Shutterfly 2015 Annual Report Download - page 95

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photo book industry and creator of easy-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 the acquisition date. The excess of the purchase price over the aggregate fair values was recorded as goodwill.
Of the total purchase price, $9.5 million was allocated to the customer base, which will be amortized over an
estimated useful life of four years, $7.8 million was allocated to developed technologies and will be amortized
over an estimated useful life of approximately two years, $1.3 million to the MyPublisher tradename, which will
be amortized over an estimated useful life of two years, and $0.1 million to favorable leases which will be
amortized over an estimated useful life of five years. The tangible assets and liabilities acquired totaled
approximately $8.2 million and $7.8 million, respectively. Included within assets and liabilities is a net deferred
tax liability of approximately $0.3 million representing the difference between the assigned values of the assets
acquired and the tax basis of those assets, with the offset recorded as additional goodwill. The remaining excess
purchase price of approximately $21.1 million was allocated to goodwill primarily representing the assembled
workforce and synergies from MyPublisher’s market position. The results of operations for the acquired business
have been included in the consolidated statement of operations for the period subsequent to the Company’s
acquisition of MyPublisher. MyPublisher’s results of operations for periods prior to this acquisition were not
material to the consolidated statement of operations and, accordingly, pro forma financial information has not
been presented.
Note 7 — Commitments and Contingencies
Leases
The Company leases office and production space under various non-cancelable operating leases that expire
no later than January 2023. Rent expense was $9.7 million, $7.2 million and $5.8 million, for the years ended
December 31, 2015, 2014 and 2013, respectively.
Rent expense is recorded on a straight-line basis over the lease term. When a lease provides for fixed
escalations of the minimum rental payments, the difference between the straight-line rent charged to expense,
and the amount payable under the lease is recognized as deferred rent.
The Company has non-cancelable operating leases for certain production equipment with terms ranging from
one to three years. As of December 31, 2015, the total outstanding obligation under all equipment operating
leases was $9.0 million.
The Company also has production equipment under capital lease. During the year ended December 31, 2015,
the Company modified certain existing equipment lease agreements which resulted in the leases being
reclassified from operating to capital leases. The Company also entered into new equipment leases with terms
which resulted in capital lease treatment.
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