Vistaprint 2007 Annual Report Download - page 80

VISTAPRINT LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Years Ended June 30, 2007, 2006 and 2005
(in thousands, except share and per share data)
President and CEO of the Company is the Chairman of the Board of Mod-Pac. In the years ended
June 30, 2007, 2006 and 2005, the Company purchased goods and services from Mod-Pac of $0,
$3,257 and $19,484, respectively. As of June 30, 2007 and 2006, the Company owed Mod-Pac $0.
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.
On August 30, 2004, the Company paid to Mod-Pac a termination fee of $22,000 in consideration
of the termination of the existing Supply Agreements and Mod-Pac entering into the New Supply
Agreement. As a result of this payment and agreements, the Company recorded a loss of $21,000.
The Company deferred $1,000 of the total termination fee of $22,000, representing the effective
reduction of the mark-up on costs of purchased products estimated to be purchased over the contract
period of the New Supply Agreement. This deferral was recorded as a deferred cost within prepaid and
other current assets on the Company’s consolidated balance sheet and was amortized over the twelve
month term of the New Supply Agreement.
On April 15, 2005, the Company signed an amendment to the New Supply Agreement with
Mod-Pac which permitted the Company to manufacture printed products destined for North American
customers at its production facility near Windsor, Ontario, Canada. In exchange, the Company paid to
Mod-Pac a fee for each unit shipped based on the type of item produced through August 30, 2005.
Since August 30, 2005, the Company has not placed any orders with Mod-Pac.
76