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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 September 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.  Yes  x  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 November 7, 2002, was 33,611,594.
 

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
Item 4.
     
24
 
Part II.
     
25
Item 1.
     
25
Item 2.
     
25
Item 6.
     
25
      
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)
 
    
September 30, 2002
     
December 31, 2001
  
    
(Unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
93,643
 
   
$
87,483
 
Short-term investments
   
 
156,790
 
   
 
235,080
 
Accounts receivable, net
   
 
10,625
 
   
 
4,371
 
Due from related parties
   
 
2,364
 
   
 
2,877
 
Prepaid expenses and other current assets
   
 
3,795
 
   
 
1,088
 
    
  
Total current assets
   
 
267,217
 
   
 
330,899
 
Property and equipment, net
   
 
4,525
 
   
 
2,402
 
Deferred acquisition costs
   
 
—  
 
   
 
3,565
 
Intangibles
   
 
25,797
 
   
 
—  
 
Goodwill
   
 
49,828
 
   
 
—  
 
Other assets
   
 
5,882
 
   
 
4,833
 
    
  
Total assets
   
$
353,249
 
   
$
341,699
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
3,723
 
   
$
2,834
 
Accrued liabilities
   
 
19,617
 
   
 
6,362
 
Deferred revenue
   
 
12,214
 
   
 
7,031
 
Capital lease obligations
   
 
—  
 
   
 
89
 
Due to related parties
   
 
5,300
 
   
 
6,915
 
Restructuring liability
   
 
8,217
 
   
 
—  
 
    
  
Total current liabilities
   
 
49,071
 
   
 
23,231
 
Minority Interest:
   
 
6,247
 
   
 
—  
 
Commitments and contingencies
                  
Stockholders’ equity:
                  
Common stock, par value $0.001:
                  
Authorized shares: 200,000
                  
Issued shares 33,608 and outstanding shares 32,108 at September 30, 2002; issued and outstanding shares 33,154 at December 31, 2001
   
 
34
 
   
 
33
 
Additional paid-in capital
   
 
420,129
 
   
 
399,836
 
Deferred compensation and other costs
   
 
(19,031
)
   
 
(25,939
)
Accumulated deficit
   
 
(82,571
)
   
 
(55,462
)
Treasury stock
   
 
(20,630
)
   
 
—  
 
    
  
Total stockholders’ equity
   
 
297,931
 
   
 
318,468
 
    
  
Total liabilities and stockholders’ equity
   
$
353,249
 
   
$
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
September 30,
     
Nine Months Ended
September 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenue
   
$
8,698
 
   
$
5,582
 
   
$
20,294
 
   
$
18,393
 
Cost of revenue
   
 
4,659
 
   
 
3,441
 
   
 
11,187
 
   
 
10,083
 
    
  
  
  
Gross profit
   
 
4,039
 
   
 
2,141
 
   
 
9,107
 
   
 
8,310
 
Operating expenses:
                                    
Research and development
   
 
2,727
 
   
 
1,723
 
   
 
6,126
 
   
 
5,659
 
Sales and marketing
   
 
4,081
 
   
 
3,358
 
   
 
10,452
 
   
 
11,950
 
General and administrative
   
 
1,583
 
   
 
1,486
 
   
 
4,637
 
   
 
4,512
 
Restructuring expenses
   
 
—  
 
   
 
—  
 
   
 
6,969
 
   
 
—  
 
Acquisition expenses
   
 
—  
 
   
 
—  
 
   
 
3,033
 
   
 
—  
 
Amortization of intangibles
   
 
806
 
   
 
—  
 
   
 
1,416
 
   
 
—  
 
Stock-based compensation
   
 
2,281
 
   
 
2,476
 
   
 
7,153
 
   
 
7,568
 
    
  
  
  
Total operating expenses
   
 
11,478
 
   
 
9,043
 
   
 
39,786
 
   
 
29,689
 
    
  
  
  
Loss from operations
   
 
(7,439
)
   
 
(6,902
)
   
 
(30,679
)
   
 
(21,379
)
Loss from joint ventures
   
 
(266
)
   
 
(1,665
)
   
 
(2,377
)
   
 
(4,334
)
Interest income, net
   
 
1,690
 
   
 
3,815
 
   
 
5,908
 
   
 
12,556
 
    
  
  
  
Net loss before minority interest
   
 
(6,015
)
   
 
(4,752
)
   
 
(27,148
)
   
 
(13,157
)
    
  
  
  
Minority interest
   
 
39
 
   
 
—  
 
   
 
39
 
   
 
—  
 
    
  
  
  
Net loss
   
$
(5,976
)
   
$
(4,752
)
   
$
(27,109
)
   
$
(13,157
)
    
  
  
  
Basic and diluted net loss per common share
   
$
(0.18
)
   
$
(0.14
)
   
$
(0.82
)
   
$
(0.40
)
    
  
  
  
Shares used to compute basic and diluted net loss per common share
   
 
33,468
 
   
 
32,972
 
   
 
33,022
 
   
 
32,784
 
 
See accompanying notes to the condensed consolidated financial statements.

4

Table of Contents
 
NETRATINGS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 
    
Nine Months Ended September 30,
  
    
2002
     
2001
  
OPERATING ACTIVITIES
                  
Net cash (used in) provided by operating activities
   
$
(5,373
)
   
$
1,445
 
    
  
INVESTING ACTIVITIES
                  
Acquisition of property and equipment
   
 
(1,941
)
   
 
(1,252
)
Purchase of short term investments
   
 
(320,546
)
   
 
(552,632
)
Sale of short term investments
   
 
394,373
 
   
 
581,719
 
Acquisitions, net of cash acquired and investments in joint ventures
   
 
(41,576
)
   
 
(1,755
)
    
  
Net cash provided by investing activities
   
 
30,310
 
   
 
26,080
 
    
  
FINANCING ACTIVITIES
                  
Proceeds from stock issuances
   
 
1,942
 
   
 
2,165
 
Stock repurchase
   
 
(20,630
)
   
 
  —  
 
Payments on capital lease obligations and notes payable
   
 
(89
)
   
 
(114
)
    
  
Net cash (used in) provided by financing activities
   
 
(18,777
)
   
 
2,051
 
    
  
Net increase in cash and cash equivalents
   
 
6,160
 
   
 
29,576
 
&