Shutterfly 2014 Annual Report Download - page 41

their face amount over the term of the notes. We will report lower net income in our financial results
because ASC 470-20 will require interest to include both the current period’s amortization of the debt
discount and the instrument’s coupon interest, which could adversely affect our reported or future
financial results, the trading price of our common stock and the trading price of the notes. In addition,
under certain circumstances, convertible debt instruments (such as the notes) that may be settled entirely
or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that
any shares issuable upon conversion of the notes are not included in the calculation of diluted earnings per
share except to the extent that the conversion value of the notes exceeds their principal amount. Under the
treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the
number of shares of common stock that would be necessary to settle such excess, if we elected to settle
such excess in shares, are issued. We cannot be sure that the accounting standards in the future will
continue to permit the use of the treasury stock method. If we are unable to use the 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 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 our common stock is reserved for issuance upon the exercise of stock
options, the vesting of restricted stock units and other equity awards pursuant to our employee benefit
plans, upon conversion of the notes, and in relation to the convertible note hedge and warrant transactions
entered into in connection with the pricing of the notes. We cannot predict the size of future issuances or
the effect, if any, that they may have on the market price for our common stock. The issuance and sale of
substantial amounts of common stock, or the perception that such issuances and sales may occur, could
adversely affect the trading price of the notes and the market price of our common stock and impair our
ability to raise capital through the sale of additional equity securities.
Repurchases by us of our common stock may affect the value of the notes and our common stock.
We used $30.0 million of the net proceeds from the notes offering to repurchase shares of our common
stock from purchasers of notes in 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 of our common stock or the notes.
Holders of notes will not be entitled to any rights with respect to our common stock, but they will be subject to all
changes made with respect to them to the extent our conversion obligation includes shares of our common stock.
Holders of notes will not be entitled to any rights with respect to our common stock (including,
without limitation, voting rights and rights to receive any dividends or other distributions on our common
stock) prior to the conversion date relating to such notes (if we elect to settle the relevant conversion by
delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional
share)) or the last trading day of the relevant observation period (if we elect to pay and deliver, as the case
may be, a combination of cash and shares of our common stock in respect of the relevant conversion), but
holders of notes will be subject to all changes affecting our common stock. For example, if an amendment
is proposed to our certificate of incorporation or bylaws requiring stockholder approval and the record
date for determining the stockholders of record entitled to vote on the amendment occurs prior to the
conversion date related to a holder’s conversion of its notes (if we have elected to settle the relevant
conversion by delivering solely shares of our common stock (other than paying cash in lieu of delivering
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