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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2009

OR

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

For the transition period from    to    

Commission file number 000-30135

VALUECLICK, INC.

(Exact name of registrant as specified in its charter)

30699 RUSSELL RANCH ROAD, SUITE 250

WESTLAKE VILLAGE, CALIFORNIA 91362

(Address of principal executive offices, including zip code)

(818) 575-4500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files): Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No x

The number of shares of the registrant’s common stock outstanding as of November 5, 2009 was 85,666,840.

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VALUECLICK, INC.

INDEX TO FORM 10-Q FOR THE

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VALUECLICK, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)

See accompanying Notes to Condensed Consolidated Financial Statements

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VALUECLICK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

See accompanying Notes to Condensed Consolidated Financial Statements

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VALUECLICK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share data)

See accompanying Notes to Condensed Consolidated Financial Statements

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VALUECLICK, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

See accompanying Notes to Condensed Consolidated Financial Statements

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VALUECLICK, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.             THE COMPANY AND BASIS OF PRESENTATION

Company Overview

ValueClick, Inc. and its subsidiaries (“ValueClick” or the “Company”) offer a suite of products and services that enable marketers to advertise and sell their products through all major online marketing channels—display advertising, lead generation marketing, email marketing, search marketing, comparison shopping, and affiliate marketing. The Company also offers technology infrastructure tools and services that enable marketers to implement, manage and analyze their online advertising programs. The broad range of products and services that the Company provides enables its customers to address all aspects of their online marketing process, from strategic planning through execution, including results measurement and campaign refinements. The Company derives its revenue from four business segments. These business segments are presented on a worldwide basis and include: Media, Affiliate Marketing, Comparison Shopping & Search, and Technology.

MEDIA—ValueClick’s Media segment provides a comprehensive suite of online marketing services and tailored programs that help marketers create and increase awareness for their products and brands, attract visitors and generate leads and sales through the Internet. The Company’s Media segment offers marketers a range of online media solutions in the categories of display advertising, lead generation marketing and email marketing. The Company has aggregated thousands of online publishers to provide marketers with access to one of the largest display advertising networks. Prior to October 2008, the Company also sold a limited number of consumer products directly to end-user customers through Company-owned e-commerce websites. The Company divested its interest in the e-commerce websites in October 2008 as further discussed in note 4. The Company’s Media services are sold on a variety of pricing models, including cost-per-lead (“CPL”), cost-per-action (“CPA”), cost-per-thousand-impression (“CPM”), and cost-per-click (“CPC”).

AFFILIATE MARKETING—ValueClick’s Affiliate Marketing segment, through the combination of: a large-scale pay-for-performance model built on the Company’s proprietary technology platforms; marketing expertise; and a large, quality advertising network, enables the Company’s customers to develop their own fully-commissioned online sales force comprised of third-party affiliate publishers. The Company’s Affiliate Marketing segment services, including search engine marketing (“SEM”), are offered through its wholly-owned subsidiary Commission Junction.  Affiliate Marketing segment revenues are driven primarily by variable compensation that is generally based on either a percentage of commissions paid to affiliates or on a percentage of transaction revenue generated from the programs managed with the Company’s affiliate marketing platforms.  SEM revenues are driven primarily by a percentage of the revenue the Company generates for its advertiser customers.

COMPARISON SHOPPING & SEARCH— ValueClick’s online comparison shopping destination websites enable consumers to research and compare products from among thousands of online and/or offline merchants using the Company’s proprietary technology. The Company gathers product and merchant data and organizes it into comprehensive catalogs on its destination websites, along with relevant consumer and professional reviews. The Company’s service is free for consumers, and customers primarily pay the Company on a CPC basis for traffic delivered to them from listings on the Company’s websites. Search 123 is ValueClick’s self-service paid search offering in Europe that generates its traffic primarily through syndication relationships with other search engines, Web portals and content websites.  Search syndication revenues are driven primarily on a CPC basis. Comparison Shopping & Search segment services are offered through the Company’s wholly-owned subsidiaries Pricerunner, MeziMedia and Search 123. Pricerunner operates comparison shopping destination websites in the United Kingdom, Sweden, Germany, France, Denmark, and Austria. MeziMedia operates comparison shopping destination websites in the United States, Japan, Korea, China and Europe, primarily under the Smarter.com, Shopica.com and Couponmountain.com brand names.

TECHNOLOGY— ValueClick’s Technology segment operates through its wholly-owned subsidiary Mediaplex.  Mediaplex Systems was also included in the Company’s Technology segment until its divestiture in October 2008 as further discussed in note 4. Mediaplex is an application services provider (“ASP”) offering technology products and services that enable marketers to implement and manage their own online advertising programs across multiple channels including display, email, paid search, natural search, on-site, offline and affiliate.  The Company’s Mediaplex products are based on its proprietary MOJO® technology platform, which has the ability, among other attributes, to automatically configure advertisements in response to real-time information from an advertiser’s enterprise data system and to provide ongoing campaign optimization and cross-channel analytics. Mediaplex’s products are priced primarily on a CPM or email-delivered basis.

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Basis of Presentation and Use of Estimates

The condensed consolidated financial statements are unaudited and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair statement of the results for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full fiscal year or for any future period. As permitted by the Securities and Exchange Commission (“SEC”) under Rule 10-01 of Regulation S-X, the accompanying condensed consolidated financial statements and related notes have been condensed and do not contain certain information that may be included in ValueClick’s annual consolidated financial statements and notes thereto. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in ValueClick’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the SEC on March 2, 2009. The Company has evaluated subsequent events through November 5, 2009, and has determined that there were no subsequent events to recognize or disclose in these financial statements, except the Company’s share repurchases as described in note 11. The December 31, 2008 condensed consolidated balance sheet data contained herein was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of financial statements in conformity with GAAP 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. On an ongoing basis, management evaluates its estimates, including, but not limited to, those related to: i) sales returns reserves; ii) the allowance for doubtful accounts and sales credits; iii) the assessment of other-than-temporary impairments related to the Company’s marketable securities; iv) the valuation of equity instruments granted by the Company; v) the value assigned to, recoverability and estimated useful lives of, goodwill and intangible assets acquired in business combinations; vi) the Company’s income tax expense, its deferred tax assets and liabilities and any valuation allowances recorded against deferred tax assets; and vii) the recognition and disclosure of contingent liabilities. These estimates and assumptions are based on historical data and experience, as well as various other factors that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.

2.             RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2009, the Financial Accounting Standards Board (“FASB”) revised the authoritative guidance that defines disclosure requirements for the fair value of financial instruments, to require disclosures about fair value of financial instruments of publicly traded companies for interim reporting periods as well as in annual financial statements. The guidance is effective for interim and annual periods ending after June 15, 2009. The adoption of the guidance did not impact the Company’s consolidated financial statements.  See note 8 “Fair Value Measurements” for further information.

In April 2009, the FASB issued updated authoritative guidance on other-than-temporary impairments. The objective of an other-than-temporary impairment analysis under existing GAAP is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. This updated guidance amends the other-than-temporary impairment guidance in GAAP for debt securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This guidance is effective for interim and annual periods ending after June 15, 2009. In response to the revised guidance, in April 2009, the SEC published a bulletin in which the SEC maintains the staff’s previous views related to equity securities. It also amends the SEC’s previous bulletin to exclude debt securities from its scope. The adoption of the guidance did not impact the Company’s consolidated financial statements.

In April 2009, the FASB issued additional authoritative guidance on fair value measurements for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and on identifying circumstances that indicate a transaction is not orderly. It emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability, and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This guidance is effective for interim and annual periods ending after June 15, 2009. Its adoption did not impact the Company’s consolidated financial statements.

In April 2009, the FASB revised the authoritative guidance on business combinations. The guidance amends the previously existing provisions for the initial recognition and measurement, subsequent measurement and accounting, and disclosures for assets and liabilities arising from contingencies in business combinations. The revised guidance eliminates the distinction between contractual and non-contractual contingencies, including the initial recognition and measurement criteria and instead carries forward most of the provisions from previous guidance for acquired contingencies. It is effective for contingent assets and contingent liabilities acquired in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period

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beginning on or after December 15, 2008. The nature and magnitude of the specific effects that this guidance will have on the Company’s consolidated financial statements will depend upon the nature, term and size of acquired contingencies resulting from future acquisitions.

In May 2009, the FASB issued authoritative guidance on management’s assessment of subsequent events. The guidance is effective prospectively for interim and annual periods ending after June 15, 2009. The guidance requires entities to disclose the date through which subsequent events have been evaluated and whether the date corresponds with the release of the entities’ financial statements. The implementation of this standard did not have a material impact on the Company’s consolidated financial position and results of operations. See note 1 “The Company and Basis of Presentation” for further information.

In June 2009, the FASB issued the FASB Accounting Standards Codification (“Codification”). The Codification will become the single source for all authoritative GAAP recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and will not have an effect on the Company’s financial position, results of operations or liquidity. The Company has adjusted historical GAAP references in its third quarter 2009 Form 10-Q to reflect accounting guidance references as prescribed by the Codification.

3.             STOCK-BASED COMPENSATION

In the three-month periods ended September 30, 2009 and 2008, the Company recognized stock-based compensation of $2.2 million and $38.9 million, respectively. In the nine-month periods ended September 30, 2009 and 2008, the Company recognized stock-based compensation of $7.3 million and $49.9 million, respectively. The following table summarizes, by statement of operations line item, the impact of stock-based compensation and the related income tax benefits recognized in the three- and nine-month periods ended September 30, 2009 and 2008 (in thousands):

4.             DISCONTINUED OPERATIONS

In October 2008, the Company sold two non-core businesses, Mediaplex Systems and the ink-jet e-commerce business. Mediaplex Systems was included in the Company’s Technology operating segment, while the e-commerce business was included in the Media operating segment. The divestitures generated total gross consideration of $15.9 million and a pretax gain of $10.1 million ($5.0 million, net of income taxes). The Company may also receive up to an additional $5.9 million in consideration upon the resolution of certain contingencies.  Any additional amounts received in the future will be recorded in discontinued operations.

The following amounts related to Mediaplex Systems and the ink-jet e-commerce business were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations (in thousands):

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5.             GOODWILL AND INTANGIBLE ASSETS ACQUIRED IN BUSINESS COMBINATIONS

The changes in the carrying amount of goodwill, by reporting unit, for the nine-month period ended September 30, 2009 were as follows (in thousands):

For the nine-month period ended September 30, 2009, the changes in goodwill noted above were primarily due to the impact of currency exchange rate fluctuations and, with respect to the Media reporting unit, includes tax benefits from exercises of nonqualified employee stock options that were assumed and fully vested at the time of acquisition of Fastclick.

The gross balance, accumulated amortization and net carrying amount of the Company’s intangible assets acquired in business combinations as of September 30, 2009 and December 31, 2008 were as follows (in thousands):

For the nine-month period ended September 30, 2009, the decreases in the gross balances and respective accumulated amortization balances were due primarily to the write-off of fully amortized intangible assets totaling $17.5 million. The Company recognized amortization expense of $6.4 million and $7.0 million on intangible assets for the three-month periods ended September 30, 2009 and 2008, respectively. Amortization expense was $18.9 million and $22.4 million for the nine-month periods ended September 30, 2009 and 2008, respectively. Estimated intangible asset amortization expense for the remainder of 2009, the succeeding five years and thereafter is as follows (in thousands):

6.             ACCOUNTS RECEIVABLE

Accounts receivable are stated net of an allowance for doubtful accounts and sales credits of $4.6 million and $5.9 million at September 30, 2009 and December 31, 2008, respectively. At September 30, 2009, one customer accounted for approximately 10.1% of accounts receivable. No customer comprised more than 10% of accounts receivable at December 31, 2008.

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7.             PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at September 30, 2009 and December 31, 2008 (in thousands):

8.             FAIR VALUE MEASUREMENTS

Effective January 1, 2008, the Company adopted new accounting guidance on fair value measurements, except as it applied to the nonfinancial assets and nonfinancial liabilities. The Company adopted more recent accounting guidance over nonfinancial assets and nonfinancial liabilities effective January 1, 2009. The guidance clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about fair value measurements. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:

Level 1—Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2—Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

As of September 30, 2009, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included the Company’s investment in marketable securities, which are classified as available-for-sale. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, recorded in a separate component of stockholders’ equity within the accumulated other comprehensive income balance.

Marketable securities consisted of auction rate securities (“ARS”) at September 30, 2009, which had an aggregate cost of $29.7 million and an estimated fair value of $23.5 million. Marketable securities at December 31, 2008 consisted primarily of ARS, and had an aggregate cost of $36.0 million and an estimated fair value of $27.9 million.

Due to the continuing auction failures of the Company’s ARS through the third quarter of 2009, there are no readily determinable market values for these ARS. As quoted prices in an active market were not available, the fair values of these ARS were estimated utilizing discounted cash flow analyses as of September 30, 2009. These analyses consider, among other factors, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and assumptions as to the next time the ARS will have a successful auction (liquidity).

As a result of the remaining uncertainty in the market for ARS, the Company has classified these investments as “non-current” assets in the accompanying condensed consolidated balance sheet as of September 30, 2009. Additionally, the fair value of these investments has been reduced from their par value of $29.7 million to an estimated fair value of $23.5 million. Because the Company does not currently intend to sell any of its ARS at a significant loss, nor does it believe it will be required to sell any of these securities before recovering their cost basis, the decline in fair value is considered temporary, and has been recorded as an unrealized loss in accumulated other comprehensive income.  If the Company were to determine that a decline in fair value is other-than-temporary, a charge would be recorded to earnings in the period such determination was made.

The Company’s assets measured at fair value on a recurring basis at September 30, 2009, were as follows (in thousands):

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The following table presents the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at September 30, 2009 (in thousands):

(1)           In June 2009, certain of the Company’s ARS with an aggregate par value of $4.2 million were redeemed by the issuer at par.

(2)           Unrealized gains of $1.9 million represent the reversal of a previously recorded temporary impairment associated with the ARS redeemed in June 2009.

9.             COMMITMENTS AND CONTINGENCIES

On November 20, 2007, the United States District Court for the Central District of California consolidated two purported securities fraud class action lawsuits brought against the Company, its executive chairman and its former chief administrative officer. The court appointed the combined funds of Laborers’ International Union of North America National (Industrial) Pension and the LIUNA Staff & Affiliates Pension Fund (collectively, the “LIUNA Funds”) as lead plaintiffs. In January 2008, the LIUNA Funds filed a consolidated complaint alleging violations of certain federal securities laws based upon the Company’s and the Company’s officers’ alleged materially false and misleading statements concerning the Company’s compliance with laws and standards applicable to its lead generation business, among other things. The Company filed a motion to dismiss this matter in March 2008 and on September 25, 2008, the Court granted defendants’ motion to dismiss. After having their first complaint dismissed by the Court, the LIUNA Funds filed their First Amended Consolidated Complaint on November 24, 2008. In the third quarter of 2009, the Company reached a final settlement in this matter that was not material to the Company’s consolidated results of operations, financial position or cash flows.

On October 31, 2007, plaintiff Susan Lacerenza, a ValueClick shareholder who previously had filed a derivative action in Los Angeles County Superior Court, dismissed that action and re-filed her complaint in the United States District Court for the Central District of California. The operative complaint, brought against nominal defendant ValueClick, Inc. and against individual ValueClick directors and executives (collectively with ValueClick, the “Defendants”), alleges violations of certain federal securities laws, breaches of fiduciary duty, insider trading, and unjust enrichment. The allegations arose from the plaintiff’s claim that ValueClick engaged in illegal and deceptive practices with respect to its lead generation business and that the individual Defendants knowingly disseminated false and misleading financial results. Plaintiff sought to recoup allegedly improper profits from the individual Defendants and also sought damages against the individual Defendants for harm allegedly caused to ValueClick. In January 2008, the Company filed a motion to dismiss this matter. Rather than oppose that motion, the plaintiff filed a First Amended Complaint. In February 2008, upon stipulation of the parties, the Court stayed this action in light of the pending federal class action. In the third quarter of 2009, the Company reached a final settlement in this matter that was not material to the Company’s consolidated results of operations, financial position or cash flows.

On April 8, 2008, Hypertouch, Inc. filed an action in the Superior Court of California, County of Los Angeles, against the Company. The complaint asserts causes of action for violation of California Business & Professions Code §§ 17529.5 and 17200, et seq., arising from the plaintiff’s alleged receipt of a large number of email messages allegedly transmitted by the Company “and/or its agents” and seeks statutory damages for each such email. The Company filed its answer to the complaint on May 28, 2008.  On May 4, 2009, the court granted the Company’s motion for summary judgment which ended the case in this court.  The Company anticipates that Hypertouch will appeal the decision to the court of appeal.

On July 15, 2008, the Company filed a complaint against Tacoda, Inc., a Company which was subsequently acquired by AOL, Inc. in the United States District Court for the Central District of California for patent infringement of U.S. patent numbers 5,848,396 and 5,991,735. The Company is seeking an unspecified amount of damages in addition to injunctive relief.

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In March of 2009, Netscape, Inc., a subsidiary of AOL, Inc., filed a complaint in the United States District Court for the Eastern District of Virginia against ValueClick, Inc., Mediaplex, Inc., Commission Junction, Inc., MeziMedia, Inc., Webclients, Inc., and Fastclick, Inc. for alleged patent infringement of U.S. patent number 5,774,670.  The complaint seeks an unspecified amount of damages in addition to injunctive relief.  The Company believes it has valid defenses and intends to defend itself vigorously against these allegations.  On July 23, 2009, the Company defendants filed a cross-complaint against Netscape for, among other things, fraud.  On September 25, 2009, the Court heard summary judgment motions from both sides in the case. As of the date of this filing, the Court has not issued a ruling concerning summary judgment. In addition, no date for trial has been set by the Court. If the Court does not grant Defendants’ motion for summary judgment, the Company anticipates that a trial will occur in this matter in January of 2010.

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of such agreements, services to be provided by the Company, or from intellectual property infringement claims made by third-parties. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. The Company has also agreed to indemnify certain former officers, directors and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and certain of its officers and employees, and former officers, directors and employees of acquired companies, in certain circumstances.

It is not possible to determine the maximum potential amount of exposure under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements may not be subject to maximum loss clauses.

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patent or other intellectual property rights. The Company is not currently a party to any material legal proceedings, except as discussed above, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows or financial condition should such litigation be resolved unfavorably.

10.          INCOME TAXES

As of December 31, 2008, the Company had recorded a liability of $62.5 million for unrecognized tax benefits. For the three- and nine-month periods ended September 30, 2009, the Company’s liability for unrecognized tax benefits increased by $0.8 million and $1.7 million, respectively, as a result of income tax positions taken during the period, and decreased by $12.0 million and $12.0 million, respectively, as a result of the expiration of certain statutes of limitations. The total liability for unrecognized tax benefits at September 30, 2009 is $52.2 million. If recognized in future periods, $52.2 million of these unrecognized tax benefits would be recorded as a reduction to income tax expense. Facts and circumstances could arise in the twelve-month period following September 30, 2009 that could cause the Company to reduce the liability for unrecognized tax benefits, including, but not limited to, settlement of income tax positions or expiration of the statutes of limitations.  Because the ultimate resolution of uncertain tax positions depends on many factors and assumptions, the Company is not able to estimate the range of potential changes in the liability for unrecognized tax benefits or the timing of such changes.

The Company’s policy is to recognize interest and penalties expense, if any, related to unrecognized tax benefits as a component of income tax expense. For the three-month periods ended September 30, 2009 and 2008, the Company recognized gross interest and penalties expense of $0.7 million and $0.9 million, respectively, offset by a reversal of prior accrued interest of $3.0 million and $2.4 million, respectively, as a result of the expiration of certain statutes of limitations.  For the nine month periods ended September 30, 2009 and 2008, the Company recognized gross interest and penalties expense of $2.4 million and $3.1 million, respectively, offset by a reversal of prior accrued interest of $3.0 million and $2.4 million, respectively, as a result of the expiration of certain statutes of limitations.  The Company had an accrual for interest and penalties in the amount of $7.9 million and $8.5 million at September 30, 2009 and December 31, 2008, respectively, related to unrecognized tax benefits. These amounts are included in non-current income taxes payable.

The Company’s uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. These include the 2006 through 2008 tax years for federal purposes, 1999 and the 2004 through 2008 tax years for various state jurisdictions, and the 2003 through 2008 tax years for various foreign jurisdictions. The Company is currently under Internal Revenue Service audit examination for the 2007 tax year, as well as various state jurisdictions for various tax years.

11.          STOCKHOLDERS’ EQUITY

In September 2001, the Company’s board of directors authorized a stock repurchase program (the “Program”) to allow for the repurchase of shares of the Company’s common stock at prevailing market prices in the open market or through unsolicited negotiated transactions.  Since the inception of the Program and through September 30, 2009, the Company’s board of directors has authorized a total of $479.1 million for repurchases under the Program and the Company has repurchased a total of 47.1 million shares of its common stock for approximately $374.2 million. There were no repurchases under the Program during the three- and nine-month periods ended September 30, 2009. However, subsequent to September 30, 2009 and through November 5, 2009, the Company repurchased 1.7 million shares of its common stock for approximately $16.1 million. As of November 5, 2009, up to an additional $88.8 million of the Company’s capital may be used to repurchase shares of the Company’s outstanding common stock under the Program.

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Repurchases have been funded from available working capital, and all shares have been retired subsequent to their repurchase. There is no guarantee as to the exact number of shares that will be repurchased by the Company, and the Company may discontinue repurchases at any time that management or the Company’s board of directors determines additional repurchases are not warranted.

12.                               NET INCOME PER COMMON SHARE

The following table sets forth the computation of basic and diluted net income per common share for the periods indicated (in thousands, except per share data):

The Company adopted a newly issued accounting guidance regarding share-based payment transactions effective January 1, 2009, which requires retrospective application. The guidance clarifies that instruments granted in share-based payment transactions that are considered to be participating securities prior to vesting should be included in the earnings allocation under the two-class method of calculating earnings per share. The adoption of the new standard did not have a material impact on the Company’s calculation of earnings per share.

Employee stock-based awards totaling 2,604,000 and 7,700,000 shares during the three-month periods ended September 30, 2009 and 2008, respectively, were excluded from the computation of diluted net income per common share because their effect would have been antidilutive under the treasury stock method.  For the nine-month periods ended September 30, 2009 and 2008, the number of these antidilutive shares excluded from the diluted net income per common share computation was 2,987,000 and 6,637,000, respectively.

13.                               RELATED PARTY TRANSACTIONS

For the three-month periods ended September 30, 2009 and 2008, the Company paid advertising costs totaling $180,000 and $136,000, respectively, to Acquisis LLC, of which a member of the Company’s board of directors is the managing partner and greater than 5% owner. For the nine-month periods ended September 30, 2009 and 2008, the Company paid advertising costs totaling $703,000 and $975,000, respectively, to Acquisis LLC. The Company had an outstanding amount due to this unaffiliated entity of $56,000 and $131,000 as of September 30, 2009 and December 31, 2008, respectively, which is included in accounts payable and accrued expenses.

14.                               LINE OF CREDIT

In November 2008, the Company obtained a line of credit with a bank group which allows for borrowings of up to $100 million through November 14, 2011. Advances under this agreement bear interest at either (i) the base rate, which is equal to the highest of (a) the lender’s prime rate, (b) the federal funds rate plus 1.50%, and (c) the one month reserve adjusted daily London Interbank Offered Rate (“LIBOR”) plus 1.50%, or (ii) the LIBOR rate plus an applicable margin as in effect at each interest calculation date. The applicable margin in effect from time to time is based on the Company’s total leverage ratio. The applicable margins range from 0.50% to 1.25% for base rate loans and from 1.50% to 2.25% for LIBOR loans.

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Certain of the Company’s domestic subsidiaries have guaranteed the obligations of the Company, and all future domestic subsidiaries of the Company also are required to guarantee the obligations of the Company under the credit agreement. The Company’s obligations are secured by a lien on substantially all of its present and future assets pursuant to a separate security agreement. In addition, the obligations of each subsidiary guarantor are secured by a lien on substantially all of such subsidiary’s present and future assets. The subsidiary guarantees and the collateral under the Security Agreement are subject to release upon fulfillment of certain conditions specified in the credit agreement, security agreement and subsidiary guaranty agreement.

The revolving credit facility is available to be used by the Company, among other things, to fund its working capital needs and for other general corporate purposes, including acquisitions and stock repurchases. The Company pays a commitment fee on unused amounts that ranges, based on the Company’s total leverage ratio, from 0.25% to 0.40% of the unused portion of the revolving credit facility, and was fixed at 0.30% through June 30, 2009. For the three-month period ended September 30, 2009, the Company paid a commitment fee of 0.25%. The agreement also contains customary events of default such as failure to pay interest or principal when due, material inaccuracy of representations or warranties, bankruptcy events, change of control, a material adverse change in financial condition or operations, or a default of covenant. Upon the occurrence of an event of default, the principal and accrued interest under the revolving credit facility then outstanding may be declared due and payable. At September 30, 2009 and December 31, 2008, no amounts were outstanding on this line of credit.

The Company has provided various representations and agreed to certain financial covenants including a total leverage ratio, minimum trailing-twelve month EBITDA (defined as net income before interest, income taxes, depreciation, amortization, stock-based compensation, and certain other non-cash income and expenses; and which is currently set at $130 million) and minimum unrestricted, unencumbered liquid asset requirements. At September 30, 2009 and December 31, 2008, the Company was in compliance with all of the financial covenants of the line of credit agreement.

15.                               SEGMENTS, GEOGRAPHIC INFORMATION AND SIGNIFICANT CUSTOMERS

The Company derives its revenue from four business segments. These business segments are presented on a worldwide basis and include: Media, Affiliate Marketing, Comparison Shopping & Search, and Technology. The following table provides revenue and segment income from operations for each of the Company’s four business segments. Segment income from operations, as shown below, is the performance measure used by management to assess segment performance and excludes the effects of stock-based compensation, amortization of intangible assets and corporate expenses. Corporate expenses consist of those costs not directly attributable to a business segment, and include: salaries and benefits for the Company’s executive, finance, legal, corporate governance, human resources, and facilities organizations; fees for professional service providers including audit, tax, Sarbanes-Oxley compliance and certain corporate-related legal fees; insurance; and, other corporate expenses.

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A reconciliation of total segment income from operations to consolidated income (loss) from operations is as follows for each period (in thousands):

Depreciation and leasehold amortization expense included in the determination of segment income from operations as presented above for the Media, Affiliate Marketing, Comparison Shopping & Search, and Technology segments was $688,000, $253,000, $490,000, and $257,000, respectively, for the three-month period ended September 30, 2009; and $900,000, $450,000, $469,000, and $250,000, respectively, for the three-month period ended September 30, 2008. Depreciation and leasehold amortization expense included in corporate expenses in the determination of consolidated income from operations was $353,000 and $345,000 for the three-month periods ended September 30, 2009 and 2008, respectively. Depreciation and leasehold amortization expense included in the determination of segment income from operations as presented above for the Media, Affiliate Marketing, Comparison Shopping & Search, and Technology segments was $2.2 million, $818,000, $1.4 million, and $767,000, respectively, for the nine-month period ended September 30, 2009; and $2.7 million, $1.5 million, $1.4 million, and $696,000, respectively, for the nine-month period ended September 30, 2008. Depreciation and leasehold amortization expense included in corporate expenses in the determination of consolidated income from operations was $1.1 million and $1.0 million for the nine-month periods ended September 30, 2009 and 2008, respectively.

The Company’s operations are domiciled in the United States with operations internationally in Europe, China and Japan through wholly-owned subsidiaries. Revenue is attributed to a geographic region based upon the country from which the customer relationship is maintained. The Company’s operations in China primarily support the revenue generated in the United States and, therefore, the costs associated with these operations are attributed to the United States in the determination of geographic income from operations shown below.

The Company’s geographic information was as follows (in thousands):

For the three month period ended September 30, 2009, one customer accounted for approximately 17.0% of total revenue. For the nine-month period ended September 30, 2009, one customer accounted for approximately 15.6% of total revenue. For the three-month period ended September 30, 2008 no customer accounted for more than 10% of total revenue. For the nine-month period ended September 30, 2008, one customer accounted for approximately 12.3% of total revenue.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT

This report contains forward-looking statements based on our current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. The section entitled “Risk Factors” in this Form 10-Q and similar discussions in our Annual Report on Form 10-K for the year ended December 31, 2008, and in our other SEC filings, discuss some of the important risk factors that may affect our business, results of operations and financial condition. You should carefully consider those risks, in addition to the other information in this report, and in our other filings with the SEC, before deciding to invest in our company or to maintain or increase your investment. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. The information contained in this Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC that discuss our business in greater detail and advise interested parties of certain risks, uncertainties and other factors that may affect our business, results of operations or financial condition.

OVERVIEW

ValueClick, Inc. and its subsidiaries (collectively “ValueClick” or the “Company” or in the first person, “we”, “us” and “our”) is one of the world’s largest and most comprehensive online marketing services companies. We sell targeted and measurable online advertising campaigns and programs for advertisers and advertising agency customers, generating qualified customer leads, online sales and increased brand recognition on their behalf with large numbers of online consumers.