Vistaprint 2010 Annual Report Download - page 50

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Soft Sight’s proprietary software enables a customer’s uploaded artwork to be automatically converted
into embroidery stitch patterns for subsequent manufacturing. We plan to launch the new embroidered
products to our customer base in fiscal 2011.
We assigned the value of the consideration transferred to acquire Soft Sight to the tangible
assets and identifiable intangible assets acquired and liabilities assumed, on the basis of their fair
values at the date of acquisition. The difference between the purchase price and the fair value of
assets acquired and liabilities assumed was allocated to goodwill. This goodwill, totaling $4.2 million,
relates to the potential synergies from the integration of the Soft Sight embroidery software
capabilities into the Vistaprint product offering. The allocations recorded on our consolidated balance
sheet as of June 30, 2010 included $2.6 million of intangible assets and a $1.1 million deferred tax
liability.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”). To apply these principles, we must make estimates and
judgments that affect our reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. In some instances, we reasonably could have used
different accounting estimates and, in other instances, changes in the accounting estimates are
reasonably likely to occur from period to period. Accordingly, actual results could differ significantly
from our estimates. To the extent that there are material differences between these estimates and
actual results, our financial condition or results of operations will be affected. We base our estimates
and judgments on historical experience and other assumptions that we believe to be reasonable at the
time under the circumstances, and we evaluate these estimates and judgments on an ongoing basis.
We refer to accounting estimates and judgments of this type as critical accounting policies and
estimates, which we discuss further below.
Revenue Recognition. We generate revenue primarily from the sale and shipping of
customized manufactured products, as well as from electronic services, website design and hosting,
email marketing services and order referral fees. We recognize revenue arising from sales of products
and services when it is realized or realizable and earned. We consider revenue realized or realizable
and earned when there is persuasive evidence of an arrangement, a product has been shipped or
service rendered with no significant post-delivery obligation on our part, the sales price is fixed or
determinable and collection is reasonably assured. For subscription services we recognize as revenue
the fees we charge customers ratably over the term of the service arrangement. Shipping, handling
and processing costs billed to customers are included in revenue and the related costs are included in
cost of revenue. Revenue is recognized net of discounts we offer to our customers as part of
advertising campaigns. A reserve for sales returns and allowances is recorded as a reduction of
revenue when we sell the initial product. We base our estimate for sales returns and allowances on
historical experience or specific identification of an event necessitating a reserve.
Software and Website Development Costs. We capitalize eligible salaries and payroll-related
costs of employees who devote time to the development of internal-use computer software.
Capitalization begins when the preliminary project stage is complete, management with the relevant
authority authorizes and commits to the funding of the software project, and it is probable that the
project will be completed and the software will be used to perform the function intended. These costs
are amortized on a straight-line basis over the estimated useful life of the software, which is generally
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.
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