Digital River 2006 Annual Report Download - page 77

improvements are amortized over the shorter of the asset life or remaining length of the lease. Property and
equipment at December 31 consisted of the following (in thousands):
2006 2005
Computer hardware and software ................................. $46,326 $ 44,849
Furniture, fixtures and leasehold improvements ....................... 10,055 7,151
Total property and equipment .................................. $56,381 $ 52,000
Accumulated depreciation ....................................... (32,302) (34,045)
Net property and equipment ................................... $24,079 $ 17,955
Purchased Intangible Assets
Through both domestic and international acquisitions, we have continued to expand our global online
businesses. Tangible net assets for our acquisitions were valued at their respective carrying amounts as we
believe that these amounts approximated their current fair values at the respective acquisition dates. The
valuation of identifiable intangible assets acquired reflects management’s estimates based on, among other
factors, use of established valuation methods. Such assets consist of customer lists and user base, trademarks
and trade names, developed technologies and other acquired intangible assets, including contractual agree-
ments. Identifiable intangible assets are amortized using the straight-line method over the estimated useful
lives, generally three to ten years. We believe the straight-line method of amortization best represents the
distribution of the economic value of the identifiable intangible assets acquired to date. Goodwill represents
the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets
acquired in each business combination. The purchase prices of the acquisitions described in Note 5 below
exceeded the estimated fair value of the respective related identifiable intangible and tangible assets because
we believe these acquisitions will assist with our strategy of establishing and expanding our global online
marketplace.
Long-Lived Assets
We review all long-lived assets, including intangible assets with definite lives, for impairment in
accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”). Under SFAS 144, impairment losses are recorded whenever
events or changes in circumstances indicate the carrying value of an asset may not be recoverable. For long-
lived assets used in operations, impairment losses are only recorded if the asset’s carrying amount is not
recoverable through its undiscounted, probability-weighted cash flows. We measure the impairment loss based
on the difference between the carrying amount and estimated fair value. An impairment loss is recognized
when estimated undiscounted cash flows expected to result from the use of the asset plus net proceeds
expected from disposition of the asset (if any) are less than the carrying value of the asset. As part of our
evaluation, we consider certain non-financial data as indicators of impairment such as changes in the operating
environment and business strategy, competitive information, market trends and operating performance. When
an impairment loss is identified, the carrying amount of the asset is reduced to its estimated fair value. There
were no significant impairments of long-lived assets, including definite-lived intangible assets, recorded in
2006, 2005 or 2004.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable, notes payable and accounts
payable approximates fair value because of the short maturity of these instruments. As of December 31, 2006
and 2005, the fair value of our $195 million 1.25% fixed rate convertible senior notes was valued at
$270 million and $189 million, respectively, based on the quoted fair market value of the debt.
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DIGITAL RIVER, INC.
Notes to Consolidated Financial Statements — (Continued)