**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-K**

**ANNUALREPORT**

**PURSUANT TO SECTIONS 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

**(Mark One)**

**x**                               ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

**For the fiscal year ended December 31, 2006**

**OR**

**o**                                  TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Commission file number: 000-27907**

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**NETRATINGS, INC.**

(Exactname of Registrant as specified in its charter)

| **Delaware**                                                   |   | **77-0461990**       |
|----------------------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction                                  |   | (I.R.S. Employer     |
| of incorporation  of organization)                             |   | Identification  No.) |
| **120 West 45****th**** Street, 35****th**** Floor** |   | ** **           |
| **New  York, New York**                                        |   | **10036**            |
| (Address of  principal executive offices)                      |   | (Zip Code)           |

 

Registrant’s telephonenumber, including area code: **(212) 703-5900**

Securities registeredpursuant to Section 12(b) of the Act:

| Title of each class | ** ** | **Name of each exchange on which registered** |
|---------------------|------------|-----------------------------------------------|
| Common Stock        |       | Nasdaq Global Market                          |

 

Securities registered pursuant to Section 12(g) ofthe Act: **None**

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Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes o No x

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or 15(d) of the Act. Yes o No x

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to thebest of registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

| Large accelerated filer o | Accelerated  filer x | Non-accelerated  filer o |
|--------------------------------|---------------------------|-------------------------------|

 

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

Theaggregate market value of the common stock held by non-affiliates of theRegistrant, based on the closing price of the Registrant’s Common Stock asquoted on the Nasdaq Global Market on June 30, 2006, was $190,982,611.

Thenumber of shares of the Registrant’s Common Stock outstanding as of February 28,2007 was 36,092,266.

**DOCUMENTS INCORPORATED BY REFERENCE**

List hereunder the following documents ifincorporated by reference and the part of the Form 10-K into whichthe document is incorporated:

None.

 

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*Some of the statements contained in this Annual Reporton Form 10-K (this “Report”) are forward-looking statements,including but not limited to those specifically identified as such, thatinvolve risks and uncertainties. The statements contained in this Report thatare not purely historical are forward-looking statements within the meaning of Section 27Aof the Securities Act of 1933 and Section 21E of the Securities ExchangeAct of 1934, including, without limitation, statements regarding ourexpectations, beliefs, intentions or strategies regarding the future. Allforward-looking statements included in this Report are based on informationavailable to us on the date hereof, and we assume no obligation to update anysuch forward-looking statements. These statements are based on currentexpectations and assumptions and involve known and unknown risks, uncertaintiesand other factors, which may cause our actual results to differ materiallyfrom those implied by the forward-looking statements. Although we believe thatthe expectations reflected in the forward-looking statements are reasonable, wecannot guarantee future results, levels of activity, performance orachievements. Important factors that may cause actual results to differfrom expectations include those discussed elsewhere in this Report on Form 10-Kunder Item 1A, “Risk Factors.”*

**PART I**

**ITEM 1. BUSINESS**

**OVERVIEW**

We are a leading provider of Internet audiencemeasurement and analysis in the United States and around the world. All of ourproducts and services are designed to assist companies in making criticalbusiness decisions regarding their Internet strategies and initiatives.

Our primary products and services include NetView,MegaPanel, SiteCensus, VideoCensus, AdRelevance, @Plan and Homescan Online. Wealso offer custom and analytical services to help clients better utilize andleverage our products and services to meet their specific media and marketresearch goals and objectives. NetView, which is our original product, providesin-depth measurement of audience behavior for the World Wide Web and thedigital media universe, including proprietary channels, instant messaging,media players and other online applications. MegaPanel provides increasedbreadth and depth of Internet behavior and activity for the market researchindustry, including detailed e-commerce transaction information. SiteCensusoffers extensive Web analytical services based on a Web site’s actual trafficflows and visitor behavior. VideoCensus, which we recently launched, providesinsight into video streams consumed online. AdRelevance offers comprehensiveand accurate information on online advertising expenditures, including where,when, how and how much companies are advertising online. @Plan is a leadingresource for demographic, lifestyle and product preferences to guideadvertisers, agencies, Web publishers and others in their online marketing andmedia planning strategies. Homescan Online, which is a joint product withACNielsen Corporation, combines ACNielsen’s offline consumer retail purchasingdata with our in-depth Internet audience measurement data. Our custom andanalytical services offer customized research and advisory services fromexperienced industry experts.

Our products and services are currently sold in theUnited States and in numerous countries throughout Europe, Asia Pacific andLatin America. In France, Japan and Brazil, we have partnered with leadinglocal market research and information services companies to market and sellsome of our products and services. We have a highly diversified and globalclient base, including large and small companies in the media, technology,advertising, financial services, consumer products, retail and travelindustries. As of December 31, 2006, we had 1,851 clients.

In 1998 and 1999, weformed strategic relationships with Nielsen Media Research, the leading sourceof television audience measurement and related services in the United States,and ACNielsen, a leading global provider of market research information andanalysis. We believe that our strategic relationships with Nielsen MediaResearch and ACNielsen, both of which are subsidiaries of The Nielsen Company 

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B.V.,provide us with a unique opportunity to leverage their brands, expertise andindustry relationships to facilitate the rapid acceptance and deployment of ourdiverse portfolio of products and services.

***Recent Developments—Merger with Nielsen Media Research***

The Nielsen Company B.V.,through its subsidiaries, owned approximately 60% of our outstanding commonstock as of February 28, 2007. On February 5, 2007, we, Nielsen MediaResearch and NTRT Acquisition Sub, Inc., a newly-formed and wholly-ownedsubsidiary of Nielsen Media Research, entered into an Agreement and Plan ofMerger, under which NTRT Acquisition Sub will merge with and into us, whichwill result in The Nielsen Company and its subsidiaries owning all of ourcommon stock. Upon completion of the merger, holders of our common stock (otherthan Nielsen Media Research, any other direct or indirect subsidiary of TheNielsen Company and any stockholders who perfect their appraisal rights underDelaware law) will have the right to receive $21.00 in cash, without interest,for each share of our common stock held immediately prior to completion of themerger. For more information regarding the proposed transaction, please see thepreliminary proxy statement filed by us with the SEC, and the relatedSchedule 13E-3 filed with the SEC by us, The Nielsen Company,Nielsen Media Research, ACNielsen, NTRT Acquisition Sub and Valcon AcquisitionHolding (Luxembourg) S.a.r.l. The Nielsen Company is a wholly-owned indirectsubsidiary of Valcon Acquisition Holding (Luxembourg) S.a.r.l.

**PRODUCTS ANDSERVICES**

Since our founding untilthe second quarter of 2002, we primarily focused on selling our NetViewservice. Commencing in the second quarter of 2002, as a result of acquisitionsand internal product development, we began to offer additional products andservices designed to meet specific Internet media and market research needs. Theseproducts and services allow us to offer companies much more detailed andcomplex solutions and information, and to do so in a more timely manner. Inaddition, the increased amount of data that we collect enables us to expand thespecialized consulting and analytical services that companies are increasinglyseeking as Internet usage and commerce continue to grow around the world. Webelieve that our comprehensive portfolio of products and services, which areall sold under the Nielsen//NetRatings brand, leaves us well positioned tobecome the standard for measuring the size, profile, activity and behavior ofInternet users around the world.

***NetView***

Our NetView service, which includes syndicated andcustom reports, provides detailed Internet audience information collected fromour high-quality, representative panels of computer and Internet users. Wecurrently operate NetView panels in ten locations around the world and track alarge majority of global online activity. In addition to “at-home” panels,which measure Internet activity from the home computer, we also operate “at-work”panels, which collect data on Internet usage at the workplace, and “combo-panels,”which measure both home and work activity and allow us to calculate theaudience duplication to accurately report the true combined audience.

In order to obtain a representative sample of thetotal Internet user population, our NetView panels are constructed using aprocess called random digit dialing, or RDD, which involves recruiting panelmembers by calling randomly selected telephone numbers. RDD is the cornerstoneof the Nielsen methodology, which has been successfully established as thecurrency for television audience measurement. Eligible households, namely thosewith a PC and Internet access, are recruited to participate in the panel. Thosethat agree to participate are mailed a membership packet that includes trackingsoftware and installation instructions and are given a small incentive fortheir participation. Once installed on a panelist’s computer, our trackingsoftware requires virtually no panelist intervention, and software updates areautomatic. All panelist data is automatically encrypted prior to transmissionto help ensure the privacy of panelist data. In certain international markets,we supplement our NetView panels 

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with panelists recruitedthrough various online methods, including online surveys and sweepstakesoffers, in order to obtain an even deeper understanding of Internet audiencebehavior and use.

In connection with our panel recruitment process, eachpanelist is required to fill out a detailed questionnaire, providing backgrounddemographic information including age, gender, household income, geographiclocation, level of education, size of household and job classification. Toassure the statistical quality of our NetView panels, enumeration studies areconducted to determine the total size and demographic makeup of the Internetuser population and are used as the basis for ensuring that sample behaviorsare representative of the total audience population. In order to accuratelygauge the size and shape of the rapidly changing Internet user universe, weconduct our independent enumeration studies on a regular basis.

Our proprietary activity tracking and data collectiontechnology gathers comprehensive and detailed information regarding computerand Internet user behavior, including sites and pages visited, time spenton each site, advertising exposure and effectiveness and bandwidth usage data.In addition, the NetView service is designed to offer clients the most completeview of World Wide Web and digital media usage, including tracking of Webtraffic, AOL proprietary channels, instant messaging applications, mediaplayers, wireless content systems, Web phones, connected games, weatherapplications and shopping assistants. Our technology collects the same data inthe same way, regardless of whether the user is accessing the Internet via aPC, a Macintosh platform or other Java-enabled Internet access device.

NetView provides customerswith a variety of comprehensive weekly and monthly reports on computer andInternet usage behavior. Our reports can be modified by clients, enabling themto manipulate data easily to meet their specific information requirements. Oureasy-to-use interface provides immediate access to various levels of detailedinformation, allows users to create and save their own reports and enables “on-the-fly”custom queries on selected information.

***MegaPanel***

Our MegaPanel service is designed to address theexpanding need for accurate Internet market research data and intelligence. Thecore feature of our MegaPanel service is a very large panel of computer andInternet users, representing a broad cross-section of home, work anduniversity users. Because of the panel’s size and scope, our MegaPanel serviceallows us to provide increased breadth and depth of data, integration of onlineand offline datasets and more advanced custom reporting. Currently available inthe United States, Germany and France, MegaPanel delivers detailed informationthat can be used to understand in-depth consumer attitudes and behavior.Combined with comprehensive demographic and trend data, MegaPanel demonstrateshow people react and respond to companies’ products, services, brands andpromotions—both on and off the Internet. We believe that our MegaPanel servicecomplements our NetView service in assisting clients in integrating theInternet into their global marketing strategies.

Panelists for our MegaPanel service are recruitedthrough a variety of methods, including online survey and sweepstakes offers,as well as through partnerships with local market research providers. As withour NetView panels, our tracking software requires virtually no panelistintervention, and software updates are automatic. The information we collect,which is linked to demographic profiles of Internet households, is used toproduce comprehensive syndicated and custom reports regarding Internet behaviorand activity across the Internet. Our MegaPanel service is balanced with ourNetView panels to ensure that the MegaPanel is an accurate statisticalrepresentation of the Internet population.

Our MegaPanel service is able to provide clients withimportant analyses relating to smaller Web sites which may not be availablein NetView or our other products and services. In addition, the size of theMegaPanel allows us to offer survey capabilities to help clients betterunderstand consumer attitudes and behavior. By allowing clients to connectdirectly with visitors to their own Web site, as well as those of their 

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competitors, MegaPanelsurveys provide a unique and efficient way for clients to benchmark performanceusing survey data and behavioral data collected by our tracking software.By administering customized surveys, focusing, for example, on areas such asbrand awareness, online-offline consumption and customer satisfaction, we canprovide a robust understanding of the relationship between the online andoffline consumer as well as provide critical competitive intelligence.

The MegaPanelservice includes both syndicated and custom offerings. Our current offeringsinclude the following:

·       *MegaView Retail:*   Our retail service provides clientswith comprehensive insight into the retail e-commerce landscape. Clients canassess total traffic to top retail sites, sales conversion rates, number ofpurchases and average order sizes, as well as compare the success of customeracquisition, conversion and loyalty by site.

·       *MegaView Search:*   Our search product reports onbehavior across various search categories, including local, news and shopping.Clients can view search query volume by type, evaluate the contextualadvertising potential for search terms and gain a quantitative perspective ofbusiness opportunities at search sites.

·       *MegaView Travel:  *Our travel service provides in-depthinsight into the online travel market. Clients can assess the rate at whichtravelers are booking flights, rental cars, hotels and vacation packages forthe top online travel sites, offering companies unique insight into their ownperformance versus the industry and/or key competitors.

·       *MegaViewLocal:*   Our local market reporting provides in-depth rankingsof Web site performance at the local market level. A valuable tool for localpublishers and national publishers focusing on local marketing, the localmarket report provides site traffic rankings by Designated Market Area (DMA) aswell as demographic profiles and category rankings on a local market basis.

***SiteCensus***

In April 2003, we launched our SiteCensusservice, a census-based site measurement service designed to address theemerging business needs of media companies, Web publishers and other onlinecompanies looking for comprehensive data and research metrics about their ownWeb sites or networks. In December 2003, we acquired Red Sheriff, a globalprovider of various Web site measurement services. This acquisitionsignificantly expanded our SiteCensus business and our ability to offerSiteCensus in new global regions. We currently offer SiteCensus in over 20 countriesaround the world.

Panel-based research products, such as our NetViewservice, have historically been the standard by which demographics, frequencyand other measurements are used for the buying and selling of online media.SiteCensus is designed to complement panel-based research by measuring everyvisitor and providing a complete census count of page views. For Web siteswith smaller audience sizes, SiteCensus provides focused and detailed researchanalysis previously unavailable with panel-based research. For larger Websites, SiteCensus supplements panel-based reporting with different levels ofsite-centric analysis, offering clients further insight into their Webaudience.

The SiteCensus service is provided through use of apage-tagging system. When encoded in any Web site page or component of Website page (such as an advertisement), the tag provides an accurate anddirect count of every page view, visitor and click in real-time.Page-tagging allows a client to track their entire online audience, includingtraffic from wireless and hand-held devices, Internet appliances, shared homeand office computers and university PCs, as well as public terminals such aslibraries and Internet cafes. Data captured from the tags are warehoused,classified and statistically analyzed. A variety of comprehensive reports andmetrics are available to clients through a Web-based interface, which can becustomized to meet a client’s specific online objectives.

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In order to provide a more in-depth view of thevisitors to a Web site, SiteCensus allows for the integration of detaileddemographic data obtained through online surveys. The SiteCensus survey engineallows us to randomly survey a visitor to a Web site and incorporate theirsurvey responses into demographic composition reports of a Web site’s audience.Site panels are built by randomly selecting a sample of visitors to the clientWeb site, or groups of Web sites, for the purpose of delivering surveys. Thesurvey engine enforces a strict, random recruitment process to help ensure thatthe site panel is representative of the site’s audience.

Our SiteCensusservice is currently comprised of three core product offerings:

·       *Customer Intelligence:  *This census-based serviceprovides companies with the business critical information they need tounderstand the effectiveness of their Web sites, including unique users, page impressions,session duration and demographic profiling. This data is used by companies toassess site performance, usage trends, content and product placement, audiencecirculation, visitor loyalty, search engine performance and visitor behavior.The data is delivered via concisely constructed reporting modules so that eachimportant process can be researched independently and benchmarked internally.

·       *Market Intelligence:*   This service providescensus-based market rankings that provide insight into a company’s positioningwithin an industry and relative to its competitors. Market Intelligence alsoreports on the overall Internet audience behavior for a single company’s siteor network of sites. Market Intelligence enables advertisers and agencies toidentify the most effective sites for reaching primary and secondarydemographic targets, as well as the best groups of sites in order to optimizereach and frequency. The service also allows companies to identify their owndemographic weaknesses within a whole category or against an entire market.

·       *AdIntelligence:*   Thisservice provides census-based advertising measurement, thereby allowing onlineadvertisers to measure their online marketing activities. AdIntelligence, whichmeasures all types of online advertisements, enables companies to identify thebest performing advertising campaigns and delivery locations throughout amarketing plan’s execution. AdIntelligence also enables advertisers to conducteffective post-campaign analysis, including the measurement of impressions,clicks, campaign unique visitors and frequency. The AdIntelligence technologymay also be deployed across an enterprise advertising network to providethird-party ad delivery verification that can be used to report back toadvertisers*.*

***VideoCensus***

In the fourth quarter of 2006, we launched our VideoCensusservice in the United States, which provides detailed information on videostreams consumed online. With an ever increasing amount of video being viewedonline, understanding how many times a video is viewed and who is viewing suchvideos is becoming more and more critical to online publishers, advertisers andagencies. VideoCensus addresses this market need by delivering unbiased, thirdparty insight into the competitive audience usage of streaming media.

VideoCensus combines themetering technology used in our NetView and MegaPanel services with ourSiteCensus technology to address and harmonize the differences betweenpanel-based and server-based counts of streaming media consumption. VideoCensusworks by installing a piece of code on a Web site’s video player or in a videostream, which causes the viewer’s browser to notify or “ping” our servers withthe relevant details of the stream whenever any browser views a video on theWeb site. Our meter technology, which resides on the PCs of our panelists, seesthe ping, or URL request, and immediately recognizes, records and parses theURL, extracting the relevant information (including program title, programtype, publisher name and video section). Current metrics reported inVideoCensus include the projected number of households and at-work users whoviewed a video stream, projected number of video 

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streamsviewed, total count of actual streams and demographic information regardingthose who viewed the video streams. We expect to include additional metrics,such as the actual time spent viewing a video stream, summary metrics by timeof day and the program name and type, as we continue to develop and expand ourVideoCensus service in 2007.

***@Plan***

We offer Internet media planning products and servicesin the United States through our @Plan service, which we acquired in May 2002.The @Plan service offers advertisers, advertising agencies, Web publishers ande-commerce marketers detailed demographics, lifestyle, brand and productpreferences, and media consumption information to help them plan and implementsuccessful online marketing and media strategies. @Plan’s tools include @PlanAdvertising and @Plan eCommerce.

@Plan Advertising is a comprehensive advertisingdecision support and planning system providing deep lifestyle, brand andproduct preferences, as well as demographic profile information across a largenumber of advertising-supported Web sites. Internet advertisers and advertisingagencies can query the system on various targets, such as demographic and/orbuying behavior groups to better understand the most efficient and effectiveways to reach those groups through the Internet. The system also allows Webpublishers to position their sites effectively against competitive sites and toefficiently drive advertising revenue by demonstrating the value of the siteaudience to advertisers or marketing partners.

@Plan eCommerce builds onthe capabilities of @Plan Advertising with features and data specificallydesigned for online retailers and consumer brand marketers. Online retailersand consumer brand marketers utilize the system to understand and track theircompetitive strengths and weaknesses overall and against key market segments.Online retailers can also use this information to develop more effective andcost-efficient customer acquisition and retention strategies by understandingwhich Web sites deliver the highest concentration of their target audience. Byproviding both online and offline survey data, the @Plan eCommerce system alsoallows online retailers and consumer brand marketers to help maximizemulti-channel sales efforts by profiling online, catalog and in-store audiencesand understanding where they overlap, thereby enhancing their advertisingstrategy in both traditional and online markets.

***AdRelevance***

We offer advertising measurement products and servicesaround the world through our AdRelevance service, which we acquired in April 2002.We currently offer the service in sixteen markets outside the United States. Weexpect that we will continue to launch AdRelevance in additional internationalmarkets that are experiencing growth in online advertising.

AdRelevance tracks competitive online advertising andadvertiser data for many broadly defined categories including, but not limitedto, automotive, computer hardware, computer software, telecommunications,financial services, travel, retailing and Web media. The AdRelevance technologysystematically and continuously searches commercial Web sites and capturesdetailed data about advertising banners, promotions and rich media. AdRelevance’sintelligent agent technology sends out millions of probes a week to providein-depth advertising tracking information. Once captured, the data arewarehoused, classified and statistically analyzed.

By using the AdRelevancetechnology, our customers can query the AdRelevance database and generateWeb-based reports on demand. This enables customers to monitor competitors’marketing activities, plan more effective online advertising campaigns andevaluate campaigns in real-time. Customers can gain access to up-to-dateintelligence about their competitors’ online marketing communications programs,enabling them to quickly and easily compare and report information by a widerange of criteria including advertiser, product, message, type, industry,technology and creative content.

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***Homescan Online***

In November 2003, wejointly announced with ACNielsen the launch of Homescan Online, a productdesigned to improve the effectiveness of online marketing for the consumer packagedgoods (CPG) industry and Web publishers. ACNielsen’s Homescan consumer panelrecords the offline purchasing behavior of thousands of panelists usingACNielsen’s proprietary in-home UPC code scanners. Homescan Online combines theoffline and online data from thousands of members of ACNielsen’s Homescanconsumer panel who have also agreed to allow us to track their Internetactivity and behavior. As a result, Homescan Online integrates consumer retailpurchasing of thousands of CPG brands and online visitors to a vast array ofWeb sites, enabling CPG marketers to better understand where their consumersare going online and what effect their online marketing is having on offlineretail sales. The service also enables Web publishers to more effectively marketthemselves to the CPG industry by helping CPG marketers better target Web siteaudiences by their specific brand consumption.

***Custom and Analytical Services***

As we have expandedour product offerings to more completely address the media and market researchneeds of our customers, clients have increasingly relied on us to providesophisticated custom research and analytical services. These custom researchand analytics services are designed to help clients better utilize and leverageour services with their specific research goals and objectives. While all ofour syndicated services allow for custom applications, our investments inMegaPanel, SiteCensus and our survey capabilities have allowed for a new waveof custom opportunities in the past year. Examples of the types of customresearch and analytics projects that we have conducted in recent months includethe following:

·       *Competitive Dashboards:  *A leading multi-channelretailer contracted with us to integrate data from NetView, MegaPanel, surveysand custom analysis to create a quarterly competitive dashboard that comparestheir own customer satisfaction results with ten leading competitors. Theinformation is used to inform the strategic direction of the retailer’sonline business, and is relied on by the company’s executive management team.

·       *Post Campaign Sales Effectiveness:**  *Working with a leading publisher, weused SiteCensus technology to track an ad campaign for a larger brandmarketer. By linking the advertising exposure to the Homescan Online panelistswe were able to provide a measurement of the incremental volume and dollarsales generated by exposure to the online advertising campaign. Thisinformation allowed the advertiser to quantitatively understand the dollarreturn on its overall online marketing investment.

·       *BehavioralAnalysis for High Consideration Projects:  *On behalf of aleading automotive manufacturer, we surveyed a representative of our MegaPanelto identify those who recently purchased a new car, or that intended to do soshortly. We then provided a detailed analysis of the Web sites visited duringthe purchase consideration process to help the client understand where itshould place its online advertising, and the role that its own Web site plays.

**STRATEGICRELATIONSHIP WITH THE NIELSEN COMPANY B.V.**

The Nielsen Company B.V., through its subsidiaries,controls a majority of our outstanding voting stock and our Board of Directors.On February 5, 2007, we, Nielsen Media Research and NTRT AcquisitionSub, Inc., a newly-formed and wholly-owned subsidiary of Nielsen MediaResearch, entered into an Agreement and Plan of Merger, under which NTRTAcquisition Sub will merge with and into us, which will result in The NielsenCompany and its subsidiaries owning all of our common stock.

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The Nielsen Company is a global leader in marketresearch, providing measurement and analysis of marketplace dynamics, consumerbehavior and audience measurement. We believe that our strategic relationshipwith The Nielsen Company and its subsidiaries, particularly Nielsen MediaResearch and ACNielsen, provides us with a unique opportunity to leverage theirbrands, industry relationships and overall expertise in order to expand ourproducts and services around the globe. Since 1999, we have marketed ourservices under the Nielsen//NetRatings brand.

For over fifty years, Nielsen Media Research’s corebusiness has been to provide high-quality comprehensive audience viewinginformation on the television industry. The Nielsen ratings are vital totelevision program production, distribution and scheduling decision-making, andthe currency for transactions between buyers and sellers of televisionadvertising time. In October 1998, we formed a strategic relationship withNielsen Media Research to develop and market Internet audience measurementproducts and services in the United States and Canada using our technology withNielsen Media Research’s proprietary panel methodology. In March 1999, welaunched our NetView service, which constituted an Internet audience panelproduct based on the Nielsen Media Research audience sampling methodology.

Under our agreements with Nielsen Media Research,Nielsen Media Research provides for the development and maintenance of panelsin the United States that generate the data for our NetView service. We areresponsible for the management, support and ongoing development of the datacollection and reporting system. We pay Nielsen Media Research ongoing fees forthe costs of maintaining the NetView panels and costs associated with theexpansion of such panels. Nielsen Media Research also provides us with certainresearch services in connection with our @Plan service, including telephonerecruitment of survey respondents and the administration of online surveys. Inthe first quarter of 2004, we completed the re-location of our main data centerfacilities in San Jose, California to Nielsen Media Research’s technologycenter in Oldsmar, Florida, where Nielsen Media Research provides us withcertain technology-hosting services to support our mission critical computingplatforms, including server, network, storage and security management.

ACNielsen, which wasfounded over 75 years ago, is a global leader in providing businessinformation, analysis and insights to CPG companies, their brokers and retailorganizations. In September 1999, we established ACNielsen eRatings.com, ajoint venture with ACNielsen, to develop and maintain audience measurementpanels and to market our products and services in international markets. Fromthe formation of the joint venture until May 2002, we had a 19.9% votinginterest in the venture, and ACNielsen had an 80.1% voting interest in theventure. In May 2002, we acquired all of ACNielsen eRatings.com andentered into a services agreement with ACNielsen pursuant to which ACNielsenprovides us with certain back-office services for a period of up to five years.During 2006, we completed the process of transitioning these services out ofACNielsen in certain countries, although ACNielsen still provides theseservices in several international jurisdictions.

**SALES AND MARKETING**

As of December 31, 2006, we had 1,851 clients.Our global client base is a diverse group of large and small companies in themedia, technology, advertising, financial services, consumer products, retailand travel industries. The users of our products and services at our clientcompanies hold diverse positions, demonstrating the importance of online mediaand market research to a company’s overall strategy and development. Inaddition to marketing and business development executives, our users includechief executive officers and presidents, and operations, strategic planning andinformation technology executives. No client accounted for more than 10% of ourrevenues in 2006.

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We sell our products and services in the United Statesthrough a direct sales force. Our domestic sales representatives are located atour offices in New York, New York, Milpitas, California, San Francisco,California and Seattle, Washington, and we also maintain local representativesin various locations throughout the United States. Internationally, we sell ourproducts and services through a direct sales force, as well as through oursubsidiary and joint venture companies in their respective markets. Our salesrepresentatives receive a base salary and are eligible for commissions based onsales goals.

Our primary marketingobjectives are to cross-market new products and services to our global clientsand to leverage and build upon Nielsen//NetRatings’ brand awareness throughoutour target audiences. To achieve these goals, we engage in a number ofmarketing activities, including direct e-mail campaigns, conferencepresentations, industry tradeshow participation, webinars, involvementwith industry organizations such as the Interactive AdvertisingBureau, the Online Publishers Association**,**Shop.org, andthe Advertising Research Foundation, as well as aggressive public relations. Weprovide the media with timely insights regarding current events and identify emergingInternet trends, generating valuable press coverage. We maintain strongrelationships with key business and trade press including The Associated Press, Reuters, The WallStreet Journal, The New York Times, CNN, BusinessWeek, USA Today, San JoseMercury News, Hollywood Reporter, Chicago Tribune, Sports Business Journal, American Banker, Internet Retailer, Women’s Wear Dailyand many other media outlets. Our analysts are regularly featured ontelevision and radio broadcasts, including segments on CNBC, CNN and NPR.

**INTELLECTUALPROPERTY**

We regard the protection of our proprietary technologyand information as important to our future success and ability to competeeffectively in our markets. We rely on a combination of patent, copyright,trademark and trade secret laws, as well as confidentiality agreements andlicensing arrangements, to establish and protect our intellectual propertyrights. The steps we have taken or will take in the future to establish andprotect our intellectual property rights may not, however, be sufficientto protect our technology and information from infringement or misappropriationor to deter independent development of similar or superior technologies byothers. In addition, the laws of some foreign countries may protect our proprietaryrights to a greater or lesser extent as do the laws of the United States.

We seek to obtain the issuance of patents and theregistration of our trademarks and service marks in the United States and inselected other countries. We currently own six issued patents in the UnitedStates with regard to our Internet and/or computer use tracking and monitoringtechnology (U.S. Patent No. 5,675,510; U.S. Patent No. 6,115,680;U.S. Patent No. 5,796,952; U.S. Patent No. 6,138,155; U.S. Patent No. 6,643,696;and U.S. Patent No. 6,763,386). Patents for the technology covered bythese six patents have also been issued in various foreign countries, includingJapan, Canada, Australia, Israel, New Zealand, South Korea and Mexico. We alsohave other patents and pending patent applications which relate to ourproprietary technology, including pending patent applications for ourAdRelevance technology. In addition, we own an undivided fifty percentownership interest in U.S. Patent No. 6,108,637, which relates to themonitoring of computer uses, and the patents for this technology which havebeen issued in many other jurisdictions.

In the first half of 2005, we launched a program toenforce our intellectual property rights against various companies that competeagainst us in the Internet technology fields. As part of this program, weinitiated patent infringement lawsuits in 2005 and 2006 against a number ofcompanies and also entered into licensing discussions with a few othercompanies. In the fourth quarter of 2005, we settled one of the patentinfringement lawsuits we had filed, and in 2006 we settled four additionalpatent infringement lawsuits. Under each of these settlements, we have licensedcertain of our patents in exchange for license or royalty fees payable to us.We cannot be sure that we will prevail in any of our remaining litigations, andthese lawsuits could result in a finding that our patents are invalid anddivert resources from the operation of our business.

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Others may claim thatwe have misappropriated a trade secret or infringed a patent, copyright,trademark or other proprietary right belonging to them with respect to past,current or future technologies. In February 2006, WebSideStory filed apatent infringement lawsuit against us in the United States District Court forthe Southern District of California. While we believe this lawsuit is withoutmerit, defending patent infringement or other intellectual property cases,whether meritorious or not, could be time-consuming, result in additional expense,distract management from other tasks of operating the business andmay result in the loss of significant rights or require us to enter intoroyalty or licensing agreements. Royalty or licensing agreements might not beavailable on terms we find acceptable or at all. As a result, any such claimcould have a material adverse effect upon our business, results of operationsand financial condition.

**TECHNOLOGY ANDOPERATIONS**

Clients can access all of our primary products andservices via the Internet by using passwords specifically assigned to eachclient. Our services are available 24 hours a day and our proprietary datais updated regularly to provide clients with access to the most recent data.

In connection with our NetView and MegaPanel services,our panel-based data collection, retrieval and processing systems and softwarehave been designed utilizing well-known industry standards for hardware andsoftware data architecture and infrastructure. The architecture adheres tonumerous standard-programming languages, including hypertext mark-up language,or HTML, Java and C++, and network protocols, including hypertext transferprotocol or HTTP. In addition, we believe that our system architecture isflexible and powerful enough to allow for continued growth in our portfolio ofproducts and services.

Our SiteCensus service operates on an around-the-clockglobal infrastructure. The service’s Web site measurement tags measure a Website visitor’s experience and deliver the information back to our high capacitymeasurement collection network consisting of eleven fully redundant global datacenters. The SiteCensus measurement network currently captures in excess of 350gigabytes worth of new measurement information from over one billiontransactions on a daily basis. In addition, the SiteCensus technology supportsa variety of different software implementations of its measurement techniques,including pure Java, Java with CGI and CGI only.

Our hardware systems arehosted at three professionally managed, off-site computer centers in San Jose,California, Oldsmar, Florida and Paris, France. For our SiteCensus service, ourprimary research data center is located in Melbourne, Australia, along with tenother data centers worldwide. Backup procedures are built into the processingenvironment in order to reduce downtime in the event of outages or catastrophicoccurrences. Additionally, our data centers provide physical security, climatecontrol, 24 hour a day monitoring services and fire suppression systems tohelp ensure the security and continued operation of our technology.

**COMPETITION**

We believe that theprimary competitive factors determining success in our markets include:

·       theability to provide high-quality, accurate and reliable data regarding Internetaudience behavior and activity in a timely manner;

·       thebreadth and depth of the product and services offered and their flexibility andease of use;

·       theavailability of data across various geographic areas;

·       theability to offer high-quality analytical services based on the Internetaudience measurement information;

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·       theability to offer products and services that meet the changing needs of ourcustomers; and

·       theprices that are charged for the products and services, as well as the generaleconomic conditions.

We believe that we compete favorably with respect toeach of these factors.

We face competition in the United States and abroadfor each of our products and services. We face direct competition fromcompanies, such as comScore Networks, that provide panel-based Internetmeasurement services. We also directly compete with numerous providers ofsite-centric Web analytics solutions, including CoreMetrics, Omniture,WebTrends and WebSideStory. We compete less directly with the providers ofsyndicated and custom research on Internet behavior and commerce. Finally, wemay face increased competition from individual Web sites that develop anindependent method of measuring their own audience and from other companiesthat develop new or alternative audience measurement technologies.

We expect competition tointensify because of the business opportunities presented by the growth ofInternet usage and Internet commerce around the world. Competitionmay also intensify as a result of industry consolidation, because of technologicaladvancements in the way to measure Internet behavior and activity or becausesome of our competitors may be able to provide additional or complementaryservices. In addition, some of our current or future competitors may havelonger operating histories, larger customer bases and/or greater marketingresources than we have. Increased competition may result in reducedoperating margins, loss of market share and diminished value in our services,as well as different pricing, service or marketing decisions.

**EMPLOYEES**

As of December 31,2006, we had 397 full-time employees. Our employees in the United States arenot covered by a collective bargaining agreement. Outside of the United States,we are subject to extensive regulation with respect to our employees in variousjurisdictions. We have never experienced an employment-related work stoppage andconsider our employee relations to be good.

**AVAILABLEINFORMATION**

We make available on ourwebsite (http://www.netratings.com) under “About”_ “Investor Relations”_ “SECFilings”, free of charge, our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K andamendments to those reports as soon as reasonably practicable after weelectronically file or furnish such material with the Securities and ExchangeCommission.

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**ITEM1A. RISK FACTORS**

An investment in ourcompany involves a high degree of risk. You should carefully consider the risksbelow, together with the other information contained in this report, before youmake an investment decision with respect to our company. The risks describedbelow are not the only ones facing our company. Additional risks not presentlyknown to us or that we deem immaterial may also impair our businessoperations. Any of the following risks could (i) materially adverselyaffect our business, operating results and financial condition, (ii) causethe trading price of our common stock to decline and (iii) cause you tolose all or part of your investment.

**IF THE MERGER IS NOT COMPLETED, OUR STOCK PRICE MAY FALLAND THERE MAY BE A NEGATIVE IMPACT ON OUR ONGOING BUSINESS**

On February 5, 2007,our company, Nielsen Media Research and NTRT Acquisition Sub, Inc., awholly-owned subsidiary of Nielsen Media Research, entered into an Agreementand Plan of Merger, under which NTRT Acquisition Sub will merge with and intous, which will result in us becoming wholly-owned by The NielsenCompany and its subsidiaries. In the event that the merger is not completed forany reason, NetRatings stockholders will not receive any payment for theirshares in connection with the merger. Instead, we will remain a publicly held,majority-owned subsidiary of Nielsen Media Research and its affiliates, thecommon stock of NetRatings will continue to be listed and traded on the NASDAQGlobal Market and our stockholders will continue to be subject to the samerisks and opportunities as they currently have with respect to their ownershipof our common stock. If the merger is not completed, there can be no assuranceas to the effects of these risks and opportunities on the future value of yourNetRatings common stock, including the risk that the market price of theNetRatings common stock may decline to the extent that the current market priceof the NetRatings common stock reflects a market assumption that the mergerwill be completed or for other reasons. If the merger agreement is not adoptedby our stockholders in the required manner, or the merger is not completed forany other reason, there can be no assurance that any other transactionacceptable to NetRatings will be offered, whether by Nielsen MediaResearch or another person, or even if offered by another person, thatNielsen Media Research, as a majority stockholder of NetRatings, would supportit. For more information regarding the merger, including the closing conditionsfor the merger, please see the preliminary proxy statement filed by us with theSEC on February 28, 2007.

**THEAGREEMENT AND PLAN OF MERGER RESTRICTS OUR ABILITY TO TAKE CERTAIN ACTIONSPENDING THE CLOSING OF THE MERGER**

In the Agreement and Planof Merger signed by us on February 5, 2007, we have agreed that, except asagreed to by Nielsen Media Research and subject to certain exceptions, we willnot take certain actions pending the closing of the merger. Our inability totake certain actions pending the merger that our management may deem desirablecould have a negative impact on our business or the future prospects for ourcompany. For more information regarding the merger, including the limitationson our ability to operate pending the merger, please see the preliminary proxystatement filed by us with the SEC on February 28, 2007.

**WE MAY BEUNABLE TO SUSTAIN PROFITABILITY**

We incurred net losses of$25.1 million for the year ended December 31, 2003, $17.4 million forthe year ended December 31, 2004 and $8.4 million for the year ended December 31,2005. For the year ended December 31, 2006, we recorded net income of $2.8million. As of December 31, 2006, our accumulated deficit was $142.5million. We intend to continue to incur significant expenditures as our companygrows and as we expand our portfolio of products and services. As a result, wewill need to generate significant additional revenue to maintain profitability.We may not be able to achieve significant revenue growth in the future.Our operating results for future periods are subject to numerous uncertaintiesand we may not achieve sufficient revenue to sustain profitability.

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**WEHAVE A LIMITED OPERATING HISTORY IN THE EVOLVING MARKET FOR INTERNET AUDIENCEMEASUREMENT AND ANALYSIS**

Wewere incorporated in 1997, did not start generating revenue until 1998 andintroduced our NetView service in 1999. Many of our other products and serviceswere first offered by us during the last few years. Accordingly, we are stillin the early stages of development and have only a limited operating historyupon which to evaluate our business. One should evaluate our likelihood offinancial and operational success in light of the risks, uncertainties, expenses,delays and difficulties associated with an early-stage business in an evolvingmarket, some of which may be beyond our control, including:

·       therisk that a competing company’s Internet audience measurement service willbecome the accepted standard in the marketplace;

·       theextent of the global growth in the Internet media research and market researchmarkets;

·       thepotential inability to successfully manage any significant growth wemay achieve in the future;

·       thepotential inability to successfully integrate any acquired business, technologyor service; and

·       therisks associated with operating a business in numerous international markets.

**IFOUR NEW PRODUCTS OR SERVICES DO NOT GENERATE THE REVENUES THAT WE ANTICIPATE,OUR FINANCIAL RESULTS WILL SUFFER**

During the past few years,we launched a number of new products and services that we believe will generateinterest in the marketplace and result in increased revenues in the comingyears. Our financial results in the future will depend in part on the successof these new product initiatives and our ability to generate meaningfulrevenues from them. If we fail in our efforts to market and sell these newproducts and services, our financial results will be negatively affected.Furthermore, we believe that our new products and services fill gaps in ourproduct portfolio and that the introduction of new products will not result indecreased sales of our existing products. If we are mistaken in our view of themarketplace, and the introduction of these new products results in decreasedsales of our existing portfolio, then our financial results will also benegatively affected.

**OURQUARTERLY REVENUES MAY FLUCTUATE SIGNIFICANTLY AND BECAUSE OUR EXPENSELEVELS ARE BASED IN LARGE PART ON OUR ESTIMATES OF FUTURE REVENUES, ANUNEXPECTED SHORTFALL IN REVENUE WOULD SIGNIFICANTLY HARM OUR OPERATING RESULTS**

Due to the evolving natureof our business and the markets in which we compete, our future revenue isdifficult to forecast. Further, our expense levels are based largely on ourinvestment plans and estimates of future revenue. We may be unable toadjust our spending to compensate for an unexpected shortfall in revenue.Accordingly, any significant shortfall in revenue relative to our plannedexpenditures in a particular quarter would harm our results of operations andcould lead our stock price to fall sharply, particularly following quarters inwhich our operating results fail to meet expectations.

Factorsthat may cause fluctuations in our revenues or operating results on aquarterly basis include the following, some of which are beyond our control:

·       theamount and timing of operating costs and capital expenditures related to theexpansion of our business;

·       theamount and timing of costs related to changes in the size or composition of ourpanels, particularly as a result of turnover among panel members;

·       theimpact on our renewal rates caused by our customers’ budgetary constraints or aperceived lack of need for our services;

·       changesin demand for our products and services due to the announcement or introductionof new products and services or the cancellation of existing products andservices by us or our competitors;

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·       changesin the pricing of our products and services in light of the services andpricing offered by our competitors;

·       theimpact of possible acquisitions or equity investments both on our operationsand on our reported operating results due to associated accounting charges; and

·       technicaldifficulties or service interruptions that significantly harm our ability todeliver our products and services on schedule.

**WEHAVE LIMITED ABILITY TO FORECAST THE RATE AT WHICH SUBSCRIPTIONS FOR OURSERVICES MAY BE RENEWED, AND WE MAY NOT ACHIEVE SUFFICIENTLY-HIGHRENEWAL RATES TO BECOME PROFITABLE**

We derive a largepercentage of our revenue from annual subscriptions for our services and weexpect that subscription revenue will continue to account for a largepercentage of our revenue in the future. Any unexpectedly low renewal rates ora reduction in the number of subscription products and services that we areable to sell to existing customers would harm our operating results and couldprevent us from maintaining profitability. To date, renewals have been anessential element of our revenue growth. We cannot assure you that we will beable to achieve or sustain high renewal rates, particularly during an economicdownturn. Additionally, because many Internet-related businesses are still inthe early stages of development, consolidations in our customer base or thefailure of a significant number of our customers’ businesses could cause adecline in renewal rates for our products and services.

**IFTHE INTERNET ADVERTISING AND ELECTRONIC COMMERCE MARKETS DEVELOP SLOWER THAN WEEXPECT, OUR BUSINESS WILL SUFFER**

Our future success willdepend on the continued increase in the use of the Internet as an advertisingmedium, the proliferation of e-commerce and the use of the Internet aspart of multi-channel marketing strategies. These markets and marketingtechniques are fairly new and rapidly evolving, and it is not certain that thecurrent growth trends will continue throughout the world.

The adoption of Internetadvertising, particularly by entities that have historically relied ontraditional media for advertising, requires the acceptance of a new way ofconducting business. These companies may find Internet advertising to beless effective than traditional advertising for promoting their products andservices. They may also be unwilling to pay premium rates for advertisingthat is targeted at specific types of users based on demographic profiles orrecent Internet behavior. The Internet advertising and e-commerce marketsmay also be adversely affected by privacy issues surrounding the targetingof this type of advertising or the use of personal information. Providers ofgoods and services online continue to work toward the establishment of commercemodels that are cost effective and unique, and effectively deal with issuessuch as channel conflict and infrastructure costs. Growth in the use of theInternet for e-commerce may not continue at a rapid rate, or the Internetmay not be adopted as a medium of commerce by a broad base of customersworldwide. Because of the foregoing factors, among others, the market for Internetadvertising and e-commerce may not continue to grow at significant rates.If these markets fail to develop or develop slower than we expect, our businesswill suffer.

**THEMARKET FOR INTERNET AUDIENCE MEASUREMENT AND ANALYSIS IS HIGHLY COMPETITIVE,AND IF WE CANNOT COMPETE EFFECTIVELY, OUR REVENUES WILL DECLINE**

The market for Internetaudience measurement and analysis is rapidly evolving and highly competitive.We compete with a number of companies in the market for Internet audiencemeasurement services and analytical services, and we expect competition in thismarket to intensify in the future.

Webelieve that the principal competitive factors in our market are:

·       theability to provide high-quality, accurate and reliable data regarding Internetaudience behavior and activity in a timely manner;

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·       thebreadth and depth of the product and services offered and their flexibility andease of use;

·       theavailability of data across various geographic areas;

·       theability to offer high-quality analytical services based on the Internetaudience measurement information;

·       theability to offer products and services that meet the changing needs of ourcustomers; and

·       theprices that are charged for the products and services, as well as the generaleconomic conditions.

Someof our competitors may be able to:

·       devotegreater resources to marketing and promotional campaigns;

·       adoptmore aggressive pricing policies; or

·       devotemore resources to technology and systems development.

In light of these factors,we may be unable to compete successfully in our market.

**IF WEFAIL TO SUCCESSFULLY CLOSE AND INTEGRATE ACQUISITIONS, OUR BUSINESS WILL SUFFER**

We may acquire or makeinvestments in complementary businesses, technologies, services or products ifappropriate opportunities arise. Negotiating such acquisitions can bedifficult, time consuming and expensive and our ability to close suchtransactions may often be subject to approvals, such as governmentalregulation, which are beyond our control. Consequently, we can make no assurancesthat such acquisitions, once undertaken and announced, will close.

Further, the process ofintegrating any acquired business, technology, service or product into ourbusiness may result in unforeseen operating difficulties and expenditures.Integration of an acquired company may also consume significant managementtime and attention that would otherwise be available for the ongoingdevelopment of our business. Moreover, the anticipated benefits of anyacquisition may not be realized. We may be unable to identify,negotiate or finance future acquisitions or investments successfully, or tointegrate successfully any acquisitions with our current business. Futureacquisitions could result in potentially dilutive issuances of equitysecurities or the incurrence of debt, contingent liabilities or amortizationexpenses related to intangible assets, any of which could harm our business.

**THENIELSEN COMPANY B.V., THROUGH ITS WHOLLY-OWNED SUBSIDIARIES NIELSEN MEDIARESEARCH AND ACNIELSEN, CONTROLS A MAJORITY OF OUR OUTSTANDING STOCK AND ITSREPRESENTATIVES CONSTITUTE A MAJORITY OF OUR BOARD OF DIRECTORS**

The Nielsen Company B.V.,through its wholly-owned subsidiaries Nielsen Media Research and ACNielsen, hasa majority stock ownership position in NetRatings, which enables it to controlthe direction and policies of NetRatings, including the election of our boardof directors, amendment of our certificate of incorporation, and decisionsregarding mergers, acquisitions, consolidations and the sale of all or substantiallyall of our assets.

In addition, The NielsenCompany can control or influence the terms of our important commercialtransactions, including our strategic relationships with Nielsen Media Researchand ACNielsen. The Nielsen Company’s representatives on our board are expectedto recuse themselves from deliberations in which they have a conflict ofinterest. However, these directors may take actions that favor The NielsenCompany’s interests over the interests of other stockholders, as a result, forinstance, of conflicts of interest that are not apparent at the time of suchactions.

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**WE ARE DEPENDENT ONNIELSEN MEDIA RESEARCH AND ACNIELSEN FOR VARIOUS SERVICES RELATED TO OURDOMESTIC AND INTERNATIONAL OPERATIONS**

Our NetView Internetaudience measurement panel in the United States has been developed and ismaintained by Nielsen Media Research as part of our strategic relationshipwith that company. In addition, ACNielsen has granted us a license to useACNielsen’s sampling methodology and the “Nielsen” name outside North Americain the Internet audience measurement business. Accordingly, we expect that ourbusiness will be substantially dependent upon these arrangements for thecontinued maintenance of our international Internet audience measurement panelsand for other international business operations. Any failure on thepart of Nielsen Media Research to devote adequate resources to thedevelopment or maintenance of such panels, or any failure on the part ofNielsen Media Research, ACNielsen or our other business partners to maintainthe overall quality of these methodologies or to develop alternative samplingmethodologies, will harm our business. In addition, Nielsen Media Researchmay terminate its obligations with respect to Internet audiencemeasurement panels in the event it no longer holds at least 5% of ouroutstanding stock on a fully-diluted basis.

**OUR BRAND ISDEPENDENT ON THE REPUTATIONS OF THIRD PARTIES OVER WHICH WE HAVE NO CONTROL**

The strength of theNielsen//NetRatings brand is also closely dependent on the reputations ofNielsen Media Research, ACNielsen and other business partners and the strengthof their brands. Therefore, any negative publicity generated by Nielsen MediaResearch, ACNielsen or our other business partners, whether or not directlyrelated to any Nielsen//NetRatings branded products or services, as well as anyerosion of the strength of any of their brands, will adversely affect our ownbrand identity.

**WE MAY NOT BESUCCESSFUL IN THE DEVELOPMENT OR INTRODUCTION OF NEW PRODUCTS AND SERVICES TOKEEP UP WITH THE PROLIFERATION OF ALTERNATIVE INTERNET ACCESS DEVICES ANDTECHNOLOGIES RELATED TO THE EXPECTED CONVERGENCE OF THE INTERNET AND TELEVISION**

We believe that anincreasing proportion of Internet use will involve alternative Internet accessdevices such as Web-enabled phones, television set-top boxes and Internetenabled gaming consoles and that there will eventually be a convergence ofInternet content and television programming. Accordingly, in order to continueto provide information about audience behavior throughout all major segments ofthe Internet, we will be required to develop new products and services thataddress these evolving technologies. We may be unsuccessful in identifyingnew product and service opportunities or in developing or marketing newproducts and services in a timely or cost-effective manner. In addition,product innovations may not achieve the market penetration or pricestability necessary for profitability. Finally, we may not be successfulin adapting our data collection software to evolving types of Internet accessdevices or content. If we are unable to provide audience measurementinformation regarding any significant segments of Internet use, demand for ourproducts and services may suffer.

**THE AUDIENCEMEASUREMENT SERVICES OFFERED BY NIELSEN MEDIA RESEARCH MAY EVENTUALLY HAVEFEATURES THAT OVERLAP WITH FEATURES OF OUR INTERNET AUDIENCE MEASUREMENTSERVICES AS A RESULT OF CONVERGENCE OF TELEVISION AND THE INTERNET**

Nielsen Media Research’sprincipal business consists of providing television audience measurementservices based on audience panels that it develops independent of its strategicrelationship with us. If television and the Internet converge in the future asexpected, any Internet audience information that is reported by televisionaudience measurement services through Nielsen Media Research may overlapwith the audience information that is reported by the Nielsen//NetRatingsInternet audience measurement 

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services.In the event of such overlap, Nielsen Media Research’s services could begincompeting with our services for the same research budgets among customers inthe marketplace, and its offering of such services could conflict with itsobligation to develop and maintain our Internet audience panels.

**OUR COSTS TODEVELOP AND MAINTAIN ACCURATE INTERNET AUDIENCE MEASUREMENT PANELS, INCLUDINGPANELS FOR OUR MEGAPANEL SERVICE, ARE SIGNIFICANT AND MAY INCREASE**

We believe that thequality, size and scope of our panels are critical to the success of ourbusiness. To date, the expense of recruiting and operating our audience measurementpanels has made up a very significant portion of the cost of revenue reportedon our financial statements and, therefore, any increase in this expense willlikely result in a decrease in our gross margin. The costs associated withmaintaining the quality, size and scope are dependent on many factors some ofwhich are beyond our control, including the cooperation rate of potential panelmembers and turnover among existing panel members, and accordingly we cannotnecessarily control these costs to match increases or decreases in revenue. Tothe extent that such additional expenses are not accompanied by increasedrevenue, our results of operations will be harmed. Recruiting panelists for ourMegaPanel services has also required significant investment and there can be noassurance that we will be able to achieve or maintain panels of sufficient sizeto meet client demand. We have limited experience in developing Internetaudience measurement panels, and we could experience lower cooperation rates orhigher turnover rates in the future.

**OUR INTERNATIONALOPERATIONS POSE UNIQUE RISKS THAT MAY DIVERT OUR MANAGEMENT’S ATTENTIONAND RESOURCES**

As a result of our acquisitions in the past few years,we offer our products and services in numerous countries around the world.Operating in these international markets requires significant managementattention and resources. In addition, there can be no assurance of thecontinued growth of Internet usage and electronic commerce in internationalmarkets. The international markets for audience measurement services havehistorically been localized and difficult to penetrate, and the governmentalauthorities in each country have different views regarding the regulatoryoversight of the Internet. For example, the Chinese government has taken stepsduring the past year to restrict the content available to Web users in China,and this has caused us to forecast slower growth in our business there.

The success of ourinternational operations will depend on our ability to:

·       effectivelyselect the appropriate countries to serve;

·       recruitand maintain panels that are representative of a geographic area;

·       controlcosts and effectively manage foreign operations; and

·       effectivelydevelop, market, and sell new products and services in new, unfamiliar markets.

Even if we aresuccessful in managing our international operations, we will be subject to anumber of risks inherent in engaging in international operations, including:

·       changesin regulatory requirements;

·       deficienciesin the telecommunications infrastructure in some countries;

·       reducedprotection for intellectual property rights in some countries;

·       morerigorous levels of privacy protection in some countries;

·       potentiallyadverse tax consequences;

·       economicand political instability; and

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·       fluctuations in currencyexchange rates.

**OUR BUSINESS MAY BEHARMED IF WE SUPPLY INACCURATE INFORMATION TO OUR CUSTOMERS**

If we furnish inaccurateinformation to our customers, our brand may be harmed. The informationthat we collect and information in our databases may contain inaccuraciesthat our customers may not accept. Any dissatisfaction by our customerswith our measurement or collection methodologies or databases could have anadverse effect on our ability to attract new customers and retain existingcustomers and could ultimately harm our brand. Our customer contracts generallyprovide that each customer must indemnify us for any damages arising from themisuse of data, reports or analyses by the customer. However, we cannot be certainthat our contract provisions provide sufficient protection and, in any event,enforcing these protections could be very costly. Any liability that we incuror any harm to our brand that we suffer because of irregularities orinaccuracies in the data we supply to our customers could harm our business.

**CONCERN OVERSPYWARE COULD IMPAIR OUR ABILITY TO RECRUIT PANELISTS OR MAINTAIN PANELS OFSUFFICIENT SIZE TO MEET CLIENT DEMAND, WHICH IN TURN COULD MATERIALLY ADVERSELYAFFECT OUR ABILITY TO PROVIDE OUR PRODUCTS AND SERVICES**

Public concern has increased during the past few yearsregarding certain kinds of downloadable software known as “spyware” and “adware.”These types of programs are often installed on a computer without the consentof the user or without the user’s full understanding while navigating theInternet. Concern over spyware and adware might cause users to be less inclinedto download legitimate software from the Internet, including our proprietarymetering technology, which could make it difficult to recruit additionalpanelists or maintain panels of sufficient size to meet client demand.

Moreover, in response tospyware and adware concerns, numerous programs are available (many of which areavailable for free) that claim to identify and remove spyware and adware fromusers’ computers. While our technology is not spyware, some of theseanti-spyware programs have identified our software as spyware or as a potentialspyware application. We actively seek to persuade the authors of theseanti-spyware programs that our software should not be included on their listsof spyware applications or potential spyware applications. However, to theextent that we are not successful, or to the extent that new anti-spywareprograms classify our software as spyware or as a potential spywareapplication, our goodwill might be harmed and users of these programs mightuninstall our software. Loss of goodwill or a decrease in the size of ourpanels could increase the cost of recruiting panelists and materially adverselyaffect our ability to provide our products and services to our clients, whichin turn could cause our expected revenues to decline.

**TECHNOLOGICALCHANGES MAY RESULT IN WIDESPREAD BLOCKING OR ERASING OF COOKIES, WHICHCOULD REDUCE THE AMOUNT AND VALUE OF THE INFORMATION WE COLLECT AND ADVERSELYAFFECT OUR ABILITY TO PROVIDE OUR PRODUCTS AND SERVICES TO CLIENTS**

Our SiteCensus technology currently uses “cookies” and“action tags” to track the behavior of Internet users. Cookies are small filesof information placed on an Internet user’s computer to collect informationabout the user’s visits to a Web site. An action tag, also known as “webbeacon,” “pixel tag,” and “clear gif,” generally consists of a small string ofinvisible code that represents a graphic image request on a Web page thatcompanies place on their Web sites to allow them to analyze the general usagepatterns of visitors to their Web sites. Third-party software and our owntechnology and privacy policy make it easy for users to block or delete ourcookies. Software programs, sometimes marketed as adware 

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or spyware detectors,may block our cookies by default or prompt users to delete or block ourcookies. If a large percentage of users delete or block our cookies, thiscould, among other things, reduce the amount and value of the information wecollect, cause us to spend substantial money and time to change our technology,and adversely affect our ability to provide our SiteCensus service to ourclients.

Changes in Web browsersmay also encourage users to block our cookies or impair our ability to usecookies and action tags for data collection purposes. If technological changesrelating to browsers are implemented and we are unable to adapt our technologyand practices adequately in response to these changes, then the value of ourSiteCensus service could be substantially impaired.

**PRIVACY CONCERNSCOULD LEAD TO LEGISLATIVE, REGULATORY AND OTHER LIMITATIONS THAT COULD AFFECTOUR ABILITY TO COLLECT AND USE INFORMATION ABOUT INTERNET USERS, IMPAIR OUR ABILITYTO PROVIDE OUR PRODUCTS AND SERVICES TO CLIENTS AND EXPOSE US TO LIABILITY**

Privacy concerns couldlead to legislative, judicial and regulatory limitations on our ability tocollect, maintain and use information about Internet users both in the UnitedStates and abroad. Restrictions could be placed upon the collection,management, aggregation and use of information, which could require significantengineering time and resources. Several states have enacted legislationdesigned to protect Internet users’ privacy by prohibiting certain kinds ofdownloadable software defined as “spyware.” Similar legislation has beenintroduced in other states and the U.S. Congress, including the SafeguardAgainst Privacy Invasions Act in the House of Representatives and the SPYBLOCKAct in the Senate. In addition, the European Union has adopted a directiverequiring the disclosure of the use of cookies and instructions on theirremoval. It is possible that this legislation or future legislation intended toregulate spyware could affect our ability to collect information, which couldprevent us from operating or distributing some of our products and services orwhich could require us to change our business practices. In addition, failureto comply with the law and regulatory requirements may result in, amongother things, administrative enforcement actions and fines, class actionlawsuits and civil and criminal liability. The occurrence of one or more ofthese events could materially harm our business, results of operation andfinancial condition.

**WE MAY NOT BEABLE TO RECRUIT OR RETAIN QUALIFIED PERSONNEL**

Our future success dependsin large part on our ability to attract, retain and motivate highlyskilled employees in many locations around the world. Although we provide compensationpackages that include competitive salaries, bonus incentives and other employeebenefits, we may be unable to retain our key employees or to attract,assimilate and retain other highly qualified employees in the future. If we areunable to attract or retain key employees, our business would suffer.

**WE MAY BEUNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS**

We regard our intellectual property as critical to oursuccess. We rely on patent, trademark, copyright and trade secret laws to protectour proprietary rights, and we seek to obtain the issuances of patents for ourcore technology and the registration of our material trademarks and servicemarks in the United States and in selected other countries. Our patentapplications or trademark registrations may not be approved or, even ifapproved, could be challenged by others or invalidated through administrativeprocess or litigation.

In the first half of 2005, we decided to launch aprogram to enforce our intellectual property rights against various companiesthat compete against us in the Internet technology fields. As part of thisprogram, we initiated a series of patent infringement lawsuits in 2005 and2006. While certain of these lawsuits were settled in the fourth quarter of 2005and during 2006, a number of patent infringement 

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lawsuits that we initiatedare still pending. We cannot be sure that we will prevail in any of the pendinglitigations, or any new lawsuits that we initiate, and any such lawsuits couldresult in a finding that our patents are invalid and divert resources from theoperation of our business.

We also cannot assure youthat any other steps we take will be sufficient to protect our intellectualproperty from infringement or misappropriation. Moreover, effective intellectualproperty protections may not be available in every country in which weoffer our products and services to the extent these protections are availablein the United States.

**WE MAY FACEINTELLECTUAL PROPERTY INFRINGEMENT CLAIMS THAT WOULD BE COSTLY TO RESOLVE OR MAY REQUIREUS TO MAKE CHANGES TO OUR TECHNOLOGY OR BUSINESS**

Third parties may, from time to time, assert claimsthat we have infringed upon their proprietary rights or that our owntrademarks, patents or other intellectual property rights are invalid. In February 2006,WebSideStory, Inc. filed a patent infringement lawsuit against us in theUnited States District Court for the Southern District of California. While webelieve this lawsuit is without merit, we cannot assure you that we will prevailin this litigation.

Any claims of infringementand any resulting litigation, including the WebSideStory litigation, couldsubject us to significant liability for damages, restrict us from using ourtechnology or from operating our business generally or require us to makechanges to our technology. Any claims of this type, with or without merit,could be time-consuming to defend, result in additional expense and divertmanagement attention and resources. In addition, such claims could result inlimitations on our ability to use the intellectual property subject to theseclaims unless we are able to enter into royalty, licensing or other similararrangements with the third parties asserting these claims. Such agreements, ifrequired, may be unavailable on terms acceptable to us, or at all. If weare unable to enter into these types of agreements, we may be required toeither cease offering the subject product or change our technology underlyingthe applicable product. If a successful claim of infringement is broughtagainst us and we fail to develop non-infringing technology or to license theinfringed or similar technology on a timely basis, it could materiallyadversely affect our business, financial condition and results of operations.

**SYSTEM FAILURES ORDELAYS IN THE OPERATION OF OUR COMPUTER AND COMMUNICATIONS SYSTEMS MAY HARMOUR BUSINESS**

Our success depends on the efficient and uninterruptedoperation of our computer and communications systems. A failure of our networkor data gathering procedures could impede the processing of data, the provisionof our services and day-to-day management of our business and could result inthe corruption or loss of data.

The servers on which we collect and process our panelmembers’ data reside in Nielsen Media Research’s facilities in Oldsmar, Floridaand at IBM facilities in Paris, France. We currently have a back-up datacollection facility to provide redundant network capacity in the event of asystem failure. However, this back-up facility only has the capacity to collectour Internet audience data, not process it. Accordingly, our ability to reportInternet audience data in real time is dependent upon the efficient anduninterrupted operation of Nielsen Media Research’s and IBM’s computer andcommunications hardware and software systems. Despite any precautions wemay take, damage from fire, floods, hurricanes, power loss,telecommunications failures, computer viruses, break-ins and similar events atthese data centers could result in interruptions in the flow of data to ourservers. In addition, any failure by these data centers to provide our requireddata communications capacity could result in interruptions in our service. Inthe event that any of these data centers should discontinue its services to us,we would be required to transfer our data collection operations to analternative provider of server hosting services. Such a transfer could be 

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costly and result insignificant delays in our ability to deliver our products and services to ourcustomers, which could damage our reputation and harm our business.

We intend to develop otherback-up systems outside of our primary facilities. However, as we replicate oursystems at other locations, we will face a number of technical challenges,particularly with respect to database replications, which we may not beable to address successfully. Although we carry property and businessinterruption insurance, our coverage may not be adequate to compensate usfor all losses that may occur.

**ANYMISAPPROPRIATION OF PERSONAL INFORMATION ABOUT OUR PANELISTS THAT IS STORED ONOUR COMPUTERS COULD HARM OUR REPUTATION OR EXPOSE US TO CLAIMS ARISING FROMDAMAGES SUFFERED BY THOSE PANELISTS**

Personal informationregarding our panelists is included in the data that our software captures froma panelist’s Internet use. Our panel data are released to our clients only onan anonymous basis. However, if a person were to penetrate our network securityor otherwise misappropriate sensitive data about our panel members, ourreputation could be harmed or we could be subject to claims or litigationarising from damages suffered by panel members as a result of suchmisappropriation. Under California SB 1386, companies that maintain data onCalifornia residents are required to inform individuals of any securitybreaches that result in their personal information being stolen. Other stateshave passed similar legislation. In the event that any personal informationabout our panelists residing in California or any of these other states weremisappropriated, we could incur significant costs in complying with theirdisclosure requirements. In addition, any such disclosure could harm ourreputation and result in a higher rate of panel attrition.

**GOVERNMENTALREGULATION OF THE INTERNET MIGHT HARM OUR BUSINESS**

The applicability to theInternet of existing laws governing issues such as property ownership, libeland personal privacy is uncertain. In addition, governmental authorities invarious countries may seek to further regulate the Internet with respectto issues such as user privacy, pornography, acceptable content, advertising,e-commerce, taxation and the pricing, characteristics and quality of productsand services. For example, China has taken steps during the past few years torequire certain companies to restrict their search engine results and othercontent available to Web users in China. Therefore, any new legislationregulating the Internet could inhibit the growth of the Internet and decreasethe acceptance of the Internet as a communications and commercial medium, whichmight harm our business. Finally, the global nature of the Internet couldsubject us to the laws of a foreign jurisdiction in an unpredictable manner.

**LEGISLATIVE ACTIONSREGULATORY REQUIREMENTS APPLICABLE TO PUBLIC REGISTRANTS MAY CAUSE OURGENERAL AND ADMINISTRATIVE EXPENSES TO INCREASE AND MAY IMPACT OUR RESULTSOF OPERATIONS**

In order to comply withthe Sarbanes-Oxley Act of 2002, as well as changes to Nasdaq listing standardsand rules adopted by the Securities and Exchange Commission, we wererequired to enhance our internal controls and hire additional finance personneland to retain additional outside legal, accounting and advisory services, allof which have caused our general and administrative costs to increase. Forexample, we have hired outside consultants to assist us with our compliancewith Section 404 of the Sarbanes-Oxley Act of 2002, and this has resultedin additional general and administrative expenses during the past few years.Recent changes in the accounting rules, in particular the rules relatingto accounting for employee stock options, have increased the expenses that wereport under generally accepted accounting principles and adversely affect ouroperating results. Additional changes in the accounting rules could causeour financial results to be negatively impacted.

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**DELAWARE LAW ANDOUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE OR PREVENT APOTENTIAL TAKEOVER OF OUR COMPANY THAT MIGHT OTHERWISE RESULT IN OURSTOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES**

Provisions of Delaware law and our certificate ofincorporation and bylaws could make more difficult the acquisition of us bymeans of a tender offer, a proxy contest or otherwise, and the removal ofincumbent officers and directors. These provisions include:

·       Section 203of the Delaware General Corporation Law, which prohibits a merger with a15%-or-greater stockholder, such as a party that has completed a successfultender offer, until three years after that party became a 15%-or-greaterstockholder;

·       theauthorization in the certificate of incorporation of undesignated preferredstock, which could be issued without stockholder approval in a manner designedto prevent or discourage a takeover; and

·       provisions in our bylawseliminating stockholders’ rights to call a special meeting of stockholders andrequiring advance notice of any stockholder nominations of director candidatesor any stockholder proposal to be presented at an annual meeting, which couldmake it more difficult for stockholders to wage a proxy contest for control ofour board or to vote to repeal any of the anti-takeover provisions contained inour certificate of incorporation and bylaws.

**ITEM 1B.**       UNRESOLVEDSTAFF COMMENTS

None.

**ITEM 2.**                PROPERTIES

Our primary executive offices in the United States arelocated in New York, New York, where we lease approximately 12,000 square feet,and Milpitas, California, where we lease approximately 30,000 square feet.We also lease office space in Seattle, Washington and San Francisco,California.

Outside of the UnitedStates, we lease office space in various countries, including the UnitedKingdom, Italy, Spain, France, Germany, Australia, Japan, China and Hong Kong.

**ITEM 3.**                LEGALPROCEEDINGS

Information regarding legalproceedings is set forth in Note 10 of the Notes to Consolidated FinancialStatements under the heading “Litigation,” and such information is herebyincorporated by reference.

**ITEM 4.**                SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of securityholders during the fourth quarter of 2006.

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**PART II**

**ITEM 5.**                MARKETFOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

**Price Range ofCommon Stock**

Ourcommon stock is quoted on the Nasdaq Global Market under the symbol “NTRT”. Thefollowing table sets forth the range of high and low sales prices for eachperiod indicated. The prices appearing in the tables below reflect over thecounter market quotations, which reflect inter-dealer prices, without retailmark-up, mark-down or commission and may not necessarily represent actualtransactions. During the periods indicated, we have not effected any stocksplit.

| ** **     | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $        | 13.60      |     | $          | 11.26 |   | $ | 19.08 |   | $ | 14.70 |   |
| Second Quarter |       | 15.09    |       | 12.25    |       | 15.25 |   | 11.99 |   |
| Third Quarter  |       | 15.09    |       | 11.51    |       | 15.78 |   | 12.63 |   |
| Fourth Quarter |       | 18.52    |       | 14.19    |       | 15.50 |   | 12.10 |   |
|                |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

**Dividend Policy**

We have not declared orpaid any cash dividends on our common stock and presently intend to retain ourfuture earnings, if any, to fund the development and growth of our businessand, therefore, do not anticipate paying any cash dividends in the foreseeablefuture.

**Holders of CommonStock**

As of February 28,2007, there were approximately 57 stockholders of record of our common stock.Because many of our shares are held by brokers and other institutions on behalfof stockholders, we are unable to estimate the total number of stockholdersrepresented by these record holders.

**Equity CompensationPlan Information**

Informationfor our equity compensation plans in effect as of December 31, 2006, is asfollows:

| **Plan Category**                                        | ** ** | ** ** | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in column (a))** | ** ** |
|---------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                    | ** ** | **(a)**    | ** ** | **(b)**                                                                                                                                              | ** ** | **(c)**                                                                                                     | ** ** |
| Equity  compensation plans  approved by security holders      |       |       | 2,219,599  |                                                                                                                                                 |       |                                                                                                        | $          | 10.54                                                                                                                                                                                                            |       |   |   | 419,000 |   |   |
| Equity  compensation plans not  approved by security holders* |       |       | 5,146      |                                                                                                                                                 |       |                                                                                                        | $          | 106.83                                                                                                                                                                                                           |       |   |   | — |   |   |
| Total                                                         |       |       | 2,224,745  |                                                                                                                                                 |       |                                                                                                        | $          | 10.76                                                                                                                                                                                                            |       |   |   | 419,000 |   |   |

 

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*                    Assumedin connection with our acquisition of eRatings in May 2002.

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**Issuer Purchase of Equity Securities**

| **Period**                                          | ** ** | ** ** | ** ** | **(a) Total  Number of  Shares (or Units)  Purchased** | ** ** | **(b)  Average Price  Paid Per Share  (or Unit)** | ** ** | **(c) Total Number  of Shares (or Units)  Purchased as Part  of Publicly Announced  Plans or Programs(1)** | ** ** | **(d) Maximum Number (or  Approximate Dollar Value)  of Shares (or Units) that  May Yet Be Purchased  Under the Plans or  Programs(1)** | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| January 1, 2006 – January 31, 2006   |       |       | 717,600    |                                                                       |       |                                                                  | $          | 12.62                                                                                                                                                             |       |                                                                                                                                                                                                               |       | 717,600 |   |   |   | $ | 595,838 |   |   |
| February 1, 2006 – February 28, 2006 |       |       | 44,642     |                                                                       |       |                                                                  | $          | 13.35                                                                                                                                                             |       |                                                                                                                                                                                                               |       | 44,642 |   |   |   | — |   |   |
| Total                                               |       |       | 762,242    |                                                                       |       |                                                                  | $          | 12.66                                                                                                                                                             |       |                                                                                                                                                                                                               |       | 762,242 |   |   |   |   |   |   |

 

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(1)          OnNovember 3, 2005, we announced that our Board of Directors authorized astock repurchase program. Under this program, we were authorized to repurchaseup to $25 million of our common stock in the open market or in privatelynegotiated transactions. During the fourth quarter of 2005, we repurchased1,149,460 shares for an aggregate cost of $15.4 million. We completed the stockrepurchase program in February 2006.

**ITEM 6.**                SELECTEDFINANCIAL DATA

Thefollowing selected financial data should be read in conjunction with “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” andthe consolidated financial statements and the notes thereto included elsewhereherein:

| ** **                                                                                        | ** ** | **For the years ended December 31,**      | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                        | ** ** | **2006**                                                           | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                                                                        | ** ** | **(in thousands, except per share data)** | ** ** |
| **Consolidated Statements of  Operations Data:**                                                  |       |                                                               |       |   |   |   |   |   |   |   |   |
| Revenue                                                                                           |       | $                                                                  | 81,769     |   | $ | 68,017 |   | $ | 59,294 |   | $ | 41,432 |   | $ | 29,706 |   |
| Gross profit                                                                                      |       | 58,797                                                             |       | 45,215 |   | 36,237 |   | 20,956 |   | 13,255 |   |
| Total operating  expenses                                                                         |       | 60,166                                                             |       | 57,115 |   | 56,422 |   | 50,665 |   | 53,128 |   |
| Operating loss                                                                                    |       | (1,369                                                             | )          | (11,900 | ) | (20,185 | ) | (29,709 | ) | (39,873 | ) |
| Net income (loss)                                                                                 |       | 2,829                                                              |       | (8,395 | ) | (17,419 | ) | (25,135 | ) | (38,876 | ) |
| Basic net income  (loss) per common share                                                         |       | $                                                                  | 0.08       |   | $ | (0.23 | ) | $ | (0.50 | ) | $ | (0.74 | ) | $ | (1.17 | ) |
| Diluted net  income (loss) per common share                                                       |       | $                                                                  | 0.08       |   | $ | (0.23 | ) | $ | (0.50 | ) | $ | (0.74 | ) | $ | (1.17 | ) |
| Weighted average  shares outstanding used in computing basic net income (loss) per common share   |       | 34,940                                                             |       | 35,985 |   | 34,637 |   | 33,792 |   | 33,168 |   |
| Weighted average shares  outstanding used in computing diluted net income (loss) per common share |       | 35,732                                                             |       | 35,985 |   | 34,637 |   | 33,792 |   | 33,168 |   |

 

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| ** **                                        | ** ** | **December 31,**   | ** ** |
|---------------------------------------------------|------------|-------------------------|------------|
| ** **                                        | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| ** **                                        | ** ** | **(in thousands)** | ** ** |
| **Consolidated Balance Sheet  Data:**             |       |                    |       |   |   |   |   |   |   |   |   |
| Cash, cash  equivalents and marketable securities |       | $                       | 187,013    |   | $ | 180,252 |   | $ | 197,602 |   | $ | 210,039 |   | $ | 241,411 |   |
| Working capital                                   |       | 160,589                 |       | 136,935 |   | 131,478 |   | 144,566 |   | 213,362 |   |
| Total assets                                      |       | 315,473                 |       | 300,254 |   | 314,457 |   | 314,923 |   | 331,266 |   |
| Deferred revenue                                  |       | 17,632                  |       | 12,666 |   | 11,435 |   | 10,449 |   | 10,823 |   |
| Total stockholders’  equity                  |       | $                       | 272,211    |   | $ | 263,398 |   | $ | 280,438 |   | $ | 274,054 |   | $ | 288,666 |   |

 

In 2002, 2003 and 2005, we completed severalacquisitions which impacted the results of operations for those years andfuture years. Also in 2002, we incurred expenses related to a restructuring anda write-off of investments. In 2004, we received an insurance recovery andrenegotiated a real estate lease, which resulted in a release of restructuringexpenses. In 2005, we incurred restructuring charges primarily related to ourEuropean operations. In 2006, we incurred expenses in connection with the October 2006proposal from The Nielsen Company to acquire the outstanding publicly heldminority interest in our company. See Item 7, “Management’s Discussion and Analysisof Financial Condition and Results of Operations,” for additional information.

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**ITEM 7.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**Summary**

We are a leading provider of Internet audiencemeasurement and analysis in the United States and around the world. All of ourproducts and services are designed to assist companies in making criticalbusiness decisions regarding their Internet strategies and initiatives. We havea highly diversified and global client base, including large and smallcompanies in the media, technology, advertising, financial services, consumerproducts, retail and travel industries.

The Nielsen Company B.V., through its subsidiariesACNielsen Corporation and Nielsen Media Research, owned approximately 60% ofour outstanding common stock as of February 28, 2007. On February 5, 2007,we, Nielsen Media Research and NTRT Acquisition Sub, Inc., a newly-formedand wholly-owned subsidiary of Nielsen Media Research, entered into anAgreement and Plan of Merger, under which NTRT Acquisition Sub will merge withand into us, which will result in The Nielsen Company and its subsidiariesowning all of our common stock. Upon completion of the merger, holders of ourcommon stock (other than Nielsen Media Research, any other direct or indirectsubsidiary of The Nielsen Company and any stockholders who perfect theirappraisal rights under Delaware law) will have the right to receive $21.00 incash, without interest, for each share of our common stock held immediatelyprior to completion of the merger. For more information regarding the proposedtransaction, please see the preliminary proxy statement filed by us with theSEC, and the related Schedule 13E-3 filed with the SEC by us, TheNielsen Company, Nielsen Media Research, ACNielsen, NTRT Acquisition Sub andValcon Acquisition Holding (Luxembourg) S.a.r.l. The Nielsen Company is awholly-owned indirect subsidiary of Valcon Acquisition Holding (Luxembourg)S.a.r.l.

Our revenues for the year ended December 31, 2006totaled $81.8 million, compared to $68.0 million and $59.3 million for theyears ended December 31, 2005 and December 31, 2004, respectively. Asof December 31, 2006, we had 1,851 clients, compared to 1,615 clients asof December 31, 2005 and 1,429 clients as of December 31, 2004. Theincreases in our revenues and number of clients during the last few years arethe result of (i) acquisitions that we have completed, (ii) increasedlicensing revenue from our patent enforcement program and (iii) organicgrowth in our product portfolio. The revenue increase in 2006, however, waspartially offset by (i) the impact of fluctuating exchange rates relatingto our international operations and (ii) the non-renewal of a few largecontracts in the first half of 2006. We expect our revenues and client base tocontinue to grow as we expand our business in the U.S. and abroad, increaseprices for our products and services and cross-sell our products and servicesto our global client base.

As of December 31, 2006, our accumulated deficitwas $142.5 million. Since the beginning of 2002, we have made significantprogress in reducing our operating losses and net losses. Our operating lossdecreased from $39.9 million in 2002 to $29.7 million in 2003, $20.2 million in2004, $11.9 million in 2005 and our operating loss for 2006 was $1.4 million. Likewise,our net loss decreased from $38.9 million in 2002 to $25.1 million in 2003,$17.4 million in 2004 and $8.4 million in 2005. For 2006, we recorded netincome of $2.8 million. We expect that we will make further progress inimproving our operating and net income results in 2007.

As of December 31,2006, our cash, cash equivalents and marketable securities totaled $187.0million, which we believe is sufficient to meet our cash needs for at least thenext twelve months.

**Industry Trends**

The success of our business depends heavily on thecontinued expansion of the Internet for advertising, commerce andcommunications. Internet advertising, e-commerce and the number of people 

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using the Internet,particularly through the use of Internet broadband connections, have dramaticallyincreased in recent years, and we expect this growth to continue in upcomingyears around the world. These growth trends have made the Internet anincreasingly important component of companies’ overall business strategies. Asa result, companies conducting business online are increasingly seekinganalysis and insights to (i) define and reach their target audiences, (ii) measurethe effectiveness of their advertising and marketing strategies, (iii) benchmarktheir performance with their competitors and (iv) increase brand equityand commerce revenue.

Companies are alsoincreasingly recognizing that, compared with other media, the Internet allowsonline market participants to obtain a unique understanding of consumerbehavior. Unlike with other forms of advertising, including print, radio andtelevision, advertisers can (i) target advertising in an unprecedentedmanner, (ii) confirm whether consumers have actually viewed advertisements(and when) and (iii) decipher whether consumers have taken certain actions,whether completing a purchase or visiting a Web site, and understand exactlywhy. Because of the unique dynamics of the Internet, we expect that Internetadvertising and commerce will not only continue to grow in coming years, butthat Internet advertising and commerce will garner a larger percentage of totaladvertising and commerce dollars. We believe that this growth will require acommensurate increase in Internet media and market research, and that we areparticularly well-suited to address the global needs of online participants.

**Product Portfolio**

Our goal for the last few years has been to offer themost comprehensive global portfolio of Internet media and market researchproducts and services. In order to reach this goal, we have focused on both strategicacquisitions in the United States and abroad and investing in new products tomeet changing marketplace needs. As a result of these efforts, we currentlyoffer a wide range of products and services in the United States and in manycountries throughout Europe, Asia Pacific and Latin America. We believe thatthis product portfolio and breadth of coverage will enable us to continue toincrease our client base, increase our ability to sell multiple products toclients and increase the total sales to individual clients.

In 2002, we acquired AdRelevance, our onlineadvertising expenditure service, and @Plan, which provides demographic,lifestyle and product preference information. During 2002, we also madestrategic acquisitions designed to expand our NetView service around the world,which provides detailed panel-based Internet audience information. Theseincluded our acquisition of NetValue S.A., an international provider ofInternet audience measurement services, and the purchase from ACNielsen Corporationof the 80.1% interest in ACNielsen eRatings.com that we did not already own.Since the beginning of 2003, we acquired LemonAd (now branded AdRelevance), ourinternational online advertising measurement service, and Red Sheriff, a globalprovider of site-centric-based Internet audience measurement tools.

In conjunction with thesestrategic acquisitions, we have also devoted significant resources to internalproduct development. Our key new products and services include (i) MegaPanel,which includes our vertical offerings MegaView Financial, MegaView Retail,MegaView Search, MegaView Travel and MegaView Local, and (ii) VideoCensus,which tracks video streams consumed online. We believe these new products andservices, as well as additional MegaPanel offerings, will be important to ourfinancial performance in the future.

**Revenue Overview**

We generate revenues primarily from the sale of ourInternet media and market research products and services, which include bothsyndicated products and customized products. Syndicated products currentlyrepresent a significant majority of our total revenues, and our goal is forsyndicated products to continue to represent a significant majority of ourtotal revenues. We also generate revenues from the licensing of our patents.

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In France, Japan and Latin America, we offer many ofour services through strategic relationships with leading local market researchand information services companies. We currently own 56.8% of NetRatings Japan,our Japanese subsidiary, while the remaining ownership interest is owned byTransCosmos, Dentsu.com and other investors. We currently own 66% ofMediametrie NetRatings, our French subsidiary, and the remainder is owned byMediametrie. We have consolidated the operating results of NetRatings Japan andMediametrie NetRatings in our consolidated financial statements since therespective dates we acquired majority control of these companies. We currentlyown 49% of Ibope eRatings.com, our Latin American joint venture, and theremainder is owned by Ibope. NetRatings uses the equity method to account forits investment in Ibope eRatings.com. In each of these locations, revenue isallocated between NetRatings and the subsidiary or joint venture companydepending on the location of the customer and the location of the panel whosedata is used in the service. As a result of the Red Sheriff acquisition, wealso obtained a 50% ownership interest in an Italian company, Red SheriffS.r.l., which offers site-centric-based services in Italy. On February 25,2005, we purchased the remaining 50% of Red Sheriff S.r.l., and we subsequentlyrenamed the company NetRatings Italia S.r.l. As a result of this acquisition,we have consolidated the operating results of NetRatings Italia in ourconsolidated financial statements beginning in the second quarter of 2005.

Wehave experienced revenue growth in each of the years since we launched ourfirst product in 1999, and the revenue growth since 2002 is shown in the tablebelow:

| **Years ended December 31:** | ** ** | ** **              | ** ** | **Revenues** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|--------------|------------|
| ** **                                  | ** ** | **(in thousands)** | ** ** |
| 2002                                        |       |                    | $          | 29,706       |       |   |
| 2003                                        |       |                    | $          | 41,432       |       |   |
| 2004                                        |       |                    | $          | 59,294       |       |   |
| 2005                                        |       |                    | $          | 68,017       |       |   |
| 2006                                        |       |                    | $          | 81,769       |       |   |

 

We expect our 2007revenues to exceed our 2006 revenues, primarily as a result of sales from ournew products and services, price increases for our existing products andservices and the launch of our new and existing products and services in newinternational territories. In addition, in the first half of 2005 we decided tolaunch a program to enforce our intellectual property rights against variouscompanies that compete against us in the Internet technology fields. As aresult of this program, we will continue to recognize patent licensing revenuein 2007.

**Critical AccountingPolicies and Estimates**

Management’s Discussion and Analysis of FinancialCondition and Results of Operations discuss our financial statements, whichhave been prepared in accordance with accounting principles generally acceptedin the United States. The preparation of these financial statements requiresour management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. On an ongoing basis, ourmanagement evaluates its estimates and judgments, including those related torevenue recognition, collectibility of receivables, the valuation of fixedassets, goodwill, intangible assets, including depreciable lives assigned,marketable securities and income taxes, as well as the estimates and judgmentsrelating to the valuation of certain liabilities, including restructuringliabilities, service periods for stock awards with performance criteria, andcontingencies and litigation. Our management bases its estimates and judgmentsabout the carrying values of assets and liabilities on historical experienceand on various other factors that are believed to be reasonable under thecircumstances. Actual results may differ from these estimates underdifferent assumptions or conditions.

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Our management believesthe following critical accounting policies affect its more significantjudgments and estimates used in the preparation of its financial statements:

*Revenue Recognition*

We generate revenues primarily from the sale of ourInternet media and market research products and services, which include bothsyndicated products and customized products. Syndicated products currentlyrepresent 76% of our total revenues. We also generate revenues from thelicensing of our patents.

We recognize revenue in accordance with SEC StaffAccounting Bulletin (“SAB”) No. 101, “Revenue Recognition in FinancialStatements,” SAB No. 104, “Revenue Recognition” (“SAB 104”), and FASB’sEmerging Issues Task Force 00-21, “Revenue Arrangements withMultiple Deliverables” (“EITF 00-21”).

SAB 104 requires that four basic criteria must be metbefore revenue can be recognized: (1) persuasive evidence that anarrangement exists; (2) delivery has occurred or services rendered; (3) thefee is fixed and determinable; and (4) collectibility is reasonablyassured. Determination of collectibility is based on management’s judgmentregarding the likelihood that fees will be collected from specified customers.Management also considers the provisions of AICPA Technical PracticeAid 5100.39 in determining when multiple contracts executed within a shortperiod of time with a single customer should be accounted for as a singlearrangement. EITF 00-21 requires certain criteria to be met in orderto allocate revenue to the various elements or deliverables of the contract andrecognize revenue as each element or deliverable is met.

We sell a majority of our products and servicespursuant to one-year subscription agreements. We review all contracts todetermine if they meet the criteria of SAB 104, and recognize revenue fromthe sale of our subscription and custom products and services based upon fairvalue as the services are performed, which is generally ratably over the termof the contract(s). Invoiced amounts are recorded as deferred revenue untilearned. If a contract’s collectibility comes into question, revenue recognitionis suspended until collectibility is reasonably assured. This determination isbased on management’s judgment and could adversely affect both revenue anddeferred revenue.

Our patent licenseagreements are structured in a variety of ways, including as one time payments,short term payments and/or payments over an extended term. We recognize thisrevenue when the criteria specified in SAB 104 are met. If an arrangementincludes extended payment terms, we recognize revenue as the payments becomedue.

*Accounting forStock-Based Compensation*

Effective January 1, 2006, we measurecompensation expense for our stock-based compensation plans using the fairvalue method as defined in Statement of Financial Accounting Standards (“SFAS”)No. 123R. Under SFAS 123R, stock-based compensation expense is calculatedbased on the value of the award on the date of grant and is recognized asexpense on a straight line basis over the vesting period. Determining the fairvalue of stock-based awards on the grant date requires judgment, includingestimating the amount of stock-based awards that is expected to be forfeited.In addition, the vesting of certain grants of restricted stock to executives issubject to our achievement of certain financial performance objectives.Compensation expense related to these financial performance-based grants isrecorded when management assesses that we will achieve the financialperformance objectives. Determining the probability of meeting a financialperformance objective requires judgment, including forecasting the futurefinancial results of the company. To the extent actual results or updatedestimates differ from our prior estimates, such amounts will be recorded as acumulative adjustment in the period that any such estimates are revised. Ifactual results differ significantly from what we previously estimated, ourstock-based compensation expense and our results of operations could bematerially impacted.

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In November 2005, theFASB issued Staff Position No. FAS 123R-3, “Transition ElectionRelated to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP123R-3”). We have elected to adopt the alternative transition methodprovided in FSP 123R-3 for calculating the tax effects of stock-basedcompensation under SFAS 123R. The alternative transition method includessimplified methods to establish the beginning balance of the additionalpaid-in-capital pool (“APIC pool”) related to the tax effects of stock-basedcompensation, and for determining the subsequent impact on the APIC pool andconsolidated statements of cash flows of the tax effects of stock-basedcompensation awards that are outstanding upon adoption of SFAS 123R.

*Bad Debt*

We manage credit risk onaccounts receivable by performing ongoing credit evaluations of our customers,reviewing our accounts and contracts and by providing appropriate allowancesfor uncollectible amounts. We maintain allowances for doubtful accounts forestimated losses resulting from the inability of customers to makecontractually required payments. If the financial conditions of our customerswere to deteriorate, resulting in an impairment of their ability to makepayments, additional allowances may be required. Allowances are based onmanagement’s judgment which considers historical experience and specificknowledge of accounts that may not be collectible.

*Legal Contingencies*

We are currently involvedin certain legal proceedings as described in Note 10 of our consolidatedfinancial statements. We are required to assess the likelihood of any adverse judgmentsor outcomes to these matters as well as potential ranges of probable losses, inaccordance with SFAS No. 5, “Accountingfor Contingencies.” A determination of the amount of reserves required,if any, for these contingencies are made after careful analysis of eachindividual case. Losses are recognized for legal contingencies when both theprobability of occurrence and the loss can be reasonably estimated. It ispossible that future results of operations for any particular quarterly orannual period could be materially affected by changes in our assumptions or theeffectiveness of our strategy related to legal proceedings.

*Goodwill andIntangible Assets*

Our long lived assets include goodwill and otherintangible assets. In accordance with SFAS No. 142, “Goodwill and OtherIntangible Assets,” goodwill and indefinite-lived intangibles are not amortizedbut are reviewed at least annually for impairment. Our analysis is based on anindependent appraisal which provides a valuation of our company’s fair value,based on discounted cash flow and comparable company analyses. The cash flowanalysis requires significant judgment and estimates by management relating toassumptions about expected future operating performance and appropriatediscount rates. An impairment loss is recorded if the estimated future cashflows plus net proceeds expected from disposition of the asset (if any) areless than the carrying value of the asset. Our estimate of discounted cashflows may differ from actual cash flows due to, among other things,economic conditions, changes to our business model and changes in operatingperformance. An impairment loss recorded in the future, if any, could have amaterial adverse impact on our financial position or results of operations.

We performed our annualevaluation of goodwill and intangibles as of October 1, 2006 at which timeno impairment was indicated. There has been no indication of impairment since October 1,2006.

*Restructuring*

We have engaged in, andmay continue to engage in, restructuring actions and activities associatedwith productivity improvement initiatives and expense reduction measures. Theserestructuring actions and activities require us to make estimates related toseverance and other employee separation costs and the 

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abilityto generate sublease income. We accrue severance restructuring costs in aperiod provided the following criteria are met: (1) management commits toa plan of termination prior to the date of the financial statements andestablishes the benefit employees will receive; (2) the benefitarrangement is either communicated to employees or is part of apre-established or legally required benefit; (3) the plan of terminationspecifically identifies the number and job classifications of employees to beterminated; and (4) the plan of termination will be completed in areasonably short period of time such that significant changes are unlikely. Theamounts we have accrued represent our best estimate of the obligations weexpect to incur in connection with these actions, but could be subject tochange due to various factors including market conditions and the outcome ofnegotiations in certain international jurisdictions. Should the actual amountsdiffer from our estimates, the amount of the restructuring charges could bematerially impacted.

*Income Taxes*

Estimates and judgmentsare required in the calculation of certain tax liabilities and in thedetermination of the recoverability of deferred tax assets, which arise fromnet operating losses, tax carryforwards and temporary differences between thetax and financial statement recognition of revenue and expense. SFAS No. 109,“Accounting for Income Taxes,” also requires that the deferred tax assets bereduced by a valuation allowance if, based on the weight of available evidence,it is more likely than not that some portion or all of the recorded deferredtax assets will not be realized in future periods. In addition, the calculationof our tax liabilities involves dealing with uncertainties in the applicationof complex tax regulations in a multitude of domestic and internationaljurisdictions. If our estimate of tax liabilities proves to be less than theultimate assessment, a charge to expenses would result.

*Internal-UseSoftware*

Included in fixed assetsis the capitalized cost of internal-use software, including software used toupgrade and enhance our processes for our products. As required by Statement ofPosition 98-1, “Accounting for the Costs of Computer Software Developedor Obtained for Internal Use,” we capitalize costs incurred during theapplication development stage of internal-use software and amortize these costsover the estimated useful life, which we estimate to be three years. Costsincurred related to the design or maintenance of internal-use software areexpensed as incurred. Management uses its judgment to determine the point atwhich the application development stage for a given project commences.

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**Results ofOperations**

Thefollowing table sets forth for the years indicated certain financial data as apercentage of revenue:

| ** **                                                                     | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Revenue                                                                        |       |     | 100        | %        |       |     | 100        | % |   |   | 100 | % |   |
| Costs of revenue                                                               |       |     | 28         | %        |       |     | 34         | % |   |   | 39 | % |   |
| Gross profit                                                                   |       |     | 72         | %        |       |     | 66         | % |   |   | 61 | % |   |
| Operating  expenses:                                                           |       |     |       |     |       |     |       |   |   |   |   |   |   |
| Research and development                                                       |       |     | 16         | %        |       |     | 18         | % |   |   | 20 | % |   |
| Sales and marketing                                                            |       |     | 33         | %        |       |     | 40         | % |   |   | 38 | % |   |
| General and administrative                                                     |       |     | 21         | %        |       |     | 20         | % |   |   | 21 | % |   |
| Restructuring and other expenses                                               |       |     | —     |     |       |     | 2          | % |   |   | (1 | )% |   |
| Litigation settlement recovery                                                 |       |     | —     |     |       |     | —     |   |   |   | (3 | )% |   |
| Acquisition related expenses                                                   |       |     | 1          | %        |       |     | —     |   |   |   | — |   |   |
| Amortization of intangibles                                                    |       |     | 3          | %        |       |     | 4          | % |   |   | 6 | % |   |
| Deferred service cost                                                          |       |     | —     |     |       |     | —     |   |   |   | 13 | % |   |
| Total operating expenses                                                       |       |     | 74         | %        |       |     | 84         | % |   |   | 95 | % |   |
| Loss from  operations                                                          |       |     | (2         | )%       |       |     | (18        | )% |   |   | (34 | )% |   |
| Interest income,  net                                                          |       |     | 8          | %        |       |     | 7          | % |   |   | 5 | % |   |
| Minority interest  in net profit of consolidated subsidiaries                  |       |     | (1         | )%       |       |     | (1         | )% |   |   | — |   |   |
| Equity in  earnings of joint ventures                                          |       |     | —     |     |       |     | —     |   |   |   | — |   |   |
| Net income (loss)  before provision for income taxes                           |       |     | 5          | %        |       |     | (12        | )% |   |   | (29 | )% |   |
| Provision for  income taxes                                                    |       |     | (2         | )%       |       |     | —     |   |   |   | — |   |   |
| Net income (loss)  before cumulative effect of change in  accounting principle |       |     | 3          | %        |       |     | (12        | )% |   |   | (29 | )% |   |
| Cumulative effect  of change in accounting principle                           |       |     | —     |     |       |     | —     |   |   |   | — |   |   |
| Net income (loss)                                                              |       |     | 3          | %        |       |     | (12        | )% |   |   | (29 | )% |   |

 

Thefollowing table sets forth operating results for each of the four quartersended December 31, 2006 and 2005:

| ** **                           | ** ** | **2006**                                                                        | ** ** |
|--------------------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Q1**                                                                          | ** ** | **Q2** | ** ** | **Q3** | ** ** | **Q4** | ** ** |
| ** **                           | ** ** | **(in thousands, except per share data)  (unaudited)** | ** ** |
| Revenue                              |       | $                                                                               | 18,280     |   | $ | 19,934 |   | $ | 21,600 |   | $ | 21,955 |   |
| Gross profit                         |       | 12,648                                                                          |       | 14,216 |   | 15,926 |   | 16,007 |   |
| Income (loss)  from operations       |       | (1,484                                                                          | )          | 28 |   | 1,070 |   | (983 | ) |
| Net income (loss)                    |       | (255                                                                            | )          | 931 |   | 2,054 |   | 99 |   |
| Basic net income  (loss) per share   |       | $                                                                               | (0.01      | ) | $ | 0.03 |   | $ | 0.06 |   | $ | 0.00 |   |
| Diluted net income  (loss) per share |       | $                                                                               | (0.01      | ) | $ | 0.03 |   | $ | 0.06 |   | $ | 0.00 |   |

 

| ** **                  | ** ** | **2005**                                                                        | ** ** |
|-----------------------------|------------|---------------------------------------------------------------------------------|------------|
| ** **                  | ** ** | **Q1**                                                                          | ** ** | **Q2** | ** ** | **Q3** | ** ** | **Q4** | ** ** |
| ** **                  | ** ** | **(in thousands, except per share data)  (unaudited)** | ** ** |
| Revenue                     |       | $                                                                               | 16,433     |   | $ | 17,105 |   | $ | 16,796 |   | $ | 17,683 |   |
| Gross profit                |       | 10,865                                                                          |       | 11,037 |   | 11,228 |   | 12,085 |   |
| Loss from  operations       |       | (2,397                                                                          | )          | (3,108 | ) | (4,741 | ) | (1,654 | ) |
| Net loss                    |       | (1,629                                                                          | )          | (2,321 | ) | (3,732 | ) | (713 | ) |
| Basic net loss  per share   |       | $                                                                               | (0.05      | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.02 | ) |
| Diluted net loss per  share |       | $                                                                               | (0.05      | ) | $ | (0.06 | ) | $ | (0.10 | ) | $ | (0.02 | ) |

 

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**Year Ended December 31,2006 Compared to Year Ended December 31, 2005**

*Revenue.**  *We generate revenue primarily fromthe sale of our Internet audience measurement products and services. Wetypically sell our syndicated services pursuant to one-year subscriptionagreements. We also derive a portion of our revenue from our customizedproducts and services and from licensing our patents.

As of December 31, 2006, 1,851 customersworldwide subscribed to our products and services. As of December 31,2005, 1,615 customers worldwide subscribed to our products and services. Theincrease of 236 customers during 2006 is the result of organic growth in ourworldwide customer base in 2006, including the addition of 61 customers in thefourth quarter of 2006. We expect our global customer base to continue toincrease during 2007 as we market and sell our new products and services andexpand into new geographical markets.

Our global client renewal rate was 86% for the fourthquarter of 2006, an increase over the global client renewal rate of 82% for thefourth quarter of 2005. Our global average sales price was $43,000 for thefourth quarter of 2006, compared with $45,000 for the fourth quarter of 2005.The decrease in our average sales price is due to (i) an increase in salesof our SiteCensus service, which typically has a lower average sales price thanour other products and services, and (ii) the non-renewal of a few largecontracts in the first half of 2006. During the year ended December 31,2006, no customer accounted for more than 10% of our revenue.

Revenue increased 20% to $81.8 million for theyear ended December 31, 2006, compared to $68.0 million for the yearended December 31, 2005. The increase in revenue was primarily due to (i) increasedpatent licensing revenue in 2006, (ii) organic growth in sales of ourproduct portfolio and (iii) our consolidation of the results of operationsof NetRatings Italia S.r.l. which we acquired on February 25, 2005. Thisincrease was partially offset by the impact of fluctuating exchange ratesrelating to our international operations and the non-renewal of a few largecontracts in the first half of 2006.

*Costof Revenue.**  *Costof revenue consists primarily of expenses related to the recruitment,maintenance and support of our Internet audience measurement panels, which areexpensed as they are incurred. Cost of revenue also includes data collectioncosts for our products and services and operational costs related to datacenters. Accordingly, such expenses are not always matched with the revenue orsubscriptions generated in a given period and are higher in periods in which weare involved in significant panel development activities.

Cost of revenue increased 1% to $23.0 million, or28% of revenue, for the year ended December 31, 2006 from$22.8 million, or 34% of revenue, for year ended December 31, 2005.The increase in cost of revenue was primarily due to (i) depreciationexpense related to additional capital expenditures in our international datacenters and (ii) increased MegaPanel recruitment expenses. This waspartially offset by a reduction in our international data center costs relatedto lower hosting, maintenance and personnel costs. As a percentage of revenue,our cost of revenue decreased by 6% from 2005 to 2006. This decrease isprimarily due to (i) the patent licensing revenue that we recognized in2006, (ii) revenue growth from the launch of our new products in 2005 andprior years and (iii) reductions in international data center personnel.

*Researchand Development.**  *Researchand development expenses consist primarily of compensation and related costsfor personnel associated with our research and product development activities.These costs are expensed as incurred, except for costs related to internallydeveloped software, which are capitalized and subsequently depreciated when thedevelopment of the software is completed.

Research and development expenses increased 8% to$12.9 million, or 16% of revenue, for the year ended December 31,2006 from $12.0 million, or 18% of revenue, for the year ended December 31,2005. The increase was primarily due to additional (i) stock-basedcompensation expense, (ii) engineering 

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personnel and (iii) amortizationof capitalized software. This increase was partially offset by thecapitalization of engineering costs related to internally developed softwareprojects that began in the third quarter of 2005. For the year ended December 31,2006, we capitalized approximately $1.7 million of payroll and related costsrelated to internal-use software development. We began to amortize some ofthese software development costs in the third quarter of 2006.

*Salesand Marketing.**  *Salesand marketing expenses consist primarily of salaries, benefits and commissionsto our salespeople and analysts, as well as costs related to seminars,promotional materials, public relations, corporate marketing and other salesand marketing programs.

Sales and marketing expenses decreased 1% to$27.0 million, or 33% of revenue, for the year ended December 31,2006 from $27.1 million, or 40% of revenue, for the year ended December 31,2005. The decrease was primarily due to reductions in sales, marketing andanalytical personnel, which was partially offset by the increases related toadditional (i) stock-based compensation expense and (ii) salescommission and payroll related expense for 2006 sales.

*Generaland Administrative.**  *Generaland administrative expenses consist primarily of salaries and related costs forexecutive management, finance and accounting, human resources, legal,information technology and other administrative personnel. General andadministrative expenses also include professional fees, including professionalfees relating to our patent enforcement program, and other general corporateexpenses.

General and administrative expenses increased 27% to$17.1 million, or 21% of revenue, for the year ended December 31, 2006from $13.5 million, or 20% of revenue, for the year ended December 31,2005. The increase is primarily due to additional (i) legal expenserelated to our patent enforcement program and (ii) stock-based and bonuscompensation expense.

*RestructuringExpenses.**  *In thethird quarter of 2005, management approved and initiated a restructuring planprimarily intended to streamline our European operations. The restructuringplan included relocating engineering operations in Europe to the United Statesand the elimination of certain management positions. In connection with thisrestructuring plan, we recorded a charge of $1.7 million, or 2% of revenue, forseverance costs in 2005. There were no restructuring charges in 2006.

*AcquisitionRelated Expenses.*   On October 6, 2006, ourboard of directors received a proposal from The Nielsen Company B.V. to acquireour outstanding publicly held minority stake. A special committee of the boardof directors was appointed to evaluate the offer and, subsequently, engaged legaland financial advisors. The acquisition related expenses reflect the expensesincurred in response to the proposal by The Nielsen Company.

*Amortizationof Intangibles.*   Amortization of intangibleexpenses decreased 14% to $2.4 million, or 3% of revenue, for the year ended December 31,2006 from $2.8 million, or 4% of revenue, for the comparable period in 2005.The decrease was primarily due to certain assets reaching their finalamortization period during 2005 and 2006.

*InterestIncome, Net.**  *Interestincome, net, increased 42% to $6.4 million for the year ended December 31,2006, from $4.5 million for the year ended December 31, 2005. The increasein interest income was due to an overall higher interest yield on ourinvestments in 2006.

*MinorityInterest.**  *Minorityinterest was $(1.1) million and $(0.8) million for the years ended December 31,2006 and 2005, respectively. The minority interest for each of these periodsprimarily represents the minority share of the profits from MediametrieNetRatings, our French subsidiary, and NetRatings Japan, our Japanesesubsidiary.

*Equityin Earnings of Joint Ventures.**  *Equityin earnings from joint ventures was $0 and $0.1 million for the years ended December 31,2006 and 2005, respectively. The $56,000 recorded in the first quarter of 

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2005 represents our equityin the earnings of our joint venture in Italy, NetRatings Italia S.r.l. At theend of the first quarter in 2005, we purchased the remaining 50% interest inNetRatings Italia S.r.l., which resulted in its results of operations beingreported in our consolidated results rather than in equity in earnings of jointventures. Due to losses incurred by Ibope eRatings.com, we reduced our investmentin Ibope eRatings.com to zero in the first quarter of 2004. In addition, sincewe have no financial support commitments to Ibope eRatings.com, we do notpresently recognize our share of Ibope eRatings.com’s current net losses in ourconsolidated financial statements.

*Provisionfor Income Taxes.**  *Theprovision for income taxes totaled $1.4 million, or 2% of revenue, and $0.3million, or 1% of revenue, for the years ended December 31, 2006 and 2005,respectively. This expense primarily relates to income taxes related to certainof our foreign subsidiaries and the alternative minimum tax on our U.S.operations.

*OperatingLoss and Net Income.*   We recognized an operatingloss of $1.4 million for the year ended December 31, 2006 compared with anoperating loss of $11.9 million for the year ended December 31, 2005.We recognized net income of $2.8 million, or $0.08 per diluted common share,for the year ended December 31, 2006. For the year ended December 31,2005, we recorded a net loss of $8.4 million, or $0.23 per common share.

The improvements in operatingand net income results were primarily due to (i) increased revenueresulting from our patent enforcement program as well as organic growth in ourbusiness, (ii) decreased operating expenses and (iii) decreasedamortization of intangibles. These improvements were partially offset by (i) theamortization of stock-based compensation expense related to the granting ofrestricted stock in 2005 and 2006 and the adoption of SFAS 123R in thefirst quarter of 2006 and (ii) increased general and administrative costsprimarily related to legal expenses for our patent enforcement program. Netincome also increased due to an increase in interest income and the cumulativeeffect of the change in accounting principle related to our adoption of SFAS123R in the first quarter of 2006. The increase was partially offset by anincrease in provision for income taxes.

**Year Ended December 31,2005 Compared to Year Ended December 31, 2004**

*Revenue.**  *As of December 31, 2005, 1,615customers worldwide subscribed to our products and services. As of December 31,2004, 1,429 customers worldwide subscribed to our products and services. Theincrease of 186 customers during 2005 is the result of organic growth in ourworldwide customer base in 2005, including the addition of 41 customers in thefourth quarter of 2005.

Our global client renewal rate was 82% for the fourthquarter of 2005, an increase over the global client renewal rate of 80% for thefourth quarter of 2004. Our global average sales price was $45,000 for thefourth quarter of 2005, compared with $46,000 for the fourth quarter of 2004.The decrease in average sales price is due to an increase in sales of ourSiteCensus service, which typically have a lower average sales price than ourother products and services. During the year ended December 31, 2005, nocustomer accounted for more than 10% of our revenue.

Revenue increased 15% to $68.0 million for theyear ended December 31, 2005, compared to $59.3 million for the yearended December 31, 2004. The increase in revenue was primarily organicrevenue growth due to (i) new sales of our products and services, (ii) thelaunch of new product offerings (particularly in our MegaPanel service) and (iii) priceincreases for existing products and services. The revenue for 2005 also includesour consolidation of the results of operations of Red Sheriff S.r.l., which weacquired on February 25, 2005 (and subsequently renamed NetRatings ItaliaS.r.l.).

*Costof Revenue.**  *Costof revenue consists primarily of expenses related to the recruitment,maintenance and support of our Internet audience measurement panels, which areexpensed as they are incurred. Cost of revenue also includes data collectioncosts for our products and services and operational 

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costs related to datacenters. Accordingly, such expenses are not always matched with the revenue orsubscriptions generated in a given period and are higher in periods in which weare involved in significant panel development activities.

Cost of revenue decreased 1% to $22.8 million, or34% of revenue, for the year ended December 31, 2005 from$23.1 million, or 39% of revenue, for year ended December 31, 2004.The decrease in cost of revenue was primarily due to (i) reductions in ourinternational NetView and MegaPanel recruitment costs and (ii) theelimination of our Hispanic panel in the third quarter of 2004. The reductionsin costs were partially offset by (i) costs related to our data center inChina which began operations in the fourth quarter of 2004, (ii) additionaldata collection costs related to our SiteCensus product, (iii) additionalcosts related to expanding the scope of information available through ourMegaPanel product, (iv) additional costs related to certain customresearch projects and (v) stock-based compensation expense in 2005. As apercentage of revenue, our cost of revenue decreased by 5% from 2004 to 2005.This decrease is primarily due to revenue growth from the launch of our newproducts.

*Researchand Development.**  *Researchand development expenses consist primarily of compensation and related costsfor personnel associated with our research and product development activities.These costs are expensed as incurred, except for costs related to internallydeveloped software, which are capitalized and subsequently depreciated when thedevelopment of the software is completed.

Research and development expenses remained  unchanged at $12.0 million, or 18% ofrevenue, for the year ended December 31, 2005 from $12.0 million, or20% of revenue, for the year ended December 31, 2004. While there wasdecreased capitalization of engineering costs related to internally developedsoftware, this was offset by (i) the additional personnel required to workon the internally developed software and (ii) stock-based compensationexpense recorded in 2005. During the year ended December 31, 2005,capitalized engineering costs totaled $1.1 million.

*Salesand Marketing.**  *Salesand marketing expenses consist primarily of salaries, benefits and commissionsto our salespeople and analysts, as well as costs related to seminars,promotional materials, public relations, corporate marketing and other salesand marketing programs.

Sales and marketing expenses increased 19% to$27.1 million, or 40% of revenue, for the year ended December 31,2005 from $22.8 million, or 38% of revenue, for the year ended December 31,2004. The increase was primarily related to (i) an increase in sales andmarketing personnel due to the acquisition of the remaining shares ofNetRatings Italia S.r.l., (ii) additional personnel in our analytics areadue to the growth in the custom analytics market, (iii) additional productmarketing and sales personnel due to our product and business expansion and (iv) stock-basedcompensation expense.

*Generaland Administrative.**  *Generaland administrative expenses consist primarily of salaries and related costs forexecutive management, finance, accounting, human resources, legal, informationtechnology and other administrative personnel, in addition to professional feesand other general corporate expenses.

General and administrative expenses increased 8% to$13.5 million, or 20% of revenue, for the year ended December 31, 2005from $12.6 million, or 21% of revenue, for the year ended December 31,2004. The increase is primarily due to (i) legal expenses related to anumber of litigations and (ii) stock-based compensation expense in 2005. Thiswas partially offset by personnel reductions in the US and abroad.

*RestructuringExpenses.**  *In thethird quarter of 2005, management approved and initiated a restructuring planprimarily intended to streamline our European operations. The restructuringplan included relocating engineering operations in Europe to the United Statesand the elimination of certain management positions. In connection with thisrestructuring plan, we recorded a charge of $1.7 million, or 2% of revenue, forseverance costs in 2005. During the first quarter of 2004, we negotiated anamendment 

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to the lease for ouroffices in Milpitas, California which included a release from our obligationsfor the abandoned portion of the facility, resulting in a reversal ofrestructuring expense of $0.5 million.

*LitigationSettlement Recovery.**  *In2002, we expensed costs related to the settlement in 2002 of a patentinfringement lawsuit initiated against us by Jupiter Media Metrix, Inc. Inthe second quarter of 2004, we received, net of legal fees, $1.8 million fromour insurance company in reimbursement for these expenses. No similar amountswere recorded in 2005.

*Amortizationof Intangibles.*   Amortization of intangibleexpenses decreased 26% to $2.8 million, or 4% of revenue, for the year ended December 31,2005 from $3.7 million, or 6% of revenue, for the comparable period in 2004.The decrease was primarily due to certain assets reaching their finalamortization period during 2004 and 2005.

*DeferredService Cost.*   Deferred service cost in 2004represents amortization of deferred service costs related to warrants whichNielsen Media Research exercised in December 1999, and were fullyamortized by the end of 2004. Accordingly, no amortization costs related to thestock warrants exercised by Nielsen Media Research in December 1999 wererecorded in 2005.

*InterestIncome, Net.**  *Interestincome, net, increased 57% to $4.5 million for the year ended December 31,2005, from $2.9 million for the year ended December 31, 2004. The increasein interest income was due to an overall higher interest yield on ourinvestments in 2005.

*MinorityInterest.**  *Minorityinterest was $(0.8) million and $(0.2) million for the years ended December 31,2005 and 2004, respectively. The minority interest for each of these periodsprimarily represents the minority share of the profits from Mediametrie NetRatingsand NetRatings Japan. During the year ended December 31, 2004, there was aminority interest related to Red Sheriff. Red Sheriff had a negative equitybalance on the date we acquired majority control of Red Sheriff, and,therefore, we recognized 100% of the loss of Red Sheriff during the first halfof 2004.

*Equityin Earnings of Joint Ventures.**  *Equityin earnings from joint ventures was $0.1 million for each of the years ended December 31,2005 and 2004, primarily reflecting our equity in the earnings of our jointventure in Italy, NetRatings Italia S.r.l. At the end of the first quarter of2005, we purchased the remaining 50% interest in NetRatings Italia S.r.l.,which resulted in its results of operations being reported in our consolidatedresults rather than in equity in earnings of joint ventures. Due to lossesincurred by Ibope eRatings.com, we reduced our investment in Ibope eRatings.comto zero in the first quarter of 2004. In addition, since we have no financialsupport commitments to Ibope eRatings.com, we do not recognize our share ofIbope eRatings.com’s net losses in our consolidated financial statements.

*Provisionfor Income Taxes.**  *Theprovision for income taxes totaled $0.3 million, or 1% of revenue, for the yearended December 31, 2005. This expense relates to taxes that are owed as aresult of earnings from certain foreign subsidiaries. No amounts were recordedin prior periods as we incurred net taxable losses in the United States andforeign locations during such prior periods.

*OperatingLoss and Net Loss.*   Operating loss decreased 41%to $11.9 million, or 17% of revenue, for the year ended December 31,2005 from $20.2 million, or 33% of revenue, for the year ended December 31,2004. For the year ended December 31, 2005, our net loss decreased to$8.4 million, or $0.23 per share, on approximately 36.0 millionweighted average shares outstanding, as compared with a net loss of$17.4 million, or $0.50 per share, on approximately 34.6 millionweighted average shares outstanding, for the year ended December 31, 2004.

The decreases in operatingloss and net loss were primarily due to (i) increased revenue from organicgrowth and our consolidation of the results of operations of NetRatings ItaliaS.r.l. (which we acquired in February 2005), (ii) decreases incertain operating expenses and (iii) decreases in amortization ofstock-based compensation costs and amortization of intangibles. Theseimprovements to operating loss and net 

37

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losswere partially offset by (i) expenses resulting from additional personnelto support our global expansion, including SiteCensus and custom analytics workrelated to our MegaPanel product, (ii) increased expenses resulting fromour consolidation of the results of operations of NetRatings Italia S.r.l., (iii) therestructuring charge recorded in the third quarter of 2005 and (iv) theinsurance recovery recorded in 2004. Net loss was further reduced by anincrease in interest income, which was partially offset by (i) minorityinterest in net income of consolidated subsidiaries and (ii) the provisionfor income taxes.

**Inflation**

Our management currentlybelieves that inflation has not had a material impact on continuing operations.

**Liquidity andCapital Resources**

At December 31, 2006, our cash, cash equivalentsand marketable securities were $187.0 million, compared with$180.3 million at December 31, 2005.

Cash provided by operating activities was $14.7million for the year ended December 31, 2006, reflecting our net income of$2.8 million and non-cash expenses of $13.6 million, partially offset by networking capital changes of $1.7 million. The non-cash expenses included $5.1million for stock-based compensation, $4.3 million for depreciation andamortization of assets, $2.4 million for amortization of intangible assets,$1.1 million for minority interest in net profit of consolidated subsidiaries,$0.5 million related to utilization of net operating loss carryforwards ofcompanies that we acquired, $(0.3) million related to the cumulative effect ofthe change in accounting principle and $0.5 million in other non-cash charges.The change in working capital included an increase in accounts receivable of$9.3 million, primarily related to increased sales in the third and fourthquarters of 2006. We bill primarily on an annual, semi-annual or quarterlybasis and, therefore, the balance in accounts receivable at the end of 2006 wouldinclude billings related to these increased sales. Cash used in operatingactivities was $1.1 million in 2005, due to our net loss of $8.4 millionand cash used in working capital changes of $3.6 million, partially offsetby non-cash expenses of $10.9 million. The non-cash expenses included$3.6 million for depreciation, $3.4 million for stock-basedcompensation, $2.8 million for amortization of intangible assets, $0.7million related to minority interest, $0.3 million for provision fordoubtful accounts, $0.1 related to utilization of net operating losscarryforwards of companies that we acquired, $(0.1) million related to equityin earnings of joint ventures, and $0.1 million of unrealized gain. Cash usedin operating activities was $14.2 million in 2004, due to our net loss of$17.4 million and cash used in working capital changes of$10.5 million, partially offset by non-cash expenses of$13.7 million. The non-cash expenses included $7.6 million fordeferred service cost, $2.8 million for depreciation, $3.7 millionfor amortization of intangible assets, $(0.8) for unrealized loss,$0.3 million for provision for doubtful accounts, $0.2 million related tominority interest and $(0.1) million related to equity in earnings of jointventures.

Net cash provided by investing activities for the yearended December 31, 2006 was $4.8 million, resulting from net salesand maturities of our short-term investments of $10.9 million, which waspartially offset by the acquisition of property and equipment of $6.1 million.Net cash provided by investing activities during 2005 was $13.0 million,resulting from sales and maturities of our short-term investments of $19.0million and the repayment of a loan to us from a related party in the amount of$1.2 million. These increases were partially offset by acquisitions of propertyand equipment of $5.4 million and cash paid for acquisitions, net of cashacquired, of $1.8 million. Net cash used in investing activities during2004 was $19.8 million, resulting from cash paid for acquisitions, net ofcash acquired, of $10.1 million, acquisitions of property and equipment of$4.8 million, loans to related parties of $0.7 million and netpurchases of our short-term investments of $4.2 million.

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Net cash used in financing activities totaled $4.8million for the year ended December 31, 2006. In November 2005, ourboard of directors authorized the repurchase of up to $25 million of our commonstock in the open market or in privately negotiated transactions. We completedthis stock repurchase program in February 2006. During the year ended December 31,2006, cash paid in connection with this stock repurchase program was $11.6million (including commissions). Mediametrie NetRatings also paid $0.2 milliondividend to its minority shareholders. This was partially offset by cash provided by the exercise ofoptions and the purchase of stock through our employee stock purchase plan of$6.9 million and the tax effect for the exercise of stock options of $0.1million. Net cash (used in) provided by financing activities totaled $(7.6)and $16.8 million for the years ended December 31, 2005 and 2004,respectively. In 2005, cash paid in connection with our stock repurchaseprogram was $13.5 million. This use of cash in 2005 was partially offset bycash provided by the exercise of options and the purchase of stock through ourstock plan and employee stock purchase plan. In 2004, cash was providedprimarily from the exercise of options and the purchase of stock through ourstock plan and employee stock purchase plan.

We believe that our existing balances of cash and cashequivalents and short-term investments will be sufficient to meet our cashneeds for working capital and capital expenditures for at least the next12 months, although we could elect to seek additional funding prior to thattime.

Thefollowing summarizes our contractual obligations as of December 31, 2006(in thousands):

| ** **                       | ** ** | **Payments due by period** | ** ** |
|----------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations** | ** ** | ** **                                | ** ** | **Total** | ** ** | **Less than  1 year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than  5 years** | ** ** |
| Operating Leases                 |       | $                                         | 6,471      |   |   | $ | 2,890 |   |   |   | $ | 3,139 |   |   |   | $ | 442 |   |   |   | $ | — |   |   |
| Purchase  Obligations*           |       | 12,614                                    |       |   | 8,996 |   |   |   | 3,618 |   |   |   | — |   |   |   | — |   |   |
| Total                            |       | $                                         | 19,085     |   |   | $ | 11,886 |   |   |   | $ | 6,757 |   |   |   | $ | 442 |   |   |   | $ | — |   |   |
|                                  |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

----

*                    The expectedtiming of payment of the purchase obligations set forth above, which consistprimarily of panel and data center costs, is estimated based on currentinformation. Timing of payments and actual amounts paid may be differentdepending on the time of receipt of goods or services or changes to agreed-uponamounts for some obligations.

While we have historicallymade additional contributions to our majority owned subsidiaries and jointventures, we are not contractually required to make such contributions. In theevent of a request for a capital infusion, we have the option as to whether ornot we participate in the round of funding. Should we elect not to participate,our equity position would be diluted in that entity.

**Off-Balance SheetArrangements**

We have no off-balancesheet arrangements (as defined in Item 303 of Regulation S-K).

**ITEM 7A.**        QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of December 31, 2006, we had cash, cashequivalents and marketable securities of $187.0 million consisting of cashand highly liquid, short-term investments. The primary objective of ourinvestment activities is to preserve capital while at the same time maximizingyields without significantly increasing risk. To achieve this objective, wemaintain our portfolio of cash equivalents and marketable securities in avariety of government and corporate obligations and money market funds. As of December 31,2006, our investments had a weighted-average time to maturity of approximately128 days.

Investments in both fixed-rate and floating-rateinterest-earning instruments carry varying degrees of interest rate risk. Thefair market value of our fixed-rate securities may be adversely impacteddue to a rise in interest rates. In general, securities with longer maturitiesare subject to greater interest-rate risk than those with shorter maturities.While floating-rate securities generally are subject to less interest-rate risk

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than fixed-ratesecurities, floating-rate securities may produce less income than expectedif interest rates decrease. Declines of interest rates over time will reduceour interest income from our cash, cash equivalents and marketable securitiesand, accordingly, could adversely affect our net income and earnings per share.For example, if interest rates were to instantaneously increase (decrease) by100 basis points, the fair market value of our total investment portfolio woulddecrease (increase) by approximately $0.4 million.

Thefollowing table presents the amounts of our financial instruments that aresubject to interest rate risk by expected maturity and average interest ratesas of December 31, 2006:

| ** **                 | ** ** | **Time to maturity**                              | ** ** |
|----------------------------|------------|-------------------------------------------------------------|------------|
| ** **                 | ** ** | **One year  or less**                             | ** ** | **One to five  years** | ** ** | **Five to ten  years** | ** ** | **Greater than  ten years** | ** ** | **Total** | ** ** |
| ** **                 | ** ** | **(in thousands, except percent data)** | ** ** |
| Cash and cash  equivalents |       | $                                                           | 52,180     |   |   | — |   |   |   | — |   |   |   | — |   |   | $ | 52,180 |   |
| Average interest  rates    |       | 1.60                                                        | %          |   | — |   |   |   | — |   |   |   | — |   |   | 1.60 | % |
| Marketable  securities     |       | $                                                           | 70,132     |   |   | $ | 15,561 |   |   |   | $ | 1,502 |   |   |   | $ | 47,638 |   |   | $ | 134,833 |   |
| Average interest rates     |       | 4.05                                                        | %          |   | 5.12 | % |   |   | 5.25 | % |   |   | 5.32 | % |   | 4.63 | % |
|                            |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Marketable securities with a maturity date greaterthan one year and in a loss position as of December 31, 2006 are reportedas long-term marketable securities on the balance sheet. All other marketablesecurities are reported as short-term marketable securities.

We have historically adjusted our equity investmentsin Ibope eRatings.com and Red Sheriff S.r.l. based on our share of the netgains/losses recorded by these joint ventures. At December 31, 2004, IbopeeRatings.com and Red Sheriff S.r.l. were accounted for under the equity method.As a result of the losses incurred by Ibope eRatings.com, the balance in ourinvestment in and our outstanding advances to Ibope eRatings.com were zero asof March 31, 2004, and therefore no losses have been recorded since thefirst quarter of 2004. We have no obligation to make additional investmentsin Ibope eRatings.com. On February 25, 2005, we purchased the remaining50% of Red Sheriff S.r.l. (subsequently renamed NetRatings Italia S.r.l.) thatwe did not already own thereby increasing our ownership to 100% of the company.This resulted in NetRatings Italia’s operating results being reported in ourconsolidated results rather than in equity in earnings of joint ventures.

Revenues from outside of the United States accountedfor approximately 48% of our total revenues in 2006 and approximately 53% ofour total revenues in both 2005 and 2004. These international sales aretypically denominated in the local currency of the relevant country, and theinternational expenses are also primarily incurred in the local currency. Whenwe consolidate the financial results of our foreign operations, our financialresults could be positively or negatively affected depending on changes in therelevant currency exchange rates. As a result, our financial results could beadversely affected by unfavorable exchange rate fluctuations. Fluctuations incurrency exchange rates did not materially impact our results of operations in2006, 2005 or 2004. We have not entered into hedging transactions in order tomitigate the risk from currency fluctuations, but we might consider usingcurrency forward contracts or other financial instruments commonly utilized toreduce financial market risk if it is determined by us that such instrumentsare appropriate to reduce currency risk.

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**ITEM 8. FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA**

**NETRATINGS, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

| Report of Independent  Registered Public Accounting Firm |   | 42 |
|----------------------------------------------------------|--------|----|
| Consolidated Balance Sheets                              |   | 44 |
| Consolidated Statements of  Operations                   |   | 45 |
| Consolidated Statements of  Stockholders’ Equity    |   | 46 |
| Consolidated Statements of  Cash Flows                   |   | 47 |
| Notes  to Consolidated Financial Statements              |   | 48 |

 

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of Directors and Stockholders ofNetRatings, Inc.

We have audited the accompanying consolidated balancesheets of NetRatings, Inc. as of December 31, 2006 and 2005, and therelated consolidated statements of operations, stockholders’ equity, and cashflows for each of the three years in the period ended December 31, 2006.These financial statements are the responsibility of NetRatings, Inc.’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statementsreferred to above present fairly, in all material respects, the consolidatedfinancial position of NetRatings, Inc. at December 31, 2006 and 2005,and the consolidated results of its operations and its cash flows for each ofthe three years in the period ended December 31, 2006, in conformity withU.S. generally accepted accounting principles.

We also have audited, in accordance with the standardsof the Public Company Accounting Oversight Board (United States), theeffectiveness of NetRatings, Inc.’s internal control over financialreporting as of December 31, 2006, based on criteria established inInternal Control-Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated March 12,2007, expressed an unqualified opinion thereon.

Asdiscussed in Note 1 to the consolidated financial statements, on January 1,2006, the company adopted Statement of Financial Accounting Standard No. 123(R),“Share Based Payment”.

|        |   | /s/ ERNST & YOUNG LLP |
|--------|--------|--------------------------------|
|   |   | Ernst &  Young LLP    |

 

March 12,2007San Jose, California

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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of Directors andShareholders of NetRatings, Inc.

We have audited management’sassessment, included in the accompanying Management Annual Report on InternalControl over Financial Reporting, that NetRatings, Inc. maintainedeffective internal control over financial reporting as of December 31,2006, based on criteria established inInternal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (the COSO criteria). NetRatings, Inc.’smanagement is responsible for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting. Our responsibility is to express an opinionon management’s assessment and an opinion on the effectiveness of the company’sinternal control over financial reporting based on our audit.

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,evaluating management’s assessment, testing and evaluating the design andoperating effectiveness of internal control, and performing such otherprocedures as we considered necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinion.

A company’s internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion, management’sassessment that NetRatings, Inc. maintained effective internal controlover financial reporting as of December 31, 2006, is fairly stated, in allmaterial respects, based on the COSO criteria. Also, in our opinion, NetRatings, Inc.maintained, in all material respects, effective internal control over financialreporting as of December 31, 2006, based on****the COSO criteria**.**

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the****consolidated balancesheet of NetRatings, Inc. as of December 31, 2006 and 2005,and the related consolidated statements of operations, stockholders’ equity andcash flows for each of the three years ended December 31, 2006 and ourreport dated March 12, 2007 expresses an unqualified opinion thereon.
|                      |   | /s/ ERNST &  YOUNG LLP |
|----------------------|--------|---------------------------------|
|                 |   | Ernst & Young LLP      |
| March 12, 2007  |   |                            |
| San Jose, California |   |                            |

 

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**NETRATINGS, INC.CONSOLIDATED BALANCE SHEETS(in thousands)**

| ** **                                                                                                                                                                   | ** ** | **December 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                   | ** ** |                        | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| **Current assets:**                                                                                                                                                          | ** ** |                        | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Cash and cash equivalents                                                                                                                                                    |       |                        | $          | 52,180                      |       |   |   | $ | 34,940 |   |   |
| Short-term marketable securities                                                                                                                                             |       |                        | 119,513    |                        |       |   | 116,731 |   |   |
| Accounts receivable, net                                                                                                                                                     |       |                        | 26,329     |                        |       |   | 16,537 |   |   |
| Prepaid expenses and other current assets                                                                                                                                    |       |                        | 3,544      |                        |       |   | 3,867 |   |   |
| Total current assets                                                                                                                                                         |       |                        | 201,566    |                        |       |   | 172,075 |   |   |
| Long-term marketable securities                                                                                                                                              |       |                        | 15,320     |                        |       |   | 28,581 |   |   |
| Property and equipment, net                                                                                                                                                  |       |                        | 9,582      |                        |       |   | 7,827 |   |   |
| Intangibles, net                                                                                                                                                             |       |                        | 10,901     |                        |       |   | 13,278 |   |   |
| Goodwill                                                                                                                                                                     |       |                        | 76,301     |                        |       |   | 76,856 |   |   |
| Other assets                                                                                                                                                                 |       |                        | 1,803      |                        |       |   | 1,637 |   |   |
| Total assets                                                                                                                                                                 |       |                        | $          | 315,473                     |       |   |   | $ | 300,254 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                               | ** ** |                        | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| **Current liabilities:**                                                                                                                                                     | ** ** |                        | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Accounts payable                                                                                                                                                             |       |                        | $          | 3,600                       |       |   |   | $ | 2,914 |   |   |
| Accrued liabilities                                                                                                                                                          |       |                        | 13,444     |                        |       |   | 11,436 |   |   |
| Deferred revenue                                                                                                                                                             |       |                        | 17,632     |                        |       |   | 12,666 |   |   |
| Due to related parties                                                                                                                                                       |       |                        | 5,947      |                        |       |   | 7,086 |   |   |
| Restructuring liabilities                                                                                                                                                    |       |                        | 354        |                        |       |   | 1,038 |   |   |
| Total current liabilities                                                                                                                                                    |       |                        | 40,977     |                        |       |   | 35,140 |   |   |
| Restructuring liabilities, less current portion                                                                                                                              |       |                        | 64         |                        |       |   | 418 |   |   |
| Total liabilities                                                                                                                                                            |       |                        | 41,041     |                        |       |   | 35,558 |   |   |
| Minority interest                                                                                                                                                            |       |                        | 2,221      |                        |       |   | 1,298 |   |   |
| Commitments and contingencies                                                                                                                                                |       |                        |       |                        |       |   |   |   |   |
| **Stockholders’  equity:**                                                                                                                                              | ** ** |                        | ** ** | ** **                  |       |   | ** ** | ** ** |   |
| Common stock, par  value $0.001:                                                                                                                                             |       |                        |       |                        |       |   |   |   |   |
| Authorized shares:  200,000                                                                                                                                                  |       |                        |       |                        |       |   |   |   |   |
| Issued shares: 38,723 and 37,838 at  December 31, 2006 and 2005, respectively; outstanding shares: 35,277 and  35,189 at  December 31, 2006 and 2005, respectively |       |                        | 39         |                        |       |   | 38 |   |   |
| Additional paid-in capital                                                                                                                                                   |       |                        | 457,926    |                        |       |   | 450,100 |   |   |
| Deferred compensation                                                                                                                                                        |       |                        | —     |                        |       |   | (3,984 | ) |   |
| Accumulated other comprehensive income (loss)                                                                                                                                |       |                        | 2,858      |                        |       |   | (1,441 | ) |   |
| Treasury stock                                                                                                                                                               |       |                        | (46,154    | )                           |       |   | (36,028 | ) |   |
| Accumulated deficit                                                                                                                                                          |       |                        | (142,458   | )                           |       |   | (145,287 | ) |   |
| Total stockholders’ equity                                                                                                                                              |       |                        | 272,211    |                        |       |   | 263,398 |   |   |
| Total liabilities  and stockholders’ equity                                                                                                                             |       |                        | $          | 315,473                     |       |   |   | $ | 300,254 |   |   |

 

See accompanying notes to the consolidated financial statements.

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**NETRATINGS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except per share data)**

| ** **                                                                    | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **   2006   **                  | ** ** | **   2005   ** | ** ** | **   2004   ** | ** ** |
| Revenue                                                                       |       |                                                          | $          | 81,769 |   |   | $ | 68,017 |   | $ | 59,294 |   |
| Cost of revenue(1)                                                            |       |                                                          | 22,972     |   |   | 22,802 |   | 23,057 |   |
| Gross profit                                                                  |       |                                                          | 58,797     |   |   | 45,215 |   | 36,237 |   |
| Operating expenses:                                                           |       |                                                          |       |   |   |   |   |   |   |
| Research and  development(1)                                                  |       |                                                          | 12,929     |   |   | 12,009 |   | 12,029 |   |
| Sales and marketing(1)                                                        |       |                                                          | 27,024     |   |   | 27,099 |   | 22,801 |   |
| General and  administrative(1)                                                |       |                                                          | 17,058     |   |   | 13,546 |   | 12,588 |   |
| Restructuring expenses                                                        |       |                                                          | —     |   |   | 1,700 |   | (525 | ) |
| Litigation settlement  recovery                                               |       |                                                          | —     |   |   | — |   | (1,800 | ) |
| Acquisition related  expenses                                                 |       |                                                          | 778        |   |   | — |   | — |   |
| Amortization of  intangibles assets(2)                                        |       |                                                          | 2,377      |   |   | 2,761 |   | 3,742 |   |
| Deferred service cost(2)                                                      |       |                                                          | —     |   |   | — |   | 7,587 |   |
| Total operating expenses                                                      |       |                                                          | 60,166     |   |   | 57,115 |   | 56,422 |   |
| Loss from operations                                                          |       |                                                          | (1,369     | ) |   | (11,900 | ) | (20,185 | ) |
| Interest income, net                                                          |       |                                                          | 6,395      |   |   | 4,519 |   | 2,879 |   |
| Minority interest in net  income of consolidated subsidiaries                 |       |                                                          | (1,137     | ) |   | (750 | ) | (242 | ) |
| Equity in earnings of  joint ventures                                         |       |                                                          | —     |   |   | 56 |   | 129 |   |
| Net income (loss) before  provision for income taxes                          |       |                                                          | 3,889      |   |   | (8,075 | ) | (17,419 | ) |
| Provision for income  taxes                                                   |       |                                                          | (1,429     | ) |   | (320 | ) | — |   |
| Net income (loss) before  cumulative effect of change in accounting principle |       |                                                          | 2,460      |   |   | (8,395 | ) | (17,419 | ) |
| Cumulative effect of  change in accounting principle                          |       |                                                          | 369        |   |   | — |   | — |   |
| Net income (loss)                                                             |       |                                                          | $          | 2,829 |   |   | $ | (8,395 | ) | $ | (17,419 | ) |
| Net income (loss) per share—basic:                                       |       |                                                          |       |   |   |   |   |   |   |
| Before cumulative effect  of change in accounting principle                   |       |                                                          | $          | 0.07 |   |   | $ | (0.23 | ) | $ | (0.50 | ) |
| Cumulative effect of  change in accounting principle                          |       |                                                          | 0.01       |   |   | — |   | — |   |
| Net income (loss) per  common share—basic                                |       |                                                          | $          | 0.08 |   |   | $ | (0.23 | ) | $ | (0.50 | ) |
| Net income (loss) per common share—diluted:                              |       |                                                          |       |   |   |   |   |   |   |
| Before cumulative effect  of change in accounting principle                   |       |                                                          | $          | 0.07 |   |   | $ | (0.23 | ) | $ | (0.50 | ) |
| Cumulative effect of  change in accounting principle                          |       |                                                          | 0.01       |   |   | — |   | — |   |
| Net income (loss) per  common share—diluted                              |       |                                                          | $          | 0.08 |   |   | $ | (0.23 | ) | $ | (0.50 | ) |
| Shares used to compute  net income (loss) per common share—basic         |       |                                                          | 34,940     |   |   | 35,985 |   | 34,637 |   |
| Shares used to compute net income (loss) per common share—diluted        |       |                                                          | 35,732     |   |   | 35,985 |   | 34,637 |   |

 

----

(1)             Amortization of stock-based compensation:

| Cost of revenue                                 |   | $     | 246    |   | $      | 151    |   | $ | — |   |
|-------------------------------------------------|--------|-------|--------|--------|--------|--------|--------|---|--------|--------|
| Research and development                        |   | 1,208 |   | 429    |   | — |   |
| Sales and marketing                             |   | 1,951 |   | 1,381  |   | — |   |
| General and  administrative                     |   | 1,742 |   | 1,416  |   | — |   |
| Total amortization  of stock-based compensation |   | $     | 5,147  |   | $      | 3,377  |   | $ | — |   |

 

(2)             Amortization of intangible assets anddeferred service cost:

| Cost of revenue                          |   | $   | 1,777  |   | $      | 2,161 |   | $ | 10,425 |   |
|------------------------------------------|--------|-----|--------|--------|--------|-------|--------|---|--------|--------|
| Sales and  marketing                     |   | 600 |   | 600    |   | 904   |   |
| Total amortization  of intangible assets |   | $   | 2,377  |   | $      | 2,761 |   | $ | 11,329 |   |

 

See accompanying notes to the consolidated financial statements.

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**NETRATINGS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(in thousands)**

| ** **                                                         | ** ** | ** **            | ** ** | ** **  | ** ** | ** **     | ** ** | **Deferred**         | ** ** | **Accumulated**         | ** ** | ** **      | ** ** | ** **             | ** ** | ** **  | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|----------------|------------|----------------------|------------|-------------------------|------------|-----------------|------------|------------------------|------------|-------------|------------|------------|------------|
| ** **                                                         | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional** | ** ** | **Compensation**     | ** ** | **Other**               | ** ** | ** **      | ** ** | ** **             | ** ** | ** **  | ** ** | **Total**  | ** ** |
| ** **                                                         | ** ** | **Common Stock** | ** ** | **Paid-In** | ** ** | **and**        | ** ** | **Comprehensive**    | ** ** | **Treasury Stock** | ** ** | **Accumulated** | ** ** | **Stockholders’** | ** ** |
| ** **                                                         | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Other Costs** | ** ** | **Income (Loss)**  | ** ** | **Shares**      | ** ** | **Amount**             | ** ** | **Deficit** | ** ** | **Equity** | ** ** |
| Balances at December 31, 2003                                 |       |                  | 35,442     |        |       |           | $          | 35                   |       |                    |       | $               | 420,172    |                   |       |        | $          | (7,587     | )          |   |   | $ | 1,538 |   |   |   | 1,500 |   |   | $ | (20,631 | ) |   | $ | (119,473 | ) |   |   | $ | 274,054 |   |   |   |
| Net loss                                                           |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | (17,419 | ) |   |   | (17,419 | ) |   |   |
| Unrealized loss from short-term investments                        |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | (756       | ) |   |   | — |   |   | — |   |   | — |   |   |   | (756 | ) |   |   |
| Change in accumulated translation adjustment                       |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | 297        |   |   |   | — |   |   | — |   |   | — |   |   |   | 297 |   |   |   |
| Comprehensive loss                                                 |       |                  |       |        |       |           |       |                 |       |                    |       |            |       |                   |       |        |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   |   | (17,878 | ) |   |   |
| Issuance of common stock for employee benefit plans                |       |                  | 1,739      |        |       |           | 2          |                 |       |                    | 16,547     |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 16,549 |   |   |   |
| Amortization of deferred service costs                             |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | 7,587      |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 7,587 |   |   |   |
| Stock issued by majority owned subsidiary                          |       |                  | —     |        |       |           | —     |                 |       |                    | 126        |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 126 |   |   |   |
| Balances at December 31, 2004                                 |       |                  | 37,181     |        |       |           | 37         |                 |       |                    | 436,845    |            |       |                   | —     |        |       |       | 1,079      |   |   |   | 1,500 |   |   | (20,631 | ) |   | (136,892 | ) |   |   | 280,438 |   |   |   |
| Net loss                                                           |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | (8,395 | ) |   |   | (8,395 | ) |   |   |
| Unrealized gain from short-term investments                        |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | 94         |   |   |   | — |   |   | — |   |   | — |   |   |   | 94 |   |   |   |
| Change in accumulated translation adjustment                       |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | (2,614     | ) |   |   | — |   |   | — |   |   | — |   |   |   | (2,614 | ) |   |   |
| Comprehensive loss                                                 |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | (10,915 | ) |   |   |
| Issuance of common stock for employee benefit plans                |       |                  | 657        |        |       |           | 1          |                 |       |                    | 5,894      |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 5,895 |   |   |   |
| Stock repurchases                                                  |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | —     |   |   |   | 1,149 |   |   | (15,397 | ) |   |   |   |   |   | (15,397 | ) |   |   |
| Deferred stock-based compensation                                  |       |                  | —     |        |       |           | —     |                 |       |                    | 7,361      |            |       |                   | (7,361     | )           |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |   |
| Amortization stock-based compensation                              |       |                  | —     |        |       |           | —     |                 |       |                    |       |            |       |                   | 3,377      |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 3,377 |   |   |   |
| Balances at December 31, 2005                                 |       |                  | 37,838     |        |       |           | 38         |                 |       |                    | 450,100    |            |       |                   | (3,984     | )           |       |       | (1,441     | ) |   |   | 2,649 |   |   | (36,028 | ) |   | (145,287 | ) |   |   | 263,398 |   |   |   |
| Net income                                                         |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | 2,829 |   |   |   | 2,829 |   |   |   |
| Unrealized gain from short-term investments                        |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | 567        |   |   |   | — |   |   | — |   |   | — |   |   |   | 567 |   |   |   |
| Change in accumulated translation adjustment                       |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | 3,732      |   |   |   | — |   |   | — |   |   | — |   |   |   | 3,732 |   |   |   |
| Comprehensive loss                                                 |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 7,128 |   |   |   |
| Issuance of common stock for employee benefit plans                |       |                  | 885        |        |       |           | 1          |                 |       |                    | 6,896      |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 6,897 |   |   |   |
| Reclassify deferred stock compensation upon adoption  of SFAS 123R |       |                  | —     |        |       |           | —     |                 |       |                    | (3,984     | )               |       |                   | 3,984      |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | — |   |   |   |
| Stock-based compensation expense                                   |       |                  | —     |        |       |           | —     |                 |       |                    | 5,147      |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 5,147 |   |   |   |
| Cumulative effect of change to FAS 123(R)                          |       |                  | —     |        |       |           | —     |                 |       |                    | (369       | )               |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | (369 | ) |   |   |
| Withholding for vested restricted stock                            |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | —     |   |   |   | 34 |   |   | (447 | ) |   | — |   |   |   | (447 | ) |   |   |
| Stock repurchases                                                  |       |                  | —     |        |       |           | —     |                 |       |                    | —     |            |       |                   | —     |        |       |       | —     |   |   |   | 763 |   |   | (9,679 | ) |   | — |   |   |   | (9,679 | ) |   |   |
| Tax benefit for exercise of stock options                          |       |                  | —     |        |       |           | —     |                 |       |                    | 136        |            |       |                   | —     |        |       |       | —     |   |   |   | — |   |   | — |   |   | — |   |   |   | 136 |   |   |   |
| Balances at  December 31, 2006                                |       |                  | 38,723     |        |       |           | $          | 39                   |       |                    |       | $               | 457,926    |                   |       |        | $          | —     |       |   |   | $ | 2,858 |   |   |   | 3,446 |   |   | $ | (46,154 | ) |   | $ | (142,458 | ) |   |   | $ | 272,211 |   |   |   |

 

See accompanying notes to the consolidated financial statements.

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**NETRATINGS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)**

| ** **                                                                                                                                  | ** ** | **For the years ended  December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                                                                                                                  | ** ** | **2006**                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
| **OPERATING ACTIVITIES**                                                                                                                    |       |                                                      |       |   |   |   |   |
| Net income (loss)                                                                                                                           |       | $                                                         | 2,829      |   | $ | (8,395 | ) | $ | (17,419 | ) |
| Adjustments to reconcile  net income (loss) to net cash provided by (used in) operating activities, net  of effects of acquired businesses: |       |                                                      |       |   |   |   |   |
| Depreciation                                                                                                                                |       | 4,348                                                     |       | 3,565 |   | 2,763 |   |
| Equity in earnings of joint ventures                                                                                                        |       | —                                                    |       | (56 | ) | (129 | ) |
| Provision for doubtful accounts                                                                                                             |       | 303                                                       |       | 301 |   | 313 |   |
| Stock-based compensation and deferred service cost                                                                                          |       | 5,147                                                     |       | 3,377 |   | 7,587 |   |
| Minority interest                                                                                                                           |       | 1,137                                                     |       | 750 |   | 242 |   |
| Unrealized gain (loss)                                                                                                                      |       | 184                                                       |       | 94 |   | (755 | ) |
| Amortization of intangibles                                                                                                                 |       | 2,377                                                     |       | 2,761 |   | 3,742 |   |
| Cumulative effect of change in accounting principle                                                                                         |       | (369                                                      | )          | — |   | — |   |
| Utilization of acquired net operating loss  carryforwards                                                                                   |       | 494                                                       |       | 107 |   | — |   |
| Changes in current assets  and liabilities:                                                                                                 |       |                                                      |       |   |   |   |   |
| Accounts receivable                                                                                                                         |       | (9,301                                                    | )          | (2,560 | ) | (3,807 | ) |
| Prepaids, other current assets and other assets                                                                                             |       | 17                                                        |       | (287 | ) | (316 | ) |
| Accounts payable                                                                                                                            |       | 689                                                       |       | 201 |   | (379 | ) |
| Accrued liabilities                                                                                                                         |       | 3,419                                                     |       | (320 | ) | (2,049 | ) |
| Restructuring liabilities                                                                                                                   |       | (1,038                                                    | )          | 32 |   | (1,566 | ) |
| Due to/from related parties                                                                                                                 |       | (310                                                      | )          | (1,860 | ) | (3,406 | ) |
| Deferred revenue                                                                                                                            |       | 4,803                                                     |       | 1,234 |   | 987 |   |
| Net cash provided by (used in) operating activities                                                                                         |       | 14,729                                                    |       | (1,056 | ) | (14,192 | ) |
| **INVESTING  ACTIVITIES**                                                                                                                   |       |                                                      |       |   |   |   |   |
| Acquisition of property and equipment                                                                                                       |       | (6,103                                                    | )          | (5,366 | ) | (4,798 | ) |
| Purchase of investments                                                                                                                     |       | (119,128                                                  | )          | (121,602 | ) | (163,793 | ) |
| Sale of investments                                                                                                                         |       | 59,532                                                    |       | 76,617 |   | 136,371 |   |
| Maturities of investments                                                                                                                   |       | 70,457                                                    |       | 64,040 |   | 23,185 |   |
| Loan to related parties                                                                                                                     |       | —                                                    |       | 1,170 |   | (712 | ) |
| Acquisitions, net of cash acquired of $215 in 2005,  respectively, and investment in joint ventures                                    |       | —                                                    |       | (1,806 | ) | (10,117 | ) |
| Net cash provided by (used in) investing activities                                                                                         |       | 4,758                                                     |       | 13,053 |   | (19,864 | ) |
| **FINANCING  ACTIVITIES**                                                                                                                   |       |                                                      |       |   |   |   |   |
| Proceeds from issuance of common stock                                                                                                      |       | 6,897                                                     |       | 5,895 |   | 16,549 |   |
| Proceeds from stock issued by majority-owned  subsidiary                                                                                    |       | —                                                    |       | — |   | 247 |   |
| Dividend paid to minority shareholder by majority-owned  subsidiary                                                                         |       | (214                                                      | )          | — |   | — |   |
| Tax benefit for exercise of stock options                                                                                                   |       | 136                                                       |       | — |   | — |   |
| Stock repurchases                                                                                                                           |       | (11,588                                                   | )          | (13,460 | ) | — |   |
| Net cash (used in) provided by financing activities                                                                                         |       | (4,769                                                    | )          | (7,565 | ) | 16,796 |   |
| Effect of exchange rate fluctuations                                                                                                        |       | 2,522                                                     |       | (2,726 | ) | 585 |   |
| Net increase (decrease) in cash and cash equivalents                                                                                        |       | 17,240                                                    |       | 1,706 |   | (16,675 | ) |
| Cash and cash equivalents at beginning of period                                                                                            |       | 34,940                                                    |       | 33,234 |   | 49,909 |   |
| Cash and cash equivalents at end of period                                                                                                  |       | $                                                         | 52,180     |   | $ | 34,940 |   | $ | 33,234 |   |
| **Supplemental  disclosure of cash flow information:**                                                                                      |       |                                                      |       |   |   |   |   |
| Cash paid for  income taxes                                                                                                                 |       | $                                                         | 484        |   | $ | 20 |   | $ | — |   |

 

See accompanying notes to the consolidated financial statements.

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**NETRATINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Note 1: Summary ofSignificant Accounting Policies**

**NetRatings, Inc.**

NetRatings, Inc. (“NetRatings”or the “Company”) is a provider of Internet audience measurement and analysisin the United States and around the world. All of the Company’s products andservices are designed to assist companies in making critical business decisionsregarding their Internet strategies and initiatives. The Company has adiversified and global client base, including large and small companies in themedia, technology, advertising, financial services, consumer products, retailand travel industries. A majority of the Company’s products and services aresold on an annual subscription basis. The Company also derives a portion of itsrevenue from its customized products and services and licensing of the Company’patents. In 1998 and 1999, the Company formed strategic relationships withNielsen Media Research, a provider of television audience measurement andrelated services in the United States, and ACNielsen, a global provider ofmarket research information and analysis. The segment in which NetRatingscurrently operates is the market for providing media and market researchfocused on Internet audience behavior and activity. Almost all of the Company’srevenues are generated through the sale of products in this one segment.

**Basis ofPresentation**

The accompanying condensed consolidated financialstatements of NetRatings have been prepared in accordance with U.S. generallyaccepted accounting principles (“GAAP”) for consolidated financial informationand pursuant to the rules and regulations of the Securities and ExchangeCommission (“SEC”). The consolidated financial statements include the accountsof NetRatings and its wholly-owned and majority-owned subsidiaries. Allsignificant intercompany transactions and balances are eliminated uponconsolidation. NetRatings consolidates the results of operations and financialposition of its international operations on a one month lag. The impact of thisone month lag is not significant to NetRatings’ consolidated financial results.

Certain reclassificationshave been made to prior year balances to conform to current year reportingclassifications. This includes the reclassification of stock-based compensationto the line items to which they relate. Previously, the Company separatelypresented stock-based compensation expense in the statement of operations.

**Cash and CashEquivalents and Marketable Securities**

Cash and cash equivalents consist of highly liquidinvestments including money market accounts, commercial paper, U.S. governmentand agency securities, and corporate notes with insignificant interest-raterisk and original maturities of three months or less at date of purchase. Cash andcash equivalents are stated at fair market value, which approximates cost.

Marketable securities consist principally of corporatenotes, auction rate securities, euro dollar bonds, commercial paper and U.S.government and agency securities, all of which are carried at fair marketvalue. NetRatings uses the specific identification method to compute realizedgains and losses on its short-term investments.

Restricted cash included in other assets was $0.7million at December 31, 2006 and 2005.

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Interest income was$6.5 million, $5.0 million and $3.2 million for the years ended December 31,2006, 2005 and 2004, respectively.

**Property andEquipment**

Property and equipment isstated at cost, net of accumulated depreciation. Property and equipment isdepreciated on a straight-line basis over the estimated useful lives of theassets, generally three to five years.

**CapitalizedSoftware**

The Company capitalizescertain internal and external costs incurred to acquire or create internal-usesoftware in accordance with AICPA Statement of Position 98-1, “Accountingfor the Costs of Computer Software Developed or Obtained for Internal Use.”Capitalized software is included in property, plant and equipment and isdepreciated when development is complete. Capitalized software costs at December 31,2006 and 2005 were $7.0 million and $4.5 million, respectively. Associatedaccumulated amortization for capitalized software cost at December 31,2006 and 2005 was $3.0 million and $2.2 million, respectively.

**Impairment ofLong-Lived Assets**

The Company’s long livedassets include goodwill and other intangible assets. In accordance withStatement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill andOther Intangible Assets,” goodwill and indefinite-lived intangibles are not amortized,but are reviewed at least annually for impairment. NetRatings retains anindependent appraisal firm which annually provides a valuation of the Company’sfair value, based on a discounted cash flow and comparable company analyses.The cash flow analysis requires significant judgment and estimates bymanagement relating to assumptions about expected future operating performanceand appropriate discount rates. An impairment loss is recorded if the estimatedfuture cash flows plus net proceeds expected from disposition of the asset (ifany) are less than the carrying value of the asset. The estimate of discountedcash flows may differ from actual cash flows due to, among other things,economic conditions, changes to the Company’s business model and changes inoperating performance. The Company performed its annual evaluation of goodwilland intangibles as of October 1, 2006 at which time no impairment wasindicated. There has been no indication of impairment since October 1,2006.

**Other Assets**

Other assets include (i) receivablesfrom the Company’s joint venture in Latin America, Ibope eRatings.com, (ii) restrictedcash held in the form of long-term security deposits related to the Company’soffice leases in Seattle, New York, London and Sydney and (iii) othermiscellaneous assets. Receivables from Ibope eRatings.com, before reserves,were approximately $1.1 million and $0.9 million at December 31, 2006 and2005, respectively.

**Foreign CurrencyTranslation**

The Company applies SFAS No. 52,“Foreign Currency Translation,” with respect to its international operations.All assets and liabilities are remeasured at the current exchange rate at theend of the period, and revenues and expenses are remeasured at average exchangerates in effect during the period. The translation gain (loss) resulting fromthe process of remeasuring foreign currency financial statements into U.S.dollars is included as a component of accumulated other comprehensive income instockholders’ equity. Gains (losses) resulting from foreign currencytransactions were not material in 2006, 2005 or 2004.

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**Revenue Recognition**

The Company’s accounting policy related to therecognition of revenue is as follows:

The Company recognizes revenue in accordance with SECStaff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition inFinancial Statements,” SAB No. 104, “Revenue Recognition” (“SAB 104”),and the Financial Accounting Standards Board (“FASB”) Emerging Issues TaskForce 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”).

SAB 104 requires that four basic criteria must be metbefore revenue can be recognized: (1) persuasive evidence that anarrangement exists; (2) delivery has occurred or services rendered; (3) thefee is fixed and determinable; and (4) collectibility is reasonablyassured. Determination of collectibility is based on management’s judgmentregarding the likelihood that fees will be collected from specified customers.Management also considers the provisions of AICPA Technical PracticeAid 5100.39 in determining whether multiple contracts executed within ashort period of time with a single customer should be accounted for as a singlearrangement. EITF 00-21 requires certain criteria to be met in orderto allocate revenue to the various elements or deliverables of the contract andrecognize revenue as each element or deliverable is met.

A significant portion of the Company’s revenue isgenerated from its Internet media and market research products and services,which include both syndicated products and customized products. Approximately83% of these products and services are sold pursuant to one-year subscriptionagreements. The Company reviews all contracts to determine if they meet thecriteria of SAB 104 and recognizes revenue from the sale of its subscriptionand custom products and services based upon fair value as the services areperformed, which is generally ratably over the term of the contract(s).Invoiced amounts are recorded as deferred revenue until earned. If a contract’scollectibility comes into question, revenue recognition is discontinued untilcollectibility is reasonably assured. This determination is based on management’sjudgment and could adversely affect both revenue and deferred revenue.

The Company also generatesrevenue from its patent license agreements which are structured in a variety ofways, including as one time payments, short term payments and/or payments overan extended term. The Company recognizes this revenue when the criteriaspecified in SAB 104 are met. If an arrangement includes extended paymentterms, the Company recognizes revenue as payments become due.

**Panel Costs**

Costs of establishing andmaintaining the Company’s panels, including the MegaPanel, are expensed asincurred and are included in cost of revenue in the accompanying consolidatedstatements of operations.

**Advertising Expense**

All advertising andpromotion costs are expensed as incurred. Advertising and promotion costs,which are included in sales and marketing expense, were $0.6 million,$0.4 million and $0.5 million for the years ended December 31,2006, 2005 and 2004, respectively.

**Income Taxes**

NetRatings accounts forincome taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”(“SFAS 109”), which requires the use of the liability method in accountingfor income taxes. Under SFAS 109, deferred tax assets and liabilities aremeasured based on differences between the financial reporting and tax bases ofassets and liabilities using enacted tax rates and laws that will be in effectwhen 

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thedifferences are expected to reverse. A valuation allowance is recorded when itis more likely than not that some or all of the deferred tax asset will not berealized.

**ComprehensiveIncome (Loss)**

Thecomponents of accumulated other comprehensive income (loss) as of December 31,2006 and 2005 are as follows (in thousands):

| ** **                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Accumulated translation adjustment             |       | $        | 3,090      |     | $          | (642 | ) |
| Unrealized loss  on short-term investments     |       | (232     | )          | (799     | )          |
| Accumulated other  comprehensive income (loss) |       | $        | 2,858      |     | $          | (1,441 | ) |

 

**Fair Value ofFinancial Instruments and Concentration of Credit Risk**

The fair value of NetRatings’ cash and cashequivalents and short-term investments is based on quoted market prices. At December 31,2006, the fair market value, cost and net unrealized loss of NetRatings’marketable securities totaled $134.8 million, $135.0 million and$0.2 million, respectively. At December 31, 2005, the fair marketvalue, cost and net unrealized loss of NetRatings’ marketable securitiestotaled $145.3 million, $146.1 million and $0.8 million,respectively. For the years ended December 31, 2006, 2005 and 2004,realized gains and losses were not material.

Financial instruments thatpotentially subject NetRatings to concentrations of credit risk include cashand cash equivalents, short-term investments and trade accounts receivable.NetRatings places certain of its cash in banks that are federally insured inlimited amounts and in investment-grade debt instruments, many of which arebacked by the U.S. government or other government agencies. NetRatings conductsbusiness with companies in various industries throughout the U.S. andinternationally. NetRatings manages credit risk on accounts receivable byperforming ongoing credit evaluations of its customers, reviewing its accountsand contracts and by providing appropriate allowances for uncollectibleamounts. For the year ended December 31, 2006, NetRatings had bad debtwrite-offs of $0.1 million. For the year ended December 31, 2005,NetRatings had bad debt write-offs of $0.3 million and reclassified $0.4million to other assets. For the year ended December 31, 2004, NetRatingshad bad debt write-offs of $0.5 million and reclassified $0.3 millionrelated to bad debt from deferred revenue. At December 31, 2006 and 2005,the allowance for doubtful accounts was $0.8 million and $0.6 million,respectively.

**Computation of NetIncome (Loss) per Common Share**

The Company computes net income (loss) per commonshare based on SFAS No. 128, “Earnings Per Share” (“SFAS 128”). Inaccordance with SFAS 128, basic net income (loss) per share is calculatedas net income (loss) divided by the weighted-average number of common sharesoutstanding. Diluted net income (loss) per share is computed by dividing netincome (loss) by the weighted-average number of common shares outstanding anddilutive common stock equivalents outstanding during the period.

Prior to 2006, the Company had experienced net losses.As a result, common equivalent shares from stock options were excluded from thecalculation of net loss per common share as their effect was anti-dilutive. Ifthe Company had recorded net income, the calculation of historical dilutedearnings per share would have included approximately 1.0 million and1.2 million additional common equivalent shares related to outstandingstock options and restricted stock awards for the years ended December 31,2005 and 2004, respectively.

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Thefollowing table sets forth the computation of basic and diluted net income(loss) per share, determined using the treasury stock method for the yearsended December 31, 2006, 2005, and 2004 (in thousands, except per shareamounts):

| ** **                                                                         | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net income (loss)  before cumulative effect of change in accounting principle |       | $        | 2,460      |     | $          | (8,395   | )          | $ | (17,419 | ) |
| Cumulative effect  of change in accounting principle                               |       | 369      |       | —   |       | —   |       |
| Net income (loss)                                                                  |       | $        | 2,829      |     | $          | (8,395   | )          | $ | (17,419 | ) |
| Weighted average  number of shares:                                                |       |     |       |     |       |     |       |
| Basic                                                                              |       | 34,940   |       | 35,985   |       | 34,637   |       |
| Effect of dilutive stock options                                                   |       | 683      |       | —   |       | —   |       |
| Effect of dilutive restricted stock grants                                         |       | 109      |       | —   |       | —   |       |
| Diluted                                                                            |       | 35,732   |       | 35,985   |       | 34,637   |       |
| Net income (loss) per share—basic                                             |       | $        | 0.08       |     | $          | (0.23    | )          | $ | (0.50 | ) |
| Net income (loss)  per share—diluted                                          |       | $        | 0.08       |     | $          | (0.23    | )          | $ | (0.50 | ) |

 

**Stock-BasedCompensation**

On January 1, 2006, the Company adopted SFAS123R, which is a revision of SFAS No. 123 “Accounting for Stock-BasedCompensation” (“SFAS 123”), and supersedes APB No. 25, “Accountingfor Stock Issued to Employees” (“APB 25”). Among other items,SFAS 123R requires companies to record compensation expense forstock-based awards issued to employees and directors in exchange for servicesprovided. The amount of the compensation expense is based on the estimated fairvalue of the awards on their grant dates and is recognized over the required serviceperiods. The Company’s stock-based awards include stock option grants,restricted stock awards and share issuances under the Company’s employee stockpurchase plan.

Prior to the adoption of SFAS 123R, the Companyapplied the intrinsic value method set forth in APB 25 to calculate thecompensation expense for stock-based awards. The Company has historically setthe exercise price for its stock options equal to the market value on the grantdate. As a result, the options generally had no intrinsic value on their grantdates, and therefore the Company did not record any compensation expense unlessthe terms of the stock options were subsequently modified. Likewise, theCompany did not recognize any compensation expense pursuant to APB 25 forshares issued under the Company’s employee stock purchase plan. For restrictedstock awards, the calculation of compensation expense under APB 25 andSFAS 123R is similar except for the accounting treatment for forfeituresas discussed below.

The Company adopted SFAS 123R using the modifiedprospective transition method, which requires the application of the accountingstandard to (i) all stock-based awards issued on or after January 1,2006 and (ii) any outstanding stock-based awards that were issued but notvested as of January 1, 2006. Accordingly, the Company’s condensedconsolidated financial statements as of December 31, 2005 do not reflectthe requirements of SFAS 123R. For the year ended December 31, 2006,the Company recognized stock-based compensation expense of $5.1 million, whichincluded $3.9 million for restricted stock awards, $0.9 million for stockoption grants and $0.3 million for shares issued under the Company’s employeestock purchase plan. The Company recognized incremental stock-basedcompensation expense of $1.2 million during 2006 as a result of theadoption of SFAS 123R. Diluted earnings per common share was reduced by$0.03 for the year ended December 31, 2006 due to the adoption ofSFAS 123R. In accordance with SFAS 123R, beginning in 2006 the Companyhas included excess tax benefits from the exercise of stock-based compensationawards as a financing activity in the consolidated statement of cash flows.

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Forpurposes of pro forma disclosures, the estimated fair value of the stock optionand restricted stock awards is amortized to expense over the vesting period ofthe awards using the accelerated method. In connection with the Company’sEmployee Stock Purchase Plan, the 15% discount to the share price on the dateof purchase or the commencement of the purchase period, whichever is lower, andthe fair value of the remainder of the purchase price, is treated ascompensation expense for pro forma purposes. The following table illustratesthe effect on net income after taxes and net income per common share as if theCompany had applied the fair value recognition provisions of SFAS No. 123to stock-based compensation during the fiscal years ended December 31,2005 and 2004 (in thousands, except per share amounts):

| ** **                                                                                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net loss, as reported                                                                                            |       | $        | (8,395     | )        | $          | (17,419 | ) |
| Add: Stock-based employee compensation expense  included in reported net loss                                    |       | 3,377    |       | —   |       |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method for all awards |       | (5,658   | )          | (4,699   | )          |
| Pro forma net  loss                                                                                              |       | $        | (10,676    | )        | $          | (22,118 | ) |
| Earnings per share:                                                                                              |       |     |       |     |       |
| Basic and diluted net loss per share, as reported                                                                |       | $        | (0.23      | )        | $          | (0.50 | ) |
| Pro forma basic  and diluted net loss per share                                                                  |       | $        | (0.30      | )        | $          | (0.64 | ) |

 

In 1999, NetRatings recorded a deferred charge totaling$46.7 million representing the value of warrants issued to Nielsen MediaResearch, which were exercised in December 1999. The value of the warrantswas determined using the Black-Scholes valuation model and was amortized tooperating expense through December 31, 2004. Amortization expense was $7.6million for the year ended December 31, 2004, and is included in theaccompanying consolidated statements of operations. As of December 31,2004, the deferred service costs had been fully amortized.

The estimated fair value for stock options, whichdetermines the Company’s calculation of compensation expense, is based on theBlack-Scholes valuation model. Upon the adoption of SFAS 123R, the Companychanged its method of calculating the value of all stock-based compensation tothe straight-line, single-option method. However, compensation expense for allstock option grants and restricted stock awards prior to January 1, 2006will continue to be recognized using the accelerated, single-option method. Inaddition, SFAS 123R requires that the expected forfeitures of stock-basedawards to be estimated at the time of grant. As a result, the Company estimatesthe forfeiture rate for all stock-based compensation at the time of grant andrevises those estimates in subsequent periods if the actual forfeitures differfrom the prior estimates. The Company uses historical data to estimatepre-vesting forfeitures and records stock-based compensation expense onlyfor those awards that are expected to vest. In the pro-forma informationrequired under SFAS 123 and in the Company’s restricted stock expenserecorded for periods prior to January 1, 2006, the Company accounted forforfeitures as they occurred. During the fourth quarter of 2006, the Companyperformed an analysis of the estimated forfeiture rate and the resultingstock-based compensation expense. An adjustment of $0.4 million in additionalstock-based compensation expense was recorded as the result of this analysis.

The adoption of SFAS 123R to the Company’sunvested restricted stock awards as of January 1, 2006 resulted in acumulative benefit from a change in an accounting principle of $0.4 million inthe first quarter of 2006. This amount reflects the net cumulative impact ofapplying forfeiture estimates to awards for unvested compensation expense thatwas recorded prior to the adoption of SFAS 123R, rather than recordingforfeitures when they occur as previously permitted.

In November 2005, theFASB issued Staff Position No. FAS 123R-3, “Transition ElectionRelated to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP123R-3”). The Company has 

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electedto adopt the alternative transition method provided in FSP 123R-3 forcalculating the tax effects of stock-based compensation under SFAS 123R. Thealternative transition method includes simplified methods to establish thebeginning balance of the additional paid-in-capital pool (“APIC pool”) relatedto the tax effects of stock-based compensation, and for determining thesubsequent impact on the APIC pool and consolidated statements of cash flows ofthe tax effects of stock-based compensation awards that are outstanding uponadoption of SFAS 123R.

**ValuationAssumptions**

TheCompany did not grant stock options during the year ended December 31,2006. As of December 31, 2006, 2005 and 2004, the fair value of stockoption grants and shares purchased pursuant to the Company’s employee stockpurchase plan was estimated using the Black-Scholes valuation model. Thefollowing weighted average assumption ranges were used during 2006, 2005 and2004:

| ** **                    | ** ** | **2006**    | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------|------------|-------------|------------|----------|------------|----------|------------|
| Stock option  plan:           |       |        |       |     |       |     |       |
| Risk-free interest rate       |       | —      |       | 3.38     | %          | 2.77     | %          |
| Dividend yield                |       | —      |       | —   |       | —   |       |
| Volatility                    |       | —      |       | 60       | %          | 60       | %          |
| Expected term in years        |       | —      |       | 2.38     |       | 2.32     |       |
| Employee stock purchase plan: |       |        |       |     |       |     |       |
| Risk-free interest rate       |       | 4.53 - 5.18 | %          | 3.67     | %          | 1.78     | %          |
| Dividend yield                |       | —      |       | —   |       | —   |       |
| Volatility                    |       | 30 - 33     | %          | 27       | %          | 45       | %          |
| Expected life in  years       |       | 0.5         |       | 0.5      |       | 0.5      |       |

 

**Stock Plan**

In 1998, NetRatings adopted the 1998 Stock Option Plan(the “Plan”). Under the Plan, up to 1.2 million shares of NetRatings’common stock were initially reserved for issuance. Subsequently, an additional7.3 million shares of NetRatings’ common stock were reserved under the Plan.Options may be granted at exercise prices of no less than 85% of the fairvalue of the related common stock on the date of the grant (110% of fair valuein certain instances), as determined by the Company’s Board of Directors.Options generally vest over a four-year period and have a maximum term of tenyears. In addition to the options granted pursuant to the Plan, the Companyassumed a total of 26,000 options in connection with the Company’s purchase in2002 of the remaining 80.1% interest in eRatings.

In 2005, the Company’s Board of Directors andstockholders approved the Amended and Restated 1998 Stock Plan (the “AmendedPlan”). Under the Amended Plan, the Company is authorized to issue restrictedstock (as well as other equity-based compensation) to the Company’s employeesand members of the Board of Directors. The restricted stock has voting rightsuntil canceled. The restricted stock issued to members of the Board ofDirectors vests ratably in equal annual installments over two years, while therestricted stock issued to the Company’s non-executive employees vests ratablyin equal annual installments over three years. The restricted stock issued tothe Company’s executive officers in 2005 and 2006 primarily vests based onmeeting certain performance criteria. As of December 31, 2006, the Companyhas determined that it is probable that the performance criteria for therestricted stock grants made to executive officers in 2005 and 2006 will bemet. As a result, restricted stock issued to the Company’s executive officersin 2005 and 2006 will be expensed accordingly.

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Informationwith respect to the Plan and Amended Plan activity is summarized as follows:

| ** **                               | ** ** | ** **                    | ** ** | **Restricted Stock Outstanding** | ** ** | **Stock Options Outstanding**                 | ** ** |
|------------------------------------------|------------|-------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                               | ** ** | **Available  for Grant** | ** ** | **Number of  Restricted  Shares**     | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** | **Number of  Stock Options** | ** ** | **Weighted  Average  Exercise Price** | ** ** |
| Balance at  December 31,  2003      |       | 1,398,000                     |       |                                       | —     |                                                    |       |   | — |   |   |   | 5,033,000 |   |   |   | $ | 10.00 |   |   |
| Granted                                  |       | (1,208,000                    | )          |                                       | —     |                                                    |       |   | — |   |   |   | 1,208,000 |   |   |   | 11.29 |   |   |
| Exercised/released                       |       | —                        |       |                                       | —     |                                                    |       |   | — |   |   |   | (1,649,000 | ) |   |   | 9.63 |   |   |
| Restricted stock  withheld for  taxes(1) |       | —                        |       |                                       | —     |                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Canceled                                 |       | 481,000                       |       |                                       | —     |                                                    |       |   | — |   |   |   | (481,000 | ) |   |   | 10.81 |   |   |
| Balance at  December 31,  2004      |       | 671,000                       |       |                                       | —     |                                                    |       |   | — |   |   |   | 4,111,000 |   |   |   | 10.43 |   |   |
| Granted                                  |       | (647,000                      | )          |                                       | 545,000    |                                                    |       |   | $ | 14.96 |   |   |   | 102,000 |   |   |   | 18.25 |   |   |
| Exercised/released                       |       | —                        |       |                                       | —     |                                                    |       |   | — |   |   |   | (581,000 | ) |   |   | 8.73 |   |   |
| Released from  restriction               |       | —                        |       |                                       | (7,000     | )                                                       |       |   | 15.01 |   |   |   | — |   |   |   | — |   |   |
| Canceled                                 |       | 575,000                       |       |                                       | (53,000    | )                                                       |       |   | 15.02 |   |   |   | (522,000 | ) |   |   | 12.66 |   |   |
| Balance at  December 31,  2005      |       | 599,000                       |       |                                       | 485,000    |                                                    |       |   | 14.96 |   |   |   | 3,110,000 |   |   |   | 10.64 |   |   |
| Granted                                  |       | (548,000                      | )          |                                       | 548,000    |                                                    |       |   | 13.05 |   |   |   | — |   |   |   | — |   |   |
| Exercised/released                       |       | —                        |       |                                       | (166,000   | )                                                       |       |   | 14.88 |   |   |   | (644,000 | ) |   |   | 9.39 |   |   |
| Restricted stock  withheld for  taxes(1) |       | 34,000                        |       |                                       | —     |                                                    |       |   | — |   |   |   | — |   |   |   | — |   |   |
| Canceled                                 |       | 334,000                       |       |                                       | (93,000    | )                                                       |       |   | 14.01 |   |   |   | (241,000 | ) |   |   | 12.86 |   |   |
| Balance at December 31,  2006       |       | 419,000                       |       |                                       | 774,000    |                                                    |       |   | $ | 13.77 |   |   |   | 2,225,000 |   |   |   | $ | 10.76 |   |   |
| Options exercisable at:                  |       |                          |       |                                       |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| December 31, 2004                   |       |                          |       |                                       |       |                                                    |       |   |   |   |   |   | 1,618,000 |   |   |   | $ | 11.09 |   |   |
| December 31, 2005                   |       |                          |       |                                       |       |                                                    |       |   |   |   |   |   | 2,176,000 |   |   |   | $ | 11.19 |   |   |
| December 31,  2006                  |       |                          |       |                                       |       |                                                    |       |   |   |   |   |   | 1,971,000 |   |   |   | $ | 10.83 |   |   |

 

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(1)          Upon the release ofcertain shares of restricted stock, the Company withheld shares to satisfycertain tax obligations of the holder based on the market value of the shareson the date the shares of restricted stock were released.

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Thefollowing table summarizes information concerning options outstanding andexercisable at December 31, 2006:

| ** **                          | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**            | ** ** |                                                |
|-------------------------------------|------------|------------------------------|------------|-----------------------------------------|------------|-----------------------------------------------------|
| **Range of  Exercise  Prices** | ** ** | ** **                   | ** ** | **Number of  Shares  Outstanding** | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic  Value** | ** ** | **Number of  Shares  Exercisable** | ** ** | **Weighted  Average  Remaining  Contractual  Life** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Aggregate  Intrinsic Value** | ** ** |
| ** **                          | ** ** | **(in years)**          | ** ** | **(in years)**                     | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| $0.10 - $5.40                  |       |                         | 35,000     |                                    |       |                                                | 4.61 |   |   |   | $ | 3.76 |   |   | $ | 476,000 |   |   | 35,000 |   |   |   | 5.0 |   |   |   | $ | 3.76 |   |   |   | $ | 476,000 |   |   |   |
| $5.82 - $5.82                       |       |                         | 386,000    |                                    |       |                                                | 6.19 |   |   |   | 5.82 |   |   | 4,509,000 |   |   | 340,000 |   |   |   | 6.2 |   |   |   | 5.82 |   |   |   | 3,973,000 |   |   |   |
| $5.84 - $10.38                 |       |                         | 227,000    |                                    |       |                                                | 5.40 |   |   |   | 7.60 |   |   | 2,256,000 |   |   | 217,000 |   |   |   | 5.4 |   |   |   | 7.60 |   |   |   | 2,149,000 |   |   |   |
| $10.46 - $11.02                |       |                         | 66,000     |                                    |       |                                                | 5.38 |   |   |   | 10.88 |   |   | 436,000 |   |   | 63,000 |   |   |   | 5.3 |   |   |   | 10.89 |   |   |   | 419,000 |   |   |   |
| $11.05 - $11.05                |       |                         | 423,000    |                                    |       |                                                | 7.24 |   |   |   | 11.05 |   |   | 2,733,000 |   |   | 244,000 |   |   |   | 7.2 |   |   |   | 11.05 |   |   |   | 1,580,000 |   |   |   |
| $11.20 - $11.39                |       |                         | 9,000      |                                    |       |                                                | 5.78 |   |   |   | 11.24 |   |   | 55,000 |   |   | 8,000 |   |   |   | 5.6 |   |   |   | 11.23 |   |   |   | 48,000 |   |   |   |
| $11.55 - $11.55                     |       |                         | 241,000    |                                    |       |                                                | 5.16 |   |   |   | 11.55 |   |   | 1,436,000 |   |   | 241,000 |   |   |   | 5.2 |   |   |   | 11.55 |   |   |   | 1,436,000 |   |   |   |
| $11.90 - $12.38                |       |                         | 118,000    |                                    |       |                                                | 4.71 |   |   |   | 12.18 |   |   | 630,000 |   |   | 115,000 |   |   |   | 4.6 |   |   |   | 12.18 |   |   |   | 613,000 |   |   |   |
| $12.51 - $12.51                |       |                         | 456,000    |                                    |       |                                                | 4.83 |   |   |   | 12.51 |   |   | 2,279,000 |   |   | 456,000 |   |   |   | 4.8 |   |   |   | 12.51 |   |   |   | 2,279,000 |   |   |   |
| $12.61 - $106.83                    |       |                         | 264,000    |                                    |       |                                                | 5.11 |   |   |   | 16.72 |   |   | 843,000 |   |   | 252,000 |   |   |   | 4.6 |   |   |   | 16.71 |   |   |   | 831,000 |   |   |   |
| $0.10 -  $106.83               |       |                         | 2,225,000  |                                    |       |                                                | 5.66 |   |   |   | $ | 10.76 |   |   | $ | 15,653,000 |   |   | 1,971,000 |   |   |   | 5.4 |   |   |   | $ | 10.83 |   |   |   | $ | 13,804,000 |   |   |   |
|                                     |            |                              |            |                                         |            |                                                     |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The aggregate intrinsicvalue in the table above represents the total pretax intrinsic value, based onthe Company’s closing stock price of $17.51 on the last trading day of December 2006,which would have been received by holders of stock options had all holders ofstock options exercised their stock options that were in-the-money as ofthat date. The total number of in-the-money stock options exercisable as of December 31,2006 was approximately 2.0 million shares. The aggregate intrinsic value ofstock options exercised during the years ended December 31, 2006 and 2005were $3.4 million and $3.2 million, respectively.

**Shares Subject toVesting**

Thefollowing table summarizes the activity relating to unvested stock optiongrants and restricted stock awards during the year ended December 31,2006:

| ** **                          | ** ** | **Stock Options** | ** ** | **Restricted Stock**              | ** ** |
|-------------------------------------|------------|------------------------|------------|----------------------------------------|------------|
| ** **                          | ** ** | **Shares**             | ** ** | **Weighted  Average Fair  Value** | ** ** | **Shares** | ** ** | **Weighted  Average Fair  Value** | ** ** |
| Unvested at  December 31, 2005 |       | 936,000                |       |                                   | $          | 9.31 |   |   | 485,000 |   |   | $ | 14.96 |   |   |
| Granted                             |       | —                 |       |                                   | —     |   |   | 548,000 |   |   | 13.05 |   |   |
| Vested/Awarded                      |       | (439,000               | )          |                                   | 6.88       |   |   | (166,000 | ) |   | 14.88 |   |   |
| Forfeited                           |       | (241,000               | )          |                                   | 12.86      |   |   | (93,000 | ) |   | 14.01 |   |   |
| Unvested at  December 31, 2006 |       | 256,000                |       |                                   | $          | 10.13 |   |   | 774,000 |   |   | $ | 13.77 |   |   |

 

The total fair value of shares vested/awarded during2006 was $5.5 million.

As of December 31, 2006, there was $6.0 millionof total unrecognized compensation expense related to unvested equitycompensation awards granted under the Company’s stock plan and employee stockpurchase plan. Total expense is expected to be recognized over theweighted-average period of 2.0 years.

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**Shares Reserved forFuture Issuance**

NetRatingshas reserved shares of common stock for future issuance as of December 31,2006 and December 31, 2005 as follows:

| ** **                                              | ** ** | **2006**  | ** ** | **2005**  | ** ** |
|---------------------------------------------------------|------------|-----------|------------|-----------|------------|
| Stock options  outstanding                              |       | 2,225,000 |       | 3,110,000 |       |
| Stock options and  restricted stock available for grant |       | 419,000   |       | 599,000   |       |
| Employee stock purchase  plan                           |       | 107,000   |       | 181,000   |       |

 

**1999 Employee StockPurchase Plan**

In 1999, NetRatings’ Boardof Directors adopted the 1999 Employee Stock Purchase Plan effective upon thecompletion of NetRatings’ initial public offering of its common stock.NetRatings initially reserved a total of 0.3 million shares of commonstock for issuance under the plan, which is cumulatively increased on January 1of each year through January 1, 2010 by an amount equal to the lesser of (i) 0.5 millionshares, (ii) 2% of the number of shares of common stock that were issuedand outstanding on the preceding December 31 or (iii) a lesser amountdetermined by the Company’s Board of Directors. The Board of Directors approvedan increase of 212,297 shares in November 2004. Eligible employeesmay purchase common stock at 85% of the lesser of the fair market value ofthe Company’s common stock on the first day of the applicable offering periodor the date of purchase. All NetRatings’ employees in the U.S. are eligible toparticipate in the Employee Stock Purchase Plan except employees who (i) normallywork 20 hours or less per week, (ii) normally work 5 months orless per year or (iii) are 5% or greater shareholders of NetRatings.Eligible employees may contribute from 1%-15% of their after taxcompensation from each paycheck during each six month purchase period. However,no person may purchase more than 2,500 shares on a purchase date.Furthermore, pursuant to the Internal Revenue Code, no person may purchasestock under the Plan valued at more than $25,000 in any calendar year. Sharesissued under the employee stock purchase plan totaled 74,000 and 69,000 in 2006and 2005, respectively.

**Deferred ServiceCosts**

In 1999, NetRatingsrecorded a deferred charge totaling $46.7 million representing the valueof warrants issued to Nielsen Media Research, which were exercised in December 1999.The value of the warrants was determined using the Black-Scholes valuationmodel and was amortized to operating expense through December 31, 2004.Amortization expense was $7.6 million for the year ended December 31,2004, and is included in stock-based compensation in the accompanyingconsolidated statements of operations. As of December 31, 2004, thedeferred service costs had been fully amortized.

**Use of Estimates**

The preparation of theseconsolidated financial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and the disclosure of contingentassets and liabilities at the date of the consolidated financial statements andthe reported amounts of revenues and expenses during the reporting period. Onan ongoing basis, management evaluates its estimates and judgments, includingthose related to the revenue recognition, collectibility of receivables, thevaluation of fixed assets, goodwill, intangible assets, including depreciablelives assigned, marketable securities and income taxes, as well as theestimates and judgments relating to the valuation of certain liabilities,including restructuring liabilities, service periods for stock awards withperformance criteria, and contingencies and litigation. NetRatings’ managementbases its estimates and judgments about the carrying values of assets andliabilities on 

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historicalexperience and on various other factors that are believed to be reasonableunder the circumstances. Actual results may differ from these estimatesunder different assumptions or conditions.

**Recent AccountingPronouncements**

In June 2006, the FASB issued FASB InterpretationNo. 48, “Accounting for Uncertainty in Income Taxes—an interpretation ofFASB No. 109” (“FIN 48”).****FIN48 prescribes a comprehensive model for recognizing, measuring, presenting anddisclosing in the financial statements tax positions taken or expected to betaken on a tax return, including a decision whether to file or not to file in aparticular jurisdiction. FIN 48 is effective for fiscal years beginning after December 15,2006. If there are changes in net assets as a result of the application of FIN48, these will be accounted for as an adjustment to retained earnings. TheCompany is currently assessing the impact of FIN 48 on its consolidatedfinancial position, results of operations and cash flows.

In September 2006, the SEC issued SAB No. 108, “Considering the Effects of PriorYear Misstatements when Quantifying Misstatements in Current Year FinancialStatements” (“SAB 108”). SAB 108 expresses the views of the SEC regardingthe process of quantifying financial statement misstatements to determine ifany restatement of prior financial statements is required. SAB 108 addressesthe two techniques commonly used in practice in accumulating and quantifyingmisstatements, and requires that the technique with the most severe result beused in determining whether a misstatement is material. SAB 108 is required tobe adopted by the Company on January 1, 2007. The adoption of thisstandard is not expected to have a material impact on the Company’s financialcondition, results of operation or cash flows.

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS 157”), which provides guidance for measuringthe fair value of assets and liabilities, as well as requires expandeddisclosures about fair value measurements. SFAS 157 indicates that fair valueshould be determined based on the assumptions marketplace participants woulduse in pricing the asset or liability, and provides additional guidelines toconsider in determining the market-based measurement. The Company will berequired to adopt SFAS 157 on January 1, 2008. The adoption of this standardis not expected to have a material impact on the Company’s financial condition,results of operation or cash flows.

In February 2007, theFASB issued SFAS No. 159, “The Fair Value Option for Financial Assets andFinancial Liabilities” (SFAS 159). SFAS 159 permits companies to choose tomeasure certain financial instruments and certain other items at fair value. Thestandard requires that unrealized gains and losses on items for which the fairvalue option has been elected be reported in earnings. SFAS 159 is effectivefor the Company beginning in the first quarter of fiscal year 2008, althoughearlier adoption is permitted. The Company is currently evaluating the impactof adopting SFAS 159 on its financial position, results of operations and cashflows.

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**Note 2:Balance Sheet Details**

Details of balancesheet items as of December 31, 2006 and 2005 are as follows (inthousands):

Thefollowing is a summary of the estimated fair value of cash and cash equivalentsand available for sale investments based on quoted market prices as of December 31,2006 and 2005:

| ** **                                                        | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------|------------|
| Cash and cash  equivalents                                        |       | $          | 52,180     |       | $          | 34,940 |   |
| Available for sale  investments:                                  |       |       |       |       |       |
| Auction rate securities                                           |       | 49,140     |       | 54,070     |       |
| Corporate notes                                                   |       | 36,931     |       | 26,644     |       |
| Commercial paper                                                  |       | 9,578      |       | 2,018      |       |
| Euro dollar bonds                                                 |       | 18,497     |       | 23,248     |       |
| Floating rate bonds                                               |       | 10,995     |       | 2,008      |       |
| U.S. government and agency securities                             |       | 9,692      |       | 37,324     |       |
| Total available for sale investments                              |       | 134,833    |       | 145,312    |       |
| Total cash and cash equivalents and marketable  securities        |       | $          | 187,013    |       | $          | 180,252 |   |
| Cash and cash  equivalents and marketable securities reported as: | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash equivalents                                         |       | $          | 52,180     |       | $          | 34,940 |   |
| Short-term marketable securities                                  |       | 119,513    |       | 116,731    |       |
| Long-term marketable securities                                   |       | 15,320     |       | 28,581     |       |
| Total cash and  cash equivalents and marketable securities        |       | $          | 187,013    |       | $          | 180,252 |   |

 

Marketable securities with a maturity date greaterthan one year and in a loss position as of December 31, 2006 are reportedas long-term marketable securities on the balance sheet. All other marketablesecurities are reported as short-term marketable securities.

Propertyand equipment, net:

| Computer  equipment and software          |   | $       | 21,360 |   | $      | 15,471 |   |
|-------------------------------------------|--------|---------|--------|--------|--------|--------|--------|
| Office equipment,  furniture and fixtures |   | 352     |   | 298    |   |
| Leasehold  improvements                   |   | 1,104   |   | 990    |   |
|                                      |   | 22,816  |   | 16,759 |   |
| Less accumulated  depreciation            |   | (13,234 | )      | (8,932 | )      |
| Property and equipment,  net              |   | $       | 9,582  |   | $      | 7,827  |   |

 

Accruedliabilities:

| Accrued  compensation                  |   | $      | 7,760  |   | $      | 5,981  |   |
|----------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Accrual for stock  repurchases         |   | — |   | 1,937  |   |
| Acquisition  related transaction costs |   | 369    |   | 362    |   |
| Other accrued  liabilities             |   | 5,315  |   | 3,156  |   |
| Accrued liabilities                    |   | $      | 13,444 |   | $      | 11,436 |   |

 

**Note 3:Acquisitions**

In December 2003, NetRatings acquired 58% of thecommon stock of Red Sheriff Ltd., a site-centric-based Internet audiencemeasurement company. During the first half of 2004, NetRatings acquired theremaining shares of common stock in Red Sheriff thereby increasing itsownership to 100% of the company.

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During the third quarter of 2004, NetRatings Japansold a small ownership interest in NetRatings Japan to a third party for atotal of $0.2 million. As a result of this transaction, the Company’sstockholders’ equity increased by $0.1 million, and its equity ownership inNetRatings Japan decreased from 58.2% to approximately 56.5%. On December 1,2004, Red Sheriff K.K., a wholly-owned subsidiary of the Company, merged withand into NetRatings Japan, whereupon new shares of NetRatings Japan were issuedto the Company. As a result, Red Sheriff K.K. became a wholly-owned subsidiaryof NetRatings Japan. At the same time, NetRatings sold shares of NetRatingsJapan to TransCosmos for a total of $0.8 million so that TransCosmos wouldmaintain its existing stake in NetRatings Japan. As a result of thesetransactions, NetRatings increased its ownership of NetRatings Japan to 56.8%.These transactions resulted in a net decrease to goodwill of $0.8 millionrelated to the acquisition of Red Sheriff.

On February 25, 2005, NetRatings acquired theremaining 50% of its Italian joint venture, Red Sheriff S.r.l., forapproximately $2.0 million in cash, resulting in an increase to goodwill ofapproximately $1.9 million. Red Sheriff S.r.l. was subsequently renamedNetRatings Italia S.r.l.

NetRatings accounts for its acquisitions under thepurchase method. The allocation of purchase price related to the acquisitionsreflects the fair value of the acquired assets and liabilities. The results ofoperations of each acquired entity are reflected in the consolidated results ofoperations beginning on their respective acquisition dates. Prior to theCompany’s majority ownership of NetRatings Italia S.r.l., NetRatings recordedits equity share of this joint venture’s gains or losses in equity in earnings(losses) of joint venture. Effective February 2005, the financial resultsof NetRatings Italia S.r.l. are consolidated into the Company’s consolidatedfinancial statements.

Results of operations for each of the acquiredcompanies are included prospectively from the date of acquisition. Pro formaresults of operations reflecting the 2004 and 2005 acquisitions have not beenpresented because the results of operations of the acquired companies, eitherindividually or collectively, are not material to the Company’s results ofoperations.

There was no acquisitionactivity for the year ended December 31, 2006.

**Note 4:Goodwill and Intangible Assets**

During the first quarter of 2006, NetRatings finalizedthe purchase price allocation related to Red Sheriff S.r.l. resulting in adecrease in goodwill of approximately $0.1 million. During the years ended December 31,2006 and 2005, the Company also used net operating loss carryforwards ofacquired companies, resulting in a decrease in goodwill of approximately $0.5million and $0.1 million, respectively.

Goodwilland other intangible assets along with their weighted average life, at December 31,2006 and 2005, consisted of the following (in thousands, except weightedaverage life):

| ** **                                     | ** ** | **December 31, 2006** | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **Gross  carrying  amount**     | ** ** | **Accumulated  amortization** | ** ** | **Net** | ** ** | **Weighted  average  life** | ** ** |
| Intangible assets  continuing to be amortized: |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Core technologies                              |       | $                               | 5,482      |   |   | $ | 3,473 |   |   | $ | 2,009 |   |   | 7 |   |   |
| Customer contracts                             |       | 4,940                           |       |   | 4,340 |   |   | 600 |   |   | 3 |   |   |
| Patents and other                              |       | 15,682                          |       |   | 7,390 |   |   | 8,292 |   |   | 11 |   |   |
| Total                                          |       | $                               | 26,104     |   |   | $ | 15,203 |   |   | 10,901 |   |   |   |   |   |
| Goodwill                                       |       |                            |       |   |   |   |   | 76,301 |   |   |   |   |   |
| Total goodwill and other  intangible assets    |       |                            |       |   |   |   |   | $ | 87,202 |   |   |   |   |   |

 

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| ** **                                     | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|
| ** **                                     | ** ** | **Gross  carrying  amount**     | ** ** | **Accumulated  amortization** | ** ** | **Net** | ** ** | **Weighted  average  life** | ** ** |
| Intangible assets  continuing to be amortized: |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Core technologies                              |       | $                               | 5,482      |   |   | $ | 2,691 |   |   | $ | 2,791 |   |   | 7 |   |   |
| Customer contracts                             |       | 4,940                           |       |   | 3,740 |   |   | 1,200 |   |   | 3 |   |   |
| Patents and other                              |       | 15,682                          |       |   | 6,395 |   |   | 9,287 |   |   | 11 |   |   |
| Total                                          |       | $                               | 26,104     |   |   | $ | 12,826 |   |   | 13,278 |   |   |   |   |   |
| Goodwill                                       |       |                            |       |   |   |   |   | 76,856 |   |   |   |   |   |
| Total goodwill and other  intangible assets    |       |                            |       |   |   |   |   | $ | 90,134 |   |   |   |   |   |

 

Based on the currentamount of intangible assets subject to amortization, the estimated amortizationexpense for each of the succeeding five years is as follows: 2007:$2.4 million; 2008: $1.8 million; 2009: $1.4 million; 2010: $1.1million; and 2011: $1.0 million.

**Note 5:Restructuring Liabilities**

The Company’s restructuring liabilities consisted of (i) arestructuring plan approved by management and initiated in the third quarter of2005, which included the termination of 10 employees all of which wereterminated as of December 31, 2005, and (ii) an acquisition in 2002for which a lease commitment accrual remains.

Thefollowing tables summarize activity associated with the Company’s restructuringliabilities for the years ended December 31, 2006 and 2005 (in thousands):

| ** **                   | ** ** | **Balance  December 31,  2005** | ** ** | **Additions** | ** ** | **Utilized  Cash** | ** ** | **Balance  December 31,  2006** | ** ** |
|------------------------------|------------|--------------------------------------|------------|---------------|------------|--------------------|------------|--------------------------------------|------------|
| Employee  severance benefits |       |                                 | $          | 699           |       |               |       | $                                    | —     |   |   | $ | (699 | ) |   | $ | — |   |   |
| Lease commitments            |       |                                 | 757        |          |       |               | —     |                                 |       | (339 | ) |   | 418 |   |   |
| Totals                       |       |                                 | $          | 1,456         |       |               |       | $                                    | —     |   |   | $ | (1,038 | ) |   | $ | 418 |   |   |

 

| ** **                   | ** ** | **Balance  December 31,  2004** | ** ** | **Additions** | ** ** | **Utilized  Cash** | ** ** | **Balance  December 31,  2005** | ** ** |
|------------------------------|------------|--------------------------------------|------------|---------------|------------|--------------------|------------|--------------------------------------|------------|
| Employee  severance benefits |       |                                 | $          | —        |       |               |       | $                                    | 1,700      |   |   | $ | (1,001 | ) |   | $ | 699 |   |   |
| Lease commitments            |       |                                 | 1,424      |          |       |               | —     |                                 |       | (667 | ) |   | 757 |   |   |
| Total                        |       |                                 | $          | 1,424         |       |               |       | $                                    | 1,700      |   |   | $ | (1,668 | ) |   | $ | 1,456 |   |   |

 

The long-term portion ofrestructuring liabilities on the consolidated balance sheet relates to idlefacility lease commitments, which are estimated to be completed by the firstquarter of 2008.

**Note 6: PatentEnforcement Program and Licensing Revenue**

In 2005, NetRatingscommenced a patent enforcement program to protect the Company’s investments inits patented technologies related to the collection, analysis and reporting ofInternet and/or computer usage and activity. The Company’s licensingarrangements may be structured in a variety of different ways, including lumpsum payments, short-term payments or payments over an extended period. As aresult, the Company’s licensing revenues could be significantly higher or lowerfrom one period to a subsequent period. Legal expenses related to the Company’spatent enforcement program are included in general and 

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administrativeexpenses. Total licensing revenue for the years ended December 31, 2006and 2005 was $7.0 million and $0.2 million, respectively.

**Note 7:Stockholders’ Equity**

**Common Stock**

The Company’s Board ofDirectors is authorized, subject to limitations prescribed by Delaware law, toissue up to 200 million shares of common stock. At December 31, 2006,38.7 million shares of common stock were issued and 35.3 millionshares were outstanding. The Company issued 0.9 million and 0.7 millionshares of common stock during 2006 and 2005, respectively, in connection withthe Company’s stock compensation plans.

**Common StockRepurchases/Treasury Stock**

In March 2002, two former executives exercisedtheir rights pursuant to stock repurchase agreements. Pursuant to these agreements,NetRatings repurchased 1.5 million shares of NetRatings common stock heldby them. The repurchase price was based on the average closing price ofNetRatings common stock for the ten trading days preceding the request forrepurchase. Accordingly, NetRatings repurchased the shares for approximately$13.75 per share for a total aggregate repurchase price of $20.6 million.

On November 3, 2005,the Company announced that its Board of Directors authorized a stock repurchaseprogram. Under this program, the Company was authorized to repurchase up to$25 million of the Company’s common stock in the open market or inprivately negotiated transactions. As of December 31, 2005, the Companyrepurchased approximately 1.1 million shares of common stock for an aggregatecost, including commissions, of $15.4 million, or an average of $13.40 pershare. During the first quarter of 2006, the Company repurchased an additional0.8 million shares for an aggregate cost, including commissions, of $9.6million, or an average of $12.70 per share. The Company completed its stockrepurchase program in February 2006.

**Note 8: JointVentures**

In June 1999, NetRatings granted a license forthe use of its proprietary software to NetRatings Japan, in which it held adirect ownership interest of approximately 49%. The joint venture was formed toadapt, market, service and sell interactive media and market research data inJapan. NetRatings made a capital contribution of $1.3 million for the yearended December 31, 2001. On April 1, 2003, NetRatings increased itsownership in NetRatings Japan to 58% for an additional investment ofapproximately $1.1 million. Effective April 1, 2003, the Companyconsolidates the results of operations and financial position of NetRatingsJapan in its consolidated financial statements.

In January 2000, NetRatings established a jointventure in France, Mediametrie NetRatings, in which it held a 30% ownershipinterest. On May 7, 2002, NetRatings increased its ownership inMediametrie NetRatings to 50% as a result of the Company’s acquisition ofACNielsen eRatings.com, which held a 20% ownership interest in MediametrieNetRatings. Mediametrie NetRatings is responsible for building and maintaininga French audience measurement panel. Effective November 1, 2003, NetRatingsincreased its ownership in Mediametrie NetRatings to 66% in exchange for thefair value of customer contracts assigned to Mediametrie NetRatings in 2003 and2002. Effective November 1, 2003, the Company consolidates the results ofoperations and financial position for Mediametrie NetRatings in itsconsolidated financial statements.

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On May 7, 2002,NetRatings acquired a 49% stake in Ibope eRatings.com, its Latin America jointventure, through the acquisition of ACNielsen eRatings.com and recorded thisinvestment using the equity method. In accordance with APB 18, the Company recordedlosses to the extent of its investments and outstanding advances, therebyreducing its investment in Ibope eRatings.com to zero in the first quarter of2004. In addition, NetRatings has no financial support commitments to IbopeeRatings.com and therefore does not presently recognize its share of IbopeeRatings.com’s net losses in NetRatings’ consolidated financial statements.

In connection withNetRatings’ acquisition of Red Sheriff in December 2004, NetRatingsacquired a 50% stake in NetRatings Italia S.r.l. At the end of the firstquarter in 2005, the Company purchased the remaining 50% interest in NetRatingsItalia S.r.l., which resulted in its results of operations being reported inNetRatings’ consolidated results rather than in equity in earnings of jointventures. As a result, the Company’s sole remaining joint venture relationshipis Ibope eRatings.com.

Thetransactions between the Company and Ibope eRatings.com, as well as theCompany’s majority-owned subsidiaries prior to consolidation, involve the allocationof revenue and expense. Revenue from Internet audience measurement services,which can either be sold by NetRatings or the joint venture partner, isallocated between the two parties based on the location of the customer and thelocation of the panel whose data is used in the service. NetRatings recordscommission revenue and expense related to these sales ratably over the periodof the contract in the revenue and cost of revenue lines in its statement ofoperations.

·       Thejoint venture retains 100% of any revenue from services that the joint venturesells to customers within its own country based on data from its panels;

·       NetRatingsand the joint venture each record a 50% international panel fee from servicesthat NetRatings sells to customers based on data from the joint venture’spanels or services that the joint venture sells to customers within its countrybased on NetRatings’ panel data; and

·       Ifeither NetRatings or the joint venture sells services based on data from acombination of the NetRatings and joint venture’s panels, the allocation ofrevenues is determined by an operating committee consisting of tworepresentatives of each company, with any decisions requiring a unanimous voteof those present, which must include at least one representative of eachcompany.

The Company’s joint ventures pay the Company a royaltyfor the use of its technology. This royalty revenue is based on a percentage ofeach sale made by the Company’s equity method investees pursuant to each jointventure’s operating agreement. This revenue is recognized ratably over theperiod of the contract in the Company’s consolidated statement of operations.

Forthe years ended December 31, 2006, 2005 and 2004, the Company recorded thefollowing transactions related to its equity owned joint ventures:

| ** **                                          | ** ** | **2006**                | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|
| ** **                                          | ** ** | **(in thousands)** | ** ** |
| Revenue                                             |       | $                       | 138        |     | $          | 91       |       | $ | 73 |   |
| Commission expense                                  |       | 104                     |       | 58       |       | 52       |       |
| Royalty revenue                                     |       | —                  |       | 36       |       | 79       |       |
| Reimbursement for data hosting and support services |       | 135                     |       | 135      |       | 135      |       |
|                                                     |            |                         |            |          |            |          |            |  |  |  |

 

The transactions betweenthe Company and its joint ventures relating to allocation of revenue, paymentof a technology royalty and data hosting and support services described in thisNote 8 are included in the operating statement of the Company’s equity methodjoint ventures as well. The Company records its percentage of the joint venture’snet profit (loss) in the net equity in earnings (losses) of joint ventures lineof the accompanying statement of operations.

NetRatings also providesdata hosting and support services to the joint ventures, including data centeroperations and engineering expertise. Reimbursements from joint venturesrelated to these services, and 

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suchreimbursements have been netted against the respective expense categories inthe accompanying consolidated statements of operations.

**Note 9: Related Party Transactions**

NetRatings obtains itsdirectors and officers, property, general and workers compensation insurancethrough The Nielsen Company B.V., which indirectly owns 100% of the votingstock of Nielsen Media Research and ACNielsen Corporation. The costs incurredfor these services were approximately $0.2 million for each of the three yearsended December 31, 2006, 2005, and 2004 respectively.

In August 1999,NetRatings entered into an operating agreement with Nielsen Media Research.Under the terms of the operating agreement, NetRatings paid Nielsen MediaResearch a 35% commission for selling services to certain customers. In May 2002,this agreement was amended to provide that, in lieu of paying commissions,NetRatings will pay the actual costs associated with the operation andmaintenance by Nielsen Media Research of a sales force dedicated to sellingNetRatings’ products and services. This expense totaled approximately $0.3million, $0.3 million, and $0.5 million for the years ended December 31,2006, 2005 and 2004, respectively.

In April 2005,Nielsen Media Research and NetRatings signed a series of agreements pursuant towhich the parties have cooperated in the development and operation of a patentenforcement program. Under the patent enforcement program, NetRatings hascontacted a series of companies in the web analytics and online advertisingfields regarding the licensing of a portfolio of patents that are owned orjointly owned (with Nielsen Media Research) by NetRatings. As part of thepatent licensing program, NetRatings has also initiated a number of patentinfringement lawsuits, five of which have been settled. Under each of the fivesettlements, NetRatings has licensed certain patents in exchange for license orroyalty fees. Pursuant to the agreements between Nielsen Media Research andNetRatings, the two parties (i) split the fees and expenses relating tothe patent licensing program on a 50/50 basis and (ii) split the proceedsfrom the patent enforcement program on a 50/50 basis, subject to payments tothe law firm coordinating the patent enforcement program.

NetRatings is also chargedby Nielsen Media Research for the costs of maintaining the U.S. home andat-work NetView panels. These costs totaled $2.3 million, $2.5 million and$3.1 million for the years ended December 31, 2006, 2005 and 2004,respectively, and are included in cost of revenue in the accompanyingconsolidated statements of operations.

In the fourth quarter of2003, Nielsen Media Research started providing services to recruit and surveyrespondents for NetRatings’ @Plan service. The cost incurred for these serviceswas $2.8 million, $2.4 million and $2.2 million for the years ended December 31,2006, 2005 and 2004, respectively, and is included in cost of revenue in theaccompanying consolidated statement of operations.

In March 2004,NetRatings engaged Nielsen Media Research to provide technology hostingservices for its U.S. data center operations. The cost incurred in 2006 and 2005for these services was $0.8 and $0.6 million, respectively, and is included incost of revenue in the accompanying consolidated statement of operations.

As of December 31,1999, Nielsen Media Research became a wholly owned subsidiary of The NielsenCompany. As Nielsen Media Research is a majority stockholder of NetRatings, TheNielsen Company is required to consolidate NetRatings’ operating results withits own for financial reporting purposes. As of December 31, 2006 and2005, The Nielsen Company owned, through its subsidiaries, approximately 60% ofthe outstanding common stock of NetRatings.

Since May 2002,ACNielsen has provided back office services for the Company’s internationaloperations, other than those previously operated by Red Sheriff. These servicesinclude payment of all international operating expenses for which NetRatingsreimburses ACNielsen on a quarterly basis. Fees related to these back officeservices were approximately $0.4 million, $0.9 million and $0.8 millionfor the years ended December 31, 2006, 2005 and 2004, respectively. During2006, the Company completed the 

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processof transitioning these services out of ACNielsen in certain countries, althoughACNielsen still provides these services in several international jurisdictions.NetRatings also rents office space in ACNielsen offices for some of itsinternational sales offices. Charges related to this office space and relatedoffice expenses were approximately $0.2 million for the year ended December 31,2006 and approximately $0.4 million for each of the years ended December 31,2005 and 2004.

Mediametrie is theminority shareholder of Mediametrie NetRatings. In January 2005,Mediametrie started performing custom research services for MediametrieNetRatings. The cost incurred for these services was $0.4 million for the yearsended December 31, 2006 and 2005.

As of December 31,2004, the Company was owed $1.2 million from related parties, which representeda loan made by NetRatings Japan to TransCosmos, one of its minorityshareholders. The $1.2 million loan was paid in the second quarter of 2005. 

Thefollowing is a summary of amounts due to related parties as of December 31,2006 and 2005 (in thousands):

| ** **                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Due to The Nielsen  Company and its affiliates |       | $        | 4,854      |     | $          | 6,317 |   |
| Due to Ibope  eRatings.com                     |       | 654      |       | 549      |       |
| Due to Mediametrie                             |       | 439      |       | 220      |       |
| Due to related parties                         |       | $        | 5,947      |     | $          | 7,086 |   |

 

**Note 10: Commitments and Contingencies**

**Lines of Credit**

The Company has two linesof credit available totaling $162,000. Borrowings under these lines of creditbear interest at 8.375%. There have been no borrowings under these lines ofcredit.

**Leases**

As of December 31,2006, non-cancelable operating lease agreements with terms in excess of oneyear were as follows (in thousands):

| **Year ending December 31:** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|
| 2007                                        |       | $          | 2,890      |       |
| 2008                                        |       | 1,798      |       |
| 2009                                        |       | 1,341      |       |
| 2010                                        |       | 376        |       |
| 2011 and thereafter                         |       | 66         |       |
| Total minimum lease payments                |       | $          | 6,471      |       |

 

Future rent paymentsrelated to idle facility space, net of sublease income, of $0.4 million areincluded in restructuring liabilities (Note 5). Sublease rental payments were$0.2 million, $0.1 million and $0 for the years ended December 31, 2006,2005 and 2004, respectively.

The Company has a $35,000letter of credit to support its lease obligation at one of its locations. Theletter of credit is valid through May 2011 and, if drawn upon, bears interestat 8.375%.

Rent expense was $3.0million, $3.1 million and $3.1 million for the years ended December 31,2006, 2005 and 2004, respectively.

**Litigation**

The Company is a party tovarious legal proceedings, including the legal proceedings described below.Although it is impossible to predict the outcome of any legal proceeding, theCompany believes any liability that may finally be determined with respect tosuch legal proceedings should not have a material effect on the Company’sconsolidated financial position, results of operations or cash flows.

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*Securities Class Action*

A class actionlawsuit was filed on November 6, 2001 in the United States District Courtfor the Southern District of New York on behalf of purchasers of NetRatings’common stock alleging violations of federal securities laws. The case is nowdesignated as In re NetRatings, Inc. Initial Public Offering SecuritiesLitigation, related to In re Initial Public Offerings Securities Litigation.The case is brought purportedly on behalf of all persons who purchased theCompany’s common stock from December 8, 1999 through December 6,2000. The complaint names as defendants NetRatings; two of the Company’s formerdirectors; and investment banking firms that served as underwriters for theCompany’s initial public offering in December 1999. The Plaintiffselectronically served an amended complaint on or about April 19, 2002. Theamended complaint alleges violations of Section 11 and 15 of theSecurities Act of 1933, and Section 10(b) of the Securities ExchangeAct of 1934, on the grounds that the prospectus incorporated in theregistration statement for the offering failed to disclose, among other things,that (i) the underwriters had solicited and received excessive andundisclosed commissions from certain investors in exchange for which theunderwriters allocated to those investors material portions of the shares ofthe Company’s stock sold in the initial public offering, and (ii) theunderwriters had entered into agreements with customers whereby theunderwriters agreed to allocate shares of the Company’s stock sold in theinitial public offering to those customers in exchange for which the customersagreed to purchase additional shares of the Company’s stock in the aftermarketat pre-determined prices. The amended complaint also alleges that false analystreports were issued following the IPO. No specific damages are claimed.

Similar allegations weremade in lawsuits relating to more than 300 other initial public offeringsconducted in 1999 and 2000. The cases were consolidated for pretrial purposesbefore the Honorable Judge Shira A. Scheindlin. On July 15, 2002, we (aswell as the other issuer defendants) filed a motion to dismiss the complaint.The motions were heard on November 1, 2002. In February 2003, thejudge granted the motion to dismiss certain of the claims against NetRatingsand the two individual defendants and denied the motion to dismiss certain otherclaims against NetRatings and the two individual defendants. In July 2004,the Company and the individual defendants accepted a settlement proposal madeto all of the issuer defendants. Under the terms of the settlement, theplaintiffs will dismiss and release all claims against participating defendantsin exchange for a contingent payment guaranty by the insurance companiescollectively responsible for insuring the issuers in all related cases, and theassignment or surrender to the plaintiffs of certain claims the issuerdefendants may have against the underwriters. Under the guaranty, theinsurers will be required to pay the amount, if any, by which $1 billionexceeds the aggregate amount ultimately collected by the plaintiffs from the underwriterdefendants in all the cases. The settlement is subject to approval of theCourt, which cannot be assured. If the settlement is not approved by the Court,the Company intends to defend the lawsuit vigorously. However, the litigationis in the preliminary stage, and the Company cannot predict its outcome. Thelitigation process is inherently uncertain. If litigation proceedings and itsoutcome is adverse to the Company and if the Company is required to paysignificant monetary damages, an adverse outcome could materially affect ourresults of operations and financial position.

*Patent Litigation*

In the first half of 2005, NetRatings decided tolaunch a coordinated program to enforce its intellectual property rightsagainst various companies that operate in the Web analytics, online advertisingand related Internet technology fields. The patent enforcement programcontemplates both negotiating patent licensing deals outside the litigationcontext and initiating patent infringement lawsuits where it is believed such astep is necessary to enforce our intellectual property rights. Pursuant to thispatent enforcement program, in 2005 and 2006 NetRatings filed patentinfringement lawsuits against a number of Web analytics and Internet technologycompanies. Each of the complaints filed in these lawsuits alleged that thedefendant infringes patents owned or controlled by NetRatings which relategenerally to the 

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collection, analysis andreporting of information concerning Internet and/or computer usage andactivity. Each of the complaints seeks, among other things, injunctive reliefenjoining further infringement of such patents as well as compensatory andother damages. In the fourth quarter of 2005, NetRatings settled one of thepatent infringement lawsuits it had filed, and in 2006 NetRatings settled fouradditional patent infringement lawsuits. Under each of these settlements,NetRatings has licensed certain of its patents in exchange for license orroyalty fees payable to NetRatings.

In February 2006,WebSideStory, Inc., a company sued by NetRatings as part of the patentenforcement program, filed a patent infringement lawsuit against NetRatings inthe United States District Court for the Southern District of California.This lawsuit alleges that NetRatings infringes a patent owned by WebSideStoryand is seeking unspecified monetary damages and injunctive relief. WhileNetRatings believes this lawsuit is without merit, there are no assurances thatit will prevail in this litigation. NetRatings also cannot estimate the financialimpact to the company in the event that it does not prevail in defending thislawsuit.

*Consolidated Shareholders Litigation*

Following the October 9, 2006 announcement of TheNielsen Company’s proposal to purchase all of the outstanding shares of NetRatings’common stock at a price of $16 per share in cash, three substantially similarputative class action lawsuits were filed, two on October 9, 2006 and oneon October 10, 2006, by certain stockholders of the Company against theCompany, The Nielsen Company and the Company’s directors in the Delaware Courtof Chancery. Additionally, one putative class action lawsuit was filed on November 6,2006 by a stockholder of the Company against the Company, The Nielsen Companyand the Company’s directors in the Supreme Court of the State of New York,County of New York. The complaints in these actions, which purported to bebrought on behalf of all of stockholders of the Company excluding thedefendants and their affiliates, generally alleged (i) breaches of fiduciaryduty by the Company’s directors, (ii) that the consideration offered byThe Nielsen Company was inadequate and constituted unfair dealing and (iii) thatThe Nielsen Company, as controlling stockholder, breached its duty to theremaining stockholders of NetRatings by acting to further its own interests atthe expense of the remaining stockholders of NetRatings. The complaintssought to enjoin the proposal, or in the alternative, damages in an unspecifiedamount and rescission in the event a merger occurred pursuant to the proposal.The Delaware actions were consolidated under the caption *In re:NetRatings, Inc., Consolidated Shareholders Litigation*.

On February 5, 2007,Judge Leo E. Strine of the Delaware Court of Chancery granted the Delawareplaintiffs’ notice to voluntarily dismiss the Delaware consolidated actionswithout prejudice. No compensation has passed from any defendant in that actionto the Delaware plaintiffs or their attorneys and no promise to give any suchcompensation has been made.

The New York complaint hasnot been served on any of the defendants in the action. To the extent thisaction proceeds, the Company believes it is without merit and intends to defendit vigorously.

**Note 11: Industry Segment and Foreign Operations**

NetRatings operates in onesegment for providing media and market research focused on Internet audiencebehavior and activity. For geographical reporting, revenues are attributed tothe geographic location in which the customer is located. The Company’sgeographic regions include the United States (US), Europe, Middle East andAfrica (EMEA), and Asia Pacific and Latin America (APLA). Long-lived assetsconsist primarily of property and equipment and are attributed to thegeographic location in which they are located. Licensing revenue from theCompany’s patent enforcement program is attributed to the US region.

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Thefollowing table sets forth revenue and property and equipment by geographicregion:

| ** **              | ** ** | **For the year ended  December 31, 2006** | ** ** |
|-------------------------|------------|--------------------------------------------------------------------|------------|
| ** **              | ** ** | **US**                                                             | ** ** | **EMEA** | ** ** | **APLA** | ** ** | **Total** | ** ** |
| Revenue                 |       | $                                                                  | 42,387     |   | $ | 22,016 |   | $ | 17,366 |   | $ | 81,769 |   |
| Property and equipment* |       | 4,910                                                              |       | 1,829 |   | 2,843 |   | 9,582 |   |
|                         |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |

 

| ** **              | ** ** | **For the year ended  December 31, 2005** | ** ** |
|-------------------------|------------|--------------------------------------------------------------------|------------|
| ** **              | ** ** | **US**                                                             | ** ** | **EMEA** | ** ** | **APLA** | ** ** | **Total** | ** ** |
| Revenue                 |       | $                                                                  | 31,734     |   | $ | 21,551 |   | $ | 14,732 |   | $ | 68,017 |   |
| Property and equipment* |       | 4,394                                                              |       | 1,153 |   | 2,280 |   | 7,827 |   |
|                         |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |

 

| ** **              | ** ** | **For the year ended  December 31, 2004** | ** ** |
|-------------------------|------------|--------------------------------------------------------------------|------------|
| ** **              | ** ** | **US**                                                             | ** ** | **EMEA** | ** ** | **APLA** | ** ** | **Total** | ** ** |
| Revenue                 |       | $                                                                  | 28,059     |   | $ | 19,432 |   | $ | 11,803 |   | $ | 59,294 |   |
| Property and equipment* |       | 2,534                                                              |       | 1,712 |   | 1,731 |   | 5,977 |   |
|                         |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |

 

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*                    Theamounts indicated for property and equipment are as of December 31, 2006,2005 and 2004, respectively.

**Note 12:Income Taxes**

Noincome tax expense was recorded for the year ended December 31, 2004. Thecomponents of the provision for income taxes for the years ended December 31,2006 and 2005 are as follows (in thousands):

| ** **          | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------|------------|----------|------------|----------|------------|
| Current:            |       |     |       |     |       |
| Federal             |       | $        | 89         |     | $          | — |   |
| State               |       | 158      |       | —   |       |
| Foreign             |       | 1,182    |       | 320      |       |
|                |       | 1,429    |       | 320      |       |
| Deferred:           |       |     |       |     |       |
| Federal             |       | —   |       | —   |       |
| State               |       | —   |       | —   |       |
| Foreign             |       | —   |       | —   |       |
|                |       | —   |       | —   |       |
| Total tax provision |       | $        | 1,429      |     | $          | 320 |   |

 

Thedifference between the income tax expense (benefit) and the amount computed byapplying the federal statutory income tax rate to income (loss) before incometaxes for the years ended December 31, 2006 and 2005 is as follows (inthousands):

| ** **                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
| Income tax  expense (benefit) at federal statutory rate |       | $        | 1,361      |     | $          | (2,841 | ) |
| State taxes (net  of federal benefit)                   |       | 158      |       | (450     | )          |
| Deferred tax  assets not benefited                      |       | 286      |       | 3,616    |       |
| Foreign rate  differential                              |       | 53       |       | (56      | )          |
| Research and  development credit                        |       | (514     | )          | —   |       |
| Other                                                   |       | 85       |       | 51       |       |
| Provision for taxes                                     |       | $        | 1,429      |     | $          | 320 |   |

 

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Significantcomponents of NetRatings’ net deferred tax assets are as follows:

| ** **                                                        | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax  assets:                                             |       |     |       |     |       |
| Net operating loss carryforwards                                  |       | $        | 34,946     |     | $          | 33,185 |   |
| Research and development credits                                  |       | 1,817    |       | 1,061    |       |
| Reserves and accrued costs and expenses not  currently deductible |       | 1,216    |       | 2,535    |       |
| Asset write-offs not currently deductible                         |       | 1,973    |       | 1,834    |       |
|                                                              |       | 39,952   |       | 38,615   |       |
| Deferred tax liabilities:                                         |       |     |       |     |       |
| Fixed assets and intangibles                                      |       | (1,566   | )          | (773     | )          |
| Gross deferred tax assets                                         |       | 38,386   |       | 37,842   |       |
| Valuation allowances                                              |       | (38,386  | )          | (37,842  | )          |
| Net deferred tax assets                                           |       | $        | —     |     | $          | — |   |

 

SFAS 109 provides for the recognition of deferredtax assets if it is more likely than not that such assets will be realized.Based upon the weight of available evidence, which includes NetRatings’historical operating performance and the reported cumulative net losses in allprior years, NetRatings has provided a full valuation allowance against its netdeferred tax assets. NetRatings will continue to evaluate the realizability ofthe deferred tax assets on a quarterly basis.

The net valuation allowance increased by $0.5 million,$4.9 million and $2.0 million during the years ended December 31,2006, 2005 and 2004, respectively. Approximately $20.1 million and$8.9 million of the federal net operating loss carryforward at December 31,2006 and 2005, respectively, represents the stock option deduction arising fromactivity under the Company’s stock option and employee stock purchase plans,the benefit of which will increase capital in excess of par value whenrealized.

At December 31, 2006, the Company had federal andCalifornia state net operating loss carryforwards of $88.0 million and $46.8million, respectively. These carryforwards will expire at various datesbeginning in 2007 through 2025, if not utilized. In addition, as of December 31,2006, the Company had federal and state tax credit carryforwards ofapproximately $1.8 million. The federal research and development credits willexpire beginning in 2012, and the state credits will carryforward indefinitely.

Utilization of the net operating loss and creditcarryforwards may be subject to a substantial annual limitation due to theownership change limitations provided by the Internal Revenue Code of 1986, asamended and similar state provisions. The annual limitation may result inthe expiration of net operating loss and tax credit carryforwards beforeutilization.

The Company has made no provision for U.S. incometaxes on cumulative undistributed earnings of certain foreign subsidiariesbecause it is the Company’s intention to permanently reinvest such earnings. 

Pre-tax income (loss) fromforeign operations was $1.3 million in 2006 and $(0.9) million in 2005.

**Note 13.Other-Than-Temporary Impairment and Its Application to Certain Investments**

The gross unrealized losses related to NetRatings’ portfolioof available-for-sale securities were primarily due to a decrease in the fairvalue of debt securities as a result of an increase in interest rates during2006. The Company has determined that the gross unrealizedlosses on its available-for-sale securities as of December 31, 2006 aretemporary in nature. NetRatings has reviewed its investmentportfolio to identify and evaluate investments that have indications ofpossible impairment. Factors considered in determining whether a loss istemporary include the magnitude of the decline in market value, the length oftime the market value has been below cost (or adjusted cost), credit qualityand 

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NetRatings’ ability andintent to hold the securities for a period of time sufficient to allow for anyanticipated recovery in market value.

Therewere no unrealized gains as of December 31, 2006. The following table setsforth the unrealized losses for NetRatings investments as of December 31,2006 (in thousands, except percentage data):

| ** **                                        | ** ** | **In Loss Position Less  than 12 Months** | ** ** | **In Loss Position 12  Months or Longer** | ** ** | **Total In Loss Position** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| **Description of Securities**           | ** ** | ** **                                                         | ** ** | **Fair Value**                                                | ** ** | **Unrealized  Losses**                    | ** ** | **Fair Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair Value** | ** ** | **Unrealized  Losses** | ** ** |
| Commercial paper                                  |       |                                                               | $          | 5,984                                                              |       |                                      |       | $ | (11 | ) |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 5,984 |   |   |   | $ | (11 | ) |   |
| Corporate notes                                   |       |                                                               | 25,466     |                                                               |       |                                      | (77        | ) |   |   | 8,923 |   |   |   | (27 | ) |   |   | 34,389 |   |   |   | (104 | ) |   |
| Euro dollar bonds                                 |       |                                                               | 12,185     |                                                               |       |                                      | (28        | ) |   |   | 4,898 |   |   |   | (12 | ) |   |   | 17,084 |   |   |   | (40 | ) |   |
| Floating rate  bonds                              |       |                                                               | 10,972     |                                                               |       |                                      | (28        | ) |   |   | — |   |   |   | — |   |   |   | 10,972 |   |   |   | (28 | ) |   |
| Government  securities                            |       |                                                               | 8,159      |                                                               |       |                                      | (41        | ) |   |   | 1,499 |   |   |   | (1 | ) |   |   | 9,657 |   |   |   | (42 | ) |   |
| Total temporarily  impaired securities            |       |                                                               | $          | 62,766                                                             |       |                                      |       | $ | (185 | ) |   |   | $ | 15,320 |   |   |   | $ | (40 | ) |   |   | $ | 78,086 |   |   |   | $ | (225 | ) |   |
| Securities  unrealized loss percent to fair value |       |                                                               |       |                                                               |       |                                      | 0.29       | % |   |   |   |   |   |   | 0.27 | % |   |   |   |   |   |   | 0.29 | % |   |
|                                                   |            |                                                                    |            |                                                                    |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Therewere no unrealized gains as of December 31, 2005. The following table setsforth the unrealized losses for NetRatings investments as of December 31,2005 (in thousands, except percentage data):

| ** **                                        | ** ** | **In Loss Position Less  than 12 Months** | ** ** | **In Loss Position 12  Months or Longer** | ** ** | **Total In Loss Position** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| **Description of Securities**           | ** ** | ** **                                                         | ** ** | **Fair Value**                                                | ** ** | **Unrealized  Losses**                    | ** ** | **Fair Value** | ** ** | **Unrealized  Losses** | ** ** | **Fair Value** | ** ** | **Unrealized  Losses** | ** ** |
| Commercial paper                                  |       |                                                               | $          | 1,995                                                              |       |                                      |       | $ | (5 | ) |   |   | $ | — |   |   |   | $ | — |   |   |   | $ | 1,995 |   |   |   | $ | (5 | ) |   |
| Corporate notes                                   |       |                                                               | 8,103      |                                                               |       |                                      | (52        | ) |   |   | 17,123 |   |   |   | (179 | ) |   |   | 25,226 |   |   |   | (231 | ) |   |
| Auction rate  securities                          |       |                                                               | —     |                                                               |       |                                      | —     |   |   |   | 999 |   |   |   | (1 | ) |   |   | 999 |   |   |   | (1 | ) |   |
| Euro dollar bonds                                 |       |                                                               | 17,287     |                                                               |       |                                      | (124       | ) |   |   | 5,538 |   |   |   | (103 | ) |   |   | 22,825 |   |   |   | (227 | ) |   |
| Floating rate  bonds                              |       |                                                               | 2,003      |                                                               |       |                                      | (2         | ) |   |   | — |   |   |   | — |   |   |   | 2,003 |   |   |   | (2 | ) |   |
| Government  securities                            |       |                                                               | 32,256     |                                                               |       |                                      | (244       | ) |   |   | 4,921 |   |   |   | (78 | ) |   |   | 37,177 |   |   |   | (322 | ) |   |
| Total temporarily  impaired securities            |       |                                                               | $          | 61,644                                                             |       |                                      |       | $ | (427 | ) |   |   | $ | 28,581 |   |   |   | $ | (361 | ) |   |   | $ | 90,225 |   |   |   | $ | (788 | ) |   |
| Securities  unrealized loss percent to fair value |       |                                                               |       |                                                               |       |                                      | 0.70       | % |   |   |   |   |   |   | 1.26 | % |   |   |   |   |   |   | 0.87 | % |   |
|                                                   |            |                                                                    |            |                                                                    |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Thefollowing table presents the amounts of our financial instruments that aresubject to interest rate risk by expected maturity and average interest ratesas of December 31, 2006:

| ** **                 | ** ** | **Time to maturity**                              | ** ** |
|----------------------------|------------|-------------------------------------------------------------|------------|
| ** **                 | ** ** | **One year  or less**                             | ** ** | **One to five  years** | ** ** | **Five to ten  years** | ** ** | **Greater than  ten years** | ** ** | **Total** | ** ** |
| ** **                 | ** ** | **(in thousands, except percent data)** | ** ** |
| Cash and cash  equivalents |       | $                                                           | 52,180     |   |   | — |   |   |   | — |   |   |   | — |   |   | $ | 52,180 |   |
| Average interest  rates    |       | 1.60                                                        | %          |   | — |   |   |   | — |   |   |   | — |   |   | 1.60 | % |
| Short term  investments    |       | $                                                           | 70,132     |   |   | $ | 15,561 |   |   |   | $ | 1,502 |   |   |   | $ | 47,638 |   |   | $ | 134,833 |   |
| Average interest rates     |       | 4.05                                                        | %          |   | 5.12 | % |   |   | 5.25 | % |   |   | 5.32 | % |   | 4.63 | % |
|                            |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Marketable securities witha maturity date greater than one year and in a loss position as of December 31,2006 are reported as long-term marketable securities on the balance sheet. Allother marketable securities are reported as short-term marketable securities.

**Note 14.Subsequent Events**

On February 5, 2007, the Company, Nielsen MediaResearch and NTRT Acquisition Sub, Inc., a newly-formed and wholly-ownedsubsidiary of Nielsen Media Research, entered into an Agreement and Plan ofMerger, under which NTRT Acquisition Sub will merge with and into the Company,which will result in The Nielsen Company and its subsidiaries owning all of theCompany’s common stock. Upon completion of the merger, holders of NetRatingscommon stock (other than Nielsen Media Research, any other direct or indirectsubsidiary of The Nielsen Company and any stockholders who perfect theirappraisal rights under Delaware law) will have the right to receive $21.00 incash, without interest, for each share of NetRatings common stock heldimmediately prior to completion of the merger. The closing of the merger is subjectto customary conditions and approvals, and the exact timing is dependent uponthe review and clearance of necessary filings with the SEC. The transaction issubject to shareholder approval of NetRatings, but Nielsen Media Research hasagreed to vote, or cause to be voted, all shares of NetRatings common stockowned by Nielsen Media Research and its affiliates in favor of the merger. Thisagreement by Nielsen Media Research will ensure that the merger agreement isadopted by the holders of a majority of the outstanding shares of NetRatingscommon stock, as required by Delaware law. 

Pursuant to the Agreementand Plan of Merger, all outstanding options, whether vested or unvested, willbe cancelled and converted into the right to receive in cash, without interest,the product of (a) the  number ofshares of common stock then subject to such option and (b) the excess, if any,of $21.00 over the exercise price per share of common stock for such option, lessany required withholding taxes. Likewise, pursuant to the Agreement and Plan ofMerger, all restricted shares granted under the Company’s equity plans will becancelled and converted into the right to receive $21.00 in cash, withoutinterest.

**ITEM 9.**                CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

**ITEM 9A.**        CONTROLSAND PROCEDURES

**Disclosure Controlsand Procedures**

The Company’s management, with the participation ofthe Company’s Chief Executive Officer and Chief Financial Officer, hasevaluated the effectiveness of the Company’s disclosure controls and procedures(as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of theend of the period covered by this report. Based on such evaluation, the Company’sChief Executive Officer and Chief Financial Officer have concluded that, as ofthe end of such period, the Company’s disclosure controls and procedures areeffective. Notwithstanding the foregoing, a control system, no matter how welldesigned and operated, can provide only reasonable, not absolute, assurancethat it will detect or uncover failures within the Company to disclose materialinformation otherwise required to be set forth in the Company’s periodicreports.

There have not been anychanges in the Company’s internal control over financial reporting during thefourth quarter of 2006 that have materially affected, or are reasonably likelyto materially affect, the Company’s internal control over financial reporting.

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**Internal Controlover Financial Reporting**

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVERFINANCIAL REPORTING

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under thesupervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, we conducted anevaluation of the effectiveness of our internal control over financialreporting based on the framework in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.Based on our evaluation under the framework in Internal Control—IntegratedFramework, our management concluded that our internal control over financialreporting was effective as of December 31, 2006.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

Our independent registeredpublic accounting firm, Ernst & Young LLP, audited management’sassessment and independently assessed the effectiveness of the Company’sinternal control over financial reporting. Ernst & Young has issued anattestation report concurring with management’s assessment, which is includedat the beginning of Part II, Item 8 of this Form 10-K.

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**PART III**

**ITEM 10.**         DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Set forth below for each of the directors, executiveofficers and other principal officers of NetRatings is their respective presentprincipal occupation or employment, the name and principal business of thecorporation or other organization in which such occupation or employment isconducted and the five-year employment history of each such individual. Eachperson identified below is a citizen of the United States of America, unless otherwisenoted. Unless indicated otherwise, each person’s principal address is c/o NetRatings, Inc.,120 West 45th Street, 35th Floor, New York, New York 10036.

William R. Pulver—Director.Mr. Pulver, 47, joined NetRatings in November 2001 as itsPresident and Chief Operating Officer and was appointed to our board ofdirectors and assumed the role of President and Chief Executive Officer inFebruary 2002. From December 1999 to November 2001,Mr. Pulver was President of ACNielsen eRatings.com. Prior to December 1999,he worked continuously with ACNielsen for 22 years, most recently as groupchief executive of ACNielsen Japan. In March 1999, the role was expandedto include ACNielsen Korea. Mr. Pulver is a citizen of Australia.

John A. Dimling—Director. Mr. Dimling, 68, hasserved on our board of directors since December 1999 and has served as theChairman of our board of directors since April 2002. SinceJanuary 2006, Mr. Dimling has served as Chairman Emeritus of NielsenMedia Research. He had previously served as Chairman of Nielsen Media Researchsince 2001. From July 1998 through 2001, Mr. Dimling served as thePresident and Chief Executive Officer of Nielsen Media Research. He previouslyserved as President and Chief Operating Officer of Nielsen Media Research fromJuly 1993 to June 1998.

David H. Harkness—Director. Mr. Harkness, 62, hasserved as a member of our board of directors since September 1999. Mr. Harknesshas been employed by Nielsen Media Research and The Nielsen Company since 1975,and currently serves as Senior Vice President, Strategy and Alliances, of TheNielsen Company’s Media Measurement and Information Segment.

Arthur F. Kingsbury—Director. Mr. Kingsbury, 58,has served on our board of directors since March 2001. He is currently aprivate investor. From 1994 through 1996, Mr. Kingsbury served as thePresident and Chief Operating Officer of VNU USA, Inc.

Thomas A. Mastrelli—Director. Mr. Mastrelli, 59,has served on our board of directors since December 1999. He is currentlyExecutive Vice President, Corporate Development for The Nielsen Company.Previously, Mr. Mastrelli held various executive level positions at TheNielsen Company, including Chief Operating Officer of VNU, Inc., asubsidiary of The Nielsen Company. Mr. Mastrelli joined The NielsenCompany in 1998.

D. Scott Mercer—Director. Mr. Mercer, 56, hasserved as a member of our board of directors since January 2001. He iscurrently a private investor. From May 2005 through December 2005, Mr. Mercerserved as Interim Chief Executive Officer of Adaptec, Inc, a provider of datastorage solutions. From February 2004 through December 2004, Mr. Mercerserved as Senior Vice President and Advisor to the Chief Executive Officer ofWestern Digital Corporation, a supplier of disk drives to the personal computerand consumer electronics industries. From October 2001 through January 2004,Mr. Mercer served as Senior Vice President, Chief Financial Officer ofWestern Digital Corporation. From June 2000 through September 2001, Mr. Mercerserved as Vice President, Chief Financial Officer of Teralogic, Inc., aprivately held supplier of semiconductors and software to the digitaltelevision industry. Mr. Mercer also serves on the Board of Directors ofAdaptec, Inc., Conexant Systems, Inc. and Palm, Inc.

James M. O’Hara—Director. Mr. O’Hara, 44, hasserved on our board of directors since March 2004. He is currently SeniorVice President and Chief Financial Officer of The Nielsen Company’ Media 

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Measurement andInformation Segment. Previously, Mr. O’Hara served as Senior VicePresident and Chief Financial Officer for Nielsen Media Research. Mr. O’Harajoined The Nielsen Company in 1998 as Chief Financial Officer for VNU MarketingInformation.

Jerrell W. Shelton—Director. Mr. Shelton, 61, hasserved on our board of directors since March 2004. He is currently aprivate investor. From August 2004 to June 2006, Mr. Sheltonserved as Chairman and Chief Executive Officer of Wellness, Inc., aprovider of hospital products for integrated solutions for healthcare environmentsfor patient areas. From November 2000 to August 2002, Mr. Sheltonserved as Chief Executive Officer of IBM’s WebFountain.

Susan D. Whiting—Director. Ms. Whiting, 50, hasserved on our board of directors since November 2005. She is currentlyExecutive Vice President of The Nielsen Company and Chairman of Nielsen MediaResearch. Previously, Ms. Whiting held various executive level positionswith The Nielsen Company and Nielsen Media Research, including President andChief Executive Officer of Nielsen Media Research. She began employment withNielsen Media Research in 1978. Ms. Whiting also serves on the Board ofDirectors of Wilmington Trust Corporation.

Todd Sloan—Officer. Mr. Sloan, 44, joinedNetRatings in February 2002 as its Senior Vice President of CorporateDevelopment, and became Executive Vice President and Chief Financial Officer inApril 2002. Previously, Mr. Sloan was Chief Financial Officer ofAbout.com, Inc., which he joined in January 1999.

Manish Bhatia—Officer. Mr. Bhatia, 41, has servedas our Executive Vice President, Global Operations and U.S. Sales since January 1,2006 and as NetRatings’ Senior Vice President, Product Marketing and BusinessDevelopment from January 2002 until December 2005. From October 2000until January 2002, Mr. Bhatia was Senior Vice President, InteractiveServices for Nielsen Media Research. From 1989 to October 2002, Mr. Bhatiaworked at Nielsen Media Research in various research positions.

Louise Ainsworth—Officer. Ms. Ainsworth, 40, hasserved as our Managing Director, Europe/Middle East/Africa since September 2006.From January 2006 until joining NetRatings, Ms. Ainsworth wasManaging Partner, Consulting & Planning for OgilvyOne WorldwideLondon. From May 2002 to December 2005, Ms. Ainsworth was withOgilvyInteractive London, where she served mostly recently as a ManagingPartner. From December 1999 to May 2002, Ms. Ainsworth heldvarious positions with Organic Online London, where her last assignment wasGroup Director, Engagement Management. Ms. Ainsworth is a citizen of theUnited Kingdom.

Forrest Didier—Officer. Mr. Didier, 51, hasserved as our Managing Director, Asia-Pacific/Latin America since May 2005.From August 2001 until joining NetRatings, Mr. Didier was theManaging Director of Asia Pacific for Nielsen Media Research International.From 1982 through August 2001, Mr. Didier held various senior-levelpositions within ACNielsen Corporation in the United States and Asia Pacific.

John Kleine—Officer. Mr. Kleine, 53, has servedas our Chief Technical Officer and Senior Vice President, Engineering andOperations since September 2005. From September 2004 until joiningNetRatings, Mr. Kleine served as a consultant in the Internet industry.From November 1999 until August 2004, Mr. Kleine served asExecutive Vice President and Chief Technology Officer of Interactive SearchHoldings, Inc.

Susan Hickey*—Officer. Ms. Hickey, 41, joinedNetRatings in August 2002 as Vice President and has served as Senior VicePresident of NetRatings since March 2005. Ms. Hickey is currentlyresponsible for NetRatings’ marketing, investor relations and human resourcesfunctions. From 1997 to 2002, Ms. Hickey was with Media Metrix, whichbecame Jupiter Media Metrix, where her last assignment was Vice President ofInvestor Relations and Corporate Communications.

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Alan Shapiro—Officer. Mr. Shapiro, 38, joinedNetRatings in September 2002 as its Vice President and General Counsel,and has served as NetRatings’ Senior Vice President & General Counselsince March 2005. From April 2000 until July 2002, Mr. Shapiroserved as Vice President and General Counsel of Jupiter Communications, Inc.and, following the September 2000 merger with Media Metrix, Inc., asSenior Vice President and General Counsel of Jupiter Media Metrix, Inc.

During the last five years, none of NetRatings or anyof the foregoing directors or officers of NetRatings (i) has beenconvicted in a criminal proceeding (excluding traffic violations or similarmisdemeanors) or (ii) was a party to any judicial or administrative proceeding(except for matters that were dismissed without sanction or settlement) thatresulted in a judgment, decree or final order enjoining future violations of,or prohibiting activities subject to, federal or state securities law, or afinding of any violation of federal or state securities laws.

There are no familyrelationships among any of the foregoing directors or officers of NetRatings.As noted above, a majority of our directors hold positions with companies thatare subsidiaries and/or affiliates of The Nielsen Company, which ownedapproximately 60% of our outstanding common stock as of February 28, 2007.In addition, as noted above some of our officers formerly held positions withcompanies that are subsidiaries and/or affiliates of The Nielsen Company.

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*                    Non-reportingperson under Section 16(a) of the Exchange Act.

**Section 16(A) BeneficialOwnership Reporting Compliance**

Section 16(a) ofthe Exchange Act requires our directors, executive officers and persons who ownmore than 10% of our common stock (collectively, “Reporting Persons”) to filewith the SEC initial reports of ownership and changes in ownership of ourcommon stock. Reporting Persons are required by SEC regulations to furnish uswith copies of all Section 16(a) reports they file. To our knowledge,based solely on our review of the copies of such reports received or writtenrepresentations from certain Reporting Persons that no other reports wererequired, all Reporting Persons complied with all applicable filingrequirements during the fiscal year ended December 31, 2006.

**Code of Ethics**

Our board of directors hasadopted a (i) Code of Ethics for our Senior Financial Officers and (ii) aCode of Conduct applicable to all of our employees and directors. These codes,which are both designed to ensure that our business is conducted in aconsistently legal and ethical manner, address specific areas of professionalconduct, including conflicts of interest, fair dealing and the strict adherenceto all laws and regulations applicable to the conduct of our business. Upon thewritten request of any stockholder, we will furnish, without charge, a copy ofthe Code of Ethics for NetRatings’ Senior Financial Officers and/or the Code ofConduct. Requests should be directed to NetRatings’ General Counsel, NetRatings, Inc.,120 West 45th Street, 35th Floor, New York,New York 10036.

**Policy GoverningDirector Nominations**

Because The Nielsen Company B.V. and its affiliatesown more than 50% of the voting power in NetRatings, we are deemed to be a “controlledcompany” under the Nasdaq rules. Because we are a “controlled company,” ourboard of directors has elected not to establish a separate nominating committeeor formal rules governing director nominations from stockholders. In theevent of any vacancy on our board of directors, or in the event that our boardof directors is to be expanded, the board of directors will determine at suchtime the appropriate procedures for filling the vacancy or additional position.Our board of directors may decide at such time to authorize a committee of ourboard of directors to conduct the search for a director and to recommendnominations to the full board of directors.

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Our board ofdirectors has not set specific, minimum qualifications that must be met by adirector candidate. In evaluating candidates for our board of directors, anumber of attributes are considered, including, but not limited to, thefollowing:

·       personaland professional character, integrity, ethics and values;

·       generalbusiness experience and skills;

·       experienceor expertise in the relevant industry or technologies; and

·       aptitudein accounting and finance.

Our board of directorsalso may consider (i) whether a candidate would be deemed to be “independent”under the applicable laws, rules or regulations, (ii) whether thecandidate’s existing business commitments would interfere with the candidate’sability to devote sufficient time to discharge his or her duties as a directorand (iii) the input of The Nielsen Company, our majority stockholder.

**Audit CommitteeMembership**

The audit committeecurrently consists of Messrs. Kingsbury, Mercer and Shelton, each of whomhas been determined to be independent as defined under both the Nasdaq’s andSEC’s director independence standards for audit committee members. Messrs. Kingsbury,Mercer and Shelton served as members of the audit committee during all of 2006.Mr. Mercer serves as chairman of the audit committee and the board ofdirectors has determined that Mr. Mercer qualifies as an “audit committeefinancial expert” under the rules of the SEC.

**ITEM 11.**         EXECUTIVECOMPENSATION

**CompensationDiscussion and Analysis**

*Overview*

The goals of our executive compensation policy are to (i) attract,retain and reward executive officers who contribute to our overall success byoffering compensation that is competitive in the industry and geographicregions in which it operates, (ii) motivate executives to achieve ouroperating and financial objectives; and (iii) align the interests of ourexecutives with the long-term interests of stockholders. We currently usesalary, cash bonuses, equity-based compensation and a benefits package toachieve these goals.

The compensation committee believes that a significantproportion of executive compensation should be linked to our financial resultsbecause these individuals are most able to affect our performance. As a result,and as more fully described below, the bonus payments and equity compensationgrants for executives are heavily linked to our key financial metrics.

The compensation committeetypically meets several times each year, and the agendas for these meetings areestablished in consultation with the members of the compensation committee,William Pulver, our chief executive officer, and Susan Hickey, our seniorvice president responsible for human resources matters. The compensationcommittee also has retained Hewitt Associates on separate occasions during thepast few years to assist the compensation committee in evaluating the overallexecutive compensation program. The retention of Hewitt Associates providedadditional assurance that our executive compensation program is appropriate andconsistent with the goals enumerated above. Hewitt Associates reported directlyto the compensation committee and did not, and does not currently, perform anyservices for our management.

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*Components ofExecutive Compensation for 2006*

For 2006, the compensation of executives consisted ofthe following four primary components: base salary; a cash bonus;performance-based grants of restricted stock; and a benefits package. Thecompensation committee believes that these four components appropriatelybalance the mix of cash and equity compensation, the mix of short-term andlong-term compensation and the security of basic benefits in a way that furthersthe compensation goals listed above.

In January 2006, thecompensation committee retained Hewitt Associates to provide advice andguidance to the committee with respect to (i) an overall compensationphilosophy that would be appropriate for NetRatings; (ii) an assessment ofthe existing executive compensation structure and a comparison with comparablecompanies; and (iii) specific executive compensation recommendations forthe committee.

*Base Salary*

The base salary is the guaranteed component of theexecutives’ annual cash compensation. The base salaries for the executives wereinitially set based on the negotiations with the individual executive officersat the time of their recruitment to NetRatings. In order to determine theappropriate base salary, we give consideration to the individual’s experience,reputation in his or her industry and expected contributions, as well as to thesalaries for comparable positions in the industry or market, as appropriate. Thesenegotiations are typically directed by our chief executive officer, but thefinal compensation terms for executive officers are approved in advance by thecompensation committee.

At a compensationcommittee meeting in the first calendar quarter of each year, the compensationcommittee, as part of its overall executive compensation review, reviews thebase salaries for each individual executive. Prior to this meeting, Mr. Pulverprovides to the compensation committee his proposed recommendations for basesalary adjustments (if any) for our executives, excluding the chief executiveofficer. At the meeting, Mr. Pulver and Miss Hickey review theproposed recommendations for executive base salaries and answer questions fromthe compensation committee regarding the base salary recommendations. Indetermining the adjustments, if any, to the base salaries of the executiveofficers, the compensation committee considers the following factors:

·       thebase salary increases generally applicable to our non-executive employees,which was 3% for 2006;

·       theexecutive’s performance during the prior year and the recommendation of Mr. Pulverand Miss Hickey;

·       externalfactors which may impact the appropriate base salary, such as changes in themarketplace; and

·       theinput and recommendations of Hewitt Associates.

In March 2006, in an executive session of thecompensation committee, the committee reviewed Mr. Pulver’s performanceand increased his base salary 6%. In establishing Mr. Pulver’s base salaryfor 2006, the compensation committee considered our and Mr. Pulver’saccomplishments during 2005 and the committee’s subjective assessment of hisperformance. Specifically, the committee noted that our 2005 revenues increasedapproximately 15% over 2004 revenues and that our 2005 EBITDA improvedapproximately 85% over our 2004 EBITDA, excluding selected non-recurring items.

In March 2006, the compensation committee, basedon the recommendations of Mr. Pulver and Miss Hickey, also reviewedthe base salaries for the other executive officers. With regard to Mr. Sloan,the compensation committee increased his base salary 5%. In addition to ourfinancial performance during 2005, the compensation committee also considered Mr. Sloan’sefforts in (i) strengthening our accounting 

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and financial reportingcapabilities in 2005 to ensure continued compliance with the Sarbanes-Oxley Actand (ii) improving the overall performance of the global finance team in2005.

Mr. Bhatia’s base salary was increased from$190,550 to $230,000 beginning on January 1, 2006, in connection with hispromotion to Executive Vice President, Global Operations and U.S. Sales. Thecompensation committee, therefore, did not adjust Mr. Bhatia’s base salaryin 2006. As Mr. Didier and Mr. Kleine both began employment with usduring 2005, the compensation committee concluded that for 2006 a pro-rata basesalary increase consistent with the base salary increases provided to thenon-executive employees was appropriate. As Mr. Didier was employed forapproximately two-thirds of 2005, his base salary increase was 2% (ortwo-thirds of the base salary increase for non-executives). As Mr. Kleinewas employed for approximately one-third of 2005, his base salary increase was1% (or one-third of the base salary increase for non-executives).

Our management uses theEBITDA measure (and related measures such as pro-forma EBITDA) internally toevaluate the company’s performance as we believe it provides consistent andcomparable measures to help investors understand our current and futureoperating cash flow performance. Pro-forma EBITDA reflects net income/lossexcluding interest income/expense, taxes, depreciation and amortization,restructuring expenses, acquisition-related expenses, amortization ofintangibles and stock-based compensation, and cumulative effect of change in accountingprinciple. Interest income/expense and provision for income taxes are excludedas they are not related to our operating performance. Restructuring expensesand acquisition-related expenses are excluded as they are one-time items notdirectly related to operations. Depreciation and amortization expense,amortization of stock-based compensation and cumulative effect of change inaccounting principle are excluded as they are non-cash charges. We excludeamortization of intangibles as it is a non-cash charge not directly related tooperations. EBITDA measures are provided as a complement to results provided inaccordance with GAAP, and should be considered in addition to, and not as asubstitute for or superior to, other measures of financial performance preparedin accordance with GAAP.

*Cash IncentiveBonuses*

As with the executive base salaries, the cash bonustargets for our executives were initially set based on the negotiations withthe individual executive officers at the time of their recruitment toNetRatings. In setting the initial cash bonus targets for an individual, oradjusting the cash bonus targets once employed, we give consideration to theindividual’s experience, reputation in his or her industry and expectedcontributions, as well as to the bonus ranges or target bonuses for comparablepositions in the industry or market, as appropriate. The compensation committeehas also taken into consideration the input and advice of Hewitt Associates indeciding whether to adjust the cash bonus targets for any executive officer. Thecash bonus targets for the named executive officers were not adjusted in 2006.

The cash bonuses for our executives are calculatedpursuant to the executive bonus plan which was adopted by the compensationcommittee in early 2003. Under the executive bonus plan, the annual bonuspayable to Messrs. Pulver and Sloan is based (i) 50% on theachievement of our revenue target for such year and (ii) 50% on theachievement of our EBITDA target for such year. The actual bonus amounts for Messrs. Pulverand Sloan are calculated by adjusting the executive’s bonus target amountupward or downward on a pro-rata basis by applying the aggregate averagepercentage of such financial targets actually achieved to the executive’s bonustarget. Mr. Pulver’s bonus target amount for 2006 was $297,648, and Mr. Sloan’sbonus target amount for 2006 was $135,188. At a compensation committee meetingheld in February 2007, the committee reviewed the revenue and EBITDAtargets for 2006 and determined that we (i) exceeded the 2006 revenuetarget by 6% and (ii) exceeded the EBITDA target (excluding the expensesincurred by us during 2006 in connection with the proposed “going-private”transaction with The Nielsen Company) by 167%. As a result, the compensationcommittee determined that the actual 2006 cash bonuses for Messrs. Pulverand Sloan were $592,181 and $252,125, respectively.

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Under the executive bonus plan, the annual bonusespayable to our other executive officers are based (i) 25% on the achievementof our revenue target for such year; (ii) 25% on the achievement of ourEBITDA target for such year; (iii) 25% on the financial performance of theexecutive’s division or area of responsibility; and (iv) 25% on theachievement of the individual objectives identified for such executive for aspecific year. The actual bonus amounts for Messrs. Bhatia, Didier andKleine are calculated by adjusting the executive’s bonus target amount upwardor downward on a pro-rata basis by applying the aggregate average percentage ofsuch financial and individual performance targets actually achieved to theexecutive’s bonus target. For 2006, the cash bonus targets for Messrs. Bhatia,Didier and Kleine were $115,000, $100,152 and $90,900, respectively.

As noted above, in February 2007the compensation committee reviewed the revenue and EBITDA performance for 2006relative to the targets set for such year. In addition, in February 2007, Mr. Pulverand Miss Hickey submitted their finding and conclusions with respect tothe (i) financial performance for each executive’s division or area ofresponsibility and (ii) achievement of the 2006 individual objectives setfor each executive. Following a review by the compensation committee, thecompensation committee determined that the actual 2006 cash bonuses for Messrs. Bhatia,Didier and Kleine were $162,725, $154,407 and $130,869, respectively.

*Equity Compensation*

Equity-based compensation awards are provided throughthe NetRatings Amended and Restated 1998 Stock Plan. Prior to March 2005,our practice was to grant stock options to our executives (as well as to othereligible employees) at the start of employment, upon promotions and as part ofthe annual performance appraisal process. The stock options for both executivesand other employees were typically granted at the market price of our commonstock on the date of grant and were subject to four year vesting, with 25%vesting on the one-year anniversary of the grant date and monthly vestingthereafter. The past grants of stock options to the executive officers werebased on each officer’s relative position, responsibilities, historical andexpected contributions, and the officer’s existing stock ownership and previousoption grants, with primary weight given to the executive officer’s relativerank and responsibilities. Initial stock option grants designed to recruit anexecutive officer to join NetRatings were typically based on negotiations withthe officer and with reference to historical grants to existing officers.

In the fourth quarter of 2004, the compensationcommittee decided to explore the possibility of shifting from the practice ofgranting stock options to the granting of restricted stock to our executives(and other eligible employees). The compensation committee retained HewittAssociates to conduct a thorough review of our equity compensation program andthe advisability of shifting our equity compensation awards from stock optionsto restricted stock. This review included an analysis of, among other things,the: (i) financial impact of shifting from options to restricted stock; (ii) retentiongoals of NetRatings, in light of the existing options outstanding and our pastpractice; and (iii) shares available in the Amended and Restated 1998Stock Plan.

In early 2005, following the review by HewittAssociates, the compensation committee decided that we would shift the form ofequity-based grants from stock options to restricted stock. In addition, thecompensation committee concluded that the vesting of the restricted stockgranted to the executive officers as part of the annual performance appraisalprocess should be linked to our achievement of key financial goals. Thecompensation committee believes that equity ownership, particularly in the caseof restricted stock grants that include vesting linked to our financialperformance, is highly motivating for executives, provides a significantincentive for executives to build stockholder value and serves to align theinterests of executives with those of stockholders. The compensation committeeconcluded, however, that restricted stock grants made to executive officers inconnection with their recruitment or linked to a promotion could continue toincorporate time-based vesting.

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The compensation committee determined, based on theadvice of Hewitt Associates, that each eligible employee would receiveone-share of restricted share for every 2.5 stock options that werehistorically granted to such employee or similarly-situated employee. Thisdetermination was made based on an analysis of all of the following factors: (i) ourhistorical grant practice; (ii) the retention issues facing us and theexisting retention vehicles in place; (iii) the volatility of our stockprice; and (iv) our historical trading price and current stock price. Inaddition, the compensation committee also determined that, in the case of theannual restricted stock grants to executive officers, the shares would vestthree years following the grant unless we achieve specific EBITDA profitabilitygoals in which case the vesting could occur prior to the three year period. Thecompensation committee believed that the shift from monthly vesting to annual(or longer) vesting in equity-based compensation would provide an addedincentive for executives to remain with us for a longer period of time.

In early 2006, thecompensation committee retained Hewitt Associates to review our equitycompensation structure for the executives, particularly the sizes of the grantsawarded to the executives. Following this review, the compensation committeedecided to reduce the size of the 2006 annual executive restricted stock grantsas compared to the 2005 annual executive restricted stock grants. In addition,for the 2006 annual executive restricted stock grants, the compensationcommittee decided to link directly the vesting of the restricted stock grantsto the financial performance of NetRatings as measured by revenue and EBITDA,without regard to any time-based vesting component as was done in 2005. Thefinancial targets for revenue and EBITDA for 2006, 2007 and 2008 were set asfollows, with a weighting factor of 40% for the revenue target and 60% for theEBIDTA target:

| **Year**         | ** ** | ** ** | ** **    | **Revenue** | ** ** | **EBITDA**   | ** ** |
|------------------|------------|------------|---------------|-------------|------------|--------------|------------|
| 2006             |       | $          | 77.1 million  |        | $          | 3.9 million  |       |
| 2007             |       | $          | 88.7 million  |        | $          | 8.9 million  |       |
| 2008             |       | $          | 102 million   |        | $          | 15.3 million |       |
| Cumulative Total |       | $          | 267.8 million |        | $          | 28.1 million |       |

 

The vesting of the2006 annual executive restricted stock grants was structured as follows:

(1)         In the event we achieve,on a cumulative basis, the revenue and EBITDA targets for the 2006 and 2007calendar years, one-half of the restricted shares subject to the 2006 awardwould vest.

(2)         Vestingof the restricted shares (or remaining restricted shares) following the 2008calendar year is based on the following table:

| **Target**                | ** ** | ** ** | ** ** | **Weight** | ** ** | **Minimum** | ** **   | **Base** | ** ** | **Upside**    | ** ** |
|---------------------------|------------|------------|------------|------------|------------|-------------|--------------|----------|------------|---------------|------------|
| Revenue (2006  thru 2008) |       |       | 40         | %          |       | $           | 250 million  |     | $          | 267.8 million |       | $ | 300 million |   |
| EBITDA (2006 thru  2008)  |       |       | 60         | %          |       | $           | 22.5 million |     | $          | 28.1 million  |       | $ | 35 million |   |
| Vesting                   |       |       |       |       |       | 50          | %            | 100      | %          | 125           | %          |

 

On February 5, 2007,we, Nielsen Media Research and NTRT Acquisition Sub, Inc., a newly-formedand wholly-owned subsidiary of Nielsen Media Research, entered into anAgreement and Plan of Merger, under which NTRT Acquisition Sub will merge withand into us, which will result in The Nielsen Company and its subsidiariesowning all of our common stock. Upon completion of the merger, all outstandingoptions, whether vested or unvested, will be cancelled and converted into theright to receive in cash, without interest, the product of (a) the numberof shares of common stock then subject to such option and (b) the excess,if any, of $21.00 over the exercise price per share of common stock for suchoption, less any required withholding taxes. Likewise, upon completion of themerger, all restricted shares granted by us will be cancelled and convertedinto the right to receive $21.00 in cash, without interest.

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*Employee Benefits*

We offer core employeebenefits coverage in order to: (i) provide our workforce with a reasonablelevel of support in the event of illness or injury and (ii) enhanceproductivity and job satisfaction through programs that focus on work/lifebalance. The benefits available are the same for all U.S. employees andexecutive officers and include medical and dental coverage, disabilityinsurance and life insurance. The cost of the employee benefits package ispartially borne by each U.S. employee, including executive officers.

*Perquisites*

We do not providesignificant perquisites or personal benefits to executive officers.

*Termination ofEmployment Arrangements*

We entered into severance arrangements with each ofour named executive officers at the time of their appointment: Manish Bhatia,Forrest Didier, John Kleine, William Pulver and Todd Sloan.

With respect to each of Messrs. Pulver and Sloan,if his employment terminates as a result of an “involuntary termination” heshall be entitled to receive (i) additional cash compensation equal to twelvemonths’ annual salary and the full amount of the targeted annual incentivebonus, as in effect immediately prior to the date of termination, and (ii) theacceleration of vesting on the number of shares that would have vested had heremained employed by us for the twelve month period immediately following thetermination. “Involuntary termination” is defined, in part, as (i) thereduction in duties, without the executive’s express written consent, whichresults in a significant diminution of the position then maintained by theexecutive or his responsibilities with NetRatings, or the termination ofemployment other than for cause; (ii) a material reduction by us, withoutthe executive’s express written consent, in total cash compensation as ineffect immediately prior to such reduction, or the kind or level of employeebenefits which the executive was entitled to with the result being that theoverall benefits package is significantly reduced; or (iii) the death ordisability of the executive.

With respect to Mr. Kleine, if his employmentterminates as a result of an “involuntary termination” he shall be entitled toreceive an amount equal to six months of base salary as in effect as of thedate of such termination. “Involuntary termination” is defined, in part, as (i) thereduction in duties, without the executive’s express written consent, whichresults in a significant diminution of the position then maintained by theexecutive or his responsibilities with us, or the termination of employmentother than for cause or (ii) a material reduction by us, without theexecutive’s express written consent, in total cash compensation as in effectimmediately prior to such reduction, or the kind or level of employee benefitswhich the executive was entitled to with the result being that the overallbenefits package is significantly reduced.

In the event Mr. Didier is terminated withoutcause or in the event his employment terminates as a result of an “involuntarytermination,” Mr. Didier shall be entitled to receive an amount equal tosix months of base salary and reasonable relocation expenses for Mr. Didierand his family to return to the United States. “Involuntary termination” isdefined as (i) the reduction of duties, without his express writtenconsent, which results in a significant diminution of his position orresponsibilities with us or (ii) a material reduction, without his expresswritten consent, in his salary or bonus, except in the case of a broadreduction affecting the senior executives.

With respect to Mr. Bhatia, if his employment isterminated without cause or if he terminates his employment for “good reason,”he shall be entitled to receive an amount equal to six months of base salary asin effect as of the date of such termination. “Good reason” is defined, inpart, as (i) a material reduction in his duties and responsibilities; (ii) amaterial reduction in his salary and bonus (except in the event of a 

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broad reduction affectingthe senior executives of NetRatings); or (iii) a change in his reportingrelationship so that he no longer reports to specific executives or therelocation of his primary worksite to a location more than 30 miles outside ofNew York City.

Theamount of compensation payable to these executive officers pursuant to thetermination of employment arrangements described above is set forth in thetable below:

| **Name**       | ** ** | ** ** | ** ** | **Base Salary  (1)** | ** ** | **Non-Equity  Incentive Plan  (2)** | ** ** | **Option/Restricted  Stock Acceleration  (3)** | ** ** | **Other** | ** ** |
|----------------|------------|------------|------------|---------------------------|------------|------------------------------------------|------------|-----------------------------------------------------|------------|-----------|------------|
| William Pulver |       |       | $          | 420,467                   |       |                                     |       | $                                                   | 300,036    |      |       |   | $ | 798,502 |   |   |   | N/A |   |   |
| Todd Sloan     |       |       | $          | 278,486                   |       |                                     |       | $                                                   | 139,243    |      |       |   | $ | 526,122 |   |   |   | N/A |   |   |
| Manish Bhatia  |       |       | $          | 241,500                   |       |                                     |       | N/A                                                 |       |      |       | N/A |   |   |   | N/A |   |   |
| Forrest Didier |       |       | $          | 244,598                   |       |                                     |       | N/A                                                 |       |      |       | N/A |   |   |   | (4) |   |   |
| John Kleine    |       |       | $          | 208,060                   |       |                                     |       | N/A                                                 |       |      |       | N/A |   |   |   | N/A |   |   |

 

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(1)          Assumes the base salarycurrently in effect for each executive.

(2)          Based on the totaltargeted annual incentive bonus currently in effect for Messrs. Pulver andSloan.

(3)          Assumes the executive’sdate of termination is December 31, 2006 and the closing price per shareof our common stock on December 29, 2006, the last trading day of 2006,which was $17.51. Assumes the vesting of all stock options which would vestwithin the twelve month period following December 31, 2006. Assumes thevesting of all shares of restricted stock which would vest within the twelvemonth period following December 31, 2006 and assuming all performancetargets linked to such restricted shares were achieved.

(4)          Mr. Didierwould be entitled to reasonable relocation expenses for him and his family toreturn to the United States following a two-year commitment, includingeconomy-class plane tickets, shipment of household goods and other reasonableexpenses (but excluding real estate commissions).

*Merger BonusAgreements*

On December 18, 2006, NetRatings and Todd Sloanentered into a letter agreement pursuant to which we agreed to pay a bonus to Mr. Sloanin the amount of $100,000 in recognition of Mr. Sloan’s efforts inproviding assistance in connection with the evaluation of the proposal from TheNielsen Company to purchase the outstanding minority stake in NetRatings. The$100,000 bonus will be paid on (i) the two month anniversary of theconsummation of the proposed merger or (ii) May 1, 2007 in the eventthat an agreement with respect to the proposed merger is not signed by theparties by April 30, 2007; provided in both cases that Mr. Sloan isstill employed by us (or an affiliated entity) on such date. Notwithstandingthe foregoing, in the event that Mr. Sloan is terminated without cause orresigns as a result of an involuntary termination prior to the payment date, heshall be entitled to payment of the bonus within five days of the terminationof his employment.

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**SUMMARYCOMPENSATION TABLE**

Thefollowing table shows information about compensation we awarded in 2006 to ourchief executive officer, chief financial officer, and our three other mosthighly compensated executive officers (the “Named Executive Officers”).

| **Name and**           | ** ** | ** ** | ** ** | **Salary** | ** ** | **Stock  Awards** | ** ** | **Option  Awards** | ** ** | **Non-Equity  Incentive Plan  Compensation** | ** ** | **Change in  Pension Value  and  Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation** | ** ** | **Total** | ** ** |
|-----------------------------|------------|------------|------------|------------|------------|-------------------|------------|--------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|
| **Principal Position** | ** ** | ** ** | ** ** | **Year**   | ** ** | **($)**           | ** ** | **($)(2)**         | ** ** | **($)(2)**                                        | ** ** | **($)(3)**                                                                                  | ** ** | **($)**                          | ** ** | **($)**   | ** ** | **($)** | ** ** |
| William Pulver(1)           |       |       | 2006       |       |       | $                 | 408,220    |               | $          | 382,302                                           |       | $                                                                                           | 146,369    |                             |       | $         | 592,181    |   |   |   | N/A |   |   |   | N/A |   |   | $ | 1,529,072 |   |
| Todd Sloan                  |       |       | 2006       |       |       | $                 | 268,229    |               | $          | 272,468                                           |       | $                                                                                           | 54,543     |                             |       | $         | 252,125    |   |   |   | N/A |   |   |   | N/A |   |   | $ | 847,365 |   |
| Manish Bhatia               |       |       | 2006       |       |       | $                 | 230,000    |               | $          | 244,809                                           |       | $                                                                                           | 57,309     |                             |       | $         | 162,725    |   |   |   | N/A |   |   |   | N/A |   |   | $ | 694,843 |   |
| Forrest Didier(1)           |       |       | 2006       |       |       | $                 | 235,191    |               | $          | 238,293                                           |       | N/A                                                                                         |       |                             | $          | 168,161   |       |   |   | N/A |   |   |   | N/A |   |   | $ | 641,645 |   |
| John Kleine                 |       |       | 2006       |       |       | $                 | 201,666    |               | $          | 192,702                                           |       | N/A                                                                                         |       |                             | $          | 130,869   |       |   |   | N/A |   |   |   | N/A |   |   | $ | 525,237 |   |
|                             |            |            |            |            |            |                   |            |                    |            |                                                   |            |                                                                                             |            |                                  |            |           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             The amounts in the table for Messrs. Pulver andDidier are converted from Australian Dollars to U.S. Dollars based on theexchange rate on December 31, 2006. The amounts above in the columnstitled “Salary” and “Non-Equity Incentive Plan Compensation” include thestatutory 9% superannuation required under Australian law.

(2)             A discussion of the assumptions used in calculatingthese values may be found in Note 1 above to our 2006 audited financialstatements.

(3)             Payment for 2006 performance was made in March 2007under the NetRatings executive bonus plan.

**GRANTS OFPLAN-BASED AWARDS**

Thefollowing provides information about our grants of plan-based awards for 2006: 

| ** ** | ** ** | ** ** | ** ** | **Estimated Future Payouts Under  Non-Equity Incentive Plan  Awards(1)** | ** ** | **Estimated Future Payouts Under  Equity Incentive Plan Awards** | ** ** | **All Other  Stock  Awards:  Number of  Shares of  Stock or** | ** ** | **All Other  Option  Awards:  Number of  Securities  Underlying** | ** ** | **Exercise  or Base  Price of  Option** | ** ** | **Grant Date  Fair Value  of Stock  and Option** | ** ** |
|------------|------------|------------|------------|---------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------------------------------|------------|
| **Name**   | ** ** | ** ** | ** ** | **Grant  Date**                                                                                   | ** ** | **Threshold  ($)**                                                                             | ** ** | **Target  ($)(1)**                                                                | ** ** | **Maximum  ($)**                                                            | ** ** | **Threshold  (#)**                                | ** ** | **Target  (#)**                                                      | ** ** | **Maximum  (#)** | ** ** | **Units  (#)** | ** ** | **Options  (#)** | ** ** | **Awards  ($/Sh)** | ** ** | **Awards  ($)** | ** ** |
|            |            |            |            |                                                                                                   |            |                                                                                                |            |                                                                                   |            |                                                                             |            |                                                   |            |                                                                      |            |  |  |  |  |  |  |  |  |  |  |

| William Pulver |   | 5/1/2006 |   |   | (1 | )  |   | $   | 297,648 |   |   | (1 | )      |   |   | 20,000 |   |   |   | 40,000 |   |   |   | 50,000 |   |   |   | N/A    |   |   |   | N/A    |   |   |   | N/A    |   |   |   | $        | 506,400 |   |   |
|----------------|--------|----------|--------|--------|----|----|--------|-----|---------|--------|--------|----|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------|---------|--------|--------|
| Todd Sloan     |   | 5/1/2006 |   |   | (1 | )  |   | $   | 135,188 |   |   | (1 | )      |   |   | 12,500 |   |   |   | 25,000 |   |   |   | 31,250 |   |   |   | N/A    |   |   |   | N/A    |   |   |   | N/A    |   |   |   | $        | 316,500 |   |   |
| Manish Bhatia  |   | 1/1/2006 |   |   | N  | /A |   | N/A |    |   | N      | /A |   |   | N/A    |   |   |   | N/A    |   |   |   | N/A    |   |   |   | 10,000 |   |   |   | N/A    |   |   |   | N/A    |   |   |   | $      | 118,200  |    |   |
|           |   | 5/1/2006 |   |   | (1 | )  |   | $   | 115,000 |   |   | (1 | )      |   |   | 12,500 |   |   |   | 25,000 |   |   |   | 31,250 |   |   |   | N/A    |   |   |   | N/A    |   |   |   | N/A    |   |   |   | $316,500 |    |   |
| Forrest Didier |   | 5/1/2006 |   |   | (1 | )  |   | $   | 100,152 |   |   | (1 | )      |   |   | 8,000  |   |   |   | 16,000 |   |   |   | 20,000 |   |   |   | N/A    |   |   |   | N/A    |   |   |   | N/A    |   |   |   | $        | 202,560 |   |   |
| John Kleine    |   | 5/1/2006 |   |   | (1 | )  |   | $   | 90,900  |   |   | (1 | )      |   |   | 8,000  |   |   |   | 16,000 |   |   |   | 20,000 |   |   |   | N/A    |   |   |   | N/A    |   |   |   | N/A    |   |   |   | $        | 202,560 |   |   |

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(1)                The target column shows the target bonusamount for each Named Executive Officer under our executive bonus plan. Theactual bonus payouts for 2006 under this plan are shown in the SummaryCompensation Table above in the column titled “Non-Equity Incentive PlanCompensation.” The calculation of the respective bonus payouts for 2006,relative to the target bonus amounts, is described in the section titled “CashIncentive Bonuses” in the Compensation Discussion and Analysis above, and suchcalculation does not specify minimum and maximum payout ranges.

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**OUTSTANDING EQUITYAWARDS AT FISCAL YEAR-END**

The following table setsforth information about outstanding equity awards to the Named ExecutiveOfficers at December 31, 2006: 

|                | ** ** | **Option Awards(1)** | ** ** | **Stock Awards**                                                          | ** ** |
|----------------|------------|---------------------------|------------|--------------------------------------------------------------------------------|------------|
| **Name**       | ** ** | ** **                | ** ** | **Number  of  Securities  Underlying  Unexercised  Options  (#)  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  (#)  Unexercisable** | ** ** | **Equity  Incentive Plan  Awards:  Number of  Securities  Underlying  Unexercised  Unearned  Options  (#)** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** | **Number of  Shares or  Units of  Stock That  Have Not  Vested  (#)** | ** ** | **Market  Value of  Shares or  Units of  Stock That  Have Not  Vested  ($)** | ** ** | **Equity  Incentive  Plan  Awards:  Number of  Unearned  Shares, Units  or Other  Rights That  Have Not  Vested  (#)** | ** ** | **Equity  Incentive Plan  Awards:  Market or  Payout Value of  Unearned  Shares, Units or  Other Rights  That Have Not  Vested  ($)** | ** ** |
| William Pulver |       |                      | 455,877    |                                                                           |       |   | 0 |   |   |   | N/A |   |   |   | $ | 12.51 |   |   | 10/31/2011 |   |   | N/A |   |   |   | N/A |   |   |   | 66,667 | (2) |   |   | $ | 1,167,339 |   |   |
|                |       |                      | 26,042     |                                                                           |       |   | 2,083 |   |   |   |   |   |   |   | $ | 6.02 |   |   | 2/23/2013 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                |       |                      | 117,022    |                                                                           |       |   | 12,500 |   |   |   |   |   |   |   | $ | 5.82 |   |   | 3/9/2013 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                |       |                      | 68,750     |                                                                           |       |   | 31,250 |   |   |   |   |   |   |   | $ | 11.05 |   |   | 3/30/2014 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Todd Sloan     |       |                      | 150,000    |                                                                           |       |   | 0 |   |   |   | N/A |   |   |   | $ | 11.55 |   |   | 2/28/2012 |   |   | N/A |   |   |   | N/A |   |   |   | 45,000 | (3) |   |   | $ | 787,950 |   |   |
|           |       |                      | 25,000     |                                                                           |       |   | 0 |   |   |   |   |   |   |   | $ | 5.84 |   |   | 9/29/2012 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           |       |                      | 45,313     |                                                                           |       |   | 4,687 |   |   |   |   |   |   |   | $ | 5.82 |   |   | 3/9/2013 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|           |       |                      | 51,563     |                                                                           |       |   | 23,437 |   |   |   |   |   |   |   | $ | 11.05 |   |   | 3/30/2014 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Manish Bhatia  |       |                      | 75,000     |                                                                           |       |   | 0 |   |   |   | N/A |   |   |   | $ | 11.55 |   |   | 2/28/2012 |   |   | 6,667 | (4) |   |   | $ | 116,739 |   |   |   | 38,334 | (5) |   |   | $ | 671,228 |   |   |
|                |       |                      | 46,875     |                                                                           |       |   | 3,125 |   |   |   |   |   |   |   | $ | 5.82 |   |   | 3/9/2013 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                |       |                      | 34,375     |                                                                           |       |   | 15,625 |   |   |   |   |   |   |   | $ | 11.05 |   |   | 3/30/2014 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Forrest Didier |       |                      | N/A        |                                                                           |       |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   | N/A |   |   | 6,667 | (6) |   |   | $ | 116,739 |   |   |   | 29,334 | (7) |   |   | $ | 513,638 |   |   |
| John Kleine    |       |                      | N/A        |                                                                           |       |   | N/A |   |   |   | N/A |   |   |   | N/A |   |   | N/A |   |   | 10,000 | (8) |   |   | $ | 175,100 |   |   |   | 36,000 | (9) |   |   | $ | 630,360 |   |   |
|                |            |                           |            |                                                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)                All option grants were subject to four-year vesting,with 25% vesting on the one-year anniversary of the grant and monthly vestingthereafter. The option expiration date is the tenth anniversary (less one day)of the date of each grant.

(2)                Of this amount, (i) 26,667 shares vested in March 2007and (ii) the remaining shares were granted in 2006 and will vest inaccordance with the performance-based guidelines described in the “EquityCompensation” section of the Compensation Discussion and Analysis sectionabove.

(3)                Of this amount, (i) 20,000 shares vested in March 2007and (ii) the remaining shares were granted in 2006 and will vest inaccordance with the performance-based guidelines described in the “EquityCompensation” section of the Compensation Discussion and Analysis sectionabove.

(4)                Of this amount, (i) 3,333 shares will vest in December2007 and (ii) 3,334 shares will vest in December 2008.

(5)                Of this amount, (i) 13,334 shares vested in March 2007and (ii) the remaining shares were granted in 2006 and will vest inaccordance with the performance-based guidelines described in the “EquityCompensation” section of the Compensation Discussion and Analysis sectionabove.

(6)                Of this amount, (i) 3,333 shares will vest in May 2007and (ii) 3,334 shares will vest in May 2008.

(7)                Of this amount, (i) 13,334 shares will vest in May 2007and (ii) the remaining shares were granted in 2006 and will vest inaccordance with the performance-based guidelines described in the “EquityCompensation” section of the Compensation Discussion and Analysis sectionabove.

(8)                Of this amount, (i) 5,000  shares will vest in September 2007 and (ii) 5,000shares will vest in September 2008.

(9)                Of this amount, (i) 6,666 sharesvested in March 2007 and (ii) the remaining shares were granted in 2005and 2006 and will vest in accordance with the performance-based guidelines described in the “EquityCompensation” section of the Compensation Discussion and Analysis sectionabove.

**OPTION EXERCISESAND STOCK VESTED**

The following table provides information about stockoptions exercised by and restricted stock vested for each Named ExecutiveOfficer during 2006:

| ** **     | ** ** | **Option Awards** | ** ** | **Stock Awards**                                       | ** ** |
|----------------|------------|------------------------|------------|-------------------------------------------------------------|------------|
| **Name**       | ** ** | ** **             | ** ** | **Number of  Shares  Acquired  on Exercise  (#)** | ** ** | **Value  Realized  on Exercise  ($)** | ** ** | **Number of  Shares  Acquired  on Vesting  (#)** | ** ** | **Value Realized  on Vesting  ($)** | ** ** |
| William Pulver |       |                   | —     |                                                        |       |   | — |   |   |   | 13,333 |   |   |   | $ | 165,196 |   |   |
| Todd Sloan     |       |                   | —     |                                                        |       |   | — |   |   |   | 10,000 |   |   |   | $ | 123,900 |   |   |
| Manish Bhatia  |       |                   | 10,000     |                                                        |       |   | $ | 86,731 |   |   |   | 9,999 |   |   |   | $ | 140,953 |   |   |
| Forrest Didier |       |                   | —     |                                                        |       |   | — |   |   |   | 9,999 |   |   |   | $ | 126,587 |   |   |
| John Kleine    |       |                   | —     |                                                        |       |   | — |   |   |   | 5,000 |   |   |   | $ | 71,150 |   |   |
|                |            |                        |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**DIRECTORCOMPENSATION**

Thefollowing table provides information about compensation paid to our directorsin 2006:

| **Name**             | ** ** | ** ** | ** ** | **Fees Earned  or  Paid in  Cash  ($)(1)(2)** | ** ** | **Stock  Awards  ($)(3)** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan  Compensation  ($)** | ** ** | **Change in  Pension  Value and  Nonqualified  Deferred  Compensation  Earnings** | ** ** | **All Other  Compensation  ($)** | ** ** | **Total  ($)** | ** ** |
|----------------------|------------|------------|------------|---------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|----------------|------------|
| John A. Dimling      |       |       | N/A        |                                                    |       | N/A                       |       | $                       | 7,249      |                                                   |       | N/A                                                                                         |       |                                  |       | N/A            |       |   |   | N/A |   |   | $ | 7,249 |   |
| Arthur F.  Kingsbury |       |       | $          | 90,000                                                  |       |                      | $          | 48,229                  |       | N/A                                                    |       |                                                                                        | N/A        |                                  |       |           | N/A        |   |   |   | N/A |   |   | $ | 138,229 |   |
| David H. Harkness    |       |       | N/A        |                                                    |       | N/A                       |       | N/A                     |       |                                                   | N/A        |                                                                                        |       |                                  | N/A        |           |       |   | N/A |   |   | N/A |   |
| Thomas A.  Mastrelli |       |       | N/A        |                                                    |       | N/A                       |       | N/A                     |       |                                                   | N/A        |                                                                                        |       |                                  | N/A        |           |       |   | N/A |   |   | N/A |   |
| D. Scott Mercer      |       |       | $          | 95,000                                                  |       |                      | $          | 52,518                  |       | N/A                                                    |       |                                                                                        | N/A        |                                  |       |           | N/A        |   |   |   | N/A |   |   | $ | 147,518 |   |
| James M. O’Hara |       |       | N/A        |                                                    |       | N/A                       |       | N/A                     |       |                                                   | N/A        |                                                                                        |       |                                  | N/A        |           |       |   | N/A |   |   | N/A |   |
| Jerrell W.  Shelton  |       |       | $          | 90,000                                                  |       |                      | $          | 42,014                  |       | N/A                                                    |       |                                                                                        | N/A        |                                  |       |           | N/A        |   |   |   | N/A |   |   | $ | 132,014 |   |
| Susan D. Whiting     |       |       | N/A        |                                                    |       | N/A                       |       | N/A                     |       |                                                   | N/A        |                                                                                        |       |                                  | N/A        |           |       |   | N/A |   |   | N/A |   |
|                      |            |            |            |                                                         |            |                           |            |                         |            |                                                        |            |                                                                                             |            |                                       |            |                |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

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(1)          Under the guidelinesestablished by our board of directors in March 2005, each “non-employeedirector,” defined as a director who is not employed by NetRatings or any otheraffiliate of The Nielsen Company, was paid an annual fee of $30,000 for servingon the board of directors during 2006; provided, however, that the chairman ofthe audit committee (D. Scott Mercer) was paid an annual fee of $35,000 for2006. The annual fee is paid in four equal installments. Directors are not paidmeeting fees.

(2)          In October 2006,our board of directors agreed to compensate the “non-employee directors”$60,000 for serving as members of the special committee which was formed inresponse to the acquisition proposal received by The Nielsen Company in October 2006.The entire amount of this fee was paid in 2006.

(3)          Underthe guidelines established by our board of directors in March 2005, each “non-employeedirector” received an annual grant of 3,000 shares of restricted stock forserving as a member of the board of directors during 2006 and an annual grantof 1,000 shares of restricted stock for each board committee on which the “non-employeedirector” served for 2006. Messrs. Kingsbury and Mercer were each granted5,000 shares of restricted stock in 2006 with a grant date fair value of$62,150. Mr. Shelton was granted 4,000 shares of restricted stock with agrant date fair value of $49,720. These restricted stock awards are to vest intwo equal annual installments beginning on January 1, 2007 and on the oneyear anniversary thereafter. As of December 31, 2006, the aggregate totalnumber of outstanding unvested restricted stock awards are as follows: Mr. Kingsbury:5,000; Mr. Mercer: 5,000; and Mr. Shelton: 4,000.

**CompensationCommittee Interlocks and Insider Participation**

The members of thecompensation committee of the board of directors during 2006 were Mr. Dimling,Mr. Kingsbury and Mr. Mercer, none of whom was an officer or employeeor former officer or employee of NetRatings. During 2006, no executive officerof NetRatings served on the compensation committee or board of directors ofanother entity whose executive officer(s) served on our compensationcommittee or board of directors. In March 2007, Mr. Shelton replaced Mr. Merceron the compensation committee.

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**CompensationCommittee Report**

The compensation committee has reviewed and discussedthe Compensation Discussion and Analysis required by Regulation S-K, Item402(b) with management. Based on the review and discussions referred to inthe preceding sentence, the compensation committee recommended to the board ofdirectors that the Compensation Discussion and Analysis be included in thisAnnual Report on Form 10-K.

John A. Dimling, ChairmanArthur F. KingsburyJerrell W. Shelton

**ITEM 12.**         SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS

The following table sets forth certain informationregarding the beneficial ownership of shares of our common stock as of February 28,2007 by (i) each person or entity, including any “group” as that term isused in Section 13(d)(3) of the Exchange Act known to us to be thebeneficial owner of more than 5% of the outstanding shares of our common stock,(ii) each director of NetRatings, (iii) each of our named executiveofficers (as defined in Item 402(a)(3) of Regulation S-K) and (iv) alldirectors and executive officers as a group. Unless otherwise indicated, theaddress for each of NetRatings’ officers and directors is c/o NetRatings, Inc.,120 West 45th Street, 35th Floor, New York, New York 10036.

| **Name of Beneficial Owner**                       | ** ** | ** ** | ** ** | **Number of Shares  Beneficially Owned(1)** | ** ** | **Percent of  Common Stock  Outstanding(2)** | ** ** |
|-------------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| **5% Stockholders:**                                              | ** ** |       | ** ** | ** **                                                 |       |                                                   | ** ** | ** ** |   |
| Valcon  Acquisition Holding (Luxembourg) S.a.r.l.(3)              |       |       | 21,578,296 | ** **                                                 |       |                                                   | 59.8       | % |   |
| TCS Capital(4)                                                    |       |       | 3,475,284  | ** **                                                 |       |                                                   | 9.6        | % |   |
| **Executive  Officers and Directors:**                            | ** ** |       | ** ** | ** **                                                 |       |                                                   | ** ** | ** ** |   |
| David H.  Harkness(5)(8)                                          |       |       | 21,589,296 | ** **                                                 |       |                                                   | 59.8       | % |   |
| Susan D.  Whiting(6)(8)                                           |       |       | 21,579,296 | ** **                                                 |       |                                                   | 59.8       | % |   |
| Thomas A.  Mastrelli(3)(8)                                        |       |       | 21,578,296 | ** **                                                 |       |                                                   | 59.8       | % |   |
| James M.  O’Hara(3)(8)                                       |       |       | 21,578,296 | ** **                                                 |       |                                                   | 59.8       | % |   |
| John A.  Dimling(7)(8)                                            |       |       | 18,893,727 | ** **                                                 |       |                                                   | 52.3       | % |   |
| William R.  Pulver(9)                                             |       |       | 773,774    | ** **                                                 |       |                                                   | 2.1        | % |   |
| Todd Sloan(10)                                                    |       |       | 327,813    | ** **                                                 |       |                                                   | *          |   |   |
| Manish Bhatia(11)                                                 |       |       | 210,995    | ** **                                                 |       |                                                   | *          |   |   |
| D. Scott  Mercer(12)                                              |       |       | 65,000     | ** **                                                 |       |                                                   | *          |   |   |
| Arthur F.  Kingsbury(13)                                          |       |       | 49,000     | ** **                                                 |       |                                                   | *          |   |   |
| Forrest Didier(14)                                                |       |       | 46,000     | ** **                                                 |       |                                                   | *          |   |   |
| John Kleine(15)                                                   |       |       | 46,000     | ** **                                                 |       |                                                   | *          |   |   |
| Jerrell W.  Shelton(16)                                           |       |       | 16,333     | ** **                                                 |       |                                                   | *          |   |   |
| All directors and  executive officers as a group (15 persons)(17) |       |       | 23,245,828 | ** **                                                 |       |                                                   | 62.2       | % |   |

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*Less than 1%

       (1) Beneficial ownership is determined in accordance with the rules ofthe SEC. In computing the number of shares beneficially owned by a person andthe percentage ownership of that person, shares of common stock subject tooptions or warrants held by that person that are exercisable within60 days of February 28, 2007 are deemed outstanding. Such shares,however, are not deemed outstanding for purposes of computing the percentageownership of any other person. Holders of restricted shares have voting powerwith respect to such shares from the date of grant. To our knowledge, except asindicated in the footnotes to this table and pursuant to applicable communityproperty laws, the 

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stockholders named in thetable have sole voting and investment power with respect to the shares setforth opposite each such stockholder’s name.

       (2) Based on 36,092,266 shares of our common stock outstanding on February 28,2007.

       (3) Consists of (i) 18,832,727 shares held of record by NielsenMedia Research and (ii) 2,745,569 shares held of record by ACNielsenCorporation. Nielsen Media Research and ACNielsen Corporation are indirectlywholly-owned subsidiaries of The Nielsen Company B.V. (f/k/a VNU Group B.V.)which is an indirect wholly-owned subsidiary of Valcon Acquisition Holding(Luxembourg) S.a.r.l.

       (4) Based on a Schedule 13G filed with the SEC on February 9,2007, TCS Capital Investments, LP (“TCS Capital Investments”) may be deemed tobe the beneficial owner of 2,146,671 shares of common stock. Each of TCSCapital GP, LLC (“TCS Capital GP”) and Mr. Eric Semler may be deemed to bethe beneficial owner of 3,475,284 shares of common stock, which consists of (A) 2,146,671shares of common stock held for the account of TCS Capital Investments, (B) 185,335shares of common Stock held for the account of TCS Capital LP (“TCS Capital”)and (C) 1,143,278 shares of common stock held for the account of TCSCapital II, LP (“TCS Capital II”). TCS Capital GP acts as general partner ofeach of TCS Capital, TCS Capital II and TCS Capital Investments, and Mr. Semler,as manager of TCS Capital GP, controls the investment decisions of TCS CapitalGP. The address of the principal business office of each of TCS CapitalInvestments, TCS Capital GP, TCS Capital, TCS Capital II and Mr. EricSemler is 888 Seventh Avenue, Suite 1504, New York, New York 10019.

       (5) Consists of (i) 6,000 shares owned directly, (ii) 5,000shares issuable upon exercise of options that are currently exercisable or willbecome exercisable within 60 days of February 28, 2007, (iii) 18,832,727shares held of record by Nielsen Media Research and (iv) 2,745,569 sharesheld of record by ACNielsen Corporation.

       (6) Consists of (i) 1,000 shares owned directly, (ii) 18,832,727 sharesheld of record by Nielsen Media Research and (iii) 2,745,569 sharesheld of record by ACNielsen Corporation.

       (7) Consists of (i) 3,500 shares owned directly, (ii) 57,500shares issuable upon exercise of options that are currently exercisable or willbecome exercisable within 60 days of February 28, 2007 and (iii) 18,832,727shares held of record by Nielsen Media Research.

       (8) Mr. Dimling is Chairman Emeritus of Nielsen Media Research; Mr. Harknessis Senior Vice President, Strategy and Alliances, of The Nielsen Company’sMedia Measurement and Information Segment; Mr. Mastrelli is Executive VicePresident, Corporate Development, The Nielsen Company; Mr. O’Hara isSenior Vice President and Chief Financial Officer of The Nielsen Company’sMedia Measurement and Information Segment; and Ms. Whiting is ExecutiveVice President of The Nielsen Company and Chairman of Nielsen Media Research.Each of Nielsen Media Research and ACNielsen Corporation are indirectlywholly-owned subsidiaries of The Nielsen Company. Accordingly, theseindividuals may be deemed to share voting or investment control with respect toshares owned by Nielsen Media Research or ACNielsen Corporation. Each of theseindividuals disclaims beneficial ownership of any shares held by Nielsen MediaResearch or ACNielsen Corporation. The address for each of these individuals isc/o The Nielsen Company B.V., 770 Broadway, New York, New York 10003.

       (9) Consists of (i) 83,167 shares owned directly, of which 66,667are restricted shares, and (ii) 690,607 shares issuable upon exercise ofoptions that are currently exercisable or will become exercisable within60 days of February 28, 2007. The restricted shares will fully vestupon the consummation of the merger with Nielsen Media Research.

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(10) Consists of (i) 45,000 shares owned directly, all of which arerestricted shares, and (ii) 282,813 shares issuable upon exercise ofoptions that are currently exercisable or will become exercisable within60 days of February 28, 2007. The restricted shares will fully vestupon the consummation of the merger with Nielsen Media Research.

(11) Consists of (i) 47,453 shares owned directly, of which 45,882are restricted shares, and (ii) 163,542 shares issuable upon exercise ofoptions that are currently exercisable or will become exercisable within60 days of February 28, 2007. The restricted shares will fully vestupon the consummation of the merger with Nielsen Media Research.

(12) Consists of (i) 15,000 shares owned directly, of which 2,500are restricted shares, and (ii) 50,000 shares issuable upon exercise ofoptions that are currently exercisable or will become exercisable within60 days of February 28, 2007. The restricted shares will fully vestupon the consummation of the merger with Nielsen Media Research.

(13) Consists of (i) 9,000 shares owned directly, of which 2,500 arerestricted shares, and (ii) 40,000 shares issuable upon exercise ofoptions that are currently exercisable or will become exercisable within60 days of February 28, 2007. The restricted shares will fully vestupon the consummation of the merger with Nielsen Media Research.

(14) Consists of 46,000 shares of restricted common stock owned directly.These shares will fully vest upon the consummation of the merger with NielsenMedia Research.

(15) Consists of 46,000 shares of restricted common stock owned directly.These shares will fully vest upon the consummation of the merger with NielsenMedia Research.

(16) Consists of (i) 8,000 restricted shares owned directly, ofwhich 2,000 are restricted shares, and (ii) 8,333 shares issuable uponexercise of options that are currently exercisable or will become exercisablewithin 60 days of February 28, 2006. The restricted shares will fullyvest upon the consummation of the merger with Nielsen Media Research.

(17) Includes 18,832,727 shares held of record byNielsen Media Research and 2,745,569 shares held of record by ACNielsenCorporation. Also includes 1,305,820 shares issuable upon exercise of optionsthat are currently exercisable or will become exercisable within 60 daysof February 28, 2007.

**Equity CompensationPlan Information**

Information for our equity compensation plans ineffect as of December 31, 2006, is as follows:

| **Plan Category**                                       | ** ** | ** ** | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in column (a))** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation  plans approved by security holders |       |       | 2,219,599  |                                                                                                                                                 |       |                                                                                                        | $          | 10.54                                                                                                                                                                                                            |       |   |   | 419,000 |   |   |
| Equity  compensation plans not approved by security holders* |       |       | 5,146      |                                                                                                                                                 |       |                                                                                                        | $          | 106.83                                                                                                                                                                                                           |       |   |   | — |   |   |
| Total                                                        |       |       | 2,224,745  |                                                                                                                                                 |       |                                                                                                        | $          | 10.76                                                                                                                                                                                                            |       |   |   | 419,000 |   |   |

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*                    Assumedin connection with our acquisition of eRatings in May 2002.

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**ITEM 13.**         CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

**Related PartyTransactions with The Nielsen Company B.V. and its Subsidiaries**

*The Nielsen Company B.V.*

We obtain our directorsand officers, property, general and workers compensation insurance through TheNielsen Company. The costs incurred for these services in each of 2006 and 2005were approximately $0.2 million.

*Nielsen MediaResearch*

In August 1999, we entered into an operatingagreement with Nielsen Media Research. Under the terms of the operatingagreement, we paid Nielsen Media Research a 35% commission for selling servicesto certain customers. In May 2002, this agreement was amended to providethat, in lieu of paying commissions, the company will pay the actual costsassociated with the operation and maintenance by Nielsen Media Research ofsales personnel dedicated to selling our products and services. This expensetotaled approximately $0.3 million for each of the years ended December 31,2006 and 2005.

In April 2005, we and Nielsen Media Researchsigned a series of agreements pursuant to which the parties have cooperated inthe development and operation of a patent enforcement program. Under the patentenforcement program, we have contacted a series of companies in the webanalytics and online advertising fields regarding the licensing of a portfolioof patents that are owned or jointly owned (with Nielsen Media Research) by us.As part of the patent enforcement program, we have also initiated a number ofpatent infringement lawsuits, five of which have been settled. Under each ofthe five settlements, we have licensed certain patents in exchange for licenseor royalty fees. Pursuant to our agreements with Nielsen Media Research, we (i) splitthe fees and expenses relating to the patent enforcement program on a 50/50basis and (ii) split the proceeds from the patent enforcement program on a50/50 basis, net of certain payments to the law firm coordinating the patentenforcement program.

We are also charged by Nielsen Media Research for thecosts of maintaining our U.S. home and at-work NetView panels. These coststotaled $2.3 million and $2.5 million for the years ended December 31,2006 and 2005, respectively.

In the fourth quarter of 2003, Nielsen Media Researchstarted providing services to recruit and survey respondents for our @Planservice. The cost incurred for these services was $2.8 million and $2.4 millionfor the years ended December 31, 2006 and 2005, respectively.

In March 2004, we engaged Nielsen Media Researchto provide technology hosting services for our U.S. data center operations. Thecost incurred in 2006 and 2005 for these services was $0.8 million and $0.6million, respectively.

As of December 31,1999, Nielsen Media Research became a wholly-owned subsidiary of The NielsenCompany. As Nielsen Media Research is a majority stockholder of NetRatings, TheNielsen Company is required to consolidate our operating results with its ownfor financial reporting purposes. As of December 31, 2006 and 2005, TheNielsen Company owned, through its subsidiaries, approximately 60% of ouroutstanding common stock.

*ACNielsenCorporation*

Since May 2002,ACNielsen Corporation, an indirect wholly-owned subsidiary of The NielsenCompany, has provided back office services for parts of our internationaloperations. These services include payment of all international operatingexpenses for which we reimburse ACNielsen Corporation on a quarterly basis.Fees related to these back office services were approximately $0.4 million and$0.9 

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millionfor the years ended December 31, 2006 and 2005, respectively. During 2006,we completed the process of transitioning these services out of ACNielsenCorporation in certain countries, although ACNielsen Corporation still providesthese services in several international jurisdictions. We also rent officespace in ACNielsen Corporation offices for some of our international salesoffices. Charges related to this office space and related office expenses wereapproximately $0.2 million for the year ended December 31, 2006 andapproximately $0.4 million for the year ended December 31, 2005.

**Policies Regardingthe Review and Approval of Transactions with Related Persons**

Pursuant to its writtencharter, the audit committee must review with management and approve alltransactions or courses of dealing with parties related to NetRatings. Indetermining whether to approve a related person transaction, the auditcommittee will consider a number of factors including whether the relatedperson transaction is on terms and conditions no less favorable to us than mayreasonably be expected in arm’s-length transactions with unrelated parties. Theaudit committee has reviewed and approved the terms of each of the transactionsdescribed above.

**DirectorIndependence**

As noted above, becauseThe Nielsen Company B.V. and its affiliates own more than 50% of the votingpower in NetRatings, we are deemed to be a “controlled company” under theNasdaq rules. As a result, we are exempt from the Nasdaq rules thatrequire listed companies to have (i) a majority of independent directorson the Board of Directors, (ii) a compensation committee and nominatingcommittee composed solely of independent directors, (iii) the compensationof executive officers determined by a majority of the independent directors ora compensation committee composed solely of independent directors and (iv) amajority of the independent directors or a nominating committee composed solelyof independent directors elect or recommend director nominees for selection bythe Board of Directors. The audit committee currently consists of Messrs. Kingsbury,Mercer and Shelton, each of whom has been determined to be independent asdefined under both the Nasdaq’s and SEC’s director independence standards foraudit committee members. Other than the members of the audit committee, thereare no other independent directors that serve on the Board of Directors.

**ITEM 14.**         PRINCIPALACCOUNTING FEES AND SERVICES

**Fees for ServicesRendered by Ernst & Young LLP**

For the fiscal years ended December 31, 2006 and December 31,2005, fees for professional services provided by Ernst & Young LLP areset forth below:

| ** **          | ** ** | **Year Ended December 31,** | ** ** |
|---------------------|------------|--------------------------------------------|------------|
| ** **          | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Audit Fees(1)       |       | $                                          | 995,280    |   | $ | 936,500 |   |
| Audit Related  Fees |       | $                                          | —     |   | $ | — |   |
| Tax Fees            |       | $                                          | 21,500     |   | $ | 297,800 |   |
| All Other Fees      |       | $                                          | —     |   | $ | — |   |

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(1)          Includesfees associated with the annual audit of our consolidated financial statements,the audit of internal control over financial reporting, the reviews of ourquarterly reports on Form 10-Q and fees related to regulatoryfilings.

**Pre-ApprovalPolicies and Procedures**

Pursuant to its writtencharter, the audit committee shall approve in advance all audit services andall permissible non-audit services provided by the independent registeredpublic accounting firm, consistent with applicable law and exchangerequirements. During the year, circumstances may arise when it may 

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becomenecessary to engage the independent registered public accounting firm for additionalservices not previously contemplated by the audit committee. The auditcommittee has decided to delegate pre-approval authority to the chair of theaudit committee for any engagements that are less than $25,000. The chair ofthe audit committee must report any pre-approval decisions to the auditcommittee at its next scheduled meeting. Any engagements that exceed $25,000must be approved by the audit committee in advance.

**PART IV**

**ITEM 15.**         EXHIBITSAND FINANCIAL STATEMENT SCHEDULES

(a)          The following documentsare filed as a part of this report:

(1)          Financial Statements:

See Index to Consolidated Financial Statements at page 41of this report.

(2)          Financial StatementSchedules:

All financial statement schedules are omitted becausethey are not applicable or not required, or because the required information isincluded in the Financial Statements and Notes thereto which are includedherein.

(3)          Exhibits:

The exhibits listed on the accompanying Exhibit Indexare filed as part of, or are incorporated by reference into, this report.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

|        | **NETRATINGS, INC.** |
|--------|---------------------------|
|   |                      |
|   | By:                       | /s/ TODD SLOAN |
|   |                      | Todd Sloan*Executive Vice President Corporate  Development,  Chief Financial Officer and Secretary* |

 

Date: March 16, 2007

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated:

|                                        | **Signature** | ** **                                                | ** ** | ** **           | **Title** | ** ** | ** ** | ** ** | **Date** | ** ** |
|----------------------------------------|---------------|-----------------------------------------------------------|------------|----------------------|-----------|------------|------------|------------|----------|------------|
|                                   |          |                                                      |       |                 |
| /s/ WILLIAM PULVER                     |          | Chief Executive Officer,  President and Director          |       | March 16,  2007 |
| William  Pulver                        |          | (Principal Executive  Officer)                            |       |                 |
|                                   |          |                                                      |       |                 |
| /s/ TODD SLOAN                         |          | Executive Vice President  Corporate Development, Chief    |       | March 16,  2007 |
| Todd  Sloan                            |          | Financial Officer and  Secretary (Principal Financial and |       |                 |
|                                   |          | Accounting Officer)                                       |       |                 |
|                                   |          |                                                      |       |                 |
| /s/ JOHN A. DIMLING                    |          | Chairman of the Board                                     |       | March 16,  2007 |
| John  A. Dimling                       |          |                                                      |       |                 |
|                                   |          |                                                      |       |                 |
| /s/ DAVID H. HARKNESS                  |          | Director                                                  |       | March 16,  2007 |
| David  H. Harkness                     |          |                                                      |       |                 |
|                                   |          |                                                      |       |                 |
| /s/ ARTHUR F. KINGSBURY |          | Director                                                  |       | March 16,  2007 |
| Arthur  F. Kingsbury                   |          |                                                      |       |                 |
|                                   |          |                                                      |       |                 |
| /s/ THOMAS A. MASTRELLI |          | Director                                                  |       | March 16,  2007 |
| Thomas  A. Mastrelli                   |          |                                                      |       |                 |
|                                   |          |                                                      |       |                 |
| /s/ D. SCOTT MERCER                    |          | Director                                                  |       | March 16,  2007 |
| D.  Scott Mercer                       |          |                                                      |       |                 |
|                                   |          |                                                      |       |                 |
| /s/ JERRELL W. SHELTON                 |          | Director                                                  |       | March 16,  2007 |
| Jerrell  W. Shelton                    |          |                                                      |       |                 |
|                                   |          |                                                      |       |                 |
| /s/ SUSAN D. WHITING                   |          | Director                                                  |       | March 16,  2007 |
| Susan D. Whiting                       |          |                                                      |       |                 |

 

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**EXHIBIT INDEX**

| Exhibit   Number | ** ** | ** **                                                                                                                                                                                           | ** ** | **Exhibit Title** |
|------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|
| 2.7(1)           |       | Form of Share  Purchase Agreement between NetRatings, Inc. and certain Red Sheriff  shareholders.                                                                                          |
| 2.8(2)           |       | Agreement and Plan of  Merger, dated as of February 5, 2007, among Nielsen Media  Research, Inc., NTRT Acquisition Sub, Inc. and  NetRatings, Inc.                               |
| 3.1(3)           |       | Restated Certificate of  Incorporation of Registrant.                                                                                                                                                |
| 3.2(4)           |       | Amended and Restated  By-Laws of Registrant.                                                                                                                                                         |
| *10.1(5)         |       | Amended and Restated  1998 Stock Plan, including form of restricted stock agreement.                                                                                                            |
| *10.2(6)         |       | 1999 Employee Stock  Purchase Plan.                                                                                                                                                                  |
| *10.3(7)         |       | Form of Director  Retention Agreement.                                                                                                                                                          |
| *10.4(8)         |       | Employment Offer Letter  with Bill Pulver dated November 1, 2001.                                                                                                                               |
| *10.5(9)         |       | Employment Offer Letter  with Todd Sloan dated February 28, 2002.                                                                                                                               |
| 10.10(10)        |       | Operating Agreement  between Registrant and Nielsen Media Research dated as of August 15,  1999.                                                                                                |
| 10.11(11)        |       | Software License  Agreement between Registrant and Nielsen Media Research, dated as of  August 15, 1999.                                                                                        |
| 10.12(12)        |       | Panel Maintenance  Agreement between Registrant and Nielsen Media Research, dated as of  August 15, 1999.                                                                                       |
| 10.13(13)        |       | NMR Commissions  Agreement by and between NetRatings, Inc. and Nielsen Media  Research, Inc., dated as of May 7, 2002.                                                                |
| 10.14(14)        |       | Office Space Lease  between Registrant and The Irvine Company dated November 9, 1999 (as  subsequently amended).                                                                                |
| 10.15(15)        |       | Services Agreement by  and among NetRatings, Inc., ACNielsen eRatings.com and ACNielsen  Corporation, dated as of May 7, 2002.                                                             |
| 10.16(16)        |       | Post-Closing Agreement  by and among NetRatings, Inc., ACNielsen eRatings.com and ACNielsen  Corporation, dated as of May 7, 2002.                                                         |
| 10.17(17)        |       | Agreement of  Reimbursement by and between NetRatings, Inc. and ACNielsen Corporation,  dated as of May 7, 2002.                                                                           |
| 10.18(18)        |       | Agreement of  Reimbursement by and between NetRatings, Inc. and VNU, Inc., dated  as of May 7, 2002.                                                                                  |
| 10.19(19)        |       | Sub-sublease dated  September 13, 2002.                                                                                                                                                         |
| *10.20(20)       |       | Employment Offer Letter  with Forrest Didier dated April 29, 2005.                                                                                                                              |
| *10.21(21)       |       | Employment Offer Letter  with John Kleine dated August 5, 2005.                                                                                                                                 |
| *10.22(22)       |       | Separation Agreement and  Mutual Release, dated January 1, 2006, between NetRatings, Inc. and  George Durney.                                                                              |
| *10.23(23)       |       | Compromise Agreement,  dated February 17, 2006, between NetRatings UK Limited and David Day.                                                                                                    |
| *10.24(24)       |       | Service Agreement, dated  July 13, 2006, between NetRatings UK Ltd and Louise Ainsworth.                                                                                                        |
| *10.25           |       | Severance Agreement  between NetRatings, Inc. and Manish Bhatia                                                                                                                                 |
| *10.26(25)       |       | Letter Agreement between  NetRatings, Inc. and Todd Sloan                                                                                                                                       |
| 21               |       | Subsidiaries.                                                                                                                                                                                        |
| 23               |       | Consent of Independent  Registered Public Accounting Firm.                                                                                                                                           |
| 31.1             |       | Certificate of Chief  Executive Officer pursuant to Rule 13a-14(a) under the  Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002. |

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| 31.2 |   | Certificate of Chief  Financial Officer pursuant to Rule 13a-14(a) under the  Securities Exchange Act of 1934, as adopted pursuant to Section 302 of  the Sarbanes-Oxley Act of 2002.                                 |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.1 |   | Certificate of Chief  Executive Officer pursuant to Rule 13a-14(b) under the  Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted  pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 |   | Certificate of Chief Financial Officer pursuant to  Rule 13a-14(b) under the Securities Exchange Act of 1934 and  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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*                    Constitutes amanagement contact or compensatory plan required to be filed pursuant to Item15(c) of Form 10-K.

(1)          Incorporated by referenceto exhibit number 2.7 to Registrant’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2003.

(2)          Incorporated byreference to exhibit number 2.1 to Registrant’s Current Report onForm 8-K dated February 6, 2007.

(3)          Incorporated byreference to exhibit number 3.1 to Registrant’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2003.

(4)          Incorporated byreference to Exhibit 3.1 to Registrant’s Quarterly Report on Form 10-Qfor the fiscal period ended September 30, 2006.

(5)          Incorporated byreference to exhibit number 10.1 to Registrant’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004.

(6)          Incorporated by referenceto exhibit number 10.2 to Registrant’s S-1 Registration Statement (No. 333-87717),which became effective on December 8, 1999 (the “1999 RegistrationStatement”).

(7)          Incorporated byreference to exhibit number 10.3 to the 1999 Registration Statement.

(8)          Incorporated byreference to exhibit number 10.24 to Registrant’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2001.

(9)          Incorporated byreference to exhibit number 10.40 to Registrant’s Quarterly Report on Form 10-Qfor the fiscal period ended June 30, 2002.

(10) Incorporated by reference to exhibit number 10.9 to the 1999Registration Statement.

(11) Incorporated by reference to exhibit number 10.16 to the 1999Registration Statement.

(12) Incorporated by reference to exhibit number 10.17 to the 1999Registration Statement.

(13) Incorporated by reference to exhibit number 10.38 to Registrant’sQuarterly Report on Form 10-Q for the fiscal period ended March 31,2002.

(14) Incorporated by reference to exhibit number 10.21 to Registrant’sAnnual Report on Form 10-K for the fiscal year ended December 31,1999.

(15) Incorporated by reference to exhibit number 10.35 to Registrant’sQuarterly Report on Form 10-Q for the fiscal period ended March 31,2002.

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(16) Incorporated by reference to exhibit number 10.36 to Registrant’sQuarterly Report on Form 10-Q for the fiscal period ended March 31,2002.

(17) Incorporated by reference to exhibit number 10.37 to Registrant’sQuarterly Report on Form 10-Q for the fiscal period ended March 31,2002.

(18) Incorporated by reference to exhibit number 10.39 to Registrant’sQuarterly Report on Form 10-Q for the fiscal period ended March 31,2002.

(19) Incorporated by reference to exhibit number 10.42 to Registrant’sQuarterly Report on Form 10-Q for the fiscal period ended September 30,2002.

(20) Incorporated by reference to exhibit number 99.2 to Registrant’sCurrent Report on Form 8-K dated May 5, 2005.

(21) Incorporated by reference to exhibit number 99.1 to Registrant’sCurrent Report on Form 8-K dated September 7, 2005.

(22) Incorporated by reference to exhibit number 10.22 to Registrant’sAnnual Report on Form 10-K for the fiscal year ended December 31,2005.

(23) Incorporated by reference to exhibit number 10.23 to Registrant’sAnnual Report on Form 10-K for the fiscal year ended December 31,2005.

(24) Incorporated by reference to exhibit number 99.1 to Registrant’sCurrent Report on Form 8-K dated August 4, 2006.

(25) Incorporated by reference to exhibit number 99.1 to Registrant’sCurrent Report on Form 8-K dated December 21, 2006.

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