Shutterfly 2014 Annual Report Download

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2014 ANNUAL REPORT

Table of contents

  • Page 1
    2014 ANNUAL REPORT

  • Page 2
    ... completed second fiscal quarter, the aggregate market value of our Common Stock held by non-affiliates based on the closing price of our Common Stock on June 30, 2014 as reported on the NASDAQ Global Select Market was $1,653,803,439. Indicate the number of shares outstanding of each of the issuer...

  • Page 3
    ... ...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 Ownership of Certain Beneficial Owners and Management and...

  • Page 4
    ... lifestyle brands: Shutterfly, Tiny Prints, Wedding Paper Divas, ThisLife, MyPublisher and BorrowLenses. Shutterfly leads the market in digital personalized photo products and services. Shutterfly helps our customers turn their precious memories into lasting keepsakes with award-winning photo books...

  • Page 5
    ... 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 Shakopee, Minnesota production facilities. In 2013, we entered into a lease for a new production facility in Tempe...

  • Page 6
    ...from the sale of photobased 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 7
    ... time to market, cost and complexity. We will continue to invest in the Tiny Prints and Wedding Paper Divas brands and consumer facing capabilities but our brands will be supported by a common set of shared technology services, including cart, checkout, creation paths, login, address book and media...

  • Page 8
    ... - marketing, business development, multi-brand site experiences and customer service. Throughout 2014, we deployed dozens of highly integrated channel campaigns with a balance of direct response and brand awareness that generated increased marketing efficiencies and enabled the company to reach new...

  • Page 9
    ..., Pinterest's new Partners program and Google's cross device conversion program. We believe these efforts will drive increased awareness of our brands and our product offerings, as well as increase the engagement of existing customers. • Attract, retain, and grow our leadership team. In order to...

  • Page 10
    ...book, even if they are ordered at separate times. Production system. We operate our own production facilities in Fort Mill, South Carolina, Phoenix, Arizona, and Shakopee, Minnesota. Our automated production system controls our production processes, including order management and pick, pack and ship...

  • Page 11
    ... customers heavily discounted in-store products and services that compete directly with our offerings; Drug stores such as Walgreens, CVS/pharmacy, and others that offer low-cost photography products and services as well as in-store pick-up from their photo website Internet orders; Mobile digital...

  • Page 12
    ... similar claims with respect to any of our currently issued patents or any patents that may be issued to us in the future. Our primary brands are ''Shutterfly,'' ''Tiny Prints,'' ''Wedding Paper Divas,'' and ''BorrowLenses.'' We hold applications and/or registrations for the Shutterfly, Tiny Prints...

  • Page 13
    ... existing laws in new ways to providers of online services. Moreover, the law relating to the liability of providers of online services for activities of their users and business partners is currently unsettled both within the United States and abroad. Any existing or new legislation applicable to...

  • Page 14
    ... business through a decrease in user registrations and revenues. Employees As of December 31, 2014, we had 1,812 full time employees. Below is a summary of employees by function as of December 31, for each of the last three years: 2014 2013 2012 Cost of revenue ...Technology and development . Sales...

  • Page 15
    ... if we undertake any restructuring activities. From time to time, we may undertake to restructure our business, such as the combining our Shutterfly, Tiny Prints and Wedding Paper Divas creation platforms, eliminating our Treat business and closing our Elmsford facility. There are several factors...

  • Page 16
    ... South Carolina, Phoenix, Arizona, or Shakopee, Minnesota production facilities, could delay production or shipment of our products. In addition, inclement weather, particularly heavy rain and snow could impair our production capabilities. Our inability to meet our production requirements could lead...

  • Page 17
    ... customers heavily discounted in-store products and services that compete directly with our offerings; Drug stores such as Walgreens, CVS/pharmacy, and others that offer low-cost photography products and services as well as in-store pick-up from their photo website internet orders; Mobile digital...

  • Page 18
    ...Google that offer broadreaching digital photography uploading and storage as well as related products and services to their large user bases; 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...

  • Page 19
    ... purchases; the costs of customer acquisition; our ability to manage our production and fulfillment operations; the costs to produce our prints and photo-based products and merchandise and to provide our services; the costs of expanding or enhancing our technology or websites; a significant increase...

  • 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
    ... storage center, such disruption could result in the deletion or corruption of customers' stored images, which could impair customer satisfaction and lead to decreased revenues. An increasing number of our customers are using smartphones, tablets and other mobile devices to order products and access...

  • Page 22
    ... managing our growth and expanding our operations successfully. We 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 Shakopee, Minnesota...

  • Page 23
    ... includes strengthening our competitive position 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 2014 acquisition of selected assets...

  • Page 24
    ... recruiting for future management positions more difficult. Changes in key management positions may temporarily affect our financial performance and results of operations as new management becomes familiar with our business. For example, we hired a new Chief Technology Officer in November 2014. We...

  • Page 25
    ...our websites. We also use e-mail and direct mail to 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...

  • Page 26
    ... 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, BorrowLenses and ThisLife brands. Due to the competitive nature of the digital photography products and services markets...

  • Page 27
    ... with the high volume of visits to our websites. As our operations grow in size and scope, we continually need to improve and upgrade our computer systems and network infrastructure to ensure reliable access to our websites, in order to offer customers enhanced and new products, services, capacity...

  • Page 28
    ... in the area of online digital photography services. This competition may influence their willingness to provide us with additional products or services. If we were required to switch vendors of machines for photo-based products, we may incur delays and incremental costs, which could harm our...

  • Page 29
    ... costly to defend, divert management's time and attention, damage our reputation and brands and substantially harm our business and results of operations. Our primary brands are ''Shutterfly,'' ''Tiny Prints,'' ''Wedding Paper Divas,'' ''BorrowLenses,'' and ''ThisLife.'' We hold applications...

  • Page 30
    ...where we have employees and/or property and in other states where we have implemented joint sales efforts with Target Corporation and other retailers. While we believe the U.S. Supreme Court decisions support our policies concerning the collection and payment of taxes, tax authorities could disagree...

  • Page 31
    ... may cover taxation, restrictions on imports and exports, customs, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, the provision of online payment services, broadband residential Internet access...

  • Page 32
    ...impose complex and costly constraints on our business model. Because of our focus on automation and high volumes, our operations do not involve, for the vast majority of our sales, any human-based review of content. Although our websites' terms of use specifically require customers to represent that...

  • Page 33
    .... For example, in 2014, we experienced a cyber-attack on our Tiny Prints, Treat and Wedding Paper Divas websites, which may have exposed the email addresses and encrypted passwords used by our customers to login to their accounts. We encrypt customer credit and debit card information, and we have...

  • Page 34
    ... 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 35
    ... 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 36
    ... could harm our business, financial condition and results of operations. These efforts also involve substantial accounting related costs. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on The NASDAQ Global Select Market. Under the Sarbanes...

  • Page 37
    ... enhancements that reduce the need for our products; the loss of key personnel; lawsuits threatened or filed against us; business disruptions and costs related to shareholder activism; future sales of our common stock by our executive officers, directors and significant stockholders; and other...

  • Page 38
    ...300 million in addition to amounts remaining. The timing and actual number of shares repurchased will depend on a variety of factors including the timing of open trading windows, price, corporate and regulatory requirements, an assessment by management and our board of directors of cash availability...

  • Page 39
    ..., such as reports by industry analysts, investor perceptions or negative announcements by our customers, competitors or suppliers regarding their own performance, as well as industry conditions and general financial, economic and political instability. A decrease in the market price of our common...

  • Page 40
    ...on our consolidated balance sheet and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the notes. As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as...

  • Page 41
    ...treasury stock method in accounting for the shares issuable upon conversion of the notes, then our diluted earnings per share would be adversely 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...

  • Page 42
    ... is below the average of the volume weighted average price of our common stock during such period, the value of any shares of our common stock that holders will receive in satisfaction of our conversion obligation will be less than the value used to determine the number of shares that holders will...

  • Page 43
    ... corporate transaction becomes effective and the price paid (or deemed to be paid) per share of our common stock in such transaction. The increase in the conversion rate for notes converted in connection with a make-whole fundamental change may not adequately compensate holders for any lost value...

  • Page 44
    ... by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, we cannot assure holders that an active trading market will develop for the notes. If an active trading market does not develop or is not maintained, the market price and...

  • Page 45
    ... depend in part on market conditions and cannot be ascertained at this time. Any of these activities could adversely affect the value of our common stock and the value of the notes (and as a result, the value of the consideration, the amount of cash and/or the number of shares, if any, that holders...

  • Page 46
    ......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 acquisition...

  • Page 47
    ... v. Shutterfly, Inc. On May 1, 2014, the State of Delaware filed a complaint against us for alleged violations of the Delaware False Claims and Reporting Act, 6 Del C. § 1203(b)(2). The complaint asserts that we failed to report and remit to Delaware cash equal to the balances on unused gift cards...

  • Page 48
    ...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, 2013 First Quarter ...Second Quarter ...Third Quarter ...Fourth Quarter ...Year Ended December 31, 2014 First Quarter...

  • Page 49
    ... this annual report on Form 10-K. 2014 Year Ended December 31, 2013 2012 2011 (In thousands, except per share amounts) 2010 Consolidated Operations Statement Data: Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Technology and development . Sales and marketing ...General...

  • Page 50
    ... on our business, whether we are able to expand our customer base and increase our product and service offering, competition in our marketplace, our ability to meet production requirements, unanticipated difficulties building the next generation Shutterfly platform and executing on our strategic...

  • Page 51
    ..., 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 Shakopee, Minnesota production facilities. By controlling the production process in...

  • Page 52
    ... time to market, cost and complexity. We will continue to invest in the Tiny Prints and Wedding Paper Divas brands and consumer facing capabilities but our brands will be supported by a common set of shared technology services, including cart, checkout, creation paths, login, address book and media...

  • Page 53
    ... 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 54
    ...collateral manufactured and fulfilled for business customers. We continue to focus our efforts in expanding our presence in this market. 2014 Year Ended December 31, 2013 2012 Consumer Net revenues ...Cost of net revenues ...Gross profit ...Gross profit as a percentage of net revenues ...Enterprise...

  • Page 55
    ... run our websites and store the customer data, including data storage for our new ThisLife brand service, as well as amortization of purchased software. Technology and development expense also includes co-location, power and bandwidth costs. Sales and marketing expense consists of costs incurred for...

  • Page 56
    ... 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. 55

  • Page 57
    ... provide incentive offers to our customers in exchange for 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...

  • Page 58
    ... net sales and operating expenses, based primarily on expected reporting unit expansion, pricing, market segment share, and general economic conditions. Software and Website Development Costs. We capitalize costs associated with website development and software developed or obtained for internal use...

  • Page 59
    ... of our statement of operations as a percentage of net revenues: 2014 Year Ended December 31, 2013 2012 Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Technology and development Sales and marketing ...General and administrative . Total operating expenses . . Income from...

  • Page 60
    ...cards, other photo-based merchandise, photo books and a full year of BorrowLenses revenue. The increase is also reflected in the increases in customers and orders in 2014 as compared to 2013, as noted above. Average order value remained flat in 2014 as compared to 2013. Enterprise revenues increased...

  • Page 61
    ... with our credit facility, capital leases, and our financing obligations associated with our Fort Mill, South Carolina and our Shakopee, Minnesota production facilities. Interest expense was $16.7 million for the year ended December 31, 2014 compared to $9.4 million during 2013. The increase in...

  • Page 62
    ... Ended December 31, 2012 $ Change (in thousands, except AOV amounts) 2013 % Change Net revenues Consumer ...Enterprise ...Total net revenues ...Cost of net revenues ...Gross profit ...Percentage of net revenues ...Key Consumer Metrics Customers ...Orders ...Average order value ... $ 745,969 37...

  • Page 63
    ... with purchase accounting and capitalized software and website development costs. For our Enterprise segment, cost of net revenues increased $6.7 million in 2013 compared to 2012. The increase was primarily the result of the increased volume of shipped products in 2013 compared to 2012. 2013 Year...

  • Page 64
    ..., 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 primarily...

  • Page 65
    ... to support the growth in our business, to increase our production capacity, and help enable us to respond more quickly and efficiently to customer demand. A smaller but significant component of these expenditures includes costs associated with capitalized software and website development, as...

  • Page 66
    ..., 2013 and 2012: 2014 Year Ended December 31, 2013 2012 (in thousands) Technology equipment and software ...Percentage of total capital expenditures ...Manufacturing equipment and building improvements Percentage of total capital expenditures ...Capitalized software and website development costs...

  • Page 67
    ... of Kodak Gallery's customer accounts and images and $32.8 million in the acquisitions of Photoccino Ltd, Penguin Digital, Inc., and ThisLife, Inc., net of cash acquired. We used $40.5 million for capital expenditures for computer and network hardware and production equipment for our manufacturing...

  • Page 68
    ... 75,472 $ 10% 0.38 $ $ $ 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 69
    ...: Purchases of property and equipment, including accrued amounts ...Capitalized technology & development costs ...Free cash flow ...Reconciliation of Net Income/(Loss) per Share to Non-GAAP Net Income per Share $ (68,495) (21,748) 76,516 $ (59,210) (15,760) 75,472 $ (48,229) (12,528) 67,387 2014...

  • Page 70
    ...-cancelable operating leases for certain production equipment. (2) Includes the estimated 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 Part II, Item 8 of this annual report on Form 10...

  • Page 71
    ... 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 72
    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 Operations ...Consolidated Statements of Stockholders' Equity ......

  • Page 73
    ... is to express opinions on these financial statements, on the financial statement schedule, 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...

  • Page 74
    SHUTTERFLY, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value amounts) December 31, 2014 2013 ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net ...Inventories ...Deferred tax asset, current portion ...Prepaid expenses and other ...

  • Page 75
    SHUTTERFLY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2013 2014 2012 Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Technology and development ...Sales and marketing ...General and administrative ......

  • Page 76
    SHUTTERFLY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) Year Ended December 31, 2013 2012 2014 Common stock (par value) Balance, beginning of year ...Issuance of common stock in connection with acquisition and upon exercise of options and vesting of restricted stock units ...

  • Page 77
    SHUTTERFLY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (In thousands) Year Ended December 31, 2013 2012 2014 Net income/(loss) ...Other comprehensive loss, net of reclassification adjustments: Unrealized losses on investments, net ...Tax benefit on unrealized losses on investments...

  • Page 78
    ...with software and website development costs ...Increase in estimated fair market value of buildings under build-to-suit leases ...Property and equipment acquired under capital leases ...Amount due for acquisition of business ...Amount due from adjustment of net working capital from acquired business...

  • Page 79
    ... is the leading manufacturer and digital retailer of high-quality personalized products and services offered through a family of lifestyle brands. The Company provides customers a full range of products and services to organize and archive digital images; share pictures; order prints and create an...

  • Page 80
    ...'s accounts receivable are derived primarily from sales to customers located in the United States who make payments through credit cards, sales of the Company's products in retail stores, sales of enterprise services, and revenue generated from online advertisements posted on the Company's websites...

  • Page 81
    ...using a discount rate determined by management to be commensurate with the risk inherent to the 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...

  • Page 82
    ... of resulting receivables is reasonably assured. Customers place Consumer product orders through the Company's 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. 81

  • Page 83
    ... takes place. The Company did not have any capitalized direct mail costs at December 31, 2014 and December 31, 2013. 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 TV and...

  • Page 84
    ... of time an employee will retain vested stock options before exercising them, the estimated volatility of the Company's common stock price and the number of options that will be forfeited prior to vesting. The fair value is then amortized on a straight-line basis over the requisite service periods...

  • Page 85
    ... Chief Executive Officer (''CEO'') acting as the Company's chief operating decision maker. The Company defined two reportable segments based on factors such as how management manages the operations and how its chief operating decision maker views results. Recent Accounting Pronouncements In May 2014...

  • Page 86
    ... ... ... ... $ 1,262 854 799 799 676 3,861 8,251 $ Prepaid Expenses and Other Current Assets December 31, 2014 2013 (in thousands) Deferred costs ...Prepaid service contracts - current portion ...Other prepaid expenses and current assets ... $ 6,911 6,754 11,318 24,983 $ 4,915 5,044 11,301 21...

  • Page 87
    ... portion of prepaid service contracts, and deposits on long-term leases and other contracts. Property and Equipment December 31, 2014 2013 (in thousands) Computer equipment and software ...Manufacturing equipment ...Capitalized software and website development costs Buildings under build-to-suit...

  • Page 88
    ... the change to two reporting units, the Company allocated goodwill to each reporting unit based on their relative fair values. The Company performed step one of the annual goodwill impairment test for the years ended December 31, 2014 and 2013. The enterprise value exceeded the carrying value for...

  • Page 89
    ... final adjustments to net working capital acquired under provisions of certain business combination purchase agreements. Accrued Liabilities December 31, 2014 2013 (in thousands) Accrued production costs ...Accrued marketing expenses . Accrued income and sales tax Accrued compensation ...Accrued...

  • Page 90
    ... Company measures the fair value of money market funds and investments based on quoted prices in active markets for identical assets or liabilities. All other financial instruments were valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar...

  • Page 91
    ... financial metrics. Groovebook is a mobile photo book app subscription service that sends customers a keepsake book of their mobile photos each month. The acquisition was accounted for as a purchase transaction and, accordingly, the purchase price has been allocated to the acquired tangible assets...

  • Page 92
    ... 24, 2013, the Company acquired BorrowLenses LLC (''BorrowLenses'') for a total aggregate cash purchase price of $36.8 million, or $35.7 million net of cash acquired. BorrowLenses is a premier online marketplace for photographic and video equipment rentals. The acquisition was accounted for as a non...

  • Page 93
    ... 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 was accounted for as a non-taxable purchase...

  • Page 94
    ..., 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 as a non-taxable purchase...

  • Page 95
    ...was accounted for as an asset acquisition and as such the Company has capitalized transaction costs of approximately $0.6 million, for a total purchase price of $24.4 million. The purchase price was allocated to a single asset, customer list, which will be amortized over its estimated useful life of...

  • Page 96
    ... 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 replaced the Company's current east coast production facility in Charlotte, North Carolina. In order for the facility to meet...

  • Page 97
    ... 31, 2013 the Company executed a lease for a new 237,000 square foot production facility in Tempe, Arizona. This facility will consolidate all of the Company's locations in the greater Phoenix area as well as offer flexibility for future expansion, and is expected to become operational during 2015...

  • Page 98
    ... plus the Applicable Rate. The Applicable Rate for all revolving loans is based on a pricing grid ranging from 0.500% to 1.25% per annum for Base Rate loans and 1.50% to 2.250% for Adjusted LIBO Rate loans based on the Company's Leverage Ratio (as defined in the Credit Agreement). On May 10, 2013...

  • Page 99
    ... 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 100
    ...value of the Company's common stock is determined by the last sale price of such stock on the NASDAQ Global Select Market. Options issued under the 2006 Plan typically vest with respect to 25% of the shares one year after the options' vesting commencement date, and the remainder ratably on a monthly...

  • Page 101
    ... 31, 2014 and changes during the period are presented in the table below (share numbers and aggregate intrinsic values in thousands): Weighted Average Exercise Price Weighted Average Contractual Term (Years) Number of Options Outstanding Aggregate Intrinsic Value Balances, December 31, 2013...

  • Page 102
    ...-line basis over the requisite service period. Restricted Stock Unit Activity A summary of the Company's restricted stock unit activity for the twelve months ended December 31, 2014, is as follows (share numbers in thousands): Number of Units Outstanding Weighted Average Grant Date Fair Value...

  • Page 103
    ...to newly hired officers and to certain new employees from acquired companies. During 2014, inducement awards included time-based and performance based awards issued to two newly hired officers and vest over four years. (4) During the years ended December 31, 2014 and 2013, the fair value of awards...

  • Page 104
    ...,160 The Company's actual tax expense differed from the statutory federal income tax rate, as follows: 2014 December 31, 2013 2012 Income tax expense at statutory rate . . State income taxes ...Stock-based compensation ...R&D tax credit ...Non-deductible executive compensation Valuation allowance...

  • Page 105
    ... purposes. The research and development tax credit will expire starting in 2021 for federal and 2024 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...

  • Page 106
    ... considerations; does not require the Company to repurchase any dollar amount or number of shares; and may be suspended or discontinued at any time. The share repurchase authorizations permit the Company to effect repurchases for cash from time to time through open market, privately negotiated or...

  • Page 107
    ... 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 108
    ... 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...

  • Page 109
    ... the business. The Company has the following reportable segments: Consumer - Includes sales from the Company's brands and are derived from the sale of photobased products, such as photo books, stationery and greeting cards, other photo-based merchandise, photo prints, and the related shipping...

  • Page 110
    ... consisted primarily of offering Shutterfly's products as part of Groupon's Flash deals. Shutterfly's business with Chegg primarily consisted of advertising campaigns, and commercial print services with its Enterprise segment. During the year ended December 31, 2014, Shutterfly paid approximately...

  • Page 111
    ... the Treat brand and migrate the one-to-one greeting offering to the Shutterfly brand by the end of the first quarter of 2015. Shutterfly also announced plans to close its manufacturing facility located in Elmsford, New York and redirect all production and customer service operations throughout...

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    ... 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 Doubtful Accounts December 31, 2012 ...$ December 31, 2013 ...$ December 31, 2014 ...$ Allowance December 31, 2012 ...$ December...

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    ... 15(d)-15(f) under the Exchange Act. The Company's internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable...

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    ... 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...

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    ... officer, controller and other employees of the finance department 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...

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    ... 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.'' 115

  • Page 117
    ...-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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    ... has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SHUTTERFLY, INC. (Registrant) Dated: February 17, 2015 By: /s/ Brian M. Regan Brian M. Regan Senior Vice President and Chief Financial Officer (Principal Financial Officer) POWER OF ATTORNEY KNOW...

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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 17, 2015 February 17, 2015 February 17, 2015 118

  • Page 120
    ....* Shutterfly, Inc. 2014 Quarterly Bonus Plan (CEO & eStaff).* 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 T. Housenbold.* Amendment Number 2 to...

  • Page 121
    ...Filing Exhibit Number Provided Herewith 10.15 10.16 10.17 Amendment to Offer Letter dated December 23, 2008 for Dwayne Black.* Offer Letter dated March 5, 2012 for John Boris.* Offer Letter, dated July 18, 2012, by and between Shutterfly, Inc. and Brian Regan.* Offer Letter dated October 9, 2014...

  • Page 122
    ...Date of File No. First Filing Exhibit Number Provided Herewith 10.26 Letter Agreement, dated May 14, 2013, between Morgan Stanley & Co. International plc and Shutterfly, Inc. regarding the Base Call Option Transaction. Letter Agreement, dated May 14, 2013, between Credit Suisse International and...

  • Page 123
    ... 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 124
    ...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, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance... a management contract or...

  • Page 125
    ...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 17, 2015 By: /s/ Jeffrey T. Housenbold Jeffrey T. Housenbold President and Chief Executive Officer (Principal Executive and Financial...

  • Page 126
    ... 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 17, 2015 By: /s/ Brian M. Regan Brian M. Regan Senior Vice President and Chief Financial Officer (Principal Financial...

  • Page 127
    ..., the President and Chief 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, 2014 of the Company (the ''Report'') fully complies with the requirements of Section 13...

  • Page 128
    ..., Senior Vice President and Chief 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, 2014 of the Company (the ''Report'') fully complies with the requirements of Section 13...

  • Page 129
    ... Officer Obtaining Financial Statements A copy of our Annual Report on Form 10-K is posted to our website. You may also obtain a copy by written or email request to: Investor Relations Shutterfly, Inc. 2800 Bridge Parkway Redwood City, California 94065 Email: [email protected] Trading...

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