Back to GetFilings.com
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
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, 2000
COMMISSION FILE NUMBER 000-23709
-------------------
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)
-------------------
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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 6, 2001 was approximately $1,597,264,623 (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 March 6, 2001 was
128,454,449.
-------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting of
Stockholders, which is to be filed subsequent to the date hereof, are
incorporated by reference into Part III.
________________________________________________________________________________
DOUBLECLICK INC.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I................................................................ 3
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 27
Item 3. Legal Proceedings........................................... 27
Item 4. Submission of Matters to a Vote of Security Holders......... 28
PART II............................................................... 28
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 28
Item 6. Selected Financial Data..................................... 29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 31
Item 7A: Quantitative and Qualitative Disclosures About Market
Risk...................................................... 41
Item 8. Financial Statements and Supplementary Data................. 43
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 72
PART III.............................................................. 72
Item 10. Directors and Executive Officers of the Registrant.......... 72
Item 11. Executive Compensation...................................... 72
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 72
Item 13. Certain Relationships and Related Transactions.............. 72
PART IV............................................................... 73
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 73
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 provide the infrastructure that makes marketing work in the digital
world. Combining media, data and technological expertise, our products and
services enable marketers to deliver the right message, to the right person, at
the right time, while helping publishers maximize their revenue and build their
business online.
In 2000, we derived our revenues from three business units that share the
knowledge and experience gained through working with thousands of publishers,
advertisers, direct marketers and merchants every day. It is this sharing of
ideas that allows us to develop innovative ways to help marketers and publishers
grow their businesses online. These business units, TechSolutions, Media, and
Data (consisting of Abacus and Research), tackle all facets of the digital
marketing process, from pre-campaign planning, to execution, measurement and
campaign refinement. Through these units we offer a broad range of media,
technology, data and research products and services.
Our patented DART (Dynamic, Advertising, Reporting and Targeting) technology
is the platform for many of our solutions. The DART technology is a
sophisticated targeting and reporting tool, relied upon by our customers to
measure campaign performance and provide dynamic ad space inventory management.
We currently serve ads for over 2,000 clients worldwide, and in December 2000
delivered approximately 63 billion targeted advertisements to Internet users
worldwide.
Our three business units are as follows:
- DOUBLECLICK TECHSOLUTIONS. DoubleClick TechSolutions offers publishers,
advertisers and merchants worldwide the industry's leading technology
and service bureau solutions for their digital marketing needs. Our
solutions enable Web sites to generate advertising revenue with a choice
of an application service provider solution, the DART for Publishers
Service, or a licensed software solution, the DoubleClick AdServer
software. The DART for Publishers Service provides seamless ad delivery
and inventory management services for Web sites, and allows Web
publishers to offer their advertisers sophisticated targeting and
reporting capabilities. We also offer advertisers and their agencies an
application service provider solution, the DART for Advertisers Service.
Using the DART technology, the DART for Advertisers Service enables
advertisers and their agencies to increase their return on investment
and to streamline the ad serving process. Through our DARTmail Service,
we offer email publishers and merchants an application service provider
solution for their email marketing needs.
- DOUBLECLICK MEDIA. DoubleClick Media offers to advertisers worldwide a
broad range of media purchasing opportunities to satisfy a variety of
marketing objectives. DoubleClick enables publishers to outsource ad
sales for their Web sites worldwide to DoubleClick's ad sales force, and
to leverage the revenue generating potential of their media by joining
one of DoubleClick's Web site networks. The DoubleClick Network is our
flagship media product. This network established the standard for the
network model of advertising on the Internet. The DoubleClick Network is
a collection of highly-trafficked and branded sites on the Web.
Also included in the DoubleClick Media suite of products and services
3
are the DoubleClick Select Network, the Sonar Network, DoubleClick eMail
List Services, DoubleClick MediaMatch and DoubleClick Sweepstakes.
Advertisers and direct marketers buy advertising through these media
marketing vehicles for sales, brand building and lead generation.
DoubleClick Media uses the DART and DARTmail technologies to deliver,
target and report on our customers' campaigns.
- DOUBLECLICK DATA. DoubleClick Data is comprised of two components:
ABACUS. Abacus is a leading provider of information products to direct
marketers, both online and offline. Abacus applies advanced statistical
modeling techniques to the Abacus Alliance database of consumer
purchasing behavior to help Abacus Alliance members acquire and retain
customers. Based on this data modeling, Abacus identifies those
consumers most likely to purchase a particular product or service, and
enables its over 1,800 Abacus Alliance members to reach identified
consumers by direct mail and email. Abacus performs similar statistical
modeling services for the over 200 e-commerce merchant members of the
Abacus Online Alliance, and enables those members to reach likely
buyers through email. In addition, by combining an expertise in
database analysis with our DART technology, Abacus enables e-commerce
merchants and Web publishers to use our online preference marketing
technology to deliver Web advertising targeted to anonymous Internet
users.
DOUBLECLICK RESEARCH. DoubleClick Research offers to advertisers,
agencies and Web publishers sophisticated research about the online
market and advanced campaign measurement tools and planning systems.
Our targeting planning systems, including the Gutenberg Advertising
System and the Kepler E-Business System, provide advertisers with
market research to identify the Web sites visited by their target
audience, and allow Web publishers to better define their audience. Our
advertising effectiveness studies can help our clients to evaluate the
performance and effectiveness of their online marketing efforts,
through the use of branding-based measures. As a result of the
acquisition of @plan.inc in February 2001, we significantly expanded
our research capabilities.
DOUBLECLICK TECHSOLUTIONS
Since the successful launch of DoubleClick's first technology solution in
1997, DoubleClick, through our DoubleClick TechSolutions unit, has established a
track record of growth and innovation. In 2000, DoubleClick TechSolutions
reported revenues of $203.4 million, and added 1,125 clients globally. Our DART
ad serving technology served 621 billion ads worldwide in 2000. In addition, in
October 2000, DoubleClick TechSolutions introduced email marketing solutions
powered by a newly-developed platform based on the DART technology. Since the
introduction of the new platform, DoubleClick TechSolutions has signed over 60
customers to our email delivery service, and the technology has scaled to
deliver over 90 million emails per month.
DoubleClick TechSolutions addresses the rapidly-evolving needs of our
advertiser, Web publisher and merchant customers with sophisticated technology
offerings that include:
DART FOR PUBLISHERS SERVICE. Since January 1997, our DART for Publishers
Service has provided Web publishers with a comprehensive service bureau
solution for ad inventory management and ad targeting, delivery and
reporting. Deploying the DART technology platform in data centers all over
the world, the DART for Publishers Service offers the scalability,
reliability and power needed to deliver large volumes of ads.
DART FOR ADVERTISERS SERVICE. The DART for Advertisers Service offers
effective campaign planning, management and optimization to allow
advertisers and their agencies to streamline and control their online ad
campaigns, understand their customers, and act quickly on knowledge gained.
The DART for Advertisers Service uses the same DART technology and
globally-distributed infrastructure that support the DART for Publishers
Service.
4
DOUBLECLICK ADSERVER. Our DoubleClick AdServer software products offer an
online advertising and marketing management software solution for Web
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. DoubleClick AdServer
software enables our clients to customize and integrate this solution with
other key back-end systems.
DARTMAIL SERVICE. Our DARTmail Service offers advertisers and merchants a
service bureau solution for managing and delivering email direct marketing.
Our DARTmail Service enables advertisers and merchants to deliver highly
personalized email 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
December 1999, following the acquisition of Opt-in E-mail.com. In October
2000, we introduced newly-developed technology based on the DART platform
to power the DARTmail Service.
DoubleClick TechSolutions' offerings are backed worldwide by support teams
offering service 24 hours a day, seven days a week. Through our professional
services group, we provide comprehensive education and consulting services
that help our customers to maximize the value of our DoubleClick TechSolutions
services and products. These services include customizing and extending
existing DoubleClick 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 MEDIA
In 2000, DoubleClick Media launched an unprecedented number of offerings for
advertisers and Web publishers, including the Sonar Network, DoubleClick Email
List Services, DoubleClick MediaMatch and DoubleClick Sweepstakes. DoubleClick
Media generated revenues of $253.8 million in 2000, an increase of over 100%
from 1999. The proportion of revenues from traditional advertisers grew to over
55% in the fourth quarter of 2000.
DOUBLECLICK MEDIA SOLUTIONS FOR PUBLISHERS
DoubleClick Media offers outsourced ad sales solutions to Web publishers,
enabling them to use our global ad sales force and the DoubleClick advertising
networks to realize the revenue potential of their Web sites. By outsourcing
these functions, Web publishers can avoid the need to develop an internal ad
sales force, are relieved of ad management requirements, including billing,
tracking and reporting, and do not incur the expense associated with
establishing, maintaining, upgrading and operating the technology infrastructure
for ad delivery.
Our DoubleClick Media solutions offer Web publishers the opportunity to
participate in the following networks:
DOUBLECLICK NETWORK. The DoubleClick Network is a collection of highly
trafficked and branded Web sites. DoubleClick Media maintains country- and
region-specific versions of the DoubleClick Network in various markets in
the United States, Canada, Europe and Asia. Our representation of Web
publishers on the DoubleClick Network is typically on a non-exclusive basis
in the United States. Outside the United States, our representation may be
on a non-exclusive or exclusive basis.
DOUBLECLICK SELECT NETWORK. The DoubleClick Select Network features a
collection of high quality branded U.S. Web sites on which our experienced
sales force and sponsorship specialists sell advertising on an exclusive
basis. Inclusion in the DoubleClick Select Network positions Web sites for
high value, premium ad products, such as site-specific campaigns and
sponsorships.
5
SONAR NETWORK. Launched in February 2000, the Sonar Network consists of
over 900 Web sites, serving over 2 billion monthly impressions. Our
representation of Web publishers on the Sonar Network are all on a
non-exclusive basis, spanning small web-sites delivering 100,000 monthly
impressions to some of the largest Web sites on the Internet. The Sonar
network is currently offered only in the United States.
DOUBLECLICK MEDIAMATCH. Launched in August 2000, DoubleClick MediaMatch is
a solution that allows publishers to buy low-cost broad-reach advertising
across a network of well-branded sites and to maintain pricing integrity
to other advertisers. Web site publishers use their own unsold inventory to
cover most of the cost of advertising, resulting in a productive use of
otherwise unsold inventory. DoubleClick MediaMatch is currently offered in
the United States and the United Kingdom.
To take advantage of the global reach of the Internet, we have established
and may continue to establish DoubleClick networks in Europe, Asia and other
markets. DoubleClick Media currently offers our services in Australia, the
Benelux countries, Canada, France, Germany, Iberoamerica (Spain and Latin
America), Ireland, Italy, Scandinavia, and the United Kingdom and operates
through business partners in Japan and Asia (Hong Kong, Taiwan, Korea, China and
Singapore).
DoubleClick Media maintains criteria for membership in each DoubleClick
network and adjusts the categories of Web sites in a DoubleClick network based
on advertisers' needs.
DOUBLECLICK MEDIA SOLUTIONS FOR ADVERTISERS
DoubleClick Media provides advertisers and their agencies with the ability
to reach their desired audience online. Over 4,400 advertisers from a variety of
industries used the DoubleClick networks in 2000, including over 50% of the
Fortune 100 companies. DoubleClick Media maintains relationships with, and
focuses its sales and marketing efforts on, both advertisers and advertising
agencies.
DoubleClick Media's key solutions for advertisers include the following:
U.S. NETWORKS. In the United States, DoubleClick Media offers advertisers
the opportunity to advertise on a number of domestic networks, including
the DoubleClick Network, DoubleClick Select Network and the Sonar Network.
These networks are each divided into content categories, such as auto,
business, tech and travel. With special programs for mass reach,
run-of-category and 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 advertisers to target users worldwide or in specific countries. With
over 1,600 publishers featured in 19 separate networks worldwide, grouped
by country and area of interest, we offer advertisers the ability to run
global campaigns with one media placement.
DOUBLECLICK EMAIL LIST SERVICES. DoubleClick's eMail List Services is an
email marketing solution that comprehensively meets the needs of both list
renters and list owners. Leveraging DoubleClick's experience in driving
revenue for our clients, eMail List Services provides a platform for
publishers and merchants to build and monetize their consent-based email
lists.
Other DoubleClick Media solutions for advertisers include DoubleClick
Sweepstakes, Boomerang and the DoubleClick Local Network.
DOUBLECLICK DATA
DoubleClick Data consists of the Abacus division and DoubleClick Research.
ABACUS
Abacus is a leading provider of information products and marketing research
services to the direct marketing industry, helping merchants to reach their
customers through direct mail and
6
email. Abacus continued to grow in 2000, generating revenues of $72.4 million in
2000, an increase of 10% from 1999. The Abacus Alliance for direct mail
marketing ended the year with over 1,800 direct marketing members, while the
Abacus Online Alliance for email marketing, first introduced in late 1999, has
grown to over 200 e-commerce merchant members.
ABACUS SOLUTIONS FOR DIRECT MAIL MARKETING
Abacus helps direct marketing merchants to increase response rates and
profits from their direct mail marketing campaigns by applying advanced
statistical modeling techniques to the Abacus Alliance database of consumer
purchasing behavior, containing information contributed by over 1,800 direct
marketing members. The Abacus Alliance is a cooperative arrangement. Only those
members of the Abacus Alliance that contribute transaction information into the
Abacus Alliance database are entitled to purchase the full range of Abacus
direct mail modeling, prospect list and market research services. In addition,
Abacus, through a joint venture with VNU, has established the Abacus Alliance
for direct marketers in the United Kingdom.
The Abacus Alliance database contains over 90 million U.S. household
profiles compiled from records of over 3.5 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 products and services support the direct mail and email
marketing efforts of Alliance participants.
The solutions we offer to our Abacus Alliance members include the following:
PROSPECT LISTS. Our prospect lists service provides a client with new
prospect names ranked according to the likelihood that the consumer will
respond to a particular direct marketing offer. The criteria for ranking
include recency, frequency, time of year and dollar amount of catalog
purchases. This service enables catalog companies to expand their business
base and offset consumer attrition.
DIRECT MAIL LIST OPTIMIZATION. Like our prospect lists service, our list
optimization service ranks names on a direct mail list according to
likelihood of response. This optimization service enables the client to
identify and target the most likely buyers. This process not only increases
the potential profitability of the lists a client currently uses (whether
a house list or acquired from another source), but permits the client to
use lists that were previously considered unprofitable.
MULTICHANNEL MARKETING: EMAIL AND DIRECT MAIL. We offer Abacus Alliance
members the ability to broaden reach by communicating an offer to a
prospect or customer via direct mail and targeted email.
MARKETING INSIGHT REPORTS. Our Marketing Insight Reports service offers our
clients detailed information regarding the catalog industry. These reports
allow Abacus Alliance members to accurately describe catalog market size,
share, activity and other key marketing data that allow clients to develop
their strategic marketing initiatives.
ABACUS SOLUTIONS FOR EMAIL MARKETING
The Abacus Online Alliance was formed in late 1999 to extend the Abacus
modeling techniques, alliance relationships and tools to the Internet and other
interactive media. The Abacus Online Alliance members contribute consent-based
email addresses for targeted email marketing and are eligible to purchase the
full range of Abacus' targeted email modeling and prospect list services.
The solutions we offer to our Abacus Online Alliance members include the
following:
TARGETED EMAIL PROSPECT LISTS. Similar to our service for direct mail
marketers, our targeted email prospect lists service provides a client with
a list of email addresses ranked according to the likelihood that the
consumer will respond to a particular email offer.
7
HOUSEFILE EMAIL MODELING. Our housefile email modeling service offers our
clients a ranking of the customers contained in a client's housefile email
list according to the probability that an individual customer will make a
repeat purchase. This service also allows our clients to identify inactive
customers who are most likely to respond to a renewed email offer. Our
housefile program helps enable our client companies to determine when to
solicit customers who have not made recent purchases.
ABACUS SOLUTIONS FOR WEB AD TARGETING
By combining an expertise in database analysis with our DART technology,
Abacus enables e-commerce merchants and Web publishers to use our Intelligent
Targeting technology to deliver Web advertising targeted to Internet users
based on user interests inferred from anonymous non-sensitive behavioral
information. To date, our Intelligent Targeting technology has over 120 million
anonymous behavorial profiles.
DOUBLECLICK RESEARCH
DoubleClick Research offers to advertisers and Web publishers sophisticated
research about the online market and advanced campaign measurement tools and
planning systems. In February 2001, we completed the acquisition of @plan.inc,
which significantly expanded our research capabilities.
As a result of our acquisition of @plan.inc, DoubleClick Research is now a
leading provider of targeting planning systems to advertisers, agencies and Web
publishers. DoubleClick Research's targeting planning systems are Web based,
allowing users to perform searches, queries and campaign planning on demand.
These syndicated research systems are populated with data from scientifically
sound recall-based marketing surveys, which are gathered using scientifically
sound recruitment methodology. DoubleClick Research is also actively developing
other tools to better enable advertisers and Web publishers to measure the
effectiveness of online advertising.
DoubleClick Research's targeting planning systems include the following:
GUTENBERG ADVERTISING SYSTEM. The Gutenberg Advertising System provides
target market research used in buying and selling Web advertising.
Advertisers and agencies use the system to locate audiences on Web sites
for the purpose of buying media, and Web publishers use the system to gain
competitive insights into the value of their audiences and to attract
advertisers.
KEPLER E-BUSINESS SYSTEM. The Kepler E-Business System is a customer
acquisition tool used by online retailers and consumer brand marketers to
develop effective branding and marketing strategies. Online retailers and
consumer brand marketers use the system to track differences in retailing
trends between traditional and online markets to better understand how the
online market differs from the traditional market in their particular
retail category.
EMERSON SITE PERFORMANCE SYSTEM. The Emerson Site Performance System is a
performance market research tracking tool that can help Web sites craft an
enduring business strategy to retain and grow its viewer base. The Emerson
System allows its users to understand the key components of their Web
sites' brand personality by target audience, determine how their users
evaluate and rank their performance in relationship to their competitors,
as well as perform Web site-to-Web site indexing to evaluate and benchmark
their competitive position.
Our advertising effectiveness studies supply advertisers and Web publishers
with tools to evaluate the performance and effectiveness of their online
marketing efforts using branding based measures. Using survey research, these
studies measure audience response to a marketing message. Survey results can be
combined with the results of a client's campaigns, as may be measured by the
DART Service for Advertisers, to further identify those elements of a campaign
that contributed to its success. Our offerings include 'How Internet Advertising
Works', a
8
comprehensive customized program designed to inform the online advertising
decisions of a single brand or marketer.
SALES AND MARKETING
UNITED STATES
We sell our solutions in the United States through a sales and marketing
organization that consisted of 660 employees as of December 31, 2000. These
employees are located at our headquarters in New York, and in our offices in
Atlanta, Boston, Broomfield (CO), Chicago, 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.
We conduct comprehensive marketing programs and support our direct sales
efforts to actively promote the DoubleClick brand. These programs include public
relations, print advertisements, online advertisements over our DoubleClick
networks 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 European operations are based out of our Irish subsidiary located in
Dublin, Ireland and our Asian operations are run through our branch office in
Hong Kong. We sell our services and products through our directly and indirectly
owned subsidiaries in Australia, the Benelux countries, Brazil, Canada, France,
Germany, Spain, Ireland, Italy, Scandinavia and the United Kingdom. We also
operate our media business through business partners in Japan and Asia (Hong
Kong, Taiwan, Korea, China and Singapore) and we generally operate our
technology business through our directly or indirectly owned subsidiaries in
these jurisdictions. We sell our services and products internationally in 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 380 employees as of December 31, 2000.
Please see our discussion of the risks attendant to our international operations
under 'Risk Factors' beginning on page 14.
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
first 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 stockholders of record as of December 31, 1999 a stock
dividend of one share of common stock for each share held. On February 24, 2000,
we received net proceeds of approximately $502.9 million in connection with a
follow-on offering of common stock. Our service and product offerings are
grouped into three segments for financial reporting: DoubleClick TechSolutions,
DoubleClick Media and DoubleClick Data. See Note 15 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.
On February 2, 2001, we acquired @plan.inc, a leading provider of online
market research planning systems. In addition, on February 22, 2001, we entered
into an agreement to acquire FloNetwork Inc., an email marketing technology
provider. The FloNetwork transaction is subject to
9
customary closing conditions, including approval by FloNetwork's shareholders
and Canadian governmental authorities, and is expected to close in the second
quarter of 2001.
COMPETITION
The market for digital marketing products and services is very competitive.
We expect this competition to continue to increase because 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 acceptance of new solutions and enhancements to existing
solutions developed either by us or our competitors;
customer service and support efforts;
our ability to adapt and scale our technology, and develop and introduce
new technologies, as customer needs change and grow;
sales and marketing efforts;
the features, ease of use, performance, price and reliability of solutions
developed either by us or our competitors; and
the relative impact of general economic and industry conditions on either
us or our competitors.
DoubleClick TechSolutions' Web ad delivery products and services compete
with providers of outsourced ad delivery services and ad server software and
related services, including AdForce, Avenue A, L90, Engage (through its
Accipiter product), MatchLogic (a unit of Excite@Home), Mediaplex, Real Media
and Sabela Media (a unit of 24/7 Media). TechSolutions' email delivery products
and services compete with other providers of email delivery and list management
services, as well as providers of email delivery software and related services,
including Annuncio, Digital Impact, Exactis (a unit of 24/7 Media), FloNetwork,
Kana, Lyris, MessageMedia and Responsys.
DoubleClick Media competes for Internet advertising revenues with large Web
publishers and Web portals, such as AOL Time Warner, Microsoft and Yahoo!. We
also compete with the traditional advertising media of television, radio, cable
and print for a share of advertisers' total advertising budgets. Our DoubleClick
networks compete with a variety of Internet advertising network companies,
including 24/7 Media, Ad2One, CCI, Engage and L90. Our email list services
business competes with other email list brokers, including 24/7 Media,
MatchLogic (a unit of Excite@Home), NetCreations, and YesMail. We also
encounter competition from a number of other sources, including content
aggregation companies, companies engaged in advertising sales networks,
advertising agencies and other companies that facilitate Internet advertising.
DoubleClick Data, through the Abacus division, competes with a broad range
of companies that provide information products and marketing research services
to the direct marketing industry, including Z-24 (a unit of Experian), Engage,
iBehavior, Junkbusters, and Prefer.com. Because our customers have a choice of
information products, we also compete with data aggregation companies, such as
Acxiom, Dun & Bradstreet, InfoUSA, Harte-Hanks and TransUnion, for a share of
our customers' marketing data budgets.
DoubleClick Research competes with other providers of research and planning
tools for the online market, including Dynamic Logic, Jupiter Media Metrix,
Millward Brown Interactive, NetRatings (a unit of AC Neilsen) and Ipsos-ASI
Interactive.
In addition, customer relationship management companies, such as E.piphany
and Kana, offer products and services that compete functionally with those
offered by several of DoubleClick's business units, in particular DoubleClick
TechSolutions and DoubleClick Data.
10
PRIVACY AND DATA PROTECTION
We have been a leader in promoting consumer privacy, and are committed to
enhancing consumer understanding of the technologies that are used to provide
information to digital marketing companies like DoubleClick. Our consumer
privacy and data protection efforts are led by a full complement of experts
devoted to consumer privacy and data protection issues. In 2000, DoubleClick
appointed Jules Polonetsky as our Chief Privacy Officer. Mr. Polonetsky, former
Consumer Affairs Commissioner for New York City, reports directly to our Board
of Directors and leads our privacy and data protection department. Our privacy
team ensures that we are effectively implementing our privacy policies and
procedures, works with our clients to institute and improve their privacy
procedures and educates the public about our leadership with regard to privacy.
Mr. Polonetsky also serves as chair of the Chief Privacy Officer Council of the
Internet Advertising Bureau.
In addition, in 2000, we created a Privacy Advisory Board consisting of
consumer advocates, security experts and authorities in the field of online
privacy. The Privacy Advisory Board makes recommendations about how we can
improve privacy procedures through the adoption of policies aimed at protecting
the privacy interests of consumers online. In addition, we have engaged
PricewaterhouseCoopers LLP, which is widely known for its expertise in the
online privacy arena, to conduct periodic audits of our data protection
practices.
We have also been active in consumer education about privacy and data
protection. In addition to our educational Web site, we ran online and offline
ad campaigns, including approximately 150 million online ads, to inform
consumers about privacy and data protection issues.
As a founding member of the Network Advertising Initiative, we have helped
develop self-regulatory principles for the network advertising industry that
have been endorsed by the Federal Trade Commission and the Clinton
administration. In addition, we are involved in a number of organizations and
committees which address privacy concerns, including the Online Privacy
Alliance, the Platform for Privacy Preferences Project (developed by the World
Wide Web Consortium), the Privacy Leadership Initiative, the Responsible Email
Communications Alliance and the Direct Marketing Association.
We are a defendant in several pending lawsuits alleging, among other things,
that we unlawfully obtain and use Internet users' personal information, and that
our use of cookies violates certain federal and state laws. We believe these
claims are without merit and vigorously contest them. We are the subject of an
inquiry involving the attorneys general of several states relating to our
practices in the collection, maintenance and use of information about, and
disclosure of these information practices to, Internet users. In January 2001,
the Federal Trade Commission closed its inquiry into our ad serving and data
collection practices without recommending any further action. We may receive
additional regulatory inquiries and we intend to cooperate fully. Class action
litigation and regulatory inquiries of these types are often expensive and time
consuming and their outcome is uncertain.
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 business. Further, Internet
user traffic typically drops during the summer months, which reduces the amount
of advertising to sell and deliver. Expenditures by advertisers and direct
marketers tend to vary in cycles that reflect overall economic conditions as
well as budgeting and buying patterns. Our revenue has in the past and may in
the future be materially affected by a decline in the economic prospects of our
customers or in the economy in general, which could alter our current or
prospective customers' spending priorities or budget cycles or extend our sales
cycle.
11
PROPRIETARY RIGHTS
Our success and ability to effectively compete are substantially dependent
on the protection of our proprietary technologies and our trademarks, which we
protect through a combination of patent, trademark, copyright, trade secret,
unfair competition and contract law. In September 1999, the U.S. Patent and
Trademark Office issued to us a patent that covers our DART technology. We own
other patents, and have patent applications pending, for our technology.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK'r', DART'r', DARTMAIL'TM' and ABACUS'r'. We
have applied to register our trademarks in the United States and
internationally. We have received registrations for the marks DOUBLECLICK, DART
and ABACUS and have applied for registrations of others. We cannot assure you
that any of our current or future patent applications or trademark applications
will be approved. In addition, we have licensed, and may license in the future,
our trademarks, trade dress and similar proprietary rights to third parties.
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 we will be able to adequately enforce the
contractual arrangements that we have entered into to protect our proprietary
technologies.
Third parties may assert infringement claims against us, which could
adversely affect the value of our proprietary rights and our reputation. Such
claims could subject us to significant liability for damages, and we could be
restricted from using our intellectual property. Any claims or litigation from
third parties may also result in limitations on our ability to use our
intellectual property, unless we enter into arrangements with third parties
responsible for such claims, which may be unavailable on commercially reasonable
terms, if at all.
EMPLOYEES
As of December 31, 2000, we employed 1,929 persons, including 1,040 in sales
and marketing, 247 in engineering and product development, 290 in business
operations, consulting and customer support, and 352 in general administration.
We are not subject to any collective bargaining agreements and believe that our
relationships with our employees are good.
12
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 actually 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 RELATED 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 companies in new and rapidly evolving industries,
including the digital marketing industry. Our risks include:
ability to sustain historical revenue growth rates;
ability to manage our expanding operations;
competition;
attracting, retaining and motivating qualified personnel;
maintaining our current, and developing new, strategic relationships with
Web publishers;
ability to anticipate and adapt to the changing Internet advertising and
direct marketing industries;
ability to develop and introduce new products and services and continue to
develop and upgrade technology;
attracting and retaining a large number of advertisers from a variety of
industries; and
relying on the DoubleClick networks.
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. If we are unsuccessful in addressing these risks, our revenues may
not grow in accordance with our business model and may fall short of
expectations of market analysts and investors, which could negatively affect the
price of our stock.
WE HAVE A HISTORY OF LOSSES AND ANTICIPATE CONTINUED LOSSES
We incurred net losses of $4.0 million, $7.7 million, $18.0 million and
$55.8 million for each of the years ended December 31, 1996 though 1999,
respectively. For the year ended December 31, 2000, we incurred a net loss of
$156.0 million and, as of December 31, 2000, our accumulated deficit was $265.8
million. We have not achieved profitability on an annual basis and may incur
operating losses in the future. We expect to continue to incur significant
operating and capital expenditures and, as a result, we will need to generate
significant revenue to achieve and maintain profitability. Although our revenue
has grown in recent quarters, we cannot assure you that we will achieve
sufficient revenue to achieve or sustain profitability. Even if we do achieve
profitability, we cannot assure you that we can sustain or increase
profitability on a quarterly or annual basis in the future. If revenue grows
slower than we anticipate or decreases in key business areas, or if operating
expenses exceed our expectations or cannot be reduced accordingly, our business,
results of operations and financial condition will be materially and adversely
affected.
13
WE DERIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM WEB SITES OF A LIMITED
NUMBER OF WEB PUBLISHERS AND THE LOSS OF THESE WEB PUBLISHERS AS CUSTOMERS COULD
HARM OUR BUSINESS
We derive a substantial portion of our DoubleClick Media revenue from ad
impressions we deliver on the Web sites of a limited number of Web publishers.
For the year ended December 31, 2000, approximately 17.3% of our revenue
resulted from ads delivered on the Web sites of the top five Web publishers on
our DoubleClick networks. Our business, results of operations and financial
condition could be materially and adversely affected by the loss of one or more
of the Web publishers that account for a significant portion of our revenue or
any significant reduction in traffic on these Web publishers' Web sites.
The loss of these Web publishers could also cause advertisers or other Web
publishers to leave our networks or cease to use our technology services. Either
result could materially and adversely affect our business, results of operations
and financial condition. Typically we enter into short-term contracts with Web
publishers for our offerings. 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.
OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY LAWSUITS RELATED TO PRIVACY
AND OUR BUSINESS PRACTICES
We are a defendant in several pending lawsuits alleging, among other things,
that we unlawfully obtain and use Internet users' personal information, and that
our use of cookies violates various federal and state laws. We are the subject
of an inquiry involving the attorneys general of several states relating to our
practices in the collection, maintenance and use of information about, and our
disclosure of these information practices to, Internet users. We may in the
future receive additional regulatory inquiries and we 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 SIGNIFICANT PORTION OF OUR REVENUE FROM ADVERTISEMENTS WE DELIVER TO
WEB SITES, AND A DECREASE IN TRAFFIC LEVELS COULD HARM OUR BUSINESS
We derive a large portion of our revenue from advertisements we deliver to
Web sites on our DoubleClick networks and from the technology and services we
provide to Web publishers, advertisers and agencies. We expect that our
DoubleClick networks and our technology services will continue to account for a
significant portion of our revenue for the foreseeable future. Our contracts
with our customers are generally short-term. We cannot assure you that our
customers will remain associated with our DoubleClick networks or continue to
use our technology and other services, that the Web sites of our customers will
maintain consistent or increasing levels of traffic over time, that the number
of ad units on our customers' Web sites will not diminish over time, or that we
will be able to replace in a timely or effective manner any departing customer
with new customers with comparable traffic patterns, mix of ad impressions, or
user demographics. Our failure to successfully market our products and develop
and sustain long-term relationships with our customers, the loss of one or more
customers that account for a significant portion of our
14
revenue, the failure of our customers' Web sites to maintain consistent or
increasing levels of traffic or number of ad units, or the failure to keep pace
with the introduction of new technological developments would materially and
adversely affect our business, results of operations and financial condition.
OUR ADVERTISING CUSTOMERS AND THE COMPANIES WITH WHICH WE HAVE OTHER BUSINESS
RELATIONSHIPS MAY EXPERIENCE ADVERSE BUSINESS CONDITIONS THAT COULD ADVERSELY
AFFECT OUR BUSINESS
Some of our customers may experience difficulty in supporting their current
operations and implementing their business plans. These customers may reduce
their spending on our products and services, or may not be able to discharge
their payment and other obligations to us. The non-payment or late payment of
amounts due to us from a significant customer would negatively impact our
financial condition. These circumstances are influenced by general economic and
industry conditions, and could have a material adverse impact on our business,
financial condition and results of operations. In addition to intense
competition, the overall market for Internet advertising has been characterized
in recent quarters by increasing softness of demand, the reduction or
cancellation of advertising contracts, an increased risk of uncollectible
receivables from advertisers, and the reduction of Internet advertising
budgets, especially by Internet-related companies. Our customers that are
Internet-related companies may experience difficulty raising capital, or may be
anticipating such difficulties, and therefore may elect to scale back the
resources they devote to advertising, including on our system. Other companies
in the Internet industry have depleted their available capital, and could cease
operations or file for bankruptcy protection. If the current environment for
Internet advertising does not improve, our business, results of operations and
financial condition could be materially adversely affected.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND YOU
SHOULD NOT RELY ON THEM AS AN INDICATION OF FUTURE OPERATING PERFORMANCE
Our revenue and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control. These factors include:
advertiser, Web publisher and direct marketer acceptance and demand for our
solutions;
Internet user traffic levels;
number and size of ad units per page on our customers' Web sites;
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 products or 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 industry and economic conditions.
For the foreseeable future, our revenue from DoubleClick TechSolutions and
DoubleClick Media will also remain dependent on user traffic levels and
advertising activity on our DoubleClick networks. This future revenue is
difficult to forecast. Our operating expenses will include upgrading and
enhancing our DART technology, expanding our product and service offerings,
marketing and supporting our solutions and supporting our sales and marketing
operations. We may be unable to adjust spending quickly enough to offset any
unexpected revenue shortfall. If we have a shortfall in revenue in relation to
our expenses, or if our expenses exceed revenue, then our business, results of
operations and financial condition could be materially and adversely affected.
These results would likely affect the market price of our common stock in a
manner which may be unrelated to our long-term operating performance.
As a result, we believe that period-to-period comparisons of our results of
operations may not be meaningful. You should not rely on past periods as
indicators of future performance.
15
RAPID CHANGES IN OUR BUSINESS COULD STRAIN OUR MANAGERIAL, OPERATIONAL,
FINANCIAL AND INFORMATION SYSTEM RESOURCES
In recent years, we have experienced significant growth and other changes
that have placed considerable demands on our managerial, operational and
financial resources. We continue to increase the scope of our product and
service offerings both domestically and internationally, and to deploy our
resources in accordance with changing business conditions and opportunities. To
continue to successfully implement our business plan in our rapidly evolving
industry requires an effective planning and management process. 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 train and manage
our workforce. We cannot assure you that management will be effective in
attracting and retaining additional qualified personnel, integrating acquired
businesses, or otherwise responding to new business conditions. As of December
31, 1999, we had a total of 1,386 employees and, as of December 31, 2000, we had
a total of 1,929 employees. We also cannot assure you that our information
systems, procedures or controls will be adequate to support our operations or
that our management will be able to achieve the rapid execution necessary to
successfully offer our products and 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 respond to changing business conditions could
materially and adversely affect our business, financial condition and results of
operations.
OUR BUSINESS MAY SUFFER IF WE ARE UNABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
MODEL
A significant part of our business model is to generate revenue by providing
digital marketing solutions to advertisers, ad agencies and Web publishers. The
profit potential for this business model is unproven. To be successful, digital
marketing will need to achieve broad acceptance by advertisers, ad agencies and
Web publishers. Our ability to generate significant revenue from our customers
will depend, in part, on our ability to contract with Web publishers that have
Web sites with adequate available ad space inventory, and with advertisers that
have continuing plans for Internet advertising. Further, the Web sites in our
networks must generate sufficient user traffic with demographic characteristics
attractive to our advertisers. We are affected by general industry conditions
governing the supply and demand of Internet advertising. The intense competition
among Internet advertising sellers has led to the creation of a number of
pricing alternatives for Internet advertising. These alternatives make it
difficult for us to project future levels of advertising revenue and applicable
gross margin that can be sustained by us or the Internet advertising industry in
general.
Intensive marketing and sales efforts may be necessary to educate
prospective advertisers regarding the uses and benefits of, and to generate
demand for, our products and services. Enterprises may be reluctant or slow to
adopt a new approach that may replace, limit or compete with their existing
systems. In addition, since online direct marketing is emerging as a new and
distinct business 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.
Acceptance of our new solutions will depend on the continued development of
Internet commerce, communication and advertising, and demand for our solutions.
We cannot assure you that there will be a demand for our new solutions or that
any demand would be sustainable.
DISRUPTION OF OUR SERVICES DUE TO UNANTICIPATED PROBLEMS OR FAILURES COULD HARM
OUR BUSINESS
Our DART technology resides in our data centers in New York City, New
Jersey, Virginia, California and Colorado, and in Europe, Asia and Latin
America. Continuing and uninterrupted performance of our technology is critical
to our success. Customers may become dissatisfied by
16
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 and result in contract terminations, fee rebates and makegoods,
thereby reducing revenue. Slower response time or system failures may also
result from straining the capacity of our deployed software or hardware due to
an increase in the volume of advertising delivered through our servers. To the
extent that we do not effectively address any capacity constraints or system
failures, our business, results of operations and financial condition could be
materially and adversely affected.
Our operations are dependent on our ability to protect our computer systems
against damage from fire, power loss, water damage, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events. In
addition, interruptions in our solutions could result from the failure of our
telecommunications providers to provide the necessary data communications
capacity in the time frame we require. Despite precautions we have taken,
unanticipated problems affecting our systems have from time to time in the past
caused, and in the future could cause, interruptions in the delivery of our
solutions. Our business, results of operations and financial condition could be
materially and adversely affected by any damage or failure that interrupts or
delays our operations.
COMPETITION IN INTERNET ADVERTISING, DIRECT MARKETING AND RELATED PRODUCTS AND
SERVICES IS INTENSE AND LIKELY TO INCREASE IN THE FUTURE, AND WE MAY NOT BE ABLE
TO COMPETE SUCCESSFULLY
The market for digital marketing products and services is very competitive.
We expect this competition to continue to increase because 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 acceptance of new solutions and enhancements to existing
solutions developed either by us or our competitors;
customer service and support efforts;
our ability to adapt and scale our technology, and develop and introduce
new technologies, as customer needs change and grow;
sales and marketing efforts;
the features, ease of use, performance, price and reliability of solutions
developed either by us or our competitors; and
the relative impact of general economic and industry conditions on either
us or our competitors.
We compete directly or indirectly with companies in the following
categories:
large Web publishers, Web portals and Internet advertising networks that
offer advertising inventory;
providers of software and service bureau ad delivery solutions for Web
publishers and advertisers;
email services companies, ISPs and other companies that enter the email
services business;
direct mail and email list providers, and providers of information products
and marketing research services to the direct marketing industry;
Web ratings companies, advertisement performance measurement companies,
providers of Web advertising management, online research and consulting
services and providers of syndicated market research in traditional
publishing; and
17
others, such as providers of customer relationship management services,
content aggregation companies, companies engaged in advertising sales
networks, advertising agencies and other companies that facilitate digital
marketing.
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 us. 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, direct marketers 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 acceptance than our solutions. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves or with third parties to increase the
ability of their products or services to address the needs of our prospective
advertising, ad agency and Web publisher customers. As a result, it is possible
that new competitors may emerge and rapidly acquire significant market share.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share. We cannot assure you that we will be able to
compete successfully or that competitive pressures will not materially and
adversely affect our business, results of operations or financial condition.
WE MAY NOT COMPETE SUCCESSFULLY WITH TRADITIONAL ADVERTISING MEDIA FOR
ADVERTISING DOLLARS
Companies doing business on the Internet, including ours, must also compete
with television, radio, cable and print (traditional advertising media) for a
share of advertisers' total advertising budgets. Advertisers may be reluctant to
devote a significant portion of their advertising budget to Internet advertising
if they perceive the Internet to be a limited or ineffective advertising medium.
In addition, in response to adverse economic or business conditions, many
advertisers reduce their advertising and marketing spending. These circumstances
would increase the competition we face to sell our products and services, and
could materially and adversely affect our business, results of operations or
financial condition.
OUR REVENUE IS SUBJECT TO SEASONAL AND CYCLICAL FLUCTUATIONS
We believe that our business is subject to seasonal fluctuations.
Advertisers generally place fewer advertisements during the first and third
calendar quarters of each year, which directly affects our DoubleClick Media and
DoubleClick TechSolutions businesses, and the direct marketing industry
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects our DoubleClick Data business. Further, Internet
user traffic typically drops during the summer months, which reduces the amount
of advertising to sell and deliver. Expenditures by advertisers and direct
marketers also tend to vary in cycles that reflect overall economic conditions
as well as budgeting and buying patterns. Our revenue has in the past and may in
the future be materially and adversely affected by a decline in the economic
prospects of our customers or in the economy in general, which could alter our
current or prospective customers' spending priorities or budget cycles or change
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.
18
WE MAY NOT BE ABLE SUCCESSFULLY TO MAKE ACQUISITIONS OF OR INVESTMENTS IN OTHER
COMPANIES
We may acquire or make investments in other complementary businesses,
products, services or technologies. From time to time we have had discussions
with other companies regarding our acquiring, or investing in, their businesses,
products, services or technologies. We cannot assure you that we will be able to
identify other suitable acquisition or investment candidates. Even if we do
identify suitable candidates, we cannot assure you that we will be able to make
other acquisitions or investments on commercially acceptable terms, if at all.
Even if we agree to buy a company, we cannot assure you that we will be
successful in consummating the purchase. Reasons for failing to consummate a
purchase could include our refusal to increase the agreed upon purchase price to
match an offer made by a subsequent competing bidder. 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 acquire different types of businesses, we could have difficulty in
integrating the acquired products, services, technologies or personnel 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 MUST MANAGE THE INTEGRATION OF ACQUIRED COMPANIES SUCCESSFULLY IN ORDER TO
ACHIEVE DESIRED RESULTS
As a part of our business strategy, we expect to enter into a number of
business combinations and acquisitions. Achieving the benefits of acquisition
transactions, including our recent acquisition of @plan, depends on the
successful execution of post-acquisition events including:
integrating operations and personnel;
offering the existing products and services of each company to the other
company's customers; and
developing new products and services that utilize the assets of both
companies.
In addition, acquisitions are accompanied by a number of risks, including:
the difficulty of assimilating the operations and personnel of the acquired
companies;
the potential disruption of the ongoing businesses and distraction of our
management and management of the acquired company;
the difficulty of incorporating acquired technology and rights into our
products and services;
unanticipated expenses related to technology integration;
difficulties in maintaining uniform standards, controls, procedures and
policies;
the impairment of relationships with employees and customers as a result of
any integration of new management personnel; and
potential unknown liabilities associated with acquired businesses.
We may not succeed in addressing these risks or any other problems
encountered in connection with business combinations and acquisitions. Our
failure to do so could have a material adverse effect on our business, financial
condition and operating results and could result in the loss of key personnel.
In addition, the attention and effort devoted to integration will significantly
divert management's attention from other important issues, and could seriously
harm our business.
19
IF WE FAIL TO SUCCESSFULLY CROSS-MARKET OUR PRODUCTS TO CUSTOMERS OF BUSINESSES
WE ACQUIRE, OR TO DEVELOP NEW PRODUCTS TO SERVE THOSE AND OUR EXISTING
CUSTOMERS, WE MAY NOT INCREASE OR MAINTAIN OUR CUSTOMER BASE OR OUR REVENUE
We offer to our collective customers the respective products and services
historically offered by DoubleClick and companies we have acquired. We cannot
assure you that any company's customers will have any interest in the other
companies' products and services. The failure of our cross-marketing efforts may
diminish the benefits we realize from these acquisitions. In addition, we intend
to develop new products and services that combine the knowledge and resources of
our company and the businesses we acquire. 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 these
acquisitions. As a result, we may not be able to increase or maintain our
customer base. We cannot assure you that we will be able to overcome the
obstacles in developing new products and services, or that there will be a
demand for the new products or services developed by us after the acquisitions.
An inability to overcome these obstacles or a failure of demand to develop could
materially and adversely affect our business, financial condition and results of
operations or could result in loss of key personnel.
WE ARE DEPENDENT ON KEY PERSONNEL AND ON EMPLOYEE RETENTION AND RECRUITING FOR
OUR FUTURE SUCCESS
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel. We do not have
employment agreements with most of these executives. The loss of the services of
one or more of our key employees could 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. There is significant competition for qualified employees in our
industry. We may be unable to retain our key employees or attract, assimilate or
retain other highly qualified employees in the future. We have from time to time
in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications.
IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR FACE A CLAIM OF
INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, WE COULD LOSE OUR
INTELLECTUAL PROPERTY RIGHTS OR BE LIABLE FOR DAMAGES
Our success and ability to effectively compete are substantially dependent
on the protection of our proprietary technologies and our trademarks, which we
protect through a combination of patent, trademark, copyright, trade secret,
unfair competition and contract law. Despite our diligent efforts, we cannot
assure you that any of our proprietary rights will be viable or of value in the
future.
In September 1999, the U.S. Patent and Trademark Office issued to us a
patent that covers our DART technology. We own other patents, and have patent
applications pending, for our technology. We cannot assure you that patents
applied for will be issued or that patents issued or acquired by us now or in
the future will be valid and enforceable, or provide us with meaningful
protection.
We also have rights in the trademarks that we use to market our solutions.
These trademarks include DOUBLECLICK'r', DART'r', DARTMAIL'TM' and ABACUS'r'.
We have applied to register our trademarks in the United States and
internationally. We have received registrations for the marks DOUBLECLICK,
DART and ABACUS and have applied for registration of others. We cannot assure
you that any of our current or future trademark applications will be approved.
Even if they are approved, these 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
20
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 we will be able to adequately enforce the
contractual arrangements which we have entered into to protect our proprietary
technologies.
Furthermore, third parties may assert infringement claims against us, which
could adversely affect the value of our proprietary rights and our reputation.
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 patents, trademarks and other intellectual property rights
of third parties by us or our customers. In particular, we do not conduct
exhaustive patent searches to determine whether our technology infringes patents
held by others. In addition, technology development in Internet-related
industries is inherently uncertain due to the rapidly evolving technological
environment. As such, there may be numerous patent applications pending, many of
which are confidential when filed, that provide for technologies similar to
ours.
Third party infringement claims and any resultant litigation, should it
occur, could subject us to significant liability for damages or restrict us from
using our intellectual property. Even if we prevail, litigation could be
time-consuming and expensive to defend, and could result in the diversion of
management's time and attention. Any claims from third parties may also result
in limitations on our ability to use the intellectual property subject to these
claims unless we are able to enter into royalty, licensing or other similar
agreements with the third parties asserting these claims. Such agreements, if
required, may be unavailable on terms acceptable to us, or at all. If a
successful claim of infringement is brought against us and we fail to develop
non-infringing technology or to license the infringed or similar technology on a
timely basis, it could materially adversely affect our business, financial
condition and results of operations.
OUR RIGHT TO KEEP AND USE 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 businesses.
WE MUST ADAPT TO TECHNOLOGY TRENDS AND EVOLVING INDUSTRY STANDARDS OR WE WILL
NOT BE COMPETITIVE
The digital marketing business is 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
21
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 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 acceptance, could prevent us from
maintaining existing client relationships, gaining new clients or expanding our
business and could materially and adversely affect our business, financial
condition and results of operations.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE FAIL SUCCESSFULLY TO MANAGE OUR
INTERNATIONAL OPERATIONS AND SALES AND MARKETING EFFORTS
We have operations in a number of countries. We have limited experience in
developing localized versions of our solutions and in marketing, selling and
distributing our solutions internationally. We sell our products and services
through our directly and indirectly owned subsidiaries in Australia, the Benelux
countries, Brazil, Canada, France, Germany, Spain, Ireland, Italy, Scandinavia
and the United Kingdom. We also operate our media business through business
partners in Japan and Asia (Hong Kong, Taiwan, Korea, China and Singapore) and
generally operate our technology business through our directly or indirectly
owned subsidiaries in these jurisdictions. A great deal of our success in these
markets is directly dependent on the success of our business partners and their
dedication of sufficient resources to our relationship.
Our international operations are subject to other inherent risks, including:
the high cost of maintaining international operations;
uncertain demand for our products and services;
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;
fluctuations in currency exchange rates; and
seasonal fluctuations in Internet usage.
These risks may have a material and adverse impact on the business, results of
operations and financial condition of our operations in a particular country,
and could result in a decision by us to reduce or discontinue operations in that
country. The combined impact of these risks in each country may also materially
and adversely affect the business, results of operations and financial condition
of DoubleClick as a whole.
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 32.5% as of December 31, 2000. As a result of the
sale of the notes, we have substantially increased our principal and interest
obligations. The degree to which we are leveraged could materially and adversely
affect our ability to obtain additional financing and could make us more
vulnerable to industry downturns and competitive pressures. Our ability to meet
our
22
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.
EFFECTS OF ANTI-TAKEOVER PROVISIONS COULD INHIBIT THE ACQUISITION OF OUR COMPANY
Some of the provisions of our certificate of incorporation, our bylaws 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; or
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 their purchase price.
IF OUR STOCK PRICE IS VOLATILE, WE MAY BECOME SUBJECT TO SECURITIES LITIGATION
WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in our industry have been
subject to this type of litigation in the past. We may also become involved in
this type of litigation. Litigation is often expensive and diverts management's
attention and resources, which could materially and adversely affect our
business, financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK MAY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
As of December 31, 2000, we had 123,567,886 shares of common stock
outstanding, excluding 22,246,248 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. Additionally, certain holders of our common
stock have registration rights with respect to their shares. We intend to file
one or more registration statements in compliance with these registration
rights. We cannot predict the effect, if any, that future sales of common stock
or the availability of shares of common stock for future sale, will have on the
market price of our common stock prevailing from time to time. Sales of
substantial amounts of common stock (including shares included in such
registration statements, issued upon the exercise of stock options or issued
upon the conversion of our convertible subordinated notes), or the perception
that such sales could occur, may materially and adversely affect prevailing
market prices for our common stock.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF DEMAND 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 industry is new and
rapidly evolving, and it cannot yet be compared with traditional advertising
media to gauge its effectiveness. As a result, demand and acceptance for
Internet advertising solutions is uncertain. Many of our current or potential
23
advertising customers have limited 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,
some of our current and potential Web publisher customers have little experience
in generating revenue from the sale of advertising space on their Web sites. We
cannot assure you that current or potential advertising customers will continue
to allocate a portion of their advertising budget to Internet advertising or
that the demand for Internet advertising will continue to develop to
sufficiently support Internet advertising as a significant advertising medium.
If the demand for Internet advertising decreases or 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 generally accepted standards or tools for the
measurement of the effectiveness of Internet advertising or the planning of
advertising purchases, and generally accepted standard measurements and tools
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 ours or third-party's measurements of advertisement delivery
results, or the market research information that we provide. Our customers may
not accept any errors in such measurements. In addition, the accuracy of
database information used to target advertisements is essential to the
effectiveness of Internet advertising that may be developed in the future. The
information in our database, like any database, may contain inaccuracies which
our customers may not accept.
A significant portion of our revenue is 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. There are also 'filter' software
programs that limit or prevent advertising from being delivered to a user's
computer. The commercial viability of Internet advertising, and our business,
results of operations and financial condition, would be materially and adversely
affected by Web users' widespread adoption of this software.
CHANGES IN GOVERNMENT REGULATION COULD DECREASE OUR REVENUE AND INCREASE OUR
COSTS
Laws applicable to Internet communications, e-commerce, digital advertising,
data protection and direct marketing are becoming more prevalent. Any
legislation enacted or regulation issued could dampen the growth and acceptance
of the digital marketing industry in general and of our offerings in particular.
Existing and proposed legislation in the United States, Europe (following the
directive of the European Union), Canada, and Japan may impose limits on our
collection and use of certain kinds of information about individuals, whether
collected offline or online. Various U.S. state and foreign governments may also
attempt to regulate our transmissions or levy sales or other taxes relating to
our activities.
Moreover, the laws governing the Internet 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, data protection, libel and taxation apply to the Internet and Internet
advertising. In addition, the growth and development of 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 our businesses.
24
CHANGES IN LAWS RELATING TO DATA COLLECTION AND USE PRACTICES AND THE PRIVACY OF
INTERNET USERS AND OTHER INDIVIDUALS COULD HARM OUR BUSINESS
New limitations on the collection and use of information relating to
Internet users are currently being considered by legislatures and regulatory
agencies in the United States and internationally. We are unable to predict
whether any particular proposal will pass, or the nature of the limitations in
those proposals that do pass. Since many of the proposals are in their
development stage, we cannot yet determine the impact these may have on our
business. In addition, it is possible that changes to existing law, including
new interpretations of existing law, could have a material and adverse impact on
our business, financial condition and results of operations.
The following are examples of proposals currently being considered in the
United States and internationally:
Legislation has been proposed in some jurisdictions to regulate the use of
cookie technology. Our technology uses cookies for ad targeting and
reporting, among other things, and we may be required to change our
technology in order to comply with the new laws. It is possible that the
changes required for compliance are commercially unfeasible, or that we are
simply unable to comply and therefore may be required to discontinue the
relevant business practice.
Data protection officials in certain European countries have voiced the
opinion that an IP address is personally-identifiable information. In those
countries in which this opinion prevails, the applicable national data
protection law could be interpreted to subject us to a more restrictive
regulatory regime. Although we believe our current policies and procedures
would meet these more restrictive standards, we cannot assure you that the
applicable authorities would make the same determination. The cost of such
compliance could be material, and we may not be able to comply with the
applicable national regulations in a timely or cost-effective manner.
Legislation has been proposed to prohibit the sending of 'unsolicited
commercial email' or 'spam.' We have a consent-based email delivery and
list services business that we believe should not, as a matter of policy,
be affected by this kind of legislation. However, it is possible that
legislation will be passed that requires us to change our current
practices, or subject us to increased possibility of legal liability for
our practices.
Legislation is under consideration that would regulate the practice of
online preference marketing, as practiced by DoubleClick and other Network
Advertising Initiative member companies. Such legislation, if passed, could
require DoubleClick to change or discontinue its plans for online
preference marketing services. The changes we are required to make could
diminish the market acceptance of our offerings.
The Federal Trade Commission is currently reviewing the need to regulate
the manner in which offline information about consumers is collected and
used by businesses. The value of the Abacus Alliance database, and the
future viability of the DoubleClick Data business, could be adversely
affected by legislation or regulation that limits the manner in which
offline information about consumers is collected and used.
These and other circumstances leading to changes in the existing law could have
a material and adverse impact on our business, financial condition and results
of operations.
In addition, DoubleClick is a member of the Network Advertising Initiative
and the Direct Marketing Association, both industry self-regulatory
organizations. Although our compliance with the these self-regulatory principles
to date has not had a material adverse effect on us, we cannot assure you that
these organizations will not adopt additional, more burdensome guidelines, which
could materially and adversely affect the business, financial condition and
results of operations of DoubleClick.
25
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY PRODUCTS OFFERED BY THIRD PARTIES
Our business may be adversely affected by the adoption by computer users of
technologies that harm the performance of our products and services. For
example, computer users may use software designed to filter or prevent the
delivery of Internet advertising, or Internet browsers set to block the use of
cookies. We cannot assure you that the number of computer users who employ these
or other similar technologies will not increase, thereby diminishing the
efficacy of our products and services. In the case that one or more of these
technologies are widely adopted, our business, financial condition and results
of operations could be materially and adversely affected.
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 IS DEPENDENT ON THE SUCCESS OF THE DIRECT MARKETING INDUSTRY
FOR ITS FUTURE SUCCESS
The future success of DoubleClick Data 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 Abacus clients are large consumer
merchandise catalog operators in the United States. A significant downturn in
the direct marketing industry generally, including the catalog industry, or
withdrawal by a substantial number of catalog operators from the Abacus
Alliance, would have a material adverse effect on our business, financial
condition and results of operations. Many industry experts predict that
electronic commerce, including the purchase of merchandise and the exchange of
information via the Internet or other media, will increase significantly in the
future. To the extent this increase occurs, companies that 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 some DoubleClick 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
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
26
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 and
is now the principal office for our Abacus operations. 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 and now is primarily used for technology
development of our TechSolutions products. In addition, we lease space for our
significant offices in California, Colorado, Georgia, Illinois, Massachusetts,
Michigan, Texas and Washington, as well as in Australia, Canada, China, Denmark,
France, Germany, Hong Kong, Ireland, India, Italy, Japan, Korea, the
Netherlands, Norway, Spain, Sweden and the United Kingdom. We are continually
evaluating our facilities requirements.
ITEM 3. LEGAL PROCEEDINGS
Following the announcement of our proposed merger with NetGravity
on July 27, 1999, a complaint was filed in the San Mateo County, California,
Superior Court against NetGravity and several of its directors. The complaint
alleges that the directors of NetGravity breached their fiduciary duties to
NetGravity's stockholders in connection with the negotiation of the proposed
merger. The complaint asked the court to enjoin the consummation of the merger,
or, alternatively, sought to rescind the merger or an award of unspecified
damages from the defendants in the event the merger was consummated. We believe
the claims asserted in this complaint are without merit and vigorously contest
them.
We are a defendant in 20 lawsuits concerning Internet user privacy and our
data collection and other business practices. These lawsuits were filed
throughout 2000. 18 of these actions are styled as class actions, one
action is brought on behalf of the general public of the State of California and
one is brought against us and ClearStation, Inc. on behalf of the State of
Illinois by the State's Attorney of Cook County, Illinois. The actions seek,
among other things, injunctive relief, civil penalties and unspecified damages.
Five of the actions were filed in California state court, 13 in federal
court, one in Texas state court and one in Illinois state court. On March 31,
2000, the plaintiff in one of the California state court proceedings filed a
petition, ordered by the court on May 11, 2000, to coordinate the four actions
then pending in the California state courts. The Judicial Panel on Multidistrict
Litigation has granted our motions to transfer, coordinate and consolidate all
thirteen federal actions before Judge Buchwald in the Southern District of New
York. We believe that 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. In January 2001, the Federal Trade
Commission closed its inquiry into our ad serving and data collection practices
without recommending any further action.
Our ad serving and data collection practices are also the subject of
inquiries by the attorneys general of several states. We are cooperating fully
with all such inquiries. We may receive additional regulatory inquiries and
intend to cooperate fully.
27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders during the fourth
quarter of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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
---- ---
2000:
Fourth Quarter.......................................... $ 33.75 $ 8.00
Third Quarter........................................... 45.52 27.56
Second Quarter.......................................... 93.88 32.88
First Quarter........................................... 135.25 74.00
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
On December 29, 2000, the last sale price of our common stock reported by
the Nasdaq National Market was $11.00 per share. On March 6, 2001, the last sale
price of our common stock reported by the Nasdaq National Market was $13.875 per
share. As of March 6, 2001, we had approximately 887 holders of record of our
common stock.
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.
28
ITEM 6. SELECTED 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, 2000, 1999 and 1998 and with respect to DoubleClick's consolidated
balance sheet as of December 31, 2000 and 1999 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,
1997 and 1996 and with respect to DoubleClick's consolidated balance sheet as of
December 31, 1998, 1997, and 1996 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,
---------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 505,611 $258,294 $138,724 $67,926 $25,985
Income (loss) from operations............... (189,117) (58,715) (14,970) (3,828) (1,419)
Income (loss) before income taxes........... (155,131) (47,234) (10,973) (3,432) (1,565)
Net income (loss)........................... (155,981) (55,821) (18,039) (7,741) (3,954)
Basic and diluted net income (loss) per
share..................................... (1.29) (0.51) (0.21) (0.16) (0.07)
Weighted average shares used in basic per
share calculation......................... 121,278 109,756 86,248 49,048 56,516
Weighted average shares used in diluted per
share calculation......................... 121,278 109,756 86,248 49,048 56,516
DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................ $ 562,510 $309,883 $184,408 $25,861 $ 4,959
Total assets............................... 1,298,543 729,407 260,361 53,641 19,749
Convertible subordinated notes and other... 265,609 255,348 2,067 742 711
Total stockholders' equity................. 817,057 361,662 206,771 31,428 7,256
29
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated quarterly
statement of operations data for the eight quarters ended December 31, 2000.
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)
2000
March 31................. $110,056 $57,579 $(31,914) $ (18,374) 116,839 116,839 $(0.16)
June 30.................. 128,087 68,548 (29,763) (22,132) 122,265 122,265 (0.18)
September 30............. 135,169 77,953 (30,047) (10,724) 122,621 122,621 (0.09)
December 31.............. 132,299 54,961 (97,393) (104,751) 123,386 123,386 (0.85)
1999
March 31................. $ 39,412 $24,051 $ (8,919) $ (8,404) 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)
In the fourth quarter of 2000, DoubleClick recognized approximately $49.4
million in impairments associated with the write down of the goodwill generated
in its acquisitions of DoubleClick Scandinavia and DoubleClick Iberoamerica.
(See Note 5 to the Consolidated Financial Statements.) Also in the fourth
quarter of 2000, DoubleClick recorded an approximately $24.1 million impairment
charge related to the write down of its investment in ValueClick. (See Note 3 to
the Consolidated Financial Statements.) Additionally, DoubleClick incurred
approximately $2.4 million in restructuring charges associated with the
involuntary terminations of certain of its employees in December 2000. (See Note
7 to the Consolidated Financial Statements.) In December 2000, DoubleClick wrote
off the remaining balance of its advance to a Web publisher. The approximately
$18.5 million charge has been included in cost of revenues in the consolidated
statements of operations.
In the third quarter of 2000, DoubleClick recognized an approximately $3.9
million gain as the result of the initial public offering of ValueClick Japan, a
consolidated subsidiary of its equity method investee ValueClick. Also in the
third quarter of 2000, DoubleClick recognized an approximately $18.7 million
impairment charge related to the write down of its warrant to purchase
additional shares of ValueClick. (See Note 3 to the Consolidated Financial
Statements.) In July 2000, DoubleClick recognized an approximately $20.7 million
gain as the result of the partial sale of its interest in NetGravity Japan to
DoubleClick Japan. (See Note 2 to the Consolidated Financial Statements.)
In the first quarter of 2000, DoubleClick recognized an approximately $8.9
million gain related to the increase in its proportionate share of the net
assets of its equity method investee ValueClick as the result of ValueClick's
intital public offering in March 2000. (See Note 3 to the Consolidated Financial
Statements.)
In the fourth quarter of 1999, DoubleClick recognized direct transaction and
integration costs of approximately $38.7 million in connection with its
acquisitions accounted for as poolings of interest. Also in the fourth quarter
of 1999, DoubleClick incurred approximately $2.9 million in costs associated
with the relocation of its corporate headquarters. (See Note 6 to the
Consolidated Financial Statements.)
30
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 provide the infrastructure that makes marketing work in the digital
world. Combining media, data and technological expertise, our products and
services enable marketers to deliver the right message, to the right person, at
the right time, while helping publishers maximize their revenue and build their
business online.
Our patented DART technology is the platform for many of our solutions. The
DART technology is a sophisticated targeting and reporting tool, relied upon by
our customers to measure campaign performance and provide dynamic ad space
inventory management. Our service and product offerings are grouped into three
segments:
DoubleClick Media (Media);
DoubleClick TechSolutions (Technology or TechSolutions); and
DoubleClick Data (Data).
COMPARABILITY OF RESULTS
ALTAVISTA AGREEMENT
In January 1999, we changed the manner in which we report the financial
results of the services we performed 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
superseded 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, under 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 this agreement, we recognized 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
had been no significant change in gross profit dollars, overall gross margin
percentage had increased as we were 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.
In November 1999, we entered into an Interim Advertising Services Agreement,
effective from November 1, 1999 through December 31, 2000.
31
with AltaVista, which temporarily suspended the Advertising Services Agreement.
The Interim Services Agreement temporarily adjusted some advertising sales
arrangements between us and AltaVista, but did not change the manner in which we
recognized revenues derived from our services for the AltaVista Web site.
On August 7, 2000, we announced a restructuring of our Advertising Services
Agreement with AltaVista ('New Agreement'). Under the New Agreement, AltaVista
agreed to assume lead ad sales responsibility for domestic advertisers by
February 2001, and international advertisers by December 2001 (subject to
AltaVista's right to assume lead responsibility sooner in certain international
markets). After AltaVista assumes lead ad responsibility in a market,
DoubleClick will have the right to sell ads on the AltaVista Web sites in that
market on a non-exclusive basis, as part of DoubleClick's worldwide ad networks,
through December 31, 2004. In addition, under the New Agreement, the DART for
Publishers Service will serve ads on AltaVista's Web sites through December 31,
2004 with the ads required to be served through the DART for Publishers Service
declining in each year of the agreement, subject to certain minimums. The DART
for Advertisers Service will serve the majority of AltaVista's online
advertising campaigns through December 2004.
BUSINESS COMBINATIONS
In July 2000, we contributed our wholly-owned subsidiary, NetGravity Japan,
to our affiliate DoubleClick Japan in return for an additional 27% ownership
interest in DoubleClick Japan. In addition to increasing our equity interest to
approximately 37%, the agreement with DoubleClick Japan enables us to nominate a
majority of the seats on DoubleClick Japan's Board of Directors and exercise a
controlling financial interest in its operations. Pursuant to APB 16, Business
Combinations, we have consolidated the net assets and results of operations of
DoubleClick Japan as of the date of the transfer. As DoubleClick Japan's net
assets and results of operations had not previously been consolidated in our
financial statements, this simultaneous transfer and acquisition was treated as
a partial sale of our interest in NetGravity Japan and a step acquisition of an
additional equity interest in DoubleClick Japan. Full reverse acquisition
accounting was used and a $20.7 million gain recognized to the extent that
NetGravity Japan was deemed sold to the minority shareholders of DoubleClick
Japan. This gain has been included in 'Gain on equity transactions of
affiliates, net' in our consolidated statement of operations. Goodwill of
$21.3 million was also recorded to reflect the proportionate step-up in
DoubleClick Japan's assets as the result of the reverse acquisition.
Subsequent to the transfer of NetGravity Japan described above, DoubleClick
made an additional investment of $5.4 million in DoubleClick Japan, which
increased our interest in DoubleClick Japan to approximately 43%. This
investment was accounted for as a step acquisition and DoubleClick recorded
approximately $0.7 million of goodwill, which represents the excess of its
additional investment over the fair value of the incremental assets acquired.
Effective May 26, 2000, we acquired Flashbase, Inc. ('Flashbase') for
approximately $19.6 million. In connection with the acquisition, which has been
accounted for under the purchase method, we recorded approximately
$19.5 million in goodwill. An additional amount payable in either cash or
DoubleClick common stock, at our election, will be made in March 2001 based on
the continued employment of the former shareholders and the attainment of
specific performance objectives through the year ended December 31, 2000.
We intend to pay $0.8 million of this amount in cash and the remainder
in DoubleClick common stock. We have recorded approximately $4.0 million
in non-cash compensation expense related to the contingently issuable shares
for the year ended December 31, 2000. Such amounts are included in 'Accrued
expenses and other current liabilities' in the consolidated balance sheet.
We consummated mergers with NetGravity, Abacus and Opt-In Email.com during
1999 which have been accounted for as poolings of interests. 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 as purchases.
32
On February 2, 2001, we completed our acquisition of @plan.inc, a leading
provider of online target market research planning systems. Under the final
terms of the acquisition, which qualifies as a tax-free reorganization for
United States federal income tax purposes, we paid $3.45 in cash and 0.2829 of
a share of DoubleClick stock for each outstanding share of @plan common stock.
Our purchase price, exclusive of direct acquisition costs, was approximately
$103.5 million. The excess of the purchase price over the fair value of @plan's
net assets acquired will be allocated to intangible assets, which includes
goodwill, and amortized over their estimated useful lives.
On February 22, 2001, we entered into an agreement to acquire FloNetwork
Inc., an email marketing technology provider. The transaction is subject to
customary closing conditions, including approval by FloNetwork's shareholders
and Canadian governmental authorities, and is expected to close in the second
quarter of 2001.
RESULTS OF OPERATIONS
Revenues and gross profit by segment are as follows:
REVENUES GROSS PROFIT
------------------------------ -----------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------ -----------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
Media....................... $253,827 $125,499 $ 74,180 $ 64,251 $ 49,955 $15,726
Technology.................. 203,391 74,695 24,965 145,560 50,082 16,827
Data........................ 72,355 65,961 46,979 49,230 51,101 36,980
Intersegment elimination.... (23,962) (7,861) (7,400) -- -- --
-------- -------- -------- -------- -------- -------
Total................... $505,611 $258,294 $138,724 $259,041 $151,138 $69,533
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
2000 COMPARED TO 1999
2000 revenues and gross profits increased over 1999 primarily as the result
of volume increases both domestically and internationally and a more favorable
product mix, partially offset by declines associated with the decrease in
revenue derived from advertising impressions delivered to users of the AltaVista
Web site as the result of the restructuring of our Advertising Services
Agreement, which is described above. Operating expenses increased to
$448.2 million from $209.9 million in 1999, and included $49.4 million in
goodwill impairments, $41.2 million in intangible asset amortization,
$24.4 million in non-cash compensation charges, and $2.4 million in
restructuring charges in 2000. Operating expenses for the year ended
December 31, 1999 included intangible asset amortization of $1.3 million,
non-cash compensation charges of $2.2 million and direct transaction,
integration and relocation charges of $41.6 million in 1999. Net loss including
these charges was $156.0 million in 2000 as compared to $55.8 million in 1999.
As we continue to grow, we expect operating expenses to remain relatively
constant in absolute dollars and to be significantly impacted by non-cash
compensation charges and the amortization of intangible assets related to
purchase business combinations.
Revenues derived from advertising impressions delivered to users of the
AltaVista Web site were $37.9 million, or 7.5% of total revenue for the year
ended December 31, 2000 compared to $27.9 million, or 10.8% of total revenues
for the year ended December 31, 1999. No one Web publisher or advertiser
accounted for more than 10.0% of revenue for the year ended December 31, 2000.
DOUBLECLICK MEDIA
DoubleClick Media revenue is derived primarily from the sale and delivery of
advertising impressions through third-party Web sites comprising the worldwide
DoubleClick Media networks. Cost of revenues consists primarily of service fees
paid to Web publishers for impressions
33
delivered on our worldwide networks, the costs of ad delivery, and technology
support provided by DoubleClick TechSolutions.
Revenue for DoubleClick Media increased 102.2% to $253.8 million for the
year ended December 31, 2000 from $125.5 million for the year ended
December 31, 1999. DoubleClick Media gross margin was 25.3% for the year ended
December 31, 2000 and 39.8% for the year ended December 31, 1999. The increase
in DoubleClick Media revenue was due to an increase in online ad spending on the
worldwide DoubleClick networks. Gross margin decreased primarily due to the
write-off of our advance to a Web publisher in December 2000. Excluding this
one-time charge, gross margin would have been 32.6% for the year ended
December 31, 2000. Gross margin also declined due to increases in the amounts of
unsold inventory, which diluted the effective price of delivered advertising
impressions. Gross margin further decreased due to a reduction in the proportion
of revenue derived from advertising impressions delivered to users of the
AltaVista Web site. Although DoubleClick Media revenues increased substantially
from 1999 to 2000, we experienced a smaller sequential quarter-to-quarter growth
rate towards the end of 2000, and we anticipate that quarterly Media revenues
will be lower than 2000 levels at least during the first half of 2001.
DoubleClick Media revenue derived from advertising impressions delivered to
the users of the AltaVista Web site was $28.4 million, or 11.2% of DoubleClick
Media revenue for the year ended December 31, 2000, compared to $22.4 million,
or 17.8% of DoubleClick Media revenue for the year ended December 31, 1999.
Because of specific contractual terms unique to AltaVista, we recognize revenue
from sales commissions, billing and collection fees and DART service fees
derived from the sale and delivery of ads on the AltaVista Web site and
associated services. AltaVista DART services fees recognized by TechSolutions
were $9.5 million and $5.5 million for the year ended December 31, 2000 and
1999, respectively.
DOUBLECLICK TECHSOLUTIONS
DoubleClick TechSolutions revenue is derived primarily from sales of our
DART Service and AdServer product offerings. DoubleClick TechSolutions cost of
revenue includes costs associated with the delivery of advertisements, including
Internet access costs, depreciation of the ad delivery system, facilities and
personnel related costs incurred to operate our ad delivery system.
TechSolutions cost of revenues also includes costs associated with consulting
and support of our AdServer product.
DoubleClick TechSolutions revenue increased 172.3% to $203.4 million for the
year ended December 31, 2000 from $74.7 million for the year ended December 31,
1999. DoubleClick TechSolutions gross margin was 71.6% for the year ended
December 31, 2000 and 67.0% for the year ended December 31, 1999. The increase
in DoubleClick TechSolutions revenue was due to an increase in the number of
DART Service and AdServer clients coupled with an increased volume of
advertising impressions delivered for new and existing clients. The increase in
gross margin is due to increased efficiencies from the growth of the DART
Service bureau and our consulting and support of the AdServer product.
DOUBLECLICK DATA
DoubleClick Data revenue is derived primarily from providing services such
as prospecting lists, housefile scoring, list optimization and market research
services chiefly to catalog-based retailers. DoubleClick Data cost of revenue
includes expenses associated with creating, maintaining and updating the Abacus
Alliance database as well as the technical infrastructure to produce our
products and services.
DoubleClick Data revenue increased 9.7% to $72.4 million for the year ended
December 31, 2000 from $66.0 million for the year ended December 31, 1999. Gross
margin declined from 77.4% for the year ended December 31, 1999 to 68.0% for the
year ended December 31, 2000. The increase in revenue was due an increase in
sales to new and existing clients. The decline in gross margin was primarily
attributable to increases in personnel-related costs resulting from higher
employment levels and, to a lesser extent, facilities, depreciation and
processing costs associated with supporting new product initiatives.
34
OPERATING EXPENSES
Sales and Marketing
Sales and marketing expenses consist primarily of compensation and related
benefits, sales commissions, general marketing costs, advertising, bad debt
expense and other operating expenses associated with the sales and marketing
departments. Sales and marketing expenses were $227.2 million, or 44.9% of
revenue for the year ended December 31, 2000 and $103.6 million, or 40.1% of
revenue for the year ended December 31, 1999. The increase in sales and
marketing expense as a percentage of revenue was related primarily to the
recognition of approximately $23.7 million in non-cash compensation and
approximately $1.7 million in deal related charges associated with our
acquisitions of DoubleClick Scandinavia and Flashbase. Additional shares of
DoubleClick common stock are contingently issuable based on the continued
employment of former shareholders of DoubleClick Scandinavia and Flashbase and
the attainment of specific performance objectives. We have assessed, and will
continue to assess, the probability and amount of the shares payable and expect
to incur significant non-cash compensation charges in 2001. Excluding these
non-cash and deal-related charges, sales and marketing expenses would have been
39.9% of revenues for the year ending December 31, 2000.
In addition to the $25.4 million of non-cash and deal-related charges
described above, the $123.6 million increase in sales and marketing expense was
attributable to an approximately $44.1 million increase in compensation and
related benefits expenses associated with the growth in our sales force, coupled
with increases in other costs related to our personnel growth. Commissions
related to the increase in revenues grew by $14.0 million, costs associated with
the continued development and implementation of our marketing and branding
campaigns increased by $14.7 million, and our provision for doubtful accounts
increased by approximately $10.2 million. This increase in the provision for
doubtful accounts is commensurate with the increases in our revenues and level
of business activity. We expect sales and marketing expenses to remain
relatively constant in absolute dollars.
General and Administrative
General and administrative expenses consist primarily of compensation and
related benefits, professional services fees and facility related costs. General
and administrative expenses were $83.2 million, or 16.5% of revenue for the year
ended December 31, 2000 and $35.0 million, or 13.6% of revenue for the year
ended December 31, 1999. The increase of $48.2 million was primarily the result
of an approximate $17.4 million increase in compensation and related benefits
expenses associated with the growth in our personnel, business and operations,
coupled with increases in other costs related to our personnel growth.
Professional services fees increased by approximately $13.9 million from
consulting fees incurred to integrate, convert and develop our systems and from
legal fees incurred addressing privacy concerns and patent infringement
lawsuits. We expect general and administrative expenses to remain relatively
constant in absolute dollars.
Product Development
Product development expenses consist primarily of compensation and related
benefits, consulting fees, and other operating expenses associated with the
product development departments. To date, all product development costs have
been expensed as incurred. Product development expenses were $44.8 million, or
8.9% of revenues for year ended December 31, 2000 and $28.4 million, or 11.0% of
revenues for the year ended December 31, 1999. The $16.4 million increase in
product development expense was primarily the result of an approximate $9.1
million increase in compensation and related benefits expenses associated with
the increases in our personnel. In addition to increases in other costs related
to our personnel growth, professional services fees increased by approximately
$2.3 million related to consulting fees for enhancements to our DART and
AdServer technologies, as well as our new eMail suite of products. The decrease
in product development costs as a percentage of revenue is due to the
35
growth in revenue generated from a significant number of new clients, renewals
and extended contracts of existing clients, and an increase in services and
products being offered. We expect product development costs to remain relatively
constant in absolute dollars.
Amortization of Intangible Assets
Amortization of intangible assets consists primarily of goodwill
amortization. Amortization expense was $41.2 million for the year ended
December 31, 2000 and $1.3 million for the year ended December 31, 1999. The
increase was primarily the result of the amortization of goodwill related to our
acquisitions of DoubleClick Japan, DoubleClick Scandinavia, Flashbase and
DoubleClick Iberoamerica.
Goodwill Impairment
As a result of the significant decline in market value of Internet-based
companies, as well as operating losses incurred by our subsidiaries, we
reviewed the recoverability of the goodwill associated with our acquisitions of
DoubleClick Scandinavia and DoubleClick Iberoamerica in accordance with our
accounting policy. In the course of our analysis, we determined that the
goodwill attributable to DoubleClick Scandinavia and DoubleClick Iberoamerica
was in excess of our estimates of these entities' future cash flows.
Accordingly, we recognized $49.4 million in impairment charges equal to the
difference between our investment in and the estimated fair value of these
entities in the fourth quarter of 2000. Of this amount, $48.2 million related to
DoubleClick Scandinavia and $1.2 million related to DoubleClick Iberoamerica.
Direct Transaction, Integration and Relocation Charges
For the year ended December 31, 1999 we incurred direct transaction and
integration costs of approximately $38.7 million and approximately $2.9 million
in costs associated with the relocation of our corporate headquarters. We
incurred no such costs in 2000.
Restructuring Costs
In December 2000 management took certain actions to reduce employee
headcount in order to better align its sales, development and administrative
organization and to position DoubleClick for profitable growth in the future
consistent with management's long term objectives. This involved the involuntary
terminations of approximately 180 employees. As a consequence, we recorded a
$2.4 million charge to operations during the fourth quarter of 2000 related to
payments for severance as well as the costs of outplacement services and the
provision of continued benefits to terminated personnel.
Loss from Operations
Our operating loss was $189.1 million for the year ended December 31, 2000
and $58.7 million for the year ended December 31, 1999. The increase in
operating loss is primarily attributable to the amortization of intangible
assets, non-cash compensation, and goodwill impairment as well as the building
of our personnel infrastructure as discussed above. We plan to continue to grow
and expand our business and therefore anticipate that we may incur future losses
from operations. We continue to manage our operations with a focus on
productivity and will manage headcount accordingly as our business evolves.
Equity in Losses of Affiliates
Equity in losses of affiliates was $6.8 million for the year ended
December 31, 2000 and $0.8 million for the year ended December 31, 1999. In
addition to our $1.5 million share of our investees' losses, Equity in losses of
affiliates for the year ended December 31, 2000 included approximately
$9.1 million in expense related to the amortization of goodwill associated with
our investment in ValueClick. These amounts were partially offset by a
$3.9 million gain related to
36
the recognition of our proportionate share of the gain arising from the initial
public offerings of a consolidated subsidiary of an equity method investee.
Goodwill Impairment of Equity Investment
In the fourth quarter of fiscal 2000, management made an assessment of the
carrying value of our investment in ValueClick and determined that it was in
excess of its estimated fair value. Consequently, we wrote down our investment
in ValueClick and recognized an impairment charge of approximately
$24.1 million, which represents the difference between the carrying value and
the estimated fair value of our investment in ValueClick.
Gain on Equity Transactions of Affiliates, Net
Gain on equity transactions of affiliates, net was $11.0 million for the
year ended December 31, 2000. Gain on equity transactions of affiliates, net
included credits of approximately $8.9 million and $20.7 million related to
gains arising as the result of the initial public offering of our equity-method
investee ValueClick and the partial sale of our interest in NetGravity Japan to
DoubleClick Japan. These gains were partially offset by an $18.7 million
impairment charge associated with the write down of our warrant to purchase
additional shares of ValueClick.
Interest and Other, Net
Interest and other, net was $53.8 million for the year ended
December 31, 2000 and $12.3 million for the year ended December 31, 1999.
Interest and other, net included $54.4 million in interest income for the
year ended December 31, 2000 partially offset by $12.1 million of interest
expense, and $22.6 million of interest income for the year ended December 31,
1999, partially offset by $9.4 million of interest expense. For the year ended
December 31, 2000, Interest and other, net also includes one-time credits of
approximately $5.0 million related to contract termination fees associated with
the restructuring of our Advertising Services Agreement with AltaVista in fiscal
2000 and $8.6 million related to merger termination fees paid by NetCreations
upon the termination of our merger agreement in December 2000. The increase in
interest income was attributable to interest earned on cash and cash equivalents
and investments in marketable securities funded primarily from the net cash
proceeds from our common stock offering in February 2000. Additionally, our
average yield increased due to increases in interest rates. Interest and other,
net in future periods may fluctuate as a result of the average cash, investment
and future debt balances we maintain as well as changes in the yields of our
investments.
Income Taxes
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit. The provision for income taxes recorded for the year
ended December 31, 1999 relates to the standalone results of Abacus prior to our
merger on November 23, 1999. The provision for the year ended December 31, 2000
principally relates to corporate income taxes on the earnings of some of our
foreign subsidiaries, partially offset by a refund for taxes paid by Abacus in
fiscal 1999.
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
37
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. 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.
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 44.7% 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 Service, 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 198.8% to $74.7 million for
1999 from $25.0 million for 1998. DoubleClick TechSolutions gross margin was
67.1% for 1999 and 67.2% for 1998. The increase in DoubleClick TechSolutions
revenues was due primarily to an increase in the number of DART Service 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.
38
DoubleClick Data
DoubleClick Data 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 cost of revenues
includes expenses associated with creating, updating and managing the Abacus
Alliance database as well as building statistical models.
DoubleClick Data 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
77.4% 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.
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.
General and Administrative
General and administrative expenses consist primarily of compensation and
professional services fees. General and administrative expenses were
$35.0 million, or 13.6% 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.
Product Development
Product development expenses consist primarily of compensation and
consulting expenses and enhancements to our DART Service, 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.
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
39
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 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 $12.3 million in 1999 and $4.1 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.
LIQUIDITY AND CAPITAL RESOURCES
We finance our operations primarily through the use of proceeds from public
offerings of our common stock and our Convertible Subordinated Notes and cash
generated by our operations.
40
Operating activities generated $41.6 million for the year ended
December 31, 2000, and used $38.9 million and $8.8 million for the years ended
December 31, 1999 and 1998, respectively. The increase in cash provided by
operating activities in 2000 resulted primarily from a decrease in net loss,
excluding non-cash items, and increases in accounts payable and accrued
expenses, which were partially offset by increases in accounts receivable and
prepaid expenses. Cash used in operating activities for 1999 and 1998 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 $525.5 million,
$367.3 million, and $36.4 million for the years ended December 31, 2000, 1999
and 1998, respectively. We continued to acquire businesses, invest in
affiliates and purchase equipment to support our growth and expansion. In
addition, we invested the proceeds from our common stock issuance in
marketable securities. Net cash provided by financing activities was
$559.6 million, $364.4 million and $188.0 million for the years ended
December 31, 2000, 1999, and 1998, respectively. Cash provided by financing
activities consisted primarily of the net proceeds from our public offerings
of common stock in 2000, 1999, and 1998 and the net proceeds from our public
offerings of Convertible Subordinated Notes in 1999.
As of December 31, 2000 we had $193.7 million in cash and cash equivalents
and $679.7 million in investments in marketable securities. As of December 31,
2000 our principal commitments consisted of our Convertible Subordinated Notes
and our obligations under operating and capital leases. Although we have no
material commitments for capital expenditures, we continue to anticipate that
our capital expenditures and lease commitments will be a material use of our
cash resources consistent with our operations, infrastructure and personnel.
Pursuant to an underwriting agreement dated February 17, 2000, we completed
a public offering of 7,500,000 shares of our common stock, of which we sold
5,733,411 shares and certain stockholders sold 1,766,589 shares. Our net
proceeds were approximately $502.9 million after deducting underwriting
discounts, commissions and offering expenses.
We believe that our existing cash and cash equivalents and investments in
marketable securities will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next 12 months.
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
marketable securities in a variety of securities, including both government and
corporate obligations and money market funds. As of December 31, 2000, our
investments in marketable securities had a weighted average time to maturity of
266 days.
The following table presents the amounts of our financial instruments that
are subject to interest rate risk by year of expected maturity and average
interest rates as of December 31, 2000.
2001 2002 2003 2006 FAIR VALUE
---- ---- ---- ---- ----------
(IN THOUSANDS)
Cash and cash equivalents....... $193,682 -- -- -- $193,682
Average interest rate........... 5.07%
Fixed-rate investments in
marketable securities......... $422,495 $257,199 -- -- $679,694
Average interest rate........... 6.67% 6.97%
Convertible Subordinated
Notes......................... -- -- -- $250,000 $146,350
Average interest rate........... 4.75%
41
We did not hold derivative financial instruments as of December 31, 2000 and
have never held these instruments in the past.
FOREIGN CURRENCY RISK
We transact business in various foreign countries and are thus subject to
exposure from adverse movements in foreign currency exchange rates. This
exposure is primarily related to revenue and operating expenses in the United
Kingdom and countries whose currency is the Euro. The effect of foreign exchange
rate fluctuations for the year ended December 31, 2000 was not material. We do
not use financial instruments to hedge operating activities denominated in
foreign currencies. We assess the need to utilize financial instruments to hedge
currency exposures on an ongoing basis. As of December 31, 2000, we had
$35.5 million in cash and cash equivalents denominated in foreign currencies.
The introduction of the Euro has not had a material impact on how we conduct
business and we do not anticipate any changes in how we conduct business as a
result of increased price transparency.
Our international business is subject to risks typical of an international
business, including, but not limited to, differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, our future
results could be materially and adversely affected by changes in these or other
factors.
42
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... 45
Report of KPMG LLP, Independent Accountants................. 46
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 47
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998.......................... 48
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998...... 49
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998.......................... 50
Notes to Consolidated Financial Statements.................. 51
Schedule II -- Valuation and Qualifying Accounts............ 72
43
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, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the 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
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. The
consolidated financial statements give retroactive effect to the mergers of
Abacus Direct Corporation and NetGravity, Inc. ('NetGravity') on November 23,
1999 and October 26, 1999, respectively, in transactions accounted for as
poolings of interests, as described in Note 2 to the consolidated financial
statements. We did not audit the financial statements of NetGravity for the year
ended December 31, 1998, which statements reflect total revenues of $11,557,000.
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 of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from 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 11, 2001, EXCEPT AS TO NOTE 16 WHICH IS AS OF FEBRUARY 22, 2001
44
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
NETGRAVITY, INC. AND SUBSIDIARIES:
We have audited the consolidated statements of operations, stockholders'
equity, and cash flows of NetGravity, Inc. and subsidiaries for the year ended
December 31, 1998. In connection with our audit of the consolidated statements
of operations, stockholders' equity, and cash flows, we also have audited the
financial statement schedule of NetGravity, Inc. and subsidiaries as of and for
the year ended December 31, 1998. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. 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 provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations of
NetGravity, Inc. and subsidiaries and their cash flows for the year ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements referred to above, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
San Francisco, California
January 27, 1999
45
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31,
2000 1999
---- ----
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 193,682 $ 119,238
Investments in marketable securities.................... 422,495 179,776
Accounts receivable, net of allowances of $26,715 and
$15,004, respectively................................. 120,029 89,177
Prepaid expenses and other current assets............... 36,934 34,089
---------- ---------
Total current assets................................ 773,140 422,280
Investments in marketable securities........................ 257,199 145,789
Property and equipment, net................................. 168,192 61,980
Intangible assets, net...................................... 52,775 94,475
Investments in affiliates................................... 37,457 --
Other assets................................................ 9,780 4,883
---------- ---------
Total assets........................................ $1,298,543 $ 729,407
---------- ---------
---------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 81,038 $ 32,846
Accrued expenses and other current liabilities.......... 96,002 49,768
Deferred revenue........................................ 33,590 29,783
---------- ---------
Total current liabilities........................... 210,630 112,397
Long-term obligations and notes............................. 15,609 5,348
Convertible subordinated notes.............................. 250,000 250,000
Minority interest........................................... 5,247 --
Stockholders' equity:
Preferred stock, par value $0.001; 5,000,000 shares
authorized at December 31, 2000 and 1999, none
outstanding at December 31, 2000 and 1999............. -- --
Common stock, par value $0.001; 400,000,000 shares
authorized at December 31, 2000 and 1999, 123,728,169
and 112,453,892 shares issued at December 31, 2000 and
1999.................................................. 124 112
Treasury stock, 160,283 shares.......................... (18,419) --
Additional paid-in capital.............................. 1,116,172 475,565
Deferred compensation................................... (236) (1,106)
Accumulated deficit..................................... (265,812) (109,831)
Other accumulated comprehensive loss.................... (14,772) (3,078)
---------- ---------
Total stockholders' equity.......................... 817,057 361,662
---------- ---------
Total liabilities and stockholders' equity.......... $1,298,543 $ 729,407
---------- ---------
---------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
46
DOUBLECLICK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2000 1999 1998
---- ---- ----
Revenue.................................................... $ 505,611 $258,294 $138,724
Cost of revenue............................................ 228,083 107,156 69,191
Write-off of advance to publisher.......................... 18,487 -- --
--------- -------- --------
Total cost of revenue.................................. 246,570 107,156 69,191
--------- -------- --------
Gross profit....................................... 259,041 151,138 69,533
--------- -------- --------
Operating expenses:
Sales and marketing (inclusive of non-cash compensation
of $23,732 in 2000).................................. 227,229 103,578 52,525
General and administrative (inclusive of non-cash
compensation of $637, $2,175 and $2,006,
respectively)........................................ 83,227 35,004 19,424
Product development.................................... 44,789 28,364 12,194
Amortization of intangibles............................ 41,153 1,302 --
Goodwill impairment.................................... 49,371 -- --
Direct transaction, integration and relocation
charges.............................................. -- 41,605 360
Restructuring costs.................................... 2,389 -- --
--------- -------- --------
Total operating expenses........................... 448,158 209,853 84,503
--------- -------- --------
Loss from operations....................................... (189,117) (58,715) (14,970)
Other income (expense):
Equity in losses of affiliates......................... (6,789) (783) (56)
Goodwill impairment of equity investment............... (24,052) -- --
Gain on equity transactions of affiliates, net......... 11,026 -- --
Interest and other, net................................ 53,801 12,264 4,053
--------- -------- --------
Total other income......................................... 33,986 11,481 3,997
--------- -------- --------
Loss before income taxes................................... (155,131) (47,234) (10,973)
Provision for income taxes................................. 1,497 8,587 7,066
--------- -------- --------
Loss before minority interest.............................. (156,628) (55,821) (18,039)
Minority interest.......................................... 647 -- --
--------- -------- --------
Net loss................................................... $(155,981) $(55,821) $(18,039)
--------- -------- --------
--------- -------- --------
Basic and diluted net loss per common share................ $ (1.29) $ (0.51) $ (0.21)
--------- -------- --------
--------- -------- --------
Weighted-average shares used in basic and diluted net loss
per share calculation.................................... 121,278 109,756 86,248
--------- -------- --------
--------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements
47
DOUBLECLICK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................ $(155,981) $ (55,821) $(18,039)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and leasehold amortization............. 33,440 13,326 5,070
Equity in losses of affiliates...................... 6,789 783 56
Gain on equity transactions of affiliates, net...... (11,026) -- --
Goodwill impairment................................. 73,423 -- --
Write-off of advance to publisher and other......... 18,867 -- --
Income tax benefit from the exercise of stock
options........................................... 600 2,167 3,061
Minority interest................................... (647) -- --
Deferred income taxes............................... -- 797 (323)
Integration and facility relocation................. -- 4,153 185
Non-cash compensation............................... 24,369 2,175 2,006
Amortization of intangible assets................... 41,153 1,302 --
Provision for bad debts and advertiser discounts.... 47,078 20,528 9,631
Changes in operating assets and liabilities, net of the
effect of acquisitions:
Accounts receivable................................. (75,048) (61,170) (38,550)
Prepaid expenses and other assets................... (19,879) (29,296) (1,128)
Accounts payable.................................... 46,165 10,751 13,427
Accrued expenses and other.......................... 8,519 29,504 10,095
Income taxes receivable............................. -- -- 2,003
Deferred revenue.................................... 3,807 21,879 3,726
--------- --------- --------
Net cash provided by (used in) operating
activities.................................... 41,629 (38,922) (8,780)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments in marketable securities....... (504,890) (399,379) (25,183)
Maturities of investments in marketable securities...... 152,524 91,786 10,851
Purchases of property, plant and equipment.............. (121,294) (56,146) (18,977)
Investments in affiliates and other..................... (17,260) (435) (3,082)
Security deposits....................................... (5,820) -- --
Acquisitions of businesses and intangible assets, net of
cash acquired......................................... (28,804) (3,120) --
--------- --------- --------
Net cash used in investing activities........... (525,544) (367,294) (36,391)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock, net......... 504,660 114,015 184,818
Proceeds from the issuance of preferred stock, net...... -- -- 3,249
Proceeds from the exercise of stock options and the
issuance of warrants.................................. 50,577 7,622 229
Proceeds from the issuance of Convertible Subordinated
Notes, net of deferred offering costs................. -- 244,747 1,000
Proceeds from equity transactions of affiliates......... 5,754 -- --
Redemption of common stock.............................. -- -- (23)
Payment of notes and capital lease obligations.......... (1,398) (2,005) (1,273)
--------- --------- --------
Net cash provided by financing activities....... 559,593 364,379 188,000
--------- --------- --------
Effect of exchange rate changes on cash and cash
equivalents........................................... (1,234) (595) 42
--------- --------- --------
Net increase (decrease) in cash and cash equivalents.... 74,444 (42,432) 142,871
--------- --------- --------
Cash and cash equivalents at beginning of period........ 119,238 161,670 18,799
--------- --------- --------
Cash and cash equivalents at end of period.............. $ 193,682 $ 119,238 $161,670
--------- --------- --------
--------- --------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
48
DOUBLECLICK INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL
------------------- -------------------- ------------------ PAID-IN DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION
------ ------ ------ ------ ------ ------ ------- ------------
Balance at December 31,
1997.................... 3,162,000 $ 3 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.......... 406,280 1 3,249
Conversion of Preferred
Stock................... (3,568,280) (4) 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)
Net loss.................
Cumulative foreign
currency translation....
Unrealized gain on
marketable securities...
Comprehensive income
(loss)..................
Issuance of common stock
for acquisition,........ 23,721 1,945
Issuance of options for
acquisition............. 1,313
Issuance of common stock
for investment.......... 732,860 1 (206,813) (23,766) 84,198
Other adjustments........ (233) 233
Amortization of deferred
compensation............ 637
Issuance of common stock,
net of issuance costs... 5,733,411 6 502,913
Common shares issued upon
exercise of stock
options................. 4,700,670 5 50,572
Employee stock
purchases............... 83,615 1,741
Investee sale of
DoubleClick common
stock................... 46,530 5,347 (2,442)
Tax benefit upon exercise
of stock options........ 600
---------- --- ----------- ---- -------- -------- ---------- -------
Balance at December 31,
2000.................... -- -- 123,728,169 $124 (160,283) $(18,419) $1,116,172 $ (236)
---------- --- ----------- ---- -------- -------- ---------- -------
---------- --- ----------- ---- -------- -------- ---------- -------
OTHER TOTAL
ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
DEFICIT INCOME EQUITY
------- ------ ------
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... 182,074
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.... 7,622
Tax benefit upon exercise
of stock options........ 2,167
--------- -------- ---------
Balance at December 31,
1999.................... (109,831) (3,078) 361,662
Net loss................. (155,981) (155,981)
Cumulative foreign
currency translation.... (13,457) (13,457)
Unrealized gain on
marketable securities... 1,763 1,763
--------- -------- ---------
Comprehensive income
(loss).................. (155,981) (11,694) (167,675)
Issuance of common stock
for acquisition,........ 1,945
Issuance of options for
acquisition............. 1,313
Issuance of common stock
for investment.......... 60,433
Other adjustments........ --
Amortization of deferred
compensation............ 637
Issuance of common stock,
net of issuance costs... 502,919
Common shares issued upon
exercise of stock
options................. 50,577
Employee stock
purchases............... 1,741
Investee sale of
DoubleClick common
stock................... 2,905
Tax benefit upon exercise
of stock options........ 600
--------- -------- ---------
Balance at December 31,
2000.................... $(265,812) $(14,772) $ 817,057
--------- -------- ---------
--------- -------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
49
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
DoubleClick Inc., together with its subsidiaries ('DoubleClick'), provides
the infrastructure that makes marketing work in the digital world. Combining
media, data and technological expertise, DoubleClick's products and services
enable marketers to deliver the right message, to the right person, at the right
time, while helping publishers maximize their revenue and build their business
online.
DoubleClick is organized in three segments: Media, Technology Solutions
('Technology' or 'TechSolutions') and Data ('Data') based on the types of
service provided. DoubleClick Media consists of the worldwide DoubleClick
networks, which provide fully outsourced and highly effective advertising sales,
delivery and related services to a worldwide group of advertisers and
publishers. DoubleClick TechSolutions consists of the DART-based service bureau
offering and the AdServer family of software products. DoubleClick Data includes
Abacus Direct, consisting of a proprietary database of consumer purchasing
behavior used for direct mail marketing purposes, and Abacus Online, including
targeted email prospecting solutions.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DoubleClick,
its wholly-owned subsidiaries, and subsidiaries over which it exercises a
controlling financial interest. All significant intercompany transactions and
balances have been eliminated. Investments in entities in which DoubleClick does
not have a controlling financial interest, but over which DoubleClick has
significant influence are accounted for using the equity method. Investments
where DoubleClick does not have the ability to exercise significant influence
are accounted for using the cost method.
In 1999, DoubleClick consummated mergers with NetGravity, Inc.
('NetGravity'), Abacus Direct Corporation ('Abacus'), and Business Link
Incorporated (d/b/a Opt-In Email.com 'Opt-In'), which have been accounted for
using the pooling of interests method, and accordingly, the consolidated
financial statements for the prior periods presented and the accompanying notes
have been restated.
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.
Marketable securities are classified as current or long-term assets
depending on their dates of maturity. As of December 31, 2000, all marketable
securities included in long-term assets mature in the calendar year 2002.
DoubleClick classifies its investments in marketable securities as
available-for-sale. Accordingly these investments are carried at fair value,
with unrealized gains and losses, net of tax, reported as a separate component
of stockholders' equity. DoubleClick recognizes gains and losses when these
securities are sold using the specific identification method. For the years
ended December 31, 2000, 1999 and 1998, DoubleClick did not recognize any
material gains or losses from the sale of its investments in marketable
securities.
50
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
At December 31, 2000 cash and cash equivalents and investments in marketable
securities consist of the following:
UNREALIZED UNREALIZED ESTIMATED
COST LOSSES GAINS FAIR VALUE
---- ------ ----- ----------
(IN THOUSANDS)
Cash and cash equivalents:
Cash............................................. $139,550 -- -- $139,550
Money market funds............................... 13,330 -- -- 13,330
Municipal bonds and notes........................ 21,103 -- -- 21,103
Corporate securities............................. 19,699 -- -- 19,699
-------- -------- ------ --------
$193,682 -- -- $193,682
-------- -------- ------ --------
-------- -------- ------ --------
Investments in marketable securities:
Municipal bonds and notes........................ $131,868 (54) 60 $131,874
Corporate securities............................. 548,297 (3,201) 2,724 547,820
-------- -------- ------ --------
$680,165 (3,255) 2,784 $679,694
-------- -------- ------ --------
-------- -------- ------ --------
At December 31, 1999, cash and cash equivalents and investments in
marketable securities consist of the following:
UNREALIZED UNREALIZED ESTIMATED
COST LOSSES GAINS 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
-------- -------- ------ --------
-------- -------- ------ --------
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated using the
straight-line method over the shorter of the estimated life of the asset or the
lease term. As required by SOP 98-1, Accounting for Costs of Computer Software
Developed or Obtained for Internal Use, DoubleClick capitalizes certain computer
software developed or obtained for internal use. Capitalized computer software
is depreciated using the straight-line method over the shorter of the estimated
life of the software or three years.
INTANGIBLE ASSETS
DoubleClick records as goodwill the excess of purchase price over the fair
value of the identifiable net assets acquired. Goodwill is amortized on a
straight-line basis over its estimated useful life, which is generally three
years. Other intangible assets include patents, trademarks, and customer lists.
Other intangible assets are amortized on a straight-line basis over their
estimated useful lives, which is generally three years.
51
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
IMPAIRMENT OF LONG-LIVED ASSETS
DoubleClick assesses the recoverability of long-lived assets, including
intangible assets, held and used whenever events or changes in circumstances
indicate that future cash flows (undiscounted and without interest charges)
expected to be generated by an asset's disposition or use may not be sufficient
to support its carrying amount. If such undiscounted cash flows are not
sufficient to support the recorded value of assets, an impairment loss is
recognized to reduce the carrying value of long-lived assets to their estimated
fair value.
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. DART activation fees are deferred and
recognized ratably over the expected term of the customer relationship.
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, which is 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.
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.
52
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
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.
In December 1999, the Securities and Exchange Commission ('SEC') issued
Staff Accounting Bulletin No. 101 ('SAB 101'), Revenue Recognition in Financial
Statements. SAB 101 summarizes certain of the SEC's views on the application of
generally accepted accounting principles to revenue recognition in financial
statements. The adoption of SAB 101 did not have a material effect on
DoubleClick's financial position or results of operations.
PRODUCT DEVELOPMENT
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.
ISSUANCE OF STOCK BY AFFILIATES
Changes in DoubleClick's interest in its affiliates arising as the result of
their issuance of common stock are recorded as gains and losses in the
consolidated statement of operations, except for any transactions that must be
recorded directly to equity in accordance with the provisions of Staff
Accounting Bulletin ('SAB') No. 51.
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 $22.5 million, $7.6 million and
$3.8 million for the years ended December 31, 2000, 1999, and 1998,
respectively.
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 the 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 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 to reduce the deferred tax assets reported if, based on the weight
of the available evidence, it is more likely than not some portion or all of the
deferred tax assets will not be realized.
FOREIGN CURRENCY
The functional currencies of DoubleClick's foreign subsidiaries are their
respective local currencies. The financial statements maintained in local
currencies are translated to United States dollars using period-end rates of
exchange for assets and liabilities and average rates during the
53
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
period for revenues, cost of revenues and expenses. Translation gains and losses
are accumulated as a separate component of stockholders' equity. Net gains and
losses from foreign currency 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 the granting of 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 has 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 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.
In April 2000, the FASB issued FASB Interpretation No. 44, ('FIN 44')
Accounting for Certain Transactions Involving Stock Compensation - an
interpretation of APB Opinion No. 25. This interpretation, which is effective
from July 1, 2000, is intended to clarify certain problems that have arisen in
practice since the issuance of APB 25 including the definition of employee for
the purpose of applying APB 25, the criteria for determining whether a plan
qualifies as a non-compensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option award and the
accounting for an exchange of stock compensation awards in a business
combination. The adoption of FIN 44 did not have a material impact on
DoubleClick's financial statements.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic net loss per share is computed by dividing the net loss by the
weighted average number of common shares 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 calculated by adjusting the weighted average
number of shares for the effect of the potential dilution that would occur on
the exercise or conversion of convertible securities, stock options and other
potentially dilutive financial instruments into shares of common stock. At
December 31, 2000, 1999 and 1998, outstanding options of 22.2 million,
23.1 million, and 13.5 million, respectively, with weighted average per share
exercise prices of $46.03, $35.95 and $4.45, 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. Similarly, the
computation of diluted net loss per share for 2000 and 1999 excludes the effect
of 6,060,606 shares issuable upon the conversion of the $250 million 4.75%
Convertible Subordinated Notes due 2006. For the year ended December 31, 1998,
40,000 shares of Convertible Preferred Stock were also excluded from the
computation of diluted net loss per share, because their inclusion would have
had an antidilutive effect. As a result, the basic and diluted net loss per
share amounts are equal for all periods presented.
CONCENTRATIONS OF CREDIT 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, and accounts receivable.
Credit is extended to customers based on the evaluation of their financial
condition, and collateral is not required. DoubleClick performs ongoing credit
assessments of its customers and maintains an allowance for doubtful accounts.
In 1999, DoubleClick advanced approximately $20 million to AllAdvantage, an
Internet advertising and sweepstakes company, which was included in 'prepaid
expenses and other current assets' at December 31, 1999. In view of the weak
market for Internet advertising in general and the financial difficulties of
AllAdvantage in particular, management concluded that this advance was no longer
recoverable and the remaining balance of $18.5 million was written off in the
fourth
54
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
quarter of 2000. This charge has been included in the cost of revenue in the
consolidated statement of operations.
In January 1999, DoubleClick changed the manner in which it reports the
financial results of the services it performed for the AltaVista Web site.
Effective January 1, 1999, DoubleClick 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, DoubleClick 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, DoubleClick recognized as
revenues the gross amount earned for advertising delivered to users of the
AltaVista Web site.
Beginning January 1, 1999, AltaVista agreed, under to the Advertising
Services Agreement, to use DoubleClick's DART technology for ad delivery, and to
outsource domestic, international and local ad sales functions to DoubleClick.
For these services, AltaVista pays DoubleClick (1) a technology fee for all
advertising delivered by its 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 DoubleClick performs for AltaVista. Under the
new agreement, DoubleClick recognized 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 DoubleClick's relationship with AltaVista, although there had
been no significant change in gross profit dollars, its overall gross margin
percentage had increased as DoubleClick were 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.
In November 1999, DoubleClick 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 DoubleClick and AltaVista, but does not change the manner
in which it recognizes revenues derived from its 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.
On August 7, 2000, DoubleClick announced the restructuring of its
Advertising Services Agreement with AltaVista ('New Agreement'). Under the New
Agreement, AltaVista agreed to assume lead ad sales responsibility for domestic
advertisers by February 2001, and international advertisers by December 2001
(subject to AltaVista's right to assume lead responsibility sooner in certain
international markets). After AltaVista assumes lead ad responsibility in a
market, DoubleClick will have the right to sell ads on the AltaVista Web sites
in that market on a non-exclusive basis, as part of DoubleClick's worldwide ad
networks, through December 31, 2004. In addition, under the New Agreement, the
DART for Publishers Service will serve ads on AltaVista's Web sites through
December 31, 2004 with the ads required to be served through the DART for
Publishers Service declining in each year of the agreement, subject to certain
minimums. The DART for Advertisers Service will serve the majority of
AltaVista's online advertising campaigns through December 2004. For the year
ended December 31, 2000, DoubleClick recognized approximately $5.0 million in
contract termination fees associated with the restructuring of its
55
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
Advertising Services Agreement. This amount has been included in 'Interest and
other, net' in the consolidated statement of operations.
Revenues derived from advertising impressions delivered to users of the
AltaVista Web site represented 7.5%, 10.8% and 26.9% of DoubleClick's revenues
for the period ended December 31, 2000, 1999 and 1998, respectively. No other
Web site publisher and no advertiser or other customer 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 other single customer
accounted for more than 10% of DoubleClick's net revenues for the years ended
December 31, 2000, 1999, and 1998 or accounts receivable at December 31, 2000
and 1999.
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, 2000 and
1999 the fair value of these instruments approximated their financial statement
carrying amount with the exception of the Convertible Notes, which had an
estimated fair value of $146.4 million at December 31, 2000 based on quoted
market prices, and $764.8 million at December 31, 1999, calculated using the
continuous time version of the Black-Scholes Option Pricing Model.
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 years' financial
statements to conform with the current year presentation.
NOTE 2 -- BUSINESS COMBINATIONS
DoubleClick Japan
In July 2000, DoubleClick contributed its wholly-owned subsidiary,
NetGravity Japan, to its affiliate DoubleClick Japan in return for an additional
27% ownership interest in DoubleClick Japan. In addition to increasing
DoubleClick's equity interest to approximately 37%, the agreement with
DoubleClick Japan enables it to elect a majority of the seats on DoubleClick
Japan's Board of Directors and exercise a controlling financial interest in its
operations. Pursuant to APB 16, Business Combinations, DoubleClick has
consolidated the net assets and results of operations of DoubleClick Japan as of
the date of the transfer. As DoubleClick Japan's net assets and results of
operations had not previously been consolidated in DoubleClick's financial
statements, this simultaneous transfer and acquisition was treated as a partial
sale of its interest in NetGravity Japan and a step acquisition of an additional
equity interest in DoubleClick Japan. Full reverse acquisition accounting was
applied and a $20.7 million gain recognized to the extent that NetGravity Japan
was deemed sold to the minority shareholders of DoubleClick Japan. This gain has
been included in 'Gain on equity transactions of affiliates, net' in
DoubleClick's consolidated statement of operations. Goodwill of $21.3 million
was also recorded to reflect the proportionate step-up in DoubleClick Japan's
assets as the result of the reverse acquisition.
56
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
Subsequent to the transfer of NetGravity Japan described above, DoubleClick
made an additional investment of $5.4 million in DoubleClick Japan, which
increased its interest to approximately 43%. This transaction has been accounted
for as a step acquisition and DoubleClick has recorded approximately
$0.7 million of goodwill, which represents the excess of its additional
investment over the fair value of the incremental assets acquired.
Flashbase, Inc.
Effective May 26, 2000, DoubleClick acquired Flashbase, Inc. ('Flashbase')
for approximately $19.6 million. In connection with the acquisition, which has
been accounted for under the purchase method, DoubleClick has recorded
approximately $19.5 million in goodwill. An additional amount payable in either
cash or DoubleClick common stock, at the election of DoubleClick, will be made
in March 2001 based on the continued employment of the former shareholders and
the attainment of specific performance objectives through the year ended
December 31, 2000. DoubleClick intends to pay $0.8 million of this amount in
cash and the remainder in DoubleClick common stock. DoubleClick has recorded
approximately $4.0 million in non-cash compensation expense related to the
contingently issuable shares for the year ended December 31, 2000. Such amounts
are included in 'Accrued expenses and other current liabilities' in the
consolidated balance sheet.
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 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.
57
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
Results of operations of pooling transactions:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(IN THOUSANDS)
Revenue
NetGravity.............................................. $16,979 $ 11,557
Abacus.................................................. 48,987 46,979
Opt-In.................................................. 611 --
Net Income (loss)
NetGravity.............................................. (7,393) (11,293)
Abacus.................................................. 11,558 11,426
Opt-In.................................................. 69 --
DoubleClick Scandinavia AB
On December 29, 1999, DoubleClick acquired the 90.7% of the outstanding
shares of DoubleClick Scandinavia AB that 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. Additional shares of common
stock are contingently issuable in March 2001 and 2002 based on the continued
employment of the former shareholders and the attainment of specific revenue
objectives for the years ended December 31, 2000 and 2001. DoubleClick has
assessed, and will continue to assess, the probability and amount of the shares
payable related to the achievement of these revenue objectives and incur
non-cash compensation charges over the two-year term of employment. The maximum
value of the contingently issuable shares is approximately $60.0 million. For
the year ended December 31, 2000, DoubleClick recorded approximately
$19.8 million in non-cash compensation expense related to the contingently
issuable shares. Such amount is included in 'Accrued expenses and other current
liabilities' in the consolidated balance sheet.
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. In connection with the acquisition, which has been accounted
for as a purchase, DoubleClick recorded approximately $2.5 million of goodwill.
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
58
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
necessarily indicative of the combined results that would have occurred, nor is
it necessarily indicative of future results.
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 -- INVESTMENT IN VALUECLICK, INC
Effective February 28, 2000, DoubleClick acquired an approximately 33%
interest in ValueClick, Inc. ('ValueClick') as well a warrant to purchase
ValueClick common stock for 732,860 shares of DoubleClick common stock and
$10.0 million in cash. DoubleClick's equity investment in ValueClick was
recorded based on the fair value of the consideration paid (approximately
$94.2 million), less approximately $27.7 million of treasury stock that
represents its proportionate share of the DoubleClick stock held by ValueClick.
In addition to approximately $41.3 million of goodwill, DoubleClick's investment
in ValueClick also included an amount of approximately $18.7 million which
represented the estimated fair value of the warrant on February 28, 2000. This
investment is being accounted for under the equity method, with a 90-day lag in
reporting DoubleClick's share of the results of ValueClick.
In March 2000, ValueClick completed its initial public offering of common
stock, issuing 4,000,000 shares at a price of $19 per share, which raised net
proceeds of approximately $69.5 million. As a result, DoubleClick's ownership
interest in ValueClick was reduced to approximately 28% and the value of its
proportionate share of ValueClick's net assets increased. DoubleClick recorded
an increase in the value of its investment of approximately $12.9 million,
reduced the carrying amount of treasury stock to approximately $23.8 million and
recognized a gain of approximately $8.9 million. This gain is included in 'Gain
on equity transactions of affiliates, net' in the consolidated statement of
operations.
In the third quarter of 2000, DoubleClick recorded an increase in the value
of its investment in ValueClick of approximately $2.9 million as the result of
ValueClick selling a portion of the DoubleClick shares it owned to third
parties. Also as a result of this sale, DoubleClick recognized a reduction in
its treasury stock of approximately $5.3 million and a $2.4 million reduction of
additional paid-in capital, which represented the difference between the
treasury shares' original basis and the cash proceeds from the sale.
During the third quarter of 2000, DoubleClick recognized a gain as the
result of the initial public offering of ValueClick Japan, a consolidated
subsidiary of ValueClick. Pursuant to SAB 51, ValueClick recognized a gain to
the extent that a portion of its interest was deemed sold through the offering
at a price higher than its original basis. DoubleClick has recognized its
proportional share of this gain, approximately $3.9 million, in 'Equity in
losses of affiliates'.
In the third quarter of fiscal 2000, DoubleClick management made an
assessment of the carrying value of its warrant to purchase additional shares of
ValueClick and determined that it was in excess of its estimated fair value.
Consequently, DoubleClick wrote down its investment in ValueClick and recognized
a one-time impairment charge of approximately $18.7 million relating to this
warrant. This impairment has been recorded in 'Gain on equity transactions of
affiliates, net' in DoubleClick's consolidated statement of operations.
In the fourth quarter of fiscal 2000, DoubleClick management made an
assessment of the carrying value of its investment in ValueClick and determined
that it was in excess of its
59
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
estimated fair value. Consequently, DoubleClick wrote down its investment in
ValueClick and recognized an impairment charge of approximately $24.1 million,
which represents the difference between the carrying value and the estimated
fair value of its investment in ValueClick. This impairment has been recorded as
'Goodwill impairment of equity investment' in DoubleClick's consolidated
statement of operations.
In addition to its $3.9 million proportionate share of the SAB 51 gain
recognized by ValueClick in connection with the initial public offering of
ValueClick Japan, DoubleClick also recognized approximately $1.1 million as its
equity in the losses of ValueClick and $9.1 million in amortization expense for
the year ended December 31, 2000. These amounts are included in 'Equity in
losses of affiliates' in the consolidated statement of operations.
On December 13, 2000, ValueClick announced the completion of its acquisition
of ClickAgents.com, a provider of performance-based online advertising
solutions. Under the terms of the merger, which has been accounted for as a
pooling of interests, ValueClick issued approximately 5.3 million shares of its
common stock in return for all of the outstanding common stock of
ClickAgents.com. In accordance with its policy, DoubleClick will recognize the
effect of the dilution of its ownership interest in the first quarter of 2001.
NOTE 4 -- INVESTMENTS
DoubleClick has a 50% 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
$481,000, $435,000 and $56,000 during the years ended December 31, 2000, 1999
and 1998, respectively, and recorded losses related to the investment of
$492,000, $783,000 and $56,000, respectively included in 'Equity in losses of
affiliates' in the consolidated statement of operations.
NOTE 5 -- INTANGIBLE ASSETS
Intangible assets, net consists of the following:
DECEMBER 31,
-------------------
2000 1999
---- ----
(IN THOUSANDS)
Goodwill.................................................... $ 51,461 $ 94,878
Patents and trademarks...................................... 9,569 --
Customer lists and other.................................... 4,724 14
-------- --------
65,754 94,892
-------- --------
Less accumulated amortization............................... (12,979) (417)
-------- --------
$ 52,775 $ 94,475
-------- --------
-------- --------
As a result of the significant decline in market value of Internet-based
companies as well as operating losses incurred by its subsidiaries,
DoubleClick reviewed the recoverability of the goodwill associated with its
acquisitions of DoubleClick Scandinavia and DoubleClick Iberoamerica in
accordance with its accounting policy. In the course of its analysis,
DoubleClick determined that the goodwill attributable to DoubleClick Scandinavia
and DoubleClick Iberoamerica was in excess of its estimates of these entities'
future cash flows. Accordingly, DoubleClick recognized $49.4 million in
impairment charges equal to the difference between its investment in and the
estimated fair value of these entities in the fourth quarter of 2000. Of this
amount, $48.2 million related to DoubleClick Scandinavia and $1.2 million
related to DoubleClick Iberoamerica.
60
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
NOTE 6 -- 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 its acquisitions accounted for as poolings of
interests. Direct transaction costs consist of approximately $26.1 million in
investment banking fees and $5.0 million in other 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 relocation of its corporate headquarters.
As a result of DoubleClick's relocation, completed in December 1999, DoubleClick
incurred a non-recurring impairment charge of approximately $1.4 million related
primarily to leasehold improvements which 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 amounts over their remaining useful life
to the abandonment date using their initial cost recovery rate. Depreciation and
amortization of $729,000 associated with these 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 7 -- RESTRUCTURING CHARGES
In December 2000 management took certain actions to reduce employee
headcount in order to better align its sales, development and administrative
organization and to position DoubleClick for profitable growth in the future
consistent with management's long term objectives. This involved the involuntary
terminations of approximately 180 employees. As a consequence, DoubleClick
recorded a $2.4 million charge to operations during the fourth quarter of 2000
related to payments for severance as well as the costs of outplacement services
and the provision of continued benefits to terminated personnel.
As of December 31, 2000 approximately $1.2 million of the $2.4 million
charge remains unpaid and is included in 'Accrued expenses and other current
liabilities'. DoubleClick expects to pay the remainder of these costs in the
first quarter of 2001.
NOTE 8 -- PROPERTY AND EQUIPMENT
DECEMBER 31,
ESTIMATED USEFUL -------------------
LIFE 2000 1999
---- ---- ----
(IN THOUSANDS)
Computer equipment and purchased software.............. 1-3 years $136,521 $ 55,590
Furniture and fixtures................................. 5 years 10,878 5,570
Leasehold improvements................................. 1-15 years 49,958 18,696
Building............................................... 20 years 15,003 --
Land................................................... 3,050 --
Construction work-in-progress.......................... 3,817 --
-------- --------
219,227 79,856
Less accumulated depreciation and amortization......... (51,035) (17,876)
-------- --------
$168,192 $ 61,980
-------- --------
-------- --------
61
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
Depreciation and amortization expense related to property and equipment was
approximately $33.4 million, $13.3 million and $5.1 million in 2000, 1999 and
1998, respectively.
NOTE 9 -- INCOME TAXES
Loss before income taxes consisted of:
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
U.S........................................................ $ (43,731) $ (41,796) $ (4,585)
Foreign.................................................... (111,400) (5,438) (6,388)
--------- --------- --------
$(155,131) $ (47,234) $(10,973)
--------- --------- --------
--------- --------- --------
The provision for income taxes consisted of:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Current tax provision (benefit):
Federal................................................. $(1,724) $6,261 $6,204
State and local......................................... 900 1,248 1,185
Foreign................................................. 2,321 281 --
------- ------ ------
Total current tax provision................................. $ 1,497 7,790 7,389
------- ------ ------
------- ------ ------
Deferred tax provision (benefit):
Federal................................................. -- 717 (276)
State and local......................................... -- 80 (47)
Foreign................................................. -- -- --
------- ------ ------
Total deferred tax provision (benefit)...................... -- 797 (323)
------- ------ ------
Provision for income taxes.................................. $ 1,497 $8,587 $7,066
------- ------ ------
------- ------ ------
The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Tax at U.S Federal income tax rate.......................... $(54,296) $(16,532) $(3,840)
State taxes, net of federal income tax effect............... 585 63 (1,035)
Nondeductible transaction costs............................. -- 10,331 --
Nondeductible compensation.................................. 222 1,607 616
Change in valuation allowance............................... 13,080 13,325 11,755
Foreign operations.......................................... 41,946 -- --
Domestic nondeductible goodwill............................. 2,743 -- --
Other....................................................... (2,783) (207) (430)
-------- -------- -------
Income tax provision........................................ $ 1,497 $ 8,587 $ 7,066
-------- -------- -------
-------- -------- -------
62
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
The tax effects of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities at December 31, 2000
and 1999 are as follows:
DECEMBER 31,
---------------------
2000 1999
---- ----
(IN THOUSANDS)
Deferred tax assets:
Allowance for doubtful accounts and advertiser
discounts............................................. $ 6,945 $ 4,619
Property and equipment.................................. 2,948 1,568
Accrued expenses and other.............................. 8,419 1,002
Net operating loss carryforwards........................ 125,420 53,476
Equity investments...................................... 16,020 --
Tax credit carryforwards................................ 3,410 1,354
-------- -------
Total deferred tax assets................................... 163,162 62,019
Valuation allowance......................................... (163,162) (62,019)
-------- -------
Net deferred tax assets..................................... $ -- $ --
-------- -------
-------- -------
DoubleClick has recorded a full valuation allowance against its net deferred
tax assets for the years ended December 31, 2000 and 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.
At December 31, 2000, the Company had domestic and foreign net operating
loss carryforwards of approximately $331.8 million. The federal net operating
loss carryforward was $296.3 million. Approximately $270.4 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 that a reduction to the income tax
provision. In addition, the Company had $2.4 million of research tax credit
carryforwards and $1 million of other tax credit carryforwards. The federal net
operating loss and research tax credit carryforwards expire in various years
beginning in 2012. 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 10 -- 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 common stock at a conversion
price of $41.25 per share, subject to adjustment at the occurrence of certain
events and at the holder's option. Interest on the Convertible Notes is payable
semiannually on March 15 and September 15 of each year. The Convertible Notes
are unsecured and are subordinated to all existing and future Senior
Indebtedness (as defined in the Convertible Notes indenture) of DoubleClick. If
certain defined events occur, 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 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 accrued interest, of the Convertible Notes being redeemed.
63
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
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 on the consolidated balance sheet, net of accumulated
amortization of approximately $1.3 million and $0.5 million at December 31, 2000
and 1999, respectively. The issuance costs are being amortized over the term of
the Convertible Notes and are included in intangible asset amortization on the
consolidated statement of operations. For the years ended December 31, 2000 and
1999 DoubleClick recognized approximately $768,000 and $525,000, respectively,
in expense related to the amortization of these deferred issuance costs.
Interest expense relating to the Convertible Notes was approximately
$11.9 million and $9.3 million for the years ended December 31, 2000 and 1999,
respectively.
NOTE 11 -- STOCKHOLDERS' EQUITY
DoubleClick's Certificate of Incorporation, as initially filed, authorized
40,000,000 shares of $0.001 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 stockholders had certain
super-voting privileges, and Class B shares were non-voting. In 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 initial public offering 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, 2000, 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 $182.1 million, net of offering costs. In
1999, DoubleClick completed public offerings of 2,145,046 shares of common
stock, generating proceeds of $113.1 million, net of offering costs.
Pursuant to an underwriting agreement dated February 17, 2000, DoubleClick
completed a public offering of 7,500,000 shares of its common stock, of which
DoubleClick sold 5,733,411 shares and certain stockholders sold 1,766,589
shares. DoubleClick's net proceeds were approximately $502.9 million, after
deducting underwriting discounts, commissions and offering expenses.
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
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,
64
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
1999 and December 31, 1999, respectively. Accordingly, all share and per share
amounts presented in these consolidated financial statements and related notes
have been restated to reflect these stock splits.
EMPLOYEE STOCK PURCHASE PLAN
Under the DoubleClick Employee Stock Purchase Plan (the 'ESPP'), which
became effective on April 3, 2000, participating employees may purchase shares
of DoubleClick common stock at 85% of its fair market value at the beginning or
end of an offering period, whichever is lower, through payroll deductions in an
amount not to exceed 10% of an employee's base compensation. For the year ended
December 31, 2000, DoubleClick issued 83,615 shares pursuant to its ESPP. An
additional 916,385 shares were reserved for issuance at December 31, 2000.
STOCK INCENTIVE PLAN
The 1997 Stock Incentive Plan (the '1997 Plan' or the 'Plan') serves as the
successor to DoubleClick's 1996 Stock Option Plan (the 'Predecessor Plan') and
was adopted by the Board of Directors on November 7, 1997 and was subsequently
approved by the stockholders. The 1997 Plan became effective immediately upon
the Board of Directors' adoption of the Plan (the 'Plan Effective Date').
Under the 1997 Plan, 32,748,152 shares of common stock are reserved for the
issuance of incentive and nonqualified stock options. This share reserve
consists of (i) the number of shares which were available for issuance under the
Predecessor Plan on the Plan Effective Date including shares subject to
outstanding options, (ii) an additional 2,400,000 share increase effected on
January 4, 2000, (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, 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 options are returned to the reserve of common stock issuable
under the 1997 Plan on the date of termination, and shares that are subject to
vested options are returned to the reserve issuable under the 1997 Plan
generally at the end of the three-month period following the employee's date of
termination, to the extent they are 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, 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 of the 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
65
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
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 the stock option activity for the three years ended
December 31, 2000 is as follows:
OUSTANDING WEIGHTED
NUMBER OF AVERAGE EXERCISE
OPTIONS PRICE
----------- ----------------
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
Options granted............................................. 8,597,287 65.49
Options exercised........................................... (4,653,638) 10.68
Options canceled............................................ (4,807,972) 65.55
---------- ------
Balance at December 31, 2000................................ 22,246,248 $46.03
---------- ------
---------- ------
Exercisable at December 31, 2000............................ 5,969,310 $25.46
---------- ------
---------- ------
Available for future grants................................. 3,777,948
----------
----------
For the years ended December 31, 2000, 1999 and 1998 DoubleClick amortized
$637,000, $2,175,000 and $2,006,000, respectively, of deferred compensation
related to options which were granted with exercise prices below fair market
value at the date of grant. All remaining deferred compensation will be
amortized over the balance of the four-year vesting period of the stock options.
All stock options granted in 2000 and 1999 were granted with exercise prices at
fair market value at the date of grant.
Had DoubleClick determined compensation expense of employee stock options
based on the estimated fair 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,
--------------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
Net loss:
As reported................................................ $(155,981) $ (55,821) $(18,039)
Pro forma per SFAS 123..................................... (338,514) (116,537) (25,672)
Net loss per share:
As reported................................................ $ (1.29) $ (0.51) $ (0.21)
Pro forma per SFAS 123..................................... (2.79) (1.06) (0.30)
66
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
The per share weighted average fair value of options granted for the years
ended December 31, 2000, 1999 and 1998 was $51.12, $38.44 and $5.63,
respectively, on the grant date with the following weighted average assumptions:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
---- ---- ----
Expected dividend yield..................................... 0% 0% 0%
Risk-free interest rate..................................... 6.18% 5.42% 5.17%
Expected life............................................... 4 years 4 years 4.2 years
Volatility.................................................. 115% 90% 84%
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------------
WEIGHTED
NUMBER AVERAGE WEIGHTED
OUTSTANDING REMAINING AVERAGE NUMBER WEIGHTED
ACTUAL RANGE OF AT CONTRACTUAL EXERCISE EXERCISABLE AVERAGE
EXERCISE PRICES 12/31/00 LIFE PRICE AT 12/31/00 EXERCISE PRICE
--------------- -------- ---- ----- ----------- --------------
0.03 - 1.75.................... 2,990,689 5.5 0.18 2,395,274 0.11
2.00 - 8.91.................... 2,001,974 7.2 4.65 679,810 5.09
9.00 - 13.38.................... 2,233,092 8.4 11.85 481,813 11.30
14.73 - 50.00.................... 5,729,254 9.0 32.54 943,009 34.36
50.94 - 124.56.................... 9,291,239 8.7 86.23 1,469,404 75.12
NOTE 12 -- ADDITIONAL FINANCIAL INFORMATION
Supplementary disclosure of cash flow information:
YEAR ENDED DECEMBER 31,
-------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Cash paid for interest................................... $12,061 $5,852 $ 156
Cash paid for income taxes............................... $ 1,256 $7,807 $6,155
Non-cash investing activities: During the years ended December 31, 2000,
1999 and 1998 DoubleClick recorded approximately $10.3 million, $230,000 and
$340,000, respectively, related to capital lease obligations.
The following summarizes the components of interest and other, net:
YEAR ENDED DECEMBER 31,
---------------------------
2000 1999 1998
---- ---- ----
(IN THOUSANDS)
Interest income........................................ $ 54,437 $22,550 $4,348
Interest expense....................................... (12,093) (9,422) (219)
Miscellaneous income................................... 13,657 -- --
Other.................................................. (2,200) (864) (76)
-------- ------- ------
$ 53,801 $12,264 $4,053
-------- ------- ------
-------- ------- ------
For the year ended December 31, 2000, miscellaneous income included
non-recurring income of approximately $5.0 million related to contract
termination fees associated with the restructuring of our Advertising Services
Agreement with AltaVista in fiscal 2000 and $8.6 million related to merger
termination fees paid by NetCreations on the dissolution of our merger agreement
in December 2000.
67
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
NOTE 13 -- 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 has
partially matched employee contributions with DoubleClick common stock. Prior to
February 2000, DoubleClick partially matched employee contributions with cash.
DoubleClick contributed $2.5 million, $0.4 million and $0.2 million to the Plan
during the years ended December 31, 2000, 1999 and 1998, respectively.
NOTE 14 -- COMMITMENTS AND CONTINGENCIES
(A) LEASES
DoubleClick leases facilities and equipment under capital and operating
leases expiring through 2015. The future minimum lease payments under these
leases are as follows (in thousands):
CAPITAL OPERATING
YEARS ENDING DECEMBER 31, LEASES LEASES
------------------------- ------ ------
2001................................... $ 4,452 $ 20,380
2002................................... 4,237 19,398
2003................................... 3,678 19,624
2004................................... 70 21,328
2005................................... -- 21,844
Thereafter............................. -- 135,553
------- --------
Total minimum lease payments........... $12,437 $238,127
--------
--------
Less: amount representing interest..... (1,683)
-------
Present value of net minimum lease
payments................................ $10,754
-------
-------
Rent expense for the years ended December 31, 2000, 1999 and 1998 was
$16.8 million, $8.5 million and $3.1 million, respectively.
(B) LEGAL
DoubleClick is a defendant in 20 lawsuits concerning Internet user privacy
and our data collection and other business practices. The actions seek, among
other things, injunctive relief, civil penalties and unspecified damages.
DoubleClick believes these claims are without merit and vigorously contests
them.
In addition, DoubleClick's ad serving and data collection practices are
also the subject of inquiries by the attorneys general of several states.
DoubleClick is cooperating fully with all such inquiries. In January 2001, the
Federal Trade Commission closed its inquiry into DoubleClick's ad serving and
data collection practices without recommending any further action. DoubleClick
may receive additional regulatory inquiries and intends to cooperate fully.
Determinations of liability against other companies that are defendants in
similar proceedings, even if such rulings are not final, could adversely affect
the proceedings against DoubleClick and its affiliates and could encourage an
increase in the number of such claims. Further, political, legislative,
regulatory and other developments relating to data protection could negatively
affect the outcome of related proceedings, and encourage the commencement of
additional proceedings. It is impossible to predict the outcome of such events
on pending proceedings or on the proceedings themselves.
68
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
DoubleClick believes that, notwithstanding the quality of defenses
available, it is possible that our business, financial condition and results of
operations could be materially adversely affected by the ultimate outcome of the
pending lawsuits and investigations. As of December 31, 2000, no provision has
been made for any damages that may result upon the resolution of these
uncertainties.
At December 31, 2000, DoubleClick had outstanding standby letters of credit
of $14.0 million. These letters of credit collateralize DoubleClick's
obligations to third parties under certain operating leases. In connection with
these letters of credit, $14.0 million of DoubleClick's cash and cash
equivalents is restricted as to its use at December 31, 2000.
NOTE 15 -- 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 into three segments: Media, Technology ('Tech' or
'TechSolutions') and Data based on types of services provided. DoubleClick Media
is represented by the worldwide DoubleClick Networks, which provide fully
outsourced and highly effective advertising sale, 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.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Intersegment revenues, which
relate primarily to DART transfer fees recognized by TechSolutions, are valued
at an approximately the same rates charged to external customers.
Revenues and gross profit by segment are as follows:
REVENUES GROSS PROFIT
------------------------------ -----------------------------
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
(IN THOUSANDS)
Media....................... $253,827 $125,499 $ 74,180 $ 64,251 $ 49,955 $15,726
Technology.................. 203,391 74,695 24,965 145,560 50,082 16,827
Data........................ 72,355 65,961 46,979 49,230 51,101 36,980
Intersegment elimination.... (23,962) (7,861) (7,400) -- -- --
-------- -------- -------- -------- -------- -------
Total....................... $505,611 $258,294 $138,724 $259,041 $151,138 $69,533
-------- -------- -------- -------- -------- -------
-------- -------- -------- -------- -------- -------
Pursuant to FAS 131, total segment assets have not been disclosed as this
information is not reported to or used by the chief operating decision maker.
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
------------------------------ -------------------
2000 1999 1998 2000 1999
---- ---- ---- ---- ----
United States......................... $397,265 $206,071 $123,958 $224,905 $ 65,280
International......................... 108,346 52,223 14,766 43,299 96,058
-------- -------- -------- -------- --------
Total................................. $505,611 $258,294 $138,724 $268,204 $161,338
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
69
DOUBLECLICK INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2000
NOTE 16 -- SUBSEQUENT EVENT
On February 2, 2001, DoubleClick completed its acquisition of @plan.inc, a
leading provider of online target market research planning systems. Under the
final terms of the acquisition, which qualifies as a tax-free reorganization
for United States federal income tax purposes, DoubleClick paid $3.45 in cash
and 0.2829 of a share of DoubleClick common stock for each outstanding share of
@plan common stock. The purchase price, exclusive of direct acquisition costs,
was approximately $103.5 million. The excess of the purchase price over the
fair value of @plan's net assets acquired will be allocated to intangible
assets, which includes goodwill, and amortized over their estimated useful
lives.
On February 22, 2001, DoubleClick entered into an agreement to acquire
FloNetwork Inc., an email marketing technology provider. The transaction is
subject to customary closing conditions, including approval by FloNetwork's
shareholders and Canadian governmental authorities, and is expected to close in
the second quarter of 2001.
70
SCHEDULE II
DOUBLECLICK INC
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
BALANCE AT CHARGED TO
BEGINNING OF COSTS AND BALANCE AT
DESCRIPTION PERIOD EXPENSES DEDUCTIONS END OF PERIOD
----------- ------ -------- ---------- -------------
2000:
Allowances for doubtful accounts and
advertiser discounts................. $15,004 $47,078 $(35,367) $26,715
1999:
Allowances for doubtful accounts and
advertiser discounts................. $ 5,094 $20,528 $(10,618) $15,004
1998:
Allowances for doubtful accounts and
advertiser discounts................. $ 2,302 $ 9,631 $ (6,839) $ 5,094
71
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 2001 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.
OTHER INFORMATION
Our Chairman of the Board, Kevin O'Connor, has informed us that, in order to
diversify his investment portfolio while avoiding conflicts of interest or the
appearance of any such conflict that might arise from his position with the
company, he has established a written plan in accordance with SEC Rule 10b5-1
for gradually liquidating a portion of his holdings of our common stock. In
particular, we have been notified that during the period that commenced on
February 2, 2001 and will end on February 1, 2002, Mr. O'Connor intends to sell
a fixed number of shares of common stock on a weekly basis. The plan provides
for the sale on specified dates during the term of 15,000 shares each week other
than the four weeks during the year when 20,000 shares will be sold.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information in our proxy statement for
the 2001 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
Incorporated by reference from the information in our proxy statement for
the 2001 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 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information in our proxy statement for
the 2001 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.
72
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
The financial statements as set forth under Item 8 of this report are
incorporated by reference.
2. Financial Statement Schedules.
The financial statement schedule as set forth in Item 8 of this report
is incorporated by reference.
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K, Items 5 and 7, on October 4, 2000,
announcing the Agreement and Plan of Merger and Reorganization, dated as of
October 2, 2000, among DoubleClick Inc., Genesis Merger Sub, Inc. and
NetCreations, Inc.
We filed a Current Report on Form 8-K/A, Items 5 and 7, on November 20,
2000, announcing the Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of November 17, 2000, among DoubleClick Inc., Atlas
Merger Sub, Inc., a Tennessee corporation and a direct, wholly owned subsidiary
of DoubleClick Inc. and @plan.inc.
We filed a Current Report on Form 8-K, Items 5 and 7, on November 29, 2000,
announcing executive promotions.
We filed a Current Report on Form 8-K, Items 5 and 7, on December 22, 2000,
announcing the termination of the Agreement and Plan of Merger and
Reorganization, dated as of October 2, 2000, among DoubleClick Inc., Genesis
Merger Sub, Inc. and NetCreations, Inc.
(c) Exhibits
NUMBER DESCRIPTION
- ------ -----------
2.1 --Agreement and Plan of Merger and Reorganization dated as
of June 13, 1999, by and among Registrant, 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).
2.4 --Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of November 17, 2000, by and
among DoubleClick Inc., Atlas Merger Sub, Inc., Atlas
Acquisition Corp. and @plan.inc, including annexes thereto
but excluding any schedules (Incorporated by reference to
@plan.inc's Form 8-K filing, dated November 20, 2000.
2.5 --Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of January 22, 2001, by and among
DoubleClick Inc., Atlas Merger Sub, Inc., Atlas
Acquisition Corp. and @plan.inc, as amended, including
annexes thereto but excluding any schedules (Incorporated
by reference to @plan.inc's Form 8-K filing, dated
November 20, 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 Amendment of our Amended and Restated
Certificate of Incorporation (Incorporated by reference to
Exhibit 3.01 of Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
3.1(b) --Certificate of Correction of Amended and Restated
Certificate of Incorporation (Incorporated by reference to
Exhibit 3.1(a) of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999).
73
NUMBER DESCRIPTION
- ------ -----------
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 Registrant'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 99.1 of Registrant's Registration Statement on
Form S-8 (Registration No. 333-55618)).
10.3 --DoubleClick Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 99.13 of Registrant's Registration
Statement on Form S-8 (Registration No. 333-90653)).
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* --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* --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** --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).
10.13** --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).
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of PricewaterhouseCoopers LLP.
23.2 --Consent of KPMG LLP.
- ---------
* Confidential treatment granted for certain portions of this Exhibit pursuant
to the rules and regulations of the Securities Act of 1933, as amended.
** Confidential treatment granted for certain portions of this Exhibit pursuant
to the rules and regulations of the Securities Exchange Act of 1934, as
amended.
74
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 12th day of March, 2001.
DOUBLECLICK INC.
By: /S/ KEVIN P. RYAN
..................................
KEVIN P. RYAN
CHIEF EXECUTIVE OFFICER DIRECTOR
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 March 12, 2001:
SIGNATURE TITLE(S)
--------- --------
/S/ KEVIN P. RYAN
......................................... Chief Executive Officer (Principal Executive Officer)
KEVIN P. RYAN and Director
/S/ STEPHEN R. COLLINS
......................................... Chief Financial Officer (Principal Financial Officer and
STEPHEN R. COLLINS Principal Accounting Officer)
/S/ KEVIN J. O'CONNOR
......................................... Chairman of the Board of Directors
KEVIN J. O'CONNOR
/S/ DWIGHT A. MERRIMAN
......................................... 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
/S/ DON PEPPERS
......................................... Director
DON PEPPERS
/S/ THOMAS S. MURPHY
......................................... Director
THOMAS S. MURPHY
75
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
2.1 --Agreement and Plan of Merger and Reorganization dated as
of June 13, 1999, by and among Registrant, 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).
2.4 --Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of November 17, 2000, by and
among DoubleClick Inc., Atlas Merger Sub, Inc., Atlas
Acquisition Corp. and @plan.inc, including annexes thereto
but excluding any schedules (Incorporated by reference to
@plan.inc's Form 8-K filing, dated November 20, 2000.
2.5 --Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of January 22, 2001, by and among
DoubleClick Inc., Atlas Merger Sub, Inc., Atlas
Acquisition Corp. and @plan.inc, as amended, including
annexes thereto but excluding any schedules (Incorporated
by reference to @plan.inc's Form 8-K filing, dated
November 20, 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 Amendment of our Amended and Restated
Certificate of Incorporation (Incorporated by reference to
Exhibit 3.01 of Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
3.1(b) --Certificate of Correction of Amended and Restated
Certificate of Incorporation (Incorporated by reference to
Exhibit 3.1(a) of Registrant's Annual Report on Form 10-K
for the year ended December 31, 1999).
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 Registrant'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 99.1 of Registrant's Registration Statement on
Form S-8 (Registration No. 333-55618)).
10.3 --DoubleClick Employee Stock Purchase Plan (Incorporated by
reference to Exhibit 99.13 of Registrant's Registration
Statement on Form S-8 (Registration number 333-90653)).
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.
NUMBER DESCRIPTION
- ------ -----------
10.9 --Lease, dated May 22, 1998, between Western States
Ventures, LLC and Abacus Direct Corporation, for office
space in Broomfield, CO.
10.10* --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* --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** --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).
10.13** --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).
21.1 --Subsidiaries of the Registrant.
23.1 --Consent of PricewaterhouseCoopers LLP.
23.2 --Consent of KPMG LLP.
- ---------
* Confidential treatment granted for certain portions of this Exhibit pursuant
to the rules and regulations of the Securities Act of 1933, as amended.
** 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 trademark symbol shall be expressed as ........................... 'TM'
The registered trademark symbol shall be expressed as ................ 'r'