Vistaprint 2007 Annual Report Download - page 77

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VISTAPRINT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Years Ended June 30, 2007, 2006 and 2005
(in thousands, except share and per share data)
Share-Based Compensation
At June 30, 2007, 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 date of grant. Prior to July 1, 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.
The Company recorded share-based compensation costs of $8,765 and $4,850 for the years
ended June 30, 2007 and 2006, respectively. No share-based compensation cost was recorded in the
year ended June 30, 2005. No income tax benefit was recognized in the accompanying consolidated
statements of operations for share-based compensation arrangements for the years ended June 30,
2007, 2006 and 2005. Share-based compensation costs capitalized as part of software and website
development costs were $434, $176 and $0 for the years ended June 30, 2007, 2006 and 2005,
respectively.
At June 30, 2007, there was $36,293 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 3.3 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
terminations and resulting forfeiture rates within the option pricing model. The risk-free interest rate for
periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the
73
Form 10-K