Shutterfly 2009 Annual Report Download - page 79

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SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based Compensation
The Company accounts for its stock-
based employee compensation plans under the fair value provisions of Statement of Financial
Accounting Standards No. 123R, Share-Based Payment (“SFAS No. 123R”). Pursuant to SFAS No. 123(R), stock-
based compensation cost is
measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. SFAS No. 123(R)
requires the cash flows resulting from the tax benefits due to tax deductions in excess of the compensation cost recognized for those options
(excess tax benefits) to be classified as financing cash flows.
The Company accounts for equity instruments issued to non-
employees in accordance with the provisions of SFAS No. 123, Emerging
Issues Task Force Abstract No. 96-18, Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in
Conjunction with Selling, Goods or Services (“EITF 96-18”).
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, 2008.
The Company is subject to taxation in the United States, California and twelve other jurisdictions in the United States.
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