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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
 
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    
 
SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2002
 
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: 000-27907
 
 
NETRATINGS, INC.
(Exact name of Registrant as specified in its charter)
 
Delaware
  
77-0461990
(State or other jurisdiction
of incorporation of organization)
  
(I.R.S. Employer
Identification No.)
890 Hillview Court
Milpitas, California
  
95035
(Address of principal executive offices)
  
(Zip Code)
 
Registrant’s telephone number, including area code: (408) 957-0699
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes      No  ¨
 
Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date:
 
The number of shares of the Registrant’s Common Stock outstanding as of August 5, 2002, was 33,338,193.
 

Table of Contents
NETRATINGS, INC.
 
FORM 10-Q INDEX
 
Part I.
      
3
Item 1.
      
3
       
3
       
4
       
5
       
6
Item 2.
      
10
Item 3.
      
24
Part II.
      
25
Item 1.
      
25
Item 2.
      
26
Item 4.
      
26
Item 5.
      
26
Item 6.
      
27
       
28

2

Table of Contents
PART I.    FINANCIAL INFORMATION
 
ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
NETRATINGS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
 
    
June 30,
2002
     
December 31,
2001
  
    
(Unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
87,421
 
   
$
87,483
 
Short-term investments
   
 
167,085
 
   
 
235,080
 
Accounts receivable, net
   
 
9,505
 
   
 
4,371
 
Due from joint ventures
   
 
622
 
   
 
2,877
 
Prepaid expenses and other current assets
   
 
231
 
   
 
1,088
 
    
  
Total current assets
   
 
264,864
 
   
 
330,899
 
Property and equipment, net
   
 
3,692
 
   
 
2,402
 
Deferred acquisition costs
   
 
—  
 
   
 
3,565
 
Intangibles
   
 
24,203
 
   
 
—  
 
Goodwill
   
 
41,022
 
   
 
—  
 
Other assets
   
 
5,642
 
   
 
4,833
 
    
  
Total assets
   
$
339,423
 
   
$
341,699
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
5,617
 
   
$
2,834
 
Accrued liabilities
   
 
12,226
 
   
 
6,362
 
Deferred revenue
   
 
11,100
 
   
 
7,031
 
Capital lease obligations
   
 
48
 
   
 
89
 
Due to related parties
   
 
4,280
 
   
 
6,915
 
Restructuring liability
   
 
6,873
 
   
 
—  
 
    
  
Total current liabilities
   
 
40,144
 
   
 
23,231
 
Commitments and contingencies
                  
Stockholders’ equity:
                  
Common stock, par value $0.001:
                  
Authorized shares: 200,000
                  
Issued and outstanding shares: 33,294 at June 30, 2002 and 33,154 at December 31, 2001
   
 
33
 
   
 
33
 
Additional paid-in capital
   
 
417,785
 
   
 
399,836
 
Deferred compensation and other costs
   
 
(21,314
)
   
 
(25,939
)
Accumulated deficit
   
 
(76,595
)
   
 
(55,462
)
Treasury stock
   
 
(20,630
)
   
 
—  
 
    
  
Total stockholders’ equity
   
 
299,279
 
   
 
318,468
 
    
  
Total liabilities and stockholders’ equity
   
$
339,423
 
   
$
341,699
 
    
  
 
See accompanying notes to the condensed consolidated financial statements.

3

Table of Contents
NETRATINGS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
 
    
Three Months Ended
June 30,
     
Six Months Ended
June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenue
   
$
7,283
 
   
$
6,090
 
   
$
11,596
 
   
$
12,810
 
Cost of revenue
   
 
3,856
 
   
 
3,332
 
   
 
6,528
 
   
 
6,641
 
    
  
  
  
Gross profit
   
 
3,427
 
   
 
2,758
 
   
 
5,068
 
   
 
6,169
 
Operating expenses:
                                    
Research and development
   
 
1,999
 
   
 
1,867
 
   
 
3,399
 
   
 
3,936
 
Sales and marketing
   
 
3,598
 
   
 
4,245
 
   
 
6,371
 
   
 
8,591
 
General and administrative
   
 
1,862
 
   
 
1,557
 
   
 
3,054
 
   
 
3,026
 
Restructuring expenses
   
 
—  
 
   
 
—  
 
   
 
6,969
 
   
 
—  
 
Acquisition expenses
   
 
—  
 
   
 
—  
 
   
 
3,033
 
   
 
—  
 
Amortization of intangibles
   
 
610
 
   
 
—  
 
   
 
610
 
   
 
—  
 
Stock-based compensation
   
 
2,552
 
   
 
2,384
 
   
 
4,872
 
   
 
5,092
 
    
  
  
  
Total operating expenses
   
 
10,621
 
   
 
10,053
 
   
 
28,308
 
   
 
20,645
 
    
  
  
  
Loss from operations
   
 
(7,194
)
   
 
(7,295
)
   
 
(23,240
)
   
 
(14,476
)
Loss from joint ventures
   
 
(1,184
)
   
 
(1,498
)
   
 
(2,111
)
   
 
(2,670
)
Interest income, net
   
 
1,888
 
   
 
3,805
 
   
 
4,218
 
   
 
8,741
 
    
  
  
  
Net loss
   
$
(6,490
)
   
$
(4,988
)
   
$
(21,133
)
   
$
(8,405
)
    
  
  
  
Basic and diluted net loss per common share
   
$
(0.20
)
   
$
(0.15
)
   
$
(0.65
)
   
$
(0.26
)
    
  
  
  
Shares used to compute basic and diluted net loss per common share
   
 
32,635
 
   
 
32,799
 
   
 
32,765
 
   
 
32,695
 
 
See accompanying notes to the condensed consolidated financial statements.

4

Table of Contents
NETRATINGS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 
    
Six Months Ended
June 30,
  
    
2002
     
2001
  
OPERATING ACTIVITIES
                  
Net cash (used in) provided by operating activities
   
$
(3,892
)
   
$
1,361
 
    
  
INVESTING ACTIVITIES
                  
Acquisition of property and equipment
   
 
(130
)
   
 
(883
)
Purchase of short term investments
   
 
(240,851
)
   
 
(384,545
)
Sale of short term investments
   
 
304,948
 
   
 
452,741
 
Acquisitions, net of cash acquired and investments in joint ventures
   
 
(41,145
)
   
 
(1,602
)
    
  
Net cash provided by investing activities
   
 
22,822
 
   
 
65,711
 
    
  
FINANCING ACTIVITIES
                  
Proceeds from stock issuances
   
 
1,679
 
   
 
1,739
 
Stock repurchase
   
 
(20,630
)
   
 
—  
 
Payments on capital lease obligations and notes payable
   
 
(41
)
   
 
(67
)
    
  
Net cash (used in) provided by financing activities
   
 
(18,992
)
   
 
1,672
 
    
  
Net (decrease) increase in cash and cash equivalents
   
 
(62
)
   
 
68,744
 
    
  
Cash and cash equivalents at beginning of period
   
$
87,483
 
   
$
47,610
 
    
  
Cash and cash equivalents at end of period
   
$
87,421
 
   
$
116,354
 
    
  
Supplemental non-cash disclosures:
                  
Accrual of stock issuance costs
   
$
—  
 
   
$
2,958
 
    
  
Stock issued related to acquisitions
   
$
15,197
 
   
$
—