Attached files

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EX-32.1 - EXHIBIT 32.1 CERTIFICATION PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT - CIMPRESS N.V.ex3219301610-q.htm
EX-31.2 - EXHIBIT 31.2 CERTIFICATION OF CFO - CIMPRESS N.V.ex3129301610-q.htm
EX-31.1 - EXHIBIT 31.1 CERTIFICATION OF CEO - CIMPRESS N.V.ex3119301610-q.htm
EX-10.10 - EXHIBIT 10.10 LONG-TERM INTERNATIONAL ASSIGNMENT AGREEMENT - CIMPRESS N.V.ex1010.htm
EX-10.9 - EXHIBIT 10.9 EMPLOYMENT AGREEMENT WITH CORNELIS DAVID ARENDS - CIMPRESS N.V.ex109.htm
EX-10.8 - EXHIBIT 10.8 EMPLOYMENT AGREEMENT WITH W. JACOBS - CIMPRESS N.V.ex108.htm
EX-10.7 - EXHIBIT 10.7 EMPLOYMENT AGREEMENT WITH ASHLEY HUBKA - CIMPRESS N.V.ex107.htm
EX-10.6 - EXHIBIT 10.6 EXECUTIVE RETENTION AGREEMENT WITH ASHLEY HUBKA - CIMPRESS N.V.ex106.htm
EX-10.4 - EXHIBIT 10.4 FORM OF EXECUTIVE RETENTION AGREEMENT - CIMPRESS N.V.ex104.htm
EX-10.3 - EXHIBIT 10.3 CEO PERFORMANCE SHARE UNIT AGREEMENT - CIMPRESS N.V.ex103.htm
EX-10.2 - EXHIBIT 10.2 2016 PERFORMANCE SHARE UNIT AGREEMENT - CIMPRESS N.V.ex102.htm
EX-10.1 - EXHIBIT 10.1 AMENDMENT NO.7 TO EMPLOYMENT AGREEMENT WITH ROBERT S. KEANE - CIMPRESS N.V.ex101.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 September 30, 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
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
 
Name of Exchange on Which Registered
Ordinary Shares, €0.01 par value
 
NASDAQ Global Select Market
_________________________________
Securities registered pursuant to Section 12(g) of the Act: None
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).
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 October 21, 2016, there were 31,650,435 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 Months Ended September 30, 2016

TABLE OF CONTENTS
 
 
Page
PART I FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited)
     Consolidated Balance Sheets as of September 30, 2016 and June 30, 2016
     Consolidated Statements of Operations for the three months ended September 30, 2016 and 2015
     Consolidated Statements of Comprehensive Loss for the three months ended September 30, 2016
     and 2015
     Consolidated Statements of Cash Flows for the three months ended September 30, 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)

September 30,
2016

June 30,
2016
Assets
 


 

Current assets:
 


 

Cash and cash equivalents
$
53,625


$
77,426

Marketable securities
7,312

 
7,893

Accounts receivable, net of allowances of $564 and $490, respectively
30,121


32,327

Inventory
19,510


18,125

Prepaid expenses and other current assets
64,629


64,997

Total current assets
175,197


200,768

Property, plant and equipment, net
495,175


493,163

Software and web site development costs, net
39,018


35,212

Deferred tax assets
41,556


26,093

Goodwill
470,819


466,005

Intangible assets, net
209,387


216,970

Other assets
25,163


25,658

Total assets
$
1,456,315


$
1,463,869

Liabilities, noncontrolling interests and shareholders’ equity
 


 

Current liabilities:
 


 

Accounts payable
$
76,858


$
86,682

Accrued expenses
169,828


178,987

Deferred revenue
32,295


25,842

Short-term debt
28,221


21,717

Other current liabilities
24,522


22,635

Total current liabilities
331,724


335,863

Deferred tax liabilities
67,166


69,430

Lease financing obligation
109,363

 
110,232

Long-term debt
654,300


656,794

Other liabilities
81,325


60,173

Total liabilities
1,243,878


1,232,492

Commitments and contingencies (Note 14)





Redeemable noncontrolling interests
64,949


65,301

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 31,647,134 and 31,536,732 shares outstanding, respectively
615


615

Treasury shares, at cost, 12,433,493 and 12,543,895 shares, respectively
(549,499
)

(548,549
)
Additional paid-in capital
339,929


335,192

Retained earnings
457,379


486,482

Accumulated other comprehensive loss
(101,249
)

(108,015
)
Total shareholders’ equity attributable to Cimpress N.V.
147,175


165,725

Noncontrolling interest
313

 
351

Total shareholders' equity
147,488

 
166,076

Total liabilities, noncontrolling interests and shareholders’ equity
$
1,456,315


$
1,463,869

See accompanying notes.

1




CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited in thousands, except share and per share data)
 
Three Months Ended September 30,
 
2016
 
2015
Revenue
$
443,713

 
$
375,748

Cost of revenue (1)
213,731

 
157,283

Technology and development expense (1)
62,078

 
51,086

Marketing and selling expense (1)
139,351

 
122,135

General and administrative expense (1)
56,361

 
33,159

(Loss) income from operations
(27,808
)
 
12,085

Other (expense) income, net
(2,132
)
 
9,242

Interest expense, net
(9,904
)
 
(8,126
)
(Loss) income before income taxes
(39,844
)
 
13,201

Income tax (benefit) provision
(9,814
)
 
3,179

Net (loss) income
(30,030
)
 
10,022

Add: Net loss attributable to noncontrolling interest
927

 
749

Net (loss) income attributable to Cimpress N.V.
$
(29,103
)
 
$
10,771

Basic net (loss) income per share attributable to Cimpress N.V.
$
(0.92
)
 
$
0.33

Diluted net (loss) income per share attributable to Cimpress N.V.
$
(0.92
)
 
$
0.32

Weighted average shares outstanding — basic
31,570,824

 
32,528,583

Weighted average shares outstanding — diluted
31,570,824

 
33,757,378

____________________________________________
(1) Share-based compensation is allocated as follows:
 
Three Months Ended September 30,
 
2016
 
2015
Cost of revenue
$
43

 
$
26

Technology and development expense
2,325

 
1,330

Marketing and selling expense
820

 
411

General and administrative expense
8,383

 
4,423


See accompanying notes.



2




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

 
Three Months Ended September 30,
 
2016
 
2015
Net (loss) income
$
(30,030
)
 
$
10,022

Other comprehensive income (loss), net of tax:

 

Foreign currency translation gain (loss), net of hedges
9,178

 
(9,203
)
Net unrealized loss on derivative instruments designated and qualifying as cash flow hedges
(1,769
)
 
(926
)
Amounts reclassified from accumulated other comprehensive loss to net (loss) income on derivative instruments
832

 
226

Unrealized loss on available-for-sale-securities
(924
)
 
(1,261
)
Gain on pension benefit obligation, net
36

 
45

Comprehensive loss
(22,677
)
 
(1,097
)
Add: Comprehensive loss attributable to noncontrolling interests
390

 
124

Total comprehensive loss attributable to Cimpress N.V.
$
(22,287
)
 
$
(973
)
See accompanying notes.


3




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

Three Months Ended September 30,
 
2016

2015
Operating activities
 


 

Net (loss) income
$
(30,030
)

$
10,022

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 


 

Depreciation and amortization
35,405


30,258

Share-based compensation expense
11,571


6,190

Deferred taxes
(18,163
)

(2,649
)
Change in contingent earn-out liability
16,020

 

Unrealized loss (gain) on derivatives not designated as hedging instruments included in net (loss) income
1,811


(2,052
)
Effect of exchange rate changes on monetary assets and liabilities denominated in non-functional currency
3,027


(7,793
)
Other non-cash items
670


887

Gain on proceeds from insurance

 
(1,587
)
Changes in operating assets and liabilities:
 


 

Accounts receivable
2,917


(5,943
)
Inventory
(1,220
)

(1,710
)
Prepaid expenses and other assets
671


3,157

Accounts payable
(7,952
)

10,520

Accrued expenses and other liabilities
(5,127
)

(11,874
)
Net cash provided by operating activities
9,600


27,426

Investing activities
 


 

Purchases of property, plant and equipment
(19,319
)
 
(24,393
)
Business acquisitions, net of cash acquired
(580
)
 
(22,815
)
Purchases of intangible assets
(26
)
 
(357
)
Capitalization of software and website development costs
(8,312
)
 
(4,910
)
Proceeds from insurance related to investing activities


2,075

Other investing activities
785

 

Net cash used in investing activities
(27,452
)

(50,400
)
Financing activities
 
 
 
Proceeds from borrowings of debt
87,000

 
214,999

Payments of debt and debt issuance costs
(82,725
)
 
(73,318
)
Payments of withholding taxes in connection with equity awards
(7,549
)
 
(2,741
)
Payments of capital lease obligations
(3,276
)
 
(2,183
)
Purchase of ordinary shares

 
(127,793
)
Proceeds from issuance of ordinary shares

 
282

Capital contribution from noncontrolling interest

 
5,141

Other financing activities


(85
)
Net cash (used in) provided by financing activities
(6,550
)
 
14,302

Effect of exchange rate changes on cash
601


(1,096
)
Net decrease in cash and cash equivalents
(23,801
)

(9,768
)
Cash and cash equivalents at beginning of period
77,426


103,584

Cash and cash equivalents at end of period
$
53,625


$
93,816


See accompanying notes.

4




CIMPRESS N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(unaudited in thousands)
 
Three Months Ended September, 30,
 
2016
 
2015
Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
5,362


$
2,994

Income taxes
8,555


4,709

Non-cash investing and financing activities:
 
 
 
Capitalization of construction costs related to financing lease obligation
$

 
$
13,688

Property and equipment acquired under capital leases
2,077

 
2,393

Amounts due for acquisitions of businesses
21,805

 
19,292

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 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 fulfill those orders with manufacturing capabilities that include Cimpress owned and operated manufacturing facilities and a network of third-party fulfillers to create customized products for customers on-demand. We bring our products to market through a portfolio of focused brands serving the needs of micro, small and medium sized businesses, resellers and consumers. These brands include Vistaprint, our global brand for micro business marketing products and services, as well as brands that 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 months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the year ending June 30, 2017 or for any other period. The consolidated balance sheet at June 30, 2016 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, 2016 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.
Share-Based Compensation
During the three months ended September 30, 2016 and 2015, we recorded share-based compensation expense of $11,571 and $6,190, respectively. As of September 30, 2016, there was $172,376 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 2.2 years.

6




On August 15, 2016, we granted performance share units associated with our new long-term incentive program. Compensation expense for our performance share units, or PSUs, is estimated at fair value on the date of grant, which is fixed throughout the vesting period. The fair value is determined using a Monte Carlo simulation valuation model. As the PSUs include both a service and market condition the related expense is recognized using the accelerated expense attribution method over the requisite service period for each separately vesting portion of the award. For PSUs that meet the service vesting condition, the expense recognized over the requisite service period will not be reversed if the market condition is not achieved.
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 September 30,
 
2016
 
2015
Gains on derivatives not designated as hedging instruments (1)
$
77


$
2,367

Currency-related (losses) gains, net (2)
(2,966
)

5,034

Other gains (3)
757


1,841

Total other (expense) income, net
$
(2,132
)
 
$
9,242

_____________________
(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 months ended September 30, 2016 and 2015 are primarily driven by this intercompany activity. Includes unrealized losses of $1,434 for the three months ended September 30, 2016 related to certain cross-currency swaps designated as cash flow hedges which offset unrealized gains on the remeasurement of certain intercompany loans. The cross-currency swap contracts designated as cash flow hedges did not have an impact during the prior comparative period.
(3) During the three months ended September 30, 2016 and 2015, we recognized gains related to insurance recoveries of $650 and $1,587, respectively.
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”), restricted share awards ("RSAs") and PSUs, if the effect of the securities is dilutive using the treasury stock method. Awards with performance or market conditions are included using the treasury stock method only if the conditions would have been met as of the end of the reporting period and their effect is dilutive.

The following table sets forth the reconciliation of the weighted-average number of ordinary shares:
 
Three Months Ended September 30,
 
2016
 
2015
Weighted average shares outstanding, basic
31,570,824

 
32,528,583

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

 
1,228,795

Shares used in computing diluted net (loss) income per share attributable to Cimpress N.V.
31,570,824

 
33,757,378

Weighted average anti-dilutive shares excluded from diluted net (loss) income per share attributable to Cimpress N.V.
1,524,854

 
79,976

________________
(1) Due to the net loss for the three months ended September 30, 2016, the effect of share options, RSUs, RSAs, and PSUs is anti-dilutive.

7




Recently Issued or Adopted Accounting Pronouncements
Accounting Standards Adopted

In August 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” (ASU 2016-15), which reduces the existing diversity in practice related to the presentation of the statement cash flows under Topic 230, Statement of Cash Flows, and other Topics. The new standard is effective for us on July 1, 2018, and early adoption is permitted. We elected to adopt this new guidance effective for the first quarter of fiscal 2017, and we have applied the changes retrospectively to all periods presented. Our prior period classification of contingent consideration payments and proceeds from the settlement of insurance aligns with the requirements of this new standard and did not require adjustments to the prior period presented.
In September 2015, the FASB 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 was effective for us on July 1, 2016 and we adopted this new standard during the first quarter of fiscal 2017. The adoption of this standard did not have a material effect on our consolidated financial statements.
In February 2015, the FASB 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 variable interest entity (VIE), written put options on the assets of the VIE, or similar obligations. The new standard is effective for us on July 1, 2016 and we adopted this new standard during the first quarter of fiscal 2017. The adoption of this standard did not have a material effect on our consolidated financial statements.
Issued Accounting Standards to be Adopted
In October 2016, the FASB issued Accounting Standards Update No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory," (ASU 2016-16), which requires the recognition for income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new standard is effective for us on July 1, 2018 and permits early adoption. We are currently evaluating our adoption timing and the effect that ASU 2016-16 will have on our consolidated financial statements.
In March 2016, the FASB 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 FASB 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 our adoption timing and the effect that ASU 2016-02 will have on our consolidated financial statements.
In January 2016, the FASB 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.

8




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 July 2015, FASB issued Accounting Standards Update No. 2015-11,"Simplifying the Measurement of Inventory," (ASU 2015-11) 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 completion, disposal, and transportation. The new standard is effective for us on July 1, 2017 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 May 2014, the FASB 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 our adoption timing and the effect that ASU 2014-09 will have on our consolidated financial statements.
3. Fair Value Measurements
The following table summarizes our investments in marketable securities:
 
September 30, 2016
 
Amortized Cost Basis (2)
 
Unrealized gain
 
Estimated Fair Value
Available-for-sale securities
 
 
 
 
 
Plaza Create Co. Ltd. common shares (1)
$
4,748

 
$
2,564

 
$
7,312

Total investments in available-for-sale securities
$
4,748

 
$
2,564

 
$
7,312

 
June 30, 2016
 
Amortized Cost Basis (2)
 
Unrealized gain
 
Estimated Fair Value
Available-for-sale securities
 
 
 
 
 
Plaza Create Co. Ltd. common shares (1)
$
4,405

 
$
3,488

 
$
7,893

Total investments in available-for-sale securities
$
4,405

 
$
3,488

 
$
7,893


________________________
(1) On February 28, 2014, we purchased shares in our publicly traded Japanese joint venture partner. Refer to Note 11 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.

9




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:
 
September 30, 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
$
7,312

 
$
7,312

 
$

 
$

Currency forward contracts
8,998

 

 
8,998

 

Total assets recorded at fair value
$
16,310

 
$
7,312

 
$
8,998

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
(1,755
)
 
$

 
$
(1,755
)
 
$

Cross-currency swap contracts
(14,063
)
 

 
(14,063
)
 

Currency forward contracts
(1,790
)
 

 
(1,790
)
 

Contingent consideration
(2,339
)
 

 

 
(2,339
)
Total liabilities recorded at fair value
$
(19,947
)
 
$

 
$
(17,608
)
 
$
(2,339
)

 
June 30, 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
$
7,893

 
$
7,893

 
$

 
$

Currency forward contracts
9,821

 

 
9,821

 

Total assets recorded at fair value
$
17,714

 
$
7,893

 
$
9,821

 
$

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Interest rate swap contracts
$
(2,180
)
 
$

 
$
(2,180
)
 
$

Cross-currency swap contracts
(8,850
)
 

 
(8,850
)
 

Currency forward contracts
(315
)
 

 
(315
)
 

Contingent consideration
(1,212
)
 

 

 
(1,212
)
Total liabilities recorded at fair value
$
(12,557
)
 
$

 
$
(11,345
)
 
$
(1,212
)
During the quarter ended September 30, 2016 and year ended June 30, 2016, 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 September 30, 2016, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our

10




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.
Related to the acquisition of WIRmachenDRUCK on February 1, 2016 we agreed to a contingent payment payable during the third quarter of fiscal 2018 based on the achievement of a cumulative gross profit target for calendar years 2016 and 2017. The fair value of this contingent liability is $19,206 as of September 30, 2016, of which $2,339 is considered contingent consideration and included in the table below. The remaining portion of the liability is classified as a compensation arrangement and is discussed in Note 8.
The following table represents the changes in fair value of Level 3 contingent consideration:
 
Three Months Ended September 30,
 
2016 (1)
 
2015 (2)
Balance at June 30
$
1,212

 
$
7,833

Fair value adjustment
1,112

 

Foreign currency impact
15

 
48

Balance at September 30 (3)
$
2,339

 
$
7,881

_____________________
(1) Classified as long-term liability on the consolidated balance sheet
(2) Classified as short-term liability on the consolidated balance sheet
(3) Contingent consideration balance as of September 30, 2015, which related to our Printdeal acquisition, was paid during the fourth quarter of fiscal 2016.

As of September 30, 2016 and June 30, 2016, the carrying amounts of our cash and cash equivalents, accounts receivables, accounts payable, and other current liabilities approximated their estimated fair values. As of September 30, 2016 and June 30, 2016 the carrying value of our debt, excluding debt issuance costs and debt discounts was $689,485 and $685,897, respectively, and the fair value was $704,793 and $686,409, respectively. Our debt at September 30, 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, then 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, then the ineffective portion of the change in fair value of the derivative 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

11




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.
We did not hold any interest rate swaps that were determined to be ineffective during the quarter ended September 30, 2016. We did hold one interest rate swap that was determined to be ineffective during the quarter ended September 30, 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 September 30, 2016, we estimate that $538 will be reclassified from accumulated other comprehensive (loss) income to interest expense during the twelve months ending September 30, 2017. As of September 30, 2016, we had five 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 September 30, 2016
 
$
115,000

Contracts with a future start date
 
65,000

Total
 
$
180,000

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 September 30, 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 quarter ended September 30, 2016, we recorded unrealized losses, net of tax, in accumulated other comprehensive (loss) income in the amount of $2,020. 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 September 30, 2016, we estimate that $1,804 will be reclassified from accumulated other comprehensive (loss) income to other (expense) income, net during the twelve months ending September 30, 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 September 30, 2016, we had two outstanding cross-currency swap contracts designated as net investment hedges with a total 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 quarter ended September 30, 2016, we recorded unrealized losses, net of tax, in accumulated other comprehensive loss as a component of our cumulative translation adjustment in the amount of $2,059.

12




We did not hold any cross-currency swap contracts that were determined to be ineffective during the quarter ended September 30, 2016 or 2015.
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 September 30, 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 quarters ended September 30, 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 September 30, 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, British Pound, Indian Rupee, New Zealand Dollar, Norwegian Krone, Swedish Krona, and Swiss Franc:
Notional Amount
 
Effective Date
 
Maturity Date
 
Number of Instruments
 
Index
$328,016
 
June 2015 through September 2016
 
Various dates through March 2018
 
430
 
Various


13




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 September 30, 2016 and June 30, 2016:
 
September 30, 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

$
(1,755
)

$


$
(1,755
)
Cross-currency swaps
Other non-current assets
 

 

 

 
Other liabilities
 
(4,712
)
 

 
(4,712
)
Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps
Other non-current assets
 

 

 

 
Other liabilities
 
(9,351
)
 

 
(9,351
)
Currency forward contracts
Other non-current assets
 

 

 

 
Other liabilities
 
(650
)
 

 
(650
)
Total derivatives designated as hedging instruments


$


$


$




$
(16,468
)

$


$
(16,468
)
















Derivatives not designated as hedging instruments















Currency forward contracts
Other current assets / other assets

$
10,359


$
(1,361
)

$
8,998


Other current liabilities / other liabilities

$
(1,495
)

$
355


$
(1,140
)
Total derivatives not designated as hedging instruments


$
10,359


$
(1,361
)

$
8,998




$
(1,495
)

$
355


$
(1,140
)

14





June 30, 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

$
(2,180
)

$


$
(2,180
)
Cross-currency swaps
Other non-current assets







Other liabilities

(2,080
)



(2,080
)
Derivatives in Net Investment Hedging Relationships
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cross-currency swaps
Other non-current assets







Other liabilities

(6,770
)



(6,770
)
Currency forward contracts
Other non-current assets







Other liabilities

(165
)



(165
)
Total derivatives designated as hedging instruments


$


$


$




$
(11,195
)

$


$
(11,195
)
















Derivatives not designated as hedging instruments















Currency forward contracts
Other current assets

$
10,748


$
(927
)

$
9,821


Other current liabilities

$
(508
)

$
358


$
(150
)
Total derivatives not designated as hedging instruments


$
10,748


$
(927
)

$
9,821




$
(508
)

$
358


$
(150
)
The following table presents the effect of our derivative financial instruments designated as hedging instruments and their classification within comprehensive loss for the quarters ended September 30, 2016 and 2015:
Derivatives in Hedging Relationships
Amount of Gain (Loss) Recognized in Comprehensive (Loss) Income on Derivatives (Effective Portion)
 
Three Months Ended September 30,
In thousands
2016
 
2015
Derivatives in Cash Flow Hedging Relationships
 
 
 
Interest rate swaps
$
251

 
$
(926
)
Cross-currency swaps
(2,020
)
 

Derivatives in Net Investment Hedging Relationships
 
 
 
Cross-currency swaps
(2,059
)
 
419

Currency forward contracts
(456
)
 

 
$
(4,284
)
 
$
(507
)
    

15




The following table presents reclassifications out of accumulated other comprehensive loss for the quarters ended September 30, 2016 and 2015:
Details about Accumulated Other
Comprehensive Loss Components
Amount Reclassified from Accumulated Other Comprehensive Loss to Net (Loss) Income
 
Affected line item in the
Statement of Operations
 
Three Months Ended September 30,
 
 
In thousands
2016
 
2015
 
 
Derivatives in Cash Flow Hedging Relationships
 
 
 
 
 
Interest rate swaps
$
(156
)
 
$
(302
)
 
Interest expense, net
Cross-currency swaps
(953
)
 

 
Other income (expense), net
Total before income tax
(1,109
)
 
(302
)
 
Income (loss) before income taxes
Income tax
277

 
76

 
Income tax provision
Total
$
(832
)
 
$
(226
)
 
 
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:
 
Amount of Gain (Loss) Recognized in Net (Loss) Income
 
Location of Gain (Loss) Recognized in Income (Ineffective Portion)
 
Three Months Ended September 30,
 
 
In thousands
2016
 
2015
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
Currency contracts
$
77

 
$
2,374

 
Other income (expense), net
Interest rate swaps

 
(7
)
 
Other income (expense), net
 
$
77

 
$
2,367

 
 
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 $277, for the quarter ended September 30, 2016:

Gains (losses) on cash flow hedges (1)
 
Gains (losses) on available for sale securities
 
Gains (losses) on pension benefit obligation
 
Translation adjustments, net of hedges (2)
 
Total
Balance as of June 30, 2016
$
(2,322
)
 
$
3,488

 
$
(2,551
)
 
$
(106,630
)
 
$
(108,015
)
Other comprehensive (loss) income before reclassifications
(1,769
)
 
(924
)
 
36

 
8,591

 
5,934

Amounts reclassified from accumulated other comprehensive (loss) income to net (loss) income
832

 

 

 

 
832

Net current period other comprehensive (loss) income
(937
)
 
(924
)
 
36

 
8,591

 
6,766

Balance as of September 30, 2016
$
(3,259
)
 
$
2,564

 
$
(2,515
)
 
$
(98,039
)
 
$
(101,249
)
________________________
(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 $7,642 and $4,965 have been included in accumulated other comprehensive loss as of September 30, 2016 and June 30, 2016, respectively.
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

16




was completed and we commenced lease payments in September 2015 and will make lease payments through September 2026.
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 due to our planned subleasing activity over the term of the lease. 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 $119,134 and $120,168 as of September 30, 2016 and June 30, 2016, respectively, related to the building. The financing lease obligation and deferred rent credit related to the building on our consolidated balance sheets was $121,933 and $122,801, respectively, as of September 30, 2016 and June 30, 2016.
7. Goodwill and Acquired Intangible Assets
Goodwill
The carrying amount of goodwill by reportable segment is as follows:

Vistaprint business unit

Upload and Print business units

All Other
business units

Total
Balance as of June 30, 2016
$
121,752


$
319,373


$
24,880


$
466,005

Effect of currency translation adjustments (1)
802


3,475


537


4,814

Balance as of September 30, 2016
$
122,554


$
322,848


$
25,417


$
470,819

_________________

(1) 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 quarters ended September 30, 2016 and 2015 was $10,213 and $9,714, respectively.
8. Other Balance Sheet Components
Accrued expenses included the following:
 
September 30, 2016
 
June 30, 2016
Compensation costs (1)
$
37,363


$
59,207

Income and indirect taxes
42,009


39,802

Advertising costs
22,930


26,372

Shipping costs
5,845


6,843

Interest payable
10,055

 
5,172

Purchases of property, plant and equipment
4,245


4,614

Production costs
4,628

 
3,251

Sales returns
2,841

 
2,882

Professional costs
2,109


1,543

Other
37,803


29,301

Total accrued expenses
$
169,828


$
178,987

_____________________
(1) The decrease in compensation costs is primarily due to payment of our fiscal 2016 bonus and long-term incentive program in the first quarter of fiscal 2017. Effective July 1, 2016, we transitioned the annual bonus program to be included in team members' base salary. These amounts are therefore paid on our typical payroll schedule.

17





Other current liabilities included the following:
 
September 30, 2016
 
June 30, 2016
Current portion of lease financing obligation
$
12,569

 
$
12,569

Current portion of capital lease obligations
8,916

 
8,011

Other
3,037

 
2,055

Total other current liabilities
$
24,522

 
$
22,635

Other liabilities included the following:
 
September 30, 2016
 
June 30, 2016
Contingent earn-out liability
$
19,206

 
$
3,146

Long-term capital lease obligations
17,374

 
21,318

Long-term derivative liabilities
16,568

 
10,949

Other
28,177

 
24,760

Total other liabilities
$
81,325

 
$
60,173

The contingent earn-out liability included within other liabilities relates to the sliding scale earn-out for our 2016 WIRmachenDRUCK acquisition. Under the original terms of the arrangement, a portion of the earn-out attributed to the minority selling shareholders was included as a component of purchase consideration as of the acquisition date, with any subsequent changes to fair value recognized within general and administrative expense.
The remaining portion payable to the two majority selling shareholders was not included as part of the purchase consideration as of acquisition date as it was contingent upon their post-acquisition employment and planned to be recognized as expense through the required employment period. On July 15, 2016, in response to a statutory tax notice we amended the terms of the compensation portion of the arrangement with the two majority selling shareholders and we removed the post-acquisition employment requirement. As the arrangement is no longer contingent upon continued employment, we accelerated the remaining unrecognized compensation expense, $7,034 of additional expense as of the amendment date, within general and administrative expense during the first quarter of fiscal 2017.
In addition, the estimated fair value of the contingent liability payable to all selling shareholders increased, due to the recent business performance relative to performance targets and the time value impact within the Monte Carlo simulation model. We recognized $8,985 of additional expense during the quarter, as part of general and administrative expense. As of September 30, 2016, the total liability is $19,206, of which $16,867 relates to the majority shareholders and $2,339 relates to the minority shareholders, which is further discussed in Note 3.
9. Debt

September 30, 2016

June 30, 2016
7.0% Senior unsecured notes due 2022
$
275,000


$
275,000

Senior secured credit facility
405,038

 
400,809

Other
9,447

 
10,088

Debt issuance costs and debt discounts
(6,964
)

(7,386
)
Total debt outstanding, net
682,521


678,511

Less short-term debt (1)
28,221

 
21,717

Long-term debt
$
654,300


$
656,794

_____________________
(1) Balances as of September 30, 2016 and June 30, 2016 are both inclusive of short-term debt issuance costs and debt discounts of $1,693.

18




Our Debt
Our various debt arrangements described below contain customary representations, warranties and events of default. As of September 30, 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 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 September 30, 2016, we have a senior secured credit facility of $826,000 as follows:
Revolving loans of $690,000 with a maturity date of September 23, 2019
Term loan of $136,000 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 September 30, 2016, the weighted-average interest rate on outstanding borrowings was 2.32%, 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 September 30, 2016.    

19




Other debt
Other debt consists of term loans acquired primarily as part of our fiscal 2015 acquisition of Exagroup SAS. As of September 30, 2016 we had $9,447 outstanding for those obligations that are payable through September 2024.
10. Income Taxes

Income tax (benefit) expense was ($9,814) and $3,179 for the three months ended September 30, 2016 and 2015, respectively. The decrease in income tax expense is attributable to reporting a loss for the three months ended September 30, 2016 as compared to a profit for the same prior year period. We 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. However, we do expect to owe cash taxes in certain jurisdictions despite the recognition of a consolidated loss during the quarter. In addition, during the three months ended September 30, 2016, we recognized a tax benefit of $4,189 due to share-based compensation as compared to $761 for the same prior year period.
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 is 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 a result of this amortization, we are expecting a loss for Swiss tax purposes during fiscal year 2017.
As of September 30, 2016, we had a net liability for unrecognized tax benefits included in the balance sheet of $4,494, including accrued interest of $170. We recognize interest and, if applicable, penalties related to unrecognized tax benefits in the provision for income taxes. Of the total amount of unrecognized tax benefits, approximately $2,003 will reduce the effective tax rate if recognized. It is reasonably possible that a reduction in unrecognized tax benefits may occur within the next twelve months. However, we are unable to quantify an estimated range of the impact to our unrecognized tax benefits at this time. 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 2016 remain open for examination by the United States Internal Revenue Service (“IRS”) and the years 2011 through 2016 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.
11. 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 SAS. The remaining 30% is considered a redeemable noncontrolling equity interest, as it is redeemable in the future and not solely within our

20




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. As of September 30, 2016, the redemption value is less than the carrying value, and therefore no adjustment is required.

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. As of September 30, 2016, the redemption value is less than the carrying value, and therefore no adjustment is required.

    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. 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 September 30, 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 12. 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, 2016
 
$
65,301

 
$
351

Net loss attributable to noncontrolling interest
 
(938
)
 
(38
)
Foreign currency translation
 
586

 

Balance as of September 30, 2016
 
$
64,949

 
$
313

12. 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 September 30, 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.
We have call options with certain employee shareholders to increase our ownership in Printi incrementally over an eight-year period. As the employees' restricted stock in Printi is contingent on post-acquisition employment,

21




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 September 30, 2016, we utilized a lattice model with a Monte Carlo simulation. The current fair value of the award is $5,979 and we have recognized $386 and $371 in general and administrative expense for the quarters ended September 30, 2016 and 2015, respectively.
13. Segment Information
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 September 30, 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 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.
During the first quarter of fiscal 2017, we transferred a large part of our IT operations team from our corporate and global functions cost center to the Vistaprint business unit. Additionally, a group of finance employees were transferred to corporate and global functions from the Upload and Print business units, due to changes in our internal organization structure. We have revised the presentation of all prior periods presented to reflect our revised segment reporting.
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. Under our new incentive compensation plan we granted PSUs during the first quarter of fiscal 2017. The PSU expense value is based on a Monte Carlo fair value analysis and is required to be expensed on an accelerated basis. In order to ensure comparability in measuring our business unit results, we allocate the straight-line portion of the fixed grant value to our business units. Any expense in excess of the amount as a result of the fair value measurement of the PSUs and the accelerated expense profile of the awards is recognized within corporate and global functions.
Adjusted net operating profit is 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 contingent 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.

22




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.
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 September 30,
 
2016
 
2015
Revenue:
 
 
 
Vistaprint business unit
$
285,422

 
$
267,469

Upload and Print business units
131,957

 
76,538

All Other business units
26,334

 
31,741

Total revenue
$
443,713

 
$
375,748


 
Three Months Ended September 30,
 
2016
 
2015
Adjusted net operating profit by segment:
 
 
 
Vistaprint business unit
$
58,217

 
$
64,462

Upload and Print business units
16,114

 
11,450

All Other business units
(9,609
)
 
(1,085
)
Total adjusted net operating profit by segment
64,722

 
74,827

Corporate and global functions
(63,937
)

(51,948
)
Acquisition-related amortization and depreciation
(10,213
)
 
(9,782
)
Earn-out related charges (1)
(16,247
)
 
(289
)
Share-based compensation related to investment consideration
(4,103
)
 
(802
)
Restructuring charges

 
(271
)
Interest expense for Waltham lease
1,970

 
350

Total (loss) income from operations
(27,808
)
 
12,085

Other (expense) income, net
(2,132
)
 
9,242

Interest expense, net
(9,904
)
 
(8,126
)
(Loss) income before income taxes
$
(39,844
)
 
$
13,201

___________________
(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.

23




 
Three Months Ended September 30,
 
2016
 
2015
Depreciation and amortization:
 
 
 
Vistaprint business unit
$
11,273

 
$
9,861

Upload and Print business units
14,110

 
10,052

All Other business units
3,604

 
4,383

Corporate and global functions
6,418

 
5,962

Total depreciation and amortization
$
35,405

 
$
30,258

Enterprise Wide Disclosures:
The following tables set forth revenues by geographic area and groups of similar products and services:
 
Three Months Ended September 30,
 
2016
 
2015
United States
$
187,955

 
$
179,413

Non-United States (2)
255,758

 
196,335

Total revenue
$
443,713

 
$
375,748

 
Three Months Ended September 30,
 
2016
 
2015
Physical printed products and other (3)
$
428,714

 
$
360,148

Digital products/services
14,999

 
15,600

Total revenue
$
443,713

 
$
375,748

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

 
 

Netherlands
$
96,780

 
$
91,053

Canada
89,562

 
89,888

Switzerland
41,581

 
38,501

Italy
35,804

 
34,086

United States
32,126

 
32,977

France
24,245

 
24,561

Australia
24,727

 
24,358

Japan
23,290

 
23,213

Jamaica
22,290

 
22,604

Other
49,816

 
53,059

Total
$
440,221

 
$
434,300

___________________
(4) Excludes goodwill of $470,819 and $466,005, intangible assets, net of $209,387 and $216,970, the Waltham lease asset of $119,134 and $120,168, and deferred tax assets of $41,556 and $26,093 as of September 30, 2016 and June 30, 2016, respectively.

24




14. Commitments and Contingencies
Lease Commitments
We have commitments under operating leases for our facilities that expire on various dates through 2026, including the Waltham lease arrangement discussed in Note 6. Total lease expense, net of sublease income for the three months ended September 30, 2016 and 2015 was $2,271 and $4,102, respectively. The decrease in total lease expense during fiscal 2016 as compared to the prior comparable periods is due to the move to our Waltham, Massachusetts facility during the first quarter of fiscal 2016 and the treatment of the related lease similar to a capital lease, with cash payments allocated to depreciation expense and interest expense.
We also lease certain machinery and plant equipment under both capital and operating lease agreements that expire at various dates through 2022. The aggregate carrying value of the leased equipment under capital leases included in property, plant and equipment, net in our consolidated balance sheet at September 30, 2016, is $27,110, net of accumulated depreciation of $18,628; the present value of lease installments not yet due included in other current liabilities and other liabilities in our consolidated balance sheet at September 30, 2016 amounts to $28,862.
Purchase Obligations
At September 30, 2016, we had unrecorded commitments under contract of $68,123, which were primarily composed of commitments for production and computer equipment purchases of approximately $33,051. Production and computer equipment purchases relates partially to a two year purchase commitment for equipment with one of our suppliers. In addition, we had purchase commitments for third-party web services of $9,500, professional and consulting fees of approximately $7,385, inventory purchase commitments of $3,220, commitments for advertising campaigns of $1,583, and other unrecorded purchase commitments of $13,384.
Other Obligations
We have an outstanding installment obligation of $8,818 related to the fiscal 2012 intra-entity transfer of the intellectual property of our subsidiary Webs, Inc., which results in tax being paid over a 7.5 year term and has been classified as a deferred tax liability in our consolidated balance sheet as of September 30, 2016. Other obligations also includes a contingent earn-out liability for our recent WIRmachenDRUCK acquisition, based on the achievement of certain financial targets, payable at our option in cash or ordinary shares in fiscal 2018 of $19,206. Refer to Note 8 for additional discussion related to the contingent earn-out liability. In addition, we have deferred payments related to our fiscal 2015 and 2016 acquisitions of $2,599 in aggregate.
Legal Proceedings
We are not currently party to any material legal proceedings. Although we cannot predict with certainty the results of litigation and claims to which we may be subject from time to time, we do not expect the resolution of any of our current matters to have a material adverse impact on our consolidated results of operations, cash flows or financial position. In all cases, at each reporting period, we evaluate whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. We expense the costs relating to our legal proceedings as those costs are incurred.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
    
This Report contains forward-looking statements that involve risks and uncertainties. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to our statements about anticipated income and revenue growth rates, future profitability and market share, new and expanded products and services, geographic expansion and planned capital expenditures. Without limiting the foregoing, the words “may,” “should,” “could,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “designed,” “potential,” “continue,” “target,” “seek” and similar expressions are intended to identify forward-looking statements. All forward-looking statements included in this Report are based on information available to us

25




up to, and including the date of this document, and we disclaim any obligation to update any such forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain important factors, including those set forth in this “Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” and elsewhere in this Report. You should carefully review those factors and also carefully review the risks outlined in other documents that we file from time to time with the United States Securities and Exchange Commission.
Executive Overview
Cimpress, the world leader in mass customization, is a technology 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 fulfill those orders with manufacturing capabilities which include Cimpress owned and operated manufacturing facilities and a network of third-party fulfillers to create customized products for customers on-demand. We bring our products to market through a portfolio of focused brands serving the needs of micro, small and medium sized businesses, resellers and consumers. These brands include Vistaprint, our global brand for micro business marketing products and services, as well as brands that 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.
As of September 30, 2016, we have several operating segments under our management reporting structure which are reported in the following three reportable segments: Vistaprint business unit, Upload and Print business units and All Other business units. The Vistaprint business unit represents 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. The Upload and Print business units segment includes the druck.at, Exagroup, Easyflyer, Printdeal, Pixartprinting, Tradeprint, and WIRmachenDRUCK branded businesses. The All Other business units segment includes the operations of our Albumprinter and Most of World business units and Corporate Solutions business unit, which historically was part of the Vistaprint business unit and is focused on delivering volume and revenue via partnerships.
In evaluating the financial condition and operating performance of our business, management focuses on revenue growth, constant-currency revenue growth, operating income, adjusted net operating profit after tax (NOPAT) and cash flow from operations. A summary of these key financial metrics for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015 are as follows:
First Quarter 2017
Reported revenue increased by 18% to $443.7 million.
Consolidated constant-currency revenue increased by 19% and excluding acquisitions increased by 6%.
Operating (loss) income decreased $39.9 million to an operating loss of $27.8 million.
Adjusted NOPAT decreased $21.1 million to $(4.7) million.
Cash provided by operating activities decreased $17.8 million to $9.6 million.
Our reported revenue growth was primarily due to the addition of the revenue of our recently acquired WIRmachenDRUCK brand, as well as continued growth in the Vistaprint business unit and Upload and Print businesses acquired more than twelve months prior. The decrease in operating (loss) income was partially due to significant acquisition-related expense associated with our WIRmachenDRUCK contingent earn-out arrangement and a one-time modification expense for the acceleration of vesting terms for certain restricted share awards related to our Tradeprint acquisition.
Operating (loss) income and adjusted NOPAT (a non-GAAP financial measure) decreased versus the comparative period a year ago due to decreased profit from our Albumprinter and Corporate Solutions businesses due to the loss of two partner contracts. The decrease was also impacted by incremental share-based compensation expense as a result of our new incentive compensation plan that began in August. Additionally, this decrease was impacted by our planned increased organic investments in our Vistaprint business unit, including our planned shipping price reductions to Vistaprint customers, as well as our increased investments in our mass customization platform and expansion of production and information technology capabilities. The current quarter was also impacted by weather-induced flooding in our North American manufacturing facility during the last week of

26




the quarter, negatively impacting revenue and profits for the Vistaprint business unit. This production delay resulted in increases in backlog at quarter end, but the impact to revenue and profit are expected to be recognized during the second quarter of fiscal 2017.
Results of Operations
The following table presents our operating results for the periods indicated as a percentage of revenue:
 
Three Months Ended September 30,
 
2016
 
2015
As a percentage of revenue:
 
 
 

Revenue
100.0
 %
 
100.0
 %
Cost of revenue
48.2
 %
 
41.9
 %
Technology and development expense
14.0
 %
 
13.6
 %
Marketing and selling expense
31.4
 %
 
32.5
 %
General and administrative expense
12.7
 %
 
8.9
 %
(Loss) income from operations
(6.3
)%
 
3.2
 %
Other (expense) income, net
(0.5
)%
 
2.5
 %
Interest expense, net
(2.2
)%
 
(2.2
)%
(Loss) income before income taxes
(9.0
)%
 
3.5
 %
Income tax (benefit) provision
(2.2
)%
 
0.8
 %
Net (loss) income
(6.8
)%
 
2.7
 %
Add: Net loss attributable to noncontrolling interest
0.2
 %
 
0.2
 %
Net (loss) income attributable to Cimpress N.V.
(6.6
)%
 
2.9
 %

In thousands
 
Three Months Ended September 30,
 
 
 
2016

2015

2016 vs. 2015
Revenue
$
443,713


$
375,748


18
%
Revenue
We generate revenue primarily from the sale and shipping of customized manufactured products, and by providing digital services, website design and hosting, and email marketing services, as well as a small percentage from order referral fees and other third-party offerings.     
Total revenue by reportable segment for the three months ended September 30, 2016 and 2015 is shown in the following table. The first quarter of fiscal 2016 includes the impact of Tradeprint and Alcione from their respective acquisition dates in our Upload and Print business units segment:
In thousands
Three Months Ended September 30,
 
 
 
Currency
Impact:
 
Constant-
Currency
 
Impact of Acquisitions:
 
Constant- Currency Revenue Growth
 
2016
 
2015
 
%
Change
 
(Favorable)/Unfavorable
 
Revenue Growth (1)
 
(Favorable)/Unfavorable
 
Excluding Acquisitions (2)
Vistaprint business unit
$
285,422


$
267,469


7%

1%

8%

—%

8%
Upload and Print business units (3)
131,957


76,538


72%

1%

73%

(61)%

12%
All Other business units
26,334


31,741


(17)%

(2)%

(19)%

—%

(19)%
Total revenue
$
443,713


$
375,748


18%

1%

19%

(13)%

6%
_________________
(1) Constant-currency revenue growth, a non-GAAP financial measure, represents the change in total revenue between current and prior year periods at constant-currency exchange rates by translating all non-U.S. dollar denominated revenue generated in the current period using the prior year period’s average exchange rate for each currency to the U.S. dollar.

27




(2) Constant-currency revenue growth excluding acquisitions, a non-GAAP financial measure, excludes revenue results for businesses and brands in the period in which there is no comparable year over year revenue. Revenue from our fiscal 2016 acquisitions is excluded from fiscal 2016 revenue growth. For example, revenue from Tradeprint, which we acquired in Q1 2016, is excluded from Q1 2017 revenue growth since there are no full quarter results in the comparable period.
We have provided these non-GAAP financial measures because we believe they provide meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate our operating results. These non-GAAP financial measures should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with GAAP.
(3) The Upload and Print business units include the impact of the Tradeprint and Alcione fiscal 2016 acquisitions from their respective acquisition dates of July 31, 2015 and July 29, 2015, respectively.
Vistaprint business unit
Reported revenue for the three months ended September 30, 2016 increased 7% to $285.4 million, as compared to the three months ended September 30, 2015. Our reported revenue growth was negatively affected by currency impacts during the three months ended September 30, 2016 of 1%. The Vistaprint business unit constant-currency growth of 8% was primarily due to repeat customer bookings growth, with more modest growth in new customer bookings. Performance continues to be stronger in the North American and Australian markets, with improving results in certain European markets. Revenue from our focus product categories including signage, marketing materials and promotional products and apparel is growing faster than the overall segment. Revenue growth was negatively impacted by approximately 200 basis points due to weather-induced flooding in our North American manufacturing facility, that caused a temporary disruption in production activities near quarter end resulting in an increase in backlog. In addition, some of our customer value proposition efforts create revenue headwinds in certain markets including recent reductions in shipping pricing.
Upload and Print business units    
Reported revenue for the three months ended September 30, 2016 increased 72% to $132.0 million from $76.5 million in the prior comparable period. Our reported revenue growth includes the addition of aggregate revenue of $46.7 million for the quarter ended September 30, 2016 from the brands we acquired in fiscal 2016. The Upload and Print business units constant-currency revenue growth excluding revenue from businesses acquired in the past twelve months was 12% for the quarter ended September 30, 2016, primarily driven by continued growth from our Pixartprinting, Printdeal and Exagroup brands.
All Other business units
Reported revenue for the three months ended September 30, 2016 decreased 17% to $26.3 million, as compared to the prior comparable period. Our reported revenue was positively affected by currency impacts during the quarter ended September 30, 2016 of 2%. The All Other business units constant-currency revenue decline of 19% for the quarter ended September 30, 2016 was primarily due to the termination of certain partner contracts in both our Corporate Solutions and Albumprinter businesses. These declines were partially offset by growth in Albumprinter's direct to consumer business, as well as growth in our Most of World portfolio which continues to grow off a relatively small base.

28




The following table summarizes our comparative operating expenses for the period:

In thousands
 
Three Months Ended September 30,
 
 
 
2016
 
2015
 
2016 vs. 2015
Cost of revenue
$
213,731

 
$
157,283

 
36
%
% of revenue
48.2
%
 
41.9
%
 
 
Technology and development expense
$
62,078

 
$
51,086

 
22
%
% of revenue
14.0
%
 
13.6
%
 
 
Marketing and selling expense
$
139,351

 
$
122,135

 
14
%
% of revenue
31.4
%
 
32.5
%
 
 
General and administrative expense
$
56,361

 
$
33,159

 
70
%
% of revenue
12.7
%
 
8.9
%
 
 
Cost of revenue
Cost of revenue includes materials used to manufacture our products, payroll and related expenses for production personnel, depreciation of assets used in the production process and in support of digital marketing service offerings, shipping, handling and processing costs, third-party production costs, costs of free products and other related costs of products sold by us. Cost of revenue as a percent of revenue increased during the quarter ended September 30, 2016, as the operations within the Upload and Print business units have, as a percent of revenue, higher cost of revenue than our traditional business and are growing faster; however, these companies also have lower marketing, selling and operating costs as a percent of revenue.
The Vistaprint business unit cost of revenue increased to $103.5 million for the quarter ended September 30, 2016 from $91.2 million in the prior year period. The increase was primarily due to increased costs associated with production volume and product mix of $11.6 million and was also impacted by the aggregate impact of currency, productivity and efficiency losses of $0.7 million.
The Upload and Print business units cost of revenue increased to $94.9 million for the quarter ended September 30, 2016 from $50.8 million in the prior comparable period primarily due to incremental manufacturing costs of $36.9 million for the operations acquired in fiscal 2016. The remaining increase is due to increased manufacturing costs from our Pixartprinting and Printdeal brands, primarily due to increases in revenue.
The All Other business units cost of revenue decreased to $14.1 million for the quarter ended September 30, 2016 from $14.7 million during the prior comparable period, primarily due to reductions in partner-related revenue.
During the three months ended September 30, 2016 and 2015 we had cost of revenue that was not allocated to our business units for management reporting of $1.2 million and $0.6 million, respectively. The costs primarily relate to certain start-up costs related to new product introductions and manufacturing technologies.
Technology and development expense
Technology and development expense consists primarily of payroll and related expenses for our employees engaged in software and manufacturing engineering, information technology operations and content development, as well as amortization of capitalized software, website development costs and certain acquired intangible assets, including developed technology, hosting of our websites, asset depreciation, patent amortization, legal settlements in connection with patent-related claims, and other technology infrastructure-related costs. Depreciation expense for information technology equipment that directly supports the delivery of our digital marketing services products is included in cost of revenue.
The growth in our technology and development expenses of $11.0 million for the quarter ended September 30, 2016 as compared to the prior comparative period was due to increased payroll, share-based compensation and facility-related costs of $7.7 million, as a result of increased headcount in our technology development and information technology support organizations. The increase in headcount is partly due to increases in software and

29




manufacturing engineering resources related to the continued development of our software-based mass customization platform as well as the enhancement of existing capabilities and expansion of product selection. Technology infrastructure-related costs increased by $3.0 million, primarily due to increased software maintenance and licensing costs, as well as increased IT cloud service costs. Depreciation and amortization expense increased by $0.7 million, primarily due to expense related to our fiscal 2016 acquisitions. During the quarter ended September 30, 2016, we had higher net capitalization of software costs of $0.4 million, due to an increase in costs that qualified for capitalization during the current quarter.
Marketing and selling expense
Marketing and selling expense consists primarily of advertising and promotional costs; payroll and related expenses for our employees engaged in marketing, sales, customer support and public relations activities; amortization of certain acquired intangible assets, including customer relationships and trade names; and third-party payment processing fees. Our Upload and Print business units have a lower marketing and selling cost structure compared to the Vistaprint business unit.
    Our marketing and selling expenses increased by $17.2 million during the quarter ended September 30, 2016 as compared to the prior comparative period primarily due to increased advertising expense of $8.1 million as a result of additional advertising spend in the Vistaprint business unit. Our payroll and facility-related costs, inclusive of share-based compensation, increased $6.1 million, as we expanded our marketing and customer service, sales and design support organization through our recent acquisitions and continued investment in the Vistaprint business unit customer service resources in order to provide higher value services to our customers. Payment processing and third-party services were $1.8 million higher than the prior period, primarily due to increased order volumes. Other marketing and selling costs increased by $1.2 million, primarily due to increased travel and training costs.
General and administrative expense
General and administrative expense consists primarily of transaction costs, including third-party professional fees, insurance and payroll and related expenses of employees involved in executive management, finance, legal, and human resources.
During the quarter ended September 30, 2016 our general and administrative expenses increased by $23.2 million, as compared to the prior comparative period. The increase in the current quarter was primarily driven by $16.0 million of expense for the contingent earn-out arrangement related to our fiscal 2016 acquisition of WIRmachenDRUCK. Payroll and facility-related costs increased by $5.0 million, as compared to the prior comparative period. During the quarter we also recognized additional share-based compensation expense, primarily due to $3.4 million of expense for the acceleration of vesting terms of certain restricted share awards associated with the acquisition of Tradeprint. These cost increases were partially offset by lower other general and administrative costs which decreased by $1.2 million, primarily related to third-party consulting fees and recruiting costs.
Other (expense) income, net
Other (expense) income, net generally consists of gains and losses from currency exchange rate fluctuations on transactions or balances denominated in currencies other than the functional currency of our subsidiaries, as well as the realized and unrealized gains and losses on some of our derivative instruments. In evaluating our currency hedging program and ability to achieve hedge accounting in light of our legal entity cash flows, we considered the benefits of hedge accounting relative to the additional economic cost of trade execution and administrative burden. Based on this analysis, we decided to execute certain currency forward contracts that do not qualify for hedge accounting. The following table summarizes the components of other (expense) income, net:
 
Three Months Ended September 30,
 
2016
 
2015
Gains on derivatives not designated as hedging instruments
$
77

 
$
2,367

Currency related (losses) gains, net
(2,966
)
 
5,034

Other gains
757

 
1,841

Total other (expense) income, net
$
(2,132
)
 
$
9,242


30




During the three months ended September 30, 2016, we recognized net losses of $2.1 million, as compared to net gains of $9.2 million during the prior comparable period. The decrease primarily relates to the currency exchange rate volatility of our intercompany transactional and financing activities, as we have significant non-functional currency intercompany relationships resulting in a net loss of $3.0 million during the three months ended September 30, 2016, as compared to a net gain of $5.0 million during the three months ended September 30, 2015.
In addition, we recognized lower net gains of $0.1 million on our currency forward contracts not designated as hedging instruments during the three months ended September 30, 2016, as compared to $2.4 million during the prior comparable period. We expect this volatility to continue in future periods as we do not currently apply hedge accounting for most of our currency forward contracts.
During the three months ended September 30, 2016 and 2015, other gains consisted primarily of gains related to insurance recoveries of $0.7 million and $1.6 million, respectively.
Interest expense, net
Interest expense, net was $9.9 million and $8.1 million for the three months ended September 30, 2016 and 2015, respectively. Interest expense, net primarily consists of interest paid on outstanding debt balances, amortization of debt issuance costs, interest related to capital lease obligations and realized gains (losses) on effective interest rate swap contracts and certain cross-currency swaps. The increase in interest expense, net is primarily a result of increased interest expense associated with our Waltham lease arrangement, compared to only one month of expense in the prior comparable quarter. We expect interest expense to increase in future periods relative to historical trends as a result of our Waltham lease arrangement and increased capital lease obligations for machinery and equipment.
Income tax (benefit) provision
 
Three Months Ended September 30,
 
2016
 
2015
Income tax (benefit) provision
$
(9,814
)
 
$
3,179

Effective tax rate
24.6
%
 
24.1
%
Income tax (benefit) provision was $(9.8) million and $3.2 million for the three months ended September 30, 2016 and 2015, respectively. The decrease in income tax expense is attributable to reporting a loss for the three months ended September 30, 2016 as compared to a profit for the same prior year period. We 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. However, we do expect to owe cash taxes in certain jurisdictions despite the recognition of a consolidated loss during the quarter. In addition, during the three months ended September 30, 2016, we recognized a tax benefit of $4.2 million due to share-based compensation as compared to $0.8 million for the same prior year period.
Segment profitability
Our primary metric used to measure segment financial performance is adjusted net operating profit which excludes certain non-operational items including acquisition-related expenses, certain impairments and restructuring charges. For the quarter ended September 30, 2016, the Vistaprint business unit adjusted net operating profit decreased by $6.2 million, as compared to the prior period. Incremental profit from revenue growth was offset by planned increased investments including $4.9 million from reductions in shipping prices. Adjusted net operating profit was also negatively impacted by the increase in backlog described above due to weather-related flooding at our North American production facility at the end of the quarter. The Upload and Print business units adjusted net operating profit increased by $4.7 million primarily due to the addition of aggregate adjusted net operating profit from the brands we acquired during fiscal 2016, as well as increased profits from earlier acquisitions, partially offset by strategic investments made in oversight, technology and marketing. Our All Other business units adjusted net operating profit decreased by $8.5 million primarily due to the reduction in partner related profits of $5.7 million, as well as increased investment in our Corporate Solutions business.

31




Liquidity and Capital Resources
Consolidated Statements of Cash Flows Data:
In thousands
 
Three Months Ended September 30,
 
2016
 
2015
Net cash provided by operating activities
$
9,600

 
$
27,426

Net cash used in investing activities
(27,452
)
 
(50,400
)
Net cash (used in) provided by financing activities
(6,550
)
 
14,302

At September 30, 2016, we had $53.6 million of cash and cash equivalents and $689.5 million of outstanding debt, excluding debt issuance costs and debt discounts. Cash and cash equivalents decreased by $23.8 million during the three months ended September 30, 2016. During the three months ended September 30, 2016, we implemented a cash pooling program for certain of our European bank accounts and expect to maintain a lower consolidated cash balance on a prospective basis as we leverage the benefits of the new program. We expect cash and cash equivalents and outstanding debt levels to fluctuate over time depending on our working capital needs, as well as our organic investment, share repurchase and acquisition activity. The cash flows during the three months ended September 30, 2016 related primarily to the following items:
Cash inflows:
Adjustments for non-cash items of $50.3 million primarily related to positive adjustments for depreciation and amortization of $35.4 million, share-based compensation costs of $11.6 million, the change of our contingent earn-out liability of $16.0 million and unrealized currency-related losses of $4.8 million, offset by negative adjustments for non-cash tax related items of $18.2 million; and
Proceeds of debt of $4.3 million, net of payments.
Cash outflows:
Net loss of $30.0 million;
Capital expenditures of $19.3 million of which $11.3 million were related to the purchase of manufacturing and automation equipment for our production facilities, $2.2 million were related to the purchase of land, facilities and leasehold improvements, and $5.8 million were related to computer and office equipment;
Changes in working capital balances of $10.7 million primarily driven by negative changes to accounts payable and accrued expenses;
Internal costs for software and website development that we have capitalized of $8.3 million;
Payments of withholding taxes in connection with share awards of $7.5 million; and
Payments for capital lease arrangements of $3.3 million.
Additional Liquidity and Capital Resources Information. During the three months ended September 30, 2016, we financed our operations and strategic investments through internally generated cash flows from operations and debt financing. As of September 30, 2016, a significant portion of our cash and cash equivalents was held by our subsidiaries, and undistributed earnings of our subsidiaries that are considered to be indefinitely reinvested were $24.4 million. We do not intend to repatriate these funds as the cash and cash equivalent balances are generally used and available, without legal restrictions, to fund ordinary business operations and investments of the respective subsidiaries. If there is a change in the future, the repatriation of undistributed earnings from certain subsidiaries, in the form of dividends or otherwise, could have tax consequences that could result in material cash outflows.
Debt. On March 24, 2015, we completed a private placement of $275.0 million of 7.0% senior unsecured notes due 2022. The proceeds from the sales of the notes were used to repay existing outstanding indebtedness under our unsecured line of credit and senior secured credit facility and for general corporate purposes. As of

32




September 30, 2016, we have aggregate loan commitments from our senior secured credit facility totaling $826.0 million. The loan commitments consist of revolving loans of $690.0 million and the remaining term loans of $136.0 million.
We have other financial obligations that constitute additional indebtedness based on the definitions within the credit facility. As of September 30, 2016, the amount available for borrowing under our senior secured credit facility was as follows:

In thousands

September 30, 2016
Maximum aggregate available for borrowing
$
826,000

Outstanding borrowings of senior secured credit facilities
(405,038
)
Remaining amount
420,962

Limitations to borrowing due to debt covenants and other obligations (1)
(1,647
)
Amount available for borrowing as of September 30, 2016 (2)
$
419,315

_________________
(1) Our borrowing ability under our senior secured credit facility can be limited by our debt covenants each quarter. These covenants may limit our borrowing capacity depending on our leverage, other indebtedness, such as notes, capital leases, letters of credit, and any other debt, as well as other factors that are outlined in the credit agreement.
(2) The use of available borrowings for share purchases, dividend payments, or corporate acquisitions is subject to more restrictive covenants that can lower available borrowings for such purposes relative to the general availability described in the above table.
Debt Covenants. Our credit agreement contains financial and other covenants, including but not limited to the following:
(1) The credit agreement contains financial covenants calculated on a trailing twelve month, or TTM, basis that:
our total leverage ratio, which is the ratio of our consolidated total indebtedness (*) to our TTM consolidated EBITDA (*), will not exceed 4.50 to 1.00.
our senior secured leverage ratio, which is the ratio of our consolidated senior secured indebtedness (*) to our TTM consolidated EBITDA (*), will not exceed 3.25 to 1.00.
our interest coverage ratio, which is the ratio of our consolidated EBITDA to our consolidated interest expense, will be at least 3.00 to 1.00.
(2) Purchases of our ordinary shares, payments of dividends, and corporate acquisitions and dispositions are subject to more restrictive consolidated leverage ratio thresholds than those listed above when calculated on a proforma basis in certain scenarios. Also, regardless of our leverage ratio, the credit agreement limits the amount of purchases of our ordinary shares, payments of dividends, corporate acquisitions and dispositions, investments in joint ventures or minority interests, and consolidated capital expenditures that we may make. These limitations can include annual limits that vary from year-to-year and aggregate limits over the term of the credit facility. Therefore, our ability to make desired investments may be limited during the term of our senior secured credit facility.
(3) The credit agreement also places limitations on additional indebtedness and liens that we may incur, as well as on certain intercompany activities.

(*) The definitions of EBITDA, consolidated total indebtedness, and consolidated senior secured indebtedness are maintained in our credit agreement included as an exhibit to our Form 8-K filed on February 13, 2013, as amended by amendments no. 1 and no. 2 to the credit agreement included as exhibits to our Forms 8-K filed on January 22, 2014 and September 25, 2014.

The indenture under which our 7.0% senior unsecured notes due 2022 are issued 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.

33




Our credit agreement and senior unsecured notes indenture also contain customary representations, warranties and events of default. As of September 30, 2016, we were in compliance with all financial and other covenants under the credit agreement and senior unsecured notes indenture.
Other debt. Other debt primarily consists of term loans acquired as part of our fiscal 2015 acquisition of Exagroup SAS. As of September 30, 2016 we had $9.4 million outstanding for those obligations that are payable through September 2024.
Our expectations for fiscal year 2017. Our current liabilities continue to exceed our current assets; however, we believe that our available cash, cash flows generated from operations, and cash available under our committed debt financing will be sufficient to satisfy our liabilities and planned investments to support our long-term growth strategy for the foreseeable future. We endeavor to invest large amounts of capital that we believe will generate returns that are above our weighted average cost of capital. We consider any use of cash that we expect to require more than 12 months to return our invested capital to be an allocation of capital. For fiscal 2017 we expect to allocate capital to the following broad categories and consider our capital to be fungible across all of these categories:
Large, discrete, internally developed projects that we believe can, over the longer term, provide us with materially important competitive capabilities and/or positions in new markets, such as investments in our software, service operations and other supporting capabilities for our integrated platform, new business units such as Corporate Solutions and expansion into new geographic markets
Other organic investments intended to maintain or improve our competitive position or support growth, such as costs to develop new products and expand product attributes, production and IT capacity expansion, merchant related advertising costs and continued investment in our employees
Purchases of ordinary shares
Corporate acquisitions and similar investments
Reduction of debt
Contractual Obligations
Contractual obligations at September 30, 2016 are as follows:
 In thousands
Payments Due by Period
 
Total
 
Less
than 1
year
 
1-3
years
 
3-5
years
 
More
than 5
years
Operating leases, net of subleases
$
44,484

 
$
9,137

 
$
14,438

 
$
11,428

 
$
9,481

Build-to-suit lease
118,677

 
12,569

 
25,139

 
25,139

 
55,830

Purchase commitments
68,123

 
57,230

 
10,893

 

 

Senior unsecured notes and interest payments
390,500

 
28,875

 
38,500

 
38,500

 
284,625

Other debt and interest payments
447,412

 
41,507

 
143,432

 
260,918

 
1,555

Capital leases
28,868

 
10,507

 
13,872

 
4,306

 
183

Other
30,623

 
3,171

 
27,452

 

 

Total (1)
$
1,128,687

 
$
162,996

 
$
273,726

 
$
340,291

 
$
351,674

___________________
(1) We may be required to make cash outlays related to our uncertain tax positions. However, due to the uncertainty of the timing of future cash flows associated with our uncertain tax positions, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, uncertain tax positions of $4.5 million as of September 30, 2016 have been excluded from the contractual obligations table above. For further information on uncertain tax positions, see Note 10 to the accompanying consolidated financial statements.