Shutterfly 2013 Annual Report Download - page 80

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Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred
tax assets and liabilities are recognized by applying the statutory tax rates in effect in the years in which the
differences between the financial reporting and tax filing bases of existing assets and liabilities are expected
to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions
taken or expected to be taken in a tax return. The application of income tax law is inherently complex.
Laws and regulations in this area are voluminous and are often ambiguous. The Company is required to
make subjective assumptions and judgments regarding its income tax exposures. Interpretations and
guidance surrounding income tax laws and regulations change over time. As such, changes in the
Company’s subjective assumptions and judgments can materially affect amounts recognized in the
consolidated balance sheets and statements of income.
The Company’s 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 become 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. No interest and penalties were accrued as of December 31, 2013 and 2012.
The Company is subject to taxation in the United States and Israel.
Net Income Per Share
Basic net income per share attributed to common shares is computed by dividing the net income
attributable to common shares for the period by the weighted average number of common shares
outstanding during the period.
Diluted net income per share attributed to common shares is computed by dividing the net income
attributable to common shares for the period by the weighted average number of common and potential
common shares outstanding during the period, if the effect of each class of potential common shares is
dilutive. Potential common shares include restricted stock units and incremental shares of common stock
issuable upon the exercise of stock options.
Year ended December 31,
2013 2012 2011
(in thousands, except per share amounts)
Net income per share:
Numerator
Net income ..................................... $ 9,285 $ 22,998 $ 14,048
Denominator
Denominator for basic net income per share
Weighted-average common shares outstanding .......... 37,680 35,826 32,788
Dilutive effect of stock options and restricted awards ....... 1,813 1,606 2,219
Denominator for diluted net income per share .......... 39,493 37,432 35,007
Net income per share
Basic ........................................ $ 0.25 $ 0.64 $ 0.43
Diluted ....................................... $ 0.24 $ 0.61 $ 0.40
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