Digital River 2006 Annual Report Download - page 91

Download and view the complete annual report

Please find page 91 of the 2006 Digital River annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114

In March 2005, we acquired certain assets and assumed certain liabilities, vendor contracts and
intellectual property of SWReg, an operating business of Atlantic Coast plc, a private limited UK company,
for $8.8 million in cash. SWReg is a provider of e-commerce for services for software authors. The agreement
also provided an opportunity for earn-out based on achieving specific revenue and development goals over the
first 12 months following the closing of the acquisition. Earn-outs totaling $0.5 million have been recorded as
goodwill as of December 31, 2006 as they were considered incremental to the purchase price.
Acquisitions completed in 2004
In April 2004, we acquired element 5 AG, a privately held company based in Germany and a leading
European e-commerce solution provider for software publishers. Under the terms of the acquisition, we paid
$120 million in cash to acquire all of the outstanding shares of capital stock of element 5. We also agreed to
pay up to an additional $2.5 million in cash based on element 5’s operating performance over the first
24 months following the closing of the acquisition.
On January 18, 2005, we entered into an agreement with senior employees of element 5 AG, pursuant to
which these employees agreed to cease providing services to element 5 sixty days after the date of the
agreement. Pursuant to the agreement, we also agreed to resolve a $12 million escrow associated with our
acquisition of element 5 by distributing $10 million to the former element 5 shareholders, and $2 million to
us. Certain adjustments also were made to our earn-out obligations under the April 2004 acquisition
agreement. Under the restructured earn-out, $1.25 million in cash was paid to the former element 5 sharehold-
ers on March 1, 2005 and an additional $1.25 million was paid on April 10, 2006. These earn-out amounts
have been recorded as additional goodwill as they were incremental to the purchase price. We have recorded a
net of $5.4 million as part of the acquisition cost of element 5 related to these acquisition restructuring plans
of which $0.5 million remained as of December 31, 2006. The following table provides detail on the activity
and our remaining accrual balance by category as of December 31, 2006 (in thousands):
Accrual
April 16,
2004
Net
Additions Charges
Accrual
December 31,
2004
Adjust-
ments Charges
Accrual
December 31,
2005 Charges
Accrual
December 31,
2006
Shareholder escrow ......... $ — $2,500 $ — $2,500 $ — $(1,250) $1,250 $(1,250) $ —
Employee severance costs .... 700 2,100 (400) 2,400 (200) (1,250) 950 (451) 499
Facilities consolidation . ..... 200 100 (300) — — — — — —
Total . . . ............... $900 $4,700 $(700) $4,900 $(200) $(2,500) $2,200 $(1,701) $499
In June 2004, we acquired substantially all of the assets and assumed certain liabilities of Fireclick, Inc.,
a leading provider of web-analysis solutions for online retailers, providing website site owners with the tools
necessary to measure campaign return-on-investment, track user path analysis and enhance website site user
experience. Under the terms of the agreement, we paid $7.5 million in cash and an additional $0.3 million in
cash upon the completion of certain integration milestones. The agreement also provides Fireclick the
opportunity for an earn-out based on our achieving certain revenue and profitability targets attributable to
Fireclick over the course of the 36 months following the closing of the acquisition. Earn-outs totaling
$1.2 million have been recorded as goodwill as of December 31, 2006, as they were considered part of the
purchase price.
In November 2004, we acquired all of the outstanding capital stock of BlueHornet Networks, Inc.
BlueHornet is a leading provider of e-mail marketing campaign management services and related customer
relationship management (CRM) tools. As consideration for the acquisition, we issued a total of 160,185 shares
of our common stock to the BlueHornet stockholders, valued at approximately $5.3 million, paid off
$0.7 million of BlueHornet debt obligations at closing and agreed to pay an additional $0.5 million in cash to
the former BlueHornet stockholders following the transition of certain BlueHornet assets to our facilities in
Eden Prairie, Minnesota. In addition, the former BlueHornet stockholders may receive additional earn-out
87
DIGITAL RIVER, INC.
Notes to Consolidated Financial Statements — (Continued)