Vistaprint 2010 Annual Report Download - page 51

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Form 10-K
Income Taxes. We make estimates and judgments in determining our income tax expense,
and in the calculation of our tax assets and liabilities. Our corporate tax rate is a combination of the
tax rates of the jurisdictions where we conduct business.
Deferred income taxes are determined using the liability method. Under this method, deferred
tax assets and liabilities are based on the differences between the financial statement carrying values
and the tax bases and are measured by applying currently enacted tax rates and laws to taxable
years in which such differences are expected to reverse. We record a valuation allowance to reduce
deferred tax assets to the amount that is believed more likely than not to be realized. We regularly
review our deferred tax assets for recoverability and estimate a valuation allowance based on
historical taxable income, projected future taxable income and the expected timing of the reversals of
existing temporary differences. Our judgment is required to determine, among other things, whether
an increase or decrease of a valuation allowance is warranted. We will increase the valuation
allowance if we operate at a loss or are unable to generate sufficient future taxable income. Any
changes in the valuation allowance could affect our tax expense, financial position and results of
operations.
We recognize, present and disclose in our financial statements uncertain tax positions we have
taken, or we expect to take on a tax return, whereby we recognize the tax benefit from an uncertain
tax position if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefits recognized in the
financial statements from such positions are then measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate settlement. The unrecognized tax benefits
will reduce our effective tax rate when recognized. Interest and penalties related to unrecognized tax
benefits are recorded in the provision for income taxes.
The calculation of tax liabilities involves significant judgment in estimating the impact of
uncertainties in the application of GAAP and complex tax laws. Resolution of these uncertainties in a
manner inconsistent with management’s expectations could have a material impact on the Company’s
financial condition and operating results.
Share-Based Compensation. We measure compensation cost for share-based compensation
at fair value, including estimated forfeitures, and recognize the expense as compensation expense
over the period that the recipient is required to provide service in exchange for the award, which
generally is the vesting period. We use the Black-Scholes option pricing model to measure the fair
value of stock options. This model requires significant estimates related to the award’s expected life
and future stock price volatility of the underlying equity security. In determining the amount of expense
to be recorded, we also are required to estimate forfeiture rates for awards, based on the probability
that employees will complete the required service period. We estimate the forfeiture rate based on
historical experience. If actual forfeitures differ significantly from our estimates, additional adjustments
to compensation expense may be required in future periods.
Property, Plant and Equipment. We periodically evaluate the net realizable value of our
property, plant and equipment when events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. When indicators of potential impairment are present, the
carrying value of the asset is evaluated in relation to the operating performance and estimated future
undiscounted cash flows expected to be generated by the asset. If the carrying amount of the asset
exceeds the estimated future cash flows, an impairment charge is recognized in the amount by which
the carrying value of the asset exceeds its estimated fair value. Cash flow projections are based on
trends of historical performance and our estimate of future performance.
Litigation and Contingencies. We are subject to various loss contingencies arising in the
ordinary course of business. We consider the likelihood of loss or impairment of an asset or the
incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining
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