Digital River 2006 Annual Report Download - page 47

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 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. In 2005, comprehensive income included $1.3 million recorded for unrealized
foreign exchange losses on the revaluation of investments in foreign subsidiaries; and $0.8 million net of
$0.5 million tax benefit for unrealized investment losses. In 2004, comprehensive income included $0.1 million
recorded for unrealized foreign exchange losses on the revaluation of investments in foreign subsidiaries, and
$0.3 million for unrealized investment losses. There was no tax benefit for comprehensive income in 2004 as
we had no tax expense.
Quarterly Results of Operations
The following discussion of results of operations that originally appeared in our Forms 10-Q filed for
2006 have been adjusted to reflect the restatement of our quarterly financial results for 2005, which is more
fully described in the “Explanatory Note” immediately preceding Part I Item 1 and in Note 2, “Restatement of
Consolidated Financial Statements” in Notes to Consolidated Financial Statements of this Form 10-K.
Quarterly Period Ended September 30, 2006
The following table sets forth certain items from our condensed consolidated statements of operations as
a percentage of total revenue for the periods indicated.
2006 2005 2006 2005
Three Months Ended
September 30,
Nine Months Ended
September 30,
As Restated(1) As Restated(1)
Revenue ................................. 100.0% 100.0% 100.0% 100.0%
Cost of Revenue (exclusive of depreciation and
amortization expense shown separately below):
Direct cost of services ..................... 2.5 2.0 2.5 2.3
Network and infrastructure ................. 10.3 9.4 9.6 8.9
Sales and marketing ...................... 37.8 31.4 37.0 30.7
Product research and development ............ 11.1 9.9 10.4 9.4
General and administrative ................. 10.7 10.0 10.9 10.2
Depreciation and amortization ............... 3.9 4.3 3.4 4.3
Amortization of acquisition-related costs ....... 4.4 3.9 4.1 4.2
Total costs and expenses ..................... 80.7 70.9 77.9 70.0
Income from operations ..................... 19.3 29.1 22.1 30.0
Other income/(expense), net .................. 7.7 2.8 6.7 2.2
Income before income tax expense ............. 27.0 31.9 28.8 32.2
Income tax expense ........................ 7.4 8.7 9.0 8.0
Net income .............................. 19.6% 23.2% 19.8% 24.2%
(1) See Note 2, “Restatement of Consolidated Financial Statements,” in Notes to Consolidated Financial
Statements.
REVENUE. Our revenue increased to $75.3 million for the three months ended September 30, 2006
from $53.2 million for the same period in the prior year, an increase of $22.2 million, or 41.7%. For the nine
months ended September 30, 2006, revenue totaled $224.6 million, an increase of $65.8 million, or 41.4%,
43