FORM 10-K/A
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K/A
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number:
000-24643
DIGITAL RIVER, INC.
(Exact name of registrant as
specified in its charter)
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DELAWARE
(State or other jurisdiction
of
Incorporation or organization)
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41-1901640
(I.R.S. Employer
Identification No.)
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9625 WEST 76TH STREET
EDEN PRAIRIE, MINNESOTA 55344
(Address of principal
executive offices)
(952) 253-1234
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
Name of each Exchange on which registered:
Common Stock $0.01 par value Nasdaq Global Select
Market
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by checkmark if the registrant is a well-known seasoned
issuer as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicated by checkmark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to filing requirements for the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
As of June 30, 2008, there were 36,959,613 shares of
Digital River, Inc. common stock, issued and outstanding. As of
such date, based on the closing sales price as quoted by The
Nasdaq Global Select Market, 36,352,219 shares of common
stock, having an aggregate market value of approximately
$1,402,469,000 were held by non-affiliates. For purposes of the
above statement only, all directors and executive officers of
the registrant are assumed to be affiliates.
The number of shares of common stock outstanding at
February 2, 2009 was 37,034,913 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain sections of the Registrants definitive Proxy
Statement for the 2009 Annual Meeting of Stockholders are
incorporated by reference in Part III of this
Form 10-K
to the extent stated herein.
EXPLANATORY
NOTE
This Amendment No. 1 on
Form 10-K/A
amends the Companys Annual Report on
Form 10-K
for the year ended December 31, 2008, filed with the
Securities and Exchange Commission on February 19, 2009. We
are amending Item 15 solely to correct a clerical error in
the Consolidated Statement of Cash Flows.
In addition, as required by
Rule 12b-15
under the Securities Exchange Act of 1934, as amended, new
certifications by our principal executive officer and principal
financial officer are filed as exhibits to this
Form 10-K/A
under Item 15 of Part IV hereof.
This Amendment No. 1 does not reflect events occurring
after the original filing date of the 2008
10-K or
otherwise modify or update the disclosures set forth in the 2008
10-K,
including the financial statements and notes to financial
statements set forth in the 2008
10-K.
DIGITAL
RIVER, INC.
INDEX TO
FORM 10-K/A
For the Year Ended December 31, 2008
1
PART IV
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ITEM 15.
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EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
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(a) The following documents are filed as part of this
report:
(1) Financial Statements.
The consolidated financial statements required by this item are
submitted in a separate section beginning on page 6 of this
report.
(2) Financial Statement Schedules.
All schedules for which provision is made in the applicable
accounting regulations of the SEC have been omitted as not
required or not applicable, or the information required has been
included elsewhere by reference in the financial statements and
related notes, except for Schedule II, which is included
with this
Form 10-K,
as filed with the SEC.
(3) Exhibits.
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Exhibit
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Number
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Description of Document
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3
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.1(2)
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Amended and Restated Certificate of Incorporation of the
Registrant, as currently in effect.
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3
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.2(4)
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Amended and Restated Bylaws of the Registrant, as currently in
effect.
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4
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.1(5)
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Specimen Stock Certificate.
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4
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.2(9)
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Indenture dated as of June 1, 2004, between Digital River,
Inc. and Wells Fargo Bank, N.A. as trustee, including therein
the form of the Note.
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10
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.1(5)
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Form of Indemnity Agreement between Registrant and each of its
directors and executive officers.
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10
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.3(5)
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Consent to Assignment and Assumption of Lease dated
April 22, 1998, by and between CSM Investors, Inc.,
IntraNet Integration Group, Inc. and Registrant.
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10
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.4(3)
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Assignment of Lease dated April 21, 1998, by and between
Intranet Integration Group, Inc. and Registrant.
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10
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.5(3)
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Lease Agreement dated January 18, 2000, between Property
Reserve, Inc. and Registrant.
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10
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.6(4)
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First Amendment of Lease dated January 31, 2001, to that
certain Lease dated April 24, 1996, between CSM Investors,
Inc. and Registrant (as assignee of Intranet Integration Group,
Inc.).
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10
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.7(6)
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1998 Stock Option Plan, as amended and superseded by
Exhibit 10.18.*
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10
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.8(7)
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1999 Stock Option Plan, formerly known as the 1999 Non-Officer
Stock Option Plan, as amended and superseded by
Exhibit 10.18.*
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10
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.9(6)
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2000 Employee Stock Purchase Plan, as amended, and offering.*
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10
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.11(8)
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Second Amendment of Lease dated April 22, 2002, to that
certain Lease dated April 24, 1996, between CSM Investors,
Inc. and Registrant (as assignee of Intranet Integration Group,
Inc.) as amended.
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10
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.12(8)
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Second Amendment of Lease dated April 28, 2003, to that
certain Lease dated January 18, 2000, between Property
Reserve Inc. and Registrant.
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10
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.15(9)
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Registration Rights Agreement dated as of June 1, 2004,
between Digital River, Inc. and the initial purchasers of Senior
Convertible Notes due January 1, 2024.
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2
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Exhibit
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Number
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Description of Document
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10
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.16(13)
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Summary of Compensation Program for Non-Employee Directors.
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10
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.17(14)
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Second Amended and Restated Symantec Online Store Agreement, by
and among Symantec Corporation, Symantec Limited, Digital River,
Inc. and Digital River Ireland Limited effective April 1,
2006
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10
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.18(10)
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1998 Equity Incentive Plan (formerly known as 1998 Stock Option
Plan).*
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10
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.19(13)
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Amended and Restated Employment Agreement for Joel A. Ronning.*
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10
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.20(13)
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Change of Control and Severance Agreement for Thomas M.
Donnelly.*
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10
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.21(11)
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Form of Amendment to Non-Qualified Stock Option Agreement.*
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10
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.22(12)
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Inducement Equity Incentive Plan.*
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10
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.23(15)
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2007 Equity Incentive Plan.*
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10
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.24(13)
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Change of Control and Severance Agreement for Kevin L. Crudden.*
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12
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.1(16)
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Computation of Ratio of Earnings to Fixed Charges.
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21
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.1(16)
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Subsidiaries of Digital River, Inc.
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23
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.1++
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Consent of Independent Registered Public Accounting Firm, dated
February 19, 2009.
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24
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.1(16)
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Power of Attorney, pursuant to which amendments to this Annual
Report on
Form 10-K
may be filed, is included on the signature pages of this Annual
Report on
Form 10-K.
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31
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.1++
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Certification of Digital River, Inc.s Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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31
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.2++
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Certification of Digital River, Inc.s Chief Financial
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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32++
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Certification of Digital River, Inc.s Chief Executive
Officer and Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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++ |
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Filed herewith. |
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* |
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Management contract or compensatory plan. |
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Confidential treatment has been requested for portions of this
agreement, which portions have been filed separately with
the SEC. |
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(1) |
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Incorporated by reference from the Companys Current Report
on
Form 8-K
filed on May 4, 2004. |
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(2) |
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Incorporated by reference from the Companys Current Report
on
Form 8-K
filed on June 1, 2006. |
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(3) |
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Incorporated by reference from the Companys Annual Report
on
Form 10-K
for the year ended December 31, 1999, filed on
March 30, 2000. |
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(4) |
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Incorporated by reference from the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2000, filed on
March 27, 2001. |
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(5) |
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Incorporated by reference from the Companys Registration
Statement on
Form S-1
(File
No. 333-56787),
declared effective on August 11, 1998. |
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(6) |
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Incorporated by reference from the Companys Registration
Statement on
Form S-8
(File
No. 333-105864)
filed on June 5, 2003. |
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(7) |
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Incorporated by reference from the Companys Quarterly
Report on Form
10-Q for the
quarter ended June 30, 2003, filed on August 14, 2003. |
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(8) |
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Incorporated by reference from the Companys Quarterly
Report on Form
10-Q for the
quarter ended March 31, 2003, filed on May 15, 2003. |
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(9) |
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Incorporated by reference from the Companys Current Report
on
Form 8-K
filed on July 13, 2004. |
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(10) |
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Incorporated by reference from the Companys Current Report
on
Form 8-K
filed on May 31, 2005. |
3
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(11) |
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Incorporated by reference from the Companys Quarterly
Report on Form
10-Q for the
quarter ended June 30, 2005, filed on August 9, 2005. |
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(12) |
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Incorporated by reference from the Companys Current Report
on
Form 8-K
filed on December 20, 2005. |
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(13) |
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Incorporated by reference from the Companys Current Report
on
Form 8-K
filed on March 10, 2008. |
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(14) |
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Incorporated by reference from the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2006, filed on
March 1, 2007. |
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(15) |
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Incorporated by reference from the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2007, filed on
February 29, 2008. |
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(16) |
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Incorporated by reference from the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2008, filed on
February 19, 2009. |
4
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Digital River, Inc.
We have audited the accompanying consolidated balance sheets of
Digital River, Inc. and subsidiaries as of December 31,
2008 and 2007, and the related consolidated statements of
income, stockholders equity, and cash flows for each of
the three years in the period ended December 31, 2008. Our
audits also included the financial statement schedule listed in
Item 15(a)(2). These financial statements and schedule are
the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Digital River, Inc. and subsidiaries at
December 31, 2008 and 2007, and the consolidated results of
their operations and their cash flows for each of the three
years in the period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the
information set forth herein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Digital River, Inc.s internal control over financial
reporting as of December 31, 2008, based on criteria
established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated February 19, 2009
expressed an unqualified opinion thereon.
Minneapolis, Minnesota
February 19, 2009
5
DIGITAL
RIVER, INC.
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December 31,
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December 31,
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2008
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2007
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(In thousands)
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ASSETS
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CURRENT ASSETS:
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Cash and cash equivalents
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$
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490,335
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$
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381,788
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Short-term investments
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10,000
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315,636
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Accounts receivable, net of allowance of $2,457 and $2,489
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53,216
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64,914
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Deferred income taxes
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7,613
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7,899
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Prepaid expenses and other
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42,522
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4,577
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Total current assets
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603,686
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774,814
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Property and equipment, net
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41,733
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31,102
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Goodwill
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273,788
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261,885
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Intangible assets, net of accumulated amortization of $66,345
and $59,493
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32,222
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32,382
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Long-term investments
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93,213
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Deferred income taxes
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24,824
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15,606
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Other assets
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786
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11,955
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TOTAL ASSETS
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$
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1,070,252
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$
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1,127,744
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LIABILITIES AND STOCKHOLDERS EQUITY
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CURRENT LIABILITIES:
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Convertible senior notes
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$
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186,195
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$
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Accounts payable
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184,361
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180,386
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Accrued payroll
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14,841
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12,704
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Deferred revenue
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13,651
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10,384
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Accrued acquisition costs
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3,278
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399
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Other accrued liabilities
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41,336
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41,229
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Total current liabilities
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443,662
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245,102
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NON-CURRENT LIABILITIES:
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Convertible senior notes
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8,805
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195,000
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Other liabilities
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15,712
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11,362
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Total non-current liabilities
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24,517
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206,362
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TOTAL LIABILITIES
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468,179
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451,464
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COMMITMENTS AND CONTINGENCIES
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STOCKHOLDERS EQUITY:
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Preferred Stock, $.01 par value; 5,000,000 shares
authorized; no shares issued or outstanding
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Common Stock, $.01 par value; 120,000,000 shares
authorized; 43,225,401 and 42,502,019 shares issued
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432
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425
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Treasury stock at cost; 6,211,477 and 1,952,884 shares
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(216,163
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)
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(77,707
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)
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Additional paid-in capital
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623,778
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597,128
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Retained earnings
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|
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189,096
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|
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125,501
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Accumulated other comprehensive income
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4,930
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|
|
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30,933
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|
|
|
|
|
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Total stockholders equity
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602,073
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|
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676,280
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
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$
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1,070,252
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$
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1,127,744
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The accompanying notes are an integral part of these
consolidated financial statements.
6
DIGITAL
RIVER, INC.
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For the Years Ended December 31
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|
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2008
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2007
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2006
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(In thousands except per share data)
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Revenue
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$
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394,226
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$
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349,275
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|
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$
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307,632
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Costs and expenses
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|
|
|
|
|
|
|
|
|
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Direct cost of services
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|
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16,417
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|
|
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10,243
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|
|
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7,709
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Network and infrastructure
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|
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41,040
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|
|
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32,309
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|
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29,250
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Sales and marketing
|
|
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150,118
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|
|
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134,401
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|
|
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113,462
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Product research and development
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|
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51,184
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|
|
|
39,179
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|
|
|
32,341
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General and administrative
|
|
|
39,525
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|
|
|
38,937
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|
|
|
34,158
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Depreciation and amortization
|
|
|
15,980
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|
|
|
12,706
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|
|
|
10,983
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Amortization of acquisition-related intangibles
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|
|
8,391
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|
|
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7,586
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|
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12,134
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|
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|
|
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|
|
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Total costs and expenses
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|
|
322,655
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|
|
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275,361
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|
|
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240,037
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|
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|
|
|
|
|
|
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Income from operations
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|
|
71,571
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|
|
|
73,914
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|
|
|
67,595
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Interest Income
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|
|
18,019
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|
|
|
32,167
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|
|
|
22,836
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Other expense, net
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|
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(3,319
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)
|
|
|
(3,006
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)
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|
|
(949
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)
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|
|
|
|
|
|
|
|
|
|
|
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Income before income tax expense
|
|
|
86,271
|
|
|
|
103,075
|
|
|
|
89,482
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Income tax expense
|
|
|
22,676
|
|
|
|
32,261
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|
|
|
28,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net income
|
|
$
|
63,595
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|
|
$
|
70,814
|
|
|
$
|
60,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
|
$
|
1.72
|
|
|
$
|
1.75
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted
|
|
$
|
1.55
|
|
|
$
|
1.58
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation basic
|
|
|
37,016
|
|
|
|
40,444
|
|
|
|
38,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per-share calculation diluted
|
|
|
42,106
|
|
|
|
45,914
|
|
|
|
44,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
7
DIGITAL
RIVER, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Accumulated
|
|
|
Earnings
|
|
|
Total
|
|
|
|
|
|
|
Common Stock
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Deferred
|
|
|
Comprehensive
|
|
|
(Accumulated
|
|
|
Stockholders
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Stock
|
|
|
Capital
|
|
|
Compensation
|
|
|
Income (Loss)
|
|
|
Deficit)
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
|
(In thousands)
|
|
|
BALANCE, December 31, 2005
|
|
|
35,034
|
|
|
$
|
355
|
|
|
$
|
(13,586
|
)
|
|
$
|
329,327
|
|
|
$
|
(1,990
|
)
|
|
$
|
(2,431
|
)
|
|
$
|
(6,123
|
)
|
|
$
|
305,552
|
|
|
$
|
54,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,810
|
|
|
|
60,810
|
|
|
|
60,810
|
|
Reclassification of deferred compensation balance upon adoption
of SFAS 123(R)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,990
|
)
|
|
|
1,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
576
|
|
|
|
|
|
|
|
576
|
|
|
|
576
|
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,463
|
|
|
|
|
|
|
|
13,463
|
|
|
|
13,463
|
|
Sale of common stock
|
|
|
4,000
|
|
|
|
40
|
|
|
|
|
|
|
|
172,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172,780
|
|
|
|
|
|
Stock Issued for Acquisition
|
|
|
28
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
1,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,172
|
|
|
|
|
|
Exercise of stock options
|
|
|
1,220
|
|
|
|
12
|
|
|
|
|
|
|
|
21,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,118
|
|
|
|
|
|
Stock-based compensation
|
|
|
113
|
|
|
|
1
|
|
|
|
|
|
|
|
13,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,904
|
|
|
|
|
|
Tax withheld in restricted stock vesting
|
|
|
(8
|
)
|
|
|
|
|
|
|
(426
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(426
|
)
|
|
|
|
|
Tax benefit of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,700
|
|
|
|
|
|
Common stock issued under the Employee Stock Purchase Plan
|
|
|
71
|
|
|
|
1
|
|
|
|
|
|
|
|
2,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2006
|
|
|
40,458
|
|
|
$
|
409
|
|
|
$
|
(14,024
|
)
|
|
$
|
551,080
|
|
|
$
|
|
|
|
$
|
11,608
|
|
|
$
|
54,687
|
|
|
$
|
603,760
|
|
|
$
|
74,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,814
|
|
|
|
70,814
|
|
|
|
70,814
|
|
Unrealized gain on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,006
|
|
|
|
|
|
|
|
1,006
|
|
|
|
1,006
|
|
Foreign currency translation gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,319
|
|
|
|
|
|
|
|
18,319
|
|
|
|
18,319
|
|
Repurchase of common stock
|
|
|
(1,372
|
)
|
|
|
|
|
|
|
(62,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,968
|
)
|
|
|
|
|
Stock Issued for Acquisition
|
|
|
44
|
|
|
|
1
|
|
|
|
(189
|
)
|
|
|
2,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,149
|
|
|
|
|
|
Exercise of stock options
|
|
|
1,220
|
|
|
|
12
|
|
|
|
|
|
|
|
13,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,510
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,742
|
|
|
|
|
|
Restricted stock issued under equity incentive plans, net of
forfeitures
|
|
|
135
|
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withheld in restricted stock vesting
|
|
|
(11
|
)
|
|
|
|
|
|
|
(526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(526
|
)
|
|
|
|
|
Tax benefit of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,990
|
|
|
|
|
|
Common stock issued under the Employee Stock Purchase Plan
|
|
|
76
|
|
|
|
1
|
|
|
|
|
|
|
|
2,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2007
|
|
|
40,550
|
|
|
$
|
425
|
|
|
$
|
(77,707
|
)
|
|
$
|
597,128
|
|
|
$
|
|
|
|
$
|
30,933
|
|
|
$
|
125,501
|
|
|
$
|
676,280
|
|
|
$
|
90,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,595
|
|
|
|
63,595
|
|
|
|
63,595
|
|
Unrealized loss on investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,822
|
)
|
|
|
|
|
|
|
(10,822
|
)
|
|
|
(10,822
|
)
|
Foreign currency translation loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,181
|
)
|
|
|
|
|
|
|
(15,181
|
)
|
|
|
(15,181
|
)
|
Repurchase of common stock
|
|
|
(4,239
|
)
|
|
|
|
|
|
|
(137,858
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(137,858
|
)
|
|
|
|
|
Exercise of stock options
|
|
|
426
|
|
|
|
4
|
|
|
|
|
|
|
|
7,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,171
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,548
|
|
|
|
|
|
Restricted stock issued under equity incentive plans, net of
forfeitures
|
|
|
186
|
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax withheld in restricted stock vesting
|
|
|
(19
|
)
|
|
|
|
|
|
|
(598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(598
|
)
|
|
|
|
|
Tax benefit of stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,223
|
|
|
|
|
|
Common stock issued under the Employee Stock Purchase Plan
|
|
|
112
|
|
|
|
1
|
|
|
|
|
|
|
|
2,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, December 31, 2008
|
|
|
37,016
|
|
|
$
|
432
|
|
|
$
|
(216,163
|
)
|
|
$
|
623,778
|
|
|
$
|
|
|
|
$
|
4,930
|
|
|
$
|
189,096
|
|
|
$
|
602,073
|
|
|
$
|
37,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
8
DIGITAL
RIVER, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
63,595
|
|
|
$
|
70,814
|
|
|
$
|
60,810
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquisition-related intangibles
|
|
|
8,391
|
|
|
|
7,586
|
|
|
|
12,134
|
|
Change in accounts receivable allowance, net of acquisitions
|
|
|
434
|
|
|
|
(174
|
)
|
|
|
1,215
|
|
Depreciation and amortization
|
|
|
15,980
|
|
|
|
12,706
|
|
|
|
10,983
|
|
Stock-based compensation expense related to stock-based
compensation plans
|
|
|
12,548
|
|
|
|
13,742
|
|
|
|
13,904
|
|
Excess tax benefits from stock-based compensation
|
|
|
(4,390
|
)
|
|
|
(12,030
|
)
|
|
|
(8,980
|
)
|
Deferred income taxes and other
|
|
|
4,971
|
|
|
|
27,522
|
|
|
|
19,583
|
|
Change in operating assets and liabilities (net of acquisitions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
11,332
|
|
|
|
(6,863
|
)
|
|
|
(14,678
|
)
|
Prepaid and other assets
|
|
|
(26,505
|
)
|
|
|
1,325
|
|
|
|
(1,293
|
)
|
Accounts payable
|
|
|
6,531
|
|
|
|
32,181
|
|
|
|
3,701
|
|
Deferred revenue
|
|
|
3,235
|
|
|
|
3,046
|
|
|
|
811
|
|
Income tax payable
|
|
|
(5,366
|
)
|
|
|
(7,076
|
)
|
|
|
8,126
|
|
Accrued payroll and other accrued liabilities
|
|
|
4,478
|
|
|
|
3,609
|
|
|
|
11,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
95,234
|
|
|
|
146,388
|
|
|
|
117,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(480,917
|
)
|
|
|
(436,806
|
)
|
|
|
(193,609
|
)
|
Sales of investments
|
|
|
676,108
|
|
|
|
358,470
|
|
|
|
179,296
|
|
Cash paid for acquisitions, net of cash received
|
|
|
(23,465
|
)
|
|
|
(31,625
|
)
|
|
|
(37,800
|
)
|
Purchases of equipment and capitalized software
|
|
|
(26,898
|
)
|
|
|
(18,722
|
)
|
|
|
(15,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used for) investing activities
|
|
|
144,828
|
|
|
|
(128,683
|
)
|
|
|
(68,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of common stock
|
|
|
|
|
|
|
|
|
|
|
172,780
|
|
Exercise of stock options
|
|
|
7,171
|
|
|
|
13,510
|
|
|
|
21,118
|
|
Sales of common stock under employee stock purchase plan
|
|
|
2,715
|
|
|
|
2,483
|
|
|
|
2,109
|
|
Repurchase of common stock
|
|
|
(137,858
|
)
|
|
|
(62,968
|
)
|
|
|
|
|
Repurchase of restricted stock to satisfy tax withholding
obligation
|
|
|
(598
|
)
|
|
|
(528
|
)
|
|
|
(426
|
)
|
Excess tax benefits from stock-based compensation
|
|
|
4,390
|
|
|
|
12,030
|
|
|
|
8,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for)/provided by financing activities
|
|
|
(124,180
|
)
|
|
|
(35,473
|
)
|
|
|
204,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(7,335
|
)
|
|
|
9,313
|
|
|
|
4,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
108,547
|
|
|
|
(8,455
|
)
|
|
|
258,473
|
|
CASH AND CASH EQUIVALENTS, beginning of year
|
|
|
381,788
|
|
|
|
390,243
|
|
|
|
131,770
|
|
CASH AND CASH EQUIVALENTS, end of year
|
|
$
|
490,335
|
|
|
$
|
381,788
|
|
|
$
|
390,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest on Convertible Senior Notes
|
|
$
|
2,438
|
|
|
$
|
2,438
|
|
|
$
|
2,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
20,503
|
|
|
$
|
8,232
|
|
|
$
|
2,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued in acquisitions and earn-outs
|
|
$
|
|
|
|
$
|
2,150
|
|
|
$
|
1,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
9
DIGITAL
RIVER, INC.
December 31,
2008 and 2007
|
|
1.
|
Nature of
Operations and Summary of Significant Accounting
Policies
|
We provide outsourced
e-commerce
solutions globally to a wide variety of companies primarily in
the software, consumer electronics, computer game and video game
markets. We were incorporated in 1994 and began building and
operating online stores for our clients in 1996. We generate
revenue primarily based on the sales of products made in those
stores, and in addition, offer services designed to increase
traffic to our clients online stores and to improve the
sales effectiveness of those stores.
Principles
of Consolidation and Classification
The consolidated financial statements include the accounts of
Digital River, Inc. and our wholly owned subsidiaries. All
intercompany balances and transactions have been eliminated in
consolidation.
Use of
Estimates
The preparation of financial statements in accordance with the
United States generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Foreign
Currency Translation
Substantially all of our foreign subsidiaries use the local
currency of their respective countries as their functional
currency. Assets and liabilities are translated at exchange
rates prevailing at the balance sheet dates. Revenues, costs and
expenses are translated into U.S. dollars at average
exchange rates for the period. Gains and losses resulting from
translation are recorded as a component of equity. Gains and
losses resulting from foreign currency transactions are
recognized as other (expense), net.
We are exposed to market risk from changes in foreign currency
exchange rates. Our primary risk is the effect of foreign
currency exchange rate fluctuations on the U.S. dollar
value of foreign currency denominated operating sales and
expenses. At December 31, 2008, these exposures were
mitigated through the use of foreign exchange forward contracts
with maturities of approximately one week. The principal
currency exposures being mitigated were the euro, British pound,
Australian dollar, Swiss franc, Norwegian krone, Swedish krona
and Canadian dollar. We also are exposed to foreign currency
exchange risk as a result of changes in intercompany balance
sheet accounts and other balance sheet items.
Our foreign currency forward contracts contain credit risk to
the extent that our bank counterparties may be unable to meet
the terms of the agreements. We minimize such risk by limiting
our counterparties to major financial institutions of high
credit quality.
Cash
and Cash Equivalents
We consider all short-term, highly liquid investments, primarily
high grade commercial paper and money market accounts, that are
readily convertible into known amounts of cash and that have
original or remaining maturities of three months or less at the
date of purchase to be cash equivalents. As of December 31,
2008 and 2007, cash balances of $0.0 million and
$1.5 million, respectively, were held by banks or credit
card processors to secure potential future credit card fees,
fines and chargebacks or for other payments. In addition, at
December 31, 2008 and 2007, $0.3 million and
$0.4 million were restricted by letter of credit and
agreements required by international tax jurisdictions as
security for potential tax liabilities.
10
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
Short-Term
Investments
Our short-term investments consist of debt securities that are
classified as available-for-sale and are carried on our balance
sheet at their market value with cumulative unrealized gains or
losses recorded as a component of accumulated other
comprehensive income within stockholders equity. We
classify all of our available-for-sale securities as current
assets, as these securities represent investments available for
current corporate purposes.
Property
and Equipment
Computer equipment, software and furniture are depreciated under
the straight-line method using estimated useful lives of three
to seven years and leasehold 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):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Computer hardware and software
|
|
$
|
78,660
|
|
|
$
|
60,977
|
|
Furniture, fixtures and leasehold improvements
|
|
|
15,475
|
|
|
|
13,077
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
$
|
94,135
|
|
|
$
|
74,054
|
|
Accumulated depreciation
|
|
|
(52,402
|
)
|
|
|
(42,952
|
)
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
41,733
|
|
|
$
|
31,102
|
|
|
|
|
|
|
|
|
|
|
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 these amounts approximated their
current fair values at the respective acquisition dates. The
valuation of identifiable intangible assets acquired reflects
managements 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 agreements. 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 4 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 assets 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
11
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
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 2008, 2007 or 2006.
Other
Assets
The following table summarizes our other assets as of December
31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Unamortized debt financing costs
|
|
$
|
224
|
|
|
$
|
5,298
|
|
Cost of investment
|
|
|
|
|
|
|
6,000
|
|
Other
|
|
|
562
|
|
|
|
657
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
786
|
|
|
$
|
11,955
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt financing costs, in the amount of about
$5.1 million, related to the January 2, 2009
repurchase of our convertible senior notes, were reclassified to
current as of December 31, 2008. In 2008, our cost of
investment, which are preferred shares in a publicly traded
company accounted for under the cost method of accounting, were
reclassified to current assets due to their pending liquidation
which occurred on January 20, 2009.
Other
Accrued Liabilities
The following table summarizes our other accrued liabilities as
of December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Accrued expenses
|
|
$
|
24,148
|
|
|
$
|
20,631
|
|
Sales, value-added and transaction taxes
|
|
|
19,788
|
|
|
|
20,598
|
|
Current income taxes
|
|
|
(2,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other accrued liabilities
|
|
$
|
41,336
|
|
|
$
|
41,229
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
Comprehensive income includes revenues, expenses, gains and
losses that are excluded from net earnings under GAAP. Items of
comprehensive income are unrealized gains and losses on
short-term investments and foreign currency translation
adjustments which are added to net income to compute
comprehensive income. Comprehensive income is net of income tax
benefits or expense.
In 2008, comprehensive income included $15.2 million
recorded for unrealized foreign exchange losses on the
revaluation of investments in foreign subsidiaries;
$0.6 million net of $0.3 million tax benefit for
unrealized investment losses; and $10.2 million net of
$6.1 million tax benefit for the temporary impairment of
auction rate securities. In 2007, comprehensive income included
$18.3 million recorded for unrealized foreign exchange
gains on the revaluation of investments in foreign subsidiaries,
and $1.0 million net of $0.6 million tax expense for
unrealized investment gains. In 2006, comprehensive income
included $13.5 million recorded for unrealized foreign
exchange gains on the revaluation of investments in foreign
subsidiaries, and $0.6 million net of $0.2 million tax
expense for unrealized investment gains
Revenue
Recognition
We recognize revenue in accordance with Staff Accounting
Bulletin No. 104, Revenue Recognition,
from services rendered once all the following criteria for
revenue recognition have been met: (1) persuasive
12
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
evidence of an agreement exists; (2) the services have been
rendered; (3) the fee is fixed and determinable; and
(4) collection of the amounts due is reasonably assured.
We evaluate the criteria outlined in Emerging Issues Task Force,
(EITF) Issues
No. 99-19,
Reporting Revenue Gross as a Principal versus Net as an Agent,
in determining whether it is appropriate to record the gross
amount of product sales and related costs or the net amount
earned as net revenue. We act as the merchant of record on most
of the transactions processed and have contractual relationships
with our clients, which obligate us to pay to the client a
specified percentage of each sale. We derive our revenue
primarily from transaction fees based on a percentage of the
products sale price and fees from services rendered associated
with the
e-commerce
and other services provided to our clients and end customers.
Our revenue is recorded as net as generally our clients are
subject to inventory risks and control customers product
choices. We sell both physical and digital products. Revenue is
recognized upon fulfillment and based upon when products are
shipped and title and significant risk of ownership passes to
the customer.
We also provide customers with various proprietary software
backup services. We recognize revenue for these backup services
based upon historical usage within the contract period of the
digital backup services when this information is available.
Digital backup services are recognized straight-line over the
life of the backup service when historical usage information is
unavailable. Shipping revenues are recorded net of any
associated costs.
We also, to a lesser extent, provide fee-based client services,
which include website design, custom development and
integration, analytical marketing, affiliate marketing and email
marketing services. If we receive payments for fee-based
services in advance of delivery, these amounts, if significant,
are deferred and recognized over the service period.
Provisions for doubtful accounts and transaction losses and
authorized credits are made at the time of revenue recognition
based upon our historical experience. The provision for doubtful
accounts and transaction losses are recorded as charges to
operating expense, while the provision for authorized credits is
recognized as a reduction of net revenues.
In June 2006, the EITF reached a consensus on EITF Issue
No. 06-3,
How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income
Statement (That is, Gross versus Net Presentation)
(EIFT
06-3).
EITF 06-3
provides that the presentation of taxes assessed by a
governmental authority that is directly imposed on a
revenue-producing transaction between a seller and a customer on
either a gross basis (included in revenues and costs) or on a
net basis (excluded from revenues) is an accounting policy
decision that should be disclosed. The Company presents these
taxes on a net basis.
Deferred
Revenue
Deferred revenue is recorded when service payment is received in
advance of performing our service obligation. Revenue is
recognized over either the estimated usage period when usage
information is available, or ratably over the service period
when usage information is not available.
Advertising
Costs
The costs of advertising are charged to sales and marketing
expense as incurred. We incurred advertising expense of
$0.7 million, $0.1 million and $1.5 million in
2008, 2007 and 2006, respectively.
Income
Taxes
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. We record deferred tax assets for
favorable tax attributes, including tax loss carryforwards. We
currently have U.S. tax
13
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
loss carryforwards, consisting solely of acquired operating tax
loss carryforwards, and a lesser amount of acquired foreign
operating tax loss carryforwards. A portion of the benefit of
the acquired tax loss carryforwards has been reserved by a
valuation allowance pursuant to United States generally accepted
accounting principles. These valuation allowances of the
deferred tax asset will be reversed if and when it is more
likely than not that the deferred tax asset will be realized. We
evaluate the need for a valuation allowance of the deferred tax
asset on a quarterly basis.
Interest
Income
Our interest income line item is the total of interest income on
our cash, cash equivalents, and investments. Interest income was
$18.0 million, $32.2 million and $22.8 million in
2008, 2007 and 2006, respectively. The decrease in interest
income from 2007 to 2008 was due to the use of $138 million
in cash for our share repurchase program during the first
quarter of 2008. Interest income also declined due to lower
yields on our portfolio during 2008. The increase from 2006 to
2007 in interest income was primarily due to higher cash
balances.
Other
(Expense), Net
Our other (expense), net line item is the total of interest
expense on our debt and foreign currency transaction gains and
losses and disposals of asset gains and losses. Interest expense
was $2.5 million in 2008 compared to $2.4 million in
2007 and 2006 and was related primarily to our Convertible
Senior Notes. Our gain from foreign currency remeasurement was
$0.3 million in 2008 compared to a loss of
$0.6 million in 2007 and a gain of 1.5 million in
2006. The loss on disposals of assets was $1.1 million in
2008. Disposals of assets were immaterial in 2007 and 2006.
Research
and Development and Software Development
Research and development expenses consist primarily of
development personnel and non-employee contractor costs related
to the development of new products and services, enhancement of
existing products and services, quality assurance, and testing.
We follow AICPA Statement of Position
No. 98-1,
Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use, in accounting for internally
developed software. We capitalized $5.3 million related to
software development during 2008, inclusive of amounts outside
of Product Research and Development as recorded in our
Consolidated Statement of Income. In 2007 and 2006, we
capitalized $0.0 million and $0.1 million,
respectively, of software development costs.
Stock-Based
Compensation Expense
On January 1, 2006, we adopted Statement of Financial
Accounting Standards No. 123 (Revised 2004),
Share-Based Payment, (SFAS 123(R))
which requires the measurement and recognition of compensation
expense for all share-based payments made to employees and
directors including stock options, restricted stock grants and
employee stock purchases made through our Employee Stock
Purchase Plan based on estimated fair values.
We have adopted SFAS 123(R) using the modified prospective
transition method under which prior periods are not revised.
Stock-based compensation expense recognized during the period is
based on the value of the portion of share-based awards that are
ultimately expected to vest during the period. The fair value of
each stock option grant is estimated on the date of grant using
the Black-Scholes option pricing model. The fair value of
restricted stock is determined based on the number of shares
granted and the closing price of our common stock on the date of
grant. Compensation expense for all share-based payment awards
is recognized using the straight-line amortization method over
the vesting period. Stock-based compensation expense of
$12.5 million was charged to operating expenses during 2008.
14
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
As stock-based compensation expense recognized in our
Consolidated Statement of Income for 2008 is based on awards
ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS 123(R) requires forfeitures to be
estimated at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from those
estimates.
SFAS 123(R) also requires the benefits of tax deductions in
excess of recognized stock-based compensation expense be
reported as a financing cash flow, rather than an operating cash
flow as required prior to adoption of SFAS 123(R) in our
Consolidated Statement of Cash Flows.
See Note 5 for further information regarding the impact of
our adoption of SFAS 123(R) and the assumptions we use to
calculate the fair value of share-based compensation.
Recent
Accounting Pronouncements
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FAS 133
(SFAS 161). SFAS 161 applies to all
derivative instruments and non-derivative instruments that are
designated and qualify as hedging instruments and related hedged
items accounted for under SFAS No. 133
Accounting for Derivative Instruments and Hedging
Activities (SFAS 133). The provisions
of SFAS 161 require entities to provide greater
transparency through additional disclosures about (a) how
and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted
for under SFAS 133 and its related interpretations, and
(c) how derivative instruments and related hedged items
affect an entitys financial position, results of
operations and cash flows. SFAS 161 is effective for fiscal
years and interim periods beginning after November 15,
2008. We are currently evaluating the effects, if any, that
SFAS 161 may have on our financial statements.
In December 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in Consolidated Financial
Statements (SFAS 160). SFAS 160
requires entities to report non-controlling (minority) interests
in subsidiaries as equity in the consolidated financial
statements. SFAS 160 is effective for fiscal years
beginning after December 15, 2008. We are currently
evaluating the effects, if any, that SFAS 160 may have on
our financial statements.
In December 2007, the FASB issued SFAS No. 141
(Revised 2007), Business Combinations. This revised
Statement, which we refer to as SFAS No. 141(R), is
intended to simplify existing guidance and converge rulemaking
under U.S. GAAP with international accounting rules.
SFAS No. 141(R) will significantly change the
accounting for business combinations in a number of areas,
including the treatment of contingent consideration,
contingencies, acquisition costs and restructuring costs. Also
under this Statement, changes in deferred tax asset valuation
allowances and acquired income tax uncertainties in a business
combination after the measurement period will impact income tax
expense. SFAS No. 141(R) is effective for fiscal years
beginning after December 15, 2008. We are currently
evaluating the effects, if any, that SFAS No. 141(R)
may have on our financial statements.
Basic income per common share is computed by dividing net income
by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings per common share
is calculated by dividing net income, adjusted to exclude
interest expense and financing cost amortization related to
potentially dilutive securities, by the weighted average number
of common shares related to potentially dilutive securities
outstanding during the period, plus any additional common shares
that would have been outstanding if potentially dilutive common
shares had been issued during the period.
15
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
The following table summarizes the computation of basic and
diluted earnings per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Earnings per share basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic
|
|
$
|
63,595
|
|
|
$
|
70,814
|
|
|
$
|
60,810
|
|
Weighted average shares outstanding basic
|
|
|
37,016
|
|
|
|
40,444
|
|
|
|
38,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share basic
|
|
$
|
1.72
|
|
|
$
|
1.75
|
|
|
$
|
1.58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic
|
|
|
63,595
|
|
|
$
|
70,814
|
|
|
$
|
60,810
|
|
Exclude: Interest expense and amortized financing cost of
convertible senior notes, net of tax benefit
|
|
|
1,739
|
|
|
|
1,739
|
|
|
|
1,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income diluted
|
|
$
|
65,334
|
|
|
$
|
72,553
|
|
|
$
|
62,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
37,016
|
|
|
|
40,444
|
|
|
|
38,593
|
|
Dilutive impact of non-vested stock and options outstanding
|
|
|
665
|
|
|
|
1,045
|
|
|
|
1,624
|
|
Dilutive impact of convertible senior notes
|
|
|
4,425
|
|
|
|
4,425
|
|
|
|
4,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
42,106
|
|
|
|
45,914
|
|
|
|
44,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share diluted
|
|
$
|
1.55
|
|
|
$
|
1.58
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the Emerging Issues Task Force (EITF), Issue
No. 04-8,
the unissued shares underlying contingent convertible notes are
treated as if such shares were issued and outstanding for the
purposes of calculating GAAP diluted earnings per share
beginning with the issuance of our 1.25% convertible senior
notes on June 1, 2004.
As of December 31, 2008 and 2007, our available-for-sale
securities consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain/(Loss)
|
|
|
|
|
|
Maturities/Reset Dates
|
|
|
|
|
|
|
Less than 12
|
|
|
Greater than 12
|
|
|
|
|
|
Less than 12
|
|
|
Greater than 12
|
|
|
|
Cost
|
|
|
Months
|
|
|
Months
|
|
|
Fair Value
|
|
|
Months
|
|
|
Months
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored entities
|
|
$
|
9,900
|
|
|
$
|
100
|
|
|
$
|
|
|
|
$
|
10,000
|
|
|
$
|
10,000
|
|
|
$
|
|
|
Student loan bonds
|
|
|
109,500
|
|
|
|
(16,287
|
)
|
|
|
|
|
|
|
93,213
|
|
|
|
|
|
|
|
93,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
119,400
|
|
|
$
|
(16,187
|
)
|
|
$
|
|
|
|
$
|
103,213
|
|
|
$
|
10,000
|
|
|
$
|
93,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored entities
|
|
$
|
139,377
|
|
|
$
|
94
|
|
|
$
|
859
|
|
|
$
|
140,330
|
|
|
$
|
69,070
|
|
|
$
|
71,260
|
|
Student loan bonds
|
|
|
119,750
|
|
|
|
|
|
|
|
|
|
|
|
119,750
|
|
|
|
119,750
|
|
|
|
|
|
Other
|
|
|
55,556
|
|
|
|
|
|
|
|
|
|
|
|
55,556
|
|
|
|
55,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
314,683
|
|
|
$
|
94
|
|
|
$
|
859
|
|
|
$
|
315,636
|
|
|
$
|
244,376
|
|
|
$
|
71,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains or losses on investments are recorded in our
statement of income within other income (expense), net. Realized
losses on sales of investments were immaterial in 2008, 2007 and
2006.
16
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
4.
|
Business
Combinations, Goodwill and Intangible Assets
|
The following table summarizes the purchase acquisitions
completed during the three years in the period ended
December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial
|
|
|
Initial
|
|
|
|
|
|
|
|
|
|
|
|
Other Intangible Assets
|
|
|
|
Shares
|
|
|
Purchase
|
|
|
Acquired
|
|
|
Assumed
|
|
|
|
|
|
Technology/
|
|
|
Customer
|
|
|
Non-compete
|
|
Acquisition
|
|
Issued
|
|
|
Consideration
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Goodwill
|
|
|
Tradenames
|
|
|
Relationships
|
|
|
Agreements
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Think Subscription, Inc.
|
|
|
|
|
|
$
|
5,100
|
|
|
$
|
644
|
|
|
$
|
(1,019
|
)
|
|
$
|
2,007
|
|
|
$
|
1,209
|
|
|
$
|
1,813
|
|
|
$
|
|
|
CustomCD, Inc.
|
|
|
|
|
|
|
7,000
|
|
|
|
764
|
|
|
|
(355
|
)
|
|
|
3,136
|
|
|
|
2,059
|
|
|
|
1,468
|
|
|
|
|
|
DigitalSwift Corporation
|
|
|
|
|
|
|
9,200
|
|
|
|
427
|
|
|
|
(459
|
)
|
|
|
4,673
|
|
|
|
487
|
|
|
|
4,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
21,300
|
|
|
$
|
1,835
|
|
|
$
|
(1,833
|
)
|
|
$
|
9,816
|
|
|
$
|
3,755
|
|
|
$
|
7,606
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netgiro Systems AB
|
|
|
|
|
|
$
|
27,386
|
|
|
$
|
8,567
|
|
|
$
|
(7,477
|
)
|
|
$
|
9,742
|
|
|
$
|
4,424
|
|
|
$
|
12,372
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
27,386
|
|
|
$
|
8,567
|
|
|
$
|
(7,477
|
)
|
|
$
|
9,742
|
|
|
$
|
4,424
|
|
|
$
|
12,372
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mindvision, Inc.
|
|
|
|
|
|
$
|
24,975
|
|
|
$
|
2,555
|
|
|
$
|
(8,036
|
)
|
|
$
|
18,859
|
|
|
$
|
3,170
|
|
|
$
|
4,490
|
|
|
$
|
40
|
|
Direct Response Technologies, Inc.
|
|
|
|
|
|
|
14,876
|
|
|
|
1,573
|
|
|
|
(3,723
|
)
|
|
|
11,343
|
|
|
|
2,465
|
|
|
|
3,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
39,851
|
|
|
$
|
4,128
|
|
|
$
|
(11,759
|
)
|
|
$
|
30,202
|
|
|
$
|
5,635
|
|
|
$
|
8,110
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: Balances as of acquisition date and do not
reflect subsequent earn-outs, adjustments or currency
translation.
Acquisitions
completed in 2008
On September 1, 2008, we acquired all of the capital stock
of THINK Subscription, Inc. (Think Subscription), a
privately-held company based in Provo, Utah, for approximately
$5.1 million in cash. Think Subscription provides
subscription management and fulfillment software to content
publishers, online service providers, media vendors and other
subscription-based businesses. The agreement also provides Think
Subscription shareholders with an earn-out opportunity based on
Think Subscription achieving certain revenue and earnings
targets during the first three years subsequent to the
acquisition. Any future earn-out will result in additional
goodwill.
On January 1, 2008, we acquired all of the capital stock of
DigitalSwift Corporation (DigitalSwift), a privately-held
company based in Madison, Georgia, for approximately
$9.2 million in cash. DigitalSwift is a manufacturer and
fulfiller of on-demand, dynamic and build-to-order CDs and DVDs
to consumers. The agreement also provides DigitalSwift
shareholders with an earn-out opportunity based on DigitalSwift
achieving certain revenue and earnings targets during the first
year subsequent to the acquisition. In 2008, we paid earn-outs
of $1.0 million and accrued $3.0 million for future
earn-out payments. Earn-outs were recorded as goodwill in 2008
as they were considered incremental to the purchase price.
On January 1, 2008, we acquired the assets of IA Users Club
d.b.a. CustomCD, Inc. (CustomCD), a privately held company based
in Portland, Oregon and Krefeld, Germany, for approximately
$7.0 million in cash. This acquisition involved an asset
purchase of the US-based business and a stock purchase of the
business located in Germany. CustomCD creates, sells and
delivers to consumers custom CDs and DVDs containing software,
games, and other licensed content. The agreement also provides
CustomCD shareholders with an earn-out opportunity based on
CustomCD achieving certain revenue and earnings targets during
the
17
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
first two years subsequent to the acquisition. In 2008, we paid
earn-outs of $1.3 million. Earn-outs were recorded as
goodwill in 2008 as they were considered incremental to the
purchase price. Any future earn-out will result in additional
goodwill.
Acquisitions
completed in 2007
On September 1, 2007, we acquired all of the capital stock
of NetGiro Systems AB (NetGiro), a privately held company based
in Stockholm, Sweden, for approximately $27.4 million in
cash. NetGiro is an online payment service provider.
Acquisitions
completed in 2006
In June 2006, we acquired all of the capital stock of
MindVision, Inc., a privately held
e-commerce
company based in Lincoln, Nebraska, for approximately
$25.0 million comprised of payments to stockholders of
$21.2 million plus the assumption of certain liabilities
totaling approximately $3.7 million. In November 2006,
we recorded $0.2 million as acquisition cost related to a
restructuring plan for employee severance to be paid out over a
six month period.
In January 2006, we acquired all of the capital stock of Direct
Response Technologies, Inc. (Direct Response), a privately held
company based in Pittsburgh, Pennsylvania, for approximately
$15.0 million in cash. Direct Response, a provider of tools
for managing affiliate networks, is now named DR Marketing
Solutions, Inc. The agreement also provided Direct Response
shareholders with an earn-out opportunity based on DR Marketing
Solutions, Inc. achieving certain revenue and earnings targets
during the first three years subsequent to the acquisition. In
2006, we accrued $3.5 million for future earn-out payments.
In 2007, pursuant to the January 2006 acquisition agreement,
certain adjustments were made to the earn-out obligations under
this agreement. Under the restructured earn-out agreement a
final earn-out of $3.5 million was accrued and paid in
2007. These earn-outs have been recorded as goodwill in 2006 and
2007 as they were considered incremental to the purchase price.
Future
Earn-outs
As of December 31, 2008, there were estimated future
earn-outs of $3.0 million in accrued acquisition
liabilities. Any of the estimated maximum potential future
earn-out beyond the $3.0 million accrual will result in
additional goodwill.
Pro
Forma Operating Results (Unaudited)
The consolidated financial statements include the operating
results of each business acquired from the date of acquisition.
The following unaudited pro forma condensed results of
operations for 2008, 2007 and 2006 have been prepared as if each
of the acquisitions in 2008 had occurred on January 1,
2007, and as if each of the 2007 acquisitions had occurred on
January 1, 2006 (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Revenue
|
|
$
|
395,698
|
|
|
$
|
366,208
|
|
|
$
|
322,296
|
|
Income from operations
|
|
|
70,373
|
|
|
|
70,590
|
|
|
|
68,260
|
|
Net income
|
|
|
62,400
|
|
|
|
67,494
|
|
|
|
61,338
|
|
Diluted income per share
|
|
$
|
1.52
|
|
|
$
|
1.51
|
|
|
$
|
1.41
|
|
This pro forma financial information does not purport to
represent results that would actually have been obtained if the
transactions had been in effect on January 1, 2007 or 2006,
as applicable, or any future results that may be realized.
18
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
Goodwill
We account for our goodwill in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 precludes the amortization
of goodwill and intangible assets with indefinite lives, but
these assets are reviewed annually (or more frequently if
impairment indicators arise) for impairment.
We complete our annual impairment test using a two-step approach
based in the fourth quarter of each fiscal year and reassess any
intangible assets, including goodwill, recorded in connection
with earlier acquisitions. Our assessment has indicated that
there is no impairment of goodwill for the years ended
December 31, 2008, 2007 and 2006.
The changes in the net carrying amount of goodwill for the years
ended December 31, 2008 and 2007 are as follows (in
thousands):
|
|
|
|
|
|
|
Total
|
|
|
Balance as of December 31, 2006
|
|
$
|
243,799
|
|
Goodwill from acquisitions and earn-outs
|
|
|
13,774
|
|
Adjustments(1)
|
|
|
4,312
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
261,885
|
|
Goodwill from acquisitions and earn-outs
|
|
|
14,955
|
|
Adjustments(1)
|
|
|
(3,052
|
)
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
273,788
|
|
|
|
|
|
|
|
|
|
(1) |
|
Adjustments to goodwill during the year ended December 31,
2008 and December 31, 2007, resulted primarily from foreign
currency translation and tax adjustments relating to goodwill
associated with our current and prior period acquisitions. |
Intangible
Assets
Information regarding our other intangible assets is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
Carrying Amount
|
|
|
Accumulated
|
|
|
Carrying Amount
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Customer relationships
|
|
$
|
62,265
|
|
|
$
|
37,931
|
|
|
$
|
24,334
|
|
Non-compete agreements
|
|
|
5,312
|
|
|
|
5,301
|
|
|
|
11
|
|
Technology/tradename
|
|
|
30,991
|
|
|
|
23,114
|
|
|
|
7,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
98,568
|
|
|
$
|
66,346
|
|
|
$
|
32,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
Carrying Amount
|
|
|
Accumulated
|
|
|
Carrying Amount
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Customer relationships
|
|
$
|
57,327
|
|
|
$
|
33,761
|
|
|
$
|
23,566
|
|
Non-compete agreements
|
|
|
5,351
|
|
|
|
5,328
|
|
|
|
23
|
|
Technology/tradename
|
|
|
29,197
|
|
|
|
20,404
|
|
|
|
8,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91,875
|
|
|
$
|
59,493
|
|
|
$
|
32,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense was $8.4 million, $7.6 million
and $12.1 million, respectively for the years ended 2008,
2007 and 2006, respectively. The result of the allocation of the
purchase price between amortizable costs
19
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
and goodwill could have an impact on our future operating
results. The components of intangible assets acquired during the
years ended December 31, 2008, 2007 and 2006, are as
follows (in thousands). No significant residual value is
estimated for these assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Amount
|
|
|
Life
|
|
|
Amount
|
|
|
Life
|
|
|
Amount
|
|
|
Life
|
|
|
Customer relationships
|
|
$
|
7,606
|
|
|
|
6 years
|
|
|
$
|
12,372
|
|
|
|
10 years
|
|
|
$
|
8,110
|
|
|
|
8 years
|
|
Non-compete agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
4 years
|
|
Technology/tradename
|
|
|
3,755
|
|
|
|
4 years
|
|
|
|
4,424
|
|
|
|
8 years
|
|
|
|
5,635
|
|
|
|
4 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11,361
|
|
|
|
5 years
|
|
|
$
|
16,796
|
|
|
|
10 years
|
|
|
$
|
13,785
|
|
|
|
6 years
|
|
Estimated amortization expense for the remaining life of the
intangible assets, based on intangible assets as of
December 31, 2008, is as follows (in thousands):
|
|
|
|
|
Year
|
|
|
|
|
2009
|
|
$
|
7,378
|
|
2010
|
|
|
5,868
|
|
2011
|
|
|
4,706
|
|
2012
|
|
|
4,543
|
|
2013
|
|
|
2,617
|
|
Thereafter
|
|
|
7,110
|
|
|
|
|
|
|
Total
|
|
$
|
32,222
|
|
|
|
|
|
|
Following is an allocation of the net assets acquired from the
acquisitions consummated and amounts paid under earn-out
arrangements in 2008 and 2007 (in thousands) which includes
subsequent year activity for 2007 acquisitions:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Tangible assets
|
|
$
|
1,835
|
|
|
$
|
8,567
|
|
Liabilities assumed
|
|
|
(1,833
|
)
|
|
|
(7,477
|
)
|
Customer relationships
|
|
|
7,606
|
|
|
|
12,372
|
|
Technology/tradename
|
|
|
3,755
|
|
|
|
4,424
|
|
Goodwill ( year of acquisition)
|
|
|
9,816
|
|
|
|
9,742
|
|
Goodwill (subsequent to year of acquisition)
|
|
|
|
|
|
|
5,058
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
21,179
|
|
|
$
|
32,686
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
Stock-Based
Compensation
|
Our stockholders approved the Digital River, Inc. 2007 Equity
Incentive Plan (the 2007 Plan) at the Companys
annual stockholder meeting held on May 31, 2007. The number
of shares issuable under the 2007 Plan equals
2,000,000 shares of our common stock. In addition, shares
not issued under the 1998 Plan shall become available for
issuance under the 2007 Plan to the extent a stock option or
other stock award under the 1998 Plan expires or terminates
before shares of common stock are issued under the award. Under
our 2007 Equity Incentive Plan we have the flexibility to grant
incentive and non-statutory stock options, restricted stock
awards, restricted stock unit awards and performance shares to
our directors, employees, and consultants.
Our current plan is described more fully in Note 11.
20
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
Expense
Information under SFAS 123(R)
On January 1, 2006, we adopted SFAS 123(R) which
requires measurement and recognition of compensation expense for
all stock-based payments made to employees and directors
including stock options, restricted stock grants and employee
stock purchases made through our Employee Stock Purchase Plan
based on estimated fair values. The following table summarizes
stock-based compensation expense, net of tax, related to our
stock-based compensation plans recognized under SFAS 123(R):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
Direct cost of services
|
|
$
|
785
|
|
|
$
|
807
|
|
Network and infrastructure
|
|
|
192
|
|
|
|
270
|
|
Sales and marketing
|
|
|
4,562
|
|
|
|
5,028
|
|
Product research and development
|
|
|
1,258
|
|
|
|
1,736
|
|
General and administrative
|
|
|
5,751
|
|
|
|
5,901
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation included in costs and expenses
|
|
|
12,548
|
|
|
|
13,742
|
|
Tax benefit
|
|
|
(2,802
|
)
|
|
|
(3,737
|
)
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense, net of tax
|
|
$
|
9,746
|
|
|
$
|
10,005
|
|
|
|
|
|
|
|
|
|
|
Valuation
Information under SFAS 123(R)
During the twelve months ending ended December 31, 2008,
2007 and 2006 we used the Black-Scholes option pricing model
with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
2.0
|
%
|
|
|
4.5
|
%
|
|
|
4.7
|
%
|
Expected life (years)
|
|
|
3.37
|
|
|
|
3.46
|
|
|
|
4.08
|
|
Volatility factor
|
|
|
0.45
|
|
|
|
0.50
|
|
|
|
0.59
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value of options granted
|
|
$
|
10.74
|
|
|
$
|
23.11
|
|
|
$
|
19.00
|
|
The risk-free interest rate assumption is based on observed
interest rates appropriate for the term of our stock options.
The expected life of stock options represents the
weighted-average period the stock options are expected to remain
outstanding and is based on historical exercise patterns. We
used historical closing stock price volatility for a period
equal to the expected term of the options granted. The dividend
yield assumption is based on our history and expectation of
future dividend payouts.
As stock-based compensation expense recognized in the
Consolidated Statement of Income for the twelve months ended
December 31, 2008 is based on awards ultimately expected to
vest, it has been reduced for estimated forfeitures.
SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Forfeitures
were estimated based on historical experience.
At December 31, 2008, there was approximately
$24.4 million of total unrecognized stock-based
compensation expense, adjusted for estimated forfeitures,
related to unvested share-based awards. Unrecognized stock-based
compensation expense is expected to be recognized over the next
2.44 years on a weighted average basis and will be adjusted
for any future changes in estimated forfeitures.
21
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
The components of pretax income are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
46,988
|
|
|
$
|
74,595
|
|
|
$
|
65,171
|
|
International
|
|
|
39,283
|
|
|
|
28,480
|
|
|
|
24,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
86,271
|
|
|
$
|
103,075
|
|
|
$
|
89,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision (benefit) for income taxes is composed of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Current tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
$
|
18,792
|
|
|
$
|
29,204
|
|
|
$
|
34,362
|
|
State and local
|
|
|
1,223
|
|
|
|
1,842
|
|
|
|
2,160
|
|
International
|
|
|
6,858
|
|
|
|
5,939
|
|
|
|
2,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision for income taxes
|
|
|
26,873
|
|
|
|
36,985
|
|
|
|
39,437
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
United States federal
|
|
|
(3,926
|
)
|
|
|
(3,896
|
)
|
|
|
(10,136
|
)
|
State and local
|
|
|
(255
|
)
|
|
|
(227
|
)
|
|
|
(637
|
)
|
International
|
|
|
(16
|
)
|
|
|
(601
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision (benefit) for income taxes
|
|
|
(4,197
|
)
|
|
|
(4,724
|
)
|
|
|
(10,765
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
22,676
|
|
|
$
|
32,261
|
|
|
$
|
28,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of the difference between the
actual provision for income taxes and the provision computed by
applying the federal statutory rate of 35% to income before
income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Tax expense at statutory rate
|
|
$
|
30,195
|
|
|
$
|
36,076
|
|
|
$
|
31,319
|
|
State taxes, net of federal benefit
|
|
|
968
|
|
|
|
1,615
|
|
|
|
1,469
|
|
International rate differential
|
|
|
(7,860
|
)
|
|
|
(4,623
|
)
|
|
|
(3,193
|
)
|
Tax Credits
|
|
|
(955
|
)
|
|
|
(671
|
)
|
|
|
(1,909
|
)
|
Nondeductible expense and other
|
|
|
328
|
|
|
|
(136
|
)
|
|
|
986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,676
|
|
|
$
|
32,261
|
|
|
$
|
28,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
Deferred income taxes reflect the tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the bases for
income tax purposes. Significant components of deferred income
taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss and credit carryforwards
|
|
$
|
8,646
|
|
|
$
|
12,412
|
|
Nondeductible reserves and accruals
|
|
|
21,075
|
|
|
|
9,144
|
|
Depreciation and amortization
|
|
|
4,777
|
|
|
|
3,339
|
|
Valuation allowance
|
|
|
(2,061
|
)
|
|
|
(1,390
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
32,437
|
|
|
|
23,505
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(1,191
|
)
|
|
|
|
|
Other intangibles
|
|
|
(11,016
|
)
|
|
|
(5,054
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(12,207
|
)
|
|
|
(5,054
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
20,230
|
|
|
$
|
18,451
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008, we had U.S. tax loss
carryforwards of approximately $16.5 million and foreign
tax loss carryforwards of $4.3 million. These tax loss
carryforwards consist solely of acquired net operating losses.
The U.S. tax loss carryforwards expire in the years 2021
through 2025. However, we anticipate most U.S. tax loss
carryforwards will be utilized in the next few years.
There is uncertainty of future realization of the deferred tax
assets resulting from acquired tax loss carryforwards due to
anticipated limitations, including limitations under
Section 382 of the Internal Revenue Code. Therefore, a
valuation allowance was recorded against the tax effect of such
tax loss carryforwards. At December 31, 2008, the Company
has a valuation allowance on approximately $1.4 million of
deferred tax assets related to acquired operating losses and
other tax attributes as we believe it is more likely than not
that these deferred tax assets will not be realized. Any future
release of this valuation allowance will reduce expense.
On January 1, 2007, we adopted the provisions of Financial
Standards Accounting Board Interpretation No. 48
Accounting for Uncertainty in Income Taxes
(FIN 48) an interpretation of FASB Statement
No. 109 (SFAS 109). As a result of the implementation
of FIN 48, we recognized no material adjustment in the
liability for unrecognized income tax benefits. A reconciliation
of the beginning and ending amount of unrecognized tax benefits
is as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
3,340
|
|
Increases for tax positions taken during current year
|
|
|
1,072
|
|
Decreases for tax positions taken during prior years
|
|
|
1,035
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
5,447
|
|
Increases for tax positions taken during current year
|
|
|
2,957
|
|
Increases for tax positions taken during prior years
|
|
|
613
|
|
Decreases as a result of settlements with taxing authorities
|
|
|
(2,622
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
6,395
|
|
|
|
|
|
|
All of these unrecognized tax benefits would affect our
effective tax rate if recognized. We recognize interest and
penalties related to uncertain tax positions in income tax
expense. We had approximately
23
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
$0.8 million and $0.1 million of accrued interest and
penalties related to uncertain tax positions at
December 31, 2008 and December 31, 2007, respectively.
The Company and its subsidiaries file income tax returns in
U.S. federal and various state jurisdictions, and foreign
jurisdictions. The tax years
2004-2008
remain open to examination by the major taxing jurisdictions to
which we are subject. During 2008, the Internal Revenue Service
(IRS) examined the Companys 2004 U.S. income tax
return. The examination was substantially completed, resulting
in only minor agreed upon adjustments. The Company expects the
examination to be finalized in 2009. Several of the
Companys international subsidiaries were also under
examination during 2008 and the Company expects these
examinations to be completed in 2009 as well. Due to the
potential resolution of examinations currently being performed
by taxing authorities, and the expiration of various statutes of
limitation, it is reasonably possible that our gross
unrecognized tax benefits balance may change within the next
twelve months by a range of zero to $2.2 million.
No provision has been made for federal income taxes on
approximately $81.3 million of our foreign subsidiaries
undistributed earnings as of December 31, 2008 since we
plan to indefinitely reinvest all such earnings. If these
earnings were distributed to the U.S. in the form of
dividends or otherwise, we would be subject to U.S. income
taxes on such earnings. The amount of U.S. income taxes
would be subject to adjustment for foreign tax credits and for
the impact of the
step-up in
the basis of assets resulting from a Section 338 election
made at the time of acquisition. If these earnings were to be
distributed, the income tax liability would be approximately
$17.5 million.
|
|
7.
|
Commitments
and Contigencies
|
Leases
We currently have 38 facility leases in addition to leasing
certain computer equipment under non-cancelable operating
leases. Total rent expense, including common area maintenance
charges, recognized under all leases was $7.1 million,
$5.7 million and $4.3 million for the years ended
December 31, 2008, 2007 and 2006, respectively. The minimum
annual rents under long-term leases at December 31, 2008,
were as follows (in thousands):
|
|
|
|
|
Year ending December 31,
|
|
Lease Obligations
|
|
|
2009
|
|
|
5,048
|
|
2010
|
|
|
3,735
|
|
2011
|
|
|
2,312
|
|
2012
|
|
|
687
|
|
Thereafter
|
|
|
745
|
|
|
|
|
|
|
Total future minimum obligations
|
|
$
|
12,527
|
|
|
|
|
|
|
Litigation
We are subject to legal proceedings, claims and litigation
arising in the ordinary course of business. While the final
outcome of these matters is currently not determinable, we
believe there is no litigation pending against us that is likely
to have, individually or in the aggregate, a material adverse
effect on our consolidated financial position, results of
operation or cash flows. Because of the uncertainty inherent in
litigation, it is possible that unfavorable resolutions of these
lawsuits, proceedings and claims could exceed the amount we have
currently reserved for these matters.
Third parties have from time-to-time claimed, and others may
claim in the future, that we have infringed their intellectual
property rights. We have been notified of several potential
patent disputes, and expect that we
24
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
will increasingly be subject to patent infringement claims as
our services expand in scope and complexity. We have in the past
been forced to litigate such claims. We may also become more
vulnerable to third-party claims as laws, such as the Digital
Millennium Copyright Act, the Lanham Act and the Communications
Decency Act are interpreted by the courts and as we expand
geographically into jurisdictions where the underlying laws with
respect to the potential liability of online intermediaries like
ourselves are either unclear or less favorable. These claims,
whether meritorious or not, could be time consuming and costly
to resolve, cause service upgrade delays, require expensive
changes in our methods of doing business, or could require us to
enter into costly royalty or licensing agreements.
Indemnification
Provisions
In the ordinary course of business we have included limited
indemnification provisions in certain of our agreements with
parties with whom we have commercial relations. Under these
contracts, we generally indemnify, hold harmless and agree to
reimburse the indemnified party for losses suffered or incurred
by the indemnified party in connection with claims by any third
party with respect to our domain names, trademarks, logos and
other branding elements to the extent that such marks are
applicable to our performance under the subject agreement. In
certain agreements, including both agreements under which we
have developed technology for certain commercial parties and
agreements with our clients, we have provided an indemnity for
other types of third-party claims. To date, no significant costs
have been incurred, either individually or collectively, in
connection with our indemnification provisions.
In addition, we are required by our credit card processors to
comply with credit card association operating rules, and we have
agreed to indemnify our processors for any fines they are
assessed by credit card associations as a result of processing
payments for us. The credit card associations and their member
banks set and interpret the credit card rules. Visa, MasterCard,
American Express, or Discover could adopt new operating rules or
re-interpret existing rules that we or our credit card
processors might find difficult to follow. We have had payment
processing agreements with certain of our payment processors
terminated due to violations of their rules. We also could be
subject to fines or increased fees from MasterCard and Visa.
In 2004 we sold and issued $195.0 million in aggregate
principal amount of 1.25% convertible senior notes due
January 1, 2024 (Notes), in a private, unregistered
offering. The Notes were sold at 100% of their principal amount.
We are required to pay interest on the Notes on January 1 and
July 1 of each year so long as the Notes are outstanding. The
Notes bear interest at a rate of 1.25% and, if specified
conditions are met, are convertible into our common stock at a
conversion price of $44.063 per share. The Notes may be
surrendered for conversion under certain circumstances,
including the satisfaction of a market price condition, such
that the price of our common stock reaches a specified
threshold; the satisfaction of a trading price condition, such
that the trading price of the Notes falls below a specified
level; the redemption of the Notes by us, the occurrence of
specified corporate transactions, as defined in the related
indenture; and the occurrence of a fundamental change, as
defined in the related indenture. The initial conversion price
is equivalent to a conversion rate of approximately
22.6948 shares per $1,000 of principal amount of the Notes.
We will adjust the conversion price if certain events occur, as
specified in the related indenture, such as the issuance of our
common stock as a dividend or distribution or the occurrence of
a stock subdivision or combination. If a fundamental change,
such as a change in our control, as defined in the related
indenture, occurs on or before January 1, 2009, we may also
be required to purchase the Notes for cash and pay an additional
make whole premium payable in our common stock upon the
repurchase or conversion of the Notes in connection with the
fundamental change.
25
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
Holders of the Notes have the right to require us to repurchase
their Notes prior to maturity on January 1, 2009, 2014 and
2019. We have the right to redeem the Notes at any time on or
after January 1, 2009. On January 5, 2009, we
announced that holders of 95.5% of the Notes exercised the
option to require us to repurchase those Notes on
January 2, 2009 at a purchase price of 100.25% of the
principal amount of each tendered Note. Notes with an aggregate
principal amount of $8,805,000 remain outstanding. In light of
the right of holders to require us to redeem the Notes on
January 1, 2009, on January 1, 2008, we reclassified
the Notes as short-term debt. As such right has expired and the
exercise of the next right to require us to redeem the Notes
will not occur until January 1, 2014, we have reclassified
the remaining Notes as long-term debt.
We incurred interest expense of $2.5 million in 2008 and
made interest payments of $2.4 million. We incurred
interest expense of $2.4 million in 2007 and made interest
payments of $2.4 million. We incurred interest expense of
$2.5 million in 2006 and made interest payments of
$2.4 million.
|
|
9.
|
Fair
Value Measurements
|
Effective January 1, 2008, we adopted the provisions of
Statement of Financial Accounting Standards No. 157,
Fair Value Measurements, (FAS 157) for
financial instruments. FAS 157 defines fair value,
establishes a framework for measuring fair value in accordance
with GAAP, and requires enhanced disclosures about fair value
measurements. FAS 157 does not require any new fair value
measurements; rather it specifies valuation methods and
disclosures to be applied when fair value measurements are
required under existing or future accounting pronouncements.
FAS 157 clarifies that fair value is an exit price,
representing the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a
market-based measurement that should be determined based on
assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions,
FAS 157 establishes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as
follows:
Level 1 Observable inputs such as quoted prices
in active markets;
Level 2 Inputs, other than the quoted prices in
active markets, that are observable either directly or
indirectly; and
Level 3 Unobservable inputs in which there is
little or no market data, which require the reporting entity to
develop its own assumption.
As of December 31, 2008, we held certain assets that are
required to be measured at fair value on a recurring basis.
These included cash equivalents and short and long-term
investments.
As of December 31, 2008, Digital River held
$109.5 million of investments at par value,
$93.2 million fair value, in auction-rate securities (ARS),
all are AAA/Aaa-rated and
105-115 over
collateralized by student loans guaranteed by the
U.S. government. All the securities are 100% guaranteed by
the Department of Education or the Federal Family Education Loan
Program (FFELP) with the exception of two securities which are
82.5% and 99% guaranteed by FFELP. All of these securities
continue to fail at auction due to illiquid market conditions.
We did determine a market value discount, due to current
illiquid market conditions, of $16.3 million (14.9% of par
value) existed as of December 31, 2008 and recorded a
temporary fair value reduction to Other Comprehensive
Income on the balance sheet in 2008. We believe the
securities will continue to yield the coupon rates.
The determination of fair value required management to make
estimates and assumptions about the securities. The discounted
cash flow model we used to value the securities included the
following assumptions:
|
|
|
|
|
determination of the penalty coupon rate, frequency of reset
period associated with each ARS
|
|
|
|
an average redemption period of seven years
|
26
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
|
|
|
|
|
a contribution of the ARS paying its contractually stated
interest rate
|
|
|
|
determination of the risk adjusted discount rate based on LIBOR
rates for these maturities plus market information on student
loan credit spreads
|
In aggregate the ARS portfolio is yielding 2.3% and we continue
to receive 100% of the contractually required interest payments.
We continue to believe that we will be able to liquidate at par
over time. Accordingly, we treated the fair value decline as
temporary. We anticipate we have sufficient cash flow from
operations to execute our business strategy and fund our
operational needs. We believe that capital markets are also
available if we need to finance other investing alternatives.
The table below presents our assets measured at fair value on a
recurring basis as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
As of December 31, 2008
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Cash equivalents
|
|
$
|
490,335
|
|
|
$
|
490,335
|
|
|
$
|
|
|
|
$
|
|
|
Short-term investments
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
93,213
|
|
|
|
|
|
|
|
|
|
|
|
93,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets measured at fair value
|
|
$
|
593,548
|
|
|
$
|
500,335
|
|
|
$
|
|
|
|
$
|
93,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on market conditions, we have classified auction rate
securities as Level 3 within FAS 157s hierarchy
since our initial adoption of FAS 157 at January 1,
2008. As of December 31, 2008, the difference between fair
value and par value of these securities was $16.3 million,
or 2.7% of total assets measured at fair value or 1.5% of total
assets reported in our financial statements.
The following is a reconciliation of assets measured at fair
value on a recurring basis using significant unobservable inputs
(Level 3 inputs) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
|
Short-term
|
|
|
Long-term
|
|
|
|
|
|
|
Investments
|
|
|
Investments
|
|
|
Total
|
|
|
Balance as of January 1, 2008
|
|
$
|
119,750
|
|
|
$
|
|
|
|
$
|
119,750
|
|
Total gains or losses (realized/unrealized)
Included in other comprehensive income
|
|
|
|
|
|
|
(16,287
|
)
|
|
|
(16,287
|
)
|
Purchases, issuances, and settlements
|
|
|
(10,250
|
)
|
|
|
|
|
|
|
(10,250
|
)
|
Transfers in and/or out of Level 3
|
|
|
(109,500
|
)
|
|
|
109,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
|
|
|
$
|
93,213
|
|
|
$
|
93,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2008 and 2007, the fair value of our
$195 million 1.25% fixed rate convertible senior notes was
valued at $166 million and $246 million, respectively,
based on the quoted fair market value of the debt.
27
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
Share
Repurchase Program
In June 2007 our Board of Directors authorized a new stock
buyback program to repurchase up to an aggregate of
$200 million of our common stock. This buyback program
superseded the prior buyback program.
During 2008, 4,239,312 shares were repurchased under the
2007 Repurchase Program, including 3,876,612 shares
repurchased pursuant to the accelerated share repurchase
program. None of the repurchased shares have been retired.
The Accelerated Share Repurchase (ASR) agreement was entered
into with Goldman Sachs (GS) on February 7, 2008 and called
for GS to repurchase $127 million of Digital River, Inc.
stock between February 7, 2008 and June 20, 2008.
Based on the agreement, Digital River received a final share
count based on a discount of the Volume Weighted Average Price
of Digital River stock from February 21, 2008, through the
end of the contract. On June 20, 2008, GS had concluded the
ASR program with a final share delivery of 327,767 shares.
The aggregate number of shares repurchased pursuant to the ASR
program was 3,876,612 shares at an average price of $32.76
per share. The ASR agreement terminated upon completion of the
ASR program on June 20, 2008 in accordance with its terms.
With the conclusion of the ASR program, we completed the 2007
Repurchase Program.
During 2007, we repurchased 1,372,185 shares for
$63.0 million. No shares were repurchased during 2006. None
of the repurchased shares have been retired.
|
|
11.
|
Employee
Benefit Plans
|
Option
and Restricted Stock Awards
2007
Plan
Our stockholders approved the Digital River, Inc. 2007 Equity
Incentive Plan (the 2007 Plan) at the Companys
annual stockholder meeting held on May 31, 2007. The number
of shares issuable under the 2007 Plan equals
2,000,000 shares of our common stock. In addition, shares
not issued under the 1998 Plan shall become available for
issuance under the 2007 Plan to the extent a stock option or
other stock award under the 1998 Plan expires or terminates
before shares of common stock are issued under the award. Under
our 2007 Equity Incentive Plan we have the flexibility to grant
incentive and non-statutory stock options, restricted stock
awards, restricted stock unit awards and performance shares to
our directors, employees, and consultants.
1998
Plan
The 1998 Equity Incentive Plan expired in June 2008 except as to
options still outstanding under the Plan.
General
Stock Award Information
As of December 31, 2008, there were 1,976,462 shares
available for future awards under our 2007 Plan, respectively.
The number of shares available has been reduced by three shares
for every two shares granted under the stock award plan that
does not provide for full payment by the participant.
Options granted to employees typically expire no later than ten
years after the date of grant. Incentive stock option grants
must have an exercise price of at least 100% of the fair market
value of a share of common stock on the grant date. Incentive
stock options granted to employees who, immediately before such
grant, owned stock directly or indirectly representing more than
10% of the voting power of our stock, will
28
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
have an exercise price of 110% of the fair market value of a
share of common stock on the grant date and will expire no later
than five years from the date of grant.
A summary of the changes in outstanding options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Shares
|
|
|
|
|
|
Options
|
|
|
Average
|
|
|
|
Available
|
|
|
Options
|
|
|
Price
|
|
|
Price
|
|
|
|
for Grant
|
|
|
Outstanding
|
|
|
Per Share
|
|
|
Per Share
|
|
|
Balance, December 31, 2005
|
|
|
1,928,584
|
|
|
|
4,523,385
|
|
|
$
|
2.59 - $31.13
|
|
|
$
|
16.69
|
|
Granted
|
|
|
(395,000
|
)
|
|
|
395,000
|
|
|
|
29.75 - 57.36
|
|
|
|
38.64
|
|
Restricted stock effect on shares available for grant
|
|
|
(134,250
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Exercised
|
|
|
|
|
|
|
(1,219,736
|
)
|
|
|
2.59 - 45.24
|
|
|
|
17.31
|
|
Canceled/expired
|
|
|
140,866
|
|
|
|
(140,866
|
)
|
|
|
2.59 - 30.69
|
|
|
|
22.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
1,540,200
|
|
|
|
3,557,783
|
|
|
$
|
2.59 - $57.36
|
|
|
$
|
18.68
|
|
Granted
|
|
|
(573,376
|
)
|
|
|
573,376
|
|
|
|
45.07 - 56.61
|
|
|
|
54.17
|
|
Restricted stock effect on shares available for grant
|
|
|
(251,426
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Exercised
|
|
|
|
|
|
|
(1,219,519
|
)
|
|
|
2.59 - 45.24
|
|
|
|
11.08
|
|
Canceled/expired
|
|
|
133,330
|
|
|
|
(133,330
|
)
|
|
|
4.56 - 56.61
|
|
|
|
38.01
|
|
Additional Shares Reserved
|
|
|
2,000,000
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
2,848,728
|
|
|
|
2,778,310
|
|
|
$
|
2.59 - $57.36
|
|
|
$
|
28.41
|
|
Granted
|
|
|
(807,000
|
)
|
|
|
807,000
|
|
|
|
19.28 - 41.44
|
|
|
|
31.10
|
|
Restricted stock effect on shares available for grant
|
|
|
(278,952
|
)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Exercised
|
|
|
|
|
|
|
(425,774
|
)
|
|
|
4.56 - 38.17
|
|
|
|
16.84
|
|
Canceled/expired
|
|
|
213,686
|
|
|
|
(213,686
|
)
|
|
|
9.13 - 56.61
|
|
|
|
38.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
1,976,462
|
|
|
|
2,945,850
|
|
|
$
|
2.59 - $57.36
|
|
|
$
|
30.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes significant ranges of outstanding
and exercisable options under our 1998 Plan and 2007 Plan as of
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Average
|
|
|
Intrinsic
|
|
|
Number
|
|
|
Average
|
|
|
Intrinsic
|
|
Exercise Price
|
|
|
Outstanding
|
|
|
Life Remaining
|
|
|
Price
|
|
|
Value
|
|
|
Exercisable
|
|
|
Price
|
|
|
Value
|
|
|
|
$ 2.59 - $ 3.88
|
|
|
|
19,187
|
|
|
|
2.0 years
|
|
|
$
|
2.74
|
|
|
$
|
423,171
|
|
|
|
19,187
|
|
|
$
|
2.74
|
|
|
$
|
423,171
|
|
|
4.56 - 7.55
|
|
|
|
148,423
|
|
|
|
2.4 years
|
|
|
|
5.39
|
|
|
|
2,880,668
|
|
|
|
148,423
|
|
|
|
5.39
|
|
|
|
2,880,668
|
|
|
9.12 - 13.92
|
|
|
|
344,355
|
|
|
|
3.8 years
|
|
|
|
11.74
|
|
|
|
4,497,656
|
|
|
|
296,145
|
|
|
|
11.88
|
|
|
|
3,827,537
|
|
|
16.72 - 22.98
|
|
|
|
423,446
|
|
|
|
5.1 years
|
|
|
|
22.09
|
|
|
|
1,149,141
|
|
|
|
364,695
|
|
|
|
22.55
|
|
|
|
821,460
|
|
|
23.01 - 30.69
|
|
|
|
621,982
|
|
|
|
6.5 years
|
|
|
|
28.02
|
|
|
|
72,897
|
|
|
|
439,592
|
|
|
|
28.41
|
|
|
|
71,772
|
|
|
33.58 - 57.36
|
|
|
|
1,388,457
|
|
|
|
8.4 years
|
|
|
|
41.01
|
|
|
|
|
|
|
|
468,235
|
|
|
|
44.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ 2.59 - $57.36
|
|
|
|
2,945,850
|
|
|
|
6.6 years
|
|
|
$
|
30.08
|
|
|
$
|
9,023,533
|
|
|
|
1,736,277
|
|
|
$
|
26.32
|
|
|
$
|
8,024,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value in the preceding table represents
the total pretax intrinsic value, based on options with an
exercise price less than the Companys closing stock price
of $24.80 as of December 31, 2008, which would have been
received by the option holders had those option holders
exercised their options as of that date. The total intrinsic
value of options exercised during the twelve months ended
December 31, 2008, 2007 and 2006 were $8.2 million,
$48.9 million and $38.6 million, respectively,
determined as of the date of exercise. The weighted average life
remaining on exercisable options is 5.4 years.
29
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
Restricted stock awards are subject to forfeiture if employment
terminates prior to the release of the restrictions. During the
vesting period, ownership of the shares cannot be transferred.
Restricted stock is considered issued and outstanding at the
grant date and has the same dividend and voting rights as other
common stock. A summary of the changes in restricted stock under
our 1998 Plan and 2007 Plan as of December 31, 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Restricted
|
|
|
Average
|
|
|
|
Stock
|
|
|
Fair Value
|
|
|
Non-Vested Balance, December 31, 2005
|
|
|
|
|
|
$
|
|
|
Granted
|
|
|
89,500
|
|
|
|
39.96
|
|
Vested
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Vested Balance, December 31, 2006
|
|
|
89,500
|
|
|
$
|
39.96
|
|
Granted
|
|
|
198,889
|
|
|
|
53.75
|
|
Vested
|
|
|
(23,713
|
)
|
|
|
39.19
|
|
Forfeited
|
|
|
(31,272
|
)
|
|
|
48.54
|
|
|
|
|
|
|
|
|
|
|
Non-Vested Balance, December 31, 2007
|
|
|
233,404
|
|
|
$
|
50.64
|
|
Granted
|
|
|
498,550
|
|
|
|
29.04
|
|
Vested
|
|
|
(66,010
|
)
|
|
|
49.42
|
|
Forfeited
|
|
|
(312,582
|
)
|
|
|
33.61
|
|
|
|
|
|
|
|
|
|
|
Non-Vested Balance, December 31, 2008
|
|
|
353,362
|
|
|
$
|
35.45
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan
We also sponsor an employee stock purchase plan under which
1,200,000 shares have been reserved for purchase by
employees. The purchase price of the shares under the plan is
the lesser of 85% of the fair market value on the first or last
day of the offering period. Offering periods are currently every
six months ending on June 30 and December 31. Employees may
designate up to ten percent of their compensation for the
purchase of shares under the plan. Total shares purchased by
employees under the plan were 111,640, 76,436 and 71,183 in the
years ended December 31, 2008, 2007 and 2006, respectively.
There are 368,777 shares still reserved under the plan as
of December 31, 2008.
Inducement
Equity Incentive Plan
Effective on December 14, 2005, in connection with our
acquisition of Commerce5, Inc., we adopted an Inducement Equity
Incentive Plan (the Inducement Plan) initially for
Commerce5, Inc. executives who joined Digital River as a result
of the acquisition, or other personnel who join us after the
date of the Inducement Plan adoption. A total of 87,500
restricted shares of Digital River stock may be issued under the
Inducement Plan, subject to vesting. In accordance with the
NASDAQ rules, no stockholder approval was required for the
Inducement Plan.
Employee
Benefit Plan
We have a defined contribution 401(k) retirement plan for
eligible employees. Employees may contribute up to 15% of their
pretax compensation to the plan, with us providing a
discretionary match of up to 50% of the total employee
contribution. Amounts charged to expense related to our matching
contributions were $2.2 million in 2008, $2.0 million
in 2007 and $1.4 million in 2006.
30
DIGITAL
RIVER, INC.
Notes to
Consolidated Financial
Statements (Continued)
We view our operations and manage our business as one reportable
segment, providing outsourced
e-commerce
solutions globally to a variety of companies, primarily in the
software and high-tech products markets. Factors used to
identify our single operating segment include the financial
information available for evaluation by the chief operating
decision maker in making decisions about how to allocate
resources and assess performance. We market our products and
services through our offices in the United States and our
wholly-owned branches and subsidiaries operating in the United
Kingdom, Germany, Ireland, Luxembourg, Japan, Taiwan and Sweden.
Sales to international customers accounted for 42.8%, 43.2% and
41.2% of revenue for 2008, 2007 and 2006, respectively. Sales
are attributed to a geographic region based on the ordering
location of the customer. Summarized revenue information by
region for fiscal 2008, 2007 and 2006 is as follows (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
United States
|
|
$
|
225,385
|
|
|
$
|
198,388
|
|
|
$
|
180,905
|
|
Europe
|
|
|
112,211
|
|
|
|
103,385
|
|
|
|
87,854
|
|
Other
|
|
|
56,630
|
|
|
|
47,502
|
|
|
|
38,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
394,226
|
|
|
$
|
349,275
|
|
|
$
|
307,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue derived from sales of product from one software
publisher, Symantec Corporation, accounted for approximately
24.3%, 26.2% and 30.2% of our total revenue in 2008, 2007 and
2006, respectively. In addition, revenues derived from
proprietary Digital River services sold to Symantec consumers
and dealer network sales of Symantec products amounted to
approximately 9.4% of total Digital River revenue in 2008, 13.2%
in 2007 and 16.6% in 2006.
The following table presents selected asset information by
geographic area based on the physical location of the assets (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
United States
|
|
|
Europe
|
|
|
United States
|
|
|
Europe
|
|
|
Total property and equipment
|
|
$
|
79,781
|
|
|
$
|
14,354
|
|
|
$
|
59,359
|
|
|
$
|
14,695
|
|
Accumulated depreciation
|
|
|
(43,686
|
)
|
|
|
(8,716
|
)
|
|
|
(34,185
|
)
|
|
|
(8,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
36,095
|
|
|
$
|
5,638
|
|
|
$
|
25,174
|
|
|
$
|
5,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
66,951
|
|
|
$
|
31,617
|
|
|
$
|
56,302
|
|
|
$
|
35,573
|
|
Accumulated amortization
|
|
|
(47,487
|
)
|
|
|
(18,859
|
)
|
|
|
(41,385
|
)
|
|
|
(18,108
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net intangible assets
|
|
$
|
19,464
|
|
|
$
|
12,758
|
|
|
$
|
14,917
|
|
|
$
|
17,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
$
|
154,061
|
|
|
$
|
142,182
|
|
|
$
|
139,136
|
|
|
$
|
145,204
|
|
Accumulated amortization
|
|
|
(22,455
|
)
|
|
|
|
|
|
|
(22,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net goodwill
|
|
$
|
131,606
|
|
|
$
|
142,182
|
|
|
$
|
116,681
|
|
|
$
|
145,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On January 5, 2009, we announced that holders of 95.5% of
our convertible senior notes exercised the option to require us
to repurchase those notes on January 2, 2009, at a purchase
price of 100.25% of the principal amount of each tendered note
for a total of approximately $187.9 million, which includes
accrued interest of $1.2 million. Notes with an aggregate
principal amount of about $8.8 million remain outstanding.
This repurchase will also decrease our dilutive impact of
convertible senior on our diluted shares outstanding from about
4.4 million shares to 0.2 million shares in 2009.
31
Digital
River, Inc.
Schedule II
For Years Ended December 31, 2008, 2007 and 2006
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Costs and
|
|
|
|
|
|
Balance at
|
|
2008
|
|
Beginning of Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
End of Year
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,489
|
|
|
$
|
5,214
|
|
|
$
|
(5,246
|
)
|
|
$
|
2,457
|
|
Accrued chargeback reserve
|
|
|
1,186
|
|
|
|
9,514
|
|
|
|
(9,092
|
)
|
|
|
1,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Costs and
|
|
|
|
|
|
Balance at
|
|
2007
|
|
Beginning of Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
End of Year
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,339
|
|
|
$
|
581
|
|
|
$
|
(431
|
)
|
|
$
|
2,489
|
|
Accrued chargeback reserve
|
|
|
834
|
|
|
|
6,829
|
|
|
|
(6,477
|
)
|
|
|
1,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges to
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Costs and
|
|
|
|
|
|
Balance at
|
|
2006
|
|
Beginning of Year
|
|
|
Expenses
|
|
|
Deductions
|
|
|
End of Year
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,023
|
|
|
$
|
1,426
|
|
|
$
|
(110
|
)
|
|
$
|
2,339
|
|
Accrued chargeback reserve
|
|
|
1,445
|
|
|
|
2,937
|
|
|
|
(3,548
|
)
|
|
$
|
834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged /
|
|
|
|
|
|
|
|
|
|
Charged /
|
|
|
(Credited) to
|
|
|
|
|
Deferred income tax asset
|
|
Balance at
|
|
|
(Credited) to
|
|
|
Other
|
|
|
Balance at
|
|
Valuation Allowance
|
|
Beginning of Year
|
|
|
Expenses
|
|
|
Accounts(1)
|
|
|
End of Year
|
|
|
2008
|
|
$
|
1,390
|
|
|
$
|
|
|
|
$
|
(19
|
)
|
|
$
|
1,371
|
|
2007
|
|
|
12,961
|
|
|
|
|
|
|
|
(11,571
|
)
|
|
|
1,390
|
|
2006
|
|
|
17,504
|
|
|
|
|
|
|
|
(4,543
|
)
|
|
|
12,961
|
|
|
|
|
(1) |
|
Amounts not charged (credited) to expenses were charged
(credited) to equity or goodwill |
32
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this
Form 10-K/A
to be signed on its behalf by the undersigned, thereunto duly
authorized on March 9, 2009.
DIGITAL RIVER, INC.
Joel A. Ronning
Chief Executive Officer
33
INDEX TO
EXHIBITS
|
|
|
|
|
|
23
|
.1++
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
31
|
.1++
|
|
Certification of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
31
|
.2++
|
|
Certification of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32++
|
|
Certification of CEO and CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
(1) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
filed on May 4, 2004. |
|
|
|
(2) |
|
Incorporated by reference from the Companys Current Report
on
Form 8-K
filed on June 1, 2006. |
34