Shutterfly 2009 Annual Report Download - page 78

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SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
The Company generally recognizes revenue from product sales, net of applicable sales tax upon shipment when persuasive evidence of an
arrangement exists, the selling price is fixed or determinable and collection of resulting receivables is reasonably assured. Revenues from
amounts billed to customers, including prepaid orders, are deferred until shipment of fulfilled orders or until the prepaid period
expires. Shipping charged to customers is recognized as revenue at the time of shipment. The Company recognizes commercial print revenue
upon shipment, consistent with it's product revenue policy.
The Company provides its customers with a 100% satisfaction guarantee whereby products can be returned within a 30-
day period for a
reprint or refund. The Company maintains an allowance for estimated future returns based on historical data. The provision for estimated returns
is included in accrued expenses.
The Company periodically provides incentive offers to its customers in exchange for setting up an account and to encourage purchases.
Such offers include free products and percentage discounts on current purchases. Discounts, when accepted by customers, are treated as a
reduction to the purchase price of the related transaction and are presented in net revenues. Production costs related to free products are included
in cost of revenues upon redemption.
The Company’s a
dvertising revenues are derived from the sale of online advertisements on its website. Advertising revenues are recognized
as “impressions” (
i.e., the number of times that an advertisement appears in pages viewed by users of the Company's websites) are delivered; as
“clicks” (which are generated each time users on Company's websites click through the advertisements to an advertiser’
s designated website) are
provided to advertisers; or ratably over the term of the agreement with the expectation that advertisement will be delivered ratably over the
contract period.
Restructuring Costs
In accordance with Statement of Financial Accounting Standards No. 146,
Accounting for Costs Associated with Exit or Disposal Activities
("SFAS No. 146")
, restructuring costs are recorded as incurred. The Company accrues for lease termination costs at the time a restructuring
event takes place. The Company accrues for severance once the total severance pool has been calculated, approved and communicated, and
recognizes the expense ratably over the required service period, from the communication date to the exit date. The Company also accelerates
depreciation using a revised economic life of the leasehold improvement assets.
Advertising Costs
Advertising costs are expensed as incurred, except for direct mail advertising which is expensed when the advertising first takes
place. Total direct mail costs capitalized as of December 31, 2008 and December 31, 2007 were $0 and $355,000, respectively. Total
advertising costs are included in selling and marketing expenses and totaled approximately $14,740,000, $10,800,000 and $5,710,000 during the
years ended December 31, 2008, 2007 and 2006, respectively.
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