Vistaprint 2010 Annual Report Download - page 75

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Form 10-K
Fair Value of Financial Instruments
Carrying amounts of financial instruments held by the Company, which include cash
equivalents, marketable securities, derivative instruments, accounts receivable, accounts payable,
debt and accrued expenses approximate fair value due to the short period of time to maturity of those
instruments.
The Company uses a three-level valuation hierarchy for measuring fair value and expands
financial statement disclosures about fair value measurements. The valuation hierarchy is based upon
the transparency of inputs to the valuation of an asset or liability as of the measurement date. The
three levels are defined as follows:
•Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical
assets or liabilities in active markets.
•Level 2: Inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
•Level 3: Inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.
Revenue Recognition
The Company generates revenue primarily from the sale and shipping of customized
manufactured products, as well as providing electronic services, website design and hosting, email
marketing services and order referral fees. The Company recognizes revenue arising from sales of
products and services when it is realized or realizable and earned. The Company considers revenue
realized or realizable and earned when it has persuasive evidence of an arrangement, the product
has been shipped or service rendered with no significant post-delivery obligations on the Company’s
part, the net sales price is fixed or determinable and collectability is reasonably assured. For
subscription services the Company recognizes revenue for the fees charged to customers ratably over
the term of the service arrangement. Revenue is recognized net of discounts the Company offers to
its customers as part of advertising campaigns. A reserve for sales returns and allowances is
recorded based on historical experience or specific identification of an event necessitating a reserve.
Shipping, handling and processing costs billed to customers are included in revenue and the
related costs are included in cost of revenue. Sales and purchases in jurisdictions which are subject
to indirect taxes, such as value added tax (“VAT”), are recorded net of tax collected and paid as the
Company acts as an agent for the government.
Advertising Expense
The Company expenses advertising costs as incurred. Advertising expense for the years
ended June 30, 2010, 2009 and 2008 was $135,675, $95,378 and $73,699, respectively, and is
included in marketing and selling expense.
Research and Development Expense
Research and development costs are expensed as incurred. Research and development
expense for the years ended June 30, 2010, 2009 and 2008 was $8,501, $7,069 and $6,144,
respectively and is included in technology and development expense.
71