Vistaprint 2013 Annual Report Download - page 81

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accordingly, which did not have a material impact to our net income. The audit of the income tax return for the tax
year 2011 continues to progress in the field examination stage.
One of our Canadian subsidiaries, Vistaprint North American Services Corp., is currently under income tax
examination in Canada for tax years 2005 and 2006. In December 2012, we received Notices of Re-assessment for
the tax year 2006, adjusting the transfer price for the contract printing services provided to Vistaprint Limited. In
February 2013, we filed Notices of Objection to formally request a hearing before Canadian Appeals. We anticipate
our hearing in Appeals to commence sometime during fiscal year 2014. Based on the technical merits of this matter,
we believe that our tax position will be sustained. We plan to pursue all administrative and, if necessary, judicial
remedies with respect to this matter.
Vistaprint USA, Incorporated and Vistaprint Limited are both currently under income tax audit by the
Massachusetts Department of Revenue ("DOR"). The tax years under examination are 2006 to 2008 and 2005 to
2011, respectively. In June 2013, Vistaprint USA, Incorporated received Notices of Assessment from the DOR
containing proposed adjustments to taxable income for the years 2006 to 2008. The issue in dispute is whether
there was appropriate value received with respect to intangible property rights owned by Vistaprint USA
Incorporated and licensed to Vistaprint Limited during these years. On August 5, 2013, we submitted a written
protest stating our formal disagreement with the technical analysis and conclusion by the DOR and requesting our
case be heard by the Office of Appeals. We anticipate our hearing in Appeals to commence sometime during fiscal
year 2014. Based on the technical merits of this matter, we believe no adjustments are warranted and that our tax
positions will be sustained. We plan to pursue all administrative and, if necessary, judicial remedies with respect to
this matter.
We believe that our income tax reserves associated with these matters are adequate as the positions
reported on our tax returns will be sustained on their technical merits. However, final resolution is uncertain and
there is a possibility that the final resolution could have a material impact on our financial condition, results of
operations or cash flows.
14. Investment in Equity Interests
On July 10, 2012, we acquired an equity interest in Namex Limited and its related companies ("Namex") for
$12,653 in cash and $500 to be paid on an installment basis through December 31, 2016. Namex includes an
established Chinese printing business, and the investment provides us with access to this new market and an
opportunity to participate in longer-term growth in China. Our proportionate ownership share as of June 30, 2013 is
34.5%, with additional call options to increase ownership incrementally over the coming eight years, and we are
contractually committed to invest approximately $5,000 on or before October 1, 2013 which will result in a maximum
ownership share of approximately 45%.
This investment is accounted for using the equity method. We record in net income a proportionate share of
the earnings or losses of Namex, as well as related amortization, with a corresponding increase or decrease in the
carrying value of the investment. For the year ended June 30, 2013, we recorded a loss of $1,910, attributable to
Namex in our consolidated statement of operations. As of June 30, 2013, the carrying value of our Namex
investment, inclusive of our share of net tangible assets, identifiable intangible assets and goodwill was $11,248 in
our consolidated balance sheet. As of June 30, 2013, we have a contractual loan arrangement with the majority
shareholder of Namex, resulting in a loan receivable of $512 that is due with 6.5% per annum interest on or before
December 31, 2016.
We have determined that the level of equity investment at risk is not sufficient for the entity to finance its
activities without additional financial support and as a result, Namex represents a variable interest entity. However,
through consideration of the most significant activities of the entity in conjunction with the collective shareholders'
rights of Namex, we have concluded that we do not have the power to direct the activities that most significantly
impact the entity's economic performance, and therefore we do not qualify as the primary beneficiary. We have a
future contractual funding commitment to Namex of $5,000, but our exposure to loss is limited to our contributed
capital, the additional funding obligation, and the standard risks of proportionate equity ownership associated with
the entity's operating performance.
We do not have any other material commercial arrangements with Namex as of June 30, 2013.