Vistaprint 2007 Annual Report Download - page 74

VISTAPRINT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Years Ended June 30, 2007, 2006 and 2005
(in thousands, except share and per share data)
Income Taxes
VistaPrint Limited is a Bermuda based company. Bermuda currently does not impose any tax
computed on profits or income, which results in a zero tax liability for the Company on any 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 agreements, which
are also referred to as transfer pricing agreements, with each of its operating subsidiaries. These
agreements effectively result in VistaPrint Limited paying each of these subsidiaries for its costs plus a
fixed mark-up. The Jamaican subsidiary’s tax rate is zero because it is located in a tax free zone. Our
Dutch, Canadian, Spanish and United States subsidiaries are each located in jurisdictions that tax
profits and, accordingly, regardless of the Company’s consolidated results of operations, each of these
subsidiaries will pay taxes in its respective jurisdiction.
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 Dutch
subsidiary which has the euro as its functional currency. The Company’s Spanish subsidiary, which
operates a marketing office in Barcelona, Spain, also has the euro as its functional currency. The
Company’s Dutch and Spanish subsidiaries translate their 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. 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, 2007, 2006 and 2005 were $45, $494 and $371, respectively.
Net Income (Loss) Per Share
The Company calculates net income (loss) per share in accordance with Statement of Financial
Accounting Standards (“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
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