Shutterfly 2014 Annual Report Download - page 79

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SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Description of Business
Shutterfly, Inc., (the ‘‘Company’’ or ‘‘Shutterfly’’) was incorporated in the state of Delaware in 1999
and began its services in December 1999. The Company 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 assortment of personalized items such as photo books, greeting cards
and stationery and calendars. Shutterfly also operates a premier online marketplace for high-quality
photographic and video equipment rentals. And the Company provides enterprise services: printing and
shipping of direct marketing and other variable data print products and formats. The Company is
headquartered in Redwood City, California.
Note 2 — The Company and Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. The functional currency of its Israeli subsidiary is the U.S. Dollar, as such,
exchange rate fluctuations are recorded as a part of earnings. All intercompany transactions and balances
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in
the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported amounts of revenues and expenses during the reporting
period. Items subject to such estimates and assumptions include, among others, intangible assets valuation,
useful lives, excess and obsolete inventories, restructuring, legal contingencies, valuation allowances,
restricted stock awards with market criteria, provision for sales returns, and allowance for doubtful
accounts. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three
months or less to be cash equivalents. Management determines the appropriate classification of cash
equivalents at the time of purchase and reevaluates such designations at each balance sheet date. Cash
equivalents consist of money market funds, primarily invested in U.S. Treasury securities.
Fair Value
The Company records its financial assets and liabilities at fair value. The accounting standard for fair
value provides a framework for measuring fair value, clarifies the definition of fair value, and expands
disclosures regarding fair value measurements. Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market
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