Shutterfly 2008 Annual Report Download - page 54

Income Taxes
The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are
expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company accounts for uncertain tax positions in accordance with FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”),
an interpretation of
FASB Statement No. 109 (“SFAS 109”).
The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. The
Company is required to make subjective assumptions and judgments regarding its income tax exposures. Interpretations and guidance surrounding income tax laws and regulations
change over time. As such, changes in the Company’
s subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and
statements of operations.
The Company’
s policy is to recognize interest and /or penalties related to all tax positions in income tax expense. To the extent that accrued interest and penalties do not ultimately
become payable, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision in the period that such determination is made. No interest and
penalties were accrued as of the date of adoption of FIN 48 or at December 31, 2007.
Net Income Per Share
Basic net income per share attributed to common shares is computed by dividing the net income attributable to common shares for the period by the weighted average number of
common shares outstanding during the period as reduced by the weighted average unvested common shares subject to repurchase by the Company. Net income available to common
stockholders is calculated using the two class method as the net income less preferred stock dividends for the period and amounts allocated to preferred stock to reflect the rights of the
preferred stock to receive dividends in preference to common stock.
Diluted net income per share attributed to common shares is computed by dividing the net income attributable to common shares for the period by the weighted average number of
common and potential common shares outstanding during the period, if the effect of each class of potential common shares is dilutive. Potential common shares include restricted
common stock, common stock subject to repurchase rights, and incremental shares of common stock issuable upon the exercise of stock options and warrants and upon conversion of
preferred stock.
The following weighted-
average outstanding options and convertible preferred stock were excluded from the computation of diluted net income per common share for the periods
presented because including them would have had an anti-dilutive effect:
Comprehensive Income (Loss)
FASB Statement No. 130, Reporting Comprehensive Income
, establishes standards for reporting and displaying comprehensive income and comprehensive loss and its
components in the consolidated financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other
events and circumstances from non-
owner sources. Comprehensive income (loss) is composed of net income (loss) and unrealized gains and losses on marketable securities, which are
disclosed in the accompanying consolidated statements of redeemable convertible preferred stock and shareholders’ equity (deficit).
The components of accumulated other comprehensive income (loss) were as follows (in thousands):
SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31,
2007
2006
2005
Historical net income per share:
In thousands, except per share amounts
Numerator
Net income before cumulative effect of change in accounting principle
$
10,095
$
5,798
$
28,490
Cumulative effect of change in accounting principle
—
—
442
Net income
10,095
5,798
28,932
Income allocable to preferred stockholders
—
—
(
24,212
)
Net income allocable to common stockholders
$
10,095
$
5,798
$
4,720
Denominator
Weighted
-
average common shares outstanding
24,309
8,729
3,619
Less: Weighted-average unvested common shares subject to repurchase
(14
)
(107
)
(364
)
Denominator for basic net income per share
24,295
8,622
3,255
Dilutive effect of stock options and shares subject to repurchase
1,978
1,709
1,307
Dilutive effect of outstanding preferred stock warrants
—
—
47
Denominator for diluted net income per share
26,273
10,331
4,609
Net income per share
—
basic and diluted
Before cumulative effect of change in accounting principle
$
0.42
$
0.67
$
1.31
Cumulative effect of change in accounting principle
—
—
0.14
Net income per share — basic
$
0.42
$
0.67
$
1.45
Net income per share — diluted
$
0.38
$
0.56
$
1.02
Year Ended December 31,
2007
2006
2005
In thousands
Options to purchase common stock
385
1,367
153
Convertible preferred stock (as converted basis)
—
10,509
12,633
Year Ended December 31,
2007
2006
2005
Unrealized income (loss) in investments, net of tax of $13 and $19
$
23
$
(35
)
$
—
Net income
10,095
5,798
28,932
Total comprehensive income
$
10,118
$
5,763
$
28,932