Vistaprint 2013 Annual Report Download - page 37

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• Home and Family. Although we expect to maintain our primary focus on micro business marketing products
and services, we also participate in the market for customized home and family products such as
invitations, announcements, calendars, holiday cards, embroidered products, and apparel. We continue to
add new products and services targeted at the home and family market. We believe that the economies of
scale provided by cross sales of these products to our extensive micro business customer base, our large
production order volumes and our integrated design and production software and facilities support and will
continue to support our effort to profitably grow our home and family business. We expanded our product
offerings in 2012 through the acquisition of Albumprinter, a leading provider of photo books and other photo
products in Europe, and a strategic partnership with Nickelodeon to offer licensed character content to
Vistaprint customers. During fiscal 2013, we continued to focus on enhancements of home and family
content for our customers, augmenting our already large creative base with more modern offerings and
upgraded substrates for key products such as invitations and announcements.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”). To apply these principles, we must make estimates and judgments that affect our reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. In some
instances, we reasonably could have used different accounting estimates and, in other instances, changes in the
accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ
significantly from our estimates. We base our estimates and judgments on historical experience and other
assumptions that we believe to be reasonable at the time under the circumstances, and we evaluate these
estimates and judgments on an ongoing basis. We refer to accounting estimates and judgments of this type as
critical accounting policies and estimates, which we discuss further below. This section should be read in
conjunction with Note 2, "Summary of Significant Accounting Policies," of our audited consolidated financial
statements included elsewhere in this Annual Report on Form 10-K.
Revenue Recognition. We generate revenue primarily from the sale and shipping of customized
manufactured products, as well as providing digital services, website design and hosting, email marketing services,
and order referral fees. We recognize revenue arising from sales of products and services, net of discounts and
applicable indirect taxes, when it is realized or realizable and earned. We consider revenue realized or realizable
and earned when there is persuasive evidence of an arrangement, a product has been shipped or service rendered
with no significant post-delivery obligation on our part, the net sales price is fixed or determinable and collection is
reasonably assured. For arrangements with multiple deliverables, we allocate revenue to each deliverable based on
the relative selling price for each deliverable. We determine the relative selling price using a hierarchy of (1)
company specific objective and reliable evidence, then (2) third-party evidence, then (3) best estimate of selling
price. Shipping, handling and processing charges billed to customers are included in revenue. Revenues from sales
of prepaid orders on our websites are deferred until shipment of fulfilled orders or until the prepaid service has been
rendered. For promotions through discount voucher websites, we recognize revenue on a gross basis, as we are
the primary obligor, when redeemed items are shipped. The revenue for a significant portion of our unredeemed
vouchers remains deferred as of June 30, 2013, as we establish sufficient historical redemption information with our
customer base.
A reserve for estimated sales returns and allowances is recorded as a reduction of revenue, based on
historical experience or specific identification of an event necessitating a reserve. This reserve is dependent upon
customer return practices and will vary during the year due to volume or specific reserve requirements. Sales
returns have not historically been significant to our net revenue and have been within our estimates.
Advertising Expense. We rely heavily on our advertising and marketing efforts in order to promote our
products and services to generate revenue growth. Advertising costs, including production related items, are
expensed when the costs are incurred. At each balance sheet date we make estimates of advertising spend that
has not yet been invoiced. The accuracy of those estimates depends on sufficient data from our global marketing
partners and generally involves a high volume of transactions. We perform extensive analysis on our historical
estimates relative to actual performance; however, based on the volume and significance of our marketing spend in
any period, these estimates require judgment to accurately recognize the appropriate expense during the period. As
of June 30, 2013, we had $24.8 million recorded as an accrued liability for advertising costs.
Share-Based Compensation. We measure share-based compensation costs at fair value, including
estimated forfeitures, and recognize the expense over the period that the recipient is required to provide service in