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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO
------ ------
COMMISSION FILE NUMBER 0-28834
ABACUS DIRECT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 84-1118166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11101 WEST 120TH AVENUE,
BROOMFIELD, COLORADO 80021
(Address of principal executive offices) (Zip Code)
(303) 410-5100
(Registrants telephone number, including area code)
Indicate by checkmark 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, $0.001 par
value: 9,934,942 shares outstanding as of August 6, 1999.
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ABACUS DIRECT CORPORATION
INDEX TO FORM 10-Q
JUNE 30, 1999
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Statements of Operations 3
Balance Sheets 4
Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURE 16
INDEX TO EXHIBITS 17
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
ABACUS DIRECT CORPORATION
STATEMENTS OF OPERATIONS -- UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 13,215 $ 9,367 $ 25,968 $ 18,449
Cost of revenues 3,430 2,256 6,463 4,227
-------- -------- -------- --------
Gross profit 9,785 7,111 19,505 14,222
Operating expenses:
Selling and marketing 4,128 2,911 8,142 5,936
General and administrative 1,117 1,123 2,643 2,244
Research and development 808 409 1,381 851
-------- -------- -------- --------
Total operating expenses 6,053 4,443 12,166 9,031
-------- -------- -------- --------
Income from operations 3,732 2,668 7,339 5,191
Equity in losses of joint venture (227) -- (365) --
Interest and other income, net 292 168 567 305
-------- -------- -------- --------
Income before income taxes 3,797 2,836 7,541 5,496
Provision for income taxes 1,489 1,035 2,964 2,006
======== ======== ======== ========
Net income $ 2,308 $ 1,801 $ 4,577 $ 3,490
======== ======== ======== ========
Net income per common share -- basic $ 0.23 $ 0.19 $ 0.46 $ 0.36
Net income per common share -- diluted $ 0.22 $ 0.18 $ 0.44 $ 0.34
Weighted average number of outstanding
common shares -- basic 9,888 9,712 9,878 9,692
Weighted average number of outstanding
common shares -- diluted 10,520 10,236 10,475 10,202
</TABLE>
See accompanying Notes to Condensed Financial Statements
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ABACUS DIRECT CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $23,563 $24,263
Accounts receivable (less allowance for doubtful accounts
of $1,033 and $963 at June 30, 1999 and December 31, 1998,
respectively) 14,857 12,034
Prepaid expenses and other current assets 1,282 630
Income taxes receivable 1,225 1,107
Deferred taxes 794 727
------- -------
Total current assets 41,721 38,761
Property and equipment, net 7,114 4,488
Deferred taxes and other assets 146 71
======= =======
Total assets $48,981 $43,320
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 872 $ 614
Accrued expenses and other current liabilities 4,559 5,463
Current obligations under capital leases 325 326
------- -------
Total current liabilities 5,756 6,403
Obligations under capital leases, net of current portion 447 613
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000 shares authorized; no shares
issued and outstanding -- --
Common stock, $0.001 par value; 25,000 shares authorized; 9,909
and 9,858 shares issued and outstanding at June 30, 1999
and December 31, 1998, respectively 10 10
Additional paid-in capital 14,499 12,603
Retained earnings 28,269 23,691
------- -------
Total stockholders' equity 42,778 36,304
------- -------
Total liabilities and stockholders' equity $48,981 $43,320
======= =======
</TABLE>
See accompanying Notes to Condensed Financial Statements
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ABACUS DIRECT CORPORATION
STATEMENTS OF CASH FLOWS -- UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,577 $ 3,490
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,347 731
Equity in losses of joint venture 365 --
Changes in assets and liabilities:
Accounts receivable, net (2,823) (582)
Prepaid expenses and other current assets (319) (18)
Income taxes receivable 830 18
Deferred taxes and other assets (113) --
Accounts payable 258 (481)
Accrued expenses and other current liabilities (904) 720
-------- --------
Net cash provided by operating activities 3,218 3,878
INVESTING ACTIVITIES
Purchases of property and equipment (3,973) (1,373)
Investment in joint venture (394) --
Loan to joint venture (333) --
-------- --------
Net cash used in investing activities (4,700) (1,373)
FINANCING ACTIVITIES
Principal payments on capital leases (167) (7)
Issuance of common stock 949 508
-------- --------
Net cash provided by financing activities 782 501
-------- --------
Net increase (decrease) in cash (700) 3,006
Cash and cash equivalents at beginning of period 24,263 10,490
======== ========
Cash and cash equivalents at end of period $ 23,563 $ 13,496
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ 31 $ 1
Income taxes paid $ 2,078 $ 1,409
</TABLE>
See accompanying Notes to Condensed Financial Statements
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ABACUS DIRECT CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL INFORMATION.
These condensed consolidated financial statements are unaudited and
have been prepared by Abacus Direct Corporation ("Abacus" or the "Company") in
accordance with generally accepted accounting principles for interim financial
information and with the instructions under Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation have been
reflected in these condensed consolidated financial statements. Operating
results for the quarter are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999. Certain reclassifications
have been made in the fiscal 1998 consolidated financial statements to conform
to the 1999 presentation. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion may be understood more fully by reference to
the financial statements, notes to the financial statements, and management's
discussion and analysis contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, as filed with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net Revenues. Net revenues increased 41.1% to $13.2 million for the
three months ended June 30, 1999 from $9.4 million for the three months ended
June 30, 1998 due primarily to an increase in sales to existing and new catalog
clients and revenues generated from direct marketing clients outside the
catalog industry.
Cost of Revenues. Cost of revenues increased 52.0% to $3.4 million for
the three months ended June 30, 1999 from $2.3 million for the three months
ended June 30, 1998, due primarily to increases in staff, contract labor
dedicated to the Year 2000 Issue, rent, depreciation and processing costs
associated with supporting higher revenues. Cost of revenues increased as a
percentage of net revenues to 26.0% in 1999 from 24.1% in 1998 due primarily to
an increase in employee and non-employee staffing levels and higher software,
hardware and systems processing costs required to support higher revenues.
Selling and Marketing Expenses. Selling and marketing expenses
increased 41.8% to $4.1 million or 31.2% of net revenues for the three months
ended June 30, 1999 from $2.9 million or 31.1% of net revenues for the three
months ended June 30, 1998. The increase in selling and marketing expenses is
due primarily to an increase in sales staff which resulted in higher training
costs, travel expenses and rent, and higher commissions associated with higher
revenues. The increase in the Company's sales force is intended to reduce the
average number of accounts serviced by an account manager, improve customer
service, and derive more revenues from customers.
General and Administrative. General and administrative expenses for
the three months ended June 30, 1999 were comparable to the prior year at $1.1
million. General and administrative expenses decreased as a percentage of net
revenues to 8.5% for the three months ended June 30, 1999 from 12.0% for the
three months ended June 30, 1998 due primarily to the fixed cost nature of
certain expenses which did not increase proportionately with the growth in net
revenues. The Company expects that general and administrative expenses will
increase during the third and fourth quarters of 1999 as much of the year's
incentive compensation is earned during the seasonally strong second half.
Research and Development. Research and development expenses increased
97.6% to $808,000 for the three months ended June 30, 1999 from $409,000 for
the three months ended June 30, 1998. The increase in research and development
expenses resulted primarily from higher salaries and employee related expenses,
rent and travel. Research and development expenses increased as a percentage of
net revenues to 6.1% for the three months ended June 30, 1999 compared to 4.4%
for the same period in 1998 due primarily to an increase in staff assigned to
performance initiatives and to develop new products.
Operating Profit. Operating profit increased 39.9% to $3.7 million for
the three months ended June 30, 1999 from $2.7 million for the three months
ended June 30, 1998. The increase in operating profit was due primarily to the
combined effect of higher net revenues and the fixed cost nature of certain
expenses, which did not increase proportionately with the growth in net
revenues. The operating margin of 28.2% for the three months ended June 30,
1999 was comparable to the operating margin of 28.5% for the same period in
1998.
Equity in Losses of Joint Venture. Equity in losses of joint venture
for the three months ended June 30, 1999, of $227,000 represents the Company's
share of losses in Abacus Direct Europe, B.V., its
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joint venture with VNU, which commenced operations during the fourth quarter of
1998. The Company anticipates that it will recognize additional losses from
Abacus Direct Europe, B.V. during the third and fourth quarters of 1999 as well
as invest an additional $1.3 million in cash to develop its operations during
the remainder of 1999.
Interest and Other Income, Net. Net interest income increased to
$292,000 for the three months ended June 30, 1999 from $168,000 for the same
period in 1998. The increase in interest income was due primarily to interest
earned on higher Company cash balances resulting from internally generated
funds.
Income Taxes. The Company's provision for income taxes for the three
months ended June 30, 1999 increased to $1.5 million from $1.0 million for the
same period in 1998. The increase in tax is due principally to higher pre-tax
income. For the three months ended June 30, 1999, the Company's effective tax
rate increased to 39.2% from 36.5% during the same period in 1998. The increase
in the effective tax rate is due primarily to a valuation allowance recorded
against the tax benefit from equity investee losses.
Net Income. Net income for the three months ended June 30, 1999 was
$2.3 million or $0.22 per diluted common share compared with net income of $1.8
million or $0.18 per diluted common share for the three months ended June 30,
1998. The increase in net income and net income per common share reflects
higher operating income and net interest income.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net Revenues. Net revenues increased 40.8% to $26.0 million for the
six months ended June 30, 1999 from $18.4 million for the six months ended June
30, 1998 due primarily to an increase in sales to existing and new catalog
clients and revenues generated from direct marketing clients outside the
catalog industry.
Cost of Revenues. Cost of revenues increased 52.9% to $6.5 million for
the first six months ended June 30, 1999 from $4.2 million for the first six
months ended June 30, 1998, due primarily to increases in staff, contract labor
dedicated to the Year 2000 Issue, rent, depreciation and processing costs
associated with supporting higher revenues. Cost of revenues increased as a
percentage of net revenues to 24.9% in 1999 from 22.9% in 1998 due primarily to
increases in employee and non-employee staffing levels, the Year 2000 Issue
spending and higher software, hardware and systems processing costs required to
support higher revenues.
Selling and Marketing Expenses. Selling and marketing expenses
increased 37.2% to $8.1 million for the six months ended June 30, 1999 from
$5.9 million for the six months ended June 30, 1998. The increase in selling
and marketing expenses is due primarily to an increase in sales staff which
resulted in higher training costs, travel expenses and rent, and higher
commissions associated with higher revenues. The increase in the Company's
sales force is intended to reduce the average number of accounts serviced by an
account manager, improve customer service, and derive more revenues from
customers. Selling and marketing expenses at 31.4% of net revenues for the
three months ended June 30, 1999 was comparable to 32.2% of net revenues for
the same period in 1998.
General and Administrative. General and administrative expenses
increased 17.8% to $2.6 million for the six months ended June 30, 1999 from
$2.2 million for the six months ended June 30, 1998. The increase in general
and administrative expenses resulted primarily from an increase in staff to
support overall Company growth, higher professional fees and an increase in
recruiting and moving expenses. General and administrative expenses for the six
months ended June 30, 1999 decreased to 10.2% of net revenues compared to 12.2%
for the six months ended June 30, 1998 due primarily to the fixed cost nature
of certain expenses which did not increase proportionately with the growth in
net revenues.
Research and Development. Research and development expenses increased
62.3% to $1.4 million for the six months ended June 30, 1999 from $851,000 for
the six months ended June 30, 1998. The increase in research and development
expenses resulted primarily from higher salaries and employee
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related expenses, rent and travel. Research and development expenses increased
as a percentage of net revenues to 5.3% for the six months ended June 30, 1999
compared to 4.6% for the same period in 1998 due primarily to an increase in
staff assigned to performance initiatives and to develop new products.
Operating Profit. Operating profit increased 41.4% for the six months
ended June 30, 1999 to $7.3 million from $5.2 million for the six months ended
June 30, 1998. The increase in operating profit was due to increased spending
in information technology, research and development and staffing levels
throughout the Company that were offset by higher net revenues. The operating
margin of 28.3% for the six months ended June 30, 1999 was comparable to the
operating margin of 28.1% for the same period in 1998.
Interest and Other Income, Net. Net interest income for the six months
ended June 30, 1999 increased 85.9% to $567,000 from $305,000 for the six
months ended June 30, 1998. The increase in interest income was due primarily
to interest earned on higher Company cash balances resulting from internally
generated funds.
Income Taxes. The Company's provision for income taxes for the six
months ended June 30, 1999 increased to $3.0 million from $2.0 million for the
same period in 1998. The increase in tax is due principally to higher pre-tax
income. For the six months ended June 30, 1999, the Company's effective tax
rate increased to 39.3% from 36.5% during the same period in 1998. The increase
in the effective tax rate is due primarily to a valuation allowance recorded
against the tax benefit from equity investee losses.
Net Income. Net income for the six months ended June 30, 1999
increased 31.1% to $4.6 million or $0.44 per diluted common share compared with
net income of $3.5 million or $0.34 per diluted common share for the six months
ended June 30, 1998. The increase in net income and net income per common share
reflects higher operating and net interest income.
SEASONALITY
The Company's business is seasonal in nature. The third and fourth
quarters of each year include the peak selling season during which the Company
supplies the direct marketing industry with data services in advance of the
fall and holiday seasons. In the first and second quarters, orders are fewer
and smaller. As a result, cost of operations, sales and marketing, general and
administrative, and research and development expenses as a percentage of net
revenues are usually higher and operating profit is usually lower during the
first half of each year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided by operating activities for the six months
ended June 30, 1999 was $3.2 million compared to $3.9 million for the six
months ended June 30, 1998. For the six months ended June 30, 1999, the
decrease in operating cash flow was due primarily to the payment of accrued
expenses and additional investment in working capital (primarily accounts
receivable) to support the increase in net revenues, which was partially offset
by higher net income as compared to the prior year. As of June 30, 1999, net
working capital increased by $3.6 million to $36.0 million compared to $32.4
million as of December 31, 1998.
On June 13, 1999, Abacus Direct Corporation entered into an Agreement
and Plan of Merger and Reorganization (the "Merger Agreement") with
DoubleClick, Inc. ("DoubleClick") pursuant to which DoubleClick has agreed to
acquire Abacus. In connection with the merger, Abacus plans to record a
one-time charge in the quarter in which the transaction closes relating to
expenses incurred with this transaction.
Cash used in investing activities for the six months ended June 30,
1999 was $4.7 million compared to $1.4 million for the six months ended June
30, 1998. These activities represent capital expenditures for computer
equipment and peripheral systems and office equipment necessary to support
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revenue growth and the Company's investments in Abacus Direct Europe, B.V. The
Company made an additional equity investment in Abacus Direct Europe, B.V. in
the amount of $394,000 and also provided a loan of $333,000 during the second
quarter of 1999. The Company plans to invest approximately $1.3 million to
develop the operations of the joint venture during the remainder of 1999. As a
result of the Company's relocation to a new headquarters facility in
Broomfield, Colorado in April 1999, the Company spent $4.0 million on office
furniture, computer equipment, leasehold improvements and other relocation
expenses during the second quarter of 1999.
During the six months ended June 30, 1999, net cash generated from
financing activities was $782,000 compared to $501,000 for the six months ended
June 30, 1998 due primarily to proceeds received from the exercise of employee
stock options that were partially offset by principal payments on capital lease
obligations.
The Company's principal sources of liquidity are cash generated from
operations as well as cash and cash equivalents, which totaled $23.6 million at
June 30, 1999. Historically, the Company has funded its operations through cash
flow from operations and debt and equity financing. The Company believes that
its cash flow from operations and cash on hand will provide sufficient
resources to meet its capital requirements and operational needs for the
foreseeable future.
YEAR 2000 ISSUE
For many years, computer systems and applications were often
programmed to assume that the century portion of a date was "19" to conserve
the use of storage and memory. This assumption resulted in the use of
two-digits (rather than four) to define an applicable year. Accordingly,
computer systems that rely on two-digits to define an applicable year may
recognize a date using "00" as the year 1900, rather than the year 2000 (the
"Year 2000 Issue"). This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process or transmit data or engage in normal business activities.
The Company has completed the assessment of its Year 2000 readiness
for its internal information technology systems and non-information technology
systems. As part of the Company's remediation efforts, it will modify or
replace its proprietary software so that its computer systems will properly
utilize dates beyond December 31, 1999. The Company presently believes that
with modifications to existing software and, in certain instances, conversions
to new software, the Year 2000 Issues related to its internal systems can be
mitigated. However, if such modifications and conversions are not made, or are
not completed timely, the Year 2000 Issue could have a material adverse impact
on the operations of the Company.
The Company has communicated with members of the Abacus Alliance and
is in the process of determining the extent to which the Company is vulnerable
to the Abacus Alliance members' failure to remediate their own Year 2000
Issues. As a result of its own internal assessment of the transactional files
contributed by the Abacus Alliance members, the Company has determined that
those files which contain date-sensitive data may require modification or
conversion to recognize the correct century prior to loading to the Abacus
Alliance database. Similarly, demographic and change of address information
that is obtained from third parties and used to enhance the transactional data
on the Abacus Alliance database may also require conversion or modification to
be Year 2000 compliant.
The Company has also communicated with a significant number of its
external suppliers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 Issues.
Primarily, the Year 2000 Issues from external suppliers relates to the
Company's accounting and invoicing software systems, statistical software, data
sorting software, and payroll processing. Some of these vendors have certified
their products to be Year 2000 compliant while others are preparing to make
them compliant in 1999. In the event the Company is operating a version of
software or using a vendor's product that is not Year 2000 ready, it plans to
either upgrade to the new version or product or seek substitutes that are Year
2000 compliant. To the extent that the systems of third parties or
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other companies on which the Company's systems rely are not timely converted or
if such conversion is incompatible with the Company's systems, the Company's
operations may be materially adversely affected.
The Company is utilizing both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications. Costs
incurred by the Company in its Year 2000 remediation efforts must be expensed
as incurred. In addition, the replacement of computer hardware or software to
comply with the Year 2000 Issue may result in a charge to income. The Company
plans to complete its Year 2000 project during the fourth quarter of 1999. The
total remaining cost of the Year 2000 project is estimated at $250,000 to
$350,000 and is being funded through operating cash flow and is not expected to
have a material effect on the results of operations or financial condition of
the Company. Through June 30, 1999, the Company has incurred and expensed
approximately $887,000 related to the assessment of, and preliminary efforts in
connection with, its Year 2000 project and the development of a remediation
plan. The Company has not yet developed any contingency plans in the event its
Year 2000 remediation efforts are unsuccessful, but plans to do so during this
year. While the Company has not identified a reasonably likely worst case
scenario in the event it doesn't become Year 2000 compliant, the Company
continues to evaluate the Year 2000 Issue and is attempting to address any Year
2000 deficiencies.
The Company's total Year 2000 project cost and estimates to complete
include the estimated costs and time associated with the impact of a third
party's Year 2000 Issue, and are based on presently available information.
However, there can be no guarantee that the systems of other companies on which
the Company's systems rely will be timely converted, or that failure to convert
by another company, or a conversion that is incompatible with the Company's
systems, would not have a material adverse effect on the Company. The cost of
the project and the date on which the Company plans to complete the Year 2000
modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
FORWARD-LOOKING INFORMATION
Certain statements in this Form 10-Q and elsewhere (such as in other
filings by the Company with the Securities and Exchange Commission, press
releases, presentations by the Company or its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
include those relating to future opportunities, the outlook of customers, the
expansion of the Abacus Alliance, the reception of new services, technologies
and pricing methods, resolution of the Year 2000 Issue, existing and potential
partnerships, strategic alliances and joint ventures, development and execution
of an internet related strategy, the merger with DoubleClick, the success of
new initiatives and the likelihood of incremental revenues offsetting expenses
related to those new initiatives. In addition, such forward-looking statements
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results expressed or implied by such
forward-looking statements. Such factors include: (i) demand for the Company's
services from the direct marketing industry; (ii) governmental regulation
regarding privacy issues; (iii) the actions of current and potential new
competitors; (iv) changes in technology; (v) the seasonality and cyclical
nature of the direct marketing industry; (vi) changes in postal rates and paper
prices; (vii) the nature and amount of the Company's revenues and expenses;
(viii) the ability to successfully consummate the merger between Abacus and
DoubleClick and successfully operate the combined companies, and (ix) overall
economic conditions and other risks detailed from time to time in the Company's
periodic earnings releases and reports filed with the Securities and Exchange
Commission, as well as the risks and uncertainties discussed in this Form 10-Q.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate risk primarily through its
portfolio of cash equivalents and short-term marketable securities, which is
designed for safety of principal, liquidity and diversification. Such
investments are subject to inherent interest rate risk as they mature and are
renewed at current market rates. The Company does not presently use derivative
financial instruments to adjust its risk profile. The Company is subject to
competitive and fluctuating economic conditions of the direct marketing
industry as a result of the Company's activities in such industry.
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders on June 4, 1999.
Of the 9,877,521 shares of common stock entitled to vote at the meeting,
8,550,490 shares of common stock were present in person or by proxy and
entitled to vote. Such number of shares represented approximately 86.6% of the
Company's outstanding shares of common stock eligible to vote at the Annual
Meeting.
At the meeting, the Company's stockholders approved: (i) the election
of M. Anthony White, Daniel C. Snyder, Frank Kenny, Antony H. Lee, and Robert
L. North to the Board of Directors ("Proposal 1"); (ii) the adoption of the
Company's 1999 Stock Incentive Plan ("Proposal 2"); and (iii) the appointment
of PricewaterhouseCoopers LLP as the Company's independent auditors for the
fiscal year ending December 31, 1999 ("Proposal 3"). Proposals 1, 2 and 3 were
approved by the Company's stockholders as follows:
<TABLE>
<CAPTION>
VOTES
AGAINST
OR VOTES BROKER
VOTES FOR WITHHELD ABSTAINING NON-VOTES
------------ ----------- ----------- ----------
<S> <C> <C> <C> <C>
PROPOSAL 1
A. Anthony White 8,503,729 46,761 -- --
Daniel C. Snyder 8,519,629 30,861 -- --
Frank Kenny 8,519,629 30,861 -- --
Antony H. Lee 8,519,629 30,861 -- --
Robert L. North 8,519,629 30,861
PROPOSAL 2 4,226,067 3,398,245 12,261 913,917
PROPOSAL 3 8,546,894 680 2,916 --
</TABLE>
ITEM 5. OTHER INFORMATION.
DOUBLECLICK MERGER
On June 13, 1999, Abacus entered into the Merger Agreement with
DoubleClick pursuant to which DoubleClick has agreed to acquire Abacus. The
acquisition is to be effected through the issuance of 1.05 shares of
DoubleClick common stock in exchange for each share of common stock of Abacus
outstanding immediately prior to the consummation of the transaction and the
assumption of Abacus' stock options outstanding at the effective date of the
merger, based on such exchange ratio. Upon consummation of the transaction the
stockholders of Abacus will own approximately 20.5% of the issued and
outstanding common stock of DoubleClick. The amount of such consideration was
determined based upon arm's-length negotiations between DoubleClick and Abacus.
The Merger Agreement also provides for the payment by Abacus to DoubleClick
under certain circumstances of a fee (the "Termination Fee") of $30 million
plus a maximum of $2.5 million in DoubleClick expenses in the event the Merger
Agreement is terminated. The transaction is intended to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, and is
intended to be accounted for as a pooling of interests. The consummation of the
transaction is subject to the satisfaction of certain conditions, including
certain regulatory approvals and the approval of the stockholders of Abacus and
DoubleClick.
In connection with the transaction, DoubleClick and Abacus also
entered into a Stock Option Agreement on June 13, 1999, pursuant to which
Abacus has granted to DoubleClick an option to purchase up to 1,974,516
newly-issued shares of Abacus common stock under certain circumstances similar
to those requiring the payment of the Termination Fee. A copy of the Stock
Option Agreement is incorporated herein by reference as Exhibit 10.1. In
addition, certain affiliates of Abacus have agreed to vote in favor of approval
of the Merger Agreement.
13
<PAGE> 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
The following exhibit is hereby filed as part of this Quarterly Report
on Form 10-Q or incorporated by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
-------- -----------------------
<S> <C>
2.1 -- Agreement and Plan of Merger and Reorganization dated as of June
13, 1999 by and among DoubleClick, Inc., Atlanta Merger Corp. and
Abacus Direct Corporation. Incorporated by reference to Exhibit
10.1 to the Form 8-K.
10.1 -- Stock Option Agreement dated as of June 13, 1999 by and between
DoubleClick, Inc. and Abacus Direct Corporation. Incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K filed
by the Company on June 18, 1999 (the "Form 8-K").
27.01 -- Financial Data Schedule (for electronic filing only)
</TABLE>
(b) Reports on Form 8-K.
We filed a Current Report on Form 8-K on June 18, 1999.
14
<PAGE> 15
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 16, 1999 ABACUS DIRECT CORPORATION
By: /s/ CARLOS E. SALA
----------------------------------
Carlos E. Sala
Senior Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting
Officer and duly authorized officer)
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 -- Agreement and Plan of Merger and Reorganization dated as of
June 13, 1999 by and among DoubleClick, Inc., Atlanta
Merger Corp. and Abacus Direct Corporation. Incorporated by
reference to Exhibit 10.1 to the Form 8-K.
10.1 -- Stock Option Agreement dated as of June 13, 1999 by and
between DoubleClick, Inc. and Abacus Direct Corporation.
Incorporated by reference to Exhibit 2.1 to the Current
Report on Form 8-K filed by the Company on June 18, 1999
(the "Form 8-K").
27.01 -- Financial Data Schedule (for electronic filing only)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 23,563
<SECURITIES> 0
<RECEIVABLES> 15,890
<ALLOWANCES> 1,033
<INVENTORY> 0
<CURRENT-ASSETS> 41,654
<PP&E> 7,114
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,868
<CURRENT-LIABILITIES> 5,643
<BONDS> 447
0
0
<COMMON> 10
<OTHER-SE> 42,768
<TOTAL-LIABILITY-AND-EQUITY> 48,868
<SALES> 0
<TOTAL-REVENUES> 25,968
<CGS> 6,463
<TOTAL-COSTS> 12,166
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,541
<INCOME-TAX> 2,964
<INCOME-CONTINUING> 7,339
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,577
<EPS-BASIC> 0.46
<EPS-DILUTED> 0.44
</TABLE>
