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________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
COMMISSION FILE NUMBER 000-23709
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DOUBLECLICK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3870996
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
450 WEST 33RD STREET
NEW YORK, NEW YORK 10001
(212) 683-0001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK $.001 PAR VALUE
-------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ] Yes [x] No
The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 15, 2000 was approximately $10,587,600,000 (based on
the last reported sale price on the NASDAQ National Market on that date). The
number of shares outstanding of the registrant's common stock as of
December 31, 1999 was 112,453,892.
-------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2000 Annual Meeting of
Stockholders, which is to be filed subsequent to the date hereof, are
incorporated by reference into Part III.
________________________________________________________________________________
DOUBLECLICK INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. Business.................................................... 3
ITEM 2. Properties.................................................. 27
ITEM 3. Legal Proceedings........................................... 27
ITEM 4. Submission of Matters to a Vote of Security Holders......... 29
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters Price Range of Common Stock........... 29
ITEM 6. Selected Consolidated Financial Data........................ 31
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 33
ITEM 7A. Quantative and Qualitive Disclosures About Market Risk...... 41
ITEM 8. Consolidated Financial Statements and Supplementary Data.... 42
ITEM 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 67
PART III
ITEM 10. Directors and Executive Officers of the Registrant.......... 67
ITEM 11. Executive Compensation...................................... 67
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 67
ITEM 13. Certain Relationships and Related Transactions.............. 70
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 71
2
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS BASED ON OUR CURRENT
EXPECTATIONS, ASSUMPTIONS, ESTIMATES AND PROJECTIONS ABOUT DOUBLECLICK AND OUR
INDUSTRY. THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
DOUBLECLICK'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, AS MORE FULLY
DESCRIBED IN THIS SECTION AND ELSEWHERE IN THIS REPORT. DOUBLECLICK UNDERTAKES
NO OBLIGATION TO UPDATE PUBLICLY ANY FORWARD-LOOKING STATEMENTS FOR ANY REASON,
EVEN IF NEW INFORMATION BECOMES AVAILABLE OR OTHER EVENTS OCCUR IN THE FUTURE.
PART I
ITEM 1. BUSINESS
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. Our products and services for Web publishers are
designed to optimize revenues. For our advertising, advertising agency and
e-commerce merchant customers, our products and services are designed to enhance
the effectiveness of their ad 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. DART is also a sophisticated tracking and
reporting tool that our customers rely on to measure ad performance and provide
dynamic ad space inventory management. We currently serve ads for over 1,800
clients, and in December 1999 delivered nearly 30 billion advertisements to
targeted Internet users.
Our revenues are derived from three principal lines of business:
DOUBLECLICK MEDIA. DoubleClick Media offers advertising and marketing
solutions to both publishers (i.e., AltaVista, the Dilbert Zone, Kelley
Blue Book and Macromedia) and advertisers. We aggregate the advertising
inventory of hundreds of Web sites into one of several domestic and
international networks based on size, traffic and content. We offer Web
publishers outsourced ad sales, ad delivery and related services to
generate advertising revenue. We offer advertisers the ability to advertise
on these networks and to target users on a local, national and
international basis. We deliver advertising on these networks using our
DART technology.
DOUBLECLICK TECHSOLUTIONS. DoubleClick TechSolutions is comprised of
comprehensive service and software solutions designed specifically for the
needs of our three targeted customer segments: advertisers and agencies,
Web publishers and e-commerce merchants. Our solutions include the DART
Service for Publishers, the AdServer family of software products for
publishers and e-commerce merchants, the DART Service for Advertisers, and
the DARTmail Service. We have professional service teams to support these
solutions and provide education, consulting services and around-the-clock
support. We acquired the AdServer family of software products through our
merger with NetGravity, Inc. in October 1999.
DOUBLECLICK DATA SERVICES. DoubleClick Data Services, through our Abacus
division, is a leading provider of information products and marketing
research services to the direct marketing industry. Through Abacus, we have
developed a comprehensive and productive source of information regarding
consumer purchasing behavior by creating a database that includes consumer
purchasing data contributed from over 1,500 alliance members. We use this
proprietary database and our advanced statistical modeling technology to
provide direct marketers with information and analysis which is designed to
increase response rates and profits from their direct mail marketing
campaigns. We merged with Abacus Direct Corporation in November 1999.
The Internet has emerged as an attractive new medium for advertisers due to
the rapid growth in the number of Web users, the amount of time such users spend
on the Web, the increase in electronic commerce, the interactive nature of the
Web, the Web's global reach and a variety of other factors. We believe the
number of U.S. online households will grow from
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39 million in 1999 to 63 million in 2004 and consumer e-commerce will reach $108
billion in 2003. Consequently, we believe that U.S. online advertising spending
will grow from $2.8 billion in 1999 to $22.2 billion in 2004. In addition, we
believe that markets outside the U.S. will become an increasingly important
component of Internet advertising, growing from $500 million in 1999 to $10.5
billion in 2004, accounting for approximately 33% of worldwide Internet
advertising. We believe that we are well positioned to capitalize on this large
market opportunity.
TECHNOLOGY OVERVIEW
We continue to enhance and develop our technology platforms. These include:
DART TECHNOLOGY. Many of our products and services are powered by our
patented DART technology, which enables centralized ad management, delivery
and reporting. In September 1999, we received a U.S. patent covering
fundamental aspects of our DART technology. We use our DART technology to
deliver advertising on Web sites independent from how content is delivered.
Content is delivered through the particular Web site's services, while our
servers contemporaneously select an appropriate advertisement for that Web
page and user based on various targeting criteria and deliver that
advertisement to the user within milliseconds. The following diagram
illustrates the architecture of the DART Service for Publishers:
Diagram illustrating the typical function of the DoubleClick DART service.
Shows a diagram with the following text:
[1. Web user visits a Web site of a Web publisher utilizing the Company's
DART Solutions.]
[Stylized picture of user]
[2. User's browser requests a targeted advertisement from a DoubleClick
ad server.]
[3. DART receives the request and assembles a user profile. The user
profile can include geographic location of the user's server, user
interests, organization name and size, domain type (i.e., commercial,
government, education, network), operating system, server type and
version and keywords.]
[4. DoubleClick DART then compares the user's profile with the targeting
criteria of the hundreds of ads available in its database and delivers a
dynamically targeted ad. This entire process is completed in milliseconds.]
[Stylized picture of user viewing targeted ad]
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Our DART technology dynamically targets and delivers ads to Web users based
on pre-selected criteria, including the Web site category, time of day and
regional geographic location. If the user responds to an advertisement by
'clicking on' the ad, our servers direct the user's browser to the
advertiser's Web site for more information. These methods of data
collection and centralized ad delivery offer a number of advantages to Web
publishers, advertisers and consumers, including system reliability, proven
targeting capabilities, sophisticated ad inventory management, consistent
Web-based reporting and enhanced relevance of the advertising to the user.
Because DART technology is Web-based, continuous enhancements to the
technology can be made without the need for our customers to upgrade or
purchase new equipment or software upgrades.
ADSERVER TECHNOLOGY. We license, and offer consulting and support services
for, the AdServer family of software products for e-commerce merchants and
Web publishers. Using our AdServer software solution, e-commerce merchants
and Web publishers can directly manage their own advertising inventory,
consumer data, mission-critical advertising business processes, and
relationships with advertisers and advertising agencies. The AdServer
family of software products are designed to allow Web publishers to predict
inventory available for sale, to deliver targeted advertisements to
consumers and to provide reports and analysis to advertisers. Additionally,
our AdServer software solution can be integrated with content management,
billing and commerce systems. AdServer is designed to be extensible, fault-
tolerant, scalable and platform-independent to meet the needs of even our
largest customers. Our AdServer software also supports industry standard
operating environments including popular Unix systems, Microsoft Windows
NT, standard relational databases, Web servers from Netscape and Microsoft
and Java-enabled Web browsers.
DATA SERVICE TECHNOLOGY. Our Data Service technology employs modeling
software which uses predictive scoring and analytical techniques to improve
response rates from customer lists. We also use process automation software
that integrates and automates virtually all states of model development and
list production and allows us to quickly and cost effectively generate
dozens of models for a given client.
OUR SOLUTIONS
DOUBLECLICK MEDIA
Solutions for Publishers
DoubleClick Media offers a comprehensive set of media solutions designed to
optimize advertising revenues for Web publisher clients on our worldwide
networks. We pay each Web publisher whose Web sites are on the networks a
service fee calculated as a percentage of the amount we charge advertisers for
delivering advertisements on the networks. In addition, we typically are
responsible for billing and collecting for ads delivered on the networks and
typically assume the risk of non-payment from advertisers. By outsourcing these
functions, Web publishers avoid the need to develop an internal ad sales
capacity, are relieved of ad management requirements, including billing,
tracking and reporting, and do not incur the expense associated with
establishing, maintaining, upgrading and operating ad servers.
DoubleClick Media service and product offerings for Web publishers consist
of the following:
DOUBLECLICK SELECT. DoubleClick Select is the advertising solution for Web
publishers of well-known Web sites that wish to completely outsource ad
sales, ad management, ad serving and reporting. Announced in January 1999,
DoubleClick Select features a collection of high quality branded Web sites
on which our experienced sales force and sponsorship specialists sell
advertising on an exclusive basis. Through exclusive representation,
DoubleClick Select positions its sites for high value, premium ad products
such as site specific campaigns and sponsorships.
DOUBLECLICK NETWORK. Web publishers complement their in-house ad sales
efforts with the DoubleClick Network. The DoubleClick Network helps Web
publishers realize revenue from
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their advertising inventory by allowing Web publishers to take advantage of
the global sales force of DoubleClick Media to maximize their Web site's
revenue potential. The largest DoubleClick Media network is the DoubleClick
Network. Our representation of Web publishers is typically on a
non-exclusive basis in the U.S., and on an exclusive basis internationally.
SONAR NETWORK. On January 31, 2000, we announced the launch of the Sonar
Network, our new, separately branded network of small and medium-sized Web
sites and unsold inventory from larger Web sites. The Sonar Network is
focused on providing ad sales services for Web publishers offering reach
and user-based audience-targeting to advertisers looking for lower cost ad
solutions.
To take advantage of the global reach of the Internet, we have established
and continue to establish networks in Europe, Asia and other international
markets. DoubleClick Media currently offers our services and products in
Australia, Canada, France, Germany, the United Kingdom, Benelux (the
Netherlands, Belgium and Luxembourg), Iberoamerica (Spain, Portugal and Latin
America), Ireland and Scandinavia (Sweden, Norway, Denmark and Finland), and
operates through business partners in Japan, Asia (Hong Kong, Taiwan and
Singapore) and Italy. Further, we locate ad servers in foreign locations to
facilitate the rapid delivery of Internet advertising in international markets.
Web publishers seeking to add their Web sites to one of our DoubleClick
Media networks must meet defined inclusion and maintenance criteria. For the
DoubleClick Network and for DoubleClick Select, these factors include:
demographics of the particular Web site's users;
quality of the Web site's content;
brand name recognition of the Web site;
level of existing and projected traffic on the Web site; and
ability to provide sponsorship opportunities on the Web site.
By maintaining these defined criteria, we enhance an advertiser's ability to
have its advertisements seen by the targeted audience which, in turn enhances
the value of a Web publisher's inventory.
We will continue to target Web publishers of high quality directories,
search engines and premium Web sites for addition to the existing categories of
interest in the networks of DoubleClick Media. We will also continue to expand
into additional categories of interest based on advertisers' targeting needs.
Solutions for Advertisers
DoubleClick Media provides advertisers and their agencies with the ability
to reach their desired audience online. Over 4,300 advertisers from a variety of
industries used the DoubleClick Media advertiser solutions during the fourth
quarter of 1999, including many of the leading Internet advertisers. In some
instances, advertisers promote a number of products at one time. In turn, there
may be a number of advertising campaigns being run simultaneously for each
product, each with a number of advertisements. Further, many advertisers use
advertising agencies to place their advertisements. As a result, DoubleClick
Media maintains relationships with, and focuses its sales and marketing efforts
on, both advertisers and advertising agencies. We offer the following media
solutions to help advertisers reach their desired audiences online:
U.S. NETWORKS. The DoubleClick Media networks within the United States
consist of six categories of premium content Web sites grouped together in
the following areas of interest: Auto, Business, Entertainment, Technology,
Travel and Women/Health. Additional sub-categories including sports, youth
and finance allow advertisers to more efficiently reach their desired
audiences. With special programs for mass reach, run-of-category and
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site-specific targeting, advertising placements on the sites in the U.S.
networks can be customized to meet the needs of any advertiser.
INTERNATIONAL NETWORKS. Our international DoubleClick Media operations
allow U.S. advertisers to target users worldwide or in specific countries
and enable overseas advertisers to focus their advertising either in their
own domestic market, the United States market or globally. With over 650
publishers featured in separate networks grouped together by country and
area of interest in Canada and eighteen countries in Western Europe and
Asia, we offer advertisers the ability to run global campaigns with one
media placement.
DOUBLECLICK LOCAL. Launched in July 1998, DoubleClick Local is among the
first Internet advertising solutions for regional and local businesses. By
using the advanced geographic targeting capabilities of our DART technology
in conjunction with our U.S. networks, regional businesses can now reach
their desired regional and local markets on national name-brand Web sites.
DOUBLECLICK SHOPPING. Launched in May 1999, DoubleClick Shopping offers
advertisers the ability to place ads on shopping Web sites we create for
Web publishers in the DoubleClick Media networks using the Web publishers'
premium branded content.
BOOMERANG. Launched in October 1998, the Boomerang feature of our DART
technology allows advertisers to reach users on the DoubleClick Media
networks who have previously visited the advertiser's Web site. Advertisers
can re-market to frequent buyers, to new customers, or to people who
visited a site but have not responded or made a purchase.
DOUBLECLICK TECHSOLUTIONS
DoubleClick TechSolutions are designed specifically to meet the needs of
advertisers, agencies, Web publishers and e-commerce merchants. These solutions
have been designed to address the rapidly evolving needs of each of the
following online marketing segments:
ADVERTISERS AND AGENCIES. Advertisers and their agencies are interested in
optimizing outbound advertising campaign results by delivering the right
message to the right person at the right time, and in justifying
expenditures through reliable, detailed, post-click campaign performance
reports.
WEB PUBLISHERS. Web publishers are interested in maximizing advertising
profits through advanced inventory management, precision targeting
capabilities, streamlined business processes, and reliable and detailed ad
performance reports to effectively package and sell one site or a network
of sites.
E-COMMERCE MERCHANTS. Online merchants are interested in using information
about their customers to deliver real-time, targeted marketing messages,
acquiring new customers at the lowest acquisition cost possible and
retaining customers to maximize lifetime value.
Our TechSolutions services and products include:
DART SERVICE FOR PUBLISHERS. Since January 1997, our DART Service for
Publishers has provided Web publishers with a comprehensive Web-based
service bureau that enables Web publishers that sell their own advertising
inventory to optimize their ad management, ad serving and reporting
functions through the Web-based DART technology. The DART Service provides
a Web publisher with the dynamic ad matching, targeting and delivering
features of the DART technology. With ad servers located throughout the
world, the DART Service for Publishers offers the scalability, reliability
and power needed to deliver large volumes of ads. Customers using the DART
Service for Publishers include Ask Jeeves, CBS Marketwatch, theglobe.com,
Mail.com and Wall Street Journal Interactive Edition.
DOUBLECLICK ADSERVER. Our AdServer software products offer an online
advertising and marketing management software solution for publishers and
merchants. AdServer software automates critical processes needed to run a
successful online marketing business, including sophisticated inventory and
order management, precision targeting, dynamic delivery, tracking and
detailed campaign reporting. AdServer software enables our clients to
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customize and integrate this solution with other key back-end systems.
Licensees of the AdServer family of software products include CNN
Interactive, KnightRidder New Media, Unicast and the World Wrestling
Federation.
DART SERVICE FOR ADVERTISERS. DART for Advertisers offers effective
campaign planning, management and optimization to allow advertisers to
streamline and control their online ad campaigns, understand their
customers and act quickly on knowledge gained. The DART Service for
Advertisers uses the same globally distributed system architecture and ad
servers that support the DART Service for Publishers. Advertiser and agency
clients of the DART Service for Advertisers product include Beyond
Interactive, CKS/US Web, First USA, MediaSmith and more.com.
DARTMAIL SERVICE. Our DARTmail Service offers advertisers and merchants a
full service advertising campaign management solution for direct e-mail
marketing. Our DARTmail Service enables marketers to deliver highly
personalized e-mail communications to their customers for the purposes of
building long-term, profitable relationships with their existing customers
and acquiring new customers. We first offered our DARTmail Service in early
December 1999, immediately following the acquisition of Opt-in E-mail.com.
Our DARTmail Service clients include iWon.com, Mail.com,
Metro-Goldwyn-Mayer, Microsoft and ShopNow.com.
DoubleClick TechSolutions are backed worldwide by support teams offering
service twenty-four hours a day, seven days a week. Through our professional
services group, we provide comprehensive education and consulting services that
help enable our customers to maximize the value of our TechSolutions services
and products. These services include customizing and extending existing
TechSolutions products and services in order to capitalize on additional revenue
opportunities, integrating DoubleClick TechSolutions into existing
infrastructure and data assets, and training employees on maximizing online
advertising effectiveness.
DOUBLECLICK DATA SERVICES
DoubleClick Data Services is a leading provider of information products and
marketing research services to the direct marketing industry through our Abacus
division. Through Abacus, we have developed a comprehensive and predictive
source of information regarding consumer purchasing behavior by creating a
database that includes consumer purchasing data contributed from over 1,500
alliance members. We use this proprietary database and its advanced statistical
modeling technology to provide direct marketers with information and analysis
which is designed to increase response rates and profits from their direct mail
marketing campaigns.
Abacus has addressed the need for a comprehensive source of information on
purchasing behavior by forming the Abacus Alliance. Our Abacus Alliance is a
cooperative arrangement through which direct mail marketers and offline
retailers contribute their customers' purchasing histories to our database in
exchange for the right to purchase the full range of Abacus's information and
market research services.
Our Abacus database contains over 88 million buyer profiles compiled from
records of over 3 billion purchasing transactions. This database includes a
combination of transactional, geographic, demographic, lifestyle and behavioral
profile data, enabling marketers to gain a better understanding of consumer
behaviors and conduct more effective marketing campaigns. Abacus's products and
services support the direct mail marketing of Alliance participants.
During the fourth quarter of 1999, we formed the Abacus Online Alliance to
extend the Abacus relationships, data and tools to the Internet and other
interactive media. This will enable our customers to deliver personally tailored
advertising to those users who have received prior notice of and an opportunity
to opt-out from this type of targeting. We are currently adding participants,
including e-commerce merchants, to our Abacus Online Alliance, and developing
our Abacus Online products and services. We do not currently offer any Abacus
Online products or services.
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We offer the following services and products to our Abacus customers:
PROSPECT LISTS. Our prospect lists service provides a client with a list of
prospective consumers ranked according to the likelihood that the consumers
will respond to a particular direct marketing campaign. The criteria for
ranking include recency, frequency, time of year and dollar amount of
catalog purchases. This service helps enable catalog companies to expand
their business base and offset consumer attrition.
HOUSEFILE SCORING. Our housefile scoring service offers our clients a
ranking of the consumers contained on each client's own customer list
according to the probability that an individual consumer will make a repeat
purchase. This service also allows our clients to identify inactive
customers who are most likely to respond to a renewed sales initiative. Our
housefile program helps enable our client companies to profitably manage
promotional programs targeted at their existing customers and cost
effectively determine when to solicit customers who have not made recent
purchases.
LIST OPTIMIZATION. Our list optimization service eliminates unresponsive
names from lists that a client has purchased from or exchanged with other
companies, enabling the client to identify and target the most likely
buyers. This process not only increases the potential profitability of
lists a client currently uses, but permits the client to use lists that
were previously considered unprofitable.
MARKETING INFORMATION REPORTS. Our marketing information reports service
offers our clients detailed information regarding the catalog industry,
which was not previously available to catalog companies. Our Data Services
group uses the data contributed by our Abacus Alliance members to create
comprehensive reports that accurately describe catalog market size, share,
activity and other key marketing data that allow clients to develop their
strategic marketing initiatives. The marketing information reports provide
our clients information on: (1) seasonality, to help identify optimal mail
dates; (2) cross-category catalog purchasing behavior, to allow the
refinement of the catalog's merchandise mix; and (3) transaction histories
and demographics, to aid in planning, advertising, promotions and mail
frequency.
SALES AND MARKETING
UNITED STATES
We sell our solutions in the United States through a sales and marketing
organization which consisted of 505 employees as of December 31, 1999. These
employees are located at our headquarters in New York, and in our offices in
Atlanta, Boston, Broomfield (CO), Chicago, Dallas, Detroit, Los Angeles, San
Francisco, San Mateo, and Seattle. Our sales organization is divided into
dedicated groups that separately sell our service and product offerings, and
within these groups, our sales representatives are further divided into separate
teams to serve the needs of our diverse client base.
To support our direct sales efforts and to actively promote the DoubleClick
brand, we conduct comprehensive marketing programs, including public relations,
print advertisements, online advertisements over our DoubleClick networks and
our newly introduced Sonar Network and, on the Web sites of Web publishers
unaffiliated with our DoubleClick Networks, Web advertising seminars, trade
shows and ongoing customer communications programs.
INTERNATIONAL
Our international operations are based out of our Irish subsidiary located
in Dublin, Ireland. We sell our services and products through our directly and
indirectly owned subsidiaries in Australia, Canada, France, Germany, the United
Kingdom, Benelux (the Netherlands, Belgium and Luxembourg), Iberoamerica (Spain,
Portugal and Latin America), Ireland and Scandinavia (Sweden, Norway, Denmark
and Finland), and operate through business partners in Japan, Asia (Hong Kong,
Taiwan and Singapore) and Italy. We sell our services and products
internationally in
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a number of countries including France, Germany, Japan, Norway, Sweden and the
United Kingdom through our global sales organization. Our international sales
and marketing organization consisted of 209 employees as of December 31, 1999.
CORPORATE HISTORY; RECENT MERGERS, ACQUISITIONS AND INVESTMENTS
We were incorporated in Delaware on January 23, 1996, as DoubleClick
Incorporated and changed our name to DoubleClick Inc. on May 14, 1996. On
February 25, 1998, we completed our initial public offering of common stock,
receiving net proceeds of approximately $62.5 million. On December 10, 1998, we
received net proceeds of approximately $93.7 million in connection with our
follow-on offering of common stock. On March 16, 1999, we completed the sale of
our 4.75% Convertible Subordinated Notes due 2006 through a private offering
under Rule 144A, and received approximately $244.7 million in net proceeds. On
April 2, 1999, we paid to stockholders of record on March 22, 1999 a stock
dividend of one share of common stock for each share held. On January 10, 2000,
we paid to each stockholder of record as of December 31, 1999 a stock dividend
of one share of common stock for each share held. Our service and product
offerings are grouped into three lines of business: DoubleClick Media,
DoubleClick TechSolutions and DoubleClick Data Services. See Note 12 to the
Consolidated Financial Statements for revenues and gross profit attributable to
each of our lines of business and revenues and long-lived asset information by
geographic area.
We have recently completed the following mergers and acquisitions:
On October 26, 1999, we merged with NetGravity, Inc., a leading provider of
interactive online advertising and direct marketing software solutions.
On November 4, 1999, we acquired the remaining 90 percent of the
outstanding shares of DoubleClick Iberoamerica that we did not previously
own.
On November 23, 1999, we merged with Abacus Direct Corporation, a leading
provider of specialized consumer information and analysis for the direct
marketing industry.
On November 30, 1999, we merged with Opt-In E-mail.com, a leader in
Internet e-mail marketing, publishing and list management.
On December 29, 1999, we acquired the remaining 90.7 percent of the
outstanding shares of DoubleClick Scandinavia AB that we did not previously
own.
In addition, on January 11, 2000, we entered into an agreement to make a cash
and stock investment in ValueClick, Inc., a provider of cost-per-click Internet
advertising solutions, in exchange for a 30% equity interest in ValueClick.
Under the terms of the agreement, ValueClick will receive $75.7 million in our
common stock and $10 million in cash. ValueClick will also have registration
rights covering these shares. In addition, we will receive a warrant to purchase
additional equity, which will enable us to own up to 45 percent of the equity of
ValueClick and will be exercisable until 15 months following the consummation of
our investment. We intend to consummate this investment once we receive
Hart-Scott-Rodino regulatory clearance. ValueClick filed a registration
statement on Form S-1 for its initial public offering of its common stock on
October 12, 1999.
COMPETITION
The market for interactive marketing solutions is intensely competitive. We
expect this competition to continue to increase since there are low barriers to
entry. Competition may also increase as a result of industry consolidation.
We believe that our ability to compete depends on many factors both within
and beyond our control, including the following:
the timing and market acceptance of new solutions and enhancements to
existing solutions developed by either us or our competitors;
customer service and support efforts;
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sales and marketing efforts; and
the ease of use, performance, price and reliability of solutions developed
either by us or our competitors.
DoubleClick Media competes for Internet advertising revenues with large Web
publishers and Web portals, such as America Online, Excite@Home, Microsoft,
GO.com and Yahoo!. We also compete with the traditional advertising media of
television, radio, cable and print for a share of advertisers' total advertising
budgets. Furthermore, our DoubleClick networks compete with a variety of
Internet advertising networks, including 24/7 Media, AdSmart and Flycast. 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 which facilitate Internet advertising.
DoubleClick TechSolutions competes with providers of ad server software and
related services, including Accipiter and Real Media. We also face competition
for outsourced ad services by AdForce, AdKnowledge, AvenueA, Excite@Home
(through its MatchLogic unit), L90 and Sabela Media. 24/7 Media has recently
announced an agreement to acquire Sabela Media. Additionally, we face sales
challenges from the internal capabilities of some potential customers, as some
large and popular online content publishers use internally developed interactive
marketing and advertising solutions rather than the commercial solutions offered
by DoubleClick and our competition. Our DARTmail Service competes with providers
of e-mail delivery and list management services, such as Exactis and
MessageMedia.
DoubleClick Data Services, through the Abacus database and services,
competes with companies such as Z-24, which is a subsidiary of Experian, and
marketing intermediaries such as Junkbusters, as well as list brokers and
individual companies that sell their customer lists. Our Abacus Online Alliance
will compete with providers of profiling technology, such as MatchLogic and
Engage. A number of DoubleClick's competitors, including Engage, AdForce,
AdKnowledge, AdSmart and Flycast, are affiliates of CMGI.
PRIVACY
The growth of our business and of the Internet depends on user trust in the
integrity of the Internet. We believe that fostering user confidence in online
privacy is an integral component of our mission to deliver the right message to
the right user at the right time. We have been a leader in providing notice and
choice to users about our use of non-personally identifiable information
collected about them in the delivery of Internet advertising. With the
development of our Abacus Online division, we are developing ways to provide
notice to users about the marketing uses of personally identifiable information
collected online and the choice not to participate.
In associating online and offline information about a user, we believe we
have an obligation to the user community to protect their privacy. Therefore, in
connection with our Abacus Online services and products, which are currently
under development, we will not associate any personally identifiable information
about a user with his or her Internet browser unless that user has first been
provided with notice about the collection and use of personally identifiable
information about that user, and the choice not to participate. In addition, we
believe that some sensitive information, such as health-related information, is
inappropriate for advertising targeting, and we will not make that sensitive
information part of our targeting systems.
We built our DART technology with user privacy concerns in mind. Since 1997,
we have offered users a selective opt-out that makes it impossible for us to
associate any online behavior with the user's browser or to associate any
personally identifiable information with a browser that has opted out. This
opt-out is available to all users, whether or not we have any personally
identifiable information linked to that person's browser. We call this opt-out
selective because, unlike deleting cookies, our opt-out only impacts our ability
to recognize a user. None of the user's other personalization efforts (e.g.,
customized home pages) are affected.
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As a founding member of the Network Advertising Initiative, we are
developing industry self-regulating principles for the collection and use of
user information by network advertising companies like DoubleClick. As a member
of the Online Privacy Alliance, we encourage our business alliances and
customers to adopt the principles of the Online Privacy Alliance. Further, we
actively monitor privacy laws and regulations, and seek to comply with all
applicable privacy requirements.
We are a defendant in several pending class action lawsuits alleging, among
other things, that we unlawfully obtain and sell Internet users' personal
information. We believe that these lawsuits are without merit and intend to
vigorously defend ourselves against them. We are also the subject of a Federal
Trade Commission inquiry concerning our collection and maintenance of
information concerning Internet users and a request for information from the
New York Attorney General's office relating to our collection, maintenance and
sharing of information concerning, and our disclosure of those practices to,
Internet users. Further, the press has reported that the Michigan Attorney
General commenced legal proceedings against us under Michigan's consumer
protection laws. 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 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.
SEASONALITY AND CYCLICALITY
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
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data Services business.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
Further, Internet user traffic typically drops during the summer months, which
reduces the amount of advertising to sell and deliver. 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.
PROPRIETARY RIGHTS
We protect our proprietary technologies 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 our patent.
We have also filed patent applications in the United States and internationally
for our DART 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
12
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 alliances, 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 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 our
ability to do so will remain lawful, and that we have the right to collect, use
and compile the information in our databases, we cannot assure you 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. In addition,
some of our contracts with Web publishers prevent us from developing profiles of
users of their Web sites. The current debate about data collection practices may
cause additional Web publishers to seek similar contractual provisions in their
agreements with us. 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 or that additional Web publishers will not seek contractual provisions
barring us from developing profiles of users of their Web sites, either of which
could materially and adversely affect our business, results of operations and
financial condition.
EMPLOYEES
As of December 31, 1999, we employed 1,386 persons, including 714 in sales
and marketing, 209 of whom serve international markets, 225 in engineering and
product development, 249 in business operations, consulting and customer
support, and 198 in general administration. We are not subject to any collective
bargaining agreements and believe that our relationships with our employees are
good.
13
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.
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;
dependence on a continuing relationship with AltaVista;
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. Please see 'Management's Discussion and Analysis of Financial
Condition and Results of Operations' for detailed information on our limited
operating history.
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, and $18.0 million for the
year ended December 31, 1998. For the year ended December 31, 1999, we incurred
a net loss of $55.8 million and, as of December 31, 1999, our accumulated
deficit was $109.8 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 revenues to achieve and maintain profitability. Although
our revenues have grown in recent quarters, we cannot assure you that we will
achieve sufficient revenues 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 revenues grow
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 REVENUES 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 revenues from ad
impressions we deliver on the Web sites of a limited number of Web publishers.
Over 20% of our revenues for each of the years ended December 31, 1999 and 1998
resulted from ads delivered on the Web sites of the top four 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 for a significant portion of the revenues
from our DoubleClick networks or any significant reduction in traffic on these
Web publisher's Web sites.
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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 HEAVILY ON OUR RELATIONSHIP WITH ALTAVISTA AND ANY CHANGE IN THIS
RELATIONSHIP COULD HARM OUR BUSINESS
Approximately 10.8% and 26.9% of revenues for the years ended December 31,
1999 and 1998, respectively, 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. Recently, CMGI acquired several Internet advertising and marketing
companies, including AdForce, AdKnowledge and Flycast Communications. As a
result of these transactions, CMGI now owns several companies, including AdSmart
Network and Engage Technologies, that compete with DoubleClick's Internet
advertising solutions, and Engage Technologies, which is majority owned by CMGI,
has announced an agreement to acquire AdSmart and Flycast. In November 1999, we
entered into an Interim Advertising Services Agreement with AltaVista, as
successor to Compaq, which temporarily suspends until January 2001 the
Advertising Services Agreement we entered into with Compaq in January 1999. The
Interim Advertising Services Agreement allows for us to continue to sell
advertisements throughout AltaVista's network and provides for AltaVista to
maintain and service some advertising accounts previously serviced by us. The
loss of AltaVista as a customer or any significant reduction in traffic on or
through the AltaVista Web site would materially and adversely affect our
business, results of operations and financial condition.
OUR BUSINESS MAY BE SIGNIFICANTLY 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 sell 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 a
request for information from the New York Attorney General's office relating to
our collection, maintenance and sharing of information concerning, and our
disclosure of those practices to, Internet users. Further, the press has
reported that the Michigan Attorney General commenced legal proceedings
against us under Michigan's consumer protection laws. We may receive additional
regulatory inquiries and intend to cooperate fully. Further, the press has
reported that the Michigan Attorney General commenced legal proceedings against
us under Michigan's consumer protection laws. 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 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 REVENUES 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 revenues 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 revenues 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
15
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 revenues 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 QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND YOU
SHOULD NOT RELY ON THEM AS AN INDICATION OF FUTURE OPERATING PERFORMANCE
Our revenues 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;
changes in fees paid by advertisers;
changes in service fees payable by us to Web publishers in our networks;
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 revenues from DoubleClick TechSolutions and
DoubleClick Media will also remain dependent on user traffic levels and
advertising activity on our DoubleClick networks. These future revenues are
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 revenues in relation to
our expenses, or if our expenses precede increased revenues, 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 December 31, 1998, we had a total of 482 employees (without giving effect
to our acquisitions) and, as of December 31, 1999, we had a total of 1,386
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
16
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 revenues 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 revenues 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 revenues 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
17
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:
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 revenues 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. Recently, CMGI acquired several Internet advertising and
marketing companies, including AdForce, AdKnowledge and Flycast. As a result of
these transactions, CMGI now owns several companies, including AdSmart Network
and Engage Technologies, that compete with our Internet advertising solutions,
and Engage Technologies, which is majority owned by CMGI, has announced an
agreement to acquire AdSmart and Flycast. 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
which 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
18
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 REVENUES ARE SUBJECT TO SEASONAL 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
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data Services business.
Expenditures by advertisers and direct marketers tend to vary in cycles that
reflect overall economic conditions as well as budgeting and buying patterns.
Further, Internet user traffic typically drops during the summer months, which
reduces the amount of advertising to sell and deliver. 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, in particular,
Kevin O'Connor, our Chief Executive Officer and Chairman of the Board of
Directors, Kevin Ryan, our President and Chief Operating Officer, and Dwight
Merriman, our Chief Technical Officer. We have no employment agreements with any
of these executives. The loss of the services of Messrs. O'Connor, Ryan or
Merriman, or certain other 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.
19
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 our patent. 24/7 Media has
recently announced an agreement to acquire 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.
20
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 and
the United Kingdom. In Asia (Taiwan, Singapore, and Hong Kong), and under
separate agreement, Japan and Italy, 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 such 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;
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;
21
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 70.6% as of December 31, 1999. 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, and NetGravity's principal offices are located
in San Mateo, California, while our principal offices are located in New York,
New York. There are currently no plans to relocate any of these principal
offices. 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.
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 REVENUES
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. To
date, we have not thoroughly investigated the obstacles, technological,
market-driven or otherwise, to developing and marketing these new products and
services in a timely and efficient way. We cannot assure you that we will be
able to
22
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.
IF THE ABACUS OR NETGRAVITY MERGER FAILS TO QUALIFY AS A POOLING OF INTERESTS,
WE WOULD BE REQUIRED TO TAKE CHARGES AGAINST EARNINGS IN FUTURE PERIODS, WHICH
WOULD INCREASE THE AMOUNT OF OUR LOSSES
If we cannot account for one or both of the mergers as a pooling of
interests, a significant portion of the purchase price for the merger will be
allocated to goodwill and other intangible assets, which we would amortize over
their estimated useful lives. The availability of pooling of interests
accounting treatment for the mergers depends upon circumstances and events
occurring both before and after each merger's completion. For example, no
significant changes in the business of the combined company may occur, including
significant dispositions of assets, for a period of two years following the
effective time of the merger. If pooling is not available, we would take charges
against our earnings in the future, which could materially and adversely affect
our reported financial results and, likely, the price of our common stock.
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 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
23
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 December 31, 1999, we had 112,453,892 shares of common stock
outstanding, excluding 23,110,571 shares subject to options outstanding as of
such date under our stock option plans that are exercisable at prices ranging
from $0.03 to $124.56 per share. On February 14, 2000, we filed with the
Securities and Exchange Commission a preliminary prospectus which was part of
Amendment No. 1 to our registration statement on Form S-3 relating to the
proposed sale of an aggregate of 7,500,000 shares of our common stock, including
5,733,411 shares to be sold by us and 1,766,589 shares to be sold by selling
stock, and up to an aggregate of 1,125,000 additional shares by us which may be
sold in connection with the underwriters' over-allotment option. Additionally,
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. Certain
holders of our common stock have registration rights with respect to their
shares. 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 revenues 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 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.
24
A significant portion of our revenues 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 REVENUES 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 use
cookies. We are developing new capabilities that would permit our DART
technology to target users through the use of personally identifiable
information collected with prior notice and the opportunity for a user to
opt-out of such targeting and collection. 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 direct marketing industry and to increased federal and
state regulation. 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
25
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 POTENTIALLY
HEIGHTENED SCRUTINY OF OUR PRODUCTS OR SERVICES COULD REQUIRE OR CAUSE ADVERSE
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 have publicly
committed that no personally identifiable offline information about a consumer
will be associated with online information about that consumer for the delivery
of personally-targeted Internet advertising without first providing the consumer
with notice and an opportunity to opt out of the targeted advertising. In
addition, some of our contracts with Web publishers prevent us from developing
profiles of users of their Web sites. The current debate about data collection
practices may cause additional Web publishers to seek similar contractual
provisions in their agreements with us. 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 or that additional Web publishers will not seek
contractual provisions barring us from developing profiles of users of their Web
sites, either of which could materially and adversely affect our business,
results of operations and financial condition. Also, 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, which could materially and adversely affect our business, financial
condition or results of operations.
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
26
withdrawal by a substantial number of catalogs 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.
ITEM 2. PROPERTIES
Our principal executive offices are currently located in a facility in New
York, New York consisting of an aggregate of approximately 240,000 square feet.
On January 26, 1999, we entered into a lease agreement with an initial term of
eleven years with an option to renew for an additional five years. We lease
approximately 75,000 square feet of office space in Broomfield, Colorado, under
a lease that terminates in April 2006 and is renewable for two consecutive five
year terms. This facility was the headquarters for Abacus before our merger. We
also lease approximately 26,500 square feet of office space in San Mateo,
California under a lease that expires in October 2005. This facility was the
headquarters for NetGravity before our merger. In addition, we lease space for
our offices in California, Colorado, Georgia, Illinois, Massachusetts, Michigan,
Texas and Washington, as well as in Australia, Brazil, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Japan, the Netherlands, Norway, Spain,
Sweden and the United Kingdom. We incurred non-recurring charges of
approximately $2.9 million in 1999 relating to our relocation to our current New
York offices. We are continually evaluating our facilities requirements.
ITEM 3. LEGAL PROCEEDINGS
Prior to our NetGravity merger, NetGravity and several of its directors were
sued in the San Mateo County, California, Superior Court, alleging that the
defendants breached their fiduciary duties to NetGravity's shareholders in
connection with the proposed merger with DoubleClick. The California complaint
asks the court to enjoin the consummation of the merger or, alternatively, seeks
a rescission of the merger or an award of unspecified damages from the
defendants in the event the merger is consummated. Following the consummation of
our merger in November 1999, we succeeded to this action. We believe the claims
asserted in the complaint are without merit and are vigorously contesting them.
Also prior to our merger with NetGravity, we and NetGravity were named in a
complaint filed in the Chancery Court of the State of Delaware in connection
with the proposed merger. In January 2000, the plaintiffs dismissed the
complaint without prejudice.
27
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. Both cases are currently in the early stages of discovery.
We are a defendant in several recently filed lawsuits concerning Internet
user privacy and our data collection and other business practices:
On January 27, 2000, Judnick v. DoubleClick, Inc. was filed against us in
the Superior Court of the State of California, in Marin County. The
complaint alleges that we engaged in unfair business practices and false
and misleading advertising in violation of certain California consumer
protection statutes by allegedly improperly collecting and utilizing
information about Internet users. The complaint seeks injunctive relief and
restitution on behalf of the general public of the State of California.
On January 28, 2000, Bruce v. DoubleClick, Inc. was filed against us in the
U.S. District Court for the Northern District of California. The complaint
alleges that we have improperly collected and used Internet users'
information, allegedly in violation of certain federal electronics privacy
statutes and common law privacy rights. The complaint seeks damages and
injunctive relief on behalf of a defined class of Internet users.
On January 28, 2000, Healy v. DoubleClick Inc. was filed against us in the
U.S. District Court for the Southern District of New York. The complaint
alleges that we improperly collected and used information concerning
Internet users allegedly in violation of certain federal electronics
privacy statutes, as well as common law trespass and invasion of privacy.
The complaint seeks damages and injunctive relief on behalf of a defined
class of Internet users.
On January 28, 2000, DeCorse v. Doubleclick, Inc. was filed in the Superior
Court of the State of California, Marin County. The complaint alleges that
we engaged in unlawful business practices by improperly obtaining and using
information about Internet users allegedly in violation of California
statutory and common law. The complaint seeks unspecified damages and
injunctive relief on behalf of a defined class of Internet users.
On January 28, 2000, Steinbeck v. Doubleclick, Inc. was filed in the United
States District Court for the Central District of California. The complaint
alleges that we engaged in unlawful business practices by improperly
obtaining and using information about Internet users allegedly in violation
of federal statutes and Internet users' privacy rights. The complaint seeks
unspecified damages and injunctive relief on behalf of a defined class of
Intenet users.
On February 1, 2000, Donaldson v. DoubleClick Inc. was filed against us in
the U.S. District Court for the Southern District of New York. The
complaint alleges that we improperly collected and used information
concerning Internet users allegedly in violation of certain federal
electronics privacy statutes and common law privacy rights. The complaint
seeks damages and injunctive relief on behalf of a defined class of
Internet users.
These lawsuits have only recently been filed. We believe these lawsuits are
without merit and we intend to vigorously defend ourselves 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, we are subject to a request for information from the New York
Attorney General's office 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our special meeting held on November 23, 1999 in connection with our
merger with Abacus Direct Corporation, we submitted the following matters to a
vote of our stockholders through a proxy solicitation:
To consider and vote upon a proposal to approve the issuance of our shares
of common stock pursuant to a merger agreement with Abacus Direct
Corporation.
To grant our Board of Directors discretionary authority to adjourn the
special meeting to solicit additional votes for approval of the share
issuance.
To consider and vote upon a proposal to approve the DoubleClick Inc.
Employee Stock Purchase Plan.
The results of the voting at the special meeting were as follows:
AFFIRMATIVE VOTES
PROPOSAL VOTES AGAINST ABSTENTIONS
- -------------------------------------------- ----------- --------- -----------
Share Issuance 25,305,111 37,712 53,662
Discretionary Authority to Adjourn 19,764,694 1,894,428 1,737,363
Employee Stock Purchase Plan 22,685,654 620,712 90,119
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK
Our common stock has been quoted on the Nasdaq National Market under the
symbol DCLK since our initial public offering on February 20, 1998. The
following table sets forth, for the periods indicated, the high and low sales
prices per share of the common stock as reported on the Nasdaq National Market.
All prices have been restated to reflect our two-for-one stock splits effected
as stock dividends on April 5, 1999 and January 10, 2000.
HIGH LOW
---- ---
1999:
Fourth Quarter.......................................... $127.72 $54.88
Third Quarter........................................... 62.63 30.25
Second Quarter.......................................... 88.00 33.75
First Quarter........................................... 50.00 11.00
1998:
Fourth Quarter.......................................... 14.50 3.38
Third Quarter........................................... 19.28 4.55
Second Quarter.......................................... 12.43 7.72
First Quarter (since February 20)....................... 9.25 6.53
On February 15, 2000, the last sale price of our common stock reported by
the Nasdaq National Market was $111.44 per share. As of January 26, 2000, we had
approximately 766 holders of record of our common stock.
RECENT SALES OF UNREGISTERED SECURITIES
During the three-month period ended December 31, 1999, we issued an
aggregate of approximately 1,062,092 shares of our common stock (after giving
effect to our two-for-one stock split effected on January 10, 2000) in exchange
for the outstanding shares of capital stock of BusinessLink Incorporated (d/b/a
Opt-in Email.com) and the outstanding shares of DoubleClick Scandinavia AB that
we did not previously own. Of these shares, an aggregate of 200,000 shares were
issued on November 30, 1999 to the stockholders of Opt-in Email.com and an
aggregate of 862,092 shares were issued on December 29, 1999 to the shareholders
of DoubleClick Scandinavia AB. In connection with the DoubleClick Scandinavia
transaction, additional shares of our common stock may be issued in the future.
No underwriters were involved and there were no underwriting discounts or
commissions. The securities were issued in reliance upon the exemption
29
from registration provided under Section 4(2) of the Securities Act based on the
fact that we issued the shares of common stock in a sale not involving a public
offering. These sales were made without general solicitation or advertising. We
intend to file a Registration Statement on Form S-3 covering the resale of these
shares.
USE OF PROCEEDS FROM IPO
On February 19, 1998, the Securities and Exchange Commission declared
effective our Registration Statement on Form S-1 (File No. 333-42323). Pursuant
to this Registration Statement, and the Abbreviated Registration Statement filed
on February 19, 1998 pursuant to Rule 462(b) promulgated under the Securities
Act of 1933, as amended, we completed our initial public offering of 16,100,000
shares of our common stock at an initial public offering price of $4.25 per
share on February 25, 1998. The number of shares and offering price have been
restated to reflect our two-for-one stock splits in April 1999 and January 2000.
Our initial public offering was managed by Goldman, Sachs & Co., BT Alex.Brown
and Cowen & Company. Proceeds to us from our initial public offering, after
calculation of the underwriters discount and commission of approximately $4.8
million and offering costs of $1.1 million, totaled approximately $62.5 million.
None of the expenses incurred in our initial public offering were direct or
indirect payments to our directors, officers, general partners or their
associates, to persons owning ten percent or more of any class of our equity
securities or to our affiliates. As of December 31, 1999, we have used all of
the proceeds from our initial public offering toward general corporate purposes,
including working capital, and toward the expansion of our international
operations and sales and marketing capabilities. None of these expenses were
direct or indirect payments to our directors, officers, general partners or
their associates, to persons owning ten percent or more of any class of our
equity securities or to our affiliates.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings, if any, to finance the expansion of
our business and do not expect to pay any cash dividends for the foreseeable
future.
30
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
DoubleClick's consolidated statement of operations for each of the years ended
December 31, 1999, 1998 and 1997 and with respect to DoubleClick's consolidated
balance sheet as of December 31, 1999 and 1998 have been derived from the
audited financial statements of DoubleClick which are included elsewhere herein.
The selected consolidated financial data set forth with respect to DoubleClick's
consolidated statement of operations for each of the periods ended December 31,
1996 and 1995 and with respect to DoubleClick's consolidated balance sheet as of
December 31, 1997, 1996 and 1995 are derived from the audited financial
statements of DoubleClick which are not included herein. The selected
consolidated financial data set forth below is qualified in its entirety by, and
should be read in conjunction with, 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and the consolidated financial
statements and the notes to those statements included elsewhere herein.
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues..................................... $258,294 $138,724 $ 67,926 $25,985 $ 9,331
Income (loss) from operations................ (58,715) (14,970) (3,828) (1,419) 2,983
Income (loss) before income taxes............ (47,234) (10,973) (3,432) (1,565) 2,781
Net income (loss)............................ (55,821) (18,039) (7,741) (3,954) 2,231
Basic and diluted net income (loss) per
share...................................... (0.51) (0.21) (0.16) (0.07) 0.11
Weighted average shares used in basic per
share calculation.......................... 109,756 86,248 49,048 56,516 19,630
Weighted average shares used in diluted per
share calculation.......................... 109,756 86,248 49,048 56,516 19,716
DECEMBER 31,
------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................... $309,883 $184,408 $25,861 $ 4,959 $2,355
Total assets.................................. 729,407 260,361 53,641 19,749 5,536
Convertible Subordinated Notes and other...... 255,348 2,067 742 711 --
Total stockholders' equity.................... 361,662 206,771 31,428 7,256 1,178
31
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the eight quarters ended December 31, 1999.
This information is unaudited, but in the opinion of management, it has been
prepared substantially on the same basis as the audited consolidated financial
statements appearing elsewhere in this report, and all necessary adjustments,
consisting only of normal recurring adjustments, have been included in the
amounts stated below to present fairly the unaudited consolidated quarterly
results of operations. The consolidated quarterly data should be read in
conjunction with our audited consolidated financial statements and the notes to
such statements appearing elsewhere in this report. The results of operations
for any quarter are not necessarily indicative of the results of operations for
any future period.
WEIGHTED WEIGHTED
INCOME AVERAGE AVERAGE BASIC AND DILUTED
(LOSS) NET COMMON COMMON NET LOSS
GROSS FROM INCOME SHARES -- SHARES -- PER
QUARTER ENDED REVENUES PROFIT OPERATIONS (LOSS) BASIC DILUTED COMMON SHARE
------------- -------- ------ ---------- ------ ----- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1999
March 31.................. $39,412 $24,051 $ (8,920) $ (8,405) $106,877 $106,877 $(0.08)
June 30................... 49,856 28,841 (6,799) (5,406) 109,758 109,758 (0.05)
September 30.............. 75,336 46,138 973 136 110,466 121,752 (0.00)
December 31............... 93,690 52,108 (43,970) (42,147) 111,325 111,325 (0.38)
1998
March 31.................. $24,089 $12,001 $ (5,146) $ (5,538) $ 64,335 $ 64,335 $(0.09)
June 30................... 28,992 13,777 (5,859) (5,883) 89,106 89,106 (0.07)
September 30.............. 39,844 22,180 (438) (2,547) 93,749 93,749 (0.03)
December 31............... 45,797 21,573 (3,527) (4,071) 96,432 96,432 (0.04)
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
our financial statements and related notes included in this report.
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
ad 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).
COMPARABILITY OF RESULTS
ALTAVISTA AGREEMENT
In January 1999, we changed the manner in which we report the financial
results of the services we perform for the AltaVista Web site. Effective
January 1, 1999, we entered into an Advertising Services Agreement with
AltaVista Company's predecessor-in-interest (Compaq Computer Corporation) that
superceded the previously effective Procurement and Trafficking Agreement, dated
December 1996 and amended in January 1998, between DoubleClick and Compaq
Computer Corporation's predecessor-in-interest, Digital Equipment Corp.
Until December 31, 1998, we had paid AltaVista a service fee under the
Procurement and Trafficking Agreement which was calculated as a percentage of
the revenues earned from advertisers for the delivery of advertisements to users
of the AltaVista Web site. Under that agreement, we recognized as revenues the
gross amount earned for advertising delivered to users of the AltaVista Web
site. Gross amounts billed by us, including amounts billed on behalf of
AltaVista, are referred to as 'system revenues,' and are presented solely to
facilitate the comparison of our 1998 and 1999 results of operations.
Beginning January 1, 1999, AltaVista agreed, pursuant to the Advertising
Services Agreement, to use our DART technology for ad delivery, and to outsource
domestic, international and local ad sales functions to us. For these services,
AltaVista pays us (1) a technology fee for all advertising delivered by our DART
technology to users of the AltaVista Web site, (2) a sales commission based on
the net revenues generated from all advertisements sold by DoubleClick on behalf
of AltaVista and (3) a fee for all billing and collections services we perform
for AltaVista. Under the new agreement, we recognize DART service fees, sales
commissions and billing and collection fees as revenues derived from the sale
and delivery of impressions on the AltaVista Web site and associated services.
As a result of this change in our relationship with AltaVista, although there
has been no significant change in gross profit dollars, overall gross margin
percentage has increased as we are no longer required to pay service fees to
AltaVista for impressions sold and delivered on the AltaVista Web site and
revenues include the fees earned for services rendered.
The Advertising Services Agreement expires on January 1, 2002, subject to
prior termination in limited circumstances or further extension in accordance
with the terms of the AltaVista Advertising Services Agreement. In November
1999, we entered into an Interim Advertising Services Agreement, effective from
November 1, 1999 through December 31, 2000 with AltaVista, which temporarily
suspends the Advertising Services Agreement. The Interim Services Agreement
temporarily adjusts some advertising sales arrangements between us and
AltaVista, but does not
33
change the manner in which we recognize revenues derived from our services for
the AltaVista Web site. In January 2001, upon the expiration of the Interim
Services Agreement, the Advertising Services Agreement will once again be
effective.
BUSINESS COMBINATIONS
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 all periods presented 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.
RESULTS OF OPERATIONS
Revenues and gross profit by segment are as follows:
REVENUES GROSS PROFIT
----------------------------- ----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
Media.......................... $125,499 $ 74,180 $29,924 $ 49,955 $15,726 $ 7,047
Technology..................... 74,695 24,965 9,823 50,082 16,827 6,708
Data........................... 65,961 46,979 30,971 51,101 36,980 24,430
Intersegment elimination....... (7,861) (7,400) (2,792) -- -- --
-------- -------- ------- -------- ------- -------
Total...................... $258,294 $138,724 $67,926 $151,138 $69,533 $38,185
-------- -------- ------- -------- ------- -------
-------- -------- ------- -------- ------- -------
1999 COMPARED TO 1998
1999 revenues and gross profits increased over 1998 due primarily to volume
increases both domestically and internationally and a favorable product mix,
partially offset by declines resulting from the change in the manner in which we
present revenues earned pursuant to the AltaVista Advertising Services Agreement
and in pricing of some of our technology products. Operating expenses increased
to $209.9 million from $84.5 million in 1998, including direct transaction,
integration and facility relocation charges of $41.6 million in 1999 and
$360,000 in 1998, primarily related to the business combinations discussed above
and our move to a new headquarters facility. Net loss including these charges
was $55.8 million in 1999 compared to $18.0 million in 1998. Net loss excluding
direct transaction, integration and facility relocation charges declined from
$17.7 million in 1998 to $14.2 million in 1999. As we continue to grow, we
expect operating expenses to continue to increase in absolute dollars and to be
impacted significantly in future years by amortization of goodwill related to
business combinations accounted for by the purchase method of accounting.
Revenues derived from advertising impressions delivered to the users of the
AltaVista Web site were $27.9 million, or 10.8% of total revenues, for 1999,
compared to $37.3 million, or 26.9% of total revenues, for 1998. As discussed
above, we changed the manner in which we recognize revenue pursuant to the
AltaVista Advertising Services Agreement. Had revenues from AltaVista been
subject to the Procurement and Trafficking Agreement, we would have recorded
revenues related to AltaVista of $85.5 million, or 27.0% of total system
revenues, for the year ended December 31, 1999. No other Web publisher accounted
for more than 10.0% of revenues for the year ended December 31, 1999, and no one
advertiser accounted for more than 10.0% of revenues during the same period.
34
REVENUES AND COST OF REVENUES
DoubleClick Media
DoubleClick Media revenues are derived primarily from the sale and delivery
of advertising impressions through third-party Web sites comprising the
worldwide DoubleClick Media networks. Cost of Media revenues consists primarily
of service fees paid to Web publishers for impressions delivered on our
worldwide DoubleClick networks and the costs of ad delivery, and technology
support provided by our DoubleClick TechSolutions.
Revenues for DoubleClick Media increased 69.1% to $125.5 million for 1999
from $74.2 million for 1998. DoubleClick Media gross margin was 39.8% for 1999
and 21.2% for 1998. The increases in DoubleClick Media revenues and gross margin
were due primarily to an increase in the number of advertisers and impressions
delivered on the worldwide DoubleClick Media networks, coupled with higher
average prices of advertising impressions and lower average site service fees.
The increase in DoubleClick Media gross margin percentage, also resulted from
the change in our relationship with AltaVista as provided in the AltaVista
Advertising Service Agreement. As described above, the manner in which we report
our financial results related to the services we provide to the Alta Vista Web
site has changed. On a basis comparable to 1998, DoubleClick Media system
revenues increased 148.0%, or $184.0 million.
DoubleClick Media revenues derived from advertising impressions delivered to
the users of the AltaVista Web site were $22.4 million, or 17.8% of DoubleClick
Media revenues for 1999 compared to $33.2 million, or 44.8% of DoubleClick Media
revenues for 1998. On a basis comparable to 1998, AltaVista system revenues
increased to $80.0 million, or 43.4% of DoubleClick Media system revenues in
1999.
DoubleClick TechSolutions
DoubleClick TechSolutions revenues are derived primarily from sales of our
DART, AdCenter and AdServer product offerings. DoubleClick TechSolutions cost of
revenues 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.
DoubleClick TechSolutions revenues increased 199.2% to $74.7 million for
1999 from $25.0 million for 1998. DoubleClick TechSolutions gross margin was
67.0% for 1999 and 67.4% for 1998. The increase in DoubleClick TechSolutions
revenues 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 advertising impressions.
DoubleClick TechSolutions revenues related to AltaVista were $5.5 million or
7.4% of total DoubleClick TechSolutions revenue in 1999 and $4.1 million or
16.4% in 1998.
DoubleClick Data Services
DoubleClick Data Services revenues are derived primarily from providing
services to catalog-based retailers such as prospecting lists, housefile
scoring, list optimization, and marketing research services. DoubleClick Data
Services cost of revenues includes expenses associated with creating, updating
and managing the Abacus Alliance database as well as building statistical
models.
DoubleClick Data Services revenues increased 40.4% to $66.0 million for 1999
from $47.0 million for 1998. Gross margin declined slightly from 78.7% in 1998
to 77.5% in 1999. The increase in revenues was due primarily to an increase in
sales to existing and new clients and revenues from direct marketing clients
outside the catalog industry. The decline in gross margin was due primarily to
increases in personnel related costs, facilities, depreciation and processing
costs associated with supporting higher revenues. We expect to incur a
disproportionate amount of expenses during 2000 related to the development and
expansion of internet data products and services which will result in a lower
gross margin.
35
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses consist primarily of salaries, commissions,
advertising, trade show expenses, seminars and costs of marketing materials.
Sales and marketing expenses were $103.6 million, or 40.1% of revenues for 1999
and $52.5 million, or 37.9% of revenues for 1998. The increase was primarily
attributable to the increase in sales personnel and costs associated with growth
and the expansion of our international operations of approximately
$24.8 million, in addition to increases in other costs associated with our
personnel growth, commissions associated with the increase in revenues of
approximately $7.2 million, costs related to the continued development and
implementation of our marketing and branding campaigns of approximately $3.3
million, and increase in the provision for doubtful accounts by approximately
$5.6 million. The increase in the provision for doubtful accounts is
commensurate with our increase in revenues and level of business activity. The
increase in sales and marketing expenses as a percentage of revenues resulted
from our continuing effort to build our sales and marketing infrastructure. 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 revenues.
General and Administrative
General and administrative expenses consist primarily of compensation and
professional services fees. General and administrative expenses were $36.3
million, or 14.1% for 1999 and $19.4 million, or 14.0% of revenues for 1998. The
increase in absolute dollars was primarily the result of increased personnel and
related expenses of approximately $7.8 million, in addition to increases in
other costs associated with our personnel growth, and increased professional
service fees of $3.6 million. Increased professional service fees related
largely to our continued expansion, including international corporate
development. We expect general and administrative expenses to continue to
increase in absolute dollars but expect these expenses to decrease as a
percentage of revenues as we hire additional personnel and incur additional
costs related to the growth of our business and operations.
Product Development
Product development expenses consist primarily of compensation and
consulting expenses and enhancements to our DART, AdCenter and AdServer product
offerings. To date, all product development costs have been expensed as
incurred. Product development expenses were $28.4 million, or 11.0% of revenues
for 1999 and $12.2 million, or 8.8% of revenues for 1998. The increase in
absolute dollars was due primarily to increases in product development personnel
and related expenses of approximately $10.1 million, in addition to increases in
other costs associated with our personnel growth, and consulting expenses of
approximately $2.0 million. The increase in product development expenses as a
percentage of revenues resulted from our continuing development of our
technology. 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.
Direct Transaction, Integration and Facility Relocation Charges
For 1999, we incurred direct transaction costs of approximately $31.1
million and integration costs of approximately $7.6 million in connection with
the transactions accounted for under the pooling of interests method. Direct
transaction costs consist of approximately $26.1 million in investment banking
fees and $5.0 million in professional fees and filing and printing costs.
Integration costs include approximately $3.9 million in personnel related costs
and $3.7 million in costs related to redundant systems, integration consulting,
and asset impairments.
36
For 1999, we incurred approximately $2.9 million in costs associated with
the relocation of our corporate headquarters. As a result of our planned
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 building. 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. Depreciation and amortization of $729,000 associated with assets disposed
of is presented outside of direct transaction, integration and facility
relocation and other in the consolidated statements of operations. In addition,
duplicative equipment and rental costs of approximately $1.5 million were
incurred. All facility relocation charges incurred in 1998 related to costs
incurred by Abacus.
Loss From Operations
Net loss from operations was $58.7 million for 1999 and $15.0 million for
1998. The increase in the loss from operations was due largely to the direct
transaction, integration and facility relocation charges discussed above. We
plan to continue to grow and expand our business and therefore anticipate future
losses from operations. Goodwill amortization, which has not previously been a
material expense, will have a significant impact on our loss from operations as
a result of our acquisitions of DoubleClick Scandinavia AB in December 1999 and
DoubleClick Iberoamerica S.L. in November 1999.
Interest and Other, Net
Interest and other, net was $11.5 million in 1999 and $4.0 million in 1998.
Interest and other, net included $22.6 million of interest income in 1999
partially offset by $9.4 million of interest expense, and $4.3 million of
interest income in 1998 partially offset by $200,000 of interest expense. The
increase in interest income was attributable to interest earned on the cash,
cash equivalents and investments in marketable securities primarily from the net
proceeds from the issuance in March 1999 of our $250 million 4.75% Convertible
Subordinated Notes due 2006 and proceeds from the issuance of our common stock
during 1999. In addition, our average yield increased due to holdings in
investments with longer-term maturities. The increase in interest expense is
largely attributable to interest due on our convertible subordinated notes.
Interest and other, net in future periods may fluctuate as a result of the
average cash 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 in 1999 and 1998 relates to the
standalone results of Abacus prior to our merger on November 23, 1999. For
periods subsequent to our merger in November 1999, the provision for income
taxes will be dependent on the taxable income or loss, including utilization of
net operating loss carryovers of the combined companies.
1998 COMPARED TO 1997
1998 revenues increased over 1997 due primarily to volume increases both
domestically and internationally. Product mix fluctuated greatly between 1998
and 1997 due to the varying relationships of each segment to the total,
resulting in the overall decline in gross margin. Operating expenses increased
to $84.5 million in 1998 from $42.0 million in 1997, commensurate with the
approximate 100% increase in revenues. Net loss increased from $7.7 million in
1997 to $18.0 million in 1998 due largely to higher costs associated with our
expansion efforts.
37
Revenues derived from advertising impressions delivered to users of the
AltaVista Web site were $37.3 million or 26.9% of revenues for 1998, compared to
$13.7 million, or 20.2% for 1997. No other Web site accounted for more than
10.0% of revenues for 1998, and no one advertiser accounted for more than 10.0%
of revenues during the same period.
REVENUES AND COST OF REVENUES
DoubleClick Media
DoubleClick Media revenues increased 147.9% to $74.2 million for 1998 from
$29.9 million for 1997. DoubleClick Media gross margin was 21.2% for 1998 and
23.5% for 1997. The increase in revenues was due primarily to an increase in the
number of advertisers and impressions delivered on the worldwide DoubleClick
networks, offset in part by lower average prices of advertising impressions. The
decrease in gross margin percent was due to the decrease in prices of
advertising impressions noted above coupled with an unfavorable change in the
mix of Web site service fee arrangements.
DoubleClick Media revenues derived from advertising impressions delivered to
users of the AltaVista Web site were $33.2 million or 44.8% of DoubleClick Media
revenues for 1998, compared to $11.6 million or 38.9% of DoubleClick Media
revenues for 1997. Approximately $3.0 million of revenues for 1998 resulted from
sales of inventory on the AltaVista Web site, which was derived from an
arrangement between AltaVista and another search engine that expired on June 30,
1998, and was therefore non-recurring.
DoubleClick TechSolutions
DoubleClick TechSolutions revenues increased 154.1% to $25.0 million for
1998 from $9.8 million for 1997. This increase was primarily as a result of an
increase in the number of DART, AdCenter and AdServer customers, both
domestically and internationally. Gross margin for our DoubleClick TechSolutions
for 1998 compared to 1997 declined from 68.3% to 67.4% primarily due to the mix
of DART and AdServer sales. DART sales benefited from increased DoubleClick
Media revenues as it supported the DoubleClick Media customer base.
AltaVista represented 16.4% of DoubleClick TechSolutions segment revenues
for 1998 and 20.9% for 1997. We expect AltaVista's revenues to continue to
decline as a percentage of total DoubleClick TechSolutions revenues.
DoubleClick Data Services
DoubleClick Data Services revenues increased 51.7% to $47.0 million for 1998
from $31.0 million for 1997 due primarily to an increase in sales to existing
and new catalog clients and revenues generated from other direct marketing
clients. Gross margin declined from 78.9% in 1997 to 78.7% in 1998, due
primarily to an increase in employee and non-employee staffing levels and higher
software, hardware and systems processing costs.
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses were $52.5 million, or 37.9% of revenues for
1998 and $24.9 million, or 36.6% of revenues for 1997. The increase was
primarily attributable to the increase in sales personnel and the expansion of
our international operations of approximately $14.6 million, in addition to
increases in other costs associated with our personnel growth, commissions
associated with the increase in revenues of approximately $3.6 million, and
costs related to the continued development and implementation of our marketing
and branding campaigns of approximately $1.8 million. In addition, the provision
for doubtful accounts increased by approximately $2.1 million. The increase in
the provision for doubtful accounts is commensurate with our increase in
revenues and level of business activity. The increase in sales and marketing
38
expenses as a percentage of revenues resulted from our continuing effort to
build our sales and marketing infrastructure. 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 revenues.
General and Administrative
General and administrative expenses were $19.4 million, or 14.0% of revenues
for 1998, and $11.9 million, or 17.6% for 1997. The increase in absolute dollars
was primarily the result of expenses related primarily to increased personnel
and related expenses of approximately $3.1 million, in addition to increases in
other costs associated with our personnel growth, and increased professional
service fees of $1.6 million. Increased professional service fees related
largely to continued expansion, including international corporate development.
We expect general and administrative expenses to continue to increase on an
absolute dollar basis as we hire additional personnel and incur additional costs
related to the growth of our business and operations, but decrease as a
percentage of revenues.
Product Development
To date, all product development costs have been expensed as incurred.
Product development expenses were $12.2 million, or 8.8% of revenues for 1998,
and $5.1 million, or 7.5% for 1997. The increase in absolute dollars was due
primarily to increases in product development personnel and related expenses of
approximately $4.8 million, in addition to increases in other costs associated
with our personnel growth, and consulting expenses of approximately $500,000.
The increase in product development expenses as a percentage of revenues
resulted from our continuing development of our technology. We believe that
continued investment in product development is critical to attaining our
strategic objectives and, as a result, we expect product development expenses to
increase in absolute dollars.
LOSS FROM OPERATIONS
Net loss from operations was $15.0 million for 1998 and $3.8 million for
1997. The increase in the loss from operations was primarily due to the hiring
of additional personnel, particularly in sales and marketing, and product
development. We expect to hire additional personnel and increase spending for
sales and marketing, upgrade and enhance our DART, AdCenter and AdServer
technologies, and continue our international expansion. However, we expect that
the loss from operations may decrease both in absolute dollars and as a
percentage of revenues in the future.
INTEREST AND OTHER, NET
Interest and other, net was $4.0 million in 1998 and $396,000 in 1997.
Interest and other, net included $4.3 million of interest income in 1998 offset
by $200,000 of interest expense, and $900,000 of interest income in 1997 offset
by $450,000 of interest expense. Interest income was attributable to cash, cash
equivalents and investments in marketable securities primarily as a result of
the net proceeds received from our public offerings of common stock in 1998.
Interest and other, net in future periods may fluctuate as a result of the
average cash 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 in 1998 and 1997 relates to the
standalone results of Abacus. For periods subsequent to our merger in November
1999, the provision for income taxes will be dependent on the taxable income or
loss, including utilization of net operating loss carryovers of the combined
companies.
39
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 $41.1 million, $8.8 million and
$4.2 million for 1999, 1998 and 1997, respectively. Cash used in operating
activities resulted primarily from net losses, and increases in accounts
receivable and advances, which were partially offset by increases in accounts
payable, accrued expenses and deferred revenue. Net cash used in investing
activities was $367.3 million, $36.4 million and $11.5 million for 1999, 1998
and 1997, respectively. We continued to acquire equipment to support growth and
expansion, as well as invest in marketable securities with proceeds from common
stock and Convertible Subordinated Notes issuances. Net cash provided by
financing activities was $366.5 million, $188.0 million and $27.6 million for
1999, 1998 and 1997, respectively. Cash provided by financing activities
consisted primarily of net proceeds from our Convertible Subordinated Notes
offering in 1999, our public offerings of common stock in 1999 and 1998, and our
issuances of preferred stock in 1997.
As of December 31, 1999, we had $119.2 million of cash and cash equivalents
and $325.6 million in investments in marketable securities. As of December 31,
1999, 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 newly leased New York headquarters facility. 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.
On February 14, 2000, we filed with the Securities and Exchange Commission a
preliminary prospectus which was part of Amendment No. 1 to our registration
statement on Form S-3 relating to the proposed sale of an aggregate of
7,500,000 shares of our common stock, including 5,733,411 shares to be sold by
us and 1,766,569 shares to be sold by elling stockholders, and up to an
aggregate of 1,125,000 additional shares by us which may be sold in connection
with the underwriters' over-allotment option. Assuming an initial price to the
public equal to the last reported sale price of our common stock on the Nasdaq
National Market on February 11, 2000, or $111.13, we estimate that the net
proceeds we will receive from this offering will be approximately $615.3
million after deducting underwriting discounts and commissions and estimated
offering expenses, or approximately $737.2 million if the underwriters fully
exercise their over-allotment option.
We believe that the net proceeds of our prior offerings of common stock and
convertible 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
twelve months.
YEAR 2000 COMPLIANCE
To date our systems and software have not experienced any material
disruption due to the onset of the Year 2000, and we have completed our Year
2000 preparedness activities. However, we cannot assure that we will not
experience disruptions in the future as a consequence of the Year 2000 bug. We
cannot quantify the amount of our potential exposure, but do not believe it to
be material.
NEW ACCOUNTING PRONOUNCEMENTS
We continually assess the effects of recently issued accounting standards.
The impact of all recently adopted and issued accounting standards has been
disclosed in the Consolidated Financial Statements.
40
ITEM 7A: 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.
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 December 31, 1999:
2000 2001 2006 FAIR VALUE
---- ---- ---- ----------
(DOLLARS IN THOUSANDS)
Cash and cash equivalents......................... $119,238 -- -- $119,238
Average interest rate............................. 5.63%
Fixed rate investments in marketable securities... 179,776 $145,789 -- 325,565
Average interest rate............................. 5.60% 6.12%
Convertible Subordinated Notes.................... -- -- $250,000 764,800
Average interest rate............................. 4.75%
We did not hold derivative financial instruments as of December 31, 1999,
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 revenues and operating expenses in the
U.K. and other countries whose currency is the Euro. The effect of foreign
exchange rate fluctuations for 1999 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 December 31, 1999 we had $6.9 million in cash and cash
equivalents denominated in foreign functional currencies, earning an average
interest rate of 1.97%.
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.
41
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... 43
Report of KPMG LLP, Independent Accountants................. 44
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 45
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 46
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997...... 47
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 48
Notes to Consolidated Financial Statements.................. 49
Schedule II -- Valuation and Qualifying Accounts............ 66
42
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of DoubleClick Inc:
In our opinion, based on our audits and the report of other auditors, the
accompanying consolidated financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of DoubleClick
Inc. and its subsidiaries (the 'Company') at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements give retroactive effect to the mergers of
Abacus Direct Corporation ('Abacus') and NetGravity, Inc. ('NetGravity') on
November 23, 1999 and October 26, 1999, respectively, in transactions accounted
for as pooling of interests, as described in Note 2 to the consolidated
financial statements. We did not audit the financial statements of NetGravity as
of December 31, 1998, which statements reflect total assets of $33,420,000 and
$9,887,000 as of December 31, 1998 and 1997, respectively, and total revenues of
$11,557,000 and $6,358,000 for the years ended December 31, 1998 and 1997,
respectively. Those statements were audited by other auditors whose report
thereon has been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for NetGravity, is based solely on the report
of the other auditors. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
NEW YORK, NEW YORK
JANUARY 18, 2000, EXCEPT AS TO NOTE 11(b) WHICH IS AS OF FEBRUARY 11, 2000
43
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NetGravity, Inc. and Subsidiaries:
We have audited the consolidated balance sheets of NetGravity, Inc. and
subsidiaries as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NetGravity, Inc. and subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
SAN FRANCISCO, CALIFORNIA
JANUARY 27, 1999
44
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
1999 1998
---- ----
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 119,238 $161,670
Investments in marketable securities.................... 179,776 20,206
Accounts receivable, less allowances of $15,004 and
$5,094 at December 31, 1999 and 1998, respectively.... 89,792 49,150
Prepaid expenses and other current assets............... 33,474 4,905
--------- --------
Total current assets................................ 422,280 235,931
Investments in marketable securities........................ 145,789 --
Property and equipment, net................................. 61,980 21,702
Intangible assets, net...................................... 94,475 247
Other assets................................................ 4,883 2,481
--------- --------
Total assets........................................ $ 729,407 $260,361
--------- --------
--------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 32,846 $ 22,095
Accrued expenses........................................ 49,337 20,550
Deferred revenue........................................ 29,783 7,904
Current portion of long-term obligations and notes...... 431 974
--------- --------
Total current liabilities........................... 112,397 51,523
Long-term obligations and notes............................. 5,348 2,067
Convertible subordinated notes.............................. 250,000 --
Stockholders' equity:
Preferred stock, par value $0.001; 5,000,000 shares
authorized at December 31, 1999 and 1998; none
outstanding at December 31, 1999 or 1998.............. -- --
Common stock, par value $0.001; 400,000,000 and
240,000,000 shares authorized at December 31, 1999 and
1998, respectively; 112,453,892 and 106,784,868
outstanding at December 31, 1999 and 1998,
respectively.......................................... 112 107
Additional paid-in capital.............................. 475,565 262,780
Deferred compensation................................... (1,106) (2,147)
Accumulated deficit..................................... (109,831) (54,010)
Other comprehensive income (loss)....................... (3,078) 41
--------- --------
Total stockholders' equity.......................... 361,662 206,771
--------- --------
Total liabilities and stockholders' equity.......... $ 729,407 $260,361
--------- --------
--------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
45
DOUBLECLICK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 1998 1997
---- ---- ----
Revenues.................................................... $258,294 $138,724 $67,926
Cost of revenues............................................ 107,156 69,191 29,741
-------- -------- -------
Gross profit................................................ 151,138 69,533 38,185
Operating expenses:
Sales and marketing..................................... 103,578 52,525 24,855
General and administrative.............................. 36,306 19,424 11,948
Product development..................................... 28,364 12,194 5,108
Direct transaction, integration and facility relocation
charges............................................... 41,605 360 102
-------- -------- -------
Total operating expenses............................ 209,853 84,503 42,013
-------- -------- -------
Loss from operations........................................ (58,715) (14,970) (3,828)
Interest and other, net..................................... 11,481 3,997 396
-------- -------- -------
Loss before income taxes.................................... (47,234) (10,973) (3,432)
Provision for income taxes.................................. 8,587 7,066 4,309
-------- -------- -------
Net loss.................................................... $(55,821) $(18,039) $(7,741)
-------- -------- -------
-------- -------- -------
Basic and diluted net loss per common share................. $ (0.51) $ (0.21) $ (0.16)
-------- -------- -------
-------- -------- -------
Weighted average shares used in basic and diluted
net loss per share calculation............................ 109,756 86,248 49,048
-------- -------- -------
-------- -------- -------
The accompanying notes are an integral part of these consolidated financial
statements.
46
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CONVERTIBLE CLASS A CLASS B
PREFERRED STOCK COMMON COMMON
-------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
Balance at December 31, 1996................................ 1,233,400 $ 1 15,763,560 $ 16 20,472,912 $ 21
Net loss....................................................
Cumulative foreign currency translation.....................
Comprehensive income (loss).................................
Deferred compensation, net of amortization..................
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 1,928,600 2
Exchange of Class A shares for Class B shares............... (1,087,080) (1) 1,087,080 1
--
Exchange of Class A, B and C shares for Common shares....... (14,791,480) (15) (5,975,444) (6)
--
Class B and C shares redeemed............................... (15,584,548) (16)
Common shares issued upon exercise of stock options......... 115,000
Repurchase of common stock..................................
Issuance of common stock upon conversion of convertible note
payable to related party...................................
Tax benefit upon exercise of stock options..................
----------- ---- ----------- ---- ----------- ----
Balance at December 31, 1997................................ 3,162,000 3 -- -- -- --
Net loss....................................................
Cumulative foreign currency translation.....................
Unrealized gain on marketable securities....................
Comprehensive income (loss).................................
Deferred compensation, net of amortization..................
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 406,280 1
Conversion of Preferred Stock............................... (3,568,280) (4)
Issuance of Common Stock, net of issuance costs.............
Common shares issued from exercise of stock options.........
Tax benefit upon exercise of stock options..................
----------- ---- ----------- ---- ----------- ----
Balance at December 31, 1998................................ -- -- -- -- -- --
Net loss....................................................
Cumulative foreign currency translation.....................
Unrealized gain on marketable securities....................
Comprehensive income (loss).................................
Issuance of common stock for acquisition....................
Deferred compensation, net of amortization..................
Issuance of common stock, net of issuance costs.............
Common shares issued upon exercise of stock options and
warrants...................................................
Tax benefit upon exercise of stock options..................
----------- ---- ----------- ---- ----------- ----
Balance at December 31, 1999................................ -- $ -- -- $ -- -- $ --
----------- ---- ----------- ---- ----------- ----
----------- ---- ----------- ---- ----------- ----
CLASS C COMMON
COMMON STOCK ADDITIONAL
--------------- -------------------- PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
------ ------ ------ ------ ------- ------------
Balance at December 31, 1996................................ 8 $ -- 22,523,700 $ 22 $10,442 $ --
Net loss....................................................
Cumulative foreign currency translation.....................
Comprehensive income (loss).................................
Deferred compensation, net of amortization.................. 3,451 (2,726)
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 49,545
Exchange of Class A shares for Class B shares...............
Exchange of Class A, B and C shares for Common shares....... (4) 20,766,928 21
Class B and C shares redeemed............................... (4)
Common shares issued upon exercise of stock options......... 1,048,012 1 306
Repurchase of common stock.................................. (310,800) (121)
Issuance of common stock upon conversion of convertible note
payable to related party................................... 3,117,208 3 4,997
Tax benefit upon exercise of stock options.................. 1,456
----- ---- ----------- ---- ------- ---------
Balance at December 31, 1997................................ -- -- 47,145,048 47 70,076 (2,726)
Net loss....................................................
Cumulative foreign currency translation.....................
Unrealized gain on marketable securities....................
Comprehensive income (loss).................................
Deferred compensation, net of amortization.................. 1,427 579
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 3,249
Conversion of Preferred Stock............................... 28,420,936 29 (25)
Issuance of Common Stock, net of issuance costs............. 29,369,040 29 182,045
Common shares issued from exercise of stock options......... 1,849,844 2 2,947
Tax benefit upon exercise of stock options.................. 3,061
----- ---- ----------- ---- ------- ---------
Balance at December 31, 1998................................ -- -- 106,784,868 107 262,780 (2,147)
Net loss....................................................
Cumulative foreign currency translation.....................
Unrealized gain on marketable securities....................
Comprehensive income (loss).................................
Issuance of common stock for acquisition.................... 862,092 1 87,851
Deferred compensation, net of amortization.................. 1,134 1,041
Issuance of common stock, net of issuance costs............. 2,191,572 2 114,013
Common shares issued upon exercise of stock options and
warrants................................................... 2,615,360 2 7,620
Tax benefit upon exercise of stock options.................. 2,167
----- ---- ----------- ---- ------- ---------
Balance at December 31, 1999................................ -- $ -- 112,453,892 $112 $475,565 $ (1,106)
----- ---- ----------- ---- ------- ---------
----- ---- ----------- ---- ------- ---------
OTHER TOTAL
ACCUMULATED COMPREHENSIVE SHAREHOLDERS
DEFICIT INCOME EQUITY
------- ------ ------
Balance at December 31, 1996................................ $(3,246) $ -- $ 7,256
Net loss.................................................... (7,741) (7,741)
Cumulative foreign currency translation..................... (1) (1)
------- -------- --------
Comprehensive income (loss)................................. (7,741) (1) (7,742)
Deferred compensation, net of amortization.................. 725
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 49,547
Exchange of Class A shares for Class B shares............... --
Exchange of Class A, B and C shares for Common shares....... --
Class B and C shares redeemed............................... (24,984) (25,000)
Common shares issued upon exercise of stock options......... 307
Repurchase of common stock.................................. (121)
Issuance of common stock upon conversion of convertible note
payable to related party................................... 5,000
Tax benefit upon exercise of stock options.................. 1,456
------- -------- --------
Balance at December 31, 1997................................ (35,971) (1) 31,428
Net loss.................................................... (18,039) (18,039)
Cumulative foreign currency translation..................... 40 40
Unrealized gain on marketable securities.................... 2 2
------- -------- --------
Comprehensive income (loss)................................. (18,039) 42 (17,997)
Deferred compensation, net of amortization.................. 2,006
Issuance of Convertible Preferred Stock, net of issuance
costs...................................................... 3,250
Conversion of Preferred Stock............................... --
Issuance of Common Stock, net of issuance costs............. 182,704
Common shares issued from exercise of stock options......... 2,949
Tax benefit upon exercise of stock options.................. 3,061
------- -------- --------
Balance at December 31, 1998................................ (54,010) 41 206,771
Net loss.................................................... (55,821) (55,821)
Cumulative foreign currency translation..................... (885) (885)
Unrealized gain on marketable securities.................... (2,234) (2,234)
------- -------- --------
Comprehensive income (loss)................................. (55,821) (3,119) (58,940)
Issuance of common stock for acquisition.................... 87,852
Deferred compensation, net of amortization.................. 2,175
Issuance of common stock, net of issuance costs............. 114,015
Common shares issued upon exercise of stock options and
warrants................................................... 7,662
Tax benefit upon exercise of stock options.................. 2,167
------- -------- --------
Balance at December 31, 1999................................ ($109,831) $ (3,078) $361,662
------- -------- --------
------- -------- --------
47
DOUBLECLICK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
1999 1998 1997
---- ---- ----
OPERATING ACTIVITIES
Net loss................................................. $ (55,821) $(18,039) $ (7,741)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization........................ 14,628 5,070 1,967
Equity in losses of investee......................... 783 53 --
Integration and facility relocation.................. 4,153 185 10
Deferred income taxes................................ 797 (323) (190)
Amortization of deferred compensation................ 2,175 2,006 725
Provision for bad debts and advertiser discounts..... 20,528 9,631 3,778
Changes in operating assets and liabilities, net of
effect of businesses acquired
Accounts receivable.................................. (61,170) (38,550) (16,095)
Prepaid expenses and other current assets............ (29,296) (1,128) (520)
Accounts payable..................................... 10,751 13,427 6,237
Accrued expenses..................................... 29,504 13,159 4,647
Income taxes receivable.............................. -- 2,003 1,128
Deferred revenue..................................... 21,879 3,726 1,860
--------- -------- --------
Cash used in operating activities................ (41,089) (8,780) (4,194)
--------- -------- --------
INVESTING ACTIVITIES
Purchases of investments in marketable securities........ (399,379) (25,183) (8,340)
Proceeds from maturities of marketable securities........ 91,786 10,851 2,466
Purchases of property and equipment...................... (56,146) (18,977) (5,430)
Investments in affiliates and other assets............... (435) (3,082) (211)
Acquisition of businesses, net of cash acquired.......... (3,120) -- --
--------- -------- --------
Cash used in investing activities................ (367,294) (36,391) (11,515)
--------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net.............. 114,015 184,818 283
Proceeds from issuance of Convertible
Subordinated Notes, net................................ 244,747 1,000 1,185
Proceeds from issuance of preferred stock, net........... -- 3,249 49,547
Redemption of common stock............................... -- (23) (25,124)
Proceeds from exercise of stock options
and issuance of warrants............................... 9,789 229 27
Payments of notes and capital lease obligations.......... (2,005) (1,273) (15)
Advances from related party, net of repayments........... -- -- 1,662
--------- -------- --------
Cash provided by financing activities............ 366,546 188,000 27,565
--------- -------- --------
Effect of exchange rate changes on cash.................. (595) 42 (1)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents..... (42,432) 142,871 11,855
--------- -------- --------
Cash and cash equivalents at beginning of period......... 161,670 18,799 6,944
--------- -------- --------
Cash and cash equivalents at end of period............... $ 119,238 $161,670 $ 18,799
--------- -------- --------
--------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
48
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 and Data 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, the AdServer family of software products and
DARTmail for Advertisers service bureau offering. DoubleClick Data Services
includes the Abacus Direct and Abacus Online divisions, currently consisting of
a proprietary database of consumer buying behavior used for target marketing
purposes.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DoubleClick
and its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated. Investments in entities that are 20% to 50% owned
over which DoubleClick has significant influence are accounted for using the
equity method. Investments in less than 20% owned business partners over which
DoubleClick does not have the ability to exercise significant influence are
accounted for using the cost method of accounting.
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 all
periods presented and the accompanying notes have been restated to reflect
DoubleClick's consoldiated financial position and results of its operations (see
note 2).
CASH, CASH EQUIVALENTS AND INVESTMENTS IN MARKETABLE SECURITIES
Cash and cash equivalents represent cash and highly liquid investments with
a remaining contractual maturity at the date of purchase of three months or
less.
DoubleClick classifies its investments in marketable securities as
available-for-sale. Accordingly, these investments are carried at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholders' equity. DoubleClick recognizes gains and losses when
securities are sold using the specific identification method. For the years
ended December 31, 1999, 1998, and 1997, DoubleClick did not recognize any
material gains or losses upon the sale of securities.
49
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
At December 31, 1999, cash and cash equivalents and investments in
marketable securities consist of the following:
UNREALIZED UNREALIZED
COST LOSSES GAINS ESTIMATED FAIR VALUE
---- ------ ----- --------------------
(IN THOUSANDS)
Cash and cash equivalents:
Cash..................................... $ 14,341 $ -- $-- $ 14,341
Money market funds....................... 23,425 -- -- 23,425
Municipal bonds and notes................ 56,385 -- -- 56,385
Corporate securities..................... 25,087 -- -- 25,087
-------- -------- --- --------
$119,238 $ -- $-- $119,238
-------- -------- --- --------
-------- -------- --- --------
Investments in marketable securities:
Municipal bonds and notes................ $ 65,993 $ (362) $ 4 $ 65,635
Corporate securities..................... 261,806 (1,931) 55 259,930
-------- -------- --- --------
$327,799 $ (2,293) $59 $325,565
-------- -------- --- --------
-------- -------- --- --------
At December 31, 1998, the fair value of investments in marketable securities
approximated cost and the unrealized holding gains or losses were not material.
The following schedule summarizes the estimated fair value of DoubleClick's
cash, cash equivalents and investments in marketable securities as of December
31, 1998:
(IN THOUSANDS)
Cash and cash equivalents:
Cash.................................................. $ 2,158
Money market funds.................................... 39,338
Municipal bonds and notes............................. 18,000
Corporate securities.................................. 102,174
--------
$161,670
--------
--------
Investments in marketable securities:
Municipal bonds and notes............................. $ 9,643
Corporate securities.................................. 10,563
--------
$ 20,206
--------
--------
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful life of the assets. Leasehold
improvements are amortized over their estimated useful lives, or the term of the
leases, whichever is shorter.
INTANGIBLE ASSETS
DoubleClick records as goodwill the excess of purchase price over the fair
value of the identified net assets acquired. Goodwill is amortized using the
straight-line method over its estimated useful life, generally three years.
Goodwill amortization expense for the year ended 1999 was $417,000. No
goodwill amortization was recorded in 1998 or 1997. Accumulated amortization was
$417,000 and $0 at December 31, 1999 and 1998, respectively.
50
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
REVENUE RECOGNITION
Media. Revenues are derived primarily from the sale and delivery of
advertising impressions through third-party Web sites within the DoubleClick
worldwide networks (the 'networks'). Revenues are recognized in the period the
advertising impressions are delivered provided collection of the resulting
receivable is reasonably assured.
DoubleClick becomes obligated to make payments to third-party Web sites,
which have contracted with DoubleClick to be part of the networks, in the period
the advertising impressions are delivered. Such expenses are classified as cost
of revenues in the consolidated statement of operations.
Deferred license and service fees related to media, which are included in
deferred revenue on the consolidated balance sheet, represent payments received
in advance from third parties or affiliated companies for use of DoubleClick's
trademarks, access to DoubleClick's proprietary technology, and certain
personnel during fixed periods of time which range from two to four years. Such
fees will be recognized as revenues ratably over the terms of the applicable
agreements. DoubleClick is obligated to provide any enhancements or upgrades it
develops and other support over the term of the applicable agreements.
Technology. Revenues include fees earned from independent publishers and
advertisers who use DART, DoubleClick's Web based solution, to deliver ad
impressions. Revenues derived from the use of DART are recognized in the period
the advertising impressions are delivered provided collection of the resulting
receivable is reasonably assured.
For AdServer, DoubleClick's licensed software solution, revenues are
recognized upon completion of product installation, which is generally when
customers begin utilizing the product, there is pervasive evidence of an
arrangement, collection is reasonably assured, the fee is fixed or determinable,
and vendor-specific objective evidence exists to allocate the total fees to all
elements of the arrangement.
A portion of the initial Ad Server software license fee is attributed to the
customer's right to receive, at no additional charge, software upgrades released
during the subsequent twelve months. Revenues attributable to software upgrades
are deferred and recognized ratably over the period covered by the software
license agreement, generally one year. Revenues from consulting services are
recognized as the services are performed and customer-support revenues are
deferred and recognized ratably over the period covered by the customer support
agreement, generally one year.
In October 1997, the Accounting Standards Executive Committee ('AcSEC')
issued Statement of Position ('SOP') 97-2 'Software Revenue Recognition,' as
amended in 1998 by SOP 98-4 and further amended by SOP 98-9, which is effective
for transactions entered into in fiscal years beginning after March 15, 1999.
These SOP's provide guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions, requiring deferral
of part or all of the revenue related to a specific contract depending on the
existence of vendor specific objective evidence and the ability to allocate the
total contract value to all elements within the contract. During 1999,
DoubleClick implemented the guidelines of these SOP's and there was no material
change to its accounting for software revenues.
Data. DoubleClick provides services to its clients that result in a
deliverable product in the form of marketing data or customized written reports.
DoubleClick recognizes revenues when the product is shipped to the client
provided collection of the resulting receivable is reasonably assured. In
certain cases, DoubleClick provides subscriptions to unlimited products for a
fixed fee and over a fixed period of time, over which revenue is recognized
ratably.
51
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
DoubleClick's revenues are presented net of a provision for advertiser
discounts and sales returns and allowances, which is estimated and established
in the period in which the services are provided.
PRODUCT DEVELOPMENT COSTS
Product development costs and enhancements to existing products are charged
to operations as incurred. Software development costs are required to be
capitalized when a product's technological feasibility has been established by
completion of a working model of the product and ending when a product is
available for general release to customers. To date, completion of a working
model of DoubleClick's products and general release have substantially
coincided. As a result, DoubleClick has not capitalized any software development
costs.
ADVERTISING EXPENSES
DoubleClick expenses the cost of advertising and promoting its services as
incurred. Such costs are included in sales and marketing in the consolidated
statements of operations and totaled $7.6 million, $3.8 million and $1.5 million
for the years ended December 31, 1999, 1998, and 1997, respectively.
INTERNAL-USE SOFTWARE
Effective January 1, 1999, DoubleClick adopted SOP 98-1, 'Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use.' This
standard requires certain direct development costs associated with internal-use
software to be capitalized including external direct costs of material and
services and payroll costs for employees devoting time to the software projects.
Costs incurred during the preliminary project stage, as well as for maintenance
and training are expensed as incurred. The adoption of this statement has not
had a material impact on DoubleClick's consolidated financial statements.
CONCENTRATIONS OF RISK AND FAIR VALUE OF FINANCIAL INSTRUMENTS
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 an 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.
An advance to a single publisher of approximately $20 million at
December 31, 1999 is included in prepaid expenses and other current assets on
the consolidated balance sheets. The advance is collateralized by a security
interest in the underlying cash, which is maintained in a separate bank account.
In January 1999, we changed the manner in which we report the financial
results of the services we perform for the AltaVista Web site. Effective
January 1, 1999, we entered into an Advertising Services Agreement with
AltaVista Company's predecessor in interest (Compaq Computer Corporation) that
superceded the previously effective Procurement and Trafficking Agreement, dated
December 1996 and amended in December 1997, between DoubleClick and Compaq
Computer Corporation's predecessor-in-interest, Digital Equipment Corp.
Until December 31, 1998, we had paid AltaVista a service fee under the
Procurement and Trafficking Agreement, which was calculated as a percentage of
the revenues earned from
52
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
advertisers for the delivery of advertisements to users of the AltaVista Web
site. Under that agreement, we recognized as revenues the gross amount earned
for advertising delivered to users of the AltaVista Web site. Gross amounts
billed by us, including amounts billed on behalf of AltaVista, are referred to
as 'system revenues,' and are presented solely to facilitate the comparison of
our 1998 and 1999 results of operations.
Beginning January 1, 1999, AltaVista agreed, pursuant to the Advertising
Services Agreement, to use our DART technology for ad delivery, and to outsource
domestic, international and local ad sales functions to us. For these services,
AltaVista pays us (1) a technology fee for all advertising delivered by our DART
technology to users of the AltaVista Web site, (2) a sales commission based on
the net revenues generated from all advertisements sold by DoubleClick on behalf
of AltaVista and (3) a fee for all billing and collections services we perform
for AltaVista. Under the new agreement, we recognize DART service fees, sales
commissions and billing and collection fees as revenues derived from the sale
and delivery of impressions on the AltaVista Web site and associated services.
As a result of this change in our relationship with AltaVista, although there
has been no significant change in gross profit dollars, overall gross margin
percentage has increased as we are no longer required to pay service fees to
AltaVista for impressions sold and delivered on the AltaVista Web site and
revenues include the fees earned for services rendered.
The Advertising Services Agreement expires on December 31, 2001, subject to
prior termination in limited circumstances or further extension in accordance
with the terms of the AltaVista Advertising Services Agreement. In November
1999, we entered into an Interim Advertising Services Agreement, effective from
November 1, 1999 through December 31, 2000 with AltaVista, which temporarily
suspends the Advertising Services Agreement. The Interim Services Agreement
temporarily adjusts some advertising sales arrangements between us and
AltaVista, but does not change the manner in which we recognize revenues derived
from our services for the AltaVista Web site. In January 2001, upon the
expiration of the Interim Services Agreement, the Advertising Services Agreement
will once again be effective.
Revenues derived from advertising impressions delivered to users of the
AltaVista Web site represented 10.8%, 26.9% and 20.2% of DoubleClick's revenues
for the period ended December 31, 1999, 1998 and 1997, respectively. No other
Web site on the networks was responsible for 10% or more of DoubleClick's total
revenues during the periods presented in the consolidated statements of
operations. No single customer accounted for more than 10% of DoubleClick's net
revenues for the years ended December 31, 1999, 1998, and 1997 or accounts
receivable at December 31, 1999 and 1998.
DoubleClick's financial instruments consist of cash and cash equivalents,
investments in marketable securities, accounts receivable, accounts payable,
accrued expenses and convertible subordinated notes. At December 31, 1999 and
1998 the fair value of these instruments approximated their financial statement
carrying amount with the exception of the Convertible Notes at December 31,
1999. The fair value of the Convertible Subordinated Notes was $764.8 million at
December 31, 1999, calculated based on the continuous time version of the
Black-Scholes Option Pricing Model.
INCOME TAXES
DoubleClick uses the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and to operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or
53
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in results of operations in the period that includes the
enactment date. A valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, realization is not assured.
FOREIGN CURRENCY
The functional currencies of DoubleClick's subsidiaries are the local
currencies. The financial statements maintained in the local currency are
translated to United States dollars using period-end rates of exchange for
assets and liabilities and average rates during the period for revenues, cost of
revenues and expenses. Translation gains and losses are accumulated as a
component of stockholders' equity. Net gains and losses resulting from foreign
exchange transactions are included in the consolidated statements of operations
and were not significant during the periods presented.
EQUITY BASED COMPENSATION
DoubleClick accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board Opinion No. 25, 'Accounting for
Stock Issued to Employees', and related interpretations. As such, compensation
expense related to employee stock options is recorded over the vesting period
only if, on the date of grant, the fair value of the underlying stock exceeds
the exercise price. DoubleClick adopted the disclosure-only requirements of
Statement of Financial Accounting Standard ('SFAS') No. 123 'Accounting for
Stock-Based Compensation', which allows entities to continue to apply the
provisions of APB Opinion No. 25 for transactions with employees and provide pro
forma net income and pro forma earnings per share disclosures for employee stock
grants made as if the fair value based method of accounting in SFAS No. 123 had
been applied to these transactions.
IMPAIRMENT OF LONG-LIVED ASSETS
DoubleClick reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by its disposition or use. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.
BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss by the sum of
the weighted average number of shares of common stock outstanding, including the
number of common shares issued upon the conversion of Convertible Preferred
Stock, as of the date of the conversion.
Diluted net loss per share is based on the potential dilution that would
occur on exercise or conversion of securities into common stock. At December 31,
1999, 1998 and 1997, outstanding options of 12.8 million, 10.5 million and 7.7
million, respectively, with weighted average per share exercise prices of
$15.25, $2.82 and $1.40, 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 for 1999 excludes the effect of shares
issuable upon the conversion of $250 million 4.75% Convertible Subordinated
Notes due 2006, and for 1998 and 1997, 40,000 shares of Convertible Preferred
Stock, since their inclusion would have had an antidilutive effect. The 4.75%
54
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Convertible Subordinated Notes initially may be converted into an aggregate of
6,060,604 shares of DoubleClick common stock. As a result, the basic and diluted
net loss per share amounts are equal for all periods presented.
CLARIFICATION OF PREVIOUSLY ISSUED ACCOUNTING PRONOUNCEMENTS
In November 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 100, 'Restructuring and Impairment Charges.' In
December 1999, the SEC issued SAB No. 101, 'Revenue Recognition in Financial
Statements.' SAB No. 100 expresses the views of the SEC staff regarding the
accounting for and disclosure of certain expenses not commonly reported in
connection with exit activities and business combinations. This includes the
accrual of exit and employee termination costs and the recognition of impairment
charges. SAB No. 101 expresses the views of the SEC staff in applying generally
accepted accounting principles to certain revenue recognition issues.
DoubleClick has concluded that these SABs do not have a material impact on its
financial position or its results of operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statements to conform with the current year presentation.
NOTE 2 -- BUSINESS COMBINATIONS
NetGravity, Inc.
On October 26, 1999, DoubleClick consummated its merger with NetGravity, a
leading provider of interactive online advertising and direct marketing software
solutions. Under the terms of the merger, which has been accounted for under the
pooling of interests method, each share of NetGravity common stock was converted
to 0.28 shares of DoubleClick common stock, totaling approximately 10.2 million
shares.
Abacus Direct Corporation
On November 23, 1999, DoubleClick consummated its merger with Abacus, a
leading provider of specialized consumer information and analysis for the direct
marketing industry. Under the terms of the merger, which has been accounted for
under the pooling of interests method, each share of Abacus common stock was
converted to 1.05 shares of DoubleClick common stock, totaling approximately
21 million shares.
Opt-In EMail.com
On November 30, 1999, DoubleClick consummated its merger with Opt-In, a
leader in Internet email marketing, publishing and list management. Under the
terms of the merger, which
55
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
has been accounted for under the pooling of interests method, 200,000 shares of
DoubleClick common stock were issued in exchange for 100% of the outstanding
common shares of Opt-In.
Results of operations of pooling transactions:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Revenue
NetGravity........................................ $16,979 $ 11,557 $ 6,358
Abacus............................................ 48,987 46,979 30,971
Opt-In............................................ 611 -- --
Net Income (loss)
NetGravity........................................ (7,393) (11,293) (6,882)
Abacus............................................ 11,558 11,426 7,497
Opt-In............................................ 69 -- --
DoubleClick Scandinavia AB
On December 29, 1999, DoubleClick acquired the 90.7% of the outstanding
shares of DoubleClick Scandinavia AB it did not previously own in a business
combination accounted for using the purchase method. In the transaction, the
shares of DoubleClick Scandinavia AB not owned by DoubleClick were exchanged for
an aggregate of approximately 862,000 shares of DoubleClick common stock.
DoubleClick acquired the outstanding shares of DoubleClick Scandinavia AB in
exchange for DoubleClick common stock valued at $87.9 million, assumed a working
capital deficiency of $3.1 million, and incurred costs of $1.4 million. In
connection with the acquisition, DoubleClick recorded approximately
$92.4 million of goodwill that is being amortized on a straight-line basis over
three years. Additional shares of common stock are contingently issuable in
March 2001 and 2002. The maximum value of the contingently issuable shares is
approximately $60.0 million. DoubleClick expects that a portion of the purchase
price attributable to the contingently issuable shares will be recorded as stock
based compensation. The results of operations are included in the consolidated
statement of operations from December 29, 1999.
DoubleClick Iberoamerica S.L.
On November 4, 1999, DoubleClick acquired the 90% of the outstanding shares
of DoubleClick Iberoamerica it did not previously own in exchange for cash of
$1.3 million, assumed a working capital deficiency of $800,000 and incurred
costs of $400,000. The acquisition has been accounted for under the purchase
method, whereby goodwill of approximately $2.5 million will be amortized on the
straight-line basis over three years. The results of operations are included in
the consolidated statement of operations from November 4, 1999.
56
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
The following unaudited pro forma results of operations have been prepared
assuming that the acquisitions of DoubleClick Scandinavia AB and DoubleClick
Iberoamerica S.L. occurred at the beginning of the respective periods presented.
The pro forma financial information is not necessarily indicative of the
combined results that would have occurred, nor is it necessarily indicative of
the results that may occur in the future.
1999 1998
---- ----
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Revenues.................................................... $270,601 $142,513
Goodwill amortization....................................... 31,633 31,633
Net loss.................................................... $(88,967) $(51,144)
Net loss per basic and diluted share........................ (0.81) (0.59)
NOTE 3 -- DIRECT TRANSACTION, INTEGRATION AND FACILITY RELOCATION CHARGES
For the year ended December 31, 1999, DoubleClick incurred direct
transaction and integration costs of approximately $31.1 million and $7.6
million, respectively, in connection with the transactions accounted for under
the pooling of interests method. Direct transaction costs consist of
approximately $26.1 million in investment banking fees and $5.0 million in
professional fees and filing and printing costs. Integration costs include
approximately $3.9 million in personnel related costs and $3.7 million in costs
related to redundant systems, integration consulting, and asset impairments.
For the year ended December 31, 1999, DoubleClick incurred approximately
$2.9 million in costs associated with the relocation of its corporate
headquarters. As a result of DoubleClick's planned relocation, completed in
December 1999, DoubleClick 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 DoubleClick's new headquarters building. DoubleClick's
management made an assessment of the carrying value of the assets 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. Depreciation and amortization of $729,000 associated with asset
impairments is presented outside of direct transaction, integration and facility
relocation charges in the consolidated statements of operations. In addition,
duplicative equipment and rental costs of approximately $1.5 million were
incurred.
NOTE 4 -- INVESTMENTS
During the year ended December 31, 1998, DoubleClick purchased a 10%
interest in DoubleClick Italy s.r.l. During 1997, DoubleClick purchased a 10%
voting interest in DoubleClick Japan Inc. DoubleClick has the option to purchase
an additional 12% voting interest in DoubleClick Japan Inc. for the then current
value as defined. These business partners were formed to establish international
networks for publishers in Italy and Japan, respectively, to provide
comprehensive Internet advertising solutions for advertisers.
DoubleClick has a 50% ownership interest in Abacus Direct Europe B.V., which
was formed in 1998 to provide services to the European Community. The investment
is accounted for under the equity method. DoubleClick contributed approximately
$435,000 and $54,000 during the years ended December 31, 1999 and 1998,
respectively and recorded losses related to the investment of $783,000 and
$53,000, respectively, included in interest and other, net on the consolidated
statements of operations.
57
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
DoubleClick also entered into agreements to provide its business partners
with use of DoubleClick's trademarks and the right to access DoubleClick's
proprietary technology and certain personnel during the term of the agreements,
which range from two to four years. For the years ended December 31, 1998 and
1997 DoubleClick received approximately $1,025,000 and $700,000, respectively
from its business partners. No such fees were received in 1999. These amounts
are presented in the consolidated balance sheet in deferred revenue. DoubleClick
has agreed to provide the business partners with any product enhancements and
upgrades it develops, technical support, and maintenance. Further, DoubleClick
and the business partners have agreed to certain arrangements whereby each party
shall be paid a commission for the sale of advertising impressions to be
delivered on the other parties' networks.
NOTE 5 -- PROPERTY AND EQUIPMENT
DECEMBER 31,
ESTIMATED USEFUL -----------------
LIFE 1999 1998
---- ---- ----
(IN THOUSANDS)
Computer equipment and purchased software................ 1-3 years $55,590 $23,931
Furniture and fixtures................................... 5 years 5,570 2,035
Leasehold improvements................................... 1-15 years 18,696 3,835
Capital work-in-progress................................. -- 696
------- -------
79,856 30,497
Less accumulated depreciation and amortization........... (17,876) (8,795)
------- -------
$61,980 $21,702
------- -------
------- -------
Depreciation and amortization expense related to property and equipment was
approximately $12.9 million, $4.8 million, and $2.0 million in 1999, 1998, and
1997, respectively.
NOTE 6 -- INCOME TAXES
The federal and state and local provision for income taxes relates to the
standalone results of Abacus. Subsequent to November 23, 1999, the effective
date of the merger with Abacus, the provision for income taxes is based on the
taxable income or loss of the combined companies.
Loss before income taxes consisted of:
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
U.S......................................................... $(41,796) $ (4,585) $(2,794)
Foreign..................................................... (5,438) (6,388) (638)
-------- -------- -------
$(47,234) $(10,973) $(3,432)
-------- -------- -------
-------- -------- -------
58
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
The provision (benefit) for income taxes consisted of:
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Current tax provision:
Federal................................................. $6,261 $6,204 $3,998
State and local......................................... 1,248 1,185 501
Foreign................................................. 281 -- --
------ ------ ------
Total current tax provision................................. 7,790 7,389 4,499
------ ------ ------
------ ------ ------
Deferred tax provision (benefit):
Federal................................................. 717 (276) (186)
State and local......................................... 80 (47) (4)
Foreign................................................. -- -- --
------ ------ ------
Total deferred tax provision (benefit)...................... 797 (323) (190)
------ ------ ------
$8,587 $7,066 $4,309
------ ------ ------
------ ------ ------
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate as follows:
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Tax at U.S. Federal income tax rate......................... $(16,532) $(3,840) $(1,201)
State taxes, net of federal income tax effect............... 63 (1,035) (719)
Nondeductible transaction costs............................. 10,331 -- --
Nondeductible compensation.................................. 1,607 616 40
Change in valuation allowance............................... 13,325 11,755 5,610
Other....................................................... (207) (430) 579
-------- ------- -------
Income tax provision........................................ $ 8,587 $ 7,066 $ 4,309
-------- ------- -------
-------- ------- -------
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities at December 31, 1999
and 1998 are as follows:
1999 1998
---- ----
(IN THOUSANDS)
Deferred tax assets:
Allowance for doubtful accounts and advertiser
discounts............................................. $ 4,619 $ 1,896
Property and equipment.................................. 1,568 429
Accrued expenses and other.............................. 1,002 324
Net operating loss carryforwards........................ 53,476 16,913
Tax credit carryforwards................................ 1,354 944
-------- --------
Total deferred tax assets................................... 62,019 20,506
Valuation allowance......................................... (62,019) (19,709)
-------- --------
Net deferred tax assets..................................... $ -- $ 797
-------- --------
-------- --------
The Company has recorded a full valuation allowance against its net deferred
tax assets for the year ended December 31, 1999 since management believes that
after considering all the available objective evidence, both positive and
negative, historical and prospective, with greater weight given to historical
evidence, it is not more likely than not that these assets will be realized. The
current portion of the deferred tax asset of $727,000 as of December 31, 1998 is
included in
59
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
prepaid and other current assets the consolidated balance sheet. The non-current
portion of $70,000 is included in other assets.
At December 31, 1999, the Company had approximately $137.2 million of
federal, state and foreign net operating loss carryforwards available to offset
future taxable income. Approximately $73.1 million of these net operating loss
carryforwards relate to the exercise of employee stock options and any tax
benefit derived therefrom, when realized, will be accounted for as a credit to
additional paid-in capital rather than a reduction to the income tax provision.
In addition, the Company had $1.4 million of research tax credit carryforwards.
The federal net operating loss and research tax credit carryforwards expire in
various years beginning in 2012 through 2020. The utilization of a portion of
the net operating loss and research tax credit carryforwards may be subject to
limitations under U.S. federal income tax laws.
NOTE 7 -- CONVERTIBLE SUBORDINATED NOTES
On March 17, 1999, DoubleClick issued 4.75% Convertible Subordinated Notes
due 2006 with a principal amount of $250 million (the 'Convertible Notes'). The
Convertible Notes are convertible into DoubleClick's common stock at a
conversion price of $41.25 per share, subject to adjustment in certain events
and at the holders' option. Interest on the Convertible Notes is payable
semiannually in arrears on March 15 and September 15 of each year, which
commenced on September 15, 1999. The Convertible Notes are unsecured and are
subordinated to all existing and future Senior Indebtedness (as defined in
Convertible Notes indenture) of DoubleClick. If certain events occur (as
described in the Convertible Notes indenture), the Convertible Notes may be
redeemed at the option of DoubleClick, in whole or in part, beginning on March
20, 2001 at the redemption prices set forth in the Convertible Notes indenture.
In May 1999, DoubleClick filed a shelf registration statement covering resales
of the Convertible Notes and the common stock issuable upon conversion of the
Convertible Notes. This registration statement was declared effective in August
1999.
Upon occurrence of a Designated Event (as defined in the Convertible Notes
indenture) prior to the maturity of the Convertible Notes, each holder of the
Convertible Notes has the right to require DoubleClick to redeem all or any part
of the holder's Convertible Notes at a price equal to 100% of the principal
amount, plus any accrued interest, of the Convertible Notes being redeemed.
DoubleClick has used or may use the net proceeds from the offering of the
Convertible Notes for general corporate purposes, including working capital to
fund anticipated operating losses, the expansion of DoubleClick's product
offerings, investments in new business products, technologies and markets,
capital expenditures, and acquisitions or investments in complementary
businesses, products and technologies.
DoubleClick incurred approximately $5.3 million in issuance costs, which are
included in other assets in the consolidated balance sheets, net of
approximately $525,000 of accumulated amortization. The issuance costs are being
amortized over the term of the Convertible Notes. Interest expense relating to
the Convertible Notes was approximately $9.3 million for the year ended December
31, 1999.
NOTE 8 -- STOCKHOLDERS' EQUITY
DoubleClick's Certificate of Incorporation, as initially filed, authorized
40,000,000 shares of $.001 par value common stock designated as Class A, B, C,
or common stock. The rights and privileges of DoubleClick's four classes of
common stock were generally similar, although Class C common stockholders had
certain super-voting privileges, and Class B shares are non-voting. In
60
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
February 1998, DoubleClick's Certificate of Incorporation was amended to
authorize 5,000,000 shares of preferred stock and increase the number of shares
of common stock to 60,000,000. In June 1999, it was amended to increase the
number of shares of authorized common stock to 400,000,000 shares.
During 1997 and 1998, DoubleClick authorized and issued 1,928,600 and
406,280 shares, respectively, of Convertible Preferred Stock. Upon the closing
of DoubleClick's public offerings in 1998, all issued and outstanding shares of
DoubleClick's Convertible Preferred Stock converted into 28,420,936 shares of
common stock. As of December 31, 1999, 5,000,000 shares of preferred stock are
authorized, none of which are outstanding.
In 1998, DoubleClick completed public offerings of 29,369,040 shares of
common stock generating proceeds of $182.0 million, net of offering costs of
$3.1 million. In 1999, DoubleClick completed public offerings of 2,145,046
shares of common stock generating proceeds of $113.1 million, net of offering
costs of $860,000.
Certain holders of common stock are subject to substantial restrictions on
transfer and also have certain 'piggyback' and demand registration rights which,
with certain exceptions, require DoubleClick to use its best efforts to include
in any of DoubleClick's registration statements any shares requested to be so
included. Further, DoubleClick will pay all expenses directly incurred on its
behalf in connection with such registration.
STOCK SPLITS
On December 15, 1997, DoubleClick's stockholders ratified a one-for-two
reverse stock split of all issued and outstanding common stock of DoubleClick.
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.
STOCK INCENTIVE PLAN
The 1997 Stock Incentive Plan (the '1997 Plan') was adopted by the Board of
Directors on November 7, 1997 and was subsequently approved by the stockholders.
Under the 1997 Plan, 30,348,152 shares of common stock are reserved for the
issuance of incentive and nonqualified stock options. Such share reserve
consists of (i) the number of shares which were available for issuance under the
Predecessor Plan on the Plan Effective Date including the shares subject to
outstanding options, (ii) an additional 6,200,000 shares of common stock,
(iii) an additional 2,348,152 share increase effected on January 4, 1999, and
(iv) the 16,000,000 share increase approved by the stockholders at the 1999
Annual Stockholders Meeting. The number of shares of common stock reserved for
issuance under the 1997 Plan automatically increases on the first trading day of
each calendar year, beginning with the 1999 calendar year, by an amount equal to
three percent (3%) of the total number of shares of common stock outstanding on
the last trading day of the immediately preceding calendar year, provided that,
no such increase will exceed 2,400,000 shares.
When an employee option holder leaves DoubleClick's service, shares
underlying unvested option are returned to the reserve of common stock issuable
under the 1997 Plan on the employee's date of termination, and shares that are
subject to a vested option are returned to the reserve issuable under the 1997
Plan generally at the end of the three-month period following the
61
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
employee's date of termination, to the extent not exercised and issued before
the end of that period. To the extent that an option grant permits the exercise
of unvested shares and is subject to repurchase by DoubleClick upon an
employee's termination of service, those unvested shares of common stock that
are subsequently repurchased by DoubleClick, whether at the exercise price or
direct issue paid per share, will be added to the reserve of common stock
available for issuance under the 1997 Plan. In no event, however, may any one
participant in the 1997 Plan receive option grants or direct stock issuances for
more than 1,500,000 shares of common stock in the aggregate per calendar year,
beginning with the 1998 calendar year.
On the Plan Effective Date, all outstanding options under the Predecessor
Plan were incorporated into the 1997 Plan, and no further option grants have
been made under the Predecessor Plan. The incorporated options will continue to
be governed by their existing terms, unless the 1997 Plan Administrator elects
to extend one or more features of the 1997 Plan to those options. The options
have substantially the same terms as are in effect for grants made under the
1997 Plan.
Generally, options granted under the Plan vest ratably over a period of
three to four years from the date of grant and expire 10 years from the date of
grant and terminate, to the extent unvested, on the date of termination, and to
the extent vested, generally at the end of the three-month period following the
termination of employment.
In October 1999, DoubleClick implemented the 1999 Non-Officer Stock
Incentive Plan, pursuant to which 750,000 shares of Common Stock have been
authorized for issuance.
A summary of stock option activity for the three years ended December 31,
1999 is as follows:
OUTSTANDING WEIGHTED
NUMBER OF AVERAGE EXERCISE
OPTIONS PRICE
----------- ----------------
Balance at December 31, 1996................................ 7,300,612 $ 0.82
Options granted............................................. 5,945,676 2.72
Options exercised........................................... (1,162,602) 3.80
Options canceled............................................ (992,241) 0.40
---------- ------
Balance at December 31, 1997................................ 11,091,445 1.66
Options granted............................................. 5,142,436 8.96
Options exercised........................................... (1,835,774) 1.60
Options canceled............................................ (927,550) 3.25
---------- ------
Balance at December 31, 1998................................ 13,470,557 4.45
Options granted............................................. 13,355,844 59.70
Options exercised........................................... (2,530,380) 2.84
Options canceled............................................ (1,185,450) 15.70
---------- ------
Balance at December 31, 1999................................ 23,110,571 $35.95
---------- ------
---------- ------
Exercisable at December 31, 1999............................ 6,073,326 $11.30
---------- ------
---------- ------
Available for future grants................................. 3,983,912
----------
----------
During the years ended December 31, 1998 and 1997, deferred compensation of
$1.4 million and $3.3 million was recorded for options granted of which
$2,175,000, $2,006,000 and $605,000 was amortized to compensation expense in
1999, 1998 and 1997, respectively. The remaining deferred compensation will be
amortized over the balance of the four-year vesting period of the stock options.
All stock options granted in 1999 were granted with exercise prices at fair
market value.
62
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
Had DoubleClick determined compensation expense of employee stock options
based on the minimum value of the stock options at the grant date, consistent
with the guidelines of SFAS 123, DoubleClick's net loss would have been
increased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Net loss:
As reported................................................. $ (55,821) $(18,039) $(7,741)
Pro forma per SFAS 123...................................... (116,537) (25,672) (9,936)
Net loss per share:
As reported................................................. $ (0.51) $ (0.21) $ (0.16)
Pro forma per SFAS 123...................................... (1.06) (0.30) (0.20)
The per share weighted average fair value of options granted for the years
ended December 31, 1999, 1998 and 1997 was $38.44, $5.63, and $1.58
respectively, on the grant date with the following weighted average assumptions:
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
---- ---- ----
Expected dividend yield..................................... 0% 0% 0%
Risk-free interest rate..................................... 5.42% 5.17% 6.05%
Expected life............................................... 4 years 4.2 years 4.2 years
Volatility.................................................. 90% 84% 13%
The following table summarizes information about stock options outstanding
at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING REMAINING AVERAGE NUMBER WEIGHTED
ACTUAL RANGE OF AT CONTRACTUAL EXERCISE EXERCISABLE AVERAGE
EXERCISE PRICES 12/31/99 LIFE PRICE AT 12/31/99 EXERCISE PRICE
--------------- -------- ---- ----- ----------- --------------
.03 - 1.75.................... 5,053,273 6.66 0.25 3,189,571 0.19
2.00 - 8.91.................... 3,025,774 8.05 4.34 696,973 3.74
9.00 - 13.21.................... 2,615,640 8.39 11.50 770,047 11.94
14.73 - 50.00.................... 3,968,078 8.75 32.41 756,735 23.57
50.94 - 124.56.................... 8,447,806 9.23 77.90 660,000 58.15
NOTE 9 -- ADDITIONAL FINANCIAL INFORMATION
Supplemental disclosure of cash flow information:
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Cash paid for interest:................................... $5,852 $ 156 $ 435
Cash paid for income taxes:............................... $7,807 $6,155 $1,893
Non-cash investing activities: During the years ended December 31, 1999 and
1998, DoubleClick incurred approximately $230,000 and $340,000, respectively
under capital leases.
Non-cash financing activities: On June 4, 1997, DoubleClick converted $5.0
million of advances from the related party into a $5.0 million convertible note.
On December 30, 1997, the convertible note was converted into 3,117,208 shares
of DoubleClick's common stock.
63
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
The following summarizes the components of interest and other, net:
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
Interest income.......................................... $(22,550) $(4,348) $(859)
Interest expense......................................... 9,422 219 452
Equity investment losses................................. 783 56 --
Other.................................................... 864 79 11
-------- ------- -----
$(11,481) $(3,994) $(396)
-------- ------- -----
-------- ------- -----
NOTE 10 -- BENEFIT PLAN
DoubleClick has a defined contribution plan offered to all eligible
employees and is qualified under section 401(k) of the Internal Revenue Code.
Participating employees may contribute a percentage of their salary to the plan.
Employee contributions are invested at the direction of the employee in one or
more funds or DoubleClick common stock. Beginning February 2000, DoubleClick
will partially match employee contributions in DoubleClick common stock; prior
to which the matching was in cash. DoubleClick contributed $435,000, $216,000
and $163,000 to the Plan during the years ended December 31, 1999, 1998 and
1997, respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
(a) LEASES
DoubleClick leases facilities under operating lease agreements expiring
through 2009. Future minimum lease payments under these leases are as follows:
(In thousands)
YEARS ENDING DECEMBER 31, (IN THOUSANDS)
------------------------- --------------
2000.......................................... $ 12,023
2001.......................................... 12,092
2002.......................................... 11,542
2003.......................................... 12,723
2004.......................................... 15,089
Thereafter.................................... 134,569
Rent expense for 1999, 1998 and 1997 was $8.5 million, $3.1 million, and
$1.3 million respectively.
(b) LEGAL
Various legal actions, proceedings and claims are pending, seeking damages
of an indeterminable amount, against DoubleClick alleging that DoubleClick has
unlawfully obtained and sold consumers' personal information. DoubleClick
intends to vigorously contest these claims.
There have been a number of political, legislative, regulatory, and other
developments relating to online data collection that have received wide-spread
media attention. These developments may negatively affect the outcomes of
related legal actions and encourage the commencement of additional similar
litigation. The Federal Trade Commission has notified DoubleClick that it is
commencing an inquiry into DoubleClick's ad serving and data collection
practices. DoubleClick is complying with Federal Trade Commission's request for
additional information. In addition, we are also cooperating with the New York
State Attorney General's office in connection with its request for information
from us about our business, and the press has reported that the Michigan
Attorney General intends to file a notice of intended action to file a suit
against us under Michigan's consumer laws. We may receive additional
regulatory inquiries and intend 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.
64
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999
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 December 31, 1999, no provision has been made for any damages
which may result upon the resolution of these uncertainties.
NOTE 12 -- 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
based on types of service provided. DoubleClick Media is represented by 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, the AdServer family of software products and
DARTmail for Advertisers service bureau offering. DoubleClick Data services
includes Abacus Direct and Abacus Online divisions, currently consisting of a
proprietary database of consumer buying behavior used for target marketing
purposes.
Revenues and gross profit by segment are as follows:
REVENUES GROSS PROFIT
----------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
Media.......................... $125,499 $ 74,180 $29,924 $ 49,955 $15,726 $ 7,047
Technology(a).................. 74,695 24,965 9,823 50,082 16,827 6,708
Data........................... 65,961 46,979 30,971 51,101 36,980 24,430
Intersegment elimination....... (7,861) (7,400) (2,792) -- -- --
-------- -------- ------- -------- ------- -------
Total.......................... $258,294 $138,724 $67,926 $151,138 $69,533 $38,185
-------- -------- ------- -------- ------- -------
-------- -------- ------- -------- ------- -------
- ---------
(a) Included in Technology revenues are intersegment revenues of $7.9 million,
$7.4 million, and $2.8 million in 1999, 1998, and 1997, respectively.
The following represents revenues and long-lived asset information by
geographic area as of and for the years ended December 31:
REVENUES LONG-LIVED ASSETS
----------------------------- ------------------
1999 1998 1997 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
United States........................... $206,071 $123,958 $66,294 $ 65,280 $23,703
International........................... 52,223 14,766 1,632 96,058 657
-------- -------- ------- -------- -------
Total................................... $258,294 $138,724 $67,926 $161,338 $24,360
-------- -------- ------- -------- -------
-------- -------- ------- -------- -------
NOTE 13 -- SUBSEQUENT EVENT
On January 11, 2000, DoubleClick acquired a 30% interest in ValueClick, Inc.
and a warrant to purchase an additional 15% interest within 15 months of the
date of the agreement for approximately 733,000 shares in common stock, with a
value of $75.7 million and $10 million in cash.
65
SCHEDULE II
DOUBLECLICK INC.
VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION PERIOD EXPENSES DEDUCTIONS END OF PERIOD
----------- ------ -------- ---------- -------------
1999:
Allowances deducted from accounts
receivable:
Allowance for doubtful accounts.... $2,580 $10,698 $ (6,644) $ 6,634
Allowances for advertiser
discounts........................ 2,514 9,830 (3,974) 8,370
------ ------- -------- -------
Total.......................... $5,094 $20,528 $(10,618) $15,004
------ ------- -------- -------
------ ------- -------- -------
1998:
Allowances deducted from accounts
receivable:
Allowance for doubtful accounts.... $1,722 $ 5,097 $ (4,239) $ 2,580
Allowances for advertiser
discounts........................ 580 4,534 (2,600) 2,514
------ ------- -------- -------
Total.......................... $2,302 $ 9,631 $ (6,839) $ 5,094
------ ------- -------- -------
------ ------- -------- -------
1997:
Allowances deducted from accounts
receivable:
Allowance for doubtful accounts.... $ 694 $ 2,966 $ (1,938) $ 1,722
Allowances for advertiser
discounts........................ -- 812 (232) 580
------ ------- -------- -------
Total.......................... $ 694 $ 3,778 $ (2,170) $ 2,302
------ ------- -------- -------
------ ------- -------- -------
66
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference from the information in our proxy statement for
the 2000 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information in our proxy statement for
the 2000 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of our common stock as of December 31, 1999 by: (1) each person (or
group of affiliated persons) who is known by us to beneficially own five percent
or more of our common stock, (2) each of our directors and named executive
officers, and (3) all of our directors and executive officers as a group. All
persons listed have sole voting and investment power with respect to their
shares and can be reached at our headquarters located at 450 West 33rd Street,
New York, New York 10001 unless otherwise noted.
NUMBER OF
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF
OWNED(1) OWNERSHIP
------------ -----------
Principal Stockholders:
Kevin J. O'Connor(2)........................................ 9,964,750 8.9%
Kevin P. Ryan(3)............................................ 240,000 *
Dwight A. Merriman(4)....................................... 4,533,384 4.0
Jeffrey E. Epstein(5)....................................... 115,000 *
Stephen R. Collins(6)....................................... 35,000 *
Wenda Harris Millard(7)..................................... 131,600 *
Barry M. Salzman(8)......................................... 130,500 *
Christopher M. Dice(9)...................................... 77,698 *
David Rosenblatt(10)........................................ 35,000 *
David N. Strohm(11)......................................... 118,376 *
Mark E. Nunnelly(12)........................................ 161,396 *
W. Grant Gregory(13)........................................ 256,664 *
Donald Peppers(14).......................................... 50,910 *
Thomas S. Murphy(15)........................................ 25,000 *
M. Anthony White(16)........................................ 1,498,642 1.3
Janus Capital Corporation(17)............................... 7,109,016 6.3
FMR Corp.(18)............................................... 6,846,000 6.1
All directors and executive officers as a group (16
persons)(19).............................................. 17,444,920 15.5
- ---------
* Less than one percent.
(footnotes on next page)
67
(footnotes from previous page)
(1) Gives effect to the shares of common stock issuable within 60 days of
December 31, 1999 upon the exercise of all options and other rights
beneficially owned by the indicated stockholders on that date. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect
to shares. Unless otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares
beneficially owned. Shares of our common stock beneficially owned before
and after the offering are calculated based on 112,453,892 shares of our
common stock outstanding as of December 31, 1999 and 118,187,303 shares of
our common stock outstanding after this offering.
(2) Includes (i) 1,266,160 shares of common stock issuable upon the exercise of
stock options; (ii) 7,840 shares of common stock held by Nancy O'Connor,
Mr. O'Connor's wife; (iii) 200,000 shares of common stock held by the
KN Trust, of which Nancy O'Connor is a trustee; (iv) 96,618 shares of
common stock held by The Kono 1999 Charitable Remainder Trust, of which Mr.
O'Connor and his wife are the beneficiaries, but Mr. O'Connor's brother,
who does not live with Mr. O'Connor, is the trustee; and (v) 96,618 shares
of common stock held by the Kono 1999 NIM-Charitable Remainder Unitrust, of
which Mr. O'Connor and his wife are the beneficiaries. Mr. O'Connor's
brother, who does not live with Mr. O'Connor, is the trustee. Mr. O'Connor
has not retained investment control over the shares held by the Kono 1999
trusts, and, therefore, Mr. O'Connor disclaims all beneficial ownership of
these shares. Does not include 1,200,000 shares of common stock issuable
upon exercise of stock options that do not vest within 60 days of
December 31, 1999.
(3) Includes 227,000 shares of common stock issuable upon the exercise of stock
options. Does not include 2,020,000 shares of common stock issuable upon
the exercise of stock options that do not vest within 60 days of
December 31, 1999.
(4) Includes 568,400 shares of common stock issuable upon the exercise of stock
options. Does not include 600,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(5) Includes 115,000 shares of common stock issuable upon the exercise of stock
options. Does not include 310,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(6) Includes 35,000 shares of common stock issuable upon the exercise of stock
options. Does not include 380,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(7) Includes 131,600 shares of common stock issuable upon the exercise of stock
options. Does not include 475,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(8) Includes 107,000 shares of common stock issuable upon the exercise of stock
options. Does not include 387,500 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(9) Includes 77,698 shares of common stock issuable upon the exercise of stock
options. Does not include 433,097 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(10) Includes 35,000 shares of common stock issuable upon the exercise of stock
options. Does not include 388,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(11) Includes 20,000 shares of common stock issuable upon the exercise of stock
options and 180,000 shares held by the Strohm/Reavis Living Trust for which
Mr. Strohm is trustee. Does
(footnotes continued on next page)
68
(footnotes continued from previous page)
not include 20,000 shares of common stock issuable upon the exercise of
stock options that do not vest within 60 days of December 31 1999.
(12) Does not include 20,000 shares of common stock issuable upon the exercise
of stock options that do not vest within 60 days of December 31, 1999.
(13) Includes 20,000 shares of common stock issuable upon the exercise of stock
options. Does not include 20,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(14) Includes 45,000 shares of common stock issuable upon the exercise of stock
options. Does not include 50,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(15) Includes 25,000 shares of common stock issuable upon the exercise of stock
options. Does not include 95,000 shares of common stock issuable upon the
exercise of stock options that do not vest within 60 days of December 31,
1999.
(16) Includes 538,892 shares of common stock issuable upon the exercise of stock
options.
(17) Includes 96,970 shares of common stock issuable upon conversion of
convertible bonds. Janus Capital is a registered investment adviser which
furnishes investment advice to several investment companies registered
under Section 8 of the Investment Company Act of 1940 and individual and
institutional clients (collectively referred to herein as 'Managed
Portfolios'). As a result of its role as investment adviser or sub-adviser
to the Managed Portfolios, Janus Capital may be deemed to be the beneficial
owner of the shares of DoubleClick common stock held by the Managed
Portfolios. However, Janus Capital does not have the right to receive any
dividends from, or the proceeds from the sale of, the securities held in
the Managed Portfolios and disclaims any ownership associated with such
rights. The address of Janus Capital is 100 Fillmore Street, Denver,
Colorado 80206.
(18) Fidelity Management & Research Company ('Fidelity'), 82 Devonshire Street,
Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp., 82
Devonshire Street, Boston, Massachusetts 02109, and an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, is the
beneficial owner of 6,686,300 shares of the common stock
outstanding of DoubleClick, Inc. ('the Company') as a result of acting as
investment adviser to various investment companies registered under Section
8 of the Investment Company Act of 1940. Edward C. Johnson 3d, FMR Corp.,
through its control of Fidelity, and the funds each has sole power to
dispose of the 6,686,300 shares owned by the Funds. Neither FMR Corp. nor
Edward C. Johnson 3d, Chairman of FMR Corp., has the sole power to vote or
direct the voting of the shares owned directly by the Fidelity Funds, which
power resides with the Funds' Boards of Trustees. Fidelity carries out the
voting of the shares under written guidelines established by the Funds'
Boards of Trustees. Fidelity Management Trust Company, 82 Devonshire
Street, Boston, Massachusetts 02109, a wholly-owned subsidiary of FMR Corp.
and a bank as defined in Section 3(a) (6) of the Securities Exchange Act of
1934, is the beneficial owner of 101,960 shares of the common
stock outstanding of the Company as a result of its serving as investment
manager of the institutional account(s). Edward C. Johnson 3d and FMR
Corp., through its control of Fidelity Management Trust Company, each has
sole dispositive power over 101,960 shares and sole power to vote or to
direct the voting of 51,560 shares, and no power to vote or to direct the
voting of 50,400 shares of common stock owned by the institutional
account(s) as reported above. Strategic Advisers, Inc., 82 Devonshire
Street, Boston, MA 02109, a wholly-owned subsidiary of FMR Corp. and an
investment adviser registered under Section 203 of the Investment Advisers
Act of 1940, provides investment advisory services to individuals. It does
not have sole power to vote or direct the voting of shares of certain
securities held for clients and has sole dispositive power over such
securities. As such, FMR Corp.'s beneficial
(footnotes continued on next page)
69
(footnotes continued from previous page)
ownership may include shares beneficially owned through Strategic Advisers,
Inc. Members of the Edward C. Johnson 3d family are the predominant owners
of Class B shares of common stock of FMR Corp., representing approximately
49% of the voting power of FMR Corp. Mr. Johnson 3d owns 12.0% and Abigail
Johnson owns 24.5% of the aggregate outstanding voting stock of FMR Corp.
Mr. Johnson 3d is Chairman of FMR Corp. and Abigail P. Johnson is a
Director of FMR Corp. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under which
all Class B shares will be voted in accordance with the majority vote of
Class B shares. Accordingly, through their ownership of voting common stock
and the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the Investment Company Act of 1940, to
form a controlling group with respect to FMR Corp. Fidelity International
Limited, Pembroke Hall, 42 Crowlane, Hamilton, Bermuda, and various
foreign-based subsidiaries provide investment advisory and management
services to a number of non-U.S. investment companies
and certain institutional investors. Fidelity International Limited
is the beneficial owner of 57,740 shares of the common stock
outstanding of the Company.
(19) Includes 6,000 shares of common stock held by Jonathan Shapiro and 65,000
shares of common stock issuable upon the exercise of stock options by Mr.
Shapiro. Does not include 250,000 shares of common stock issuable upon the
exercise of stock options by Mr. Shapiro that do not vest within 60 days of
December 31, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information in our proxy statement for
the 2000 Annual Meeting of Stockholders which we will file with the Securities
and Exchange Commission within 120 days of the end of the fiscal year to which
this report relates.
70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, DoubleClick Inc. has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of New
York, State of New York, on this 17th day of February, 2000.
DOUBLECLICK INC.
By: /S/ KEVIN J. O'CONNOR
..................................
KEVIN J. O'CONNOR
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on February 17, 2000:
SIGNATURE TITLE(S)
--------- --------
/S/ KEVIN J. O'CONNOR Chief Executive Officer and Chairman of the Board of
......................................... Directors (Principal Executive Officer)
KEVIN J. O'CONNOR
/S/ STEPHEN R. COLLINS Chief Financial Officer (Principal Financial Officer and
......................................... Principal Accounting Officer)
STEPHEN R. COLLINS
/S/ DWIGHT A. MERRIMAN Chief Technology Officer and Director
.........................................
DWIGHT A. MERRIMAN
/S/ DAVID N. STROHM Director
.........................................
DAVID N. STROHM
/S/ MARK E. NUNNELLY Director
.........................................
MARK E. NUNNELLY
/S/ W. GRANT GREGORY Director
.........................................
W. GRANT GREGORY
Director
.........................................
DONALD PEPPERS
/S/ THOMAS S. MURPHY Director
.........................................
THOMAS S. MURPHY
/S/ M. ANTHONY WHITE Director
.........................................
M. ANTHONY WHITE
73
EXHIBIT INDEX
NUMBER DESCRIPTION
------ -----------
2.1 -- Agreement and Plan of Merger and Reorganization dated as
of June 13, 1999, by and among Registant, Atlanta Merger
Corp. and Abacus Direct Corporation (Incorporated by
reference to Exhibit 2.1 of Registrant's Current Report on
Form 8-K dated June 17, 1999).
2.2 -- Agreement and Plan of Merger and Reorganization, dated as
of July 12, 1999, among Registrant, NJ Merger Corporation
and NetGravity, Inc. (Incorporated by reference to
Exhibit 2.1 of Registrant's Current Report on Form 8-K
dated July 22, 1999.
2.3 -- Agreement for the Sale and Purchase of Shares, dated as
of December 17, 1999, between Registrant and the Sellers
listed on Appendix 1 thereto (Incorporated by reference to
Exhibit 2.1 of Registrant's Current Report on Form 8-K
dated January 12, 2000).
3.1 -- Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on Form S-1
(Registration number 333-67459)).
3.1(a) -- Certificate of Correction of Amended and Restated
Certificate of Incorporation.
3.2 -- Amended and Restated Bylaws (Incorporated by reference to
Exhibit 3.5 of the Registrant's Registration Statement on
Form S-1 ('Registration Statement No. 333-42323')).
4.1 -- Specimen common stock certificate. (Incorporated by
reference to Registration Statement No. 333-42323).
4.2 -- Indenture, dated as of March 22, 1999, between Registrant
and the Bank of New York, as trustee, including the form
of 4.75% Convertible Subordinated Notes due 2006 attached
as Exhibit A thereto (Incorporated by reference to
Exhibit 6.1 of DoubleClick's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999).
4.3 -- Registration Agreement, dated as of March 22, 1999, by
and among Registrant and the Initial Purchasers
(Incorporated by reference to Exhibit 6.2 of Registrant's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999).
10.1 -- 1996 Stock Option Plan (Incorporated by reference to
Exhibit 10.1 of Registration Statement No. 333-42323).
10.2 -- 1997 Stock Incentive Plan (Incorporated by reference to
Exhibit 10.2 of Registration Statement No. 333-42323).
10.3 -- DoubleClick Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 10.1 of DoubleClick's Registration
Statement on Form S-4 (Registration number 333-89435)).
10.4 -- Stockholders Agreement, dated as of June 4, 1997
(Incorporated by reference to Exhibit 10.4 of Registration
Statement No. 333-42323).
10.5 -- Sublease dated August 1996, between Martin, Marshall,
Jaccoma & Mitchell Advertising, Inc. and the Registrant
(Incorporated by reference to Exhibit 10.5 of Registration
Statement No. 333-42323).
10.6 -- Lease dated July 1997, between Investment Properties
Associates and the Registrant (Incorporated by reference
to Exhibit 10.6 of Registration Statement No. 333-42323).
10.7 -- Agreement of Lease, dated as of January 26, 1999, between
John Hancock Mutual Life Insurance Company, as Owner and
Landlord, and DoubleClick, as Tenant (Incorporated by
reference to Exhibit 10.2 of Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999).
10.8 -- Lease, dated August 5, 1998, by and between Norfolk
Atrium, as Landlord, and NetGravity, Inc., for
NetGravity's headquarters in San Mateo, CA.
10.9 -- Lease, dated May 22, 1998, between Western States
Ventures, LLC and Abacus Direct Corporation, for office
space in Broomfield, CO.
10.10'D' -- Procurement and Trafficking Agreement, dated December
1996, by and between Registrant and Digital Equipment
Corporation (Incorporated by reference to Exhibit 10.7 of
Registration Statement No. 333-42323).
10.11'D' -- Amendment No. 1 to Procurement and Trafficking Agreement,
dated January 1998, by and between Registrant and Digital
Equipment Corporation (Incorporated by reference to
Exhibit 10.8 of Registration Statement No. 333-42323).
10.12'DD' -- Advertising Services Agreement, effective as of
January 1, 1999, by and between Registrant and Compaq
Computer Corporation (Incorporated by reference to
Exhibit 99.1 of Registrant's Current Report on Form 8-K
dated January 20, 1999).
NUMBER DESCRIPTION
------ -----------
10.13'DD' -- Interim Amended and Restated Advertising Services
Agreement, effective as of November 1, 1999, by and
between Registrant, AltaVista Company (as successor to
Compaq Computer Corporation) and AV Internet Solutions
Ltd. (Incorporated by reference to Exhibit 99.1 of
Registrant's Current Report on Form 8-K dated November 1,
1999).
10.14 -- Form of Employment Agreement between Registrant and
Christopher M. Dice.
11.1 -- Statement re: Computation of Per Share Earnings.
12.1 -- Statement re: Computation of Rations.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of PricewaterhouseCoopers LLP.
23.2 -- Consent of KPMG LLP.
27.1 -- Financial Data Schedule. (Incorporated by reference to
Exhibit 27.1 of Registrant's Registration Statement on
Form S-3 (Registration number 333-96133)).
99.1 -- NetGravity, Inc. 1998 Employee Stock Purchase Plan
(Incorporated by reference to Exhibit 99.1 of Registrant's
Registration Statement on Form S-8 (Registration number
333-95105).
- ---------
'D' Confidential treatment granted for certain portions of this Exhibit
pursuant to the rules and regulations of the Securities Act of 1933, as
amended.
'DD' Confidential treatment granted for certain portions of this Exhibit
pursuant to the rules and regulations of the Securities Exchange Act of
1934, as amended.
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as............................... 'SS'
The dagger symbol shall be expressed as................................ 'D'
The double dagger symbol shall be expressed as........................ 'DD'