Vistaprint 2006 Annual Report Download - page 46

Table of Contents
Obtained for Internal Use,” and Emerging Issues Task Force 00−2, “Accounting for Website Development Costs.” We capitalize the payroll and
payroll−related costs of employees who devote time to the development of internal−use computer software. We amortize these costs on a
straight−line basis over the estimated useful life of the software which is two years. Our judgment is required in determining 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.
Income Taxes. We make estimates and judgments in determining our income tax expense, and in the calculation of our tax assets and
liabilities. Our corporate tax rate is a combination of the tax rates of the jurisdictions where we conduct business. VistaPrint Limited is a Bermuda
based company. Bermuda does not currently impose any tax computed on profits or income. We have entered into and operate pursuant to
transfer pricing agreements that establish the transfer prices for transactions between VistaPrint Limited and our subsidiaries in the United States,
Canada, the Netherlands and Jamaica. The determination of appropriate transfer prices requires us to apply judgment. We believe that our
transfer pricing is in accordance with applicable statutory regulations.
We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying values and the tax
bases of assets and liabilities. We regularly review our deferred tax assets for recoverability and estimate a valuation allowance based on
historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. Our
judgment is required to determine, among other things, whether an increase or decrease of the valuation allowance is warranted. We will increase
the valuation allowance if we operate at a loss or are unable to generate sufficient future taxable income. We will decrease the valuation allowance
if our future taxable income is significantly higher than expected or we are able to utilize our tax credits. Any changes in the valuation allowance
could affect our tax expense, financial position and results of operations.
Share−Based Compensation. Prior to June 3, 2005, we had accounted for awards under our share plans using the recognition and
measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations,
as permitted by Financial Accounting Standards Board, or FASB, Statement No. 123, Accounting for Stock−Based Compensation (“Statement
123”), and as such compensation cost has not been recognized on those awards. Effective July 1, 2005, we adopted the fair value recognition
provisions of FASB Statement No. 123(R), Share−Based Payment (“Statement 123(R)”), using the modified−prospective−transition method. Under
this transition method, compensation cost recognized by us beginning July 1, 2005 includes: (a) compensation cost for all share−based payments
granted between June 3, 2005, which is the date we filed our Registration Statement on Form S−1 with the Securities and Exchange Commission,
and July 1, 2005, but not yet vested as of July 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of
Statement 123, and (b) compensation cost for all share−based payments granted subsequent to July 1, 2005, based on the grant−date fair value
estimated in accordance with the provisions of Statement 123(R). As permitted under the modified−prospective−transition guidelines of Statement
123(R), results for prior periods have not been restated. No share−based employee compensation cost was recognized in the Consolidated
Statement of Operations for the fiscal years ended June 30, 2005 and June 30, 2004 included elsewhere in this Annual Report on Form 10−K.
Determining the amount of share−based compensation to be recorded requires us to develop estimates to be used in calculating the
grant−date fair value of share options. We calculate the grant−date fair values of option awards using the Black−Scholes valuation model. The use
of the valuation model requires us to make estimates and assumptions including, among other things, estimates regarding the length of time an
employee will retain vested share options before exercising them, the
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