Digital River 2006 Annual Report Download - page 59

Contractual Obligations
At December 31, 2006, our principal commitments consisted of interest and principal on our convertible
senior notes and long-term obligations outstanding under operating leases. Although we have no material
commitments for capital expenditures, we anticipate continued capital expenditures consistent with our
anticipated growth in operations, infrastructure and personnel. We expect that our operating expenses will
continue to grow as our overall business grows and that they will be a material use of our cash resources.
Contractual Obligations
Total Amount
Committed 2007 2008 2009-2010
2011 and
Thereafter
Payment Due by Period
(In thousands)
Operating Lease Obligations .......... $ 14,770 $3,964 $2,893 $2,245 $ 5,668
Convertible Senior Notes ............ $237,657 $2,438 $2,438 $4,875 $227,906
Total . . . ........................ $252,427 $6,402 $5,331 $7,120 $233,574
With respect to our convertible senior notes, we are required to pay interest on the notes on January 1
and July 1 of each year. 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 also may be required to purchase the notes for cash and pay an additional make-whole
premium payable in our common stock, or in the same form of consideration into which all, or substantially,
all of the shares of our common stock have been converted or exchanged in connection with the fundamental
change, upon the repurchase or conversion of the notes in connection with the fundamental change. 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, under certain circumstances, on or after July 1, 2007, and prior
to January 1, 2009, and we may redeem the notes at any time on or after January 1, 2009.
2007 Outlook
We believe the outlook for our business remains positive for 2007. Total online sales continue to increase
globally and buyers appear increasingly comfortable shopping and purchasing online. In our core market,
trends continue to favor the transition from packaged, physical delivery of software products to electronic
download. In addition, our strategic marketing programs have been well received by our clients to date and we
believe we can expand adoption of these services by additional clients as well as add new services. We
anticipate making additional investments to support existing client growth, new client additions, development
of other complementary vertical markets, international expansion and improvements in our technology
platform.
New Accounting Standards
In September 2006, the FASB issued statement No. 157, “Fair Value Measurements”,(SFAS 157).
SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with accounting
principles generally accepted in the United States, and expands disclosures about fair value measurements.
SFAS 157 is effective for fiscal years beginning after November 15, 2007, with earlier application encouraged.
Any amounts recognized upon adoption as a cumulative effect adjustment will be recorded to the opening
balance of retained earnings in the year of adoption. The Company has not yet determined the impact of this
Statement on its financial condition and results of operations.
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