Vistaprint 2011 Annual Report Download - page 44

Form 10-K
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. 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 providing digital services, website design and hosting,
email marketing services and order referral fees. We recognize revenue arising from sales of products
and services, net of discounts, 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. Shipping, handling and
processing charges billed to customers are included in revenue. For subscription services, we
recognize as revenue the fees we charge customers ratably over the term of the service arrangement.
A reserve for estimated sales returns and allowances is recorded as a reduction of revenue, based on
historical experience or specific identification of an event necessitating a reserve.
Share-Based Compensation. We measure share-based compensation costs at fair value,
including estimated forfeitures, and recognize the expense over the period that the recipient is
required to provide service in exchange for the award, which generally is the vesting period. We use
the Black-Scholes option pricing model to measure the fair value of share options. This model
requires significant estimates related to the award’s expected life and future stock price volatility of the
underlying equity security. In determining the amount of expense to be recorded, we also estimate
forfeiture rates for awards based on historical experience to reflect the probability that employees will
complete the required service period.
Income Taxes. As part of the process of preparing our consolidated financial statements, we
estimate our income taxes in each of the jurisdictions in which we operate. This process involves
estimating our current tax expense and assessing temporary and permanent differences resulting
from differing treatment of items for tax and financial reporting purposes. We recognize deferred tax
assets and liabilities for the temporary differences using the enacted tax rates and laws that will be in
effect when we expect temporary differences to reverse. We assess the ability to realize our deferred
tax assets based upon the weight of available evidence both positive and negative. To the extent we
believe that it is more likely than not that some portion or all of the deferred tax assets will not be
realized, we establish a valuation allowance. In the event that actual results differ from our estimates
or we adjust our estimates in the future, we may need to increase or decrease income tax expense,
which could have a material impact on our financial position and results of operations.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained upon examination by the taxing authorities, based on the technical
merits of the tax position. The tax benefits recognized in our financial statements from such positions
are measured on the largest benefit that has a greater than 50% likelihood of being realized upon
ultimate resolution. The unrecognized tax benefits will reduce our effective tax rate if recognized.
Interest and, if applicable, penalties related to unrecognized tax benefits are recorded in the provision
for income taxes.
Property, Plant and Equipment. We periodically evaluate the net realizable value of our
property, plant and equipment when events or changes in circumstances indicate that the carrying
value of an asset may not be recoverable. When indicators of potential impairment are present, the
carrying value of the asset is evaluated in relation to the operating performance and estimated future
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