Shutterfly 2013 Annual Report Download - page 53

associated with our five-year syndicated credit facility that became effective in November 2011, as
amended in May and December 2013; and costs associated with our capital leases and build-to-suit lease
financing obligations.
Interest and Other Income, Net. Interest and other income, net primarily consists of the interest
earned on our cash and investment accounts.
Income Taxes. We account for income taxes under the liability method. Under this method, deferred
tax assets and liabilities are determined based on the difference between the financial statement and tax
basis of assets and liabilities. We are subject to taxation in the United States and Israel.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally
accepted in the United States, or GAAP. The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenues, costs and expenses and related disclosures. We base our estimates on historical experience and
on various other assumptions that we believe to be reasonable under the circumstances. In many instances,
we could have reasonably used different accounting estimates, and in other instances, changes in the
accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could
differ significantly from the estimates made by our management. To the extent that there are material
differences between these estimates and actual results, our future financial statement presentation of our
financial condition or results of operations will be affected.
In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP
and does not require management’s judgment in its application, while in other cases, management’s
judgment is required in selecting among available alternative accounting standards that allow different
accounting treatment for similar transactions. We believe that the accounting policies discussed below are
the most critical to understanding our historical and future performance, as these policies relate to the
more significant areas involving management’s judgments and estimates.
Revenue Recognition. We recognize revenue from Consumer and Enterprise product 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 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, we recognize rental
revenue and the related shipping and insurance revenue, ratably over the rental period. Revenue from the
sale of rental equipment is recognized upon shipment of the equipment.
For gift card sales and flash deal promotions through group buying websites, we recognize revenue on
a gross basis, as we are the primary obligor, when redeemed items are shipped. Revenues from sales of
prepaid orders on our websites are deferred until shipment of fulfilled orders or until the prepaid period
expires. Our share of revenue generated from our print to retail relationships, is recognized when orders
are picked up by our customers at the respective retailer.
We provide our customers with a 100% satisfaction guarantee whereby products can be returned
within a 30-day period for a reprint or refund. We maintain an allowance for estimated future returns
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