Vistaprint 2007 Annual Report Download - page 51

Inventories. Our inventories consist primarily of raw materials, and are stated at the lower of
first-in, first-out cost or market value. Raw materials consist primarily of various types of paper stock,
printing plates, T-shirts, rubber stamp casings and packing boxes. Management believes that these
materials are commodity products that are not susceptible to obsolescence. In addition, we manage our
supply chain to maintain a just-in-time inventory process to minimize the levels of inventory on hand.
Software and Website Development Costs. We capitalize eligible costs associated with software
developed or obtained for internal use in accordance with American Institute of Certified Public
Accountants Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or
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, Spain, 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.
Deferred income taxes are determined using the liability method. Deferred tax assets and
liabilities are based on the differences between the financial statement carrying values and the tax
bases and are measured by applying enacted tax rates and laws to taxable years in which such
differences are expected to reverse. 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 of Financial Accounting Standards, or
SFAS, 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 SFAS 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
Form 10-K
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