Shutterfly 2010 Annual Report Download - page 70

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SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 31, 2009 the Company liquidated $4.3 million (at par value) ARS investments that were called by various
issuers. The Company intends to exercise the UBS Right on June 30, 2010, and as a result, these ARS investments and the Right are classified
as short-term investments as of December 31, 2009.
The following table provides a summary of changes in fair value of the Company’
s ARS investments and the Right which are both Level 3
assets as of December 31, 2009 (in thousands):
Note 4 — Balance Sheet Components
Intellectual Property Prepaid Royalties
In 2009, the Company entered into patent license agreements with various third parties. The Company has accounted for these agreements
as prepaid royalties that are amortized over the remaining life of the patents. Amortization expense is recorded as a component of cost of
revenue. The current portion of the prepaid royalty is recorded as a component of prepaid expenses and the long term portion is recorded in
other assets as of December 31, 2009. Total amortization for these license agreements in 2009 was $234,000.
As of December 31, 2009, the Company had a balance of $5.1 million in unamortized prepaid royalties. Amortization of these licenses is
estimated as follows (in thousands):
Rights
ARS
Balance at December 31, 2008
$
9,013
$
43,237
Sales of ARS investments
—
(
4,325
)
Unrealized gain/(loss) included in earnings
(2,747
)
2,747
Balance at December 31, 2009
$
6,266
$
41,659
Year Ending:
2010
$
694
2011
694
2012
694
2013
694
2014
694
Thereafter
1,583
$
5,053
67