Shutterfly 2013 Annual Report Download

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2013 ANNUAL REPORT

Table of contents

  • Page 1
    2013 ANNUAL REPORT

  • Page 2
    ...Images, which immediatelp added new in-house printing capabilities; and BorrowLenses, which enables the abilitp to cross-sell new services and diversifies our revenue streams3 These acquisitions have allowed us to expand our portfolio of premium lifestple brands, help to grow our business, increase...

  • Page 3
    ...) 2800 Bridge Parkway Redwood City, California (Address of Principal Executive Offices) Registrant's Telephone Number, Including Area Code (650) 610-5200 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.0001 Par Value Per Share Name of Each Exchange on...

  • Page 4
    ... Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security...

  • Page 5
    ... public offering and our common stock is listed on the NASDAQ Global Select Market under the symbol ''SFLY.'' Our principal corporate offices are located in Redwood City, California. We are the leading manufacturer and digital retailer of high-quality personalized products and services offered...

  • Page 6
    ... photo books, greeting and stationery cards, personalized calendars, other photo-based merchandise and high-quality prints ranging in size from wallet-sized to jumbo-sized 20x30 enlargements. We manufacture most of these items in our Fort Mill, South Carolina, Phoenix, Arizona and Elmsford, New York...

  • Page 7
    ... the benefits of premium brands through high customer loyalty, low customer acquisition costs and premium pricing. Our customers are a central part of our business model. They generate most of the content on our service by uploading their photos and storing their memories. In addition, they share...

  • Page 8
    ...and life events and increasing our cross-selling and up-selling activities. In 2013, we added more styles and premium content and options across our brands. We have specifically focused on features that make it easier for customers to personalize products, such as our Custom Path photo book creation...

  • Page 9
    ... - marketing, business development, multi-brand site experiences and customer service. During 2013, we partnered with various companies to offer our products through multiple nationwide flash promotions to those companies' members, and partnered with retailers, like Best Buy, to promote Shutterfly...

  • Page 10
    ... our service. This form of A-B testing enables us to continuously optimize products, pricing, promotions, and user interaction with our websites. Website system. We have designed our website systems to be highly available, secure and cost-effective. We can scale to increasing numbers of customers by...

  • Page 11
    ... is a service of HewlettPackard, American Greetings' Webshots brand, Vistaprint, SmugMug, and many others; Social media companies that host and enable mobile access to and posting of images such as Facebook, Twitter, and Myspace; Photo hosting websites that allow users to upload and share images at...

  • Page 12
    ... States. Our issued patents and patent applications relate primarily to intelligent production creation; image uploading, sharing, and editing; ordering and sharing products; cloud image storage infrastructure; manufacturing optimization; and mobile and social media technologies. We intend to pursue...

  • Page 13
    ... other states, require online services to report certain breaches of the security of personal data, and to report to consumers when their personal data might be disclosed to direct marketers. The federal Credit Card Accountability Responsibility and Disclosure Act of 2009 (the ''CARD Act''), which...

  • Page 14
    ...-based enterprises or lead to unpredictable litigation. We post on our websites our privacy policies and practices concerning the use and disclosure of user data. Any failure by us to comply with our posted privacy policies, Federal Trade Commission requirements or other privacy-related laws and...

  • Page 15
    ... as a significant interruption in the operations of our Fort Mill, South Carolina, Phoenix, Arizona or Elmsford, New York production facilities, could delay production or shipment of our products. Our inability to meet our production requirements could lead to customer dissatisfaction and damage our...

  • Page 16
    ...From time to time, we have made changes to our pricing structure, specifically for 4x6 prints, in order to remain competitive. Most of our other products, including photo books, calendars, cards and stationery and other photo merchandise are also offered by our competitors. During the fourth quarter...

  • Page 17
    ... is a service of HewlettPackard, American Greetings' Webshots brand, Vistaprint, SmugMug, and many others; Social media companies that host and enable mobile access to and posting of images such as Facebook, Twitter, and Myspace; Photo hosting websites that allow users to upload and share images at...

  • Page 18
    ... Home printing service providers such as Hewlett-Packard, Epson, Canon, and Kodak that are seeking to expand their printer and ink businesses by gaining market share in the digital photography marketplace; Regional photography companies such as Ritz Camera that have established brands and customer...

  • Page 19
    ... in our stock price, which may lead to higher stock-based compensation expense; consumer preferences for digital photography services; improvements to the quality, cost and convenience of desktop printing of digital pictures and products; and global and geopolitical events with indirect economic...

  • Page 20
    ... execute our business and marketing strategy; continue to develop and upgrade our technology and information processing systems; continue to enhance our service to meet the needs of a changing market; provide a high quality customer experience, including superior customer service and timely product...

  • Page 21
    ... have website operations, offices and customer support centers in Redwood City, California, Santa Clara, California, and Tempe, Arizona and production facilities in Fort Mill, South Carolina, Phoenix, Arizona and Elmsford, New York and new facilities in Shakopee, Minnesota and Tempe, Arizona and are...

  • Page 22
    ... and refining the customer experience on our websites and mobile applications through internal development. However, from time to time, we may selectively pursue acquisitions of complementary businesses, such as our 2013 acquisition of BorrowLenses LLC, R&R Images, Inc. and MyPublisher, Inc. and our...

  • Page 23
    ...restricted stock unit awards granted to new employees upon hire and in connection with mergers and acquisitions in accordance with NASDAQ Listing Rule 5635(c) do not require stockholder approval. In 2007, 2008, 2009 and 2012 the Board approved inducement equity awards to supplement our 2006 Plan for...

  • Page 24
    ...offer free products and services to attract customers, and we offer substantial pricing discounts to encourage repeat purchases. Our methods of attracting customers, including acquiring customer lists from third parties, such as our acquisitions of customer lists from Kodak, Fuji, American Greetings...

  • Page 25
    ... Prints, Wedding Paper Divas and Treat brands, which would prevent us from acquiring new customers and increasing revenues. A component of our business strategy is the continued promotion and strengthening of the Shutterfly, Tiny Prints, Wedding Paper Divas and Treat brands. Due to the competitive...

  • Page 26
    ...our products and services. If we experience a delay in a website or mobile application release that results in customer dissatisfaction during the period required to correct errors and design faults, we would lose revenue. In the future, we may encounter scalability limitations, in current or future...

  • Page 27
    ... required to switch vendors of machines for photo-based products, we may incur delays and incremental costs, which could harm our operating results. We currently outsource some of our off-line and on-line marketing, our customer service activities and some of our production of print and photo-based...

  • Page 28
    ... ability to build brand identity and possibly leading to customer confusion. In addition, we have been and may continue to be subject to potential trade name or trademark infringement claims brought by owners of marks that are similar to Shutterfly, Tiny Prints, Wedding Paper Divas, Treat, ThisLife...

  • Page 29
    ... (essentially marketing activities) which is a broader definition than is used for sales and use tax. We collect sales and use taxes in jurisdictions where we have employees and/or property and in other states where we have implemented joint sales efforts with Target Corporation and other retailers...

  • Page 30
    ... requires online service providers to report evidence of violations of federal child pornography laws under certain circumstances. The Credit Card Accountability, Responsibility and Disclosure Act (''CARD Act'') is intended to protect consumers from unfair credit card billing practices and adds new...

  • Page 31
    ... costs or may cease accepting orders for shipment to that jurisdiction. That could substantially harm our business and results of operations. Our practice of offering free products and services could be subject to judicial or regulatory challenge. We regularly offer free products and free shipping...

  • Page 32
    ...and results of operations. Changes in regulations or user concerns regarding privacy and protection of user data could harm our business. Federal, state and international laws and regulations may govern the collection, use, sharing and security of data that we receive from our customers. In addition...

  • Page 33
    ... printing at home. Furthermore, we may have to incur significantly higher and more sustained advertising and promotional expenditures or reduce the prices of our products and services in order to attract additional online consumers to our websites and convert them into purchasing customers. Specific...

  • Page 34
    ... applicable to the corporate governance functions of public companies. Additional or new regulatory requirements may be adopted in the future. The requirements of existing and potential future rules and regulations will likely continue to increase our legal, accounting and financial compliance costs...

  • Page 35
    ... exchanges of a ''Limit Up-Limit Down'' program, the imposition of market-wide circuit breakers that halt trading of securities for certain periods following specific market declines, and the implementation of certain regulatory reforms required by the Dodd-Frank Wall Street Reform and Consumer...

  • Page 36
    ... of companies. The market price of our common stock could fluctuate significantly for many reasons, including in response to the risks described in this section, or for reasons unrelated to our operations, such as reports by industry analysts, investor perceptions or negative announcements by...

  • Page 37
    ... affected. Future sales of our common stock in the public market could lower the market price for our common stock and adversely impact the trading price of the notes. In the future, we may sell additional shares of our common stock to raise capital. In addition, a substantial number of shares of...

  • Page 38
    ... the offering in privately negotiated transactions effected through Morgan Stanley & Co. LLC as our agent. We may from time to time repurchase additional shares of our common stock pursuant to our stock repurchase program. These repurchases could increase, or prevent a decrease in, the market price...

  • Page 39
    ... rate by a number of additional shares of our common stock for notes converted in connection with such make-whole fundamental change. The increase in the conversion rate will be determined based on the date on which the specified corporate transaction becomes effective and the price paid (or deemed...

  • Page 40
    ... to the registration requirements of the Securities Act and applicable state securities laws. We do not intend to file a registration statement for the resale of the notes and the common stock, if any, into which the notes are convertible. An active trading market may not develop for the notes...

  • Page 41
    ...conversion of notes or following any repurchase of notes by us on any fundamental change repurchase date or otherwise). This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the notes, which could affect holders' ability to convert the notes and...

  • Page 42
    ...will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide no assurances...

  • Page 43
    ..., acquisitions, strategic partnerships, joint ventures or capital commitments; introduction of technologies or product enhancements that reduce the need for our products; the loss of key personnel; lawsuits threatened or filed against us; future sales of our common stock by our executive officers...

  • Page 44
    ... date that the stockholder became an interested stockholder. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests. We do not intend to pay dividends on our common stock for the foreseeable future...

  • Page 45
    ... Arizona(3) ...Fort Mill, South Carolina(4) ... ... ... ... ... ... Elmsford, New York(5) ...Shakopee, Minnesota(6) ...Phoenix, Arizona ...Tempe, Arizona(7) ... Corporate headquarters Office space Manufacturing facility Manufacturing and customer service facility Manufacturing facility (MyPublisher...

  • Page 46
    ... because of rulings in the case, settlements, changes in our business or other developments rendering them, in our judgment, no longer material to our business, financial position or results of operations. No material legal proceeding was terminated during the fourth quarter of 2013. ITEM 4. MINE...

  • Page 47
    ... cash dividends in the foreseeable future. The following table sets forth the high and low closing sales price per share for Shutterfly's common stock for the periods indicated: Year Ended December 31, 2012 First Quarter ...Second Quarter ...Third Quarter ...Fourth Quarter ...Year Ended December 31...

  • Page 48
    ... in this annual report on Form 10-K. 2013 Year Ended December 31, 2012 2011 2010 (In thousands, except per share amounts) 2009 Consolidated Income Statement Data: Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Technology and development . Sales and marketing ...General...

  • Page 49
    ... We are the leading manufacturer and digital retailer of high-quality personalized products and services offered through a family of lifestyle brands. Our vision is to make the world a better place by helping people share life's joy. Our mission is to build an unrivaled service that enables deeper...

  • Page 50
    ... photo books, greeting and stationery cards, personalized calendars, other photo-based merchandise and high-quality prints ranging in size from wallet-sized to jumbo-sized 20x30 enlargements. We manufacture most of these items in our Fort Mill, South Carolina, Phoenix, Arizona and Elmsford, New York...

  • Page 51
    ... the sale of photo-based products, such as photo books, stationery and greeting cards, other photo-based merchandise, photo prints, and the related shipping revenues as well as rental revenue from our BorrowLenses brand. Included in our photo-based merchandise are items such as mugs, iPhone cases...

  • Page 52
    ... related expenses for our customer acquisition, product marketing, business development, and public relations activities. Our marketing efforts consist of various online and offline media programs, such as e-mail and direct mail promotions, the purchase of keyword search terms and various strategic...

  • Page 53
    ... place Consumer product orders through our websites and pay primarily using credit cards. Enterprise customers are invoiced upon fulfillment. Shipping charged to customers is recognized as revenue at the time of shipment. For camera, lenses, and video equipment rentals from our BorrowLenses brand...

  • Page 54
    ... setting up an account and to encourage purchases. Such offers include free products and percentage discounts on current purchases. Discounts, when accepted by customers, are treated as a reduction to the purchase price of the related transaction and are presented in net revenues. Production costs...

  • Page 55
    ... valuation allowance, which will impact deferred tax assets and the results of operations in the period the change is made. We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The application of income tax law is...

  • Page 56
    ...is primarily the result of increased sales of greeting and stationery cards, photo books, including net revenues from the recently acquired MyPublisher brand, and other photo-based merchandise. The increase is also reflected in the increases in all of our key metrics in 2013, as compared to 2012, as...

  • Page 57
    ... and related costs associated with the expansion of our internal marketing team, an increase of $3.6 million in intangible asset amortization primarily from the Kodak Gallery customer list and intangibles acquired in the MyPublisher and BorrowLenses acquisitions, and an increase of $1.4 million...

  • Page 58
    ...25% coupon, issuance costs associated with our credit facility; capital leases and our financing obligation associated with our Fort Mill, South Carolina production facility. Interest expense was $9.4 million for the year ended December 31, 2013 compared to $0.6 million during 2012. The increase is...

  • Page 59
    ... in Consumer net revenues is primarily a result of increased sales of greeting and stationery cards and photo books with a smaller contribution from increased sales of other photo-based merchandise. Enterprise revenues increased $13.6 million, or 101%, in 2012 compared to 2011, and represented 4% of...

  • Page 60
    ... personnel and related costs associated with the expansion of our internal marketing team and an increase of $7.0 million in intangible asset amortization primarily from the Kodak Gallery customer list and a full year of intangible asset amortization from the Tiny Prints acquisition. Our general and...

  • Page 61
    ... of incentive stock option awards in the current year, a delay in the extension of the federal research credit, and a valuation allowance on certain California deferred tax assets. 2012 Year Ended December 31, 2011 $ Change (in thousands) % Change Income before income taxes ...Net income...

  • Page 62
    ... data center co-location operating costs as we migrate from our existing co-location facility to this new facility in Las Vegas, Nevada. These expenditures will be used to purchase technology and equipment to support the growth in our business and to increase our production capacity, and help enable...

  • Page 63
    ... we received proceeds of $0.4 million from the sale of equipment. For 2012, net cash used in investing activities was $109.3 million. We used $24.4 million in the acquisition of Kodak Gallery's customer accounts and images and $32.8 million in the acquisitions of Photoccino Ltd, Penguin Digital, Inc...

  • Page 64
    ... of software and website development costs. Free cash flow has limitations due to the fact that it does not represent the residual cash flow for discretionary expenditures. For example, free cash flow does not incorporate payments made on capital lease obligations or cash requirements to...

  • Page 65
    ... 67,387 $ 11% 0.61 $ $ $ We carefully manage our operating costs and capital expenditures, in order to make the strategic investments necessary to grow and strengthen our business, while at the same time increasing our adjusted EBITDA profitability and improving our free cash flows. Over the last...

  • Page 66
    ... Net Income per Share $ (59,210) (15,760) 75,472 $ (48,229) (12,528) 67,387 $ (23,561) (10,050) 50,102 2013 Year Ended December 31, 2012 2011 GAAP Net income ...Add back interest expense related to: Amortization of debt discount ...Amortization of debt issuance costs 0.25% coupon ...Tax effect...

  • Page 67
    ... timing and amount of payments for rent for our newly leased production facility spaces in Fort Mill, South Carolina, Shakopee, Minnesota and Tempe, Arizona. See ''Notes to Consolidated Financial Statements - Note 5 - Commitments and Contingencies'' for further discussion. (3) Includes co-location...

  • Page 68
    ... effect on our current business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, for example, if the cost of our materials or the cost of shipping our products to customers were to incur substantial increases as a result of...

  • Page 69
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SHUTTERFLY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets ...Consolidated Statements of Income ...Consolidated Statements of Stockholders' Equity ...Consolidated ...

  • Page 70
    ... opinions on these financial statements and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan...

  • Page 71
    ..., INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value amounts) December 31, 2013 2012 ASSETS Current assets: Cash and cash equivalents ...Accounts receivable, net ...Inventories ...Deferred tax asset, current portion ...Prepaid expenses and other current assets . Total current assets...

  • Page 72
    SHUTTERFLY, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) Year Ended December 31, 2012 2013 2011 Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Technology and development ...Sales and marketing ...General and administrative ...Total ...

  • Page 73
    ...paid-in capital Balance, beginning of year ...Issuance of common stock upon exercise of options and vesting of restricted stock units ...Stock based compensation, net of estimated forfeiture ...Issuance of common stock in connection with acquisition . Tax benefit of stock options ...Equity component...

  • Page 74
    ...Deferred income taxes ...Tax benefit from stock-based compensation ...Excess tax benefits from stock-based compensation ...Changes in operating assets and liabilities: Accounts receivable, net ...Inventories ...Prepaid expenses and other current assets ...Other assets ...Accounts payable ...Accrued...

  • Page 75
    ...as photo books, greeting cards and stationery and calendars. Shutterfly also operates a premier online marketplace for high-quality photographic and video equipment rentals. And the Company provides enterprise services: printing and shipping of direct marketing and other variable data print products...

  • Page 76
    ... of paper, photo book covers and packaging supplies. Deferred Costs Deferred costs are the incremental costs directly associated with flash deal promotions through group buying websites. These costs are paid and deferred at the time of the flash deal, and recognized when the redeemed products are...

  • Page 77
    ... Company's current business model. Goodwill and Intangible Assets Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets resulting from the acquisition of entities accounted...

  • Page 78
    ... sales, net of applicable sales tax, upon shipment of fulfilled orders, when persuasive evidence of an arrangement exists, the selling price is fixed or determinable and collection of resulting receivables is reasonably assured. Customers place Consumer product orders through the Company's websites...

  • Page 79
    ... first takes place. The Company did not have any capitalized direct mail costs at December 31, 2013 and December 31, 2012. Total advertising costs are a component of sales and marketing expenses and include print advertising, internet advertising, such as display ads and keyword search terms and...

  • Page 80
    ... Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. 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...

  • Page 81
    ... In 2013, the FASB issued a new accounting standard that will require the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit...

  • Page 82
    ... property prepaid royalties, the long-term portion of issuance costs related to the Company's 0.25% Convertible Notes, the long-term portion of prepaid service contracts, and deposits on long-term leases and other contracts. The increase during the year ended December 31, 2013 was primarily due to...

  • Page 83
    Property and Equipment December 31, 2013 2012 (in thousands) Computer and manufacturing equipment ...Software ...Leasehold improvements ...Buildings under build-to-suit leases ...Rental equipment ...Furniture and fixtures ...Capitalized software and website development costs ... ... ... ... ... ...

  • Page 84
    ... 118,621 $ Goodwill Changes in the carrying amount of goodwill are as follows (in thousands): Balance, December 31, 2011 ...Acquisition of business ...Goodwill adjustments ...Balance, December 31, 2012 ...Acquisition of business ...Goodwill adjustments ...Balance, December 31, 2013 ...$ $ 340,408...

  • Page 85
    ...'s Fort Mill, South Carolina and Shakopee, Minnesota production facilities and capital leases for production equipment. Note 4 - Acquisitions Business Combinations BorrowLenses LLC On October 24, 2013, the Company acquired BorrowLenses LLC (''BorrowLenses'') for a total aggregate cash purchase price...

  • Page 86
    ... not been presented. R&R Images, Inc. On August 29, 2013, the Company acquired certain assets of R&R Images, Inc. (''R&R'') primarily to expand product innovation and printing capabilities. The acquisition was accounted for as a business combination. This acquisition was not significant individually...

  • Page 87
    ...purchase price of $7.1 million. Penguin Digital is a mobile application development company that has an iPhone application that allows users to access their photos from iPhones or their Facebook or Instagram accounts and create customized products and gifts from their mobile devices. The acquisition...

  • Page 88
    ...and easily create photo books, calendars, cards, and photo gifts. Photoccino's technology applies proprietary algorithms to analyze and evaluate the quality and content of photos, ranks them, and automatically creates photo products using the customer's best images. The acquisition was accounted for...

  • Page 89
    ... purchase the Company's common stock based on a conversion ratio of 0.327, which was calculated as the consideration price per share of $12.44 divided by a fixed per share value of $38. The Company assumed the stock options in accordance with the terms of the applicable Tiny Prints stock option plan...

  • Page 90
    ... is net of deferred tax assets related to vested non-qualified stock options included in the purchase price, as well as other deferred tax assets acquired in the transaction. Subsequent to recording the transaction, and upon filing of the Tiny Prints tax returns, the Company reduced its estimate of...

  • Page 91
    ... Tiny Prints products from the acquisition date of April 25, 2011 through December 31, 2011. Purchased Intangible Assets Eastman Kodak Gallery Assets On March 1, 2012, the Company entered into an agreement with Kodak for the proposed sale of certain assets of its Kodak Gallery online photo services...

  • Page 92
    ... As of December 31, 2013, the Company's purchase obligations totaled $100.6 million. 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...

  • Page 93
    ...of the Fort Mill, South Carolina facility was completed in the second quarter of 2013, and at that time the Company concluded that it had forms of continued economic involvement in the facility. As a result, the Company did not comply with provisions for sale-leaseback accounting and the building is...

  • Page 94
    ... upon maturity. The Company intends to use the new Facility from time to time for general corporate purposes, working capital and potential acquisitions. The Company incurred $0.5 million of Credit Facility origination costs during the twelve months ended December 31, 2013, related to the amendment...

  • Page 95
    ... Company employees, which includes officers and directors of the Company. Non-qualified stock options (''NSO'') and stock purchase rights were able to be granted to employees and consultants. Options under the Plan were to be granted at prices not less than 85% of the deemed fair value of the shares...

  • Page 96
    ... 10 years from the date of grant, and options and awards will expire if forfeited due to termination. Stock Option Activity A summary of the Company's stock option activity at December 31, 2013 and changes during the period are presented in the table below (share numbers and aggregate intrinsic...

  • Page 97
    ... of the 2006 Plan and inducement awards to certain new employees upon hire in accordance with NASDAQ Listing Rule 5635(c)(4). The cost of RSUs is determined using the fair value of the Company's common stock on the date of grant. RSUs typically vest and are settled annually, based on a three...

  • Page 98
    ...As of December 31, 2013, the performance criteria for the fiscal year was met and the associated stock-based compensation has been recognized. Inducement awards are issued to newly hired officers and to certain new employees from acquired companies. These awards typically vest annually over a two to...

  • Page 99
    ...314 The Company's actual tax expense differed from the statutory federal income tax rate, as follows: 2013 December 31, 2012 2011 Income tax expense at statutory rate . . State income taxes ...Stock-based compensation ...R&D tax credit ...Acquisition costs ...Non-deductible executive compensation...

  • Page 100
    ... for Arizona. Internal Revenue Code limits the use of net operating loss and tax credit carryforwards in the case of an ''ownership change'' of a corporation. Any ownership changes, as defined, may restrict utilization of carryforwards. On January 2, 2013, President Barack Obama signed into law The...

  • Page 101
    ... which is effective immediately, permits the Company to effect repurchases for cash from time to time through open market, privately negotiated or other transactions, including pursuant to trading plans established in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as...

  • Page 102
    ... 98% of the product of the last reported sale price of the Company's common stock on such trading day and the conversion rate on each such trading day; upon the occurrence of specified corporate events; or at any time on or after December 15, 2017 until the close of business on the second scheduled...

  • Page 103
    ... are deductible for tax purposes. Concurrently with the Note issuance, the Company repurchased 0.6 million shares of common stock for approximately $30.0 million. The Notes consist of the following (in thousands): As of December 31, 2013 Liability component: Principal ...Less: debt discount, net of...

  • Page 104
    ...'s products as part of Groupon's Flash deals. During the period between the Effective Date and December 31, 2013, Shutterfly received approximately $0.6 million from Groupon which represents our portion of proceeds from these Flash deals. As of December 31, 2013, the Company had a receivable balance...

  • Page 105
    ... which is effective immediately, permits the Company to effect repurchases for cash from time to time through open market, privately negotiated or other transactions, including pursuant to trading plans established in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as...

  • Page 106
    Schedule II Valuation and Qualifying Accounts Additions Charged to Charged to Costs and Other Expenses Accounts In thousands Balance at Beginning of Period Deductions Balance at End of Period Allowance for Receivable Year ended Year ended Year ended Tax Valuation Year ended Year ended Year ended...

  • Page 107
    ... by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes...

  • Page 108
    ... the degree of compliance with the policies or procedures may change over time. Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in...

  • Page 109
    ... designated by the Company's Chief Financial Officer. This code of ethics, titled the ''Code of Conduct and Ethics for Chief Executive Officer and Senior Financial Department Personnel,'' can be found on our website at www.shutterfly.com. We intend to make all required disclosures concerning any...

  • Page 110
    ... ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information concerning principal accounting fees and services required by this Item is incorporated by reference to the section in our Proxy Statement entitled ''Ratification of Selection of Independent Registered Public Accounting Firm.'' 108

  • Page 111
    ...-K. 2. Financial Statement Schedule. The Valuation and Qualifying Accounts schedule is incorporated by reference to Part II, Item 8 of this annual report. 3. Exhibits. We have filed, or incorporated into this report by reference, the exhibits listed on the accompanying Index to Exhibits immediately...

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    SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SHUTTERFLY, INC. (Registrant) Dated: February 13, 2014 By: /s/ Brian M. Regan ...

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    /s/ Brian T. Swette Brian T. Swette /s/ James N. White James N. White /s/ Michael P. Zeisser Michael P. Zeisser Director Director Director February 13, 2014 February 13, 2014 February 13, 2014 111

  • Page 114
    ... of Inducement Restricted Stock Unit Award Agreement.* Shutterfly, Inc. 2013 Quarterly Bonus Plan.* Shutterfly, Inc. Executive Stock Ownership Guidelines, as amended.* Offer letter dated January 5, 2005 for Jeffrey T. Housenbold.* Amendment to Employment Agreement dated December 8, 2008 for Jeffrey...

  • Page 115
    ... Inc. and FUJIFILM North America Corporation.** Credit Agreement, dated as of November 22, 2011, by and among the Shutterfly, Inc., the Lenders (as defined therein) and JPMorgan Chase Bank, N.A. Amendment No. 1 to Credit Agreement, dated as of May 10, 2013, by and among Shutterfly, Inc., the Lenders...

  • Page 116
    ... Agreement, dated May 14, 2013, between Bank of America, N.A. and Shutterfly, Inc. regarding the Base Warrant Transaction. Letter Agreement, dated May 14, 2013 between Bank of America, N.A. and Shutterfly, Inc. regarding the Base Call Option Transaction. Letter Agreement, dated May 15, 2013, between...

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    ... dated May 15, 2013 between Bank of America, N.A. and Shutterfly, Inc. regarding the Additional Call Option Transaction. Consent of Independent Registered Public Accounting Firm. Power of Attorney. (See signature page of this Form 10-K) Certification of Chief Executive Officer Pursuant to Securities...

  • Page 118
    ... by Reference Date of File No. First Filing Exhibit Number Provided Herewith 101 The following financial statements from Shutterfly Inc.'s Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets...

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    ...or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 13, 2014 By: /s/ Jeffrey T. Housenbold Jeffrey T. Housenbold President and Chief Executive Officer (Principal Executive and Financial...

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    ...affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 13, 2014 By...

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    ... Executive Officer of Shutterfly, Inc. (the ''Company''), pursuant to 18 U.S.C. §1350, hereby certifies that: (i) the Annual Report on Form 10-K for the period ended December 31, 2013 of the Company (the ''Report'') fully complies with the requirements of Section 13(a) or 15(d) of the Securities...

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    ... Financial Officer of Shutterfly, Inc. (the ''Company''), pursuant to 18 U.S.C. §1350, hereby certifies that: (i) the Annual Report on Form 10-K for the period ended December 31, 2013 of the Company (the ''Report'') fully complies with the requirements of Section 13(a) or 15(d) of the Securities...

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    ... Drive, Redwood City, CA 94065 Trading Information The common stock of Shutterï¬,y, Inc. is traded on the Nasdaq Stock Market (symbol: SFLY). If you wish to become a stockholder, please contact a stockbroker. Transfer Agent Information regarding stock certificates, change of address, ownership...

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    Shutterï¬,y Inc., 2800 Bridge Parkway, Redwood City CA 94065 | shutterï¬,yinc.com