Shutterfly 2010 Annual Report Download - page 66

SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ASC 740 (formerly Financial Accounting Standards Board
Interpretation No. 48 Accounting for Uncertainty in Income Taxes
). 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 ASC 740 or at
December 31, 2009.
The Company is subject to taxation in the United States, California and fourteen other jurisdictions in the United States.
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.
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 units, common stock subject to repurchase rights,
and incremental shares of common stock issuable upon the exercise of stock options.
Year Ended December 31,
2009
2008
2007
Net income per share:
In thousands, except per share amounts
Numerator
Net income
$
5,853
$
3,660
$
9,578
Denominator
Weighted
-
average common shares outstanding
25,420
25,038
24,309
Less: Weighted-average unvested common shares subject to repurchase
-
(2
)
(14
)
Denominator for basic net income per share
25,420
25,036
24,295
Dilutive effect of stock options, restricted awards and shares subject to repurchase
1,390
751
1,978
Denominator for diluted net income per share
26,810
25,787
26,273
Net income per share
Net income per share
—
basic
$
0.23
$
0.15
$
0.39
Net income per share
—
diluted
$
0.22
$
0.14
$
0.36
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