Number Two to Amended and Restated
Magazine Content License and Hosting Agreement
(incorporated by reference to Exhibit 10.35 to the
Registrant's Registration Statement on Form S-4, File No.
333-56150, filed on February 23, 2001).
2
10.25 Amendment Number Three to Amended and Restated Magazine
Content License and Hosting Agreement, dated as of April 5,
2002, between the Registrant and Hearst Communications,
Inc. (incorporated by reference to Exhibit 10.34 to the
Registrant's Registration Statement on Form S-4, File No.
333-84532, filed on April 8, 2002).
10.26 Website Services Agreement, dated as of December 19, 2003,
between the Registrant and Hearst Communications, Inc.
10.27 Promissory Note, dated June 5, 1998, in the amount of
$500,000 between Candice Carpenter and the Registrant
(incorporated by reference to Exhibit 10.23 to the
Registrant's Registration Statement on Form S-1, File No.
333-68749, filed on December 11, 1998).
10.28 Amendment No. 1 to Promissory Note, dated as of April 1,
2001, between Candice Carpenter and the Registrant
(incorporated by reference to Exhibit 10.22.1 to
Registrant's Form 10-K Annual Report for the year ended
December 31, 2000, File No. 000-25469, filed on April 2,
2001).
10.29 Amendment No. 2 to Promissory Note, dated as of December
19, 2002, between the Registrant and Candice Carpenter
(incorporated by reference to Exhibit 10.27 to the
Registrant's Form 10-K Annual Report for the year ended
December 31, 2002, File No. 000-25469, filed on March 31,
2003).
10.30 Form of Severance Agreement between the Registrant and
certain executive officers of the Registrant (incorporated
by reference to Exhibit 10.28 to the Registrant's Form 10-K
Annual Report for the year ended December 31, 2002, File
No. 000-25469, filed on March 31, 2003).
10.31 Separation Agreement, dated July 22, 2003, from the
Registrant to Nancy Evans (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-Q Quarterly
Report, File No.
000-25469, filed on August 14, 2003)
21 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
31.1 Certification of the Chief Executive Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.
312 Certification of the Chief Financial Officer pursuant to
Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.
32.1 Certification of the Principal Executive Officer and
Principal Financial Officer furnished pursuant to Rules
13a-14(b) and 15d-14(b) under the Securities Exchange Act
of 1934, as amended, and 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1 Code of Business Conduct and Ethics
99.2 Code of Ethics for Senior Executive Officers
3