Vistaprint 2012 Annual Report Download - page 43

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management's estimate and the recognition of the underlying share-based compensation expense. As the
recognition of the compensation expense is reliant upon management's estimate of the achievement of the award, if
the probability increases during any given period, the compensation cost associated with that award would be
accelerated in order to match the estimated outcome. These changes in estimate could result in periods of high
expense fluctuation.
Income Taxes. As part of the process of preparing our consolidated financial statements, we estimate our
income taxes in each of the jurisdictions in which we operate. This process involves estimating our current tax
expense, including assessing the risks associated with tax audits, together with assessing temporary and
permanent differences resulting from differing treatment of items for tax and financial reporting purposes. We
recognize deferred tax assets and liabilities for the temporary differences using the enacted tax rates and laws that
will be in effect when we expect temporary differences to reverse. We assess the ability to realize our deferred tax
assets based upon the weight of available evidence both positive and negative. To the extent we believe that it is
more likely than not that some portion or all of the deferred tax assets will not be realized, we establish a valuation
allowance. Our estimates can vary due to the profitability mix of jurisdictions, foreign exchange movements,
changes in tax law, regulations or accounting principles, as well as certain discrete items. In the event that actual
results differ from our estimates or we adjust our estimates in the future, we may need to increase or decrease
income tax expense, which could have a material impact on our financial position and results of operations.
We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which,
additional taxes will be due. These reserves are established when we believe that certain positions might be
challenged despite our belief that our tax return positions are in accordance with applicable tax laws. We adjust
these reserves in light of changing facts and circumstances, such as the closing of a tax audit, new tax legislation,
or the change of an estimate based on new information. To the extent that the final outcome of these matters is
different than the amounts recorded, such differences will affect the provision for income taxes in the period in which
such determination is made. Interest and, if applicable, penalties related to unrecognized tax benefits are recorded
in the provision for income taxes.
Software and Website Development Costs. We capitalize eligible salaries and payroll-related costs of
employees who devote time to the development of websites and 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. Our judgment is required in determining whether a project
provides new or additional functionality, the point at which various projects enter the stages at which costs may be
capitalized, in assessing the ongoing value and impairment of the capitalized costs, and in determining the
estimated useful lives over which the costs are amortized. Historically we have not had any significant impairments
of our capitalized software and website development costs.
Business Combinations. Amounts paid for acquisitions are allocated to the tangible and intangible assets
acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of
identifiable intangible assets is based on detailed cash flow valuations that use information and assumptions
provided by management. The valuations are dependent upon a myriad of factors including historical financial
results, estimated customer renewal rates, projected operating costs and discount rates. We estimate the fair value
of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to
assess the probability of payment of contingent amounts. We allocate any excess purchase price over the fair value
of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in our
valuations for the acquisition of Webs and Albumprinter during fiscal 2012 may differ materially from actual results
depending on performance of the acquired businesses and other factors. While we believe the assumptions used
were appropriate, different assumptions in the allocation of the purchase price to either identifiable intangible assets
or goodwill could have a material impact on the timing and extent of impact on our statements of operations.
Goodwill is assigned to reporting units as of the date of the related acquisition. If goodwill is assigned to
more than one reporting unit, we utilize a method that is consistent with the manner in which the amount of goodwill
in a business combination is determined. Transaction costs associated with a transaction to acquire a business are
expensed as incurred.
Form 10-K