DOUBLECLICK INC - 10-Q Quarterly Report

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 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

As of May 7, 2004 there were 135,695,404 outstanding shares of the registrant’s Common Stock.

The accompanying notes are an integral part of these consolidated financial statements.

DoubleClick is a leading provider of technology and data marketing products used by direct marketers, Web publishers and advertisers. DoubleClick’s solutions help its customers to optimize their advertising and marketing campaigns online and through direct mail. DoubleClick offers a broad array of technology and data products and services to its customers to allow them to address a full range of the marketing processes, from pre-campaign planning and testing, to execution, measurement and campaign refinements.

DoubleClick derives its revenues from two business segments: TechSolutions and Data. DoubleClick TechSolutions includes its ad management and marketing automation divisions. DoubleClick’s ad management division includes products which consist primarily of the DART for Publishers Service, the DART for Advertisers Service, the DART Enterprise ad serving software product, and DART Motif. DoubleClick’s marketing automation division includes products such as email products based on DoubleClick’s DARTmail Service as well as campaign management and analytics products and services. As a result of its acquisition of SmartPath, Inc. (“SmartPath”), a marketing resource management software company in March 2004, DoubleClick began to offer marketing planning and operational management solutions as part of its marketing automation suite of products. DoubleClick Data includes its Abacus and Data Management divisions. Abacus utilizes the information contributed to the proprietary Abacus database by Abacus Alliance members to make direct marketing more effective for Abacus Alliance members and other clients. Data Management was formed as a result of DoubleClick’s acquisition of Computer Strategy Coordinators, Inc., which was completed on June 30, 2003. Data Management offers direct marketers solutions for building and managing customer marketing databases, tools to plan, execute and measure multi-channel marketing campaigns, as well as list processing and data hygiene products and services.

The accompanying 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 it has significant influence are accounted for using the equity method. Investments in which DoubleClick does not have the ability to exercise significant influence are accounted for using the cost method.

The accompanying interim consolidated financial statements have been prepared in accordance with the rules and regulations of Securities and Exchange Commission. The accompanying interim consolidated financial statements are unaudited, but in the opinion of management, contain all the normal, recurring adjustments considered necessary to present fairly the financial position, the results of operations and cash flows for the periods presented in conformity with generally accepted accounting principles applicable to interim periods. Results of operations are not necessarily indicative of the results expected for the full fiscal year or for any future period.

The Consolidated Balance Sheet at December 31, 2003 has been derived from, but does not include all the disclosures contained in, the audited Consolidated Financial Statements for the year ended December 31, 2003. The accompanying Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements of DoubleClick for the year ended December 31, 2003.

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 consist of government and corporate debt securities and are classified as current or non-current assets depending on their dates of maturity. As of March 31, 2004, all marketable securities included in non-current assets have maturities greater than one year.

DoubleClick classifies its investments in marketable securities as available-for-sale. Accordingly, these investments are carried at fair value, with unrealized gains and losses reported as a separate component of stockholders’ equity. DoubleClick recognizes gains and losses when these securities are sold using the specific identification method. DoubleClick has not recognized any material gains or losses from the sale of its investments in marketable securities.

Restricted cash primarily represents amounts placed in escrow relating to funds used to cover office lease security deposits and our automated clearinghouse payment function.

Property and equipment is recorded 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 software is depreciated using the straight-line method over the estimated life of the software, generally three to five years.

DoubleClick records as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. SFAS No. 142, “Goodwill and Other Intangible Assets,” prescribes a two-step process for impairment testing of goodwill, which is performed annually, as well as when an event triggering impairment may have occurred. The first step tests for impairment, while the second step, if necessary, measures the impairment. DoubleClick has elected to perform its annual analysis during the fourth quarter of each fiscal year as of October 1st. No indicators of impairment were identified during the first quarter of 2004.

Intangible assets include patents, trademarks, customer relationships, purchased technology and a covenant not to compete. Such intangible assets are amortized on a straight-line basis over their estimated useful lives, which are generally two to five years.

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.

DoubleClick’s revenues are presented net of a provision for advertiser credits, which is estimated and established in the period in which services are provided. These credits are generally issued in the event that solutions do not meet contractual specifications. Actual results could differ from these estimates.

TechSolutions. Revenues include fees earned from the use of DoubleClick’s ad management and marketing automation products and services. Revenues derived from DoubleClick’s hosted, or Web-based, applications, including the DART for Publishers Service, the DART for Advertisers Service and DARTmail, are recognized in the period the advertising impressions or emails are delivered, provided collection of the resulting receivable is reasonably assured. DART Service activation fees are deferred and recognized ratably over the expected term of the customer relationship.

For DoubleClick’s licensed ad serving and campaign management software solutions, revenues are recognized when product installation is complete, which generally occurs 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 serving 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, which is generally one year.

Data. Abacus provides services to its clients that result in a deliverable product in the form of consumer and business prospect lists. Revenues are recognized when the product is shipped to the client, provided collection of the resulting receivable is reasonably assured. Data Management provides list processing, database development and database management services. List processing and database development revenues are recognized in the period that the product is completed and delivered, provided that collection is reasonably assured. Database management revenues are recognized as the services are provided.

Product development expenses consist primarily of compensation and related benefits, consulting fees and other operating expenses associated with product development departments. The product development departments perform research and development, enhance and maintain existing products and provide quality assurance. 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.

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 SAB No. 51.

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 not more likely than not that some portion or all of the deferred tax assets will be realized.

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 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.

DoubleClick accounts for its employee stock option plans under the intrinsic value method, in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Under APB 25, generally no compensation expense is recorded when the terms of the award are fixed and the exercise price of the employee stock option equals or exceeds the fair value of the underlying stock on the date of the grant. DoubleClick has adopted the disclosure-only requirements of 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 December 2002, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” which amends SFAS No. 123, “Accounting for Stock-Based Compensation.”

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 No. 123, DoubleClick’s net income would have decreased and net loss would have increased to the pro forma amounts indicated below:

The per share weighted average fair value of options granted for the three months ended March 31, 2004 and 2003 was $6.15 and $3.25, respectively, on the grant date with the following weighted average assumptions:

The pro forma impact of options on the net income (loss) for the three months ended March 31, 2004 and 2003 is not representative of the effects on net income (loss) for future years, as future years will include the effects of additional years of stock option grants.

Basic net income per share excludes the effect of potentially dilutive securities and is computed by dividing the net income available to common shareholders by the weighted-average number of common shares outstanding for the reporting period. Diluted net income per share adjusts this calculation to reflect the impact of outstanding convertible securities and stock options to the extent that their inclusion would have a dilutive effect on net income per share for the reporting period.

At March 31, 2004 and 2003 outstanding options of approximately 9.8 million and 13.0 million, respectively, to purchase shares of common stock were not included in the computation of diluted net income per share because to do so would have had an antidilutive effect for the periods presented. Similarly, the computation of diluted net income per share at March 31, 2004, excludes the effect of 10.3 million shares of common stock issuable upon conversion of the Zero Coupon Subordinated Notes due 2023. In addition, at March 31, 2003 the effect of 3.8 million shares of common stock issuable upon conversion of the 4.75% Convertible Subordinated Notes due 2006 were excluded since their inclusion would also have had an antidilutive effect.

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

In May 2003, the Financial Accounting Standards Board (the “FASB”), issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”). SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003 with the exception of an indefinite deferral relating to application to limited life entities. The adoption of SFAS No. 150 did not have a material effect on DoubleClick’s financial position, results of operations or cash flows.

On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). SFAS No. 149 amends SFAS No. 133 for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 149 requires contracts with comparable characteristics to be accounted for similarly. In particular, SFAS No. 149 clarifies when a contract with an initial net investment meets the characteristic of a derivative and clarifies when a derivative that contains a financing component will require special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on DoubleClick’s financial position, results of operations or cash flows.

In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities that either (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) are owned by equity investors who lack an essential characteristic of a controlling financial interest. FIN 46 applies immediately to variable interest entities created after January 31, 2003. With regard to variable interest entities already in existence prior to February 1, 2003, the implementation of FIN 46 has been delayed and currently applies to the first fiscal year or interim period beginning after December 15, 2003. FIN 46 requires disclosure of variable interest entities in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date (1) an entity will be the primary beneficiary of an existing variable interest entity that will require consolidation, or (2) an entity will hold a significant variable interest in, or have significant involvement with, an existing variable interest entity. DoubleClick does not have any entities as of March 31, 2004 that required disclosure or new consolidation as a result of adopting the provisions of FIN 46.

On March 19, 2004, DoubleClick completed its acquisition of SmartPath, a privately held marketing resource management, or MRM, software company for approximately $24.1 million in cash. The SmartPath MRM solution adds marketing planning and operational management solutions to DoubleClick’s existing offerings in channel execution and data and analytics optimization. In addition, SmartPath

provides DoubleClick with an expanded platform to enter traditional marketing channels such as print and television.

The purchase price has been allocated to the assets acquired and the liabilities assumed according to their fair value at the date of acquisition as follows (in millions):

On the basis of estimated fair values, approximately $3.3 million of the purchase price has been allocated to purchased technology, $1.3 million to customer relationships and $2.4 million to a covenant not to compete. The purchased technology and the customer relationships are being amortized on a straight-line basis over three years based on each intangibles estimated useful life. The covenant not to compete is being amortized on a straight-line basis over 15 months.

The results of SmartPath’s operations will be included in DoubleClick’s Consolidated Statement of Operations beginning in the second quarter of 2004.

On June 30, 2003, DoubleClick completed its acquisition of Computer Strategy Coordinators, or CSC, a data management company based in Schaumburg, Illinois. This acquisition enabled DoubleClick to strengthen the link between its email, campaign management and Web site analytics technology businesses with its data businesses, to create a comprehensive and bundled solution. In the transaction, DoubleClick acquired all of the outstanding shares of CSC in exchange for approximately $2.8 million in cash, inclusive of $0.4 million of direct acquisition costs, and the assumption of certain indebtedness.

The purchase price has been allocated to the assets acquired and the liabilities assumed according to their fair value at the date of acquisition as follows (in millions):

On the basis of estimated fair values, approximately $5.6 million of the purchase price has been allocated to customer relationships and $1.2 million to purchased technology. These intangibles are being amortized on a straight-line basis over three years based on each intangible’s estimated useful life.

The results of operations of CSC were included in DoubleClick’s Consolidated Statement of Operations beginning in the third quarter of 2003.

The following unaudited pro forma results of operations have been prepared assuming that the acquisitions of SmartPath and CSC, consummated during 2004 and 2003, occurred at the beginning of the respective periods presented. This pro forma financial information should not be considered indicative of the actual results that would have been achieved had the acquisitions been completed on the dates indicated and does not purport to indicate results of operations as of any future date or any future period.

DoubleClick’s investments in affiliates at March 31, 2004 and December 31, 2003 consisted of the following:

In connection with DoubleClick’s sale of its European Media business to AdLINK Internet Media AG (“AdLINK’) in January 2002, DoubleClick acquired an option to acquire an additional 21% of AdLINK common shares from United Internet AG, AdLINK’s largest shareholder. This option is only exercisable if AdLINK has achieved EBITDA positive results for the fiscal quarters ending December 31, 2003 and March 31, 2004. DoubleClick is determining whether AdLINK achieved EBITDA positive results for the fiscal quarter ended December 31, 2003.

DoubleClick’s investment in AdLINK represents an investment in a publicly traded company, which is accounted for as available-for-sale marketable securities. Accordingly this investment is carried at fair value with changes in fair value being reported as a component of other comprehensive income. At March 31, 2004 and December 31, 2003, DoubleClick’s cost basis in this investment was approximately $1.9 million.

As of March 31, 2004 and December 31, 2003, DoubleClick’s investments in MaxWorldwide, Inc. (“MaxWorldwide’) and DoubleClick Japan represent investments in publicly traded companies which are accounted under the equity method of accounting. At March 31, 2004 and December 31, 2003, the fair value of these investments was as follows:

In January 2004, DoubleClick commenced operations of Abacus Deutschland, a joint venture with AZ Direct GmbH, a subsidiary of Bertelsmann AG, a global media company. DoubleClick has a 50% interest in

the joint venture which required an initial investment of approximately $0.5 million and is expected to require additional investments of $1.0 million during 2004. Abacus Deutschland is based in Düsseldorf, Germany and offers German catalog companies modeling tools designed to improve their direct marketing initiatives.

In the first quarter of 2004, DoubleClick recognized a gain of $2.4 million relating to a distribution from MaxWorldwide in connection with its plan of liquidation and dissolution. DoubleClick still maintains a 19.8% interest in MaxWorldwide and may receive additional distributions in future periods based on the finalization of its plan of liquidation and dissolution.

During the first quarter of 2003, DoubleClick sold its remaining investment in NetRatings and received proceeds of approximately $0.6 million. The gain recognized on the sale of this investment was not material.

The changes in the carrying amount of goodwill for the three months ended March 31, 2004 are as follows (in thousands):

Goodwill at March 31, 2004 and December 31, 2003 relates solely to DoubleClick’s TechSolutions segment.

Amortization expense was $1.5 million and $2.9 million for the three months ended March 31, 2004 and 2003, respectively. For each of the three months ended March 31, 2004 and 2003, $0.9 million of amortization expense relating to purchased technology has been included as a component of cost of revenue in the Consolidated Statements of Operations.

Based on the balance of intangible assets at March 31, 2004, the annual amortization expense for each of the succeeding three fiscal years is estimated to be $6.8 million, $3.5 million and $0.8 million in 2005, 2006 and 2007, respectively. Amortization expense for the remaining balance of fiscal 2004 is estimated to be $5.5 million.

On June 23, 2003, DoubleClick issued $135.0 million aggregate principal amount of Zero Coupon Convertible Subordinated Notes due 2023 (the “Zero Coupon Notes”) in a private offering. The Zero Coupon Notes do not bear interest and have a zero yield to maturity. The Zero Coupon Notes are convertible under certain circumstances into DoubleClick common stock at a conversion price of approximately $13.12 per share, which would result in an aggregate of approximately 10.3 million shares, subject to adjustment upon the occurrence of specified events. Each $1,000 principal amount of the Zero Coupon Notes will initially be convertible into 76.2311 shares of DoubleClick common stock prior to July 15, 2023 if the sale price of DoubleClick’s common stock issuable upon conversion of the Zero Coupon Notes reaches a specified threshold for a defined period of time, if specified corporate transactions have occurred or if DoubleClick calls the Zero Coupon Notes for redemption. The specified thresholds for conversion prior to the maturity date are (a) during any calendar quarter, the last reported sale price of DoubleClick’s common stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the previous calendar quarter is greater than or equal to 120% of the applicable conversion price on that 30th trading day and (b) subject to certain exceptions, during the five business day period following any five consecutive trading day period, the trading price per $1,000 principal amount of Zero Coupon Notes for each of the five consecutive trading days is less than 98% of the product of the last reported sale price of DoubleClick’s common stock and the conversion rate (initially 76.2311) on each such day. As of March 31, 2004, these thresholds have not been met.

The Zero Coupon Notes are DoubleClick’s general unsecured obligations and are subordinated in right of payment to all of its existing and future senior debt. DoubleClick may not redeem the Zero Coupon Notes prior to July 15, 2008. DoubleClick may be required to repurchase any or all of the Zero Coupon Notes upon a change of control or a termination of trading. DoubleClick may redeem for cash some or all of the Zero Coupon Notes at any time on or after July 15, 2008. Holders of the Zero Coupon Notes also have the right to require DoubleClick to purchase some or all of their notes for cash on July 15, 2008, July 15, 2013 and July 15, 2018, at a price equal to 100% of the principal amount of the Zero Coupon Notes being redeemed plus accrued and unpaid liquidated damages, if any.

DoubleClick received net proceeds of approximately $131.5 million and incurred issuance costs of approximately $3.5 million. The issuance costs will be amortized from the date of issuance through July 15, 2008 and are included as a component of “Other assets” on the Consolidated Balance Sheet.

The Zero Coupon Notes contain an embedded derivative, the value of which as of March 31, 2004 has been determined by a third party valuation to be immaterial to our consolidated financial position. For financial accounting purposes, the ability of the holder to convert upon the satisfaction of a trading price condition constitutes an embedded derivative. Any changes in its value will be reflected in our future income statements, in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.”

During the first quarter of 2004, no restructuring charges or credits were recorded. Cash paid during the quarter with respect to previously accrued restructuring charges was approximately $8.7 million of which $7.6 million consisted of the final lease termination payment relating to DoubleClick’s former New York headquarters. The remaining $1.1 million related to lease and other exit costs at excess and idle facilities in New York and for DoubleClick’s other facilities, primarily London, England and Louisville, Colorado.

The restructuring accrual as of March 31, 2004 of approximately $24.6 million consists primarily of DoubleClick’s facilities in Louisville, Colorado and London, England. The restructuring accrual associated

with these facilities represents the excess of future lease commitments over estimated sublease income, if any. These accruals were based on an analysis performed with the assistance of a real estate firm and are based on the current real estate market conditions in the local markets where these facilities are located. Should market conditions or other circumstances change, this information may be updated and restructuring charges or credits may be required.

As of March 31, 2004, approximately $3.7 million and $20.9 million remained accrued in “Accrued expenses and other current liabilities” and “Other long-term liabilities,” respectively, and relates wholly to future lease costs.

The following table sets forth a summary of the costs and related charges for DoubleClick’s restructuring charges and the balance of the restructuring reserves established (in thousands):

In April 2002, a consolidated amended class action complaint alleging violation of the federal securities laws in connection with DoubleClick’s follow-on offerings was filed in the United States District Court for the Southern District of New York naming as defendants DoubleClick, some of its officers and directors and certain underwriters of DoubleClick’s follow-on offerings. In October 2002, the action was dismissed against the named officers and directors without prejudice. However, claims against DoubleClick remain. In July 2002, DoubleClick and the other issuers in the consolidated cases filed motions to dismiss the amended complaint for failure to state a claim, which was denied as to DoubleClick in February 2003.

In June 2003, DoubleClick’s Board of Directors conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of DoubleClick and of the individual defendants for the conduct alleged in the action to be wrongful in the amended complaint. DoubleClick would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims it may have against its underwriters. The Board agreed to approve the settlement subject to a number of conditions, including the participation of a substantial number of other issuer defendants in the proposed settlement, the consent of our insurers to the settlement, and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a hearing on fairness and approval by the Court overseeing the IPO litigations. If this settlement is not finalized, DoubleClick intends to dispute these allegations and defend this lawsuit vigorously.

DoubleClick is defending two class action lawsuits, one filed in Allegheny County, Pennsylvania and the other in San Joaquin County, California, alleging, among other things, deceptive business practices, fraud, misrepresentation, invasion of privacy and right of association relating to allegedly deceptive content of online advertisement that plaintiffs assert we delivered to consumers. The actions seek, among other things, injunctive relief, compensatory and punitive damages and attorneys’ fees and costs. In April 2004, the court in the California action entered an order dismissing several claims against DoubleClick with leave to amend. DoubleClick believes these claims are without merit and intends to defend these actions vigorously.

As previously reported, in October 2003, DoubleClick received a grand jury subpoena from the United States Attorney’s Office for the Southern District of New York (“U.S. Attorney’s Office”) seeking documents regarding certain vendors that provided services to DoubleClick, including interior construction and facilities

management, during the period from 1999 through 2001. The services provided by these vendors are unrelated to the products and services provided by DoubleClick to its customers. In March 2004, the U.S. Attorney’s Office issued a press release announcing an Indictment against nineteen individuals, including a former DoubleClick employee, for racketeering and other federal crimes. The Indictment alleges a scheme to defraud DoubleClick through extortion of one of its vendors and through kickbacks to the DoubleClick former employee named in the Indictment. The press release states that these kickback payments “were made without knowledge of [the former employee’s] superiors at DoubleClick and were in direct violation of the written policies and procedures of DoubleClick”.

DoubleClick is continuing to fully cooperate with the U.S. Attorney’s Office. In addition, following receipt of the grand jury subpoena, DoubleClick conducted an internal investigation and has implemented remedial measures to improve its selection, use and oversight of its vendors. DoubleClick does not believe that any overpayments by DoubleClick relating to the vendor named in the Indictment or the other vendors listed in the grand jury subpoena are material with respect to its financial statements for the periods in question or its current financial condition.

DoubleClick is organized into two segments: TechSolutions and Data. In December 2003, DoubleClick changed its measure of segment profit or loss from gross profit to operating income (loss). As a result, DoubleClick has adjusted its prior period segment disclosures to conform to this new measurement. Adjustments to reconcile segment reporting to consolidated results are included in “corporate”. Corporate represents the results of operations of DoubleClick’s unallocated corporate overhead. The accounting policies of DoubleClick’s segments are the same as those described in the summary of significant accounting policies.

Comprehensive income (loss) consists of net income, unrealized gains and losses on marketable securities and foreign currency translation adjustments. Comprehensive income was $15.0 million for the three months ended March 31, 2004. Comprehensive loss was $1.2 million for the three months ended March 31, 2003.

This report contains forward-looking statements relating to future events and our future performance within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Stockholders are cautioned that such statements involve risks and uncertainties. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management’s beliefs and assumptions. Any statements contained herein, including without limitation, statements to the effect that we or our management “believes”, “expects”, “anticipates”, “plans” or similar expressions that are not statements of historical fact should be considered forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this report and in our other public filings with the securities and exchange commission. It is routine for internal projections and expectations to change as the year or each quarter in the year progresses, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations are made as of the date of this Quarterly Report on Form 10-Q and may change prior to the end of each quarter or the year. while we may elect to update forward-looking statements at some point in the future, we may not update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

We provide technology and data products and services that direct marketers, Web publishers and advertisers use to optimize their marketing programs and efficiently reach their customers. We derive revenues from two business segments: DoubleClick TechSolutions, which we refer to as our TechSolutions segment and DoubleClick Data, which we refer to as our Data segment.

DoubleClick TechSolutions. TechSolutions includes products and services from our ad management and our marketing automation divisions. Our ad management products and services consist of our DART for Publishers Service, DART Enterprise, DART for Advertisers Service, Motif and MediaVisor. Our marketing automation products and services consist of a suite of email products based on our DARTmail Service, Ensemble, our campaign management software tool, and SiteAdvance, our Web site analytics solution. As a result of our acquisition of SmartPath, Inc., a marketing resource management, or MRM, software company in March 2004, we began to offer marketing planning and operational management solutions as part of our marketing automation suite of products and services. We generate our TechSolutions revenue primarily from the delivery of advertising impressions and emails as well as the sale and the installation of our licensed software products.

DoubleClick Data. Data, which consists of our Abacus and Data Management divisions, provides products and services to direct marketers. Abacus maintains the Abacus Alliance database in the United States, which is the largest proprietary database of consumer transactions used for target marketing purposes, and maintains alliances in the United Kingdom, Japan and through a joint venture, in Germany. In the United States, we also offer a Business-to-Business Alliance. As a result of our acquisition of Computer Strategy

Coordinators, Inc., a data management company, in June 2003 we began to offer direct marketers solutions for building and managing customer marketing databases and other related products and services as part of the new Data Management division. We generate our Data revenue primarily from the sale of consumer and business prospect lists, list processing, database development and database management services.

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions, which management believes to be reasonable, based on the information available. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. Variances in the estimates or assumptions used could yield materially different accounting results. Described below are the areas where we believe that the estimates, judgments or assumptions that we have made, if different, would have yielded the most significant differences in our financial statements.

Our restructuring reserves as of March 31, 2004 were approximately $24.6 million, and consisted primarily of reserves for our facilities in Louisville, Colorado and London, England. The restructuring accrual associated with our facilities represents the excess of future lease commitments over estimated sublease income, if any. These accruals were based on an analysis performed with the assistance of a real estate firm and are based on the current real estate market conditions in the local markets where these facilities are located. The most material estimate is associated with our facility in London where the office space is currently sublet for only a portion of the remaining lease term. The total remaining obligation for this facility is approximately $45.0 million. Our London reserve is based on our estimate of future sublease income relative to the total remaining obligation and was determined based on the weighted probability of various future sublease scenarios. These scenarios resulted in a weighted average sublease rate where for each $1.00 change in this assumption, additional restructuring charges or credits of approximately $0.2 million would be required. If market conditions or other circumstances change, this information may be updated and additional charges or credits may be required.

We record reductions to revenue for the estimated future credits issuable to our customers in the event that solutions do not meet contractual specifications. We follow this method because reasonably dependable estimates of such credits can be made based on historical experience. If the actual amounts of customer credits differ from our estimates, revisions to the associated allowance may be required. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in subsequent periods.

We invest in companies, technologies and intangible assets in areas within our strategic focus, some of which have highly volatile fair values and uncertain profit potentials. We evaluate our investments for impairment on a periodic basis and reduce the carrying values of such assets to their estimated fair value when we believe an investment has experienced a decline in value that is other than temporary. Future adverse changes in market conditions or poor operating results of strategic investments could indicate an inability to recover the carrying value of the investments, thereby possibly requiring impairment charges in the future.

We evaluate our goodwill for impairment annually, as well as when an event triggering impairment may have occurred. We have elected to perform our annual impairment analysis during the fourth quarter of each fiscal year as of October 1st. In accordance with Statements of Financial Accounting Standards No. 142,

When it is determined that the carrying value of goodwill may be impaired or investments may not be recoverable, management measures impairment based on projected discounted cash flows, recent transactions involving similar businesses and price/revenue multiples at which they were bought and sold, price/revenue multiples of competitors and the closing market price for investments that are publicly traded.

As of March 31, 2004, we held investments in equity instruments of public companies received as a result of certain business transactions, including shares held in DoubleClick Japan, AdLINK Internet Media AG and MaxWorldwide, Inc. Such investments, which are in the Internet industry, are subject to significant fluctuations in fair market value due to the volatility of the stock market. The following sets forth the cost basis and fair market value of these investments, which are included in as “Investment in affiliates” on the Consolidated Balance Sheets.

Some of these investments have suffered a decrease in value in the past as a result of market volatility. We will continue to evaluate our investments in affiliates for impairment due to declines in market value considered to be other than temporary. This evaluation includes, in addition to persistent, declining stock prices, general economic and company-specific assessments. In the event of a determination that a further decline in market value is other than temporary, a charge to earnings will be recorded for all or a portion of the unrealized loss and a new cost basis in the investment will be established.

Pursuant to SFAS 109, we record a valuation allowance to the extent realization of our deferred tax assets is not more likely than not. As of March 31, 2004 and December 31, 2003, we maintained a valuation allowance against those net deferred tax assets that we believe, after considering all the available objective evidence, both positive and negative, historical and prospective, with greater weight given to historical evidence, are not more likely than not expected to be realized. If we determine that we would be able to realize additional or all of our deferred tax assets, an adjustment to the net deferred tax asset would increase income and/or adjust additional paid-in capital and/or goodwill in the period such determination was made.

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. We periodically review the useful lives of our assets to confirm that such useful life determination is appropriate. If we determine that the estimated useful life of our assets needs to be adjusted to reflect depreciation expense over the remaining time that the assets are expected to remain in service, future income or losses will be impacted in the subsequent periods after such a determination is made.

In May 2003, the Financial Accounting Standards Board, referred to as FASB, issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, known as SFAS No. 150. SFAS No. 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first

interim period beginning after June 15, 2003 with the exception of an indefinite deferral relating to application to limited life entities. The adoption of SFAS No. 150 did not have a material effect on our financial position, results of operations or cash flows.

On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, known as SFAS No. 149. SFAS No. 149 amends SFAS No. 133 for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 149 requires contracts with comparable characteristics to be accounted for similarly. In particular, SFAS No. 149 clarifies when a contract with an initial net investment meets the characteristic of a derivative and clarifies when a derivative that contains a financing component will require special reporting in the statement of cash flows. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on our financial position, results of operations or cash flows.

In January 2003, FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities”, known as FIN 46. This interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” addresses consolidation by business enterprises of variable interest entities that either (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) are owned by equity investors who lack an essential characteristic of a controlling financial interest. FIN 46 applies immediately to variable interest entities created after January 31, 2003. With regard to variable interest entities already in existence prior to February 1, 2003, the implementation of FIN 46 has been delayed and currently applies to the first fiscal year or interim period beginning after December 15, 2003. FIN 46 requires disclosure of variable interest entities in financial statements issued after January 31, 2003, if it is reasonably possible that as of the transition date (1) an entity will be the primary beneficiary of an existing variable interest entity that will require consolidation, or (2) an entity will hold a significant variable interest in, or have significant involvement with, an existing variable interest entity. We do not have any entities as of March 31, 2004 that required disclosure or new consolidation as a result of adopting the provisions of FIN 46.

On March 19, 2004, we completed our acquisition of SmartPath, a privately held marketing resource management, or MRM, software company for approximately $24.1 million in cash.

On June 30, 2003, we completed our acquisition of Computer Strategy Coordinators, or CSC, a data management company. In the transaction, we acquired all of the outstanding shares of CSC in exchange for approximately $2.8 million in cash, inclusive of $0.4 million of direct acquisition costs, and the assumption of certain indebtedness.

Revenues for the first quarter of 2004 were $68.0 million, an increase of $8.0 million or 13.3% compared to the prior year period. This increase was due to growth in each of our divisions within both our TechSolutions and Data segments. Gross profits increased $7.4 million during the quarter to $45.5 million while gross margins improved by 330 basis points to 66.8%. These increases were driven primarily by our TechSolutions segment. Operating income was $2.6 million versus an operating loss of $0.5 million in the prior year period. Operating income improved due to the increase in gross profits of $7.4 million partially offset by

the increase in operating expenses of $4.3 million. The increase in operating costs was primarily due to sales and marketing expenses, which grew by approximately 30%. This increase was net of a $1.5 million reserve reversal relating to a prior acquisition. Sales and marketing expenses increased primarily due to the hiring of additional employees and the assumption of headcount as a result of our acquisition of CSC. Net income was $7.7 million, or $0.05 per diluted share, as compared to net income of $0.9 million, or $0.01 per diluted share, in the prior year period. Net income for the first quarter of 2004 benefited from the distribution from MaxWorldwide of approximately $2.4 million in connection with its plan of liquidation and dissolution and the reversal of a $1.5 million reserve, previously discussed. We expect revenue and operating income to increase throughout 2004 as a result of anticipated growth in each of our divisions within both our TechSolutions and Data segments.

Revenues, gross profit and operating income (loss) by segment are as follows (in thousands):


(1)	Adjustments to reconcile segment reporting to consolidated results are included in “Corporate.”

TechSolutions revenue is derived from the sales of our ad management and marketing automation products and services. Our ad management products and services consist of the DART for Publishers Service, the DART Enterprise ad serving software product, the DART for Advertisers Service, Motif and MediaVisor. Our marketing automation products and services consist of a suite of email products based on our DARTmail Service, Ensemble, our campaign management software tool, and SiteAdvance, our Web site analytics solution. TechSolutions cost of revenue includes costs associated with the delivery of advertisements and emails, including Internet access costs, depreciation of the ad and email delivery systems, the amortization of purchased technology and facility- and personnel-related costs incurred to operate and support our ad management and marketing automation products.

TechSolutions revenue increased by 9.1% to $45.3 million for the three months ended March 31, 2004 from $41.5 million for the three months ended March 31, 2003. The increase in TechSolutions revenue was attributable to growth in both our ad management and marketing automation divisions. Ad management revenue increased by $2.2 million or 7.0% to $33.3 million in the first quarter of 2004 compared to the same period of 2003. For the three months ended March 31, 2004, the increase in volumes outpaced the decline in

effective price. Volume increases were driven by our existing customer base and were assisted by the signing of over 40 new ad management contracts. The decline in effective price continued to be due to a change in client and product mix and sustained, pricing pressure. The change in client mix was driven by the acquisition of higher-volume, lower-priced customers.

Marketing automation revenue increased 15.0% to $12.0 million in the first quarter of 2004 compared to $10.4 million in the prior year period. This increase was associated with growth in all of our marketing automation products and services. The addition of over 60 new marketing automation customers as well as volume increases within email from existing customers, more than offset price declines.

TechSolutions gross profit was $31.9 million or 70.4% of revenue for the three months ended March 31, 2004 compared to $25.4 million or 61.3% of revenue for the three months ended March 31, 2003. Gross profits increased $6.5 million primarily due to the increase in revenues and decreases in depreciation, rent and utilities of approximately $1.7 million in aggregate. The decrease in depreciation, rent and utilities costs was due to the termination of the lease for our previous New York headquarters and the relocation of our data center from New York to Colorado. In addition, depreciation expense also benefited from the continued efficient use of our existing hardware.

TechSolutions operating income was $8.5 million for the three months ended March 31, 2004, an increase of $5.7 million compared to the prior year period. This improvement was a result of the increase in gross profit partially offset by an increase in operating expenses of approximately $0.8 million. Operating expenses included an increase in personnel-related costs of approximately $2.0 million resulting from the hiring of additional employees as well an increase in bad debt expense of approximately $1.1 million and professional fees of approximately $0.5 million. The increase in personnel-related costs was net of a $1.5 million reserve reversal relating to a prior acquisition. These costs were offset by a decline in depreciation expense of $1.2 million relating to our previous New York headquarters and a reduction in amortization expense of $1.8 million associated with these assets reaching the end of their amortizable lives.

In 2004, we plan to invest additional resources in our TechSolutions research, product development and sales departments to fund future revenue growth. As a part of this strategy, we anticipate hiring additional employees during 2004. We anticipate TechSolutions revenue and operating income will grow in each division as compared to the year ago periods even with the additional investments described above.

DoubleClick Data revenue has historically been derived primarily from our Abacus division, which provides products and services, such as acquisition solutions, retention solutions and list optimization, to direct marketers and merchants in the Abacus Alliances. As a result of our acquisition of CSC in June 2003, we began to offer direct marketers solutions for building and managing customer marketing databases and other related products and services as part of the new Data Management division. Data cost of revenue includes expenses associated with maintaining and updating the Abacus databases, facility- and personnel-related expenses to operate and support our production equipment, the amortization of purchased intangible assets and subscriptions to third party providers of lifestyle and demographic data that is used to supplement our transactions based databases.

Data revenue increased 22.8% to $22.8 million for the three months ended March 31, 2004 compared to $18.5 million for the three months ended March 31, 2003. The increase is attributable to the acquisition of CSC and growth from our Abacus business. Abacus revenues increased 9.9% to $20.4 million in the first quarter of 2004 compared to $18.5 million in first quarter of 2003. The remaining Data revenues during the first quarter of 2004 came from DoubleClick’s Data Management division. The year-over-year increase in Abacus revenues were driven primarily from continued growth in Abacus’ U.S. Business-to-Business Alliance and the U.K. Business-to-Consumer Alliance. During the quarter, Abacus added 33 Business-to-Consumer Alliance members and 18 Business-to-Business Alliance members.

Gross profits increased $0.9 million to $13.6 million or 59.6% of revenues in the first quarter of 2004 compared to $12.7 million or 68.4% of revenues in the prior year period. Gross profits were driven by the

Data operating income decreased to $2.5 million for the first quarter of 2004 from $4.5 million in the prior year period. This change was due to an increase in operating expenses of $2.9 million partially offset by the improvement in gross profits of $0.9 million. Operating expenses increased primarily due to additional headcount assumed as a result of the CSC acquisition. As a result, average Data headcount increased 53.5% in the first quarter of 2004 compared to the same period of 2003. In addition, amortization expense included as a component of operating expenses increased by approximately $0.5 million. These expenses are associated with intangible assets acquired in connection with the CSC acquisition.

In 2004, we anticipate Data revenue and operating income will grow in each division as compared to the year ago periods due to growth from our Abacus Alliances in the U.S. and U.K. and new product offerings within Data Management.

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 our sales and marketing departments. Sales and marketing expenses increased by $6.0 million in the first quarter of 2004 compared to the same period of 2003 and increased as a percentage of revenue to 37.7% from 32.7%. The increase was primarily attributable to increases in personnel-related costs of $4.5 million, bad debt expense of $0.9 million, and marketing expenses of $0.5 million. The change in personnel related costs were net of a $1.5 million reserve reversal relating to a prior acquisition. Personnel-related costs increased due to the hiring of additional employees and the assumption of headcount as a result of our acquisition of CSC. As a result, average sales and marketing headcount increased 12.2% in the first quarter of 2004 compared to 2003. The increase in bad debt expense was consistent with our year over year increase in revenues. Additionally, the rise in marketing expenditures related to our worldwide Insight conferences, our annual trends and best practices conference featuring industry thought leaders, case studies and technical tracks.

For the remainder of 2004, we expect the absolute dollar amount of sales and marketing expenses to remain relatively flat as compared to the first quarter of 2004 as we have completed most of our planned hiring, but to decrease slightly as a percentage of revenues due to anticipated higher revenues.

General and administrative expenses consist primarily of compensation and related benefits, professional services and other operating expenses associated with our executive, finance, human resources, legal, facilities and administrative departments. General and administrative expenses decreased marginally by $0.8 million to 11.9% of revenue in the first quarter of 2004 compared to 14.8% of revenue in the same period of 2003. Cost savings initiatives during the year resulted in reductions of $0.4 million in computer-related office expenses and $0.8 million in professional and outside service fees. These decreases were partially offset by increases in personnel-related costs of $0.7 million due to the increase in average general and administrative headcount of 9.4% in the first quarter of 2004 compared to the same period of 2003.

For the remainder of 2004, we expect general and administrative expenses to remain flat in absolute dollars, but decrease as a percentage of revenues due to anticipated higher revenues as compared to the first quarter of 2004.

Product development expenses consist primarily of compensation and related benefits, consulting fees and other operating expenses associated with the product development departments. The product development departments perform research and development, enhance and maintain existing products and provide quality assurance. Product development expenses increased marginally in the first quarter of 2004 compared to the same period of 2003, but decreased as a percentage of revenue from 13.4% in 2003 to 12.5% in 2004. The increase was primarily due to approximately $0.4 million in professional fees relating to new product initiatives.

For the remainder of 2004, we expect product and development expenses to increase significantly in absolute dollars and as a percentage of revenue as compared to the first quarter of 2004 and the year ago periods due to hiring of additional employees and the assumption of headcount as a result of our acquisition of SmartPath.

Amortization of intangible assets consists primarily of the amortization of customer relationships. Amortization expense was $0.6 million and $2.1 million for the three months ended March 31, 2004 and 2003, respectively. The decrease of $1.5 million in the first quarter of 2004 compared to the same period of the prior year was primarily the result of certain intangible assets becoming fully amortized during the year.

We expect amortization of intangible assets to increase during the remainder of 2004 due to the acquisition of SmartPath in March 2004, offset slightly by other intangible assets as they become fully amortized.

Equity in losses of affiliates was $0.2 million and $1.3 million for the three months ended March 31, 2004 and 2003, respectively. In the first quarter of 2004, we recognized equity losses of approximately $0.1 million from our equity investment in DoubleClick Japan and approximately $0.1 million from our investment in Abacus Deutschland.

In the first quarter of 2003, we recognized equity losses of $0.3 million relating to our equity investment in DoubleClick Japan and $1.0 million from our equity investment in MaxWorldwide.

In the first quarter of 2004, we recognized a gain of $2.4 million relating to a distribution from MaxWorldwide in connection with its plan of liquidation and dissolution. We still maintain a 19.8% interest in MaxWorldwide and may receive additional distributions in future periods based on the finalization of its plan of liquidation and dissolution.

In the first quarter of 2003, we did not recognize any gains from affiliate distributions.

Interest and other, net was $3.5 million and $3.0 million for the three months ended March 31, 2004, and 2003, respectively. In the first quarter of 2004, interest income decreased by $2.0 million due to a combination of a decrease of total cash, which includes cash and cash equivalents, investments in marketable securities and restricted cash, of $119.7 million compared to the prior year period and a decrease in the average interest rates. Interest expense decreased due to the redemption of our 4.75% Convertible Subordinated Notes due 2006 in July 2003. Other primarily includes the effect of foreign exchange rate fluctuations on operations resulting in gains of $0.7 million and $0.1 million for the three months ended March 31, 2004 and 2003, respectively.

Interest and other, net may fluctuate in future periods in correlation with the average cash, investment and debt balances we maintain and as a result of changes in the market rates of our investments.

The provision for income taxes recorded for the three months ended March 31, 2004 of $0.6 million consists principally of income taxes of $0.4 million on the earnings of our foreign subsidiaries, Federal alternative minimum taxes of $0.1 million, and state and local taxes of $0.1 million. The provision for income taxes recorded for the three months ended March 31, 2003 of $0.3 million consists principally of income taxes of $0.4 million on the earnings of some of our foreign subsidiaries and $0.1 million of Federal alternative minimum tax, reduced by a benefit of approximately $0.2 million of state and local refunds received during the first quarter. The provision for income taxes for the three months ended March 2004 and 2003 does not reflect tax benefits attributable to our net operating loss and other tax carryforwards due to limitations and uncertainty surrounding our prospective realization of such benefits.

In the first quarter of 2004, cash used in operating activities was $7.4 million, a decrease of $12.3 million compared to the same period in 2003. The decrease is primarily due to the final lease termination payment of $7.6 million for our previous New York headquarters and an increase in accounts receivable of $5.4 million due to the timing of collections. During the current quarter, cash used in operating activities included decreases of $13.1 million in accrued expenses and other liabilities and $1.9 million in prepaid expenses and other assets, partially offset by increases in deferred revenue of $1.5 million and accounts payable of $1.2 million. The decrease in accrued expenses and other liabilities related to the payment of certain liabilities while the remaining balance sheet items were primarily due to timing.

In the first quarter of 2003, cash provided by operating activities was $4.9 million resulting primarily from our net income, adjusted for non-cash items. In addition, accrued expenses and other liabilities decreased $20.0 million due to the payment of other liabilities partially offset by an increase in deferred revenue of $3.3 million and prepaid expenses of $3.3 million.

For the remainder of 2004, we expect to generate positive cash flow from operating activities on a quarterly basis due to the completion of restructuring payments for our previous New York headquarters, the redemption of our 4.75% Convertible Subordinated Notes due 2006 and the anticipated increase in revenues and net income.

In the first quarter of 2004, cash used in investing activities was $37.4 million, a decrease of $73.0 million compared to the same period in 2003. The decline is primarily due to the decrease in the net proceeds from purchases and maturities of investments in marketable securities of $70.0 million compared to 2003. In addition, we used $22.4 million, net of cash acquired, for the acquisition of SmartPath and $6.1 million for capital expenditures.

In the first quarter of 2003, cash provided by investing activities was $35.6 million resulting primarily from the net proceeds in purchases and maturities of investments in marketable securities of $47.1 million partially offset by capital expenditures of $8.2 million.

For the remainder of 2004, cash flow from investing activities may fluctuate based upon the net proceeds from purchases and maturities of investments in marketable securities and possible acquisitions and as compared to the first quarter of 2004 and the year ago periods.

In the first quarter of 2004, cash used in financing activities was $18.2 million, a decrease of $17.3 million compared to the same period in 2003. The decrease was a result of the purchase of 1.9 million shares our common stock for $20.4 million. These costs were offset by the net increase in proceeds from the issuance of common stock and exercise of stock options of approximately $1.5 million in the quarter.

In the first quarter of 2003, cash used in financing activities was $0.9 million resulting primarily from $1.8 million from payments of our capital lease obligations offset by the net proceeds from the issuance of common stock and stock options of approximately $0.9 million.

For the remainder of 2004, cash flow from financing activities may fluctuate based on possible purchases of our common stock as compared to the first quarter of 2004 and the year ago periods.

We maintain a 15% interest in AdLINK. This interest was acquired in January 2002 as a result of the sale of our European Media business. We currently maintain one seat on AdLINK’s supervisory board. We recognized revenue of approximately $0.5 million and $0.7 million during the three months ended March 31, 2004 and 2003, respectively, relating to services provided to AdLINK.

In addition, we hold a 19.8% interest in MaxWorldwide. This interest was acquired in July 2002 as a result of the sale of our North American Media business. We recognized revenue of approximately $0.8 million during the three months ended March 31, 2003, relating to services provided to MaxWorldwide.

Additionally, we maintain a minority interest in DoubleClick Japan. On December 26, 2002, we sold 45,049 shares of common stock in DoubleClick Japan and reduced our ownership interest to 15.6%. As a result of this transaction, we account for our remaining 31,271 shares in DoubleClick Japan under the equity method of accounting. We also have retained one seat on DoubleClick Japan’s board of directors. DoubleClick Japan will continue to sell our suite of DART technology products as part of a long-term technology reseller agreement. Revenue recognized through services provided to DoubleClick Japan was

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 government and corporate debt obligations and money market funds. As of March 31, 2004, our investments in marketable securities had a weighted average time to maturity of 399 days.

The following table presents the amounts of our financial instruments that are subject to interest rate risk by expected maturity and average interest rates as of March 31, 2004:

As of March 31, 2004, the current portion of restricted cash was $4.2 million and the average interest rate associated with this cash was 0.13% and the non-current portion of restricted cash was $11.7 million with an average interest rate of 0.63%. Restricted cash primarily represents amounts placed in escrow relating to funds to cover office lease security deposits and our automated clearinghouse payment function.

We may redeem for cash some or all of the Zero Coupon Convertible Subordinated Notes due 2023, at any time on or after July 15, 2008. Holders of the Zero Coupon Convertible Subordinated Notes due 2023 also have the right to require us to purchase some or all of their notes for cash on July 15, 2008, July 15, 2013 and July 15, 2018, at a price equal to 100% of the principal amount of the Zero Coupon Convertible Subordinated Notes due 2023 being redeemed plus accrued and unpaid liquidated damages, if any.

The Zero Coupon Convertible Subordinated Notes due 2023 contain an embedded derivative, the value of which as of March 31, 2004 has been determined by a third party valuation to be immaterial to our consolidated financial position. For financial accounting purposes, the ability of the holder to convert upon the satisfaction of a trading price condition constitutes an embedded derivative. Any changes in its value will be reflected in our future income statements, in accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” As of March 31, 2004, we did not hold any other derivative financial instruments.

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 denominated in European and Asian currencies, as well as cash balances held in currencies other than our functional currency and the functional currency our subsidiaries. At March 31, 2004, our international revenues were approximately $14.2 million. The revenues included beneficial foreign currency

movements of approximately $1.9 million primarily due to the strength of the Euro versus the U.S. dollar. The effect of foreign exchange rate fluctuations on operations resulted in gains of $0.7 million and $0.1 million for the three months ended March 31, 2004 and 2003, respectively. This was principally as a result of the weakening of the U.S. dollar and its impact upon our U.S. dollar denominated deposits held by our international subsidiaries.

To date we have not used 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 March 31, 2004, we had $58.9 million in cash and cash equivalents denominated in foreign currencies.

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.

The following important factors, among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-Q or presented elsewhere by management from time to time.

We have a limited operating history and our future financial results may fluctuate, which may cause our stock price to decline.

We 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 companies that provide marketing technology and data products and services. Our risks include the ability to:


	•	achieve anticipated revenue growth rates;

	•	manage our operations;

	•	compete effectively in the marketplace;

	•	develop and introduce new products and services;

	•	continue to develop, upgrade and integrate our products and services;

	•	attract, retain and motivate qualified personnel;

	•	maintain our current, and develop new, relationships with direct marketers, Web publishers, advertisers and advertising agencies; and

	•	anticipate and adapt to changing industry conditions.

We also depend on the use of the Internet for advertising and as a communications medium, the demand for advertising and marketing services in general, and on general economic and industry 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 decline or 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.

With the exception of this past fiscal year, we have incurred net losses each year since inception, including net losses of $117.9 million and $265.8 million for the years ended December 31, 2002 and 2001,

respectively. As of March 31, 2004 our accumulated deficit was $641.8 million. With the exception of the fiscal year ended December 31, 2003, we have not achieved profitability on an annual basis and may incur operating losses at times in the future. We expect to continue to incur significant operating and capital expenditures, which may include obligations for facilities that currently constitute excess or idle facilities. Periodically, we evaluate the expenses likely to be incurred for these facilities, and where appropriate, have taken restructuring charges with respect to these expenses. We cannot assure you that there will not be additional restructuring charges recognized with respect to our excess or idle facilities. As a result of our expenditures, we will need to generate significant revenue to maintain profitability. Even if we do continue to achieve profitability, we cannot assure you that we can sustain or increase profitability on a quarterly or annual basis in the future. If revenue does not meet our expectations, or if operating expenses exceed what we anticipate or cannot be reduced accordingly, our business, results of operations and financial condition will be materially and adversely affected.

A decrease in expenditures by direct marketers and advertisers or a downturn in the economy could cause our revenues to decline significantly in any given period.

We derive, and expect to continue to derive for the foreseeable future, a large portion of our revenue from products and services we provide to direct marketers, Web publishers, advertisers and advertising agencies. Expenditures by direct marketers and advertisers tend to be cyclical, reflecting overall economic conditions as well as budgeting and buying patterns. The overall market for advertising, including online advertising, has been characterized in the last few years by increasing softness of demand, lower prices for advertisements, the reduction or cancellation of advertising contracts, an increased risk of uncollectible receivables from customers and the reduction of marketing and advertising budgets, especially for online advertising. As a result of these reductions, advertising spending across traditional media, as well as the Internet, has decreased over the past few years. We cannot assure you that further reductions will not occur.

The number of ad impressions delivered by DoubleClick TechSolutions has, at times in the past, declined and may in the future decline or fail to grow or the price that we can charge for our services may decline, which in either case would adversely affect our revenues. A decline in the economic prospects of direct marketers or the economy in general would also adversely impact the revenue outlook for our marketing automation business. DoubleClick Data, which provides products and services to direct marketers, may face similar pressures. Some direct marketers may respond to economic downturns by reducing the number of catalogs mailed, thereby possibly reducing the demand for DoubleClick Data’s services. If direct marketing activities fail to grow or decline, our revenues could be adversely affected.

We cannot assure you that reductions in marketing spending will not occur or that marketing spending will not be diverted to more traditional media or other online marketing products and services. However, even if economic conditions improve, we cannot assure you that marketing budgets and advertising spending will increase, or not decrease, from current levels. A decline in the economic prospects of marketers or the economy in general could alter current or prospective marketers’ spending priorities or increase the time it takes to close a sale with a customer. As a result, our revenues from marketing and advertising services may not increase or may decline significantly in any given period.

Our ad management, email marketing and data management technologies reside in our data centers in multiple locations in the United States and abroad. Continued and uninterrupted performance of our technology is critical to our success. Customers may become dissatisfied by any system failure that interrupts our ability to provide our services to them, including failures affecting our ability to deliver advertisements without significant delay to the viewer or our ability to deliver a customer’s online marketing campaign. Sustained or repeated system failures would reduce the attractiveness of our products and services to our customers and could result in contract terminations, fee rebates or credits, or damages resulting from claims or litigation, thereby reducing revenue. Slower response time or system failures may also result from straining the capacity of our technology due to an increase in the volume of advertising delivered through our servers. To

Our operations are dependent on our ability to protect our computer systems against damage from natural disasters, fire, power loss, water damage, telecommunications failures, vandalism and other malicious acts, and similar unexpected adverse events. In addition, interruptions in our products or services could result from the failure of our telecommunications providers to provide the necessary data communications capacity in the time frame we require. 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 products and services. Our business, results of operations and financial condition could be materially and adversely affected by any damage or failure that interrupts, delays or destroys our operations. Some of our data centers are located at facilities provided by third parties and if these parties are unable to adequately protect our data centers, our business, results of operations and financial conditions could be materially and adversely affected.

We do not have multi-year agreements with most of our customers and may be unable to retain customers, attract new customers or replace departing customers with customers that can provide comparable revenues.

Many of our contracts with our customers are short-term. We cannot assure you that our customers will continue to use our products and services or that we will be able to replace, in a timely or effective manner, departing customers with new customers that generate comparable revenues. Further, we cannot assure you that our customers will continue to generate consistent amounts of revenues over time. Our failure to develop and sustain long-term relationships with our customers would materially and adversely affect our results of operations.

Industry shifts, continuing expansion of our products and services and other changes may strain our managerial, operational, financial and information system resources.

In recent years, we have had to respond to significant changes in our industry. As a result, we have experienced industry shifts, continuing expansion of product and service offerings and other changes that have increased the complexity of our business and placed considerable demands on our managerial, operational and financial resources. We continue to increase and change 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. We have also grown through geographic expansion and as a result have dispersed offices and operation centers that make it more challenging to manage, operate and monitor our business and operations. To continue to successfully implement our business plan in our changing industry requires effective planning and management processes. We expect that we will need to continue to improve our financial and managerial controls and information and reporting systems and procedures and will need to continue to train and manage our workforce. Our inability to effectively respond to these challenges could materially and adversely affect our business, financial condition and results of operations.

We may not be able to generate profits from many of our products and services.

A significant part of our business model involves generating revenue by providing marketing technology and data products and services to direct marketers, Web publishers, advertisers and advertising agencies. The long term profit potential for our business model has not yet been proven. The profitability of our business model is subject to external and internal factors. Any single factor or combination of factors could limit the profit potential, long-term and short-term, of our business model. Like other businesses in the marketing and advertising sectors, our revenue outlook is sensitive to downturns in the economy, including declines in advertising and marketing budgets. The profit potential of our business model is also subject to the acceptance of our products and services by direct marketers, Web publishers, advertisers and advertising agencies. Intensive marketing and sales efforts may be necessary to educate prospective customers 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 existing techniques, or may feel that our offerings fall short of their needs. If these outcomes occur, it could have an adverse effect on the profit potential of our business model.

Misappropriation of confidential information could cause us to lose customers or incur liability.

We currently retain highly confidential information on behalf of our customers in secure database servers. Although we observe security measures throughout our operations, we cannot assure you that we will be able to prevent unauthorized individuals from gaining access to these database servers. Any unauthorized access to our servers, or abuse by our employees, could result in the theft of confidential customer information. If confidential information is compromised, we could lose customers or become subject to liability or litigation and our reputation could be harmed, any of which could materially and adversely affect our business and results of operations.

Direct marketing, online advertising and related products and services are competitive markets and we may not be able to compete successfully.

The market for marketing technology and data products and services is very competitive. We expect this competition to continue because there are low barriers to entry for several of our businesses. Also, industry consolidation may lead to stronger, better capitalized entities against which we must compete. We expect that we will encounter additional competition from new sources as we expand our product and service offerings.

We believe that our ability to compete depends on many factors both within and beyond our control, including the following:


	•	the features, performance, price and reliability of products and services offered either by us or our competitors;

	•	the launch timing and market success of products and services developed either by us or our competitors;

	•	our ability to adapt, integrate and scale our products and services, and to develop and introduce new products and services that respond to market needs;

	•	our ability to adapt to evolving technology and industry standards;

	•	our customer service and support efforts;

	•	our sales and marketing efforts; and

	•	the relative impact of general economic and industry conditions on either us or our competitors.

Some of our existing and potential competitors have longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than do we. These factors could allow them to compete more effectively than we can, including devoting greater resources to the development, promotion and sale of their products and services, engaging in more extensive research and development, undertaking more far-reaching marketing campaigns, adopting more aggressive pricing policies and making more attractive offers to existing and potential employees, strategic partners, direct marketers, Web publishers and advertisers. We cannot assure you that our competitors will not develop products or services that are equal or superior to our products and services or that achieve greater acceptance than our products and services. In addition, current and potential competitors have or may merge or 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 direct marketer, Web publisher, advertising and advertising agency customers. As a result, it is possible that new competitors may emerge and rapidly acquire significant market share. Increased competition may result in price reductions, reduced gross profits 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.

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:


	•	direct marketer, Web publisher and advertiser demand for our products and services;

	•	downward pricing pressures from current and potential customers for our products and services;

	•	Internet user traffic levels;

	•	number and size of ad units per page on our customers’ Web sites;

	•	the introduction of new products or services by us or our competitors;

	•	variations in the levels of capital, operating expenditures and other costs relating to our operations;

	•	the size and timing of significant pre-tax charges, including for goodwill impairment and the write-down of assets and restructuring charges and credits, such as those relating to idle or excess facilities and severance;

	•	costs related to any acquisitions or dispositions of technologies or businesses;

	•	general seasonal and cyclical fluctuations; and

	•	general economic and industry conditions.

We may not be able to manage our operational spending properly which could adversely impact our business, results of operations and financial condition.

We may not be able to adjust spending quickly enough to offset any unexpected revenue shortfall. Our expenses include upgrading and enhancing our ad management and email delivery technology, expanding our product and service offerings, marketing and supporting our products and services and supporting our sales and marketing operations. 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.

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 TechSolutions business. Further, Internet user traffic typically drops during the summer months, which reduces the amount of online advertising. The direct marketing industry generally uses our data services more in the third calendar quarter based on plans for holiday season mailings, which directly affects our DoubleClick Data business. The email technology business may experience seasonal patterns similar to the traditional direct marketing industry, which typically generates lower revenues earlier in the calendar year and higher revenues later in the year. As a result, we believe that period-to-period comparisons of our results of operations may not be indicators of future performance.

We may not be able to continue to grow through acquisitions of or investments in other companies.

Our business has expanded rapidly in part as a result of acquisitions or investments in other companies, including the acquisitions of Abacus Direct, NetGravity, FloNetwork, MessageMedia, Protagona, Computer Strategy Coordinators and SmartPath. We have recorded goodwill in connection with a number of our acquired businesses, including MessageMedia, FloNetwork and SmartPath. We have in the past recognized impairment charges with respect to the goodwill of some acquired businesses as a result of significantly lower-than-expected revenues generated with respect to acquired businesses and considerably reduced estimates of future performance. If market conditions require, we may in the future record additional impairments in the value of our acquired businesses.

We may continue to acquire or make investments in other complementary businesses, products, services or technologies as a means to grow our business. 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, technology or other assets, we cannot assure you that we will be successful in consummating the purchase. If we are unable to continue to expand through acquisitions, our revenue may decline or fail to grow.

We are also minority investors in a few technology companies, including AdLINK, MaxWorldwide and DoubleClick Japan. Our investments have decreased in value in the past, and may decrease in the future, as a result of market volatility, and periodically, we have recorded charges to earnings for all or a portion of the unrealized loss due to declines in market value considered to be other than temporary. The market value of these investments may decline in future periods due to the continued volatility in the stock market in general or the market prices of securities of technology companies in particular and we may be required to record further charges to earnings as a result. Further, we cannot assure you that we will be able to sell these securities at or above our cost basis.

We may not manage the integration of acquired companies successfully or achieve desired results.

As a part of our business strategy, we have in the past entered into, and could in the future enter into, a number of business combinations and acquisitions. 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 the management of acquired companies;

	•	the difficulty of incorporating acquired technology and rights into our products and services;

	•	unanticipated expenses related to technology and other integration;

	•	difficulties in disposing of the excess or idle facilities of an acquired company or business;

	•	difficulties in maintaining uniform standards, controls, procedures and policies;

	•	the impairment of relationships with employees and customers as a result of the integration of new management personnel;

	•	the inability to develop new products and services that combine our knowledge and resources and our acquired businesses or the failure for a demand to develop for the combined companies’ new products and services;

	•	potential failure to achieve additional sales and enhance our customer base through cross-marketing of the combined company’s products to new and existing customers;

	•	potential litigation resulting from our business combinations or acquisition activities; and

	•	potential unknown liabilities associated with the acquired businesses.

We may not succeed in addressing these risks or other problems encountered in connection with these business combinations and acquisitions. If so, these risks and problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results of operations. 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 depend on third-party internet and telecommunications providers, over whom we have no control, to operate our services.

We depend heavily on several third-party providers of Internet and related telecommunication services, including hosting and co-location facilities, in delivering our products and services. These companies may not continue to provide services to us without disruptions in service, at the current cost or at all. The costs associated with any transition to a new service provider could be substantial and require us to reengineer our

computer systems and telecommunications infrastructure to accommodate a new service provider. This process could be both expensive and time consuming. In addition, failure of our Internet and related telecommunications providers to provide the data communications capacity in the time frame we require could cause interruptions in the services we provide. Unanticipated problems affecting our computer and telecommunications systems in the future could cause interruptions in the delivery of our services, causing a loss of revenue and potential loss of customers.

We are dependent on key personnel and on key 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 these executives and do not maintain key person life insurance on any of these executives. The loss of the services of one or more of our key employees could significantly delay or prevent the achievement of our product development and other business objectives and could harm our business. Our future success also depends on our continuing ability to attract, retain and motivate highly skilled employees for key positions. There is competition for qualified employees in our industry. We may not be able 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 from time to time in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications for certain positions.

We may be unable to introduce new or enhanced products and services that meet our customers’ requirements.

Our future success will depend in part upon our ability to enhance and integrate our existing products and to introduce new, competitively priced products and solutions with features that meet evolving customer requirements, all in a timely and cost-effective manner. A number of factors, including the following, could have a negative impact on the success of our products and services:


	•	delays or difficulties in product acquisition, integration or development;

	•	our competitors’ introduction of new products ahead of our new products, or their introduction of superior or cheaper products; and

	•	our failure to anticipate changes in customers’ requirements.

If we are unable to introduce new and enhanced products and services effectively, our revenues may decline or may not grow in accordance with our business model.

If we fail to adequately protect our intellectual property, we could lose our intellectual property rights or be liable for damages to third parties.

Our success and ability to effectively compete are substantially dependent on the protection of our proprietary technologies, patents, trademarks, service marks, copyrights and trade secrets, which we protect through a combination of patent, trademark, copyright, trade secret, unfair competition and contract law. We cannot assure you that any of our intellectual property 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 ad serving and ad management technology. We are currently seeking reissue of this patent, which would limit the scope of the existing patent, and this reissue proceeding is pending before the U.S. Patent and Trademark Office. The patent examiner has raised some objections to our reissue application. Although we are contesting these objections, we cannot assure you that this patent will be reissued. We own other patents, and have patent applications pending for some of our other technology. We cannot assure you that the patent applications that we have filed in the United States and internationally 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 any meaningful protection.

We also have rights in the trademarks and service marks that we use to market our products and services. These marks include DOUBLECLICK®, DART®, DARTMAIL®, ABACUS^SM, DOUBLECLICK ENSEMBLE^SM, SITEADVANCE^SM, MEDIAVISOR^SM, CHANNELVIEW® and MOTIF^SM. We have applied to register some of our trademarks and service marks in the United States and internationally. We cannot assure you that any of these current or future applications will be approved. Even if these marks are registered, these marks may be invalidated or successfully challenged by others. If our trademarks or service marks are not registered because third parties own these marks, our use of these marks will be restricted unless we are able to enter into arrangements with these parties, which may not be available on commercially reasonable terms, if at all.

We also enter into confidentiality, assignments of proprietary rights and license agreements, as appropriate, with our employees, consultants and business and technology 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 intellectual property rights are sufficient to prevent misappropriation of our products and services or technologies, particularly in foreign countries where laws or law enforcement practices may not protect our intellectual property 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 and intellectual property. If we lose our intellectual property rights, this could have a material and adverse impact on our business, financial condition and results of operations.

If we face a claim of intellectual property infringement, we may be liable for damages and be required to make changes to our technology or business.

Infringement claims may be asserted against us, which could adversely affect our reputation and the value of our intellectual property rights. From time to time we have been, and we expect to continue to be, subject to claims or notices in the ordinary course of our business, including assertions of alleged infringement of the patents, trademarks and other intellectual property rights of third parties by us or our customers. We do not conduct exhaustive patent searches to determine whether our technology infringes patents held by others. In addition, the protection of proprietary rights 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 during a large part of their prosecution, that provide for technologies similar to ours.

Third party infringement claims and any resultant litigation against us or our technology partners or providers, should it occur, could subject us to significant liability for damages, restrict us from using our or their technology or operating our business generally, or require changes to be made to our technology. Even if we prevail, litigation is time consuming and expensive to defend and would result in the diversion of management’s time and attention. 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 not be available on terms acceptable to us, or at all. If we are unable to enter into these types of agreements, we would be required to either cease using the subject product or change the technology underlying the applicable product. If a successful claim of infringement is brought against us and we fail to develop non-infringing technology as an alternative 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 business may be materially adversely affected by lawsuits related to privacy, data protection and our business practices.

We have been a defendant in several lawsuits and governmental inquiries by the Federal Trade Commission and the attorneys general of several states alleging, among other things, that we unlawfully obtain and use Internet users’ personal information and that our use of ad serving cookies violates various laws.

Although the last of these particular matters was resolved in 2002, we may in the future be subject to additional claims or regulatory inquiries with respect to our business practices. Class action litigation and regulatory inquiries of these types are often expensive and time consuming and their outcome may be uncertain.

Any additional claims or regulatory inquiries, whether successful or not, could require us to devote significant amounts of monetary or human resources to defend ourselves and could harm our reputation. 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 any 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 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 and harm our reputation.

Activities of our clients could damage our reputation or give rise to legal claims against us.

Our clients’ promotion of their products and services may not comply with federal, state and local laws, including but not limited to laws and regulations relating to the Internet. Failure of our customers to comply with federal, state or local laws or our policies could damage our reputation and adversely affect our business, results of operations or financial condition. We cannot predict whether our role in facilitating our customers’ marketing activities would expose us to liability under these laws. Any claims made against us could be costly and time-consuming to defend. If we are exposed to this kind of liability, we could be required to pay substantial fines or penalties, redesign our business methods, discontinue some of our services or otherwise expend resources to avoid liability.

We also may be held liable to third parties for the content in the advertising and emails we deliver on behalf of our customers. We may be held liable to third parties for content in the advertising we serve if the music, artwork, text or other content involved violates the copyright, trademark or other intellectual property rights of such third parties or if the content is defamatory, deceptive or otherwise violates applicable laws or regulations. Any claims or counterclaims could be time consuming, result in costly litigation or divert management’s attention.

Our business may suffer if we are unable to effectively manage our international operations.

We have operations in a number of countries and have limited experience in developing localized versions of our products and services and in marketing, selling and distributing our products and services internationally. We sell our technology products and services through our directly and indirectly owned subsidiaries primarily located in Australia, Canada, China, France, Germany, Spain, Ireland, the United Kingdom and Hong Kong. In Japan, we sell our technology products and services through DoubleClick Japan, of which we own approximately 15%. We also operate the DoubleClick Data business in the United Kingdom and Japan and, through a joint venture, in Germany.


	•	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 data protection regulation, which may vary by country;

	•	reduced protection for intellectual property rights in some countries;

	•	potentially adverse tax consequences;


	•	difficulties and costs of staffing and managing foreign operations;

	•	cultural differences in the conduct of business;

	•	political and economic instability;

	•	fluctuations in currency exchange rates; and

	•	seasonal fluctuations in Internet usage and marketing and advertising spending.

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 our business, results of operations and financial condition as a whole.

Many of our customers continue to experience business conditions that could adversely affect our business.

Some of our customers have experienced, and may continue to experience, difficulty raising capital and supporting their current operations and implementing their business plans, or may be anticipating such difficulties and, therefore, may elect to scale back the resources they devote to marketing in general and our offerings in particular. These customers 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 our customers could negatively impact our financial condition. If the current business environment for our customers worsens, our business, results of operations and financial condition could be materially adversely affected.

Anti-takeover provisions in our charter, by-laws and Delaware law may make it difficult for a third party to acquire us.

Some of the provisions of our amended and restated certificate of incorporation, our amended and restated by-laws and Delaware law could, together or separately:


	•	discourage potential acquisition proposals;

	•	delay or prevent a change in control; or

	•	impede the ability of our stockholders to change the composition of our board of directors in any one year.

As a result, it could be more difficult for third parties to acquire us, even if doing so might be beneficial to our stockholders. Difficulty in acquiring us could, in turn, limit the price that investors might be willing to pay for shares of our common stock.

Our stock price may experience price and volume fluctuations, and this volatility could result in us becoming subject to securities or other litigation, which is expensive and could result in a diversion of resources.

The market price of our common stock has fluctuated in the past and is likely to continue to be highly volatile and subject to wide fluctuations. In addition, the stock market has experienced significant price and volume fluctuations. Investors may be unable to resell their shares of our common stock at or above their purchase price.

Additionally, 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 March 31, 2004, we had 136,297,505 shares of common stock outstanding, excluding 18,087,837 shares subject to options outstanding as of such date under our stock option plans that are exercisable at prices ranging from $0.01 to $1,134.80 per share. 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 issued upon the exercise of stock options, or the perception that such sales could occur, may materially reduce the market value for our common stock.

Direct marketers and advertisers may be reluctant to devote a portion of their budgets to marketing technology and data products and services or online advertising.

Companies doing business on the Internet, including us, must compete with traditional advertising media, including television, radio, cable and print, for a share of advertisers’ total marketing budgets. Potential customers may be reluctant to devote a significant portion of their marketing budget to online advertising or marketing technology and data products and services if they perceive the Internet or direct marketing to be a limited or ineffective marketing medium. Any shift in marketing budgets away from marketing technology and data products or services or online advertising spending, or our offerings in particular, could materially and adversely affect our business, results of operations or financial condition. In addition, online advertising could lose its appeal to those direct marketers and advertisers using the Internet as a result of its ad performance relative to other media.

If the delivery of internet advertising on the web, or the delivery of our email messages, is limited or blocked, demand for our products and services may decline.

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 emails or Internet advertising, including pop-up and pop-under advertisements, 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 event that one or more of these technologies became widely adopted by computer users, demand for our products and services would decline.

We also depend on our ability to deliver emails over the Internet through Internet service providers and private networks. Internet service providers are able to block messages from reaching their users and we do not have agreements with any Internet service providers to deliver emails to their customers. As a result, we could experience temporary or permanent blockages of our delivery of emails to their customers, which would limit the effectiveness of email marketing. Some Internet service providers also use proprietary technologies to handle and deliver email. If Internet service providers or private networks materially limit or block the delivery of our emails, or if our technology fails to be compatible with their email technologies, then our business, results of operations or financial condition could be materially and adversely affected. In addition, the effectiveness of email marketing may decrease as a result of increased consumer resistance to email marketing in general.

New laws and regulations or changing interpretations of existing laws and regulations could harm our business.

Governments in the U.S. and other countries have adopted laws and regulations affecting important aspects of our business, Internet commerce, such as Internet communications, electronic contracting, privacy and data protection, taxation, advertising and direct marketing.

Many countries, including the countries of the European Union, have implemented more stringent data protection regulations than those in the U.S. Our current policies and procedures may not meet these more restrictive standards. The cost of such compliance could be material, and we may not be able to comply with the applicable regulations in a timely or cost-effective manner.

In addition, the U.S. and many foreign countries have adopted laws that restrict the transmission of unsolicited commercial email. U.S. law requires senders of commercial electronic mail messages to, among other things, identify their messages as advertisements or solicitations and provide recipients a mechanism to decline (opt out) future commercial email from the sender. The Federal Trade Commission is authorized to regulate commercial email and may impose additional measures such as labeling requirements or a national “Do Not E-Mail” registry. Other countries, including the countries of the European Union, either have or may in the future require senders to obtain recipients’ direct affirmative consent before sending commercial email messages. Although our email delivery is consent-based, we may be subjected to increased liabilities and may be required to change our current email practices in ways that make email communications less effective or more costly.

Among the technologies we use are “cookies,” or small pieces of data that are recorded on the computers of Internet users. Some countries, including the countries of the European Union, require that Internet users be allowed to refuse to accept cookies or other online tracking technologies. New technologies may make it easier or less inconvenient for Internet users to reject cookies or other online tracking technologies. If a high percentage of Internet users refuse to accept cookies or other online tracking technologies, or if future laws require express consent for the use of cookies or otherwise restrict our use of related Internet technologies, Internet advertising and direct marketing may become more costly and less effective, and the demand for our services may decrease.

Meanwhile, many areas of the law affecting the Internet remain unsettled, and it can be difficult to determine whether and how existing laws, such as those governing data protection, privacy, intellectual property, financial services, content standards, libel, data security and taxation, may be applied to Internet-based businesses. Our business could be negatively impacted by new applications or interpretations of existing laws and regulations to direct marketing, the Internet or our other lines of business.

Future laws and regulations could also have a material adverse effect on our business. In particular, new online consumer protection requirements could impose significant, unanticipated compliance costs and could make it inefficient or infeasible to operate certain parts of our business. Governments in the U.S. and other countries are considering new limitations on the collection, use and disclosure of personal information for marketing purposes. Any legislation enacted or regulation issued could dampen the growth and acceptance of our industry in general and of our offerings in particular. We are unable to predict whether any particular proposal will pass, or the nature of the limitations that may be imposed.

Any changes in applicable legal requirements may cause us to change or discontinue an existing offering, business or business model; cancel a proposed offering or new business; or incur significant expenses or liability that materially and adversely affect our business, financial condition and results of operations.

We are a member of the Network Advertising Initiative, including its Email Service Provider Coalition, the Privacy Alliance, and the Direct Marketing Association, all industry self-regulatory organizations. These organizations or similar organizations might adopt additional, more burdensome guidelines, compliance with which could materially and adversely affect our business, financial condition and results of operations.

Our business may suffer if the web experiences unexpected interruptions or delays that may be caused by system failures.

Our success depends, 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. We cannot assure you that the Web infrastructure will 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. Furthermore, the Web has experienced unexpected interruptions and delays caused by

system failures and computer viruses. These interruptions and delays could impact user traffic and the direct marketers, Web publishers and advertisers using our products and services. In addition, a lack of security over the Internet may cause Internet usage to decline and could adversely impact our business, financial condition and results of operations.

The lack of appropriate advertising measurement standards or tools may cause us to lose customers or prevent us from charging a sufficient amount for our products and services.

Because online marketing technology and data products and services remain relatively new disciplines, there are currently no generally accepted methods or tools for measuring the efficacy of online marketing and advertising as there are for advertising in television, radio, cable and print. Many traditional advertisers may be reluctant to spend sizable portions of their budget on online marketing and advertising until there exist widely accepted methods and tools that measure the efficacy of their campaigns.

We could lose customers or fail to gain customers if our products and services do not utilize the measuring methods and tools that may become generally accepted. Further, new measurement standards and tools could require us to change our business and the means used to charge our customers, which could result in a loss of customer revenues and adversely impact our business, financial condition and results of operation.

Our Data business segment is dependent on the success of the direct marketing industry for our 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 customers are large consumer merchandise catalog operators in the United States, with a number of operators in the United Kingdom. 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 Alliances, would have a material adverse effect on our business, financial condition and results of operations. If email marketing or electronic commerce, including the purchase of merchandise and the exchange of information via the Internet or other media, increases significantly in the future, 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 our Data business segment.

The direct marketing activities of our Abacus Alliance customers 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 customers 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 products and services. Our customers may aggressively seek price reductions for our products and services to offset any increased materials cost.

DoubleClick’s management, with the participation of DoubleClick’s chief executive officer and chief financial officer, evaluated the effectiveness of DoubleClick’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2004. Based on this evaluation, DoubleClick’s chief executive officer and chief financial officer concluded that, as of March 31, 2004, DoubleClick’s disclosure controls and procedures were (1) designed to ensure that material information relating to DoubleClick, including its consolidated subsidiaries, is made known to DoubleClick’s chief

executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by DoubleClick in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change in DoubleClick’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, DoubleClick’s internal control over financial reporting.

In April 2002, a consolidated amended class action complaint alleging violations of the federal securities laws in connection with our follow-on offerings was filed in the United States District Court for the Southern District of New York naming us, some of our officers and directors and certain underwriters of our follow-on offerings as defendants. We and some of our officers and directors are named in the suit pursuant to Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 on the basis of the alleged failure to disclose the underwriters’ alleged compensation and manipulative practices. This action seeks, among other things, unspecified damages and costs, including attorneys’ fees. In October 2002, the action was dismissed against our officers and directors without prejudice. However, claims against us remain. In July 2002, we and the other issuers in the consolidated cases filed motions to dismiss the amended complaint for failure to state a claim, which was denied as to us in February 2003.

In June 2003, our Board of Directors conditionally approved a proposed partial settlement with the plaintiffs in this matter. The settlement would provide, among other things, a release of us and of the individual defendants for the conduct alleged in the action to be wrongful in the amended complaint. We would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims we may have against our underwriters. Our Board of Directors agreed to approve the settlement subject to a number of conditions, including the participation of a substantial number of other issuer defendants in the proposed settlement, the consent of our insurers to the settlement and the completion of acceptable final settlement documentation. Furthermore, the settlement is subject to a hearing on fairness and approval by the court overseeing the IPO litigations. We believe these claims are without merit and, if the settlement is not finalized, we intend to defend these actions vigorously. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of the litigation. An unfavorable outcome in litigation could materially and adversely affect our business, financial condition and results of operations.

We are defending two class action lawsuits, one filed in Allegheny County, Pennsylvania and the other in San Joaquin County, California, alleging, among other things, deceptive business practices, fraud, misrepresentation, invasion of privacy and right of association relating to allegedly deceptive content of online advertisements that plaintiffs assert we delivered to consumers. The actions seek, among other things, injunctive relief, compensatory and punitive damages and attorneys’ fees and costs. In April 2004, the court in the California action entered an order dismissing several claims against us with leave to amend. We believe these claims are without merit and intend to defend these actions vigorously. However, due to the inherent uncertainties of litigation, we cannot accurately predict the ultimate outcome of these litigations. An unfavorable outcome in litigation could materially and adversely affect our business, financial condition and results of operations.

As previously reported, in October 2003, we received a grand jury subpoena from the United States Attorney’s Office for the Southern District of New York (“U.S. Attorney’s Office”) seeking documents regarding certain vendors that provided services to us, including interior construction and facilities management, during the period from 1999 through 2001. The services provided by these vendors are unrelated to the

products and services provided by us to our customers. In March 2004, the U.S. Attorney’s Office issued a press release announcing an Indictment against nineteen individuals, including one of our former employees, for racketeering and other federal crimes. The Indictment alleges a scheme to defraud us through extortion of one of our vendors and through kickbacks to our former employee named in the Indictment. The press release states that these kickback payments “were made without knowledge of [the former employee’s] superiors at DoubleClick and were in direct violation of the written policies and procedures of DoubleClick.”

We are continuing to fully cooperate with the U.S. Attorney’s Office. In addition, following receipt of the grand jury subpoena, we conducted an internal investigation and have implemented remedial measures to improve our selection, use and oversight of our vendors. We do not believe that any overpayments made by us relating to the vendor named in the Indictment or the other vendors listed in the grand jury subpoena are material with respect to its financial statements for the periods in question or its current financial condition.

The following provides information with respect to our purchases of our common stock during the first quarter of 2004 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act:


(1)	In November 2003, the Board of Directors approved a $100 million stock repurchase program (the “Program”). We did not purchase any other shares of our common stock outside of the Program during the period ended March 31, 2004.


	On January 28, 2004, we furnished a Current Report on Form 8-K under Item 9, containing a copy of our earnings release for the quarter and fiscal year ended December 31, 2003 (including financial statements) pursuant to Item 12.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	By:	/s/ CORY A. DOUGLAS



	Cory A. Douglas
	Vice President, Finance and Corporate Controller
	(Chief Accounting Officer and
	Duly Authorized Officer)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended March 31, 2004

or

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to


Delaware		13-3870996
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NUMBER)


PART I: FINANCIAL INFORMATION
Item 1:	Financial Statements (unaudited)	2
	Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003	2
	Consolidated Statements of Operations for the three months ended March 31, 2004 and 2003	3
	Consolidated Statements of Cash Flows for the three months ended March 31, 2004 and 2003	4
	Notes to Consolidated Financial Statements	5
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	27
Item 4:	Controls and Procedures	41

PART II: OTHER INFORMATION
Item 1:	Legal Proceedings	42
Item 2:	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	43
Item 6:	Exhibits and Reports on Form 8-K	43
CERTIFICATION
CERTIFICATION
CERTIFICATION
CERTIFICATION


			March 31,			December 31,
			2004			2003


			(Unaudited, in thousands,
			except share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents			$	121,255		$	183,484
Investments in marketable securities				151,616			151,898
Restricted cash				4,228			16,328
Accounts receivable, net of allowances of $6,717 and $7,519, respectively				55,840			51,491
Prepaid expenses and other current assets				20,928			17,473

		Total current assets		353,867			420,674
Investment in marketable securities				336,635			312,434
Restricted cash				11,668			11,668
Property and equipment, net				75,442			75,786
Goodwill				33,474			18,658
Intangible assets, net				16,570			10,847
Investment in affiliates				19,406			13,422
Other assets				13,863			14,408

		Total assets	$	860,925		$	877,897


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable			$	5,375		$	4,164
Accrued expenses and other current liabilities				43,932			62,741
Capital lease obligations				233			411
Deferred revenue				10,940			8,188

	Total current liabilities			60,480			75,504
Convertible subordinated notes — Zero Coupon, due 2023				135,000			135,000
Other long term liabilities				27,150			27,046
STOCKHOLDERS’ EQUITY:
Preferred stock, par value $0.001; 5,000,000 shares authorized, none outstanding				—			—
Common stock, par value $0.001; 400,000,000 shares authorized, 140,039,930 and 139,329,875 shares issued, respectively				140			139
Treasury stock, 3,742,425 and 1,846,170 shares, respectively				(30,834	)		(10,396	)
Additional paid-in capital				1,291,114			1,287,775
Accumulated deficit				(641,830	)		(649,523	)
Other accumulated comprehensive income				19,705			12,352

		Total stockholders’ equity		638,295			640,347

		Total liabilities and stockholders’ equity	$	860,925		$	877,897



			Three Months Ended
			March 31,

			2004			2003


			(Unaudited, in
			thousands, except per
			share amounts)
Revenue			$	68,047		$	60,054
Cost of revenue				22,565			21,947

	Gross profit			45,482			38,107
Operating expenses:
	Sales and marketing			25,650			19,656
	General and administrative			8,074			8,866
	Product development			8,491			8,045
	Amortization of intangibles			637			2,079

		Total operating expenses		42,852			38,646
Income (loss) from operations				2,630			(539	)
Other income (expense)
	Equity in losses of affiliates			(186	)		(1,265	)
	Gain on distribution from affiliate			2,400			—
	Interest and other, net			3,474			3,043

		Total other income		5,688			1,778
Income before income taxes				8,318			1,239
Provision for income taxes				(625	)		(333	)

Net income			$	7,693		$	906

Basic net income per share			$	0.06		$	0.01

Weighted average shares used in basic net income per share				137,099			136,437

Diluted net income per share			$	0.05		$	0.01

Weighted average shares used in diluted net income per share				141,084			138,760


Note 1	— Description of Business and Significant Accounting Policies


	*Cash and Cash Equivalents, Investments in Marketable Securities and Restricted Cash*


Current assets	$	3.2
Property and equipment		0.1
Other intangible assets		7.1
Goodwill		15.7

Total assets acquired		26.1
Total liabilities assumed		(2.0	)

Net assets acquired	$	24.1


	2004		2003


	(In thousands)
AdLINK Internet Media AG	$	13,276	$	7,578
DoubleClick Japan		5,788		5,844
Abacus Deutschland		342		—
MaxWorldwide, Inc.		—		—

	$	19,406	$	13,422


Balance at December 31, 2003	$	18,658
Recognition of Canadian deferred tax assets		(903	)
Acquisition of SmartPath		15,719

Balance at March 31, 2004	$	33,474



				March 31, 2004
		Weighted									December 31,
		Average		Gross							2003
		Amortization		Carrying		Accumulated
		Period		Amount		Amortization			Net		Net


		(In thousands)
Intangible assets:
	Patents and trademarks		33 months	$	2,084	$	(2,084	)	$	—	$	—
	Customer relationships		28 months		28,750		(21,904	)		6,846		6,105
	Purchased technology and other		36 months		15,411		(8,087	)		7,324		4,742
	Covenant not to compete		15 months		2,400		—			2,400		—

			31 months	$	48,645	$	(32,075	)	$	16,570	$	10,847


Balance at December 31, 2003	$	32,977
Cash expenditures		(8,711	)
Effect of foreign currency translation		358

Balance at March 31, 2004	$	24,624



	Three Months Ended March 31, 2004

	TechSolutions		Data		Corporate			Total

Revenue from external customers	$	45,297	$	22,750	$	—		$	68,047

Depreciation and amortization	$	6,179	$	2,164	$	614		$	8,957

Operating income/(loss)	$	8,496	$	2,533	$	(8,399	)	$	2,630

Total other income, net								$	5,688

Income before income taxes								$	8,318



	Three Months Ended March 31, 2003

	TechSolutions		Data		Corporate			Total

Revenue from external customers	$	41,528	$	18,526	$	—		$	60,654

Depreciation and amortization	$	10,432	$	1,714	$	992		$	13,138

Operating income/(loss)	$	2,838	$	4,466	$	(7,843	)	$	(539	)

Total other income, net								$	1,778

Income before income taxes								$	1,239


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


Item 1:	*Financial Statements (Unaudited)*


	*Description of Business*


	*Basis of Presentation*


	*Property and Equipment*



	As of March 31, 2004

			Fair
			Market
	Cost Basis		Value


	(In thousands)
DoubleClick Japan	$	5,788	$	21,172
AdLINK Internet Media AG	$	1,855	$	13,276
MaxWorldwide, Inc.	$	—	$	1,968



	For the Three Months
	Ended March 31,				2004 vs. 2003

Revenue:	2004		2003		Change		%

TechSolutions	$	45,297	$	41,528	$	3,769		9.1	%
Data		22,750		18,526		4,224		22.8	%

Total	$	68,047	$	60,054	$	7,993		13.3	%



	For the Three
	Months Ended
	March 31,

	2004			2003


	(In thousands)
Interest Income	$	2,999		$	5,021
Interest Expense		(351	)		(2,107	)
Other		826			129

	$	3,474		$	3,043



	For the
	Three Months Ended
	March 31,

	2004			2003


	(In thousands)
Net cash (used in) provided by operating activities	$	(7,351	)	$	4,915
Net cash (used in) provided by investing activities	$	(37,365	)	$	35,605
Net cash used in financing activities	$	(18,175	)	$	(881	)


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*



	Time to Maturity

	One Year			One to Two			Two to			Five and
	or Less			Years			Five Years			Thereafter		Fair Value


	(In thousands)
Assets:
Cash and cash equivalents	$	121,255		$	—		$	—		$	—	$	121,255
Average interest rate		0.72	%
Fixed-rate investments in marketable securities	$	151,616		$	313,028		$	23,607		$	—	$	488,251
Average interest rate		2.36	%		1.83	%		1.85	%
Liabilities:
Convertible subordinated notes	$	—		$	—		$	135,000		$	—	$	152,569
Average interest rate								0.00	%


Disruption of our services due to unanticipated problems or failures could harm our business.


Item 2.	*Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities*


					Total Number of Shares		Approximate Dollar
	Total Number of				Repurchased as Part of		Value that May Yet Be
	Shares		Average Price		Publicly Announced		Purchased under the
	Repurchased		Per Share		Program		Program(1)

January 1 through January 31, 2004		—	$	—		165,500	$	98.6 million
February 1 through February 29, 2004		447,500	$	10.77		613,000	$	93.8 million
March 1 through March 31, 2004		1,448,755	$	10.82		2,061,755	$	78.1 million


Number			Description

	31	.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.