Shutterfly 2014 Annual Report Download - page 83

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For camera, lenses, and video equipment rentals from our BorrowLenses brand, we recognize rental
revenue and the related shipping and insurance revenue, ratably over the rental period. Revenue from the
sale of rental equipment is recognized upon shipment of the equipment.
For gift card sales and flash deal promotions through group buying websites, the Company recognizes
revenue on a gross basis, as it is the primary obligor, when redeemed items are shipped. Revenues from
sales of prepaid orders on its websites are deferred until shipment of fulfilled orders or until the prepaid
period expires. The Company’s share of revenue generated from its print to retail relationships, is
recognized when orders are picked up by its customers at the respective retailer.
The Company provides its customers with a 100% satisfaction guarantee whereby products can be
returned within a 30 -day period for a reprint or refund. The Company maintains an allowance for
estimated future returns based on historical data. The provision for estimated returns is included in
accrued expenses.
The Company periodically provides incentive offers to its 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 transaction and are presented in net revenues. Production costs related to free products are
included in cost of revenues upon redemption.
The Company’s advertising revenues are derived from the sale of online advertisements on its
websites. Advertising revenues are recognized as ‘‘impressions’’ (i.e., the number of times that an
advertisement appears in pages viewed by users of the Company’s websites) are delivered; as ‘‘clicks’’
(which are generated each time users of the Company’s websites click through the advertisements to an
advertiser’s designated website) are provided to advertisers; or ratably over the term of the agreement with
the expectation that the advertisement will be delivered ratably over the contract period.
Restructuring Costs
The Company records restructuring costs when expenses are incurred. The Company accrues for lease
termination costs when the restructuring event takes place. The Company accrues for severance once the
total severance pool has been calculated, approved and communicated, and recognizes the expense ratably
over the required service period, from the communication date to the exit date. The Company also
accelerates depreciation using a revised economic life of the leasehold improvement assets.
Advertising Costs
Advertising costs are expensed as incurred, except for direct mail advertising which is expensed when
the advertising first 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 radio advertising. These amounts totaled approximately $102.2 million,
$87.5 million and $69.9 million during the years ended December 31, 2014, 2013 and 2012, respectively.
Stock-Based Compensation
The Company measures stock based awards at fair value and recognizes compensation expense for all
share-based payment awards made to its employees and directors, including employee stock options and
restricted stock awards.
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