Digital River 2006 Annual Report Download - page 32

provision for income taxes. There can be no assurance that the outcomes from these continuous examinations
will not have an adverse effect on our results of operations and financial condition.
Developments in accounting standards may cause us to increase our recorded expenses, which in turn
would jeopardize our ability to demonstrate sustained profitability.
In January 2002, we adopted Statement of Financial Accounting Standard No. 142, “Goodwill and Other
Intangible Assets” (SFAS No. 142). The statement generally establishes that goodwill and intangible assets
with indefinite lives are not amortized, but are to be tested on an annual basis for impairment and, if impaired,
are recorded as an impairment charge in income from operations. As of December 31, 2006, we had goodwill
with an indefinite life of $243.8 million from our acquisitions. If our goodwill is determined for any reason to
be impaired, the subsequent accounting of the impaired portion as an expense would lower our earnings and
jeopardize our ability to demonstrate sustained profitability. On January 1, 2006, we adopted SFAS 123(R)
which requires the measurement and recognition of compensation expense for all stock-based compensation
based on estimated fair values. Our operating results for 2006 contain, and our operating results for future
periods will contain, a charge for stock-based compensation related to stock options, restricted stock grants
and employee stock purchases. As a result of our adoption of SFAS 123(R), our earnings for 2006 were lower
than they would have been had we not been required to adopt SFAS 123(R). This will continue to be the case
for future periods.
Compliance with changing regulation of corporate governance and public disclosure may result in addi-
tional expenses.
Keeping abreast of, and in compliance with, changing laws, regulations and standards relating to
corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations
and the NASDAQ Stock Market rules, have required an increased amount of management attention and
external resources. We intend to invest all reasonably necessary resources to comply with evolving corporate
governance and public disclosure standards, and this investment may result in increased general and
administrative expenses and a diversion of management time and attention from revenue generating activities
to compliance activities.
Internet-related stock prices are especially volatile and this volatility may depress our stock price or cause
it to fluctuate significantly.
The stock market and the trading prices of Internet-related companies in particular, have been notably
volatile. This volatility is likely to continue in the short-term and is not necessarily related to the operating
performance of affected companies. This broad market and industry volatility could significantly reduce the
price of our common stock at any time, without regard to our operating performance. Factors that could cause
our stock price in particular to fluctuate include, but are not limited to:
• Actual or anticipated variations in quarterly operating results;
• Announcements of technological innovations;
• The ability to sign new clients and the retention of existing clients;
• New products or services that we offer;
• Competitive developments, including new products or services, or new relationships by our competitors;
• Changes that affect our clients or the viability of their product lines;
• Changes in financial estimates by securities analysts;
• Conditions or trends in the Internet and online commerce industries;
• Global unrest and terrorist activities;
• Changes in the economic performance and/or market valuations of other Internet or online e-commerce
companies;
• Required changes in generally accepted accounting principles and disclosures;
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