Digital River 2001 Annual Report Download - page 31

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29
to current period revenues. Similarly, management must make estimates of the uncollectability of our
billed accounts receivable. Management specifically analyzes accounts receivable and historical bad
debts, customer credit-worthiness, current economic trends and changes in our customer payment
terms when evaluating the adequacy of the allowance for doubtful accounts. Significant management
judgments and estimates must be made and used in connection with the allowance in any accounting
period. Material differences may result in the amount and timing of our revenue for any period if
management makes different judgments or utilizes different estimates.
Goodwill, Intangibles and Other Long-Lived Assets.
Property, plant and equipment, goodwill, intangibles, and certain other long-lived assets are amortized
over their useful lives. Useful lives are based on management’s estimates of the period that the assets
will generate revenue. Intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.The Company’s
evaluation considers nonfinancial data such as changes in the operating environment and business
strategy, competitive information, market trends and operating performance. Future events could cause
us to conclude that impairment indicators exist and that goodwill and other intangibles associated with
our acquired businesses is impaired. Any resulting impairment loss could have a material adverse impact
on our financial condition and results of operations.The Company expects amortization of goodwill
and other intangibles and acquisition related costs to decrease in 2002 due to the adoption of
Statement of Financial Accounting Standards (“SFAS”) No. 141,“Business Combinations” and
SFAS No. 142,“Goodwill and Intangible Assets”.
R esults Of Operations
The following table sets forth certain items from the Company’s consolidated statements of operations
as a percentage of total revenue for the years indicated.
Management’s Discussion and Analysis of Financial Condition and R esults of O perations
Digital River 2001 Annual Report
2001 2000 1999
R evenue 100.0% 100.0% 100.0%
Costs and expenses:
Direct cost of services 4.7 4.7 5.5
Network and infrastructure 17.6 25.2 30.6
Sales and marketing 47.5 82.4 119.8
Product research and development 19.4 41.9 70.7
General and administrative 8.1 14.9 27.6
Depreciation and amortization 8.0 10.2 10.7
Amortization of goodwill and other
intangibles and acquisition related costs 29.4 49.3 47.4
Total costs and expenses 134.7 228.6 312.3
Loss from operations (34.7) (128.6) (212.3)
Interest income 1.5 6.4 21.7
Net loss (33.2)% (122.2)% (190.6)%