Vistaprint 2010 Annual Report Download - page 78

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capitalized as part of software and website development costs were $530, $994 and $697 for the
years ended June 30, 2010, 2009 and 2008, respectively.
At June 30, 2010, there was $36,400 of total unrecognized compensation cost related to non-
vested, share-based compensation arrangements, net of estimated forfeitures. This cost is expected
to be recognized over a weighted average period of 2.3 years.
The fair value of each option award is estimated on the date of grant using the Black-Scholes
option pricing model. For option awards in fiscal year 2010 and 2009, expected volatility is based
upon historical volatility of the Company. For years prior to fiscal 2009, expected volatilities were
based upon historical volatilities of guideline companies since the Company did not have sufficient
history as a publicly traded company. The expected life of options granted represents the period of
time that options granted are expected to be outstanding. For option awards in fiscal year 2010 and
2009, the Company used its historical experience to estimate the expected life of options granted. For
years prior to fiscal 2009, expected lives used by guideline companies were used to estimate the
expected life of options granted. 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 time
of the grant. The fair value of restricted share grants is based upon the closing trading value of the
Company’s shares on the date of grant and recognized using the straight-line recognition method.
Weighted-average assumptions used for option grants in 2010, 2009 and 2008 are as follows:
2010 2009 2008
Year Ended June 30,
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . 2.03% 1.48% 3.75%
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . 0% 0% 0%
Expected life (years). . . . . . . . . . . . . . . . . . . . . . . . . 4.92 3.94 4.25
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . 57% 58% 52%
Weighted average fair value of options granted. . . . . $ 24.34 $ 14.06 $ 15.82
Weighted average fair value of restricted share units
granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 51.06 $ 28.37 $ 33.22
As part of the financial reporting process for the second quarter of fiscal 2010, the Company
became aware that the widely used third-party software application it used to calculate share-based
compensation costs contained computational errors that affected the timing of expense recognition.
These errors were corrected in the most current software version that the Company had not
implemented during the affected periods. Specifically, the software incorrectly applied a weighted
average forfeiture rate to the vested portion of stock option and restricted share awards until the
grant’s final vest date, rather than reflecting actual forfeitures as awards vest, resulting in a cumulative
understatement of share-based compensation expense and additional paid in capital in prior years of
$1,277. The Company assessed the materiality of this error on its financial statements and concluded
that the effect of this cumulative error was not material to its interim or annual financial statements for
any period. Accordingly, the Company recorded a non-cash charge to share-based compensation and
additional paid in capital of $1,277 to correct this error in its second fiscal quarter. The Company has
since implemented the most current software version and the computational errors have therefore
been rectified.
Sabbatical Leave
Compensation expense associated with a sabbatical leave, or other similar benefit
arrangements, is accrued over the requisite service period during which an employee earns the
benefit and is included in other liabilities on the Company’s consolidated balance sheets.
74