| BLACKBAUD INC Item 1A Risk Factors This report contains forward-looking statements that involve risks and uncertainties |
| Our actual results could differ materially from those discussed in this report |
| Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report and in any documents incorporated in this report by reference |
| If any of the following risks, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected |
| If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment |
| The market for software and services for nonprofit organizations might not grow, and nonprofit organizations might not continue to adopt our products and services |
| Many nonprofit organizations have not traditionally used integrated and comprehensive software and services for their nonprofit-specific needs |
| We cannot be certain that the market for such products and services will continue to develop and grow or that nonprofit organizations will elect to adopt our products and services rather than continue to use traditional, less automated methods, attempt to develop software internally, rely upon legacy software systems, or use generalized software solutions not specifically designed for the nonprofit market |
| Nonprofit organizations that have already invested substantial resources in other fundraising methods or other non-integrated software solutions might be reluctant to adopt our products and services to supplement or replace their existing systems or methods |
| In addition, the implementation of one or more of our core software products can involve significant time and capital commitments by our customers, which they may be unwilling or unable to make |
| If demand for and market acceptance of our products and services does not increase, we might not grow our business as we expect |
| We might not generate increased business from our current customers, which could limit our revenue in the future |
| Our business model is highly dependent on the success of our efforts to increase sales to our existing customers |
| Many of our customers initially make a purchase of only one or a limited number of our products or only for a single department within their organization |
| These customers might choose not to expand their use of or make additional purchases of our products and services |
| If we fail to generate additional business from our current customers, our revenue could grow at a slower rate or even decrease |
| In addition, as we deploy new applications and features for our existing products or introduce new products and services, our current customers could choose not to purchase these new offerings |
| If our customers do not renew their annual maintenance and support agreements for our products or if they do not renew them on terms that are favorable to us, our business might suffer |
| Most of our maintenance agreements are for a term of one year |
| As the end of the annual period approaches, we pursue the renewal of the agreement with the customer |
| Historically, maintenance renewals have represented a significant portion of our total revenue, including approximately 36prca and 40prca of our 12 _________________________________________________________________ [64]Table of Contents total revenue in 2005 and 2004, respectively |
| Because of this characteristic of our business, if our customers choose not to renew their maintenance and support agreements with us on beneficial terms, our business, operating results and financial condition could be harmed |
| A substantial majority of our revenue is derived from The Raiser’s Edge and a decline in sales or renewals of this product and related services could harm our business |
| We derive a substantial majority of our revenue from the sale of The Raiser’s Edge and related services, and revenue from this product and related services is expected to continue to account for a substantial majority of our total revenue for the foreseeable future |
| For example, revenue from the sale of The Raiser’s Edge and related services represented approximately 66prca and 70prca of our total revenue in 2005 and 2004, respectively |
| Because we generally sell licenses to our products on a perpetual basis and deliver new versions and enhancements to customers who purchase annual maintenance and support, our future license, services and maintenance revenue are substantially dependent on sales to new customers |
| In addition, we frequently sell The Raiser’s Edge to new customers and then attempt to generate incremental revenue from the sale of additional products and services |
| If demand for The Raiser’s Edge declines significantly, our business would suffer |
| Our quarterly financial results fluctuate and might be difficult to forecast and, if our future results are below either any guidance we might issue or the expectations of public market analysts and investors, the price of our common stock might decline |
| Our quarterly revenue and results of operations are difficult to forecast |
| We have experienced, and expect to continue to experience, fluctuations in revenue and operating results from quarter to quarter |
| As a result, we believe that quarter-to-quarter comparisons of our revenue and operating results are not necessarily meaningful and that such comparisons might not be accurate indicators of future performance |
| The reasons for these fluctuations include but are not limited to: • the size and timing of sales of our software, including the relatively long sales cycles associated with many of our large software sales; • budget and spending decisions by our customers; • market acceptance of new products we release, such as The Patron Edge and NetCommunity; • the amount and timing of operating costs related to the expansion of our business, operations and infrastructure; • changes in our pricing policies or our competitors’ pricing policies; • seasonality in our revenue; • general economic conditions; and • costs related to acquisitions of technologies or businesses |
| Our operating expenses, which include sales and marketing, research and development and general and administrative expenses, are based on our expectations of future revenue and are, to a large extent, fixed in the short term |
| If revenue falls below our expectations in a quarter and we are not able to quickly reduce our operating expenses in response, our operating results for that quarter could be adversely affected |
| It is possible that in some future quarter our operating results may be below either any guidance we might issue or the expectations of public market analysts and investors and, as a result, the price of our common stock might fall |
| We encounter long sales and implementation cycles, particularly for our largest customers, which could have an adverse effect on the size, timing and predictability of our revenue and sales |
| Potential customers, particularly our larger enterprise-wide clients, generally commit significant resources to an evaluation of available software and require us to expend substantial time, effort and money 13 _________________________________________________________________ [65]Table of Contents educating them as to the value of our software and services |
| Sales of our core software products to these larger customers often require an extensive education and marketing effort |
| We could expend significant funds and management resources during the sales cycle and ultimately fail to close the sale |
| Our core software product sales cycle averages approximately two months for sales to existing customers and from six to nine months for sales to new customers and large enterprise-wide sales |
| Our implementation cycle for large enterprise-wide sales can extend for a year or more, which can negatively impact the timing and predictability of our revenue |
| Our sales cycle for all of our products and services is subject to significant risks and delays over which we have little or no control, including: • our customers’ budgetary constraints; • the timing of our clients’ budget cycles and approval processes; • our clients’ willingness to replace their current methods or software solutions; • our need to educate potential customers about the uses and benefits of our products and services; and • the timing and expiration of our clients’ current license agreements or outsourcing agreements for similar services |
| If we are unsuccessful in closing sales after expending significant funds and management resources or if we experience delays as discussed above, it could have a material adverse effect on the size, timing and predictability of our revenue |
| We have recorded a significant deferred tax asset, and we might never realize the full value of our deferred tax asset, which would result in a charge against our earnings |
| In connection with the initial acquisition of our common stock as part of our recapitalization in 1999, we recorded approximately dlra107 million as a deferred tax asset |
| Our deferred tax asset was approximately dlra79 million as of December 31, 2005, or approximately 54prca of our total assets as of that date |
| Realization of our deferred tax asset is dependent upon our generating sufficient taxable income in future years to realize the tax benefit from that asset |
| In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards Nodtta 109, deferred tax assets are reviewed at least annually for impairment |
| Impairment would result if, based on the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized |
| This impairment could be caused by, among other things, deterioration in performance, loss of key contracts, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products sold by our business and a variety of other factors |
| If an impairment were to occur in a future period, it would be recognized as an expense in our results of operations during the period of impairment |
| Depending on future circumstances, it is possible that we might never realize the full value of our deferred tax asset |
| Any future determination of impairment of a significant portion of our deferred tax asset would have an adverse effect on our financial condition and results of operations |
| Nonprofit organizations might not use the Internet to facilitate their fundraising and organizational efforts in a manner sufficient to allow us to make a profit or even recapture our investment in this area |
| In addition, even if they increasingly use the Internet for these purposes, if we fail to capitalize on this opportunity, we could lose market share |
| The market for online fundraising solutions for nonprofit organizations is new and emerging |
| Nonprofit organizations have not traditionally used the Internet or web-enabled software solutions for fundraising |
| We cannot be certain that the market will continue to develop and grow or that nonprofit organizations will elect to use any of our web-enabled products rather than continue to use traditional offline methods, attempt to develop software solutions internally or use standardized software solutions not designed for the specific needs of nonprofits |
| Nonprofit organizations that have already invested substantial resources in other fundraising methods may be reluctant to use the Internet to supplement their existing systems or methods |
| In addition, increasing concerns about fraud, privacy, security, reliability and other problems might cause nonprofit organizations not to adopt the Internet as a method for fundraising |
| If demand for 14 _________________________________________________________________ [66]Table of Contents and market acceptance of Internet-based products for nonprofits does not occur, we might not recapture our investment in this area or grow our business as we expect |
| On the other hand, even if nonprofits increasingly use the Internet for their fundraising and organizational efforts, if we fail to develop and offer products that meet customer needs in this area, we could lose market share |
| Our failure to compete successfully could cause our revenue or market share to decline |
| Our market is fragmented, competitive and rapidly evolving, and there are limited barriers to entry for some aspects of this market |
| We mainly face competition from four sources: • software developers offering integrated specialized products designed to address specific needs of nonprofit organizations; • providers of traditional, less automated fundraising services, such as services that support traditional direct mail campaigns, special events fundraising, telemarketing and personal solicitations; • custom-developed products created either internally or outsourced to custom service providers; and • Software developers offering general products not designed to address specific needs of nonprofit organizations |
| The companies we compete with, and other potential competitors, may have greater financial, technical and marketing resources and generate greater revenue and better name recognition than we do |
| If one or more of our competitors or potential competitors were to merge or partner with one of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively |
| For example, a large diversified software enterprise, such as Microsoft, Oracle or SAP, could decide to enter the market directly, including through acquisitions |
| Additionally, a United Kingdom company that owns several US based providers of accounting and related software applications has made acquisitions and product development efforts in the nonprofit market |
| Our competitors might also establish or strengthen cooperative relationships with resellers and third-party consulting firms or other parties with whom we have had relationships, thereby limiting our ability to promote our products and limiting the number of channel partners available to help market our products |
| These competitive pressures could cause our revenue and market share to decline |
| We might not be able to manage our future growth efficiently or profitably |
| We have experienced significant growth since our inception, and we anticipate that continued expansion will be required to address potential market opportunities |
| For example, we will need to expand the size of our sales and marketing, product development and general and administrative staff and operations, as well as our financial and accounting controls |
| There can be no assurance that our infrastructure will be sufficiently scalable to manage our projected growth |
| For example, our anticipated growth will result in a significant increase in demands on our maintenance and support services professionals to continue to provide the high level of quality service that our customers have come to expect |
| If we are unable to sufficiently address these additional demands on our resources, our profitability and growth might suffer |
| Also, if we continue to expand our operations, management might not be effective in expanding our physical facilities and our systems, procedures or controls might not be adequate to support such expansion |
| Our inability to manage our growth could harm our business |
| Because competition for highly qualified personnel is intense, we might not be able to attract and retain the employees we need to support our planned growth |
| To execute our continuing growth plans, we need to increase the size and maintain the quality of our sales force, software development staff and our professional services organization |
| To meet our objectives successfully, we must attract and retain highly qualified personnel with specialized skill sets focused on the nonprofit industry |
| Competition for qualified personnel can be intense, and we might not be successful in attracting and retaining them |
| The pool of qualified personnel with experience working with or selling to 15 _________________________________________________________________ [67]Table of Contents nonprofit organizations is limited overall and specifically in Charleston, South Carolina, where our principal office is located |
| Our ability to maintain and expand our sales, product development and professional services teams will depend on our ability to recruit, train and retain top quality people with advanced skills who understand sales to, and the specific needs of, nonprofit organizations |
| For these reasons, we have from time to time in the past experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications for our business |
| For example, our President and Chief Executive Officer retired in November 2005, and in mid-2005 our Vice President of Sales left to pursue other opportunities outside Blackbaud |
| In addition, it takes time for our new sales and services personnel to become productive, particularly with respect to obtaining and supporting major customer accounts |
| In particular, we plan to continue to increase the number of services personnel to attempt to meet the needs of our customers and potential new customers |
| In addition to hiring services personnel to meet our needs, we might also engage additional third-party consultants as contractors, which could have a negative impact on our earnings |
| If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or reach productivity slower than anticipated, it would be more difficult for us to sell our products and services, and we could experience a shortfall in revenue or earnings, and not achieve our planned growth |
| Our services revenue produces substantially lower gross margins than our license revenue, and an increase in services revenue relative to license revenue would harm our overall gross margins |
| Our services revenue, which includes fees for consulting, implementation, training, data and technical services and analytics, was approximately 32prca of our revenue for 2005, 31prca of our revenue for 2004 and 29prca of our revenue for 2003 |
| Our services revenue has substantially lower gross margins than our product license revenue |
| An increase in the percentage of total revenue represented by services revenue would adversely affect our overall gross margins |
| Certain of our services are contracted under fixed fee arrangements, which we base on estimates |
| If our estimated fees are less than our actual costs, our operating results would be adversely affected |
| Services revenue as a percentage of total revenue has varied significantly from quarter to quarter due to fluctuations in licensing revenue, economic changes, changes in the average selling prices for our products and services, our customers’ acceptance of our products and our sales force execution |
| In addition, the volume and profitability of services can depend in large part upon: • competitive pricing pressure on the rates that we can charge for our services; • the complexity of the customers’ information technology environment and the existence of multiple non-integrated legacy databases; • the resources directed by customers to their implementation projects; and • the extent to which outside consulting organizations provide services directly to customers |
| Any erosion of our margins for our services revenue or any adverse changes in the mix of our license versus service revenue would adversely affect our operating results |
| Failure to adapt to technological change and to achieve broad adoption and acceptance of our new products and services could adversely affect our earnings |
| If we fail to keep pace with technological change in our industry, such failure would have an adverse effect on our revenue and earnings |
| We operate in a highly competitive industry characterized by evolving technologies and industry standards, changes in customer requirements and frequent new product introductions and enhancements |
| During the past several years, many new technological advancements and competing products have entered the marketplace |
| Our ability to compete effectively and our growth prospects depend upon many factors, including the success of our existing software products and services to address the changing needs of our customers, the timely introduction and success of future software products and services and releases and the ability of our products to perform well with existing and future 16 _________________________________________________________________ [68]Table of Contents technologies, including databases, applications, operating systems and other platforms |
| We have made significant investments in research and development and our growth plans are premised in part on generating substantial revenue from new product introductions |
| New product introductions involve significant risks |
| For example, delays in new product introductions, or less-than-anticipated market acceptance of our new products are possible and would have an adverse effect on our revenue and earnings |
| We cannot be certain that our new products or future enhancements to existing products will meet customer performance needs or expectations when shipped or that they will be free of significant software defects or bugs |
| If they do not meet customer needs or expectations, for whatever reason, upgrading or enhancing these products could be costly and time consuming |
| In addition, the selling price of software products tends to decline significantly over the life of the product |
| If we are unable to offset any reductions in the selling prices of our products by introducing new products at higher prices or by reducing our costs, our revenue, gross margin and operating results would be adversely affected |
| If our products fail to perform properly due to undetected errors or similar problems, our business could suffer |
| Complex software such as ours often contains undetected errors or bugs |
| Such errors are frequently found after introduction of new software or enhancements to existing software |
| We continually introduce or acquire the rights to new products and release new versions of our products |
| If we detect any errors before we ship a product, we might have to delay product shipment for an extended period of time while we address the problem |
| We might not discover software errors that affect our new or current products or enhancements until after they are deployed, and we may need to provide enhancements to correct such errors |
| Therefore, it is possible that, despite testing by us, errors may occur in our software |
| These errors could result in: • harm to our reputation; • lost sales; • delays in commercial release; • product liability claims; • delays in or loss of market acceptance of our products; • license terminations or renegotiations; and • unexpected expenses and diversion of resources to remedy errors |
| Furthermore, our customers may use our software together with products from other companies |
| As a result, when problems occur, it might be difficult to identify the source of the problem |
| Even when our software does not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our product development efforts, impact our reputation and cause significant customer relations problems |
| We intend to continue licensing technologies from third parties, including applications used in our research and development activities, technologies which are integrated into our products, and products that we resell |
| These technologies might not continue to be available to us on commercially reasonable terms or at all |
| Our inability to obtain any of these licenses could delay product development until equivalent technology can be identified, licensed and integrated |
| This inability in turn would harm our business and operating results |
| Our use of third-party technologies exposes us to increased risks, including, but not limited to, risks associated with the integration of new technology into our products, the diversion of our resources from development of our own proprietary technology and our inability to generate revenue from licensed technology sufficient to offset associated acquisition and maintenance costs |
| 17 _________________________________________________________________ [69]Table of Contents If the security of our software, in particular our hosted Internet solutions products, is breached, our business and reputation could suffer |
| Fundamental to the use of our products is the secure collection, storage and transmission of confidential donor and end user information |
| Third parties may attempt to breach our security or that of our customers and their databases |
| We might be liable to our customers for any breach in such security, and any breach could harm our customers, our business and our reputation |
| Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could harm our reputation and our business and operating results |
| Also, computers, including those that utilize our software, are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data |
| We might be required to expend significant capital and other resources to protect further against security breaches or to rectify problems caused by any security breach |
| If we are unable to detect and prevent unauthorized use of credit cards and bank account numbers and safeguard confidential donor data, we could be subject to financial liability, our reputation could be harmed and customers may be reluctant to use our products and services |
| We rely on third-party and internally-developed encryption and authentication technology to provide secure transmission of confidential information over the Internet, including customer credit card and bank account numbers, and protect confidential donor data |
| Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could result in a compromise or breach of the technology we use to protect sensitive transaction data |
| If any such compromise of our security, or the security of our customers, were to occur, it could result in misappropriation of proprietary information or interruptions in operations and have an adverse impact on our reputation or the reputation of our customers |
| If we are unable to detect and prevent unauthorized use of credit cards and bank account numbers or protect confidential donor data, our business could suffer |
| We currently do not have any issued patents, but we rely upon trademark, copyright, patent and trade secret laws to protect our proprietary rights, which might not provide us with adequate protection |
| Our success and ability to compete depend to a significant degree upon the protection of our software and other proprietary technology rights |
| We might not be successful in protecting our proprietary technology, and our proprietary rights might not provide us with a meaningful competitive advantage |
| To protect our proprietary technology, we rely on a combination of patent, trademark, copyright and trade secret laws, as well as nondisclosure agreements, each of which affords only limited protection |
| We currently do not have patents issued for any of our proprietary technology and we only recently filed patent applications relating to a number of our products |
| Moreover, we have no patent protection for The Raiser’s Edge, which is one of our core products and responsible for a significant portion of our revenue |
| Any inability to protect our intellectual property rights could seriously harm our business, operating results and financial condition |
| It is possible that: • our pending patent applications may not result in the issuance of patents; • any patents issued to us may not be timely or broad enough to protect our proprietary rights; • any issued patent could be successfully challenged by one or more third parties, which could result in our loss of the right to prevent others from exploiting the inventions claimed in those patents; and • current and future competitors may independently develop similar technologies, duplicate our products or design around any of our patents |
| In addition, the laws of some foreign countries do not protect our proprietary rights in our products to the same extent as do the laws of the United States |
| Despite the measures taken by us, it may be possible for a third party to copy or otherwise obtain and use our proprietary technology and information without authorization |
| Policing unauthorized use of our products is difficult, and litigation could become necessary in the future to enforce our intellectual property rights |
| Any litigation could be time consuming and 18 _________________________________________________________________ [70]Table of Contents expensive to prosecute or resolve, result in substantial diversion of management attention and resources, and materially harm our business, financial condition and results of operations |
| If we do not successfully address the risks inherent in the expansion of our international operations, our business could suffer |
| We currently have operations in the United Kingdom, Canada and Australia, and we intend to expand further into international markets |
| We have limited experience in international operations and may not be able to compete effectively in international markets |
| In 2005, our international offices generated revenues of approximately dlra22dtta4 million, an increase of 6dtta7prca over 2004 international revenue of dlra21dtta0 million, itself an increase of 96prca over international revenue of dlra10dtta7 million for 2003 |
| Expansion of our international operations will require a significant amount of attention from our management and substantial financial resources and may require us to add qualified management in these markets |
| Our direct sales model requires us to attract, retain and manage qualified sales personnel capable of selling into markets outside the United States |
| In some cases, our costs of sales might increase if our customers require us to sell through local distributors |
| If we are unable to grow our international operations in a cost effective and timely manner, our business and operating results could be harmed |
| Doing business internationally involves additional risks that could harm our operating results, including: • difficulties associated with and costs of staffing and managing international operations; • differing technology standards; • difficulties in collecting accounts receivable and longer collection periods; • political and economic instability; • fluctuations in currency exchange rates; • imposition of currency exchange controls; • potentially adverse tax consequences; • reduced protection for intellectual property rights in certain countries; • dependence on local vendors; • protectionist laws and business practices that favor local competition; • compliance with multiple conflicting and changing governmental laws and regulations; • seasonal reductions in business activity specific to certain markets; • longer sales cycles; • restrictions on repatriation of earnings; • differing labor regulations; • restrictive privacy regulations in different countries, particularly in the European Union; • restrictions on the export of technologies such as data security and encryption; and • import and export restrictions and tariffs |
| Future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources |
| We intend to acquire companies, services and technologies that we feel could complement or expand our business, augment our market coverage, enhance our technical capabilities, provide us with important 19 _________________________________________________________________ [71]Table of Contents customer contacts or otherwise offer growth opportunities |
| Acquisitions and investments involve numerous risks, including: • difficulties in integrating operations, technologies, services, accounting and personnel; • difficulties in supporting and transitioning customers of our acquired companies; • diversion of financial and management resources from existing operations; • risks of entering new sectors of the nonprofit industry; • potential loss of key employees; and • inability to generate sufficient revenue to offset acquisition or investment costs |
| Acquisitions also frequently result in recording of goodwill and other intangible assets, which are subject to potential impairments in the future that could harm our operating results |
| In addition, if we finance acquisitions by issuing equity securities or securities convertible into equity securities, our existing stockholders would be diluted, which, in turn, could affect the market price of our stock |
| Moreover, we could finance any acquisition with debt, resulting in higher leverage and interest costs |
| As a result, if we fail to evaluate and execute acquisitions or investments properly, we might not achieve the anticipated benefits of any such acquisition, and we may incur costs in excess of what we anticipate |
| Litigation regarding intellectual property rights is common in the software industry |
| We expect that software products and services may be increasingly subject to third-party infringement claims as the number of competitors in our industry segment grows and the functionality of products in different industry segments overlaps |
| We may from time to time encounter disputes over rights and obligations concerning intellectual property |
| Although we believe that our intellectual property rights are sufficient to allow us to market our software without incurring liability to third parties, third parties may bring claims of infringement against us |
| Any litigation to defend against claims of infringement or invalidity could result in substantial costs and diversion of resources |
| Furthermore, a party making such a claim could secure a judgment that requires us to pay substantial damages |
| A judgment could also include an injunction or other court order that could prevent us from selling our software |
| Our business, operating results and financial condition could be harmed if any of these events occurred |
| In addition, we have agreed, and will likely agree in the future, to indemnify certain of our customers against certain claims that our software infringes upon the intellectual property rights of others |
| We could incur substantial costs in defending ourselves and our customers against infringement claims |
| In the event of a claim of infringement, we and our customers might be required to obtain one or more licenses from third parties |
| We, or our customers, might be unable to obtain necessary licenses from third parties at a reasonable cost, if at all |
| Defense of any lawsuit or failure to obtain any such required licenses could harm our business, operating results and financial condition |
| If we become subject to product or general liability or errors and omissions claims, they could be time-consuming and costly |
| Errors, defects or other performance problems in our software, as well as the negligence or misconduct of our consultants, could result in financial or other damages to our customers |
| They could seek damages from us for losses associated with these errors, defects or other performance problems |
| Although we possess product liability insurance and errors and omissions insurance, there is no guarantee that our insurance would be enough to cover the full amount of any loss we might suffer |
| Our license and service agreements typically contain provisions designed to limit our exposure to product liability claims, but existing or future laws or unfavorable judicial decisions could negate these limitation of liability provisions |
| A claim brought against us, even if unsuccessful, could be time-consuming and costly to defend and could harm our reputation |
| 20 _________________________________________________________________ [72]Table of Contents If we were found subject to or in violation of any laws or regulations governing privacy or electronic fund transfers, we could be subject to liability or forced to change our business practices |
| It is possible that the payment processing component of our web-based software is subject to various governmental regulations |
| Pending legislation at the state and federal levels could also restrict further our information gathering and disclosure practices |
| For example, our custom modeling and analytical services, including ProspectPoint and WealthPoint, rely heavily on securing and making use of data we gather from various sources and privacy laws could jeopardize our ability to market and profit from those services |
| The provisions of these laws and related regulations are complicated, and we do not have extensive experience with these laws and related regulations |
| Even technical violations of these laws can result in penalties that are assessed for each non-compliant transaction |
| In addition, we might be subject to the privacy provisions of the Health Insurance Portability and Accountability Act of 1996 and the Gramm-Leach-Bliley Act and related regulations |
| If we or our customers were found to be subject to and in violation of any of these laws or other privacy laws or regulations, our business would suffer and we and/or our customers would likely have to change our business practices |
| In addition, these laws and regulations could impose significant costs on us and our customers and make it more difficult for donors to make online donations |
| Increasing government regulation could affect our business |
| We are subject not only to regulations applicable to businesses generally but also to laws and regulations directly applicable to electronic commerce |
| Although there are currently few such laws and regulations, state, Federal and foreign governments may adopt laws and regulations applicable to our business |
| Any such legislation or regulation could dampen the growth of the Internet and decrease its acceptance |
| Any new laws or regulations in the following areas could affect our business: • user privacy; • the pricing and taxation of goods and services offered over the Internet: • the content of websites; • copyrights; • consumer protection, including the potential application of “do not call” registry requirements on our customers and consumer backlash in general to direct marketing efforts of our customers; • the online distribution of specific material or content over the Internet; and • the characteristics and quality of products and services offered over the Internet |
| Our operations might be affected by the occurrence of a natural disaster or other catastrophic event in Charleston, South Carolina |
| We depend on our principal executive offices and other facilities in Charleston, South Carolina for the continued operation of our business |
| Although we have contingency plans in effect for natural disasters or other catastrophic events, these events, including terrorist attacks and natural disasters such as hurricanes, which historically have struck the Charleston area with some regularity, could disrupt our operations |
| Even though we carry business interruption insurance policies and typically have provisions in our contracts that protect us in certain events, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies or for which we do not have coverage |
| Any natural disaster or catastrophic event affecting us could have a significant negative impact on our operations |
| 21 _________________________________________________________________ [73]Table of Contents Recent changes to accounting standards could cause us to record significant compensation expense or benefit and could significantly reduce or increase our GAAP earnings in future periods |
| On December 16, 2004, the Financial Accounting Standards Board issued Statement Nodtta 123 (revised 2004), Share-Based Payment |
| Statement 123(R) will require us to measure all employee stock-based compensation awards using a fair value method and record such expense in our consolidated financial statements |
| In addition, the adoption of Statement 123(R) will require additional accounting related to the income tax effects and additional disclosure regarding the cash flow effects resulting from share-based payment arrangements |
| Statement 123(R) is effective beginning in 2006 |
| The impact of the adoption of SFAS Nodtta 123(R) is estimated to result in a compensation charge for fiscal year 2006 of approximately dlra6dtta0 million for unvested options outstanding on December 31, 2005 |
| In addition, we estimate a compensation charge in 2006 of approximately dlra2dtta0 million related to unvested restricted stock at December 31, 2005 |
| Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price of our stock |
| Our certificate of incorporation and our bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable, including the following: • our board of directors is classified into three classes, each of which will serve for staggered three year terms; and • we require advance notice for stockholder proposals, including nominations for the election of directors |
| In addition, we are governed by the provisions of Section 203 of the Delaware General Corporate Law, which can prohibit certain business combinations with stockholders owning 15prca or more of our outstanding voting stock, although our certificate of incorporation excludes Hellman & Friedman Capital Partners III, LP and its affiliates and transferees from the application of these anti-takeover provisions |
| These and other provisions in our certificate of incorporation and our bylaws and Delaware law could make it more difficult for stockholders or potential acquirors to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest or other change of control transaction involving our company |
| Any delay or prevention of a change of control transaction or changes in our board of directors could prevent the consummation of a transaction in which our stockholders could receive a substantial premium over the then current market price for their shares |