Vistaprint 2006 Annual Report Download - page 71

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)
Share−Based Compensation
At June 30, 2006, the Company had three share−based compensation plans (see Note 10). The Company grants share options for a fixed
number of shares to employees and certain other individuals with exercise prices as determined by the Board of Directors at the dates of grant.
Prior to June 3, 2005, the Company had accounted for grants under its plans using the recognition and measurement provisions of APB Opinion
No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by SFAS No. 123, Accounting for Stock−Based
Compensation (“Statement 123”), and, as such, compensation cost had not been recognized on those grants. Effective July 1, 2005, the Company
adopted the fair value recognition provisions of SFAS No. 123(R), Share−Based Payment (“Statement 123(R)”), using the
modified−prospective−transition method. Under this transition method, compensation cost recognized by the Company beginning July 1, 2005
includes: (a) compensation cost for all share−based payments granted between June 3, 2005, the date the Company filed its 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 method guidelines of Statement 123(R), results for prior periods have not been
restated.
As a result of adopting Statement 123(R) on July 1, 2005, the Company recorded compensation cost that has been charged against
income of $4,850 for the year ended June 30, 2006. No compensation cost was recorded in the years ended June 30, 2005 and 2004. No income
tax benefit was recognized in the accompanying consolidated statements of operations for share−based compensation arrangements for the years
ended June 30, 2006, 2005 and 2004. As a result of the recognition of share−based compensation costs, net income for the year ended June 30,
2006 was $1,613 lower than if the Company had continued to account for share−based compensation under APB Opinion No. 25. Basic and
diluted earnings per share for the year ended June 30, 2006 were $0.05 and $0.04 lower, respectively, than if the Company had continued to
account for share−based compensation under APB Opinion No. 25.
Compensation costs capitalized as part of software and website development costs were $176, $0 and $0 for the years ended June 30,
2006, 2005 and 2004, respectively.
At June 30, 2006, there was $8,270 of total unrecognized compensation cost related to non−vested, share−based compensation
arrangements. This cost is expected to be recognized over a weighted average period of 3.4 years.
The fair value of each option award is estimated on the date of grant using the Black−Scholes option pricing model. Expected volatilities
are based on historical volatilities from guideline companies since the Company does not have sufficient history as a publicly traded company.
Implied volatilities were considered, but the guideline companies selected do not have an active market for their options. The Company also uses
the expected lives used by guideline companies to estimate the expected life of options granted. The expected life of options granted represents
the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate employee
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