Shutterfly 2009 Annual Report Download - page 5

PART I
Except for historical financial information contained herein, the matters discussed in this Form 10-K may be considered forward-
looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934,
as amended, and subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Such
statements include declarations
regarding our intent, belief, or current expectations and those of management. Prospective investors are cautioned that any such forward-
looking statements are not guarantees of future performance and involve a
number of risks, uncertainties and other factors, some of which are
beyond our control; actual results could differ materially from those indicated by such forward-
looking statements. Important factors that could
cause actual results to differ materially from those indicated by such forward-looking statements include,
but are not limited to: (i) that the
information is of a preliminary nature and may be subject to further adjustment; (ii) those risks and uncertainties identified under “
Risk
Factors;
” and (iii) the other risks detailed from time-to-time in our reports and registration statements filed with the
Securities and Exchange
Commission, or SEC. Except as required by law, we undertake no obligation to revise or update publicly any forward-
looking statements,
whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS.
Overview
We are an Internet-
based social expression and personal publishing service that enables consumers to share, print and preserve their
memories by leveraging our technology, manufacturing, web-
design and merchandising capabilities. Our primary focus is on helping consumers
manage their memories through the powerful medium of photography. We provide a full range of personalized photo-
based products and
services that make it easy, convenient and fun for consumers to upload, edit, enhance, organize, find, share, create, print and preserve their
memories in a creative and thoughtful manner.
Consumers use our products and services to stay connected to their friends and family, to organize their memories in a single location, to tell
stories and to preserve their memories for themselves and their children. Our customers purchase physical products both for their own personal
use and for giving thoughtful and personalized gifts such as photo books, calendars, greeting cards, stationery and other photo-
based products
and merchandise.
We currently generate the majority of our revenues by producing and selling professionally-
bound photo books, personalized calendars,
greeting cards and stationery, other photo-based merchandise and high-quality prints ranging in size from wallet-sized to jumbo-
sized 20×30
enlargements. We currently manufacture these items in our Charlotte, North Carolina manufacturing facility. In January 2009, we ceased
operations in our Hayward, California facility and expect to begin operations in a new manufacturing and production facility in Phoenix, Arizona
by the second quarter of 2009. By controlling the production process in our own manufacturing facilities, we are able to produce high-
quality
products, innovate rapidly, maintain a favorable cost structure and ensure timely shipment to customers, even during peak periods of demand.
Additionally, we sell a variety of photo-
based merchandise that is currently manufactured for us by third parties, such as calendars, mugs, mouse
pads, coasters, tote bags, desk organizers, puzzles, playing cards, multi-
media DVDs, magnets and keepsake boxes, notebooks, notepads, address
labels and stickers.
We generate substantially all of our revenue from sales originating in the United States and our sales cycle has historically
been highly seasonal as we generate more than 50% of our revenue during our fiscal fourth quarter.
Our high-
quality products and services and the compelling online experience we create for our customers, combined with our focus on
continuous innovation, have earned us numerous third-
party accolades and, more importantly, have allowed us to establish a premium brand. We
realize the benefits of a premium brand through high customer loyalty, low customer acquisition costs and premium pricing.
Our customers are a central part of our business model. They generate most of the content on our service by uploading their photos and
storing their memories. In addition, they share their photos electronically with their friends and families, extending and endorsing our brand and
creating a sense of community. Finally, by giving Shutterfly-
branded products to colleagues, friends and loved ones throughout the year,
customers reinforce the Shutterfly brand. Through these various activities, our customers create a viral network of new users and customers.
3