Shutterfly 2013 Annual Report Download - page 64

network hardware and production equipment for our manufacturing operations and $10.1 million of
capitalized software and website development.
Financing Activities. For 2013, net cash provided by financing activities was $261.6 million, primarily
from the $291.9 million in proceeds from the issuance of our 0.25% convertible senior notes in May 2013,
$43.6 million in proceeds from the issuance of warrants, offset by $63.5 million from the purchase of a
convertible note hedge and repurchases of common stock of $32.2 million. We also received $19.1 million
of proceeds from issuance of common stock from the exercise of options and recorded $3.6 million from
excess tax benefit from stock-based compensation.
For 2012, net cash provided by financing activities was $23.1 million, primarily from $16.6 million from
excess tax benefits from stock-based compensation and $10.2 million of proceeds from issuance of common
stock from the exercise of options. This was partially offset by repurchases of common stock of
$3.8 million.
For 2011, net cash provided by financing activities was $30.7 million, primarily from $22.3 million of
proceeds from issuance of common stock upon exercise of stock options and $8.4 million excess tax benefit
from stock-options.
Non-GAAP Financial Measures
Regulation G, conditions for use of Non-Generally Accepted Accounting Principles (‘‘Non-GAAP’’)
financial measures, and other SEC regulations define and prescribe the conditions for use of certain
Non-GAAP financial information. We closely monitor three financial measures, adjusted EBITDA, free
cash flow, and Non-GAAP earnings per share which meet the definition of Non-GAAP financial measures.
We define adjusted EBITDA as earnings before interest, taxes, depreciation, amortization, and stock-
based compensation. Free cash flow is defined as adjusted EBITDA less purchases of property and
equipment and capitalization 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 comply with debt covenants. Non-GAAP earnings per share is defined as Non-GAAP net
income (loss), which excludes interest expense related to the issuance of our 0.25% convertible senior
notes in May 2013, divided by diluted non-GAAP shares outstanding, which is GAAP weighted average
shares outstanding less any shares issuable under our convertible senior notes. Management believes these
Non-GAAP financial measures reflect an additional way of viewing our profitability and liquidity that,
when viewed with our GAAP results, provides a more complete understanding of factors and trends
affecting our earnings and cash flows. Refer below for a reconciliation of adjusted EBITDA, free cash flow,
and Non-GAAP earnings per share to the most comparable GAAP measure.
To supplement our consolidated financial statements presented on a GAAP basis, we believe that
these Non-GAAP measures provide useful information about our core operating results and thus are
appropriate to enhance the overall understanding of our past financial performance and our prospects for
the future. These adjustments to our GAAP results are made with the intent of providing both
management and investors a more complete understanding of our underlying operational results and
trends and performance. Management uses these Non-GAAP measures to evaluate our financial results,
develop budgets, manage expenditures, and determine employee compensation. The presentation of
additional information is not meant to be considered in isolation or as a substitute for or superior to net
income (loss) or net income (loss) per share determined in accordance with GAAP. We believe that it is
important to view free cash flow as a complement to our reported consolidated financial statements.
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