Vistaprint 2006 Annual Report Download - page 73

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)
New Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which changes the requirements for the
accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as well as to
changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 requires that changes in
accounting principle be retrospectively applied. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. The Company does not believe adoption of this statement will have a material impact on the Company’s
consolidated financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” which clarifies when
tax benefits should be recorded in financial statements, requires certain disclosures of uncertain tax matters and provides guidance on how any
tax reserves should be classified in a balance sheet. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company does
not believe the adoption of this interpretation will have a material impact on the Company’s consolidated financial statements.
3. Related−Party Transactions
Since September 2005, the Company has produced 100% of its customer print orders at its internal manufacturing facilities.
Prior to May 2005, the Company purchased all of its printed materials for the fulfillment of North American customers’ orders from
Mod−Pac Corporation (“Mod−Pac”). The brother of the President and CEO of the Company is the President and CEO of Mod−Pac, and the father
of the President and CEO of the Company is the Chairman of the Board of Mod−Pac. In the years ended June 30, 2006, 2005 and 2004, the
Company purchased goods and services from Mod−Pac of $3,257, $19,484 and $15,441, respectively. As of June 30, 2006 and 2005, the
Company owed Mod−Pac $0 and $2,295, respectively.
In September 2002, the Company entered into two supply agreements (collectively, the “Supply Agreements”) with Mod−Pac. One
agreement covered North America (the “North American Supply Agreement”) and the other agreement covered the rest of the world. Under the
Supply Agreements, Mod−Pac was the sole supplier of printed products for customer orders for delivery in North America. The Supply
Agreements had an expiration date of April 2, 2011. Under the North American Supply Agreement, the Company was charged all direct and
indirect costs incurred by Mod−Pac related to the printing of product for customers in North America, plus a 33% mark−up.
On July 2, 2004, the Company signed a termination agreement with Mod−Pac, which effectively terminated in their entirety all then existing
Supply Agreements as of August 30, 2004 and the Company entered into a new supply agreement (the “New Supply Agreement”) with Mod−Pac,
which became effective on August 30, 2004. Under the New Supply Agreement, Mod−Pac retained the exclusive supply rights for products
shipped into North America through August 30, 2005. The cost of services under the New Supply Agreement was based on a fixed price per
product. This fixed pricing methodology effectively reduced the price the Company paid per product to costs of production plus 25%. The New
Supply Agreement expired on August 30, 2005.
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