Digital River 2002 Annual Report Download - page 56

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Rec ent Acc ounting Pronounc ements
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and
Disclosure—an amendment of SFAS No. 123.” This statement provides alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee compensation. This statement also
amends the disclosure requirements of SFAS No. 123 and ABP Opinion No. 28, “Interim Financial Reporting,” to
require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-
based employee compensation and the effect of the method used on reported results. The Company has implemented
the annual reporting requirements for SFAS No. 148 at December 31, 2002 (see above). The Company has determined
at this time to continue to account for all stock-based employee compensation plans under ABP Opinion No. 25.
I n June 2002, the Financia l Ac c ounting Standa r ds Boar d issue d SFA S N o. 146, “A cc ounting for Costs Assoc ia ted w ith
E xit or Disposa l A ctivitie s” . SFAS No. 146 a ddr esses f ina nc ial a c counting a nd r e porting f or costs a ssocia te d w ith e xit or
disposal a c tivitie s. I t nullif ie s E me rging I ssues Ta sk Forc e I ssue No. 94- 3, “L iability Re cognition for Cer ta in Employe e
T er mination Bene fits and O ther Costs to E xit a n Ac tivity”. SFA S N o. 146 re quire s tha t a liability be r ec ogniz e d for c osts
a ssoc iated with an e xit or disposal ac tivity only w he n the liability is inc urr ed. SFA S No. 146 also esta blishe s fa ir va lue a s
the obje ctive f or initial me asure me nt of liabilitie s re lated to e xit or disposal ac tivitie s. SFAS N o. 146 is e ff ec tive f or e xit
or disposa l a ctivitie s tha t ar e initia te d a fte r De c embe r 31, 2002. The Company doe s not be lieve tha t this sta tement w ill
have a mate rial impa c t on its c onsolidate d financia l sta te me nts.
2. Goodwill and intangible assets
In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS)
No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Under SFAS No.
142, goodwill and intangible assets with indefinite lives will no longer be amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. For acquisitions consummated by the Company subsequent
to July 1, 2001, the Company adopted the provisions of SFAS No. 141 and 142 effective July 1, 2001. The Company
adopted the full provisions of SFAS No. 141 and 142 during the first quarter of 2002.
The Company has assessed goodwill impairment using a two-step approach based on reportable segments and
reassessed any intangible assets, including goodwill, recorded in connection with earlier acquisitions. The Company
completed its initial and annual required goodwill impairment tests under SFAS No. 142 in the first and fourth quarters
of 2002, respectively, which indicated that there was no impairment of goodwill or other intangibles.
Upon adoption of SFAS No. 142, the Company discontinued the amortization of goodwill. The following table
presents a reconciliation of net income (loss) and net income (loss) per share adjusted for the exclusion of goodwill
amortization:
Year ended December 31,
2002 2001 2000
Reported net income.................................................. $ (510,000) $ (19,222,000) $ (38,116,000)
Add goodwill amortization........................................ — 10,769,000 7,594,000
Adjusted net income (loss)........................................ $ (510,000) $ (8,453,000) $ (30,522,000)
Reported net income (loss) per share ........................ $ (0.02) $ (0.79) $ (1.78)
Add goodwill amortization per share ........................ — 0.44 0.35
Adjusted net income (loss) per share ........................ $ (0.02) $ (0.35) $ (1.43)