Vistaprint 2006 Annual Report Download - page 69

Table of Contents VISTAPRINT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Years Ended June 30, 2006, 2005 and 2004
(in thousands, except share and per share data)
The Company provides for income taxes under the liability method prescribed by SFAS No. 109, Accounting for Income Taxes. Under this
method, income taxes are provided for amounts currently payable and for deferred tax assets and liabilities, which are determined based on the
differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. Deferred income taxes are
measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be realized.
Foreign Currency Translation
The majority of the Company’s non−U.S. sales orders are manufactured by the Company’s subsidiary in the Netherlands, VistaPrint B.V.,
which has the euro as its functional currency. VistaPrint B.V. translates its assets and liabilities at current rates of exchange in effect at the
balance sheet date. The resulting gains and losses from translation are included as a component of other comprehensive income (loss). All other
non−U.S. subsidiaries have the U.S. dollar as their functional currency and transaction gains and losses and re−measurement of foreign currency
denominated assets and liabilities are included in interest and other income (expense), net. Foreign currency transaction losses included in other
income (expense), net for the years ended June 30, 2006 and 2005 were $494 and $371, respectively. Foreign currency transaction gains or
losses included in other income (expense), net were not material in the year ended June 2004.
Net Income (Loss) Per Share
The Company calculates net income (loss) per share in accordance with SFAS No. 128, Earnings Per Share, as clarified by EITF Issue
No. 03−6, Participating Securities and the Two Class Method under FASB Statement No. 128, Earnings per Share (“EITF 03−6”). EITF 03−6
clarified the use of the “two−class” method of calculating earnings per share as originally prescribed in SFAS No. 128. EITF 03−6 provides
guidance on how to determine whether a security should be considered a “participating security” for purposes of computing earnings or loss per
share and how earnings should be allocated to a participating security when using the two−class method for computing basic earnings per share.
The Company has determined that its redeemable convertible preferred shares represented a participating security. As of September 29, 2005, all
of the outstanding redeemable convertible preferred shares were deemed to have converted into common shares in connection with the
Company’s initial public offering. Accordingly, the Company calculated basic net income per share for the year ended June 30, 2006 using the
two−class method for the first 91 days of the year since both classes of stock were outstanding during the period. The Company calculated diluted
net income per share for the year ended June 30, 2006 using the if−converted method because this method resulted in a net income per share
that was more dilutive than the two−class method. For the years ended June 30, 2005 and 2004, the Company calculated basic and diluted net
income per share using the two−class method.
Under the two−class method, basic net income (loss) per share is computed by dividing the net income (loss) attributable to common
shareholders by the weighted−average number of common shares outstanding for the fiscal period.
Diluted net income (loss) per share is computed using the more dilutive of (a) the two−class method or (b) the if−converted method. Under
the two−class method, the Company allocated net
66