Shutterfly 2013 Annual Report Download - page 88

market. In addition, $0.9 million was recorded as a deferred tax liability which represents the difference
between the assigned values of the assets acquired and the tax basis of those assets offset by net operating
loss carryforwards. The offset is recorded as additional goodwill. The results of operations for the acquired
business have been included in the consolidated statement of income for the period subsequent to the
acquisition. Penguin Digital’s results of operations for periods prior to this acquisition were not material to
the consolidated statement of income and, accordingly, pro forma financial information has not been
presented.
Photoccino Ltd.
On May 25, 2012, the Company acquired Photoccino Ltd. (‘‘Photoccino’’) for a total aggregate cash
purchase price of $4.6 million. Photoccino has developed technologies for photo ranking, analysis and
organization which will allow customers to more efficiently organize and select the best photos from their
archives so they can quickly and easily create photo books, calendars, cards, and photo gifts. Photoccino’s
technology applies proprietary algorithms to analyze and evaluate the quality and content of photos, ranks
them, and automatically creates photo products using the customer’s best images. The acquisition was
accounted for as a non-taxable purchase transaction and, accordingly, the purchase price has been
allocated to the acquired tangible assets, liabilities assumed, and identifiable intangible assets acquired
based on their estimated fair values on the acquisition date. The excess of the purchase price over the
aggregate fair values was recorded as goodwill. In addition, restricted stock awards were granted to certain
Photoccino employees contingent upon their continued employment for a period of three years and will be
recorded as stock-based compensation over the vesting period.
Of the total purchase price, $3.0 million was allocated to developed technology and is being amortized
over an estimated useful life of five years, $0.7 million was allocated to in-process research and
development, and $80,000 was allocated to non-compete agreements with the founders which will be
amortized over an estimated useful life of two years. The assets and liabilities acquired totaled
approximately $0.1 million. The remaining excess purchase price of approximately $0.7 million was
allocated to goodwill primarily representing the assembled workforce. In addition, $0.9 million was
recorded as a deferred tax liability representing the difference between the assigned values of the assets
acquired and the tax basis of those assets, with the offset recorded as additional goodwill. The results of
operations for the acquired business have been included in the consolidated statement of operations for
the period subsequent to the Company’s acquisition of Photoccino. Photoccino’s results of operations for
periods prior to this acquisition were not material to the consolidated statement of operations and,
accordingly, pro forma financial information has not been presented.
Tiny Prints, Inc.
On April 25, 2011, the Company acquired Tiny Prints, Inc. (‘‘Tiny Prints’’), a privately-held ecommerce
company. Pursuant to the terms of the agreement, all of the outstanding shares of capital stock of Tiny
Prints, together with vested and unvested Tiny Prints equity awards, were acquired by the Company for
aggregate consideration comprised of (i) approximately $146.0 million in cash, and approximately
4.0 million shares of the Company’s common stock issuable in exchange for shares of Tiny Prints capital
stock and (ii) Company equity awards for approximately 1.4 million shares of common stock in exchange
for vested and unvested Tiny Prints’ equity awards assumed by the Company, in each case pursuant and
subject to the terms of the Merger Agreement. The 5.4 million shares of Shutterfly common stock issuable
pursuant to the agreement equal approximately 18.5% of the Company’s outstanding common stock as of
March 30, 2011.
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