Shutterfly 2014 Annual Report Download - page 59

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be reduced and reflected as a reduction of the overall income tax provision in the period that such
determination is made.
Stock-Based Compensation Expense. We measure our stock based awards at fair value and recognize
compensation expense for all share-based payment awards made to our employees and directors, including
employee stock options and restricted stock awards.
We estimate the fair value of stock options granted using the Black-Scholes valuation model. This
model requires us to make estimates and assumptions including, among other things, estimates regarding
the length of time an employee will retain vested stock options before exercising them, the estimated
volatility of our common stock price using historical and implied volatility 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 of the awards, which is generally the vesting period. Changes in these estimates and
assumptions can materially affect the determination of the fair value of stock-based compensation and
consequently, the related amount recognized in our consolidated statements of operations.
The cost of restricted stock awards and performance based restricted stock awards is determined using
the fair value of our common stock on the date of grant. Compensation expense is recognized for restricted
stock awards on a straight-line basis over the vesting period. Compensation expense associated with
performance based restricted stock awards is recognized on an accelerated attribution model, and
ultimately based on whether or not satisfaction of the performance criteria is probable. If in the future,
situations indicate that the performance criteria are not probable, then no further compensation cost will
be recorded, and any previous costs will be reversed. The cost of restricted stock awards with market
conditions is estimated using a Monte-Carlo valuation model.
Employee stock-based compensation expense is calculated based on awards ultimately expected to vest
and has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised,
if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Results of Operations
The following table presents the components of our statement of operations as a percentage of net
revenues:
Year Ended December 31,
2014 2013 2012
Net revenues .................................... 100% 100% 100%
Cost of net revenues ............................... 49 47 46
Gross profit .................................. 51 53 54
Operating expenses:
Technology and development ....................... 14 14 13
Sales and marketing ............................. 23 24 23
General and administrative ........................ 12 12 11
Total operating expenses ......................... 49 50 47
Income from operations ............................237
Interest expense .................................. (2) (1) —
Interest and other income, net ........................———
Income/(loss) before income taxes ..................... — 2 7
Benefit from/(provision for) income taxes ................ — (1) (3)
Net income/(loss) ................................. —% 1% 4%
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