Shutterfly 2015 Annual Report Download

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2015 ANNUAL REPORT

Table of contents

  • Page 1
    2015 ANNUAL REPORT

  • Page 2

  • Page 3
    ... business day of our most recently completed second fiscal quarter, the aggregate market value of our Common Stock held by non-affiliates based on the closing price of our Common Stock on June 30, 2015 as reported on the NASDAQ Global Select Market was $1,779,261,915. Indicate the number of shares...

  • Page 4
    ..., Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ...Certain Relationships and Related Transactions, and Director Independence ...Principal Accounting Fees and Services ...PART...

  • Page 5
    ...brands: Shutterfly, Tiny Prints, Wedding Paper Divas, ThisLife, MyPublisher, BorrowLenses and Groovebook. Shutterfly leads the market in digital personalized photo products and services. Shutterfly helps our customers turn their precious memories into lasting keepsakes with award-winning photo books...

  • Page 6
    ... photo books, greeting and stationery cards, personalized calendars, other photo-based merchandise and high-quality prints ranging in size from wallet-sized to jumbo-sized 20x30 enlargements. We manufacture most of these items in our Fort Mill, South Carolina, Shakopee, Minnesota, and Tempe, Arizona...

  • Page 7
    ... on leading search engines. Within this segment, we seek to drive the following strategies: • Focus on growing and optimizing our core brands. We have a primary strategy to grow our core Shutterfly, Tiny Prints and Wedding Paper Divas brands by acquiring new customers, expanding the lifetime value...

  • Page 8
    ...Wedding Paper Divas, grew through innovations in premium products and advertising. Shutterfly and Tiny Prints continued to delight customers and increase their loyalty to our industry-leading lineup of design-forward products and services. Both brands benefited from the popularity of our premium add...

  • Page 9
    ... our Share sites iPhone app, added new styles, fonts and a dust cover options to our Photo Story iPad app which we originally launched in 2013, and unveiled a "Super Simple Book" creation path on our Shutterfly iPhone app, providing mobile users the ability to create, personalize and order a 20...

  • Page 10
    ...improve on product quality delighting our customers and capturing more margin. Also in 2015, we closed our manufacturing operations at the Elmsford, New York facility that was acquired with the MyPublisher acquisition. Although the Elmsford team produced a high quality product, the small size of the...

  • Page 11
    ... analysis, we are able to offer customers a more personalized website experience and to target them with specific website promotions, discounts, specialized email, and direct mail offers. Our promotion engine generates special offers that are account specific and applied automatically at checkout...

  • Page 12
    ... services companies such as Snapfish, Vistaprint, and many others; Social media companies that host and enable mobile access to and posting of images such as Facebook, Instagram, Twitter, Pinterest, Snapchat and Google+; Photo hosting websites that allow users to upload and share images at no cost...

  • Page 13
    ... such as PaperSource, Crane & Co., and Papyrus; Cloud-based storage services and file-syncing services such as Dropbox, Box, and Amazon Cloud Drive; Specialized companies in the photo book and stationery business such as Hallmark, Cardstore by American Greetings, Minted, Invitations by Dawn, Picaboo...

  • Page 14
    ... primarily to intelligent product creation; image uploading, sharing, and editing; ordering and sharing products; cloud image storage infrastructure; manufacturing optimization; mobile and social media technologies; and automated and personalized manufacturing. We intend to pursue corresponding...

  • Page 15
    ...state escheatment laws to try and obtain unused gift card balances. The Restore Online Shoppers' Confidence Act ("ROSCA") prohibits and prevents Internet-based post-transaction third party sales and imposes specific requirements on negative option features. The Patient Protection and Affordable Care...

  • Page 16
    ... issuers that file electronically with the Securities and Exchange Commission. The Securities and Exchange Commission's Internet website is located at http://www.sec.gov. ITEM 1A. RISK FACTORS Risks Related to Our Business and Industry Our net revenues, operating results and cash requirements are...

  • Page 17
    ... on net worth, anticipated economic slowdowns in foreign economies, high consumer debt levels, uncertainty in real estate markets and home values, fluctuating energy and commodity costs, rising or higher than average interest rates, higher than usual unemployment rates, limited credit availability...

  • Page 18
    ... services companies such as Snapfish, Vistaprint, and many others; Social media companies that host and enable mobile access to and posting of images such as Facebook, Instagram, Twitter, Pinterest, Snapchat and Google+; Photo hosting websites that allow users to upload and share images at no cost...

  • Page 19
    ... stores such as Walgreens, CVS/pharmacy, and others that offer low-cost photography products and services as well as in-store pick-up from their photo website Internet orders; Traditional offline stationary companies such as PaperSource, Crane & Co. and Papyrus; Cloud-based storage services and file...

  • Page 20
    ... pricing and marketing strategies and those of our competitors; our ability to attract visitors to our websites and mobile applications and convert those visitors into customers; our ability to retain customers and encourage repeat purchases; the costs of customer acquisition; our ability to manage...

  • Page 21
    ... maintain and increase the size of our customer base; maintain and enhance our brands and reputation; enhance and expand our products and services; maintain and grow our websites, mobile applications and customer operations; successfully execute our business and marketing strategies; continue to...

  • Page 22
    ..., data storage and management requirements, it may negatively impact customer satisfaction, revenue, costs and brand reputation. As a part of our current business model, we offer our customers free unlimited online storage and sharing of images and, as a result, must store and manage many petabytes...

  • Page 23
    ... these problems could harm our reputation and cause our net revenues to decline. Full or partial outages to our websites, mobile applications, computer systems, print production processes or customer service operations could damage our brand reputation and substantially harm our business and results...

  • Page 24
    ... systems. For example, in 2014, we experienced a cyberattack on our Tiny Prints, Treat and Wedding Paper Divas websites, which may have exposed the email addresses and encrypted passwords used by our customers to login to their accounts. We encrypt customer credit and debit card information, and...

  • Page 25
    ... difficulty managing our growth and expanding our operations successfully. We have website operations, offices and customer support centers in Redwood City, California, Santa Clara, California, and Tempe, Arizona and production facilities in Fort Mill, South Carolina; Shakopee, Minnesota and a new...

  • Page 26
    ... of our 2006 Plan to select new employees upon hire and in connection with mergers and acquisitions without stockholder approval in accordance with NASDAQ Listing Rule 5635(c) for an aggregate of 2,216,061 shares of our common stock. In December 2015, we replaced the 2006 Plan with our 2015 Plan. We...

  • Page 27
    ... websites. We also use e-mail and direct mail to attract customers, and we offer substantial pricing discounts and or free products to encourage repeat purchases and trial orders. Our methods of attracting customers, including acquiring customer lists from third parties can involve substantial costs...

  • Page 28
    ...prevent us from acquiring new customers and increasing net revenues. A component of our business strategy is the continued promotion and strengthening of the Shutterfly, Tiny Prints, Wedding Paper Divas, BorrowLenses, MyPublisher, Groovebook, and ThisLife brands. Due to the competitive nature of the...

  • Page 29
    ... publicity, damage our reputation and brands and harm our business and results of operations. In the fourth quarter of 2015, a third party customer service provider experienced a disruption that affected our operations during peak times. Changes in regulations or customer concerns regarding privacy...

  • Page 30
    ... to build brand identity, possibly leading to customer confusion. In addition, we have been and may continue to be subject to potential trade name or trademark infringement claims brought by owners of marks that are similar to Shutterfly, Tiny Prints, Wedding Paper Divas, BorrowLenses, ThisLife...

  • Page 31
    ...and stock-based compensation activity. Tax audits by taxing agencies for the open tax years could lead to fluctuations in our effective tax rate because the taxing authority may disagree with certain assumptions we have made regarding appropriate credits and deductions in filing our tax returns. Our...

  • Page 32
    ... the use of gift cards and amending state escheatment laws to try and obtain unused gift card balances. The Restore Online Shoppers' Confidence Act ("ROSCA") prohibits and prevents Internet-based post-transaction third party sales and imposes specific requirements on negative option features. The...

  • Page 33
    ...impose complex and costly constraints on our business model. Because of our focus on automation and high volumes, our operations do not involve, for the vast majority of our sales, any human-based review of content. Although our websites' terms of use specifically require customers to represent that...

  • Page 34
    ... digital photography products and services do not choose to shop or rent online, our net revenues and results of operations would be harmed. If our internal controls are not effective or our third-party software systems that we use to assist us in the calculation and reporting of financial data have...

  • Page 35
    ... applicable to the corporate governance functions of public companies. Additional or new regulatory requirements may be adopted in the future. The requirements of existing and potential future rules and regulations will likely continue to increase our legal, accounting and financial compliance costs...

  • Page 36
    ... company; business disruptions and costs related to shareholder activism; the public's response to our press releases or other public announcements, including our filings with the SEC; announcements by us or our competitors of significant technical innovations, acquisitions, strategic partnerships...

  • Page 37
    ... actual number of shares repurchased will depend on a variety of factors including the timing of open trading windows, price, corporate and regulatory requirements, an assessment by management and our board of directors of cash availability and other market conditions. The stock repurchase program...

  • Page 38
    ... purchasers seeking to employ a convertible arbitrage strategy are unable to borrow or enter into swaps on our common stock, in each case on commercially reasonable terms, the trading price and liquidity of the notes may be adversely affected. Volatility in the market price and trading volume...

  • Page 39
    ...at any time during specified periods at their option. If one or more holders elect to convert their notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to...

  • Page 40
    ...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...

  • Page 41
    ... average prices of our common stock for each trading day in a 30 trading-day observation period. Accordingly, if the price of our common stock decreases during such observation period, the amount and/ or value of consideration holders receive will be adversely affected. In addition, if the market...

  • Page 42
    ... will not be adjusted for other events, such as a third-party tender or exchange offer or an issuance of common stock for cash that may adversely affect the trading price of the notes or our common stock. An event that adversely affects the value of the notes may occur, and that event may not result...

  • Page 43
    ... not subject to the registration requirements of the Securities Act and applicable state securities laws. We do not intend to file a registration statement for the resale of the notes and the common stock, if any, into which the notes are convertible. An active trading market may not develop for the...

  • Page 44
    ... will depend on many factors but, generally, an increase in our exposure will be correlated to an increase in the market price and in the volatility of our common stock. In addition, upon a default by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently...

  • Page 45
    ... City, California(1) ...Santa Clara, California(2) ...Fort Mill, South Carolina(3) ...Elmsford, New York(4) ...Shakopee, Minnesota(5) ...Tempe, Arizona(6) ... Corporate headquarters Office space Manufacturing and customer service facility Office space Manufacturing and customer service facility...

  • Page 46
    ..., no longer material to our business, financial position or results of operations. No material legal proceeding was terminated during the fourth quarter of 2015. The State of Delaware v. Shutterfly, Inc. On May 1, 2014, the State of Delaware filed a complaint against us for alleged violations...

  • Page 47
    ... quarter of the fiscal year ended December 31, 2015: Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans Or Programs (in thousands)(2) Period(1) Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased Under Publicly Announced Plans...

  • Page 48
    ...this annual report on Form 10-K. 2015 Year Ended December 31, 2014 2013 2012 (In thousands, except per share amounts) 2011 Consolidated Operations Statement Data: Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Technology and development ...Sales and marketing ...General...

  • Page 49
    ... of our net revenues, mergers and acquisitions and our ability to successfully integrate acquired technologies and services, our new production facilities, as well as other statements regarding our future operations, financial condition and prospects and business strategies. In some cases, you can...

  • Page 50
    ...Shutterfly, Tiny Prints, Wedding Paper Divas, ThisLife, MyPublisher, BorrowLenses and Groovebook. We generate the majority of our Consumer revenues by producing and selling professionally-bound photo books, greeting and stationery cards, personalized calendars, other photo-based merchandise and high...

  • Page 51
    ...in the Tiny Prints and Wedding Paper Divas technology to redirect resources to the new Shutterfly platform, which will allow these brands to be supported by a common set of shared technology services, including cart, creation paths, login, address book and media storage platform. In 2015, we decided...

  • Page 52
    ...seek to expand our customer base by empowering our existing customers with sharing and collaboration services, and by conducting integrated marketing and advertising programs. We also acquire new customers through customer list acquisitions. Total customers have increased on an annual basis for each...

  • Page 53
    ... and shipped in approximately three business days after a customer places an order. Total number of orders has increased on an annual basis for each year since 2000, and we anticipate this trend to continue in the future. Average Order Value. Average order value ("AOV") is Consumer net revenues for...

  • Page 54
    ... our customer acquisition, product marketing, business development, and public relations activities. Our marketing efforts consist of various online and offline media programs, such as e-mail and direct mail promotions, radio advertising, television advertising, the purchase of keyword search terms...

  • Page 55
    ...place Consumer product orders through our websites and pay primarily using credit cards. Enterprise customers are invoiced upon fulfillment. Shipping charged to customers is recognized as revenue at the time of shipment. For camera, lenses, and video equipment rentals from our BorrowLenses brand, we...

  • Page 56
    ...the purchase method of accounting are estimated by management based on the fair value of assets received. Intangible assets are amortized on a straight-line basis over the estimated useful lives which range from one to sixteen years, and the amortization is allocated between cost of net revenues and...

  • Page 57
    ... using discounted cash flows. Forecasts of future cash flows are based on our best estimate of future net sales and operating expenses, based primarily on expected reporting unit expansion, pricing, market segment share, and general economic conditions. Software and Website Development Costs. We...

  • Page 58
    ... our statement of operations as a percentage of net revenues: Year Ended December 31, 2015 2014 2013 Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Technology and development ...Sales and marketing ...General and administrative ...Total operating expenses ...Income from...

  • Page 59
    ... of Groovebook sales (acquired in October 2014), mobile revenue, and photo gifts. Consumer net revenues also benefited from a change in accounting estimate related to flash deal deferred revenue in the second quarter of 2015. The increase is also reflected in the increases in customers and orders in...

  • Page 60
    ... we signed a seven-year contract with a major Enterprise customer which resulted in a significant increase in Enterprise revenues for the year. Enterprise revenues in 2015 include $14.0 million in shipping revenue at zero margin that is not expected to recur. For our Enterprise segment, cost of net...

  • Page 61
    ...a reduced limitation on executive compensation, and the establishment of valuation allowances on certain Arizona deferred tax assets. 2015 Year Ended December 31, 2014 $ Change (in thousands) % Change Income/(loss) before income taxes ...Net income/(loss) ...Percentage of net revenues ... $ (1,989...

  • Page 62
    ... Consumer net revenues is primarily the result of increased sales of greeting and stationery cards, photo books and a full year of BorrowLenses revenues. The increase is also reflected in the increases in customers and orders in 2014 as compared to 2013, as noted above. Average order value remained...

  • Page 63
    ... and related costs associated with the expansion of our internal marketing team, an increase of $2.9 million in stock-based compensation, and an increase of $1.5 million in intangible asset amortization primarily from intangibles acquired in the 2013 acquisitions of MyPublisher and BorrowLenses. Our...

  • Page 64
    ... of higher non-deductible executive compensation, a lower federal research and development credit benefit and a decrease in disqualifying dispositions of incentive stock option awards. 2014 Year Ended December 31, 2013 $ Change (in thousands) % Change Income/(loss) before income taxes ...Net income...

  • Page 65
    ... for amortization of debt discount and transaction costs of $13.6 million and the net change in operating assets and liabilities of $19.4 million primarily driven by a change in accounts receivable resulting from Enterprise customers. For 2014, net cash provided by operating activities was $166...

  • Page 66
    ... 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. Non-GAAP Financial Measures Regulation G, conditions for use of Non-Generally Accepted Accounting Principles ("Non-GAAP...

  • Page 67
    ...publicly-filed reports in their entirety and not to rely on any single financial measure. The table below shows the trend of adjusted EBITDA and free cash flow as a percentage of net revenues and Non-GAAP net income per share for the years ended December 31, 2015, 2014, and 2013 (in thousands): 2015...

  • Page 68
    ... income, net ...Tax (benefit)/expense ...Changes in operating assets and liabilities ...Other adjustments ...Non-GAAP Adjusted EBITDA ...Less: Purchases of property and equipment, including accrued amounts ...Capitalized software and website development costs, including accrued amounts ...Free cash...

  • Page 69
    ... various non-cancelable operating leases for certain production equipment. (2) Includes the estimated timing and amount of payments for rent for our leased production facility spaces in Fort Mill, South Carolina; Shakopee, Minnesota; and Tempe, Arizona. See Part II, Item 8 of this annual report on...

  • Page 70
    ... (Topic 330). ASU 2015-11 requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the "estimated selling prices in the ordinary course of business, less reasonably predictable...

  • Page 71
    ..., when the market price of our stock fluctuates. Inflation. We do not believe that inflation has had a material effect on our current business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, for example, if the cost of our...

  • Page 72
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SHUTTERFLY, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets ...Consolidated Statements of Operations ...Consolidated Statements of Stockholders' Equity ......

  • Page 73
    ... of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was...

  • Page 74
    SHUTTERFLY, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value amounts) December 31, 2015 2014 ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net ...Inventories ...Deferred tax asset, current portion ...Prepaid expenses and other ...

  • Page 75
    SHUTTERFLY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) 2015 Year Ended December 31, 2014 2013 Net revenues ...Cost of net revenues ...Gross profit ...Operating expenses: Technology and development ...Sales and marketing ...General and administrative ...Total...

  • Page 76
    ...of restricted stock units ...Stock based compensation, net of forfeitures ...Accelerated share repurchase of common stock ...Tax benefit/(shortfall) of stock options ...Equity component of the convertible note issuance, net ...Purchase of convertible note hedge ...Sale of warrants ...Balance, end of...

  • Page 77
    SHUTTERFLY, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (In thousands) 2015 Year Ended December 31, 2014 2013 Net income/(loss) ...Other comprehensive loss, net of reclassification adjustments: Unrealized losses on investments, net ...Tax benefit on unrealized losses on investments,...

  • Page 78
    ... revenue ...Other non-current liabilities ...Net cash provided by operating activities ...Cash flows from investing activities: Acquisition of business and intangible assets, net of cash acquired ...Purchases of property and equipment ...Capitalization of software and website development costs...

  • Page 79
    ... 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...

  • Page 80
    ... Company's accounts receivable are derived primarily from sales to customers located in the United States who make payments through credit cards, sales of the Company's products in sales of Enterprise services and revenue generated from online advertisements posted on the Company's websites. Credit...

  • Page 81
    Deferred Costs Deferred costs are the incremental costs directly associated with flash deal promotions through group buying websites. These costs are paid and deferred at the time of the flash deal, and recognized when the redeemed products are shipped or flash deal deferred revenue breakage has ...

  • Page 82
    ... product orders through the Company's websites and pay primarily using credit cards. Enterprise customers are invoiced upon fulfillment. Shipping charged to customers is recognized as revenue at the time of shipment. For camera, lenses, and video equipment rentals from our BorrowLenses brand, we...

  • Page 83
    ... 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...

  • Page 84
    ... takes place. The Company did not have any capitalized direct mail costs at December 31, 2015 and December 31, 2014. 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...

  • Page 85
    ... Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. The Company is required...

  • Page 86
    ...related shipping revenues as well as rental revenue from its BorrowLenses brand. Enterprise - Includes revenues primarily from variable, four-color direct marketing collateral manufactured and fulfilled for business customers. In addition to the above reportable segments, the Company has a corporate...

  • Page 87
    ... (Topic 330). ASU 2015-11 requires inventory to be subsequently measured using the lower of cost and net realizable value, thereby eliminating the market value approach. Net realizable value is defined as the "estimated selling prices in the ordinary course of business, less reasonably predictable...

  • Page 88
    ... 675 503 3,359 $7,317 Prepaid Expenses and Other Current Assets December 31, 2015 2014 (in thousands) Prepaid service contracts - current portion ...Deferred costs ...Prepaid postage ...Rebates ...Prepaid marketing ...Other prepaid expenses and current assets ... $ 12,539 3,849 3,047 3,004 1,197...

  • Page 89
    ... which are rented through the BorrowLenses' website. Depreciation and amortization expense totaled $86.3 million, $64.9 million, and $43.9 million for the years ended December 31, 2015, 2014 and 2013, respectively. Total capitalized software and website development costs, net of accumulated...

  • Page 90
    ...$ Goodwill In the fourth quarter of 2014, the Company reassessed its reportable segments. As part of this review, the Company determined that it had two reporting units; and that those two reporting units are also reportable segments. Refer to Note 13 - Segment Reporting of the financial statements...

  • Page 91
    ...adjustments to those balances for each of our reportable segments (in thousands): Consumer Enterprise Corporate Total Balance, December 31, 2013 ...Acquisition of business ...Goodwill adjustments ...Goodwill allocation ...Balance, December 31, 2014 ...Acquisition of business ...Goodwill adjustments...

  • Page 92
    ...available for sale are as follows (in thousands): December 31, 2015 Gross Gross Unrealized Unrealized Gains Losses Amortized Cost Estimated Fair Value Short-term investments Corporate debt securities ...Agency securities ...Commercial paper ...Total short-term investments ...Long-term investments...

  • Page 93
    ... purchase price of $13.7 million, consisting of an upfront cash purchase amount and a future performance-based earn-out subject to achieving certain financial metrics. Groovebook is a mobile photo book app subscription service that sends customers a keepsake book of their mobile photos each month...

  • Page 94
    ... 24, 2013, the Company acquired BorrowLenses LLC ("BorrowLenses") for a total aggregate cash purchase price of $36.8 million, or $35.7 million net of cash acquired. BorrowLenses is a premier online marketplace for photographic and video equipment rentals. The acquisition was accounted for as a non...

  • Page 95
    ...to-use photo book making software. The acquisition was accounted for as a non-taxable purchase transaction and, accordingly, the purchase price has been allocated to the acquired tangible assets, liabilities assumed, and identifiable intangible assets acquired based on their estimated fair values on...

  • Page 96
    ... square foot east coast production and customer service facility in Fort Mill, South Carolina. This facility replaced the Company's current east coast production facility in Charlotte, North Carolina. In order for the facility to meet the Company's operating specifications, both the landlord and the...

  • Page 97
    ... in Tempe, Arizona. This facility consolidated all of the Company's locations in the greater Phoenix area, including the acquired R&R Images facility, offers flexibility for future expansion, and became operational in the second quarter of 2015. Both the landlord and the Company incurred costs to...

  • Page 98
    ... its closing and is payable in full upon maturity. The Company intends to use the new Facility from time to time for general corporate purposes, working capital and potential acquisitions. The Company incurred $0.5 million of Credit Facility origination costs during the year ended December 31, 2013...

  • Page 99
    ...to Company employees, which includes officers and directors of the Company. Non-qualified stock options ("NSO") and stock purchase rights were able to be granted to employees and consultants. Options under the Plan were to be granted at prices not less than 85% of the deemed fair value of the shares...

  • Page 100
    ...value of the Company's common stock is determined by the last sale price of such stock on the NASDAQ Global Select Market. Options issued under the 2006 Plan typically vest with respect to 25% of the shares one year after the options' vesting commencement date, and the remainder ratably on a monthly...

  • Page 101
    ...plan. Stock Option Activity A summary of the Company's stock option activity at December 31, 2015 and changes during the period are presented in the table below (share numbers and aggregate intrinsic values in thousands): Number of Options Outstanding Weighted Average Exercise Price Weighted Average...

  • Page 102
    ... of the 2006 Plan, 2015 Plan and inducement awards to certain new employees upon hire in accordance with NASDAQ Listing Rule 5635(c)(4). The cost of RSUs is determined using the fair value of the Company's common stock on the date of grant. RSUs typically vest and are settled annually, based on...

  • Page 103
    ...restricted stock units (PBRSUs) issued under the 2006 Equity Incentive Plan to specific employees which are tied to the Company's 2015 financial performance and which have four year service criteria. Compensation cost associated with these PBRSUs is recognized on an accelerated attribution model and...

  • Page 104
    ...tax rate, as follows: 2015 December 31, 2014 2013 Income tax expense at statutory rate ...State income taxes ...Stock-based compensation ...R&D tax credit ...Non-deductible executive compensation ...Valuation allowance... net operating loss carryforwards are associated with windfall tax benefits ...

  • Page 105
    Internal Revenue Code limits the use of net operating loss and tax credit carryforwards in the case of an "ownership change" of a corporation. Any ownership changes, as defined, may restrict utilization of carryforwards. The components of the net deferred tax assets as of December 31, 2015 and 2014 ...

  • Page 106
    .... During the second quarter of 2015, the Internal Revenue Service completed its examination of the Company's tax year 2010 federal corporate income tax returns. The Company agreed with the examination results which resulted in a minimal tax payment. Note 10 - Employee Benefit Plan In 2000, the...

  • Page 107
    ... after the calendar quarter ending on September 30, 2013 (and only during such calendar quarter), if the last reported sale price of the Company's common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of...

  • Page 108
    ... 98% of the product of the last reported sale price of the Company's common stock on such trading day and the conversion rate on each such trading day; upon the occurrence of specified corporate events; or at any time on or after December 15, 2017 until the close of business on the second scheduled...

  • Page 109
    ... business. The Company has the following reportable segments: Consumer - Includes sales from the Company's brands and are derived from the sale of photo-based products, such as photo books, stationery and greeting cards, other photo-based merchandise, photo prints, and the related shipping revenues...

  • Page 110
    ... primarily of offering its products as part of Groupon's flash deals. The Company's business with Chegg primarily consisted of advertising campaigns, and commercial print services with its Enterprise segment. During the years ended December 31, 2015, 2014 and 2013, the Company paid approximately...

  • Page 111
    ... value of future rent payments, adjusted for potential sublease income. The Company will continue to incur employee severance and benefit expenses due to a reduction to headcount as a result of the restructuring activities. These restructuring costs will impact cost of net revenues and operating...

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    ... 2014 are as follows (in thousands, except per share amounts): First Quarter Year Ended December 31, 2015 Second Third Quarter Quarter Fourth Quarter Net revenues ...Gross profit ...Net income/(loss) ...Net income/(loss) per common share: Basic ...Diluted ... $ $ $ $ $ 159,978 $ 65,271 $ (45,103...

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    Schedule II Valuation and Qualifying Accounts Balance at Beginning of Period Additions Charged to Charged to Costs and Other Expenses Accounts In thousands Balance at End of Period Deductions Allowance for Doubtful Accounts Receivable Year ended December 31, 2013 ...Year ended December 31, 2014 ...

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    ... by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes...

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    ...Company reviewed the results of management's assessment with the Audit Committee of the Board of Directors. The effectiveness of the Company's internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting...

  • Page 116
    ... Ownership Reporting Compliance." We have adopted a written code of ethics for financial employees that applies to our principal executive officer, principal financial officer, principal accounting officer, controller and other employees of the finance department designated by the Company's Chief...

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    ...." ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The information concerning principal accounting fees and services required by this Item is incorporated by reference to the section in our Proxy Statement entitled "Ratification of Selection of Independent Registered Public Accounting Firm." 115

  • Page 118
    ... 10-K: 1. Financial Statements. The consolidated financial statements of Shutterfly, Inc. are incorporated by reference to Part II, Item 8 of this annual report on Form 10-K. 2. Financial Statement Schedule. The Valuation and Qualifying Accounts schedule is incorporated by reference to Part II, Item...

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    ... has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SHUTTERFLY, INC. (Registrant) Dated: February 12, 2016 By: /s/ Michael Pope Michael Pope Senior Vice President and Chief Financial Officer (Principal Financial Officer) POWER OF ATTORNEY KNOW...

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    /s/ Brian T. Swette Brain T. Swette /s/ Michael P. Zeisser Michael P. Zeisser /s/ Mario Cibelli Mario Cibelli /s/ Thomas D. Hughes Thomas D. Hughes Director February 12, 2016 Director February 12, 2016 Director February 12, 2016 Director February 12, 2016 118

  • Page 121
    ...right agreement and stock bonus agreement under the 2015 Equity Incentive Plan.* Shutterfly, Inc. 2015 CEO Compensation Plan. (as amended May 22, 2015).* Shutterfly, Inc. 2015 Quarterly Bonus Plan (CEO & eStaff).* Shutterfly, Inc. Executive Stock Ownership Guidelines, as amended.* Offer letter dated...

  • Page 122
    ..., dated as of March 29, 2010, by and between Shutterfly, Inc. and FUJIFILM North America Corporation.** Amendment No. 2 to Supply Agreement made as of August 23, 2012 by and between Shutterfly, Inc. and FUJIFILM North America Corporation.** Credit Agreement, dated as of November 22, 2011, by and...

  • Page 123
    ..., Inc. regarding the Base Call Option Transaction. Letter Agreement, dated May 14, 2013, between Credit Suisse International and Shutterfly, Inc. regarding the Base Warrant Transaction. Letter Agreement, dated May 14, 2013, between Credit Suisse International and Shutterfly, Inc. regarding the Base...

  • Page 124
    ...Transaction. Letter Agreement, dated May 15, 2013 between Bank of America, N.A. and Shutterfly, Inc. regarding the Additional Call Option Transaction. Offer Lettered dated October 23. 2015, by and between Shutterfly, Inc. and Mike Pope.* Form of Executive Retention Agreement. 8-K 001-33031 May 20...

  • Page 125
    ...(b).*** The following financial statements from Shutterfly Inc.'s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of...

  • Page 126
    ... 23.01 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the ...Shutterfly, Inc. of our report dated February 12, 2016 relating to the consolidated financial statements, financial statement schedule and the effectiveness of internal control over financial reporting...

  • Page 127
    ... or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 12, 2016 By: /s/ Jeffrey T. Housenbold Jeffrey T. Housenbold President and Chief Executive Officer (Principal Executive Officer)

  • Page 128
    ... in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who...

  • Page 129
    ..., the President and Chief Executive Officer of Shutterfly, Inc. (the "Company"), pursuant to 18 U.S.C. §1350, hereby certifies that: (i) the Annual Report on Form 10-K for the period ended December 31, 2015 of the Company (the "Report") fully complies with the requirements of Section 13(a) or...

  • Page 130
    ... Vice President and Chief Financial Officer of Shutterfly, Inc. (the "Company"), pursuant to 18 U.S.C. §1350, hereby certifies that: (i) the Annual Report on Form 10-K for the period ended December 31, 2015 of the Company (the "Report") fully complies with the requirements of Section 13(a) or 15...

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