Shutterfly 2009 Annual Report Download - page 96

SHUTTERFLY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options granted in 2006 are grouped as follows (share numbers in thousands):
The total fair value of options that vested during the twelve months ended December 31, 2008 was $8,510,000. The total intrinsic value of
options exercised during the twelve months ended December 31, 2008, 2007 and 2006 was $3,662,000, $18,136,000 and $531,000, respectively.
Net cash proceeds from the exercise of stock options were $1,157,000 for the twelve months ended December 31, 2008. The Company has
$12.1 million and $10.3 million of federal and state net operating losses, respectively, associated with windfall tax benefit that will be recorded
in additional paid in capital when realized.
Early Exercise of Employee Options
Stock options granted under the 1999 Plan provides employee option holders the right to elect to exercise unvested options in exchange for
restricted common stock. Unvested shares, which amounted to 0, 5,000 and 31,000 at December 31, 2008, 2007 and 2006, respectively, were
subject to a repurchase right held by the Company at the original issuance price in the event the optionees’
employment is terminated either
voluntarily or involuntarily. For exercises of employee options, this right lapses 25% on the first anniversary of the vesting start date and in 36
equal monthly amounts thereafter. These repurchase terms are considered to be a forfeiture provision and do not result in variable accounting. In
accordance with EITF No. 00-23, " Issues Related to the Accounting for Stock Compensation under APB No. 25",
the shares purchased by the
employees pursuant to the early exercise of stock options are not deemed to be outstanding until those shares vest. In addition, cash received
from employees for exercise of unvested options is treated as a refundable deposit shown as a liability in the Company’
s financial statements. As
of December 31, 2008, 2007 and 2006, cash received for early exercise of options of $0, $0 and $9,000, was included in refundable deposits,
respectively. Amounts so recorded are transferred into common stock and additional paid-in capital as the shares vest.
Stock-based Compensation Associated with Awards to Employees
All options granted were intended to be exercisable at a price per share not less than fair market value of the shares of the Company’
s stock
underlying those options on their respective dates of grant. The Board determined these fair market values in good faith based on the best
information available to the Board and Company’
s management at the time of the grant. Although the Company believes these determinations
accurately reflect the historical value of the Company’
s common stock, management has retroactively revised the valuation of its common stock
for the purpose of calculating stock-
based compensation expense. Accordingly, in the periods ending December 31, 2004 and 2005 for such
stock and options issued to employees, the Company has recorded deferred stock-
based compensation of $2,299,000 and $1,225,000,
respectively, net of cancellations, of which the Company amortized $28,000, $1,000 and $565,000 of stock-
based compensation in the years
ended December 31, 2008, 2007 and 2006, respectively.
In 2008, the remaining balance in deferred stock-
based compensation under APB 25, as shown in the consolidated statement of redeemable
convertible preferred stock and stockholders’ equity was fully amortized.
Options
Granted
Weighted
Average
Fair Value
Weighted
Average
Exercise
Price
Options with exercise price less than reassessed market price on the grant date
255
$
4.43
$
10.00
Options with exercise price equal to reassessed market price on the grant date
2,014
$
5.06
$
11.25
Total
2,269
$
4.99
$
11.11
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