Vistaprint 2010 Annual Report Download - page 73

Form 10-K
The effective portion of changes in the fair value of derivatives designated and qualifying as
cash flow hedges of forecasted purchases is recorded in Accumulated Other Comprehensive Income
(“AOCI”). The gains and losses will be reclassified into earnings in the same period that the hedged
item affects earnings. The ineffective portion of the change in fair value of derivatives, as well as
amounts excluded from the assessment of hedge effectiveness, if any, are recognized directly in
earnings.
Inventories
Inventories consist primarily of raw materials, and are recorded at the lower of cost or market
value using a first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and
amortization. Additions and improvements that substantially extend the useful life of a particular asset
are capitalized while repairs and maintenance costs are expensed as incurred. Depreciation of plant
and equipment is recorded on a straight-line basis over the estimated useful lives of the assets.
Software and Web Site Development Costs
The Company capitalizes eligible salaries and payroll-related costs of employees who devote
time to the development of internal-use computer software. Capitalization begins when the preliminary
project stage is complete, management with the relevant authority authorizes and commits to the
funding of the software project, and it is probable that the project will be completed and the software
will be used to perform the function intended. These costs are amortized on a straight-line basis over
the estimated useful life of the software, which is generally two years. Costs associated with
preliminary stage software development, repair, maintenance or the development of website content
are expensed as incurred. Amortization expense in connection with the development of software for
internal use in the years ended June 30, 2010, 2009 and 2008 was $6,780, $5,762 and $4,118,
respectively, resulting in accumulated amortization of $12,205 and $12,835 at June 30, 2010 and
2009, respectively.
Leases
The Company categorizes leases at their inception as either operating or capital leases. Costs
for operating leases that include incentives such as payment escalations or rent abatements are
recognized on a straight-line basis over the term of the lease. Additionally, inducements received by
the Company are treated as a reduction of our costs over the term of the agreement. Leasehold
improvements are capitalized at cost and amortized over the shorter of their expected useful life or
the life of the lease, excluding renewal periods.
Business Combinations
The Company assigns the value of the consideration transferred to acquire a business to the
tangible assets and identifiable intangible assets acquired and liabilities assumed on the basis of their
fair values at the date of acquisition. The Company assesses the fair value of assets, including
intangible assets, using a variety of methods and each asset is measured at fair value from the
perspective of a market participant. The method used to estimate the fair values of intangible assets
incorporates significant assumptions regarding the estimates a market participant would make in
order to evaluate an asset, including a market participant’s use of the asset and the appropriate
discount rates for a market participant. Assets recorded from the perspective of a market participant
that are determined to not have economic use for the Company are expensed immediately. Any
excess purchase price over the fair value of the net tangible and intangible assets acquired is
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