Vistaprint 2007 Annual Report Download - page 50

Interest expense. Interest expense consists of interest paid to financial institutions on
outstanding balances on our credit facilities.
Income taxes. VistaPrint Limited is a Bermuda based company. Bermuda does not currently
impose any tax computed on profits or income, which results in a zero tax liability for our profits
recorded in Bermuda. VistaPrint Limited has operating subsidiaries in the Netherlands, Canada,
Jamaica, Spain 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. Our Dutch, Canadian, Spanish 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, box inserts and orders placed on 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.
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