Vistaprint 2006 Annual Report Download - page 45

Table of Contents
Jamaica and the United States. VistaPrint Limited has entered into service and related agreements, which we also refer to as transfer pricing
agreements, with each of these operating subsidiaries. These agreements effectively result in VistaPrint Limited paying each of these subsidiaries
for its costs plus a fixed mark−up on these costs. The Jamaican subsidiary is located in a tax free zone, so its tax rate is zero. The Netherlands,
Canadian and United States subsidiaries are each located in jurisdictions that tax profits and, accordingly, regardless of our consolidated results of
operations, these subsidiaries will each pay taxes in their respective jurisdictions.
Initial Public Offering. On September 29, 2005, we closed our initial public offering, or IPO, in which we sold 5,500,000 common shares at
a price to the public of $12.00 per share. The net proceeds of the IPO to us, which we received on October 5, 2005, were approximately $61.4
million after deducting underwriting discounts. Upon the closing of the IPO, all of our outstanding convertible preferred shares converted into an
aggregate of 22,720,543 common shares.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. To
apply these principles, we must make estimates that affect our reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. In many 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. To the extent that there are material differences between these estimates and actual results, our financial
condition or results of operations will be affected. We base our estimates on historical experience and other assumptions that we believe to be
reasonable under the circumstances at the time they are made, and we evaluate these estimates on an ongoing basis. We refer to accounting
estimates of this type as critical accounting policies and estimates, which are discussed further below.
Revenue Recognition. We generate revenues primarily from the printing and shipping of customized printed products, such as business
cards, postcards, brochures, magnets, presentation folders and folded greeting cards. We recognize revenue arising from sales of printed goods
when it is realized or realizable and earned. We consider revenue realized or realizable and earned when there is persuasive evidence of an
arrangement, the product has been shipped and title and risk of loss transfers to the customer, the sales price is fixed or determinable and
collection is reasonably assured. We also generate revenue from order referral fees paid to us by merchants for customer click−throughs to
merchant websites. Revenue generated from order referrals is recognized in the period that the click−through impression is delivered provided that
there is persuasive evidence of an arrangement, the fee is fixed or determinable, we have no significant remaining obligations and collection is
reasonably assured. Shipping, handling and processing costs billed to customers are included in revenue and the related costs are included in
cost of revenue. A reserve for sales returns and allowances is recorded based on historical experience or specific identification of an event
necessitating a reserve.
Inventories. Our inventories consist primarily of raw materials, and are stated at the lower of first−in, first−out cost or market value. Raw
materials consist of various types of paper stock, printing plates and packing boxes. Management believes that these materials are commodity
products that are not susceptible to obsolescence. In addition, we manage our supply chain to maintain a just−in−time inventory process to
minimize the levels of inventory on hand.
Software and Website Development Costs. We capitalize eligible costs associated with software developed or obtained for internal use in
accordance with American Institute of Certified Public Accountants Statement of Position 98−1, “Accounting for the Costs of Computer Software
Developed or
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