Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Vistaprint N.V., its wholly owned subsidiaries, and those entities in which we have a variable interest and are the primary beneficiary. Intercompany balances and transactions have been eliminated. Investments in entities in which we can exercise significant influence, but do not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investments in equity interests on the condensed consolidated balance sheets.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and, accordingly, do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting primarily of normal recurring accruals, considered necessary for a fair presentation of the results of operations for the interim periods reported and of our financial condition as of the date of the interim balance sheet have been included. Operating results for the three months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending June 30, 2013 or for any other period. The condensed consolidated balance sheet at June 30, 2012 has been derived from our audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2012 included in the our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”). Certain reclassifications have been made in the prior period condensed consolidated financial statements to conform to the current presentation.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be the equivalent of cash for the purpose of balance sheet and statement of cash flows presentation. We did not hold any marketable securities at September 30, 2012 or June 30, 2012. The carrying value of our cash and cash equivalents at September 30, 2012 and June 30, 2012 is equal to fair value.

Software and Web Site Development Costs

We capitalize eligible salaries and payroll-related costs of employees who devote time to the development of websites and 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. As of July 1, 2012, we revised the estimated useful life of these assets from 2 to 3 years based on an evaluation of historical trends, the period of benefit of past projects, and our current project portfolio. This change in estimate reduced our net loss for the three months ended September 30, 2012 by approximately $690 when compared to the historical estimated useful life and could have a material impact in the future.

Net (Loss) Income Per Share

Basic net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net (loss) income per share gives effect to all potentially dilutive securities, including share options, restricted share units (“RSUs”) and restricted share awards ("RSAs"), if the effect of the securities is dilutive using the treasury stock method. Awards with performance or market conditions are included using the treasury stock method only if the conditions would have been met as of the end of the reporting period and their effect is dilutive.

The following table sets forth the reconciliation of the weighted-average number of ordinary shares:



	Three Months Ended September 30,
	2012	2011
Weighted average shares outstanding, basic	33,674,293	41,256,341
Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/RSAs (1)	—	1,053,165
Shares used in computing diluted net (loss) income per share	33,674,293	42,309,506
Weighted average anti-dilutive shares excluded from diluted net (loss) income per share (1)	3,047,051	1,646,549

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(1) Due to the net loss for the three months ended September 30, 2012, the effect of share options, RSUs, and RSAs is anti-dilutive.

Share-Based Compensation

During the three months ended September 30, 2012 and 2011, we recorded share-based compensation expense of $8,267 and $4,723, respectively. Share-based compensation costs capitalized as part of software and website development costs were $19 and $57 for the three months ended September 30, 2012 and 2011, respectively.

As of September 30, 2012, there was $73,189 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 3.4 years.

Investments in Equity Interests

Investments in the equity of entities in which we can exercise significant influence but do not own a majority equity interest or otherwise control are accounted for using the equity method and are included as investments in equity interests on the consolidated balance sheets. We record our share of the results of these entities within earnings in equity interests on the consolidated statements of operations. We review our investments for other-than-temporary impairment whenever events or changes in business circumstances indicate that the carrying value of the investment may not be fully recoverable. Investments identified as having an indication of impairment are subject to further analysis to determine if the impairment is other-than-temporary and this analysis requires estimating the fair value of the investment, which involves considering factors such as comparable valuations of public companies similar to the entity in which we have an equity investment, current economic and market conditions, the operating performance of the entities including current earnings trends and forecasted cash flows, and other entity and industry specific information.

Derivative Financial Instruments

In July 2012, we entered into interest rate swap contracts to manage differences in the amount, timing, and duration of our known or expected cash payments related to our long term debt. Our objective in using interest rate derivatives is to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we executed interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the derivative agreements without exchange of the underlying notional amount. We execute these instruments with financial institutions that we judge to be credit-worthy. We do not hold or issue derivative financial instruments for trading or speculative purposes and do not have any derivatives that are not designated as hedges for accounting purposes.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the three months ended September 30, 2012, such derivatives were used to hedge the variable cash flows associated with our long-term debt. If a derivative is deemed to be ineffective, the ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. During the three months ended September 30, 2012, we did not hold any derivative instruments that were determined to be designated as ineffective. As of September 30, 2012, the aggregate notional amount of our outstanding interest rate swap contracts was $100,000.

The fair value amount of derivatives included in accrued expenses in our condensed consolidated balance sheets related to interest rate swap contracts was as follows:



	Liability Derivatives
	September 30, 2012		June 30, 2012
Derivatives designated as hedging instruments	$	288	$	—
Total	$	288	$	—

The following table presents a roll forward of amounts recognized in accumulated other comprehensive loss related to our interest rate swap contracts designated as cash flow hedges during the three months ended September 30, 2012:



	Net unrealized loss on interest rate swap contracts
Balance at June 30, 2012	$	—
Amount of net unrealized loss recognized in accumulated other comprehensive loss	(321		)
Amount of net unrealized loss reclassified into earnings	33
Balance as of September 30, 2012	$	(288	)

Amounts reported in accumulated other comprehensive loss related to derivatives are reclassified to interest expense as interest payments are accrued or made on our variable-rate debt.

In accordance with the fair value measurement guidance, our accounting policy is to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Recently Issued or Adopted Accounting Pronouncements

None.