Shutterfly 2009 Annual Report Download - page 51

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We account for uncertain tax positions in accordance with FASB Interpretation No. 48 Accounting for Uncertainty in Income Taxes ("FIN
48"), an interpretation of FASB Statement No. 109 ("SFAS 109"). The application of income tax law is inherently complex. Laws and
regulations in this area are voluminous and are often ambiguous. We are required to make subjective assumptions and judgments regarding our
income tax exposures. Interpretations and guidance surrounding income tax laws and regulations change over time. As such, changes in our
subjective assumptions and judgments can materially affect amounts recognized in the consolidated balance sheets and statements of operations.
Our 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 beocme 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.
Stock-based Compensation Expense
. We account for our stock based awards in accordance with FAS 123(R), which requires a fair value
measurement and recognition of compensation expense for all share-
based payment awards made to our employees and directors, including
employee stock options and restricted stock awards.
Under SFAS No 123R, we estimate the fair value of stock options granted using the Black-
Scholes valuation model. This model requires us
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 our 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 our consolidated statements of operations.
The cost of restricted stock awards and performance based restricted stock awards is determined using the fair value of our 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 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.
Results of Operations
The following table presents the components of our income statement as a percent of net revenues:
Year Ended December 31,
2008
2007
2006
Net revenues
100
%
100
%
100
%
Cost of revenues
45
%
45
%
45
%
Gross profit
55
%
55
%
55
%
Operating expenses:
Technology and development
18
%
15
%
15
%
Sales and marketing
20
%
18
%
18
%
General and administrative
15
%
16
%
16
%
Income from operations
2
%
6
%
6
%
Interest expense
0
%
0
%
0
%
Interest and other income, net
1
%
2
%
2
%
Income before income taxes
3
%
8
%
8
%
Provision for income taxes
(1
)%
(3
)%
(3
)%
Net income
2
%
5
%
5
%
49