Shutterfly 2010 Annual Report Download - page 75

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SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nexo Systems, Inc .
On January 4, 2008, the Company acquired all of the outstanding shares of Nexo Systems, Inc. ("Nexo") for total aggregate cash purchase
price of $10.1 million, including $0.1 million in fees; and $4.0 million in restricted stock. Nexo had developed and launched an internet-
based
platform, whereby groups can create customized, content-rich personal and group websites. The acquisition was accounted for as a non-
taxable
purchase transaction and, accordingly, the purchase price has been allocated to the tangible assets, liabilities assumed, and identifiable intangible
assets acquired based on their estimated fair values on the acquisition date. The excess of the purchase price over the aggregate fair values was
recorded as goodwill. The restricted stock award was granted to the Nexo founders contingent upon their continued employment for a period of
two years. As a result, $4.0 million will be recognized as stock-based compensation over the two year service period.
Of the total purchase price, $5.1 million was allocated to developed technology and is being amortized over an estimated useful life of five
years, and $0.1 million was allocated to all other assets and liabilities acquired. No amount was allocated to in
-
process research and
development. The remaining excess purchase price of approximately $4.9 million was allocated to goodwill. In addition, $2.0 million was
recorded as a deferred tax liability representing the difference between the assigned values of the assets acquired and the tax basis of those
assets, with the offset recorded as additional goodwill. The results of operations for the acquired business have been included in the consolidated
statement of operations for the period subsequent to the Company's acquisition of Nexo. Nexo's results of operations for periods prior to this
acquisition were not material to the consolidated statement of operations and, accordingly, pro forma financial information has not been
presented.
Note 7 — Commitments and Contingencies
Leases
The Company leases office and production space under various non-
cancelable operating leases that expire no later than February 2016.
Rent expense was $4,609,000, $2,786,000 and $1,925,000, for the years ended December 31, 2009, 2008 and 2007, respectively.
Rent expense is recorded on a straight-
line basis over the lease term. When a lease provides for fixed escalations of the minimum rental
payments, the difference between the straight-
line rent charged to expense, and the amount payable under the lease is recognized as deferred
rent.
The Company leases certain equipment under non-
cancelable capital leases, that is subject to a security interest. The total outstanding
obligation under capital leases at December 31, 2009 and 2008 was $15,000 and $107,000, respectively.
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