Shutterfly 2015 Annual Report Download - page 84

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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, 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 radio
advertising. These amounts totaled approximately $117.1 million, $102.2 million and $87.5 million during the
years ended December 31, 2015, 2014 and 2013, 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.
The Company estimates the fair value of stock options granted using the Black-Scholes valuation model. This
model requires the Company to make estimates and assumptions including, among other things, estimates regarding
the length of time an employee will retain vested stock options before exercising them, the estimated volatility of
the Company’s common stock price and the number of options that will be forfeited prior to vesting. The fair value
is then amortized on a straight-line basis over the requisite service periods of the awards, which is generally the
vesting period. Changes in these estimates and assumptions can materially affect the determination of the fair value
of stock-based compensation and consequently, the related amount recognized in the Company’s consolidated
statements of operations. The Company has not issued any stock options since the first quarter of 2013.
The cost of restricted stock awards and performance based restricted stock awards is determined using the
fair value of the Company’s common stock on the date of grant. Compensation expense is recognized for
restricted stock awards on a straight-line basis over the vesting period. Compensation expense associated with
performance based restricted stock awards is recognized on an accelerated attribution model, and ultimately
based on whether or not satisfaction of the performance criteria is probable. If in the future, situations indicate
that the performance criteria are not probable, then no further compensation cost will be recorded, and any
previous costs will be reversed. The cost of restricted stock awards with market conditions is estimated using a
Monte Carlo valuation model.
Employee stock-based compensation expense is calculated based on awards ultimately expected to vest and
has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary,
in subsequent periods if actual forfeitures differ from those estimates.
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