##### Table of Contents





UNITED
    STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.For the fiscal year ended
    December 31,
    2009.ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934.   Commission File Number:
    000-24643
  DIGITAL RIVER, INC.
 (Exact name of registrant as
    specified in its charter)
  DELAWARE


41-1901640(State or other jurisdiction
    of
    Incorporation or organization)


(I.R.S. Employer
    Identification No.
)  9625 WEST 76TH STREET
 EDEN PRAIRIE, MINNESOTA 55344
 (Address of principal executive
    offices)
  (952) 253-1234 (Registrants
    telephone number, including area code)
  Securities
    registered pursuant to Section 12(b) of the Act: Name of
    each Exchange on which registered:
    Common Stock $0.01 par value Nasdaq Global Select
    Market
  Securities
    registered pursuant to Section 12(g) of the Act:
    None
  þ o
  o þ
  þ o
  Regulation S-T o o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large accelerated
    filer þ

Accelerated
    file o

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ




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##### Table of Contents



DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




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##### 





TABLE OF
    CONTENTS
  PART IItem 1.


Business


3Item 1A.


Risk Factors


13Item 1B.


Unresolved Staff Comments


27Item 2.


Properties


27Item 3.


Legal Proceedings


27PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters, and Issuer Purchases of Equity
    Securities


29Item 6.


Selected Financial Data


31Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


32Item 7A.


Qualitative and Quantitative Disclosures about
    Market Risk


43Item 8.


Financial Statements and Supplementary Data


45Item 9.


Changes In and Disagreements With Accountants on
    Accounting and Financial Disclosure


45Item 9A.


Controls and Procedures


46Item 9B.


Other Information


48PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


49Item 11.


Executive Compensation


49Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


49Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


50Item 14.


Principal Accountant Fees and Services


50PART IVItem 15.


Exhibits and Financial Statement Schedules


51EX-10.25EX-10.26EX-10.27EX-10.28EX-10.29EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32   2




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CAUTIONARY
    STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM
    ACT OF 1995
  This Annual Report on
    Form 10-K
    contains certain forward-looking statements within the meaning
    of Section 27A of the Securities Act of 1933, as amended,
    and Section 21E of the Securities Exchange Act of 1934, as
    amended. All statements, other than statements of historical
    fact, regarding our strategy, future operations, financial
    position, estimated revenue, projected costs, projected savings,
    prospects, plans, opportunities and objectives constitute
    forward-looking statements. The words
    may, will, expect,
    plan, anticipate, believe,
    estimate, potential, or
    continue and similar types of expressions identify
    forward-looking statements, although not all such statements
    contain these identifying words. These forward-looking
    statements are based upon information that is currently
    available to us
    and/or
    managements current expectations, speak only as of the
    date hereof, and are subject to risks and uncertainties. We
    expressly disclaim any obligation, except as required by law, or
    undertaking to update or revise any forward-looking statements
    contained or incorporated by reference herein to reflect any
    change or expectations with regard thereto or to reflect any
    change in events, conditions, or circumstances on which any such
    forward-looking statement is based, in whole or in part. Our
    actual results may differ materially from the results discussed
    in or implied by such forward-looking statements. We are subject
    to a number of risks, some of which may be similar to those of
    other companies of similar size in our industry, including
    pre-tax losses, rapid technological changes, competition,
    limited number of suppliers, customer concentration, failure to
    successfully integrate acquisitions, adverse government
    regulations, failure to manage international activities, and
    loss of key individuals. Risks that may affect our operating
    results include, but are not limited to, those discussed in
    Part I Item 1A, titled Risk Factors.
    Readers should carefully review the risk factors described in
    this document and in other documents that we file from time to
    time with the Securities and Exchange Commission.
 PART I  ITEM 1.
    BUSINESS.  Overview
  end-to-end e-commerce e-mail
  e-commerce and/or e-commerce e-commerce e-commerce
   3




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e-mail
    e-commerce e-commerce e-commerce e-commerce e-commerce
  e-commerce
  952-253-1234.
  Form 10-K, Form 10-Q Form 8-K,
  Industry
    Background
  Growth of the Internet and
    E-Commerce. E-Commerce e-commerce e-commerce:
  Growing Interest in Direct Sales of Products to
    Consumers.
  Opportunities for Outsourced
    E-Commerce. e-commerce e-commerce
 4




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e-commerce
  e-commerce
  Shift from Physical to Electronic Delivery of
    Software. e-books,
  The
    Digital River Solution
  e-commerce e-commerce e-commerce e-commerce
  Benefits
    to Clients
  Reduced
    Total Cost of Ownership and Risk
  e-commerce e-commerce e-commerce e-commerce, e-commerce
  Revenue
    Growth
   5




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non-U.S.-based
  tm
  Deployment
    Speed
  e-commerce e-commerce
  Focus on
    Core Competency
  e-commerce e-commerce e-commerce
  Benefits
    to Buyers
  e-commerce
  Strategy
  e-commerce
  Attract New Clients and Expand Relationships with Existing
    Clients.
 6




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e-commerce e-commerce
  Expand International Sales.
  Provide Clients with Strategic Marketing
    Services. e-mail return-on-investment and/or
  Maintain Technology Leadership. e-commerce return-on-investment
  Continue to Seek Strategic
    Acquisitions.
  Services
    Store Design, Development and Hosting. e-commerce
 7




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e-mail e-mail
  e-commerce back-up
  Store Merchandising.
  Order Management and Fraud Screening. e-commerce
  and/or
  Digital and Physical Fulfillment Services.
  e-commerce
   8




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Customer Service. e-mail
  Advanced Reporting and Analytics.
  Strategic Marketing Services. e-mail e-commerce
  Payment Services. e-payments.
  Clients
  e-commerce
  Sales and
    Marketing
  return-on-investment
  e-marketing
 9




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##### Table of Contents



e-mail e-mail
  e-commerce
  Technology
  e-commerce e-commerce e-commerce
  Architecture. e-commerce
    E-Commerce
    System Maintenance. e-commerce e-commerce e-commerce e-commerce e-commerce
  Security.
 10




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e-commerce
  Data Center Operations.
    e-commerce
  Product
    Research and Development
    e-commerce, e-commerce
  Competition
  e-commerce e-commerce e-commerce
  
    In-house development of
    e-commerce
    capabilities using tools or applications from companies, such as
    Art Technology Group, Inc. and IBM Corporation;
    E-Commerce
    capabilities custom-developed by companies, such as IBM Global
    Services and Accenture, Inc.;
    Other providers of outsourced
    e-commerce
    solutions, such as GSI Commerce, Inc., asknet Inc. and Arvato, a
    division of Bertelsmann AG;
    Companies that provide technologies, services or products that
    support a portion of the
    e-commerce
    process, such as payment processing, including CyberSource
    Corporation and PayPal Corp.;
    Companies that offer various online marketing services,
    technologies and products, including ValueClick, Inc. and
    aQuantive, Inc.; 11




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
    High-traffic, branded websites that generate a substantial
    portion of their revenue from
    e-commerce
    and may offer or provide to others the means to offer their
    products for sale, such as Amazon.com, Inc. and Buy.com,
    Inc.; and
    Web hosting, web services and infrastructure companies that
    offer portions of our solution and are seeking to expand the
    range of their offering, such as Network Solutions, LLC, Akamai
    Technologies, Inc., Yahoo!, Inc., eBay, Inc. and Hostopia.com,
    Inc.    Intellectual
    Property
    Government
    Regulation
       12




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Employees
    Executive
    Officers
    Name

Age

PositionJoel A. Ronning


53


Chief Executive OfficerThomas M. Donnelly


45


Chief Financial OfficerKevin L. Crudden


54


VP/General Counsel   Mr. Ronning
  Mr. Donnelly
  Mr. Crudden
  ITEM 1A.
    RISK
    FACTORS  The risks described below are not the only ones facing our
    company. Additional risks not presently known to us or that we
    currently deem immaterial also may impair our business
    operations. Our business, financial condition or results of
    operations could be materially adversely affected by any of
    these risks and the value of our common stock could decline due
    to any of these risks, and you could lose all or part of the
    money you paid to buy our common stock. The following discussion
    of our risk factors should be read in conjunction with the
    consolidated financial statements and related notes thereto, and
    managements discussion and analysis, contained in this
    report. These risks are current as of the date of this
    Form 10-K,
    and will be updated in subsequent
    Form 10-Qs
    to the extent required by law. Our business is also subject to
    general risks and uncertainties that affect many other
    companies.
  This annual report also contains forward-looking statements
    that involve risks and uncertainties. Our actual results could
    differ materially from those anticipated in these
    forward-looking statements as a result of certain factors,
    including the risks faced by us described below and elsewhere in
    this report.
  Company
    Risk Factors
  We may
    experience significant fluctuations in our revenues, operating
    results, growth rate and stock price.
  quarter-to-quarter year-to-year
 13




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
    Client Development and Retention.We generate
    revenue by providing services to a wide variety of companies,
    primarily in the software and high-tech products markets.
    Therefore, it is important to our ongoing success that we
    maintain our key client relationships and, at the same time,
    both develop new client relationships and increase the number
    and type of products offered through our services. If we cannot
    develop and maintain satisfactory relationships with software
    and digital products publishers, manufacturers of consumer
    electronics and other goods, online retailers and online channel
    partners on acceptable commercial terms, or if clients elect to
    end their relationships with us and we are unable to generate
    sufficient additional revenue to compensate for the loss of
    those relationships, we will likely experience a decline in
    revenue and operating profit. New product verticals or market
    segments, and further penetration of existing product verticals
    and market segments, may require us to work with companies which
    have a limited operating history or greater risks than more
    established companies. This may result in the offering of
    products which are subject to higher chargeback rates or legal
    exposure and may generally expose us to greater legal
    and/or
    business risk. We may not be able to fully anticipate or
    mitigate all such risks. In the event claims are brought against
    us in connection with products offered by clients, especially
    clients with a limited operating history, weak sales, or who are
    or may become insolvent or bankrupt, we may not be successful in
    seeking indemnification for such claims from such clients and
    may be ultimately responsible for such claims.
    We also depend on our clients to create and support products
    that consumers will purchase. We generally purchase products for
    resale from consignment or from distributors at the time of the
    resale to the consumer, and do not maintain an inventory of
    products available for sale. If we are unable to obtain
    sufficient quantities of products for any reason, or if the
    quality of service provided by these publishers and
    manufacturers falls below a satisfactory level, we could also
    experience a decline in revenue, operating profit and consumer
    satisfaction, and our reputation could be harmed.
    Our contracts with our clients are generally one to two years in
    duration, with an automatic renewal provision for additional
    one-year periods, unless we are provided with a written notice
    before the end of the contract. We have no material long-term or
    exclusive contracts or arrangements with any clients that
    guarantee the availability of products. Clients that currently
    supply products to us may not continue to do so, and we may be
    unable to establish new relationships with clients to supplement
    or replace existing relationships. Clients may elect to cease
    offering certain products through online commerce, or cease
    allowing us to resell certain of their products. A client who
    believes we have failed to deliver the contractually-required
    services and benefits could terminate their agreements and bring
    claims against us for substantial damages, these claims could
    exceed the level of any insurance coverage that may be available
    to us, and if successful could adversely affect our operating
    results and financial condition. If an existing significant
    customer elects to end their relationship with us or if our
    sales of a significant customers products materially
    decreases, our revenue would decline and it may have a material
    adverse effect on our business, financial condition, results of
    operations, growth rate and stock price.
    In addition, a limited number of our other software and physical
    goods clients contribute a large portion of our annual revenue.
    If any one of these key contracts is not renewed or otherwise
    terminates, or if revenues from these clients decline for any
    other reason (such as competitive developments), our revenue
    would decline and our ability to sustain profitability would be
    impaired. For example, please see the risk factor below
    regarding the termination of Symantecs
    e-commerce
    agreement with us.
    Dependence on Key Personnel and Employee
    Turnover.Our future success significantly
    depends on our ability to continue to identify, attract, hire,
    train, retain and motivate highly skilled personnel, including
    the continued services and performance of our senior management.
    Competition for these personnel is intense, particularly in the
    Internet industry. Our performance also depends on our ability
    to retain and motivate our key technical employees who are
    skilled in maintaining our proprietary technology platforms. The
    loss of the services of any of our executive officers or key
    employees could harm our business if we are unable to
    effectively replace that officer or employee, or if that person
    should decide to join a competitor or otherwise directly or
    indirectly compete with us. Employee 14




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turnover may increase in light of the risks, uncertainties,
    expenses, delays and difficulties associated with operating a
    business in a relatively rapidly changing industry and
    environment. Our announcement of a planned reduction in force in
    connection with the termination of our
    e-commerce
    agreement with Symantec may result in increased employee
    turnover prior to the implementation of that plan by us.
    Further, we may need to incur additional operating expenses and
    divert other management time in order to search for a
    replacement for members of senior management or personnel with
    specialized skills.  
    Organizational Changes.In order to remain
    competitive and to control our costs, we have implemented in the
    past, and may be required to implement in the future,
    organizational changes within our company, such as the
    consolidation of
    e-commerce
    platforms or offices, utilization of subcontractors or
    outsourcing relationships, reorganization of business units, and
    reductions in force. We may incur significant costs in order to
    implement organizational changes to achieve efficiencies in our
    cost structure in the long term. Failure to effectively manage
    our subcontractors and outsourcing relationships may harm our
    business. These organizational changes may impact our ability to
    execute our business plans and could affect our operating
    results.
    Operating Expenses.Our operating expenses are
    based on our expectations of future revenue. These expenses are
    relatively fixed in the short-term. If our revenue for a quarter
    falls below our expectations and we are unable to quickly reduce
    spending in response, our operating results for that quarter
    would be harmed.
    Infrastructure.The introduction by us of new
    websites, web stores or services, new features and
    functionality, and the continued upgrading, development and
    maintenance of our systems and infrastructure to meet emerging
    market needs, leverage technical innovations, and remain
    competitive in our service and product offerings, may require a
    substantial investment of our resources and result in
    significant capital expenditures and operating costs and expose
    us to additional risk and legal liability despite efforts to
    control such risks and liabilities.
    Fluctuations in Demand.Our quarterly and
    annual operating results are subject to fluctuations in demand
    for the products or services offered by us or our clients, such
    as anti-virus software and anti-spyware software and consumer
    electronics. In particular, sales of anti-virus software
    represented a significant portion of our revenues in recent
    years, and continue to be very important to our business. Demand
    for anti-virus software is subject to the unpredictable
    introduction of significant computer viruses. The introduction
    of products and services competitive to those offered by our
    current clients (including anti-virus products and services) may
    materially adversely affect our revenues. In addition, revenue
    generated by our software and digital commerce services is
    likely to fluctuate on a seasonal basis that is typical for the
    markets for our clients products, including the software
    publishing, consumer electronics, and computer and video games
    markets. Softening or weakening of traditionally high-volume
    periods, such as the holiday season, can materially adversely
    affect our revenues and operating results.
    Changes in the
    E-commerce
    Industry.The nature of our business and the
    e-commerce
    industry in which we operate has undergone, and continues to
    undergo, rapid development and change. For example, new
    protocols or technologies and new rules and regulations
    applicable to our business and the
    e-commerce
    industry can be introduced which could affect the ways in which
    e-commerce
    operates and products are sold online. It may be difficult for
    us to predict such developments. Thus, our chances of financial
    and operational success should be evaluated in light of the
    risks, uncertainties, expenses, delays and difficulties
    associated with operating a business in a relatively rapidly
    changing industry and environment. If we are unable to address
    these issues, we may not be financially or operationally
    successful.
    Other Factors.Additional industry risks that
    may affect our revenues, operating results, continued growth and
    our stock price include:  
    Competitive developments, including the introduction of new
    products and services and the announcement of new client and
    strategic relationships by our competitors; 15




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
    Changes that affect our clients or the viability of their
    product lines, and client decisions to delay new product
    launches, invest in
    e-commerce
    initiatives, utilize the services of a competitor, or
    internalize their currently outsourced
    e-commerce
    operations;
    The cost of compliance with U.S. and foreign laws, rules
    and regulations relating to our business, including the
    potential effect of new laws, rules and regulations, or
    interpretations of existing laws, rules and regulations, that
    affect our business operations or otherwise restrict or affect
    online commerce
    and/or the
    Internet as a whole, as well as our compliance with the rules
    and policies of entities whose services are critical for our
    continued operations, such as banks and credit card associations;
    Our announcement of significant acquisitions, strategic
    partnerships, joint ventures or capital commitments or results
    of operations or other developments related to those
    acquisitions, and our ability to successfully integrate and
    manage acquired businesses;
    Required changes in generally accepted accounting principles and
    disclosures;
    Sales or other transactions involving our common stock or our
    convertible notes;
    General macroeconomic conditions, including severe downturns or
    recessions in the United States and elsewhere, global unrest,
    terrorist activities and particularly those economic conditions
    affecting the
    e-commerce
    and retailer industries; and
    Conditions or trends in the Internet and online commerce
    industries in the United States and around the world, including
    slower-than-anticipated
    growth of the online market as a vehicle for the purchase of
    software products, changes in consumer confidence in the safety
    and security of online commerce, and changes in the usage of the
    Internet and
    e-commerce.    Our
    stock price may be volatile.
  quarter-to-quarter
  e-commerce
  and/or and/or
  The
    termination of our
    e-commerce
    agreement with Symantec may materially adversely affect our
    business, financial condition or results of operations and stock
    price.
  tm e-commerce
 16




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e-commerce e-commerce Form 10-K,
  Loss
    of our credit card acceptance privileges, or changes to payment
    networks, fees, rules or practices, would seriously hamper our
    ability to process the sale of merchandise and materially
    adversely affect our business.
  e-commerce
  Security
    breaches could hinder our ability to securely transmit
    confidential information and could materially affect our
    reputation, business operations, operating results and financial
    condition.
     17




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We are
    exposed to foreign currency exchange risk.
    Failure
    to enhance and expand our technology, systems and business
    offerings to accommodate increased traffic and to remain
    competitive could reduce demand for our services and impair the
    growth of our business.
  e-commerce
  If we
    are unable to enter into, achieve desired results from, or
    maintain our marketing and promotional agreements with third
    party marketing or technology providers to generate sales
    traffic and sales for our clients, our ability to generate
    revenue and our business could be adversely
    affected.
  e-commerce
 18




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New
    obligations to collect or pay transaction taxes could
    substantially increase the cost to us of doing
    business.
  e-commerce
  Changes
    in our tax rates could affect our future results.
    Failure
    to properly manage and sustain our expansion efforts could
    strain our management and other resources.
    Our
    international expansion efforts may not be successful in
    generating additional revenue.
    
    Changes in regulatory requirements and tariffs;
    Difficulties in staffing and managing foreign subsidiary
    operations, and the increased costs of international operations; 19




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
    Uncertainty of application of, and the burden and cost of
    complying with, local, commercial, tax, privacy and other laws
    and regulations;
    Reduced protection of intellectual property rights;
    Difficulties in physical distribution and logistics for
    international sales;
    Higher incidences of credit card fraud and difficulties in
    accounts receivable collection;
    Difficulties in transferring funds from certain countries;
    Difficulties in enforcing contracts against international
    clients, especially in emerging markets;
    Lower rates of Internet usage in certain countries, especially
    in emerging markets;
    The possibility of unionization of our workforce outside the
    United States, particularly in Europe;
    Political, social and economic instability and constraints on
    international trade; and
    Import and export license requirements and restrictions of the
    United States and every other country in which we operate.    Implementing
    our acquisition and strategic partnership strategy could result
    in dilution and operating difficulties leading to a decline in
    revenue and operating profit.
     20




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Our
    clients sales cycles and the implementation process for
    our commerce solution are time-consuming, which may cause us to
    incur substantial expenses and expend management time without
    generating corresponding consumer revenue, which would impair
    our cash flow.
    We may
    become liable for fraudulent, improper or illegal uses of our
    platforms and services.
  e-commerce e-commerce
  Compliance
    with and changes to applicable laws, rules, regulations, and
    certification requirements, may substantially increase our costs
    of doing business, limit our activities, or otherwise adversely
    affect our ability to offer our services.
    
    User privacy with respect to adults and minors;
    Our ability to collect
    and/or share
    necessary information that allows us to conduct business on the
    Internet;
    Export compliance;
    Pricing, taxation, and regulatory fees;
    Fraud; 21




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
    Advertising;
    Intellectual property rights;
    Information security;
    Quality of products and services; and
    Recycling of consumer products.      Failure
    to protect our intellectual property may jeopardize our
    competitive position and require us to incur significant
    expenses to enforce our rights.
      Claims
    against us related to infringement of other parties
    intellectual property rights, or the products we resell or
    deliver, could require us to expend significant resources, enter
    into unfavorable licenses, prevent us from using certain
    technology, or require us to change our business
    plans.
   22




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We are
    subject to regulations relating to consumer
    privacy.
    and/or
    System
    failures, outages or errors could reduce the attractiveness of
    our service offerings.
  time-to-time.
 23




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
    Fire, flood, natural disasters, and other events beyond our
    control;
    Operator negligence, improper operation by, or supervision of,
    employees, physical and electronic break-ins, misappropriation,
    computer viruses and similar events; and
    Power loss, computer systems failures,
    denial-of-service
    attacks and Internet and telecommunications failure.    The
    listing of our network addresses on anti-spam lists could harm
    our ability to service our clients and deliver goods over the
    Internet.
    If our
    internal control over financial reporting or disclosure controls
    and procedures are not effective, there may be errors in our
    financial statements that could require a restatement or our
    filings may not be timely and investors may lose confidence in
    our reported financial information, which could lead to a
    decline in our stock price.
  Form 10-K.
   24




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Developments
    in accounting standards may cause us to increase our recorded
    expenses, which in turn would jeopardize our ability to
    demonstrate sustained profitability.
    Provisions
    of our charter documents, other agreements and Delaware law may
    inhibit potential acquisition bids for us.
    Industry
    Risk Factors
  Because
    the
    e-commerce
    industry is highly competitive and has low barriers to entry, we
    may be unable to compete effectively.
  e-commerce e-commerce
  
    In-house development of
    e-commerce
    capabilities using tools or applications from companies, such as
    Art Technology Group, Inc. and IBM Corporation or through
    internally developed solutions (e.g. as announced on
    October 12, 2009, Symantec has elected not to renew its
    e-commerce
    agreement with us and will migrate its online store traffic to
    an internally developed
    e-commerce
    system, which will result in the termination of our
    e-commerce
    agreement with Symantec on June 30, 2010);
    E-Commerce
    capabilities custom-developed by companies, such as IBM Global
    Services and Accenture, Inc.;
    Other providers of outsourced
    e-commerce
    solutions, such as GSI Commerce, Inc., asknet Inc. and Arvato, a
    division of Bertelsmann AG;
    Companies that provide technologies, services or products that
    support a portion of the
    e-commerce
    process, such as payment processing, including CyberSource
    Corporation and PayPal Corp.;
    Companies that offer various online marketing services,
    technologies and products, including ValueClick, Inc. and
    aQuantive, Inc.;
    High-traffic, branded websites that generate a substantial
    portion of their revenue from
    e-commerce
    and may offer or provide to others the means to offer their
    products for sale, such as Amazon.com, Inc. and Buy.com,
    Inc.; and
    Web hosting, web services and infrastructure companies that
    offer portions of our solution and are seeking to expand the
    range of their offering, such as Network Solutions, LLC, Akamai
    Technologies, Inc., Yahoo!, Inc., eBay, Inc. and Hostopia.com,
    Inc.   25




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e-commerce and/or
  The
    global recession, and political and economic conditions, may
    adversely affect our revenue and results of operations and stock
    price.
  and/or
  Securities
    Risk Factors
  We may
    need to raise additional capital to achieve our business
    objectives, which could result in dilution to existing investors
    or increase our debt obligations.
    The investment of our substantial cash balance and our
    investments in marketable debt securities are subject to risks
    which may cause losses and affect the liquidity of these
    investments.
   26




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##### Table of Contents



ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    SquareDescription of Use

Primary Locations

Footage(1)

Lease ExpirationsCorporate Office Facilities

Minnesota


162,500


2011Other U.S. Office Facilities

California, Illinois,


71,567


From 2010 to 2013Nebraska, Oregon,Pennsylvania, UtahNon-U.S.
    Office Facilities

Brazil, China, Germany,


64,672


From 2010 to 2024Ireland, Japan, Korea,Luxembourg, Sweden,Taiwan, United KingdomOff Site U.S. Data Centers

California, Minnesota, Utah


1,668


From 2010 to 2011Off Site non U.S. Data Centers

Germany, Ireland, Sweden


800


From 2010 to 2011     (1)
    
    Includes
    sub-leased
    space.    ITEM 3.
    LEGAL
    PROCEEDINGS  e-commerce e-commerce patents-in-suit,
 27




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##### Table of Contents



time-to-time
 28




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##### Table of Contents



PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES  Price
    Range of Common Stock
  over-the-counter mark-up,
  2008

High


LowFirst Quarter

$
39.48


$
29.17Second Quarter

$
42.62


$
30.68Third Quarter

$
45.45


$
31.36Fourth Quarter

$
34.02


$
16.882009First Quarter

$
31.16


$
19.07Second Quarter

$
41.20


$
29.25Third Quarter

$
41.17


$
32.90Fourth Quarter

$
41.00


$
21.83   Holders
    Dividend
    Policy
    Issuer
    Purchases of Equity Securities
         29




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##### Table of Contents



Securities
    Authorized for Issuance under Equity Compensation
    Plans
    Securities
    Performance Measurement
    Comparison1
  line-of-business
   COMPARISON
    OF 5 YEAR CUMULATIVE TOTAL RETURN*
    Among Digital River, Inc., The NASDAQ Composite Index
    And The RDG Technology Composite Index
  
   *
    
    $100 invested on
    12/31/04 in
    stock or index-including reinvestment of dividends.     1
 30




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##### Table of Contents



ITEM 6.
    SELECTED
    FINANCIAL DATA  Form 10-K
  Form 10-K,
  December 31,2009


2008


2007


2006


2005(In thousands)Balance Sheet Data:Current Assets

$
483,389


$
603,686


$
774,814


$
704,046


$
413,623Current Liabilities


267,113



443,662



245,102



206,159



168,976Working capital


216,276



160,024



529,712



497,887



244,647Total assets


985,642



1,070,252



1,127,744



1,006,263



669,549Long-term obligations


24,310



24,517



206,362



196,345



195,022Total stockholders equity

$
694,219


$
602,073


$
676,280


$
603,759


$
305,551   Year Ended December 31,2009


2008


2007


2006


2005(In thousands, except per share data)Statement of Income Data:Revenue

$
403,766


$
394,226


$
349,275


$
307,632


$
220,408Costs and expenses (exclusive of depreciation and amortization
    expense shown separately below):Direct cost of services


17,625



16,417



10,243



7,709



5,063Network and infrastructure


45,996



41,040



32,309



29,250



19,817Sales and marketing


157,475



150,118



134,401



113,462



69,371Product research and development


54,463



51,184



39,179



32,341



20,690General and administrative


37,707



39,525



38,937



34,158



21,484Depreciation and amortization


19,438



15,980



12,706



10,983



8,833Amortization of acquisition-related intangibles


7,561



8,391



7,586



12,134



8,730Total costs and expenses


340,265



322,655



275,361



240,037



153,988Income from operations


63,501



71,571



73,914



67,595



66,420Interest Income


3,210



18,019



32,167



22,836



9,668Other expense, net


(4,915
)


(3,319
)


(3,006
)


(949
)


(4,701
)Income before income tax expense


61,796



86,271



103,075



89,482



71,387Income tax expense


12,025



22,676



32,261



28,672



14,875Net income

$
49,771


$
63,595


$
70,814


$
60,810


$
56,512Net income per share  basic

$
1.35


$
1.72


$
1.75


$
1.58


$
1.64Net income per share  diluted

$
1.32


$
1.55


$
1.58


$
1.40


$
1.41Shares used in per-share calculation  basic


36,975



37,016



40,444



38,593



34,536Shares used in per-share calculation  diluted


37,704



42,106



45,914



44,642



41,448  31




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##### Table of Contents



ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATION  The discussion in this Annual 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 elsewhere in this Annual 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
  end-to-end e-commerce e-mail
  e-commerce e-commerce e-commerce e-commerce
  e-mail
    e-commerce e-commerce e-commerce e-commerce
 32




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##### Table of Contents



e-commerce
  952-253-1234.
  Forms 10-K, Form 10-Q Form 8-K,
  Current
    Year Results
  Form 8-K,
  Acquisitions
    and Comparability of Results
    Critical
    Accounting Policies
    Revenue Recognition. (
  e-commerce
 33




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##### Table of Contents



Allowance for Doubtful Accounts.
  Credit Card Chargeback Reserve.
  Goodwill, Intangibles and Other Long-Lived
    Assets.
  Income Taxes and Deferred Taxes.
 34




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##### Table of Contents



step-up
  Stock-Based Compensation Expense.
           35




---



##### Table of Contents



Results
    of Operations
    2009


2008


2007Revenue


100.0
%


100.0
%


100.0
%Costs and expenses (exclusive of depreciation and amortization
    expense shown separately below):Direct cost of services


4.4



4.2



2.9Network and infrastructure


11.4



10.4



9.3Sales and marketing


39.0



38.1



38.5Product research and development


13.5



13.0



11.2General and administrative


9.3



10.0



11.1Depreciation and amortization


4.8



4.0



3.6Amortization of acquisition-related intangibles


1.9



2.1



2.2Total costs and expenses


84.3



81.8



78.8Income from operations


15.7



18.2



21.2Interest Income


0.8



4.6



9.2Other expense, net


(1.2
)


(0.9
)


(0.9
)Income before income tax expense


15.3



21.9



29.5Income tax expense


3.0



5.8



9.2Net income


12.3
%


16.1
%


20.3
%   Revenue. e-commerce tm
  Direct Cost of Services. back-up
    Network and Infrastructure.
 36




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##### Table of Contents



Sales and Marketing.
    Product Research and Development. business-to-business e-commerce e-marketing e-commerce e-marketing
    General and Administrative.
   37




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##### Table of Contents



Depreciation and Amortization.
  Amortization of Acquisition-Related
    Intangibles.
  Income from Operations.
  Interest Income.
  Other Expense, Net.
  Income Tax Expense.
 38




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##### Table of Contents



Liquidity
    and Capital Resources
       39




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##### Table of Contents



e-commerce e-commerce e-commerce
        
    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        Payment due by period (In thousands)Total Amount











2014 andContractual Obligations

Committed


2010


2011


2012-2013


ThereafterOperating Lease Obligations

$
15,723


$
5,510


$
3,609


$
3,212


$
3,392Convertible Senior Notes, including interest


10,401



110



110



220



9,961Total

$
26,124


$
5,620


$
3,719


$
3,432


$
13,353    40




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##### Table of Contents



2010
    Outlook
  business-to-business
  New
    Accounting Standards
  Accounting Standards Codification (ASC):
 41




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##### Table of Contents



Interim Disclosures about Fair Value of Financial
    Instruments:
  Other-than-temporary
    Impairments: other-than-temporary other-than-temporary other-than-temporary other-than-temporary other-than-temporary
  other-than-temporary
  other-than-temporary
  other-than-temporary
  Fair Value Measurements and Disclosures:
  Subsequent Events:
 42




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##### Table of Contents



Consolidation of Variable Interest
    Entities:
  Off
    Balance Sheet Arrangements
    ITEM 7A.
    QUALITATIVE
    AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK  Interest
    Rate Risk
  available-for-sale
  Foreign
    Currency Risk
        Year Ended December 31, 2009


Year Ended December 31, 2008


Year Ended December 31, 2007At Prior


Exchange





At Prior


Exchange





At Prior


ExchangeYear


Rate


As


Year


Rate


As


Year


Rate


AsRates(1)


Effect(2)


Reported


Rates(1)


Effect(2)


Reported


Rates(1)


Effect(2)


ReportedRevenue

$
411,922


$
(8,156
)

$
403,766


$
391,481


$
2,745


$
394,226


$
341,293


$
7,982


$
349,275Costs and expenses


346,514



(6,249
)


340,265



318,471



4,184



322,655



269,682



5,679



275,361Income from operations

$
65,408


$
(1,907
)

$
63,501


$
73,010


$
(1,439
)

$
71,571


$
71,611


$
2,303


$
73,914     (1)
    
    Represents the outcome that would have resulted had exchange
    rates in the current period been the same as those in effect in
    the comparable prior-year period for operating results. 43




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##### Table of Contents



(2)
    
    Represents the increase (decrease) in reported amounts resulting
    from changes in exchange rates from those in effect in the
    comparable prior-year period for operating results.  Transaction
    Exposure
    Translation
    Exposure
   44




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##### Table of Contents



ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  QUARTERLY
    FINANCIAL DATA (UNAUDITED)
    Quarter EndedMarch 31 (2)


June 30


September 30


December 31(In thousands, except per share data)2009Revenue

$
102,931


$
96,564


$
99,419


$
104,852Direct cost of services(1)


3,942



3,951



4,582



5,150Network and infrastructure(1)


10,313



10,963



11,786



12,934Income from operations


22,918



12,948



14,563



13,072Net income


13,320



11,769



11,043



13,639Net income per share  basic

$
0.36


$
0.32


$
0.30


$
0.37Net income per share  diluted

$
0.36


$
0.31


$
0.29


$
0.36   Quarter EndedMarch 31


June 30


September 30


December 31(In thousands, except per share data)2008Revenue

$
103,634


$
98,374


$
96,301


$
95,917Direct cost of services(1)


4,175



4,469



3,913



3,860Network and infrastructure(1)


10,188



10,396



10,552



9,904Income from operations


20,617



14,227



17,515



19,212Net income


18,283



13,219



15,634



16,459Net income per share  basic

$
0.47


$
0.36


$
0.43


$
0.45Net income per share  diluted

$
0.43


$
0.33


$
0.39


$
0.41     (1)
    
    Gross profit is calculated as revenue less direct cost of
    services and network and infrastructure expenses and excludes
    depreciation and amortization expense(2)
    
    The Company reported net income of $16.6 million, or $0.45
    per diluted share for the quarter ended March 31, 2009, in
    its first quarter 2009
    Form 10-Q
    filed on May 8, 2009. This compares with net income of
    $13.3 million, or $0.36 per diluted share for the quarter
    ended March 31, 2009, as presented above. In performing its
    detailed review of the financial statements and notes at year
    end, management identified an additional adjustment associated
    with its January 2, 2009, convertible note repurchase.
    After the Company filed its year end 2009 press release it
    determined that a $5.2 million non-cash expense for debt
    financing costs ($3.3 million net of tax), previously
    deferred and amortized over the period of the note, was to be
    written off to earnings in conjunction with the note repurchase.
    The impact of the note repurchase on diluted earnings per share
    was anti-dilutive and has been excluded as a result.  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   45




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##### Table of Contents



ITEM 9A.
    CONTROLS
    AND PROCEDURES  (a)
    Evaluation
    of Disclosure Controls and Procedures  15d-15(e)
  (b)
    Managements
    Annual Report on Internal Control over Financial
    Reporting     46




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##### Table of Contents



(c)
    Changes
    in Internal Control over Financial Reporting    (d)
    Report of
    Independent Registered Public Accounting Firm     Internal Control 
    Integrated Framework
         47




---



##### Table of Contents



/s/  Ernst &
    Young LLP
     ITEM 9B.
    OTHER
    INFORMATION   48




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##### Table of Contents



PART III    ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Directors
    Regulation S-K
  Executive
    Officers
    Code of
    Conduct
    Other
    Disclosures
    ITEM 11.
    EXECUTIVE
    COMPENSATION    ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS   49




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##### Table of Contents



ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   50




---



##### 



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Financial Statements.
     
 Report of Independent Registered Public
    Accounting Firm


55Consolidated Balance Sheets


56Consolidated Statements of Income


57Consolidated Statements of Stockholders
    Equity


58Consolidated Statements of Cash Flows


59Notes to Consolidated Financial Statements


60    Financial Statement Schedules.
  Form 10-K,
  (3)
    Exhibits.  ExhibitNumber

Description of Document3
.1(2)

Amended and Restated Certificate of Incorporation of the
    Registrant, as currently in effect.3
.2(4)

Amended and Restated Bylaws of the Registrant, as currently in
    effect.4
.1(5)

Specimen Stock Certificate.4
.2(9)

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.10
.1(5)

Form of Indemnity Agreement between Registrant and each of its
    directors and executive officers.10
.3(5)

Consent to Assignment and Assumption of Lease dated
    April 22, 1998, by and between CSM Investors, Inc.,
    IntraNet Integration Group, Inc. and Registrant.10
.4(3)

Assignment of Lease dated April 21, 1998, by and between
    Intranet Integration Group, Inc. and Registrant.10
.5(3)

Lease Agreement dated January 18, 2000, between Property
    Reserve, Inc. and Registrant.10
.6(4)

First Amendment of Lease dated January 31, 2001, to that
    certain Lease dated April 24, 1996, between CSM Investors,
    Inc. and Registrant (as assignee of Intranet Integration Group,
    Inc.).10
.7(6)

1998 Stock Option Plan, as amended and superseded by
    Exhibit 10.18.*10
.8(7)

1999 Stock Option Plan, formerly known as the 1999 Non-Officer
    Stock Option Plan, as amended and superseded by
    Exhibit 10.18.*10
.9(6)

2000 Employee Stock Purchase Plan, as amended, and offering.*10
.11(8)

Second Amendment of Lease dated April 22, 2002, to that
    certain Lease dated April 24, 1996, between CSM Investors,
    Inc. and Registrant (as assignee of Intranet Integration Group,
    Inc.) as amended.10
.12(8)

Second Amendment of Lease dated April 28, 2003, to that
    certain Lease dated January 18, 2000, between Property
    Reserve Inc. and Registrant.10
.15(9)

Registration Rights Agreement dated as of June 1, 2004,
    between Digital River, Inc. and the initial purchasers of Senior
    Convertible Notes due January 1, 2024.10
.16(13)

Summary of Compensation Program for Non-Employee Directors. 51




---



##### Table of Contents



ExhibitNumber

Description of Document10
.17(14)

Second Amended and Restated Symantec Online Store Agreement, by
    and among Symantec Corporation, Symantec Limited, Digital River,
    Inc. and Digital River Ireland Limited effective April 1,
    2006 10
.18(10)

1998 Equity Incentive Plan (formerly known as 1998 Stock Option
    Plan).*10
.19(13)

Amended and Restated Employment Agreement for Joel A. Ronning.*10
.20(13)

Change of Control and Severance Agreement for Thomas M.
    Donnelly.*10
.21(11)

Form of Amendment to Non-Qualified Stock Option Agreement.*10
.22(12)

Inducement Equity Incentive Plan.*10
.23(15)

2007 Equity Incentive Plan.*10
.24(13)

Change of Control and Severance Agreement for Kevin L. Crudden.*10
.25++

Microsoft Operations Digital Distribution Agreement, by and
    among Digital River, Inc. and Microsoft Corporation effective
    September 1, 2006 10
.26++

Direct Reseller Addendum to the Microsoft Operations Digital
    Distribution Agreement, by and among Digital River, Inc. and
    Microsoft Corporation effective September 1, 2006 10
.27++

Omnibus Amendment to the Microsoft Operations Digital
    Distribution Agreement, by and among Digital River, Inc. and
    Microsoft Corporation effective October 4, 2007 10
.28++

Amendment to the Microsoft Operations Digital Distribution
    Agreement, by and among Digital River, Inc. and Microsoft
    Corporation effective December 2, 2008 10
.29++

Amendment to the Microsoft Operations Digital Distribution
    Agreement, by and among Digital River, Inc. and Microsoft
    Corporation effective September 9, 2009 12
.1++

Computation of Ratio of Earnings to Fixed Charges.21
.1++

Subsidiaries of Digital River, Inc.23
.1++

Consent of Independent Registered Public Accounting Firm, dated
    February 23, 2009.24
.1++

Power of Attorney, pursuant to which amendments to this Annual
    Report on
    Form 10-K
    may be filed, is included on the signature pages of this Annual
    Report on
    Form 10-K.31
.1++

Certification of Digital River, Inc.s Chief Executive
    Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2++

Certification of Digital River, Inc.s Chief Financial
    Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32++


Certification of Digital River, Inc.s Chief Executive
    Officer and Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.     ++
    
    Filed herewith.*
    
    Management contract or compensatory plan.
    
    Confidential treatment has been requested for portions of this
    agreement, which portions have been filed  separately with
    the SEC.(1)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 4, 2004.(2)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on June 1, 2006.(3)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 1999, filed on
    March 30, 2000.(4)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2000, filed on
    March 27, 2001.(5)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-1
    (File No.
    333-56787),
    declared effective on August 11, 1998.(6)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-8
    (File No.
    333-105864)
    filed on June 5, 2003. 52




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##### Table of Contents



(7)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2003, filed on
    August 14, 2003.(8)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2003, filed on May 15,
    2003.(9)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on July 13, 2004.(10)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 31, 2005.(11)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2005, filed on
    August 9, 2005.(12)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on December 20, 2005.(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on March 10, 2008.(14)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2006, filed on
    March 1, 2007.(15)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2007, filed on
    February 29, 2008. 53




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##### Table of Contents



SIGNATURES
  Form 10-K
    By:
    /s/  Joel
    A. Ronning     Form 10-K
  Form 10-K
  Signature

Title

Date/s/  Joel
    A. RonningJoel
    A. Ronning

Chief Executive Officer and Director (Principal Executive
    Officer)

February 23, 2010/s/  Thomas
    M. DonnellyThomas
    M. Donnelly

Chief Financial Officer and Treasurer (Principal Financial and
    Accounting Officer)

February 23, 2010/s/  Thomas
    F. MadisonThomas
    F. Madison

Director

February 23, 2010/s/  Cheryl
    RosnerCheryl
    Rosner

Director

February 23, 2010/s/  Douglas
    M. SteenlandDouglas
    M. Steenland

Director

February 23, 2010/s/  Perry
    W. SteinerPerry
    W. Steiner

Director

February 23, 2010/s/  J.
    Paul ThorinJ.
    Paul Thorin

Director

February 23, 2010  54




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           Internal Control  Integrated
    Framework
  /s/  Ernst &
    Young LLP
    55




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##### Table of Contents



DIGITAL
    RIVER, INC.Consolidated Balance Sheets
  December 31,


December 31,2009


2008(In thousands)ASSETSCURRENT ASSETS:Cash and cash equivalents

$
392,704


$
490,335Short-term investments


15,228



10,000Accounts receivable, net of allowance of $2,222 and $2,457


50,657



53,216Deferred income taxes


9,901



7,613Prepaid expenses and other


14,899



42,522Total current assets


483,389



603,686Property and equipment, net


54,343



41,733Goodwill


279,538



273,788Intangible assets, net of accumulated amortization of $74,158
    and $66,345


25,605



32,222Long-term investments


119,581



93,213Deferred income taxes


22,416



24,824Other assets


770



786TOTAL ASSETS

$
985,642


$
1,070,252LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Convertible senior notes

$



$
186,195Accounts payable


192,301



184,361Accrued payroll


16,131



14,841Deferred revenue


17,879



13,651Accrued acquisition costs


2,001



3,278Other accrued liabilities


38,801



41,336Total current liabilities


267,113



443,662NON-CURRENT LIABILITIES:Convertible senior notes


8,805



8,805Other liabilities


15,505



15,712Total non-current liabilities


24,310



24,517TOTAL LIABILITIES


291,423



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; 44,917,986 and 43,225,401 shares issued


449



432Treasury stock at cost; 6,238,166 and 6,211,477 shares


(216,880
)


(216,163
)Additional paid-in capital


653,956



623,778Retained earnings


238,867



189,096Accumulated other comprehensive income


17,827



4,930Total stockholders equity


694,219



602,073TOTAL LIABILITIES AND STOCKHOLDERS EQUITY

$
985,642


$
1,070,252    56




---



##### Table of Contents



DIGITAL
    RIVER, INC.Consolidated Statements of Income for the Years
    Ended December 31,
  2009


2008


2007(In thousands except per share data)Revenue

$
403,766


$
394,226


$
349,275Costs and expenses (exclusive of depreciation and amortization
    expense shown separately below):Direct cost of services


17,625



16,417



10,243Network and infrastructure


45,996



41,040



32,309Sales and marketing


157,475



150,118



134,401Product research and development


54,463



51,184



39,179General and administrative


37,707



39,525



38,937Depreciation and amortization


19,438



15,980



12,706Amortization of acquisition-related intangibles


7,561



8,391



7,586Total costs and expenses


340,265



322,655



275,361Income from operations


63,501



71,571



73,914Interest Income


3,210



18,019



32,167Other expense, net


(4,915
)


(3,319
)


(3,006
)Income before income tax expense


61,796



86,271



103,075Income tax expense


12,025



22,676



32,261Net income

$
49,771


$
63,595


$
70,814Net income per share  basic

$
1.35


$
1.72


$
1.75Net income per share  diluted

$
1.32


$
1.55


$
1.58Shares used in per-share calculation  basic


36,975



37,016



40,444Shares used in per-share calculation  diluted


37,704



42,106



45,914    57




---



##### Table of Contents



DIGITAL
    RIVER, INC.Consolidated Statements of Stockholders
    Equity
  RetainedAdditional


Accumulated


Earnings


TotalCommon Stock


Treasury


Paid-In


Comprehensive


(Accumulated


Stockholders


ComprehensiveShares


Amount


Stock


Capital


Income (Loss)


Deficit)


Equity


Income (Loss)(In thousands)BALANCE, December 31, 2006


40,458


$
409


$
(14,024
)

$
551,080


$
11,608


$
54,687


$
603,760


$
74,849Net income






















70,814



70,814



70,814Unrealized gain on investments, net of tax expense of $596


















1,006







1,006



1,006Foreign currency translation gain


















18,319







18,319



18,319Repurchase of common stock


(1,372
)






(62,968
)














(62,968
)Stock Issued for Acquisition


44



1



(189
)


2,337











2,149



Exercise of stock options


1,220



12







13,498











13,510



Stock-based compensation














13,742











13,742



Restricted stock issued under equity incentive plans, net of
    forfeitures


135



2







(2
)














Tax withheld in restricted stock vesting


(11
)






(526
)














(526
)


Tax benefit of stock-based compensation














13,990











13,990



Common stock issued under the Employee Stock Purchase Plan


76



1







2,483











2,484



BALANCE, December 31, 2007


40,550


$
425


$
(77,707
)

$
597,128


$
30,933


$
125,501


$
676,280


$
90,139Net income






















63,595



63,595



63,595Unrealized loss on investments, net of tax benefit of $6,410


















(10,822
)






(10,822
)


(10,822
)Foreign currency translation loss


















(15,181
)






(15,181
)


(15,181
)Repurchase of common stock


(4,239
)






(137,858
)














(137,858
)Exercise of stock options


425



4







7,167











7,171



Stock-based compensation














12,548











12,548



Restricted stock issued under equity incentive plans, net of
    forfeitures


186



2







(2
)














Tax withheld in restricted stock vesting


(19
)






(598
)














(598
)


Tax benefit of stock-based compensation














4,223











4,223



Common stock issued under the Employee Stock Purchase Plan


111



1







2,714











2,715



BALANCE, December 31, 2008


37,014


$
432


$
(216,163
)

$
623,778


$
4,930


$
189,096


$
602,073


$
37,592Net income






















49,771



49,771



49,771Unrealized gain on investments, net of tax expense of $3,715


















6,273







6,273



6,273Foreign currency translation gain


















6,624







6,624



6,624Exercise of stock options


437



4







10,046











10,050



Stock-based compensation














18,270











18,270



Restricted stock issued under equity incentive plans, net of
    forfeitures


1,142



12







(12
)














Tax withheld in restricted stock vesting


(27
)






(717
)














(717
)


Tax deficiency of stock-based compensation














(614
)










(614
)


Common stock issued under the Employee Stock Purchase Plan


114



1







2,488











2,489



BALANCE, December 31, 2009


38,680


$
449


$
(216,880
)

$
653,956


$
17,827


$
238,867


$
694,219


$
62,668    58




---



##### Table of Contents



DIGITAL
    RIVER, INC.Consolidated Statements of Cash Flows For the
    Years Ended December 31,
  2009


2008


2007(In thousands)OPERATING ACTIVITIES:Net income

$
49,771


$
63,595


$
70,814Adjustments to reconcile net income to net cash provided by
    operating activities:Amortization of acquisition-related intangibles


7,561



8,391



7,586Change in accounts receivable allowance, net of acquisitions


232



434



(174
)Depreciation and amortization


19,438



15,980



12,706Debt financing costs  write-off


5,208







Stock-based compensation expense related to stock-basedcompensation plans


18,270



12,548



13,742Excess tax benefits from stock-based compensation


(690
)


(4,390
)


(12,030
)Deferred income taxes and other


(186
)


4,971



27,522Change in operating assets and liabilities (net of acquisitions):Accounts receivable


2,735



11,332



(6,863
)Prepaid and other assets


23,263



(26,505
)


1,325Accounts payable


7,083



6,531



32,181Deferred revenue


4,109



3,235



3,046Income tax payable


1,377



(5,366
)


(7,076
)Accrued payroll and other accrued liabilities


(1,115
)


4,478



3,609Net cash provided by operating activities


137,056



95,234



146,388INVESTING ACTIVITIES:Purchases of investments


(21,922
)


(480,917
)


(436,806
)Sales of investments


23,400



676,108



358,470Cash paid for cost method investments


(26,780
)






Cash paid for acquisitions, net of cash received


(4,910
)


(23,465
)


(31,625
)Purchases of equipment and capitalized software


(31,949
)


(26,898
)


(18,722
)Net cash (used in)/provided by investing activities


(62,161
)


144,828



(128,683
)FINANCING ACTIVITIES:Cash paid for convertible senior notes


(186,660
)






Exercise of stock options


10,050



7,171



13,510Sales of common stock under employee stock purchase plan


2,489



2,715



2,483Repurchase of common stock






(137,858
)


(62,968
)Repurchase of restricted stock to satisfy tax withholding
    obligation


(717
)


(598
)


(528
)Excess tax benefits from stock-based compensation


690



4,390



12,030Net cash used in financing activities


(174,148
)


(124,180
)


(35,473
)EFFECT OF EXCHANGE RATE CHANGES ON CASH


1,622



(7,335
)


9,313NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS


(97,631
)


108,547



(8,455
)CASH AND CASH EQUIVALENTS, beginning of year


490,335



381,788



390,243CASH AND CASH EQUIVALENTS, end of year

$
392,704


$
490,335


$
381,788SUPPLEMENTAL DISCLOSURES:Cash paid for interest on Convertible Senior Notes

$
1,274


$
2,438


$
2,438Cash paid for income taxes

$
16,615


$
20,503


$
8,232Noncash investing and financing activities:Common stock issued in acquisitions and earn-outs

$



$



$
2,150    59




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##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes
    to Consolidated Financial Statements
 December 31,
    2009 and 2008
  1.
    Nature of
    Operations and Summary of Significant Accounting
    Policies  e-commerce
  Principles
    of Consolidation and Classification
    Use of
    Estimates
    Foreign
    Currency Translation
        Cash
    and Cash Equivalents
   60




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Short-Term Investments
  available-for-sale available-for-sale
  Long-Term Investments
  available-for-sale
  other-than-temporary,
  Property
    and Equipment
    2009


2008Computer hardware and software

$
108,287


$
78,660Furniture, fixtures and leasehold improvements


15,691



15,475Total property and equipment

$
123,978


$
94,135Accumulated depreciation


(69,635
)


(52,402
)Net property and equipment

$
54,343


$
41,733       Software
    Development
   61




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Purchased
    Intangible Assets
      Impairment
    of Long-Lived Assets and Costs Associated with Exit
    Activities
      Other
    Assets
    2009


2008Debt financing costs, net

$
209


$
224Other


561



562Total other assets

$
770


$
786  62




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Other
    Accrued Liabilities
    2009


2008Accrued expenses

$
26,386


$
24,148Sales, value-added and transaction taxes


13,741



19,788Current income taxes


(1,326
)


(2,600
)Total other accrued liabilities

$
38,801


$
41,336   Comprehensive
    Income
      Foreign Currency


Unrealized


Accumulated OtherTranslation


Gain/Loss on


ComprehensiveAdjustment


Investment


Income (Loss)Balance, December 31, 2006

$
12,038


$
(430
)

$
11,608Before tax amount


18,319



1,602



19,921Tax Effect






(596
)


(596
)Net-of-tax
    amount


18,319



1,006



19,325Balance, December 31, 2007


30,357



576



30,933Before tax amount


(15,181
)


(17,232
)


(32,413
)Tax Effect






6,410



6,410Net-of-tax
    amount


(15,181
)


(10,822
)


(26,003
)Balance, December 31, 2008


15,176



(10,246
)


4,930Before tax amount


6,624



9,988



16,612Tax Effect






(3,715
)


(3,715
)Net-of-tax
    amount


6,624



6,273



12,897Balance, December 31, 2009

$
21,800


$
(3,973
)

$
17,827   Revenue
    Recognition
  (
  e-commerce
 63




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          Deferred
    Revenue
    Stock-Based
    Compensation Expense
              Advertising
    Costs
   64




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Income
    Taxes
    Interest
    Income
    Other
    Expense, Net
    Recent
    Accounting Pronouncements
  Accounting Standards Codification (ASC):
  Interim Disclosures about Fair Value of Financial
    Instruments:
  Other-than-temporary
    Impairments: other-than-temporary other-than-temporary
 65




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  other-than-temporary other-than-temporary other-than-temporary
  other-than-temporary
  other-than-temporary
  other-than-temporary
  Fair Value Measurements and Disclosures:
  Subsequent Events:
  Consolidation of Variable Interest
    Entities:
 66




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2.
    Net
    Income Per Share      For the Years Ended December 31,2009


2008


2007Earnings per share  basicNet income  basic

$
49,771


$
63,595


$
70,814Weighted average shares outstanding  basic


36,975



37,016



40,444Earnings per share  basic

$
1.35


$
1.72


$
1.75Earnings per share  dilutedNet income  basic

$
49,771


$
63,595


$
70,814Exclude: Interest expense and amortized financing cost of
    convertible senior notes, net of tax benefit


84



1,739



1,739Net income  diluted

$
49,855


$
65,334


$
72,553Weighted average shares outstanding  basic


36,975



37,016



40,444Dilutive impact of non-vested stock and options outstanding


529



665



1,045Dilutive impact of convertible senior notes


200



4,425



4,425Weighted average shares outstanding  diluted


37,704



42,106



45,914Earnings per share  diluted

$
1.32


$
1.55


$
1.58       3.
    Fair
    Value Measurements        
    Quoted prices for similar assets or liabilities in active
    markets; 67




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   
    Quoted prices for identical or similar assets in non-active
    markets;
    Inputs other than quoted prices that are observable for assets
    or liability; and
    Inputs that are derived principally from or corroborated by
    other observable market data.    Assets
    and Liabilities that are Measured at Fair Value on a Recurring
    Basis
      Fair Value MeasurementsAs of December 31, 2009Total


Level 1


Level 2


Level 3Cash and cash equivalents

$
392,704


$
392,704


$



$
U.S. government sponsored entities


3,997



3,997







Corporate Bonds


11,231



11,231







Student loan bonds


92,801











92,801Total assets measured at fair value

$
500,733


$
407,932


$



$
92,801     Fair Value Measurements UsingSignificant Unobservable Inputs(Level 3)Short-term


Long-termInvestments


Investments


TotalBalance as of January 1, 2008

$
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






9,988



9,988Purchases, issuances, and settlements






(10,400
)


(10,400
)Transfers in and/or out of Level 3










Balance as of December 31, 2009

$



$
92,801


$
92,801  68




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  The
    following methods and assumptions were used to estimate the fair
    value of each class of financial instrument:
  Cash and Cash equivalents.
  U.S. government sponsored entities.
  Corporate Bonds.
  Auction Rate Securities (Student loan bonds in
    table).
      
    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     69




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Assets
    and Liabilities that are Measured at Fair Value on a
    Nonrecurring Basis
          4.
    Investments  available-for-sale
  Unrealized Gain/(Loss)





Maturities/Reset DatesLess than 12


Greater than 12





Less than 12


Greater than 12Cost


Months


Months


Fair Value


Months


Months2009U.S. government sponsored entities

$
3,999


$
(2
)

$



$
3,997


$
1,993


$
2,004Corporate Bonds


11,221



10







11,231



3,112



8,119Student loan bonds


99,100







(6,299
)


92,801







92,801Total
    available-for-sale
    securities

$
114,320


$
8


$
(6,299
)

$
108,029


$
5,105


$
102,9242008U.S. government sponsored entities

$
9,900


$
100


$



$
10,000


$
10,000


$
Student loan bonds


109,500



(16,287
)






93,213







93,213Total
    available-for-sale
    securities

$
119,400


$
(16,187
)

$



$
103,213


$
10,000


$
93,213    70




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
   5.
    Business
    Combinations, Goodwill and Intangible Assets    Initial


Initial











Other Intangible AssetsShares


Purchase


Acquired


Assumed





Technology/


Customer


Non-competeAcquisition

Issued


Consideration


Assets


Liabilities


Goodwill


Tradenames


Relationships


Agreements2009No acquisitions in 20092008Think Subscription, Inc.





$
5,100


$
644


$
(1,019
)

$
2,007


$
1,209


$
1,813


$
CustomCD, Inc.






7,000



764



(355
)


3,136



2,059



1,468DigitalSwift Corporation






9,200



427



(459
)


4,673



487



4,325



Total





$
21,300


$
1,835


$
(1,833
)

$
9,816


$
3,755


$
7,606


$
2007NetGiro Systems AB





$
27,386


$
8,567


$
(7,477
)

$
9,742


$
4,424


$
12,372


$
     Business
    Combinations
    Acquisitions
    completed in 2009
    Acquisitions
    completed in 2008
    build-to-order
 71




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      Acquisitions
    completed in 2007
    Future
    Earn-outs
    Pro
    Forma Operating Results (Unaudited)
    2008


2007Revenue

$
395,698


$
366,208Income from operations


70,373



70,590Net income


62,400



67,494Diluted income per share

$
1.52


$
1.51     Goodwill
     72




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      TotalBalance as of December 31, 2007

$
261,885Goodwill from acquisitions and earn-outs


14,955Adjustments from foreign currency translation(1)


(8,109
)Tax Adjustments(2)


5,057Balance as of December 31, 2008

$
273,788Goodwill from acquisitions and earn-outs


3,234Adjustments from foreign currency translation(1)


3,242Tax Adjustments(2)


(726
)Balance as of December 31, 2009

$
279,538     (1)
    
    Adjustments to goodwill during the year ended December 31,
    2009 and December 31, 2008, resulted from foreign currency
    translation current and prior period acquisitions.(2)
    
    Adjustments to goodwill during the year ended December 31,
    2009 and December 31, 2008, resulted from tax adjustments
    current and prior period acquisitions.  Intangible
    Assets
    As of December 31, 2009Carrying Amount


Accumulated


Carrying AmountGross


Amortization


NetCustomer relationships

$
63,319


$
42,764


$
20,555Non-compete agreements


5,227



5,227



Technology/tradename


31,217



26,167



5,050Total

$
99,763


$
74,158


$
25,605   As of December 31, 2008Carrying Amount


Accumulated


Carrying AmountGross


Amortization


NetCustomer relationships

$
62,265


$
37,931


$
24,334Non-compete agreements


5,312



5,301



11Technology/tradename


30,991



23,114



7,877Total

$
98,568


$
66,346


$
32,222  73




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    2009


2008


2007Weighted





Weighted





WeightedAverage





Average





AverageAmount


Life


Amount


Life


Amount


LifeCustomer relationships

$







$
7,606



6 years


$
12,372



10 yearsNon-compete agreements






















Technology/tradename










3,755



4 years



4,424



8 yearsTotal

$







$
11,361



5 years


$
16,796



10 years     Year2010

$
5,4672011


4,2562012


3,8672013


1,7502014


1,473Thereafter


8,792Total

$
25,605     2009


2008Tangible assets

$



$
1,835Liabilities assumed






(1,833
)Customer relationships






7,606Technology/tradename






3,755Goodwill ( year of acquisition)






9,816Goodwill (subsequent to year of acquisition)






2,552Net assets acquired

$



$
23,731   6.
    Stock-Based
    Compensation  Option
    and Restricted Stock Awards
  2007
    Plan
   74




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    1998
    Plan
    General
    Stock Award Information
        WeightedShares





Options


AverageAvailable


Options


Price


Pricefor Grant


Outstanding


Per Share


Per ShareBalance, December 31, 2006


1,540,200



3,557,783


$
2.59 - $57.36


$
18.68Granted


(573,376
)


573,376



45.07 - 56.61



54.17Restricted stock effect on shares available for grant


(251,426
)


N/A



N/A



N/AExercised






(1,219,519
)


2.59 - 45.24



11.08Canceled/expired


133,330



(133,330
)


4.56 - 56.61



38.01Additional Shares Reserved


2,000,000



N/A



N/A



N/ABalance, December 31, 2007


2,848,728



2,778,310


$
2.59 - $57.36


$
28.41Granted


(807,000
)


807,000



19.28 - 41.44



31.10Restricted stock effect on shares available for grant


(278,952
)


N/A



N/A



N/AExercised






(425,774
)


4.56 - 38.17



16.84Canceled/expired


213,686



(213,686
)


9.13 - 56.61



38.59Balance, December 31, 2008


1,976,462



2,945,850


$
2.59 - $57.36


$
30.08Granted


(95,000
)


95,000



24.07 - 39.62



26.43Restricted stock effect on shares available for grant


(1,715,555
)


N/A



N/A



N/AExercised






(436,631
)


4.56 - 32.33



23.02Canceled/expired


106,994



(106,994
)


4.65 - 55.39



36.23Additional Shares Reserved


2,650,000



N/A



N/A



N/ABalance, December 31, 2009


2,922,901



2,497,225


$
2.59 - $57.36


$
30.91  75




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Options Outstanding


Options ExercisableWeighted


Weighted


Aggregate





Weighted


AggregateNumber


Average


Average


Intrinsic


Number


Average


IntrinsicExercise Price

Outstanding


Life Remaining


Price


Value


Exercisable


Price


Value$ 2.59 - $ 3.88


19,187



1.0 years


$
2.74


$
465,190



19,187


$
2.74


$
465,1904.56 -  7.55


125,579



1.4 years



5.33



2,719,831



125,579



5.33



2,719,8319.55 - 13.92


300,010



2.7 years



11.91



4,525,149



283,939



11.96



4,266,56716.72 - 22.98


268,395



4.6 years



22.18



1,289,864



230,359



22.67



995,15923.01 - 30.69


485,967



6.5 years



27.96



323,662



316,294



29.13



53,17231.84 - 57.36


1,298,087



7.5 years



41.11







761,313



42.66



$ 2.59 - $57.36


2,497,225



6.0 years


$
30.91


$
9,323,696



1,736,671


$
29.39


$
8,499,919       WeightedRestricted Stock and


AveragePerformance Shares


Fair ValueNon-Vested Balance, December 31, 2006


89,500


$
39.96Granted


198,889



53.75Vested


(23,713
)


39.19Forfeited


(31,272
)


48.54Non-Vested Balance, December 31, 2007


233,404


$
50.64Granted


498,550



29.04Vested


(66,010
)


49.42Forfeited


(312,582
)


33.61Non-Vested Balance, December 31, 2008


353,362


$
35.45Granted


1,286,100



26.23Vested


(126,243
)


37.32Forfeited


(142,396
)


26.90Non-Vested Balance, December 31, 2009


1,370,823


$
27.52  76




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  Employee
    Stock Purchase Plan
    Inducement
    Equity Incentive Plan
    Expense
    Information
    Year Ended December 31,2009


2008


2007Costs and expensesDirect cost of services

$
658


$
785


$
807Network and infrastructure


751



192



270Sales and marketing


6,742



4,562



5,028Product research and development


2,439



1,258



1,736General and administrative


7,680



5,751



5,901Stock-based compensation included in costs and expenses


18,270



12,548



13,742Tax benefit


(6,420
)


(4,260
)


(4,727
)Stock-based compensation expense, net of tax

$
11,850


$
8,288


$
9,015   Valuation
    Information
    2009


2008


2007Risk-free interest rate


1.3
%


2.0
%


4.5
%Expected life (years)


3.14



3.37



3.46Volatility factor


0.46



0.45



0.50Expected dividends










Weighted average fair value of options granted

$
8.68


$
10.74


$
23.11    77




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
          2009


2008


2007Risk-free interest rate


0.3
%


2.8
%


5.0
%Expected life (years)


0.5



0.5



0.5Volatility factor


0.63



0.43



0.33Expected dividends










Weighted average fair value of employee stock purchase plan
    shares

$
8.90


$
9.35


$
11.93   7.
    Income
    Taxes    Year Ended December 31,2009


2008


2007United States

$
27,418


$
46,988


$
74,595International


34,378



39,283



28,480Total

$
61,796


$
86,271


$
103,075  78




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
    Year Ended December 31,2009


2008


2007Current tax expense (benefit):United States federal

$
12,886


$
18,792


$
29,204State and local


726



1,223



1,842International


3,647



6,858



5,939Total current provision for income taxes


17,259



26,873



36,985Deferred tax expense (benefit):United States federal


(4,021
)


(3,926
)


(3,896
)State and local


(230
)


(255
)


(227
)International


(983
)


(16
)


(601
)Total deferred provision (benefit) for income taxes


(5,234
)


(4,197
)


(4,724
)Provision for income taxes

$
12,025


$
22,676


$
32,261     Year Ended December 31,2009


2008


2007Tax expense at statutory rate

$
21,629


$
30,195


$
36,076State taxes, net of federal benefit


496



968



1,615International rate differential


(9,662
)


(7,860
)


(4,623
)Tax Credits


(484
)


(955
)


(671
)Nondeductible expense and other


46



328



(136
)Total

$
12,025


$
22,676


$
32,261     2009


2008Deferred tax assets:Net operating loss and credit carryforwards

$
7,444


$
8,646Nondeductible reserves and accruals


22,859



21,075Depreciation and amortization


3,158



4,777Valuation allowance


(1,144
)


(2,061
)Total deferred tax assets


32,317



32,437Deferred tax liabilities:Depreciation


(1,374
)


(1,191
)Other intangibles


(10,805
)


(11,016
)Total deferred tax liabilities


(12,179
)


(12,207
)Net deferred tax assets

$
20,138


$
20,230  79




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
        Balance as of January 1, 2007

$
3,340Increases for tax positions taken during current year


1,072Decreases for tax positions taken during prior years


1,035Balance as of December 31, 2007

$
5,447Increases for tax positions taken during current year


2,957Increases for tax positions taken during prior years


613Decreases as a result of settlements with taxing authorities


(2,622
)Balance as of December 31, 2008

$
6,395Increases for tax positions taken during current year


1,791Increases for tax positions taken during prior years


10Decreases for tax positions taken during prior years


(983
)Decreases as a result of settlements with taxing authorities


(639
)Balance as of December 31, 2009

$
6,574     2005-2008
   80




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
  step-up
  8.
    COMMITMENTS
    AND CONTINGENCIES  Leases
    Year ending December 31,

Lease Obligations2010

$
5,5092011


3,6092012


1,7492013


1,4632014


515Thereafter


2,877Total future minimum obligations

$
15,722   Litigation
    time-to-time
  Indemnification
    Provisions
   81




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      9.
    DEBT          10.
    STOCKHOLDERS
    EQUITY  Share
    Repurchase Program
     82




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
        11.
    EMPLOYEE
    BENEFIT PLAN  401K
    Plan
    12.
    SEGMENT
    INFORMATION  e-commerce
    2009


2008


2007United States

$
237,726


$
225,385


$
198,388Europe


109,329



112,211



103,385Other


56,711



56,630



47,502Total

$
403,766


$
394,226


$
349,275    83




---



##### Table of Contents



DIGITAL
    RIVER, INC.
  Notes to
    Consolidated Financial
    Statements  (Continued)
      2009


2008United States


Europe


United States


EuropeTotal property and equipment

$
107,026


$
16,951


$
79,781


$
14,354Accumulated depreciation


(58,015
)


(11,619
)


(43,686
)


(8,716
)Net property and equipment

$
49,011


$
5,332


$
36,095


$
5,638Total intangible assets

$
66,644


$
33,119


$
66,951


$
31,617Accumulated amortization


(53,094
)


(21,064
)


(47,487
)


(18,859
)Net intangible assets

$
13,550


$
12,055


$
19,464


$
12,758Total goodwill

$
156,169


$
145,825


$
154,061


$
142,182Accumulated amortization


(22,456
)






(22,455
)


Net goodwill

$
133,713


$
145,825


$
131,606


$
142,182   13.
    SUBSEQUENT
    EVENTS   84




---



##### Table of Contents



Digital
    River, Inc.
  Schedule II
    For Years Ended December 31, 2009, 2008 and 2007
    (In thousands)
  Charges toBalance at


Costs and





Balance at2009

Beginning of Year


Expenses


Deductions


End of YearAllowance for doubtful accounts

$
2,457


$
4,954


$
(5,189
)

$
2,222Accrued chargeback reserve


1,608



11,114



(11,435
)


1,287   Charges toBalance at


Costs and





Balance at2008

Beginning of Year


Expenses


Deductions


End of YearAllowance for doubtful accounts

$
2,489


$
5,214


$
(5,246
)

$
2,457Accrued chargeback reserve


1,186



9,514



(9,092
)


1,608   Charges toBalance at


Costs and





Balance at2007

Beginning of Year


Expenses


Deductions


End of YearAllowance for doubtful accounts

$
2,339


$
581


$
(431
)

$
2,489Accrued chargeback reserve


834



6,829



(6,477
)


1,186   Charged /Charged /


(Credited) toDeferred income tax asset

Balance at


(Credited) to


Other


Balance atValuation Allowance

Beginning of Year


Expenses


Accounts(1)


End of Year2009

$
1,371


$
(227
)

$



$
1,1442008


1,390







(19
)


1,3712007


12,961







(11,571
)


1,390     (1)
    
    Amounts not charged (credited) to expenses were charged
    (credited) to equity or goodwill 85




---



##### Table of Contents



INDEX TO
    EXHIBITS
  ExhibitNumber

Description of Document3
.1(2)

Amended and Restated Certificate of Incorporation of the
    Registrant, as currently in effect.3
.2(4)

Amended and Restated Bylaws of the Registrant, as currently in
    effect.4
.1(5)

Specimen Stock Certificate.4
.2(9)

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.10
.1(5)

Form of Indemnity Agreement between Registrant and each of its
    directors and executive officers.10
.3(5)

Consent to Assignment and Assumption of Lease dated
    April 22, 1998, by and between CSM Investors, Inc.,
    IntraNet Integration Group, Inc. and Registrant.10
.4(3)

Assignment of Lease dated April 21, 1998, by and between
    Intranet Integration Group, Inc. and Registrant.10
.5(3)

Lease Agreement dated January 18, 2000, between Property
    Reserve, Inc. and Registrant.10
.6(4)

First Amendment of Lease dated January 31, 2001, to that
    certain Lease dated April 24, 1996, between CSM Investors,
    Inc. and Registrant (as assignee of Intranet Integration Group,
    Inc.).10
.7(6)

1998 Stock Option Plan, as amended and superseded by
    Exhibit 10.19.*10
.8(7)

1999 Stock Option Plan, formerly known as the 1999 Non-Officer
    Stock Option Plan, as amended and superseded by
    Exhibit 10.19.*10
.9(6)

2000 Employee Stock Purchase Plan, as amended, and offering.*10
.11(8)

Second Amendment of Lease dated April 22, 2002, to that
    certain Lease dated April 24, 1996, between CSM Investors,
    Inc. and Registrant (as assignee of Intranet Integration Group,
    Inc.) as amended.10
.12(8)

Second Amendment of Lease dated April 28, 2003, to that
    certain Lease dated January 18, 2000, between Property
    Reserve Inc. and Registrant.10
.15(9)

Registration Rights Agreement dated as of June 1, 2004,
    between Digital River, Inc. and the initial purchasers of Senior
    Convertible Notes due January 1, 2024.10
.16(13)

Summary of Compensation Program for Non-Employee Directors.10
.17(14)

Second Amended and Restated Symantec Online Store Agreement, by
    and among Symantec Corporation, Symantec Limited, Digital River,
    Inc. and Digital River Ireland Limited effective April 1,
    2006 10
.18(10)

1998 Equity Incentive Plan (formerly known as 1998 Stock Option
    Plan).*10
.19(13)

Amended and Restated Employment Agreement for Joel A. Ronning.*10
.20(13)

Change of Control and Severance Agreement for Thomas M.
    Donnelly.*10
.21(11)

Form of Amendment to Non-Qualified Stock Option Agreement.*10
.22(12)

Inducement Equity Incentive Plan.*10
.23(15)

2007 Equity Incentive Plan.*10
.24(13)

Change of Control and Severance Agreement for Kevin L. Crudden.*10
.25++

Microsoft Operations Digital Distribution Agreement, by and
    among Digital River, Inc. and Microsoft Corporation effective
    September 1, 2006 10
.26++

Direct Reseller Addendum to the Microsoft Operations Digital
    Distribution Agreement, by and among Digital River, Inc. and
    Microsoft Corporation effective September 1, 2006 10
.27++

Omnibus Amendment to the Microsoft Operations Digital
    Distribution Agreement, by and among Digital River, Inc. and
    Microsoft Corporation effective October 4, 2007 10
.28++

Amendment to the Microsoft Operations Digital Distribution
    Agreement, by and among Digital River, Inc. and Microsoft
    Corporation effective December 2, 2008 10
.29++

Amendment to the Microsoft Operations Digital Distribution
    Agreement, by and among Digital River, Inc. and Microsoft
    Corporation effective September 9, 2009 12
.1++

Computation of Ratio of Earnings to Fixed Charges. 86




---



##### Table of Contents



ExhibitNumber

Description of Document21
.1++

Subsidiaries of Digital River, Inc.23
.1++

Consent of Independent Registered Public Accounting Firm, dated
    February 23, 2009.24
.1++

Power of Attorney, pursuant to which amendments to this Annual
    Report on
    Form 10-K
    may be filed, is included on the signature pages of this Annual
    Report on
    Form 10-K.31
.1++

Certification of Digital River, Inc.s Chief Executive
    Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.31
.2++

Certification of Digital River, Inc.s Chief Financial
    Officer, pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002.32
++

Certification of Digital River, Inc.s Chief Executive
    Officer and Chief Financial Officer pursuant to Section 906
    of the Sarbanes-Oxley Act of 2002.     ++
    
    Filed herewith.  *
    
    Management contract or compensatory plan.
    
    Confidential treatment has been requested for portions of this
    agreement, which portions have been filed  separately with
    the SEC.  (1)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 4, 2004.(2)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on June 1, 2006.(3)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 1999, filed on
    March 30, 2000.(4)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2000, filed on
    March 27, 2001.(5)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-1
    (File No.
    333-56787),
    declared effective on August 11, 1998.(6)
    
    Incorporated by reference from the Companys Registration
    Statement on
    Form S-8
    (File No.
    333-105864)
    filed on June 5, 2003.(7)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2003, filed on
    August 14, 2003.(8)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended March 31, 2003, filed on May 15,
    2003.(9)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on July 13, 2004.(10)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on May 31, 2005.(11)
    
    Incorporated by reference from the Companys Quarterly
    Report on
    Form 10-Q
    for the quarter ended June 30, 2005, filed on
    August 9, 2005.(12)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on December 20, 2005.(13)
    
    Incorporated by reference from the Companys Current Report
    on
    Form 8-K
    filed on March 10, 2008.(14)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2006, filed on
    March 1, 2007.(15)
    
    Incorporated by reference from the Companys Annual Report
    on
    Form 10-K
    for the year ended December 31, 2007, filed on
    February 29, 2008. 87