Shutterfly 2015 Annual Report Download - page 29

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If the facility where our computer and communications hardware is located fails or if any of our production
facilities fail, our business and results of operations would be harmed.
Our ability to successfully receive and fulfill orders and to provide high-quality customer service depends in
part on the efficient and uninterrupted operation of our computer and communications systems. The computer
hardware necessary to operate our website is in Las Vegas, Nevada. We also have computer hardware located in
our production facilities in Fort Mill, South Carolina; Shakopee, Minnesota; and Tempe, Arizona. Our systems
and operations could suffer damage or interruption from human error, fire, flood, power loss, insufficient power
availability, telecommunications failure, break-ins, terrorist attacks, acts of war and similar events. In addition,
our headquarters are located near a major fault line increasing our susceptibility to the risk that an earthquake
could significantly harm our operations. We maintain business interruption insurance; however, this insurance
may be insufficient to compensate us for losses that may occur, particularly from interruption due to an
earthquake which is not covered under our current policy. We do not presently have redundant systems in
multiple locations. In addition, the impact of any of these disasters on our business may be exacerbated by the
fact that we are still in the process of developing our formal disaster recovery plan and we do not have a final
plan in place.
We currently depend on third party suppliers for our photographic print paper, printing machines and other
supplies, which expose us to risks if these suppliers fail to perform under our agreements with them.
We purchase photo-based and other product supplies from third parties. These parties could increase their
prices, reallocate supply to others, including our competitors, or choose to terminate their relationship with us. If
one of these third parties chooses not to renew their agreements or fails to perform in accordance with the terms
of their agreements and we are not able to secure supplies and services from a different source in a timely
manner, we could fail to meet customer expectations, which could damage our reputation and harm our business.
This competition may influence their willingness to provide us with additional products or services. If we were
required to switch vendors of machines for photo-based or other products, we may incur delays and incremental
costs, which could harm our operating results.
We currently outsource some of our off-line and on-line marketing, and some of our customer service
activities to third parties, which exposes us to risks if these parties fail to perform under our agreements with
them.
We currently outsource some of our off-line and on-line marketing, and some of our customer service
activities to third parties. If these parties fail to perform in accordance with the terms of our agreements and if we
are unable to secure another outsource partner in a timely manner, we would likely fail to meet customer
expectations, which could result in negative 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 and protection of customer data could harm
our business, damage our reputation and result in a loss of customers.
Federal, state and international laws and regulations may govern the collection, use, sharing and security of
data that we receive from our customers. In addition, we have and post on our websites our own privacy policies
and practices concerning the collection, use and disclosure of customer data. Any failure, or perceived failure, by
us to comply with our posted privacy policies or with any data-related consent orders, U.S. Federal Trade
Commission requirements or other federal, state or international privacy-related laws and regulations could result
in proceedings or actions against us by governmental entities or others, which could potentially harm our
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