Shutterfly 2014 Annual Report Download - page 67

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For 2012, net cash used in investing activities was $109.3 million. We used $24.4 million in the
acquisition 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 operations, and $12.5 million of capitalized software and website development.
Additionally, we received proceeds of $1.0 million from the sale of equipment.
Financing Activities. For 2014, net cash used in financing activities was $87.6 million. We used
$88.8 million to repurchase shares of our common stock and $3.1 million for payments of capital leases and
financing obligations. We also received $3.2 million of proceeds from issuance of common stock from the
exercise of options and recorded $1.0 million from excess tax benefit from stock-based compensation.
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.
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,
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