Shutterfly 2013 Annual Report Download - page 104

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(carrying value excludes the equity component of the Company’s convertible notes classified in equity)
were as follows:
December 31, 2013 December 31, 2012
Fair Carrying Fair Carrying
Value Value Value Value
Convertible Senior Notes ................. $ 237,066 $ 243,493 — —
Note Hedge
To minimize the impact of potential economic dilution upon conversion of the Notes, the Company
entered into convertible note hedge transactions with respect to its common stock (the ‘‘Note Hedge’’). In
May 2013, the Company paid an aggregate amount of $63.5 million for the Note Hedge. The Note Hedge
will expire upon maturity of the Notes. The Note Hedge is intended to offset the potential dilution upon
conversion of the Notes and/or offset any cash payments the Company is required to make in excess of the
principal amount upon conversion of the Notes in the event that the market value per share of the
Company’s common stock, as measured under the Notes, is greater than the strike price of the Note
Hedge, which initially corresponds to the conversion price of the Notes and is subject to anti-dilution
adjustments substantially similar to those applicable to the conversion rate of the Notes.
Warrant
Separately, in May 2013, the Company entered into warrant transactions (the ‘‘Warrant’’), whereby the
Company sold warrants to acquire shares of the Company’s common stock at a strike price of $83.18 per
share. The Company received aggregate proceeds of $43.6 million from the sale of the Warrant. If the
average market value per share of the Company’s common stock for the reporting period, as measured
under the Warrant, exceeds the strike price of the Warrant, the Warrant will have a dilutive effect on the
Company’s earnings per share. The Warrant is a separate transaction, entered into by the Company and is
not part of the Notes or the Note Hedge, and has been accounted for as part of additional paid-in capital.
Holders of the Notes and Note Hedge will not have any rights with respect to the Warrant.
Note 11 — Related Party Transactions
Shutterfly’s Chief Executive Officer, Jeffrey Housenbold, was appointed to Groupon, Inc.’s
(‘‘Groupon’’) Board of Directors effective October 21, 2013 (‘‘Effective Date’’). During the fiscal year
ended December 31, 2013, Shutterfly conducted business with Groupon, primarily by offering Shutterfly’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 of approximately $0.8 million.
Management believes that these transactions are at arm’s length and on similar terms as would have been
obtained from unaffiliated third parties.
102