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EX-32.1 - EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT - CIMPRESS N.V.cmprex3213311610-q.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO - CIMPRESS N.V.cmprex3123311610-q.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO - CIMPRESS N.V.cmprex3113311610-q.htm



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Form 10-Q
(Mark One)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from               to               
Commission file number 000-51539
___________________
Cimpress N.V.
(Exact Name of Registrant as Specified in Its Charter)
____________________
The Netherlands
 
98-0417483
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
Identification No.) 
Hudsonweg 8
5928 LW Venlo
The Netherlands
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: 31-77-850-7700
____________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2). See definitions of "large accelerated filer," "accelerated filer," "non-accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (check one):
Large accelerated filer  þ
 
Accelerated filer  o
 
Non-accelerated filer  o
 
 
Smaller reporting company  o
 
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  
Yes o     No þ
As of April 22, 2016, there were 31,468,685 of Cimpress N.V. ordinary shares, par value 0.01 per share, outstanding.
 




CIMPRESS N.V.
QUARTERLY REPORT ON FORM 10-Q
For the Three and Nine Months Ended March 31, 2016

TABLE OF CONTENTS
 
 
Page
 
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets as of March 31, 2016 and June 30, 2015
Consolidated Statements of Operations for the three and nine months ended March 31, 2016 and 2015
Consolidated Statements of Comprehensive Income for the three and nine months ended March 31, 2016 and 2015
Consolidated Statements of Cash Flows for the nine months ended March 31, 2016 and 2015
Notes to Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II OTHER INFORMATION
 
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Signatures





PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

CIMPRESS N.V.
CONSOLIDATED BALANCE SHEETS
(unaudited in thousands, except share and per share data)

March 31,
2016

June 30,
2015
Assets
 


 

Current assets:
 


 

Cash and cash equivalents
$
76,726


$
103,584

Marketable securities
6,194

 
6,910

Accounts receivable, net of allowances of $425 and $372, respectively
36,992


32,145

Inventory
19,640


18,356

Prepaid expenses and other current assets
64,656


55,103

Total current assets
204,208


216,098

Property, plant and equipment, net
497,182


467,511

Software and web site development costs, net
31,850


22,109

Deferred tax assets
21,560


17,172

Goodwill
474,736


400,629

Intangible assets, net
232,100


151,063

Other assets
24,905


25,213

Total assets
$
1,486,541


$
1,299,795

Liabilities, noncontrolling interests and shareholders’ equity
 


 

Current liabilities:
 


 

Accounts payable
$
72,068


$
65,875

Accrued expenses
191,757


172,826

Deferred revenue
29,383


23,407

Deferred tax liabilities


1,043

Short-term debt
19,842


21,057

Other current liabilities
24,900


21,470

Total current liabilities
337,950


305,678

Deferred tax liabilities
72,792


48,007

Lease financing obligation
111,109


93,841

Long-term debt
676,805


493,039

Other liabilities
71,231


52,073

Total liabilities
1,269,887


992,638

Commitments and contingencies (Note 15)





Redeemable noncontrolling interests
64,871


57,738

Shareholders’ equity:
 


 

Preferred shares, par value €0.01 per share, 100,000,000 shares authorized; none issued and outstanding



Ordinary shares, par value €0.01 per share, 100,000,000 shares authorized; 44,080,627 shares issued; and 31,465,174 and 33,203,065 shares outstanding, respectively
615


615

Treasury shares, at cost, 12,615,453 and 10,877,562 shares, respectively
(550,766
)

(412,132
)
Additional paid-in capital
335,272


324,281

Retained earnings
465,168


435,052

Accumulated other comprehensive loss
(98,864
)

(98,909
)
Total shareholders’ equity attributable to Cimpress N.V.
151,425


248,907

Noncontrolling interest
358

 
512

Total shareholders' equity
151,783

 
249,419

Total liabilities, noncontrolling interests and shareholders’ equity
$
1,486,541


$
1,299,795

See accompanying notes.

1



CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except share and per share data)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Revenue
$
436,817

 
$
339,901

 
$
1,308,839

 
$
1,113,738

Cost of revenue (1)
197,365

 
125,540

 
552,219

 
412,381

Technology and development expense (1)
57,392

 
48,311

 
160,358

 
138,841

Marketing and selling expense (1)
132,352

 
120,795

 
397,158

 
371,680

General and administrative expense (1)
36,398

 
40,914

 
106,100

 
109,748

Impairment of goodwill
30,841

 

 
30,841

 

(Loss) income from operations
(17,531
)
 
4,341

 
62,163

 
81,088

Other (expense) income, net
(9,003
)
 
8,291

 
7,929

 
30,282

Interest expense, net
(10,091
)
 
(3,131
)
 
(28,377
)
 
(9,508
)
(Loss) income before income taxes
(36,625
)
 
9,501

 
41,715

 
101,862

Income tax (benefit) provision
(162
)
 
1,576

 
10,857

 
7,658

Net (loss) income
(36,463
)
 
7,925

 
30,858

 
94,204

Add: Net loss attributable to noncontrolling interests
3,100

 
686

 
4,177

 
1,710

Net (loss) income attributable to Cimpress N.V.
$
(33,363
)
 
$
8,611

 
$
35,035

 
$
95,914

Basic net (loss) income per share attributable to Cimpress N.V.
$
(1.06
)
 
$
0.26

 
$
1.10

 
$
2.95

Diluted net (loss) income per share attributable to Cimpress N.V.
$
(1.06
)
 
$
0.25

 
$
1.07

 
$
2.85

Weighted average shares outstanding — basic
31,343,711

 
32,694,354

 
31,734,226

 
32,537,940

Weighted average shares outstanding — diluted
31,343,711

 
34,180,563

 
32,792,355

 
33,637,567

____________________________________________
(1) Share-based compensation is allocated as follows:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Cost of revenue
$
3

 
$
17

 
$
57

 
$
62

Technology and development expense
1,606

 
1,032

 
4,358

 
2,961

Marketing and selling expense
387

 
465

 
1,223

 
1,437

General and administrative expense
3,957

 
5,124

 
12,571

 
14,304


See accompanying notes.



2



CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited in thousands)

 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Net (loss) income
$
(36,463
)
 
$
7,925

 
$
30,858

 
$
94,204

Other comprehensive (loss) income, net of tax:

 

 

 

Foreign currency translation gain (loss), net of hedges
27,563

 
(40,592
)
 
3,426

 
(115,143
)
Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges
(4,820
)
 
(1,036
)
 
(5,282
)
 
(1,057
)
Amounts reclassified from accumulated other comprehensive income to net income on derivative instruments
3,160

 
201


3,600

 
630

Unrealized gain (loss) on available-for-sale-securities
27

 
(546
)
 
(1,063
)
 
(5,266
)
Gain (loss) on pension benefit obligation, net
811

 
39


900

 
(26
)
Comprehensive (loss) income
(9,722
)
 
(34,009
)
 
32,439

 
(26,658
)
Add: Comprehensive loss attributable to noncontrolling interests
653

 
1,561

 
2,641

 
3,984

Total comprehensive (loss) income attributable to Cimpress N.V.
$
(9,069
)
 
$
(32,448
)
 
$
35,080

 
$
(22,674
)

See accompanying notes.








3



CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited in thousands)

Nine Months Ended March 31,
 
2016

2015
Operating activities
 


 

Net income
$
30,858


$
94,204

Adjustments to reconcile net income to net cash provided by operating activities:
 


 

Depreciation and amortization
96,517


69,756

Impairment of goodwill
30,841

 

Share-based compensation expense
18,153


18,764

Excess tax benefits derived from share-based compensation awards
(11,683
)

(2,686
)
Deferred taxes
(12,176
)

(8,666
)
Abandonment of long-lived assets
9,763

 

Unrealized loss (gain) on derivatives not designated as hedging instruments included in net income
979


(7,435
)
Change in fair value of contingent consideration

 
14,890

Payment of contingent consideration in excess of acquisition date fair value

 
(1,249
)
Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency
(3,172
)

(15,932
)
Other non-cash items
2,795


3,126

Gain on proceeds from insurance
(3,136
)
 

Changes in operating assets and liabilities excluding the effect of business acquisitions:
 


 

Accounts receivable
2,370


(855
)
Inventory
(1,316
)

(2,201
)
Prepaid expenses and other assets
(4,269
)

18,064

Accounts payable
12,496


(5,049
)
Accrued expenses and other liabilities
14,515


17,683

Net cash provided by operating activities
183,535


192,414

Investing activities
 


 

Purchases of property, plant and equipment
(62,641
)
 
(50,105
)
Business acquisitions, net of cash acquired
(162,440
)
 
(22,997
)
Purchases of intangible assets
(453
)
 
(201
)
Capitalization of software and website development costs
(18,184
)
 
(12,517
)
Proceeds from insurance related to investing activities
3,624



Other investing activities
775

 

Net cash used in investing activities
(239,319
)

(85,820
)
Financing activities
 


 

Proceeds from borrowings of debt
516,008

 
218,500

Proceeds from issuance of senior notes

 
275,000

Payments of debt and debt issuance costs
(332,191
)
 
(518,624
)
Payment of purchase consideration included in acquisition-date fair value
(4,350
)
 
(7,021
)
Payments of withholding taxes in connection with equity awards
(5,768
)
 
(4,297
)
Payments of capital lease obligations
(10,137
)
 
(4,315
)
Excess tax benefits derived from share-based compensation awards
11,683

 
2,686

Purchase of ordinary shares
(153,467
)
 

Proceeds from issuance of ordinary shares
3,379

 
10,967

Capital contribution from noncontrolling interest
5,141

 
4,160

Other financing activities
(303
)

(118
)
Net cash provided by (used in) financing activities
29,995


(23,062
)
Effect of exchange rate changes on cash and cash equivalents
(1,069
)

(11,828
)
Net (decrease) increase in cash and cash equivalents
(26,858
)

71,704

Cash and cash equivalents at beginning of period
103,584


62,508

Cash and cash equivalents at end of period
$
76,726


$
134,212

See accompanying notes.

4




CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited in thousands)

 
Nine Months Ended March 31,
 
2016
 
2015
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
22,882


$
7,366

Income taxes
11,089


10,629

 
 
 
 
Supplemental schedule of non-cash investing and financing activities:
 
 
 
Capitalization of construction costs related to financing lease obligation
$
19,264

 
$
59,790

Property and equipment acquired under capital leases
7,244

 
9,762

Amounts due for acquisitions of businesses
18,361

 
13,614

See accompanying notes.


5



CIMPRESS N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited in thousands, except share and per share data)

1. Description of the Business
We are a technology and manufacturing-driven company that aggregates, via the Internet, large volumes of small, individually customized orders for a broad spectrum of print, signage, apparel and similar products. We produce those orders in highly automated, capital and technology intensive production facilities in a manner that we believe makes our production techniques significantly more competitive than those of traditional suppliers. We bring our products to market through a portfolio of focused brands serving the needs of small and medium businesses and consumers. These brands include Vistaprint, our global brand for micro business marketing products and services, as well as brands we have acquired that serve the needs of various market segments including resellers, small and medium businesses with differentiated service needs, and consumers purchasing products for themselves and their families.
2. Summary of Significant Accounting Policies
Basis of Presentation

The accompanying unaudited 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 fair statement 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.
The consolidated financial statements include the accounts of Cimpress N.V., its wholly owned subsidiaries, entities in which we maintain a controlling financial interest, 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 consolidated balance sheets.

Operating results for the three and nine months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the year ending June 30, 2016 or for any other period. The consolidated balance sheet at June 30, 2015 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 consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended June 30, 2015 included in our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”).
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our most significant estimates are associated with the ongoing evaluation of the recoverability of our long-lived assets and goodwill, estimated useful lives of assets, share-based compensation, accounting for business combinations, and income taxes and related valuation allowances, among others. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results could differ from those estimates.
Insurance Recoveries
During the nine months ended March 31, 2016, we received $9,711 in cash for payments toward an insurance settlement related to a fire that occurred at our Venlo, Netherlands production facility during the first quarter of fiscal 2016. The insurance proceeds were used to offset incurred losses, including the write-off of the net book value of damaged machinery, equipment and inventory and property-related cleanup costs, as well as business interruption losses for increased shipping and outsourcing costs. Insurance proceeds related to incurred

6



losses are recognized when recovery is probable, while business interruption recoveries follow the gain contingency model and are recognized when realized or realizable and earned.
During the nine months ended March 31, 2016, we recognized $6,575 as a reduction to cost of revenue, including $1,359 related to business interruption recoveries. We recognized a net gain of $3,136 on the recovery of the replacement value of damaged machinery and equipment in excess of carrying value, as a component of other (expense) income, net in our consolidated statement of operations. We did not recognize any related gain or loss during the three months ended March 31, 2016, but we expect to finalize the settlement of our insurance claim by the end of the current fiscal year.
Long-Lived Assets
Long-lived assets with a finite life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or any other significant adverse change that would indicate that the carrying amount of an asset or group of assets may not be recoverable. During the three and nine months ended March 31, 2016 we committed to plans to abandon certain manufacturing equipment and recognized a loss of $6,741 and $9,763, respectively in cost of revenue during the periods.
Share-Based Compensation
During the three and nine months ended March 31, 2016, we recorded share-based compensation expense of $5,953 and $18,209, respectively, and $6,638 and $18,764 during the three and nine months ended March 31, 2015, respectively. As of March 31, 2016, there was $38,303 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.
Foreign Currency Translation
Our non-U.S. dollar functional currency subsidiaries translate their assets and liabilities denominated in their functional currency to U.S. dollars at current rates of exchange in effect at the balance sheet date, and revenues and expenses are translated at average rates prevailing throughout the period. The resulting gains and losses from translation are included as a component of accumulated other comprehensive loss. Transaction gains and losses and remeasurement of assets and liabilities denominated in currencies other than an entity’s functional currency are included in other (expense) income, net in our consolidated statements of operations.
Other (expense) income, net
The following table summarizes the components of other (expense) income, net:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
(Losses) gains on derivatives not designated as hedging instruments (1)
$
(1,505
)

$
5,756


$
4,048


$
13,398

Currency related (losses) gains, net (2)
(7,656
)

2,535


(149
)

16,884

Other gains (3)
158




4,030



Total other (expense) income, net
$
(9,003
)
 
$
8,291

 
$
7,929

 
$
30,282

_____________________
(1) Includes both realized and unrealized (losses) gains on derivative forward currency contracts not designated as hedging instruments.
(2) We have significant non-functional currency intercompany financing relationships subject to currency exchange rate volatility and the net currency related (losses) gains for the three and nine months ended March 31, 2016 and 2015 are primarily driven by this intercompany activity. Includes unrealized losses of $4,034 for the three and nine months ended March 31, 2016 related to certain cross-currency swaps designated as cash flow hedges which offset unrealized gains on the remeasurement of certain intercompany loans.
(3) Primarily relates to a gain of $3,136 for the nine months ended March 31, 2016, related to insurance proceeds received for an insurance claim resulting from a fire at our Venlo, Netherlands production facility.

7



Net (Loss) Income Per Share Attributable to Cimpress N.V.
Basic net (loss) income per share attributable to Cimpress N.V. is computed by dividing net (loss) income attributable to Cimpress N.V. by the weighted-average number of ordinary shares outstanding for the respective period. Diluted net (loss) income per share attributable to Cimpress N.V. 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 March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Weighted average shares outstanding, basic
31,343,711

 
32,694,354

 
31,734,226

 
32,537,940

Weighted average shares issuable upon exercise/vesting of outstanding share options/RSUs/RSAs (1)

 
1,486,209

 
1,058,129

 
1,099,627

Shares used in computing diluted net (loss) income per share attributable to Cimpress N.V.
31,343,711

 
34,180,563

 
32,792,355

 
33,637,567

Weighted average anti-dilutive shares excluded from diluted net (loss) income per share attributable to Cimpress N.V.
1,095,873

 
39,265

 
41,854

 
380,136

_____________________
(1) Due to the net loss for the three months ended March 31, 2016, the effect of share options, RSUs, and RSAs is anti-dilutive.

Treasury Shares
Treasury shares are accounted for using the cost method and are included as a component of shareholders' equity. During the three and nine months ended March 31, 2016, we purchased 156,778 and 2,159,613 of our ordinary shares, respectively, for a total cost of $11,263 and $153,467, respectively, inclusive of transaction costs, in connection with our publicly announced share purchase programs. During the third quarter of fiscal 2016, we issued 112,364 of our ordinary shares from our treasury account as part of the acquisition of WIRmachenDRUCK. Refer to Note 7 for additional details of the acquisition.
Recently Issued or Adopted Accounting Pronouncements
New Accounting Standards Adopted
In November 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-17,"Balance Sheet Classification of Deferred Taxes," (ASU 2015-17), which requires an entity to present deferred tax assets and liabilities, along with any related valuation allowance, as noncurrent on the balance sheet. The new standard is effective for us on July 1, 2017, with early adoption permitted. We elected to early adopt this guidance for the second quarter of fiscal year 2016 on a prospective basis and therefore have not retrospectively adjusted any prior reporting periods. The adoption of this standard did not have a material effect on our consolidated financial statements.
In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03,"Interest- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," (ASU 2015-03), which requires an entity to present debt issuance costs related to recognized debt liability in the balance sheet as a direct deduction from the carrying amount of that debt liability. The new standard is effective for us on July 1, 2016 and early adoption is permitted. We elected to early adopt this new guidance effective for the first quarter of fiscal year 2016 and we have applied the changes retrospectively to all periods presented. The adoption of this standard did not have a material effect on our consolidated financial statements.
New Accounting Standards to be Adopted
In March 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-09,"Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting," (ASU 2016-09), which requires all excess tax benefits and deficiencies on share-based payment awards to be recognized as income tax expense or benefit in the income statement. In addition, the tax effects of

8



exercised or vested awards should be treated as discrete items in the reporting period in which they occur and excess tax benefits should be classified with other income tax cash flows as an operating activity. The new standard is effective for us on July 1, 2017. The standard permits early adoption in any annual or interim period and will be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. We are currently evaluating our adoption timing and the effect that ASU 2016-09 will have on our consolidated financial statements.
In March 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-04,"Liabilities - Extinguishment of Liabilities (Subtopic 405-20): Recognition of Breakage for Certain Prepaid Stored-Value Products," (ASU 2016-04), which requires an entity to recognize breakage for a liability resulting from the sale of a prepaid stored-value product in proportion to the pattern of rights expected to be exercised by the product holder only to the extent that it is probable that a significant reversal of the recognized breakage amount will not subsequently occur. The new standard is effective for us on July 1, 2018. The standard permits early adoption and should be applied either retrospectively to each period presented or by means of a cumulative adjustment to retained earnings as of the beginning of the fiscal year adopted. We do not expect the effect of ASU 2016-04 to have a material impact on our consolidated financial statements.
In March 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02,"Leases (Topic 842)," (ASU 2016-02), which requires the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating lease. The standard also retains a distinction between finance leases and operating leases. The new standard is effective for us on July 1, 2019. The standard permits early adoption. We are currently evaluating the effect that ASU 2016-02 will have on our consolidated financial statements.
In January 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-01,"Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," (ASU 2016-01) which requires an entity to recognize the fair value change of equity securities with readily determinable fair values in net income which was previously recognized within other comprehensive income. The new standard is effective for us on July 1, 2018. The standard does not permit early adoption and should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The impact of ASU 2016-01 will result in the recognition of fair value changes for our available-for-sale securities within earnings. While we do not believe the impact will be material based on our current investments, it could create volatility in our consolidated statement of operations.
In September 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-16,"Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments," (ASU 2015-16) which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The new standard is effective for us on July 1, 2016 and we do not expect the adoption of this standard to have a material effect on our consolidated financial statements.
In July 2015, Financial Accounting Standards Board issued Accounting Standards Update No. 2015-11,"Simplifying the Measurement of Inventory," which requires an entity to measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completions, disposal, and transportation. The new standard is effective for us on July 1, 2016 and will be applied prospectively as of the interim or annual period of adoption. We do not expect the effect of ASU 2015-11 to have a material impact on our consolidated financial statements.

In February 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-02,"Consolidation (Topic 810): Amendments to the Consolidation Analysis," (ASU 2015-02) which places more emphasis in the consolidation evaluation on variable interests other than fee arrangements such as principal investment risk (for example, debt or equity interests), guarantees of the value of the assets or liabilities of the VIE, written put options on the assets of the VIE, or similar obligations. The new standard is effective for us on July 1, 2016. The standard permits early adoption and the use of a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption or by applying it retrospectively. We do not expect the effect of ASU 2015-02 to have a material impact on our consolidated financial statements.

9



In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09,"Revenue from Contracts with Customers," (ASU 2014-09) which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The FASB has elected to defer the effective date to fiscal years beginning after December 15, 2017, which would result in an effective date for us of July 1, 2018, with early application permitted one year earlier. The standard permits the use of either the retrospective or cumulative catch-up transition method. We are currently evaluating the adoption method for ASU 2014-09 but do not expect it to have a material impact on our consolidated financial statements.
3. Fair Value Measurements
The following table summarizes our investments in available-for-sale securities:
 
March 31, 2016
 
Amortized Cost Basis (2)
 
Unrealized gain
 
Estimated Fair Value
Available-for-sale securities
 
 
 
 
 
Plaza Create Co. Ltd. common shares (1)
$
4,286

 
$
1,908

 
$
6,194

Total investments in available-for-sale securities
$
4,286

 
$
1,908

 
$
6,194

 
June 30, 2015
 
Amortized Cost Basis (2)
 
Unrealized gain
 
Estimated Fair Value
Available-for-sale securities
 
 
 
 
 
Plaza Create Co. Ltd. common shares (1)
$
3,939

 
$
2,971

 
$
6,910

Total investments in available-for-sale securities
$
3,939

 
$
2,971

 
$
6,910


________________________
(1) On February 28, 2014, we purchased shares in our publicly traded Japanese joint venture partner. Refer to Note 12 for further discussion of the separate joint business arrangement.
(2) Amortized cost basis represents our initial investment adjusted for currency translation.
We use a three-level valuation hierarchy for measuring fair value and include detailed 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, quoted prices for identical or similar assets in markets that are not active 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.

10



The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy:
 
March 31, 2016
 
Total
 
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Available-for-sale securities
$
6,194

 
$
6,194

 
$

 
$

Currency forward contracts
2,217

 

 
2,217

 

Total assets recorded at fair value
$
8,411

 
$
6,194

 
$
2,217

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
(1,954
)
 
$

 
$
(1,954
)
 
$

Cross-currency swap contracts
(14,750
)
 

 
(14,750
)
 

Currency forward contracts
(2,572
)
 

 
(2,572
)
 

Contingent consideration
(9,157
)
 

 

 
(9,157
)
Total liabilities recorded at fair value
$
(28,433
)
 
$

 
$
(19,276
)
 
$
(9,157
)

 
June 30, 2015
 
Total
 
Quoted Prices in
Active
Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Available-for-sale securities
$
6,910

 
$
6,910

 
$

 
$

Currency forward contracts
1,902

 

 
1,902

 

Total assets recorded at fair value
$
8,812

 
$
6,910

 
$
1,902

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
(1,150
)
 
$

 
$
(1,150
)
 
$

Cross-currency swap contracts
(8,433
)
 

 
(8,433
)
 

Currency forward contracts
(407
)
 

 
(407
)
 

Contingent consideration
(7,833
)
 

 

 
(7,833
)
Total liabilities recorded at fair value
$
(17,823
)
 
$

 
$
(9,990
)
 
$
(7,833
)
During the quarter ended March 31, 2016 and the year ended June 30, 2015, there were no significant transfers in or out of Level 1, Level 2 and Level 3 classifications.
The valuations of the derivatives intended to mitigate our interest rate and currency risk are determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each instrument. This analysis utilizes observable market-based inputs, including interest rate curves, interest rate volatility, or spot and forward exchange rates, and reflects the contractual terms of these instruments, including the period to maturity. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to appropriately reflect both our own nonperformance risk and the respective counterparties' nonperformance risk in the fair value measurement. However, as of March 31, 2016, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our

11



derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 in the fair value hierarchy.
Contingent consideration obligations are measured at fair value and are based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions and estimates to forecast a range of outcomes and probabilities for the contingent consideration. Certain contingent consideration obligations are valued using a Monte Carlo simulation model. We assess these assumptions and estimates on a quarterly basis as additional data impacting the assumptions is obtained. Any changes in the fair value of contingent consideration related to updated assumptions and estimates will be recognized within general and administrative expenses in the consolidated statements of operations during the period in which the change occurs.
Our contingent consideration liability increased during the three months ended March 31, 2016 due to the acquisition of WIRmachenDRUCK on February 1, 2016 which included a contingent payment based on the achievement of a cumulative gross margin target for calendar years 2016 and 2017. The fair value of the contingent consideration is $1,185 and it is payable during the third quarter of fiscal 2018. See Note 7 for additional details related to the transaction. The remaining liability relates to the Printdeal contingent consideration which included terms to pay a fixed amount of €15,000, of which €8,000 was paid in March 2015 ($8,547 based on the exchange rate as of the date of payment) and the remaining €7,000 ($7,921 based on the exchange rate as of March 31, 2016) is payable during the fourth quarter of fiscal 2016. As the Printdeal contingent liability is no longer variable, we do not expect any additional adjustments to fair value prior to payment.
During the nine months ended March 31, 2016 and 2015, the following table represents the changes in fair value of Level 3 contingent consideration:
 
Nine Months Ended March 31,
 
2016
 
2015
Balance at June 30, 2015 and 2014, respectively (1)
$
7,833

 
$
16,072

Fair value at acquisition date
1,185

 

Fair value adjustment

 
14,890

Cash payments

 
(8,271
)
Foreign currency impact
139

 
(4,755
)
Balance at March 31, 2016 and 2015, respectively (2)
$
9,157

 
$
17,936

_____________________
(1) Of the total contingent consideration outstanding as of June 30, 2015 and 2014, $7,833 and $6,276 was classified as a current liability, respectively. As of June 30, 2014, $9,796 was classified as a long-term liability.
(2) Of the total contingent consideration outstanding as of March 31, 2016 and 2015, $7,921 and $10,372 was classified as a current liability, respectively. As of March 31, 2016 and 2015, $1,236 and $7,564 was classified as a long-term liability, respectively.

As of March 31, 2016 and June 30, 2015, the carrying amounts of our cash and cash equivalents, accounts receivables, accounts payable, and other current liabilities approximated their estimated fair values. As of March 31, 2016 and June 30, 2015 the carrying value of our debt, excluding debt issuance costs and debt discounts was $704,415 and $523,036, respectively, and the fair value was $701,837 and $539,752, respectively. Our debt at March 31, 2016 includes a variable rate debt instrument indexed to LIBOR that resets periodically and fixed rate debt instruments. The estimated fair value of our debt was determined using available market information based on recent trades or activity of debt instruments with substantially similar risks, terms and maturities, which fall within Level 2 under the fair value hierarchy. The estimated fair value of assets and liabilities disclosed above may not be representative of actual values that could have been or will be realized in the future.
4. Derivative Financial Instruments
We use derivative financial instruments, such as interest rate swap contracts, cross-currency swap contracts, and currency forward contracts to manage interest rate and foreign currency exposures. Derivatives are recorded in the consolidated balance sheets at fair value. If the derivative is designated as a cash flow hedge or net investment hedge, the effective portion of changes in the fair value of the derivative is recorded in accumulated other comprehensive (loss) income and is subsequently reclassified into earnings in the period the hedged forecasted transaction affects earnings. If a derivative is deemed to be ineffective, the ineffective portion of the change in fair value of the derivative

12



is recognized directly in earnings. The change in the fair value of derivatives not designated as hedges is recognized directly in earnings, as a component of other (expense) income, net.
Hedges of Interest Rate Risk
We enter into interest rate swap contracts to manage variability in the amount of our known or expected cash payments related to a portion of our debt. Our objective in using interest rate swaps is to add stability to interest expense and to manage our exposure to interest rate movements. We designate our interest rate swaps as cash flow hedges. 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 contract agreements without exchange of the underlying notional amount. Realized gains or losses from interest rate swaps are recorded in earnings, as a component of interest expense, net.
During the three and nine months ended March 31, 2016, we held one interest rate swap instrument that was determined to be ineffective. We did not hold any interest rate swaps that were determined to be ineffective during the three and nine months ended March 31, 2015.
Amounts reported in accumulated other comprehensive (loss) income related to interest rate swap contracts will be reclassified to interest expense as interest payments are accrued or made on our variable-rate debt. As of March 31, 2016, we estimate that $512 will be reclassified from accumulated other comprehensive (loss) income to interest expense during the twelve months ending March 31, 2017. As of March 31, 2016, we had six outstanding interest rate swap contracts indexed to one-month LIBOR. These instruments were designated as cash flow hedges of interest rate risk and have varying start dates and maturity dates through June 2019.
Interest rate swap contracts outstanding:
 
Notional Amounts
Contracts accruing interest as of March 31, 2016
 
$
150,000

Contracts with a future start date
 
65,000

Total
 
$
215,000

Hedges of Currency Risk
Cross-Currency Swap Contracts
From time to time, we execute cross-currency swap contracts designated as cash flow hedges or net investment hedges. Cross-currency swaps involve an initial receipt of the notional amount in the hedge currency in exchange for our reporting currency based on a contracted exchange rate. Subsequently, we receive fixed rate payments in our reporting currency in exchange for fixed rate payments in the hedged currency over the life of the contract. At maturity, the final exchange involves the receipt of our reporting currency in exchange for the notional amount in the hedged currency.
Cross-currency swap contracts designated as cash flow hedges are executed to mitigate our currency exposure to the interest receipts as well as the principal remeasurement and repayment associated with certain intercompany loans denominated in a currency other than our reporting currency, the U.S. Dollar. As of March 31, 2016, we had two outstanding cross-currency swap contracts designated as cash flow hedges with a total notional amount of $120,011, both maturing during June 2019. We entered into the two cross-currency swap contracts to hedge the risk of changes in one Euro denominated intercompany loan entered into with one of our consolidated subsidiaries that has the Euro as its functional currency.
During the three and nine months ended March 31, 2016, we recorded unrealized losses, net of tax, in accumulated other comprehensive (loss) income in the amount $3,915. Amounts reported in accumulated other comprehensive (loss) income will be reclassified to other (expense) income, net as interest payments are accrued or paid and upon remeasuring the intercompany loan. As of March 31, 2016, we estimate that $1,758 will be reclassified from accumulated other comprehensive (loss) income to other income, net during the twelve months ending March 31, 2017.
Cross-currency swap contracts designated as net investment hedges are executed to mitigate our currency exposure of net investments in subsidiaries that have reporting currencies other than U.S. Dollar. As of March 31, 2016, we had two outstanding cross-currency swap contracts designated as net investment hedges with a total

13



notional amount of $122,969, both maturing during April 2019. We entered into the two cross-currency swap contracts to hedge the risk of changes in the U.S. Dollar equivalent value of a portion of our net investment in a consolidated subsidiary that has the Euro as its functional currency. During the three and nine months ended March 31, 2016, we recorded unrealized losses, net of tax, in accumulated other comprehensive (loss) income as a component of our cumulative translation adjustment in the amount $2,999 and $70, respectively.
We did not hold any cross-currency swap contracts that were determined to be ineffective during the three and nine months ended March 31, 2016.
Currency Forward Contracts
We execute currency forward contracts in order to mitigate our exposure to fluctuations in various currencies against our reporting currency, the U.S. Dollar. As of March 31, 2016, we had one currency forward contract designated as a net investment hedge with a total notional amount of $31,727, maturing during June 2019. We entered into the currency forward contract designated as a net investment hedge to hedge the risk of changes in the U.S. Dollar equivalent value of a portion of our net investment in a consolidated subsidiary that has the Euro as its functional currency.
We have elected not to apply hedge accounting for all other currency forward contracts. During the three and nine months ended March 31, 2016 and 2015, we have experienced volatility within other (expense) income, net in our consolidated statements of operations from unrealized gains and losses on the mark-to-market of outstanding currency forward contracts. We expect this volatility to continue in future periods for contracts for which we do not apply hedge accounting. Additionally, since our hedging objectives may be targeted at non-GAAP financial metrics that exclude non-cash items such as depreciation and amortization, we may experience increased, not decreased, volatility in our GAAP results as a result of our currency hedging program.
    As of March 31, 2016, we had the following outstanding currency forward contracts that were not designated for hedge accounting and were used to hedge fluctuations in the U.S. Dollar value of forecasted transactions denominated in Australian Dollar, Canadian Dollar, Danish Krone, Euro, Great British Pound, Indian Rupee, New Zealand Dollar, Norwegian Krone, Swedish Krona, and Swiss Franc:
Notional Amount
 
Effective Date
 
Maturity Date
 
Number of Instruments
 
Index
$294,940
 
December 2014 through March 2016
 
Various dates through September 2017
 
441
 
Various


14



Financial Instrument Presentation    
The table below presents the fair value of our derivative financial instruments as well as their classification on the balance sheet as of March 31, 2016 and June 30, 2015:
 
March 31, 2016

Asset Derivatives

Liability Derivatives
Derivatives designated as hedging instruments
Balance Sheet line item

Gross amounts of recognized assets

Gross amount offset in consolidated balance sheet

Net amount

Balance Sheet line item

Gross amounts of recognized liabilities

Gross amount offset in consolidated balance sheet

Net amount
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Other non-current assets

$


$


$


Other current liabilities / other liabilities

$
(1,954
)

$


$
(1,954
)
Cross-currency swaps
Other non-current assets
 

 

 

 
Other liabilities
 
(5,051
)
 

 
(5,051
)
Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps
Other non-current assets
 

 

 

 
Other liabilities
 
(9,699
)
 

 
(9,699
)
Currency forward contracts
Other non-current assets
 

 

 

 
Other liabilities
 
(883
)
 

 
(883
)
Total derivatives designated as hedging instruments


$


$


$




$
(17,587
)

$


$
(17,587
)
















Derivatives not designated as hedging instruments















Currency forward contracts
Other current assets / other assets

$
4,624


$
(2,407
)

$
2,217


Other current liabilities / other liabilities

$
(1,703
)

$
14


$
(1,689
)
Total derivatives not designated as hedging instruments


$
4,624


$
(2,407
)

$
2,217




$
(1,703
)

$
14


$
(1,689
)

15




June 30, 2015

Asset Derivatives

Liability Derivatives
Derivatives designated as hedging instruments
Balance Sheet line item

Gross amounts of recognized assets

Gross amount offset in consolidated balance sheet

Net amount

Balance Sheet line item

Gross amounts of recognized liabilities

Gross amount offset in consolidated balance sheet

Net amount
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
Other non-current assets

$


$


$


Other current liabilities / other liabilities

$
(1,087
)

$


$
(1,087
)
Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps
Other non-current assets







Other liabilities

(8,433
)



(8,433
)
Total derivatives designated as hedging instruments


$


$


$




$
(9,520
)

$


$
(9,520
)
















Derivatives not designated as hedging instruments















Interest rate swaps
Other non-current assets

$


$


$


Other liabilities

$
(63
)

$


$
(63
)
Currency forward contracts
Other current assets

3,256


(1,354
)

1,902


Other current liabilities

(1,792
)

1,385


(407
)
Total derivatives not designated as hedging instruments


$
3,256


$
(1,354
)

$
1,902




$
(1,855
)

$
1,385


$
(470
)
The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive (loss) income for the three and nine months ended March 31, 2016 and 2015:
Derivatives in Hedging Relationships
Amount of Gain (Loss) Recognized in Comprehensive (Loss) Income on Derivatives (Effective Portion)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
In thousands
2016
 
2015
 
2016
 
2015
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
Interest rate swaps
$
(905
)
 
$
(1,036
)
 
$
(1,367
)
 
$
(1,057
)
Cross-currency swaps
(3,915
)
 

 
(3,915
)
 

Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
Cross-currency swaps
(2,999
)
 

 
(70
)
 

Currency forward contracts
(730
)
 

 
(730
)
 

 
$
(8,549
)
 
$
(1,036
)
 
$
(6,082
)
 
$
(1,057
)

16



The following table presents reclassifications out of accumulated other comprehensive (loss) income for the three and nine months ended March 31, 2016 and 2015:
Details about Accumulated Other
Comprehensive (Loss) Income Components
Amount Reclassified from Accumulated Other Comprehensive (Loss) Income to Net Income Gain (Loss)
 
Affected line item in the
Statement of Operations
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
 
In thousands
2016
 
2015
 
2016
 
2015
 
 
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
 
 
 
 
Interest rate swaps
$
(180
)
 
$
(268
)
 
$
(768
)
 
$
(840
)
 
Interest expense, net
Cross-currency swaps
(4,034
)
 

 
(4,034
)
 

 
Other (expense) income, net
Total before income tax
(4,214
)
 
(268
)
 
(4,802
)
 
(840
)
 
Income (loss) before income taxes
Income tax
1,054

 
67

 
1,202

 
210

 
Income tax provision
Total
$
(3,160
)
 
$
(201
)
 
$
(3,600
)
 
$
(630
)
 
 
The following table presents the adjustment to fair value recorded within the consolidated statements of operations for derivative instruments for which we did not elect hedge accounting, as well as the effect of our de-designated derivative financial instruments that no longer qualify as hedging instruments in the period:
Derivatives not classified as hedging instruments
Amount of Gain (Loss) Recognized in Income
 
Location of Gain (Loss) Recognized in Income (Ineffective Portion)
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
 
In thousands
2016
 
2015
 
2016
 
2015
 
 
Currency contracts
$
(1,505
)
 
$
5,770

 
$
4,058

 
$
13,412

 
Other (expense) income, net
Interest rate swaps

 
(14
)
 
(10
)
 
(14
)
 
Other (expense) income, net
 
$
(1,505
)
 
$
5,756

 
$
4,048

 
$
13,398

 
 
5. Accumulated Other Comprehensive Loss
The following table presents a roll forward of amounts recognized in accumulated other comprehensive loss by component, net of tax of $24, for the nine months ended March 31, 2016:

Gains (losses) on cash flow hedges (1)
 
Gains (losses) on available for sale securities
 
Losses on pension benefit obligation
 
Translation adjustments, net of hedges (2)
 
Total
Balance as of June 30, 2015
$
(1,405
)
 
$
2,971

 
$
(3,112
)
 
$
(97,363
)
 
$
(98,909
)
Other comprehensive (loss) income before reclassifications
(5,282
)
 
(1,063
)
 
136

 
1,890

 
(4,319
)
Amounts reclassified from accumulated other comprehensive (loss) income to net income
3,600

 

 
764

 

 
4,364

Net current period other comprehensive (loss) income
(1,682
)
 
(1,063
)
 
900

 
1,890

 
45

Balance as of March 31, 2016
$
(3,087
)
 
$
1,908

 
$
(2,212
)
 
$
(95,473
)
 
$
(98,864
)
________________________
(1) Gains (losses) on cash flow hedges include our interest rates swap and cross-currency swap contracts designated in cash flow hedging relationships.
(2) Translation adjustment is inclusive of the effects of our net investment hedges, of which, unrealized losses, net of tax of $9,017 have been included in accumulated other comprehensive loss as of March 31, 2016.
6. Waltham Lease Arrangement
In July 2013, we executed a lease agreement to move our Lexington, Massachusetts, USA operations to a yet to be constructed facility in Waltham, Massachusetts, USA. During the first quarter of fiscal 2016, the building was completed and we commenced lease payments in September 2015 and will make lease payments through September 2026.

17



For accounting purposes, we were deemed to be the owner of the Waltham building during the construction period and accordingly we recorded the construction project costs incurred by the landlord as an asset with a corresponding financing obligation on our balance sheet. We evaluated the Waltham lease in the first quarter of fiscal 2016 and determined the transaction did not meet the criteria for "sale-leaseback" treatment. Accordingly, we began depreciating the asset and incurring interest expense related to the financing obligation recorded on our consolidated balance sheet. We bifurcate the lease payments pursuant to the Waltham Lease into (i) a portion that is allocated to the building and (ii) a portion that is allocated to the land on which the building was constructed. The portion of the lease obligations allocated to the land is treated as an operating lease that commenced in fiscal 2014.

Property, plant and equipment, net, included $121,193 and $104,315 as of March 31, 2016 and June 30, 2015, respectively, related to the building. The financing lease obligation and deferred rent credit related to the building on our consolidated balance sheets was $123,678 and $104,315, respectively, as of March 31, 2016 and June 30, 2015.

7. Business Combinations

Acquisition of WIRmachenDRUCK GmbH

On February 1, 2016, we acquired 100% of the outstanding shares of WIRmachenDRUCK GmbH, a web-to-print business focused primarily on the German market. At closing, we paid €138,383 ($150,128 based on the exchange rate as of the date of acquisition) in cash and transferred €8,121 ($8,810 based on the exchange rate as of the date of acquisition) in ordinary shares of Cimpress N.V. We will pay an estimated €1,818 in cash ($1,972 based on the exchange rate as of the date of acquisition) during the fourth quarter of fiscal 2016 as a post-closing adjustment based on WIRmachenDRUCK's net cash and working capital position as of the acquisition date.

In addition, we agreed to a sliding scale earn-out of up to €40,000 ($43,395 based on the exchange rate as of the date of acquisition) based on the achievement of a cumulative gross margin target for calendar years 2016 and 2017 and is payable at our option in cash or ordinary shares. The estimated fair value of the earn-out as of the acquisition date is $9,872, based on a Monte Carlo Simulation valuation model. As a portion of the earn-out attributed to the two majority selling shareholders is contingent upon their post-acquisition employment, $8,687 is not included as part of the consideration but will be recognized as compensation expense through the required employment period of December 2017. The remaining earn-out of $1,185, not contingent upon post-acquisition employment is included as a component of purchase consideration. We will re-evaluate the fair value of the earn-out on a quarterly basis and recognize any change in estimate in general and administrative expense.

The acquisition supports our strategy to build a mass customization platform via focused brands and compliments similar previous investments in Europe. WIRmachenDRUCK brings internet-based capabilities that aggregate and route large numbers of small orders to a network of specialized production partners. Their outsourced supply chain model allows them to compete across a vast selection of product types, formats, sizes, finishing options and delivery choices.

Our consolidated financial statements include WIRmachenDRUCK from February 1, 2016, the date of acquisition. WIRmachenDRUCK's revenue included in our consolidated revenues for the quarter ended March 31, 2016 was $28,397. WIRmachenDRUCK's net income included in our consolidated net (loss) income attributable to Cimpress N.V. for the quarter ended March 31, 2016 was $1,560, inclusive of amortization of identifiable intangible assets but exclusive of earn-out related compensation expense and corporate level interest expense.

We have estimated the fair value of the contingent consideration and fair values of the identifiable intangible assets assumed as part of the acquisition. The amounts reported are considered provisional as we are completing the valuation work. The table below details the consideration transferred to acquire WIRmachenDRUCK:
Cash consideration
$
152,100

Cimpress N.V. shares transferred
8,810

Fair value of contingent consideration
1,185

Total consideration
$
162,095



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The excess of the purchase price paid over the fair value of WIRmachenDRUCK's net assets was recorded as goodwill, which is primarily attributed to expected expansion of the customer base and value of the workforce of WIRmachenDRUCK. Goodwill is not expected to be deductible for tax purposes, and has been attributed to our Upload and Print business units reportable segment. The provisional fair value of the assets acquired and liabilities assumed was:
 
Amount
 
Weighted Average
Useful Life in Years
Tangible assets acquired and liabilities assumed
 
 
 
      Cash and cash equivalents
$
15,220

 
n/a
      Other current assets
5,231

 
n/a
      Other non-current assets
1,259

 
n/a
      Accounts payable and other current liabilities
(17,566
)
 
n/a
      Deferred tax liability
(27,337
)
 
n/a
Identifiable intangible assets:
 
 
 
      Customer relationships
24,952

 
7
      Trade name
24,952

 
15
      Print network
23,867

 
9
      Referral network
10,849

 
7
      Developed technology
8,679

 
3
Goodwill
91,989

 
n/a
Total purchase price
$
162,095

 
 

Other fiscal 2016 acquisitions
During the first quarter of fiscal 2016, we acquired two businesses that were not material to our results either individually or in the aggregate. Complementing our Upload and Print business units segment, we acquired all of the outstanding capital stock of Tradeprint Distribution Limited (formerly known as Fairprint Distribution Limited) and Litotipografia Alcione S.r.l. on July 31, 2015 and July 29, 2015, respectively. The aggregate consideration for these two acquisitions was $25,366, net of cash acquired. The consideration was allocated to the fair value of the assets acquired and liabilities assumed based on estimated fair values as of the respective acquisition dates. The aggregate allocation to goodwill, intangible assets, and net tangible assets was $9,390, $14,359 and $1,617, respectively.
Goodwill is calculated as the excess of the consideration over the fair value of the net assets, including intangible assets, and is primarily related to expected synergies from the transaction. The goodwill for the two acquisitions is not deductible for tax purposes, and has been attributed to our Upload and Print business units. The results of these acquisitions have been included in the consolidated financial statements from the date of purchase and are not material for the three and nine months ended March 31, 2016.
We utilized proceeds from our credit facility to finance our fiscal 2016 acquisitions. In connection with these acquisitions, we incurred transaction costs related to investment banking, legal, financial, and other professional services of approximately $844 and $1,289 during the three and nine months ended March 31, 2016, respectively. We have not presented pro forma results of the operations of the companies we acquired in fiscal 2016 because the effects of the acquired companies are not material to our consolidated financial statements.

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8. Goodwill and Acquired Intangible Assets
Goodwill
The carrying amount of goodwill by reportable segment as of June 30, 2015 and March 31, 2016 is as follows:

Vistaprint business unit

Upload and Print business units

All Other
business units

Total
Balance as of June 30, 2015 (1)
$
124,636


$
250,487


$
25,506


$
400,629

Acquisitions (2)


101,379




101,379

Impairments (3)

 
(30,841
)
 

 
(30,841
)
Adjustments


(62
)



(62
)
Effect of currency translation adjustments (4)
(1,628
)

5,615


(356
)

3,631

Balance as of March 31, 2016
$
123,008


$
326,578


$
25,150


$
474,736

_________________
(1) Our segment reporting was revised during the first quarter of fiscal 2016 and, as such, we have re-allocated our goodwill by segment for the period ended June 30, 2015. In connection with our change in operating segments, there was an immaterial re-allocation of historical goodwill in the period. See Note 14 for additional details.
(2) See Note 7 for additional details.
(3) During the third quarter of fiscal 2016 we recorded an impairment of $30,841 related to our Exagroup reporting unit. See below for additional details.
(4) Relates to goodwill held by subsidiaries whose functional currency is not the U.S. Dollar.
Acquired Intangible Assets
Acquired intangible assets amortization expense for the three and nine months ended March 31, 2016 was $10,812 and $30,114, respectively, and $4,719 and $16,803 for the three and nine months ended March 31, 2015. Amortization expense has increased in the three and nine months ended March 31, 2016 primarily due to our acquisitions of WIRmachenDRUCK, Exagroup, druck.at, and Tradeprint.
Impairment Review
We perform our annual goodwill impairment test on January 1 of each fiscal year unless interim indicators of impairment exist. We perform our impairment test at a reporting unit level, which is either an operating segment or one level below, referred to as a “component.” The level at which the impairment test is performed requires an assessment of whether the operations below an operating segment should be aggregated as one reporting unit due to their similarity or reviewed individually. As of January 1, 2016, we have ten reporting units containing goodwill, including six operating segments that are part of the Upload and Print business units reportable segment, three operating segments that are part of the All Other business units reportable segment and the Vistaprint business unit operating and reportable segment.
We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For our annual impairment test as of January 1, 2016, we evaluated each of our ten reporting units individually. We considered the timing of our most recent fair value assessment and associated headroom, actual operating results as compared to cash flow forecasts used in the most recent fair value assessments, current long-term forecasts for each reporting unit, and the general market and economic environment of each reporting unit. Our qualitative assessment for fiscal 2016 determined that there was no indication that the carrying value for nine of our reporting units exceeded the fair value. We concluded that the goodwill of our Exagroup reporting unit, which is part of our Upload and Print business units reportable segment, may not be fully recoverable as the reporting unit is forecasting lower projected revenue and profitability levels than originally estimated as of the acquisition date. This change is due in part to Exagroup's need to, and plans to react to heightened competition in its target market, as well as reduction in our expectations for long-term margins in this business. As a result of the decline in the long-term expected cash flows, we performed the quantitative two-step goodwill impairment test.

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Prior to performing the quantitative goodwill impairment test, we first evaluated the recoverability of the Exagroup long-lived assets as the change in expected long-term cash flows is indicative of a potential impairment. Long-lived and intangible assets are required to be reviewed whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The related estimated future undiscounted cash flows expected to result from the use of the asset group are compared to the asset group's carrying amount, and an impairment charge is recorded for the amount by which the carrying amount exceeds the fair value of the asset. We performed the recoverability test using undiscounted cash flows for our Exagroup asset group and concluded that no impairment of long-lived assets exists.     
In order to execute the quantitative goodwill impairment test, we first compared the fair value of the Exagroup reporting unit to its carrying value. We used the income approach, specifically the discounted cash flow (DCF) method, to derive the fair value of the Exagroup reporting unit. This approach calculates fair value by estimating the after-tax cash flows attributable to a reporting unit and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. We selected this method as being the most meaningful in preparing our goodwill assessment as we believe the income approach most appropriately measures our income producing assets. We considered using the market approach but concluded it was not appropriate in valuing this particular reporting unit given the lack of relevant market comparisons available for application of the market approach. The cash flow projections in the Exagroup fair value analysis are based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate is based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC of 13% used to test the Exagroup goodwill was derived from a group of comparable companies. The calculated fair value of the Exagroup reporting unit was determined to be less than the carrying value as of January 1, 2016 and, as such, we concluded that the second step of the goodwill analysis was required to measure the impairment loss.
We performed step two of the goodwill impairment test and measured the fair value of all assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculated the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. The carrying amount of the goodwill as of January 1, 2016 was compared to the implied fair value of the goodwill, resulting in a partial impairment loss of $30,841 during the quarter ended March 31, 2016. A portion of the impairment loss has been attributed to the noncontrolling interest based on its third-party shareholders' 30% ownership interest.
Our goodwill analysis requires significant judgment, including the identification of reporting units and the amount and timing of expected future cash flows. While we believe our assumptions are reasonable, actual results could differ from our projections.
9. Other Balance Sheet Components
Accrued expenses included the following:
 
March 31, 2016
 
June 30, 2015
Compensation costs (1)
$
51,502


$
62,759

Income and indirect taxes (2)
42,972


25,495

Advertising costs
25,386


20,275

Acquisition-related consideration payable
10,337

 
17,400

Interest payable
10,000

 
5,731

Shipping costs
6,378


2,471

Sales returns
5,199

 
3,489

Production costs
3,967

 
3,348

Purchases of property, plant and equipment
3,362


3,030

Professional costs
1,733


2,396

Other
30,921


26,432

Total accrued expenses
$
191,757


$
172,826

_____________________

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(1) The decrease in compensation costs is primarily due to accrued bonus and long-term incentive payments made in the first quarter of fiscal 2016.
(2) The increase in income and indirect taxes is primarily due to additional VAT and tax payable balances from our fiscal 2016 acquisitions.
Other current liabilities included the following:
 
March 31, 2016
 
June 30, 2015
Current portion of lease financing obligation
$
12,569

 
$
10,475

Current portion of capital lease obligations
8,109

 
7,497

Other
4,222

 
3,498

Total other current liabilities
$
24,900

 
$
21,470

Other liabilities included the following:
 
March 31, 2016
 
June 30, 2015
Long-term capital lease obligations
$
23,708

 
$
18,304

Long-term derivative liabilities
17,764

 
9,816

Other
29,759

 
23,953

Total other liabilities
$
71,231

 
$
52,073

10. Debt

March 31, 2016

June 30, 2015
7.0% Senior unsecured notes due 2022
$
275,000


$
275,000

Senior secured credit facility
417,676

 
232,000

Other
11,739

 
11,536

Uncommitted credit facility


4,500

Debt issuance costs and debt discounts
(7,768
)

(8,940
)
Total debt outstanding, net
696,647


514,096

Less short-term debt (1)
19,842

 
21,057

Long-term debt
$
676,805


$
493,039

_____________________
(1) Balances as of March 31, 2016 and June 30, 2015 are inclusive of short-term debt issuance costs and debt discounts of $1,681 and $1,662, respectively.
Our Debt
Our various debt arrangements described below contain customary representations, warranties and events of default. As of March 31, 2016, we were in compliance with all financial and other covenants related to our debt.
Indenture and Senior Unsecured Notes due 2022
On March 24, 2015, we completed a private placement of $275,000 in aggregate principal amount of 7.0% senior unsecured notes due 2022 (the “Notes”). We issued the Notes pursuant to a senior notes indenture dated as of March 24, 2015 among Cimpress N.V., our subsidiary guarantors, and MUFG Union Bank, N.A., as trustee (the "Indenture"). We used the proceeds from the Notes to pay outstanding indebtedness under our unsecured line of credit and our senior secured credit facility and for general corporate purposes.
The Notes bear interest at a rate of 7.0% per annum and mature on April 1, 2022. Interest on the Notes is payable semi-annually on April 1 and October 1 of each year, commencing on October 1, 2015, to the holders of record of the Notes at the close of business on March 15 and September 15, respectively, preceding such interest payment date.

The Notes are senior unsecured obligations and rank equally in right of payment to all our existing and future senior unsecured debt and senior in right of payment to all of our existing and future subordinated debt. The

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Notes are effectively subordinated to any of our existing and future secured debt to the extent of the value of the assets securing such debt. Subject to certain exceptions, each of our existing and future subsidiaries that is a borrower under or guarantees our senior secured credit facilities will guarantee the Notes.
The Indenture contains various covenants, including covenants that, subject to certain exceptions, limit our and our restricted subsidiaries’ ability to incur and/or guarantee additional debt; pay dividends, repurchase shares or make certain other restricted payments; enter into agreements limiting dividends and certain other restricted payments; prepay, redeem or repurchase subordinated debt; grant liens on assets; enter into sale and leaseback transactions; merge, consolidate or transfer or dispose of substantially all of our consolidated assets; sell, transfer or otherwise dispose of property and assets; and engage in transactions with affiliates.
At any time prior to April 1, 2018, we may redeem some or all of the Notes at a redemption price equal to 100% of the principal amount redeemed, plus a make-whole amount as set forth in the Indenture, plus, in each case, accrued and unpaid interest to, but not including, the redemption date. In addition, at any time prior to April 1, 2018, we may redeem up to 35% of the aggregate outstanding principal amount of the Notes at a redemption price equal to 107.0% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date, with the net proceeds of certain equity offerings by Cimpress. At any time on or after April 1, 2018, we may redeem some or all of the Notes at the redemption prices specified in the Indenture, plus accrued and unpaid interest to, but not including, the redemption date.
Senior Secured Credit Facility
As of March 31, 2016, we have a senior secured credit facility of $834,000 as follows:
Revolving loans of $690,000 with a maturity date of September 23, 2019
Term loan of $144,000 amortizing over the loan period, with a final maturity date of September 23, 2019
Under the terms of our credit agreement, borrowings bear interest at a variable rate of interest based on LIBOR plus 1.50% to 2.25% depending on our leverage ratio, which is the ratio of our consolidated total indebtedness to our consolidated EBITDA, as defined by the credit agreement. As of March 31, 2016, the weighted-average interest rate on outstanding borrowings was 2.39%, inclusive of interest rate swap rates. We must also pay a commitment fee on unused balances of 0.225% to 0.400% depending on our leverage ratio. We have pledged the assets and/or share capital of several of our subsidiaries as collateral for our outstanding debt as of March 31, 2016.    
Other debt
Other debt consists of term loans acquired primarily as part of our fiscal 2015 acquisition of Exagroup SAS. As of March 31, 2016 we had $11,739 outstanding for those obligations that are payable through September 2024.
11. Income Taxes
Income tax (benefit) expense was $(162) and $10,857 for the three and nine months ended March 31, 2016, respectively, as compared to $1,576 and $7,658 for the same prior year periods. The tax benefit recognized for the three months ended March 31, 2016 is primarily due to tax benefits associated with currency exchange losses and the manufacturing equipment abandonment loss described in Note 2. The increase in income tax expense for the nine months ended March 31, 2016 as compared to the same period ended in 2015 is primarily attributable to a higher consolidated annual effective tax rate forecasted for fiscal 2016 as compared to fiscal 2015. We are forecasting a higher annual effective tax rate in fiscal 2016 due to an expected decrease to, and less favorable geographical mix of, consolidated pre-tax earnings combined with an increase in losses in certain jurisdictions where we are unable to recognize a tax benefit in the current period. We also have losses in certain jurisdictions where we are able to recognize a tax benefit in the current period, but for which the cash benefit is expected to be realized in a future period. The acquisition of WIRmachenDRUCK has also contributed to the increase in our tax expense for the nine months ended March 31, 2016. Additionally, during the nine months ended March 31, 2016, we recognized a tax benefit of $1,422 from a reduction in deferred tax liabilities due to future tax rate decreases in Italy and the UK and a current tax benefit of $2,140 related to the extension of the US R&D credit. Income tax expense for the same period in fiscal 2015 was reduced by $943 related to a reduction in our net liability for unrecognized tax benefits.

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The impairment loss on goodwill described in Note 8 is nondeductible for tax purposes, and, accordingly, no tax benefit has been recorded related to this item. However, the reduction to pretax earnings does have an unfavorable impact on our effective tax rate for the quarter.
On October 1, 2013, we made changes to our corporate entity operating structure, including transferring our intellectual property among certain of our subsidiaries, primarily to align our corporate entities with our evolving operations and business model. The transfer of assets occurred between wholly owned legal entities within the Cimpress group that are based in different tax jurisdictions. As the impact of the transfer was the result of an intra-entity transaction, any resulting gain or loss and immediate tax impact on the transfer was eliminated and not recognized in the consolidated financial statements under U.S. GAAP. The transferor entity recognized a gain on the transfer of assets that was not subject to income tax in its local jurisdiction. Our subsidiary based in Switzerland was the recipient of the intellectual property. In accordance with Swiss tax law, we are entitled to amortize the fair market value of the intellectual property received at the date of transfer over five years for tax purposes.
As of March 31, 2016, we had a net liability for unrecognized tax benefits included in the balance sheet of approximately $4,023, including accrued interest of $103. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes. During the nine months ended March 31, 2016, we recognized a decrease in the net liability of $477 primarily due to the expiration of certain statutes of limitations during the quarter. Of the total amount of unrecognized tax benefits, approximately $1,837 will reduce the effective tax rate if recognized. It is reasonably possible that a further reduction in unrecognized tax benefits in the range of $400 to $500 may occur within the next twelve months related to the lapse of applicable statutes of limitations. We believe we have appropriately provided for all tax uncertainties.
We conduct business in a number of tax jurisdictions and, as such, are required to file income tax returns in multiple jurisdictions globally. The years 2013 through 2015 remain open for examination by the United States Internal Revenue Service and the years 2011 through 2015 remain open for examination in the various states and non-US tax jurisdictions in which we file tax returns.
We believe that our income tax reserves are adequately maintained taking into consideration both the technical merits of our tax return positions and ongoing developments in our income tax audits. However, the final determination of our tax return positions, if audited, is uncertain, and there is a possibility that final resolution of these matters could have a material impact on our results of operations or cash flows.
12. Noncontrolling Interests
In certain of our strategic investments we have purchased a controlling equity stake, but there remains a minority portion of the equity that is owned by a third party. The balance sheet and operating activity of these entities are included in our consolidated financial statements and we adjust the net income in our consolidated statement of operations to exclude the noncontrolling interests' proportionate share of results. We present the proportionate share of equity attributable to the redeemable noncontrolling interests as temporary equity within our consolidated balance sheet and the proportionate share of noncontrolling interests not subject to a redemption provision that is outside of our control as equity.
Redeemable noncontrolling interests
On April 15, 2015, we acquired 70% of the outstanding shares of Exagroup. The remaining 30% is considered a redeemable noncontrolling equity interest, as it is redeemable in the future and not solely within our control. The Exagroup noncontrolling interest, redeemable at a fixed amount of €39,000, was recorded at its fair value as of the acquisition date and will be adjusted to its redemption value on a periodic basis, if that amount exceeds its carrying value. During the nine months ended March 31, 2016, the losses attributable to the noncontrolling interest, primarily due to the goodwill impairment loss as discussed in Note 8, reduced the carrying value below the fixed redemption amount. We recorded an adjustment of $7,025 to increase the carrying value to the fixed redemption amount, which offset the net loss attributable to noncontrolling interest during the three months ended March 31, 2016.

On April 3, 2014, we acquired 97% of the outstanding corporate capital of Pixartprinting S.p.A. The remaining 3% is considered a redeemable noncontrolling equity interest, as it is redeemable for cash based on future financial results and not solely within our control. The redeemable noncontrolling interest was recorded at its fair value as of the acquisition date and will be adjusted to its redemption value on a periodic basis, with an offset to retained earnings, if that amount exceeds its carrying value. During the nine months ended March 31, 2016, we

24



increased the carrying amount of the redeemable noncontrolling interest by $4,919 to reflect the estimated redemption value as of March 31, 2016.
    We own a 51% controlling interest in a joint business arrangement with Plaza Create Co. Ltd., a leading Japanese retailer of photo products, to expand our market presence in Japan. During the nine months ended March 31, 2016, we contributed an additional $5,350 in cash and Plaza Create made a capital contribution of $5,141 in cash to the joint business. We have a call option to acquire the remaining 49% of the business if Plaza Create materially breaches any of its contracts with us. If we materially breach any of our contracts with Plaza Create, Plaza Create has an option to put its shares to us. As the exercise of this put option is not solely within our control, the noncontrolling equity interest in the business is presented as temporary equity in our consolidated balance sheet. As of March 31, 2016, it is not probable that the noncontrolling interest will be redeemable.
Noncontrolling interest
On August 7, 2014, we made a capital investment in Printi LLC as described in Note 13. The noncontrolling interest was recorded at its estimated fair value as of the investment date. The allocation of the net loss of the operations to the noncontrolling interest considers our stated liquidation preference in applying the loss to each party.
The following table presents the reconciliation of changes in our noncontrolling interests:
 
 
Redeemable noncontrolling interests
 
Noncontrolling interest
Balance as of June 30, 2015
 
$
57,738

 
$
512

Capital contribution from noncontrolling interest
 
5,141

 

Accretion to redemption value recognized in retained earnings (1)
 
4,919

 

Accretion to redemption value recognized in net loss attributable to noncontrolling interest (2)
 
7,025

 

Net loss attributable to noncontrolling interest
 
(11,126
)
 
(76
)
Dividend to noncontrolling interest
 
(368
)
 

Adjustment to noncontrolling interest



(74
)
Foreign currency translation
 
1,542

 
(4
)
Balance as of March 31, 2016
 
$
64,871

 
$
358

_____________________
(1) The estimated fair value of the noncontrolling interest exceeds the carrying value as of March 31, 2016.
(2) As of March 31, 2016, the noncontrolling interest redemption amount is greater than the estimated fair value.

13. Variable Interest Entity ("VIE")
On August 7, 2014, we made a capital investment in Printi LLC, which operates in Brazil. This investment provides us access to a newer market and the opportunity to drive longer-term growth in Brazil. As of March 31, 2016, we have a 49.99% equity interest in Printi. Based upon the level of equity investment at risk, Printi is considered a variable interest entity. The shareholders of Printi share profits and voting control on a pro-rata basis. While we do not manage the day to day operations of Printi, we do have the unilateral ability to exercise participating voting rights for specific transactions and as such no one shareholder is considered to be the primary beneficiary. However, certain significant shareholders cannot transfer their equity interests without our approval and as a result are considered de facto agents on our behalf in accordance with ASC 810-10-25-43.
In aggregating our rights, as well as those of our de facto agents, the group as a whole has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses and the right to receive benefits from the entity. In situations where a de facto agency relationship is present, one party is required to be identified as the primary beneficiary and the evaluation requires significant judgment. The factors considered include the presence of a principal/agent relationship, the relationship and significance of activities to the reporting entity, the variability associated with the VIE's anticipated economics and the design of the VIE. The analysis is qualitative in nature and is based on weighting the relative importance of each of the factors in relation to the specifics of the VIE arrangement. Upon our investment we performed an analysis and concluded that we are the party that is most closely associated with Printi, as we are most exposed to the variability of the economics and therefore considered the primary beneficiary.

25



We have call options to increase our ownership in Printi incrementally over an eight-year period with certain employee shareholders. As the employees' restricted stock in Printi is contingent on post-acquisition employment, share-based compensation will be recognized over the four-year vesting period. The awards are considered liability awards and will be marked to fair value each reporting period. In order to estimate the fair value of the award as of March 31, 2016, we utilized a lattice model with a Monte Carlo simulation. The current fair value of the award is $6,015 and we have recognized $372 and $1,153 in general and administrative expense for the three and nine months ended March 31, 2016, respectively, and $999 for the nine months ended March 31, 2015.
14. Segment Information
During the first quarter of fiscal 2016, we revised our internal organizational and reporting structure resulting in changes to our reportable segments. Our operating segments are based upon the manner in which our operations are managed and the availability of separate financial information reported internally to the Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”) for purposes of making decisions about how to allocate resources and assess performance. As of March 31, 2016 we have several operating segments under our management reporting structure which are reported in the following three reportable segments:
Vistaprint business unit - Includes the operations of our Vistaprint-branded websites focused on the North America, Europe, Australia and New Zealand markets, and our Webs-branded business, which is managed with the Vistaprint-branded digital business in the previously listed geographies.
Upload and Print business units - This operating segment includes the results of our druck.at, Exagroup, Easyflyer, Printdeal, Pixartprinting,Tradeprint, and WIRmachenDRUCK branded businesses.
All Other business units - Includes the operations of our Albumprinter and Most of World business units and newly formed Corporate Solutions business unit. Our Most of World business unit is focused on our emerging market portfolio, including operations in Brazil, China, India and Japan. The results of the newly formed Corporate Solutions business unit were previously part of the Vistaprint business unit, and the Corporate Solutions business unit will focus on delivering volume and revenue via partnerships. These business units have been combined into one reportable segment based on materiality.
Consistent with our historical reporting, the cost of our global legal, human resource, finance, facilities management, software and manufacturing engineering, the global component of our IT operations functions, and certain start-up costs related to new product introductions and manufacturing technologies are generally not allocated to the reporting segments and are instead reported and disclosed under the caption "Corporate and global functions." Corporate and global functions is a cost center and does not meet the definition of an operating segment. We have revised our presentation of all prior periods presented to reflect our revised segment reporting.
In addition, during the first quarter of fiscal 2016 we introduced adjusted net operating profit as the primary metric by which our CODM measures segment financial performance. Certain items are excluded from segment adjusted net operating profit, such as acquisition-related amortization and depreciation, expense recognized for earn-out related charges, including the changes in fair value of contingent consideration and compensation expense related to cash-based earn-out mechanisms dependent upon continued employment, share-based compensation related to investment consideration, certain impairment expense and restructuring charges. A portion of the interest expense associated with our Waltham lease is included as expense in adjusted net operating profit and allocated based on headcount to the appropriate business unit or corporate and global function. The interest expense represents a portion of the cash rent payment and is considered an operating expense for purposes of measuring our segment performance. There are no internal revenue transactions between our operating segments, and we do not allocate non-operating income to our segment results. All intersegment transfers are recorded at cost for presentation to the CODM, for example, we allocate costs related to products manufactured by our global network of production facilities to the applicable operating segment. There is no intercompany profit or loss recognized on these transactions.
The following factors, among others, may limit the comparability of adjusted net operating profit by segment:
We do not allocate global support costs across operating segments or corporate and global functions.

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Some of our acquired operations in our Upload and Print business units and All Other business units segments are burdened by the costs of their local finance, HR, and other administrative support functions, whereas other business units leverage our global functions and do not receive an allocation for these services.
Our All Other business units reporting segment includes our Most of World business unit, which has operating losses as it is in its early stage of investment relative to the scale of the underlying business.
Our balance sheet information is not presented to the CODM on an allocated basis, and therefore we do not present asset information by segment.
Revenue by segment is based on the business unit-specific websites through which the customer’s order was transacted. The following tables set forth revenue, adjusted net operating profit by reportable segment, total income from operations and total income before taxes.
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Revenue:
 
 
 
 
 
 
 
Vistaprint business unit
$
289,901

 
$
268,490

 
$
912,153

 
$
875,184

Upload and Print business units
116,356

 
38,674

 
286,171

 
121,382

All Other business units
30,560

 
32,737

 
110,515

 
117,172

Total revenue
$
436,817

 
$
339,901

 
$
1,308,839

 
$
1,113,738


 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Adjusted net operating profit by segment:
 
 
 
 


 


Vistaprint business unit
$
79,791

 
$
69,255

 
$
263,974

 
$
249,049

Upload and Print business units
15,880

 
3,438

 
42,004

 
13,575

All Other business units
(3,895
)
 
451

 
1,901

 
10,319

Total adjusted net operating profit by segment
91,776

 
73,144

 
307,879

 
272,943

Corporate and global functions
(60,770
)

(54,757
)
 
(170,451
)
 
(156,304
)
Acquisition-related amortization and depreciation
(10,879
)
 
(4,515
)
 
(30,316
)
 
(16,891
)
Earn-out related charges (1)
(883
)
 
(7,512
)
 
(4,585
)
 
(14,890
)
Share-based compensation related to investment consideration
(1,168
)
 
(1,499
)
 
(3,705
)
 
(3,096
)
Certain impairments (2)
(37,582
)
 

 
(40,604
)
 

Restructuring charges

 
(520
)
 
(381
)
 
(674
)
Interest expense for Waltham lease
1,975

 

 
4,326

 

Total income from operations
(17,531
)
 
4,341

 
62,163

 
81,088

Other income, net
(9,003
)
 
8,291

 
7,929

 
30,282

Interest expense, net
(10,091
)
 
(3,131
)
 
(28,377
)
 
(9,508
)
Income before income taxes
$
(36,625
)
 
$
9,501

 
$
41,715

 
$
101,862

___________________
(1) Includes expense recognized for the change in fair value of contingent consideration and compensation expense related to cash-based earn-out mechanisms dependent upon continued employment.
(2) Includes the impact of impairments or abandonments of goodwill and other long-lived assets as defined by ASC 350 - "Intangibles - Goodwill and Other" or ASC 360 - "Property, plant, and equipment."

27



 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
Depreciation and amortization:
 
 
 
 
 
 
 
Vistaprint business unit
$
10,049

 
$
9,679

 
$
30,106

 
$
29,704

Upload and Print business units
12,850

 
5,119

 
33,399

 
16,103

All Other business units
4,667

 
3,137

 
14,637

 
10,994

Corporate and global functions
6,888

 
4,467

 
18,375

 
12,955

Total depreciation and amortization
$
34,454

 
$
22,402

 
$
96,517

 
$
69,756

Enterprise Wide Disclosures:
The following tables set forth revenues by geographic area and groups of similar products and services:
 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 

 
 
United States
$
192,933

 
$
177,268

 
$
580,009

 
$
532,243

Non-United States (3)
243,884

 
162,633

 
728,830

 
581,495

Total revenue
$
436,817

 
$
339,901

 
$
1,308,839

 
$
1,113,738

 
Three Months Ended March 31,
 
Nine Months Ended March 31,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Physical printed products and other (4)
$
421,402

 
$
322,564

 
$
1,260,647

 
$
1,059,805

Digital products/services
15,415

 
17,337

 
48,192

 
53,933

Total revenue
$
436,817

 
$
339,901

 
$
1,308,839

 
$
1,113,738

___________________
(3) Our non-United States revenue includes the Netherlands, our country of domicile.
(4) Other revenue includes miscellaneous items which account for less than 1% of revenue.
The following tables set forth long-lived assets by geographic area:
 
March 31, 2016
 
June 30, 2015
Long-lived assets (5):
 

 
 

Netherlands
$
93,438

 
$
98,288

Canada
89,696

 
99,474

Switzer