<Page>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-23709
-------------------
DOUBLECLICK INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<Table>
DELAWARE 13-3870996
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</Table>
450 WEST 33RD STREET, 16TH FLOOR
NEW YORK, NEW YORK 10001
(212) 683-0001
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA
CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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 [ ]
As of August 10, 2001, there were 135,230,425 shares of the registrant's common
stock, including 207,325 shares exchangeable into shares of the registrant's
common stock which were issued in connection with the registrant's acquisition
of FloNetwork Inc.
________________________________________________________________________________
<Page>
DOUBLECLICK INC.
INDEX TO FORM 10-Q
PART I: FINANCIAL INFORMATION
<Table>
Item 1: Financial Statements (unaudited)
Consolidated Balance Sheets as of June 30, 2001 and December
31, 2000.................................................. 1
Consolidated Statements of Operations for the three and six
months ended June 30, 2001 and 2000....................... 2
Consolidated Statements of Cash Flows for the six months
ended June 30, 2001 and 2000.............................. 3
Notes to Consolidated Financial Statements.................. 4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 14
Item 3: Quantitative and Qualitative Disclosures about Market
Risk...................................................... 24
PART II: OTHER INFORMATION
Item 1: Legal Proceedings........................................... 39
Item 4: Submission of Matters to a Vote of Security Holders......... 40
Item 6: Exhibits and Reports on Form 8-K............................ 40
</Table>
ii
<Page>
ITEM 1. FINANCIAL STATEMENTS
DOUBLECLICK INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED, IN THOUSANDS EXCEPT SHARE AMOUNTS)
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2001 2000
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................... $ 198,091 $ 193,682
Investments in marketable securities.................... 423,189 422,495
Accounts receivable, net of allowances of $26,333 and
$26,715, respectively................................. 89,668 120,029
Prepaid expenses and other current assets............... 41,852 36,934
---------- ----------
Total current assets................................ 752,800 773,140
Investments in marketable securities........................ 192,536 257,199
Property and equipment, net................................. 169,896 168,192
Goodwill, net............................................... 140,035 46,256
Intangible assets, net...................................... 19,545 6,519
Investments in affiliates................................... 28,719 37,457
Other assets................................................ 9,847 9,780
---------- ----------
Total assets........................................ $1,313,378 $1,298,543
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................ $ 55,869 $ 81,038
Accrued expenses and other current liabilities.......... 80,230 96,002
Deferred revenue........................................ 25,252 33,590
---------- ----------
Total current liabilities........................... 161,351 210,630
Long-term obligations and notes............................. 16,815 15,609
Convertible subordinated notes.............................. 250,000 250,000
Minority interest........................................... 20,160 5,247
STOCKHOLDERS' EQUITY:
Common stock, par value $0.001; 400,000,000 shares
authorized, 134,078,768 and 123,728,169 shares issued,
respectively.......................................... 134 124
Treasury stock, 160,283 shares at December 31, 2000..... -- (18,419)
Additional paid-in capital.............................. 1,261,360 1,116,172
Deferred compensation................................... -- (236)
Accumulated deficit..................................... (381,066) (265,812)
Other accumulated comprehensive loss.................... (15,376) (14,772)
---------- ----------
Total stockholders' equity.......................... 865,052 817,057
---------- ----------
Total liabilities and stockholders' equity.......... $1,313,378 $1,298,543
---------- ----------
---------- ----------
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<Page>
DOUBLECLICK INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2001 2000 2001 2000
---- ---- ---- ----
Revenue............................................. $101,935 $128,087 $216,805 $238,143
Cost of revenue..................................... 46,396 59,539 96,732 112,016
-------- -------- -------- --------
Gross profit.................................... 55,539 68,548 120,073 126,127
Operating expenses:
Sales and marketing (inclusive of non-cash
compensation of $10,504, $5,194, $15,233 and
$9,754, respectively)......................... 52,238 54,927 107,386 105,415
General and administrative (inclusive of
non-cash compensation of $152, $39, $259 and
$101, respectively)........................... 16,773 22,099 36,415 43,000
Product development............................. 14,487 11,152 28,436 20,851
Amortization of intangibles..................... 15,292 10,133 25,909 18,538
Purchased in-process research and development... 1,300 -- 1,300 --
Restructuring charge............................ 1,647 -- 30,680 --
-------- -------- -------- --------
Total operating expenses.................... 101,737 98,311 230,126 187,804
Loss from operations................................ (46,198) (29,763) (110,053) (61,677)
Other income (expense):
Equity in losses of affiliates.................. (897) (3,331) (2,042) (4,759)
Gain on equity transactions of affiliates,
net........................................... 5,681 -- 1,924 8,949
Interest and other, net......................... 3,171 11,663 11,937 18,613
-------- -------- -------- --------
Total other income.......................... 7,955 8,332 11,819 22,803
Loss before income taxes............................ (38,243) (21,431) (98,234) (38,874)
Provision for income taxes.......................... 693 701 1,752 1,632
-------- -------- -------- --------
Loss before minority interest....................... (38,936) (22,132) (99,986) (40,506)
Minority interest................................... 1,013 -- 1,644 --
-------- -------- -------- --------
Net loss............................................ $(37,923) $(22,132) $(98,342) $(40,506)
-------- -------- -------- --------
-------- -------- -------- --------
Basic and diluted net loss per share................ $ (0.29) $ (0.18) $ (0.76) $ (0.34)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted-average shares used in net loss per
share-basic and diluted........................... 131,698 122,265 129,154 119,552
</Table>
The accompanying notes are an integral part of these consolidated financial
statements
2
<Page>
DOUBLECLICK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
---------------------
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................... $ (98,342) (40,506)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and leasehold amortization................. 25,860 13,844
Amortization of intangible assets....................... 25,909 18,538
Equity in losses of affiliates.......................... 2,042 4,759
Gain on equity transactions of affiliates, net.......... (1,924) (8,949)
Write-down of investment................................ 4,500 --
Loss on disposal of fixed assets........................ 732 --
Write-off of purchased in-process research and
development........................................... 1,300 --
Income tax benefit from the exercise of stock options... 120 --
Minority interest....................................... (1,644) --
Non-cash restructuring charge........................... 13,533 --
Non-cash compensation................................... 15,492 9,855
Provision for bad debts and advertiser discounts........ 14,229 23,060
Changes in operating assets and liabilities:
Accounts receivable................................. 24,173 (58,300)
Prepaid expenses and other assets................... (5,056) (17,735)
Accounts payable.................................... (13,034) 20,201
Accrued expenses and other liabilities.............. (5,728) 27,425
Deferred revenue.................................... (9,982) 4,695
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES........... (7,820) (3,113)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments in marketable securities....... (226,493) (392,949)
Maturities of investments in marketable securities...... 295,999 --
Purchases of property, plant and equipment.............. (44,919) (77,640)
Acquisitions of businesses and intangible assets, net of
cash acquired......................................... (38,966) (22,527)
Investments in affiliates and other..................... (963) (10,380)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES........... (15,342) (503,496)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock, net of
issuance costs........................................ 1,521 502,918
Proceeds from the exercise of stock options............. 5,722 49,046
Proceeds from the issuance of notes payable............. 510 --
Proceeds from the initial public offering of DoubleClick
Japan, net of issuance costs.......................... 25,425 --
Payment of notes and capital lease obligations.......... (2,004) (291)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 31,174 551,673
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (3,603) (213)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 4,409 44,851
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 193,682 119,238
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 198,091 $ 164,089
--------- ---------
--------- ---------
</Table>
The accompanying notes are an integral part of these consolidated financial
statements
3
<Page>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S
(UNAUDITED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
DoubleClick Inc., together with its subsidiaries ('DoubleClick'), is a
leading provider of products and services that enable publishers, advertisers,
direct marketers and merchants to market to consumers in the digital world. We
offer a broad range of media, technology, data and research products and
services to our customers to allow them to address all facets of the digital
marketing process, from pre-campaign, to execution, measurement and campaign
refinements. Combining media, data and technological expertise, our products and
services help our customers optimize their advertising and marketing campaigns
on the Internet and through other media.
DoubleClick derives its revenues from three business units: Technology (or
TechSolutions), Media and Data based on the types of services provided.
DoubleClick TechSolutions consists of the DART-based service bureau offering,
the AdServer family of software products and a suite of email technology
services. DoubleClick Media consists of the worldwide DoubleClick networks,
which provide fully outsourced and effective ad sales and related services to a
worldwide group of advertisers and publishers. DoubleClick Data includes its
Abacus division that utilizes the information contributed to a proprietary
database by Abacus Alliance members to make both online and offline direct
marketing more effective for Abacus Alliance members and other clients.
DoubleClick Data also includes Diameter, DoubleClick's research division, an
online research business that offers a complete suite of research tools,
providing media intelligence, audience measurement and advertising effectiveness
products.
BASIS OF PRESENTATION
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 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 are unaudited,
but in the opinion of management, contain all the adjustments (consisting of
those of a normal, recurring nature) considered necessary to present fairly the
financial position, the results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles applicable
to interim periods. Results of operations are not necessarily indicative of the
results expected for the full fiscal year or for any future period.
The accompanying consolidated financial statements should be read in
conjunction with the audited consolidated financial statements of DoubleClick
for the year ended December 31, 2000. Certain reclassifications have been made
to the prior period financial statements to conform to the current period
presentation.
BASIC AND DILUTED NET LOSS PER SHARE
Basic net loss per share excludes the effect of potentially dilutive
securities and is computed by dividing the net loss available to common
shareholders by the weighted-average number of common shares outstanding for the
reporting period. Diluted net loss per share adjusts this calculation to reflect
the impact of outstanding convertible securities, stock options and other
potentially dilutive financial instruments to the extent that their inclusion
would have a dilutive effect on net loss per share for the reporting period.
4
<Page>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
At June 30, 2001 and 2000, outstanding options of approximately
23.3 million and 22.8 million, respectively, to purchase shares of common stock
were not included in the computation of diluted net loss per share because to do
so would have had an antidilutive effect for the periods presented. Similarly,
the computation of diluted net loss per share excludes the effect of 6,060,606
shares issuable upon conversion of $250 million, 4.75% Convertible Subordinated
Notes due 2006, since their inclusion would also have had an antidilutive
effect. As a result, the basic and diluted net loss per share amounts are equal
for all periods presented.
ISSUANCE OF STOCK BY AFFILIATES
Changes in DoubleClick's interest in its affiliates arising as the result of
their issuance of common stock are recorded as gains and losses in the
consolidated statements of operations, except for any transactions that must be
recorded directly to equity in accordance with the provisions of Staff
Accounting Bulletin ('SAB') No. 51.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject DoubleClick to concentrations
of credit risk consist primarily of cash and cash equivalents, investments in
marketable securities and accounts receivable.
Credit is extended to customers based on an evaluation of their financial
condition, and collateral is not required. DoubleClick performs ongoing credit
assessments of its customers and maintains an allowance for doubtful accounts.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (the 'FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 141 'Business
Combinations' and SFAS No. 142 'Goodwill and Other Intangible Assets.' SFAS
No. 141 establishes new standards for accounting and reporting requirements for
business combinations and will require that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. SFAS No. 142 establishes new
standards for goodwill acquired in a business combination, eliminates the
amortization of goodwill and sets forth methods to periodically evaluate
goodwill for impairment. Intangible assets with a determinable useful life will
continue to be amortized over that life. SFAS 141 and SFAS 142 are effective for
business combinations completed after June 30, 2001. DoubleClick will adopt
these statements on January 1, 2002; however, as noted above, certain provisions
of these new standards may also apply to any acquisitions concluded subsequent
to June 30, 2001. DoubleClick estimates that the adoption of SFAS 142 would have
reduced its amortization expense by approximately $22 million for the six months
ended June 30, 2001. Management is in the process of evaluating the effect that
the adoption of the remaining provisions of SFAS No. 142 will have on
DoubleClick's results of operations and financial position.
In June 1998, the FASB issued SFAS No. 133, 'Accounting for Derivative
Financial Instruments and Hedging Activities', which had an initial adoption
date of January 1, 2000. In June 1999, the FASB issued SFAS No. 137, which
delayed the effective date for implementing SFAS No. 133 until the beginning of
2001. In June 2000, the FASB issued SFAS No. 138, which amended certain
provisions of SFAS No. 133 with the objective of easing the implementation
difficulties expected to arise on the adoption of the statement. DoubleClick
adopted SFAS No. 133 effective January 1, 2001. The adoption of SFAS No. 133 had
no material impact on DoubleClick's financial condition or results of
operations.
5
<Page>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
NOTE 2 -- BUSINESS COMBINATIONS
FLONETWORK INC.
On April 23, 2001, DoubleClick completed its acquisition of FloNetwork Inc.
('FloNetwork'), a privately-held provider of email technology services. In the
transaction, which has been accounted for as a purchase, DoubleClick acquired
all of the outstanding shares, options and warrants of FloNetwork in exchange
for $17.1 million in cash, DoubleClick common stock valued at $30.7 million and
stock options and warrants to acquire DoubleClick common stock valued at
$3.8 million. The value of the approximately 2,800,000 shares of common stock
issued was determined based on the average market price of DoubleClick common
stock, as quoted on the Nasdaq National Market, for the day immediately prior
to, the day of, and the day immediately after the number of shares and the cash
consideration due to FloNetwork shareholders became irrevocably fixed pursuant
to the agreement under which FloNetwork was acquired. The FloNetwork options and
warrants assumed by DoubleClick as the result of this merger converted into
options and warrants to acquire approximately 430,000 shares of DoubleClick
common stock and have been valued using the Black-Scholes option pricing model
with the following weighted-average assumptions:
<Table>
Expected dividend yield..................................... 0.0%
Risk-free interest rate..................................... 4.5%
Expected life (in years).................................... 4.1
Volatility.................................................. 115%
</Table>
The aggregate purchase price of $52.7 million, which includes approximately
$1.1 million of direct acquisition costs, has been allocated to the assets
acquired and the liabilities assumed according to their fair values at the date
of acquisition as follows:
<Table>
Current assets.............................................. $ 5.4
Acquired in-process research and development................ 1.3
Other intangible assets..................................... 6.5
Goodwill.................................................... 44.9
Other non-current assets.................................... 3.3
-----
Total assets acquired................................... $61.4
Current liabilities......................................... $(8.7)
-----
Total liabilities assumed............................... $(8.7)
Net assets acquired......................................... $52.7
-----
-----
</Table>
On the basis of fair value appraisals, approximately $4.3 million of the
purchase price has been allocated to acquired technology, $2.2 million to
customer lists and $1.3 million to purchased in-process research and
development. The amounts allocated to customer lists and acquired technology are
being amortized on a straight-line basis over 2 and 3 years, respectively. The
amounts attributed to in-process research and development projects have been
charged to operations as they had not reached technological feasibility as of
the date of acquisition and were determined to have no alternative future uses.
DoubleClick has also recorded approximately $44.9 million in goodwill, which
represents the remainder of the excess of the purchase price over the fair value
of net assets acquired. This goodwill is not tax-deductible and is being
amortized on a straight-line basis over three years. In accordance with
SFAS 142, DoubleClick will cease to amortize this goodwill when the statement is
applied in its entirety in 2002. See Note 1 'Description of business and
significant accounting policies.'
The results of operations for FloNetwork have been included in DoubleClick's
consolidated statements of operations from the date of acquisition.
6
<Page>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
@PLAN.INC
On February 2, 2001, DoubleClick completed its acquisition of @plan.inc
('@plan'), a leading provider of online market research planning systems. In the
transaction, which has been accounted for as a purchase, DoubleClick acquired
all of the outstanding shares, options and warrants of @plan in exchange for
$39.1 million in cash, DoubleClick common stock valued at $48.7 million, and
stock options and warrants to acquire DoubleClick common stock valued at
approximately $15.7 million. The value of the approximately 3,200,000 shares of
common stock issued was determined based on the average market price of
DoubleClick common stock, as quoted on the Nasdaq National Market, for the day
immediately prior to and the day of the final determination of the number of
shares and cash consideration due to @plan shareholders became irrevocably fixed
pursuant to the agreement under which @plan was acquired. The @plan options and
warrants assumed by DoubleClick as the result of the merger converted into
options and warrants to acquire approximately 1,200,000 shares of DoubleClick
common stock and have been valued using the Black-Scholes option pricing model
with the following weighted-average assumptions:
<Table>
Expected dividend yield..................................... 0.0%
Risk-free interest rate..................................... 6.1%
Expected life (in years).................................... 4.3
Volatility.................................................. 107%
</Table>
The aggregate purchase price of $104.3 million, which includes approximately
$0.8 million of direct acquisition costs, has been allocated to the assets
acquired and the liabilities assumed based on their respective fair values at
the date of acquisition as follows:
<Table>
Cash........................................................ $ 26.5
Other current assets........................................ 4.2
Goodwill.................................................... 78.5
Other non-current assets.................................... 0.8
------
Total assets acquired................................... $110.0
Current liabilities......................................... $ (5.7)
------
Total liabilities assumed............................... $ (5.7)
Net assets acquired......................................... $104.3
------
------
</Table>
DoubleClick has recorded approximately $78.5 million in goodwill, which
represents the excess of the purchase price over the fair value of net assets
acquired. This goodwill is not tax-deductible and is being amortized on a
straight-line basis over three years. In accordance with SFAS 142, DoubleClick
will cease to amortize this goodwill when the statement is applied in its
entirety in 2002. See Note 1 'Description of business and significant accounting
policies.'
The results of operations for @plan have been included in DoubleClick's
consolidated statements of operations from the date of acquisition.
The following pro forma results of operations have been prepared assuming
that the acquisitions of FloNetwork and @plan 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
7
<Page>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
achieved had these acquisitions been consummated on the dates indicated and does
not purport to indicate results of operations as of any future date or any
future period.
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
----------------------------------------
2001 2000
---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues.................................... $ 225,000 $248,455
Amortization of intangible assets........... 33,926 40,379
Net loss.................................... $(110,536) $(71,501)
Net loss per basic and diluted share........ (0.84) (0.57)
</Table>
NOTE 3 -- INVESTMENT IN VALUECLICK, INC.
DoubleClick's investment in ValueClick, Inc. ('ValueClick') is accounted for
under the equity method. DoubleClick records its proportionate share of
ValueClick's net income or loss and the amortization of goodwill associated with
this investment in 'Equity in losses of affiliates' in the consolidated
statements of operations. This goodwill is being amortized on a straight-line
basis over three years.
In the first quarter of 2000, DoubleClick recorded the effects of
ValueClick's initial public offering of 4.0 million shares of common stock at
$19.00 per share. ValueClick's net proceeds, after deducting underwriting
discounts, commissions and direct offering costs, were approximately $68.6
million. As a result of this offering, DoubleClick's ownership interest was
reduced from 33.0% to 28.1% and the value of its proportionate share of
ValueClick's net assets increased. DoubleClick recorded an increase in the value
of its investment in ValueClick of $12.9 million, reduced the carrying amount of
treasury stock to approximately $23.8 million and recognized a gain of
approximately $8.9 million. This gain has been included in 'Gain on equity
transactions of affiliates, net' in the consolidated statements of operations.
In the first quarter of 2001, DoubleClick recorded the effects of
ValueClick's issuance of approximately 5.7 million shares to complete a purchase
acquisition of Bach Systems, Inc. ('Bach Systems') and to consummate a pooling
of interests merger with ClickAgents.com, Inc. ('ClickAgents'). DoubleClick has
treated ValueClick's pooling with ClickAgents as a book value purchase of
ClickAgents by ValueClick. As a result of these transactions, DoubleClick's
ownership interest was reduced from 28.1% to 23.5% and the value of its
proportionate share of ValueClick's net assets decreased. DoubleClick recorded a
decrease in the value of its investment in ValueClick of $3.8 million, reduced
the carrying amount of treasury stock to approximately $15.3 million and
recognized a loss of approximately $3.8 million. This loss has been included in
'Gain on equity transactions of affiliates, net' in the consolidated statements
of operations.
Under the terms of its purchase agreement, ValueClick may issue additional
shares of common stock to the former shareholders of Bach Systems if certain
performance objectives are achieved over the eight quarters following the
closing date. To date, ValueClick has not recorded any additional consideration
related to this contingency.
In the second quarter of 2001, DoubleClick recorded the effects of
ValueClick's issuance of approximately 2.7 million shares to complete its
pooling of interests merger with Z Media, Inc. As a result of the merger,
DoubleClick's ownership interest in ValueClick was reduced from 23.5% to 21.7%
and the value of its proportionate share of ValueClick's net assets decreased.
Pursuant to its accounting policy, DoubleClick recorded a decrease in the value
of its investment in ValueClick of $1.8 million, reduced the carrying amount of
treasury stock to approximately $14.2 million and recognized a loss of
approximately $1.5 million. This loss has been included in 'Gain on equity
transactions of affiliates, net' in the consolidated statements of operations.
8
<Page>
DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
In the second quarter of 2001, ValueClick sold the remaining 567,860 shares
of DoubleClick common stock it owned to third parties. DoubleClick recorded an
increase in the value of its investment in ValueClick of approximately $1.5
million, which was equal to its proportionate share of the cash proceeds from
the sale. Also as a result of this transaction, DoubleClick reduced the carrying
amount of treasury stock to zero and recognized a charge to retained earnings of
approximately $12.7 million, which represented the difference between the
treasury shares' original basis and the cash proceeds from the sale.
DoubleClick has recorded a full valuation allowance against the net deferred
tax asset associated with its investment in ValueClick.
For the three and six month periods ended June 30, 2001, DoubleClick
recognized approximately $0.2 million and $0.5 million, respectively, of
goodwill amortization associated with its investment in ValueClick. For the
three and six month periods ended June 30, 2000, such amortization totaled
approximately $2.9 million and $4.1 million, respectively. In accordance with
SFAS 142, DoubleClick will cease to amortize this goodwill when the statement is
applied in its entirety in 2002. See Note 1 'Description of business and
significant accounting policies.'
NOTE 4 -- WRITE-DOWN OF INVESTMENT IN AFFILIATE
As a result of the significant decline in the market value of Internet-based
companies and the decreasing access of these companies to public and private
financing, management initiated an assessment of the carrying values of certain
of its investments in affiliates in the second quarter of 2001. In the course of
its analysis, DoubleClick determined that the carrying value of its cost-method
investee Return Path was no longer recoverable. As a consequence, DoubleClick
wrote off its entire investment in Return Path and recognized an impairment
charge of $4.5 million. This charge has been included in 'Interest and other,
net' in the consolidated statements of operations.
NOTE 5 -- INITIAL PUBLIC OFFERING OF DOUBLECLICK JAPAN
On April 25, 2001, DoubleClick's consolidated subsidiary, DoubleClick Japan,
completed its initial public offering of common stock on the Nasdaq Japan
Market, issuing 23,456 shares at approximately $1,236 per share. DoubleClick
Japan's net proceeds, after deducting underwriting discounts, commissions and
direct offering costs, were approximately $25.4 million. As a result of this
offering, DoubleClick's ownership interest in DoubleClick Japan decreased from
43.2% to 38.2%. DoubleClick recorded a $16.6 million increase in minority
interest, reduced the carrying amount of the goodwill associated with its
acquisition of DoubleClick Japan by $1.6 million and recognized a gain of
approximately $7.2 million, which represented the incremental increase in
consolidated net equity related to its proportionate share of the proceeds from
DoubleClick Japan's stock offering. This gain has been included in 'Gain on
equity transactions of affiliates, net' in the consolidated statements of
operations.
NOTE 6 -- NON-CASH COMPENSATION
Non-cash compensation consists primarily of the additional consideration
payable to certain former shareholders of DoubleClick Scandinavia. Additional
shares of DoubleClick common stock were to be contingently issuable in March
2002 based upon the continued employment of the former shareholders and the
attainment of specific revenue objectives for the year ended December 31, 2001.
In May 2001, DoubleClick agreed to pay the former shareholders approximately
$18.0 million in DoubleClick common stock, which was equal to the minimum
consideration they were entitled to receive under the terms of the original
agreement. As of March 31, 2001, DoubleClick had accrued approximately $7.5
million in compensation expense related to these payments. The remaining portion
of the contingent
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DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
consideration, approximately $10.5 million, has been charged to earnings and
included in 'Sales and marketing' in the consolidated statements of operations.
NOTE 7 -- STOCKHOLDERS' EQUITY
Pursuant to an underwriting agreement dated February 17, 2000, DoubleClick
completed a public offering of 7,500,000 shares of its common stock, of which
DoubleClick sold 5,733,411 shares and certain stockholders sold 1,766,589
shares. DoubleClick's net proceeds were approximately $502.9 million, after
deducting underwriting discounts, commissions and offering expenses.
In January 2000, DoubleClick effected a two-for-one stock split in the form
of a 100 percent stock dividend, which was approved for shareholders of record
as of December 31, 1999.
NOTE 8 -- RESTRUCTURING AND OTHER CHARGES
2000 RESTRUCTURING
In December 2000, management took certain actions to reduce employee
headcount in order to better align its sales, development and administrative
organization. This involved the involuntary terminations of approximately 180
employees. As a consequence, DoubleClick recorded a $2.4 million charge to
operations during the fourth quarter of 2000 related to payments for severance
as well as the costs of outplacement services and the provision of continued
benefits to terminated personnel.
As of June 30, 2001, all of the $2.4 million charge had been paid.
2001 RESTRUCTURING
In March 2001, management took additional steps to further increase
operational efficiencies and bring costs in line with revenues. These measures
included the involuntary terminations of approximately 230 employees, primarily
from DoubleClick Media's operations, as well as the consolidation of some of its
leased office space and the closure of several of its offices. As a result,
DoubleClick recorded a $29.1 million charge to operations during the first
quarter of 2001. This charge included approximately $3.7 million for
severance-related payments to terminated employees, approximately $9.3 million
for the accrual of future lease costs (net of estimated sublease income and
deferred rent liabilities previously recorded) and approximately $15.2 for the
write-off of fixed assets situated in office locations that were closed or
consolidated. These fixed asset impairments arose primarily from the write-off
of the carrying values of leasehold improvements in offices that were abandoned
as part of the restructuring activities.
In connection with the restructuring initiatives begun in March 2001,
DoubleClick recorded additional provisions totaling approximately $1.6 million
in the second quarter of 2001. This charge included estimated costs of
approximately $182,000 for severance costs associated with a further work force
reduction of 15 employees, approximately $629,000 in additional fixed asset
write-offs, approximately $440,000 in consulting and professional fees related
to the restructuring activities and approximately $396,000 in personnel-related
costs associated with the decision to move the TechSolutions customer support
department from New York to Colorado.
DoubleClick expects to achieve annualized savings of approximately $16
million in operating expenses as a result of these restructuring initiatives.
However, there can be no assurance that that such cost reductions can be
sustained or that the estimated costs of such actions will not change.
Of the $30.7 million charge recorded in 2001, approximately $7.3 million and
$2.9 million remain accrued in 'Accrued expenses and other current liabilities'
and 'Long-term obligations and notes', respectively, as of June 30, 2001.
DoubleClick expects to pay the remainder of the severance-related costs in
fiscal year 2001.
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DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
FIXED ASSET FUTURE OTHER
SEVERANCE WRITE-OFF LEASE COSTS EXIT COSTS TOTAL
--------- --------- ----------- ---------- -----
2000 restructuring
Balance at January 1, 2001............. $ 1,172 $ -- $ -- $ -- $ 1,172
Cash expenditures...................... (1,172) -- -- -- (1,172)
Non-cash charges....................... -- -- -- -- --
------- -------- ------- ------ --------
Balance at June 30, 2001............... $ -- $ -- $ -- $ -- $ --
------- -------- ------- ------ --------
------- -------- ------- ------ --------
2001 restructuring
Restructuring charge................... $ 3,839 $ 15,798 $ 9,274 $1,769 $ 30,680
Cash expenditures...................... (3,565) -- (2,608) (763) (6,936)
Reversal of deferred rent liability.... -- -- 2,409 -- 2,409
Non-cash charges....................... -- (15,798) -- (144) (15,942)
------- -------- ------- ------ --------
Balance at June 30, 2001............... $ 274 $ -- $ 9,075 $ 862 $ 10,211
------- -------- ------- ------ --------
------- -------- ------- ------ --------
</Table>
NOTE 9 -- INTEREST AND OTHER, NET
The following summarizes the components of interest and other, net:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
2001 2000 2001 2000
---- ---- ---- ----
(IN THOUSANDS) (IN THOUSANDS)
Interest income......................................... $11,542 $15,244 $24,517 $25,897
Interest expense........................................ (3,277) (2,950) (6,465) (5,972)
Return Path write-down.................................. (4,500) -- (4,500) --
Other................................................... (594) (631) (1,615) (1,312)
------- ------- ------- -------
$ 3,171 $11,663 $11,937 $18,613
------- ------- ------- -------
------- ------- ------- -------
</Table>
NOTE 10 -- SEGMENT REPORTING
DoubleClick is organized into three segments: Technology, Media and Data.
Revenues and gross profit by segment are as follows:
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, 2001 THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------- -----------------------------------------
TECHNOLOGY MEDIA DATA TOTAL TECHNOLOGY MEDIA DATA TOTAL
---------- ----- ---- ----- ---------- ----- ---- -----
Revenue.............................. $51,796 $33,799 $19,339 $104,934 $48,650 $68,989 $15,791 $133,430
Intersegment elimination............. (2,829) -- (170) (2,999) (5,343) -- -- (5,343)
------- ------- ------- -------- ------- ------- ------- --------
Revenue from external customers...... $48,967 $33,799 $19,169 $101,935 $43,307 $68,989 $15,791 $128,087
------- ------- ------- -------- ------- ------- ------- --------
------- ------- ------- -------- ------- ------- ------- --------
Segment gross profit................. $33,142 $10,322 $12,105 $ 55,569 $34,596 $23,600 $10,352 $ 68,548
------- ------- ------- -------- ------- ------- ------- --------
------- ------- ------- -------- ------- ------- ------- --------
Research consulting fees............. (30) --
-------- --------
Consolidated gross profit............ $ 55,539 $ 68,548
-------- --------
-------- --------
</Table>
11
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DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2001 SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------- ------------------------------------------
TECHNOLOGY MEDIA DATA TOTAL TECHNOLOGY MEDIA DATA TOTAL
---------- ----- ---- ----- ---------- ----- ---- -----
Revenue............................. $106,716 $79,893 $37,553 $224,162 $88,428 $129,179 $30,518 $248,125
Intersegment elimination............ (7,139) -- (218) (7,357) (9,982) -- -- (9,982)
-------- ------- ------- -------- ------- -------- ------- --------
Revenue from external customers..... $ 99,577 $79,893 $37,335 $216,805 $78,446 $129,179 $30,518 $238,143
-------- ------- ------- -------- ------- -------- ------- --------
-------- ------- ------- -------- ------- -------- ------- --------
Segment gross profit................ $ 69,890 $26,667 $23,546 $120,103 $62,088 $ 44,171 $19,868 $126,127
-------- ------- ------- -------- ------- -------- ------- --------
-------- ------- ------- -------- ------- -------- ------- --------
Research consulting fees............ (30) --
-------- --------
Consolidated gross profit........... $120,073 $126,127
-------- --------
-------- --------
</Table>
The accounting policies of DoubleClick's segments are the same as those
described in the summary of significant accounting policies. Intersegment
revenues, which relate primarily to DART technology and Data transfer fees and
the research consulting fees charged by Diameter, are valued at approximately
the same rates charged to external customers. DART technology and Data transfer
fees are recognized as revenue by TechSolutions and Data, respectively, and as
costs of revenue by DoubleClick's other business units in the computation of
segment gross profit. Correspondingly, these transfer fees have no net impact on
the determination of consolidated gross profit. The revenues generated from
intersegment research consulting services are included as a component of Data's
gross profit and are classified as operating expenses of DoubleClick's other
business units. All such intersegment amounts are eliminated in the consolidated
statement of operations.
NOTE 11 -- COMPREHENSIVE LOSS
Comprehensive loss consists of net loss, unrealized gains and losses on
marketable securities and foreign currency translation adjustments.
Comprehensive loss was $38.8 million and $22.1 million for the three months
ended June 30, 2001 and 2000, respectively. For the six months ended June 30,
2001 and 2000, comprehensive loss was $98.9 million and $41.3 million,
respectively.
NOTE 12 -- CONTINGENCIES
Several civil litigations related to DoubleClick's online data collection
practices are currently pending against DoubleClick. These proceedings seek
remedies, including damages, of an indeterminable nature and amount, and allege
variously that DoubleClick has unlawfully obtained and used consumers' personal
information. DoubleClick vigorously contests these allegations. On March 28,
2001, all federal data collection cases against DoubleClick were dismissed by
Judge Buchwald in the Southern District of New York. The plaintiffs have noticed
their appeal to the Second Circuit Court of Appeals.
In addition, beginning in May 2001, a number of substantially identical
class action complaints alleging violations of the federal securities laws in
connection with DoubleClick's initial public offering were filed in the United
States District Court for the Southern District of New York naming as defendants
DoubleClick, certain of its officers and directors and certain underwriters of
DoubleClick's initial public offering. These cases are in their early stages;
however, DoubleClick intends to dispute these allegations and defend these
lawsuits vigorously.
There have been a number of political, legislative, regulatory and other
developments relating to online data collection that have received widespread
media attention. These developments may negatively affect the outcomes of
related legal proceedings and encourage the commencement of additional similar
proceedings. Additionally, DoubleClick received a letter from the Federal Trade
Commission ('FTC'), dated February 8, 2000, in which the FTC notified
DoubleClick that they were conducting an inquiry into DoubleClick's business
practices to determine whether, in collecting and maintaining information
concerning Internet users, DoubleClick engaged in unfair or deceptive practices.
In January 2001, the FTC closed its inquiry into DoubleClick's ad serving and
data collection practices without recommending any further action. In addition,
DoubleClick's ad serving and data
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DOUBLECLICK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENT'S -- (CONTINUED)
(UNAUDITED)
collection practices are also the subject of inquiries by the attorneys general
of several states. DoubleClick is cooperating fully with all such inquiries by
the various states. DoubleClick may receive additional regulatory inquiries and
intends to cooperate fully.
It is impossible to predict the outcome of such events on pending litigation
or the results of the litigation itself, all of which may have a material
adverse effect on DoubleClick's business, financial condition and results of
operations.
Determinations of liability against other companies that are defendants in
similar actions, even if such rulings are not final, could adversely affect the
legal proceedings against DoubleClick and its affiliates and could encourage an
increase in the number of such claims.
DoubleClick believes that, notwithstanding the quality of defenses
available, it is possible that our financial condition and results of operations
could be materially adversely affected by the ultimate outcome of the pending
litigation. As of June 30, 2001, no provision has been made for any damages that
may result upon the resolution of these uncertainties as the loss or range of
loss cannot be reasonably estimated.
NOTE 13 -- RECENT DEVELOPMENTS
On June 1, 2001, DoubleClick announced the signing of an agreement to
acquire MessageMedia, Inc. ('MessageMedia'), a provider of permission-based,
email marketing and messaging solutions. In the transaction, which will be
accounted for as a purchase, DoubleClick will issue 0.0436 of a share of
DoubleClick common stock for each share of MessageMedia common stock
outstanding. In addition, all outstanding options and warrants to acquire shares
of MessageMedia common stock will be assumed by DoubleClick and converted at the
same exchange ratio into options and warrants to acquire DoubleClick common
stock. This transaction is intended to qualify as a tax-free reorganization for
United States federal income tax purposes, and is subject to customary closing
conditions, including MessageMedia shareholder approval. DoubleClick anticipates
that this merger will be consummated in the second half of 2001.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DOUBLECLICK INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF DOUBLECLICK CONTAINS FORWARD-LOOKING STATEMENTS RELATING TO FUTURE
EVENTS AND THE FUTURE PERFORMANCE OF DOUBLECLICK WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. STOCKHOLDERS ARE CAUTIONED THAT
SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. DOUBLECLICK'S ACTUAL RESULTS
AND TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT
NOT LIMITED TO, THOSE SET FORTH UNDER 'RISK FACTORS' AND ELSEWHERE IN THIS
REPORT AND IN DOUBLECLICK'S OTHER PUBLIC FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION. IT IS ROUTINE FOR INTERNAL PROJECTIONS AND EXPECTATIONS TO
CHANGE AS THE YEAR OR EACH QUARTER IN THE YEAR PROGRESS, AND THEREFORE IT SHOULD
BE CLEARLY UNDERSTOOD THAT THE INTERNAL PROJECTIONS AND BELIEFS UPON WHICH WE
BASE OUR EXPECTATIONS MAY CHANGE PRIOR TO THE END OF EACH QUARTER OR THE YEAR.
ALTHOUGH THESE EXPECTATIONS MAY CHANGE, WE MAY NOT INFORM YOU IF THEY DO. OUR
COMPANY POLICY IS GENERALLY TO PROVIDE OUR EXPECTATIONS ONLY ONCE PER QUARTER.
HOWEVER, WE MAY CHOOSE TO NOT UPDATE THAT INFORMATION UNTIL THE NEXT QUARTER
EVEN IF CIRCUMSTANCES CHANGE.
OVERVIEW
We are a leading provider of products and services that enable publishers,
advertisers, direct marketers and merchants to market to consumers in the
digital world. We offer a broad range of media, technology, data and research
products and services to our customers to allow them to address all facets of
the digital marketing process, from pre-campaign, to execution, measurement and
campaign refinements. Combining media, data and technological expertise, our
products and services help our customers optimize their advertising and
marketing campaigns on the Internet and through other media. Our service and
product offerings are grouped into three segments:
DoubleClick Technology Solutions ('TechSolutions');
DoubleClick Media ('Media'); and
DoubleClick Data ('Data').
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board (the 'FASB') issued
Statement of Financial Accounting Standards ('SFAS') No. 141 'Business
Combinations' and SFAS No. 142 'Goodwill and Other Intangible Assets.' SFAS
No. 141 establishes new standards for accounting and reporting requirements for
business combinations and will require that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. SFAS No. 142 establishes new
standards for goodwill acquired in a business combination, eliminates the
amortization of goodwill and sets forth methods to periodically evaluate
goodwill for impairment. Intangible assets with a determinable useful life will
continue to be amortized over that life. SFAS 141 and SFAS 142 are effective for
business combinations completed after June 30, 2001. DoubleClick will adopt
these statements on January 1, 2002; however, as noted above, certain provisions
of these new standards may also apply to any acquisitions concluded subsequent
to June 30, 2001. Management is in the process of evaluating the effect that the
adoption of the provisions of SFAS No. 142 will have on DoubleClick's results of
operations and financial position.
BUSINESS COMBINATIONS
On April 23, 2001, DoubleClick completed its acquisition of FloNetwork Inc.
('FloNetwork'), a privately-held provider of email technology services. In the
transaction, which has been accounted for as a purchase, DoubleClick acquired
all of the outstanding shares, options and warrants of FloNetwork in
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exchange for $17.1 million in cash, approximately 2,800,000 shares of
DoubleClick common stock valued at $30.7 million and stock options and warrants
to acquire DoubleClick common stock valued at $3.8 million. The aggregate
purchase price of $52.7 million, which includes approximately $1.1 million of
direct acquisition costs, has been allocated to the assets acquired and the
liabilities assumed according to their fair values at the date of acquisition.
On the basis of fair value appraisals, approximately $4.3 million of the
purchase price has been allocated to acquired technology, $2.2 million to
customer lists and $1.3 million to purchased in-process research and
development. The amounts allocated to customer lists and acquired technology are
being amortized on a straight-line basis over 2 and 3 years, respectively. The
amounts attributed to in-process research and development projects have been
charged to operations as they had not reached technological feasibility as of
the date of acquisition and were determined to have no alternative future uses.
DoubleClick has also recorded approximately $44.9 million in goodwill, which
represents the remainder of the excess of the purchase price over the fair value
of net assets acquired. This goodwill is being amortized on a straight-line
basis over three years. In accordance with SFAS 142, DoubleClick will cease to
amortize this goodwill when the statement is applied in its entirety in 2002.
On February 2, 2001, DoubleClick completed its acquisition of @plan.inc
('@plan'), a leading provider of online market research planning systems. In the
transaction, which has been accounted for as a purchase, DoubleClick acquired
all of the outstanding shares, options and warrants of @plan in exchange for
$39.1 million in cash, approximately 3,200,000 shares of DoubleClick common
stock valued at $48.7 million, and stock options and warrants to acquire
DoubleClick common stock valued at approximately $15.7 million. The aggregate
purchase price of $104.3 million, which includes approximately $0.8 million of
direct acquisition costs, has been allocated to the assets acquired and the
liabilities assumed based on their respective fair values at the date of
acquisition. DoubleClick has recorded approximately $78.5 million in goodwill,
which represents the excess of the purchase price over the fair value of net
assets acquired. This goodwill is being amortized on a straight-line basis over
three years. In accordance with SFAS 142, DoubleClick will cease to amortize
this goodwill when the statement is applied in its entirety in 2002.
On June 1, 2001, DoubleClick announced the signing of an agreement to
acquire MessageMedia, Inc., a provider of permission-based, email marketing and
messaging solutions. In the transaction, which will be accounted for as a
purchase, DoubleClick will issue 0.0436 of a share of DoubleClick common stock
for each share of MessageMedia common stock outstanding. In addition, all
outstanding options and warrants to acquire shares of MessageMedia common stock
will be assumed by DoubleClick and converted at the same exchange ratio into
options and warrants to acquire DoubleClick common stock. This transaction is
intended to qualify as a tax-free reorganization for United States federal
income tax purposes, and is subject to customary closing conditions, including
MessageMedia shareholder approval. DoubleClick anticipates that this merger will
be consummated in the second half of 2001.
THREE MONTHS ENDED JUNE 30, 2001 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2000
<Table>
<Caption>
THREE MONTHS ENDED JUNE 30, 2001 THREE MONTHS ENDED JUNE 30, 2000
----------------------------------------- -----------------------------------------
TECHNOLOGY MEDIA DATA TOTAL TECHNOLOGY MEDIA DATA TOTAL
---------- ----- ---- ----- ---------- ----- ---- -----
Revenue.................. $51,796 $33,799 $19,339 $104,934 $48,650 $68,989 $15,791 $133,430
Intersegment
elimination............ (2,829) -- (170) (2,999) (5,343) -- -- (5,343)
------- ------- ------- -------- ------- ------- ------- --------
Revenue from external
customers.............. $48,967 $33,799 $19,169 $101,935 $43,307 $68,989 $15,791 $128,087
------- ------- ------- -------- ------- ------- ------- --------
------- ------- ------- -------- ------- ------- ------- --------
Segment gross profit..... $33,142 $10,322 $12,105 $ 55,569 $34,596 $23,600 $10,352 $ 68,548
------- ------- ------- -------- ------- ------- ------- --------
------- ------- ------- -------- ------- ------- ------- --------
Research consulting
fees................... (30) --
-------- --------
Consolidated gross
profit................. $ 55,539 $ 68,548
-------- --------
-------- --------
</Table>
DOUBLECLICK TECHSOLUTIONS
DoubleClick TechSolutions revenue is derived primarily from sales of our
DART, AdServer and email technology services. DoubleClick TechSolutions cost of
revenue includes costs associated with the
15
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delivery of advertisements, including Internet access costs, depreciation of the
ad and email delivery systems, facilities and personnel-related costs incurred
to operate and support our ad and email delivery products.
DoubleClick TechSolutions revenue increased 6.4% to $51.8 million for the
three months ended June 30, 2001 from $48.7 million for the three months ended
June 30, 2000. DoubleClick TechSolutions gross margin was 63.9% for the three
months ended June 30, 2001 and 71.0% for the three months ended June 30, 2000.
The increase in DoubleClick TechSolutions revenue was primarily attributable to
volume increases associated with its email delivery services. However, the
general economic concerns and continuing weakness of aggregate online
advertising spending that affected DoubleClick Media results also began to exert
increasing downward pressure on TechSolutions ad delivery revenue trends. To the
extent that these two divisions are interrelated, we expect those factors to
have a similar, but less severe, impact on TechSolutions revenue for at least
the remainder of 2001. The decline in gross margin resulted primarily from a
decrease in the fee charged to DoubleClick Media for the provision of technology
support and higher fixed costs associated with ad and email delivery hardware.
DOUBLECLICK MEDIA
DoubleClick Media revenue is derived primarily from the sale and delivery of
advertising impressions through third-party Web sites comprising the worldwide
DoubleClick Media networks. DoubleClick Media cost of revenue consists primarily
of service fees paid to Web publishers for impressions delivered on our
worldwide networks, the costs of ad delivery and technology support provided by
DoubleClick TechSolutions.
Revenue for DoubleClick Media decreased 51.0% to $33.8 million for the three
months ended June 30, 2001 from $69.0 million for the three months ended
June 30, 2000. DoubleClick Media gross margin was 30.5% for the three months
ended June 30, 2001 and 34.2% for the three months ended June 30, 2000. The
decrease in DoubleClick Media revenue reflected in large part the decline in
overall online advertising spending. In response to deteriorating general
economic conditions, many companies, particularly Internet-related companies,
have significantly scaled back their advertising and marketing budgets, which
has had a correspondingly negative impact on aggregate online advertising
spending. While it is impossible to predict the duration or severity of this
downturn, we do not expect substantive growth in DoubleClick Media revenue to
occur until economic concerns subside and the Internet advertising industry
achieves a more meaningful balance between the supply and demand for advertising
inventory. DoubleClick Media revenue also decreased due to a reduction in the
number of advertising impressions delivered to users of the AltaVista Web site.
Gross margin decreased due to increased levels of price competition and
increases in the amount of unsold inventory, which diluted the effective price
of delivered advertising impressions. This decrease was partially offset by
lower average site fees remitted to publishers and a reduction in the cost of
technology support provided by DoubleClick TechSolutions.
DoubleClick Media revenue derived from advertising impressions delivered to
users of the AltaVista Web site was $2.2 million, or 6.5% of DoubleClick Media
revenue for the three months ended June 30, 2001, compared to $7.9 million, or
11.4% of revenue for the three months ended June 30, 2000. Because of specific
contractual terms unique to AltaVista, we recognize revenue from sales
commissions, billing and collection fees and DART service fees derived from the
sale and delivery of ads on the AltaVista Web site and associated services.
On August 7, 2000, we announced a restructuring of our Advertising Services
Agreement with AltaVista ('New Agreement'). Pursuant to the New Agreement,
AltaVista assumed lead ad sales responsibility for domestic advertisers in the
first quarter of 2001, and will assume lead ad sales responsibility for
international advertisers by December 2001, subject to AltaVista's right to
assume lead responsibility sooner in certain international markets. After
AltaVista assumes lead ad responsibility in a market, DoubleClick will have the
right to sell ads on the AltaVista Web sites in that market on a non-exclusive
basis, as part of DoubleClick's worldwide ad networks, through December 31,
2004. In addition, under the New Agreement, the DART for Publishers Service will
serve
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ads on AltaVista's Web sites through December 31, 2004 with the ads required to
be served through the DART for Publishers Service declining in each year of the
agreement, subject to certain minimums. The DART for Advertisers Service will
serve the majority of AltaVista's online advertising campaigns through December
2004. As a result of the New Agreement, DoubleClick expects that the revenues
and related cash flows derived from advertising impressions delivered to users
of the AltaVista Web site will continue to decline as the agreement's provisions
are implemented.
DOUBLECLICK DATA
DoubleClick Data revenue has historically been derived primarily from its
Abacus division, which provides services such as prospecting lists, housefile
scoring, list optimization, and marketing research services to the direct and
online marketing industry. Following the acquisition of @plan in February 2001,
we created Diameter, a separate research division within DoubleClick Data
designed to offer market research analysis tools that provide advertisers, brand
marketers and e-businesses with analyses of online advertising campaigns,
consumer behavior and purchasing patterns. Diameter's revenue is derived
primarily from the sale of annual subscriptions to its market research systems
and market research consulting. DoubleClick Data cost of revenue includes
expenses associated with creating, maintaining and updating the Abacus and
Diameter databases as well as the technical infrastructure to produce our
products and services.
DoubleClick Data revenue increased 22.2% to $19.3 million for the three
months ended June 30, 2001 from $15.8 million for the three months ended
June 30, 2000. Gross margin declined from 65.8% for the three months ended
June 30, 2000 to 62.7% for the three months ended June 30, 2001. The increase in
DoubleClick Data revenue reflected the impact of the acquisition of @plan as
well as higher average prices and continued growth in Abacus' B2B alliance. The
decline in gross margin was due primarily to higher fixed costs associated
with DoubleClick Data's data collection and amortization of acquired email
lists. DoubleClick's Data business is subject to seasonal fluctuations with
direct marketers generally mailing substantially more marketing materials in the
third calendar quarter, which fluctuations we expect to continue to directly
affect DoubleClick Data. The direct marketing industry may also be negatively
impacted by the economic downturn and the possible decrease in consumer
spending.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses consist primarily of compensation and related
benefits, sales commissions, general marketing costs, advertising, bad debt
expense, and other operating expenses associated with the sales and marketing
departments. Sales and marketing expenses were $52.2 million, or 51.2% of
revenue for the three months ended June 30, 2001 and $54.9 million, or 42.9% of
revenue for the three months ended June 30, 2000. The decrease in the absolute
dollar amount of sales and marketing expense was primarily attributable to
reductions in personnel-related costs and marketing expenditures. These
decreases were partially offset by an increase in non-cash compensation expense
resulting from our accelerated payment of the remaining contingent consideration
due to the former shareholders of DoubleClick Scandinavia. We expect sales and
marketing expenses to continue to decrease in absolute dollars as the result of
this reduction in non-cash compensation expense and the realization of increased
operational efficiencies from the headcount rationalizations undertaken as part
of our restructuring activities in 2001.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation and
related benefits, professional services fees and facility-related costs. General
and administrative expenses were $16.8 million, or 16.5% of revenue for the
three months ended June 30, 2001, and $22.1, or 17.3% of revenue for the three
months ended June 30, 2000. The decrease in general and administrative expense
was primarily the result of overall reductions in professional services fees,
personnel-related costs and recruiting expenses. Decreased professional services
fees resulted in part from a reduction in consulting fees associated with system
conversion and integration. We expect general and administrative fees to
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continue to decline as a percentage of revenue due to restructuring-related cost
savings and decreases in other general operating costs.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of compensation and related
benefits, consulting fees and other operating expenses associated with the
product development departments. To date, all product development costs have
been expensed as incurred. Product development expenses were $14.5 million, or
14.2% of revenue for the three months ended June 30, 2001 and $11.2 million, or
8.7% of revenue for the three months ended June 30, 2000. The increase in
product development expenses was primarily the result of growth-related
increases in compensation and related benefits for product development
personnel, which were partially offset by reductions in professional fees,
recruiting costs and temporary staffing expenses. Although we will continue to
concentrate on the efficient allocation of our personnel resources and reduce
our reliance on external consultants, we believe that on-going investment in
product development is critical to the attainment of our strategic objectives
and, as a result, expect product development expenses to remain relatively
constant in absolute dollars.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets consists primarily of goodwill
amortization. Amortization expense was $15.3 million for the three months ended
June 30, 2001 and $10.1 million for the three months ended June 30, 2000. The
increase was primarily the result of the amortization of goodwill associated
with our acquisitions of @plan, DoubleClick Japan and FloNetwork, partially
offset by reductions in amortization expense related to DoubleClick Scandinavia
and DoubleClick Iberoamerica as the result of their impairment write-downs in
the fourth quarter of 2000.
In accordance with SFAS 142, DoubleClick will cease to amortize goodwill
when the statement is applied in its entirety in 2002. DoubleClick estimates
that the adoption of SFAS 142 would have reduced its amortization expense by
approximately $13 million and $9 million for the three months ended June 30,
2001 and 2000, respectively.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with our acquisition of FloNetwork in April, 2001, $1.3
million of the purchase price was allocated to in-process research and
development projects and charged to operations as the projects had not reached
technological feasibility as of the date of acquisition and were determined to
have no alternative future uses.
We incurred no such charges for the three months ended June 30, 2000.
RESTRUCTURING CHARGE
In connection with the restructuring initiatives begun in March 2001,
DoubleClick recorded additional provisions totaling approximately $1.6 million
in the second quarter of 2001. This charge included estimated costs of
approximately $182,000 for severance costs associated with a further work force
reduction of 15 employees, approximately $629,000 in additional fixed asset
write-offs, approximately $440,000 in consulting and professional fees related
to the restructuring activities and approximately $396,000 in personnel-related
costs associated with the decision to move the TechSolutions customer support
department from New York to Colorado.
DoubleClick expects to achieve annualized savings of approximately $16.0
million in personnel- and facility-related expenses as a result of the
restructuring initiatives undertaken in 2001. A majority of these reductions
will be realized in cash savings and are expected to primarily impact sales and
marketing and general and administrative expenses. DoubleClick began to
recognize the full effect of these cost savings in the second quarter of 2001.
Of the remaining $10.2 million in cash outlays related to the 2001 restructuring
activities, we expect to pay approximately $3.6 million in the second half of
2001, approximately $4.2 million in 2002, and approximately $2.4 million in 2003
and the years thereafter. We anticipate that these outlays will be funded from
available sources of liquidity. However,
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there can be no assurance that such cost reductions can be sustained or that the
estimated costs of such actions will not change.
We are continuing to review our operational performance and anticipate
incurring additional restructuring charges in the third quarter of 2001,
principally related to further headcount reductions.
We incurred no such charges for the three months ended June 30, 2000.
LOSS FROM OPERATIONS
Our operating loss was $46.2 million for the three months ended June 30,
2001 and $29.8 million for the three months ended June 30, 2000. The increase in
operating loss was primarily attributable to the decrease in revenues, the
recognition of non-recurring charges and the increase in the amortization of
intangible assets discussed above. We plan to continue to grow and expand our
business and therefore anticipate that we may incur future losses from
operations. We continue to focus on productivity and will manage our headcount
accordingly as our business conditions require.
EQUITY IN LOSSES OF AFFILIATES
Equity in losses of affiliates was $0.9 million for the three months ended
June 30, 2001 and $3.3 million for the three months ended June 30, 2000. The
decrease in equity in losses of affiliates was primarily the result of a
reduction in the amount of amortization expense associated with our investment
in ValueClick. Following our impairment write-down of the goodwill related to
our investment in ValueClick in the fourth quarter of 2000, amortization expense
associated with this investment decreased from $2.9 million for the three months
ended June 30, 2000 to $0.2 million for the three months ended June 30, 2001.
GAIN ON THE EQUITY TRANSACTIONS OF AFFILIATES, NET
For the three months ended June 30, 2001, we recognized a gain of
approximately $7.2 million from the initial public offering of our consolidated
subsidiary DoubleClick Japan, which was partially offset by a loss of
approximately $1.5 million related to the decrease in value of our proportionate
share of the net assets of our equity-method investee ValueClick following its
consummation of a business combination with Z Media, Inc.
There was no such activity for the three months ended June 30, 2000.
Although we cannot assess their likelihood, we would expect to recognize
additional losses related to our investment in ValueClick to the extent that the
former shareholders of Bach Systems, Inc., a company ValueClick acquired in the
first quarter of 2001, achieve defined performance objectives and are entitled
to receive additional shares of common stock pursuant to the terms of the
purchase agreement between the two companies.
INTEREST AND OTHER, NET
Interest and other, net was $3.2 million for the three months ended
June 30, 2001 and $11.7 million for the three months ended June 30, 2000.
Interest and other, net included $11.5 million of interest income for the three
months ended June 30, 2001, partially offset by $3.3 million in interest expense
and a $4.5 million impairment charge related to the write-off of our investment
in our cost-method investee Return Path. For the three months ended June 30,
2000, Interest and other, net included $15.2 million in interest income and $3.0
million in interest expense. The decrease in interest income was primarily
attributable to decreases in the average quarterly balances of our investments
in marketable securities and decreases in average investment yields due to
declines in interest rates. Interest and other, net in future periods may
fluctuate 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.
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PROVISION FOR INCOME TAXES
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit. The provisions for income taxes recorded for the
three months ended June 30, 2001 and 2000 primarily relate to corporate income
taxes on the earnings of certain of our foreign subsidiaries.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2000
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2001 SIX MONTHS ENDED JUNE 30, 2000
----------------------------------------- ------------------------------------------
TECHNOLOGY MEDIA DATA TOTAL TECHNOLOGY MEDIA DATA TOTAL
---------- ----- ---- ----- ---------- ----- ---- -----
Revenue.............. $106,716 $79,893 $37,553 $224,162 $88,428 $129,179 $30,518 $248,125
Intersegment
elimination........ (7,139) -- (218) (7,357) (9,982) -- -- (9,982)
-------- ------- ------- -------- ------- -------- ------- --------
Revenue from external
customers.......... $ 99,577 $79,893 $37,335 $216,805 $78,446 $129,179 $30,518 $238,143
-------- ------- ------- -------- ------- -------- ------- --------
-------- ------- ------- -------- ------- -------- ------- --------
Segment gross
profit............. $ 69,890 $26,667 $23,546 $120,103 $62,088 $ 44,171 $19,868 $126,127
-------- ------- ------- -------- ------- -------- ------- --------
-------- ------- ------- -------- ------- -------- ------- --------
Research consulting
fees............... (30) --
-------- --------
Consolidated gross
profit............. $120,073 $126,127
-------- --------
-------- --------
</Table>
DOUBLECLICK TECHSOLUTIONS
DoubleClick TechSolutions revenue increased 20.7% to $106.7 million for the
six months ended June 30, 2001 from $88.4 million for the six months ended June
30, 2000. DoubleClick TechSolutions gross margin was 65.5% for the six months
ended June 30, 2001 and 70.2% for the six months ended June 30, 2000. The
increase in DoubleClick TechSolutions revenue was primarily attributable to an
increased volume of impressions delivered to existing clients coupled with
volume increases associated with its email delivery services. However, the
general economic concerns and continuing weakness of aggregate online
advertising spending that affected DoubleClick Media results also began to exert
increasing downward pressure on TechSolutions ad delivery revenue trends. To the
extent that these two divisions are interrelated, we expect those factors to
have a similar, but less severe, impact on TechSolutions revenue for at least
the remainder of 2001. The decline in gross margin resulted primarily from a
decrease in the fee charged to DoubleClick Media for the provision of technology
support and higher fixed costs associated with ad and email delivery hardware.
DOUBLECLICK MEDIA
Revenue for DoubleClick Media decreased 38.2% to $79.9 million for the six
months ended June 30, 2001 from $129.2 million for the six months ended June 30,
2000. DoubleClick Media gross margin was 33.4% for the six months ended June 30,
2001 and 34.2% for the six months ended June 30, 2000. The decrease in
DoubleClick Media revenue reflected in large part the decline in overall online
advertising spending. In response to deteriorating general economic conditions,
many companies, particularly Internet-related companies, have significantly
scaled back their advertising and marketing budgets, which has had a
correspondingly negative impact on aggregate online advertising spending. While
it is impossible to predict the duration or severity of this downturn, we do not
expect substantive growth in DoubleClick Media revenue to occur until economic
concerns subside and the Internet advertising industry achieves a more
meaningful balance between the supply and demand for advertising inventory.
DoubleClick Media revenue also decreased due to a reduction in the number of
advertising impressions delivered to users of the AltaVista Web site. Gross
margin decreased due to increased levels of price competition and increases in
the amount of unsold inventory, which diluted the effective price of delivered
advertising impressions. This decrease was partially offset by lower average
site fees remitted to publishers and a reduction in the cost of technology
support provided by DoubleClick TechSolutions.
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DoubleClick Media revenue derived from advertising impressions delivered to
users of the AltaVista Web site was $7.9 million, or 9.9% of DoubleClick Media
revenue for the six months ended June 30, 2001, compared to $15.4 million, or
11.9% of revenue for the six months ended June 30, 2000.
DOUBLECLICK DATA
DoubleClick Data revenue increased 23.3% to $37.6 million for the six months
ended June 30, 2001 from $30.5 million for the six months ended June 30, 2000.
Gross margin declined from 65.2% for the six months ended June 30, 2000 to 62.5%
for the six months ended June 30, 2001. The increase in DoubleClick Data revenue
reflected the impact of the acquisition of @plan as well as higher average
prices and continued growth in Abacus' B2B alliance and prospecting list
services initiatives. The decline in gross margin was due primarily to
higher fixed costs associated with DoubleClick Data's data collection and
amortization of acquired email lists, which were partially offset by decreases
in personnel- and facility-related costs. DoubleClick's Data business is subject
to seasonal fluctuations with direct marketers generally mailing substantially
more marketing materials in the third calendar quarter, which fluctuations we
expect to continue to directly affect DoubleClick Data. The direct marketing
industry may also be negatively impacted by the economic downturn and the
possible decrease in consumer spending.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses consist primarily of compensation and related
benefits, sales commissions, general marketing costs, advertising, bad debt
expense and other operating expenses associated with the sales and marketing
departments. Sales and marketing expenses were $107.4 million, or 49.5% of
revenue for the six months ended June 30, 2001 and $105.4 million, or 44.3% of
revenue for the six months ended June 30, 2000. The increase in the absolute
dollar amount of sales and marketing expense was primarily attributable to an
increase in non-cash compensation expense resulting from our accelerated payment
of the remaining contingent consideration due to the former shareholders of
DoubleClick Scandinavia. This increase was partially offset by reductions in
personnel-related costs and marketing expenditures. We expect sales and
marketing expenses to decrease in absolute dollars as the result of this
reduction in non-cash compensation expense and the realization of increased
operational efficiencies from the headcount rationalizations undertaken as part
of our restructuring activities in 2001.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of compensation and
related benefits, professional services fees and facility-related costs. General
and administrative expenses were $36.4 million, or 16.8% of revenue for the six
months ended June 30, 2001 and $43.0 million, or 18.1% of revenue for the six
months ended June 30, 2000. The decrease in general and administrative expense
was primarily the result of overall reductions in professional services fees,
personnel-related costs and recruiting expenses. Decreased professional services
fees resulted in part from a reduction in consulting fees associated with system
conversion and integration. We expect general and administrative fees to
continue to decline as a percentage of revenue due to restructuring-related cost
savings and decreases in other general operating costs.
PRODUCT DEVELOPMENT
Product development expenses consist primarily of compensation and related
benefits, consulting fees and other operating expenses associated with the
product development departments. To date, all product development costs have
been expensed as incurred. Product development expenses were $28.4 million, or
13.1% of revenue for the six months ended June 30, 2001 and $20.9 million, or
8.8% of
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revenues for the six months ended June 30, 2000. The increase in product
development expenses were primarily the result of growth-related increases in
compensation and related benefits for product development personnel, which were
partially offset by reductions in professional fees, recruiting costs and
temporary staffing expenses. Although we will continue to concentrate on the
efficient allocation of our personnel resources and reduce our reliance on
external consultants, we believe that on-going investment in product development
is critical to the attainment of our strategic objectives and, as a result,
expect product development expenses to remain relatively constant in absolute
dollars.
AMORTIZATION OF INTANGIBLE ASSETS
Amortization of intangible assets consists primarily of goodwill
amortization. Amortization expense was $25.9 million for the six months ended
June 30, 2001 and $18.5 million for the six months ended June 30, 2000. The
increase was primarily the result of the amortization of goodwill associated
with our acquisitions of @plan, DoubleClick Japan and FloNetwork, partially
offset by reductions in amortization expense related to DoubleClick Scandinavia
and DoubleClick Iberoamerica as the result of their impairment write-downs in
the fourth quarter of 2000.
In accordance with SFAS 142, DoubleClick will cease to amortize goodwill
when the statement is applied in its entirety in 2002. DoubleClick estimates
that the adoption of SFAS 142 would have reduced its amortization expense by
approximately $22 million and $17 million for the six months ended June 30, 2001
and 2000, respectively.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with our acquisition of FloNetwork in April, 2000, $1.3
million of the purchase price was allocated to in-process research and
development projects and charged to operations as the projects had not reached
technological feasibility as of the date of acquisition and were determined to
have no alternative future uses.
We incurred no such charges for the six months ended June 30, 2000.
RESTRUCTURING AND OTHER CHARGES
In the first half of 2001, our management took certain actions to further
increase operational efficiencies and bring costs in line with revenues. These
measures included the involuntary terminations of approximately 245 employees,
primarily from our Media operations, as well as the consolidation of some of our
leased office space and the closure of several of our offices. As a consequence,
we recorded a $30.7 million charge to operations during the first half of 2001.
This charge included approximately $3.8 million for severance-related payments
to terminated employees, approximately $9.3 million for the accrual of future
lease costs (net of estimated sublease income and deferred rent liabilities
previously recorded), approximately $15.8 for the write-off of fixed assets
situated in office locations that were closed or consolidated, and approximately
$1.7 million in other exit costs, which included consulting and professional
fees related to the restructuring activities and expenses associated with the
decision to move the TechSolutions customer support department from New York to
Colorado.
DoubleClick expects to achieve annualized savings of approximately $16
million in personnel- and facility-related expenses as a result of the
restructuring initiatives undertaken in 2001. A majority of these reductions
will be realized in cash savings and are expected to primarily impact sales and
marketing and general and administrative expenses. DoubleClick began to
recognize the full effect of these cost savings in the second quarter of 2001.
Of the remaining $10.2 million in cash outlays related to the 2001 restructuring
activities, we expect to pay approximately $3.6 million in the second half of
2001, approximately $4.2 million in 2002, and approximately $2.4 million in 2003
and the years thereafter. We anticipate that these outlays will be funded from
available sources of liquidity. However, there can be no assurance that such
cost reductions can be sustained or that the estimated costs of such actions
will not change.
We are continuing to review our operational performance and anticipate
incurring additional restructuring charges in the third quarter of 2001,
principally related to further headcount reductions.
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We incurred no such charges for the six months ended June 30, 2000.
LOSS FROM OPERATIONS
Our operating loss was $110.1 million for the six months ended June 30, 2001
and $61.7 million for the six months ended June 30, 2000. The increase in
operating loss was primarily attributable to the decrease in revenues, the
recognition of non-recurring charges and the increase in the amortization of
intangible assets discussed above. We plan to continue to grow and expand our
business and therefore anticipate that we may incur future losses from
operations. We continue to focus on productivity and will manage our headcount
accordingly as our business conditions require.
EQUITY IN LOSSES OF AFFILIATES
Equity in losses of affiliates was $2.0 million for the six months ended
June 30, 2001 and $4.8 million for the six months ended June 30, 2000. The
decrease in equity in losses of affiliates was primarily the result of a
reduction in the amount of amortization expense associated with our investment
in ValueClick. Following our impairment write-down of the goodwill related to
our investment in ValueClick in the fourth quarter of 2000, amortization expense
associated with this investment decreased from $4.0 million for the six months
ended June 30, 2000 to $0.5 million for the six months ended June 30, 2001.
GAIN ON THE EQUITY TRANSACTIONS OF AFFILIATES, NET
For the six months ended June 30, 2001, we recognized a gain of
approximately $7.2 million from the initial public offering of our consolidated
subsidiary DoubleClick Japan, which was partially offset by a loss of
approximately $5.3 million related to the decrease in value of our proportionate
share of the net assets of our equity-method investee ValueClick following the
consummation of business combinations with ClickAgents.com, Inc., Bach Systems
Inc. and Z Media, Inc. For the six months ended June 30, 2000, we recognized an
approximately $8.9 million gain related to the increase in the value of our
investment as the result of ValueClick's initial public offering.
Although we cannot assess their likelihood, we would expect to recognize
additional losses related to our investment in ValueClick to the extent that the
former shareholders of Bach System, Inc. achieve defined performance objectives
and are entitled to receive additional shares of common stock pursuant to the
terms of the purchase agreement between the two companies.
INTEREST AND OTHER, NET
Interest and other, net was $11.9 million for the six months ended June 30,
2001 and $18.6 million for the six months ended June 30, 2000. Interest and
other, net included $24.5 million of interest income for the six months ended
June 30, 2001, partially offset by $6.5 million in interest expense and a $4.5
million impairment charge related to the write-off of our investment in our
cost-method investee Return Path. For the six months ended June 30, 2000,
Interest and other, net included $26.0 million in interest income and $6.0
million in interest expense. The decrease in interest income was primarily
attributable to decreases in the average quarterly balances of our investments
in marketable securities and decreases in average investment yields due to
declines in interest rates. Interest and other, net in future periods may
fluctuate 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.
PROVISION FOR INCOME TAXES
The provision for income taxes does not reflect the benefit of our
historical losses due to limitations and uncertainty surrounding our prospective
realization of the benefit. The provision for income taxes recorded for the six
months ended June 30, 2001 relates to corporate income taxes on the earnings of
certain of our foreign subsidiaries. For the six months ended June 30, 2000, the
provision for income taxes primarily relates to corporate income taxes on the
earnings of certain of our foreign subsidiaries and an increase in estimated tax
refunds receivable.
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LIQUIDITY AND CAPITAL RESOURCES
Since inception we have financed our operations primarily through private
placements of equity securities and public offerings of our common stock and
Convertible Subordinated Notes.
Net cash used in operating activities was $7.8 million for the six months
ended June 30, 2001 and $3.1 million for the six months ended June 30, 2000. The
increase in cash used by operating activities resulted from an increase in net
loss and decreases in accounts payable and accrued liabilities, partially offset
by decreases in accounts receivable. Investing activities used $15.3 million for
the six months ended June 30, 2001 and $503.5 for the six months ended June 30,
2000. Cash used in investing activities for the six months ended June 30, 2001
resulted primarily from purchases of equipment and the acquisition of business
and intangible assets, partially offset by the maturity of some of our
investments in marketable securities. Cash used in investing activities for the
six months ended June 30, 2000 resulted principally from the investment of the
proceeds of our February 2000 common stock issuance in marketable securities,
but also consisted of purchases of equipment and the acquisition of business and
intangible assets. Net cash provided by financing activities was $31.2 million
for the six months ended June 30, 2001 and $551.7 million for the six months
ended June 30, 2000. Cash provided by financing activities for the six months
ended June 30, 2001 resulted primarily from the initial public offering of
common stock of our consolidated subsidiary DoubleClick Japan and the proceeds
from the exercise of stock options. For the six months ended June 30, 2000, cash
provided by financing activities consisted chiefly of the net proceeds of our
February 2000 public offering of common stock.
As of June 30, 2001, we had $198.1 million in cash and cash equivalents and
$615.7 million in investments in marketable securities. As of June 30, 2001, our
principal commitments consisted of our Convertible Subordinated Notes and our
obligations under operating and capital leases. Although we have no material
commitments for capital expenditures, we continue to anticipate that our capital
expenditures and lease commitments will be a material use of our cash resources
consistent with the levels of our operations, infrastructure and personnel.
Pursuant to an underwriting agreement dated February 17, 2000, we completed
a public offering of 7,500,000 shares of our common stock, of which we sold
5,733,411 shares and certain stockholders sold 1,766,589 shares. Our net
proceeds were approximately $502.9 million after deducting underwriting
discounts, commissions and offering expenses.
We believe that our existing cash and cash equivalents and investments in
marketable securities will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The primary objective of our investment activities is to preserve capital
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 obligations and
money market funds. As of June 30, 2001, our investments in marketable
securities had a weighted-average time to maturity of approximately 230 days.
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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 June 30, 2001.
<Table>
<Caption>
TIME TO MATURITY
-------------------------------------------------
ONE YEAR ONE TO TWO TO GREATER THAN
OR LESS TWO YEARS FOUR YEARS FOUR YEARS FAIR VALUE
------- --------- ---------- ---------- ----------
Cash and cash equivalents............. $198,091 -- -- -- $198,091
Average interest rate................. 2.89%
Fixed-rate investments in marketable
securities.......................... $423,189 $192,536 -- -- $615,725
Average interest rate................. 6.52% 5.58%
Convertible Subordinated Notes........ -- -- -- $250,000 $185,663
Average interest rate................. 4.75%
</Table>
We did not hold derivative financial instruments as of June 30, 2001 and
have never held these instruments in the past.
FOREIGN CURRENCY RISK
We transact business in a variety of 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. The effect of foreign exchange fluctuations on
our operations for the six months ended June 30, 2001 was not material. We do
not use derivative financial instruments to hedge operating activities
denominated in foreign currencies. We assess the need to utilize such
instruments to hedge currency exposures on an ongoing basis. As of June 30,
2001, we had $47.9 million in cash and cash equivalents denominated in foreign
currencies.
The introduction of the euro has not had a material impact on how we conduct
business and we do not anticipate any changes in how we conduct business as the
result of increased price transparency.
Our international business is subject to risks typical of an international
business, including, but not limited to, differing economic conditions, changes
in political climate, differing tax structures, other regulations and
restrictions, and foreign exchange volatility. Accordingly, our future results
could be materially and adversely affected by changes in these or other factors.
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RISK FACTORS
An investment in our company involves a high degree of risk. You should
carefully consider the risks below, together with the other information
contained in this report, before you decide to invest in our company. If any of
the following risks actually occur, our business, results of operations and
financial condition could be harmed, the trading price of our common stock could
decline, and you could lose all or part of your investment.
RISKS RELATING TO DOUBLECLICK AND ITS BUSINESS
DOUBLECLICK HAS A LIMITED OPERATING HISTORY AND ITS FUTURE FINANCIAL RESULTS MAY
FLUCTUATE, WHICH MAY CAUSE ITS STOCK PRICE TO DECLINE.
DoubleClick was incorporated in January 1996 and has a limited operating
history. An investor in DoubleClick's common stock must consider the risks and
difficulties frequently encountered by companies in new and rapidly evolving
industries, including the digital marketing industry. DoubleClick's risks
include:
ability to sustain historical revenue growth rates;
ability to manage DoubleClick's operations;
competition;
attracting, retaining and motivating qualified personnel;
maintaining DoubleClick's current and developing new, strategic
relationships with Web publishers;
ability to anticipate and adapt to the changing Internet advertising and
direct marketing industries;
ability to develop and introduce new products and services, and continue to
develop and upgrade technology;
attracting and retaining a large number of advertisers from a variety of
industries; and
relying on the DoubleClick networks.
DoubleClick also depends on the use of the Internet for advertising and as a
communications medium, the demand for advertising services in general, and on
general economic conditions. DoubleClick cannot assure you that DoubleClick's
business strategy will be successful or that DoubleClick will successfully
address these risks. If DoubleClick is unsuccessful in addressing these risks,
DoubleClick's revenues may decline or may not grow in accordance with its
business model and may fall short of expectations of market analysts and
investors, which could negatively affect the price of DoubleClick's stock.
DOUBLECLICK HAS A HISTORY OF LOSSES AND ANTICIPATES CONTINUED LOSSES.
DoubleClick has incurred net losses each year since inception, including net
losses of $156.0 million and $55.8 million for the years ended December 31, 2000
and 1999, respectively. For the six months ended June 30, 2001, DoubleClick
incurred a net loss of $98.3 million and, as of June 30, 2001, DoubleClick's
accumulated deficit was $381.1 million. DoubleClick has not achieved
profitability on an annual basis and expects to incur operating losses in the
future. DoubleClick expects to continue to incur significant operating and
capital expenditures and, as a result, DoubleClick will need to generate
significant revenue to achieve and maintain profitability. DoubleClick cannot
assure you that it will generate sufficient revenue to achieve or sustain
profitability. Even if DoubleClick does achieve profitability, it cannot assure
you that it can sustain or increase profitability on a quarterly or annual basis
in the future. If revenue does not meet DoubleClick's expectations, or if
operating expenses exceed what DoubleClick anticipates or cannot be reduced
accordingly, DoubleClick's business, results of operations and financial
condition will be materially and adversely affected.
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DOUBLECLICK DERIVES A SIGNIFICANT PORTION OF ITS REVENUE FROM ADVERTISEMENTS AND
ADVERTISING SERVICES, WHICH REVENUES TEND TO BE CYCLICAL AND DEPENDENT ON THE
ECONOMIC PROSPECTS OF ADVERTISERS AND THE ECONOMY IN GENERAL. A CONTINUED
DECREASE IN EXPENDITURES BY ADVERTISERS OR A DOWNTURN IN THE ECONOMY COULD
CAUSE DOUBLECLICK'S REVENUES TO DECLINE SIGNIFICANTLY IN ANY GIVEN PERIOD.
DoubleClick derives, and expects to continue to derive for the foreseeable
future, a large portion of its revenue from advertisements it delivers to Web
sites on its DoubleClick networks and from the technologies and services it
provides to Web publishers, advertisers and agencies. Expenditures by
advertisers tend to be cyclical, reflecting overall economic conditions as well
as budgeting and buying patterns. The overall market for advertising, including
Internet advertising, has been characterized in recent quarters by increasing
softness of demand, lower prices for advertisements, the reduction or
cancellation of advertising contracts, an increased risk of uncollectible
receivables from advertisers and the reduction of marketing and advertising
budgets, especially by Internet-related companies. As a result of these
reductions, advertising spending across traditional media, as well as the
Internet, has decreased. DoubleClick cannot assure you that further reductions
will not occur.
In an environment where the supply of advertising inventory exceeds
advertisers' demand, the price of advertising on the Internet tends to fall.
This situation adversely affects the revenue outlook for DoubleClick Media.
Under these circumstances, Web publishers tend to remove ad space from their Web
sites in an effort to correct the supply-demand imbalance; other publishers may
cut back on their Web presence or go out of business. Faced with smaller
budgets, advertisers and ad agencies purchase less advertising inventory and
tend not to experiment with newer advertising media, like the Internet. As a
consequence of both actions, the number of ad impressions delivered by
DoubleClick TechSolutions may grow more slowly or decline. Since
revenues for DoubleClick TechSolutions are generated from the number of ad
impressions delivered, a slowdown in growth or a decline would adversely affect
its revenues. Similar pressures are faced by DoubleClick Data and DoubleClick's
businesses outside of the United States.
DoubleClick cannot assure you that further reductions in advertising
spending will not occur. DoubleClick also cannot assure you that if economic
conditions improve, marketing budgets and advertising spending will increase
from current levels. A continued decline in the economic prospects of
advertisers or the economy in general could alter current or prospective
advertisers' spending priorities or increase the time it takes to close a sale
with a customer. As a result, DoubleClick's revenues from advertisements and
advertising services may decline significantly in any given period.
DOUBLECLICK DOES NOT ALWAYS MAINTAIN LONG-TERM AGREEMENTS WITH ITS CUSTOMERS
AND MAY BE UNABLE TO RETAIN CUSTOMERS, ATTRACT NEW CUSTOMERS OR REPLACE
DEPARTING CUSTOMERS WITH CUSTOMERS THAT CAN PROVIDE COMPARABLE REVENUES.
Many of DoubleClick's contracts with its customers are short-term.
DoubleClick cannot assure you that its customers will remain associated with the
DoubleClick networks or continue to use DoubleClick's products and services, or
that DoubleClick will be able to replace in a timely or effective manner
departing customers with new customers that generate comparable revenues.
Further, DoubleClick cannot assure you that its customers will continue to
generate consistent amounts of revenues over time. DoubleClick's failure to
develop and sustain long-term relationships with its customers would
materially and adversely affect DoubleClick's results of operations.
DOUBLECLICK'S CUSTOMERS CONTINUE TO EXPERIENCE BUSINESS CONDITIONS THAT COULD
ADVERSELY AFFECT DOUBLECLICK'S BUSINESS.
DoubleClick's customers, in particular Internet-related companies, 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 advertising in general and DoubleClick's
offerings in particular. Many other companies in the Internet industry have
depleted their available capital and could cease operations or file for
bankruptcy protection. These customers may not be able to discharge their
payment and other obligations to DoubleClick. The non-payment or late payment
of amounts due to DoubleClick from its customers could negatively impact
DoubleClick's financial condition. If the current environment for Internet
advertising and for Internet-related companies does not improve, DoubleClick's
business, results of operations and financial condition could be materially
adversely affected.
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THE RAPID EXPANSION OF DOUBLECLICK'S PRODUCTS AND SERVICES, INDUSTRY SHIFTS AND
OTHER CHANGES HAVE STRAINED ITS MANAGERIAL, OPERATIONAL, FINANCIAL AND
INFORMATION SYSTEM RESOURCES.
In recent years, DoubleClick has had to respond to significant changes in
its industry. As a result, DoubleClick has experienced rapid expansion of
product and service offerings, industry shifts and other changes that have
increased the complexity of DoubleClick's business and placed considerable
demands on DoubleClick's managerial, operational and financial resources.
DoubleClick continues to increase the scope of its product and service offerings
both domestically and internationally and to deploy DoubleClick's resources in
accordance with changing business conditions and opportunities. To continue to
successfully implement DoubleClick's business plan in DoubleClick's rapidly
changing industry requires effective planning and management processes.
DoubleClick expects that it will need to continue to improve its financial and
managerial controls and reporting systems and procedures and will need to
continue to train and manage its workforce. DoubleClick cannot assure you that
management will be effective in attracting and retaining qualified personnel,
integrating acquired businesses or otherwise responding to new business
conditions. DoubleClick also cannot assure you that its information systems,
procedures or controls will be adequate to support DoubleClick's operations or
that DoubleClick's management will be able to achieve the rapid execution
necessary to offer DoubleClick's products and services and implement
DoubleClick's business plan successfully. DoubleClick's inability to effectively
respond to changing business conditions could materially and adversely affect
DoubleClick's business, financial condition and results of operations.
DOUBLECLICK'S BUSINESS MODEL IS UNPROVEN, AND DOUBLECLICK MAY NOT BE ABLE TO
GENERATE PROFITS FROM MANY OF ITS PRODUCTS AND SERVICES.
A significant part of DoubleClick's business model is to generate revenue by
providing digital marketing solutions to advertisers, ad agencies and Web
publishers. The profit potential for DoubleClick's business model has not yet
been proven, and DoubleClick has not yet achieved full-year profitability. The
profitability of DoubleClick's 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 DoubleClick's business
model.
Like other businesses in the advertising and marketing sector, DoubleClick's
revenue outlook is sensitive to downturns in the economy followed by declines in
advertisers' marketing budgets. The profit potential of DoubleClick's business
model is also subject to the acceptance of its products and services by
marketers, advertisers, ad agencies and publishers. Digital marketing remains a
new discipline. Intensive marketing and sales efforts may be necessary to
educate prospective customers regarding the uses and benefits of, and to
generate demand for, DoubleClick's products and services. Enterprises may be
reluctant or slow to adopt a new approach that may replace existing techniques,
or may feel that DoubleClick's offerings fall short of their needs. If these
outcomes occur, it would have an adverse effect on the profit potential
of DoubleClick's business model.
Internal factors also influence the profit potential of DoubleClick's
business model. In order to be profitable, DoubleClick's revenue must exceed the
expense incurred by DoubleClick to run its technology infrastructure, research
and development, sales and marketing, and all other operations. However,
DoubleClick cannot assure you that the expenses associated with even the
most efficient operation of its business will yield profits, or that
DoubleClick will be able to manage its business for optimal efficiency and
cost containment. The failure of DoubleClick to achieve these results would
adversely affect the profit potential of DoubleClick's business model.
DISRUPTION OF DOUBLECLICK'S SERVICES DUE TO UNANTICIPATED PROBLEMS OR FAILURES
COULD HARM DOUBLECLICK'S BUSINESS.
DoubleClick's DART technology resides in DoubleClick's data centers in New
York City, New Jersey, Virginia, California and Colorado, and in Europe, Asia
and Latin America. Continuing and uninterrupted performance of DoubleClick's
technology is critical to DoubleClick's success. Customers may become
dissatisfied by any system failure that interrupts DoubleClick's ability to
provide DoubleClick's services to them, including failures affecting
DoubleClick's ability to deliver advertisements without significant delay to the
viewer. Sustained or repeated system failures would reduce the attractiveness of
DoubleClick's solutions to its customers and result in contract terminations,
fee rebates and makegoods, thereby reducing revenue. Slower response time or
system failures may also result from
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straining the capacity of DoubleClick's technology due to an increase in the
volume of advertising delivered through DoubleClick's servers. To the extent
that DoubleClick does not effectively address any capacity constraints or system
failures, DoubleClick's business, results of operations and financial condition
could be materially and adversely affected.
DoubleClick's operations are dependent on DoubleClick's ability to protect
DoubleClick's computer systems against damage from fire, power loss, water
damage, telecommunications failures, vandalism and other malicious acts, and
similar unexpected adverse events. In addition, interruptions in DoubleClick's
solutions could result from the failure of DoubleClick's telecommunications
providers to provide the necessary data communications capacity in the time
frame DoubleClick requires. Unanticipated problems affecting DoubleClick's
systems have from time to time in the past caused, and in the future could
cause, interruptions in the delivery of DoubleClick's solutions. DoubleClick's
business, results of operations and financial condition could be materially and
adversely affected by any damage or failure that interrupts, or delays or
destroys DoubleClick's operations.
MISAPPROPRIATION OF CONFIDENTIAL INFORMATION COULD CAUSE DOUBLECLICK TO LOSE
CUSTOMERS.
DoubleClick currently retains highly confidential information of its
customers in a secure database server. Although DoubleClick observes security
and access measures throughout DoubleClick's operations, DoubleClick cannot
assure you that it will be able to prevent unauthorized individuals from gaining
access to this database server. Any unauthorized access to DoubleClick's
servers, or abuse by DoubleClick's employees, could result in the theft of
confidential customer information. If confidential customer information is
compromised, DoubleClick could lose customers or become subject to litigation
and its reputation could be harmed, any of which could materially and
adversely affect DoubleClick's business and results of operations.
COMPETITION IN INTERNET ADVERTISING, DIRECT MARKETING AND RELATED PRODUCTS AND
SERVICES IS INTENSE, AND DOUBLECLICK MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.
The market for digital marketing products and services is very competitive.
DoubleClick expects this competition to continue because there are low barriers
to entry. Also, industry consolidation may lead to stronger, better capitalized
entities against which DoubleClick must compete. DoubleClick expects that it
will encounter additional competition from new sources as DoubleClick expands
its products and services offerings.
DoubleClick believes that its ability to compete depends on many factors
both within and beyond DoubleClick's control, including the following:
the features, performance, price and reliability of products and services
offered either by DoubleClick or DoubleClick's competitors;
the launch timing and market success of products and services developed
either by DoubleClick or DoubleClick's competitors;
DoubleClick's ability to adapt and scale its products and services, and to
develop and introduce new products and services that respond to market
needs;
DoubleClick's ability to adapt to evolving technology and industry
standards;
DoubleClick's customer service and support efforts;
DoubleClick's sales and marketing efforts; and
the relative impact of general economic and industry conditions on either
DoubleClick or DoubleClick's competitors.
DoubleClick's divisions face competition from a variety of sources. DoubleClick
TechSolutions competes with providers of software and service bureau solutions
for the delivery of Web ads and email for Web publishers and advertisers.
DoubleClick Media competes with large Web publishers, Web portals, Internet
advertising networks and providers of email list services. Abacus competes with
direct mail and email list providers, and providers of information products and
marketing research services to the direct marketing industry. Diameter competes
with Web ratings companies, providers of Web
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advertising management, online research and consulting services and providers
of syndicated market research in traditional publishing. DoubleClick also
competes indirectly with others, such as providers of customer relationship
management services, content aggregation companies, companies engaged in
advertising sales networks, advertising agencies and other companies that
facilitate digital marketing.
Many of DoubleClick's existing competitors, as well as a number of potential
new competitors, have longer operating histories, greater name recognition,
larger customer bases and significantly greater financial, technical and
marketing resources than DoubleClick. These factors could allow them to compete
more effectively than DoubleClick, 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, advertisers,
direct marketers and Web publishers. DoubleClick cannot assure you that its
competitors will not develop products or services that are equal or superior to
DoubleClick's solutions or that achieve greater acceptance than DoubleClick's
solutions. In addition, current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products or services to address the needs of
DoubleClick's prospective advertising, ad agency and Web publisher customers. As
a result, it is possible that new competitors may emerge and rapidly acquire
significant market share. Increased competition may result in price reductions,
reduced gross margins and loss of market share. DoubleClick cannot assure you
that it will be able to compete successfully or that competitive pressures will
not materially and adversely affect DoubleClick's business, results of
operations or financial condition.
DOUBLECLICK'S QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT
FLUCTUATIONS AND YOU SHOULD NOT RELY ON THEM AS AN INDICATION OF FUTURE
OPERATING PERFORMANCE.
DoubleClick's revenue and results of operations may fluctuate significantly
in the future as a result of a variety of factors, many of which are beyond
DoubleClick's control. These factors include:
advertiser, Web publisher and direct marketer demand for DoubleClick's
solutions;
Internet user traffic levels;
number and size of ad units per page on DoubleClick's customers' Web sites;
pricing trends for advertising inventory on DoubleClick's networks, and for
the portion payable to the Web publishers in DoubleClick's networks;
the introduction of new products or services by us or DoubleClick's
competitors;
variations in the levels of capital, operating expenditures and other costs
relating to DoubleClick's operations;
general seasonal and cyclical fluctuations; and
general industry and economic conditions.
DoubleClick may not be able to adjust spending quickly enough to offset
any unexpected revenue shortfall. DoubleClick's operating expenses include
upgrading and enhancing DoubleClick's DART technology, expanding DoubleClick's
product and service offerings, marketing and supporting DoubleClick's
solutions, and supporting DoubleClick's sales and marketing operations. If
DoubleClick has a shortfall in revenue in relation to its expenses, or if its
expenses exceed revenue, then DoubleClick's business, results of operations and
financial condition could be materially and adversely affected. These results
would likely affect the market price of DoubleClick's common stock in a manner
which may be unrelated to DoubleClick's long-term operating performance.
DoubleClick's business is subject to seasonal fluctuations. Advertisers
generally place fewer advertisements during the first and third calendar
quarters of each year, which directly affects the DoubleClick Media and
DoubleClick TechSolutions businesses and the direct marketing industry
generally mails substantially more marketing materials in the third calendar
quarter, which directly affects the DoubleClick Data business. Further,
Internet user traffic typically drops during the summer months, which
reduces the amount of advertising to sell and deliver.
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As a result, DoubleClick believes that period-to-period comparisons of
DoubleClick's results of operations may not be meaningful. You should not rely
on past periods as indicators of future performance. It is possible that in some
future periods DoubleClick's results of operations may be below the expectations
of public market analysts and investors. In this event, the price of
DoubleClick's common stock may fall.
DOUBLECLICK MAY NOT BE ABLE TO CONTINUE TO GROW THROUGH ACQUISITIONS OF OR
INVESTMENTS IN OTHER COMPANIES.
DoubleClick's business has expanded rapidly in part as a result of
acquisitions or investments in other companies, including the acquisitions of
Abacus Direct, NetGravity, @plan and FloNetwork. DoubleClick may seek to acquire
or make investments in other complementary businesses, products, services or
technologies as a means to grow its business. From time to time DoubleClick has
had discussions with other companies regarding its acquiring, or investing in,
their businesses, products, services or technologies. DoubleClick cannot assure
you that it will be able to identify other suitable acquisition or investment
candidates. Even if DoubleClick does identify suitable candidates, DoubleClick
cannot assure you that it will be able to make other acquisitions or investments
on commercially acceptable terms, if at all. Even if DoubleClick agrees to buy a
company, DoubleClick cannot assure you that it will be successful in
consummating the purchase. Reasons for failing to consummate a purchase could
include DoubleClick's refusal to increase the agreed upon purchase price to
match an offer made by a subsequent competing bidder. If DoubleClick is unable
to continue to expand through acquisitions, its revenue may decline or fail to
grow.
DOUBLECLICK MAY NOT MANAGE THE INTEGRATION OF ACQUIRED COMPANIES SUCCESSFULLY OR
ACHIEVE DESIRED RESULTS.
As a part of DoubleClick's business strategy, DoubleClick could 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
management of DoubleClick and the acquired companies;
the difficulty of incorporating acquired technology and rights into
DoubleClick's products and services;
unanticipated expenses related to technology and other integration;
difficulties in maintaining uniform standards, controls, procedures and
policies;
the impairment of relationships with employees and customers as a result of
any integration of new management personnel;
the inability to develop new products and services that combine the
knowledge and resources of DoubleClick and its 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 DoubleClick's
customer base through cross-marketing of the combined company's products to
new and existing customers; and
potential unknown liabilities associated with acquired businesses.
DoubleClick 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 DoubleClick's ongoing business,
distract DoubleClick's management and employees, increase DoubleClick's expenses
and adversely affect DoubleClick's results of operations due to accounting
requirements such as amortization of goodwill. Furthermore, DoubleClick may
incur debt or issue equity securities to pay for any future acquisitions. The
issuance of equity securities could be dilutive to DoubleClick's existing
stockholders.
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DOUBLECLICK DEPENDS ON THIRD-PARTY INTERNET AND TELECOMMUNICATIONS PROVIDERS,
OVER WHOM DOUBLECLICK HAS NO CONTROL, TO OPERATE DOUBLECLICK'S SERVICES.
INTERRUPTIONS IN DOUBLECLICK'S SERVICES CAUSED BY ONE OF THESE PROVIDERS COULD
HAVE AN ADVERSE EFFECT ON REVENUE AND SECURING ALTERNATE SOURCES OF THESE
SERVICES COULD SIGNIFICANTLY INCREASE EXPENSES.
DoubleClick depends heavily on several third-party providers of Internet and
related telecommunication services, including hosting and co-location
facilities, in operating DoubleClick's products and services. These companies
may not continue to provide services to DoubleClick without disruptions in
service, at the current cost or at all. The costs associated with any transition
to a new service provider would be substantial, requiring DoubleClick to
reengineer its computer systems and telecommunications infrastructure to
accommodate a new service provider. This process would be both expensive and
time-consuming. In addition, failure of DoubleClick's Internet and related
telecommunications providers to provide the data communications capacity in the
time frame required by DoubleClick could cause interruptions in the services
DoubleClick provides. Unanticipated problems affecting DoubleClick's computer
and telecommunications systems in the future could cause interruptions in the
delivery of DoubleClick's services, causing a loss of revenue and potential loss
of customers.
DOUBLECLICK IS DEPENDENT ON KEY PERSONNEL AND ON KEY EMPLOYEE RETENTION AND
RECRUITING FOR DOUBLECLICK'S FUTURE SUCCESS.
DoubleClick's future success depends to a significant extent on the
continued service of DoubleClick's key technical, sales and senior management
personnel. DoubleClick does not have employment agreements with most of these
executives and does not maintain key person life insurance on any of these
executives. The loss of the services of one or more of DoubleClick's key
employees could significantly delay or prevent the achievement of DoubleClick's
product development and other business objectives, including acquisitions, and
could harm DoubleClick's business. DoubleClick's future success also depends on
DoubleClick's continuing to attract, retain and motivate highly skilled
employees for key positions. There is competition for qualified employees in
DoubleClick's industry. DoubleClick may be unable to retain DoubleClick's key
employees or attract, assimilate or retain other highly qualified employees in
the future. DoubleClick has from time to time in the past experienced, and
DoubleClick expects to continue to experience in the future, difficulty in
hiring and retaining highly skilled employees with appropriate qualifications.
IF DOUBLECLICK FAILS TO ADEQUATELY PROTECT ITS INTELLECTUAL PROPERTY,
DOUBLECLICK COULD LOSE ITS INTELLECTUAL PROPERTY RIGHTS.
DoubleClick's success and ability to effectively compete are substantially
dependent on the protection of DoubleClick's proprietary technologies and
DoubleClick's trademarks, which DoubleClick protects through a combination of
patent, trademark, copyright, trade secret, unfair competition and contract law.
DoubleClick cannot assure you that any of DoubleClick's proprietary rights will
be viable or of value in the future.
In September 1999, the U.S. Patent and Trademark Office issued to
DoubleClick a patent that covers DoubleClick's DART technology. DoubleClick owns
other patents, and has patent applications pending, for its technology.
DoubleClick cannot assure you that patents applied for will be issued or that
patents issued or acquired by DoubleClick now or in the future will be valid and
enforceable, or provide DoubleClick with any meaningful protection.
DoubleClick also has rights in the trademarks that it uses to market
DoubleClick's solutions. These trademarks include DOUBLECLICK'r', DART'r',
DARTMAIL'r' and ABACUS'r'. DoubleClick has applied to register DoubleClick's
trademarks in the United States and internationally. DoubleClick cannot assure
you that any of DoubleClick's current or future trademark applications will be
approved. Even if they are approved, these trademarks may be successfully
challenged by others or invalidated. If DoubleClick's trademark registrations
are not approved because third parties own these trademarks, DoubleClick's use
of these trademarks will be restricted unless DoubleClick enters into
arrangements with these parties which may be unavailable on commercially
reasonable terms, if at all.
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DoubleClick also enters into confidentiality, proprietary rights and
license agreements, as appropriate, with DoubleClick's employees, consultants
and business partners, and generally controls access to and distribution of
DoubleClick's technologies, documentation and other proprietary information.
Despite these efforts, DoubleClick cannot be certain that the steps DoubleClick
takes to prevent unauthorized use of DoubleClick's proprietary rights are
sufficient to prevent misappropriation of DoubleClick's solutions or
technologies, particularly in foreign countries where laws or law enforcement
practices may not protect DoubleClick's proprietary rights as fully as in the
United States. In addition, DoubleClick cannot assure you that DoubleClick will
be able to adequately enforce the contractual arrangements that it has entered
into to protect DoubleClick's proprietary technologies. If DoubleClick loses its
intellectual property rights, this could have a material and adverse impact on
its business, financial condition and results of operations.
IF DOUBLECLICK FACES A CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD
PARTY, DOUBLECLICK MAY BE LIABLE FOR DAMAGES AND BE REQUIRED TO MAKE CHANGES TO
ITS TECHNOLOGY OR BUSINESS.
Third parties may assert infringement claims against DoubleClick, which
could adversely affect DoubleClick's reputation and the value of DoubleClick's
proprietary rights. From time to time DoubleClick has been, and DoubleClick
expects to continue to be, subject to claims in the ordinary course of
DoubleClick's business, including claims of alleged infringement of the patents,
trademarks and other intellectual property rights of third parties by
DoubleClick or DoubleClick's customers. In particular, DoubleClick does not
conduct exhaustive patent searches to determine whether DoubleClick's 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 when filed, that provide
for technologies similar to DoubleClick's.
Third party infringement claims and any resultant litigation, should it
occur, could subject DoubleClick to significant liability for damages,
restrict DoubleClick from using DoubleClick's technology or operating its
business generally, or require changes to be made to DoubleClick's technology.
Even if DoubleClick prevails, litigation is time-consuming and expensive to
defend and would result in the diversion of management's time and attention.
Any claims from third parties may also result in limitations on DoubleClick's
ability to use the intellectual property subject to these claims unless
DoubleClick is able to enter into royalty, licensing or other similar agreements
with the third parties asserting these claims. Such agreements, if required, may
be unavailable on terms acceptable to DoubleClick, or at all. If DoubleClick is
unable to enter into these types of agreements, DoubleClick would be required to
either cease offering the subject product or change the technology underlying
the applicable product. If a successful claim of infringement is brought against
DoubleClick and DoubleClick fails to develop non-infringing technology or to
license the infringed or similar technology on a timely basis, it could
materially adversely affect DoubleClick's business, financial condition and
results of operations.
DOUBLECLICK'S BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY LAWSUITS RELATED
TO PRIVACY AND DOUBLECLICK'S BUSINESS PRACTICES.
DoubleClick is a defendant in several pending lawsuits alleging, among other
things, that DoubleClick unlawfully obtains and uses Internet users' personal
information and that DoubleClick's use of cookies violates various laws.
DoubleClick is the subject of an inquiry involving the attorneys general of
several states relating to DoubleClick's practices in the collection,
maintenance and use of information about, and DoubleClick's disclosure of these
information practices to, Internet users. DoubleClick may in the future receive
additional regulatory inquiries and DoubleClick intends to cooperate fully.
Class action litigation and regulatory inquiries of these types are often
expensive and time consuming and their outcome is uncertain.
DoubleClick cannot quantify the amount of monetary or human resources that
DoubleClick will be required to use to defend itself in these proceedings.
DoubleClick may need to spend significant amounts on its legal defense, senior
management may be required to divert their attention from other portions of
DoubleClick's business, new product launches may be deferred or canceled as a
result of these proceedings, and DoubleClick may be required to make changes to
DoubleClick's present and
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planned products or services, any of which could materially and adversely affect
DoubleClick's business, financial condition and results of operations. If, as a
result of any of these proceedings, a judgment is rendered or a decree is
entered against DoubleClick, it may materially and adversely affect
DoubleClick's business, financial condition and results of operations.
DOUBLECLICK'S BUSINESS DEPENDS IN PART ON SUCCESSFUL ADAPTATION OF ITS BUSINESS
TO INTERNATIONAL MARKETS, IN WHICH DOUBLECLICK HAS LIMITED EXPERIENCE. FAILURE
TO SUCCESSFULLY MANAGE THE RISKS OF INTERNATIONAL OPERATIONS AND SALES AND
MARKETING EFFORTS WOULD HARM DOUBLECLICK'S RESULTS OF OPERATION AND FINANCIAL
CONDITION.
DoubleClick has operations in a number of countries. DoubleClick has limited
experience in developing localized versions of DoubleClick's solutions and in
marketing, selling and distributing DoubleClick's solutions internationally.
DoubleClick sells its products and services through DoubleClick's directly and
indirectly owned subsidiaries in Australia, the Benelux countries, Canada,
France, Germany, Spain, Ireland, Italy, Scandinavia and the United Kingdom.
DoubleClick also operates its media business through business partners in Japan
and Asia (Hong Kong, Taiwan, Korea, China and Singapore) and generally operates
its technology business through its directly or indirectly owned subsidiaries in
these jurisdictions. A great deal of DoubleClick's success in these markets is
directly dependent on the success of DoubleClick's business partners and their
dedication of sufficient resources to DoubleClick's relationship.
DoubleClick's international operations are subject to other inherent risks,
including:
the high cost of maintaining international operations;
uncertain demand for DoubleClick's products and services;
the impact of recessions in economies outside the United States;
changes in regulatory requirements;
more restrictive data protection regulation;
reduced protection for intellectual property rights in some countries;
potentially adverse tax consequences;
difficulties and costs of staffing and managing foreign operations;
political and economic instability;
fluctuations in currency exchange rates; and
seasonal fluctuations in Internet usage.
These risks may have a material and adverse impact on the business, results
of operations and financial condition of DoubleClick's operations in a
particular country and could result in a decision by DoubleClick to reduce or
discontinue operations in that country. The combined impact of these risks in
each country may also materially and adversely affect the business, results of
operations and financial condition of DoubleClick as a whole.
ANTI-TAKEOVER PROVISIONS IN DOUBLECLICK'S CHARTER DOCUMENTS AND DELAWARE LAW MAY
MAKE IT DIFFICULT FOR A THIRD PARTY TO ACQUIRE DOUBLECLICK.
Some of the provisions of DoubleClick's certificate of incorporation,
DoubleClick's bylaws and Delaware law could, together or separately:
discourage potential acquisition proposals;
delay or prevent a change in control; or
impede the ability of DoubleClick's stockholders to change the composition
of DoubleClick's board of directors in any one year.
As a result, it could be more difficult to acquire DoubleClick, even if
doing so might be beneficial to DoubleClick's stockholders. Difficulty in
acquiring DoubleClick could, in turn, limit the price that investors might be
willing to pay in the future for shares of DoubleClick's common stock.
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DOUBLECLICK'S STOCK PRICE MAY EXPERIENCE EXTREME PRICE AND VOLUME FLUCTUATIONS,
AND THIS VOLATILITY COULD RESULT IN DOUBLECLICK BECOMING SUBJECT TO SECURITIES
LITIGATION WHICH IS EXPENSIVE AND COULD RESULT IN A DIVERSION OF RESOURCES.
The market price of DoubleClick's 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 extreme price and
volume fluctuations. Investors may be unable to resell their shares of
DoubleClick's 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 DoubleClick's
industry have been subject to this type of litigation in the past. DoubleClick
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 DoubleClick's business, financial condition and
results of operations.
FUTURE SALES OF DOUBLECLICK'S COMMON STOCK MAY AFFECT THE MARKET PRICE OF
DOUBLECLICK'S COMMON STOCK.
As of June 30, 2001, DoubleClick had 134,078,768 shares of common stock
outstanding, excluding 23,345,903 shares subject to options outstanding as of
such date under DoubleClick's stock option plans that are exercisable at prices
ranging from $0.03 to $124.56 per share. DoubleClick 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 DoubleClick's
common stock prevailing from time to time. Sales of substantial amounts of
common stock (including shares included in such registration statements issued
upon the exercise of stock options), or the perception that such sales could
occur, may materially reduce prevailing market prices for DoubleClick's common
stock.
RISKS RELATED TO DOUBLECLICK'S INDUSTRY
ADVERTISERS MAY BE RELUCTANT TO DEVOTE A PORTION OF THEIR BUDGETS TO INTERNET
ADVERTISING AND DIGITAL MARKETING SOLUTIONS.
Companies doing business on the Internet, including DoubleClick, 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 Internet advertising or digital marketing solutions if they perceive
the Internet to be a limited or ineffective marketing medium. Any shift in
marketing budgets away from Internet advertising spending or digital marketing
solutions could materially and adversely affect DoubleClick's business, results
of operations or financial condition.
THE LACK OF APPROPRIATE ADVERTISING MEASUREMENT STANDARDS OR TOOLS MAY CAUSE
DOUBLECLICK TO LOSE CUSTOMERS OR PREVENT DOUBLECLICK FROM CHARGING A SUFFICIENT
AMOUNT FOR ITS PRODUCTS AND SERVICES.
Because digital marketing remains a new discipline, there are currently no
generally accepted methods or tools for measuring the efficacy of digital
marketing, 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 digital marketing until there exist widely accepted methods and tools
that measure the efficacy of their campaigns.
DoubleClick's customers may also challenge or refuse to accept DoubleClick's
research and reporting offerings. A competitor's research and reporting
offerings may gain broader acceptance. DoubleClick could lose customers or fail
to gain customers if its products and services do not utilize the generally
accepted measuring methods and tools. Further, new measurement standards and
tools could require DoubleClick to change its business and the means used to
charge its customers, which could result in a loss of customers or revenues.
Even if DoubleClick's products and services become widely accepted,
DoubleClick may find that the profit potential of its research and reporting
offerings is limited, and that spending by traditional advertisers does
not appreciably increase as a result.
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NEW LAWS IN THE UNITED STATES AND INTERNATIONALLY COULD HARM DOUBLECLICK'S
BUSINESS.
Laws applicable to Internet communications, e-commerce, Internet
advertising, data protection and direct marketing are becoming more prevalent
in the United States and worldwide. For example, various U.S. state and foreign
governments may attempt to regulate DoubleClick's ad delivery or levy sales or
other taxes on DoubleClick's activities.
In addition, the laws governing the Internet remain largely unsettled, even
in areas where there has been some legislative action. It is difficult to
determine whether and how existing laws such as those governing intellectual
property, data protection, libel and taxation apply to the Internet, Internet
advertising and DoubleClick's business.
The growth and development of Internet commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad. These
proposals may seek to impose additional burdens on companies conducting business
over the Internet. In particular, new limitations on the collection and use of
information relating to Internet users are currently being considered by
legislatures and regulatory agencies in the United States and internationally.
DoubleClick is unable to predict whether any particular proposal will pass, or
the nature of the limitations in those proposals. Since many of the proposals
are in their development stage, DoubleClick cannot yet determine the impact
these may have on DoubleClick's business. In addition, it is possible that
changes to existing law, including both amendments to existing law and new
interpretations of existing law, could have a material and adverse impact on
DoubleClick's business, financial condition and results of operations.
The following are examples of proposals currently being considered in the
United States and internationally:
Legislation has been proposed in some jurisdictions to regulate the use of
cookie technology. DoubleClick's technology uses cookies for ad targeting
and reporting, among other things. It is possible that the changes required
for compliance are commercially unfeasible, or that DoubleClick is simply
unable to comply and, therefore, may be required to discontinue the
relevant business practice.
Data protection officials in certain European countries have voiced the
opinion that a Internet protocol address is personally-identifiable
information. In those countries in which this opinion prevails, the
applicable national data protection law could be interpreted to subject
DoubleClick to a more restrictive regulatory regime. DoubleClick cannot
assure you that its current policies and procedures would meet more
restrictive standards. The cost of such compliance could be material
and DoubleClick may not be able to comply with the applicable national
regulations in a timely or cost-effective manner.
Legislation has been proposed to prohibit the sending of 'unsolicited
commercial email' or 'spam.' It is possible that legislation will be passed
that requires DoubleClick to change its current practices, or subject
DoubleClick to increased legal liability for its consent-based email
delivery and list services business.
Legislation is under consideration that would regulate the practice of
online preference marketing, as practiced by DoubleClick and other Network
Advertising Initiative member companies. Such legislation, if passed, could
require DoubleClick to change or discontinue its plans for online
preference marketing services. The changes DoubleClick may be required to
make could diminish the market acceptance of DoubleClick's offerings.
The Federal Trade Commission is currently reviewing the need to regulate
the manner in which offline information about consumers is collected and
used by businesses. The value of the Abacus database, and the future
viability of the DoubleClick business, could be adversely affected by
legislation or regulation that limits the manner in which offline
information about consumers is collected and used.
Any legislation enacted or regulation issued could dampen the growth and
acceptance of the digital marketing industry in general and of DoubleClick's
offering in particular. In response to evolving legal requirements, DoubleClick
may be compelled to change or discontinue an existing offering, business, or
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business model, or to cancel a proposed offering or new business. Any of these
circumstances could have a material and adverse impact on DoubleClick's
business, financial condition and results of operations. These change could also
require DoubleClick to incur significant expenses, and DoubleClick may not find
itself able to replace the revenue lost as a consequence of the changes.
DoubleClick is a member of the Network Advertising Initiative and the Direct
Marketing Association, both industry self-regulatory organizations. DoubleClick
cannot assure you that these organizations will not adopt additional, more
burdensome guidelines, which could materially and adversely affect the business,
financial condition and results of operations of DoubleClick.
DEMAND FOR DOUBLECLICK'S PRODUCTS AND SERVICES MAY DECLINE DUE TO THE
PROLIFERATION OF SOFTWARE DESIGNED TO PREVENT THE DELIVERY OF INTERNET
ADVERTISING OR BLOCK THE USE OF COOKIES.
DoubleClick's business may be adversely affected by the adoption by computer
users of technologies that harm the performance of DoubleClick's products and
services. For example, computer users may use software designed to filter or
prevent the delivery of Internet advertising, or Internet browsers set to block
the use of cookies. DoubleClick cannot assure you that the number of computer
users who employ these or other similar technologies will not increase, thereby
diminishing the efficacy of DoubleClick's products and services. In the case
that one or more of these technologies are widely adopted, demand for
DoubleClick's products and services would decline.
DOUBLECLICK'S BUSINESS MAY SUFFER IF THE WEB INFRASTRUCTURE IS UNABLE TO
EFFECTIVELY SUPPORT THE GROWTH IN DEMAND PLACED ON IT.
DoubleClick's success will depend, in large part, upon the maintenance of
the Web infrastructure, such as a reliable network backbone with the necessary
speed, data capacity and security and timely development of enabling products
such as high speed modems, for providing reliable Web access and services and
improved content. DoubleClick cannot assure you that the Web infrastructure will
continue to effectively support the demands placed on it as the Web continues to
experience increased numbers of users, frequency of use or increased bandwidth
requirements of users. Even if the necessary infrastructure or technologies are
developed, DoubleClick may have to spend considerable amounts to adapt
DoubleClick's solutions accordingly. Furthermore, the Web has experienced a
variety of outages and other delays due to damage to portions of its
infrastructure. These outages and delays could impact the Web sites of Web
publishers using DoubleClick's solutions and the level of user traffic on Web
sites on DoubleClick's DoubleClick networks.
DOUBLECLICK DATA IS DEPENDENT ON THE SUCCESS OF THE DIRECT MARKETING INDUSTRY
FOR ITS FUTURE SUCCESS.
The future success of DoubleClick Data is dependent in large part on the
continued demand for DoubleClick's services from the direct marketing industry,
including the catalog industry, as well as the continued willingness of catalog
operators to contribute their data to DoubleClick. Most of DoubleClick's Abacus
customers are large consumer merchandise catalog operators in the United States.
A significant downturn in the direct marketing industry generally, including the
catalog industry, or withdrawal by a substantial number of catalog operators
from the Abacus Alliance, would have a material adverse effect on DoubleClick's
business, financial condition and results of operations. Many industry experts
predict that electronic commerce, including the purchase of merchandise and the
exchange of information via the Internet or other media, will increase
significantly in the future. To the extent this increase occurs, companies that
now rely on catalogs or other direct marketing avenues to market their products
may reallocate resources toward these new direct marketing channels and away
from catalog-related marketing or other direct marketing avenues, which could
adversely affect demand for some DoubleClick Data services. In addition, the
effectiveness of direct mail as a marketing tool may decrease as a result of
consumer saturation and increased consumer resistance to direct mail in general.
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INCREASES IN POSTAL RATES AND PAPER PRICES COULD HARM DOUBLECLICK DATA.
The direct marketing activities of DoubleClick's 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 DoubleClick. Increased postal rates can
also lead to pressure from DoubleClick's customers to reduce DoubleClick's
prices for its 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 DoubleClick's
services. DoubleClick's customers may aggressively seek price reductions for
DoubleClick's services to offset any increased materials cost. Any of these
occurrences could materially and adversely affect the business, financial
condition and results of operations of DoubleClick's Abacus business.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Following the announcement of our proposed merger with NetGravity on July
27, 1999, a complaint was filed in the San Mateo County, California, Superior
Court against NetGravity and several of its directors. The complaint alleges
that the directors of NetGravity breached their fiduciary duties to NetGravity's
stockholders in connection with the negotiation of the proposed merger. The
complaint asked the court to enjoin the consummation of the merger, or,
alternatively, sought to rescind the merger or an award of unspecified damages
from the defendants in the event the merger was consummated. We believe the
claims asserted in this complaint are without merit and vigorously contest them.
We are a defendant in 20 lawsuits concerning Internet user privacy and our
data collection and other business practices. These lawsuits were filed
throughout 2000. 18 of these actions are styled as class actions, one action is
brought on behalf of the general public of the State of California and one is
brought against us and ClearStation, Inc. on behalf of the State of Illinois by
the State's Attorney of Cook County, Illinois. The actions seek, among other
things, injunctive relief, civil penalties and unspecified damages.
Five of the actions were filed in California state court, 13 in federal
court, one in Texas state court and one in Illinois state court. On March 31,
2000, the plaintiff in one of the California state court proceedings filed a
petition, ordered by the court on May 11, 2000, to coordinate the four actions
then pending in the California state courts. The Judicial Panel on Multidistrict
Litigation granted our motions to transfer, coordinate and consolidate all
thirteen federal actions before Judge Buchwald in the Southern District of New
York. On March 28, 2001, Judge Buchwald dismissed all federal lawsuits against
DoubleClick. The plaintiffs have noticed their appeal to the Second Circuit
Court of Appeals. We believe that these lawsuits are without merit and we intend
to vigorously defend ourselves against them.
Additionally, we received a letter from the Federal Trade Commission
('FTC'), dated February 8, 2000, in which the FTC notified us that they were
conducting an inquiry into our business practices to determine whether, in
collecting and maintaining information concerning Internet users, we have
engaged in unfair or deceptive practices. In January 2001, the Federal Trade
Commission closed its inquiry into our ad serving and data collection practices
without recommending any further action.
Our ad serving and data collection practices are also the subject of
inquiries by the attorneys general of several states. We are cooperating fully
with all such inquiries. We may receive additional regulatory inquiries and
intend to cooperate fully.
Beginning in May 2001, a number of substantially identical class action
complaints alleging violations of the federal securities laws were filed in the
United States District Court for the Southern District of New York naming as
defendants DoubleClick, certain of its officers and directors and certain
underwriters of DoubleClick's initial public offering. The complaints allege,
among other things, that certain alleged compensation arrangements entered into
by the underwriters (such as commission payments or stock stabilization
practices) were not properly disclosed in the registration statement for the
initial public offering. DoubleClick and its officers and directors are named in
the suit pursuant to Section 11 of the Securities Act of 1933. Additionally, a
single complaint includes a claim against DoubleClick and its officers and
directors under Section 10(b) of the Securities Exchange Act of 1934. Similar
complaints have been filed against more than 100 other issuers that had initial
public offerings since 1998. DoubleClick anticipates that the actions described
above, and any additional related complaints that may be filed, will be
consolidated into a single action. DoubleClick intends 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
DoubleClick's business, financial condition and results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We held our 2001 Annual Meeting of Stockholders on May 31, 2001. At that
meeting, our stockholders approved the following proposals: (i) election of
Thomas S. Murphy, Mark E. Nunnelly and Kevin J. O'Connor as Class I directors
whose term expires in 2004, and (ii) ratification of PricewaterhouseCoopers LLP
as our independent auditors for the fiscal year ending December 31, 2001.
There were 107,427,008 votes cast for and 738,206 votes withheld in
connection with the election of Thomas S. Murphy as a director. There were
107,619,275 votes cast for and 545,939 votes withheld in connection with the
election of Mark E. Nunnelly as a director. There were 94,416,958 votes cast for
and 13,748,256 votes withheld in connection with the election of Kevin J.
O'Connor as a director. The remainder of our board of directors remains as
previously reported. There were 107,842,997 votes cast for, 254,967 votes cast
against and 67,250 abstentions in connection with the ratification of
PricewaterhouseCoopers LLP as independent auditors.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) None.
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K, Item 5, on June 14, 2001, attaching
our merger agreement with MessageMedia, Inc. and attaching the press release
that announced the terms of our pending acquisition of MessageMedia, Inc.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 2001 DOUBLECLICK INC.
By: /s/ THOMAS ETERGINO
..................................
THOMAS ETERGINO
VICE PRESIDENT OF CORPORATE FINANCE
(CHIEF ACCOUNTING OFFICER AND
DULY AUTHORIZED OFFICER)
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