Shutterfly 2007 Annual Report Download - page 19

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Table of Contents
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our SEC reports can
be accessed through the investor relations section of our Internet website.
The public may also read and copy any materials we file with the Securities and Exchange Commission at the
Securities and Exchange Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains an Internet website that
contains reports, proxy and information statements and other information regarding 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.
Our net revenues, operating results and cash requirements are affected by the seasonal nature of our business.
Our business is highly seasonal, with a high proportion of our net revenues, net income and operating cash flows
generated during the fourth quarter. For example, we generated approximately 53% of our net revenues for 2006 in
the fourth quarter of 2006, and the net income that we generated during the fourth quarter of 2006 was necessary for
us to achieve profitability on an annual basis for 2006. In addition, we incur significant additional expenses in the
period leading up to the fourth quarter holiday season in anticipation of higher sales volume in that period, including
expenses related to the hiring and training of temporary workers to meet our seasonal needs, additional inventory and
equipment purchases and increased advertising. If we are unable to accurately forecast and respond to consumer
demand for our products during the fourth quarter, our financial results, reputation and brand will suffer and the
market price of our common stock would likely decline.
In addition, we base our operating expense budgets on expected revenue trends. A portion of our expenses, such
as office leases and various personnel costs, are fixed and are based on our expectations of our peak levels of
operations. We may be unable to adjust spending quickly enough to offset any unexpected revenue shortfall.
Accordingly, any shortfall in revenues may cause significant variation in operating results in any quarter.
Our limited operating history makes it difficult to assess the exact impact of the seasonal factors on our business
or whether our business is susceptible to cyclical fluctuations in the U.S. economy. In addition, our rapid growth may
have overshadowed whatever seasonal or cyclical factors might have influenced our business to date. Seasonal or
cyclical variations in our business may become more pronounced over time and may harm our results of operations
in the future.
If we are unable to meet our seasonal production requirements, our net revenues and results of operations
would be harmed.
We face significant production risks, particularly at peak holiday seasons, including the risks of obtaining and
hiring sufficient qualified seasonal production personnel. A majority of our workforce during the fourth quarter of
2006 was seasonal, temporary personnel. We have had difficulties in the past finding a sufficient number of qualified
seasonal employees. We believe that we must significantly grow our current production capability to meet our
projected revenue targets and, to date, have not yet identified or built out locations for the additional production
capacity we expect to need beginning in 2007. We expect to invest between $25 million and $29 million in capital
expenditures in 2007. Our inability to meet our seasonal production requirements could lead to customer
dissatisfaction and reduced net revenues. Moreover, if the costs of meeting production requirements were to increase,
our results of operations would be harmed.
14
ITEM 1A.
RISK FACTORS.