Vistaprint 2006 Annual Report Download - page 44

Table of Contents
Technology and development expense. Technology and development expense consists primarily of payroll and related expenses for
software development, amortization of capitalized software and website development costs, information technology operations, website hosting,
equipment depreciation, patent amortization and miscellaneous infrastructure−related costs. These expenses also include amortization of
purchase costs related to content images used in our graphic design software. Costs associated with the development of software for internal−use
are capitalized if the software is expected to have a useful life beyond one year and are amortized over the software’s useful life, which is
estimated to be two years. Costs associated with preliminary stage software development, repair, maintenance or the development of website
content are expensed as incurred. Costs associated with the acquisition of content images used in our graphic design process that have useful
lives greater than one year, such as digital images and artwork, are capitalized and amortized over their useful lives, which approximate two years.
Marketing and selling expense. Marketing and selling expense consists of advertising and promotional costs as well as wages and
related payroll benefits for our employees engaged in sales, marketing and public relations activities. Advertising costs consist of various online
and print media, such as the purchase of key word search terms, e−mail and direct mail promotions and various strategic alliances. Our
advertising efforts target the acquisition of new customers and repeat orders from existing customers. Advertising costs are generally expensed as
incurred. Marketing and selling expense also includes the salaries and related payroll benefits, overhead, and outside services related to our
customer design sales and services support center operations. This customer support center provides phone support to customers on various
topics such as order status, the use of our website graphic design studio, and free real−time design assistance. Marketing and selling expense
also includes third party payment processor and credit card fees.
General and administrative expense. General and administrative expense consists of general corporate costs, including salary and
related payroll benefit expenses of employees involved in finance, accounting, human resources and general executive management. We have
incurred and will incur additional legal and accounting costs in order to comply with regulatory reporting requirements, as well as additional costs
associated with being a publicly traded company, such as investor relations and higher insurance premiums.
Loss on contract termination. On July 2, 2004, we signed a termination agreement with Mod−Pac that effectively terminated all then
existing supply agreements as of August 30, 2004. Pursuant to the termination agreement, we paid Mod−Pac a one−time $22.0 million termination
fee. As a result of the termination agreement and the payment we made to Mod−Pac, we recorded a loss from the termination of the existing
supply agreements of $21.0 million. We deferred $1.0 million of the total termination fee of $22.0 million, representing the effective reduction of the
mark−up on costs of purchased products from 33% to 25% estimated to be purchased over the contract period. This deferred amount was
recorded as a prepaid asset on our consolidated balance sheet at June 30, 2005 and was amortized to cost of revenue over the twelve month
term of the new supply agreement.
Other income (expenses), net. Other income (expenses), net primarily consists of interest income earned on cash and cash equivalents
and marketable securities and gains and losses from foreign currency transactions.
Interest expense. Interest expense consists of interest paid to financial institutions on outstanding balances on our credit facilities.
Income taxes. VistaPrint Limited is a Bermuda based company. Bermuda does not currently impose any tax computed on profits or
income, which results in a zero tax liability for our profits recorded in Bermuda. VistaPrint Limited has operating subsidiaries in the Netherlands,
Canada,
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