##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM            TO
 Commission file number 000-24643
 DIGITAL RIVER, INC.
  DELAWARE
    
    41-1901640(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 9625 WEST 76TH STREET
EDEN PRAIRIE, MINNESOTA 55344
 (952) 253-1234
 
 þ o
 o o
  Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



PART I.
    
    FINANCIAL INFORMATION
    
    
    3Item 1.
    
    Financial Statements
    
    
    3Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008
    
    
    3Condensed Consolidated Statements of Income for the three and six months ended June 30, 2009 and 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended
 June 30, 2009 and 2008
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15Item 3.
    
    Qualitative and Quantitative Disclosure about Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    24PART II.
    
    OTHER INFORMATION
    
    
    25Item 1.
    
    Legal Proceedings
    
    
    25Item 1A.
    
    Risk Factors
    
    
    26Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    26Item 6.
    
    Exhibits
    
    
    27SIGNATURES
    
    
    28EXHIBIT INDEX
    
    
    29EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 DIGITAL RIVER, INC.
 (Unaudited)June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCURRENT ASSETS:Cash and cash equivalents
    
    $
    350,389
    
    
    $
    490,335Short-term investments
    
    
    
    
    
    
    10,000Accounts receivable, net of allowance of $2,582 and $2,457
    
    
    48,343
    
    
    
    53,216Deferred income taxes
    
    
    7,613
    
    
    
    7,613Prepaid expenses and other
    
    
    33,019
    
    
    
    42,522Total current assets
    
    
    439,364
    
    
    
    603,686Property and equipment, net
    
    
    52,620
    
    
    
    41,733Goodwill
    
    
    271,719
    
    
    
    273,788Intangible assets, net of accumulated amortization of $70,269 and $66,346
    
    
    28,324
    
    
    
    32,222Long-term investments
    
    
    94,637
    
    
    
    93,213Deferred income taxes
    
    
    23,643
    
    
    
    24,824Other assets
    
    
    2,461
    
    
    
    786TOTAL ASSETS
    
    $
    912,768
    
    
    $
    1,070,252LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Convertible senior notes
    
    $
    
    
    
    $
    186,195Accounts payable
    
    
    185,518
    
    
    
    184,361Accrued payroll
    
    
    12,325
    
    
    
    14,841Deferred revenue
    
    
    15,962
    
    
    
    13,651Accrued acquisition costs
    
    
    73
    
    
    
    3,278Other accrued liabilities
    
    
    27,477
    
    
    
    41,336Total current liabilities
    
    
    241,355
    
    
    
    443,662NON-CURRENT LIABILITIES:Convertible senior notes
    
    
    8,805
    
    
    
    8,805Other liabilities
    
    
    15,871
    
    
    
    15,712Total non-current liabilities
    
    
    24,676
    
    
    
    24,517TOTAL LIABILITIES
    
    
    266,031
    
    
    
    468,179COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITY:Preferred Stock, $.01 par value; 5,000,000 shares authorized; no
shares issued or outstanding
    
    
    
    
    
    
    Common Stock, $.01 par value; 120,000,000 shares authorized;
44,805,145 and 43,225,401 shares issued
    
    
    448
    
    
    
    432Treasury stock at cost; 6,231,217 and 6,211,477 shares
    
    
    (216,674
    )
    
    
    (216,163
    )Additional paid-in capital
    
    
    635,132
    
    
    
    623,778Retained earnings
    
    
    217,456
    
    
    
    189,096Accumulated other comprehensive income
    
    
    10,375
    
    
    
    4,930Total stockholders equity
    
    
    646,737
    
    
    
    602,073TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    912,768
    
    
    $
    1,070,252
  3




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##### Table of Contents



DIGITAL RIVER, INC.
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenue
    
    $
    96,564
    
    
    $
    98,374
    
    
    $
    199,495
    
    
    $
    202,008Costs and expensesDirect cost of services
    
    
    3,951
    
    
    
    4,469
    
    
    
    7,893
    
    
    
    8,644Network and infrastructure
    
    
    10,963
    
    
    
    10,396
    
    
    
    21,276
    
    
    
    20,584Sales and marketing
    
    
    39,189
    
    
    
    39,247
    
    
    
    77,636
    
    
    
    78,977Product research and development
    
    
    13,136
    
    
    
    13,074
    
    
    
    25,471
    
    
    
    25,744General and administrative
    
    
    9,832
    
    
    
    10,834
    
    
    
    18,961
    
    
    
    21,078Depreciation and amortization
    
    
    4,629
    
    
    
    3,957
    
    
    
    8,473
    
    
    
    7,791Amortization of acquisition-related intangibles
    
    
    1,916
    
    
    
    2,170
    
    
    
    3,919
    
    
    
    4,346Total costs and expenses
    
    
    83,616
    
    
    
    84,147
    
    
    
    163,629
    
    
    
    167,164Income from operations
    
    
    12,948
    
    
    
    14,227
    
    
    
    35,866
    
    
    
    34,844Interest Income
    
    
    762
    
    
    
    4,298
    
    
    
    1,951
    
    
    
    10,544Other income (expense), net
    
    
    1,075
    
    
    
    (1,653
    )
    
    
    (273
    )
    
    
    (2,402
    )Income before income tax expense
    
    
    14,785
    
    
    
    16,872
    
    
    
    37,544
    
    
    
    42,986Income tax expense
    
    
    3,016
    
    
    
    3,653
    
    
    
    9,184
    
    
    
    11,484Net income
    
    $
    11,769
    
    
    $
    13,219
    
    
    $
    28,360
    
    
    $
    31,502Net income per share  basic
    
    $
    0.32
    
    
    $
    0.36
    
    
    $
    0.77
    
    
    $
    0.84Net income per share  diluted
    
    $
    0.31
    
    
    $
    0.33
    
    
    $
    0.76
    
    
    $
    0.76Shares used in per-share calculation  basic
    
    
    36,856
    
    
    
    36,594
    
    
    
    36,794
    
    
    
    37,562Shares used in per-share calculation  diluted
    
    
    37,781
    
    
    
    41,647
    
    
    
    37,361
    
    
    
    42,556
  4




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##### Table of Contents



DIGITAL RIVER, INC.
 Six Months EndedJune 30,2009
    
    
    2008OPERATING ACTIVITIESNet income
    
    $
    28,360
    
    
    $
    31,502Adjustments to reconcile net income to net cash provided by
operating activitiesAmortization of acquisition-related intangibles
    
    
    3,919
    
    
    
    4,346Change in accounts receivable allowance, net of acquisitions
    
    
    96
    
    
    
    603Depreciation and amortization
    
    
    8,473
    
    
    
    7,791Stock-based compensation expense related to stock-based
compensation plans
    
    
    8,598
    
    
    
    6,538Excess tax benefits from stock-based compensation
    
    
    (144
    )
    
    
    (1,001
    )Deferred and other income taxes
    
    
    2,184
    
    
    
    5,934Change in operating assets and liabilities (net of acquisitions)Accounts receivable
    
    
    4,497
    
    
    
    12,495Prepaid and other assets
    
    
    2,906
    
    
    
    (6,876
    )Accounts payable
    
    
    1,301
    
    
    
    (12,582
    )Deferred revenue
    
    
    2,299
    
    
    
    1,867Income tax payable
    
    
    (1,567
    )
    
    
    (10,548
    )Other accrued liabilities
    
    
    (14,406
    )
    
    
    (50
    )Net cash provided by operating activities
    
    
    46,516
    
    
    
    40,019INVESTING ACTIVITIESPurchases of investments
    
    
    (3,153
    )
    
    
    (227,625
    )Sales of investments
    
    
    17,100
    
    
    
    232,650Cash paid for acquisitions, net of cash received
    
    
    (3,187
    )
    
    
    (17,352
    )Purchases of equipment and capitalized software
    
    
    (19,396
    )
    
    
    (9,532
    )Net cash used in investing activities
    
    
    (8,636
    )
    
    
    (21,859
    )FINANCING ACTIVITIESCash paid for convertible senior notes
    
    
    (186,660
    )
    
    
    Exercise of stock options
    
    
    7,432
    
    
    
    4,439Sales of common stock under employee stock purchase plan
    
    
    1,336
    
    
    
    1,446Repurchase of common stock
    
    
    
    
    
    
    (137,858
    )Repurchase of restricted stock to satisfy tax withholding obligation
    
    
    (511
    )
    
    
    (379
    )Excess tax benefits from stock-based compensation
    
    
    144
    
    
    
    1,001Net cash used in financing activities
    
    
    (178,259
    )
    
    
    (131,351
    )EFFECT OF EXCHANGE RATE CHANGES ON CASH
    
    
    433
    
    
    
    8,330NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (139,946
    )
    
    
    (104,861
    )CASH AND CASH EQUIVALENTS, beginning of period
    
    
    490,335
    
    
    
    381,788CASH AND CASH EQUIVALENTS, end of period
    
    $
    350,389
    
    
    $
    276,927SUPPLEMENTAL DISCLOSURES:Cash paid for interest on convertible senior notes
    
    $
    55
    
    
    $
    1,219Cash paid for income taxes
    
    $
    8,482
    
    
    $
    15,259
  5




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##### Table of Contents



DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
  Summary of Significant Accounting Policies
  Software Development
  Comprehensive Income
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net Income
    
    $
    11,769
    
    
    $
    13,219
    
    
    $
    28,360
    
    
    $
    31,502Other comprehensive income:Unrealized foreign exchange
(loss)/gain on the
revaluation of investments in
foreign subsidiaries
    
    
    15,410
    
    
    
    (761
    )
    
    
    74
    
    
    
    14,472Reduction in temporary
impairment of auction rate
securities
    
    
    2,769
    
    
    
    
    
    
    
    8,523
    
    
    
    Unrealized loss on investments
    
    
    
    
    
    
    (1,518
    )
    
    
    (7
    )
    
    
    (206
    )Tax expense
    
    
    (1,030
    )
    
    
    
    
    
    
    (3,145
    )
    
    
    Other comprehensive income
    
    
    17,149
    
    
    
    (2,279
    )
    
    
    5,445
    
    
    
    14,266Comprehensive income
    
    $
    28,918
    
    
    $
    10,940
    
    
    $
    33,805
    
    
    $
    45,768
 Foreign Currency
 Disclosures about
Derivative Instruments and Hedging Activities, an amendment of FAS 133 Accounting for Derivative Instruments
 6




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DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 and Hedging Activities
   Recent Accounting Pronouncements
  Recognition and Presentation of Other-than-temporary
impairments
    7




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DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
  The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting The FASB Accounting Standards Codification.
 2. NET INCOME PER SHARE
   8




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DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Earnings per share  basicNet income  basic
    
    $
    11,769
    
    
    $
    13,219
    
    
    $
    28,360
    
    
    $
    31,502Weighted average shares outstanding  basic
    
    
    36,856
    
    
    
    36,594
    
    
    
    36,794
    
    
    
    37,562Earnings per share  basic
    
    $
    0.32
    
    
    $
    0.36
    
    
    $
    0.77
    
    
    $
    0.84Earnings per share  dilutedNet income  basic
    
    $
    11,769
    
    
    $
    13,219
    
    
    $
    28,360
    
    
    $
    31,502Exclude: Interest expense and amortized financing cost of
convertible senior notes, net of tax benefit
    
    
    21
    
    
    
    435
    
    
    
    42
    
    
    
    869Net income  diluted
    
    $
    11,790
    
    
    $
    13,654
    
    
    $
    28,402
    
    
    $
    32,371Weighted average shares outstanding  basic
    
    
    36,856
    
    
    
    36,594
    
    
    
    36,794
    
    
    
    37,562Dilutive impact of non-vested stock and options outstanding
    
    
    725
    
    
    
    628
    
    
    
    367
    
    
    
    569Dilutive impact of convertible senior notes
    
    
    200
    
    
    
    4,425
    
    
    
    200
    
    
    
    4,425Weighted average shares outstanding  diluted
    
    
    37,781
    
    
    
    41,647
    
    
    
    37,361
    
    
    
    42,556Net income per share  diluted
    
    $
    0.31
    
    
    $
    0.33
    
    
    $
    0.76
    
    
    $
    0.76
   3. INVESTMENTS
  Unrealized Gain/(Loss)
    
    
    
    
    
    
    Maturities/Reset DatesLess than 12
    
    
    Greater than 12
    
    
    
    
    
    
    Less than 12
    
    
    Greater than 12Balance, June 30, 2009
    
    Cost
    
    
    Months
    
    
    Months
    
    
    Fair Value
    
    
    Months
    
    
    MonthsStudent loan bonds (1)
    
    $
    102,400
    
    
        $
    (7,763
    )
    
    $
    
    
    
    $
    94,637
    
    
    $
    
    
    
    $
    94,637Total available-for-sale securities
    
    $
    102,400
    
    
    $
    (7,763
    )
    
    $
    
    
    
    $
    94,637
    
    
    $
    
    
    
    $
    94,637Balance, December 31, 2008U.S. government sponsored entities
    
    $
    9,900
    
    
    $
    100
    
    
    $
    
    
    
    $
    10,000
    
    
    $
    10,000
    
    
    $
    Student loan
bonds (1)
    
    
    109,500
    
    
    
    (16,287
    )
    
    
    
    
    
    
    93,213
    
    
    
    
    
    
    
    93,213Total available-for-sale securities
    
    $
    119,400
    
    
    $
    (16,187
    )
    
    $
    
    
    
    $
    103,213
    
    
    $
    10,000
    
    
    $
    93,213
 
 (1)
    
    Impairment identified in
December 2008 balance sheet. See
Note 8. Fair Value Measurements
for further information.  4. BUSINESS COMBINATIONS, GOODWILL AND INTANGIBLE ASSETS
 Business Combinations
  9




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DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Acquisitions completed in 2008
    Future Earn-outs
  5. STOCK-BASED COMPENSATION
 Expense Information under SFAS 123(R)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Costs and expensesDirect cost of services
    
    $
    172
    
    
    $
    247
    
    
    $
    341
    
    
    $
    439Network and infrastructure
    
    
    207
    
    
    
    31
    
    
    
    320
    
    
    
    63Sales and marketing
    
    
    1,643
    
    
    
    1,283
    
    
    
    3,160
    
    
    
    2,385Product research and development
    
    
    622
    
    
    
    336
    
    
    
    1,078
    
    
    
    598General and administrative
    
    
    2,243
    
    
    
    1,610
    
    
    
    3,699
    
    
    
    3,053Stock-based compensation included
in costs and expenses
    
    $
    4,887
    
    
    $
    3,507
    
    
    $
    8,598
    
    
    $
    6,538
 6. INCOME TAXES
  10




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DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        7. DEBT
    11




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DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   8. FAIR VALUE MEASUREMENTS
 Fair Value Measurements Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly Note 1 Basis of Presentation
  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.
     
    
    determination of the penalty coupon rate, frequency of reset period associated with each
ARS
    
    an average redemption period of seven years
    
    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
  12




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DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Fair Value MeasurementsAs of June 30, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Cash equivalents
    
    $
    350,389
    
    
    $
    350,389
    
    
    $
    
    
    
    $
    Short-term investments
    
    
    
    
    
    
    
    
    
    
    Long-term investments
    
    
    94,637
    
    
    
    
    
    
    
    
    
    
    
    94,637Total assets measured at
fair value
    
    $
    445,026
    
    
    $
    350,389
    
    
    $
    
    
    
    $
    94,637
   Fair Value Measurements UsingSignificant Unobservable Inputs(Level 3)Short-term
    
    
    Long-termInvestments
    
    
    Investments
    
    
    TotalBalance as of December 31, 2007
    
    $
    119,750
    
    
    $
    
    
    
    $
    119,750Total 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
    
    
    
    93,213Total gains or losses
(realized/unrealized)Included in other comprehensive
income
    
    
    
    
    
    
    7,468
    
    
    
    7,468Purchases, issuances, and settlements
    
    
    
    
    
    
    1,056
    
    
    
    1,056Transfers in and/or out of Level 3
    
    
    
    
    
    
    (7,100
    )
    
    
    (7,100
    )Balance as of June 30, 2009
    
    $
    
    
    
    $
    94,637
    
    
    $
    94,637
 Fair Value of Financial Instruments
   9. LITIGATION
  13




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DIGITAL RIVER, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  10. SUBSEQUENT EVENTS
  14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The discussion in this Quarterly Report contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those discussed below. Additional
factors that could cause or contribute to such differences include, but are not limited to, those
identified below, and those discussed in the section entitled Risk Factors, included in Item 1A
of Part II of this Quarterly Report. When used in this document, the words believes, expects,
anticipates, intends, plans, and similar expressions, are intended to identify certain of
these forward-looking statements. However, these words are not the exclusive means of identifying
such statements. In addition, any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking statements. The cautionary
statements made in this document should be read as being applicable to all related forward-looking
statements wherever they appear in this document.
 Overview
     th
  Results of Operations
 15




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##### Table of Contents



Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2009
    
    2008
    
    2009
    
    2008Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of Revenue (exclusive of depreciation
and amortization expense shown separately
below):Direct cost of services
    
    
    4.1
    
    
    
    4.5
    
    
    
    3.9
    
    
    
    4.3Network and infrastructure
    
    
    11.3
    
    
    
    10.6
    
    
    
    10.7
    
    
    
    10.2Sales and marketing
    
    
    40.6
    
    
    
    39.9
    
    
    
    38.9
    
    
    
    39.1Product research and development
    
    
    13.6
    
    
    
    13.3
    
    
    
    12.8
    
    
    
    12.7General and administrative
    
    
    10.2
    
    
    
    11.0
    
    
    
    9.5
    
    
    
    10.4Depreciation and amortization
    
    
    4.8
    
    
    
    4.0
    
    
    
    4.2
    
    
    
    3.9Amortization of acquisition-related costs
    
    
    2.0
    
    
    
    2.2
    
    
    
    2.0
    
    
    
    2.2Total costs and expenses
    
    
    86.6
    
    
    
    85.5
    
    
    
    82.0
    
    
    
    82.8Income from operations
    
    
    13.4
    
    
    
    14.5
    
    
    
    18.0
    
    
    
    17.2Interest Income
    
    
    0.8
    
    
    
    4.3
    
    
    
    0.9
    
    
    
    5.3Other income (expense), net
    
    
    1.1
    
    
    
    (1.7
    )
    
    
    (0.1
    )
    
    
    (1.2
    )Income before income tax expense
    
    
    15.3
    
    
    
    17.1
    
    
    
    18.8
    
    
    
    21.3Income tax expense
    
    
    3.1
    
    
    
    3.7
    
    
    
    4.6
    
    
    
    5.7Net income
    
    
    12.2
    %
    
    
    13.4
    %
    
    
    14.2
    %
    
    
    15.6
    %
  REVENUE.
  DIRECT COST OF SERVICES.
   NETWORK AND INFRASTRUCTURE.
 16




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##### Table of Contents



SALES AND MARKETING.
   PRODUCT RESEARCH AND DEVELOPMENT.
  17




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##### Table of Contents



GENERAL AND ADMINISTRATIVE.
   DEPRECIATION AND AMORTIZATION.
  AMORTIZATION OF ACQUISITION-RELATED INTANGIBLES.
  INTEREST INCOME.
 OTHER INCOME (EXPENSE), NET.
 18




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##### Table of Contents



INCOME TAXES.
  Off Balance Sheet Arrangements
  19




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##### Table of Contents



Liquidity and Capital Resources
       
    
    determination of the penalty coupon rate, frequency of reset period associated with each
ARS
    
    an average redemption period of seven years
    
    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
 Note 8 Fair Value Measurements
 Application of Critical Accounting Policies
 Critical Accounting Estimates and Policies
 20




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##### Table of Contents



Recent Accounting Pronouncements
  Recognition and Presentation of Other-than-temporary
impairments
    Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
  21




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##### Table of Contents



The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting The FASB Accounting Standards Codification.
 
 Item 3. Qualitative and Quantitative Disclosure about Market Risk
 Interest Rate Risk
   Foreign Currency Risk
   Transaction Exposure
  Translation Exposure
  Other Market Risks
 Investments in auction-rate securities
 22




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##### Table of Contents



23




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##### Table of Contents



Item 4. Controls and Procedures
 Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Limitations on the Effectiveness of Controls
  24




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
    25




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 None
 
 Item 4. Submission of Matters to a Vote of Security Holders.
    Number of SharesFor
    
    WithheldDouglas M. Steenland
    
    
    31,946,745
    
    
    
    313,913
  For
    
    
    18,058,628Against
    
    
    11,383,156Abstain
    
    
    106,477
  For
    
    
    32,021,787Against
    
    
    227,339Abstain
    
    
    11,536
 26




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##### Table of Contents



Item 6. Exhibits
  EXHIBITNUMBER
    
    DESCRIPTION OF DOCUMENTS3.1
    
    
    (1
    )
    
    Amended and Restated Certificate of Incorporation, as amended, as currently in effect.3.2
    
    
    (2
    )
    
    Amended and Restated Bylaws, as currently in effect.4.1
    
    
    (3
    )
    
    Specimen of Common Stock Certificate.4.2
    
    
    (4
    )
    
    Form of Senior Debt Indenture.4.3
    
    
    (4
    )
    
    Form of Subordinated Debt Indenture.4.4
    
    
    
    
    
    References are made to Exhibits 3.1 and 3.2.4.5
    
    
    (5
    )
    
    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.31.1
    
    
    
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Filed as an exhibit to the Companys Current Report on Form 8-K, filed
on June 1, 2006, and incorporated herein by reference.(2)
    
    Filed as an exhibit to our Annual Report on Form 10-K for the year
ended December 31, 2000, filed on March 27, 2001, and incorporated
herein by reference.(3)
    
    Filed as an exhibit to our Registration Statement on Form S-1, File
No. 333-56787, declared effective on August 11, 1998, and incorporated
herein by reference.(4)
    
    Filed as exhibits 4.2 and 4.3 to our Registration Statement on Form
S-3, File No. 333-56787, declared effective on February 12, 2002, and
incorporated herein by reference.(5)
    
    Filed as exhibit 99.1 to our Current Report on Form 8-K, filed on July
13, 2004 and incorporated herein by reference. 27




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##### Table of Contents



Date:      August 4, 2009
    DIGITAL RIVER, INC.By:
    /s/ Thomas M. DonnellyThomas M. DonnellyChief Financial Officer
(Principal Financial and Accounting Officer) 28




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##### Table of Contents



EXHIBITNUMBER
    
    DESCRIPTION OF DOCUMENTS3.1
    
    
    (1
    )
    
    Amended and Restated Certificate of Incorporation, as amended, as currently in effect.3.2
    
    
    (2
    )
    
    Amended and Restated Bylaws, as currently in effect.4.1
    
    
    (3
    )
    
    Specimen of Common Stock Certificate.4.2
    
    
    (4
    )
    
    Form of Senior Debt Indenture.4.3
    
    
    (4
    )
    
    Form of Subordinated Debt Indenture.4.4
    
    
    
    
    
    References are made to Exhibits 3.1 and 3.2.4.5
    
    
    (5
    )
    
    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.31.1
    
    
    
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    
    
    
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    
    
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    
    
    
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 (1)
    
    Filed as an exhibit to the Companys Current Report on Form 8-K, filed
on June 1, 2006, and incorporated herein by reference.(2)
    
    Filed as an exhibit to our Annual Report on Form 10-K for the year
ended December 31, 2000, filed on March 27, 2001, and incorporated
herein by reference.(3)
    
    Filed as an exhibit to our Registration Statement on Form S-1, File
No. 333-56787, declared effective on August 11, 1998, and incorporated
herein by reference.(4)
    
    Filed as exhibits 4.2 and 4.3 to our Registration Statement on Form
S-3, File No. 333-56787, declared effective on February 12, 2002, and
incorporated herein by reference.(5)
    
    Filed as exhibit 99.1 to our Current Report on Form 8-K, filed on July
13, 2004 and incorporated herein by reference. 29