(Mark
One)
|
|
þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the fiscal year ended December 31, 2008
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|
or
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|
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the transition period from
to
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Delaware
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94-3330068
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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2800
Bridge Parkway, Suite 101
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94065
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Redwood
City, California
(Address
of Principal Executive Offices)
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(Zip
Code)
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common
Stock, $0.0001 Par Value Per Share
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Nasdaq
Global Market
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Class
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Outstanding
at February 20, 2009
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Common
stock, $0.0001 par value per share
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25,150,762 shares
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Page
Number
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||
PART I
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||
ITEM 1.
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Business
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3
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ITEM 1A.
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Risk
Factors
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19
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ITEM 1B.
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Unresolved Staff
Comments
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39
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ITEM 2.
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Properties
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39
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ITEM 3.
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Legal
Proceedings
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39
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ITEM 4.
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Submission of
Matters to a Vote of Security Holders
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39
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PART II
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||
ITEM 5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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40
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ITEM 6.
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Selected
Financial Data
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41
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ITEM 7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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43
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ITEM 7A.
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Quantitative and
Qualitative Disclosures about Market Risk
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63
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ITEM 8.
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Financial
Statements and Supplementary Data
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64
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ITEM 9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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102
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ITEM 9A.
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Controls
and Procedures
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102
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ITEM 9B.
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Other
Information
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103
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PART III
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||
ITEM 10.
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Directors, Executive
Officers and Corporate Governance
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104
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ITEM 11.
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Executive
Compensation
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104
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ITEM 12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholders Matters
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104
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ITEM 13.
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Certain
Relationships and Related Transactions, and Director
Independence
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104
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ITEM 14.
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Principal
Accountant Fees and Services
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105
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PART IV
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||
ITEM 15.
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Exhibits
and Financial Statement Schedules
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105
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•
|
Proliferation of digital
cameras and penetration of high-speed
connectivity. The growing use of digital cameras,
largely driven by price decreases, has increased the demand for online
photo-printing services. High-bandwidth, high-speed Internet access has
spurred the integration of the Internet into daily life and provides
consumers with improved performance and speed for sharing information,
especially large files sizes such as digital images. According to
InfoTrends, in 2008, U.S. digital camera unit sales reached approximately
37 million units, approximately 90 million U.S. households will have
broadband by 2013, up from 64 million in 2008, and the number of U.S.
households that have both a digital camera and Internet access is expected
to grow to more than 90 million households by
2013.
|
•
|
Increasing convenience and
quality of online photo services.
Online photo services provide multiple advantages over at-home
printing. Although at-home photo printing is instantaneous, it requires an
investment in a printer, photo paper and ink, resulting in a much higher
cost per print. The quality rendered from at-home printers is usually
inferior compared to commercially produced prints. In addition, at-home
printers are less capable of producing products that require binding and /
or finishing, such as photo books, calendars and folded greeting
cards. In contrast, online photo services conveniently
provide a wide variety of customized, high-quality photo-based products
delivered directly to consumers’
doorsteps.
|
•
|
Growing consumer desire to
find easy, convenient ways to generate personalized
content. Consumers are interested in creating highly
customized and personalized photo-based products and merchandise to
preserve their precious memories, express their creativity and make gift
giving more personal and thoughtful. Improvements in software and photo
editing tools have enabled consumers to modify their photos quickly and
easily using a personal computer. Consumers are now able to create digital
compilations of memories that were previously only possible through a
physical and more time-consuming
process.
|
•
|
Participation in online
communities. Consumers have become increasingly
comfortable using the Internet as a forum for sharing and publishing
information in open or permission-based networks. Many of the most popular
online communities include user-generated, rich-media content such as
photos and videos to communicate more powerfully than the written word.
Additionally, busy consumers continue to leverage these online communities
to keep in touch with distant friends and family, share event photos taken
by multiple cameras, in a single location, and even promote a business or
hobby.
|
•
|
Photo-based
merchandise. Photo-based merchandise is a substantial
market opportunity that includes any product that can be customized with
the imprint of a digital image. Photo-based merchandise includes, but is
not limited to, photo calendars, photo greeting cards and photo
books. InfoTrends estimates that revenue from U.S. online
net-to-mail sales of non-print products (photo gifts and merchandise) will
grow from less than $350 million in 2007 to more than $1 billion in
2012.
|
|
•
|
Greeting cards and
stationery. According to the Greeting Card
Association’s website, U.S. consumers purchase approximately
7 billion greeting cards each year, generating nearly
$7.5 billion in retail sales. More than 90 percent of all
U.S. households buy greeting cards, with the average household
purchasing 30 individual cards per year. The Greeting Card
Association also reports that nine out of ten Americans say they look
forward to receiving personal letters and greeting cards because cards
allow them to keep in touch with friends and family and make them feel
they are important to someone
else.
|
•
|
Scrapbooks.
According to a 2007 survey by Creating Keepsakes, the
addressable markets for the US scrapbook industry was approximately $2.87
billion in 2007 up from $2.55 billion in 2004. Additionally,
approximately 82% of scrapbookers have at least a college degree and spend
almost four hours a week assembling their memories into
scrapbooks.
|
•
|
Calendars.
A 2002 guide published by the Calendar Marketing Association
estimated that 500 million calendars are produced annually in the United
States and that approximately 98% of American households have at least one
calendar.
|
•
|
Photo
prints. InfoTrends estimates that nearly 20
billion digital photo prints were made in the U.S. in 2008, generating
revenue of approximately $5 billion. Total revenue from prints is expected
to decline by approximately 10% by
2013.
|
•
|
sharing
and preserving memories for family, friends and
themselves;
|
•
|
organizing
all of their photos in a safe and easily accessible
location;
|
•
|
maintaining
emotional connections with friends and family, despite being
time-constrained, through thoughtful and personal photo-based
communications and gifts; and
|
•
|
achieving
satisfaction and self-expression through creativity and telling stories
through photos and personalized photo-based products and
services.
|
•
|
greater
consistency and quality of output;
|
•
|
increased
ability to control and optimize costs for raw materials and
production;
|
•
|
fully-automated
image processing and print
scheduling;
|
•
|
more
flexibility to provide rapid, responsive order fulfillment and
processing;
|
•
|
assured
high-quality capacity, even during peak demand such as the fourth quarter
holiday season;
|
•
|
additional
insights into new and existing photo products and production
processes;
|
•
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rapid
prototyping, testing and refinement of new products and
services; and
|
•
|
the
ability to address customer inquiries
quickly.
|
•
|
launched
Shutterfly Gallery, a community site where photo book customers can post
their books, share their stories and inspire other Shutterfly customers
with new ways to tell their
stories;
|
•
|
launched
our “Storyboard” feature which makes it easier and faster for customers to
create their photo books;
|
•
|
launched a
host of new content and designs for photo books including new themed books
for Mothers’ Day, Fathers’ Day, Halloween and Christmas and eight new
digital scrapbooks in association with Creating Keepsakes (CK)
Media;
|
•
|
added
new leather and padded photo book cover options on our square photo
books;
|
•
|
launched premium designer stationery for baby announcements, baby shower invitations, party invitations, graduation and holiday; and |
•
|
expanded
our product line by adding notebooks, notepads, address labels, stickers
and calendar posters.
|
•
|
online
digital photography services companies such as Kodak EasyShare Gallery
(formerly known as Ofoto), Snapfish, which is a service of
Hewlett-Packard, American Greetings’ Photoworks and Webshots brands, and
others;
|
•
|
“Big
Box” retailers such as Wal-Mart, Costco and others that are seeking to
offer low cost digital photography products and services. These
competitors provide in-store fulfillment and self-service kiosks for
printing, which may, among other strategies, offer their customers heavily
discounted in-store products and services that compete directly with our
offerings;
|
•
|
drug
stores such as Walgreens, CVS and others that offer in-store pick-up from
Internet orders;
|
•
|
regional
photography companies such as Ritz Camera that have established brands and
customer bases in existing photography
markets;
|
•
|
Internet
portals and search engines such as Yahoo!, AOL, and Google that offer
broad-reaching digital photography and related products and services to
their large user bases;
|
•
|
home
printing service providers such as Hewlett-Packard, Epson, Canon, and Fuji
that are seeking to expand their printer and ink businesses by gaining
market share in the emerging digital photography
marketplace;
|
•
|
photo-related software companies such as Apple, Microsoft and Corel; |
•
|
social
media companies that host images such as MySpace, Facebook and Hi5;
and
|
•
|
specialized companies in the photo book and stationery business such as Hallmark, American Greetings, Tiny Prints, Picaboo and Blurb. |
•
|
brand
recognition and trust;
|
•
|
quality
of products and services;
|
•
|
breadth
of products and services;
|
•
|
user
affinity and loyalty;
|
•
|
customer
service;
|
•
|
ease
of use;
|
•
|
convenience; and
|
•
|
price.
|
•
|
The
CAN-SPAM Act of 2003 and similar laws adopted by a number of states. These
laws are intended to regulate unsolicited commercial e-mails, create
criminal penalties for unmarked sexually-oriented material and e-mails
containing fraudulent headers and control other abusive online marketing
practices.
|
•
|
The
Communications Decency Act, which gives statutory protection to online
service providers who distribute third-party
content.
|
•
|
The
Digital Millennium Copyright Act, which is intended to reduce the
liability of online service providers for listing or linking to
third-party websites that include materials that infringe copyrights or
other rights of others.
|
•
|
The
Children’s Online Privacy Protection Act and the Prosecutorial Remedies
and Other Tools to End Exploitation of Children Today Act of 2003, which
are intended to restrict the distribution of certain materials deemed
harmful to children and impose additional restrictions on the ability of
online services to collect user information from minors. In addition, the
Protection of Children From Sexual Predators Act of 1998 requires online
service providers to report evidence of violations of federal child
pornography laws under certain
circumstances.
|
•
|
Statutes
adopted in the State of California require online services to report
certain breaches of the security of personal data, and to report to
California consumers when their personal data might be disclosed to direct
marketers.
|
•
|
general
economic conditions, including recession and economic slowdown in the U.S.
and worldwide and higher inflation, as well as those economic
conditions specific to the Internet and ecommerce
industries;
|
•
|
demand
for our products and services, including seasonal
demand;
|
•
|
our
pricing and marketing strategies and those of our
competitors;
|
•
|
our
ability to attract visitors to our website and convert those visitors into
customers;
|
•
|
our
ability to retain customers and encourage repeat
purchases;
|
our
ability to sustain our profit margins, and our ability to diversify our
product offerings and sell to consumers photo-based products such as photo
books, calendars and cards;
|
•
|
the
costs of customer acquisition;
|
•
|
our
ability to manage our production and fulfillment
operations;
|
•
|
the
costs to produce our prints and photo-based products and merchandise and
to provide our services;
|
•
|
the
costs of expanding or enhancing our technology or
website;
|
•
|
a
significant increase in returns and credits, beyond our estimated
allowances, for customers who are not satisfied with our
products;
|
•
|
declines
or disruptions to the travel
industry;
|
•
|
variations
in weather, particularly heavy rain and snow which tend to depress travel
and picture taking;
|
•
|
the
timing of holidays;
|
•
|
volatility
in our stock price, which may lead to higher stock-based compensation
expense;
|
•
|
consumer
preferences for digital photography
services;
|
•
|
improvements
to the quality, cost and convenience of desktop printing of digital
pictures and products; and
|
•
|
macroeconomic
and geopolitical events such as recession, inflation, war, threat of war
or terrorist actions.
|
•
|
maintain
and increase the size of our customer
base;
|
maintain
and enhance our brand;
|
•
|
maintain
and grow our website and customer
operations;
|
•
|
enhance
and expand our products and
services;
|
•
|
successfully
execute our business and marketing
strategy;
|
•
|
continue
to develop and upgrade our technology and information processing
systems;
|
•
|
continue
to enhance our service to meet the needs of a changing
market;
|
•
|
provide
superior customer service;
|
•
|
respond
to competitive developments; and
|
•
|
attract,
integrate, retain and motivate qualified
personnel.
|
•
|
Online
digital photography services companies such as Kodak EasyShare Gallery
(formerly known as Ofoto), Snapfish, which is a service of
Hewlett-Packard, American Greetings’ Photoworks and Webshots brands, and
others;
|
•
|
“Big
Box” retailers such as Wal-Mart, Costco and others that are seeking to
offer low cost digital photography products and services, such as in-store
fulfillment and self-service kiosks for printing; these competitors may,
among other strategies, offer their customers heavily discounted in-store
products and services that compete directly with our
offerings;
|
•
|
Drug
stores such as Walgreens, CVS and others that offer in-store pick-up from
Internet orders;
|
•
|
Regional
photography companies such as Ritz Camera that have established brands and
customer bases in existing photography
markets;
|
•
|
Internet
portals and search engines such as Yahoo!, AOL, Google that offer
broad-reaching digital photography and related products and services to
their large user bases;
|
•
|
Home
printing service providers such as Hewlett-Packard, Epson, Canon, and
Kodak that are seeking to expand their printer and ink businesses by
gaining market share in the emerging digital photography marketplace;
and
|
•
|
Photo-related
software companies such as Apple, Microsoft
and Corel;
|
•
|
Social media companies that host images such as MySpace, Facebook and Hi5; and |
•
|
Specialized
companies in the photo book and stationery business such as Hallmark,
American Greetings, Tiny Prints, Picaboo and
Blurb.
|
•
|
the
inability to physically handle and examine product
samples;
|
•
|
delivery
time associated with Internet
orders;
|
•
|
concerns
about the security of online transactions and the privacy of personal
information;
|
•
|
delayed
shipments or shipments of incorrect or damaged products;
and
|
•
|
inconvenience
associated with returning or exchanging purchased
items.
|
•
|
Economic
downturns and market conditions or trends in our industry or the
macro-economy as a whole;
|
|
•
|
price
and volume fluctuations in the overall stock
market;
|
•
|
changes
in operating performance and stock market valuations of other technology
companies generally, or those in our industry in
particular;
|
•
|
the
financial projections we may provide to the public, any changes in these
projections or our failure to meet these
projections;
|
•
|
changes
in financial estimates by any securities analysts who follow our company,
our failure to meet these estimates or failure of those analysts to
initiate or maintain coverage of our
stock;
|
•
|
ratings
downgrades by any securities analysts who follow our
company;
|
•
|
the
public’s response to our press releases or other public announcements,
including our filings with the SEC;
|
|
•
|
announcements
by us or our competitors of significant technical innovations,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
|
•
|
introduction
of technologies or product enhancements that reduce the need for our
products;
|
•
|
impairment
or loss in value of our investments in auction rate
securities;
|
•
|
the
loss of key personnel;
|
•
|
lawsuits
threatened or filed against us;
|
•
|
future
sales of our common stock by our executive officers, directors and
significant stockholders; and
|
•
|
other
events or factors, including those resulting from war, incidents of
terrorism or responses to these
events.
|
•
|
our
board is classified into three classes of directors, each with staggered
three-year terms;
|
•
|
only
our chairman, our chief executive officer, our president, or a majority of
our board of directors is authorized to call a special meeting of
stockholders;
|
•
|
our
stockholders may take action only at a meeting of stockholders and not by
written consent;
|
•
|
vacancies
on our board of directors may be filled only by our board of directors and
not by stockholders;
|
•
|
our
certificate of incorporation authorizes undesignated preferred stock, the
terms of which may be established and shares of which may be issued
without stockholder approval; and
|
•
|
advance
notice procedures apply for stockholders to nominate candidates for
election as directors or to bring matters before an annual meeting of
stockholders.
|
Year
Ended December 31, 2007
|
High
|
Low
|
First
Quarter
|
$18.53
|
$13.38
|
Second
Quarter
|
$22.92
|
$15.92
|
Third
Quarter
|
$32.46
|
$21.80
|
Fourth
Quarter
|
$36.40
|
$25.59
|
Year
Ended December 31, 2008
|
High
|
Low
|
First
Quarter
|
$25.70
|
$14.65
|
Second
Quarter
|
$17.83
|
$12.21
|
Third
Quarter
|
$12.14
|
$8.59
|
Fourth
Quarter
|
$9.13
|
$5.96
|
Year
Ended December 31,
|
||||||||||||||||||||
2008(3)
|
2007(3)
|
2006(3)
|
2005(2)
|
2004
|
||||||||||||||||
(In
thousands, except per share amounts)
|
||||||||||||||||||||
Consolidated
Income Statement Data:
|
||||||||||||||||||||
Net
revenues
|
$ | 213,480 | $ | 186,727 | $ | 123,353 | $ | 83,902 | $ | 54,499 | ||||||||||
Cost
of net revenues(1)
|
96,159 | 84,111 | 55,491 | 36,941 | 24,878 | |||||||||||||||
Gross
profit
|
117,321 | 102,616 | 67,862 | 46,961 | 29,621 | |||||||||||||||
Operating
expenses:
|
||||||||||||||||||||
Technology
and development(1)
|
39,443 | 28,635 | 19,087 | 13,152 | 7,433 | |||||||||||||||
Sales
and marketing(1)
|
41,958 | 33,363 | 21,940 | 15,252 | 7,705 | |||||||||||||||
General
and administrative(1)
|
32,192 | 29,557 | 19,216 | 13,657 | 10,126 | |||||||||||||||
Total
operating expense
|
113,593 | 91,555 | 60,243 | 42,061 | 25,264 | |||||||||||||||
Income
from operations
|
3,728 | 11,061 | 7,619 | 4,900 | 4,357 | |||||||||||||||
Interest
expense
|
(273 | ) | (179 | ) | (266 | ) | (367 | ) | (471 | ) | ||||||||||
Other
income (expense) net
|
2,898 | 5,515 | 2,387 | (103 | ) | 81 | ||||||||||||||
Income
before income taxes and cumulative
effect
of change in accounting principle
|
6,353 | 16,397 | 9,740 | 4,430 | 3,967 | |||||||||||||||
(Provision)
/ benefit for income taxes
|
(1,792 | ) | (6,302 | ) | (3,942 | ) | 24,060 | (258 | ) | |||||||||||
Net
income before cumulative effect
of
change in accounting principle
|
4,561 | 10,095 | 5,798 | 28,490 | 3,709 | |||||||||||||||
Cumulative
effect of change in accounting principle
|
— | — | — | 442 | — | |||||||||||||||
Net
income
|
$ | 4,561 | $ | 10,095 | $ | 5,798 | $ | 28,932 | $ | 3,709 | ||||||||||
Net
income per share:
|
||||||||||||||||||||
Basic
|
$ | 0.18 | $ | 0.42 | $ | 0.67 | $ | 1.45 | $ | — | ||||||||||
Diluted
|
$ | 0.18 | $ | 0.38 | $ | 0.56 | $ | 1.02 | $ | — | ||||||||||
Weighted
Average Shares
|
||||||||||||||||||||
Basic
|
25,036 | 24,295 | 8,622 | 3,255 | 2,231 | |||||||||||||||
Diluted
|
25,787 | 26,273 | 10,331 | 4,609 | 2,231 |
(1)
|
Includes
stock-based compensation as
follows:
|
Year
Ended December 31,
|
||||||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Cost
of net revenues
|
$ | 317 | $ | 189 | $ | 96 | $ | 28 | $ | 21 | ||||||||||
Technology
and development
|
2,140 | 880 | 736 | 826 | 263 | |||||||||||||||
Sales
and marketing
|
2,198 | 877 | 521 | 239 | 117 | |||||||||||||||
General
and administration
|
3,973 | 2,055 | 947 | 2,217 | 1,790 | |||||||||||||||
$ | 8,628 | $ | 4,001 | $ | 2,300 | $ | 3,310 | $ | 2,191 |
(2)
|
Includes $0.4 million of cumulative effect of a change in accounting principle related to the adoption of FSP 150-5 in July 2005, Issuer's Accounting under Statement 150 for Freestanding Warrants and Other Similar Instruments on Shares That Are Redeemable. |
(3)
|
Includes stock-baesd compensation expense under Statement of Financial Accounting Standards, or SFAS, No. 123(R), Share-Based Payment, which requires stock-based compensation expense to be recongized based on the grant date fair value. Periods prior to January 1, 2006 have not been restated to include the compensation charges associated with the provisions of SFAS No. 123(R). |
December 31,
|
||||||||||||||||||||
2008
|
2007
|
2006
|
2005
|
2004
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Cash,
cash equivalents, and short term investments
|
$ | 88,164 | $ | 125,584 | $ | 119,051 | $ | 39,153 | $ | 13,781 | ||||||||||
Property
and equipment, net
|
48,006 | 48,416 | 30,919 | 20,761 | 11,723 | |||||||||||||||
Working
capital
|
58,232 | 104,025 | 102,165 | 22,687 | 690 | |||||||||||||||
Total
assets
|
232,806 | 208,770 | 180,160 | 89,552 | 29,865 | |||||||||||||||
Capital
lease obligations, less current portion
|
17 | 107 | 1,742 | 3,646 | 2,709 | |||||||||||||||
Preferred
stock warrant liability
|
— | — | — | 1,535 | — | |||||||||||||||
Redeemable
convertible preferred stock
|
— | — | — | 89,652 | 69,822 | |||||||||||||||
Total
stockholders’ equity (deficit)
|
186,311 | 170,566 | 151,326 | (27,262 | ) | (59,568 | ) |
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 | % |
Year
Ended December 31,
|
||||
2008
|
2007
|
$ Change
|
%
Change
|
|
(In
thousands)
|
||||
Net
revenues
|
$213,480
|
$186,727
|
$ 26,753
|
14%
|
Cost
of net revenues
|
$96,159
|
$84,111
|
$ 12,048
|
14%
|
Percentage of net
revenues
|
45%
|
45%
|
—
|
—
|
Gross
profit
|
$117,321
|
$102,616
|
$ 14,705
|
14%
|
Year
Ended December 31,
|
||||
2008
|
2007
|
Change
|
%
Change
|
|
(In
thousands, except AOV amounts)
|
||||
Customers
|
2,789
|
2,357
|
432
|
18%
|
Orders
|
7,569
|
7,062
|
507
|
7%
|
Average
order
value
|
$28.20
|
$26.44
|
$1.76
|
7%
|
Year
Ended December 31,
|
||||
2008
|
2007
|
$ Change
|
%
Change
|
|
(In
thousands)
|
||||
Technology
and development
|
$39,443
|
$28,635
|
$ 10,808
|
38%
|
Percentage of net
revenues
|
18%
|
15%
|
—
|
—
|
Sales
and marketing
|
$41,958
|
$33,363
|
$
8,595
|
26%
|
Percentage of net
revenues
|
20%
|
18%
|
—
|
—
|
General
and administrative
|
$32,192
|
$29,557
|
$
2,635
|
9%
|
Percentage of net
revenues
|
15%
|
16%
|
—
|
—
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
Change
|
||||||||||
(In
thousands)
|
||||||||||||
Interest
Expense
|
$ | (273 | ) | $ | (179 | ) | $ | (94 | ) | |||
Interest
and other income, net
|
$ | 2,898 | $ | 5,515 | $ | (2,617 | ) |
Year
Ended December 31,
|
||
2008
|
2007
|
|
(In
thousands)
|
||
Income
tax provision
|
$(1,792)
|
$(6,302)
|
Effective
tax rate
|
28%
|
38%
|
Year
Ended December 31,
|
|||||
2008
|
2007
|
$ Change
|
%
Change
|
||
(In
thousands)
|
|||||
Income
before income taxes
|
$6,353
|
$16,397
|
$(10,044)
|
(61)%
|
|
Net
income
|
$4,561
|
$10,095
|
$(5,534)
|
(55)%
|
|
Percentage of net
revenues
|
2%
|
5%
|
—
|
—
|
Year
Ended December 31,
|
||||||||||||||||
2007
|
2006
|
$ Change
|
%
Change
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Net
revenues
|
$ | 186,727 | $ | 123,353 | $ | 63,374 | 51 | % | ||||||||
Cost
of net revenues
|
$ | 84,111 | $ | 55,491 | $ | 28,620 | 52 | % | ||||||||
Percentage of net
revenues
|
45 | % | 45 | % |
—
|
|
—
|
|||||||||
Gross
profit
|
$ | 102,616 | $ | 67,862 | $ | 34,754 | 51 | % |
Year
Ended December 31,
|
||||||||||||||||
2007
|
2006
|
Change
|
%
Change
|
|||||||||||||
(In
thousands, except AOV amounts)
|
||||||||||||||||
Customers
|
2,357 | 1,725 | 632 | 37 | % | |||||||||||
Orders
|
7,062 | 5,105 | 1,957 | 38 | % | |||||||||||
Average
order value
|
$ | 26.44 | $ | 24.16 | $ | 2.28 | 9 | % |
Year
Ended December 31,
|
||||||||||||||||
2007
|
2006
|
$ Change
|
%
Change
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Technology
and development
|
$ | 28,635 | $ | 19,087 | $ | 9,548 | 50 | % | ||||||||
Percentage of net
revenues
|
15 | % | 15 | % |
—
|
—
|
||||||||||
Sales
and marketing
|
$ | 33,363 | $ | 21,940 | $ | 11,423 | 52 | % | ||||||||
Percentage of net
revenues
|
18 | % | 18 | % |
—
|
—
|
||||||||||
General
and administrative
|
$ | 29,557 | $ | 19,216 | $ | 10,341 | 54 | % | ||||||||
Percentage of net
revenues
|
16 | % | 16 | % |
—
|
—
|
Year
Ended December 31,
|
||||||||||||
2007
|
2006
|
Change
|
||||||||||
(In
thousands)
|
||||||||||||
Interest
Expense
|
$ | (179 | ) | $ | (266 | ) | $ | 87 | ||||
Interest
and other income, net
|
$ | 5,515 | $ | 2,387 | $ | 3,128 |
Year
Ended December 31,
|
||||||||
2007
|
2006
|
|||||||
(In
thousands)
|
||||||||
Income
tax provision
|
$ | (6,302 | ) | $ | (3,942 | ) | ||
Effective
tax rate
|
38 | % | 40 | % |
Year
Ended December 31,
|
|||||
2007
|
2006
|
$ Change
|
%
Change
|
||
(In
thousands)
|
|||||
Income
before income taxes
|
$16,397
|
$9,740
|
$ 6,657
|
68%
|
|
Net
income
|
$10,095
|
$5,798
|
$ 4,297
|
74%
|
|
Percentage of net
revenues
|
5%
|
5%
|
—
|
—
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
(In
thousands)
|
||||||||||||
Consolidated
Statement of Cash Flows Data:
|
||||||||||||
Purchases
of property and equipment
|
$ | 18,220 | $ | 31,881 | 19,330 | |||||||
Capitalization
of software and website development costs
|
4,527 | 3,112 | 1,351 | |||||||||
Acquisition
of business and intangibles, net of cash acquired
|
10,097 | 2,858 |
—
|
|||||||||
Depreciation
and amortization
|
26,038 | 17,796 | 10,747 | |||||||||
Cash
flows from operating activities
|
47,040 | 42,192 | 23,485 | |||||||||
Cash
flows from investing activities
|
(82,086 | ) | (40,823 | ) | (20,681 | ) | ||||||
Cash
flows from financing activities
|
628 | 2,162 | 77,094 |
Total
|
Less
Than
1 Year
|
1-3 Years
|
3-5 Years
|
More
Than
5 Years
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Contractual
Obligations
|
||||||||||||||||||||
Capital
lease obligations
|
$ | 111 | $ | 93 | $ | 18 | $ | — | $ | — | ||||||||||
Operating
lease obligations
|
19,205 | 3,823 | 8,348 | 4,955 | 2,079 | |||||||||||||||
Unrecognized tax benefits | 1,766 | 1,766 | — | — | — | |||||||||||||||
Purchase
obligations (1)
|
7,529 | 6,373 | 1,156 | — | — | |||||||||||||||
Total
contractual obligations
|
$ | 28,611 | $ | 12,055 | $ | 9,522 | $ | 4,955 | $ | 2,079 |
(1)
|
Purchase
obligations include commitments under non-cancelable marketing agreements,
license agreements, and third-party hosting
services.
|
Report
of Independent Registered Public Accounting Firm
|
65
|
Consolidated
Balance Sheets
|
66
|
Consolidated
Statements of Income
|
67
|
Consolidated
Statements of Redeemable Convertible Preferred Stock and Stockholders’
Equity (Deficit)
|
68
|
Consolidated Statements of Comprehensive Income |
70
|
Consolidated
Statements of Cash Flows
|
71
|
Notes
to Consolidated Financial Statements
|
72
|
Schedule
II – Valuation and Qualifying Accounts
|
102
|
December 31,
|
||||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
88,164
|
$
|
122,582
|
||||
Short-term
investments
|
—
|
3,002
|
||||||
Accounts
receivable, net
|
5,992
|
4,480
|
||||||
Inventories
|
3,610
|
4,788
|
||||||
Deferred
tax asset, current portion
|
1,194
|
1,677
|
||||||
Prepaid
expenses and other current assets
|
4,749
|
4,510
|
||||||
Total
current assets
|
103,709
|
141,039
|
||||||
Long-term
investments
|
52,250
|
—
|
||||||
Property
and equipment, net
|
48,006
|
48,416
|
||||||
Goodwill
and intangible assets, net
|
14,547
|
3,859
|
||||||
Deferred
tax asset, net of current portion
|
11,877
|
13,294
|
||||||
Other
assets
|
2,417
|
2,162
|
||||||
Total
assets
|
$
|
232,806
|
$
|
208,770
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$
|
11,214
|
$
|
8,783
|
||||
Accrued
liabilities
|
24,712
|
18,724
|
||||||
Deferred
revenue
|
9,461
|
8,699
|
||||||
Current
portion of capital lease obligations
|
90
|
808
|
||||||
Total
current liabilities
|
45,477
|
37,014
|
||||||
Other
liabilities
|
1,001
|
1,083
|
||||||
Capital
lease obligations, less current portion
|
17
|
107
|
||||||
Total
liabilities
|
46,495
|
38,204
|
||||||
Commitments
and contingencies (Note 7)
|
||||||||
Stockholders’
equity:
|
||||||||
Undesignated
preferred stock, $0.0001 par value; 5,000 shares authorized at
December 31, 2008 and 2007, respectively; no shares issued and
outstanding
|
—
|
—
|
||||||
Common
stock, $0.0001 par value; 100,000 shares authorized; 25,138 and
24,805 shares issued and outstanding at December 31, 2008 and
December 31, 2007, respectively
|
2
|
2
|
||||||
Additional
paid-in capital
|
201,993
|
190,849
|
||||||
Accumulated
other comprehensive loss
|
—
|
(12
|
)
|
|||||
Deferred
stock-based compensation
|
—
|
(28
|
)
|
|||||
Accumulated
deficit
|
(15,684
|
)
|
(20,245
|
)
|
||||
Total
stockholders’ equity
|
186,311
|
170,566
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
232,806
|
$
|
208,770
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Net
revenues
|
$
|
213,480
|
$
|
186,727
|
$
|
123,353
|
||||||
Cost
of net revenues(1)
|
96,159
|
84,111
|
55,491
|
|||||||||
Gross
profit
|
117,321
|
102,616
|
67,862
|
|||||||||
Operating
expenses(1):
|
||||||||||||
Technology
and development
|
39,443
|
28,635
|
19,087
|
|||||||||
Sales
and marketing
|
41,958
|
33,363
|
21,940
|
|||||||||
General
and administrative
|
32,192
|
29,557
|
19,216
|
|||||||||
113,593
|
91,555
|
60,243
|
||||||||||
Income
from operations
|
3,728
|
11,061
|
7,619
|
|||||||||
Interest
expense
|
(273
|
)
|
(179
|
)
|
(266
|
)
|
||||||
Interest
and other income, net
|
2,898
|
5,515
|
2,387
|
|
||||||||
Income
before income taxes
|
6,353
|
16,397
|
9,740
|
|||||||||
Provision
for income taxes
|
(1,792
|
)
|
(6,302
|
)
|
(3,942
|
)
|
||||||
Net
income
|
$
|
4,561
|
$
|
10,095
|
$
|
5,798
|
||||||
Net
income per share:
|
||||||||||||
Basic
|
$
|
0.18
|
$
|
0.42
|
$
|
0.67
|
||||||
Diluted
|
$
|
0.18
|
$
|
0.38
|
$
|
0.56
|
||||||
Weighted
average shares:
|
||||||||||||
Basic
|
25,036
|
24,295
|
8,622
|
|||||||||
Diluted
|
25,787
|
26,273
|
10,331
|
|||||||||
______________
|
||||||||||||
(1) Stock-based
compensation is allocated as follows (Notes 2 and 8):
|
||||||||||||
Cost
of net revenues
|
$
|
317
|
$
|
189
|
$
|
96
|
||||||
Technology
and development
|
2,140
|
880
|
736
|
|||||||||
Sales
and marketing
|
2,198
|
877
|
521
|
|||||||||
General
and administrative
|
3,973
|
2,055
|
947
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Redeemable
convertible preferred stock
|
||||||||||||
Balance,
beginning of year
|
$ |
—
|
$ |
—
|
$ | 89,652 | ||||||
Issuance
of Series A preferred stock upon net exercise of warrants
|
—
|
—
|
143 | |||||||||
Automatic
conversion of preferred stock to common stock upon effective date of
initial public offering ("IPO")
|
—
|
—
|
(89,795 | ) | ||||||||
Balance,
end of year
|
—
|
—
|
—
|
|||||||||
Common
stock (par value)
|
||||||||||||
Balance,
beginning of year
|
2 | 2 |
—
|
|||||||||
Issuance
of common stock upon effective date of IPO, net of underwriting fees of
$6,090 and other expenses of $2,442
|
—
|
—
|
1 | |||||||||
Automatic
conversion of preferred stock to common stock upon effective date of
IPO
|
—
|
—
|
1 | |||||||||
Balance,
end of year
|
2 | 2 | 2 | |||||||||
Additional
paid-In capital
|
||||||||||||
Balance,
beginning of year
|
190,849 | 181,890 | 10,501 | |||||||||
Issuance
of common stock upon exercise of options, net of
repurchases
|
899 | 4,983 | 101 | |||||||||
Issuance
of common stock upon effective date of initial public offering, net of
underwriting fees of $6,090 and other expenses of $2,442
|
—
|
—
|
78,467 | |||||||||
Issuance
of Series A preferred stock upon net exercise of warrants
|
—
|
—
|
(143 | ) | ||||||||
Transfer
of preferred stock warrant liability related to series A preferred
stock
|
—
|
—
|
871 | |||||||||
Automatic
conversion of preferred stock to common stock upon effective date of
IPO
|
—
|
—
|
89,794 | |||||||||
Transfer
of preferred stock warrant liability upon conversion of preferred stock
warrants into common stock warrants
|
—
|
—
|
510 | |||||||||
Reversal
of unearned stock based compensation upon modification of
options
|
—
|
—
|
(526 | ) | ||||||||
Cancellation
of common stock options and restricted shares
|
—
|
(162 | ) | (249 | ) | |||||||
Stock
based compensation recognized under SFAS No. 123R, net of estimated
forfeiture
|
10,089 | 4,111 | 1,641 | |||||||||
Donation
of common stock to a charitable foundation
|
—
|
—
|
923 | |||||||||
Tax
benefit of stock options
|
156 | 27 |
—
|
|||||||||
Balance,
end of year
|
201,993 | 190,849 | 181,890 | |||||||||
Deferred
stock-based compensation
|
||||||||||||
Balance,
beginning of year
|
(28 | ) | (191 | ) | (1,625 | ) | ||||||
Reversal
of unearned stock based compensation upon modification of
options
|
—
|
—
|
526 | |||||||||
Vesting
of restricted shares
|
—
|
—
|
94 | |||||||||
Cancellation
of common stock options and restricted shares
|
—
|
162 | 249 | |||||||||
Amortization
of deferred stock-based compensation, net of cancellations
|
28 | 1 | 565 | |||||||||
Balance,
end of year
|
—
|
(28 | ) | (191 | ) | |||||||
Accumulated
deficit
|
||||||||||||
Balance,
beginning of year
|
(20,245 | ) | (30,340 | ) | (36,138 | ) | ||||||
Net
income
|
4,561 | 10,095 | 5,798 | |||||||||
Balance,
end of year
|
(15,684 | ) | (20,245 | ) | (30,340 | ) | ||||||
Accumulated
other comprehensive loss
|
||||||||||||
Balance,
beginning of year
|
(12 | ) | (35 | ) |
—
|
|||||||
Change
in unrealized loss in investments, net of tax
|
12 | 23 | (35 | ) | ||||||||
Balance,
end of year
|
—
|
(12 | ) | (35 | ) | |||||||
Total
stockholders' equity
|
$ | 186,311 | $ | 170,566 | $ | 151,326 |
Year
Ended December 31,
|
||||||||||||
2008 | 2007 | 2006 | ||||||||||
Number
of shares
|
||||||||||||
Redeemable
convertible preferred stock
|
||||||||||||
Balance,
beginning of year
|
—
|
—
|
13,802 | |||||||||
Issuance
of Series A preferred stock upon net exercise of warrants
|
—
|
—
|
61 | |||||||||
Automatic
conversion of preferred stock to common stock upon effective date of
IPO
|
—
|
—
|
(13,863 | ) | ||||||||
Balance,
end of year
|
—
|
—
|
—
|
|||||||||
Common
stock
|
||||||||||||
Balance,
beginning of year
|
24,805 | 23,705 | 3,790 | |||||||||
Issuance
of common stock upon exercise of options, net of
repurchases
|
333 | 1,073 | 127 | |||||||||
Issuance
of common stock upon effective date of IPO, net of underwriting fees of
$6,090 and other expenses of $2,442
|
—
|
—
|
5,800 | |||||||||
Issuance
of common stock upon net exercise of warrants
|
—
|
27 |
—
|
|||||||||
Automatic
conversion of preferred stock to common stock upon effective date of
IPO
|
—
|
—
|
13,863 | |||||||||
Vesting
of restricted shares
|
—
|
—
|
60 | |||||||||
Donation
of common stock to a charitable foundation
|
—
|
—
|
65 | |||||||||
Balance,
end of year
|
25,138 | 24,805 | 23,705 |
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Net
Income
|
$ | 4,561 | $ | 10,095 | $ | 5,798 | ||||||
Unrealized
gain (loss) on investments, net of tax
|
||||||||||||
Unrealized gain (loss) arising during period | (5,846 | ) | 23 | (35 | ) | |||||||
Less: reclassification adjustment for gain (loss) realized in net income | 5,858 |
—
|
— | |||||||||
Total
comprehensive income
|
$ | 4,573 | $ | 10,118 | $ | 5,763 |
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$
|
4,561
|
$
|
10,095
|
$
|
5,798
|
||||||
Adjustments
to reconcile net income to net cash provided by operating
activities
|
||||||||||||
Depreciation
and amortization
|
24,211
|
17,384
|
10,525
|
|||||||||
Amortization
of intangible assets
|
1,827
|
412
|
222
|
|||||||||
Stock-based
compensation
|
8,628
|
4,001
|
2,300
|
|||||||||
Charitable
contribution expense for shares issued to charitable
foundation
|
—
|
—
|
923
|
|||||||||
Change
in carrying value of preferred stock warrant liability
|
—
|
—
|
(152
|
)
|
||||||||
Loss/(gain)
on disposal of property and equipment
|
308
|
262
|
(29
|
)
|
||||||||
Deferred
income taxes
|
(473
|
)
|
5,853
|
3,199
|
||||||||
Gain
on auction rate securities Rights
|
(9,013
|
)
|
—
|
—
|
||||||||
Impairment
of non-current auction rate securities
|
9,013
|
—
|
—
|
|||||||||
Changes
in operating assets and liabilities, net of effects of
acquisition:
|
||||||||||||
Accounts
receivable, net
|
(1,512
|
)
|
(2,316
|
)
|
(1,215
|
)
|
||||||
Inventories
|
1,178
|
(2,290
|
)
|
(1,419
|
)
|
|||||||
Prepaid
expenses and other current assets
|
(120
|
)
|
(1,750
|
)
|
(1,171
|
)
|
||||||
Other
assets
|
(243
|
)
|
(1,668
|
)
|
(121
|
)
|
||||||
Accounts
payable
|
2,431
|
|
(602
|
)
|
5,514
|
|||||||
Accrued
and other liabilities
|
5,482
|
10,390
|
(2,603
|
)
|
||||||||
Deferred
revenue
|
762
|
2,421
|
1,714
|
|||||||||
Net
cash provided by operating activities
|
47,040
|
42,192
|
23,485
|
|||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of property and equipment
|
(18,220
|
)
|
(31,881
|
)
|
(19,330
|
)
|
||||||
Capitalization
of software and website development costs
|
(4,527
|
)
|
(3,112)
|
(1,351)
|
||||||||
Acquisition
of business and intangible assets, net of cash acquired
|
(10,097
|
)
|
(2,858
|
)
|
—
|
|||||||
Purchases
of short term investments
|
—
|
(3,000
|
)
|
—
|
||||||||
Proceeds
from sale of short term investments
|
3,002
|
—
|
—
|
|||||||||
Proceeds
from sale of property and equipment
|
6
|
28
|
—
|
|||||||||
Purchase
of auction rate securities
|
(52,250
|
) |
—
|
—
|
||||||||
Net
cash used in investing activities
|
(82,086
|
)
|
(40,823
|
)
|
(20,681
|
)
|
||||||
Cash
flows from financing activities:
|
||||||||||||
Principal
payments of capital lease obligations
|
(808
|
)
|
(2,840
|
)
|
(1,446
|
)
|
||||||
Proceeds
from IPO shares issued, net of issuance costs
|
—
|
—
|
78,468
|
|||||||||
Proceeds
from issuance of common stock upon exercise of stock
options
|
1,158
|
4,975
|
83
|
|||||||||
Shares
withheld for payment of employee’s withholding tax
liability
|
(260
|
)
|
—
|
—
|
||||||||
Repurchases
of common stock
|
—
|
—
|
(11
|
)
|
||||||||
Tax
benefit of stock options
|
538
|
27
|
—
|
|||||||||
Net
cash provided by financing activities
|
628
|
2,162
|
77,094
|
|||||||||
Net
increase (decrease) in cash and cash equivalents
|
(34,418)
|
3,531
|
79,898
|
|||||||||
Cash
and cash equivalents, beginning of period
|
122,582
|
119,051
|
39,153
|
|||||||||
Cash
and cash equivalents, end of period
|
$
|
88,164
|
$
|
122,582
|
$
|
119,051
|
||||||
Supplemental
disclosures of cash flow information
|
||||||||||||
Cash
paid during the period for interest
|
$
|
47
|
$
|
198
|
$
|
205
|
||||||
Cash
paid during the period for income taxes
|
535
|
812
|
—
|
|||||||||
Supplemental
schedule of non-cash investing and financing activities
|
||||||||||||
Accrued
acquisition liabilities
|
400
|
—
|
—
|
|||||||||
Conversion
of preferred stock
|
—
|
—
|
89,795
|
|||||||||
Conversion
of preferred stock warrant liability into APIC
|
—
|
—
|
1,381
|
|||||||||
Preferred
stock warrants exercised on net basis
|
—
|
—
|
143
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Net
income per share:
|
In
thousands, except per share amounts
|
|||||||||||
Numerator
|
||||||||||||
Net
income
|
$
|
4,561
|
$
|
10,095
|
$
|
5,798
|
||||||
Denominator
|
||||||||||||
Weighted-average
common shares outstanding
|
25,038
|
24,309
|
8,729
|
|||||||||
Less:
Weighted-average unvested common shares subject to
repurchase
|
(2
|
)
|
(14
|
)
|
(107
|
)
|
||||||
Denominator
for basic net income per share
|
25,036
|
24,295
|
8,622
|
|||||||||
Dilutive
effect of stock options, restricted awards and shares subject to
repurchase
|
751
|
1,978
|
1,709
|
|||||||||
Denominator
for diluted net income per share
|
25,787
|
26,273
|
10,331
|
|||||||||
Net
income per share — basic and diluted
|
||||||||||||
Net
income per share — basic
|
$
|
0.18
|
$
|
0.42
|
$
|
0.67
|
||||||
Net
income per share — diluted
|
$
|
0.18
|
$
|
0.38
|
$
|
0.56
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
In
thousands
|
||||||||||||
Options
to purchase common stock
|
4,230
|
385
|
1,367
|
|||||||||
Convertible
preferred stock (as converted basis)
|
—
|
—
|
10,509
|
December
31, 2008
|
December
31, 2007
|
|||||||||||||||||||||||
Cost
|
Gross
Unrealized
Gains/(Losses)
|
Fair
Value
|
Cost
|
Gross
Unrealized
Gains/(Losses)
|
Fair
Value
|
|||||||||||||||||||
In
thousands
|
In
thousands
|
|||||||||||||||||||||||
Cash
Equivalents
|
||||||||||||||||||||||||
Money
Market Funds
|
80,410
|
—
|
80,410
|
22,363
|
—
|
22,363
|
||||||||||||||||||
Commercial
Paper
|
—
|
—
|
—
|
84,284
|
(20
|
)
|
84,264
|
|||||||||||||||||
Total
Cash Equivalents
|
80,410
|
—
|
80,410
|
106,647
|
(20
|
)
|
106,627
|
|||||||||||||||||
US
Government Agency Securities
|
—
|
—
|
—
|
3,000
|
2
|
3,002
|
||||||||||||||||||
Auction
Rate Securities
|
52,250
|
(9,013)
|
43,237
|
—
|
—
|
—
|
||||||||||||||||||
Rights from
UBS
|
—
|
9,013
|
9,013
|
—
|
—
|
—
|
||||||||||||||||||
Total
Cash Equivalents and Investments
|
$
|
132,660
|
$
|
—
|
$
|
132,660
|
$
|
109,647
|
$
|
(18
|
)
|
$
|
109,629
|
December
31, 2008
|
||||||||||||||||
Fair
Value
|
Level
1
|
Level
2
|
Level
3
|
|||||||||||||
Cash
equivalents:
|
||||||||||||||||
Money market funds
|
$
|
80,410
|
$
|
80,410
|
$
|
—
|
$
|
—
|
||||||||
Long-term
investments:
|
||||||||||||||||
Auction rate securities |
43,237
|
—
|
— |
43,237
|
||||||||||||
Rights
from UBS
|
9,013
|
—
|
—
|
9,013
|
||||||||||||
Total
financial assets
|
$
|
132,660
|
$
|
80,410
|
$
|
—
|
$
|
52,250
|
Rights
|
ARS
|
|||||||
Balance
at December 31, 2007
|
$ |
—
|
$ |
—
|
||||
Purchase
of ARS investments
|
—
|
52,250 | ||||||
Issuance
of Rights
|
9,013 |
—
|
||||||
Unrealized
loss included in earnings
|
—
|
(9,013 | ) | |||||
Balance
at December 31, 2008
|
$ | 9,013 | $ | 43,237 |
December 31,
|
||||||||
2008
|
2007
|
|||||||
In
thousands
|
||||||||
Computer
and other equipment
|
$
|
78,299
|
$
|
66,663
|
||||
Software
|
7,450
|
6,089
|
||||||
Leasehold
improvements
|
8,933
|
7,952
|
||||||
Furniture
and fixtures
|
2,609
|
2,282
|
||||||
Capitalized
software and website development costs
|
12,520
|
6,656
|
||||||
109,811
|
89,642
|
|||||||
Less:
Accumulated depreciation and amortization
|
(61,805
|
)
|
(41,226
|
)
|
||||
Net
property and equipment
|
$
|
48,006
|
$
|
48,416
|
Weighted
Average
Useful
Life
|
December 31,
|
||||||||
2008
|
2007
|
||||||||
In
thousands
|
|||||||||
Purchased
technology
|
8 Years
|
$
|
8,450
|
$
|
3,350
|
||||
Less:
accumulated amortization
|
(2,318
|
)
|
(905
|
)
|
|||||
6,132
|
2,445
|
||||||||
Customer
relationships
|
3
Years
|
990
|
990
|
||||||
Less:
accumulated amortization
|
(440
|
)
|
(110
|
)
|
|||||
550
|
880
|
||||||||
Licenses
and other
|
3
Years
|
256
|
186
|
||||||
Less:
accumulated amortization
|
(115
|
)
|
(31
|
)
|
|||||
141
|
155
|
||||||||
Total
|
$
|
6,823
|
$
|
3,480
|
Year
Ending:
|
||||
2009
|
$
|
1,826
|
||
2010
|
1,686
|
|||
2011
|
1,415
|
|||
2012
|
1,271
|
|||
2013
|
129
|
|||
Thereafter
|
496
|
|||
$
|
6,823
|
Balance,
December 31, 2006
|
$
|
—
|
||
Acquisition
of business
|
379
|
|||
Goodwill
adjustments
|
—
|
|||
Balance,
December 31, 2007
|
379
|
|||
Acquisition
of business
|
6,945
|
|||
Goodwill
adjustments
|
400
|
|||
Balance,
December 31, 2008
|
$
|
7,724
|
December 31,
|
||||||||
2008
|
2007
|
|||||||
In
thousands
|
||||||||
Accrued
marketing expenses
|
$
|
6,697
|
$
|
4,101
|
||||
Accrued
income and sales taxes
|
5,923
|
3,682
|
||||||
Accrued
compensation
|
4,110
|
3,053
|
||||||
Accrued
production facility expenses
|
2,677
|
3,283
|
||||||
Accrued
consultant expenses
|
1,439
|
1,516
|
||||||
Accrued
purchases
|
526
|
1,414
|
||||||
Accrued
other
|
3,340
|
1,675
|
||||||
$
|
24,712
|
$
|
18,724
|
Facility
Closure Costs
|
Workforce
Reduction Costs
|
Total
|
||||||||||
Balance,
December 31, 2007
|
$ |
—
|
$ |
—
|
$ |
—
|
||||||
Restructuring
charges
|
80 | 633 | 713 | |||||||||
Payments
|
—
|
—
|
—
|
|||||||||
Balance,
December 31, 2008
|
$ | 80 | $ | 633 | $ | 713 |
Operating Leases
|
Capital Leases
|
|||||||
Year
Ending:
|
In
thousands
|
|||||||
2009
|
$
|
3,823
|
$
|
93
|
||||
2010
|
3,676
|
12
|
||||||
2011
|
2,302
|
6
|
||||||
2012
|
2,371
|
—
|
||||||
2013
|
2,441
|
—
|
||||||
Thereafter
|
4,592
|
—
|
||||||
Total
minimum lease payments
|
$
|
19,205
|
$
|
111
|
||||
Less:
amount representing interest
|
(4
|
)
|
||||||
Present
value of future minimum lease payments
|
107
|
|||||||
Less:
current portion
|
(90
|
)
|
||||||
Non-current
portion of capital lease obligations
|
$
|
17
|
Shares Available
for Grant
|
Number
of
Options
Outstanding
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Contractual
Term
(Years)
|
Aggregate
Intrinsic
Value
|
||||||||||
Balances,
December 31, 2005
|
1,359
|
3,018
|
3.91
|
|||||||||||
Additional
authorized
|
2,055
|
—
|
—
|
|||||||||||
Granted
|
(2,269
|
)
|
2,269
|
11.11
|
||||||||||
Exercised
|
—
|
(52
|
)
|
1.61
|
||||||||||
Forfeited,
cancelled or expired
|
233
|
(201
|
)
|
6.10
|
||||||||||
Balances,
December 31, 2006
|
1,378
|
5,034
|
7.28
|
|||||||||||
Additional
authorized (inducement grants)
|
380
|
—
|
—
|
|||||||||||
Granted
|
(2,217
|
)
|
2,217
|
22.17
|
||||||||||
Exercised
|
—
|
(1,049
|
)
|
4.75
|
||||||||||
Forfeited,
cancelled or expired
|
560
|
(560
|
)
|
9.36
|
||||||||||
Balances,
December 31, 2007
|
101
|
5,642
|
$
|
13.39
|
||||||||||
Additional
authorized
|
1,275
|
—
|
—
|
|||||||||||
Granted
|
(642
|
)
|
642
|
13.64
|
||||||||||
Exercised
|
—
|
(266
|
)
|
4.35
|
||||||||||
Forfeited,
cancelled or expired
|
489
|
(489
|
)
|
18.20
|
||||||||||
Balances,
December 31, 2008
|
1,223
|
5,529
|
$
|
13.41
|
7.1
|
$3,142
|
||||||||
Options
vested and expected to vest at December 31, 2008
|
5,029
|
$
|
13.01
|
7.0
|
$3,113
|
|||||||||
Options
vested at December 31, 2008
|
3,237
|
$
|
10.50
|
6.4
|
$3,003
|
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
|
Year
Ended December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Dividend
yield
|
— | — | — | |||||||||
Annual
risk free rate of return
|
2.5 | % | 4.1 | % | 5.0 | % | ||||||
Expected
volatility
|
51.7 | % | 45 | % | 45.8 | % | ||||||
Expected
term (years)
|
4.4 | 4.4 | 4.6 |
Restricted
Stock Units & Awards
|
Weighted Average Grant Date Fair
Value
|
|||||||
Balances,
December 31, 2007
|
—
|
$
|
—
|
|||||
Granted
|
1,112
|
12.97
|
||||||
Released
|
(62)
|
20.75
|
||||||
Forfeited,
cancelled or expired
|
(92)
|
16.64
|
||||||
Balances, December
31, 2008
|
958
|
$
|
12.11
|
|||||
Restricted stock units expected to vest, December 31, 2008 | 815 |
December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Federal:
|
||||||||||||
Current
|
$
|
727
|
$
|
206
|
$
|
610
|
||||||
Deferred
|
1,108
|
5,146
|
2,809
|
|||||||||
$
|
1,835
|
$
|
5,352
|
$
|
3,419
|
|||||||
State:
|
||||||||||||
Current
|
$
|
1,156
|
$
|
216
|
$
|
133
|
||||||
Deferred
|
(1,199)
|
734
|
390
|
|||||||||
$
|
(43)
|
$
|
950
|
$
|
523
|
|||||||
Total
income tax expense (benefit):
|
||||||||||||
Current
|
$
|
1,883
|
$
|
422
|
$
|
743
|
||||||
Deferred
|
(91)
|
5,880
|
3,199
|
|||||||||
$
|
1,792
|
$
|
6,302
|
$
|
3,942
|
December 31,
|
||||||||||||
2008
|
2007
|
2006
|
||||||||||
Income
tax expense at statutory rate
|
34.0
|
%
|
34.0
|
%
|
34.0
|
%
|
||||||
State
income taxes
|
(2.7)
|
%
|
4.5
|
%
|
5.8
|
%
|
||||||
Stock-based
compensation
|
10.9
|
%
|
2.0
|
%
|
4.3
|
%
|
||||||
R&D
tax credit
|
(14.3)
|
%
|
—
|
—
|
||||||||
Other
|
0.3
|
%
|
(2.1)
|
%
|
(3.7
|
)%
|
||||||
28.2
|
%
|
38.4
|
%
|
40.4
|
%
|
December 31,
|
||||||||
2008
|
2007
|
|||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carryforwards
|
$
|
1,240
|
$
|
7,481
|
||||
Reserves
and other tax benefits
|
4,312
|
3,485
|
||||||
Tax
credits
|
4,499
|
2,715
|
||||||
Depreciation
and amortization
|
2,612
|
1,196
|
||||||
Other
|
408
|
94
|
||||||
Deferred
tax assets
|
13,071
|
14,971
|
||||||
Deferred
tax liabilities:
|
||||||||
Deferred
tax liabilities
|
—
|
—
|
||||||
Net
deferred tax assets
|
$
|
13,071
|
$
|
14,971
|
2008
|
2007
|
|||||||
Balance
of unrecognized tax benefits at January 1
|
$ 756
|
1,200
|
||||||
Additions
for tax positions of prior years
|
455
|
$
|
—
|
|||||
Additions
for tax positions related to current year
|
555
|
259
|
||||||
Reductions
for tax positions of prior years
|
—
|
(607
|
)
|
|||||
Settlement
of franchise tax audit
|
—
|
(96
|
)
|
|||||
Balance
of unrecognized tax benefits at December 31
|
1,766
|
$
|
756
|
Year
Ended December 31, 2008
|
||||||||||||||||
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
|||||||||||||
Net
Revenues
|
$
|
34,338
|
$
|
35,447
|
$
|
35,953
|
$
|
107,742
|
||||||||
Gross
Profit
|
16,409
|
18,067
|
17,523
|
65,322
|
||||||||||||
Net
income (loss)
|
$
|
(3,639
|
)
|
$
|
(4,017
|
)
|
$
|
(2,711
|
)
|
$
|
14,928
|
|||||
Net
income (loss) per common share:
|
||||||||||||||||
Basic
|
$
|
(0.15
|
)
|
$
|
(0.16
|
)
|
$
|
(0.11
|
)
|
$
|
0.60
|
|||||
Diluted
|
$
|
(0.15
|
)
|
$
|
(0.16
|
)
|
$
|
(0.11
|
)
|
$
|
0.59
|
|||||
Year
Ended December 31, 2007
|
||||||||||||||||
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
|||||||||||||
Net
Revenues
|
$
|
26,705
|
$
|
29,877
|
$
|
32,602
|
$
|
97,543
|
||||||||
Gross
Profit
|
13,671
|
15,045
|
15,362
|
58,538
|
||||||||||||
Net
income (loss)
|
$
|
(1,060
|
)
|
$
|
(2,439
|
)
|
$
|
(3,314
|
)
|
$
|
16,908
|
|||||
Net
income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic
|
$
|
(0.04
|
)
|
$
|
(0.10
|
)
|
$
|
(0.14
|
)
|
$
|
0.68
|
|||||
Diluted
|
$
|
(0.04
|
) |
$
|
(0.10
|
) |
$
|
(0.14
|
) |
$
|
0.63
|
Additions
|
||||||||||||||||||||
Balance
at Beginning of Period
|
Charged
to Costs and Expenses
|
Charged
to Other Accounts
|
Deductions
|
Balance
at End of Period
|
||||||||||||||||
In
thousands
|
||||||||||||||||||||
Allowance
for Doubtful Accounts Receivable
|
||||||||||||||||||||
Year
ended December 31, 2006
|
$
|
21
|
—
|
—
|
(21
|
)
|
—
|
|||||||||||||
Year
ended December 31, 2007
|
$
|
—
|
—
|
—
|
—
|
—
|
||||||||||||||
Year
ended December 31, 2008
|
$
|
—
|
—
|
—
|
—
|
—
|
By:
|
/s/ Mark J.
Rubash
|
|
Mark
J. Rubash
|
||
Senior Vice President & Chief Financial Officer |
Signature
|
Title
|
Date
|
/s/ Jeffrey
T. Housenbold
Jeffrey
T. Housenbold
|
President,
Chief Executive Officer and Director
(Principal
Executive Officer)
|
February
24, 2009
|
/s/ Mark J. Rubash
Mark
J. Rubash
|
Senior
Vice President and Chief Financial Officer
(Principal
Financial Officer and Principal Accounting Officer)
|
February
24, 2009
|
/s/ Philip
A. Marineau
Philip
A. Marineau
|
Chairman
of the Board of Directors
|
February
21, 2009
|
/s/ Patricia
A. House
Patricia
A. House
|
Director
|
February
22, 2009
|
/s/ Eric
J. Keller
Eric
J. Keller
|
Director
|
February
22, 2009
|
/s/ Nancy
J. Schoendorf
Nancy
J. Schoendorf
|
Director
|
February
22, 2009
|
/s/ James
N. White
James
N. White
|
Director
|
February
22, 2009
|
/s/ Stephen
J. Killeen
Stephen
J. Killeen
|
Director
|
February
23,
2009
|
Incorporated by Reference
|
||||||
Exhibit
Number
|
Exhibit Description
|
Form
|
File No.
|
Date
of
First Filing
|
Exhibit
Number
|
Provided
Herewith
|
3.01
|
Registrants’
Restated Certificate of Incorporation.
|
S-1
|
333-135426
|
June 29,
2006
|
3.03
|
|
3.02
|
Registrant’s
Restated Bylaws.
|
S-1
|
333-135426
|
June 29,
2006
|
3.05
|
|
4.01
|
Form
of Registrant’s common stock certificate.
|
S-1
|
333-135426
|
June 29,
2006
|
4.01
|
|
4.02
|
Fifth
Amended and Restated Investors’ Rights Agreement, dated as of
November 11, 2005, by and among the Registrant and certain investors
of Registrant.
|
S-1
|
333-135426
|
June 29,
2006
|
4.02
|
|
10.01
|
Form
of Indemnity Agreement.
|
S-1
|
333-135426
|
June 29,
2006
|
10.01
|
|
10.02
|
1999
Stock Plan and forms of stock option agreement and a stock option exercise
agreement.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.02
|
|
10.03
|
2006
Equity Incentive Plan and forms of stock option agreement, stock option
exercise agreement, restricted stock agreement, restricted stock unit
agreement, stock appreciation right agreement and stock bonus
agreement.*
|
S-1/A
|
333-135426
|
June 29,
2006
|
10.03
|
|
10.04
|
Lease
Agreement, as amended, dated July 5, 1999, by and between the
Registrant and Westport Joint Venture, as amended to date.
|
S-1
|
333-135426
|
June 29,
2006
|
10.04
|
|
10.05
|
Agreement
of Lease, dated as of August 1, 2005, by and between the Registrant
and DCT-CA 2004 RN Portfolio L, LP, as amended to date.
|
S-1
|
333-135426
|
June 29,
2006
|
10.05
|
|
10.06
|
Lease,
dated as of March 7, 2000, by and between the Registrant and 3168
Corporate Place Associates, LLC, as amended to date.
|
S-1
|
333-135426
|
June 29,
2006
|
10.06
|
|
10.07
|
Lease,
dated as of April 6, 2000, by and between the Registrant and 3168
Corporate Place Associates, LLC, as amended to date.
|
S-1
|
333-135426
|
June 29,
2006
|
10.07
|
|
10.08
|
Offer
letter dated January 5, 2005 for Jeffrey T.
Housenbold.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.08
|
|
10.09
|
Offer
letter dated March 25, 2005 for Douglas J. Galen.*
|
S-1
|
333-135426
|
June 29,
2006
|
10.12
|
|
10.10
|
Supply
Agreement, dated as of September 15, 2005, by and between Registrant
and Fuji Photo Film U.S.A., Inc.**
|
S-1
|
333-135426
|
June 29,
2006
|
10.14
|
|
10.11
|
Offer
letter dated January 17, 2007 for Dwayne Black.*
|
10-K
|
001-33031
|
March
20, 2007
|
10.15
|
|
10.12
|
Supply
Agreement, dated as of April 20, 2007, by and between Registrant and
FujiFilm U.S.A, Inc.
|
10-Q
|
001-33031
|
August
1, 2007
|
10.18
|
|
10.13
|
Offer
letter dated May 17, 2007 for Kathryn E. Olson.*
|
10-K
|
001-33031
|
March
10, 2008
|
10.19
|
|
10.14
|
Offer
letter dated November 27, 2007 for Mark J. Rubash.*
|
10-K
|
001-33031
|
March
10, 2008
|
10.20
|
|
10.15
|
Lease
Agreement, as amended, dated as of December 22, 2006, by and between the
Registrant and 3915 Shopton Road, LLC, as amended to date.
|
10-K
|
001-33031
|
March
10, 2008
|
10.22
|
|
10.16
|
First
Amendment to Lease (Expansion), dated as of April 30, 2007, by and between
the Registrant and Westport Office Park, LLC, as amended to
date.
|
10-K
|
001-33031
|
March
10, 2008
|
10.23
|
|
10.17
|
Transition
Agreement between the Registrant and Stanford Au dated August 26,
2008.*
|
8-K
|
001-33031
|
August
27, 2008
|
99.1
|
|
10.18
|
Lease
Agreement between Liberty Cotton Center LLC and the Registrant, dated
August 22, 2008, as amended on October 29, 2008.
|
10-Q
|
001-33031
|
October
31, 2008
|
10.02
|
|
10.19
|
Amendment
to Offer Letter dated December 26, 2008 for Mark J.
Rubash.*
|
X
|
||||
10.20
|
Amendment
to Offer Letter dated December 23, 2008 for Dwayne Black.*
|
X
|
||||
10.21
|
Amendment
to Offer Letter dated December 31, 2008 for Douglas J.
Galen.*
|
X
|
||||
10.22
|
Amendment
to Offer Letter dated December 31, 2008 for Kathryn E.
Olson.*
|
X
|
||||
10.23
|
Temporary
Sublease, Assignment and Assumption of Lease and Consent to Assignment,
dated May 7, 2008, by and between the Registrant and MetricStream,
Inc.
|
X
|
||||
21.01
|
Subsidiaries
of the Registrant
|
X
|
||||
23.01
|
Consent
of Independent Registered Public Accounting Firm.
|
X
|
||||
24.01
|
Power
of Attorney. (See page 107 of this Form 10-K)
|
X
|
||||
31.01
|
Certification
of Chief Executive Officer Pursuant to Securities Exchange Act
Rule 13a-14(a).
|
X
|
||||
31.02
|
Certification
of Chief Financial Officer Pursuant to Securities Exchange Act
Rule 13a-14(a).
|
X
|
||||
32.01
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
and Securities Exchange Act Rule 13a-14(b).***
|
X
|
||||
32.02
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
and Securities Exchange Act Rule 13a-14(b).***
|
X
|
*
|
Represents
a management contract or compensatory plan.
|
**
|
Confidential
treatment has been granted for certain portions of this document pursuant
to an application for confidential treatment sent to the Securities and
Exchange Commission. Such portions are omitted from this filing and were
filed separately with the Securities and Exchange
Commission.
|
***
|
This
certification is not deemed “filed” for purposes of Section 18 of the
Securities Exchange Act, or otherwise subject to the liability of that
section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that Shutterfly
specifically incorporates it by
reference.
|