Digital River 2001 Annual Report Download - page 34

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General and Administrative.
General and administrative expense consists principally of executive, accounting and administrative
personnel and related expenses, including deferred compensation expense, professional fees and investor
relations expenses. General and administrative expense increased to $4.7 million in 2001, from $4.6
million and $4.0 million in 2000 and 1999, respectively.The increase in 2001 from 2000 resulted from
an increase in professional fees of $108,000.The increase in 2000 from 1999 resulted from an increase
in professional fees and investor relations-related expense of $332,000. As a percentage of revenue,
general and administrative expense decreased to 8.1% in 2001 from 14.9% in 2000 and 27.6% in 1999,
primarily reflecting the Company’s increased revenue. In 2001 and 2000, general and administrative
expense related to the Software and Digital Commerce Services Division was $3.2 million. In 2001,
general and administrative expense for the E-Business Services Division was $1.5 million, up from
$1.4 million in 2000.The Company expects general and administrative expense to increase in absolute
dollars in the future, particularly as the Company continues to build infrastructure to support its
growth. As a percentage of revenue, these expenses are expected to decrease as revenue increases.
Amortization of Goodwill and Other Intangibles and Acquisition Related Costs.
Amortization of goodwill and other intangibles and acquisition related costs consists of the amortization
of goodwill and other intangible assets recorded from the Company’s nine acquisitions in the past three
years, as well as other acquisition related costs such as earn-out payments. Amortization of goodwill and
other intangibles and acquisition related costs increased to $17.0 million in 2001 from $15.4 million in
2000 and $6.9 million in 1999.The increase in 2001 from 2000 related to the amortization of goodwill
and other intangibles from the four acquisitions consummated during 2001.The increase in 2000 from
1999 related to a full year of amortization of goodwill and other intangibles in 2000 from the four
1999 acquisitions as well as two earn-out payments totaling $5.1 million made in 2000.The Company
expects amortization of goodwill and other intangibles and acquisition related costs to decrease in 2002
due to the adoption of SFAS No. 141 and 142.
Loss from Operations.
The Company’s loss from operations decreased to $20.1 million in 2001 from $40.1 million in 2000
and $30.8 million in 1999, resulting primarily from increased revenue without commensurate increases
in operating expenses. In 2001, the Software and Digital Commerce Services Division generated
income from operations of $10.7 million compared to a loss of $5.6 million in 2000. In 2001, the
loss from operations related to the E-Business Services Division was $9.1 compared to a loss of $15.9
million in 2000. In calculating segment losses, the Company does not include depreciation and
amortization nor amortization of goodwill and other intangibles and acquisition related costs.
32
Management’s Discussion and Analysis of Financial Condition and R esults of O perations
Digital River 2001 Annual Report