Vistaprint 2009 Annual Report Download - page 58

to produce and ship our products. Management believes that these materials are commodity products
that are not susceptible to obsolescence. In addition, where possible and economically advantageous,
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 Issue no. 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. On August 31, 2009 Vistaprint N.V., a Dutch
limited liability company, became the parent company of the Vistaprint group of companies. The Dutch
Revenue Authority granted us an Advanced Tax Ruling, which included an exemption for Dutch
corporate taxes on certain income and confirmed the amount of business income of the Vistaprint N.V.
group that should be subject to tax in the Netherlands. 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 Canada, France, the Netherlands,
Jamaica, Spain, Tunisia and the United States. 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 a 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. Any changes in the valuation allowance could affect our tax expense,
financial position and results of operations.
We recognize, present and disclose in our financial statements uncertain tax positions we have
taken, or we expect to take on a tax return, in accordance with the provisions of Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN
48”). The unrecognized tax benefits will reduce our effective tax rate when recognized. Interest and
penalties related to unrecognized tax benefits are recorded in the provision for income taxes.
Share-Based Compensation. Accounting for share options and restricted share units (“RSUs”)
follows the provisions of FASB Statement of Financial Accounting Standards (“SFAS”) No. 123R,
Share Based Payment, (SFAS 123R). Those provisions require an entity to measure cost of an award
of equity instruments based on the grant-date fair value of the award. In general, that cost will be
recognized over the period which the recipient is required to provide service in exchange for the award.
We use the Black-Scholes option pricing model to measure the fair value of stock options. This model
requires significant estimates related to the award’s expected life and future stock price volatility of the
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