Digital River 2006 Annual Report Download - page 92

Download and view the complete annual report

Please find page 92 of the 2006 Digital River annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 114

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

payments of cash or our common stock, at our discretion, based on BlueHornet’s operating performance over
the first 36 months following the closing of the acquisition. Earn-outs totaling $1.7 million have been recorded
as goodwill as of December 31, 2006, as they were considered part of the purchase price.
As of December 31, 2006, there was an estimated maximum potential for future earn-outs of approx-
imately $1.1 million in excess of the $4.9 million in earn-outs included in accrued acquisition liabilities. Any
of the estimated maximum potential future earn-out beyond the $4.9 million accrued 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 2006, 2005 and
2004 have been prepared as if each of the acquisitions in 2006 had occurred on January 1, 2005, and as if
each of the 2005 acquisitions had occurred on January 1, 2004 (in thousands except per share data):
2006 2005 2004
As Restated(1) As Restated(1)
Revenue ..................................... $311,090 $242,488 $178,814
Income from operations ......................... 67,213 63,606 24,832
Net income................................... 60,208 53,954 25,594
Diluted income per share ........................ $ 1.39 $ 1.32 $ 0.69
(1) See Note 2, “Restatement of Consolidated Financial Statements,” in Notes to Consolidated Financial
Statements.
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, 2005 or 2004, as applicable, or any future results
that may be realized.
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, 2006, 2005 and 2004.
88
DIGITAL RIVER, INC.
Notes to Consolidated Financial Statements — (Continued)