Accounting & Tax

The Good-Bye Gift from RealNetworks’s CFO

When Paul Bialek announced his resignation, he left the company a one-time gain of $12.6 million.
Joseph RadiganJuly 20, 2001

When RealNetworks reported its second quarter results on Tuesday, Paul Bialek, the company’s chief financial officer, also said he’d be leaving the firm.

On the one hand, Bialek is leaving the company at a difficult time. The company has been hit hard in the economic slowdown. Its sales were off sharply in the second quarter, falling to $47.9 million from $62.6 million a year ago. But the net loss was reduced to $19.2 million from $27.2 million a year ago.

But the slowing of the tide of red ink can largely be traced to a one-time gain from goodwill of $12.6 million. In the year-ago quarter, the company had a charge-off due to goodwill and other acquisition costs of $37.8 million. Through the first six months of 2001, goodwill charges amounted to $14.9 million.

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According to a footnote, the goodwill gain “includes a reversal of $25.4 million of previously recorded acquisition-related stock compensation resulting from the voluntary resignation of several employees of NetZip in 2001, and the related forfeiture of 738,000 shares of stock that were subject to vesting.”

NetZip was acquired in January 2000 for 1.7 million shares of RealNetworks’s stock. The company was a privately-held developer of software used to manage the downloading of content over the Internet.

For the first quarter of 2000, RealNetworks wrote off $27.6 million in goodwill, although it’s not clear how much of that amount was due to the NetZip purchase.

During the company’s quarterly conference call, Bialek said that prior to the quarter, RealNetworks expected to have $12.6 million in amortization costs and $11.6 million in stock compensation costs. Both of those charges were erased once the NetZip employees quit.

“The accounting implication, is that we have a reversal of $25.4 million of accrued stock compensation charges,” Bialek told the Wall Street analysts on the call. “In addition, we did not have a related charge for NetZip in the second quarter.”

Robert Willens, the Lehman Brothers tax and accounting analyst, says, “While it’s unusual, it’s legitimate. That would be the only way to deal with it.”

In short, according to Willens, RealNetworks simply recouped an expense it had allowed for in its previous financial statements.

Bialek himself was not available for further comment following the conference call, and his assistant said the company wanted his successor, who has yet to be named, to handle all questions.

A spokeswoman for RealNetworks issued a statement to CFO.com that said, in part, “The accounting for this transaction involved both an element of goodwill and a periodic stock compensation associated with the shares subject to a vesting schedule.”

Bialek will assume a position as a senior advisor to the company and said during the quarterly conference call that his move had nothing to do with any concerns about the company’s performance. “This is a choice I have made based upon my personal priorities,” he told the analysts.

RealNetworks’ CEO Rob Glaser said several qualified candidates had already been interviewed, and he was confident that the CFO’s slot would not be vacant for long.