Shutterfly 2015 Annual Report Download - page 85

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Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized by applying the statutory tax rates in effect in the years in which the
differences between the financial reporting and tax filing bases of existing assets and liabilities are expected to
reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
The 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 to make subjective assumptions and
judgments regarding its income tax exposures. Interpretations and guidance surrounding income tax laws and
regulations change over time. As such, changes in the Company’s subjective assumptions and judgments can
materially affect amounts recognized in the consolidated balance sheets and statements of operations.
The Company’s policy is to recognize interest and /or penalties related to all tax positions in income tax
expense. To the extent that accrued interest and penalties do not ultimately become payable, amounts accrued
will be reduced and reflected as a reduction of the overall income tax provision in the period that such
determination is made. No interest and penalties were accrued as of December 31, 2015 and 2014.
The Company is subject to taxation in the United States and Israel.
Net Income/(Loss) Per Share
Basic net income/(loss) per share attributed to common shares is computed by dividing the net income/(loss)
attributable to common shares for the period by the weighted average number of common shares outstanding
during the period.
Diluted net income/(loss) per share attributed to common shares is computed by dividing the net income
attributable to common shares for the period by the weighted average number of common and potential common
shares outstanding during the period, if the effect of each class of potential common shares is dilutive. Potential
common shares include restricted stock units and incremental shares of common stock issuable upon the exercise
of stock options, conversion of warrants, and the impact of convertible debt.
Year ended December 31,
2015 2014 2013
Net income/(loss) per share: (in thousands, except per share amounts)
Numerator
Net income/(loss) .......................................... $ (843) $ (7,860) $ 9,285
Denominator
Denominator for basic net income/(loss) per share
Weighted-average common shares outstanding ................ 36,761 38,452 37,680
Dilutive effect of stock options and restricted awards ........... — — 1,813
Denominator for diluted net income per share ................. 36,761 38,452 39,493
Net income/(loss) per share
Basic ................................................. $ (0.02) $ (0.20) $ 0.25
Diluted ................................................ $ (0.02) $ (0.20) $ 0.24
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