<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 000-23709
DOUBLECLICK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3870996
(STATE OF JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
450 WEST 33RD STREET, 16TH FLOOR
NEW YORK, NEW YORK 10001
(212) 683-0001
(ADDRESS, INCLUDING ZIP CODE AND
TELEPHONE NUMBER, INCLUDING AREA CODE
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CHECK WHETHER THE REGISTRANT: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 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 / /
AS OF JULY 31, 2000 THERE WERE 122,704,535 SHARES OF THE REGISTRANT'S COMMON
STOCK OUTSTANDING.
<PAGE>
DOUBLECLICK INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION
Item I. FINANCIAL INFORMATION
Consolidated Financial Statements
<S> <C>
Consolidated Balance Sheet as of June 30, 2000 and December 31, 1999......... 1
Consolidated Statement of Operations for the three and six months ended
June 30, 2000 and 1999....................................................... 2
Consolidated Statement of Cash Flows for the six months ended
June 30, 2000 and 1999....................................................... 3
Notes to Consolidated Financial Statements................................... 4
Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................ 8
Quantitative and Qualitative Disclosures about Market Risk................... 16
PART II:OTHER INFORMATION
Item 1: Legal Proceedings............................................................ 31
Item 4: Submission of Matters to a Vote of Security Holders.......................... 32
Item 5: Other Information............................................................ 33
Item 6: Exhibits and Report on Form 8-K.............................................. 33
ii
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------- -------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 164,089 $119,238
Investments in marketable securities................... 318,794 179,776
Accounts receivable, less allowances of $25,517 and
$15,004, respectively................................ 124,351 89,177
Prepaid expenses and other current assets.............. 51,824 34,089
--------- --------
Total current assets............................ 659,058 422,280
Investments in marketable securities................... 399,099 145,789
Property and equipment, net............................ 126,261 61,980
Intangible assets, net................................. 104,835 94,475
Investments in affiliates.............................. 74,667 --
Other assets........................................... 4,345 4,883
---------- ---------
Total assets.................................... $1,368,265 $729,407
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 51,406 $32,846
Accrued expenses and other current liabilities......... 87,959 49,768
Deferred revenue....................................... 34,478 29,783
---------- ---------
Total current liabilities.......................... 173,843 112,397
Long-term obligations and notes........................ 8,196 5,348
Convertible subordinated notes......................... 250,000 250,000
STOCKHOLDERS' EQUITY:
Common stock, par value $0.001; 400,000,000 shares
authorized, 122,647,777 and 112,453,892 shares
outstanding, respectively............................ 123 112
Treasury stock, 206,813 shares at June 30, 2000........ (23,766) --
Additional paid-in capital............................. 1,114,751 475,565
Deferred compensation.................................. (635) (1,106)
Accumulated deficit.................................... (150,337) (109,831)
Other accumulated comprehensive loss................... (3,910) (3,078)
---------- ---------
Total stockholders' equity...................... 936,226 361,662
---------- ---------
Total liabilities and stockholders' equity...... $1,368,265 $729,407
========== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
-------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenue..................................... $128,087 $49,856 $238,143 $ 89,268
Cost of revenue............................. 59,539 21,015 112,016 36,376
-------- -------- -------- --------
Gross profit........................... 68,548 28,841 126,127 52,892
Operating expenses:
Sales and marketing (exclusive of non-cash
compensation of $5,194 and $9,754 in 2000,
respectively).............................. 49,733 21,707 95,661 40,041
General and administrative (exclusive of
non-cash compensation of $139, $436, $101,
and $990, respectively)................... 22,060 6,469 42,899 12,816
Product development......................... 11,152 6,345 20,851 12,134
Amortization of intangible assets........... 10,133 195 18,538 498
Non-cash compensation....................... 5,233 436 9,855 990
Facility relocation and other............... -- 488 -- 2,132
-------- -------- -------- --------
Total operating expenses............... 98,311 35,640 187,804 68,611
-------- -------- -------- --------
Loss from operations........................ (29,763) (6,799) (61,677) (15,719)
Other income (expense):
Equity in losses of affiliates............ (3,331) (227) (4,759) (365)
Gain on issuance of stock by affiliate.... -- -- 8,949 --
Interest and other, net................... 11,663 3,109 18,613 5,237
-------- -------- -------- --------
Total other income (expense)........... 8,332 2,882 22,803 4,872
-------- -------- -------- --------
Loss before provision for income taxes...... (21,431) (3,917) (38,874) (10,847)
Provision for income taxes.................. 701 1,489 1,632 2,964
-------- -------- -------- --------
Net loss.................................... $(22,132) $(5,406) $(40,506) $(13,811)
======== ======== ======== ========
Basic and diluted net loss per common share. $ (0.18) $ (0.05) $ (0.34) $ (0.13)
======== ======== ======== ========
Weighted average shares used in basic and
diluted net loss per share calculation...... 122,265 109,758 119,552 108,317
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss..................................................... $(40,506) $(13,811)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and leasehold amortization................. 13,844 4,785
Equity in losses of affiliates.......................... 4,759 365
Gain on issuance of stock by affiliate.................. (8,949) --
Facility relocation and other........................... -- 1,363
Non-cash compensation................................... 9,855 990
Amortization of intangible assets....................... 18,538 498
Provision for bad debts and advertiser discounts........ 23,060 1,572
Changes in operating assets and liabilities:
Accounts receivable..................................... (58,300) 3,676
Prepaid expenses and other assets....................... (17,735) (2,738)
Accounts payable........................................ 20,201 (8,164)
Accrued expenses........................................ 27,425 3,373
Income taxes receivable................................. -- 830
Deferred revenue........................................ 4,695 6,585
-------- --------
Net cash used in operating activities................... (3,113) (676)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments in marketable securities, net.. (392,949) (42,953)
Purchases of property and equipment..................... (77,640) (18,464)
Investments in affiliates and other..................... (10,380) (692)
Acquisition of businesses and intangible assets......... (22,527) --
-------- --------
Net cash used in investing activities............... (503,496) (62,109)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of issuance
costs................................................. 502,918 114,884
Proceeds from exercise of stock options and issuance of
warrants.............................................. 49,046 1,953
Proceeds from issuance of Convertible Subordinated
Notes, net of deferred offering costs................. -- 244,747
Payments of notes and capital lease obligations......... (291) (1,588)
-------- --------
Net cash provided by financing activities........... 551,673 359,996
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS. (213) (30)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... 44,851 297,181
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............. 119,238 161,670
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $164,089 $458,851
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
DoubleClick Inc. together with its subsidiaries, ("DoubleClick"), is a
leading provider of comprehensive global interactive marketing and advertising
solutions. DoubleClick offers a broad range of integrated media, technology and
data solutions to advertisers, ad agencies, Web publishers and merchants.
DoubleClick is organized in three segments: Media, Technology (or
"TechSolutions") and Data (or "Data Services") based on types of service
provided. DoubleClick Media consists of the worldwide DoubleClick networks,
which provide fully outsourced and highly effective advertising sales, delivery
and related services to a worldwide group of advertisers and publishers.
DoubleClick TechSolutions consists of the DART-based service bureau offering and
the AdServer family of software products. DoubleClick Data Services includes
Abacus Direct, consisting of a proprietary database of consumer purchasing
behavior used for direct mail marketing purposes, and Abacus Online, including
targeted e-mail prospecting solutions for Internet advertising.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DoubleClick
and its majority and wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated. Investments in less than
majority-owned entities over which DoubleClick has signficiant influence are
accounted for using the equity method. Investments where DoubleClick does not
have the ability to exercise significant influence are accounted for using the
cost method.
In 1999, DoubleClick consummated mergers with NetGravity, Inc.
('NetGravity'), Abacus Direct Corporation ('Abacus'), and Business Link
Incorporated (d/b/a Opt-In Email.com 'Opt-In'), which have been accounted for
using the pooling of interests method, and accordingly, the consolidated
financial statements for the prior periods presented and the accompanying notes
have been restated.
The accompanying interim consolidated financial statements are unaudited,
but in the opinion of management, contain all the adjustments (consisting of
those of a normal recurring nature) considered necessary to present fairly the
financial position, the results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles applicable
to interim periods. Results of operations are not necessarily indicative of the
results expected for the full fiscal year or for any future period.
The accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of DoubleClick
for the year ended December 31, 1999. Certain reclassifications have been made
to the prior period's financial statements to conform to the current period
presentation.
BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share excludes dilution for potentially dilutive
securities and is computed by dividing net income or loss available to common
shareholders by the weighed average number of common shares outstanding for the
period. Diluted net loss per share adjusts for the effect of convertible
securities, stock options and other potentially dilutive financial instruments
only in the periods in which such effect would have been dilutive.
At June 30, 2000 and 1999, outstanding options of approximately 22.8 million
and approximately 15.6 million, respectively, to purchase shares of common stock
were not included in the computation of diluted net loss per share because to do
so would have had an antidilutive effect for the periods presented. Similarly,
the computation of diluted net loss per share excludes the effect of 6,060,606
shares issuable upon the conversion of $250 million, 4.75% Convertible
Subordinated Notes due 2006, since their inclusion would have had an
antidilutive effect. As a result, the basic and diluted net loss per share
amounts are equal for all periods presented.
4
<PAGE>
ISSUANCE OF STOCK BY AFFILIATES
Changes in DoubleClick's interest in its affiliates from the affiliates'
issuance of common stock are recorded as a gain or loss in the consolidated
statement of operations, except for any transactions that must be recorded
directly to equity in accordance with the provisions of Staff Accounting
Bulletin ("SAB") No. 51.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject DoubleClick to
concentrations of credit risk consist principally of cash and cash equivalents,
investments in marketable securities, accounts receivable and advances.
Credit is extended to customers based on the evaluation of their financial
condition, and collateral is not required. DoubleClick performs ongoing credit
evaluations of its customers and maintains an allowance for doubtful accounts.
The Company made an approximately $20 million advance to a single publisher
in November 1999, which amount remains outstanding at June 30, 2000 on an
unsecured basis. This amount is included in prepaid expenses and other current
assets on the consolidated balance sheet.
STAFF ACCOUNTING BULLETIN NO. 101 ("SAB 101") "REVENUE RECOGNITION"
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
In June 2000, the SEC issued SAB No. 101B to defer the effective date of
implementation of SAB No. 101 until the fourth quarter of fiscal 2000.
DoubleClick does not expect the adoption of SAB 101 to have a material effect on
its financial position or results of operations.
NOTE 2 - BUSINESS COMBINATIONS
Effective May 26, 2000, DoubleClick acquired Flashbase, Inc. ("Flashbase")
for approximately $19.6 million. The acquisition was accounted for under the
purchase method of accounting, and accordingly the purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values at the acquisition date. DoubleClick recorded approximately $19.5 million
of goodwill, which represents the excess of the purchase price over the fair
value of the net assets acquired.
The results of operations for Flashbase are included with those of
DoubleClick subsequent to the acquisition date. Flashbase's results of
operations prior to the acquisition date were not significant.
We consummated mergers with NetGravity, Abacus and Opt-In Email.com during
1999, which have been accounted for under the pooling of interests method. We
acquired the remaining interests not previously owned by us in DoubleClick
Scandinavia AB in December 1999 and DoubleClick Iberoamerica S.L. in November
1999. These transactions were accounted for under the purchase method.
NOTE 3 - INVESTMENT IN VALUECLICK, INC.
Effective February 28, 2000, DoubleClick acquired an interest in ValueClick,
Inc. ("ValueClick") of approximately 33% and a warrant to purchase additional
ValueClick common stock for 732,860 shares of DoubleClick common stock and $10
million in cash. The shares of DoubleClick common stock were valued at
approximately $84.2 million based on a price of $114.89 per share. The share
price represents the average price on the announcement date of January 13, 2000
and one trading day before and after. ValueClick is a provider of cost-per-click
Internet advertising solutions.
DoubleClick's equity investment in ValueClick was recorded based on the
fair value of the consideration paid, less approximately $27.7 million that was
recorded as treasury stock, representing DoubleClick's approximate 33% interest
in DoubleClick common stock held by ValueClick. DoubleClick's investment in
ValueClick includes approximately $18.7 million representing the fair value of
the warrant on February 28, 2000. The warrant permits DoubleClick to purchase
additional ValueClick common stock up to a 45% ownership interest on a fully
diluted basis and is exercisable through May 31, 2001. DoubleClick recorded
goodwill of approximately $41.3 million, which represents the excess of
DoubleClick's investment over its equity interest in ValueClick's net assets and
the value of the warrant.
The investment in ValueClick is being accounted for under the equity
method. DoubleClick's proportionate share of ValueClick's net income or loss and
amortization of goodwill is included in equity in losses of affiliates in the
accompanying consolidated statement of operations. Amortization of goodwill is
being recorded on a straight-line basis over three years.
5
<PAGE>
On March 30, 2000, ValueClick completed its initial public offering of
common stock, issuing 4,000,000 shares at a price of $19 per share, which raised
net proceeds of approximately $69.5 million. As a result, DoubleClick's
ownership interest in ValueClick was reduced to approximately 28% and its
proportionate share of ValueClick's net assets increased. DoubleClick recorded
an increase in its investment in ValueClick of approximately $12.9 million,
reduced the carrying amount of treasury stock to approximately $23.8 million and
recognized a gain of approximately $8.9 million.
NOTE 4 - NON-CASH COMPENSATION
Non-cash compensation primarily consists of expected additional
consideration payable to certain former shareholders of DoubleClick Scandinavia
in connection with DoubleClick's acquisition. Additional shares of DoubleClick
common stock are contingently issuable based on continued employment of the
former shareholders and the attainment of specific revenue objectives for the
years ending December 31, 2000 and 2001. DoubleClick will continually assess the
probability and amount of the shares payable related to the achievement of the
revenue objectives and will record non-cash compensation expense over the
two-year employment period. The maximum total value of the contingently issuable
shares is approximately $60.0 million.
NOTE 5 - STOCKHOLDERS' EQUITY
Pursuant to an underwriting agreement dated February 17, 2000, DoubleClick
completed a public offering of 7,500,000 shares of its common stock of which
DoubleClick sold 5,733,411 shares and certain stockholders sold 1,766,589
shares. DoubleClick's net proceeds were approximately $502.9 million, after
deducting underwriting discounts, commissions and offering expenses.
In April 1999 and January 2000, DoubleClick effected two-for-one stock
splits in the form of 100 percent stock dividends. The splits were approved for
shareholders of record as of March 22, 1999 and December 31, 1999, respectively.
Accordingly, all share and per share amounts affecting net loss per share,
weighted average number of common stock outstanding, common stock issued and
outstanding, additional paid-in capital and all other stock transactions
presented in these consolidated financial statements and related notes have been
restated to reflect the stock splits.
NOTE 6 - SEGMENT REPORTING
Effective December 31, 1998, DoubleClick adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
DoubleClick is organized in three segments: Media, Technology and Data.
REVENUE AND GROSS PROFIT BY SEGMENT ARE AS FOLLOWS:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000 THREE MONTHS ENDED JUNE 30, 1999
Media Technology Data Total Media Technology Data Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $68,989 $48,650 $15,791 $133,430 $23,568 $14,579 $13,215 $51,362
Intersegment elimination -- (5,343) -- (5,343) -- (1,506) -- (1,506)
------- -------- ------- -------- ------- ------- ------- -------
Revenue from external
customers $68,989 $43,307 $15,791 $128,087 $23,568 $13,073 $13,215 $49,856
======= ======= ======= ======== ======= ======= ======= =======
Gross profit $23,600 $34,596 $10,352 $ 68,548 $ 9,575 $ 9,536 $ 9,730 $28,841
======= ======= ======= ======== ======= ======= ======= =======
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 SIX MONTHS ENDED JUNE 30, 1999
Media Technology Data Total Media Technology Data Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $129,179 $88,428 $30,518 $248,125 $39,941 $26,272 $25,968 $92,181
Intersegment elimination -- (9,982) -- (9,982) -- (2,913) -- (2,913)
-------- ------- ------- -------- ------- ------- ------- -------
Revenue from external
customers $129,179 $78,446 $30,518 $238,143 $39,941 $23,359 $25,968 $89,268
======== ======= ======= ======== ======= ======= ======= =======
Gross profit $ 44,171 $62,088 $19,868 $126,127 $16,376 $17,090 $19,426 $52,892
======== ======= ======= ======== ======= ======= ======= =======
</TABLE>
NOTE 7 - COMPREHENSIVE LOSS
Comprehensive loss is comprised of net loss, unrealized gains and losses on
marketable securities and foreign currency translation adjustments.
Comprehensive loss was $22.1 million and $5.7 million for the three months ended
June 30, 2000 and 1999, respectively. For the six months ended June 30, 2000 and
1999, comprehensive loss was $41.3 million and $14.4 million respectively.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Several civil litigations related to DoubleClick's online data collection
practices are pending against DoubleClick. These proceedings seek remedies,
including damages, of an indeterminable nature and amount, and allege variously
that DoubleClick has unlawfully obtained and used consumers' personal
information. DoubleClick vigorously contests these allegations.
There have been a number of political, legislative, regulatory, and other
developments relating to online data collection that have received widespread
media attention. These developments may negatively affect the outcomes of
related legal proceedings and encourage the commencement of additional similar
proceedings. Since February 2000, the Federal Trade Commission has been pursuing
an inquiry into DoubleClick's ad serving and data collection practices.
DoubleClick is complying with the Federal Trade Commission's requests for
information. In addition, DoubleClick's ad serving and data collection practices
are also the subject of inquiries by the attorneys general of several states.
DoubleClick is cooperating fully with all such inquiries by the various states.
DoubleClick may receive additional regulatory inquiries and intends to cooperate
fully.
It is impossible to predict the outcome of such events on pending
litigation or the results of the litigation itself, all of which may have a
material adverse effect on DoubleClick's business, financial condition and
results of operations.
Determinations of liability against other companies that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
legal proceedings against DoubleClick and its affiliates and could encourage an
increase in the number of such claims.
DoubleClick believes that, notwithstanding the quality of defenses
available, it is possible that the financial condition and results of operations
could be materially adversely affected by the ultimate outcome of the pending
litigation. As of June 30, 2000, no provision has been made for any damages
which may result upon the resolution of these uncertainties.
NOTE 9 - SUBSEQUENT EVENT
On August 7, 2000, DoubleClick announced a restructuring of its
Advertising Services Agreement with AltaVista Company ("New Agreement"). Under
the New Agreement, AltaVista will assume all lead ad sales responsibility for
domestic advertisers by February 2001, and international advertisers by
December 2001 (subject to AltaVista's right to assume lead responsibility
sooner in certain international markets). After AltaVista assumes the lead ad
responsibility in a market, DoubleClick will have the right to sell ads on the
AltaVista Web sites in that market on a non-exclusive basis, as part of
DoubleClick's worldwide ad networks, through December 31, 2004. In addition,
under the New Agreement, the DART for Publishers Service will serve ads on
AltaVista's Web sites through December 31, 2004 with the ads required to be
served through the DART for Publishers Service declining in each year of the
agreement, subject to certain minimums. The DART for Advertisers Service will
serve the majority of AltaVista's online advertising campaigns through
December 2004.
7
<PAGE>
DOUBLECLICK INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
DOUBLECLICK CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE EVENTS AND
THE FUTURE PERFORMANCE OF DOUBLECLICK WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. STOCKHOLDERS ARE CAUTIONED THAT SUCH STATEMENTS INVOLVE
RISKS AND UNCERTAINTIES. DOUBLECLICK'S ACTUAL RESULTS AND TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE
SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS REPORT AND IN DOUBLECLICK'S
OTHER PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
We are a leading provider of technology-driven marketing and advertising
solutions to thousands of advertisers, advertising agencies, Web publishers and
e-commerce merchants worldwide. We provide a broad range of media, technology
and data products and services to our customers to allow them to optimize their
advertising and marketing campaigns on the Internet and through other
interactive media. Our patented DART technology is the platform for many of our
solutions and enables our customers to use preselected criteria to deliver the
right ad to the right person at the right time. Our service and product
offerings are grouped into three segments:
- DoubleClick Media (Media);
- DoubleClick TechSolutions (Technology); and
- DoubleClick Data Services (Data).
BUSINESS COMBINATIONS
Effective May 26, 2000, DoubleClick acquired Flashbase, Inc. for
approximately $19.6 million. The acquisition was accounted for under the
purchase method of accounting, and accordingly the purchase price was allocated
to the assets acquired and liabilities assumed based on their estimated fair
values at the acquisition date. DoubleClick recorded $19.5 million of goodwill,
which represents the excess of the purchase price over the fair value of the net
assets acquired.
The results of operations for Flashbase are included with those of
DoubleClick subsequent to the acquisition date. Flashbase's results of
operations prior to the acquisition date were not significant.
We consummated mergers with NetGravity, Abacus and Opt-In Email.com during
1999, which have been accounted for under the pooling of interests method and
accordingly, the financial results for the three and six months ended June 30,
1999 have been restated. We acquired the remaining interests not previously
owned by us in DoubleClick Scandinavia AB in December 1999 and DoubleClick
Iberoamerica S.L. in November 1999. These transactions were accounted for under
the purchase method.
8
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1999
RESULTS OF OPERATIONS
REVENUE AND GROSS PROFIT BY SEGMENT ARE AS FOLLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000 THREE MONTHS ENDED JUNE 30, 1999
Media Technology Data Total Media Technology Data Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $68,989 $48,650 $15,791 $133,430 $23,568 $14,579 $13,215 $51,362
Intersegment elimination -- $(5,343) -- $(5,343) -- $(1,506) -- $(1,506)
------- ------- ------ -------- ------- ------- ------- ------
Revenue from external
customers $68,989 $43,307 $15,791 $128,087 $23,568 $13,073 $13,215 $49,856
======= ======= ======= ======== ======= ======= ======= =======
Gross profit $23,600 $34,596 $10,352 $ 68,548 $ 9,575 $ 9,536 $ 9,730 $28,841
======= ======= ======= ======== ======= ======= ======= =======
</TABLE>
DoubleClick Media
DoubleClick Media revenue is derived primarily from the sale and delivery
of advertising impressions through third-party Web sites comprising the
worldwide DoubleClick Media networks. Cost of revenue consists primarily of
service fees paid to Web publishers for impressions delivered on our worldwide
networks, the costs of ad delivery, and technology support provided by
DoubleClick TechSolutions.
Revenue for DoubleClick Media increased 193% to $69.0 million for the three
months ended June 30, 2000 from $23.6 million for the three months ended June
30, 1999. DoubleClick Media gross margin was 34.2% for the three months ended
June 30, 2000 and 40.6% for the three months ended June 30, 1999. The increase
in DoubleClick Media revenue was due primarily to an increase in the number of
advertisers and advertising impressions delivered on the worldwide DoubleClick
Media networks coupled with higher average prices of advertising impressions.
Gross margin decreased due to a less favorable site mix resulting in higher
average site service fees and the decline in the proportion of revenue from
AltaVista Company ("AltaVista").
DoubleClick Media revenue derived from advertising impressions delivered to
the users of the AltaVista Web site was $7.9 million, or 11.5% of DoubleClick
Media revenue for the three months ended June 30, 2000 compared to $5.0 million,
or 21.2% of DoubleClick Media revenue for the three months ended June 30, 1999.
Because of specific contractual terms unique to AltaVista, we recognize revenue
from sales commissions, billing and collection fees and DART service fees
derived from the sale and delivery of ads on the AltaVista Web site and
associated services. AltaVista DART service fees were approximately $2.6
million and $1.3 million for the three months ended June 30, 2000 and 1999,
respectively, and are included in Tech Solutions' revenue.
On August 7, 2000, we announced a restructuring of our Advertising
Services Agreement with AltaVista ("New Agreement"). Under the New Agreement,
AltaVista will assume lead ad sales responsibility for domestic advertisers
by February 2001, and international advertisers by December 2001 (subject to
AltaVista's right to assume lead responsibility sooner in certain international
markets). After AltaVista assumes the lead ad responsibility in a market,
DoubleClick will have the right to sell ads on the AltaVista Web sites in that
market on a non-exclusive basis, as part of DoubleClick's worldwide ad
networks, through December 31, 2004. In addition, under the New Agreement,
the DART for Publishers Service will serve ads on AltaVista's Web sites through
December 31, 2004 with the ads required to be served through the DART for
Publishers Service declining in each year of the agreement, subject to certain
minimums. The DART for Advertisers Service will serve the majority of
AltaVista's online advertising campaigns through December 2004. As a result of
the New Agreement, DoubleClick Media revenue derived from advertising
impressions delivered to the users of the AltaVista website will decrease
significantly commencing in the first quarter of 2001.
DoubleClick TechSolutions
DoubleClick TechSolutions revenue is derived primarily from sales of our
DART and AdServer product offerings. DoubleClick TechSolutions cost of revenue
includes costs associated with the delivery of advertisements, including
Internet access costs, depreciation of the ad delivery system, facilities, and
personnel related costs incurred to operate our ad delivery system.
9
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DoubleClick TechSolutions revenue increased 234% to $48.7 million for the
three months ended June 30, 2000 from $14.6 million for the three months ended
June 30, 1999. DoubleClick TechSolutions gross margin was 71.1% for the three
months ended June 30, 2000 and 65.4% for the three months ended June 30, 1999.
The increase in DoubleClick TechSolutions revenue was due primarily to an
increase in the number of DART and AdServer clients coupled with the increased
volume of impressions delivered for existing clients, offset in part by lower
average pricing for the delivery of advertising impressions. The increase in
gross margin is due to increased efficiencies from the growth of our DART-based
service bureau offering and our consulting and support of the AdServer product,
coupled with a higher margin product mix during the three months ended June 30,
2000.
DoubleClick Data Services
DoubleClick Data Services revenue is derived primarily from providing
services such as prospecting lists, housefile scoring, list optimization, and
marketing research services primarily to catalog-based retailers. DoubleClick
Data Services cost of revenue includes expenses associated with creating,
maintaining and updating the Abacus Alliance database as well as the technical
infrastructure to produce our products and services.
DoubleClick Data Services revenue increased 19.5% to $15.8 million for the
three months ended June 30, 2000 from $13.2 million for the three months ended
June 30, 1999. Gross margin declined from 73.6% for the three months ended June
30, 1999 to 65.6% for the three months ended June 30, 2000. The increase in
revenue was due primarily to an increase in sales to existing and new catalog
clients. The decline in gross margin was due primarily to increases in personnel
related costs resulting from higher employment levels, and, to a lesser extent,
facilities, depreciation and processing costs associated with supporting new
product initiatives and higher revenue.
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses consist primarily of compensation and related
benefits, sales commissions, general marketing costs, advertising, bad debt
expense, and other operating expenses associated with the sales and marketing
departments. Sales and marketing expenses were $49.7 million, or 38.8% of
revenue for the three months ended June 30, 2000 and $21.7 million, or 43.5% of
revenue for the three months ended June 30, 1999. The increase in sales and
marketing expenses was primarily attributable to the increase in compensation
and related benefits associated with the growth of our business, increased sales
commissions associated with the increase in revenue, increased costs related to
the continued development and implementation of our marketing and branding
campaigns and an increase in the provision for doubtful accounts associated with
the increase in revenue. The decrease in sales and marketing expenses as a
percentage of revenue was primarily a result of the substantial growth in
revenue. We expect sales and marketing expenses to increase in absolute dollars
as we hire additional personnel, expand into new markets and continue to promote
the DoubleClick brand, but decrease as a percentage of revenue.
General and Administrative
General and administrative expenses consist primarily of compensation and
related benefits, professional services fees and facility related costs. General
and administrative expenses were $22.1 million, or 17.2% of revenue for the
three months ended June 30, 2000 and $6.5 million, or 13.0% of revenue for the
three months ended June 30, 1999. The increase was primarily the result of
increased compensation and related benefits, increased professional services
fees and increases in other general costs associated with the growth of our
business and operations. Increased professional services fees related largely to
consulting fees to integrate, convert and develop our systems and legal services
incurred to address privacy concerns and patent infringement lawsuits. We expect
general and administrative expenses to continue to increase in absolute dollars
as we hire additional personnel and incur costs related to the growth of our
business but decrease as a percentage of revenue.
Product Development
Product development expenses consist primarily of compensation and related
benefits, consulting fees, and other operating expenses associated with the
product development departments. To date, all product development costs have
been expensed as incurred. Product development expenses were $11.2 million, or
8.7% of revenue for the three months ended June 30, 2000 and $6.3 million, or
$12.7% of revenue for the three months ended June 30, 1999. The increase in
absolute dollars was due primarily to increases in compensation and related
benefits for product development personnel, increases in consulting expenses
for our DART and AdServer products and increases in other general costs
associated with the growth of our business and operations. The decrease in
product development expenses as a percentage of revenue was primarily a result
of the substantial growth in revenue. We believe that continued investment in
product development is critical to attaining our strategic objectives and, as
a result, expect product development expenses to increase in absolute dollars
but remain consistent as a percentage of revenue.
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Amortization of Intangible Assets
Amortization of intangible assets consists primarily of goodwill
amortization. Amortization expense was $10.1 million for the three months ended
June 30, 2000 and $200,000 for the three months ended June 30, 1999. The
increase was primarily the result of the amortization of goodwill related to our
acquisitions of DoubleClick Scandinavia, Flashbase and DoubleClick Iberoamerica.
Goodwill amortization will continue to impact our results from operations.
Non-cash Compensation
Non-cash compensation expense was $5.2 million for the three months ended
June 30, 2000 and $400,000 for the three months ended June 30, 1999. The
increase in non-cash compensation expense for the three months ended June 30,
2000 compared to the same period ended June 30, 1999, primarily relates to the
expected additional consideration payable to certain former shareholders of
DoubleClick Scandinavia. Additional shares of DoubleClick common stock are
contingently issuable based on continued employment of the former shareholders
and the attainment of specific revenue objectives. We have assessed, and will
continue to assess, the probability and amount of the shares payable and expect
to incur significant non-cash compensation charges during 2000 and 2001.
Facility Relocation and Other
For the three months ended June 30, 1999, we incurred approximately
$500,000 in costs associated with the relocation of our corporate headquarters.
Loss from Operations
Loss from operations was $29.8 million for the three months ended June 30,
2000 and $6.8 million for the three months ended June 30, 1999. The increase in
the loss from operations was due largely to the amortization of intangible
assets and non-cash compensation as well as the building of our personnel
infrastructure as discussed above. We plan to continue to grow and expand our
business and therefore anticipate future losses from operations.
Interest and Other, Net
Interest and other, net was $11.7 million for the three months ended June
30, 2000 and $3.1 million for the three months ended June 30, 1999. Interest and
other, net included $15.2 million of interest income for the three months ended
June 30, 2000 partially offset by $3.0 million of interest expense, and $6.2
million of interest income for the three months ended June 30, 1999 partially
offset by $3.0 million of interest expense. The increase in interest income was
attributable to interest earned on cash and cash equivalents and investments in
marketable securities primarily from the net proceeds from our common stock
offering in February 2000. In addition, our average yield increased due to
holdings in investments with longer-term maturities and the increase in interest
rates. Interest and other, net in future periods may fluctuate as a result of
the average cash, investment and future debt balances we maintain and changes in
the market rates of our investments.
Income Taxes
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit. The provision for income taxes recorded for the
three months ended June 30, 1999 relates to the standalone results of Abacus
prior to our merger on November 23, 1999. The provision for the three months
ended June 30, 2000 principally relates to corporate taxes on the earnings of
our foreign subsidiaries.
11
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
RESULTS OF OPERATIONS
REVENUE AND GROSS PROFIT BY SEGMENT ARE AS FOLLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 SIX MONTHS ENDED JUNE 30, 1999
Media Technology Data Total Media Technology Data Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue $129,179 $88,428 $30,518 $248,125 $39,941 $26,272 $25,968 $92,181
Intersegment elimination -- (9,982) -- (9,982) -- (2,913) -- (2,913)
-------- ------- ------- -------- ------- ------- -------- --------
Revenue from external
customers 129,179 78,446 30,518 238,143 39,941 23,359 25,968 89,268
======== ======= ======= ======== ======= ======= ======= =======
Gross profit $ 44,171 $62,088 $19,868 $126,127 $16,376 $17,090 $19,426 $52,892
======== ======= ======= ======== ======= ======= ======= =======
</TABLE>
DoubleClick Media
Revenue for DoubleClick Media increased 223% to $129.2 million for the six
months ended June 30, 2000 from $39.9 million for the six months ended June 30,
1999. DoubleClick Media gross margin was 34.2% for the six months ended June 30,
2000 and 41.0% for the six months ended June 30, 1999. The increase in
DoubleClick Media revenue was due primarily to an increase in the number of
advertisers and advertising impressions delivered on the worldwide DoubleClick
Media networks coupled with higher average prices of advertising impressions.
Gross margin decreased due to a less favorable site mix resulting in higher
average site service fees and the decline in the proportion of revenue from
AltaVista.
DoubleClick Media revenue derived from advertising impressions delivered to
the users of the AltaVista Web site was $15.4 million, or 11.9% of DoubleClick
Media revenue for the six months ended June 30, 2000 compared to $8.5 million,
or 21.3% of DoubleClick Media revenue for the six months ended June 30, 1999.
Alta Vista DART services fees recognized by Tech Solutions were $4.7 million and
$2.4 million for the six months ended June 30, 2000 and 1999, respectively.
DoubleClick TechSolutions
DoubleClick TechSolutions revenue increased 237% to $88.4 million for the six
months ended June 30, 2000 from $26.3 million for the six months ended June 30,
1999. DoubleClick TechSolutions gross margin was 70.2% for the six months ended
June 30, 2000 and 65.1% for the six months ended June 30, 1999. The increase in
DoubleClick TechSolutions revenue was due primarily to an increase in the number
of DART and AdServer clients, as well as the volume of impressions delivered for
existing clients, offset in part by lower average pricing for the delivery of
advertising impressions. The increase in gross margin was due to increased
efficiencies from the growth of our DART-based service bureau offering and our
consulting and support of the AdServer product coupled with a higher margin
product mix during the six months ended June 30, 2000.
DoubleClick Data Services
DoubleClick Data Services revenue increased 17.5% to $30.5 million for the
six months ended June 30, 2000 from $26.0 million for the six months ended June
30, 1999. Gross margin declined from 74.8% in 1999 to 65.1% in 2000. The
increase in revenue was due primarily to an increase in sales to existing and
new catalog clients and, to a lesser extent, revenue from direct marketing
clients outside the catalog industry. The decline in gross margin was due
primarily to increases in personnel related costs resulting from higher
employment levels, and, to a lesser extent, facilities, depreciation and
processing costs associated with supporting new product initiatives and higher
revenue.
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OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses consist primarily of compensation and related
benefits, sales commissions, general marketing costs, advertising, bad debt
expense, and other operating expenses associated with the sales and marketing
departments. Sales and marketing expenses were $95.7 million, or 40.2% of
revenue for the six months ended June 30, 2000 and $40.0 million, or 44.9% of
revenue for the six months ended June 30, 1999. The increase in sales and
marketing expenses was primarily attributable to the increase in compensation
and related benefits associated with the growth of our business, increased
sales commissions associated with the increase in revenue, increased costs
related to the continued development and implementation of our marketing and
branding campaigns and an increase in the provision for doubtful accounts
associated with the increase in revenue. The decrease in sales and marketing
expenses as a percentage of revenue was primarily a result of the substantial
growth in revenue. We expect sales and marketing expenses to increase in
absolute dollars as we hire additional personnel, expand into new markets and
continue to promote the DoubleClick brand, but decrease as a percentage of
revenue.
General and Administrative
General and administrative expenses consist primarily of compensation and
related benefits, professional services fees and facility related costs. General
and administrative expenses were $42.9 million, or 18.0% of revenue for the six
months ended June 30, 2000 and $12.8 million, or 14.4% of revenue for the six
months ended June 30, 1999. The increase was primarily the result of increased
compensation and related benefits, increased professional services fees and
increases in other general costs associated with the growth of our business and
operations. Increased professional services fees related largely to consulting
fees to integrate, convert and develop our systems and legal services incurred
to address privacy concerns and patent infringement lawsuits. We expect general
and administrative expenses to continue to increase in absolute dollars as we
hire additional personnel and incur costs related to the growth of our business
but decrease as a percentage of revenue.
Product Development
Product development expenses consist primarily of compensation and related
benefits, consulting fees, and other operating expenses associated with the
product development departments. To date, all product development costs have
been expensed as incurred. Product development expenses were $20.9 million, or
8.8% of revenue for the six months ended June 30, 2000 and $12.1 million, or
13.6% of revenue for the six months ended June 30, 1999. The increase in
absolute dollars was due primarily to increases in compensation and related
benefits for product development personnel, increased consulting expenses for
our DART and AdServer products and increases in other general costs associated
with the growth of our business. The decrease in product development expenses as
a percentage of revenue was primarily a result of the substantial growth in
revenue. We believe that continued investment in product development is critical
to attaining our strategic objectives and, as a result, expect product
development expenses to increase in absolute dollars but decrease as a
percentage of revenue.
Amortization of Intangible Assets
Amortization of intangible assets consists primarily of goodwill
amortization. Amortization expense was $18.5 million for the six months ended
June 30, 2000 and $500,000 for the six months ended June 30, 1999. The increase
was primarily the result of the amortization of goodwill related to our
acquisitions of DoubleClick Scandinavia, Flashbase and DoubleClick Iberoamerica.
Goodwill amortization will continue to impact our results from operations.
Non-cash Compensation
Non-cash compensation expense was $9.9 million for the six months ended
June 30, 2000 and $1.0 million for the six months ended June 30, 1999. The
increase in non-cash compensation expense for the six months ended June 30, 2000
compared to the same period ended June 30, 1999, primarily relates to the
expected additional consideration payable to certain former shareholders of
DoubleClick Scandinavia. Additional shares of DoubleClick common stock are
contingently issuable based on continued employment of the former shareholders
and the attainment of specific revenue objectives. We have assessed, and will
continue to assess, the probability and amount of the shares payable and expect
to incur significant non-cash compensation charges during 2000 and 2001.
13
<PAGE>
Facility Relocation and Other
For the six months ended June 30, 1999, we incurred approximately $2.1
million in costs associated with the relocation of our corporate headquarters.
As a result of our relocation, completed in December 1999, we incurred a
non-recurring charge for the impairment of fixed assets of approximately $1.4
million on assets with a carrying value of $2.1 million (primarily leasehold
improvements). These assets were abandoned and not relocated to our new
headquarters. Our management made an assessment of the carrying value of the
assets to be disposed of and determined that their carrying value was in excess
of their estimated fair value. The estimated fair value of the assets was
determined based on an estimate of the recoverability of the assets carrying
amount over their remaining useful life to the abandonment date using their
initial cost recovery rate. In addition, facility relocation and other includes
duplicative equipment rental and moving costs of approximately $700,000.
Loss from Operations
Loss from operations was $61.7 million for the six months ended June 30,
2000 and $15.7 million for the six months ended June 30, 1999. The increase in
the loss from operations was due largely to the amortization of intangible
assets and non-cash compensation as well as the building of our personnel
infrastructure as discussed above. We plan to continue to grow and expand our
business and therefore anticipate future losses from operations.
Interest and Other, Net
Interest and other, net was $18.6 million for the six months ended June 30,
2000 and $5.2 million for the six months ended June 30, 1999. Interest and
other, net included $26.0 million of interest income for the six months ended
June 30, 2000 partially offset by $6.0 million of interest expense, and $9.0
million of interest income for the six months ended June 30, 1999 partially
offset by $3.4 million of interest expense. The increase in interest income was
attributable to interest earned on cash and cash equivalents and investments in
marketable securities primarily from the net proceeds from our common stock
offering in February 2000. In addition, our average yield increased due to
holdings in investments with longer-term maturities and the increase in interest
rates. Interest and other, net in future periods may fluctuate as a result of
the average cash, investment and future debt balances we maintain and changes in
the market rates of our investments.
Income Taxes
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit. The provision for income taxes recorded for the six
months ended June 30, 1999 relates to the standalone results of Abacus prior to
our merger on November 23, 1999. The provision for the six months ended June 30,
2000 principally relates to corporate taxes on the earnings of our foreign
subsidiaries and a change in estimated tax refunds receivable.
Liquidity and Capital Resources
Since inception we have financed our operations primarily through private
placements of equity securities, and public offerings of our common stock and
Convertible Subordinated Notes.
Net cash used in operating activities was $1.1 million for the six months
ended June 30, 2000 and $700,000 for six months ended June 30, 1999. Cash used
in operating activities resulted primarily from net losses and increases in
accounts receivable, which were partially offset by increases in accounts
payable and accrued expenses. Net cash used in investing activities was $505.5
million for the six months ended June 30, 2000, and $62.1 million for the six
months ended June 30, 1999. During the six months ended June 30, 2000, we
continued to acquire businesses, invest in affiliates and purchase equipment to
support our growth and expansion. In addition, we invested the proceeds from our
common stock issuance in marketable securities. Net cash provided by financing
activities was $551.7 million for the six months ended June 30, 2000 and $360.0
million for the six months ended June 30, 1999. Cash provided by financing
activities consisted primarily of net proceeds from our public offering of
common stock during the six months ended June 30, 2000 and proceeds from our
public offerings of Convertible Subordinated Notes and common stock during the
six months ended June 30, 1999.
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<PAGE>
As of June 30, 2000, we had $164.1 million of cash and cash equivalents and
$717.9 million in investments in marketable securities. As of June 30, 2000, our
principal commitments consisted of our Convertible Subordinated Notes and
obligations under operating leases. Although we have no material commitments for
capital expenditures, we anticipate that we will experience a substantial
increase in our capital expenditures and lease commitments consistent with our
anticipated growth in operations, infrastructure and personnel, and the
continued build-out of our New York headquarters. We currently anticipate that
we will continue to experience significant growth in our operating expenses for
the foreseeable future and that our operating expenses will be a material use of
our cash resources.
Pursuant to an underwriting agreement dated February 17, 2000, we completed
a public offering of 7,500,000 shares of our common stock, of which we sold
5,733,411 shares and certain stockholders sold 1,766,589 shares. Our net
proceeds were approximately $502.9 million after deducting underwriting
discounts, commissions and offering expenses.
We believe that the net proceeds of our prior offerings of common stock and
Convertible Subordinated Notes, together with our existing cash and cash
equivalents and investments in marketable securities will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures for at
least the next 12 months.
15
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of our investment activities is to preserve
principal while at the same time maximizing yields without significantly
increasing risk. To achieve this objective, we maintain our portfolio of cash
equivalents and investments in marketable securities in a variety of securities,
including both government and corporate obligations and money market funds. As
of June 30, 2000, we held cash and cash equivalents and investments in
marketable securities with an average days to maturity of 325 days.
The following table presents the amounts of our financial instruments
that are subject to interest rate risk by year of expected maturity and average
interest rates as of June 30, 2000.
<TABLE>
<CAPTION>
June 30,
---------------------------------------------------
2001 2002 2003 2006 Fair Value
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $164,089 -- -- -- $164,089
Average interest rate 5.70%
Fixed rate investments in marketable securities $318,794 $399,099 -- $717,893
Average interest rate 6.36% 6.97%
Convertible Subordinated Notes -- -- -- $250,000 $281,000
Average interest rate 4.75%
</TABLE>
We did not hold derivative financial instruments as of June 30, 2000,
and have never held these instruments in the past.
FOREIGN CURRENCY RISK
We transact business in various foreign countries. Accordingly, we are
subject to exposure from adverse movements in foreign currency exchange rates.
This exposure is primarily related to revenue and operating expenses in the U.K.
and other countries whose currency is the Euro. The effect of foreign exchange
rate fluctuations for the six months ended June 30, 2000 was not material. We do
not use financial instruments to hedge operating activities denominated in the
local currency. We assess the need to utilize financial instruments to hedge
currency exposures on an ongoing basis. As of June 30, 2000 we had $14.6 million
in cash and cash equivalents denominated in foreign functional currencies.
The introduction of the Euro has not had a material impact on how we
conduct business and we do not anticipate any changes in how we conduct business
as a result of increased price transparency.
Our international business is subject to risks typical of an
international business, including, but not limited to differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially and adversely affected by changes in
these or other factors.
RISK FACTORS
An investment in our company involves a high degree of risk. You should
carefully consider the risks below, together with the other information
contained in this report, before you decide to invest in our company. If any of
the following risks occur, our business, results of operations and financial
condition could be harmed, the trading price of our common stock could decline,
and you could lose all or part of your investment.
16
<PAGE>
RISKS RELATING TO OUR COMPANY AND OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
We were incorporated in January 1996 and have a limited operating
history. An investor in our common stock must consider the risks and
difficulties frequently encountered by early stage companies in new and rapidly
evolving markets, including the Internet advertising market. Our risks include:
- ability to sustain historical revenue growth rates;
- relying on our DoubleClick networks;
- managing our expanding operations;
- competition;
- attracting, retaining and motivating qualified personnel;
- maintaining our current, and developing new, strategic
relationships with Web publishers;
- ability to anticipate and adapt to the changing Internet market;
and
- attracting and retaining a large number of advertisers from a
variety of industries.
We also depend on the growing use of the Internet for advertising,
commerce and communication, and on general economic conditions. We cannot assure
you that our business strategy will be successful or that we will successfully
address these risks.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE CONTINUED LOSSES
We incurred net losses of $4.0 million for the year ended December 31,
1996, $7.7 million for the year ended December 31, 1997, $18.0 million for the
year ended December 31, 1998, and $55.8 million for the year ended December 31,
1999. For the six months ended June 30, 2000, we incurred a net loss of $40.5
million and, as of June 30, 2000, our accumulated deficit was $150.3 million. We
have not achieved profitability and expect to continue to incur operating losses
in the future. We expect to continue to incur significant operating and capital
expenditures and, as a result, we will need to generate significant revenue to
achieve and maintain profitability. Although our revenue has grown in recent
quarters, we cannot assure you that we will achieve sufficient revenue for
profitability. Even if we do achieve profitability, we cannot assure you that we
can sustain or increase profitability on a quarterly or annual basis in the
future. If revenue grows slower than we anticipate, or if operating expenses
exceed our expectations or cannot be adjusted accordingly, our business, results
of operations and financial condition will be materially and adversely affected.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM WEB SITES OF A LIMITED
NUMBER OF WEB PUBLISHERS AND THE LOSS OF THESE WEB PUBLISHERS AS CUSTOMERS COULD
HARM OUR BUSINESS.
We derive a substantial portion of our DoubleClick Media revenue from
ad impressions we deliver on the Web sites of a limited number of Web
publishers. For the six months ended June 30, 2000, approximately 19% of our
revenue resulted from ads delivered on the Web sites of the top five Web
publishers on our DoubleClick networks. Our business, results of operations and
financial condition could be materially and adversely affected by the loss of
one or more of the Web publishers that account
17
<PAGE>
for a significant portion of the revenue from our DoubleClick networks or any
significant reduction in traffic on these Web publisher's Web sites.
The loss of these Web publishers could also cause advertisers or other
Web publishers to leave our networks, which could materially and adversely
affect our business, results of operations and financial condition. Typically we
enter into short-term contracts with Web publishers for inclusion of their Web
sites in our DoubleClick networks. Since these contracts are short-term, we will
have to negotiate new contracts or renewals in the future, which may have terms
that are not as favorable to us as the terms of the existing contracts. Our
business, results of operations and financial condition could be materially and
adversely affected by such new contracts or renewals.
WE RELY ON OUR RELATIONSHIP WITH ALTAVISTA AND ANY CHANGE IN THIS RELATIONSHIP
COULD HARM OUR BUSINESS
Approximately 8.5% of revenue for the six months ended June 30, 2000
and 12.2% of revenue for the six months ended June 30, 1999 resulted from
advertisements delivered on or through the AltaVista Web site. On June 29, 1999,
CMGI, Inc. acquired a controlling interest in AltaVista from Compaq. Compaq and
its wholly owned subsidiary, Digital Equipment Corporation, contributed the
assets and liabilities comprising AltaVista's business, including the
Advertising Services Agreement, which governed our relationship with AltaVista,
to AltaVista Company, a new company of which CMGI owns approximately 83%, with
the remainder owned by Compaq. CMGI also now owns several Internet advertising
and marketing companies either directly or indirectly through its majority owned
subsidiary Engage, Inc. These companies, including AdForce, AdKnowledge, Flycast
Communications, Adsmart and Engage, Inc., compete with our Internet advertising
solutions. On August 7, 2000, we announced the restructuring of our Advertising
Services Agreement with AltaVista. The restructured agreement will replace our
current agreements with AltaVista: the Interim Amended and Restated Advertising
Services Agreement, effective as of November 1, 1999, and the Advertising
Services Agreement, effective as of January 1, 1999. See Part II Item 5 for a
description of the restructured agreement. The loss of AltaVista as a customer
or any significant reduction in traffic on or through the AltaVista Website
could materially and adversely affect our business, results of operations and
financial condition.
OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY RECENTLY FILED LAWSUITS
RELATED TO PRIVACY AND OUR BUSINESS PRACTICES
As explained in detail in the "Legal Proceedings" section of this
report, we are a defendant in several pending class action lawsuits alleging,
among other things, that we unlawfully obtain and use Internet users' personal
information. We are also the subject of a Federal Trade Commission inquiry
concerning our collection and maintenance of information concerning Internet
users, and inquiries involving the attorneys general of several states relating
to our collection, maintenance and sharing of information concerning, and our
disclosure of those practices to, Internet users. We may receive additional
regulatory inquiries and intend to cooperate fully. Class action litigation and
regulatory inquiries of these types are often expensive and time-consuming and
their outcome is uncertain. We cannot quantify the amount of monetary or human
resources that we will be required to use to defend
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ourselves in these proceedings. We may need to spend significant amounts on our
legal defense, senior management may be required to divert their attention from
other portions of our business, new product launches may be deferred or canceled
as a result of these proceedings, and we may be required to make changes to our
present and planned products or services, any of which could materially and
adversely affect our business, financial condition and results of operations.
If, as a result of any of these proceedings, a judgment is rendered or a decree
is entered against us, it may materially and adversely affect our business,
financial condition and results of operations.
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM ADVERTISEMENTS WE DELIVER TO
WEB SITES ON OUR DOUBLECLICK NETWORKS AND A DECREASE IN TRAFFIC LEVELS COULD
HARM OUR BUSINESS
We derive a large portion of our revenue from advertisements we deliver
to Web sites on our DoubleClick networks. We expect that our DoubleClick
networks will continue to account for a substantial portion of our revenue for
the foreseeable future. Our DoubleClick networks consist of Web sites of Web
publishers with which we have short-term contracts. We cannot assure you that
these Web publishers will remain associated with our DoubleClick networks, that
any DoubleClick network Web site will maintain consistent or increasing levels
of traffic over time, or that we will be able to timely or effectively replace
any existing DoubleClick network Web site with other Web sites with comparable
traffic patterns and user demographics. Our failure to successfully market our
DoubleClick networks, the loss of one or more of the Web publishers that account
for a significant portion of our revenue from our DoubleClick networks, or the
failure of the Web sites on our DoubleClick networks to maintain consistent or
increasing levels of traffic would materially and adversely affect our business,
results of operations and financial condition.
OUR ADVERTISING CUSTOMERS AND THE COMPANIES WITH WHICH WE HAVE STRATEGIC
BUSINESS RELATIONSHIPS MAY EXPERIENCE ADVERSE BUSINESS CONDITIONS THAT COULD
ADVERSELY AFFECT OUR BUSINESS
As a result of unfavorable conditions in the public equity markets,
some of our customers may have difficulty raising sufficient capital to support
their long-term operations. As a result, these customers may reduce their
spending on Internet advertising, which could materially and adversely affect
our business, financial condition and results of operations. In addition, from
time to time, we have entered into strategic business relationships with other
companies, the nature of which varies, but generally in the context of customer
relationships. These companies may experience adverse business conditions that
may render them unable to meet our expectations for the strategic business
relationship or to fulfill their contractual obligations to us. Such an event
could have a material adverse impact on our business, financial condition and
results of operations.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND YOU
SHOULD NOT RELY ON THEM AS AN INDICATION OF FUTURE OPERATING PERFORMANCE.
Our revenue and results of operations may fluctuate significantly in
the future as a result of a variety of factors, many of which are beyond our
control. These factors include:
- advertiser, Web publisher and direct marketer demand for our
solutions;
- Internet user traffic levels;
- changes in fees paid by advertisers;
- changes in service fees payable by us to Web publishers in our
networks;
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- the introduction of new Internet advertising services by us or
our competitors;
- variations in the levels of capital or operating expenditures and
other costs relating to the expansion of our operations; and
- general economic conditions.
For the foreseeable future, our revenue from DoubleClick TechSolutions
and DoubleClick Media will also remain dependent on advertising activity on our
DoubleClick networks. This future revenue is difficult to forecast. In addition,
we plan to significantly increase our operating expenses so that we can increase
our sales and marketing operations, continue our international expansion,
upgrade and enhance our DART technology and expand our product and service
offerings, and market and support our solutions. We may be unable to adjust
spending quickly enough to offset any unexpected revenue shortfall. If we have a
shortfall in revenue in relation to our expenses, or if our expenses precede
increased revenue, then our business, results of operations and financial
condition could be materially and adversely affected. These results would likely
affect the market price of our common stock in a manner which may be unrelated
to our long term operating performance.
As a result, we believe that period-to-period comparisons of our
results of operations may not be meaningful. You should not rely on past periods
as indicators of future performance.
RAPID GROWTH IN OUR BUSINESS COULD STRAIN OUR MANAGERIAL, OPERATIONAL, FINANCIAL
AND INFORMATION SYSTEM RESOURCES
In recent years, we have experienced significant growth, both
internally and through acquisitions, that has placed considerable demands on our
managerial, operational and financial resources. To continue to successfully
implement our business plan in our rapidly evolving markets requires an
effective planning and management process. We continue to increase the scope of
our operations both domestically and internationally, and we have grown our
workforce substantially. As of June 30, 1999, we had a total of 1,055 employees
and, as of June 30, 2000, we had a total of 1,931 employees. In addition, we
plan to continue to expand our sales and marketing and customer support
organizations both domestically and internationally. The anticipated future
growth in our operations will continue to place a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our financial and managerial controls and reporting systems and
procedures, and will need to continue to expand, train and manage our workforce.
We cannot assure you that if we continue to grow, management will be effective
in attracting and retaining additional qualified personnel, expanding our
physical facilities, integrating acquired businesses or otherwise managing
growth. We also cannot assure you that our information systems, procedures or
controls will be adequate to support our operations or that our management will
be able to achieve the rapid execution necessary to successfully offer our
services and implement our business plan. Our future performance may also depend
on our effective integration of acquired businesses. Even if successful, this
integration may take a significant period of time and expense, and may place a
significant strain on our resources. Our inability to effectively manage our
growth could materially and adversely affect our business, financial condition
and results of operations.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
MODEL
A significant part of our business model is to generate revenue by
providing interactive marketing solutions to advertisers, ad agencies and Web
publishers. The profit potential for this business model is unproven. To be
successful, both Internet advertising and our solutions will need to achieve
broad market acceptance by advertisers, ad agencies and Web publishers. Our
ability to generate significant revenue
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from advertisers will depend, in part, on our ability to contract with Web
publishers that have Web sites with adequate available ad space inventory.
Further, these Web sites must generate sufficient user traffic with demographic
characteristics attractive to our advertisers. The intense competition among
Internet advertising sellers has led to the creation of a number of pricing
alternatives for Internet advertising. These alternatives make it difficult for
us to project future levels of advertising revenue and applicable gross margin
that can be sustained by us or the Internet advertising industry in general.
Intensive marketing and sales efforts may be necessary to educate
prospective advertisers regarding the uses and benefits of, and to generate
demand for, our products and services, including our new products and services
such as the Sonar Network, Abacus Online Alliance and the DARTmail Services.
Enterprises may be reluctant or slow to adopt a new approach that may replace,
limit or compete with their existing direct marketing systems. In addition,
since online direct marketing is emerging as a new and distinct market apart
from online advertising, potential adopters of online direct marketing services
will increasingly demand functionality tailored to their specific requirements.
We may be unable to meet the demands of these clients.
Market acceptance of our new solutions will depend on the continued
emergence of Internet commerce, communication and advertising, and market demand
for our solutions. We cannot assure you that the market for our new solutions
will develop or that demand for our new solutions will emerge or become
sustainable.
DISRUPTION OF OUR SERVICES DUE TO UNANTICIPATED PROBLEMS OR FAILURES COULD HARM
OUR BUSINESS
Our DART technology resides on a computer system located in our New
York City offices and in our data centers in New Jersey and California and in
Europe, Asia and Latin America. This system's continuing and uninterrupted
performance is critical to our success. Customers may become dissatisfied by any
system failure that interrupts our ability to provide our services to them,
including failures affecting our ability to deliver advertisements without
significant delay to the viewer. Sustained or repeated system failures would
reduce the attractiveness of our solutions to advertisers, ad agencies and Web
publishers. Slower response time or system failures may also result from
straining the capacity of our deployed software or hardware due to an increase
in the volume of advertising delivered through our servers. To the extent that
we do not effectively address any capacity constraints or system failures, our
business, results of operations and financial condition could be materially and
adversely affected.
Our operations are dependent on our ability to protect our computer
systems against damage from fire, power loss, water damage, telecommunications
failures, vandalism and other malicious acts, and similar unexpected adverse
events. In addition, interruptions in our solutions could result from the
failure of our telecommunications providers to provide the necessary data
communications capacity in the time frame we require. Despite precautions we
have taken, unanticipated problems affecting our systems have from time to time
in the past caused, and in the future could cause, interruptions in the delivery
of our solutions. Our business, results of operations and financial condition
could be materially and adversely affected by any damage or failure that
interrupts or delays our operations.
COMPETITION IN THE MARKETS FOR INTERNET ADVERTISING AND RELATED PRODUCTS AND
SERVICES IS INTENSE AND LIKELY TO INCREASE IN THE FUTURE, AND WE MAY NOT BE ABLE
TO SUCCESSFULLY COMPETE
The market for Internet advertising and related products and services
is intensely competitive. We expect competition to continue to increase because
this market poses no substantial barriers to entry. Competition may also
increase as a result of industry consolidation. We believe that our ability to
compete depends upon many factors both within and beyond our control, including
the following:
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- the timing and market acceptance of new solutions and enhancements
to existing solutions developed either by us or our competitors;
- customer service and support efforts;
- sales and marketing efforts; and
- the ease of use, performance, price and reliability of solutions
developed either by us or our competitors.
We compete for Internet advertising revenue with large Web publishers
and Web portals, such as America Online, Excite@Home, Microsoft, GO.com and
Yahoo!. Further, our DoubleClick networks compete with a variety of Internet
advertising networks, including 24/7 Media. In marketing our DoubleClick
networks and DART Service to Web publishers, we also compete with providers of
ad servers and related services. CMGI also now owns several Internet advertising
and marketing companies either directly or indirectly through its majority owned
subsidiary Engage, Inc. These companies, including AdForce, AdKnowledge, Flycast
Communications, Adsmart and Engage, Inc., compete with our Internet advertising
solutions. We also encounter competition from a number of other sources,
including content aggregation companies, companies engaged in advertising sales
networks, advertising agencies, and other companies that facilitate Internet
advertising.
Many of our existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than we do. These factors may allow them to respond more quickly than
we can to new or emerging technologies and changes in customer requirements. It
may also allow them to devote greater resources than we can to the development,
promotion and sale of their products and services. These competitors may also
engage in more extensive research and development, undertake more far-reaching
marketing campaigns, adopt more aggressive pricing policies and make more
attractive offers to existing and potential employees, strategic partners,
advertisers and Web publishers. We cannot assure you that our competitors will
not develop products or services that are equal or superior to our solutions or
that achieve greater market acceptance than our solutions. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products or services to address the needs of our prospective advertising,
ad agency and Web publisher customers. As a result, it is possible that new
competitors may emerge and rapidly acquire significant market share. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share. We cannot assure you that we will be able to compete
successfully or that competitive pressures will not materially and adversely
affect our business, results of operations or financial condition.
WE MAY NOT COMPETE SUCCESSFULLY WITH TRADITIONAL ADVERTISING MEDIA FOR
ADVERTISING DOLLARS
Companies doing business on the Internet, including ours, must also
compete with television, radio, cable and print (traditional advertising media)
for a share of advertisers' total advertising budgets. Advertisers may be
reluctant to devote a significant portion of their advertising budget to
Internet advertising if they perceive the Internet to be a limited or
ineffective advertising medium.
OUR REVENUE IS SUBJECT TO SEASONAL AND CYCLICAL FLUCTUATIONS
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our DoubleClick Media and
DoubleClick TechSolutions businesses, and the direct marketing industry
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generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data Services business. Further,
Internet user traffic typically drops during the summer months, which reduces
the amount of advertising to sell and deliver. Expenditures by advertisers and
direct marketers tend to vary in cycles that reflect overall economic conditions
as well as budgeting and buying patterns. Our revenue could be materially
reduced by a decline in the economic prospects of advertisers and direct
marketers or in the economy in general, which could alter current or prospective
advertisers' and direct marketers' spending priorities or budget cycles or
extend our sales cycle.
Due to the risks discussed in this section, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
future performance. It is possible that in some future periods our results of
operations may be below the expectations of public market analysts and
investors. In this event, the price of our common stock may fall.
WE MAY NOT BE ABLE TO SUCCESSFULLY MAKE ACQUISITIONS OF OR INVESTMENTS IN OTHER
COMPANIES
We may acquire or make investments in complementary businesses,
products, services or technologies. From time to time we have had discussions
with companies regarding our acquiring, or investing in, their businesses,
products, services or technologies. We cannot assure you that we will be able to
identify suitable acquisition or investment candidates. Even if we do identify
suitable candidates, we cannot assure you that we will be able to make
acquisitions or investments on commercially acceptable terms. If we buy a
company, we could have difficulty in integrating that company's personnel and
operations. In addition, the key personnel of the acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in integrating the acquired products, services or technologies into
our operations. These difficulties could disrupt our ongoing business, distract
our management and employees, increase our expenses and adversely affect our
results of operations due to accounting requirements such as amortization of
goodwill. Furthermore, we may incur debt or issue equity securities to pay for
any future acquisitions. The issuance of equity securities could be dilutive to
our existing stockholders.
WE ARE DEPENDENT ON KEY PERSONNEL AND ON EMPLOYEE RETENTION AND RECRUITING FOR
OUR FUTURE SUCCESS
Our future success depends to a significant extent on the continued
service of our key technical, sales and senior management personnel. We have no
employment agreements with any of these executives. The loss of the services of
one or more of our key employees would likely materially and adversely affect
our business, results of operations and financial condition. Our future success
also depends on our continuing to attract, retain and motivate highly skilled
employees. Competition for employees in our industry is intense. 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 in the past
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR FACE A CLAIM OF
INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR DAMAGES
Our success and ability to effectively compete are substantially
dependent on the protection of our internally developed technologies and our
trademarks, which we protect through a combination of patent, copyright, trade
secret, unfair competition and trademark law as well as contractual agreements.
In September 1999, the U.S. Patent Office issued to us a patent that covers the
DART technology. We have filed a patent infringement suit against each of L90,
Inc. and Sabela Media, Inc. in order to enforce
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our patent. 24/7 Media has recently acquired Sabela Media. We have also filed
patent applications for some of our other technology.
We also have rights in the trademarks that we use to market our
solutions. These trademarks include DOUBLECLICK, DART and ABACUS. We have
applied to register our trademarks in the U.S. and internationally. We have
received registrations for the marks DOUBLECLICK and ABACUS, among others. We
cannot assure you that any of our current or future patent applications or
trademark applications will be approved. Even if they are approved, these
patents or trademarks may be successfully challenged by others or invalidated.
If our trademark registrations are not approved because third parties own these
trademarks, our use of these trademarks will be restricted unless we enter into
arrangements with these parties which may be unavailable on commercially
reasonable terms, if at all. In addition, we have licensed, and may license in
the future, our trademarks, trade dress and similar proprietary rights to third
parties. While we endeavor to ensure that the quality of our brands are
maintained by our licensees, our licensees may take actions that could
materially and adversely affect the value of our proprietary rights and
reputation.
In order to secure and protect our proprietary rights, we generally
enter into confidentiality, proprietary rights and license agreements, as
appropriate, with our employees, consultants and business partners, and
generally control access to and distribution of our technologies, documentation
and other proprietary information. Despite these efforts, we cannot be certain
that the steps we take to prevent unauthorized use of our proprietary rights are
sufficient to prevent misappropriation of our solutions or technologies,
particularly in foreign countries where laws or law enforcement practices may
not protect our proprietary rights as fully as in the United States. In
addition, we cannot assure you that the courts will adequately enforce
contractual arrangements which we have entered into to protect our proprietary
technologies.
We cannot assure you that any of our proprietary rights will be viable
or of value in the future since the validity, enforceability and scope of
protection of certain proprietary rights in Internet-related industries is
uncertain and still evolving. Furthermore, third parties may assert infringement
claims against us. From time to time we have been, and we expect to continue to
be, subject to claims in the ordinary course of our business, including claims
of alleged infringement of the trademarks and other intellectual property rights
of third parties by us or the Web publishers with Web sites in our DoubleClick
networks. Such claims and any resultant litigation, should it occur, could
subject us to significant liability for damages, and we could be restricted from
using our ad delivery technology or other intellectual property. Any claims or
litigation from third parties may also result in limitations on our ability to
use the intellectual property, including our ad delivery technology, which are
the subject of such claims or litigation unless we enter into arrangements with
the third parties responsible for such claims or litigation which may be
unavailable on commercially reasonable terms, if at all. In addition, even if we
prevail, such litigation could be time-consuming and expensive to defend, and
could result in the diversion of our time and attention, any of which could
materially and adversely affect our business, results of operations and
financial condition.
In May 2000, 24/7 Media filed a patent infringement litigation suit
against us, which alleges that we infringe, and are inducing and contributing to
the infringement of a patent owned by 24/7 Media. 24/7 Media is seeking damages
in an unspecified amount, an injunction against infringement of the patent, and
its attorneys fees and costs. We deny infringement and intend to vigorously
defend against these claims. We cannot quantify the amount of monetary or human
resources that we will be required to use to defend ourselves in this
proceeding. We may need to spend significant amounts on our legal defense,
senior management may be required to divert their attention from other portions
of our business, new product launches may be deferred or canceled as a result of
this proceeding, and we may be required to make changes to our present and
planned products or services, any of which could materially and adversely
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affect our business, financial condition and results of operations. If, as a
result of this proceeding, a judgment is rendered or a decree is entered against
us, it may materially and adversely affect our business, financial condition and
results of operations.
OUR RIGHT TO KEEP INFORMATION COLLECTED IN OUR DATABASES MAY BE CHALLENGED IN
THE FUTURE, WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS
We collect and compile information in databases for the product
offerings of all our businesses. Individuals have claimed, and may claim in the
future, that our collection of this information is illegal. Although we believe
that we have the right to use and compile the information in these databases, we
cannot assure you that our ability to do so will remain lawful, that any trade
secret, copyright or other intellectual property protection will be available
for our databases, or that statutory protection that is or becomes available for
databases will enhance our rights. In addition, others may claim rights to the
information in our databases. Further, pursuant to our contracts with Web
publishers using our solutions, we are obligated to keep certain information
regarding each Web publisher confidential and, therefore, may be restricted from
further using that information in our business.
WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS OR WE WILL
NOT BE COMPETITIVE
The Internet and Internet advertising markets are characterized by
rapidly changing technologies, evolving industry standards, frequent new product
and service introductions, and changing customer demands. Our future success
will depend on our ability to adapt to rapidly changing technologies and to
enhance existing solutions and develop and introduce a variety of new solutions
and services to address our customers' changing demands. We may experience
difficulties that could delay or prevent the successful design, development,
introduction or marketing of our solutions and services. In addition, our new
solutions or enhancements must meet the requirements of our current and
prospective customers and must achieve significant market acceptance. Material
delays in introducing new solutions and enhancements may cause customers to
forego purchases of our solutions and purchase those of our competitors. Our
failure to successfully design, develop, test and introduce new services, or the
failure of our recently introduced services to achieve market acceptance, could
prevent us from maintaining existing client relationships, gaining new clients
or expanding our markets and could materially and adversely affect our business,
financial condition and results of operations.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL TO SUCCESSFULLY EXPAND OUR
INTERNATIONAL OPERATIONS AND SALES AND MARKETING EFFORTS
We have operations in a number of international markets. We intend to
continue to expand our international operations and international sales and
marketing efforts. To date, we have limited experience in developing localized
versions of our solutions and in marketing, selling and distributing our
solutions internationally. We have established our DoubleClick networks in
Australia, Brazil, Canada, France, Germany, Benelux (Belgium, the Netherlands
and Luxembourg), Scandinavia (Sweden, Norway, Finland, and Denmark), Spain, the
United Kingdom and Italy. In Asia (Taiwan, Singapore, and Hong Kong), and under
separate agreements, Japan and Korea, we are working with our business partners
to conduct operations, establish local networks, aggregate Web publishers and
coordinate sales and marketing efforts. Our success in these markets is directly
dependent on the success of our business partners and their dedication of
sufficient resources to our relationship.
Our international operations are subject to other inherent risks,
including:
- the impact of recessions in economies outside the United States;
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- changes in regulatory requirements;
- more restrictive privacy regulation;
- reduced protection for intellectual property rights in some
countries;
- potentially adverse tax consequences;
- difficulties and costs of staffing and managing foreign
operations;
- political and economic instability;
- fluctuations in currency exchange rates; and
- seasonal fluctuations in Internet usage.
These risks may materially and adversely affect our business, results
of operations or financial condition.
WE HAVE INCURRED SIGNIFICANT DEBT OBLIGATIONS WHICH COULD HARM OUR BUSINESS
We incurred $250 million of indebtedness in March 1999 from the sale of
our 4.75% Convertible Subordinated Notes due 2006. Our ratio of long-term debt
to total equity was approximately 27.6% as of June 30, 2000. As a result of the
sale of the notes, we have substantially increased our principal and interest
obligations. The degree to which we are leveraged could materially and adversely
affect our ability to obtain additional financing and could make us more
vulnerable to industry downturns and competitive pressures. Our ability to meet
our debt service obligations will depend on our future performance, which will
be subject to financial, business, and other factors affecting our operations,
many of which are beyond our control.
IF WE DO NOT SUCCESSFULLY INTEGRATE ABACUS AND NETGRAVITY OR THE MERGERS'
BENEFITS DO NOT MEET THE EXPECTATIONS OF FINANCIAL OR INDUSTRY ANALYSTS, THE
MARKET PRICE FOR OUR COMMON STOCK MAY DECLINE.
We entered into merger agreements with Abacus and NetGravity with the
expectations that these mergers will result in significant benefits. We have
virtually no experience in Abacus's business and little direct experience with
NetGravity's primary business model. Furthermore, Abacus's principal offices are
located in Broomfield, Colorado while our principal offices are located in New
York, New York; managing the business in a coordinated fashion may therefore
require additional management resources. We will need to overcome these
significant issues in order to realize any benefits or synergies from the
mergers. Our successful execution of these post-merger events will involve
considerable risk and may not be successful. The market price of our common
stock may decline, and we may lose key personnel and customers as a result of
our mergers if:
- we do not successfully integrate operations and personnel of the
businesses;
- we do not achieve the perceived benefits of the mergers as rapidly
or to the extent anticipated by financial or industry analysts; or
- the effect of the mergers on our financial results is not
consistent with the expectations of financial or industry
analysts.
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IF WE FAIL TO SUCCESSFULLY CROSS-MARKET THE PRODUCTS OF DOUBLECLICK MEDIA,
DOUBLECLICK TECHSOLUTIONS AND DOUBLECLICK DATA SERVICES OR TO DEVELOP NEW
PRODUCTS, WE MAY NOT INCREASE OR MAINTAIN OUR CUSTOMER BASE OR OUR REVENUE
We intend to initially offer the respective products and services
historically offered by DoubleClick, Abacus and NetGravity to our collective
customers. We cannot assure you that any company's customers will have any
interest in the other company's products and services. The failure of our
cross-marketing efforts may diminish the benefits we realize from the mergers.
In addition, we intend to develop new products and services that combine the
knowledge and resources of DoubleClick Media, DoubleClick TechSolutions and
DoubleClick Data Services. We cannot assure you that these products or services
will be developed or, if developed, will be successful or that we can
successfully integrate or realize the anticipated benefits of the mergers. As a
result, we may not be able to increase or maintain our customer base. We cannot
assure you that the transactions or other data in Abacus's database will be
predictive or useful in other sales channels, including Internet advertising. We
cannot assure you that we will be able to overcome the obstacles in developing
new products and services, or that there will be a market for the new products
or services developed by us after the mergers. An inability to overcome such
obstacles or a failure of such a market to develop could materially and
adversely affect our business, financial condition and results of operations or
could result in loss of key personnel. In addition, the attention and effort
devoted to the integration of the acquired companies will significantly divert
management's attention from other important issues, and could seriously harm our
business, financial condition and results of operations.
IF THE COSTS ASSOCIATED WITH THE MERGERS EXCEED THE BENEFITS REALIZED, WE MAY
EXPERIENCE INCREASED LOSSES
We have incurred one-time charges related to the Abacus and NetGravity
mergers. If the benefits of the mergers do not exceed the costs associated with
them, including any dilution to our stockholders resulting from the issuance of
shares in connection with the mergers, our financial results could be adversely
affected.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF OUR COMPANY
Some of the provisions of our certificate of incorporation, our by-laws
and Delaware law could, together or separately:
- discourage potential acquisition proposals;
- delay or prevent a change in control;
- impede the ability of our stockholders to change the composition
of our board of directors in any one year; and
- limit the price that investors might be willing to pay in the
future for shares of our common stock.
OUR STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS
The market price of our common stock has fluctuated in the past and is
likely to continue to be highly volatile and could be subject to wide
fluctuations. In addition, the stock market has experienced extreme price and
volume fluctuations. The market prices of the securities of Internet-related
companies
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have been especially volatile. Investors may be unable to resell their shares of
our common stock at or above the purchase price.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could materially and adversely affect our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
As of June 30, 2000, we had 122,647,777 shares of common stock
outstanding, excluding 22,754,076 shares subject to options outstanding as of
such date under our stock option plans that are exercisable at prices ranging
from $0.03 to $184.35 per share. Additionally, certain holders of our common
stock have registration rights with respect to their shares. We intend to file
one or more registration statements in compliance with these registration
rights. We cannot predict the effect, if any, that future sales of common stock
or the availability of shares of common stock for future sale, will have on the
market price of common stock prevailing from time to time. Sales of substantial
amounts of common stock (including shares included in such registration
statements, issued upon the exercise of stock options or issued upon the
conversion of our Convertible Subordinated Notes), or the perception that such
sales could occur, may materially and adversely affect prevailing market prices
for common stock.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF THE MARKET FOR INTERNET ADVERTISING
FAILS TO GROW AS PREDICTED OR DIMINISHES
Our future success is highly dependent on an increase in the use of the
Internet as an advertising medium. The Internet advertising market is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and market acceptance for
Internet advertising solutions is uncertain. Most of our current or potential
advertising customers have little or no experience using the Internet for
advertising purposes and they have allocated only a limited portion of their
advertising budgets to Internet advertising. The adoption of Internet
advertising, particularly by those entities that have historically relied upon
traditional media for advertising, requires the acceptance of a new way of
conducting business, exchanging information and advertising products and
services. These customers may find Internet advertising to be less effective for
promoting their products and services relative to traditional advertising media.
In addition, most of our current and potential Web publisher customers have
little experience in generating revenue from the sale of advertising space on
their Web sites. We cannot assure you that current or potential advertising
customers will continue to allocate a portion of their advertising budget to
Internet advertising or that the market for Internet advertising will continue
to develop to sufficiently support Internet advertising as a significant
advertising medium. If the market for Internet advertising develops more slowly
than we expect, then our business, results of operations and financial condition
could be materially and adversely affected.
There are currently no standards for the measurement of the
effectiveness of Internet advertising and standard measurements may need to be
developed to support and promote Internet advertising as a
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significant advertising medium. Our advertising customers may challenge or
refuse to accept our or third-party measurements of advertisement delivery
results, and our customers may not accept any errors in such measurements. In
addition, the accuracy of database information used to target advertisements is
essential to the effectiveness of Internet advertising that may be developed in
the future. The information in our database, like any database, may contain
inaccuracies which our customers may not accept.
A significant portion of our revenue are derived from the delivery of
advertisements placed on Web sites which are designed to contain the features
and measuring capabilities requested by advertisers. If advertisers determine
that those ads are ineffective or unattractive as an advertising medium or if we
are unable to deliver the features or measuring capabilities requested by
advertisers, the long-term growth of our online advertising business could be
limited and our revenue levels could decline. Also, there are `filter' software
programs that limit or prevent advertising from being delivered to a user's
computer. The commercial viability of Internet advertising, and our business,
results of operations and financial condition, would be materially and adversely
affected by Web users' widespread adoption of this software.
CHANGES IN GOVERNMENT REGULATION COULD DECREASE OUR REVENUE AND INCREASE OUR
COSTS
Laws and regulations directly applicable to Internet communications,
commerce and advertising are becoming more prevalent, and new laws and
regulations are under consideration by the United States Congress and state
legislatures. Any legislation enacted or restrictions arising from current or
future government investigations or policy could dampen the growth in use of the
Internet generally and decrease the acceptance of the Internet as a
communications, commercial and advertising medium. The governments of other
states or foreign countries might attempt to regulate our transmissions or levy
sales or other taxes relating to our activities. The European Union has enacted
its own privacy regulations that may result in limits on the collection and use
of certain user information. The laws governing the Internet, however, remain
largely unsettled, even in areas where there has been some legislative action.
It may take years to determine whether and how existing laws such as those
governing intellectual property, privacy, libel and taxation apply to the
Internet and Internet advertising. In addition, the growth and development of
the market for Internet commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business over the Internet. Our
business, results of operations and financial condition could be materially and
adversely affected by the adoption or modification of laws or regulations
relating to the Internet.
CHANGES IN LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF
INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESs
The U.S. federal and various state governments have recently proposed
limitations on the collection and use of information regarding Internet users.
In October 1998, the European Union adopted a directive that may limit our
collection and use of information regarding Internet users in Europe. At this
stage, our DART technology targets advertising to users through the use of
`cookies' and other non-personally-identifying information, with the exception
of advertising delivered to German Web sites where we do not currently set
cookies. We are developing new capabilities that would permit our DART
technology to target users using anonymous online preference marketing
techniques. The effectiveness of our DART technology could be limited by any
regulation limiting the collection or use of information regarding Internet
users. Since many of the proposed laws or regulations are just being developed,
we cannot yet determine the impact these regulations may have on our business.
In addition, growing public concern about privacy and the collection,
distribution and use of information about individuals has led to self-regulation
of these practices by the internet advertising and
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direct marketing industry and to increased federal and state regulation. The
Network Advertising Initiative or NAI, of which we are a member along with other
Internet advertising companies, has developed self-regulatory principles for
online preference marketing. These principles were recently endorsed by the
Federal Trade Commission and the Clinton Administration, and are in the process
of being adopted by the NAI companies. The Direct Marketing Association, or DMA,
the leading trade association of direct marketers, has adopted guidelines
regarding the fair use of this information which it recommends participants,
such as us, through DoubleClick Data Services, in the direct marketing industry
follow. We are also subject to various federal and state regulations concerning
the collection, distribution and use of information regarding individuals. These
laws include the Federal Drivers Privacy Protection Act of 1994 and state laws
which limit or preclude the use of voter registration and drivers license
information, as well as laws which govern the collection and release of consumer
credit information. Although our compliance with the DMA's guidelines and
applicable federal and state laws and regulations has not had a material adverse
effect on us, we cannot assure you that the DMA will not adopt additional, more
burdensome guidelines or that additional, more burdensome federal or state laws
or regulations, including antitrust and consumer privacy laws, will not be
enacted or applied to us or our clients, which could materially and adversely
affect the business, financial condition and results of operations of
DoubleClick Data Services.
CHANGING REQUIREMENTS FOR FAIR INFORMATION COLLECTION PRACTICES AND HEIGHTENED
SCRUTINY OF OUR PRODUCTS OR SERVICES COULD REQUIRE OR CAUSE CHANGES IN THE WAY
WE CONDUCT OR PLAN TO CONDUCT OUR BUSINESS
There has been public debate about how fair information collection
practices should be formulated for the online and offline collection,
distribution and use of information about a consumer. Some of the discussion has
focused on the fair information collection practices that should apply when
information about an individual that is collected in the offline environment is
associated with information that is collected over the Internet about that
individual. Following our announcement of the Abacus merger, we have seen a
heightened public discussion and speculation about the information collection
practices that will be employed in the industry generally, and specifically by
us.
We are working with industry groups, such as the NAI and the Online
Privacy Alliance, to establish such standards with the U.S. government. The
self-regulatory principles for online preference marketing developed by the NAI
were recently endorsed by the Federal Trade Commission and the Clinton
Administration. Nonetheless, we cannot assure you that we will be successful in
establishing industry standards acceptable to the U.S. government or the various
state governments, or that the standards we establish will not require material
changes to our business plans. We also cannot assure you that our business
plans, or any U.S. industry standards that are established, will either be
acceptable to any non-U.S. government or conform to foreign legal and business
practices. As a consequence of governmental legislation or regulation or
enforcement efforts or evolving standards of fair information collection
practices, we may be required to make changes to our products or services in
ways that could diminish the effectiveness of the product or service or its
attractiveness to potential customers. In addition, given the heightened public
discussion about consumer online privacy, we cannot assure you that our products
and business practices will gain market acceptance, even if they do conform to
industry standards. Separately, computer users may also use software designed to
filter or prevent the delivery of advertising to their computers. We cannot
assure you that the number of computer users who employ filtering software will
not increase. In the case that one or more of these scenarios occur, our
business, financial condition and results of operations could be materially and
adversely affected.
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OUR BUSINESS MAY SUFFER IF THE WEB INFRASTRUCTURE IS UNABLE TO EFFECTIVELY
SUPPORT THE GROWTH IN DEMAND PLACED ON IT
Our success will depend, in large part, upon the maintenance of the Web
infrastructure, such as a reliable network backbone with the necessary speed,
data capacity and security, and timely development of enabling products such as
high speed modems, for providing reliable Web access and services and improved
content. We cannot assure you that the Web infrastructure will continue to
effectively support the demands placed on it as the Web continues to experience
increased numbers of users, frequency of use or increased bandwidth requirements
of users. Even if the necessary infrastructure or technologies are developed, we
may have to spend considerable amounts to adapt our solutions accordingly.
Furthermore, the Web has experienced a variety of outages and other delays due
to damage to portions of its infrastructure. These outages and delays could
impact the Web sites of Web publishers using our solutions and the level of user
traffic on Web sites on our DoubleClick networks.
DOUBLECLICK DATA SERVICES IS DEPENDENT ON THE SUCCESS OF THE DIRECT MARKETING
INDUSTRY FOR ITS FUTURE SUCCESS
The future success of DoubleClick Data Services is dependent in large
part on the continued demand for our services from the direct marketing
industry, including the catalog industry, as well as the continued willingness
of catalog operators to contribute their data to us. Most of our Data Services
clients are large consumer merchandise catalogs operators in the United States.
A significant downturn in the direct marketing industry generally, including the
catalog industry, or withdrawal by a substantial number of catalog operators
from the Abacus Alliance, would have a material adverse effect on our business,
financial condition and results of operations. Many industry experts predict
that electronic commerce, including the purchase of merchandise and the exchange
of information via the Internet or other media, will increase significantly in
the future. To the extent this increase occurs, companies which now rely on
catalogs or other direct marketing avenues to market their products may
reallocate resources toward these new direct marketing channels and away from
catalog-related marketing or other direct marketing avenues, which could
adversely affect demand for our data services. In addition, the effectiveness of
direct mail as a marketing tool may decrease as a result of consumer saturation
and increased consumer resistance to direct mail in general.
INCREASES IN POSTAL RATES AND PAPER PRICES COULD HARM DOUBLECLICK DATA SERVICES
The direct marketing activities of our Abacus Alliance clients are
adversely affected by postal rate increases, especially increases that are
imposed without sufficient advance notice to allow adjustments to be made to
marketing budgets. Higher postal rates may result in fewer mailings of direct
marketing materials, with a corresponding decline in the need for some of the
direct marketing services offered by us. Increased postal rates can also lead to
pressure from our clients to reduce our prices for our services in order to
offset any postal rate increase. Higher paper prices may also cause catalog
companies to conduct fewer or smaller mailings which could cause a corresponding
decline in the need for our services. Our clients may aggressively seek price
reductions for our services to offset any increased materials cost. Any of these
occurrences could materially and adversely affect the business, financial
condition and results of operations of our Abacus business.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Following the announcement of the proposed merger between DoubleClick
and NetGravity, complaints were filed in the San Mateo County, California,
Superior Court and the Chancery Court of the
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State of Delaware against NetGravity and several of its directors. DoubleClick
was also named as a defendant in the Delaware action. The complaints allege that
the directors of NetGravity breached their fiduciary duties to NetGravity's
stockholders in connection with the negotiation of the proposed merger. The
Delaware complaint asks the court to invalidate the termination fee provision of
the merger agreement by and between NetGravity and DoubleClick. This action was
dismissed without prejudice in January 2000. The California complaint asks the
court to enjoin the consummation of the merger or, alternatively, seeks to
rescind the merger or an award of unspecified damages from the defendants in the
event the merger is consummated. The Company believes the claims asserted in
this complaint are without merit and vigorously contests them.
In November 1999, we filed suit in the U.S. District Court for the
Eastern District of Virginia against L90, Inc. for infringement of our DART
patent. In December 1999, we filed suit in the U.S. District Court for the
Southern District of New York against Sabela Media, Inc., also for infringement
of our patent. In April 2000, the L90 case was transferred to the U.S. District
Court for the Southern District of New York. The L90 and Sabela lawsuits have
been consolidated for pre-trial purposes.
On May 4, 2000, 24/7 Media, Inc. filed a patent infringement litigation
suit against DoubleClick in the United States District Court for the Southern
District of New York. The suit alleges that DoubleClick infringes, and is
inducing and contributing to the infringement of, a patent owned by 24/7 Media.
24/7 Media is seeking damages in an unspecified amount, an injunction against
infringement of the patent, and its attorneys fees and costs. DoubleClick denies
infringement and intends to vigorously defend against these claims.
DoubleClick is a defendant in seventeen lawsuits concerning Internet
user privacy and DoubleClick's data collection and other business practices.
Sixteen of these actions are styled as class actions, and one action is brought
on behalf of the general public of the State of California. The actions seek,
among other things, injunctive relief and unspecified damages.
Four of the actions were filed in California state court, ten in
federal court in New York, one in federal court in California, one in federal
court in Louisiana and one in Texas state court. On March 31, 2000, the
plaintiff in one of the California state court proceedings filed a petition,
ordered by the court on May 11, 2000, to coordinate the four actions currently
pending in the California state courts. On July 31, 2000, the Judicial Panel on
Multidistrict Litigation granted DoubleClick's motion to transfer, coordinate
and consolidate all twelve federal actions before Judge Buchwald in the Southern
District of New York. These lawsuits have only recently been filed. DoubleClick
believes that these lawsuits are without merit and is vigorously defending
itself against them.
Additionally, we received a letter from the Federal Trade Commission
("FTC"), dated February 8, 2000, in which the FTC notified us that they were
conducting an inquiry into our business practices to determine whether, in
collecting and maintaining information concerning Internet users, we have
engaged in unfair or deceptive practices. We are cooperating fully with the
FTC's inquiry.
In addition, DoubleClick's ad serving and data collection practices are
also the subject of inquiries by the attorneys general of several states.
DoubleClick is cooperating fully with all such inquiries by the various states.
We may receive additional regulatory inquiries and intend to cooperate fully.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our 2000 Annual Meeting of Stockholders on May 26, 2000. At
that meeting, our stockholders approved the following proposals: (i) election of
W. Grant Gegory and Don Peppers as
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Class III directors whose term expires in 2003, and (ii) ratification of
PricewaterhouseCoopers LLP as our independent auditors for the fiscal year
ending December 31, 2000.
There were 102,049,808 votes cast for and 221,969 votes withheld in
connection with the election of Don Peppers as a director. There were
101,941,880 votes cast for and 329,897 votes withheld in connection with the
election of W. Grant Gregory as a director. The remainder of our board of
directors remains as previously reported. There were 102,161,803 votes cast
for, 58,468 votes cast against and 51,506 abstentions in connection with the
ratification of PricewaterhouseCoopers LLP as independent auditors.
ITEM 5. OTHER INFORMATION
CHIEF EXECUTIVE OFFICER
On July 25, 2000, we announced that our President and Chief Operating
Officer Kevin Ryan was named Chief Executive Officer and appointed to the
Board of Directors. Kevin O'Connor, formerly our Chief Executive Officer,
remains as Chairman. In his new role, Mr. Ryan continues to run the
day-to-day operations while Mr. O'Connor will continue to focus on new market
development and long term strategic planning for DoubleClick.
ALTAVISTA COMPANY
On August 7, 2000, we announced the restructuring of our Advertising
Services Agreement with AltaVista Company (the 'New Agreement'). The New
Agreement will replace our current agreements with AltaVista: the Interim
Amended and Restated Advertising Services Agreement, effective as of
November 1, 1999, and the Advertising Services Agreement, effective as of
January 1, 1999. There are four components to the New Agreement: U.S. ad sales,
international ad sales, the DART for Publishers Service, and the DART for
Advertisers Service.
Under the New Agreement, AltaVista will immediately assume lead ad sales
responsibility for U.S. strategic advertisers, and will assume lead ad sales
responsibility for all other U.S. advertisers by February 2001. In addition,
AltaVista will assume lead ad sales responsibility for advertisers located in
the United Kingdom, France, Germany, Italy, Sweden and the Netherlands by
January 1, 2001. DoubleClick will continue to represent AltaVista in other
international markets on an exclusive third party basis through December 31,
2001, subject to AltaVista's right to assume lead responsibility sooner.
After AltaVista assumes the lead ad responsibility in a market, DoubleClick
will have the right to sell ads on a run of network or run of category basis on
the AltaVista Web sites in that market on a non-exclusive basis, as part of
DoubleClick's worldwide ad networks, through December 31, 2004.
Under the New Agreement, the DART for Publishers Service ('DFP') will serve
ads on AltaVista's Web sites through December 31, 2004. The ads required to be
served through DFP declines in each year of the agreement, subject to certain
minimums. Under the New Agreement, the DART for Advertisers Service will serve
the majority of AltaVista's online advertising campaigns through December 2004.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) The following Exhibit is filed as part of this report
27.01 -- Financial Data Schedule
(b) Reports on Form 8-K
We filed a Report on Form 8-K, Item 5, on June 26, 2000, announcing our
acquisition of Flashbase, Inc. under the terms of the Stock Purchase Agreement
dated as of May 26, 2000.
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 2000
DOUBLECLICK INC.
By: /s/ Stephen Collins
----------------------------------------
Stephen Collins
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER
AND DULY AUTHORIZED SIGNATORY)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
<S> <C>
27.01 Financial Data Schedule
</TABLE>
