Shutterfly 2012 Annual Report Download - page 80

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Note 5 — Commitments and Contingencies
Operating Leases
The Company leases office and production space under various non-cancelable operating leases that
expire no later than May 2017. Rent expense was $4,776,000, $4,201,000 and $3,964,000, for the years
ended December 31, 2012, 2011 and 2010, respectively. In 2010, the Company renewed the lease for its
corporate office. The lease renewal provided for a $2.1 million tenant improvement reimbursement
allowance which the Company utilized during 2011. Reimbursements under this provision were recorded
as a deferred lease incentive and will reduce rent expense over the remaining lease term.
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 also has non-cancelable operating leases for certain production equipment with terms
ranging from four to five years. As of December 31, 2012, the total outstanding obligation under all
equipment operating leases was $22,578,000.
At December 31, 2012, the total future minimum payments under non-cancelable operating leases are
as follows (in thousands):
Operating
Leases
Year Ending:
2013 .............................................................. $ 11,499
2014 .............................................................. 10,172
2015 .............................................................. 8,950
2016 .............................................................. 5,778
2017 .............................................................. 1,330
Thereafter .......................................................... —
Total minimum lease payments ........................................... $ 37,729
Purchase obligations consist of non-cancelable marketing and service agreements and co-location
services that expire at various dates through the year 2015. As of December 31, 2012, the Company’s
purchase obligations totaled $22,806,000.
Build-to-suit Lease
During the year ended December 31, 2012, the Company executed a lease for a new 300,000 square
foot east coast production and customer service facility in Fort Mill, South Carolina. This facility will
replace the Company’s current east coast production facility in Charlotte, North Carolina and is expected
to open during 2013. In order for the facility to meet the Company’s operating specifications, both the
landlord and the Company are making structural changes as part of the uplift of the building, and as a
result, the Company has concluded that it is the ‘‘deemed owner’’ of the building (for accounting purposes
only) during the construction period. Accordingly, at lease inception, the Company recorded an asset of
$4.9 million, representing its estimate of the fair market value of the building, and a corresponding
construction financing obligation, recorded as a component of other non-current liabilities. During 2012,
the Company increased the asset and financing obligations by $1.5 million for building uplift costs incurred
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